As India has just a handful of quality audit companies, it might be difficult to operationalize central bank directions on systemic oversight at high-street lenders. Mint Road has actually capped audit periods at banks and NBFCs, sought joint audits, and limited the number of firms an auditor can oversee.Industry bodies are now planning to petition the regulator to reduce the standards and postpone their implementation a minimum of to next year.
In a notice released on Tuesday, RBI said that banks and NBFCs can not continue with the same auditor beyond 3 years down from four years previously and lower than the 5 years allowed by the companies act. Moreover, an audit firm needs to compulsorily have a cooling off period of six after auditing a bank for one tenure, which means banks will have to hunt for a brand-new auditor every 3 years.
Audit firms can likewise investigate not more than eight NBFCs and banks have been asked to work with joint auditors which will increase the cost of compliance for banks. Moreover, these changes have actually been made reliable in the present fiscal not giving banks and NBFCs sufficient time to prepare.”Through these changes the RBI has actually put the problem of compliance, audit and risk on banks. They need to comply and run a growing number of checks and the RBI will simply damp the numbers. One understands the regulator’s view of tightening up these policies but they do not appear feasible at all,” stated a banker.Bankers explain that numerous auditors would have finished 3 years this financial and thus would not be qualified to be reappointed next year.The procedure itself for the consultation will be expensive and time consuming. “The procedure of visit of brand-new auditors consists of identification/ assessment of 3-4 audit companies by the audit committee, approval of the shortlisted company by the board and afterwards the investors. It will be particularly strenuous for NBFCs a few of whom are little and are already getting ready for an AGM in the midst of a Covid crisis,” said a banker.Larger the balance sheet more number of auditors have actually been allowed. For instance, for balance sheets of approximately Rs 5 lakh crore while more than Rs 20 lakh crore balance sheet banks can appoint approximately 12 auditors.”The RBI’s concept is that more auditors will examine various functions like one can do possessions, another treasury and another liabilities. It may bring focus but will this amount bring quality is the question. Multiple auditors can create all soughts of confusion. In the US, even JP Morgan with $4 trillion of possessions has one auditor while in Indiahas 150,” said a consultant.RBI has likewise restricted audit companies to examine just 8 NBFCs.”There are thousands of NBFCs. If the RBI believes that limiting auditors will assist then all the very best to them because there are not as lots of audit companies in the country,” stated another consultant.In case of entities obtaining from abroad, foreign loan providers need auditors to be one among the huge 4 audit firms with prior approval of the lenders.Moreover, all industrial banks with possessions over Rs 1000 crore are to guarantee the audit partners association to be special.