The State Bank of India (Amendment) Bill 2010 contains a provision that will further limit the Reserve Bank of India's powers on bank auditor appointment. The provision allows SBI to appoint its own statutory auditors. The Central Government too will have no say in the appointment of statutory auditors of SBI.

At present, the RBI appoints auditors for SBI in consultation with the Government. If and when the Bill is passed, the RBI will have to cede this power to SBI. The Government is doing to SBI what has already been done for other public sector banks, banking industry sources said.

The proposal is in line with the autonomy package already awarded to public sector banks in 2008-09. Under this package, the senior management of public sector banks was empowered by the Government to decide on the auditors.

The latest move is a blow to the Institute of Chartered Accountants of India (ICAI), which has been saying that it is not a practice for directors of a bank to appoint auditors as it impinges on auditor independence. The ICAI has been making a case for auditor appointments in banks to be centralised with the RBI.

This is obnoxious. Again bank managements are trying to take this (power to appoint auditors) into their own hands. It will only dilute the independence of auditors. This may not serve the cause of public interest.

Autonomy in policy decisions like setting of interest rates can be allowed. But there is also greater need for checks and balances. Auditor appointment from outside provides such checks and balances, Mr Amarjit Chopra, ICAI President, told Business Line.

Recently, Mr Chopra had, in the context of public sector banks, called for a reversal to the earlier system where the RBI makes the auditor appointment. We must go back to the system where the RBI decides on the auditors for state owned banks, Mr Chopra had said.

The State Bank of India (Amendment) Bill 2010 was introduced by the Finance Minister, Mr Pranab Mukherjee, in the Lok Sabha on Monday.