India’s Chief Economic Advisor blames auditors for failing India’s economy
Chief Economic Advisorpointed out eight indicators that auditors should have disclosed to companies.
- The survey shows that out of 12 large defaulters, only three to four indicators were flagged by auditors.
- The government concludes that this is indicative of ‘a market failure of trust’ that happened between 2011 and 2013.
The analysis by Chief Economic Advisor (CEA) pointed to eight leading indicators that should have been disclosed to companies — like issues in business performance, weak internal controls or non-compliance with the companies act.
“These indicators should have been ideally flagged by the auditors,” said the Survey while listing the leading and lagging indicators of an impending default.
The survey shows that out of 12 large defaulters, only three to four indicators were flagged off by auditors. The government concludes that this is indicative of ‘a market failure of trust’ that happened between 2011 and 2013. A few large ‘unscrupulous’ businesses created NPAs in the banking system that led to stress for public sector banks.
This statement comes a year after the Prime Minister Narendra Modi also ‘reminded’ chartered accountants of their power. “Your signature is more powerful than the PM’s, and the government also believes the accounts signed by you,” Modi said.
The crisis was compounded as investors started redeeming their investments in liquid debt mutual funds. This triggered panic about non-banking financial companies financiers, causing a crisis in the sector.
- Issues in performance of business
- Weakness in internal controls
- Non-compliance of provisions of Companies Act
- Qualified/Disclaimer of audit opinion
- Excess managerial remuneration
- Default in repayment of borrowings
- Insufficient provisioning/impairment loss
- Going concern issues
Why the health of public sector banks matters
In order to grow into a $5 trillion economy by 2025, the economy needs at least eight Indian banks to breach the top 100 list globally. And, the banking sector needs to be efficient in its functioning, in order to support growth.
However, credit growth among public sector banks declined significantly since 2013 — and has since remained anaemic. Remaining within the single digits for the past five years, it was a mere 4% in 2019.
“This needs to be remedied because the economy needs PSBs to perform to their fullest
potential and support economic growth rather than pullback lending, which has a
detrimental effect on growth and welfare,” said the
Public sector banks account for 70% of the banking sector, in terms of market share. However, in 2019, they lost ₹66,000 crores to bad loans. Overall, public sector banks account for 85% of the total number of
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