Bank Ceos Barred From Audit Panel Of Boards

The chief executive officers (CEOs) of commercial banks have been barred from being appointed as members on the audit committee of the board of directors.

The move will ensure that the various problems in the banks like frauds, and action on Reserve Bank of India (RBI) inspection reports are acted upon and not thwarted by the bank CEO. The apex bank wants to prevent a repeat of the Indian Bank fiasco, where the chairman allegedly prevented a clean up of the books thus hindering good governance.

Among other banks, too, the CEOs give routine replies to adverse remarks made by auditors and no action is taken. In some cases, the CEO is also the chairman of the audit committee of the board. In a circular to all commercial banks, the RBI has ordered reconstitution of the audit committee boards.

 

The constitution of the panel was a fallout of the observations made by the joint parliamentary committee looking into the bank scam.

When the committee was initially formed, it was allowed to have one wholetime director and two non-official non-executive officers, one of whom had to be a chartered accountant. Now the RBI has disallowed the appointment of a wholetime director.

In the circular, RBI said: "It is not the intention that the chairman/ managing director/ chief executive should be appointed in the audit committee of the board." The circular adds that a non-official director should be made chairman of the audit committee.

The apex bank has said that non-official directors should be rotated every two years. This should, however, ensure that at least one non-official director is a chartered accountant. If the bank has only one non-official chartered accountant director, he should not be rotated and should continue to be in the panel.

The RBI has ordered that the constitution of the panel should be finalised on the above lines immediately if not already done. After the constitution of the new panel, an official of the bank can attend its meeting only by invitation. One of the most important roles of the audit panel is to ensure that the recommendations of the RBI inspection reports are carried out. It has often been found that the remarks made in the inspection reports are rarely acted upon as the CEO on the board vetoes suggestions of the other members of the audit panel.

Now the audit panel will take an independent stance and report directly to the board without interference from the CEO. The other functions of the audit panel include ensuring inter-branch and inter-bank reconciliation of accounts and reconciliation of nostro accounts among others.