RBI targets bank auditors with new oversight framework

Mumbai: The Reserve Bank of India (RBI) has released a framework for bank auditors that proposes enforcement action on auditors if they are found lapsing in their duties. According to RBI, the grades enforcement action framework for bank auditors is “with a view to instituting a transparent mechanism to examine accountability of SAs (statutory auditors) in a consistent manner”.

RBI targeting auditors is a departure from its earlier stance where it typically held only banks responsible for asset classification and bad loan divergences observed during inspection. This means that in instances of divergences, bank auditors too would be questioned, examined and later penalised if found lapsing.

In 2017, the central bank asked three private banks-Yes Bank Ltd, Axis Bank Ltd and ICICI Bank Ltd-to disclose bad loan divergences, while the conduct of bank auditors was taken up by the Institute of Chartered Accountants in India (ICAI).

In its annual report for 2016-17, Yes Bank said its bad loan classification at the end of March 2016 varied from that of RBI’s by ₹ 4,176 crore. This was 558% more than the ₹ 748.9 crore of bad loans it had reported for that year. Similarly, Axis Bank’s bad loan divergence was 156%, or ₹ 9,478 crore, in FY16 while ICICI Bank’s was 19.5%, or ₹ 5,105 crore.

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