Amid mounting bad loans in the banking system, chartered accountants' apex body ICAI's new President M Devaraja Reddy today said the current system of selecting auditors for public sector banks is a reason for the rising non performing assets.
Currently, an auditor for a public sector bank is practically selected by the chairman of the respective lender unlike the earlier practice of auditor being appointed by RBI, he said.
On the issue, the Institute of Chartered Accountants of India (ICAI) has represented to the government seeking changes.
"Unfortunately, in the appointment of auditors the government has given authority to the respective bank heads. That is why there is a lot of NPAs," Reddy said.
"Let the RBI appoint or the CAG appoint... So then the auditing will improve," he noted.
Reddy also suggested that the government could look at having a committee, with representations from RBI, CAG, bankers' association and ICAI, that selects auditors for the banks.
"We have made representation to the earlier and this government... We are expecting a positive response in coming so that the appointment (process) becomes independent," he added.
The current system is for both central statutory as well as bank branch audits. When asked whether changing the current auditor appointment system would help address the NPA issue, Reddy said, "This is a delicate issue" and that independence of auditors is "little bit eroding" with the present system.
The banking system has seen a spurt in non-performing assets (NPAs) and provisioning for bad loans has pushed some banks to post quarterly losses while many have seen steep plunge in their profits.
