Eminent Chartered Accountant, notable author, socio-economic thinker and unique academician from India.

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An open letter to PM Narendra Modi ji: from V S Vadivel Chartered Accountant

18th June, 2016

Open letter to PM Narendra Modi ji!


Shri. Narendra Modi, Honourable Prime Minister of India, 7 Race Course Road, New Delhi.

Respected Prime Minister Shri Narendra Modi ji,

Everybody in India now talk about the sudden increase of non-performing assets (NPAs) of nationalised banks in India. It is very often ‘linked’ to the so-called ‘inefficient’ and ‘corrupt’ administration of government enterprises in the country. It is quite unfortunate that the NPAs of almost all the nationalised banks in the country have either doubled or trebled during the quarter ending December 2015 and thereafter. However, this enormous mis-growth of NPAs in almost all the nationalised banks has not happened overnight.

Why abnormal growth of NPAs?

The abnormal growth of NPAs has been mainly due to certain wrongful policies of the erstwhile UPA government. During the Manmohan Singh led UPA regime, certain changes in the audit system of the banks were made. Accordingly, the bank's management was given ‘absolute’ powers to appoint their auditors from a list supplied by RBI. In other words, the power of appointment of auditors was simply given to bank’s management. This maverick move in turn made a mockery of auditor’s independence in banking sector. To be more specific, this anomalous change by UPA regime was very much similar to empowering an ‘accused’ to select and appoint a ‘magistrate’ to hold ‘trial’ of his alleged ‘offence’.

As another measure of imprudent practice, all bank branches were not covered under audit. In other words, the bank audit was made mandatory only for branches which had advances exceeding Rs. 20 crore. As a result, bank branches which have advances of less than Rs 20 crore were given a highly undesirable exemption from statutory audit citing lame excuses like cost reduction, core banking etc. The irony is highly notable. Majority of bank branches in almost all banks (irrespective of public or private) in India did fall under this 20 crore category. In this context, majority of banks’ branches in India had simply gone ‘unaudited’.

In fact, this act of ‘selective omission’ over the years in respect of audit of banks’ branches in India has in turn led to a pathetic condition of financial health of banks. Just because of this defective move by UPA government, almost half of the branches of all banks in India were practically kept out of the purview of the so-called statutory audit. And as a result, almost all the banks in India were not disclosing the ‘true’ position since last many years. The NPAs of almost all the nationalised banks have made enormous growth during this period of new system of audit.

However, once the NDA govt. has assumed power at the centre, certain remedial steps have been taken. The Ministry of Finance along with the RBI have now taken certain effective steps on cleaning up balance sheets of banking companies in India. This cleaning move by NDA govt. has in fact led to declaration of bad loan accounts which remained suppressed for the last 5-7 years. The banks are now compelled to make proper disclosure of their financial health. Hence the sudden surge of huge NPAs in PSBs.

Changes in the audit system of the banks: Need of the hour!

The measures taken by the NDA government is highly positive and praise worthy. However what have been taken by the government is not sufficient. The government must take a move ahead.

The NDA government should accept for an immediate change in the system of appointment of auditors of public sector banks in India. The fraudulent and defective system of auditors’ appointment put in place during the UPA regime must be replaced by an effective system of appointment.

The bank's management should not be given undue powers to appoint auditors from a list supplied by RBI. Just like the practice as prevalent earlier, the regulator-RBI must make the appointment of bank auditors itself. Then only, the independence of auditors will be duly preserved. The banks will also start disclosing the ‘true’ position as in the past. The NDA government is strongly advised to revert back to the old system of appointment without any further hesitation or delay. This will only ensure efficacy of audits in banks. Audit should never be conducted as a mere annual ritual.

Further, all the bank branches in India should be brought under compulsory statutory audit every year. Audit holidays should not be allowed to bank branches which have advances less than Rs 20 crore. This move will of course bring in almost all the branches of banks within the purview of audit. This will in turn ensure cleaning of not only the balance sheets of banks but also help cleaning the banking practices in the country.

Audit of private banks

In case of private banks, the scenario is still worse. In a private bank, it is the bank’s management which is empowered to appoint the auditor. Unfortunately, no separate auditors are appointed for auditing the branches in many banks.

No doubt all banks whether private or public are primarily dealing with funds of general public at large. In this context, it is strongly advised that the auditors of private banks must also be appointed by RBI in India. Further, all branches of all private banks must be brought under the ambit of statutory audit.

Will the ruling NDA government okay the above proposals? If agreed, tackling the NPA menace will no longer be an arduous task as thought to be. All banks in India will start disclosing the ‘true’ position as in the past. This will in turn decrease the volume of NPAs in PSBs in days to come. The kind attention of our dynamic PM is sincerely solicited in this regard.

A change (as proposed above) in the system of appointment of auditors is the need of the hour. A nation of 1.25 billion people simply waits just for that!

With regards,

V. S.Vadivel FCA ACS, Chartered Accountant, Chennai.

Mobile: 9840264527, E-mail:

(The author is an eminent Chartered Accountant, notable author, socio-economic thinker and unique academician from India)

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Quotable Quotes: By V. S. Vadivel FCA, ACS

"It is neither better to do the right thing wrong nor to do the wrong thing right".

"Think like a true professional to be one. In fact, there is no shortcut, only the right instinct shall convert your dream into reality".

Differentiate yourself; build a unique entity and a distinct identity; avoid herd mentality and ‘me too’ mind-set; this is the USP to succeed yourself”.

"How to" Guidelines, Just for You!: By CA V. S. Vadivel

This unique section exclusively contains highly useful "HOW TO" guidelines and action points, simply relevant for all Chartered Accountants in India.

All these guidelines are aptly given by CA V. S. Vadivel FCA just for you.

How to maintain books of account under income tax law?-Some tips - V.S.Vadivel, FCA, ACS, Chartered Accountant

Section 44AA [inserted by the Taxation Laws (Amendment) Act, 1975, with effect from 1st April, 1976] of the Income-tax Act, 1961 calls for compulsory maintenance of books of accounts by the income-tax assessees in the country.  With effect from assessment year 1999-2000, the monetary limits of income and turnover prescribed for maintenance of books of account under section 44AA have been considerably increased.  Further, certain businessmen like transport operators, contractors, retail traders and other taxpayers falling under the so-called Estimated Income Scheme (EIS) are also exempted from maintaining books of account, provided the profits and gains declared by them is not lower than the amount specified in the relevant section as may be applicable to them.  Further, with the amendment of section 145, from 1st April, 1997, income chargeable under the head ‘profits and gains from business or profession’ or ‘income from other sources’ can be computed by following either the cash or mercantile system of accounting.  In other words, a mixture or ‘hybrid’ method of accounting is not permitted.  This article written by V.S.Vadivel, FCA, ACS, Chartered Accountant enlightens the taxpayers as to whether they are required to maintain any books of account under the income-tax law and, if required, where and for how many years should the same are required to be preserved, etc. [Published in Current Taxcom News-Volume 13, Part III, Issue No.3]

How to pay advance tax? – Some tips - V.S.Vadivel, FCA, ACS, Chartered Accountant

Under income-tax law in India, tax-payers are required to pay advance tax on their income, which they expect to earn during the current year.  For instance, for financial year 2004-05 (relevant to assessment year 2005-06), advance tax is payable in installments during 2004-05 itself.  No doubt, the advance tax so paid is adjusted against the total tax assessed for that assessment year, i.e., assessment year 2005-06.  The provisions relating to advance tax apply to all assessees.  It is clearly implicit therein that a representative assessee is not exempt from liability to pay advance tax.  This write-up by Mr. V.S.Vadivel, FCA, ACS, Chartered Accountant deals with tax-tips on how to pay advance tax in India. [Published in Current Taxcom News- Volume 14, Part III, Issue No.7]

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