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Advances

Advances

(a) Credit Appraisal

In your opinion, has the branch generally complied with the procedures/ instructions of the Controlling Authorities of the bank regarding loan applications, preparation of proposals for grant/ renewal of advances, enhancement of limits, etc., including adequate appraisal documentation in respect thereof.
 Refer circular issued by Head Office regarding Credit Appraisal.
 Enquire whether specific facility wise loan application form is prescribed by the Bank.
 Confirm that the instructions are followed by the Branch while accepting the loan application form.
 Refer circular issued by Head Office regarding preparation of proposals for grant / renewal of advances, enhancement of limits, etc., including adequate appraisal documentation in respect thereof.
 While reporting under this clause, auditor should consider the “Early mortality cases” in the branch

The auditor would also need to consider whether:

 The branch is adhering to various guidelines issued by RBI regarding lending against own shares, lending to directors or their relatives.

 In respect of lending under consortium / multiple banking arrangement, the branch is obtaining declaration from the borrowers about the credit facilities already enjoyed by them from other banks in the format prescribed in circulars DBOD.No.BP.BC.46/08.12.001/2008-09 dated September 19, 2008 and DBOD.No.BP.BC.94/08.12.001/2008-09 dated December 08, 2008.

 Bank is exchanging / sharing information of the credit facilities sanctioned to the borrowers with other lending bankers.

 The branch is practicing due diligence to assess the credit worthiness of the borrowers and not relying on margin and security as a substitute for due diligence.

 The branch is adhering to the prudential exposure limits prescribed by RBI and Head Office.

 Latest IT returns of Borrowers / Guarantors have been obtained.

 Latest CIBIL or other Credit Information Company report has been obtained and verified.

(b) Sanctioning/ Disbursement

(i) In the cases examined by you, have you come across instances of credit facilities having been sanctioned beyond the delegated authority or limit fixed for the branch? Are such cases promptly reported to higher authorities?

 Confirm sanctioning / disbursement discretionary power regarding advances.

 Report the cases where credit facilities having been sanctioned beyond the delegated authority or limit fixed for the branch

 Whether such type of cases promptly reported to higher authorities.

 Such type of cases may be reported in the following format.

 Generally, cases are seen in the branch where the limits of existing borrowers are allowed to be overdrawn for a period beyond permissible time. Such cases should be reported.

Sr. No.
Name of the borrower
Account Number
Type of facility
Sanction date/ Authority
Sanction limit
Balance outstanding on 31.03.20XX
Amount sanctioned exceeding the delegated authority
Date of sanction / ratification from Higher Authority

 

 

(ii) In the cases examined by you, have you come across instances where advances have been disbursed without complying with the terms and conditions of the sanction? If so, give details of such cases. Obtain original Title deed, Execution of Documents. Vetting of documents by legal dept./ legal resource.

 Report the cases where advances have been disbursed without complying with the terms and conditions of the sanction letter. Main aspects to be covered are:
– Registration of charges – search report.
– Resolutions – guarantees – mortgage creation.
– Legal opinion – valuation – encumbrance certificate – insurance.
– Lien on deposits – margins for BG and LC and loan on deposits.

 Report the cases along with the deviations.

(c) Documentation

(i) In the cases examined by you, have you come across instances of credit facilities released by the branch without execution of all the necessary documents? If so, give details of such cases.

 Report the cases where credit facilities released by the branch without execution of all the necessary documents. Physical verification of documents is critical. This is one of the important function of the branch audit and the reason why branch audit exists.

 The exact nature of irregularity / document not obtained may be provided in the following format.

 Verify Custody of Documents – Whether document movement register tracking changes is maintained – Scanning of important documents.

Sr. No.

Name of the borrower

Account Number

Type of facility

Sanction date/ Authority

Sanction limit

Balance outstanding on 31.03.20XX

Nature of irregularity / documents not obtained

 

(ii) In respect of advances examined by you, have you come across cases of deficiencies in documentation, non-registration of charges, non-obtaining of guarantees, etc.? If so, give details of such cases.

 Report cases of deficiencies in documentation, non-registration of charges, non-obtaining of guarantees, etc.

 Make sure that the documents are adequately stamped and also that they are executed within six months of purchasing the stamp paper.

 The instances should be reported in the following format.

Sr. No.
Name of the borrower
Account Number
Type of facility & a/c no.
Sanction date/ Authority
Sanction limit
Balance outstanding
Nature of irregularity

 

 Time barred documents list to be furnished as under

Sr.
No.

Name

of the

borrower

Name

of the

borrower

Outstanding

balance

Sanction limit /

Authority

Date of

document

 

 

 The time barred accounts statement can be generated through system.

 When the document became time barred, no legal action can be initiated against the borrower.

(iii) Whether advances against lien of deposits have been properly granted by marking a lien on the deposit in accordance with the
guidelines of the Controlling Authorities of the bank.

 Refer the guidelines issued by Head Office in this regard.

 Report the cases, where the deposits / NSCs, paper securities etc., are matured, however not adjusted against the respective advances.

 Instances should be given in the following format.

Sr.
No.
Name
of the
borrower
Account
Number
Sanction
limit /
Authority
Outstanding
balance
Date of
document
Particulars
of Security

 

(d) Review/Monitoring/ Supervision

(i) Is the procedure laid down by the Controlling Authorities of the bank, for periodic review of advances including periodic balance confirmation/ acknowledgement of debts, followed by the branch? Provide analysis of the accounts overdue for review/ renewal

o between 6 months and 1 year, and

o over 1 year

 Refer the guidelines issued by Head Office in this regard.

 Date / month in which accounts were due for review and the date / month on which the review was done may be obtained.

 It may be noted that there would be cases that are seen performing at the balance sheet date but evidently stressed. Comments on such account with respect to branch efforts on monitoring and information availability on same should be commented upon.

 In view of changes in the reporting requirements in CARO for corporate borrowers, it is necessary for branch auditor to carefully go through the annual reports to ensure that there no adverse comments in the balance sheet of a borrower that affects reporting at the branch level.

 .Date / Month of review can be verified from the sanction documents / terms

 Instances should be given in the following format.

Sr.

No.

Name

of the

borrower

Type of

Facility &

Account

Number

Balance

outstanding

as on

31.03.20XX

Review

overdue

since

Ageing

 

(ii) Are the stock / book debt statements and other periodic operational data and financial statements, etc., received regularly from the borrowers and duly scrutinised? Is suitable action taken on the basis of such scrutiny in appropriate cases?

 Borrower wise / month wise record showing receipt of security statement be confirmed..

 Confirm the working of drawing power based thereon.

 Confirm whether these statements are obtained on time.

 Compare movement shown in book debt & creditors with debit/credits in the Bank.

Further, in respect of consortium advance, the drawing power should be determined by the lead bank and circulated to the other member banks (circular no. No. C&I/Circular/2014-15/689 dated 29 September 2014 issued by the Indian Banks Association).

(iii) Whether there exists a system of obtaining reports on stock audits periodically? If so, whether the branch has complied with such system?

 Refer the guidelines issued by Head Office in this regard and confirm the compliance thereof.

 Examine the compliances obtained, action taken in cases wherein deficiencies are reported by the stock auditors.

 Obtaining written reverts from the Borrower..

 Whether adverse issues in stock audit reports are duly factored in review / renewal notes.

 Compare with annual accounts for divergences and obtain satisfactory explanations

(iv) Indicate the cases of advances to non-corporate entities with limits beyond Rs.10 lakhs where the branch has not obtained the accounts of borrowers, duly audited under the RBI guidelines with regard to compulsory audit or under any other statute.

 Obtain list of non corporate borrowers enjoying facilities in excess of Rs.10.00 lakhs and report where audited statements are not on record.

 A list of such cases is to be given in the following format.

Sr.
No.
Name
of the
borrower
Account Number
Sanction
Limit
Date of last audit
completed
         

 

(v) Has the inspection or physical verification of securities charged to the Bank been carried out by the branch as per the procedure laid down by the Controlling Authorities of the bank?

 Refer the guidelines issued by Head Office in this regard.

 A list of such cases is to be given in the following format.

 Reporting deviations if any reasons for the deviations

Sr.
No.
Name
of the
borrower
Account Number
Sanction
Limit
Last date of inspection or
physical verification
         

 

(vi) In respect of advances examined by you, have you come across cases of deficiencies in value of securities and inspection thereof or any other adverse features such as frequent/unauthorised overdrawing beyond limits, inadequate insurance coverage, etc.?

 Note down the remarks regarding deficiencies in value of securities and inspection report submitted by the concerned officer.

 Confirm whether Insurance is in favour of Bank.

 The cases where frequent / unauthorized over drawings beyond limits are granted is to be given in the following format.

 Check whether Insurance covers risks the mortgaged securities are subject to – Check adequacy of Insured value and location wise –

Sr.
No.
Name
of the
borrower
Account Number
Sanction
Limit
Balance
Outstanding
Drawing
power
Irregularity
             

 

 For cases, wherein insurance details are not available is to be given in the following format.

Sr.

No.

Name

of the

borrower

Account Number

Sanction

Limit

Value of Security

         

 

 For cases, wherein there is inadequate insurance may be given in the following format.

Sr.
No.
Name
of the
borrower
Account Number
Sanction
Limit
Value of
Security
Insured
for Rs.
Inadequate
Insurance
             

 

(vii) In respect of leasing finance activities, has the branch complied with the guidelines issued by the Controlling Authorities of the bank relating to security creation, asset inspection, insurance, etc? Has the branch complied with the accounting norms prescribed by the Controlling Authorities of the bank relating to such leasing activities?

 Refer the guidelines issued by Head Office in this regard.

(viii) Are credit card dues recovered promptly?

 Refer the guidelines issued by Head Office in this regard.

 Whether the branch maintains debit balances in the card dues customers.

 Confirm, whether such debit balances are included in advances classification statements.

(ix) Has the branch identified and classified advances into standard/substandard/ doubtful/ loss assets in line with the norms prescribed by the Reserve Bank of India.

 Refer the guidelines issued by Reserve Bank of India together with Head Office in this regard.

 Wherever, such guidelines are not followed Memorandum of Changes be given with reason.

 The branch auditor shall also verify compliance with the guidelines issued by Head Office with regard to identification and classification of loan accounts into special mention accounts and incremental provisioning requirement on account of unhedged foreign current exposures in line with the norms prescribed by the Reserve Bank of India

(x) Where the auditor disagrees with the branch classification of advances into standard / sub-standard / doubtful / loss assets, the details of such advances with reasons should be given. Also indicate whether suitable changes have been incorporated / suggested in the Memorandum of Changes.

 Refer the guidelines issued by Reserve Bank of India together with Head Office in this regard.

 Wherever, such guidelines are not followed Memorandum of Changes be given with reason.

(xi) Have you come across cases where the relevant Controlling Authority of the bank has authorised legal action for recovery of advances or recalling of advances but no such action was taken by the branch? If so, give details of such cases.

 Refer the guidelines issued by Head Office in this regard.

 Wherever, such guidelines are not followed such cases be reported in the following format.

Sr.
No.
Name
of the
borrower
Account Number
Sanction
Limit
Instructions to
take legal action
on
Present
Status

 

(xii) Have all non-performing advances been promptly reported to the relevant Controlling Authority of the bank? Also state whether any rehabilitation programme in respect of such advances has been undertaken, and if so, the status of such programme.

 Refer the guidelines issued by Head Office in this regard.

 Wherever, such guidelines are not followed such cases be reported

Sr.
No.
Name
of the
borrower
Account Number
Sanction
Limit
Rehabilitation
programme
sanctioned
Present
Status

 

(xiii) Have appropriate claims for DICGC/CGSTE and Export Credit Guarantee/ Insurance and subsidies, if any, been duly lodged and settled? The status of pending claims giving year wise break-up of number and amounts involved should be given in the following format:

 DICGC not applicable, as most of the Banks have opted out of DICG.

 Report here the claims if any outstanding on account of ECGC/CGST.

 Report the cases not accepted / rejected by ECGC/CGST.

Particulars

Number Amount (Rs.)
Claims as at the beginning of the year (Give year-wise details)
Further claims lodged during the year
Total A

____
____

Amounts representing:

(a)       Claims accepted/ settled                   (give
year-wise details)

(b)       Claims rejected (give year-wise details)

Total B

____
____

Balance as at the year-end (give year-wise details)

A-B

____

===

======

 

(xiv)     In respect of non-performing assets, has the branch obtained

valuation reports from approved valuers for the fixed assets charged to the bank, once in three years, unless the circumstances warrant a shorter duration?

> Refer the guidelines issued by Head Office in this regard.

> Wherever, such guidelines are not followed such cases be reported in the following format.

(xiv)     In respect of non-performing assets, has the branch obtained

valuation reports from approved valuers for the fixed assets charged to the bank, once in three years, unless the circumstances warrant a shorter duration?

> Refer the guidelines issued by Head Office in this regard.

Wherever, such guidelines are not followed such cases be reported in the following format.

> Whether valuation is done on a consistent basis – at fair Market value, Realizable value, Distress value – Whether Fall in Market value has been factored in the valuation –

Sr.
No.
Name
of the
borrower
Account Number
Sanction
Limit
Balance
Outstanding
Compromised /
Settlement Amt.
Recovery
Effected
Recovery
To be
effected

 

(e) Guarantees and Letters of Credit
 Normally handled at Corporate or Head Office.
 However, inquire whether such type of cases are handled at Branch and reply accordingly.
(i) Details of outstanding amounts of guarantees invoked and funded by the branch at the end of the year may be obtained from the Management and reported in the following format:

(a) Guarantees invoked, paid but not adjusted:

Sr.

Date of

Name of

Name of

Amount

Date of

Remarks

No.

invocation

the party

beneficiary

Recovery

 

(b) Guarantees invoked but not paid:

Sr.

No.

Date of

invocatio

Name of 

the party

Name of

beneficiary

Amount

Date of 

Recovery

Remarks

 

(ii) Details of the outstanding amounts of letters of credit and coacceptances funded by the Branch at the end of the year may be obtained from the Management and reported in the following format:

Sr.

No.

Date of

invocatio

Name of 

the party

Name of

beneficiary

Amount

Date of 

Recovery

Remarks

 

 

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