PUBLIC SECTOR BANKS UNDER SERIOUS RISK OF FRAUD

The recent decision of Reserve Bank of India and Government of India to delegate the powers of at the central statutory level as well as at the level of branches to the Board of Directors of concerned Banks have brought the greatest risk to the public sector Banks and entire financial system. Recently when the central statutory auditors of several public sector banks were to be appointed, within 48 hours of a green signal from the Reserve Bank of India, Public Sector Banks' Chairman and the top management quickly selected the 'auditors of their choice'. The names of selected Auditors were sent to RBI even without following any transparent procedure. No meetings of Audit committees or Board of Directors were held in most of the banks for selection of names. RBI proposes to provide similar choice to the banks' top management to select the auditors at the branch level. This will further put all the public sector banks to greater risk of fraud and material misstatement very seriously. The manner in which the top managements have chosen "comfortable" auditors at the head office level, similarly
they will appoint comfortable auditors at the crucial branch level in the name of autonomy. How an auditor selected by the chairman and the top management of the bank will be able to review and
critically comment on the decision of the top management? This seems to be a very big criminal conspiracy on the part of certain interested quarters with perceptible questionable and malicious intentions and only appropriate corrective actions by bringing back the appointment of auditors with RBI itself can save the entire financial system from big risk of a fraud. In case RBI is not very comfortable in appointing auditors, an independent regulatory authority can appoint Auditors in consultation with ICAI.  The top management will put necessary undue influence to avoid making provisions for non-performing assets, and not to comment on unauthorized business, non compliance of RBI instructions, reckless advancing of money and lack of due diligence on the part of top management of public sector banks. This is a very serious issue and requires intervention at the level of Honorable Prime Minister, Finance Minister and CAG so that this menace can be restricted at this stage itself. We openly call upon the society, media, the bureaucracy and the thinkers and most importantly the intelligentsia of the society to mull over this great risk to the Indian financial system. In fact it is important for the society to ensure that all banks including private sector banks, foreign banks are subjected to audit by independent auditors appointed in a transparent manner from a panel by an independent regulatory authority completely independent of the top management, failing which the society will greatly suffer. In US, about 135 banks have failed in last one year and there have been few cases in India of failure of banks; and in all those cases auditors were appointed by those who are in-charge of governance. Auditors' independence is under biggest threat in the Indian financial sector. The banking system and the society should take lessons from failure of Satyam or failures of Global Trust Bank and should come forward for an appointment of independent auditors. It is the responsibility of the society to provide adequate strength, powers and independence to the auditors
and not to leave the appointment, remuneration and removal of auditors at the mercy of those who are in charge of governance.

Let us take some lessons before it is too late.