Calcutta, Oct. 3: With the Securities and Exchange Board of India (Sebi) making limited review of results mandatory and the Reserve Bank of India (RBI) advising banks to pay a reasonable fee for such reviews, the audit business in the banking sector is set to grow.
The bank audit fee market in the country currently stands at about Rs 220 crore. It is growing at an average of 12 per cent every year.
Public sector banks which dominate the banking sector pay the bulk of the audit fee, which stood at Rs 175 crore in 2002, while the remaining is paid by private, foreign, regional and co-operative banks.
“Following the Sebi and RBI guidelines, the bank audit fee is expected to rise at least 20 per cent,” said a bank auditor.
The largest portion of the fee by public sector banks is, however, not for the central statutory audit, but mainly for the concurrent audits of its branches.
The concurrent audit was instituted mainly to prevent income leakage, especially when account books were maintained manually and interest calculations had to be checked.
It is estimated that about 50-60 per cent of the 65,000 branches in public sector companies is covered by this kind of audit.
Banks outsource to audit firms which are paid between Rs 7,000 and Rs 30,000 per month depending on the size of advances in each branch.
There are about 200-300 audit firms registered with each bank for the purpose.
The auditors for the statutory central audit (usually around 5 or 6 firms per bank) are picked by RBI from a panel in consultation with the Institute of Chartered Accountants of India.
These appointments are normally for three years based on number of partners, seniority and experience in bank audits and branch/other audits. The audit firms are, however, satisfied with the amount paid by the banks. A Calcutta-based bank auditor said, “Banks pay decently. We give a lot of opinions and consultations, which we don’t bill in the interests of retaining the client. But banks and public sector units are willing to pay for such services.”
It may be noted that the Naresh Chandra Committee on Corporate Audit and Governance drew attention to the fact that “audit fees in India were generally low — which might over time, impinge upon the quality of audit”.