Transcript Accounting and Auditing of Co-Operative Societies

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ACCOUNTING AND AUDITING COOPERATIVE SOCIETIES INCLUDING
BANKS
December 30th,2014
Nellore
Regulated by the respective states
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Exceptions
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Gujarat Cooperative Milk Marketing Federation Ltd. (GCMMF),
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Total Turnover Rs.18143 Crore
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Saraswat Co-Operative Bank Ltd.
Total Business of Rs.46000 Crore
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The Citizen Co-operative Society ltd.
Total Business of Rs.1400 Crore
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The A.P. Mahesh Co-operative Urban Bank Ltd.
Multi-State Scheduled Bank
Applicability of Accounting
standards
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Accounting Standards are designed to apply to the general
purpose financial statements and other financial reporting,
which are subject to the attest function of the members of
the ICAI.
Accounting Standards apply in respect of any enterprise
(whether organised in corporate, co- operative or other
forms) engaged in commercial, industrial or business
activities, irrespective of whether it is profit oriented or it is
established for charitable or religious purposes.
Accounting Standards will not, however, apply to enterprises
only carrying on the activities which are not of commercial,
industrial or business nature
Whether applicable or not ?
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The financial statements prepared by the cooperative society includes balance sheet, statement
of profit and loss, statements and explanatory notes
which form part of financial statements. Thus it is
amply clear that Accounting Standards pronounced
by ICAI are squarely applicable to the Cooperative societies.
Responsibility of Following and Role
of C As as Auditors
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It is the responsibility of the management of the
society
CA’s have to ensure that accounting standards are
followed by the co-operative society.
Mandatory Accounting Standards
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There are 31 Mandatory Accounting standards
which will be applicable on Co-Operative Socieities
Classification as per Level I ,II and III
Important AS applicable to CoOperative Societies
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AS 1 Disclosure of Significant Accounting
policies:
Attention to fundamental accounting assumptions
Going concern, Consistency and Accrual should be
very carefully exercised.
Recognition of Indcome and provision of Expenses
AS- 2 Valuation of Inventories
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Producers Societies and Trading Societies
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“Lower of the cost or net realisable value”
Difficulty in arriving at such valuation for lack of
detailed accounting records
AS-6 Depreciation Accounting :
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Co-Operative Act is silent about rates.
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Method of application
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Policy should be disclosed
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Accumulated Depreciation to be disclosed
AS- 9 Revenue Recognition
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Interest Recognition on N.P.A Assets
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Generally on cash basis by co-operative credit societies
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Co-operative Banks are governed by RBI and liable to follow the stipulations.
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Accounting Standards by their very nature can not and do not override the local
regulations which govern the preparation and presentation of financial statements.
Prudential norms of classification and provisioning of advances
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Interest on overdue deposits its method of recognition
AS-10 Accounting for Fixed Assets
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Non-monetary Consideration
Revaluation of Fixed Assets:
Classification according to Nature
Capitalisation of Expenses
AS-14 Accounting for Amalgamation
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Mostly in the cases of Large Co-Operative Banks
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(a) the pooling of interests method:
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(b) the purchase method:
AS-15 Employee Benefits :
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Post employment benefits
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Retirement Benefits
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Other Benefits
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Provision of such benefits
AS-17 Segment Reporting
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Primary and secondary segments
Socieities
Trading and Manufacturing
Banks
Interest income ,Investment Income, Other Income
As -22 Accounting for Taxes on
Incomes
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Applicability of section 80 (P)
Provision of Minimum Alternate Tax on CoOperative Society
Banks are already subject to this AS
As -24 Discontinuing Operations
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In case of Producer Co-Operative Society
What is the point at which the discontinuing
operations trigger?.
PreTax Gains and losses on disposal of assets or
liabilities
Subsequent changes in timing of cash flows needs
to be reported in updated disclosures.
AS-28 Impairment of Assets :
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Prescribe the procedures
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Recognition of Loss
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Disclosure
Disclosures required by Reserve Bank
Of India in case of Banks
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As per RBI Circular dated 25/3/2014
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All Urban Co-Operative Banks
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W.e.f March 31st 2014
Auditing of Co-operative Societies
and Banks
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Area of Co-Operative auditing has been still developing
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Requires lot of professional attitude and interest
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Expectations from Co-Operative Regulators i.e Registrar of Co-Operatives and Reserve bank
of India
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State Laws
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Standards of Auditing Issued by ICAI
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Co-operative Society is subject to mandatory Statutory audit or any other audit as specified
in State Co-operative Act and a Co-operative bank is subject to Statutory audit required by
State Co operative Act as well as different types of audits required by Reserve Bank of India
Statutory audit of A Co-Operative
Society:
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Section 50 and Rule 45 of Andhra Pradesh CoOperative Societies Act 1964
Section 27 of Andhra Pradesh Mutually Aided
Cooperative Societies Act, 1995
Section 70 of MULTI - STATE COOPERATIVE
SOCITIES ACT, 2002.
Rule 45 of Andhra Pradesh CoOperative Societies Act 1964
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Audit by Chief Auditor or the person authorised
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Statement showing the receipts, disbursements for the year,
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A profit and loss accounts.
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A balance sheet; and
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Such other statements and returns as may be specified by the Registrar
or by the Chief Auditor from time to time.
Within three months after the end of the Co-operative Year.
Audit certificate
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Contents of Audit Certificate
(a) the name of the society and the period covered by audit;
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(b) the name of the person who audited the accounts for the period;
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(c) a statement of receipts and disbursements;
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(d) the Profit and Loss accounts;
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(e) assets and liabilities of the society;
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(f) a statement showing the debts, overdues; and
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(g) a certificate of verification of the cash balance and securities.
Draft Contents of An Audit Note
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Part I Introduction
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Registration
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Byelaws
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Amendments by Approval in A.G.M. and subsequent sanction by Registrar only
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Area of operation
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Objects of Bank/Society
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Membership details
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Fulfillment of R.B.I. mandatory criteria
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Capital adequacy
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CAMEL Model Rating
Draft Contents of An Audit Note
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Part II Management and Operations
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A.Board of Directors
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1) Constitution
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2) Disqualification
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3) Meetings
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4) Annual General Meeting
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5) Managing Committee
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6) Sub Committees
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7) Compliance of Director’s Do’s and Don’ts Circular of R.B.I
Draft Contents of An Audit Note
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B.Executive Management
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Staffing pattern
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Reservations
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Service book compliance
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Suspension etc
Draft Contents of An Audit Note
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C.Internal Control
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Internal Audit
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Accounting
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Branch Inspection and control
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Statutory Audit
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Compliance of Statutory Audit
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R.B.I Inspection and Compliance
Draft Contents of An Audit Note
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Part III Financial Analysis
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Liabilities
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1) Share Capital
Verification of Share register
Verification of Member register
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2) Statutory Reserves and other resaves
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3) Deposits
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4) Borrowings
Draft Contents of An Audit Note
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Assets
1) Cash in Hand
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2) Balances with Banks
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3) Investments
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4) Advances
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Appraisal
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Sanction
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Documentation
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Supervision
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Concentration of advances to a particular sector
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Loans to Directors
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Write off/Settlement
Draft Contents of An Audit Note
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5. Fixed Assets and dead stock
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Prior approval of Department is required in case of
purchase or construction
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Of building and purchase of an other fixed assets.
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Addition and deletion to be reported
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6. Other Assets
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a)Interest Receivable
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b) Inter branch /Ho adjustments
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c) Sundry debtors
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7. Accumulated Losses
Draft Contents of An Audit Note
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Overdues
Pending cases at Registrar Court
Assistant Registrar Court
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Contingent Liabilities
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Pending court Cases
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Bank Guarantees
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Income Tax Liabilities
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Other statutory liabilities
Draft Contents of An Audit Note
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 Provisions
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Overdue Interest Reserve
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Bad and doubtful debts reserve
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Branch wise Profit and Loss
Draft Contents of An Audit Note
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Part IV Financial statements
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Receipt and Disbursements during the year
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Income and Expenses during the year
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Annexure to Balance sheet
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Financial statements
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Audit Certificate
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Audit Classification
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Audit Certificate
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Other Information if any
Preparation of Audit Certificate
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Applicability of SA 700
 1)Auditor’s Report
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2)Title
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3)Addressee
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4)Introductory Paragraph
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5)Management’s Responsibility for the Financial Statements
Applicability of SA 700
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6)Auditor’s Responsibility
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7)Unmodified opinion on financial statements prepared
8)Signature of Auditor
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9)Date of audit report
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10)Place of Signature
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11) Supplementary Information Presented with the Financial Statements
Applicability of Standards of Auditing
705
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(I) MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT
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a qualified opinion
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an adverse opinion
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a disclaimer of opinion.
(II) Consequence of an Inability to Obtain Sufficient Appropriate Audit Evidence
Due to a Management-Imposed Limitation after the Auditor Has Accepted the
Engagement
(III) Form and Content of the Auditor’s Report When the Opinion Is Modified
Audits and Inspection Recommended by Reserve Bank of
India
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1. Internal Audit
 2. Supplementary Inspections/Audit
 3 Revenue Audit
 4. Credit Portfolio Audit
 5. Investment Portfolio Audit
 6. Concurrent Audit
 7. E.D.P.AUDIT
 8. INFORMATION SYSTEM (IS) AUDIT
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Practical aspects of Auditing as per
R.B.I.
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Inspection by R.B.I and N.A.B.A.R.D
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Strict adherence to provisions
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Category or Grading
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Rating Model
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Supervisory Action
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Remarks on the quality of audit carried out by the Chartered
Accountant
Practical aspects of Audit areas
prescribed by Reserve bank of India
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I Cash
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Maintenance of records of transactions
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Reporting to Financial Intelligence Unit – India
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Penalty
It should also be ensured that there is a proper system of fixing
accountability for serious lapses and intentional circumvention of
prescribed procedures and guidelines.
II. Investments
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SLR Investments :
than 22.50 percent but not exceeding 40 percent of
the total of its demand and time liabilities
Non SLR Investments:
The Non-SLR investments will continue to be limited to
10% of a bank’s total deposits as on March 31 of the
previous year
Placement of deposits with other banks by UCBs
Shall not exceed 20 per cent of its total deposit
liabilities
II. Investments
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Categorisation of Investments
(i) Held to Maturity (HTM)
(ii) Available for Sale (AFS)
(iii) Held for Trading (HFT)
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Shifting of investments
Valuation of investments
Intercategory adjustment
III. Deposits
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KNOW YOUR CUSTOMER’ (KYC) GUIDELINES
AND ANTI MONEY LAUNDERING (AML)
STANDARDS
The Depositor Education and Awareness Fund
Scheme, 2014
IV. Advances
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Exposure Ceiling to Individual / Group Borrowers
individual borrower does not exceed 15 per cent of capital
funds, and
group of borrowers does not exceed 40 per cent of capital
funds.
Exposure to Housing, Real Estate and Commercial Real Estate
Aggregate Ceiling on Unsecured Advance
Granting Loans and Advances to Directors and their Relatives
Maximum Ceiling on Advances to Nominal Members
IV. Advances
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Prohibation on loan to Stock Brokers ,NBFC
Loan against Mutul fund or shares
Financing for Agricultural Activities
Loans to Self Help Groups (SHGs) / Joint Liability
Groups (JLGs)
Loan and Advances against Pledge of Gold / Silver
Ornaments
Annual Review of Advances
Reporting to R.B.I.
Role of Auditors:
Accounting related with Advances and
Income thereof
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Recognition of Income on NPAs
(i) Interest accrued in respect of non-performing
advances
(ii) Interest accrued respect of borrowal accounts,
which are treated as performing advances
Overdue Interest Reserve Account cannot be
regarded as 'reserve' or a part of the owned funds
of the banks
NPA reporting
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at the end of each year within two months
from the close of the year
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(i) Standard Assets
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(ii) Sub-standard Assets
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(iii) Doubtful Assets
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(iv) Loss Assets
V.Housekeeping
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Maintenance
of balancing of accounts,
Ledgers
registers
Prompt reconciliation of entries outstanding in the inter-branch
inter-bank accounts,
Suspense Accounts,
Sundry Deposits Account,
Drafts Accounts,
VI CRR and SLR Maintenance
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CRR
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For Non scheduled UCB
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4 per cent of the total of demand and time liabilities,
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Penalty for Non reporting
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Penal Interest for Default in maintenance of CRR
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SLR
22.50 per cent of their total demand and time
liabilities
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Penalty for non reporting
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Penal Interest for Default in maintenance of SLR
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Cancellation of License
VI.Area of Operations
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Geographical area/s as defined in its bye-laws,
approved by the registering authority
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Change in Area
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Shifting of Offices
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Penalty for Submission of Wrong Information
VII. Capital Adequacy
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9% at present
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Capital Employed at the bank
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Weighted Risks associated with the respective assets
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Returns
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Penalty/Supervisory Actions
Conclusion
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Careful and Cautious approach
Greater degree of analysis of state laws
accounting standards
Close monitoring of Notifications and circulars
issued by R.B.I.
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Thank you