More than a year after RBI has made forensic audit compulsory for major bank loans that run into trouble, only 12 such reports have been filed by the auditors.

Even among those there are few actionable points for the banks to file cases like classifying the borrowers as wilful defaulters. The reason for this dismal conversion rate is that auditors have no power to inspect the books of accounts of the companies which have taken out the loans.

“The Reserve Bank of India needs to write a stringent and comprehensive right to audit and inspection clause in bank loan contracts” says Jagvinder Brar, chief of the forensic audit business at KPMG India, which runs the largest such portfolio in the country.

As of now banks are getting reports from the forensic auditors that say little more than what is available in the bank records.

Department of financial services secretary, GS Sandhu, was unwilling to talk about the slow pace of forensic audit, but an RBI source said they are in talks with the ministry on how to deal with this problem. The regulator is expected to soon announce some changes in the rules to make such audit “bite”.

Forensic audit has emerged as potentially the strongest tool with Indian bank managements to track loans that show signs of slippage.

This audit is meant to separate those which get into trouble because of business reasons and those where promoters attempt to siphon off money.

In October 2013 RBI mandated there should be forensic audit of all loans of Rs 1,000 crore or more where the bank plans to move them for corporate debt restructuring. For smaller loans too, banks are advised to take the help of these auditors.

But while this has led to a huge rise in the attraction of having a forensic audit department in the major audit firms, the results they have produced so far has been dismal.

Such departments in the Big Four now employ close to 2,000 people, or about a tenth of their total workforce.

Most of these recruitments have happened post the RBI guidelines. The number of people in KPMG is expected to reach 1,000 soon and Ernst & Young has also roped in about half that number. The rest are in PricewaterhouseCoopers and Deloitte.

The numbers are growing as youngsters keen to join the big four are making this their first choice. Joining their ranks are CBI and state police officers, those from Serious Fraud Investigation Office, former bank employees and even some former journalists.

Dinesh Anand, executive director and leader-forensic services at PwC agreed. “Forensic audit is gaining as a career of choice in large audit firms. (We) too we are building up a large team of about 300 people”.

As a result forensic audit of the banking sector according to industry reports have covered less than Rs 15,000 crore of the total live cases in CDR cell of Rs 2,51,611 crore as on June 30th 2014. (Indian Express)