The Reserve Bank of India (RBI) has ordered a special audit of the accounts of Bank of Rajasthan (BoR) following investigations into irregular dealings by the private sector bank. The regulator has appointed Deloitte Haskins & Sells to audit the bank’s lending policy among other things while the parent accounting and consulting firm Deloitte Touche Tohmatsu has been hired to audit the information security system of the bank.
Special audits are rare and directed by RBI only under exceptional circumstances.
A week ago, BoR made news after RBI imposed a Rs 25-lakh fine on the bank following a string of violations. RBI pulled up the bank following violations in property transactions, anti-money laundering norms, irregularities in the conduct of accounts of a corporate group and failure to provide certain documents sought by RBI.
Deloitte Touche Tohmatsu’s main mandate is to find out whether BoR’s IT systems are in line with the best practices followed by other banks in terms of information security. It will also suggest whether there is a need to modernise and upgrade BoR’s present system.
RBI has felt the need for such an audit following BoR’s decision to give a huge intra-day overdraft to the Lucknow-based Sahara group. The overdraft facility extended by BoR was well beyond all permissible limits. Besides, a systems audit may be partly driven by the revelation that some of the bank’s records got deleted.
The bank’s poor corporate governance standards have prompted RBI to conduct special audit. One of the concerns is the presence of S K Tayal, a relative of promoter PK Tayal, on the bank’s credit committee and board of directors.
BoR, unlike other commercial banks, which have various credit committees depending on loan size, has a single committee for approving loans. In most banks the local office may have the power to sanction loans up to Rs 25 crore, while loans of Rs 25-50 crore are approved by the credit committee at the head office and loans above Rs 50 crore go to management committee.
In BoR, the RBI, according to sources in the central bank, fears that the directors play a significant role in the entire credit delivery mechanism.
Deloitte Heskins & Sells has been asked to carry out an audit of the “internal delegation of sanctioning powers followed by the bank.”
Last year, the central bank appointed G Padmanabhan, a former State Bank of India official, as the MD and CEO of BoR after it sensed certain irregularities in the bank. When contacted by ET, Mr Padmanabhan confirmed that RBI has mandated a special audit after BoR made certain disclosures while announcing its third quarter financial results. The disclosures relate to inadequate provisioning for bad loans and superannuation benefits, and the dispute over the rent the bank should pay for the Mumbai property where the BoR head office is located.
Deloitte Heskins & Sell’s will review whether the bank has made adequate provisioning for bad loans and whether it has followed all asset classification norms laid down by RBI. The other area that the auditors will review is the superannuation benefits given to a section of the bank’s employees.
While 90% of the bank’s 4,000 employees receive salary in line with the bi-partite agreement signed between the Indian Banks Association and the member banks, around 10% employees in the mid to senior level have a different salary and pension structure. The bank has not fully provided for the superannuation benefits of these 10% employees.
What a shame-this act of awarding the job of special audit of the bank to the Indian arm of a foreign firm clearly shows the bias against the India CA firms and, even more, the outreach of the former entities and, further, Indian obsession with anything “foreign”. Doesn’t the ICAI have the moral courage to protest against this mentality/mindset of the Indian bureaucracy?
One only hopes, the Left and the BJP will agitate against this tacit and continuing regime of colonialism.
The Institute of Chartered Accountants of India has made repeated representations before the Govt. of India and Reserve Bank of India against managerial autonomy granted to Public Sector Banks regarding appointment of Bank Auditors wef 2006-07 whereas the Private Sector Banks were already availing the managerial autonomy over this matter. Such autonomy has given private sector banks, uncontrolled power to appoint their auditors as per their choice and test without any control either by the GOI or the RBI resulting in the gross irregularities in sanction of high value advances to Sahara Group in Lucknow by BOR and consequent appointment of special audit rarely resorted to. This is high time for the GOI and RBI to revert back and reconsider grant of managerial autonomy granted to PSB in respect of appointment of Auditors.