991
Editorial
Bank Branch Audit
The Indian Banking industry has evolved over a the Standards and Guidance Notes issued by the
long period of time to acquire indomitable position Institute of Chartered Accountants of India. Last
in the economy. It would not be exaggeration to but not the least auditors need to go through the
state that the banking system is lifeline and its relevant internal circulars and manuals of auditee
fruits are enjoyed from large corporate houses to banks.
the individual villagers staying in geographically Indian banking system is highly regulated. In spite
obscure places. The spread of banking system is of the best efforts there have been major bank crises
very wide encompassing every nook and corner of in Indian banking industry including in some of the
the country. cooperative banks in recent times. The banks are
The system plays a catalytic role in activating and also facing challenge of Non Performing Assets,
sustaining economic growth and is quintessential however, silver lining is that NPAs are receding.
part of ecosystem of the Indian economy. The Incidentally, these banking setbacks erode public
banking system is inherent and integral part of many trust in the overall system, which is not good for
government initiatives helping in the inclusive economy.
growth and implementing various developmental The internal functioning of the banks has become
schemes. One such recent initiative, Jan Dhan technology driven with the implementation of
Yojana – a mass financial inclusion program Core Banking Solution. While technology can help
targeting the individuals who are otherwise in automatizing processes, bring speed and reduce
deprived of banking benefits has so far brought human discretion, it also brings new dimensions in
Rs 1,12,815 crore to productive channels through the problems that may be faced by the banks. The
deposits from 37.95 Crore beneficiaries. Banking internal control systems cannot be overly relied
system is also used as an intermediary to deliver as the problems below the calm waters can be of
benefits and subsidies bringing transparency in the uncontrollable magnitude. Auditors can identify
system and plugging gaps in delivering help to the potential risk areas and weak internal controls.
needy. The Reserve Bank of India in its recent report on
As the financial year is reaching its conclusion, it ‘Trend and Progress of Banking in India - 2018-
is time for the audit of banks. The importance of 19’ has observed that: The slowdown in global
banking system in the economy puts exceptional and domestic growth impulses in the recent past
responsibility on the shoulders of bank auditors impinged on credit demand. The asset quality,
to deliver high quality services. Traditionally, the capital adequacy and profitability of scheduled
main business of banks was to accept deposits commercial banks improved after a long period
and offer loans. The desire to grow, competition, of stress, although challenges emerged from other
technological thrust, fading geographical areas like non-banking financial companies and
boundaries have pushed banks into taking plethora co-operative banks. Going forward, issues such
of additional activities. They directly or through as resolution of stressed assets, weak corporate
separate structures offer variety of financial governance, and frauds need to be addressed to
products. Thus making the audit task complex, reaffirm a robust financial sector that minimizes
intriguing and highly specialised. The auditors also systemic risks.
have challenge of limited time available to audit a Bank Audit is an opportunity for the auditors to
single branch. Thus they need to be well prepared promote culture of good governance and help the
with complete understanding of the framework regulators and government. At macro level, the
governing the banking industry. The auditors task of auditing of banks can help the Reserve Bank
need to understand the laws including the Reserve of India to have a closer look at the functioning of
Bank of India Act, 1934, Banking Regulation the banks and simultaneously identify critical areas
Act, 1949 and other relevant Acts. Indian central that need greater supervision or regulation.
bank, Reserve Bank of India issues a number of
circulars and directions that are relevant for the
-Editorial Board ICAI: Partner in Nation Building
auditors. The auditors need to be well versed with
www.icai.org THE CHARTERED ACCOUNTANT FEBRUARY 2020 3
