Page 10 - Banking Finance April 2018

BANK UPDATE

Questions being raised for banks freedom to appoint PSBs wrote off Rs. 81,683

statutory auditors cr of loans in FY 2017
A group of chartered accountants has questioned the government's decision to PSU banks have written off loans
allow banks the liberty to select their own worth Rs 81,683
statutory auditors amid the concern over the crore during fiscal
role of auditors in the alleged fraud unearthed 2016-17, Finance
at Punjab National Bank. According to the Minister in-
members of the Association of Chartered Ac- formed the Parlia-
countants, this move is a departure from the ment. Finance
earlier practice where RBI directly appointed Minister told the
the statutory auditors of banks, based on a list of eligible candidates prepared Rajya Sabha in a
by the Institute of Chartered Accountants of India. written reply that loans are written
off for tax benefit as well as capital
"Earlier, the RBI used to appoint the statutory auditors of banks. But, to our optimisation, while borrowers of such
surprise, from 2014-15, the power of the RBI to appoint central and branch
loans continue to be liable for repay-
statutory auditors was snatched by the central government and was handed ment. "Therefore, write-off does not
over to the respective banks. Now, the bank management selects the statutory benefit borrowers," the Minister said.
auditors and takes only a nominal permission from the RBI before appointment,"
said Kingsuk Datta, the general secretary of the Association of Chartered Ac- The amount written off by public
countants. The association is a separate body but its members are part of the sector banks (PSBs), including
ICAI. through compromise, during 2016-
17 was Rs 81,683 crore, including Rs
"We demand a restoration of the pre-2014-15 situation regarding the appoint- 20,339 crore by the State Bank of
ment of statutory auditors of banks, which was under the control of the RBI, India, Jaitley said. During the ongo-
and not in the hands of the bank management," Datta said. The association ing fiscal, up to September, 2017,
fears that the quality of audit may deteriorate if the examinees are appointing the amount written off by PSBs was
their own examiners. The association also said that the finance ministry, in a Rs 28,781 crore, he added.
guideline issued in 2012, had noted that statutory branch audit has become As per the Reserve Bank of India (RBI)
routine and not much effective after the implementation of core banking sys- guidelines and the policy approved by
tem in public sector banks.
bank boards, non-performing assets
(NPAs), or bad loans, including those
RRBs to be allowed to raise capital from market for which full provisioning has been

The recent budget had proposed that the Regional Rural Banks be allowed to made on completion of four years, are
raise capital from the market to overcome capital removed from the bank balance-
constraints. This will enable them to increase their sheet by way of write-off.
credit to the rural economy. There are 56 RRBs in The recovery of dues takes place on
the country. These are jointly owned by the govern- ongoing basis under legal mecha-
ment of India, the concerned State Government and nisms, including the Securitisation
sponsor (usually public sector) bank with the issued and Reconstruction of Financial As-
capital shared in the proportion of 50 percent, 15 sets and Enforcement of Security In-
per cent and 35 per cent, respectively. terest Act, Debts Recovery Tribunals
The Budget has allocated only Rs.13 crore as and Lok Adalats, Jaitley added.
recapitalisation for RRBs for FY19 against Rs.280 In another reply to the Rajya Sabha,
crore in FY18. Harsh Kumar Bhanwala, Chairman, National Bank for Agricul- Minister of State for Finance Shiv
ture and Rural Development, said: "We have already given a policy, which has Pratap Shukla said in the five financial
been made available as a draft policy to the government. Now that policy will years since April 1, 2013, banks have
be accepted by RRBs, which in turn will make a proposal (to tap the capital reported 13,643 cases of fraud involv-
markets) and send to us. ing a total amount of Rs 52,717 crore.

10 | 2018 | APRIL | BANKING FINANCE