Mumbai: India’s largest lender and the national chartered accountants’ body are at loggerheads. At the heart of the issue is a sudden rise in State Bank of India’s (SBI) provisions requirement.
The Institute of Chartered Accountants of India (Icai) wants to know the reasons behind this, but state-run SBI said the institute cannot raise such questions; it can only ask the auditors who are its members.
In the January-March quarter, SBI had set aside Rs6,059 crore as provisions towards pension liabilities. This was 82% higher than what the bank had provided for in the year-ago quarter. In the preceding quarter, too, the provision had been smaller—Rs2,051 crore.
Raising concern: Icai president G.Ramaswamy raised the issue of SBI’s provisioning at a public function even before writing to the bank.
Icai wrote to SBI in June, wanting to know the reasons for such a sharp rise.
“We have responded to the body. We also want to know why Icai has gone to the press (making the issue public),” said an SBI official who did not want to be named.
Icai president G. Ramaswamy had raised the issue at a public function even before writing to the bank.
The accounting body “decided to send a letter to SBI to enquire about the reasons which led to an increase in provisions,” PTI had reported in June, citing Ramaswamy.
The Icai president was also reported as saying it planned to write to the Reserve Bank of India (RBI) and capital market regulator Securities and Exchange Board of India on the matter.
“If they feel that something is wrong with the bank’s auditing, Icai should ask their own members,” the SBI official said.
High provisions led to a 99% drop in SBI’s net profit to Rs20.88 crore for the quarter ended 31 March from Rs1,866.6 crore in the year earlier.
According to the official, “there is nothing wrong” with SBI’s accounting practices and the provisions in the March quarter were largely on account of the pension liabilities.
“They (Icai) have no authority to question us,” said a second SBI official.
Icai’s mandate doesn’t allow it seek an explanation from the bank, and its powers are limited to members who audit the balance sheet, according to some experts.
“The body is not empowered to seek explanation from a bank, but can surely do that to their members. At the same time, banks are answerable to the public and the regulator as they are dealing with public money,” said the chief financial officer of a Mumbai-based private sector bank. He declined to be named.
Icai did not immediately respond to an email seeking a response on the matter.
Banks are fully in compliance with guidelines on financial numbers, said Bhasker Sen, chairman and managing director of United Bank of India. “RBI guidelines are very clear on accounting, classifying of assets, and provisioning. We fully go by that. Icai can set guidelines for auditors. That is an issue between the accounting body and its members,” Sen said.
Incidentally, the banking regulator has expressed concerns over the trend of banks reporting a drop in profit after a change at the top. In late June, RBI deputy governor K.C. Chakrabarty said banks’ profit figures should not fluctuate too much with shifts in personnel.
“If a bank gets a new chairman and then its financial numbers undergo great volatility, there is a problem. We must ensure that it does not happen time and again, because at the end of the day, it is very important to maintain the quality of our banks,” Chakrabarty said.
According to him, such variations can create doubts in the minds of the people and there needs to be consistency, which otherwise raise concern.
SBI’s profit dropped 99% in the March quarter, shortly after Pratip Chadhuri took charge as chairman from O.P. Bhatt.
In the June quarter, SBI’s provisions rose 168% to Rs4,157 crore. It has set aside Rs2,782 crore to provide for bad assets.