The Reserve Bank of India (RBI) will meet with commercial banks' CFOs and external auditors on Tuesday to give a message of zero tolerance for compliance and regulatory violations.
According to the sources, two RBI deputy governors, M Rajeshwar Rao and J Swaminathan, would address the CFOs and auditors. The RBI may remind CFOs and auditors of their responsibilities to ensure that balance sheets appropriately represent the banks' financial situation.
"There is a level of trust deficiency. This has resulted in a perpetual schism between the external auditor and the bank, as well as between the regulator and the bank, over the interpretation of legislation, notably in terms of income recognition and loan provisioning," said a senior banker.
"Also the regulator is holding this meeting amidst an aggressive lending phase, which at times, may lead to ever-greening of loans and side-stepping regulations to meet growth targets," stated a top bank official. During a meeting with bank CEOs last week, the RBI expressed worries about the growing disparity between lending and deposit growth.
Some banks reported 15% to 16% loan growth in the first quarter that ended in June, but deposit growth was only 9% to 12%.
This matter was also brought up by Governor Shaktikanta Das during a College of Supervisors forum. "Pursuit of business growth is important, but it should never come at the expense of taking on unacceptable risks," he said.
The RBI has prohibited regulated organizations from executing specific business activities because of regulatory violations, coinciding with the time of the meeting with auditors and CFOs.
Kotak Bank was prohibited from providing new credit cards and from onboarding customers via digital banking in April. IIFL Finance was prohibited from lending money in gold in March, and JM Financial was limited from conducting any activity involving shares and bond financing. Prior to this, Paytm Payments Bank was told not to accept new deposits or enroll new users. Due to regulatory violations by the regulated businesses, which were expanding more quickly than the industry, all of these limits were put in place.
The RBI made top bank officials aware of the critical role assurance services play in risk awareness and risk management during a recent meeting.
