From: Babu Kallivayalil <babu.kallivayalil@gmail.com>
Date: Wed, Feb 6, 2013 at 10:29 PM
Subject: Decision of Finance Ministry to dispense with the bank branch audit, for branches with loans and advances of less than Rs. 20 crore- Serious implications regarding
To:
Dear Esteemed President,
Hope these lines will find you in good health and cheer.
We are sure you had a wonderful and satisfying term in the service of
the profession, members and students. Let me thank you for the yeomen
service rendered during the past one year. I am privileged to work in
the Council for the term 2013 – 16, but I am deprived of the
opportunity to work with you in the Council. Though you have only days
left in the highest seat of our institute and should be extremely busy
with handing over procedures, we are compelled to bring your kind
attention to an extremely important issue. Bank Audit, an issue
crucial to the very survival of the small and medium practitioners who
constitute 85% of our profession.
We are writing this with a heavy heart as Finance Ministry, as
recommended by the Reserve Bank of India has decided to dispense with
the bank branch audit, for branches with loans and advances of less
than Rs. 20 crore instead of the present level of Rs 6 crore. From
financial year 2012-13, audit of these branches will be done only once
in five years. As you are aware, in our country majority of the
branches are situated in villages and semi urban areas having advances
below Rs.20 crore. This will effectively render, as we understand, 70%
of the bank branches in the country out of the purview of the annual
statutory audit.
We would like to draw your kind attention to the huge implication of
this decision of our learned Finance Minister, which we feel may have
been influenced by vested interests from the banking sector. In this
connection we request you to impress upon the RBI and the Ministry of
Finance, the need for audit of bank branches with Rs 6 crore advances
instead Rs. 20 crore advances.
In this connection we put forth our humble suggestions to save the
situation. Some of our thoughts are given below:
A. IMPLICATIONS ON THE ECONOMY AND BANKING SYSTEM
1. LEGACY OF COLLASPE OF BANKS ABROAD
When banks in USA and Europe collapsed in this decade like a pack of
cards, Indian Banking Industry withstood all pressures because of the
robust and time tested supervisory mechanism by Reserve Bank of India
and the effective Statutory Branch Audit by independent Chartered
Accountants. The bank branch audit goes much beyond the review of the
branch Financial Statements which extends to review of internal
controls and systems, information systems controls, compliance with
RBI regulations and central government guidelines, functioning within
the broad frame work of the Banking Regulation Act etc. There is no
rhyme or reason for discontinuing the age old time tested system of
branch statutory audit.
2. SYSTEM OF BANKING AND NECESITY OF TRUST
The system of banking is such that the deposit accepted from the
public is given as loan to the needy. This system is built on trust
and any dilution can lead to the collapse of the system. Auditing is
one of the most important elements in building this trust, built up
over decades and the dispensing of the age old practice without rhyme
or reason can prove to be costly.
3. IMPLICATIONS OF YEAR END STATUTORY BRANCH AUDIT
The basic principle of audit itself is to ensure maintenance of proper
records in accordance with Banking Regulations, Rules, Income-tax Act,
Companies Act, effective internal control, verification of asset
classification including lending to the priority sector, monitoring of
non-performing assets (NPA) and provisioning etc. This is very
important from the point of view of Income-tax Act and ensures a true
and fair view of the Profit and Loss Account and Balance Sheets of the
banks. Considering our past experience, there used to be number of
modifications / rectifications in the statements prepared by number of
branches during the course of audit. If the annual audit is dispensed
with all kinds of external independent verification will vanish which
can prove to be quite dear in the long run.
4. GOVERNMENT SUBSIDIES AND GRANTS ARE BEING DITRIBUTED THROUGH BANKS
Government is taking serious steps to distribute subsidies and grants
through banking system. Since most of the beneficiaries of grants and
subsidies are located in rural areas, banks in these areas are going
to play a major role in all developmental initiatives of our
government. These banks may not have Rs.20 crore advances but will be
distributing tens and hundreds of crores worth of grants and
subsidies. It will be detrimental to the development efforts, if these
banks which are to play a major role in the development of the country
are not audited regularly.
5. BRANCH STATUTORY AUDIT IS THE ONLY INDEPENDENT VERIFICATION
At present, branches having advances below Rs.20 crore are not
subjected to any kind of regular audit or inspection by independent
agencies like RBI except annual statutory branch audit. RBI inspection
is carried out in rural branches once in 3 to 5 years and most of
these branches are not covered under independent concurrent audit by
external agencies. Discontinuing branch statutory audit can have
serious implications in the long run and can prove to be costly,
considering the global experience. One of the major reasons for the
stability of Indian Banking System is branch level audit and controls
by external Auditors. For marginal monitory gains, diluting branch
audit system can be disastrous to the Banking System.
6. UTILITY OF BRANCH STATUTORY AUDIT IS NEVER IN DISPUTE
It is matter of pride for the Institute of Chartered Accountants of
India and its members that the Government, the RBI and the
stakeholders have lauded the importance and benefits of Bank Statutory
Branch Audit over several decades and hitherto there are no major
reservations on Bank Branch Audit. Considering this, it is not known
the forces behind elimination of Bank Branch Audits covering at least
70% of the branches if not more spread across the length and breadth
of the country.
7. CA's IN RURAL AREAS WILL GO OUT OF PRACTICE
A large number of Chartered Accountants live and thrive out of their
practice in rural areas. For these professionals Bank Branch Audit is
an avenue of service, which help them to maintain their practice in a
reasonable manner. If they are out of bank audit, not only many of the
existing practitioners will leave their practice but also fresh CA's
may not venture out to practice. This will have a cascading effect in
the sense for the trade and industry, they may have to avail the
Chartered Accountant's service from semi- urban areas at a higher cost
and it may deprive the opportunity for rural students to join for the
most economical professional course in the country. This can even
eventually lead to social injustice. Besides this, if the Chartered
Accountants in rural areas go out of practice, it can lead to
tremendous cost escalation of Chartered Accountants services in India.
8. AUDIT BY ITSELF WILL BRING DOWN FRAUD
The very fact that there is yearly statutory branch audit has proved
to be a deterrent to those committing financial irregularities.
Opposite proves true in the absence of audit.
B. IMPLICATIONS ON THE PROFESSION
i. CA'S IN THE SME SEGMENT MAY HAVE TO WINDUP THEIR PRACTICE
Chartered Accountants of the small and medium sector are largely
dependent on bank branch audit to make their practice sustainable in
the long run. This is more so in the case of new practitioners in the
rural areas, who are really dependent on bank branch audit to
stabilise their practice. In the case of some of the rural
practitioners, bank branch audit can be the largest billing client.
ii. IF RS.20 CRORES LIMIT IS FIXED, 70% OF THE BRANCHES WILL GO OUT OF AUDIT
In the unfortunate event of Finance Ministry sticks to their stand to
discontinue the yearly audit of bank branches with advances less than
Rs. 20 crore, it is reliably learned that it will render 70% of the
bank branches out of audit. This will have tremendous implications to
the profession as far as bank audit is concerned, not only for members
but also for CA students.
Both members and the future generation of CAs in rural areas will be
deprived of the exposure to bank audit. Even assuming these branches
are audited once in 5 years, such audit can be ineffective. Not only
that, the members in rural areas if at all they are in practice, will
not be interested to learn and assimilate to once in a blue moon
opportunity.
iii. ABSENCE OF BANK AUDIT WILL DISTANCE NEW GENERATION TO ENTER IN TO PRACTICE
Already the profession is facing a crisis in the absence of new
practitioners, especially the new generation, as is not lucrative.
Elimination of the bank branch audit can be the last nail on the
coffin as far as attracting young blood in to practice. This can
eventually have serious reflections in the profession as the
profession largely thrives on practitioners and the reputation
attached to attest function. Undoubtedly the attest function is the
core of the profession and is the backbone.
iv. PROPRIETARY PRACTICE WILL EXTINCT
Today around 80% of the practitioners are in the proprietary mode.
This vast majority are directly dependent on bank branch audit.
Absence of yearly branch audit may make their practice extinct,
considering their dependency on the bank audit. And as a profession
this can lead to tremendous setback and we cannot afford to overlook
the interest of the majority.
In view of the above submissions, I humbly request your esteemed
office to take up the matter on a war footing with the Finance
Ministry and RBI. I pledge my wholehearted support in your efforts to
save the situation.
With warm regards,
CA. Babu Abraham Kallivayalil, Kochi,
Member, Central Council (2013-16).
CC to: The Vice President,
The Institute of Chartered Accountants of India, New Delhi.
BABU ABRAHAM KALLIVAYALIL FCA, CISA, DISA,
Chartered Accountant,
Babu A. Kallivayalil & Co., CA'S, Manchu Complex, P.T.Usha road,
Ernakulam, KOCHI-682 011. Kerala, India. Phone +91484- 2363119,
2380868, Cell-098460 35333, 094460 66600.
E-mail:-babu.kallivayalil@gmail.com;bakco@vsnl.net
Date: Wed, Feb 6, 2013 at 10:29 PM
Subject: Decision of Finance Ministry to dispense with the bank branch audit, for branches with loans and advances of less than Rs. 20 crore- Serious implications regarding
To:
Dear Esteemed President,
Hope these lines will find you in good health and cheer.
We are sure you had a wonderful and satisfying term in the service of
the profession, members and students. Let me thank you for the yeomen
service rendered during the past one year. I am privileged to work in
the Council for the term 2013 – 16, but I am deprived of the
opportunity to work with you in the Council. Though you have only days
left in the highest seat of our institute and should be extremely busy
with handing over procedures, we are compelled to bring your kind
attention to an extremely important issue. Bank Audit, an issue
crucial to the very survival of the small and medium practitioners who
constitute 85% of our profession.
We are writing this with a heavy heart as Finance Ministry, as
recommended by the Reserve Bank of India has decided to dispense with
the bank branch audit, for branches with loans and advances of less
than Rs. 20 crore instead of the present level of Rs 6 crore. From
financial year 2012-13, audit of these branches will be done only once
in five years. As you are aware, in our country majority of the
branches are situated in villages and semi urban areas having advances
below Rs.20 crore. This will effectively render, as we understand, 70%
of the bank branches in the country out of the purview of the annual
statutory audit.
We would like to draw your kind attention to the huge implication of
this decision of our learned Finance Minister, which we feel may have
been influenced by vested interests from the banking sector. In this
connection we request you to impress upon the RBI and the Ministry of
Finance, the need for audit of bank branches with Rs 6 crore advances
instead Rs. 20 crore advances.
In this connection we put forth our humble suggestions to save the
situation. Some of our thoughts are given below:
A. IMPLICATIONS ON THE ECONOMY AND BANKING SYSTEM
1. LEGACY OF COLLASPE OF BANKS ABROAD
When banks in USA and Europe collapsed in this decade like a pack of
cards, Indian Banking Industry withstood all pressures because of the
robust and time tested supervisory mechanism by Reserve Bank of India
and the effective Statutory Branch Audit by independent Chartered
Accountants. The bank branch audit goes much beyond the review of the
branch Financial Statements which extends to review of internal
controls and systems, information systems controls, compliance with
RBI regulations and central government guidelines, functioning within
the broad frame work of the Banking Regulation Act etc. There is no
rhyme or reason for discontinuing the age old time tested system of
branch statutory audit.
2. SYSTEM OF BANKING AND NECESITY OF TRUST
The system of banking is such that the deposit accepted from the
public is given as loan to the needy. This system is built on trust
and any dilution can lead to the collapse of the system. Auditing is
one of the most important elements in building this trust, built up
over decades and the dispensing of the age old practice without rhyme
or reason can prove to be costly.
3. IMPLICATIONS OF YEAR END STATUTORY BRANCH AUDIT
The basic principle of audit itself is to ensure maintenance of proper
records in accordance with Banking Regulations, Rules, Income-tax Act,
Companies Act, effective internal control, verification of asset
classification including lending to the priority sector, monitoring of
non-performing assets (NPA) and provisioning etc. This is very
important from the point of view of Income-tax Act and ensures a true
and fair view of the Profit and Loss Account and Balance Sheets of the
banks. Considering our past experience, there used to be number of
modifications / rectifications in the statements prepared by number of
branches during the course of audit. If the annual audit is dispensed
with all kinds of external independent verification will vanish which
can prove to be quite dear in the long run.
4. GOVERNMENT SUBSIDIES AND GRANTS ARE BEING DITRIBUTED THROUGH BANKS
Government is taking serious steps to distribute subsidies and grants
through banking system. Since most of the beneficiaries of grants and
subsidies are located in rural areas, banks in these areas are going
to play a major role in all developmental initiatives of our
government. These banks may not have Rs.20 crore advances but will be
distributing tens and hundreds of crores worth of grants and
subsidies. It will be detrimental to the development efforts, if these
banks which are to play a major role in the development of the country
are not audited regularly.
5. BRANCH STATUTORY AUDIT IS THE ONLY INDEPENDENT VERIFICATION
At present, branches having advances below Rs.20 crore are not
subjected to any kind of regular audit or inspection by independent
agencies like RBI except annual statutory branch audit. RBI inspection
is carried out in rural branches once in 3 to 5 years and most of
these branches are not covered under independent concurrent audit by
external agencies. Discontinuing branch statutory audit can have
serious implications in the long run and can prove to be costly,
considering the global experience. One of the major reasons for the
stability of Indian Banking System is branch level audit and controls
by external Auditors. For marginal monitory gains, diluting branch
audit system can be disastrous to the Banking System.
6. UTILITY OF BRANCH STATUTORY AUDIT IS NEVER IN DISPUTE
It is matter of pride for the Institute of Chartered Accountants of
India and its members that the Government, the RBI and the
stakeholders have lauded the importance and benefits of Bank Statutory
Branch Audit over several decades and hitherto there are no major
reservations on Bank Branch Audit. Considering this, it is not known
the forces behind elimination of Bank Branch Audits covering at least
70% of the branches if not more spread across the length and breadth
of the country.
7. CA's IN RURAL AREAS WILL GO OUT OF PRACTICE
A large number of Chartered Accountants live and thrive out of their
practice in rural areas. For these professionals Bank Branch Audit is
an avenue of service, which help them to maintain their practice in a
reasonable manner. If they are out of bank audit, not only many of the
existing practitioners will leave their practice but also fresh CA's
may not venture out to practice. This will have a cascading effect in
the sense for the trade and industry, they may have to avail the
Chartered Accountant's service from semi- urban areas at a higher cost
and it may deprive the opportunity for rural students to join for the
most economical professional course in the country. This can even
eventually lead to social injustice. Besides this, if the Chartered
Accountants in rural areas go out of practice, it can lead to
tremendous cost escalation of Chartered Accountants services in India.
8. AUDIT BY ITSELF WILL BRING DOWN FRAUD
The very fact that there is yearly statutory branch audit has proved
to be a deterrent to those committing financial irregularities.
Opposite proves true in the absence of audit.
B. IMPLICATIONS ON THE PROFESSION
i. CA'S IN THE SME SEGMENT MAY HAVE TO WINDUP THEIR PRACTICE
Chartered Accountants of the small and medium sector are largely
dependent on bank branch audit to make their practice sustainable in
the long run. This is more so in the case of new practitioners in the
rural areas, who are really dependent on bank branch audit to
stabilise their practice. In the case of some of the rural
practitioners, bank branch audit can be the largest billing client.
ii. IF RS.20 CRORES LIMIT IS FIXED, 70% OF THE BRANCHES WILL GO OUT OF AUDIT
In the unfortunate event of Finance Ministry sticks to their stand to
discontinue the yearly audit of bank branches with advances less than
Rs. 20 crore, it is reliably learned that it will render 70% of the
bank branches out of audit. This will have tremendous implications to
the profession as far as bank audit is concerned, not only for members
but also for CA students.
Both members and the future generation of CAs in rural areas will be
deprived of the exposure to bank audit. Even assuming these branches
are audited once in 5 years, such audit can be ineffective. Not only
that, the members in rural areas if at all they are in practice, will
not be interested to learn and assimilate to once in a blue moon
opportunity.
iii. ABSENCE OF BANK AUDIT WILL DISTANCE NEW GENERATION TO ENTER IN TO PRACTICE
Already the profession is facing a crisis in the absence of new
practitioners, especially the new generation, as is not lucrative.
Elimination of the bank branch audit can be the last nail on the
coffin as far as attracting young blood in to practice. This can
eventually have serious reflections in the profession as the
profession largely thrives on practitioners and the reputation
attached to attest function. Undoubtedly the attest function is the
core of the profession and is the backbone.
iv. PROPRIETARY PRACTICE WILL EXTINCT
Today around 80% of the practitioners are in the proprietary mode.
This vast majority are directly dependent on bank branch audit.
Absence of yearly branch audit may make their practice extinct,
considering their dependency on the bank audit. And as a profession
this can lead to tremendous setback and we cannot afford to overlook
the interest of the majority.
In view of the above submissions, I humbly request your esteemed
office to take up the matter on a war footing with the Finance
Ministry and RBI. I pledge my wholehearted support in your efforts to
save the situation.
With warm regards,
CA. Babu Abraham Kallivayalil, Kochi,
Member, Central Council (2013-16).
CC to: The Vice President,
The Institute of Chartered Accountants of India, New Delhi.
BABU ABRAHAM KALLIVAYALIL FCA, CISA, DISA,
Chartered Accountant,
Babu A. Kallivayalil & Co., CA'S, Manchu Complex, P.T.Usha road,
Ernakulam, KOCHI-682 011. Kerala, India. Phone +91484- 2363119,
2380868, Cell-098460 35333, 094460 66600.
E-mail:-babu.kallivayalil@gmail.com;bakco@vsnl.net
Those people who are aware of the news are keeping mum as they are not affecting by this decision of RBI. Only individual practiioners will affect.
ReplyDeleteI don't think RBI will revoke the decision. CAs need to have to find out other options.