The Reserve Bank of India has ordered continuous concurrent audit of all bank branches dealing in foreign exchange with effect from October 1997.
This is being seen as an attempt to streamline the working of banks ahead of capital account convertibility.
The central bank has delegated powers to authorised dealers and concurrent audits are meant to ensure that these powers are not misused.
The RBI has suffered losses on the FCNRA account with banks not reporting their liabilities, resulting in underprovisioning by the central bank.
Over the past few months, the RBI has permitted authorised dealers to allow various remittances for trade and personal use. It has also relaxed restrictions on the use of exchange earners foreign currency (EEFC) funds and allowed banks to deal in forex derivatives. Foreign institutional investors (FIIs) have been allowed forward cover in respect of their debt investments.
Again, banks have also been allowed to invest in overseas instruments and the norms for remittances of income on investments by overseas agents in India have been eased.
It is felt that these relaxations give scope for flight of capital overseas. With concurrent audits in place, the RBI will be able to prevent banks from misusing these relaxations.
A circular issued by the RBI this month directs banks to institute a system of concurrent audits. It is presumed that the concurrent audit system as per the revised guidelines has been introduced in your bank and would have stabilised by now. Suggested items of coverage give details of forex transactions under eight different heads to be subjected to the concurrent audit system, the circular states.
However, in view of the liberalisation and consequent delegation of powers to authorised dealers ... it has now been decided to enlarge the scope and coverage of concurrent audits in respect of forex transactions and to bring all forex transactions undertaken at the branches and dealing rooms under the concurrent audit system, effective from October 1997.
(It) will have to seen whether the transactions and decisions are within policy parameters laid down by the head office and do not violate the various provisions.
All branch offices undertaking forex business and dealing rooms will have to brought henceforth under the continuous concurrent audit system, the RBI circular adds. The annual report of the concurrent system will need to be sent to the Reserve Bank.
