After the series of investigations on the irregular performance of the Bank of Rajasthan, RBI has ordered for a special audit of its accounts.
The RBI has mainly arrived at this decision after the Bank of Rajasthan agreed to give a large intra day overdraft to the Lucknow-based Sahara group which is beyond limits permitted.
Deloitte Haskins & Sells has been appointed by RBI to audit the bank's lending policy, while Deloitte Touche Tohmatsu, the parent company has been appointed with the task of auditing the information security system of the bank.
Such special audits are an exception and are only ordered for when the RBI has serious issues with a bank.
Recently, the Bank of Rajasthan had been penalized with a sum of 25 lakhs by the RBI on account of rule violation. The bank had violated property transaction and anti-money laundering norms, had shown irregularities in the conduct of accounts of a corporate group and also failed to provide certain documents sought by RBI.
The bank has shown very poor corporate governance standards which has finally led RBI to order for special auditing of the bank. The presence of S K Tayal, a relative of promoter PK Tayal, on the bank's credit committee and board of directors has also been a major cause of concern for RBI.
Unlike major banks which have several credit committees based on the size of loans, the Bank of Rajasthan has only one credit committee. What happens in most banks is that the local office mostly has the power to sanction loans up to Rs 25 crore. Loans of Rs 25-50 crore are approved by the credit committee at the head office while loans above Rs 50 crore are sent to the management committee for approval.
RBI has apprehensions that in the Bank of Rajasthan the directors have a major hand in the credit sanctioning mechanism.
The bank has been in the eyes of RBI since a long time. Last year, RBI had appointed G Padmanabhan, a former State Bank of India official, as the MD and CEO of BoR following the series of irregularities that were carried out by the bank. Mr. Padmanabhan has confirmed that the RBI has ordered for a special audit of the bank after it made certain disclosures while announcing its third quarter financial results. The disclosures are in context with inadequate provisioning for bad loans and superannuation benefits, and also over the dispute over the rent the bank is accountable to pay for the Mumbai property where it has its head office located.
Deloitte Heskins & Sell's has been appointed to review whether the bank has made proper provisions for bad debts and also whether it has followed the asset classification norms set by the RBI. The superannuation benefits given by the bank to its employees is also a major area that needs check.
90 % of the employees of the bank receive salaries as per the bi-partite agreement that was signed between the Indian Banks Association and the member banks while the remaining 10 % do not get salaries ad per the norms, feels RBI.
Deloitte Touche Tohmatsu has been given the major task of verifying that the information security system of the Bank of Rajasthan is as per the best practices standards set for the same and followed by other banks.