Close on the heels of directing a forensic audit on United Bank of India, the RBI has initiated a special audit of another Kolkata-based lender, Allahabad Bank.

The banking regulator has notified Allahabad Bank about the audit to assess the potential non-performing assets and ‘special mention accounts’, finance ministry sources told FE. The RBI’s focus on ‘special mention accounts’ of banks is part of its efforts to ensure that the lenders upgrade their Early Warning Systems so that timely action can be taken before more accounts slip into the NPA category, the sources added.

They said one of the objectives of the forensic audit being carried out on United Bank of India is to find out whether any criminal intent on the part of the bank officials had led to a rise in bad loans, and to present such evidence in a court of law.

The sources, however, added that the books of Allahabad Bank have not reached as precarious a stage as United Bank of India. The special audit at Allahabad Bank would be conducted by Ernst & Young, while Deloitte is carrying out the forensic audit on United Bank of India and is expected to submit its report by this month-end.

When contacted, Shubhalakshmi Panse, chairperson and managing director of Allahabad Bank, confirmed to FE that a thematic audit has been initiated by RBI and will be conducted by Ernst & Young. “I have been told they will look at the book of accounts and the credit portfolio,” she said.

Allahabad Bank’s net profit for the quarter ended September 30 rose to R276 crore from R234 crore in the same period last year. The bank’s gross NPA stood at 4.94% of gross advances in the July-September this year. In the corresponding quarter a year ago, the figure was 2.95%.

The introduction of a separate asset category of ‘special mention accounts’ and asking lenders to give their full attention to such accounts at the earliest stage to avoid bad loans is a practice followed by banking regulators in other countries — such as the US and Singapore — also.

However, the problem is that since the special mention accounts do not fall under the NPA category, they do not need provisioning and do not promptly come to the notice of RBI, the sources said, adding that the RBI now wants the banks to be equally careful about such accounts as well.

RBI governor Raghuram Rajan has made the resolution of distress assets a priority area as gross non-performing assets of 40 listed banks grew 37% year-on-year to R2.29 lakh crore at the end of September. Of the 40 lenders, 10 banks have gross bad loans above 5% of their total lending. Eight of these 10 banks are run by the government, including the State Bank of India, Punjab National Bank, UCO Bank and Central Bank of India. (Business Standard)