The Chartered Accountant

3, 2006-07. However, in quarter 3, 2007-08, it saw
an upward trend of 14.04% against 12.90% in the
similar period, last fiscal. State Bank of India managed
to increase its CAR to 12.28% from 11.86%,
in contrast to a decline to 11.86% from 12.49% in
the financial year 2006-07. Capital adequacy ratio of
Bank of Baroda reached 13.51% at the end of third
quarter in the financial year 2007-08 as compared to
12.24% in the corresponding period of the previous
year. Hence overall there is an upward trend in
CAR of most of dominant public sector banks as
they move ahead to meet the Basel II deadline laid
down by RBI.
However, few players experienced a decline in their
CAR, but they still managed to remain above the 9%
limit. Capital Adequacy Ratio of IDBI Bank has decreased
to 13.31% from 14.09% at the end of quarter
3 and Union Banks CAR went down to 13.03%
from 13.21%.
The study, however, expresses concern over the risk
management practices of the banks. It stated that
the net Non-Performing Assets of 14 commercial
banks, in absolute terms, have increased by 25.70%
in the third quarter of current financial year to Rs.
14,166.65 crore from Rs 11,270.32 crore in the previous
financial year. Gross NPAs of banks increased by
about 14% from Rs. 28,392.58 crore to Rs. 32,129.48
crore. The highest rise of 266% in net NPAs was
witnessed in the case of Punjab National Bank in
Q3, 2007-08, followed by Centurion Bank of Punjab
with an increase by 125%, ICICI Bank (77%), Vijaya
Bank (49%), HDFC Bank (37.46%) and State Bank
of India (25%).
Conclusion
The working Group set up by the Basel Committee
to look into implementation issues observed that
supervisors may wish to involve third parties, such as
external auditors, internal auditors and consultants to
assist them in carrying out some or all of the duties
under Basel II. The prerequisite is that there should
be a rightfully developed national accounting and auditing
principles and scaffold, which are in line with
the best international practices. Minimum qualifying
criteria for firms should be those that have a devoted
financial services or banking division that is appropriately
researched and have demonstrated aptitude
to respond to training and upgrades required of its
own staff to complete the tasks satisfactorily. With
the implementation of the new framework, internal
auditors may become increasingly involved in various
processes, including validation and of the accuracy
of the data inputs, review of activities performed by
credit functions and assessment of a bank's capital
assessment process.q
AUDITING
THE CHARTERED ACCOUNTANT 983 DECEMBER 2008