Introduction of Agriculture
Lending constitutes a major activity of a bank besides the investment function. The core business of banks is accepting deposits for onward lending. Advances, generally, constitute the largest item on the assets side of the balance sheet of a bank and are major source of its income.
Audit of advances is one of the most important areas covered by auditors. It is necessary that auditors should have adequate knowledge of the
banking industry and the regulations governing the banks. Auditors must be aware of the various functional areas of the bank/branches, its processes, procedures, systems and prevailing internal controls.
Advances generally comprise of:
a) money lent by the bank to its customers including interest accrued and due;
b) debit balances in the account of the depositors;
c) Inter-Bank Participation Certificates.
Every bank has its credit policy approved by its board of directors. The credit policy is generally in line with the applicable RBI guidelines, relevant acts and regulations. The auditors must acquaint themselves with the credit policy of the bank and composition of its advances portfolio.