RBI not in favour of CAG audit of PSU banks

The Reserve Bank of India (RBI) is against the CAG audit of public sector banks, despite large NPAs and corporate frauds hurting their performance and eroding people's faith in the country's banking system.

Deposing before a Parliamentary panel earlier this week, RBI Governor Urjit Patel indicated that he was averse to it and doubted whether it will have any incremental impact on state-owned banks' audit.

Incidentally, he has sought more regulatory powers for RBI itself to straighten debt-laden public sector banks including appointment and removal of their chairmen and managing directors.

Seeking his views on bringing in CAG to audit finances of the public sector banks, a standing committee on finance earlier this week asked Patel, “Can we bring in the CAG to audit public sector banks? In compliance audit, they can check the compliance of rules, regulations and procedures and in financial audit, they can audit the financial statement and disclosure requirement?”

Patel's reply was in negative. He said it was debatable whether adding a fourth layer, of audit by CAG, would have much incremental impact.

Audit in banks, including PSBs, happens at three levels. Concurrent audit, which is transaction focused. Internal audit, which monitors compliance with laid down systems and procedures and statutory audit, which aims to ensure that bank's financial statements present and disclose a fair picture of financial position.

Government companies like RBI, LIC, SBI and other PSU banks engaged in commercial activities are audited by statutory auditors and not CAG, as it is believed that they require understanding of complex financial accounting standards and the CAG does not have that expertise.

Besides, when these organisations go through a high degree of regulation and supervision, it is questionable what value can CAG bring to them. But, in the wake of increasing corporate frauds and an apparent lack of RBI's regulatory powers over the state-owned banks, many an expert have demanded an external audit of PSU banks in which the hard-earned money of common man is deposited with ample faith.