RBI asks bank auditors to have a stringent monitoring process

Point­ing to the gaps in the audi­tors’ work, the Reserve Bank of India (RBI) has asked banks to adopt a more strin­gent audit­ing process to ensure that review of finan­cial results and iden­ti­fi­ca­tion of fraud is done more promptly.

RBI Deputy Gov­er­nor S S Mundra said there is a greater need to take a clos­er look into the asset qual­i­ty, instances of restruc­tur­ing of advances, pro­vi­sion­ing held, etc. to ensure that there was no diver­gence with regard to asset clas­si­fi­ca­tions and pro­vi­sions held.

“The point I am try­ing to make is that if RBI inspec­tors are able to iden­ti­fy these diver­gences in the lim­it­ed time-frame that they are on-site, why the banks’ audi­tors are not able to do so…Is it a ques­tion of effi­cien­cy of the audi­tors or is there a much deep­er issue — some­thing to do with the trans­paren­cy of the process itself?,” he asked while address­ing mem­bers of the Audit Com­mit­tee of the Boards (ACB) of ICICI Banksub­sidiaries & oth­er bank employees.

With regards to pro­vi­sions, he told banks that ade­quate pro­vi­sions should be made for post-retire­ment ben­e­fits like pen­sion, gra­tu­ity and leave encash­ment, etc. and the audi­tors should ask more per­ti­nent ques­tions to the banks with regards to pro­vi­sion­ing requirements

“It is impor­tant that the ACB asks the right ques­tions to the man­age­ment about var­i­ous under­ly­ing assump­tions that go into com­pu­ta­tion of the required pro­vi­sions such as life expectan­cy, dis­count rate, expect­ed return on invest­ments, etc. I urge the ACBs to ask uncom­fort­able ques­tions,” he said in his speech.

In light of instances of know-your-cus­tomer (KYC) norms vio­la­tion Mundra has urged audi­tors to be stricter with the process of back­ground check. Last month, RBI had imposed penal­ties on ICICI Bank and Bank of Bar­o­da for flout­ing KYC and anti mon­ey laun­der­ing norms.

“I believe that the absence of an appro­pri­ate puni­tive mech­a­nism in the banks for laps­es has also con­tributed to their recur­rence. There­fore, our expec­ta­tions from the ACBs would be to close­ly focus on rea­sons for such reg­u­la­to­ry penalties/sanctions and seek a root-cause analy­sis for pre­vent­ing recur­rence,” he added.

RBI has also been cau­tion­ing con­sumers against the ris­ing case of cred­it card and oth­er frauds. Mundra called upon greater sen­si­tiv­i­ty and increased focus from audi­tors with regards to hav­ing appro­pri­ate mea­sures in place to pre­vent instances of fraud.

“In our recent­ly con­clud­ed scruti­ny into fixed deposit relat­ed frauds in some banks, it emerged that even the cau­tion advices issued by RBI in respect of cer­tain indi­vid­u­als had not per­co­lat­ed down to the branch offi­cials quick­ly enough to enable appro­pri­ate pre­ven­tive mea­sures… I would say that ACBs should take upon them­selves to mon­i­tor the trend of frauds, assim­i­late key learn­ings and ensure that mit­i­ga­tion mea­sures are put in place by the man­age­ment,” he added.

Cour­tesy: Busi­ness Standard