Transcript CPE Seminar on Bank Audit relevant file for Download.

KANNUR BRANCH OF SIRC OF ICAI
KANNUR
22.03.2014
By
CA A Mony , B Com , FCA, DISA








MOUNTING NPAs
REGULATORS APPROACH
STRESS FOR PROFITS/BOTTOMLINE
THE UNITED BANK ISSUE.
RESTRUCTURING OF LOANS
SALE OF NPAs
NFB EXPOSURE TURNING TO BE FB
SYSTEM SYNCRONISATION ISSUES
•
ADVENT OF IT AND CORE BANKING
LEADING TO
a) LACK OF PHYSICAL TRANSFER.
b) CENTRALISATION OF RECORDS.
c) VERIFICATION OF ACCURACY OF RECORDS SHIFTING
TO INTEGRITY OF DATA.
d) CENTRALISED APPLICATION OF INTEREST,
CHARGES.
NEW CHALLENGES







ACCURACY LEAVING WAY TO LOGIC
INTEGRITY OF GRANULAR DATA.
SAME DATA BASE USED BY DIFFERENT
INVESTIGATORS / REGULATORS
SYSTEM GENERATED NPA STATEMENT.
CASH MANAGEMENT OF ATMs
ELECTRONIC FUND TRANSFER.
SHARING OF ATM, EURONET
IMPUTES

The closing circular issued by the bank
HO
 The reports of the other auditors
 RBI master circular on prudential
norms
APPROACH
 DISCUSS WITH THE BRANCH
MANAGER
 PREPARE CHECK LIST
 ISSUE LETTER FOR CLARIFICATION
REQUIRED
 GIVE EMPHASIS TO DATA
FLOW/DOCUMENT FLOW/INPUT FLOW
 OBSERVE FAILURES OF SYSTEM
DURING THE YEAR.
THE APPROACH
. To see whether the branch is a specialized branches as
OVERSEAS, SSI, NRI, ARM, FOREX Etc…..
· To see the extend of computerization as ALPM, TBA,CBS
Etc..
· To see the extend of internal supervision as INTERNAL
AUDIT, CONCURRENT AUDIT, RBI audit, REVENUE AUDIT
Etc….
· The accounting or transactions which are controlled by
the Central Head Office viz.. DEPRECIATION AND FIXED
ASSETS, INTER-BRANCH, SERVICE TAX, BCCT Etc…
· Provisions as per IRAC norms which are made at HO
mostly in respect of PROVISION FOR STANDARD ASSETS,
AUDIT FEE,


List Loans to be verified
Classify the loans by
◦ Size of advance
◦ Constitution
◦ Scheme of advance
◦ Restructured loans
◦ Fresh NPAs
◦ Upgraded NPAs
Sector /
Segment
Wise
Borrower
Wise
Security
Wise
Advance
Product
Wise
Performance
Wise







OTS ACCOUNTS
BORDERLINE ACCOUNTS
ACCOUNTS CLOSED AT THE YEAR END.
FRESH ADVANCES AT YEAR END
ENHANCED /ADHOC LIMITS AT YEAR END.
BORROWER WITH RUPEE CREDIT, FC CREDIT
AND EXPORT CREDIT.
BORROWER WITH STANDALONE NON
FUNDED EXPOSURES.







MULTIPLE FINANCE
CIRCUITOUS TRANSACTIONS
PRE SHIPMENT AND POST SHIPMENT
ADVANCES
NON FUNDED EXPOSURES OF POTENTIAL
NPAS
EXPOSURES DISBURSED OVERSEAS BY ECB
ROUTE
ADHOC LIMITS
TEMPORARY OVERDRAFTS.







STOCK AUDIT REPORT
CREDIT AUDIT REPORT
MI REPORT IN CDR CASES
CONSORTUIM MINUTES
CREDIT INFORMATION SHARING BY OTHER
BANKS.
CIBIL REPORT
SEARCH REPORT FROM ROC.







DRAWING POWER
MARGINS
VALUATION OF SECURITY
SHARING OF SECURITY
LEGALITY OF SECURITY
ENFORCEABILITY OF SECURITY.
RECOVERABILITY OF SECURITY
NPAS IDENTIFICATION : BASED ON RECORD
OF RECOVERY
a. Term loans: interest /installment overdue for more than 90 days
b. Cash credit / overdraft: account remains “ out of order” for more
than 90 days. ie. Outstanding balance in the account remains
in excess of the sanctioned limit/ Drawing power
c. Bills purchased and discounted : overdue for more than 90 days
d. Agricultural loans
i. short duration crops: principal or interest overdue for two
crop seasons
ii.Long duration crops : principal or interest over due for one
crop season
e. Derivative transactions; Overdue receivables remain unpaid for
90 days from the specified due date
f. Devolved LCs: not paid for more than 90 days from the due date
g. Invoked Guarantees: not paid for more than 90 from the due
date
An amount is “Overdue” if not paid on the due date fixed by the
bank
NPA IDENTIFICATION : OTHER CRITICAL
CONSIDERATIONS
Project loans for
I. Infrastructure sector: to be classified as NPA for the
failure to commence commercial operations within two
years from the original DCCO(Date of Commencement of
Commercial Operations)
I.
Non infrastructure sector (other than commercial real
estate exposures) : to be classified as NPA for the failure
to commence commercial operations within one year
from the original DCCO
I.
Commercial Real Estate: failure to commence commercial
operation within one year from the date of original
DCCO and no change in other terms and conditions:
possible shift in the repayment schedule and servicing of
the loan by equal or shorter duration permitted.
INCOME RECOGNITION
a. Income from NPA not to be recognized on accrual basis ie.
Income from NPAs, including government guaranteed
accounts to be booked on cash basis.
b. Free and commissioned income to be recognized on
accrual basis over the rescheduled extension of period of
credit
c. Income, if any, recognized on NPAs prior to the date of
NPA to be reversed ie. The balance in an NPA account will
be equal to the sanctioned limit/principal amount after
reversal of the interest
d. Interest realized on NPAs can be recognized as income as
per the bank.
e. Future interest not to be charged and taken to income
unless realized
Asset Classification
a. Standard assets
b. Sub standard Assets: Remaining as NPA
upto 12 months
c. Doubtful Assets : Remaining as Sub
standard for a period of 12 Months
d. Loss asset : Identified by the bank ,
internal or external auditors or the RBI
inspection
PROVISION ON STANDARD ASSETS
a)
b)
c)
d)
e)
Direct advance to Agriculture and SME sector-0.25%
Commercial Real Estate-1%
Commercial real estate residential housing sector – 0.75%
Housing loan at teaser rates i.e. Lower rates – 2%
Restructured advances
i. New reconstructed standard account with effect from
01.07.2013 – 5%
ii. Increase in phased manner for the stock of reconstructed
standard asset as on May 31, 2013 (2.75 % prescribed as per
circular dated Nov 26,2012)
a. 3.5% with effect from Mar 31, 2014
b. 4.25% with effect from Mar 31, 2015
c. 5 % with effect from Mar 31, 2013
iii. Provision for diminution in the fair value accounts on account
of restructuring
f) Other Loans & advances not included in above – 0.40%
PROVISIONING
 Primary responsibility with bank and statutory auditors
 Assessments of RBI to assist the bank management and statutory
auditors to take
proper decision
Norms

Loss assets – 100%

Doubtful assets –
a) Unsecured Portion -100%
b) Secured portion ;
• Up to 1 Year -25%
• 1 to 3 years -40%
• > 3 years -100%
Valuation of Security portion
i. Stock audit at annual intervals where the balance in the NPA
is more than Rs.5 crores
ii. Collaterals to be valued once in three years

Sub standard assets –
a) General – 15%
b) Unsecured exposure General 25% of the outstanding balance
 Infrastructure 20% of the outstanding balance
PROVISIONING (CONTD…)
‘Unsecured exposure’ means an exposure with
realizable value of security less than 10% of the
outstanding exposure , abinitio.
‘Exposure’ includes funded and non funded
‘security’ means tangible security properly
discharges to the bank and will not include
intangible securities like guarantees (including
government guarantees)
GENERAL PRINCIPLES OF RESTRUCTURING
a) Eligibility
i. Standard
ii.Sub standard
iii.Doubtful
b) Cannot be reschedule with retrospective effect
c) The usual asset classification norms continue to
apply during
the period of processing the restructuring proposal.
d) Asset classification status on the date of approval of
the asset classification status of the account after
restructuring/rescheduling/negotiation
General Principles of Restructuring (contd...)
i) Elements of special regulatory framework of
restructured accounts
a) Incentive for quick implementation of
restructuring package
b) Retention of the asset classification in the pre
restructuring asset classification category
c) Asset classification to be restored to the
position prior of restructuring.
i. If implemented within 120 days from the
date of approval under CDR.
ii.Within 120 days from date of receipt of
application in the case of non CDR
iii. Other conditions to be fulfilled



ASSET TO SLIP TO NEXT INFERIOR
CLASSIFICATION ON RESTRUCTURING – EXCEPT
SPL REGULATORY FRAME WORK.
UPGRADATION POSSIBLE AFTER SATISFACTORY
PERFORMANCE FOR ONE YEAR.
INCOME RECOGNITION PROVISIONS REMAIN
UN TOUCHED.
 DATA VALIDATION CHECKS
 DATA FLOW AND MISSING CONTROLS
 AUTHORISATION AND
AUTHENTICATION ISSUES
 SHARING OF DATA IN SHARED
NETWORKS/INFRASTRUCTURE
 PHYSICAL & LOGICAL CONTROLS TO BE
ENSURED
 ROUTING ACCOUNTS
THRUST (Contd….)





MASTER DATA UPDATIONS
SOFT WARE ISSUES
SYSTEM ISSUES
WHITE BOX APPROACH
ENSURE VERIFIED DATA ONLY IS
ATTESTED.
AUDIT MODULE
 OBTAIN PASS WORD and ENABLE
AUDIT MODULE.
 VERIFY THE AUDIT MENU
 VERIFY REPORTS AVAILABLE.
 ENSURE VALIDITY OF SYSTEM
GENERATED IRAC REPORTS
 SEE WHETHER IT ADDRESS
INTERFACE ISSUES
MENU OPTION
 READ THE MENU OPTIONS AVAILABLE IN
THE SYSTEM
 FLAG THE MENUS APPLICABLE TO AUDIT
 BROWSE THROUGH THE MENU TO
SATISFY OUTPUT
 KNOW ABOUT MIS SOFTWARES OTHER
THAN MAIN SOFT WARE.




LIEN MARKED REPORTS
PARAMETER CHANGED/MODIFIED REPORT
CASH DRAWINGS IN EXCESS OF 10 LAKHS
VERIFY SYSTEM OF GENERATION, UP KEEP,
FILING AND ATTESTING OF EXCEPTION
REPORTS.








ACCOUNT STATISTICS REPORT
INTEREST RATE MASTER REPORT
FAILURE INTEREST CHECK REPORT
ACCOUNT CLASSIFIACTION REPORT
OVERDUE BILLS REPORT
TOD / TOL REPORT
LOANS OVERDUE REPORT
SUSPENSE JOTTING REPORT
MANUAL CALCULATIONS
 MAJOR ADVANCE ACCOUNTS
 DEPOSIT ACCOUNTS
 INTEREST RATE CHANGES APPLIED –
DATE & RATE
 CHARGES UPDATION
A PRACTICAL APPROACH
RATIO ANALYSIS
 Net NPA to net advances

Gross NPA to gross advance
 Incremental NPAs to Opening gross
advances
 Incremental NPAs to Opening gross
Standard advances
 Provision for loss assets to Gross Advances




REPORTING
OBSERVATIONS TO FORM PART OF MAIN
REPORT
ANALYSIS OF FINANCIAL STATEMENT.
CREDIT APPRAISAL OF BORROWER





OVERTRADING
DIVERSION
INDULGIUNG IN UNKNOWN SECTORS
BUSINESS IN RISKY S ECTORS
COMPANY PROVISIONS
IMPORTANT CERTIFICATES
•
•
•
•
•
•
CAPITAL ADEQUECY
DIGCG/ECGC
SLR REQUIREMENT 12 ODD DATES
PMRY / JAWAHAR ROZGAR YOJNA
GHOSH COMMITTEE
JILANI COMMITTEE
THANK YOU
BY
CA A Mony, B.Com, FCA, DISA
Partner
Sankar and Moorthy
Calicut
[email protected]