The New India Co-op Bank case came to light last month when the RBI imposed restrictions on the bank’s operations, including restrictions on withdrawals by depositors. Mumbai police filed an FIR in the matter, and the case is being investigated by the Economic Offence Wing (EOW). The EOW arrested the bank’s general manager, Hitesh Mehta, for allegedly illegally withdrawing ₹122 crore from the bank. According to the police, the fraud was committed over a period of the last four years.
Since the bank was annually audited by the RBI as per the process, Mumbai police want to understand the auditing process and why the missing
₹122 crore did not appear in various internal and external audits.
Experts say that the RBI’s role is regulatory and supervisory regarding audits.
Uday Gandhi, forensic auditor, told CNBC-TV18, “The RBI’s role in bank audits is limited to the review of audit reports received from statutory auditors. The RBI mainly depends on and believes in the contents of the audit reports received from the statutory auditors empanelled with it. The RBI has prescribed an audit report format for cooperative banks for their statutory and branch auditors, which is very exhaustive and has been evolved over time with the modernisation of commerce and the digitisation of banking systems.
The RBI has set up an Urban Bank Department (UBD) which plays a supervisory and regulatory role in cooperative banks. In view of the above, as far as audits are concerned, the RBI’s role is regulatory and supervisory in nature. It sets the framework but does not conduct exhaustive audits itself. It relies on external experts like statutory and internal auditors and their reports, and hence their role is limited. The primary fiduciary responsibility towards stakeholders rests with the statutory, concurrent, and internal auditors, who are obliged to immediately report any suspected fraud in line with the RBI’s fraud monitoring guidelines.”
This is not the first time Mumbai police have sought an explanation from the RBI regarding the co-op bank audit process. In 2019, the PMC Bank scam surfaced, and Mumbai police sought a similar explanation from the RBI. The RBI filed an affidavit in the Bombay High Court stating that the RBI plays a regulatory and supervisory role in such audits.
(Edited by : Ajay Vaishnav)
