RBI-AUDITED BANK BOOKS UNDERSTATE BAD LOANS

Pointing to shortcomings in the quality of bank audits, the Reserve
Bank of India (RBI) has said financial statements certified by
accountants show lower non-performing assets than is actually the
case.
There is a difference between the levels of non-performing assets
(NPAs) found during the course of supervisions (by RBI) and those in
audited books of banks. Bad loans in certified statements are less,
RBI Governor, D Subbarao, said on Saturday.

  Seeking an improvement on this front, Subbarao said, "We must
identify where the systemic difference is coming from." He was
addressing a conference organised by the Institute of Chartered
Accountants of India (ICAI).
Subbarao said accountants who sign bank books were RBI's "eyes and
ears". He added the regulator expected them to send out early warning
signals to assist the regulator in the supervisory process. A true and
fair picture must be shown to shareholders, he said.
The economic slowdown and rise in interest costs, owing to a rise of
over 250 basis points in lending rates, have exerted pressure on the
repayment capacity of retail and corporate borrowers. Gross NPAs of
commercial banks rose to Rs 97,922 crore at end of March from Rs
84,698 crore a year ago, according to RBI data.
On the demand to reduce branch audit work, he said relevant branch
audits at public sector banks (PSBs) had significantly declined due to
core banking facilities and centralised record keeping.
The cost of audit of PSBs was significantly higher than the cost of
auditing comparable private sector banks. However, ICAI has been
resisted the move, as it would mean a reduction in work. ICAI's
efforts in this regard are ill advised. Accountants should sharpen
their skills in concurrent audits, rather than agitate for the
retention of work which does not add value, Subbarao said.
The profession had shied away from the responsibility of prevention
and early detection of fraud, Subbarao said. The need for such a
service exists, and if the profession did not fulfil that need, other
agencies which could provide such services would displace auditors and
deprive them of a potentially expanding opportunity, he added.
The central bank governor also had a word of caution for accountants
on monopoly in areas like signing financial statements, advising them
against perpetuating their monopoly status. Accounting professionals
were concerned about expanding career opportunities, owing to the
institute's growing membership. The easy way out to expand
opportunities would be to agitate for continuation of the monopoly
position. However, this would be a mistake, Subbarao said, adding they
should identify emerging opportunities and develop skills needed to
exploit them.