Banking regulator Reserve Bank of India (RBI) has questioned scores of auditors at 27 public sector banks on the process and logic they had used to compute and report write-downs at the lenders, according to an Economic Times (ET) report on Monday.
Two people close to the development told ET that RBI has sought written explanation on differences in write-down assessments by its own inspectors and those certified by the auditors.
ET cited reliable sources as saying that auditors at State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), Canara Bank, Allahabad Bank and Bank of India (BoI) were sent the show-cause notices about two weeks ago.
A write-down is a reduction in the estimated and nominal value of an asset, and is charged off as a loss to the profit and loss account for the relevant period. A write-down becomes a write-off if the entire balance of the asset is eliminated and removed from the books altogether.
The ET report said that in some cases, the RBI also questioned the provisioning methodology and non-performing asset (NPA) figures arrived at by the auditors at a few public sector banks, sources told ET.
The banking regulator is examining whether auditors at these state-run lenders followed RBI guidelines on write-downs, provisioning and NPAs, the ET report said. "This is part of RBI's annual assessment. Auditors will have to explain how they provisioned for NPA and how they calculated write-downs," a person aware of the matter was quoted as telling ET.
The write-downs, NPA and provisioning figures arrived at by the auditors and RBI inspectors differ by up to 10 percent.
According to RBI data, PSU banks in 2016-17 have written off Rs 81,683 crore against Rs 2.49 lakh crore in the past five years, the report said. In a few cases, the audit reports of some of these lenders do not reflect these write-downs, sources told ET. Most banks do not separately report write-downs in their accounts, combining them often with quarterly provisioning.
Most Indian public sector banks use more than one auditor due to the enormous size of their balance sheets. Most auditors are mid-to-small Indian firms that audit several branches. The 27 public sector banks collectively employ 115 auditors, according to data analysed by the ET Intelligence Group, the report said.