PRESENTATION ON BANK AUDIT (ADVANCES) BY RAJESH SETHI (17.03.2011)

PRESENTATION ONPRESENTATION ONBANK AUDIT (ADVANCES)BANK AUDIT (ADVANCES)

BYBYRAJESH SETHIRAJESH SETHI

(17.03.2011)(17.03.2011)

BANK AUDIT - 2 STAGE PROCESSBANK AUDIT - 2 STAGE PROCESS• STATUTORY CENTRAL AUDITORS (SCAs)STATUTORY CENTRAL AUDITORS (SCAs)• STATUTORY BRANCH AUDITORS (SBAs)STATUTORY BRANCH AUDITORS (SBAs) TIME BOUND - STRICT TIME LINESTIME BOUND - STRICT TIME LINES BALANCE SHEET AUDITBALANCE SHEET AUDIT BASIC COMPUTER KNOWLEDGEBASIC COMPUTER KNOWLEDGE

BACKGROUNDBACKGROUND

ADVANCES/ INVESTMENTSADVANCES/ INVESTMENTS 70% REPORT IS ON ADVANCES70% REPORT IS ON ADVANCES DIVERGENT VIEWS - RBI’S AFI/ DIVERGENT VIEWS - RBI’S AFI/

AUDITORSAUDITORS ADEQUATE TABLE WORK/ DETAILED ADEQUATE TABLE WORK/ DETAILED

AUDIT PROGRAMME/ TEAM AUDIT PROGRAMME/ TEAM COMPOSITIONCOMPOSITION

PEER REVIEWPEER REVIEW

BACKGROUNDBACKGROUND

NO CHANGES IN STATEMENT OF NO CHANGES IN STATEMENT OF ACCOUNTSACCOUNTS

MOCMOC MASTER CIRCULAR - JULY 2010MASTER CIRCULAR - JULY 2010 BANK AUDIT 2011 - ICAI PUBLICATIONBANK AUDIT 2011 - ICAI PUBLICATION

BASICSBASICS

ENSURE THAT ALL NPA ACCOUNTS ENSURE THAT ALL NPA ACCOUNTS ARE IDENTIFIED ARE IDENTIFIED

ADEQUATE PROVISION MADE THERE ADEQUATE PROVISION MADE THERE AGAINSTAGAINST

REVERSAL OF UNRECOVERED REVERSAL OF UNRECOVERED INTEREST EFFECTEDINTEREST EFFECTED

AUDIT METHODOLOGYAUDIT METHODOLOGY

LATEST INSPECTION REPORT/ LATEST INSPECTION REPORT/ CONCURRENT AUDIT REPORT/ CONCURRENT AUDIT REPORT/ PREVIOUS STATUTORY AUDIT REPORT/ PREVIOUS STATUTORY AUDIT REPORT/ GODOWN INSPECTION REPORTGODOWN INSPECTION REPORT

LAST AUDITED STATEMENT OF NPA LAST AUDITED STATEMENT OF NPA ACCOUNTSACCOUNTS

LATEST STATEMENT OF NPA LATEST STATEMENT OF NPA ACCOUNTSACCOUNTS


DATE OF NPADATE OF NPA LARGE ADVANCESLARGE ADVANCES MATERIAL ADVANCES GRANTED MATERIAL ADVANCES GRANTED

DURING THE AUDIT PERIODDURING THE AUDIT PERIOD CENTRAL AND STATE GOVT CENTRAL AND STATE GOVT

GUARANTEED ADVANCESGUARANTEED ADVANCES


SANCTION TICKETSANCTION TICKET DOCUMENTARY DEFECTSDOCUMENTARY DEFECTS SECURITY - VALUE/ CHARGESECURITY - VALUE/ CHARGE PHYSICAL INSPECTIONPHYSICAL INSPECTION TECHNICAL NPAsTECHNICAL NPAs


SUIT FILED ACCOUNTS - SECURITY SUIT FILED ACCOUNTS - SECURITY VALUEVALUE

NPA ACCOUNTS - 5 CRORE AND ABOVENPA ACCOUNTS - 5 CRORE AND ABOVE• ANNUAL STOCK AUDITANNUAL STOCK AUDIT• COLLETRAL IMMOVABLE PROPERTIES’ COLLETRAL IMMOVABLE PROPERTIES’

VALUATION ONCE IN 3 YEARSVALUATION ONCE IN 3 YEARS PENDING COMPROMISE PROPOSALSPENDING COMPROMISE PROPOSALS


MERE LFAR REPORTING NOT MERE LFAR REPORTING NOT SUFFICIENT - MOC MUSTSUFFICIENT - MOC MUST

ENSURE LAST MOCs’ EFFECTEDENSURE LAST MOCs’ EFFECTED MULTIPLE LIMITSMULTIPLE LIMITS CONSORTIUM ADVANCESCONSORTIUM ADVANCES LFAR - LARGE ADVANCE ACCOUNTSLFAR - LARGE ADVANCE ACCOUNTS


RESTRUCTURINGRESTRUCTURING

AGRICULTURAL DEBT AGRICULTURAL DEBT RESTRUCTURINGRESTRUCTURING

OTHER ADVANCES’ RESTRUCTURINGOTHER ADVANCES’ RESTRUCTURING

AGRICULTURAL DEBT WAIVER AGRICULTURAL DEBT WAIVER AND DEBT RELIEF SCHEME 2008AND DEBT RELIEF SCHEME 2008

SMALL AND MARGINAL FARMERSSMALL AND MARGINAL FARMERS• FULL WAIVERFULL WAIVER OTHER FARMERSOTHER FARMERS• 25% WAIVER PROVIDED25% WAIVER PROVIDED• 75% IS REPAID75% IS REPAID MAY 23, 2008 CIRCULARMAY 23, 2008 CIRCULAR

NO RESTRUCTURING WITH NO RESTRUCTURING WITH RETROSPECTIVE EFFECTRETROSPECTIVE EFFECT

NON-VIABLE ACCOUNTS NOT TO BE NON-VIABLE ACCOUNTS NOT TO BE RESTRUCTUREDRESTRUCTURED

FRADULANT CASES INELIGIBLE FOR FRADULANT CASES INELIGIBLE FOR RESTRUCTURINGRESTRUCTURING

BIFR CASES NOT ELIGIBLE WITHOUT BIFR CASES NOT ELIGIBLE WITHOUT EXPRESS APPROVALEXPRESS APPROVAL

ADDITIONAL FINANCE - 1 YEAR -ADDITIONAL FINANCE - 1 YEAR - STANDARDSTANDARD

RESTRUCTURED ACCOUNTSRESTRUCTURED ACCOUNTS

DIMINUTIONDIMINUTION• TO BE COMPUTED ON EACH BALANCE TO BE COMPUTED ON EACH BALANCE

SHEET DATE TILL SETTLEMENT OF SHEET DATE TILL SETTLEMENT OF ADVANCE WHEN IT CAN BE REVERSEDADVANCE WHEN IT CAN BE REVERSED

• ADDITIONAL SECURITY IN LIEU OF ADDITIONAL SECURITY IN LIEU OF DIMINUTION TO BE VALUED AT Rs 1 DIMINUTION TO BE VALUED AT Rs 1 TILL ITS MATURITYTILL ITS MATURITY


DIMINUTION - ALTERNATIVEDIMINUTION - ALTERNATIVE SMALL/ RURAL BRANCHESSMALL/ RURAL BRANCHES LACK OF EXPERTISELACK OF EXPERTISE TOTAL DUES LESS THAN 1 CRORE TOTAL DUES LESS THAN 1 CRORE 5 % OF TOTAL EXPOSURE5 % OF TOTAL EXPOSURE TILL MARCH 2011TILL MARCH 2011


SPECIAL REGULATORY SPECIAL REGULATORY TREATMENTTREATMENT

ALL STANDARD ACCOUNTS ON ALL STANDARD ACCOUNTS ON SEPTEMBER 1, 2008 TO BE TREATED AS SEPTEMBER 1, 2008 TO BE TREATED AS STANDARD ON RESTRUCTURINGSTANDARD ON RESTRUCTURING

APPLICATION FOR RESTRUCTURING IS APPLICATION FOR RESTRUCTURING IS RECEIVED BY MARCH 31, 2009RECEIVED BY MARCH 31, 2009

RESTRUCTURING PACKAGE IS PUT IN RESTRUCTURING PACKAGE IS PUT IN PLACE WITHIN 120 DAYS FROM THE PLACE WITHIN 120 DAYS FROM THE DATE OF TAKING UP THE PACKAGEDATE OF TAKING UP THE PACKAGE


SECOND RESTRUCTURING DONE UPTO SECOND RESTRUCTURING DONE UPTO JUNE 30, 2009 ALSO ELIGIBLE SUBJECT JUNE 30, 2009 ALSO ELIGIBLE SUBJECT TO CERTAIN EXCEPTIONS (ONE - TIME TO CERTAIN EXCEPTIONS (ONE - TIME MEASURE)MEASURE)

SPECIAL TREATMENT TO CEASE W. E. F. SPECIAL TREATMENT TO CEASE W. E. F. JULY 1, 2009JULY 1, 2009

NON APPLICABILITYNON APPLICABILITY• CONSUMER ADVANCESCONSUMER ADVANCES• PERSONAL ADVANCESPERSONAL ADVANCES• CAPITAL MARKET EXPOSURE CAPITAL MARKET EXPOSURE

ADVANCESADVANCES• COMMERCIAL REAL ESTATE COMMERCIAL REAL ESTATE

EXPOSURE ADVANCES EXPOSURE ADVANCES RESTRUCTURED AFTER JUNE 30, 2009RESTRUCTURED AFTER JUNE 30, 2009



RETENTION OF CLASSIFICATION IN RETENTION OF CLASSIFICATION IN PRE-RESTRUCTURED CATEGORYPRE-RESTRUCTURED CATEGORY

• STANDARD ACCOUNT NOT TO BE STANDARD ACCOUNT NOT TO BE DOWNGRADEDDOWNGRADED

• SUB-STANDARD/ DOUBTFUL ACCOUNT SUB-STANDARD/ DOUBTFUL ACCOUNT TO STAY IN THE SAME CATEGORY IF TO STAY IN THE SAME CATEGORY IF SATISFACTORY PERFORMANCE SATISFACTORY PERFORMANCE DEMONSTRATED DURING SPECIFIED DEMONSTRATED DURING SPECIFIED PERIODPERIOD

SPECIAL REGULATORY SPECIAL REGULATORY TREATMENT - CONDITIONSTREATMENT - CONDITIONS

MINIMUM 15% OF BANK SACRIFICE TO MINIMUM 15% OF BANK SACRIFICE TO

BE BROUGHT IN BY PROMOTERSBE BROUGHT IN BY PROMOTERS PROMOTERS’ PERSONAL GUARANTEEPROMOTERS’ PERSONAL GUARANTEE SHOULD NOT BE A REPEATED SHOULD NOT BE A REPEATED

RESTRUCTURINGRESTRUCTURING

ISSUES RELATING TO ISSUES RELATING TO ADVANCES ADVANCES

ISSUESISSUES SYSTEM EXISTING FOR APPRAISAL OF SYSTEM EXISTING FOR APPRAISAL OF

CREDIT PROPOSALS NOT STRICTLY CREDIT PROPOSALS NOT STRICTLY ADHERED TOADHERED TO

ADEQUATE INFORMATION IN RESPECT OF ADEQUATE INFORMATION IN RESPECT OF THE BORROWERS' STANDING, INTEGRITY, THE BORROWERS' STANDING, INTEGRITY, EXPERIENCE AND CAPABILITIES NOT EXPERIENCE AND CAPABILITIES NOT OBTAINEDOBTAINED

AT TIMES DUE CARE NOT TAKEN TO AT TIMES DUE CARE NOT TAKEN TO ENSURE WHETHER THE PURPOSE OF LOAN ENSURE WHETHER THE PURPOSE OF LOAN IS GENUINEIS GENUINE

ISSUESISSUES BORROWERS ENJOY CREDIT FACILITIES BORROWERS ENJOY CREDIT FACILITIES

WITH CERTAIN SPECIFIC BRANCHES OF THE WITH CERTAIN SPECIFIC BRANCHES OF THE BANK BUT OPERATING ACCOUNTS WITH BANK BUT OPERATING ACCOUNTS WITH OTHER BRANCHES WITHOUT THE OTHER BRANCHES WITHOUT THE KNOWLEDGE OF CONCERNED BRANCHES KNOWLEDGE OF CONCERNED BRANCHES REFLECTING LACK OF PROPER CO-REFLECTING LACK OF PROPER CO-ORDINATION AND CONTROLORDINATION AND CONTROL

IN CERTAIN CASES DISBURSEMENTS MADE IN CERTAIN CASES DISBURSEMENTS MADE PRIOR TO SANCTION OF LIMITS/ HIGHER PRIOR TO SANCTION OF LIMITS/ HIGHER LIMITS BY HIGHER AUTHORITIESLIMITS BY HIGHER AUTHORITIES

ISSUESISSUES DISBURSEMENTS NOT DONE STRICTLY DISBURSEMENTS NOT DONE STRICTLY

IN ACCORDANCE WITH THE SANCTIONIN ACCORDANCE WITH THE SANCTION DOCUMENTS FOUND TO BE DOCUMENTS FOUND TO BE

INCOMPLETEINCOMPLETE ADVANCES RELEASED BEFORE THE ADVANCES RELEASED BEFORE THE

EXECUTION OF RELEVANT EXECUTION OF RELEVANT DOCUMENTSDOCUMENTS

DOCUMENTS NOT RENEWED WITHIN DOCUMENTS NOT RENEWED WITHIN SPECIFIED TIMESPECIFIED TIME

ISSUESISSUES

PERIODIC BALANCE CONFIRMATION/ PERIODIC BALANCE CONFIRMATION/ ACKNOWLEDGEMENT OF DEBTS NOT ACKNOWLEDGEMENT OF DEBTS NOT OBTAINEDOBTAINED

SUBMISSION OF AUDITED FINANCIAL SUBMISSION OF AUDITED FINANCIAL STATEMENTS BY BORROWERS WITH STATEMENTS BY BORROWERS WITH LIMITS BEYOND Rs 10 LAKH NOT LIMITS BEYOND Rs 10 LAKH NOT ENSUREDENSURED

SECURITIES AVAILABLE INADEQUATE TO SECURITIES AVAILABLE INADEQUATE TO COVER THE OUTSTANDING BALANCESCOVER THE OUTSTANDING BALANCES

ISSUESISSUES STOCK STATEMENTS NOT RECEIVED IN STOCK STATEMENTS NOT RECEIVED IN

MANY CASESMANY CASES WHEREVER RECEIVED, THEY ARE NOT WHEREVER RECEIVED, THEY ARE NOT

ALWAYS VERIFIED BY CONDUCTING ALWAYS VERIFIED BY CONDUCTING INSPECTIONSINSPECTIONS

RENEWAL OF FACILITIES NOT DONE ON RENEWAL OF FACILITIES NOT DONE ON DUE DATESDUE DATES

LATEST VALUATION FOR MOVABLE AND LATEST VALUATION FOR MOVABLE AND IMMOVABLE SECURITIES NOT OBTAINED IMMOVABLE SECURITIES NOT OBTAINED

ISSUESISSUES

CLAIMS NOT FILED IN TIME WITH CLAIMS NOT FILED IN TIME WITH ECGC IN MANY CASESECGC IN MANY CASES

WHEREVER FILED, EFFECTIVE FOLLOW WHEREVER FILED, EFFECTIVE FOLLOW UP FOR RECOVERY OF SUCH CLAIMS UP FOR RECOVERY OF SUCH CLAIMS NOT DONENOT DONE

ISSUESISSUES

PRE/ POST SANCTION INSPECTIONS NOT PRE/ POST SANCTION INSPECTIONS NOT UNDERTAKENUNDERTAKEN

CERTIFICATE OF REGISTRATION OF CERTIFICATE OF REGISTRATION OF CHARGES FROM THE REGISTRAR OF CHARGES FROM THE REGISTRAR OF COMPANIES NOT HELD ON RECORDCOMPANIES NOT HELD ON RECORD

EXCESS DRAWINGS BEYOND POWERS EXCESS DRAWINGS BEYOND POWERS ALLOWEDALLOWED

PENAL INTEREST NOT BEEN CHARGED PENAL INTEREST NOT BEEN CHARGED FOR DELAYED REPAYMENTSFOR DELAYED REPAYMENTS

ISSUESISSUES

PRESCRIBED MARGINS NOT PRESCRIBED MARGINS NOT MAINTAINEDMAINTAINED

DISCOUNTING OF BILLS IN RESPECT OF DISCOUNTING OF BILLS IN RESPECT OF PARTIES WHOSE BILLS GOT RETURNED PARTIES WHOSE BILLS GOT RETURNED UNPAID EARLIER OR PAYMENT UNPAID EARLIER OR PAYMENT WHEREOF NOT FORTHCOMINGWHEREOF NOT FORTHCOMING

ADEQUACY/CONTINUITY OF ADEQUACY/CONTINUITY OF INSURANCE POLICIES NOT ENSUREDINSURANCE POLICIES NOT ENSURED

ISSUESISSUES MANY CASES WHERE BORROWERS MANY CASES WHERE BORROWERS

HAVE GIVEN FIXED DEPOSITS AS HAVE GIVEN FIXED DEPOSITS AS SECURITY/MARGIN THAT HAVE MATURED SECURITY/MARGIN THAT HAVE MATURED BUT NO STEPS TAKEN TO RENEW THEMBUT NO STEPS TAKEN TO RENEW THEM

IN SOME CASES AD-HOC LIMITS IN SOME CASES AD-HOC LIMITS SANCTIONED TO REGULARISE THE DEBIT SANCTIONED TO REGULARISE THE DEBIT BALANCES IN BORROWAL ACCOUNTS BALANCES IN BORROWAL ACCOUNTS WHICH ARE IN EXCESS OF THE WHICH ARE IN EXCESS OF THE SANCTIONED LIMITS OF THE BORROWERSANCTIONED LIMITS OF THE BORROWER

ISSUESISSUES

NO SYSTEM TO ASCERTAIN THE NO SYSTEM TO ASCERTAIN THE COMPLIANCE OF SECTION 19(2) OF THE COMPLIANCE OF SECTION 19(2) OF THE BANKING REGULATION ACT WHICH BANKING REGULATION ACT WHICH READS AS UNDER: READS AS UNDER:

"SAVE AS PROVIDED IN SUB-SECTION "SAVE AS PROVIDED IN SUB-SECTION (1), NO BANKING COMPANY SHALL (1), NO BANKING COMPANY SHALL HOLD SHARES IN ANY COMPANY, HOLD SHARES IN ANY COMPANY, WHETHER AS PLEDGEE, MORTGAGEE WHETHER AS PLEDGEE, MORTGAGEE OR ABSOLUTE OWNER OF AN AMOUNTOR ABSOLUTE OWNER OF AN AMOUNT

ISSUESISSUES

EXCEEDING THIRTY PERCENT OF THE EXCEEDING THIRTY PERCENT OF THE PAID UP SHARE CAPITAL OF THAT PAID UP SHARE CAPITAL OF THAT COMPANY OR THIRTY PERCENT OF ITS COMPANY OR THIRTY PERCENT OF ITS OWN PAID UP SHARE CAPITAL AND OWN PAID UP SHARE CAPITAL AND RESERVES WHICHEVER IS LESS"RESERVES WHICHEVER IS LESS"

ISSUESISSUES WHERE SUB-LIMITS TRANSFERRED WHERE SUB-LIMITS TRANSFERRED

FROM ONE BRANCH TO ANOTHER, FROM ONE BRANCH TO ANOTHER, INFORMATION ON THE FOLLOWING NOT INFORMATION ON THE FOLLOWING NOT AVAILABLE AT THE BRANCH WHERE AVAILABLE AT THE BRANCH WHERE THE MAIN ACCOUNT IS MAINTAINED :THE MAIN ACCOUNT IS MAINTAINED :

• ABOUT THE OPERATION IN THE ABOUT THE OPERATION IN THE ACCOUNTACCOUNT

• WHETHER THE ACCOUNT IS WHETHER THE ACCOUNT IS OVERDRAWN OR IN ORDEROVERDRAWN OR IN ORDER

• WHETHER THE INTEREST IS SERVICED WHETHER THE INTEREST IS SERVICED OR NOTOR NOT

• WHETHER ANY L/Cs WERE ISSUED AND WHETHER ANY L/Cs WERE ISSUED AND WHETHER ANY DEVOLVEMENTS WHETHER ANY DEVOLVEMENTS UNDER L/Cs OUTSTANDING ANDUNDER L/Cs OUTSTANDING AND

• WHETHER ANY BILL PURCHASED/ WHETHER ANY BILL PURCHASED/ DISCOUNTED IS OVERDUEDISCOUNTED IS OVERDUE

ISSUESISSUES

MAIN BRANCH NOT ADVISING ABOUT MAIN BRANCH NOT ADVISING ABOUT THE CLASSIFICATION OF THE ASSET TO THE CLASSIFICATION OF THE ASSET TO THE BRANCH WHERE SUB-LIMITS ARE THE BRANCH WHERE SUB-LIMITS ARE TRANSFERRED AND VICE A VERSATRANSFERRED AND VICE A VERSA

PROPER MONITORING OF ACCOUNTS PROPER MONITORING OF ACCOUNTS NOT DONE TO PREVENT SLIPPAGE OF NOT DONE TO PREVENT SLIPPAGE OF ACCOUNTS TO NPA CATEGORYACCOUNTS TO NPA CATEGORY

NPA DATE NOT CORRECTLY NPA DATE NOT CORRECTLY DETERMINEDDETERMINED

THANK YOUTHANK YOU

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PRESENTATION ON BANK AUDIT (ADVANCES) BY RAJESH SETHI (17.03.2011)