Transcript Software Usage in Banks – CBS Demonstration

Audit for Treasury and
Investment Function
Certificate Course on Concurrent Audit of Banks organized
by Internal Audit Standards Boards, ICAI
Session By: CA. Sanjay Gupta, Delhi
Sanjay Gupta FCA, DISA, CISA, CRISC
Disclaimers
• These are my personal views and can not be
construed to be the views of the ICAI, IASB of
ICAI, Regional Councils of ICAI.
• These views do not and shall not be
considered as professional advice
Sanjay Gupta FCA, DISA, CISA, CRISC
Session overview
 Rules & Regulations governing Treasury
Functions in Bank
 Treasury infrastructure and its internal control
 Cash and investment Management Function
 Asset and Liability Management Function
Sanjay Gupta FCA, DISA, CISA, CRISC
Rules & Regulations governing
Treasury Functions in Bank
 Meaning
The treasury function of the bank manages the funding of the balance
sheet, maintenance of the statutory reserve requirements and the foreign
exchange resources of the Bank, in accordance with RBI guidelines, keeping
in view its objective of liquidity management and maximizing income by
trading in the financial markets.

Examples
Derivatives, Swaps, Futures, Options, debt instrument, treasury bill, bonds,
Commercial Papers
Sanjay Gupta FCA, DISA, CISA, CRISC
Rules & Regulations governing
Treasury Functions in Bank
RBI
Guidelines
FIMMDA &
FEDAI
GUIDELINES
Reference material issued by the
ICAI
1. Manual on Concurrent Audit of
Banks
2. Guidance On Internal Audit
3. Guidance Note on Audit of Banks
REGULATORY
& OTHER
GUIDELINES
PROCESS
MANUALS
Investment
Policy
Internal
circulars
Sanjay Gupta FCA, DISA, CISA, CRISC
RBI Guidelines
Guidelines for Derivatives increased the focus on 'SUITABILITY' and 'APPROPRIATENESS'
of derivative products being offered by market-makers to
customers(users) as also customer appropriateness.
 The market-makers should carry out proper due diligence.
 Before offering any derivative product to clients, banks should
obtain Board resolution from the corporate.
 Document how the pricing has been done and how periodic
valuations will be done.
 Ascertain whether users has the appropriate authority to
enter into derivative transactions.
Sanjay Gupta FCA, DISA, CISA, CRISC
FEDAI Guidelines for Merchant
Quotes
 Banks will make remittances or open letter of credit in favour
of the overseas suppliers provided an advance remittance for
the full value or an irrevocable letter of credit for the full
value has been received/ opened in favour of the
merchandising trader who is not a mere financial
intermediary.
 Back-to-back letter will be treated as separate transaction and
commission as per Rule 3 II.C. shall be charged to the
customer.
 The banks are allowed to fix Forward Purchase Contract if so
desired by the merchant for the difference period of receipt
of the proceeds of the on-sale.
Cont…
Sanjay Gupta FCA, DISA, CISA, CRISC
Investment Policy
• Banks are required to frame their investments policy and obtain the
Board’s approval. The investment policy may be suitably framed /
amended to include Primary Dealer (PD) activities also. Within the overall
framework of the investment policy, the PD business undertaken by the
bank will be limited to dealing, underwriting and market–making in
Government Securities. Investments in Corporate/ PSUs/ FIs bonds,
Commercial Papers, Certificate of Deposits, debt mutual funds and other
fixed income securities will not be deemed to be part of PD business. Such
policies should be implemented to ensure that the operations in securities
are conducted in accordance with sound and acceptable business
practices. Within the policy framework, banks may undertake primary
dealers’ activities in Government Securities.
Sanjay Gupta FCA, DISA, CISA, CRISC
Maintenance of Cash Reserve
Ratio (CRR)
At present, effective from the fortnight beginning February
09, 2013, the CRR is prescribed at 4.00 per cent of a bank's
total of DTL.
Incremental CRRThe SCBs are required to maintain an additional average daily
balance, the amount of which shall not be less than the rate
specified by the Reserve Bank in the notification published in
the Gazette of India from time to time.
Cont…
Sanjay Gupta FCA, DISA, CISA, CRISC
Demand and Time Liability
Demand Liabilities-
Demand Liabilities of a bank are
liabilities which are payable on demand. These includes•
Current Deposits,
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Demand Liabilities Portion Of Savings Bank Deposits,
Margins Held Against Letters Of Credit/Guarantees,
Balances In Overdue Fixed Deposits,
Cash Certificates And Cumulative/Recurring Deposits,
Outstanding Telegraphic Transfers (Tts),
Mail Transfers (MTs),
Demand Drafts (DDs),
Unclaimed Deposits,
Credit Balances In The Cash Credit Account And,
Deposits Held As Security For Advances Which Are Payable On Demand.
Cont…
Sanjay Gupta FCA, DISA, CISA, CRISC
Demand and Time Liability
Time Liabilities- Time Liabilities of a bank are those which
are payable otherwise than on demand. These Includes –
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Fixed Deposits,
Cash Certificates,
Cumulative And Recurring Deposits,
Time Liabilities Portion Of Savings Bank Deposits,
Staff Security Deposits,
Margin Held Against Letters Of Credit, If Not Payable On Demand,
Deposits
Held As Securities For Advances Which Are Not Payable On
Demand And,
Gold Deposits.
Sanjay Gupta FCA, DISA, CISA, CRISC
Other Demand and Time Liabilities
Other Demand and Time Liabilities Includes Interest accrued on deposits,
 Bills payable,
 Unpaid dividends,
 Suspense account balances representing amounts due to
other banks or public,
 Net credit balances in branch adjustment account, any
amounts due to the banking system which are not in the
nature of deposits or borrowing
Sanjay Gupta FCA, DISA, CISA, CRISC
Assets with the Banking System
Assets with the banking system include balances with banks in
current account, balances with banks and notified financial
institutions in other accounts, funds made available to
banking system by way of loans or deposits repayable at call
or short notice of a fortnight or less and loans other than
money at call and short notice made available to the banking
system. Any other amounts due from banking system which
cannot be classified under any of the above items are also to
be taken as assets with the banking system.
Sanjay Gupta FCA, DISA, CISA, CRISC
Liabilities not to be included for
DTL/NDTL computation
The under-noted liabilities will not form part of liabilities for
the purpose of CRR and SLR• Paid up capital, reserves, any credit balance in the Profit & Loss Account of
the bank, amount of any loan taken from the RBI and the amount of
refinance taken from Exim Bank, NHB, NABARD, SIDBI;
• Net income tax provision;
• Amount received from DICGC towards claims and held by banks pending
adjustments thereof ;
• Amount received from ECGC by invoking the guarantee;
• Amount received from insurance company on ad-hoc settlement of claims
pending judgment of the Court;
• Amount received from the Court Receiver;
Cont…
Sanjay Gupta FCA, DISA, CISA, CRISC
Liabilities not to be included for
DTL/NDTL computation
 The liabilities arising on account of utilization of limits under Bankers
Acceptance Facility (BAF);
 District Rural Development Agency (DRDA) subsidy of Rs.10,000/- kept in
Subsidy Reserve Fund account in the name of Self Help Groups;
 Subsidy released by NABARD under Investment Subsidy Scheme for
Construction/ Renovation/Expansion of Rural Godowns ;
 Net unrealized gain/loss arising from derivatives transaction under trading
portfolio;
 Income flows received in advance such as annual fees and other charges
which are not refundable;
 Bill rediscounted by a bank with eligible financial institutions as approved
by RBI and;
 Provision not being a specific liability arising from contracting additional
liability and created from profit and loss account.
Sanjay Gupta FCA, DISA, CISA, CRISC
Exempted Categories
• Liabilities to the banking system in India as computed under Clause (d) of
the explanation to Section 42(1) of the RBI Act, 1934;
• Credit balances in ACU (US$) Accounts;
• Demand and Time Liabilities in respect of their Offshore Banking Units
(OBU); and
• SCBs are not required to include inter-bank term deposits/term borrowing
liabilities of original maturities of 15 days and above and up to one year in
"Liabilities to the Banking System" (item 1 of Form A return). Similarly
banks should exclude their inter-bank assets of term deposits and term
lending of original maturity of 15 days and above and up to one year in
"Assets with the Banking System" (item III of Form A return) for the
purpose of maintenance of CRR. The interest accrued on these deposits is
also exempted from reserve requirements.
Sanjay Gupta FCA, DISA, CISA, CRISC
Maintenance of CRR on Daily Basis
With a view to providing flexibility to banks in choosing an optimum
strategy of holding reserves depending upon their intra fortnight cash
flows, all SCBs are required to maintain minimum CRR balances up to 70
per cent of the average daily required reserves for a reporting fortnight on
all days of the fortnight with effect from the fortnight beginning December
28, 2002.
Further In view of the amendment carried out to RBI Act 1934, omitting
sub-section (1B) of Section 42, the Reserve Bank does not pay any interest
on the CRR balances maintained by SCBs with effect from the fortnight
beginning March 31, 2007.
Sanjay Gupta FCA, DISA, CISA, CRISC
Fortnightly Return in Form A (CRR)
All SCBs are required to submit to Reserve Bank a provisional
Return in Form 'A' within 7 days from the expiry of the
relevant fortnight which is used for preparing press
communiqué. The final Form 'A' Return is required to be
submitted to RBI within 20 days from expiry of the relevant
fortnight. Based on the recommendation of the Working
Group on Money Supply Analytics and Methodology of
Compilation.
Sanjay Gupta FCA, DISA, CISA, CRISC
Penalties
(i) In case of default in maintenance of CRR requirement on a daily basis
which is presently 70 per cent of the total CRR requirement, penal interest
will be recovered for that day at the rate of three per cent per annum
above the Bank Rate on the amount by which the amount actually
maintained falls short of the prescribed minimum on that day and if the
shortfall continues on the next succeeding day/s, penal interest will be
recovered at the rate of five per cent per annum above the Bank Rate.
(ii) In cases of default in maintenance of CRR on average basis during a
fortnight, penal interest will be recovered as envisaged in sub-section (3)
of Section 42 of Reserve Bank of India Act, 1934.
SCBs are required to furnish the particulars such as date, amount,
percentage, reason for default in maintenance of requisite CRR and also
action taken to avoid recurrence of such default.
Sanjay Gupta FCA, DISA, CISA, CRISC
Maintenance of Statutory
Liquidity Ratio (SLR)
The Reserve Bank can prescribe the SLR for SCBs in specified assets. The
value of such assets of a SCB shall not be less than such percentage not
exceeding 40 per cent of its total DTL in India as on the last Friday of the
second preceding fortnight as the Reserve Bank may, by notification in the
Official Gazette, specify from time to time. SCBs can participate in the
Marginal Standing Facility (MSF) scheme introduced by Reserve Bank Under
this facility, the eligible entities may borrow up to two per cent of their
respective NDTL outstanding at the end of the second preceding fortnight
from April 17, 2012. Additionally, the eligible entities may also continue to
access overnight funds under this facility against their excess SLR holdings. In
the event, the banks’ SLR holding falls below the statutory requirement up
to two per cent of their NDTL, banks will not have the obligation to seek a
specific waiver for default in SLR compliance arising out of use of this facility
in terms of notification issued under sub section (2A) of section 24 of the
Banking Regulation Act, 1949.
Cont…
Sanjay Gupta FCA, DISA, CISA, CRISC
Maintenance of Statutory
Liquidity Ratio (SLR)
Reserve Bank has specified vide notification
DBOD.No.Ret.32/12.02.001/2012-13 dated July 31, 2012 that w.e.f. the
fortnight beginning August 11, 2012 every SCB shall continue to maintain
in India assets as detailed below, the value of which shall not, at the close
of business on any day, be less than 23 per cent on the total net demand
and time liabilities as on the last Friday of the second preceding fortnight
valued in accordance with the method of valuation specified by the
Reserve Bank of India from time to time:
1. Cash or
2. Gold valued at a price not exceeding the current market price, or
Cont…
Sanjay Gupta FCA, DISA, CISA, CRISC
Maintenance of Statutory
Liquidity Ratio (SLR)
3. Investment in the following instruments which will be referred to as
"Statutory Liquidity Ratio (SLR) securities Dated securities issued up to May 06, 2011 as listed in the Annex to
Notification DBOD.No.Ret.91/12.02.001/2010-11 dated May 09, 2011;
 Treasury Bills of the Government of India;
 Dated securities of the Government of India issued from time to time
under the market borrowing programme and the Market Stabilization
Scheme;
 State Development Loans (SDLs) of the State Governments issued from
time to time under the market borrowing programme; and
 Any other instrument as may be notified by the Reserve Bank of India.
Sanjay Gupta FCA, DISA, CISA, CRISC
Procedure for Computation of SLR
The procedure to compute total NDTL for the purpose of SLR under
Section 24 (2) (B) of Banking Regulation Act, 1949 is broadly similar to the
procedure followed for CRR . SCBs are required to include inter-bank term
deposits / term borrowing liabilities of all maturities in 'Liabilities to the
Banking System'. Similarly, banks should include their inter-bank assets of
term deposits and term lending of all maturities in 'Assets with the
Banking System' for computation of NDTL for SLR purpose.
Sanjay Gupta FCA, DISA, CISA, CRISC
Classification and Valuation of
Approved Securities for SLR
As regards classification and valuation of approved
securities, banks may be guided by the instructions
contained in our Master Circular (as updated from time to
time) on Prudential Norms for classification, valuation and
operation of investment portfolio by banks .
Sanjay Gupta FCA, DISA, CISA, CRISC
Penalties
If a banking company fails to maintain the required amount
of SLR, it shall be liable to pay to RBI in respect of that
default, the penal interest for that day at the rate of three
per cent per annum above the Bank Rate on the shortfall
and if the default continues on the next succeeding working
day, the penal interest may be increased to a rate of five
per cent per annum above the Bank Rate for the concerned
days of default on the shortfall.
Sanjay Gupta FCA, DISA, CISA, CRISC
Return in Form VIII (SLR)
1. Banks should submit to the Reserve Bank before 20th day of every month,
a Return in Form VIII showing the amounts of SLR held on alternate
Fridays during immediate preceding month with particulars of their DTL in
India held on such Fridays or if any such Friday is a Public Holiday under
the Negotiable Instruments Act, 1881, at the close of business on
preceding working day.
2. Banks should also submit a statement as annexure to Form VIII Return
giving daily position of
(a) assets held for the purpose of compliance with SLR,
(b) the excess cash balances maintained by them with RBI in the prescribed
format, and,
(c) the mode of valuation of securities.
Sanjay Gupta FCA, DISA, CISA, CRISC
Temporary/Ad-hoc measures
At present, banks obtain liquidity from the Reserve Bank
under the Liquidity Adjustment Facility (LAF) against the
collateral of eligible securities that are in excess of their
prescribed statutory liquidity ratio (SLR). In addition, purely as
a temporary measure, scheduled commercial banks may avail
additional liquidity support under the LAF to the extent of up
to 0.5 per cent of their net demand and time liabilities.
Sanjay Gupta FCA, DISA, CISA, CRISC
Audit Approach and Procedures
The Statutory Auditors should verify and certify that all items of outside
liabilities, as per the bank’s books had been duly compiled by the bank and
correctly reflected under DTL/NDTL in the fortnightly/monthly statutory
returns submitted to Reserve Bank for the financial year.
The report of the statutory auditors in relation to compliance with SLR
requirements has to cover two aspects:
(a) correctness of the compilation of DTL position; and
(b) maintenance of liquid assets as specified in section 24 of the Act.
Cont…
Sanjay Gupta FCA, DISA, CISA, CRISC
Audit Approach and Procedures
• The central auditor should acquaint himself with the circulars/
instructions of the RBI regarding composition of items of DTL.
For this purpose, he may request the management to provide
him a copy of the relevant circulars/instructions. He should
keep these circulars/instructions in mind while examining
compliance with the SLR requirements.
• To comply with the requirements relating to statutory liquidity
ratio, banks have evolved systems whereby all branches send
their weekly trial balance as on Friday and these are
consolidated at the head office.
Cont…
Sanjay Gupta FCA, DISA, CISA, CRISC
Audit Approach and Procedures
•
Based on this consolidation, the DTL position is determined for every
reporting Friday. The central auditor should request the branch auditors to
verify the correctness of the trial balances relevant to the dates selected
by him. The central auditor should also request the branch auditors to
verify the cash balance at the branch on the dates selected by him. It
should be ensured that such request is communicated to the branch
auditors well in advance of commencement of the audit so that they can
draw up their audit programme accordingly. The auditor should examine
the consolidations prepared by the bank relevant to the dates selected by
him. He should test check the figures in the consolidations with the
related returns received from the branches. He should also test check the
arithmetical accuracy of the consolidations.
Sanjay Gupta FCA, DISA, CISA, CRISC
Checking of Computation of DTL by
Auditor
Items Excluded from Liability(a) Part amounts of recoveries from the borrowers in respect of debts
considered bad and doubtful of recovery.
(b) Amounts received in Indian currency against import bills and held in
sundry deposits pending receipts of final rates.
(c) Un-adjusted deposits/balances lying in link branches for agency business
like dividend warrants, interest warrants, refund of application money,
etc., in respect of shares/debentures to the extent of payment made by
other branches but not adjusted by the link branches.
(d) Margins held and kept in sundry deposits for funded facilities.
Sanjay Gupta FCA, DISA, CISA, CRISC
Checking of Computation of DTL by
Auditor
Items Included from Liability(a) Net credit balance in Branch Adjustment Accounts.
(b) Interest on deposits as at the end of the first half year reversed in the
beginning of the next half-year.
The auditor should also, particularly, examine whether the balances in
Branch Adjustment Accounts of foreign branches have been taken into
account in arriving at the net balance in Branch Adjustment Accounts.
Sanjay Gupta FCA, DISA, CISA, CRISC
Audit Approach and Procedures
• The auditor should examine whether the consolidations prepared by the
bank include the relevant information in respect of all the branches. It may
be noted that provisions for expenses and liabilities are usually made at
the year-end. Similarly, even though interest accrues on a daily basis, it is
recorded in the books only at periodic intervals. These items, though
liabilities of the bank, are not included in the computation of DTL. The
central auditor should state this fact in his report.
•
While reporting on compliance with SLR requirements, the auditor should
specify the number of unaudited branches and state that he has relied on
the returns received from the unaudited branches in forming his opinion
Sanjay Gupta FCA, DISA, CISA, CRISC
Notifications Regarding SLR & CRR
Sanjay Gupta FCA, DISA, CISA, CRISC
Investment in Treasury Bills
Treasury bills or T-bills, which are money market instruments, are short
term debt instruments issued by the Government of India and are
presently issued in three tenors, namely, 91 day, 182 day and 364 day.
Treasury bills are zero coupon securities and pay no interest. They are
issued at a discount and redeemed at the face value at maturity.
For example, a 91 day Treasury bill of Rs.100/- (face value) may be issued at
say Rs. 98.20, that is, at a discount of say, Rs.1.80 and would be redeemed
at the face value of Rs.100/-. The return to the investors is the difference
between the maturity value or the face value (that is Rs.100) and the issue
price. The Reserve Bank of India conducts auctions usually every
Wednesday to issue T-bills. Payments for the T-bills purchased are made on
the following Friday. The 91 day T-bills are auctioned on every Wednesday.
Cont…
Sanjay Gupta FCA, DISA, CISA, CRISC
Investment in Treasury Bills
The Treasury bills of 182 days and 364 days tenure
are auctioned on alternate Wednesdays. T-bills of
364 days tenure are auctioned on the Wednesday
preceding the reporting Friday while 182 T-bills are
auctioned on the Wednesday prior to a nonreporting Fridays. The Reserve Bank releases an
annual calendar of T-bill issuances for a financial year
in the last week of March of the previous financial
year. The Reserve Bank of India announces the issue
details of T-bills through a press release every week.
Sanjay Gupta FCA, DISA, CISA, CRISC
TYPES OF INVESTMENTS
Balance Sheet Disclosure
a) Government Securities
b) Other Approved Securities
c) Shares
d) Debentures & Bonds
e) Subsidiaries and JVs
f) Others (CPs, MF Units, etc.)
Sanjay Gupta FCA, DISA, CISA, CRISC
TYPES OF INVESTMENTS
HTM – Held To Maturity
AFS – Available For Sale
HFT – Held For Trading
Sanjay Gupta FCA, DISA, CISA, CRISC
HTM – Held To Maturity
Should be within 25% of total investments
excluding:
1. Investments in Subsidiaries and JVs
2. Re- capitalization Bonds issued by GoI
3. Long Term Bonds issued by Infrastructure
Companies wherein the residual maturity is
not less than 7 years
Cont…
Sanjay Gupta FCA, DISA, CISA, CRISC
HTM – Held To Maturity
25% ceiling can be exceeded w.e.f. 02.Sep.04
subject to following:
1. Excess consists of only SLR securities, upto
25% of DTL as on last Friday of second
preceding fortnight.
2. No fresh non-SLR securities permitted to be
included in HTM except few.
Cont…
Sanjay Gupta FCA, DISA, CISA, CRISC
HTM – Held To Maturity
Accounting
1. Profit would be first accounted in Profit &
Loss Account and then appropriated to Capital
Reserve Account (net of taxes).
2. Loss would be accounted in P & L Account.
Cont…
Sanjay Gupta FCA, DISA, CISA, CRISC
HFT – Held For Trading
Are those investments which bank expects to
make a gain by movement of interest rates /
market rates and are required to be sold
within 90 days.
Sanjay Gupta FCA, DISA, CISA, CRISC
AFS – Available For Sale
Are those investments which neither HTM or
HFT.
Sanjay Gupta FCA, DISA, CISA, CRISC
HFT / AFS
Accounting
Profit / Loss would be accounted in Profit &
Loss Account
Sanjay Gupta FCA, DISA, CISA, CRISC
Shifting of category - HFT / AFS /
HTM
HTM to AFS / HFT
• Approval of Board required
• Normally be allowed only at the beginning of
the year
• No further shifting to/from allowed
Sanjay Gupta FCA, DISA, CISA, CRISC
Shifting of category - HFT / AFS /
HTM
HTM to AFS / HFT
Accounting
• Transferred at Book Value (which would be net
of amortization)
• Immediately marked to market and provision
for depreciation made on the same day
• Thus, Book Value remains unchanged
Sanjay Gupta FCA, DISA, CISA, CRISC
Shifting of category - HFT / AFS /
HTM
• Transferred at Book Value or Market Value
which ever is lower (provision for depreciation
would be used in case Market Value being
lower than Book Value)
Sanjay Gupta FCA, DISA, CISA, CRISC
Shifting of category - HFT / AFS /
HTM
AFS to HFT
• Approval of Board required / ALCO /
Investment Committee
• In case of exigencies, CEO or Head of ALCO
can also approve the same which should be
later on ratified
Sanjay Gupta FCA, DISA, CISA, CRISC
Shifting of category - HFT / AFS /
HTM
HFT to AFS
• Generally not permitted
• Permitted only in exception circumstances
• Approval of Board / ALCO / Investment
Committee required
Sanjay Gupta FCA, DISA, CISA, CRISC
Shifting of category - HFT / AFS /
HTM
AFS to / from HFT
Accounting
• Transferred at Book Value along with
corresponding depreciation provision
• Book Value remains unchanged
Sanjay Gupta FCA, DISA, CISA, CRISC
Valuation of Investments - HTM
• Are NOT marked to market
• Premium in Book Value over face value to be
amortized over the residual period
• Amortization to be accounted for as a
deduction under “Income on InvestmentInterest earned”
• Diminish in value other than temporary is to
be recognized.
Sanjay Gupta FCA, DISA, CISA, CRISC
Valuation of Investments - AFS
• Marked to market at least at quarterly intervals
– Step-I
Scrip-wise Valuation
– Step-II
Classification wise aggregation (Govt. Securities
/ Shares / Debentures & Bonds / Subsidiaries
&JVs / Others)
--Step III
Ignore Appreciation and provide Depreciation
• Book Value NOT to undergo any change
Cont…
Sanjay Gupta FCA, DISA, CISA, CRISC
Valuation of Investments - HFT
• Same as AFS except that needs to be marked
to market at least at monthly intervals
Sanjay Gupta FCA, DISA, CISA, CRISC
Important Aspects
1. Category of Investments need to be decided
at the time of transaction
2. The category would have an impact on
valuation and profit / loss booking
3. Concept of stock adopted by banks for income
tax purpose
Sanjay Gupta FCA, DISA, CISA, CRISC
Important Concepts
1. Investments Fluctuation Reserves(IFR)5% of Investment Portfolio which is created
out of Profit and Loss Account but reversible
below the line
Sanjay Gupta FCA, DISA, CISA, CRISC
Important Concepts
2. Investment Reserve Account(IRA)
•
Created out of excess of depreciation provision of AFS / HFT
reversed in P & L A/C through below the line appropriation
• Reversible at net of 25% appropriation to Statutory Reserves
and net of Tax Rate, below the line
• Dividends are payable out of current year’s profit, so IRA
cannot be used for the same
Sanjay Gupta FCA, DISA, CISA, CRISC
VALUATION OF SECURITIES
1. Central Government Securities
2. State Government Securities
3. Treasury Bills (T-Bills)
4. Unquoted non-SLR Securities
5. Zero Coupon Bonds (ZCBs)
6. Preference Shares
7. Equity Shares
8. Units of Mutual Funds
9. Commercial Paper
10.Regional Rural Bank (RRBs)
11.Securities (Equity / Debentures, etc.) acquired by conversion of advances
Sanjay Gupta FCA, DISA, CISA, CRISC
NPI Norms
1. Interest / Installments due for more than 90 days
2. Same for Preference Shares whether cumulative or
non-cumulative. Due date to be the date of balance
sheet
3. Equity shares to be valued at Re. 1 if financials are
not available
4. Advances and Investments – Both are classified in
same category with exception of preference shares
Sanjay Gupta FCA, DISA, CISA, CRISC
NPI Norms
5. Conversion of Advances into Instruments to be
considered as NPIs ab initio based on restructuring
package
6. State Government Guaranteed Investments – similar
to Advances
7. Central Government Guaranteed Investments –
similar to Advances
8. Investments which are NPIs, 100% provision is
required
Sanjay Gupta FCA, DISA, CISA, CRISC
Income Recognition
• Should be done on accrual basis except for income
from units of MFs wherein cash basis is to be strictly
followed.
• Concept of 360 days / 365 days
• Concept of Yield
• Money Market Instruments – 365 days
• G-Sec – 360 days
• Due date Diary
Sanjay Gupta FCA, DISA, CISA, CRISC
CERTIFICATION REQUIREMENTS &
ROLE OF AUDITOR
• Transactions to be continuously monitored by Internal
Auditor
• Monthly Concurrent Audit reports to be placed before CMD
• Yearly certification of “Statement of Reconciliation of
Bank’s Investments” by Auditors [Investment Register
(aspect of NPIs), Investments kept with Branches]
• Statutory Auditors to issue certificate of compliance in key
areas (RBI circulars)
Sanjay Gupta FCA, DISA, CISA, CRISC
Assets Liability Management
• ALM or Asset Liability Management is the
structured decision making process
for
matching the mix of Assets and Liabilities on a
firm’s Balance Sheet. The Purpose of AssetLiability Management is to Control a Bank’s
Sensitivity to Changes in Market Interest Rates
and Limit its Losses in its Net Income or
Equity.
Sanjay Gupta FCA, DISA, CISA, CRISC
Techniques used by ALM to control
Risk
• Gap Analysis
• Duration Gap Analysis
• Long Term Var
Sanjay Gupta FCA, DISA, CISA, CRISC
ALM must strike a balance…
Risk Tolerance
Policyholder
Interests
Shareholder
Expectations
Company
Objectives
Investment
Markets
Regulatory
Requirements
Accounting
Requirements
Sanjay Gupta FCA, DISA, CISA, CRISC
Subsidiary General Ledger(SGL)
• This is a ledger maintained by the Public Debt Office (PDO)
of RBI in which accounts of different banks are maintained
regarding their holding of select government securities. On
a purchase or a sale of the securities, the transaction is
recorded when the purchasing bank sends to PDO the
Subsidiary General Ledger Form (SGL Form), signed on
behalf of both the transferor and the transferee banks. In
case the transaction is transacted at NDS, the CCIL, as
central
counter
party,
issues
instructions
to
debiting/crediting of the SGL accounts with PDO. PDO acts
like a depository in respect of government securities.
Sanjay Gupta FCA, DISA, CISA, CRISC
END
Sanjay Gupta FCA, DISA, CISA, CRISC