RBI Quizzes PSU Bank Au­di­tors on Write-downs

Cen­tral bank ques­tions method­ol­ogy adopted to cal­cu­late pro­vi­sion­ing at 27 PSBs as there is a marked dif­fer­ence in fig­ures ar­rived at by the au­di­tors and its own in­spec­tors

The Economic Times - - Companies: Pursuit Of Profit -

Sachin Dave & Vinod Ma­hanta

Mum­bai: The Re­serve Bank of In­dia (RBI) has ques­tioned scores of au­di­tors at 27 pub­lic sec­tor banks on the process and logic they had used to com­pute and re­port write­downs at the lenders, two peo­ple close to the de­vel­op­ment told ET. The cen­tral bank has sought a writ­ten ex­pla­na­tion on the dif­fer­ences in the write-down as­sess­ments by its own in­spec­tors and those cer­ti­fied by the au­di­tors.

A write-down is a re­duc­tion in the es­ti­mated and nom­i­nal value of an as­set, and is charged off as a loss to the profit and loss ac­count for the rel­e­vant pe­riod.

In some cases, the RBI has also ques­tioned the pro­vi­sion­ing method­ol­ogy and the non-performing as­set (NPA) fig­ures ar­rived at by the au­di­tors at a few pub­lic sec­tor banks, sources told ET.

The bank­ing reg­u­la­tor is ex­am­in­ing whether au­di­tors at these state-run lenders fol­lowed RBI guide­lines on write-downs, pro­vi­sion­ing and NPAs.

“This is part of the RBI’s an­nual as­sess­ment. Au­di­tors will now have to ex­plain how they pro­vi­sioned for the NPA and how they cal­cu­lated the write-downs,” said a per­son aware of the mat­ter. The write-downs, NPA and pro­vi­sion­ing fig­ures ar­rived at by the au­di­tors and RBI in­spec­tors dif­fer by up to 10%.


Ac­cord­ing to RBI data, pub­lic sec­tor banks in FY17 have writ­ten off ₹ 81,683 crore against ₹ 2.49 lakh crore in the past five years.

In a few cases, the au­dit re­ports of some of these lenders do not re­flect these write-downs, said one of the per­sons cited above. Most banks do not sep­a­rately re­port write-downs in their ac­counts, com­bin­ing them of­ten with quar­terly pro­vi­sion­ing.

Most In­dian pub­lic sec­tor banks use more than one au­di­tor due to the enor­mous size of their bal­ance sheets. Most au­di­tors are mid-tos­mall In­dian firms that au­dit sev­eral branches. The 27 pub­lic sec­tor banks col­lec­tively em­ploy 115 au­di­tors, ac­cord­ing to data an­a­lysed by the ET In­tel­li­gence Group.

Ac­cord­ing to the peo­ple in the know, au­di­tors at the State Bank of In­dia (SBI), Pun­jab Na­tional Bank (PNB), Bank of Bar­oda (BoB), Cana-

Prob­ing the Di­ver­gence

ra Bank, Al­la­habad Bank and Bank of In­dia (BoI) were sent the show­cause no­tices about two weeks ago.

ET’s de­tailed email queries to the reg­u­la­tor and the af­fected lenders — SBI, PNB, BoB, IDBI, In­dian Over­seas Bank (IOB), Ca­nara Bank, BoI, Ori­en­tal Bank of Com­merce (OBC) and Al­la­habad Bank — did not elicit any re­sponse.


Ac­cord­ing to a ma­jor bank’s au­di­tor, who did not wish to be iden­ti­fied, the dif­fer­ences in the two sets of as­sess­ments are not un­ex­pected. “The RBI has ac­cess to in­for­ma­tion an au­di­tor may not. Like, if a loan in bank X has gone toxic, the au­di­tor of bank Y may not know, but the RBI would,” he said.

He added that there is a time lapse be­tween au­di­tors pre­par­ing an ac­count and the RBI con­duct­ing in­spec­tions. “What you must look at is the im­pact on the P&L of a bank due to di­ver­gence. In most cases, that is not much,” he said. To be sure, there may have been ‘tech­ni­cal’ er­rors in in­ter­pret­ing the write-down rules, re­sult­ing in the dif­fer­ences.

“There is a di­rect im­pact of the new ac­count­ing stan­dards on the way write-downs are ar­rived at,” said a se­nior ex­ec­u­tive at a top au­dit firm. “Un­der the old ac­count­ing sys­tem, the rules around write­downs were not as pre­cise, and there is a pos­si­bil­ity that some au­di­tors may have ig­nored this.”

This is the se­cond time in the last few months that the RBI has ques­tioned the au­di­tors and banks on this is­sue.

Fif­teen lenders, in­clud­ing Yes Bank, ICICI Bank, Al­la­habad Bank, IOB, OBC Bank of Ma­ha­rash­tra, and Jammu & Kash­mir Bank, had ear­lier come un­der the reg­u­la­tor’s scan­ner.

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