Future of public sector bank branch audit

RBI may allow state-run banks to stop branch audits, a move that could save costs

New Delhi: Chartered accountants (CAs) are lobbying hard to protect a source of income that’s at risk of drying up as the Reserve Bank of India (RBI) may allow state-run banks to stop branch audits, a move that could save costs.
Banks are looking for savings as a slowing economy acts as a dampener on business. Such branch audits are a routine stream of revenue for small firms and individual accountants.
RBI governor D. Subbarao told CAs on 16 December that they should not rely on work that doesn’t add value.

“With concepts like core banking system and centralized record keeping, the relevance of the audit of branches of public sector banks (PSBs) has significantly declined,” he told the Institute of Chartered Accountants of India (Icai) in Mumbai. “These banks have represented to RBI that the audit of banks’ branches should be reduced. There is merit in this suggestion, since currently the cost of audit of PSBs is significantly higher than the cost of audit of comparable private sector banks.”

Subbarao also acknowledged that Icai has been “resisting this because it would mean a reduction in work for its members”.

RBI has asked PSBs to reduce branch audits by at least 25% and constituted a working group of bank officials toward this end.

CAs are trying to persuade RBI against imposing such a directive. In late December, they even asked the central bank to allow them to carry out branch audits of private sector banks as well.

The Icai central council held an emergency meeting on Wednesday to discuss the matter, said G. Ramaswamy, president of the body. Icai representatives will meet RBI officials on 16 January to make a case for auditing all branches and advances.

“Although core banking solutions for public sector banks are sophisticated and technologically sound, there are issues such as maintenance of records, human interventions, etc., which will need auditors’ involvement, and that is what Icai will represent itself on in the meeting with the working group formed by RBI for this purpose,” Ramaswamy said.

Core banking refers to retail and small business customers handled through centralized data centres and, therefore, more automated than earlier.

The move, if implemented, may come as the second blow that India’s 180,000 CAs have faced in the past month.

On 23 December, the finance ministry directed each state-run bank to create a credit approval panel comprising only of bank officials for approving large-value loans, thereby bypassing CAs. Currently, any loan above Rs. 100 crore has to be approved by a management panel, which comprises bank officials, CAs, government and RBI representatives.

“So far, all credit proposals that are beyond the sanctioning power of the chairman go to the management committee. We have asked banks to create a level of credit approval committee, which comprises only officials of banks,” said a senior finance ministry official, who did not wish to be identified.

An Icai council member who did not want to be identified, said, “Icai will make a representation to RBI that in the larger interest of corporate governance, larger number of advances sanctioned by PSBs should be audited. The move to limit branch auditing may keep advances up to several thousand crore rupees out of the ambit of auditing.”

Another senior Icai member who did not want to be identified, said, “RBI is taking this step in the name of cost saving, but this may trigger frauds and fudging of data.” RBI officials were not immediately available for comment.

nikhil.k @ livemint.com

Remya Nair contributed to this story.

https://www.livemint.com/2012/01/16001430/CAs-lobby-against-RBI-plan-to.html?h=B

"Chartered accountants (CAs) are lobbying hard to protect a source of income that’s at risk of drying up as the Reserve Bank of India (RBI) may allow state-run banks to stop branch audits, a move that could save costs."