The large PSBs having balance sheet size (assets + liabilities) of above Rs. 1 lac crore each to exercise managerial autonomy in regard to appointment of SBAs also from the year 2008-09 onwards. Thus, State Bank of India, Allahabad Bank, Bank of India, Bank of Baroda, Canara Bank, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Syndicate Bank, Punjab National Bank, UCO Bank and Union Bank of India would be required to select / appoint their SBAs from the year 2009-10, and Central Bank of India, Union Bank of India and Bank of Baroda have indicated their unwillingness to select their SBAs, all these banks would also be encouraged to select their SBAs from this year itself.
For the remaining PSBs, the existing practice of RBI providing the list of audit firms to be appointed as SBAs would continue during the years 2008-09 and 2009-10. During these two years, these banks would put in place an effective system of selection / appointment of SBAs on their own from the year 2010-11.
Procedure as outlined by RBI.
I. RBI to have panel from ICAI.
II. RBI will subject the panel to scrutiny to identify/ remove audit firms against whom adverse remarks/disciplinar y proceedings are pending. RBI, thereafter, will forward the full and final list of all eligible auditors/audit firms to all PSBs.
III. SBAs appointed prior to 2006-07 will be completing their tenure of five years while those appointed during 2006-07 and afterwards will have tenure of four years. The appointment of SBAs will be made on an annual basis, subject to their fulfilling the eligibility norms prescribed by RBI from time to time and also subject to their suitability.
IV. While allotting branches, banks are advised to select auditors located in centers in which their offices are situated or branches located in centers which are in close proximity to their offices. Banks are also advised to have a suitable mix of various categories of auditors / audit firms while selecting the branch auditors keeping in view the size of the branches to be audited.
V. Banks should carry out branch audit in such a way that SCAs should audit the top 20 branches (to be selected strictly in order of the level of outstanding advances as at the end of March 31 of the previous year) to cover a minimum of 15% of total gross advances of the bank by SCAs.
VI. The number of eligible auditors / audit firms is more than the number of branches to be audited at the following 33 centres (viz. Mumbai, Kolhapur, Pune, Solapur, Thane, Kolkata, Chennai, Coimbatore, Delhi/ New Delhi, Ajmer, Bikaner, Jaipur, Kota, Udaipur, Ahmedabad, Vadodara, Surat, Hyderabad, Chandigarh, Raipur, Faridabad, Gurgaon, Panchkula, Panipat, Sonipat, Bangalore, Ernakulam, Indore, Nagpur, Ludhiana, Jodhpur, Bhilwara, and Ghaziabad). In such centres, the auditors / audit firms will be put to a period of compulsory rest for two years after completion of five / four years of continuous branch audit.
VII. In other centers, where the number of eligible auditors / audit firms is less than the number of branches to be audited, the branch auditors on completion of five / four years of continuous branch audit will be subjected to the principle of rotation.
VIII. While continuing the practice of appointing one audit firm (as branch auditor) to one public sector bank, the banks will clearly advise the audit firms selected for consideration of appointment that one audit firm can take up audit assignment (branch audit) in one PSB only and also should give their consent in writing for consideration of appointment in the bank concerned for the particular year and the subsequent continuing years. The consent given by an audit firm will be treated as irrevocable and request, if any, from audit firms for changing the bank, after giving its consent to the bank concerned will not be entertained.
IX. After the selection of branch auditors, PSBs will be required to recommend the names of both continuing and new branch auditors to seek the approval from RBI before their actual appointment.
X. RBI will act as a facilitator to resolve problems/inconsiste ncies, if any, faced.
Government of India have suggested that in order to protect the independence of the auditors/audit firms, banks will have to make the appointments of SCA/branch auditors necessarily for a continuous period of three and four years respectively. Banks do not have any authority to remove the audit firms during the above period without prior approval of the Reserve Bank of India .