RBI Deputy Governor Confirms Banking Sector's Strength in Supporting Indian Economy

The banking sector is currently experiencing a decade-high performance in financial metrics, positioning it to bolster India's economic growth, according to Reserve Bank Deputy Governor Swaminathan J. Speaking at a conference for statutory auditors and chief financial officers of commercial banks and Indian financial institutions, he highlighted several initiatives by the Reserve Bank of India (RBI) aimed at improving the auditing process.

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Enhancing Auditing Processes

Swaminathan detailed that the RBI has introduced structured meetings between supervisory teams and auditors, exception reporting, and streamlined auditor appointment processes. These measures are designed to protect auditor independence. He stressed that auditors must rigorously apply their audit processes to avoid divergence, under-provisioning, or non-compliance with statutory and regulatory requirements.

Auditors play a crucial role in evaluating internal financial controls over financial reporting. By adhering to regulatory guidelines and auditing standards, they can reduce the need for supervisory intervention. Swaminathan added that auditors are expected to identify and report emerging vulnerabilities promptly to both bank management and the RBI.

Role of Auditors in Financial Oversight

In his keynote address, RBI Deputy Governor M Rajeshwar Rao discussed the challenges faced by statutory auditors and the central bank’s expectations from them. He emphasised the importance of auditors in a principle-based regulatory regime and their role in the disclosure framework. The conference also featured Ajay Bhushan Prasad Pandey, chairperson of the National Financial Reporting Authority (NFRA), and Ranjeet Kumar Agarwal, president of the Institute of Chartered Accountants of India (ICAI).

Pandey underscored the critical role of CFOs and auditors in ensuring accurate financial statements free from misstatements. He shared insights from NFRA's case studies, highlighting effective communication among stakeholders, end-use monitoring of funds, and proactive oversight of branch auditors' work.

Building Capacity in Chartered Accountancy

ICAI President Agarwal spoke about the contributions needed from chartered accountants to help India achieve its goal of becoming a developed economy by 2047. He outlined various initiatives by ICAI to build capacity among chartered accountants, particularly in bank audits. The conference included technical sessions led by industry experts and RBI chief general managers.

The latest Financial Stability Report from RBI revealed that gross non-performing assets (NPAs) of commercial banks dropped to a 12-year low of 2.8% in March 2024. This figure is expected to decrease further to 2.5% by the end of the current fiscal year.

Ensuring Sustainable Growth

Swaminathan emphasised that while the banking sector is well-positioned to support India's economic growth, there is a shared responsibility to ensure this growth is sustainable over time. He highlighted the indispensable partnership between auditors, CFOs, and financial sector regulators in maintaining the integrity and stability of financial institutions.

He also called for upholding high standards of transparency, diligence, and professionalism to foster trust among stakeholders and ensure the resilience of the banking system. "I would like to mention that today the banking sector is at a decadal high in terms of all financial parameters that we monitor, and the sector is well poised to support the growth of the Indian economy," he said.

The conference underscored the importance of collaboration between various stakeholders in safeguarding financial stability. The discussions aimed at enhancing auditing practices reflect a broader effort to strengthen India's financial system as it continues on its path toward economic development.