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
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%.
LENDERS CLUB WRITE-DOWNS WITH PROVISIONING
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.
‘REGULATOR HAS PRIVILEGED ACCESS’
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.