A circular has been issued to all scheduled commercial banks, advising them to conduct a thorough internal audit and place the report before audit committee of the board of the respective banks and to forward the summary of findings to RBI. This guidelines issued by RBI seems to be totally ridiculous and self defeating exercise.
I would like to mention here that as per existing guidelines every bank is duty bound to conduct internal audit of every branch periodically. Many types of audits are carried out depending upon the nature and volume of business taking place in a branch. Internal auditing system is already in force in very PSU bank.
In addition to it, each bank use to carry out concurrent audit of big branches where volume of business is huge . There is a practice of Statutory audit in every bank in which RBI nominated tam of Chartered Accountant conduct audit of specified branches periodically. In addition to all, every branch is subjected to revenue audit of almost all branches to stop leakage of income.
In such position , circular issued by RBI again to advise all banks to carry out internal audit of their branches and submit a report to RBI to rule out fraudulent remittance of foreign exchange in future appears to be a simple formal and casual taken by RBI to save itself from charges of omission and negligence.
Banks which have been committing fraudulent remittances through their branches for years and decades despite all guidelines not to do so in light of KYC guidelines and Anti-Money laundering Act will never say that their other branches are involved in such evil work or will not commit such mistake in future. It is just like police asking thieves to inspect the act of stealing and submit the report to ensure that in future act of stealing will not take place.
In fact it is total failure of RBI in ensuring compliance of its rules and guidelines . It is the duty of RBI to inspect every branch from time to time as it used to do a few decades ago. RBI has failed to ensure health of assets in PSU banks and totally failed to stop losses caused to bank due to frauds and malpractices.
It has been observed that quite often the internal inspection machinery in banks has failed to highlight and pinpoint the existence of gross and serious irregularities such as improper credit appraisal, disbursement without observing the terms of sanction, failure to exercise proper post-disbursement supervision, even suppression of information relating to unauthorised excess drawals allowed, kite flying in bills and cheques, etc. or bring to light frauds. In addition to it , it is also a fact that even if auditors try to write such lapses in their reports, they have to face the consequences in form of verbal firing or torturous transfers or rejection in promotion processes.
It is ground reality of all auditors and vigilance officials that officers who are supposed to expose the irregularities and punish the culprit are engaged in saving the culprit or forced to save the culprit. This is why cases of fraud , bad lending , irregularities in operation and other evil activities are continuously increasing.
The internal inspection reports rarely make any adverse comments on the failure of officials of Controlling/Head Offices. In fact internal auditors do not submit information related to serious irregularities in their audit report in fear of action from Chief of Audit Committees . The failure of the internal inspection machinery is not attributable only to the incompetence of the internal inspection personnel the casual manner in which the work is carried out and lack of follow up of the inspection but also to pressure from higher level officials not to write about high value bad assets or about frauds detected during the period of inspection. Entire management try to hide irregularities as long as possible to save their colleagues. This is also a fact that personnel who cannot otherwise be deployed in other sensitive/critical areas more often staff the inspection/audit department.
RBI has been silent spectators of all evil practices .They have stopped their work of surveillance either at their own or under pressure from Central Government or in greed of quick promotion or in greed of some gifts from some other corners. Similarly entire team of top officials in every bank try to put carpet on malady instead of cleaning it. But , whatsoever may be the reason behind recurring instances of scams , it is always poor taxpayer and poor depositors who have to suffer the consequences of mismanagement or non management of malicious management of banking .
Country have witnessed several scams taken place in public banks in the past . We have seen how reputed team of auditors gave certificate of best accounting practices to Satyam Computers and we know how big corporate cause huge loss to banks by submitting fabricated and manipulated financial statements to these banks.
It is disheartening to note that neither RBI nor management of Public sector banks have taken any serious note of any loss, any fraud, any scam or any loss in bad assets. Bankers are habituated to write off bad loans to clean balance sheet giving excuse of economic recession or global recession in all the cases of default. In fact bankers have never tried to detect evil role of human being who play lead role in creation of bad assets or fraud or in scam related to Foreign exchange remittance .
A few years ago , similar type of cash scam was exposed in other banks . But RBI never acted seriously against erring officials to send the clear message down the line that officers indulged in malpractices will not be spared.
Bank of Baroda scam: RBI tells banks to conduct internal audit-Business Standard-31.01.2016
Central bank wants to put an end to fraudulent foreign exchange transactions
‘Negative Interest Rate’ announced in Japan
The Bank of Japan, Japan’s Central Bank, has introduced ‘negative interest rate’ regime. The Eurozone already has negative interest rates, but for Japan, the third largest economy in the world, this is the first time it has resorted to this step. It’s a move that has been on the cards for Japan’s stagnating economy for well over 10 years.
The decision to go negative came after a narrow 5-4 vote at the Bank of Japan's first meeting of the year on Friday.
"The BoJ will cut interest rates further into negative territory if judged as necessary," the Bank of Japan (BoJ) said, adding it would continue as long as needed to achieve an inflation target of 2%. The December core inflation rate was shown to be at 0.1% - far below the central bank's target
Negative interest means that the central bank has fixed a benchmark rate of -0.1% and the commercial banks in Japan will be charged by the central bank for some deposits.
This move is aimed at dissuading the banks from keeping their surplus funds with the central bank. So, the commercial banks will be pressurized to lend more to industries and trade and also for individual consumption, to fight the economic deflation.
With the country’s economy in a tailspin, the government is desperate to increase consumer spending and at one point, it issued shopping vouchers to stimulate demand.
The negative interest rate will not apply to the bank depositors. Nevertheless, the commercial banks whose margin is already under stress will be compelled to pass on this additional burden, at least in part, to their depositors in course of time. In such an eventuality, many of the depositors will stop saving with banks and look for other alternative avenues.
With the economy not in good shape, people will hesitate to invest in risky sectors. The other alternative is to spend more and this is what the government precisely wants them to do.
We all know how consumerism has ruined countries like United States where domestic savings have reached a level of $138.73 per GDP of $1,000, which is lower than a small country like Sri Lanka ($146.13 per GDP of $1,000).
Economists the world over agree that interest rates by themselves cannot determine inflation/deflation and there are other factors like domestic savings, demand for goods and services, employment creation, taxation policies of the government, foreign exchange inflows and outflows, forex rates, external borrowings, overseas lending and investments by the government and the corporate sector and public expenditure. Corruption and generation of black money also affect the economy. In addition, education, health, longevity of an average citizen etc. also have a bearing on the economy.
In a situation of deflation, creating incremental demand for goods and services will be a great challenge. Even if the cost of borrowing is very low, entrepreneurs will show reluctance to borrow because they are not sure of selling their goods and services to break even and sustain in the well developed and highly competitive market.
In a press conference, the BoJ's Governor Haruhiko Kuroda said the weakening growth rate of the global economy was the main factor behind the move: "Japan's economy continues to recover moderately and the underlying price trend is improving steadily... further falls in oil prices, uncertainty over emerging economies, including China, and global market instability could hurt business confidence and delay the eradication of people's deflationary mindset."
Earlier in the day, fresh economic data had again highlighted concerns over economic growth. Asian shares jumped and the yen fell across the board in reaction to the announcement. Japanese banks saw their shares drop on the news and as lenders, they are likely to see their margins squeezed even more.
It may be recalled that there are too many banks in Japan and because of lending below the market rates to the corporate sector without matching collateral security, many banks have failed in recent times.
Some analysts have expressed their doubts over how effective the rate cut will be.
Date: 30-01-2016 pannvalan