Questionnaire Applicable to Specialised Branches

For Branches dealing in Foreign Exchange Transactions

It should be noted that certain branches do not deal in foreign exchange transactions but foreign currency accounts are maintained there and all records of account opening documentation are held at these branches. In such cases, checking and reporting should be done of the account opening documentation and commented upon in this section of LFAR.

1. Are there any material adverse features pointed out in the reports of concurrent auditors, internal auditors and/ or the Reserve Bank of India’s inspection report which continue to persist in relation to NRE/ NRO/ NRNR/ FCNR-B/ EEFC/ RFC and other similar deposit accounts If so, furnish the particulars of such adverse features.

The auditor should make a written request to the branch Management for furnishing him the latest available reports of the statutory auditors and of the concurrent auditor or stock auditor or internal auditors, as also of the RBI where inspection or special audit has taken place for the branch. The auditor should scrutinise the contents of such reports in relation to NRE/ NRO/ NRNR/ FCNR-B/ EEFC/ RFC and other similar deposit accounts and take a note of relevant major adverse comments. In case adverse features are observed to persist at the branch or where no remedial action has been initiated or taken by the branch Management, he should report the same.

2. Whether the Branch has followed the instructions and guidelines of the Controlling Authorities of the bank with regard to the following in relation to the foreign exchange and, if not, state the irregularities.

(a) deposits

(b) advances

(d) bills for collection

(e) any other area

The auditor also has to make himself familiar with the relevant aspects of the Exchange Control Manual and its compliance. The auditor should verify whether the instruction and guidelines of the Controlling Authorities of the bank in relation to the foreign exchange have been followed by the branch in respect of these areas. If any irregularity is observed the same should be reported with details. Auditor to verify proper filing of BEF &
XOS returns –

3. Obtain a list of all NOSTRO Accounts maintained/ operated by the Branch from the branch Management.

he auditor should obtain a list of all NOSTRO Accounts for the purpose of verification from the branch Management.

(a) Are the NOSTRO Accounts regularly operated?

The auditor should verify whether the NOSTRO Accounts are being regularly operated. If not give the list of NOSTRO Accounts with balances outstanding, which are not operated regularly, the date of last transaction, etc. The auditor should specifically comment on overdrafts in NOSTRO accounts, if any.

(b) Are periodic balance confirmations obtained from all concerned overseas branches/ correspondents?

The auditor should verify whether the balance confirmation from all concerned overseas branches/ correspondents have been obtained on a periodic basis. He should report the names of the bank and the period wise outstanding balances, which remain unconfirmed.

While examining the transaction in foreign exchange, the auditor should also pay attention to reconciliation of NOSTRO Accounts with the respective minor account. The amount in the NOSTRO account is stock of foreign currency in the form of bank accounts with the overseas branches and correspondents. Un-reconciled NOSTRO Accounts, on an examination, may reveal unauthorised payments from the foreign currency account, unauthorised withdrawals, and unauthorised debit to minor account. The auditor should also evaluate the internal control with regard to inward/ outward messages. The inward/outward messages should be properly authenticated and discrepancies noticed should be properly dealt with in the books of accounts. In case balance confirmation certificate have been received but the same have not been reconciled, the auditor should report, in respect of each bank, the balances as per books maintained by the branch and the balance as per the relevant balances confirmation certificate, stating in either case whether the balance is debit or credit.

Whether the branch is following HO guidelines for reporting requirements under Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS).

4. Does the Branch follow the prescribed procedures in relation to maintenance of Vostro Accounts?

The auditor should verify whether prescribed procedure in relation to inter-bank confirmation in the Vostro account is followed or not. In case balance confirmation certificate have been received but the same have not been reconciled, or where confirmation has not been received the same should be reported, in respect of each Vostro Account. The RBI has also issued the Master Directions FED Master Direction No.2 /2015-16 dated January 01, 2016 (updated on April 28, 2016) on “Opening and Maintenance of Rupee/Foreign Currency Vostro Accounts of Non-resident Exchange Houses”.

For branches dealing in very large advances, such as, Corporate Banking Branches and Industrial Finance Branches or branches with advances in excess of Rs. 100 crores

1. In respect of borrowers with outstanding of Rs. 2 crores and above, the information in the enclosed format should be obtained from the Branch Management. Comments of the Branch Auditor on advances with significant adverse features and which might need the attention of the Management/Central Statutory Auditors should be appended to the Long Form Audit Report.

The branch auditor should obtain details and other information, in respect of all advances, which are in excess of Rs. 2 crores, which would be relevant to complete the enclosed format from branch manager.

Any advances account with significant adverse features like, nonoperative for quite a long time, renewed without adequate credit appraisal, fresh advances granted without obtaining necessary approval, etc., on which branch auditor has commented and which is of such a nature that central statutory auditor is required to consider it for qualifying and/or disclosing in main report, should be attached as an annexure to LFAR. In cases where limits are allocated to any branch, by a Main branch, the exchange of information between branches has to be verified –

2. What, in your opinion, are the major shortcomings in credit appraisal, monitoring, etc.?

Major shortcomings in credit appraisal will have to be disclosed in the LFAR which could either be stated on the face of the report or could be reference to an annexure. Examples of major shortcomings in credit appraisal are stated below:

 Loan application not on record at Branch.

 The appraisal form was not filled up correctly and thereby the appraisal and assessment was not done properly.

 Loan application is not in the form prescribed by Head Office.

 The Bank did not receive certain necessary documents and annexures required with the application form.

 Basic documents such as Memorandum and Articles of Association, Partnership deed, etc., which are pre-requisite to determine the status of the borrower have not been obtained.

 Certain adverse features of the borrower not incorporated in the appraisal note forwarded to the Management.

 Industry/ group exposure and past experience of the Bank is not dealt in the appraisal note sent to the Management for sanction.

 The level for inventory/ book-debts/ creditors for finding out the working capital is not properly assessed.

 Techno-economic feasibility report, which is required to know the technical aspects of the borrower’s business, is not obtained from Technical Cell.

 Credit report on principal borrowers and confidential report from their banks are not insisted from the borrowers.

 The opinion reports of the associate and/or sister concerns of the borrower are not scrutinised/ called for/ not updated/ not satisfactory.

 The procedure/ instructions of Head Office regarding preparation of proposals for grant or proposals for renewal of advances or proposals for enhancement of limits, etc., are not followed.

 No exposure limits are fixed for forward contract for foreign exchange sales/ purchase transactions.

 No adequate security obtained/ charge created.

 The director/borrower’s names do not appear in RBI/CIBIL defaulters list.

3. List the accounts (with outstanding in excess of Rs.1 crore), which have either been downgraded or upgraded with regard to their classification as Non Performing Asset or Standard Asset during the year and the reasons therefore.

For advance accounts where outstanding balance is in excess of Rs.

1 crore and which have been re-classified from non-performing asset to standard asset or vice-a-versa, the list will have to be attached to the report specifying the reasons with brief explanations for such re-classification.

For branches dealing in recovery of Non Performing Assets such as Asset Recovery Management Branches

1. In respect of every advance account in excess of Rs. 2 crores, the information in the enclosed format should be obtained from the Branch Management. Comments of the Branch Auditor on advances with significant adverse features and which might need the attention of the Management/Central Statutory Auditors should be appended to the Long Form Audit Report.

The Branch auditor should obtain details and other information, in respect of all advances, which are in excess of Rs. 2 crores, which would be relevant to complete the format (given in the Annexure) obtained from branch Management.

Any advances account with significant adverse features like, nonoperative for quite a long time, renewed without adequate credit appraisal, fresh advances granted without obtaining necessary approval, etc., on which branch auditor has commented and which is of such a nature that attention of central statutory auditor requires to consider it for qualifying and/ or disclosing in main report, should be attached as an annexure to LFAR.

2. List the accounts (with outstanding in excess of Rs. 2 crores), which have been upgraded from Non Performing to Standard Assets during the year and the reasons therefor.

For advance accounts where outstanding balance are in excess of Rs. 2 crores which have been reclassified from Non Performing Assets to Standard Assets, the list will have to be attached to the report specifying the reasons with brief explanations for such re-classification.

3. Whether the Branch has a system of updating periodically, the information relating to the valuation of security charged to the bank?

The branch auditor should enquire as to the existence of the system, if any, pertaining to the valuation of security charged to the bank. If the system is in existence, the auditor should examine whether the system periodically updates the information pertaining to the value of such security and takes necessary steps for increase/diminution in the value of such security.

4. Age-wise analysis of the recovery, suits-filed and pending may be furnished.

Age-wise analysis of the recovery suits filed and pending should begiven along with the current status of each recovery suit.

5. Is the Branch prompt in ensuring execution of decrees obtained for recovery from the defaulting borrowers? Also list the time-barred decrees, if any and reasons therefor.

In case decrees have been obtained for recovery from the defaulting borrowers, the auditor should check whether the branch is prompt in execution of decrees like, drawings from the account and payment from these accounts have been stopped. If not, the same should be reported. The list should be given in the case of time barred decrees with the reasons therefor.

6. List the recoveries and their appropriation against the interest and the principal and the accounts settled/ written off/ closed during the year.

A list will have to be annexed which will specify the non-performing advances recovered and the amounts adjusted towards interest and principal. A list of the accounts settled, written closed, if any, will also have to be attached. The auditor should satisfy himself whether the recoveries appropriated against interest are in accordance with the RBI guidelines and normal accounting principles.

7. List the new borrower accounts transferred to the Branch during the year. Have all the relevant documents and records relating to these borrower accounts been transferred to the Branch? Has the Branch obtained confirmation that all the accounts of the borrower (including non-fund based exposures and deposits pending adjustment/ margin deposits) been transferred to the Branch?

A list of new borrower accounts transferred to the branch from the other branches during the year should be annexed. The auditor should verify whether the documents and records relating to the transferred accounts have been obtained like, letter from the transferor branch, detail of the accounts, etc. The branch should also obtain a confirmation that all the accounts of the borrower (including non-fund based exposures and deposits pending adjustment/ margin deposits) have been transferred to the branch. In case any adverse features have been observed in such transfer, the same should be reported.