Bad loan crisis ‘due to selection of auditors’

The chartered accountants’ apex body president M Devaraja Reddy, who assumed office on Friday, said the system, in which the management of a bank is authorised to select and appoint the auditor from a list provided by Reserve Bank, could have indirectly caused the NPA crisis. 

“Chairman of a bank will search for a person who is comfortable to him where an auditor is not having much knowledge. Earlier, RBI used to select central statutory and joint auditors based on the advances of banks. “Now, banks are taking their decisions and appoint auditors sometimes just two or three (where it is required to appoint five or six). Lack of proper appointment of auditors is one of the reasons in escalation of NPAs,” Reddy told a press conference. 

He said ICAI has submitted the pre-budget memorandum to the Ministry of Finance for Budget 2016-17. The suggestions given by the accountants’ body do not only relate to fiscal laws and taxation but also pertain to overall economic development.