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Dual control to what end?

P. Devarajan

THE Reserve Bank of India is keen that nationalised banks take up a limited review of their accounts beginning the half-year ending September 30, 2000, irrespective of the SEBI rules.

Under the SEBI rules, listed banks should submit a limited review to the stock exchanges in the current year, unless they have been given exemptions. The other banks may well take up such reviews from the next year. Effectively, RBI and SEBI will exercis e dual control over banks' balance sheets.

An RBI working group is in favour of the move covering banks' investment portfolios, forex and advances, apart from transactions at computerised branches. In India, depreciation on investments is taken on the books leaving out appreciation, contrary to i nternational practice. Auditors will have to sign the statement; in a way, providing the tribe extra incomes.

Internationally, a ``limited review'' is different from an audit in that ``it is short of an audit but more than a compilation of accounting numbers.'' The US follows a three-stage process: audit, review and compilation.

Bankers are awaiting a detailed circular from the RBI on the subject. The requirement should not be a problem, rather it could put bank managements on the alert.

Bankers and RBI officials are also in talks over six-monthly audits of the provisions made against NPAs, as against the current practice of annual audits. Despite detailed RBI circulars, there is little uniformity in bank accounting practices aver many b ankers, with what is seen as a condonable fault in the eyes of one auditor being considered a crime in the eyes of a second auditor.

RBI inspectors, auditors and bankers form a tripod with sharply differing views on classifying asset portfolios. And, to be fair, nobody can be said to be always wise. Over the last few years, bank balance sheets have begun to reveal something, though th ey continue to follow secretive practices.

SBI has started working on aligning its balance sheet to US GAAP norms, which could be a prelude to an ADR issue in about two years from now. The SBI Chairman, Mr. G. G. Vaidya, had made brave pronouncements on SBI raising some Rs. 5,000 crores through a domestic public issue and an ADR. But, with the Government still not being able to amend various Banking Acts, including the SBI Act, Mr. Vaidya may not see his plans fructify.

In the current year, banks will have to push hard to reduce their NPAs and write off or settle NPAs, following the RBI guidelines. This could sharply reduce their NPAs and impact on their balance sheets. About 60 per cent of the accounts are of below Rs. 5 crores, out of total NPAs of around Rs. 52,000 crores. And, if bankers even go half-way, they will be able to repair their balance sheets a bit.

The inflow of funds will not help banks much with few avenues to deploy them. And, inquiries with most chairmen reveal that their credit offtake is not worth talking about. As against this, a VRS may reduce disposable profits. Again, one is not sure of t he provisioning to be made against a drop in the value of investments, if it continues till March 31, 2001.

Interest rates are sure to climb up in another month and that spells difficult times. From next year, info on all these aspects may be available to RBI on a half-yearly basis. But, will it help the public in any way?