A battle of sorts is brewing between the Institute of Chartered Accountants in India, or Icai, and the banking industry. Icai, the apex accounting body, has told auditors to demand detailed disclosures from banks about loans restructured by them. In the absence of such disclosures, auditors have been asked to pass banks’ balance sheets with qualifications. Bankers argue that by restructuring loans, they are only obeying the directive of the Reserve Bank of India (RBI). They say that if auditors create problems, banks will have to ask RBI to speak to Icai.
Responding to the global liquidity crunch after the mid-September collapse of US investment bank Lehman Brothers Holdings Inc., RBI issued a notification in December allowing banks to restructure loans of troubled borrowers and yet not classify them as “bad loans”. In another notification in February, RBI told banks to accept all restructuring requests that came in before 31 March. It also gave banks 120 days to restructure these loans.
Icai says this allows banks to get away by not marking possible default loans as non-performing assets, or NPAs. It adds that banks should not accept restructuring requests without checking if the borrower’s problems are temporary or permanent. “We have stated that if someone has gone through the restructure request, and the banker feels this is a real proposal for restructuring, then we will consider the restructuring as fair,” said Icai president Uttam Prakash Agarwal.
Icai has asked auditors not to sign on a balance sheet which they believe understates NPAs.
Bankers say restructuring lo-ans is not mandatory, and approvals have been given only in those cases where the banks have seen long-term cash flows and business viability.
Indian Banks’ Association president and Bank of India chairman T.S. Narayanasami says banks will not give auditors any written statement. He says: “They can raise audit questions only when we flout rules. By restructuring loans we are obeying the regulator. How can they raise audit questions?”
