The Reserve Bank of India (RBI) on Wednesday tightened rules on banks’ statutory auditors saying it will take action against them in case of any lapses in their auditing process including instances such as misstatement of a bank’s financial statement or wrong information in the audit report. The RBI move follows a series of bank frauds, including the Rs 13,000 crore Punjab National Bank fraud, and under-statement of bad loans by several banks.
The RBI said it reserved the right to not approve appointments of such auditors for a specified period if their audit quality was not found satisfactory. The PNB scam had revealed several lapses in the auditing process in banks.
“The framework would cover, inter alia, instances of divergence identified in asset classification and provisioning during the RBI inspection vis-à-vis the audited financial statements of banks,” said RBI in a statement. Several banks had understated bad loans in the last three years leading to accumulation of non-performing assets over the years
According to the RBI, for the purpose of providing a reasonable opportunity of being heard before adjudging the enforcement action, a notice in writing will be served on the auditors by the RBI, requiring them to show cause in writing, as to why the action as indicated in the notice should not be taken. A period of 15 working days would be given to the audit firms to reply to the notice.