RBI ordered special audit of Bank of Rajasthan

 

 

 

Mar 9, 2010

The Reserve Bank of India (RBI) has ordered a special 

audit of the accounts of Bank of Rajasthan (BoR) following 

investigations into irregular dealings by the private sector bank. 

 

The regulator has appointed Deloitte Haskins & Sells to 

audit the bank’s lending policy among other things while

the parent accounting and consulting firm Deloitte Touche 

Tohmatsu has been hired to audit the information 

security system of the bank.
Special audits are rare and directed by RBI only 

under exceptional circumstances.

A week ago, BoR made news after RBI imposed

a Rs 25-lakh fine on the bank following a string of 

violations. RBI pulled up the bank following violations

in property transactions, anti-money laundering norms,

irregularities in the conduct of accounts of a corporate

group and failure to provide certain documents sought by RBI.

Deloitte Touche Tohmatsu’s main mandate is to find out

whether BoR’s IT systems are in line with the best 

practices followed by other banks in terms of 

information security. It will also suggest whether

there is a need to modernise and upgrade BoR’s present system.

RBI has felt the need for such an audit following BoR’s 

decision to give a huge intra-day overdraft to the 

Lucknow-based Sahara group. 

 

The overdraft facility extended by BoR was well

beyond all permissible limits. Besides, a systems

audit may be partly driven by the revelation that 

some of the bank’s records got deleted.

The bank’s poor corporate governance standards

have prompted RBI to conduct special audit.

One of the concerns is the presence of S K Tayal, 

a relative of promoter PK Tayal, on the bank’s credit

committee and board of directors.

BoR, unlike other commercial banks, which have various

credit committees depending on loan size, has a single 

committee for approving loans. In most banks the local 

office may have the power to sanction loans up to Rs 25 crore,

while loans of Rs 25-50 crore are approved by the credit committee

at the head office and loans above Rs 50 crore go to

management committee.

In BoR, the RBI, according to sources in the central bank,

fears that the directors play a significant role in the entire 

credit delivery mechanism.

Deloitte Heskins & Sells has been asked to carry out an audit 

of the “internal delegation of sanctioning powers followed by the bank.”

Last year, the central bank appointed G Padmanabhan, 

a former State Bank of India official, as the MD and CEO of BoR 

after it sensed certain irregularities in the bank. 

 

When contacted by ET, Mr Padmanabhan confirmed 

that RBI has mandated a special audit after BoR made 

certain disclosures while announcing its third quarter

financial results. The disclosures relate to inadequate

provisioning for bad loans and superannuation benefits,

and the dispute over the rent the bank should pay for 

the Mumbai property where the BoR head office is located.

Deloitte Heskins & Sell’s will review whether the bank

has made adequate provisioning for bad loans and 

whether it has followed all asset classification norms

laid down by RBI. The other area that the auditors 

will review is the superannuation benefits given to

a section of the bank’s employees.

While 90% of the bank’s 4,000 employees receive salary

in line with the bi-partite agreement signed between the 

Indian Banks Association and the member banks, 

around 10% employees in the mid to senior level have a

different salary and pension structure. 

 

The bank has not fully provided for the 

superannuation benefits of these 10% employees.