Auditors could be in trouble in case their client companies default on loan repayments.
Under new government norms that seems to upset the independent accounting watchdogs, banks can now lodge a formal complaint against the auditors with the Institute of Chartered Accountants of India (ICAI) if the borrowing company fails to repay loans on time.
“Banks would have the option of lodging a formal complaint against the auditors of the defaulting companies if it is found that they are negligent in conducting audits,” a senior finance ministry official who did not wish to be identified said.
The level of bad assets - loans that do not fetch any interest payment for banks - has risen significantly in the last couple of years.
In a bid to check to fresh slippages in loan accounts, banks have been asked to take adequate steps to identify the problems early.
Banks have already put in place a system to regularly monitor loan portfolios. The top management teams of lenders are expected to review the situation from time to time.
"Complaints against auditors for any kind of negligence can be filed by any stakeholder but to say that non-repayment of loans is due to negligence of auditors and they would be held responsible for borrowing companies not being able to repay loans is totally misplaced," said Amarjit Chopra, former ICAI president.
The Reserve Bank of India has found that growth in new NPAs is faster than the rate at which banks are reducing old ones.
Finance minister P Chidambaram, meanwhile, has asked banks to increase retail lending to boost the sagging economy while looking at ways to ensure that the NPA level does not swell any further.