The Hindu Business Line : Govt allows PSB boards to appoint auditors

"In an era of good corporate governance, giving such an option to the bank managements (to appoint auditors) will, in our opinion, be a retrograde step," said the President, ICAI, Mr Kamlesh S. Vikamsey.

New Delhi , Jan. 19

THE Finance Ministry has allowed boards of public sector banks (PSBs) to directly appoint Statutory Central Auditors (SCA) and branch auditors. The move has triggered a major controversy in the auditing community.

The move, which is part of an enhanced autonomy package for PSBs, is in contrast to the earlier system where the Reserve Bank of India solely had the power to make auditor appointments in the 27 government-controlled banks.

Under the new system, banks would have to directly source the names of auditors from the panel available with the Comptroller and Auditor General (CAG) for SCAs while the names for branch auditors would have to be obtained from the Institute of Chartered Accountants of India (ICAI).

Earlier, CAG would empanel the SCAs and send the list to RBI for appointment. For branch auditors, the RBI used to obtain the panel from the ICAI.

Despite diluting RBI's role, the Finance Ministry has now stipulated that the bank boards must obtain prior approval of the central bank before making the final appointment. The RBI would also continue to fix the norms of remuneration for SCA and branch auditors as well as their empanelment.

However, banks that do not prefer the new system have been given the option to continue with the earlier process, in consultation with the Government.

The new autonomy for banks has, however, been severely criticised by the ICAI. "In an era of good corporate governance, giving such an option to the bank managements (to appoint auditors) will, in our opinion, be a retrograde step," the President, ICAI, Mr Kamlesh S. Vikamsey, has said in a letter to the Finance Ministry.

Mr Vikamsey told Business Line that ICAI's views have also been conveyed to the RBI Governor, Dr Y.V. Reddy.

He said that for good governance either the regulator or the shareholders generally appoint external auditors. "Even under the Companies Act, an auditor is appointed by the shareholders and not by the board. The proposed option, we believe, will lead to an impairment of the independence of auditors since this permits the PSU bank boards to hire and fire auditors at will," he said.

He pointed out that audit in PSU banks should be treated the same as those carried out in other state-owned entities.