Statutory Bank Audit and NPA Classification in India: Legal, Regulatory and Practical Dimensions

The stability of the banking system is fundamentally dependent on the accuracy and transparency of financial reporting. In India, statutory bank audits play a critical role in ensuring the integrity of financial statements, particularly in the context of asset classification and provisioning norms. Non-Performing Assets (NPAs) have emerged as a persistent challenge affecting the health of banks and the broader financial system. This paper examines the legal framework governing statutory bank audits in India and critically analyses the regulatory guidelines relating to NPA classification as prescribed by the Reserve Bank of India (RBI). It further evaluates the role of auditors in detecting asset quality issues, the challenges faced in audit processes, and the implications of misclassification of NPAs. The study highlights judicial trends, regulatory developments, and practical concerns, offering suggestions for strengthening audit mechanisms and improving compliance standards.