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October 9, 2011

ICAI calls for RBI to appoint auditors in state-run banks

The Institute of Chartered Accountants of India (ICAI) has called for the Reserve Bank of India (RBI) to appoint statutory auditors in state-run banks. The ICAI have sought government intervention.

Up until 2005 RBI was directly involved in the appointment of auditors, however, currently the appointment of auditors is overseen by boards of public sector banks (PSBs) in consultation with RBI.

 “If appointments are left to bank managements, there may be a tendency to take short-cuts in these regards with possible ultimate deleterious effects on the financial health of the PSBs. This process compromises the independence of auditors and gives an incentive for promotion of vested interest in the appointment of auditors,” ICAI president Ramaswamy said.

Ramaswamy said auditors often do not see eye-to-eye with bank managements. He said there must always be somebody who will not look at the business from the point of view of the management, and who will look at it from the point of view of good governance.

Senior bankers have said the current practice should be retained as previous regulator-appointing auditors for PSBs were ineffective.

“That [RBI appointing auditors] was done earlier and the power was later given back to banks. It obviously didn’t have the desired effect,” Punjab and Sind Bank executive director Anand said.   

“The real issue is not independence, but the quality of auditing, which has seen deterioration in many cases in the recent past,” said an anonymous partner at a global consultancy firm.

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