The Reserve Bank of India (RBI) has asked bank auditors to keep a close watch on five key parameters and is to reassign its senior supervisory authority in charge of the inspection of specific banks. The twin changes have been set in motion to
better leverage the skills of the wider auditor fraternity and its internal staffers.
The new housekeeping diktat for auditors follows a meeting called by the RBI’s Department of Banking Supervision audit cell. A significant aspect of the formal meetings to be held hereon on a quarterly basis will be the absence of bank officials when their auditors are called in.
The areas listed by the RBI are banks’ marginal cost of funds-based lending rate, the performance of their priority sector portfolio, income recognition and asset classification norms, robustness of the processes and early warning systems to identify frauds, and adherence to guidelines on information security.
In one fell swoop, the task of auditors has been made onerous by the current practice, wherein they express an opinion on banks’ financial statements, based on what’s been presented or sought by them during audits. It has also been learnt that non-cooperation by banks has to be reported real time by auditors.
It has been verbally conveyed to auditors that misleading or wrongful certification of banks on the parameters will lead to the central bank blocking auditors from carrying on the business of bank audits in the country. Auditors also have to alert Mint Road if they were to spot signs of early stress in an account, irrespective of whether it is a performing one or not; and look into specific borrowers when asked to do so by the central bank.
Internally, the RBI is set to reshuffle its senior supervisory authority in charge of specific banks at the level of general managers and deputy general managers. While changes do happen every year due to administrative reasons — on officials getting transferred, promoted or retiring — this time around, Mint Road is to place some of its toughest inspection officers in charge of banks, which it perceives to have been cutting it fine on governance issues.
“For all practical purposes, the central bank has virtually outsourced part of its inspection work to the statutory auditors. Audit firms will now have to station more staff on bank premises, and spend 10 days more to complete an audit,” said a source.
Fallout will be that some of the smaller audit firms will find it difficult to comply with the new format, and may have to seek help from the Big Four, especially when it comes to information security.
The choices before audit firms of all hues is to either decline to do what is now a virtual certification of housekeeping standards as spelt out by the central bank or opt out of bank audits altogether rather than chance reputational risk.
In recent times, firms have found both audits of banks and non-banking financial companies less lucrative than in the past.
TURNING UP THE HEAT
·Move aims to ensure auditors and RBI’s inspection unit work in sync
·Auditors to keep hawk’s eye on marginal cost of funds-based lending rate, performance of the priority sector portfolio, asset quality and income recognition, processes and early warning systems to identify frauds, and information security
·Misleading audit of parameters will disallow firms from carrying on bank audits in the country
·Alert RBI on signs of early stress in accounts; and look into specific borrowers when asked to
·RBI to reassign senior supervisory authority in charge of the inspection of specific banks
via RBI cracks the whip on auditors, wants them to keep eye on five key areas | Business Standard News