Letter to BS: RBI inspection is not an audit and does not replace it

This refers to “Run-ins with Reserve Bank” (April 10). The impression being created of late, that the Reserve Bank of India (RBI) carries out something in the nature of audit of commercial banks, is gravely mistaken. The RBI carries out, as and when it decides to do so (not at any prescribed intervals), inspection of banks under Section 35 of the Banking Regulation Act 1949. Such inspections are for overall assessment of the inspected bank’s financial position and its methods of operation to ensure that it is not functioning in a manner detrimental to the interests of its depositors. The officers of RBI who carry out these inspections are those with knowledge of banking methods and procedures, but they are not often chartered accountants. They examine among other things the loan portfolios of banks and go into details, not of all individual loans, but normally of those of amounts above a cut-off point, specified by them. The docket on the covering page of their reports specifically says that “inspection is not an audit and does not replace it”.

R C Mody New Delhi

(The writer is a retired RBI officer who had carried out inspection of many banks during his stint at RBI)

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