India Regulator Bans Shadow Bank’s Auditor in Unprecedented Move

(Bloomberg) -- The Reserve Bank of India in an unprecedented move suspended an audit firm citing compliance failure related to a shadow lender, a sign the watchdog is doubling down on supervision of a still-fragile corner of the nation’s financial system.

Haribhakti & Co. will be barred from auditing any regulated financial entity for two years starting April 1, 2022, the RBI said in a statement Tuesday. 

“This action has been taken on account of the failure on the part of the audit firm to comply with a specific direction issued by RBI with respect to its statutory audit of a systemically important non-banking financial company,” the RBI said. It didn’t elaborate.

Haribhakti is the auditor of several financial institutions in India, according to exchange filings, including Axis Bank Ltd., IndusInd Bank Ltd., and shadow lender Srei Infrastructure Finance Ltd. that the RBI seized last week. India has been grappling with a shadow lending crisis since 2018 after a leading infrastructure financier went bankrupt, sending ripples across banks and other financiers leading eventually to rescues of at least half a dozen lenders.

The RBI said the decision will not impact Haribhakti’s audit assignments in RBI-regulated entities for the financial year ending March 31, 2021.

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