Someone who read my blog post called me and told me to consider the following:
If a fraud in any company occurs, it is the problem for the management, the Board and the owner, in that order.
In this instance, can the regulator change the owner? No. The Board? – No. The owner appoints them. Can the regulator order the CEO replaced? No! The owner does not need the regulator’s approval for public sector banks to appoint CEOs whereas private sector banks do need the regulator’s approval.
The regulator is responsible for financial stability and consumer protection.
Now, Tamal Bandyopadhyay in his piece for MINT says that RBI insists on reconciliation of Nostro accounts:
Finally, RBI is very particular in keeping a tab on all transactions in banks’ Nostro accounts and it always insists on timely reconciliation of such accounts. How could the rapid rise in transactions in PNB’s Nostro account escape the regulator’s eye?
I understand RBI sent a note to all banks in the first week of February, asking them to reconcile all Nostro accounts.
What if banks tell the RBI they have done so, without doing so? What can the regulator do, in such situations? Have the bank’s internal auditors and statutory auditors failed here?
Concurrent auditors in bank branches are assigned the job of transaction verification. There could be delay, but I wonder how the concurrent auditors failed in tracing out the full chain. Ditto about the statutory auditors. They are supposed to check customer-wise transaction register, along with sanctions /approvals for authenticating the true state of the books of accounts and establish the amount of bank’s contingent liabilities on the date of book closure. Similarly, the internal auditors are expected to verify client files, outstanding transactions, approvals and transaction registers. Besides, RBI auditors conduct the annual financial review.
But, Tamal also added this:
Besides, RBI auditors conduct the annual financial review.
What is the depth and breadth of this review? So, is the regulator really free of lapses here?