Forensic audit of ministries, too?

The forensic audit of United Bank of India (UBI) ordered by the Reserve Bank of India is a first in the country's banking history. The banking regulator has never ordered such a tough action against any public sector bank. In the long season of clean ups that India seems to have entered this could rank right among the top.

If RBI wanted to convey the message it means business, it has gone home. Last week this correspondent met the chairmen of two public sector banks where the discussion was just about this audit. RBI has followed it up barring lending of above Rs 10 crore by the bank to a single entity and also blocked it from restructuring stressed loans.

We will of course have to wait for the results of the audit to be conducted by Deloitte but there is no doubt the sector needed such a rap.

The problem however comes thereafter. Despite a 2009 circular of RBI the chief executives of public sector banks have rarely been held responsible for any misdemeanour. And while this could have been because of short tenure, it does not hold in the case for UBI or Allahabad Bank. Before Archana Bhargava came in to UBI, her predecessor Bhaskar Sen was in the saddle from March 2010 till December 2012. The bank of course ran without a full time chairman for three months, in between.

Similarly at Allahabad Bank while Shubhalakshmi Panse, the current CMD will have a term of 15 months, her predecessor JP Dua had a tenure of close to two and a half years.

So who exactly is responsible for the mess at both these banks? Also the boards of both these banks as well as that of other public sector banks are always populated by two officers nominated by the finance ministry and from the RBI. While the asset liability committee of the banks take most of the key decisions, just how can a board be unaware of loan decisions for large portfolios?

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