POLICY FOR APPOINTMENT OF STATUTORY AUDITORS

I. Introduction:

Reserve Bank of India has issued guidelines for appointment of Statutory Auditors (SAs) of Urban Co-operative Banks under Section 30(1A) of the Banking Regulation Act, 1949 vide Circular No. DoS.CO.ARG/SEC.01/08.91.001/2021-22 dated April 27,2021. These guidelines supersede all previous guidelines issued on the subject.

II. Applicability:

These guidelines will be applicable to UCBs for FY 2021-22 onwards in respect of appointment of Statutory Auditors. As the guidelines are being implemented for the first time for UCBs from FY 2021-22, they will have the flexibility to adopt these guidelines from H29 Second half) of FY 2021-22 in order to ensure that there is no disruption.

UCBs will be required to take prior approval of RBI (Department of Supervision) for appointment of SAs on an annual basis in terms of the above-mentioned statutory provisions. For this purpose, UCBs should apply to RBI before 31st July of the reference year.

III. The Norms on Eligibility, Short listing and Selection of Statutory Auditors

The Eligibility norms applicable to our Bank (as per Reserve Bank of India guidelines) are as under:

1. The audit firm shall have a minimum of two full-time partners (FTPs) associated with the firm for a period of at least three years, of which at least one should be fellow Chartered Accountant (FCA) Partner associated with the firm for a period of at least three years.
2. There should be at least one-year continuous association of partners with the firm as on the date of short listing for considering them as full-time partners.
3. The firm should have minimum six years of Audit Experience and eight professional staff. The audit experience shall mean experience of the audit firm as Statutory Central/Branch Auditor of Commercial Banks (excluding RRBs)/ UCBs/NBFCs/ AIFIs. Professional staff includes audit and article clerks with knowledge of book-keeping and accountancy and who are engaged in on-site audits but excludes typists/stenos/computer operators/ secretaries /subordinate staff, etc. There should be at least one-year continuous association of professional staff with the firm as on the date of short listing for considering them as professional staff for the purpose.
4. Priority will be given to firms having at least one Full Time Partners/ Paid CAs with CISA/ISA Qualification.

NOTE:

If any shortlisted audit firm undergoes change in its constitution after the date of short listing, the audit firm will take all necessary steps to become eligible within a reasonable time and in any case, audit firm should be complying with above norms before the following events:

1. Appointment of the audit firm by the Bank as SA. For this, the audit firm while giving consent to the Bank for appointment may ensure that it complies with the norms.
2. Before commencement of Annual Statutory Audit for Financial Year ending 31st March and till the completion of annual audit. In case any audit firm (after appointment) does not comply with any one of the norms (on account of resignation, death etc. of any partners, employees etc), it may promptly approach the Bank with full details. The Bank in turn will approach RBI.
3. The firm should have a fair knowledge of the functioning of the co-operative sector and shall preferably have working knowledge of Kannada.
4. An audit firm would not be eligible for reappointment in the Bank for six years (two tenures) after completion of full or part of one term of the audit tenure. However, audit firm can continue to undertake statutory audit of other Entities.

IV.   Procedure for selection and appointment of Statutory Auditors

1. The audit firms have to submit a certificate, along with relevant information as per Form B to the RBI circular referred to above to the effect that they comply with all the eligibility norms prescribed by RBI for the purpose. Such certificate should be signed by the main partner/s of the audit firm proposed for appointment of SA of the Bank, under the seal of the audit firm.
2. Based on the above parameters, Bank will prepare a list of shortlisted audit firms. Willingness in writing from the above shortlisted audit firm(s) will be obtained to accept the assignment of Statutory Audit work of the Bank. At the time of obtaining the willingness letters from such shortlisted audit firms, there will be no commitment on the part of our Bank to allot the Statutory Audit work to the auditors and such shortlisted audit firms are free to give similar willingness to multiple banks/UCBs, if approached by them. The list of shortlisted audit firms will be placed before Board. The Board will approve five audit firm(s), in order of preference. The number of audit firms approved should be adequate enough, to take care of the situation, where some firms may not give consent.
3. On due approval by the Board, Bank will approach the audit firms to obtain their consent in writing strictly in order of preference. The audit firm should give their consent in writing for consideration of appointment in our Bank for the particular year and the subsequent continuing years subject to their fulfilling the eligibility norms prescribed by RBI from time to time and also subject to their suitability. If the approached audit firm does not give consent, the bank will approach the next audit firm in order of preference for obtaining consent till the time the number of audit firms which have given the consent equals to two for the particular year.

The consent letter should clearly state that the selection of the audit firm as Statutory Auditor is subject to approval of RBI and any force majeure events and, in such cases, the audit firms will not have any claim against our Bank and RBI. The appointment of SA is subject to complying with the stipulated norms on eligibility and guidelines issued by RBI from time to time. The audit firm should declare that consent is given for maximum of four Commercial Banks [including not more than one PSB or one All India Financial Institution (NABARD, SIDBI, NHB, EXIM Bank) or RBI], eight UCBs and eight NBFCs during a particular year. For clarity, the limits prescribed for UCBs exclude audit of other co-operative societies by the same audit firm. The consent given by an audit firm will be treated as irrevocable and request, if any, from audit firms for changing the bank, after giving its consent to our bank will not be entertained.

The list of such selected firms who have given consent for appointment as statutory auditors in our Bank will be placed before the Board for their concurrence before it is forwarded to RBI for final approval.

V. Other Guidelines:

In order to protect the independence of the auditors/audit firms, Bank will make the appointment of SA for a continuous period of three years subject to the firms satisfying the eligibility norms each year. Bank will not remove the audit firm during the above period without the prior approval of the Reserve Bank of India.

VI. Undertakings/Declarations to be obtained from the audit firm

Following declarations /undertakings will be obtained from the firm selected

1. At the time of acceptance of appointment as Statutory Auditor of our Bank, the firm has to relinquish any internal assignment allotted to them in our Bank. Their associate firms or sister concerns are also disqualified for inter audit or for any special assignment of our Bank.
2. A suitable undertaking from the firm to the effect that the Audit will be carried out by their own staff and they will not subcontract the audit work.
3. None of the disqualifications under section 141 of the Companies Act, 2013 applies to them and they are qualified for appointment as Statutory Auditors of the Bank.
4. The audit firm is not under debarment by any Government Agency, National Financial Reporting Authority (NFRA), the Institute of Chartered Accountants of India (ICAI), RBI or Other Financial Regulators.
5. There are no adverse remarks/ disciplinary proceedings pending/ initiated against the firm / any of its partners/proprietor on the records of ICAI, which would make them ineligible for appointment as auditors.
6. None of the partners or their spouse, dependent children and wholly or mainly dependent parents, brothers, sisters or any of them or the Firm/ Company in which they are partners/ Directors are not indebted to our Bank. Further, they have not been declared as wilful defaulters by any Bank or financial institution.
7. Associate firms or sister concerns of statutory audit firm is disqualified for internal assignment where the main firm/partners are allotted Statutory Audit in a particular year.

VII. Number of Assignments:

One audit firm can concurrently take up statutory audit of a maximum of four Commercial Banks [including not more than one PSB or one All India Financial Institution (NABARD, SIDBI, NHB, EXIM Bank) or RBI], eight UCBs and eight NBFCs during a particular year. The limits prescribed for UCBs exclude audit of other co-operative societies by the same audit firm.

VIII. Relinquishment of the internal assignments, if any:

In the event of acceptance of the appointment as Statutory Auditor of the Bank, all the internal assignments of the Auditor in our Bank, if any, will stand withdrawn.

IX. Remuneration:

The Remuneration to the SA for Audit, TA/DA and other incidental expenses will be paid as per the guidelines issued by RBI from time to time. Efforts to be made to keep TA/DA and other incidental expenses at minimum possible in line with RBI guidelines.

X.  Removal:

An audit firm appointed as Statutory Auditor may be removed during its tenure with the prior approval of the Reserve Bank of India. The Board of Directors of the Bank will be the competent authority to recommend removal of any SA to RBI.

The modification/changes, if any, made by RBI in norms/criteria/procedure from time to time shall construe to be part of this policy.

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Approved in BM No.4/21-22 dated 28.06.2021

FORM B

Eligibility Certificate from (Name and Firm Registration Number of the firm)

A. Particulars of the firm:

*Exclusively associated in case of all Commercial Banks (excluding RRBs), and UCBs/NBFCs with asset size of more than ? 1,000 crore

#Details may be furnished separately for experience as SCAs/SAs and SBAs

B. Additional Information:

1. Copy of Constitution Certificate.
2. Whether the firm is a member of any network of audit firms or any partner of the firm is a partner in any other audit firm? If yes, details thereof.
3. Whether the firm has been appointed as SCA/SA by any other Commercial Bank (excluding RRBs) and/or All India Financial Institution (AIFI)/RBI/NBFC/UCB in the present financial year? If yes, details thereof.
4. Whether the firm has been debarred from taking up audit assignments by any Regulator/Government agency? If yes, details thereof.
5. Details of disciplinary proceedings etc. against firm by any Financial Regulator/        Government agency during last three years, both closed and pending.

C. Declaration from the firm

The firm complies with all eligibility norms prescribed by RBI regarding appointment of SCAs/SAs of Commercial Banks (excluding RRBs)/UCBs/NBFCs (as applicable). It is certified hat neither I nor any of our partners / members of my / their families (family will include besides spouse, only children, parents, brothers, sisters or any of them who are wholly or mainly dependent on the Chartered Accountants) or the firm / company in which I am / they are partners / directors* have been declared as wilful defaulter by any bank / financial institution.

It is confirmed that the information provided above is true and correct.

Signature of the Partner

(Name of the Partner)

Date:

FORM C

Certificate to be submitted by the Commercial Banks (excluding RRBs) and UCBs

regarding eligibility of audit firm proposed to be appointed as SCA/SA

1. The Bank is desirous of appointing M/s ……………………………., Chartered Accountants (Firm Registration Number ________________) as Statutory Auditor (SA) for the financial year 2021-22 for their1st term and therefore, has sought the prior approval of RBI as per the section 30(1A) of the Banking Regulation Act, 1949/Section 10 (1) of the Banking Companies (Acquisition and Transfer of Undertakings) Act,1970/1980/ Section 41(1) of SBI Act, 1955.
2. The bank has obtained eligibility certificate (copy enclosed) from M/s…………………………….. Chartered Accountants (Firm Registration Number ________________) proposed to be appointed as Statutory Auditor of the bank for FY 2021-22 along with relevant information (copy enclosed), in the format as prescribed by RBI.
3. The firm has no past association/association for _____ years with the bank/UCB as SA.
4. The bank has verified the said firm’s compliance with all eligibility norms prescribed by RBI for appointment of SAs of Commercial Banks (excluding RRBs)/UCBs.

Signature

(Name and Designation)