Thursday, March 15, 2012

RBI AS WELL AS GOVERNMENT OF INDIA MUST RECONSIDER RELAXATION ALLOWED RECENTLY IN AUDIT OF BRANCHES OF PUBLIC SECTOR BANKS

The RBI had set up a committee to review various important aspects of audit of public sector banks. The committee, despite serious objections by the Central Council of the Institute of Chartered Accountants of India, gave its interim report recently which inter alia include exemption from audit of branches having Rs. 100 crore advances for large banks and Rs. 50 crore advances for mid size banks. On the basis of the report, RBI has recommended that all the branches of public sector banks
having less than Rs. 20 crore advances should be exempted from audit, except once in 5 years. The Central Council of the ICAI is of the strong view that any such decision may seriously impact the financial discipline of the public sector banks and may result into unprecedented increase of indiscreet lending or even Frauds in banks. The Central council felt that it may be difficult for central statutory auditors to express an opinion about true and fairness of the Financial statements of the respective banks , in the absence of audit of majority of the bank branches except very small branches up to Rs. 3 crore / Rs. 5 crore. The Central Council must express its  concerns to the RBI as well as to the Government well in advance. that any such decision may seriously impact the  financial discipline of the public sector banks and may result into unprecedented increase of  indiscreet lending or even Frauds.in banks.

It is very important that Lakhs of crores advances, deposits and other banking operations do not remain without adequate audit. The Central Council members and various other leading chartered accountants have met the Corporate Affairs Minister, several leaders of Congress and BJP beside top of officials in RBI and Ministry of Finance, to highlight the problem the Indian Banking Sector can face in the absence of adequate in depth audit. It is suggested that an independent organisation such as Accounting Research Foundation may be asked to prepare a report based on audit reports/ LFARs made by statutory auditors of such branches which are likely to be exempted, as to highlight the areas/ quantum which shall get exposed if audits of such branches are not taken up. The claim of some of the banks that they are paying very high audit fee, as compared to private sector banks, is baseless as they have not realized their size, number of borrowers, risk of money laundering and most
importantly fragile internal control system and MIS system in public sector banks. In case of private sector banks most of the loan documents, securities, loan processing, credit authorization are all centralized, whereas to meet the inclusive growth agenda of the Government, public sector banks have delegated large powers in respect of  sanction of loans, documentation, credit monitoring and
loan records at the branch level.

In a recent meeting, with Sh. Pranab Mukherjee, a delegation of ICAI led by Mr. Veerapa Moily, Minister of Corporate Affairs and President of the Institute, the Council of the Institute have elaborately explained the risk which may be faced by the banking sector arising out of reduction of number of audits. Mr. D.K. Mittal, Secretary Department of Financial Services,  Government of India was also present. Shri Mukerjee gave a patient hearing to the matter. We hope that good wisdom would prevail and this matter is at least postponed to enable detailed preparation and examination of all the risk areas on the one hand and means of reduction in cost of audit in banks.

The C A profession is committed to win over any attempt to destabilize India's biggest
 strength a resilient Banking sector. We also strongly oppose the delegation of powers to
appoint auditors in the hands of bank management and the Board. The  independence, integrity and excellence of auditors are very crucial for the banking  sector especially in public sector and for  safeguarding the interest of the society as a whole.

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