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May 3, 2002 | 1005 IST
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RBI orders special audit of gilts deals

K Ram Kumar

The Reserve Bank of India has directed all scheduled primary (urban) co-operative banks to conduct a special audit of their government securities transactions by a chartered accountant immediately.

The central bank directive follows the rush by co-operative banks to build huge positions in government securities, throwing to the winds established trading norms.

The RBI directive, issued by chief general manager K V Rajan, further said a report of the special audit should be placed before the audit committee of the board, or before the board of directors of the bank if the bank has not constituted an audit committee, together with a certificate to the effect that the bank had strictly adhered to the instructions issued by the RBI for transactions in government securities.

"A scrutiny undertaken by us of the transactions put through by some of the banks in government securities revealed that the volume of transactions undertaken by the banks was on the high side compared with the overall business of the bank and/or there were certain deficiencies in complying with the instructions issued by the Reserve Bank of India in putting the transactions," the RBI said in its directive to the banks.

The RBI said urban co-operative banks should ensure that a proper internal control system was put in place to ensure strict compliance with the instructions issued by it for the purchase and sale of government securities.

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