RBI to take punitive action against errant bank auditors

Mumbai: As more and more loan-related scams come to light in many public and private sector banks leading to a massive pile-up of bad loans, the RBI on Friday decided to take auditors to task by warning them of stern punitive actions against them.

In a new circular titled ‘Enforcement action framework in respect of statutory auditors (SAs) for lapses in statutory audit of commercial banks’, RBI on Friday warned that any SA not following instructions will be met with punitive actions such as debarring them from conducting business with banks.

“To improve audit quality and bring about a transparent mechanism to examine the accountability of SAs in a consistent manner, it has been decided to put in place a graded enforcement action framework to enable appropriate action by the RBI in respect of the banks SAs for any lapses observed in conducting a statutory audit,” RBI said.

The new framework will cover instances of divergence identified in asset classification and provisioning during RBI inspection vis-a-vis the audited financial statements of banks above the threshold specified in this circular.

Underlining the key role that SAs of banks play in contributing to financial stability when they deliver quality bank audits that foster market confidence in banks' financial statements, the circular said quality audits are also a valuable input in the supervisory process of RBI over banks.