PNB scam: Letter to BS on how do you make regulators accountable?

This refers to the article, “Evaluating policy and regulation” (February 28) by A K Bhattacharya. He has concluded that, “It is time the concept of independent evaluation offices for different regulators and even for the administration of fiscal and monetary policies was revived”.

Permit me to differ from the above view. In the case of the banks including public sector banks, the regulator is the Reserve Bank of India (RBI). The RBI is quite independent in respect of supervision of the functioning of the banks. It is not anybody's case that there was no independence of the regulator, namely RBI, because of which this scam has taken place. This scam has taken place because the auditors have miserably failed in their job of detecting accounting irregularities. It has been reported that there were six types of audit and all of them failed in detecting that the LoUs were not entered into the core sector database of PNB. It is a matter of abject failure of the auditors. There is no policy involved in it. If anything, the number of auditors should be reduced. In the revenue department, that is, income tax, customs, central excise, service tax, sales tax etc. there are only two stages of audit. One is the internal audit and the other is CAG's audit. No scam has taken place in the last hundred years because a proper auditing system is in force.  Evasions have taken place which are not the job of audit to find out. That is for anti evasion and anti smuggling set up to detect. But the type of scam that has taken place in PNB because of not auditing properly, has never taken place in customs or income tax.
 

The real remedy is not to have so many regulators thinking that the higher level of regulator will be independent.  The real remedy is to chargesheet the failing auditors and throw them into jail if financial involvement is proved. Crime and punishment should be directly related. Building one regulator on the top of another regulator will be a complete failure.

Sukumar Mukhopadhyay 

New Delhi