(1) Subject to the provisions of section 42, the accounts of a subsidiary bank shall be audited by an auditor duly qualified to act as an auditor of companies under sub-section (1) of section 226 of the Companies Act, 1956 (1 of 1956), who shall be appointed by the State Bank, with the approval of the Reserve Bank.
     (2) The auditor shall receive such remuneration as the State Bank may fix.
     (3) No director or officer of a subsidiary bank shall be eligible to be its auditor during his continuance in office as such director or officer.
     (4) The auditor shall be supplied with a copy of the annual balance sheet and profit and loss account, and a list of all books kept by the subsidiary bank, and it shall be the duty of the auditor to examine the balance sheet and profit and loss account with the accounts and vouchers relating thereto, and in the performance of his duties, the auditor--
         (a) shall have, at all reasonable times, access to the books, accounts and other documents of that subsidiary bank;
         (b) may, at the expense of that subsidiary bank, employ accountants and other persons to assist him in investigating such accounts; and
         (c) may, in relation to such accounts, examine any director or any officer of that subsidiary bank.
     (5) The auditor shall hold office for such term not exceeding one year as the State Bank may fix at the time of his appointment; and if any vacancy arises before the expiry of the term of an auditor, the vacancy may be filled by the State Bank, with the approval of the Reserve Bank.
     (6) The auditor shall on relinquishing office be eligible for re-appointment.
     (7) The auditor shall make a report to the State Bank upon the annual balance sheet and accounts of the subsidiary bank, and, in every such report, he shall state--
         (a) whether, in his opinion, the balance sheet is a full and fair balance-sheet containing all the necessary particulars and is properly drawn up so as to ¹[exhibit a true and fair view] of the affairs of that subsidiary bank, and in case he has called for any explanation or information, whether it has been given and whether it is satisfactory;
        (b) whether or not the transactions of that subsidiary bank which have come to his notice have been within the competence of the bank;
         (c) whether or not the returns received from the offices and branches of that subsidiary bank have been found adequate for the purpose of his audit;
         (d) whether the profit and loss account shows a true balance of profit or loss for the period covered by such account; and
         (e) any other matter which he considers should be brought to the notice of the State Bank.
     ² [Explanation 1.--For the purposes of this Act,--
         (a) the balance-sheet shall not be treated as not disclosing a true and fair view of the affairs of the subsidiary bank, and
         (b) the profit and loss account shall not be treated as not showing a true balance of profit or loss for the period covered by such account,
merely by reason of the fact that the balance-sheet or, as the case may be, the profit and loss account, does not disclose any matters which are, by the provisions of the Banking Regulation Act, 1949, (10 of 1949) read with the relevant provisions of this Act, not required to be disclosed.
     Explanation 2.--For the purposes of this Act, the accounts of the subsidiary bank shall not be deemed as having not been properly drawn up on the ground merely that they do not disclose certain matters if--
         (i) those matters are such as the subsidiary bank is, by virtue of any provision contained in the Banking Regulation Act, 1949 (10 of 1949), read with the relevant provisions of this Act, or any other Act, not required to disclose, and
         (ii) the provisions referred to in clause (i) are specified in the balance-sheet and profit and loss account of the subsidiary bank or in the auditor's report.]
     (8) The auditor shall forward a copy of the audit report to the subsidiary bank and to the Central Government.
     (9) Without prejudice to the foregoing provisions, the Central Government may, at any time, appoint such number of auditors as it thinks fit to examine and report on the accounts of a subsidiary bank, and the auditors so appointed shall have all the rights, privileges and authority in relation to the audit of the accounts of the subsidiary bank which an auditor appointed by the State Bank has under this section.