About the Author
Born on 10th February 1969, commerce graduate from St. John’s College Agra, Ishwar Chandra is a Fellow Member of the Institute of Chartered Accountants of India (ICAI). He is a Chartered Accountant practicing since 1993 and is Partner in M/s. IC & Associates, Agra. He holds DISA from ICAI and CISA from Information Systems Audit & Control Association (ISACA) USA. He holds Certificates in IFRS, in Forensic Accounting and Fraud Detection (FAFD) and in Concurrent Audit of Banks from ICAI. Mainly practicing auditing, his major work experience includes Concurrent Audit, IS Audit, Stock Audit, Income & Expenditure Audit and External Audit of various Commercial, Regional Rural and Co-operative Banks and Internal & External Audit and other assignments of PSUs.
His approach and procedures articles on auditing of banks have been immensely published in ‘The Chartered Accountant’ Journal of ICAI. He is author of Five C’s of IT Policy published in ‘Internal Auditor’ of the Institute of Internal Auditors (USA). He has been one of the Subject Matter Expert (SME) Reviewers of ISACA’s CISA Review Manuals (26th and 27th Editions) and is a contributor on IS auditing to ISACA. He has participated in International Federation of Accountants (IFAC) consultation paper ‘Improving Auditor Reporting’. I-5
CA. ISHWAR CHANDRA
In his 30 years of professional career, he has delivered several lectures on auditing of banks at ICAI seminars organized by CIRC, SIRC and NIRC branches/study circle. He has been associated with various Boards/Committees of ICAI. He has been a member of a Financial Reporting Review Group constituted by Financial Reporting Review Board (FRRB) of ICAI and has acted as lead reviewer. He is associated with FRRB as Technical Reviewer (TR) and with Peer Review Board of ICAI as Peer Reviewer. He is associated with Committee on Capital Markets and Investors’ Protection (CCMIP) of ICAI as Resource Person. His academic associations also include the Institute of Company Secretaries of India (ICSI) and the Institute of Cost Accountants of India. He is a founder trustee of Shri Rajendra Prasad Munni Devi Agrawal Memorial Trust, a registered public charitable trust.
His Books on Auditing of Banks
Articles Published
(1) ‘Internal Auditor’ C’s of IT Policy’ (Dec. 2008)
(2) ‘The Chartered Accountant’ Journal of ICAI What Every Statutory Branch Auditor of a Bank Should Do’, ‘Essentials of Report Writing’, ‘Statutory Bank Branch Audit : Strengthening Audit Plan’,
‘Conducting Statutory Branch Audit in CBS environment: An Approach’,
I-6
‘Improving Risk Management and Compliance’, ‘Planning the Statutory Branch Audit’ : An Approach’, ‘Auditing in Core-Banking Environment: Some Special Considerations’, , KYC & Anti Money Laundering Measures’,
I-7
Preface to the First Edition
It gives me immense happiness to present the First Edition of ‘Practical Workbook for Statutory Branch Auditors of Banks’ In fact, through experience of about twenty years in auditing especially in auditing of banks, I was feeling an acute need for a book which may not only suggest audit procedures adhering RBI guidelines and ICAI Standards, but may also help meet auditors’ documentation needs simultaneously. By the grace of Almighty, this book is an attempt to meet this need. Statutory branch auditing plays a crucial role in enhancing credibility of financial statements of banks. According to Section 143(9) of the Companies Act, 2013, “Every auditor shall comply with the auditing standards. “Further, requirement of auditor’s reporting of information ‘sought’ and ‘obtained’ has now made documentation of audit procedures paramount importance Plethora of audit reports/certificates and strict datelines to submit the reports demands audit planning in a more effective and efficient manner. Aside enhanced fraud risk particularly in Advances area has created a need for being more alert and for applying enhanced professional skepticism throughout the audit.
While deciding over the structure and contents of the book, I was in little dilemma, whether it should be a reference book or a procedures manual. Finally, I decided to write a book that could work as audit work programme cum audit note book with suggested procedures and all relevant references. Of course, I have been able to use several contents of my book ‘Bank Concurrent Audit Procedures Manual’. Yet, to keep the contents tight focused and compact confining to financial statements’ audit, background information on banking operations
I-9
and processes have been skipped, as the book is meant for practitioners.
The aim and the approach of writing the book has been to help branch auditors understand ‘What to do’ and ‘How to do’ in an efficient and effective manner besides the simultaneous documentation of procedures undertaken. ‘What to do’ is chiefly based on statutory requirements and RBI guidelines, while in how to do’, ICAI Standards on Auditing (SAs) and current CBS environment have been kept in mind.
Apart from the audit procedures suggested, salient features of this workbook include: Staged Approach Suggested
Procedures and with Audit Formats
Audit HintsCBS Reports -
Reference
I-10
CA. Ishwar Chandra
Preface to the Seventh Edition
During the past year, RBI has come out with several new directions/guidelines, guidelines on digital lending, housing finance and outsourcing of financial services. To improve banks’ financial reporting, on 1st April, 2022 RBI came out with new Master Circulars on Income Recognition, Asset Classification and Provisioning (IRACP) and on Basel II Capital Regulations. Amongst others, modified KCC Interest Subvention Scheme (ISS) and the new definition of MSME are few of the relevant amendments during the year by Govt. of India.
In the light of all these changes, I have revised the respective chapters accordingly. In view of the several modified IRACP norms by RBI, chapter ‘Audit of Income Recognition, Asset Classification and Provisioning’ has been revised thoroughly. Of course, I have been able to use several contents of my book ‘Bank Concurrent Audit Procedures Manual’. However, to confine myself with statutory branch auditing, procedures on auditing of operations have been skipped. I have made all possible efforts to make the workbook a one-stop reference for branch auditors and to keep the contents complete and current. I believe branch auditors will find the workbook a good help in their audits. As it is a live document, auditors are suggested to refer extant updates while auditing. Human errors and omissions are quite natural and I am confident readers are kind enough to ignore.
I-11
All constructive feedback/comments from the auditors are most welcome and will be gratefully acknowledged. While revising the edition, I have referred several sources including ICAI Guidance Note on audit of banks, RBI notifications and others. I am grateful to all such sources.
I-12
CA. Ishwar Chandra
Acknowledgement
First of all, I acknowledge the grace of Almighty for inspiring me to write the book. I want to record my sincere gratitude to late CA Suresh Advani who has been a guide and friend to me and who encouraged me to write the workbook and kept my morale always high. I want to record my sincere gratitude to CA. Amarjit Chopra, Past President, ICAI for sparing his valuable time in vetting the outline and reviewing the draft and suggesting improvements. I am grateful to Shri D K Agrawal and Shri V L Gupta for their guidance and support ever available to me. I am also grateful to Shri B V Upadhye (Ex GM, BOI) for his valuable time and talent put in reviewing the draft and for his suggestions.
I wish to record my gratitude to CA. Surendra K Bansal and late CA. (Dr.) D S Rawat, CA. U N Marwah and CA. Shakun Gupta for sparing their valuable time in reviewing the draft and suggesting improvements.
I must acknowledge the contributions of CA. Udesh Dassani, Shri M Venkat Subramanian, AGM, Indian Bank and by various others. I am thankful for the assistance provided by CA. Kapil Goyal, Smt. Reena Agrawal, Miss Pranchal Agrawal and Miss Deeksha Agrawal in preparing the draft.
I am thankful to Taxmann for reposing their trust in me and bringing out five editions of the Workbook to the branch auditors timely
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During writing the book, I have referred several sources including ICAI Guidance Note on Audit of Banks, RBI and IBA notifications, several websites and others. I am grateful to all those sources.
Finally, my deepest thanks go to my wife Smt. Reena Agrawal, my daughter Miss. Pranchal and my son Master Sujay for their love, support and patience.
CA. Ishwar Chandra I-14How to use this Workbook
I intend to write this Workbook as Audit Work Programme-Audit Note Book. To use this book in an effective manner, I have following tips to recommend:
- First be acquaint with relevant background information, Statutory Provisions, RBI guidelines and ICAI Standards on Auditing.
- For the sake of convenience and to move in a systematic manner, entire branch audit work has been segregated into five stages. For each stage, ready to use formats, to save auditor’s time and creating audit documentation simultaneously, have been suggested Use these formats effectively.
- Keep the Checklist of tentative audit requirements (given in Chapter 5) handy and have continuous rigorous follow up with the branch management and controllers to collect the information.
- Document the communication made with the branch management and controllers. While communicating the branch, mark a copy to the controllers also.
- Keep tab on audit progress and time budget.
- Note down the audit observations in the workbook itself and attach additional sheets, if needed. I-15
- Important notes to auditors are indicated in boxes. Read these carefully.
I believe this workbook would help minimize the chances of lapses and omissions and would help reduce the audit risk, besides documenting the audit work simultaneously. Overall, workbook would help auditors accomplishing their branch audits in a more purposeful manner, eventually giving more comfort to the Statutory Central Auditors, Boards and Management.
CA. Ishwar Chandra I-16I-17 INTRODUCTION TO AUDIT OF FINANCIAL STATEMENTS 1 PRE-ACCEPTANCE PROCEDURES 11 POST-ACCEPTANCE PROCEDURES 16 PLANNING CONSIDERATIONS 18 CBS ENVIRONMENT : USEFUL SYSTEM GENERATED REPORTS 28 OFFSITE PLANNING 38 ONSITE PLANNING 42 PERFORMING PRELIMINARY (ROUTINE) AUDIT PROCEDURES 46 AUDIT OF NEW ADVANCES 55 AUDIT OF CREDIT MONITORING 85 AUDIT OF SPECIAL MENTION ACCOUNTS (SMA) 104 AUDIT OF INCOME RECOGNITION AND ASSET CLASSIFICATION 110 AUDIT OF PROVISIONING 139 AUDIT OF RESOLUTION OF STRESSED ASSETS 148 PERFORMING GENERAL LEDGER (GL) AND PROFIT & LOSS (PL) AUDIT PROCEDURES 172 LONG FORM AUDIT REPORTING (LFAR) PROCEDURES 183 Chapter-heads PAGE About the Author I-5 Preface to the First Edition I-9 Preface to the Seventh Edition I-11 Acknowledgement I-13 How to use this workbook I-15 Contents I-19
AUDIT OF CAPITAL ADEQUACY 240 SPECIAL-PURPOSE CERTIFICATIONS 249 ISSUING INDEPENDENT BRANCH AUDITORS’ REPORT 254 APPENDICES 271 I-18 PAGE
I-19 1 INTRODUCTION TO AUDIT OF FINANCIAL STATEMENTS 1.1 1 1.1.1 1 1.1.2 1 1.1.3 2 1.1.4 3 1.1.5 4 1.1.6 4 1.2 5 1.2.1 5 1.2.2 6 1.2.3 6 1.3 6 1.3.1 6 1.3.2 7 1.3.3 7 1.3.4 8 Contents PAGE About the Author I-5 Preface to the First Edition I-9 Preface to the Seventh Edition I-11 Acknowledgement I-13 How to use this workbook I-15 Chapter-heads I-17
I-20 1.4 9 1.4.1 9 1.4.2 9 1.4.3 10 2 PRE-ACCEPTANCE PROCEDURES 2.1 11 2.2 12 2.3 12 2.3.1 13 2.3.2 13 3 POST-ACCEPTANCE PROCEDURES 3.1 16 3.2 16 4 PLANNING CONSIDERATIONS 4.1 18 4.1.1 18 4.1.2 18 4.2 19 4.3 20 4.3.1 20 4.3.2 21 4.3.3 22
I-21 4.3.4 22 4.3.5 24 4.4 25 4.4.1 25 4.4.2 26 4.5 27 5 CBS ENVIRONMENT : USEFUL SYSTEM GENERATED REPORTS 5.1 28 5.1.1 28 5.1.2 29 5.2 29 5.2.1 30 5.2.2 34 6 OFFSITE PLANNING 6.1 38 6.2 38 6.2.1 38 6.3 39 6.3.1 40 6.3.2 41 6.3.3 41 7 ONSITE PLANNING 7.1 42 7.1.1 42 7.1.2 42
I-22 7.1.3 43 7.2 44 8 PERFORMING PRELIMINARY (ROUTINE) AUDIT PROCEDURES 8.1 46 8.1.1 46 8.1.2 47 8.1.3 48 8.1.4 49 8.1.5 50 8.1.6 51 8.2 52 8.2.1 52 8.2.2 54 9 AUDIT OF NEW ADVANCES 9.1 55 9.2 55 9.2.1 55 9.2.2 56 9.2.3 59 9.2.4 65 9.2.5 66 9.2.6 67 9.2.7 67 9.2.8 68
I-23 9.2.9 70 9.2.10 71 9.2.11 71 9.2.12 72 9.2.13 73 9.2.14 74 9.2.15 75 9.2.16 78 9.2.17 79 9.2.18 80 9.2.19 83 10 AUDIT OF CREDIT MONITORING 10.1 85 10.1.1 85 10.1.2 86 10.1.3 87 10.1.4 88 10.2 88 10.2.1 88 10.2.2 91 10.2.3 92 10.2.4 92 10.2.5 95 10.2.6 97 10.2.7 97
I-24 11 AUDIT OF SPECIAL MENTION ACCOUNTS (SMA) 11.1 104 11.1.1 104 11.1.2 104 11.1.3 105 11.1.4 106 11.2 106 12 AUDIT OF INCOME RECOGNITION AND ASSET CLASSIFICATION 12.1 110 12.1.1 110 12.1.2 110 12.1.3 111 12.1.4 112 12.1.5 114 12.1.6 116 12.1.7 116 12.1.8 117 12.2 117 12.2.1 118 12.2.2 123 12.2.3 125 12.2.4 126 12.2.5 128
I-25 12.2.6 129 12.2.7 129 12.2.8 131 12.2.9 134 12.2.10 136 13 AUDIT OF PROVISIONING 13.1 139 13.1.1 139 13.1.2 140 13.1.3 140 13.2 141 13.2.1 141 13.2.2 143 13.2.3 145 14 AUDIT OF RESOLUTION OF STRESSED ASSETS 14.1 148 14.1.1 148 14.1.2 151 14.1.3 154 14.1.4 156 14.1.5 158 14.1.6 160 14.1.7 163 14.2 163
I-26 14.2.1 163 14.2.2 167 14.2.3 168 14.2.4 169 14.2.5 171 15 PERFORMING GENERAL LEDGER (GL) AND PROFIT & LOSS (PL) AUDIT PROCEDURES 15.1 172 15.1.1 172 15.1.2 173 15.2 173 15.2.1 174 15.2.2 175 15.2.3 178 15.2.4 178 15.3 179 15.3.1 179 15.3.2 181 16 LONG FORM AUDIT REPORTING (LFAR) PROCEDURES 16.1 183 16.2 224 16.3 226 16.4 237
I-27 17 AUDIT OF CAPITAL ADEQUACY 17.1 240 17.1.1 240 17.1.2 241 17.2 242 17.2.1 242 17.2.2 244 17.2.3 247 17.2.4 248 17.2.5 248 18 SPECIAL-PURPOSE CERTIFICATION 18.1 249 18.2 252 19 ISSUING INDEPENDENT BRANCH AUDITOR’S REPORT 19.1 254 19.1.1 254 19.1.2 254 19.1.3 257 19.1.4 257 19.1.5 257 19.1.6 258 19.1.7 259 19.1.8 260 19.1.9 263 19.1.10 263
APPENDIX A
I-28 19.1.11 264 19.1.12 264 19.2 265 19.2.1 265 19.2.2 266 19.2.3 266 19.2.4 267 19.2.5 268 19.2.6 268 19.2.7 269 19.2.8 270
SBA 1(1) : 271 SBA 1(2) : - 272 SBA 1(3) : 278 SBA 2(1) : 280 SBA 2(2) : 284 SBA 2(3) : 291 SBA 2(4) : 292 SBA 2(5) : 294 SBA 2(6) : 295 SBA 2(7) : 297 SBA 2(8) : 298
I-29 SBA 2(9) : 300 SBA 2(10) : - 302 SBA 2(11) : 305 SBA 3(1) : 308 SBA 3(2) : 310 SBA 4(1) : 312 SBA 4(2) : 318 SBA 4(3) : 321 SBA 4(4) : 325 SBA 4(5) : 328 SBA 4(6) : 330 SBA 4(7) : 332 SBA 4(8) : 334
B1 : 336 B2 : 338 B3 : 344 B4 :347 B5 : 348 B6 : 350 B7 : 352
APPENDIX B
I-30 B8 : 353 B9 : 354 B10 : - 365
9.1 INTRODUCTION i.e. 9.2 AUDIT PROCEDURES 9.2.1 Agricultural Advances S. No. Description Auditor’s Comments i Due diligence and Assessment of Requirements a bc 55 CHAPTER 9 Audit of New Advances
S. No. Description Auditor’s Comments
Reference:
FIDD.CO.FSD.BC.No.6/05.05.010/2018-19 July 4, 2018 RBI Master Circular - Kisan Credit Card KCC Scheme and revised KCC Scheme announced by Govt. of India on December 18, 2022. Note: For Activities eligible for crop season linked asset classification norms, see Annex 2 to RBI Master Circular on IRACP dated April 1, 2022, see Appendix B-7
ii Disbursement and Documentation
Audit Hint:
1. In terms of RBI Circular FIDD CO. FSD BC No. 13/05.05.010/2018-19 dated Feb 07, 2019, no collateral (i.e. mortgage on agricultural land) is required for agricultural loans upto ` 1.60 lakh.
2. KCC facility has been extended to Animal Husbandry farmers and Fisheries for working capital (FIDD. CO. FSD. BC. 12/05.05,010/2018-19 dated Feb 04 2019) updated 18 February 2022 vide RBI circular No. ‘FIDD.CO.FSD.
BC.No.6/05.05.010/2022-23’
3. Check few account statements for potential transfer of disbursement to intermediary account or to close the existing NPA KCC account, if any.
9.2.2 Housing Loans
S. No. Description Auditor’s Comments
i Purchase of Plot
a b c
9.2 56
aPara
b
has been obtained Para 2 b of RBI Master Circular on Housing Loans ;
c -
Reference:
DOR.CRE.REC.No.87/08.12.001/2021-22 dated 18 February 2022.
ii Construction on Plot
a obtained before sanctioning the house loan;
b -
Para 9.2
No.
S.
Description Auditor’s Comments
f57
cd e
Reference:
DOR.CRE.REC.No.87/08.12.001/2021-22
February 18, 2022.
iv Purchase of Ready-built House
Reference:
DOR.CRE.REC.No.87/08.12.001/2021-22
February 18, 2022.
v Purchasing/constructing a Second House
Reference:
DOR.CRE.REC.No.87/08.12.001/2021-22
February 18, 2022.
S. No. Description Auditor’s Comments g h
iii
a b c d e
Documentation
a b c
Para 9.2 58
S. No. Description Auditor’s Comments
vi Purchase of a house to let it out on rental basis
Reference:
RBI’s Master Circular on Housing Finance
9.2.3 MSME and Priority Sector Loans
S. No. Description Auditor’s Comments
i MSME Eligibility
Reference:
(i) Classification of Enterprises:
(In terms of Ministry of MSME, GOI Notification S.O. 2119
(E) dated June 26, 2020)
An enterprise shall be classified as a micro, small or medium enterprise on the basis of the following criteria, namely:
i a micro enterprise, where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees;
ii a small enterprise, where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees; and
iii a medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.
(ii) New Definition of Micro, Small and Medium
Enterprises- Addition of Retail and Wholesale Trade:
a b
59 Para 9.2
Description
Ministry of Micro, Small and Medium Enterprises vide Office Memorandum (OM) No. 5/2(2)/2021-E/P & G/ Policy dated July 2, 2021, has decided to include Retail and Wholesale trade as MSMEs for the limited purpose of Priority Sector Lending and they would be allowed to be registered on Udyam Registration Portal for the following NIC Codes and activities mentioned against them:
45 Wholesale and retail trade and repair of motor vehicles and motorcycles
46 Wholesale trade except of motor vehicles and motorcycles
47 Retail trade except of motor vehicles and motorcycles
The Enterprises having Udyog Aadhaar Memorandum (UAM) under above three NIC Codes are now allowed to migrate to Udyam Registration Portal or file Udyam Registration afresh.
(iii) Extension of validity of existing registrations prior to 30th June, 2020: According to Ministry of MSME Notification No. dated 6 May 2022, validity of existing enterprises registered prior to 30th June 2020, shall continue to be valid only for a period upto 30 June 2022. Hence, registration of such enterprises on Udyam Registration Portal is not mandatory till June 30, 2022. ii
Auditor’s Comments
Reference:
Master Direction FIDD.MSME & NFS. 12/06.02.31/2017-18 July 24, 2017 Updated as on April 25, 2018
No.
S.
a b `c
MSME Loan Applications
Para 9.2 60
iii Priority Sector Loans: Adherence of RBI Guidelines
ad hoc
` In the case of eligible priority sector loans to SHGs/JLGs, this limit will be applicable per member and not to the group as a whole
Reference:
Master Direction FIDD.CO.Plan.5/04.09.01/2020-21 dated September 4, 2020
iv Education Loans
S. No. Description Auditor’s Comments
b cd
a
a `b c d e f 61 Para 9.2
Description
Reference:
a RBI Master Direction FIDD.CO.Plan.1/04.09.01/2016-17 July 7, 2016. Visit http://mhrd.gov.in/scholarships-education-loan-4
b ’
v Emergency Credit Line Guarantee Scheme (ECLGS)
To check whether
(a) Facility has been extended to eligible borrowers, (i.e. borrowers whose accounts have not been overdue for more than 60 days as on 29.02.2020 or 31.03.2021);
(b) Facility has been extended within maximum cap under various versions of the ECLGS;
(c) Repayment period for interest and principal has been allowed according to the scheme;
(d) Working capital cycle has been reassessed appropriately;
(e) A separate loan account has been opened for ECLGS;
(f) Sanctioned by 31.03.2022 and disbursements to be made by 30.06.2022;
(g) Interest rate has been applied appropriately subject to a maximum of 9.25% per annum; and
(h) All other scheme guidelines have been adhered meticulously.
Reference:
For details, refer NCGTC operational guidelines on ECLGS updated October 6, 2022.
Scheme provides 100% guarantee coverage for the GECL assistance of loan outstanding as on 29tth February, 2020 or 31st March 2021, whichever is higher, to eligible borrowers, in the form of additional term loan/working capital term loan facility and/or non-fund based facility.
ECLGS 2.0 refers to the scheme for borrowers in the 26 sectors identified by the Kamath Committee report dated 04.09.2020 and the Healthcare sector whose total credit outstanding (fund based only) across all lending institutions and days past due as on February 29, 2020 was above ` 50 crore and not exceeding ` 500 crore and upto 60 days respectively.
ECLGS 3.0 refers to the scheme for borrowers in the Hospitality (hotels, restaurants, marriage halls, canteens etc.), Travel & Tourism, Leisure & Sporting and Civil
Auditor’s Comments
No.
S.
Para 9.2 62
Description
Aviation (scheduled and non-scheduled airlines, chartered flight operators, air ambulances, airports and ground handling units) sectors.
Interest Rate on GECL under ECLGS 4.0 for loans upto ` 2 crore to hospitals/nursing homes/clinics/medical colleges/units engaged in manufacturing of liquid oxygen, oxygen cylinders etc. for setting up on site oxygen producing plant shall be capped at 7.5% p.a.
Exception credit card/savings account/current account over dues did not exceed 1% of the loan amount
Term ‘Business Enterprises/MSMEs’ would also include loans covered under Pradhan Mantri Mudra Yojana (PMMY).
Business Enterprises/MSME borrower must be GST registered mandatorily This condition will not apply to Business Enterprises/MSMEs that are not required to obtain GST registration.
It is not necessary that the existing loans should be covered under the existing NCGTC or CGTMSE Scheme.
As per decision taken by NCGTC on September 08, 2020, the stipulation of second charge has been waived in respect of all loans up to ` 25 lakh outstanding as on February 29, 2020 plus loan sanctioned under GECL.
Auditor’s Comments
S. No.
Check-point ECLGS 1.0 ECLGS 1.0(Ext) ECLGS 2.0 ECLGS 2.0(Ext) ECLGS 3.0 ECLGS 3.0(Ext) ECLGS 4.0 Reference date for ascertain past due status (NPA or SMA-2) and total outstanding 29.02. 2020 31.03. 2021 29.02. 2020 31.03. 2021 29.02. 2020 31.03. 2021 31.03. 2021 Credit facility eligible under the scheme (% of total o/s) 20 30 20 30 40 40 Max ` 2 crore Tenor of loan from first disbursement (Years) 4 5 5 6 6 6 5 Moratorium period (Years) for principal amount 1 2 1 2 2 (Interest shall be payable) 2 ½ (Interest shall be payable) Principal to be repaid in instalments after moratorium 36 36 48 48 48 48 54 63 Para 9.2
Audit Hint:
Suggestively, auditors to apply more professional skepticism while verifying the end-use of funds whether funds disbursed have been utilized for the intended purpose only and not transfer to another loan accounts(s) of the borrower, have not been diverted/siphoned off.
a
b
Reference:
Based upon CGTSME clarifications on FAQs, key features of the scheme are:
The eligible vendors (i) Street vendors in possession of Certificate of Vending / Identity Card issued by Urban Local Bodies (ULBs); (ii) The vendors identified in the survey but have not been issued Certificate of Vending / Identity Card; (iii) Street Vendors, left out of the ULB led identification survey or who have started vending after completion of the survey and have been issued Letter of Recommendation (LoR) to that effect by the ULB / Town Vending Committee (TVC); and (iv) The vendors of surrounding development/ peri-urban / rural areas vending in the geographical limits of the ULBs and have been issued Letter of Recommendation (LoR) to that effect by the ULB / TVC.
Sanction of working capital loan upto ` 10,000 to street vendors
Tenure of the loan will be maximum of 1 year
Guaranteed by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
The Scheme is available to all street vendors engaged in vending in urban areas as on or before March 24, 2020. On timely or early repayment, the vendors will be eligible for the next loan with an enhanced limit of a maximum of 200% of the earlier loan, subject to a ceiling of ` 20,000.00.
No.
S.
Description Auditor’s Comments
vi Pradhan Mantri Street Vendors Atmanirbhar Nidhi (PMSVA Nidhi)
Para 9.2 64
Description
vii Loan Guarantee Scheme for COVID Affected Sectors (LGSCAS)
Note:
iii.
b
Reference:
For scheme details, refer NCGTC operational guidelines. The scheme shall provide guarantee cover to both brownfield projects and greenfield projects, subject to a maximum loan of ` 100 crore per project. The guarantee cover provided by NCGTC would be 50% (75% in case of projects coming up in aspirational districts) in case of brownfield projects and 75% in case of greenfield projects.
“Eligible borrower” means existing units proposing to expand/diversify/set up eligible projects or new units setting up eligible projects in areas other than the 8 metropolitan cities. The 8 metropolitan cities are municipal areas of Ahmedabad, Bangalore, Chennai, Kolkata, Mumbai, New Delhi, Pune & Hyderabad cities.
9.2.4 Digital Lending
S. No. Description Auditor’s Comments
i Digital Lending
Obtain information on digital lending made by the branch during the year and check whether RBI guidelines on digital lending have been meticulously followed. For instance,
(a) guidelines on managing risks and code of conduct in outsourcing of financial services dated November 3, 2006 have been complied with;
S. No.
Auditor’s Comments
a i.
ii.
65 Para 9.2
(b) capturing of the economic profile of the borrowers covering (age, occupation, income, etc.), before extending any loan over their own DLAs and/or through LSPs engaged by them, with a view to assessing the borrower’s creditworthiness in an auditable way has been done appropriately;
(c) there is no automatic increase in credit limit unless explicit consent of borrower is taken on record for each such increase;
(d) enhanced due diligence has been carried out by the bank/branch before entering into a partnership with a LSP for digital lending, taking into account its technical abilities, data privacy policies and storage systems, fairness in conduct with borrowers and ability to comply with regulations and statutes ;
(e) any lending done through their DLAs and/or DLAs of LSPs is reported to CICs irrespective of its nature/ tenor.
Reference:
(RBI Circular No. DOR.CRE.REC.66/21.07.001/2022-23 September 2, 2022)
9.2.5 Multiple Banking Arrangements
Reference:
RBI Circulars DBOD.No.BP.BC.46/08.12.001/2008-09 dated September 19, 2008 and DBOD. No. BP.BC.94/08.12.001/2008-09 dated December 8, 2008.
S. No. Description Auditor’s Comments
S. No. Description Auditor’s Comments i Sharing of Information a five crore and above b c
ii Certificates/Reports a Para 9.2 66
9.2.6 Consortium Arrangements
S. No. Description Auditor’s Comments
i Appraisal and Sanction
d
ii Collecting Share of Recovery a
b
Reference:
As per para 4.2.8 Advances under consortium arrangements of RBI MC July 1, 2015 on IRACP. RBI circulars DBOD.No.BP. BC.46/08.12.001/2008-09 dated September 19, 2008 and DBOD. No. BP.BC.94/08.12.001/2008-09 dated December 8, 2008
9.2.7 Takeover Accounts
S. No. Description Auditor’s Comments
i Adherence of Bank’s Policy and Exchange of Information
Auditor’s
b c
S. No. Description
Comments
a b c
-
67 Para 9.2
a -
Reference:
Para 3 b of RBI circular DBOD.No.BP.BC- 104/21.04.048/201112 May 10, 2012.
Audit Hint:
Refer bank’s takeover policy/guidelines. Closure of account with previous bank and opening of account with new bank simultaneously would also tantamount to takeover.
ii Sanction and Disbursement
9.2.8 Casual Facilities (TOD/DAUE/Excess/Ad hoc)
i Application Form : Appraisal
a Ad hoc
b Ghosh committee recommendation 2.13
c -
d Audit Hint:
Obtain system generated report on TOD and excess/ , and comment if no such records maintained. Alternatively,
S. No. Description Auditor’s Comments b -
a b c
S.
Description Auditor’s Comments
No.
Para 9.2 68
maximum debit balances in account turnover reports ATOR menu report in finacle , can provide information on excesses/ allowed during a given period.
ii Sanction by Competent Authority (within Discretionary Lending Powers) a -
Ad hoc ad hoc
c
d
e ad hoc
f Audit Hint: Refer bank’s credit policy for allowing such casual facilities and for discretionary powers.
iii Modifications in computer systems
a e.g.
b
S. No. Description Auditor’s Comments
b e.g.
69 Para 9.2
9.2.9 Loan Against Properties (Mortgage Loans)
i Assessment of credit limit
ii Property Charged : Adherence of RBI guidelines/Bank’s Policy
Reference:
As per para 2 b 7 f and g of RBI Master Circular on loans and advances: Statutory Restrictions
Audit Hint:
Refer bank’s credit policy/master circular of the scheme for eligibility of loan, repayment schedule and other terms and conditions.
iii Bank’s Charge on Property and its Registration
S. No. Description Auditor’s Comments
a b
a b c d
ae.g. b i.e. c e.g. Para 9.2 70
9.2.10 Vehicle Loans
i Disbursement : Adherence of Bank’s Policy/Guidelines
a
b Audit Hint: Refer bank’s policy/master circular on scheme.
ii Documentation
a
b
Audit Hint:
Refer bank’s policy/documentation guidelines. Check whether vehicle inspection report by branch has been compiled in bank’s prescribed format.
9.2.11 Loan against Term - Deposits
i Adherence of Bank’s Policy/Guidelines
a b
Description Auditor’s Comments
S. No.
-
-
Description Auditor’s Comments
S. No.
71 Para 9.2
Audit Hint:
Refer bank’s policy/guidelines for execution of security documents. Review system generated lien marking reports to verify the lien marked. Preferential interest reports such as PREFINT report in finacle can help verify such accounts in which preferential interest rate has been given.
ii Documentation
9.2.12 Loan against Gold/Silver Ornaments
S. No.
i Sanction, Disbursement and Documentation: Adherence of RBI guidelines/Bank’s Policy
b twelve months’ c
Reference:
i RBI Circular No. DBOD.BP.BC.No.86/21.01.023/2013-14 on “Lending against Gold Jewellery” dated January 20, 2014
S. No. Description Auditor’s Comments c d e
a b c
Description Auditor’s Comments
a
d
Para 9.2 72
ii RBI Circular No. DBOD.No.BP.79/21.04.048/2013-14 on “Non-Agriculture Loans against Gold Ornaments and Jewellery” dated December 30, 2013.
Audit Hint:
Per RBI guidelines, securities are “valued at the average of the closing price of 22 carat gold for the preceding 30 days as quoted by the India Bullion and Jewellers Association Ltd”. Refer bank’s guidelines for maintenance of records and security of gold/ornaments.
ii Security and Documents
Audit Hint:
Refer bank’s guidelines for documentation and custody of gold etc.
9.2.13 Loan against LIP/NSC/IVP etc.
S. No. Description Auditor’s Comments
a b
S. No. Description Auditor’s Comments
Appraisal and Sanction a b Audit Hint
Documentation ab73 Para 9.2
i
ii
9.2.14 Loans to Directors and Staff Loans
S. No. Description Auditor’s Comments
i Loans and Advances to Officers, Relatives of Officers, Senior Officers and Relatives of Senior Officers : Sanctioning by Competent Authority
Reference:
Para 2.2.2.1 i of RBI Master Circular Loans & Advances - Statutory and Other Restrictions. For definition of relatives, refer para 2.2.18 of RBI Master Circular DBR. No. Dir. BC.10/13.03.00/2015-16 dated July 1, 2015 as amended July 23, 2021.
As per para 2.2.1.3 of RBI Master Circular- Loans and Advances
Statutory and Other Restrictions dated July 1, 2015, “All credit proposals for Rupees twenty five lakhs and above should be sanctioned by the bank’s Board of Directors/ Management Committee of the Board. The proposals for less than Rupees twenty five lakhs may be sanctioned by the appropriate authority in banks in terms of the powers delegated to them” Loans and Advances of ` 5 Crore and Above to Relatives of Chairman/MD/Directors of the Bank and Other Banks
a b c
–
a b c Para 9.2 74
9.2.15 Bank Guarantees (BG)
i Application Form and Declaration: Verification of Customer Credentials
aDeclaration
b except as mentioned in RBI Master Circular dated April 1, 2022 Worth of the guarantors, payment of guarantee commission
c Para 2.2.9 .
S. No. Description Auditor’s Comments dProvided
S.
Description Auditor’s Comments
No.
75 Para 9.2
Reference:
Audit Hint:
Ascertain bank’s policy/guidelines for assessment of requirement of BG. Comment, if there are no such documented policy/ guidelines of the bank. Comments should be made if guarantees have been issued to new customers by creating new customer ids to make customer as existing customer.
ii Appraisal, Due Diligence and Assessment of Requirements
a “the necessary experience, capacity and means to perform the obligations under the contract, and is not likely to commit any default” Para 2.2.3
b roposal/process notee.g.
c
Audit Hint:
Credit Appraisal and due-diligence
Para 2.2.3
Banks shall undertake the same level of credit appraisal as has been laid down for fund based facilities. Para 2
iii Sanction
a
b ‘margin’ ‘claim period’ and others
c particularly in margin, security, purpose, period, beneficiary, bank charges and commission are adhered meticulously;
Classification
d financial performance
No.
Auditor’s Comments
S.
Description
Para 9.2 76
Description
Para 9.2
Auditor’s Comments
Exposure Norms
e Para 2.2.2
Reference:
RBI Master Circular dated April 1, 2022.
Audit Hint:
Refer bank’s policy on sanction of BG limits. Comment if bank guarantee business at the branch has been concentrated to a particular customer or group. For example, almost bank guarantees issued to a civil contractor.
iv Issuance
a appropriate format on the lines of model guarantee
Annexure A to RBI Master Circular;
b bank guarantees Limitation Clause’
c Guarantee Issued and Liability Register -
d ‘maturity’
e
f name, designation and code numbers ;
g bank guarantees have been directly forwarded to the beneficiaries;
Ghosh Committee recommendations
h serially numbered security forms
i cautioned Para 2.2.7.2 ; Internal Control System
j signed by TWO officials jointly Para 2.2.5
Reference: RBI Master Circular dated November 9, 2021 on bank guarantees and co-acceptances.
S. No.
77
For Companies
vi Accounting and Commission
Audit Hint: Refer bank’s accounting policy regarding accounting/amortization of commission on unexpired bank guarantees.
9.2.16 Guarantees Invoked and Payment of Guarantees
S. No. Description Auditor’s Comments
a b c
d
v Documentation
e .
a b c
S. No. Description Auditor’s Comments i
a b e.g. Para 9.2 78
Maintenance of Register
Audit Hint:
Comment if no record for invocation of bank guarantees is made even if there is no instance of BG invocation. Suggestively, auditor should obtain management representation letter MRL about invocation of bank guarantees, as any omission to record bank guarantee invoked may result in non-provisioning of bank’s commitment.
ii Payment of Guarantees
a ad hoc
b
9.2.17 Letters of Credit (LC)
S. No.
i Application Form: Appraisal and Due Diligence
a
b a Declaration
c Reference:
RBI Master Circular dated November 9, 2021.
Audit Hint:
Comment if LC has been opened to a customer by creating new customer id to make the customer as existing customer.
ii Sanction and Opening of LC a b
No. Description Auditor’s
S.
Comments
Auditor’s
Description
Comments
79 Para 9.2
crecommended by Ghosh Committee on frauds;
d -
e ‘without recourse’ LCs have not been opened;
fPara vi of RBI circular dated January 24, 2003 .
Reference:
RBI Circular DBOD.Dir.BC. 62/13.07.09/2002- 03 dated January 24,2003.
iii Devolvement of LC a
b
c
Reversal of Liability of LC
Audit Hint:
Obtain management representation letter MRL confirming that no LC has been devolved.
9.2.18 Bill Purchase/Discounting
S. No. Description
i Appraisal and Sanction of Bill Purchase/Discounting Limit ab -
S. No. Description Auditor’s Comments
e.g.
e.g.
Auditor’s
Comments
Para 9.2 80
c d Audit Hint:
Refer bank’s bills purchase/discounting policy. Also comment if new customer id is created to make the borrower as existing customer. Review system generated report on bills purchased/ discounted during the period.
ii Purchase/Discounting of Bills
Reference: Ghosh Committee recommendation No. 2.15
S. No.
Auditor’s Comments
Description
a b cd e
81 Para 9.2
Audit Hint: Refer bank’s bill purchase/discounting policy.
iii Realization of Bills
a
b
c
d
Audit Hint:
Refer bank’s bill purchase/discounting policy and ascertain lead periods of realization. Comment, if there is no such documented policy/guidelines.
iv Bills Purchased/Discounted : Beyond discretionary lending powers or beyond sanctioned limit
a
b c
Audit Hint: Refer bank’s policy/discretionary lending powers of various functionaries at branch. Ascertain bank’s threshold limit for approval of TWO officials.
v Bills drawn on Sister/Associate concerns (Accommodation Bills):
Some Special Considerations
a
S. No.
Description Auditor’s Comments
-
-
d
Para 9.2 82
b
Audit Hint:
Refer bank’s policy and ascertain the threshold limit for obtaining credit report on drawee. Comment, if indications of potential accommodation nature of bills observed, ,
vi Bills Purchased/Discounted Returned Unpaid a
b
c
Audit Hint:
Refer bank’s guidelines on bills returned unpaid and mode of adjustments/follow up.
9.2.19 Negotiation/Discounting of Bills under Letter of Credit (LC)
S. No. Description
i Negotiation/Discounting of Bills under LC: Adherence of RBI Guidelines
Comments
No. Description Auditor’s
S.
Comments
Auditor’s
b 83 Para 9.2
a
Description
c ageing schedule of the overdue payables per bank’s guidelines has been obtained from corporate and other constituent borrowers having turnover above the threshold limit;
d -
e f
Reference:
RBI Circular DBOD.Dir.BC. 62/13.07.09/2002- 03 dated January 24, 2003 “Banks should be circumspect while discounting bills drawn by front finance companies set up by large industrial groups on other group companies” para 2 ix
Audit Hint:
Comment if there is no board approved policy of bills discounting and rediscounting.
ii Precautions/Special Considerations a b Ghosh committee recommendation No. 3.9
d stocks/book debts covered under the bills negotiated under LC have been excluded from the stocks/book debts statements submitted for regular CC hypothecation facility.
Audit Hint:
Refer bank’s policy/guidelines for precautions and other considerations.
Auditor’s Comments
Note: Suggested following checklist for audit of new sanctions of retails loans, KCC and BGs are appended at Appendix A:
SBA 4(1) Checklist for Audit of Retail Loans
SBA 4(2) Checklist for Audit of Agricultural Loans
SBA 4(4) Checklist for Audit of Bank Guarantees
S. No.
c
Para 9.2 84
PRACTICAL WORKBOOK FOR BANK BRANCH AUDITORS
AUTHOR : ISHWAR CHANDRA
PUBLISHER : TAXMANN
DATE OF PUBLICATION : FEBRUARY 2023
EDITION : 7th Edition
ISBN NO : 9789356227040
BINDING TYPE : PAPERBACK
DESCRIPTION
Rs. 1095
This practical workbook, i.e. work programme cum audit notebook, is a one-stop reference for bank branch auditors providing a systematic audit approach and procedures. Overall, the aim of the workbook has been to provide an efficient and effective approach for accomplishing branch auditing, simultaneously documenting the audit work.
This workbook contains a five-staged approach:
• Acceptance of Audit
• Planning the Audit
• Conducting the Preliminary Audit
• Conducting the Final Audit
• Reporting the Audit
In each stage, the audit approach and procedures have been suggested in accordance with the RBI Norms and ICAI Standards on auditing.
This book is helpful for branch auditors in accomplishing their branch audit more purposefully & bringing more comfort to the Statutory Central Auditors, Boards and Management.
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