RBI's rules on auditors put banks in a place

A few days after the Reserve Bank of India issued its own auditor regulations, several banks and NBFC contacted PwC and other audit firms, seeking to clarify the likely implications of the audit. a clause that could prevent auditing companies accused of irregularities.

The central bank published on June 29 a framework for auditors and measures that could be taken against audit firms in the event of forfeiture.

"In the case of an offense / forfeiture identified by another regulatory or law enforcement agency – judicial or governmental authorities – the RBI would refuse to conduct an audit of these companies", was -he adds.

The rule should strike one of the largest Indian auditing firms, Sharp and Tannan, who has been named in an ongoing investigation by the economic crime wing.

Banks, including HSBC, JP Morgan, Deutsche Bank, Paytm Payments Bank, IndusInd Bank, and Ujjivan Small Finance Bank, contacted PwC and the auditors to clarify the issue and ask if these auditors should be replaced.

"Should banks replace the auditors at the next annual general meeting or can they replace them next year?", Said the chief audit officer of a company. "The problem is now, you have three separate regulators trying to regulate the listeners.It's too much regulation," he said under cover of anonymity.

A strict interpretation of the RBI rule could mean that most major audit firms might not be able to audit a bank or NBFC, according to industry experts.

"If the RBI circular is interpreted strictly, auditors of companies that have been sidelined by state governments or whose promoters have fled to India will not be able to conduct bank audits" . Similarly, auditors of insolvent companies or auditors who have been involved in other audit-related service offenses could be excluded.

This could mean that no top company would be able to check a bank or NBFC, "said the person. Most companies are looking at how RBI would treat PwC because it should set the tone for other companies, said one insider. Price Waterhouse (PW), an affiliate of PwC India, has been banned by the market regulator, Sebi, from auditing any listed company for two years.

PwC challenged the order in Securities Appellate Tribunal, but no final ruling has yet been made. "Banks that use Price Waterhouse and are listed in India have sought clarification from RBI, but no response has yet been received," said one of the people familiar with the case .

"A lot, like (for example) IndusInd went from the front and moved an AGA notice for the change of listener from PwC to EY. They play safe because they do not do not want any problems later.On the other hand, foreign banks are waiting for the response of the RBI, because there is no pressure from an AGA vote, " the person said.

Email queries sent to PwC, Sharp and Tannan, Paytm and Ujjivan Small Finance Bank did not elicit a response to the press on Thursday. HSBC, Deutsche and JP Morgan declined to comment.

Informed people said that the interpretation of the RBI circular and regulations could also mean that firms can only be banned when it is proven that they were responsible for Negligence or connivance.