Finance Ministry appoints auditors without consulting RBI
Deviating from the earlier practice of consulting the RBI while appointing auditors for the same, the government has appointed auditors for the Reserve Bank of India after consulting with the Comptroller & Auditor General (CAG). As per government, this has been done to avoid conflict of interest.
The RBI and the finance ministry appeared to have some friction over many issues in recent months, particularly over the conduct of monetary policy with senior ministry officials often seemingly dissatisfied over the pace of interest rate cuts by the central bank. There is also a less high-profile conflict over dividends declared by RBI out of its profits. However, the government maintained that there is no relation of appointing auditors to dividends.
In the 2013-14 budget, the government has assumed 43,996 crore in dividends from the Reserve Bank of India and state-run banks, a sharp increase from 25,447 crore the year before. The government expects RBI to pay it more dividends.
What the Finance Ministry is asking RBI to do?
Fin Min wants RBI to pay the government more in dividends. It is also asking the RBI to interests to the banks on the CRR it keeps with itself. After RBI indicated its inability to pay interests, finance ministry has been reviewing RBI’s balance sheet over the past year. The ministry had suggested that RBI should pay 7% interest on the CRR.
As per ministry this step would help slash rates even if the central bank does not ease monetary policy. It had argued that major central banks either do not mandate a reserve ratio or pay interest on the mandatory reserves they ask banks to set aside.
How does the appointment of auditors take place under the existing mechanism?
Under the existing mechanism for the appointment auditors, the CAG provides a list of CA firms eligible for appointment as statutory central auditors. In case of RBI, two central auditors and four local auditors were being appointed by the finance ministry in consultation with RBI.
Month: Current Affairs - May, 2013