rajeshwar rao : role of statutory auditors in emerging financial landscape remarks by mr rajeshwar rao, deputy governor of the reserve bank of india, at the conference of statutory auditors and chief financial officers of commercial banks and all india financial institutions ( aifis ), mumbai, 9 july 2024. * * * i am delighted to be here today to convey my thoughts on the issue of statutory audit of commercial banks and aifis. in many ways, we, as regulators / supervisors and you as auditors, share a common goal. auditors play a very crucial role in ensuring the health of the financial system as they assist in maintainance of regulatory oversight by ensuring that the financial statements present a true and fair picture of the affairs of the regulated entity. the statutory auditors play a significant role in maintaining stakeholder confidence in audited financial statements and this is particularly important in the case of banking industry where the entire edifice is built on'trust'and the biggest external stakeholders, i. e., depositors are fragmented and unorganised. therefore, the reserve bank has a strong interest in promoting sound and high quality accounting and disclosure standards for the banking and financial industry as well as in having transparent and comparable financial statements that strengthen market discipline. auditors are important stakeholders financial reports of an entity offer a window into its financial performance as well as risk profile and therefore, financial reporting is often referred to as the " language " for " communication " between an entity and its external stakeholders. the " communication " can be effective only if both the management and the stakeholders speak the same " language ". for this, we need a common language, in the form of a set of rules and principles, which is where the accounting standards come into play. financial statements prepared on the basis of a set of common codified principles and standards reduce information asymmetry ; enhance comparability and transparency between entities and across jurisdictions ; and make the information provided through the financial reporting ecosystem relevant and reliable. the financial statements prepared in this manner help users and stakeholders to understand and assess the resource position of the entity, the claims held against these, the sources of changes in resources and claims, and timing and uncertainty of future cashflows which enables them to hold management to account in running the affairs of the entity concerned. regulators are important stakeholders in this process. the financial position of an entity informs into the regulator's assessment of its health. audited financial statements also form the basis

beneficiary bank accounts, thereby drastically reducing leakages and pilferages in social welfare schemes. thus, financial inclusion could be an instrument to provide monetary fuel for economic growth and is critical for achieving inclusive growth. further, expanding the reach of financial services to those individuals who do not currently have access would be an objective that is fully consistent with the people - centric definition of inclusive growth which attempts to bridge the various divides in an economy and society, between the rich and the poor, between the rural and urban populace, and between one region and another. an analysis of world bank development indicators implies a strong link between financial access ( measured in terms of commercial bank branches per 100, 000 adults and deposits per 1000 adults ) and economic development. empirical evidence indicates a distinct rise in income level of the countries with higher number of branches and deposits of commercial banks. higher number of bank branches per 100, 000 adults and more number of deposit accounts per 1000 adults are observed in high income countries than countries in the low and middle income categories. though the cause - effect relationship could be the subject of detailed research, the fact that there is a progressive increase in income levels of the countries as financial access increases is empirically evident. source : world development indicators 2010, world bank just as it is difficult to envisage continuing financial stability without financial inclusion, especially in the long term, it is difficult to envisage the success of policy efforts to expand the reach of financial services unless banks and other financial services providers are sound, the financial markets are functioning smoothly and financial market infrastructure is robust. a recent world bank report shows4 that nearly 60 percent of the economies experienced a contraction in real per capita income in 2009 as a result of the deepening of the global financial crisis. worldwide volume of deposits and loans shrank, with a median decrease of 12 percent in the ratio of deposit value to gross domestic product ( gdp ) and a median decrease of 15 percent in the ratio of value of loans to gdp. i have discussed how financial inclusion and financial stability need to co - exist if policy measures pursuing either objective have to achieve any degree of success. let me return now to the key question i flagged at the outset – whether financial inclusion and financial “ financial access : the state of financial inclusion through the crisis ”, consultative group to assist the poor ( cgap ) / the world bank group, 2010. bis central bankers ’ speeches stability are two sides of the same coin and mutually reinforce each