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Investors withdraw from Bank of Rajasthan as RBI orders special audit

This article was posted on Mar 10, 2010 and is filed under Market News

Bank of Rajasthan tumbled 6.29% to Rs 62.60 at 10:25 IST after the Reserve Bank of India ordered a special audit of the accounts of the bank after it found lapses in corporate governance and disclosure norms.

The stock had underperformed the market over the past one month till 8 March 2010, gaining 6.71% compared with the Sensex’s 7.32% rise. It underperformed the market in past one quarter, falling 15.50% as against 0.73% decline in the Sensex.

The Reserve Bank of India (RBI) has appointed Deloitte Haskins & Sells to audit the bank’s lending policy among other things while the parent accounting and consulting firm Deloitte Touche Tohmatsu has been hired to audit the information security system of the bank. Special audits are rare and directed by RBI only under exceptional circumstances.

Last month, the RBI imposed a Rs 25 lakh penalty on Bank of Rajasthan (BoR) after it found lapses in corporate governance procedures and disclosure in the bank’s third quarter results.

Commercial banks have various credit committees depending on loan size. However, BoR has a single committee for approving loans. In most banks the local office may have the power to sanction loans up to Rs 25 crore, while loans of Rs 25-50 crore are approved by the credit committee at the head office and loans above Rs 50 crore go to management committee.

As per reports, BoR’s poor corporate governance standards prompted the RBI to conduct special audit. One of the concerns is the presence of S K Tayal, a relative of promoter PK Tayal, on the bank’s credit committee and board of directors. The RBI fears that BoR directors play a significant role in the entire credit delivery mechanism.

Bank of Rajasthan reported a net loss of Rs 44.70 crore in Q3 March 2009 compared with a net profit of Rs 49.21 crore in Q3 March 2008. Operating income fell 11% to Rs 373.78 crore in Q3 December 2009 over Q3 December 2008.

Bank of Rajasthan provides commercial banking and other related services. The services include banking operations and treasury operations.

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