Private sector banks may have their branches statutorily audited by an RBI-approved panel, on the pattern of public sector bank audits, if the central bank accepts a suggestion by the Institute of Chartered Accountants of India (ICAI).

The ICAI fears a high incidence of corporate debt restructuring may affect banks' financial health, the level of which cannot always be detected at the aggregated level. The accounting regulator has asked the RBI (Reserve Bank of India) to introduce a mandatory audit of private sector bank branches by people chosen from a central bank-approved panel.

Though mandatory for all public sector banks, such independent audits at the branch level are not required for private banks. Currently, the statutory auditor of private banks conducts branch audits, only if a need is felt to do so.

Ironically, the suggestion comes at a time when the RBI is talking of relaxing audit norms for public sector banks. At the ICAI's recent western region conference, RBI Governor D Subbarao had said, "With concepts like core banking and centralised record keeping, the relevance of the audit of branches of public sector banks has significantly declined." He had said these banks had represented to the RBI that branch audits should be reduced.

"There is merit in this suggestion, since currently the cost of audit of public sector banks is significantly higher than the cost of audit of comparable private sector banks. However, the institute has been resisting this because it would mean a reduction in work for its members," Subbarao had said.