vs1784
> ...is there any way to do smtp authentication for local users
I don't know about that.
You can set up secure email using the secure email contrib, which requires your email clients to be set up differently. Is that sufficient for your situation ?
see pagefault.org which appears to be done just now.
> can I give email access to only specific users
You can do that very easily by installing the dungog-mailblocking contrib. Create appropriate mail rules in the server manager panel.
You can configure users for local email only by menu selection in the domain email part of the panel, or by creating rules to stop all external and internal email for a user in the mail rule spart of the panel.
Ask again when you get to that stage if you can't work it out, there have already been examples of suitable rules posted in these forums.