Government to take penal action against PSU banks’ auditors

NEW DELHI: The government will take action against auditors of public sector banks found responsible for the anomaly in the Centre’s farm loan waiver scheme, according to a senior official. Erring auditors will be barred from taking up any more assignments with state-run banks, the finance ministry official said. “They will be black listed and will not be allowed to audit any public sector firm for at least three years.”


The Comptroller and Auditor General (CAG), the country’s chief auditor, had on Tuesday said 8.5% of the 80,299 farmer accounts audited were found to be ineligible for the Agricultural Debt Waiver and Debt Relief Scheme. The scheme, floated in 2008, wiped off debt aggregating Rs 52,260 crore for the 37.3 million farmers it covered. In its report, the CAG had suggested that bank executives, internal auditors and central statutory auditors who certified the information for passing the claims should be made accountable for the lapses.

“Action will be taken against banks under the Banking Regulations and first information report will be filed in case of tampering of records,” the official said. Banks have also been directed by the finance ministry to scrutinise beneficiaries under the farm loan waiver scheme and take legal action against erring executives. According to the CAG, lapses and errors were detected in 20,000 of the 90,000 accounts that were audited.

In nearly 2,800 cases, about Rs8 crore went missing because of tampering by bank executives. The report further said that over Rs 20 crore was doled out to ineligible farmers or for loans taken for purposes other than agriculture.

In this regard, the finance ministry has directed banks to strengthen their system of compliance on the observations of statutory auditors. “It was found that statutory auditors do not furnish a draft report and their observations, as and when received, are addressed,” the official said. Banks have also been asked to provide the objections raised in the RBI’s preliminary audit report for the last three years.

Bank auditors, however, say they are being unjustly targeted, as they do not have control over the real-time data being provided to them. “The problem specially lies at remote places, where the monitoring is loose, the bank staff is not keen, and sometimes gives leverage,” said Madan Verma, senior partner with M Verma & Associates, the firm has been a central statutory auditor for a list of state-run banks, including the State Bank of India, the country’s largest. Some bankers say that there could have been only some cases where ineligible beneficiaries were knowingly provided relief.

“There could be a list of cases where clarifications would have been sought and genuine errors occurred during the process,” said a senior manager with a state-run bank. To tighten regulation, the finance ministry wants banks to move towards software-based audit systems. It also wants the frequency of Audits under Risk based system to be fixed at 9-12 months for extremely high-risk branches, 12-15 months for medium-risk branches, and 15-18 months for the rest.

P Chidambaram has already said that action will be taken against banks found involved in irregularities besides the ineligible recipients of the scheme.