It may be appropriate to note that in most of the developed financial markets, the standing facilities operate at the margin. At present RBI provides standing facilities comprising the support available to banks under Collateralized Lending Facility (CLF) and export credit facility to banks, and liquidity support to PDs.
First, many external auditors have often limited themselves to the microcosmic world of compliance and failed to comprehend the new financially engineered risks that banks undertake. Second, there may have been an agency issue similar to credit rating agencies: as I mentioned earlier, external auditors are often remunerated by those very banks that they oversee.