Mumbai: As more and more loan-related scams come to light in many public and private sector banks leading to a massive pile-up of bad loans, the Reserve Bank of India (RBI) Friday decided to take auditors to task by warning them of stern punitive actions against them.
In a new circular titled ‘‘Enforcement action framework in respect of statutory auditors (SAs) for lapses in statutory audit of commercial banks’’, the RBI Friday warned that any SA not following instructions will be met with punitive action such as debarring them from conducting business with banks.
“To improve audit quality and bring about a transparent mechanism to examine the accountability of SAs in a consistent manner, it has been decided to put in place a graded enforcement action framework to enable appropriate action by the RBI in respect of the banks SAs for any lapses observed in conducting a statutory audit,” RBI said.
The new framework will cover instances of divergence identified in asset classification and provisioning during RBI inspection vis-a-vis the audited financial statements of banks above the threshold specified in this circular.
Underlining the key role that SAs of banks play in contributing to financial stability when they deliver quality bank audits that foster market confidence in banks’ financial statements, the circular said quality audits are also a valuable input in the supervisory process of RBI over banks.
The apex bank said its new enforcement action framework are under various provisions of the Banking Regulation Act of 1949, the Banking Companies (Acquisition & Transfer of Undertaking) Act of 1970/1980, and the State Bank of India Act of 1955, which stipulate that banks shall obtain prior RBI approval to appoint SAs.
“If the audit quality or conduct of an SA is not found satisfactory, the RBI will enforce action against them by way of not approving their appointments for undertaking statutory audit of banks for a specified period. The RBI may also not approve auditors, who have been debarred by other regulators/law-enforcement/government agencies,” it said.
Action that will invite punitive action include lapses in carrying out audit assignments resulting in mis-statement of financial reports, giving wrong certifications and wrong information in the long form audit report, misconduct while on audit assignments and any other violations/lapses vis-vis RBI directions about their role. It can be noted that serving and retired CMDs/MDs/CEOs of six public sector banks have been arrested by various law enforcement agencies recently for unlawful acts/violating the board-approved lending norms.
CEO of BoM sacked
Mumbai: The Board of Directors of the Bank of Maharashtra Friday resolved to remove arrested CEO and MD Ravindra P Marathe from all functional responsibilities with immediate effect. According to a statement, executive director AC Rout, has been appointed in his place, of the Pune-headquartered bank. The development came nine days after the Pune police’s Economic Offences Wing swooped on the bank and nabbed Marathe and six others in a case of Rs 243 crore fraudulent loans extended to the Pune-based DSK Group. The EOW has also arrested the public sector bank’s executive director Rajendra K Gupta, zonal manager Nityanand Deshpande from Ahmedabad and former CMD Sushil Muhnot from Jaipur.