Concerned over the unusual steep fall in SBI's profit for the March quarter after a change of guard at the helm, the Finance Ministry has said it is in the process of putting in place a mechanism to ensure continuity in accounting practices in banks.
The Finance Ministry is addressing the issue and is planning to lay certain guidelines, Department of Financial Services Secretary DK Mittal said, adding that "the change of top management should not lead to rewriting of books and there has to be some continuity".
"There is a need to have more scrutiny by somebody," he said, adding that the change in guard should not lead to a significant change in the bank's balance sheet.
After Pratip Chaudhuri succeeded OP Bhatt at the country's largest lender State Bank of India (SBI), its profit plunged 99% for the quarter ended March 31, 2011. Its profit was just Rs 20.88 crore against Rs 1,866.60 crore for January-March quarter of 2010.
"If accounts are prepared wrongly then auditor is held responsible apart from officers. There has to be some accountability. It's not that you rewrite the accounts and you are scot free...Same Chartered Accountant is re-appointed and officers rewrite," he added.
Earlier the Reserve Bank Deputy Governor KC Chakrabarty had also said that there was a need for banks to improve the standards of financial reporting.
"See our banks, I see when the chairman retires the profits go down," Chakrabarty had said.
There is a need to improve both the standard of reporting as well as that of examination of account books, Chakrabarty had said.
Mittal said, "One decision which has been taken and implemented is that executive directors and Chairmen of banks should join the respective banks at least 15 days before [the expiry of incumbent chairman's or executive director's term] so that they are aware of the bank. They [designated person] know the bank's policy and direction."
"Many time these changes [discontinuity in the financial numbers] happen because they are not aware," Mittal said.
To begin with, last week, the Finance Ministry had directed Executive Director of Indian Overseas Bank (IOB) Nupur Mitra to join Dena Bank as the Chairman and Managing Director (CMD) 15 days ahead of schedule.
She will take over as the CMD from D L Rawal, who will be retiring this month end.
