RBI removes Cooling Period for Bank Branch Audit for CAs

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The RBI notified Rotation Policy instead of Cooling Period for Bank Branch Audit for CAs.

The Reserve Bank of India (RBI) notified the change in norms on eligibility, empanelment, the appointment of Statutory Branch Auditors in Public Sector Banks from years 2020-21 onwards.


The RBI notified Rotation Policy instead of Cooling Period for Bank Branch Audit for CAs. In other words, the concept of compulsory rest for two years for audit firms located in the specified centres, after completion of four years of continuous branch audit, followed till Financial Year 2019-20 has been done away with.

Instead, the branch auditors across all the centres of the country, on completion of four years of continuous branch audit, will be subjected to the policy of rotation i.e. they may be considered for appointment as SBAs of any other PSB.

However, the audit firms will not be eligible to be re-appointed as SBAs, in the same bank where they completed their audit assignment prior to rest/rotation, at least for one cycle of four years.

The RBI further notified the change on norms for selection of branches of Public Sector Banks (PSBs) for Statutory Audit.

Firstly, statutory branch audit of PSBs should be carried out so as to cover 90% of all funded and 90% of all non-funded credit exposures of a bank.

The selection of branches for statutory audit shall include a representative cross section of rural/semi-urban/urban and metropolitan branches, predominantly including branches which are not subjected to concurrent audit.

CPUs/LPUs/and other centralised hubs, by whatever nomenclature called, would be included for branch audit every year.

The selection of branches shall be finalised by each PSB with the consent of their Statutory Central Auditor/s. Secondly, in respect of those branches, which are subject to concurrent audit by chartered accountants and not selected for branch audit, LFARs and other certifications done by concurrent auditors will be submitted to the Managing Director & CEO of the bank.

The banks in turn will consolidate/compile all such LFARs and other certifications submitted by the Concurrent Auditors and submit to Statutory Central Auditor/s as an internal document of the bank.

The RBI notified the change in the procedure for appointment of Statutory Branch Auditors.

Firstly, the list of eligible auditors/audit firms will be prepared by the Institute of Chartered Accountants of India (ICAI) as per the norms prescribed by RBI.

Secondly, the list will be subjected to scrutiny by RBI for identifying the continuing and rested firms and excluding audit firms who have been denied audit.

Thirdly, RBI will, thereafter, forward the final list of all eligible auditors/audit firms to PSBs for selection of the required number of branch auditors/audit firms.

Banks will be required to clearly advise the selected audit firms that each audit firm can take up audit assignments (branch audit) in one PSB only. The audit firm should give its consent in writing for consideration of appointment in the bank concerned for the particular year and the subsequent continuing years.

Fourthly, the consent given by an audit firm is irrevocable and no request from audit firms for changing the bank, after giving its consent will be entertained.

Fifthly, after the selection of branch auditors, PSBs will be required to recommend the names of both continuing and selected branch auditors to RBI for seeking its prior approval before their actual appointment, as per statutory requirement.

The RBI while elaboration on the change in general guidelines applicable to appointment of Statutory Branch Auditors stated that SBAs will have a maximum tenure of four years in a particular bank.

The appointment of SBAs will be made on an annual basis, subject to their fulfilling the eligibility norms prescribed by RBI from time to time, and also subject to their suitability.

“While allotting branches, banks are required to select auditors/audit firms which are in close proximity to their offices/branches. Banks are also required to have a suitable mix of various categories of auditors / audit firms while selecting the branch auditors keeping in view the size of the branches to be audited.

Banks are advised to allot branches, to the extent possible, to the audit firms taking into consideration their category and audit experience in such a way that specialised and larger branches are audited by bigger/experienced audit firms,” the RBI said.

The audit firms retiring as Statutory Central Auditors from a PSB shall not be eligible to be appointed as SBAs of the same PSB during the prescribed cooling period for SCAs from that particular PSB.

The RBI notified change in the eligibility norms for the empanelment of audit firms to be appointed as Statutory Branch Auditors in PSBs.

Read the original RBI Notification: Norms on eligibility, empanelment and appointment of Statutory Branch Auditors in Public Sector Banks from the year 2020-21 and onwards

No need to apply for loan interest waiver, relief to be automatically credited into accounts: Finance Ministry

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– The rate of interest as of February 29 that will be used to calculate the interest differential will not include any penalties or any penal rate of interest applied to the loan. – The package will be available for eligible borrowers irrespective of whether they have availed or partially availed or not availed the moratorium on repayment announced by RBI

Borrowers will not need to apply for the interest-on-interest waiver scheme for the six-month loan moratorium, the finance ministry has said, asking lenders to credit ex-gratia relief amount into the accounts of those eligible.

The ministry late Tuesday issued a set of 20 clarifications on the scheme in form of frequently asked questions or FAQs

The lending institutions will draw up a list of their borrowers eligible under the criteria laid down by the government and refund the difference between the compound interest and simple interest paid between March 1 and August 31.

The benefit is available to all eligible borrowers including those who did not opt for moratorium. The lenders can seek a refund from the government that will foot the bill.

According to a Crisil report, 75% of borrowers will be covered under the scheme, which likely to cost the government Rs 7,500 crore.

The scheme is not applicable to accounts classified as non-performing assets (NPAs) at the end of February as also loans against fixed deposits, bonds, shares or other interest-bearing instruments and loans given for investment in financial assets such as shares and debentures.

While the scheme includes any outstanding amount on credit cards, relief will not be paid to those credit card holders with a card balance in ‘credit’, as per the FAQs.

The Rs 2 crore limit is based on the borrower’s aggregate loans across lending institutions as on February 29.

Non-fund based limits such as letters of credit and guarantees would not count towards the Rs 2 crore limit.

For calculating the interest differential, lending institutions will consider the contracted interest rate on loans as of February 29. For zero interest loans, the lender’s base rate should be used while for credit card dues, the weighted average lending rate for the transactions between March 1 and August 31 should be applied, the ministry said.

On October 23, the government had announced the scheme for ex-gratia payment of difference between compound interest and simple interest for six months (March 1, 2020 to August 31, 2020) to borrowers in specified loan accounts.

The move was in response to the Supreme Court (SC) seeking clarity on the waiver of ‘interest on interest’ in the ongoing case filed for relief of borrowers availing the moratorium on loan repayments granted by the Reserve Bank of India (RBI).

The case was filed on behalf of borrowers, seeking relief from payment of the interest accruing on the monthly instalments that were paused for six months.

The SC has set the next hearing for November 2 to assess the implementation of the scheme, which the government said would be completed by November 5.

“Banks will not have to go through individual borrowers, only the categories need to be selected and the scheme needs to be applied. It will all be system-based, there is not much manual intervention required,” said Mukesh Kumar Jain, former managing director and CEO of the erstwhile Oriental Bank of Commerce.

The FAQs said banks would use the information they had along with information from credit bureaus to assess a borrower’s aggregate loans. Jain said this should not be an issue as, “Normally, loans up to Rs 2 crore are taken from a single bank since it is a relatively small amount”.

Source: Economic Times

MSME credit to grow at 12-14% over next 5 years: ICRA

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The credit to micro, small and medium enterprises (MSMEs) is expected to grow at 12-14 per cent over the next five years, helped by higher lending by non banking finance companies (NBFC) to the segment, says a report.
As on March 2017, credit to MSMEs stood at Rs 16 trillion.

NBFC and housing finance companies are expected to expand at about 20-21 per cent compounded annual growth rate (CAGR) in this space during the period, while bank credit to this segment, which accounted for about 84 per cent of total MSME credit, is estimated to grow at a lower CAGR of 9-11 per cent, according to a report by Icra.

“Non-banks share in the MSME credit pie should expand to 22-23 per cent by March 2022 compared to 16 per cent in March 2017. Non-banks, with their niche positioning, differentiated product offering, good market knowledge and large unmet demand, would be able grow at a healthy rate vis-a-vis banks,” the rating agency’s assistant vice president and sector head, A M Karthik said.

He added there is large unmet credit demand in the MSME segment, which was estimate to be about Rs 25 trillion in FY2017.

“Notwithstanding the estimated growth, the unmet credit demand quantum is likely to increase further, going forward,” he said.

With large corporate credit expected to remain sluggish, at least over the next one-two years, the bank credit to the MSME segment is expected to be around 9-11 per cent with public sector banks growing at 7-9 per cent and private banks at 16-18 per cent, the report said.

Banking NPAs in the MSMEs segment stood high at about 8.4 per cent in March 2017 while that of non-banks stood at about 3 per cent as on that date.

The report said notwithstanding the moderate seasoning of the portfolio, non-banks have a more flexible and customised credit assessment for this segment and have steadily been moving to lower ticket loans, in view of the asset quality pressure in the large ticket loans and better yields in the smaller ticket loan categories.

“While non-bank asset quality is expected to worsen from current levels, the extent of deterioration may be lower than that witnessed in banks,” the report said.

Source: Times of India

Jewellery Export Council may cancel Firestar, Gitanjali Gems’ membership

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The Mumbai-based council said earlier that the Nirav Modi/Gitanjali Gems incident is of concern to the industry and had condemned any sort of unlawful action.

The Gems & Jewellery Export Promotion Council may cancel the membership of Nirav Modi, Gitanjali Gems and related companies after Punjab National Bank named them in a complaint of alleged fraud.

“Their companies are registered with us. Nothing is known as of now but if something comes out, we will take disciplinary action against them,” said Praveenshankar Pandya, immediate past Chairman of the council. Firestar Diamond, owned by Nirav Modi, and Gitanjali Gems, which belongs to his uncle Mehul Choksi, are members of the council, the apex body of the gems and jewellery industry that represents almost 6,000 exporters.

According to a council official, cancellation of membership can cause problems for exporters as banks and suppliers often ask for certificates and membership details. “Our cancellation will reflect poorly on them in the global market,” the official said. The council hasn’t cancelled a membership in at least a decade, he said.

The Mumbai-based council said earlier that the Nirav Modi/Gitanjali Gems incident is of concern to the industry and had condemned any sort of unlawful action. “The council strongly believes that this incident will not have any contagion effect on the gems and jewellery export industry,” it said in a statement on February 17. Pandya sought an investigation into alleged irregularities by the two companies in their bank dealings. He said small exporters were now facing difficulty in securing loans worth Rs 20-30 crore from banks.

“There is a shortage of finance for small and medium diamond exporters. They are made to run from pillar to post, asked for collateral and other details like credit ratings by the banks,” Pandya said. India’s diamond exports stand at $23 billion with value addition in excess of $7 billion.

 

Source: The Economic Times

 

 

PNB fraud fallout: RBI tells banks to link SWIFT with CBS by 30 April

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The PNB fraud, which happened via SWIFT, went undetected since it was not linked to core banking solutions (CBS) and because checks failed at several levels
RBI has announced the setting up of a panel under the chairmanship of Y.H. Malegam to study rising cases of bank fraud and set out a blueprint to curb them.

The Reserve Bank of India (RBI) has set 30 April as the deadline for banks to integrate SWIFT (Society for Worldwide Interbank Financial Telecommunication) with core banking solutions (CBS) as it looks to strengthen internal controls in banks following the Rs11,400 crore PNB fraud.

“That (30 April) could be a deadline but it is an outer limit. Today, the urgency is such that everyone wants this project to be on fast track,” Usha Ananthasubramanian, managing director and chief executive officer of Allahabad Bank, and chairman of the Indian Banks’ Association (IBA), said on the sidelines of an IBA event on Friday.

“There is already a mandate from RBI that you need to comply with this straight through processing and combining SWIFT with CBS… Everybody has started…” she added.

The PNB fraud revolves around SWIFT. Branch officials of the lender fraudulently issued letters of undertaking, basically guarantees, to jeweller Nirav Modi-linked companies without getting proper approvals and without making entries in CBS, the software used to support a bank’s most common transactions.

The scam that happened via SWIFT went undetected since it was not linked to CBS and because checks failed at several levels, say experts.

RBI announced the setting up of a panel under the chairmanship of Y.H. Malegam, a former member of its central board of directors, to study rising cases of bank fraud and set out a blueprint to curb them.

In a letter to banks, RBI also reiterated that they must strictly comply with the principle of “four eyes”—that each SWIFT message must be processed by four bank officials: a maker, a checker, a verifier and an authorizer—two people who have seen the letter said on condition of anonymity.

“Apart from talking about maker-checker concept, RBI has asked banks to maintain a Chinese wall between officials dealing with SWIFT and CBS,” said a senior official at Mumbai-based bank, one of the two people cited above.

Source:  The Economic Times

Here’s why India has decided to crank up its crackdown against Bitcoins

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I-T department issues notices to 4 lakh high networth individuals across the country who were trading in bitcoins on exchanges

Here’s why India has decided to crank up its crackdown against Bitcoins

The rising craze for bitcoin, a cryptocurrency that has rocketed to shocking highs, has come under the government’s lens. Bitcoin can be an easy way to evade tax or snare unsuspecting small investors in ponzi schemes. The government has begun a crackdown on illegal uses of this unregulated virtual currency.

Widening its probe into bitcoin investments and trade, the Income Tax (IT) department is set to issue notices to 4 to 5 lakh high networth individuals (HNI) across the country who were trading on the exchanges of this unregulated virtual currency, the PTI reported.

The move comes after the IT department conducted survey operations last week at major bitcoin exchanges across the country on suspicion of alleged tax evasion. These operations were undertaken for gathering evidence for establishing the identity of investors and traders, the transaction undertaken by them, identity of counter-parties and related bank accounts.Earlier this month, there was a spurt in the value of bitcoin. It rose from under $10,000 at the start of the year to close to $20,000, before a sharp 20 per cent plunge within hours.

In addition to financial risks—the value of bitcoins has seen huge falls within hours—the regulators are worried about their use for illicit and illegal activities, subjecting the users to an unintentional breach of laws against money laundering and terror finance.Concerns also emanate from some unscrupulous entities indulging in illicit money-pooling activities—commonly known as ponzi schemes—with the promise of huge returns from investment in bitcoins and other variants, which they claim are minted through blockchain, a distributed ledger technology that was created to mint bitcoins and comprises of extremely complex algorithms with several thousand nodes for each chain.

There is a suspicion that some so-called cryptocurrencies and bitcoin investments may actually have nothing to do with any blockchain-developed virtual currency and are just new ways devised by scamsters to ride the wave and what they may be offering could be ‘e-ponzi’ schemes.

The financial regulators are worried that a complete lack of regulatory regime for such cryptocurrencies may give rise to ‘e-ponzi’ schemes.

The financial sector watchdogs, including RBI and Sebi, as also various government agencies, will soon get into a huddle to prepare a framework to safeguard the gullible investors and to clamp down on the fraudsters who may try to manipulate the regulatory gaps, PTI reported, quoting a senior official.

There are quite a few proposals on the table and those include applying to cryptocurrencies the existing regulations aimed at checking the spread of ponzi schemes or illicit money-pooling activities, money laundering and black money generation and circulation, another official said.

The jury is still out on whether such virtual currencies should be allowed as legal payment tender or investments, though there are also suggestions from some quarters for allowing them with necessary checks and balances.

Credit growth gathering steam: RBI

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Year-on-year disbursements up 10% as of November 24

Credit offtake from banks is gradually gathering steam, going by Reserve Bank of India data. This is underscored by the fact that year-on-year credit growth nudged closer to 10 per cent as on November 24, 2017.

Given the overhang of bad loans, especially in the case of public sector banks, market experts are of the view that these banks had turned risk-averse and reined in lending. However, banks seem to be slowly shrugging off their risk aversion.

In its fifth bi-monthly monetary policy statement, the Reserve Bank of India said: “On the positive side, there has been some pick-up in credit growth in recent months. Recapitalisation of public sector banks may help improve credit flows further.” After plunging to a multi-decade low of 4.1 per cent in May 2017, non-food bank credit has witnessed a rising trajectory every month since June, although it has been lower vis-a-vis the year-ago period.

In June, non-food bank credit growth rose to 4.8 per cent and increased in the following months — July (5.3 per cent); August (5.5 per cent); September (6.1 per cent); October (6.6 per cent). In the fortnight ended November 24, 2017, the banking system’s deposits declined by ₹41,164 crore while credit nudged up by ₹3,524 crore.

 

Source: The Hindu Business Online