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BANK BRANCH AUDIT

(2017-18)

AUDIT PROGRAMME
AND BACKGROUND PAPERS

CA. M.M KHANNA CA. SANJAY VASUDEVA


K.C. KHANNA & CO., S.C. VASUDEVA & CO.,
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS
GOBIND MANSION, B-41, PANCHSHEEL ENCLAVE,
H-96, CONNAUGHT CIRCUS, NEW DELHI-110017
NEW DELHI-110001

NORTHERN INDIA REGIONAL COUNCIL


(The Institute of Chartered Accountants of India)
BANK BRANCH AUDIT 2017-18
Section Index to the Background Material Pages
I NOTE ON BACKGROUND MATERIAL 1-18
II PRELIMINARY WORK
A Letter to Branch Management (Audit Engagement/ initial letter seeking 1 -2
information/management representations)
Annexure to Letter
I &IA Information/Requirements in connection with the audit 3-18
II Information on Advances 19
III Observations/Status Review on Major Advances accounts 20-30
III.1 Major Advances Accounts – Compliance of Terms and Conditions of 31
Sanction
III.2 Key Financial Indicators for the last two completed years and projections 32
IV Restructuring in Borrowal Accounts and formats 33-36
V Stressed Assets Disclosure requirement formats 37
VI Statement of Overdue Deposits 38
VII Entries originating prior to but responded after 31-3-2018 39
VIII LFAR Requirements Deserving Special Attention 40
IX Branch Data for the 12 Odd dates for SLR 41
B Text of letter suggested for being addressed to the Branch (year-end) 1
III AUDIT PLANNING / PROGRAMME / EXECUTION
C Branch Audit Programme and Guidance
C Branch Audit Programme 1-35
C1 Advances requiring special attention 36
CII Common Irregularities/Adverse Features in Advances 37-40
CII.1 Observation/Status Review of major advances accounts 41
CII.1.1 Summary of Adverse observations on advances accounts (Illustrative) 42
CII.2 Summary of Adverse features in advance accounts 43
CII.3 Form of MOC relating to advances 44
CIII Audit in EDP Environment 45-48
CIV Summary of Advances of the Bank (for information) 49-50
CV Asset-Liability Management (ALM) 51-60
CC Branch Management Representation to Auditors (Illustrative) 1-6
IV REPORTING
D Form of Branch Auditor’s Main Report to the Statutory Auditors 1
D.1 Nationalised Banks -As per Guidance of ICAI (Latest edition) 2-3
D.2 - As recommended by authors 4-6
D.3 Banking Companies- As recommended by authors 7-12
D.4 Qualifications/Observations(Illustrative) for incorporation in the Report 13-26
D.5.1.1 Form of MOC relating to Advances 27
D.5.1.2 MOC affecting Advances/Classification 28-29
D.5.1.3 Recommended format for MOC (other than Advances) 30
D.5.1.4 Format of List of advances Accounts for which interest calculations have 31
been checked
D.L.1 LFAR Questionnaire and recommended action for Reporting 32-55
D.L.2 Recommended additional matters for LFAR 56-58
D.L.2.1 Manner in which certain matters may be considered in LFAR (Illustrative) 59-64
V REFERENCE MATERIAL
E & E I RBI Norms on Income Recognition, Asset Classification and Provisioning 1-34
(2017-18) – Summary
E.II Reckoner for Categorisation of Advances 35- 37
E.III Provisions Required based on categorization of Advances Accounts 38-46
E IV Other Clarifications on Advances 47-62
F Accounting Standards (ICAI) 1
F.I Indian Accounting Standards (IND ASs) 2
F.II Standards on Auditing (SAs), Review (SREs) and Other Standards (SAEs/SRSs) 3-4
G Internal Controls and Risk based Audit approach 1-4
H Broad Analytical Procedures 1
I List of Important Circulars of Reserve Bank of India ( 1-7-2015 to 12-2- 2018) 1-6
J Broad Guidance on extended scope of work re: Frauds 1-30
K, K.1 Disclosure Items for Banks & Detailed Balance Sheet disclosures 1-21
L Recommended form of the certificate-Ghosh and Jilani Committee 1
M Important provisions of the Banking Regulation Act, 1949 1-5
N Abbreviations used in the Banking Industry (RBI) 1-9
O Manner of computation of interest accrued on FCNR(B) deposits 1-2
P Computation of Drawing Power in facilities against stocks and debtors 1-2
Q Gold Monetisation Scheme – Brief Note 1-6
R Trade Credits for Imports in India – Brief Note 1-2
S Peer Review Confirmation 1

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

Bank Managements ensure that all transactions and events, relating to the accounting period, are
duly and faithfully recorded accurately and are complete; and further, that the year-end account
balances truly represent assets and rights (in existence and with beneficial ownership), liabilities
and obligations of the bank. Such financial statements include assertions (implicit and explicit)
related to the recognition, measurement, presentation, and disclosure of the financial information
contained therein in accordance with the applicable statutory, regulatory (directives and
guidelines) and the related Accounting Standards / Indian Accounting Standards (translated into
significant accounting policies), as also the compliance of other applicable laws having effect on
the financials. To ensure uniformity in approach in the preparation of the financial statements, the
bank managements encourage the issue of periodic, and period end, internal instructions pursuant
to the above, which instructions are expected to be followed by all offices, branches, sections and
departments of the bank to enable offices/branches to prepare their financial statements
accordingly.

With extensive use of technology and its continuous evolution in a dynamic and changing
environment, customers of the Bank have the advantage of expeditious and convenient anytime-
anywhere-banking, based on their access on real time basis, to their information / data, stored in a
safe and secure environment on the bank’s servers. With the ever increasing number of customers
having access to Internet and mobile connectivity, monetary transactions from inception to finish
have become expeditious through E banking; and, due to Core banking technology and extensive
advancements therein banks have achieved phenomenal and accelerated growth, and are able to
venture into, and continuously offer, a wide range of innovative products and services to their
customers. Transactions in banks are not only voluminous, but originate also from outside the
branches. Though the RBI has desired that banks ensure that all information relating to
transactions of the branches be captured and built into the centralized system, in reality it may not
be practically possible; and necessarily, there are areas of manual intervention, particularly where
discretionary charges at the Branch are leviable e.g. godown and other inspection charges, penal
interest chargeable due to non compliance of bank’s requirements, stock audit fees, insurance
charges, locker rentals, loan processing fee, bank guarantee renewals etc. It is imperative that the
auditor enquires into areas where the Branch needs to originate entries which are not covered by,
or to supplement, the centralized system. The system of capturing the economic event/ information
/ data, and integrity thereof needs to be optimally maintained at all stages from origin, recording,
transmission and storage; and the control systems that ensure that the same is free of risks of
errors, omissions, irregularities and frauds. Considering the challenges of technology, bank
managements continuously endeavour to focus on the internal control systems to ensure that they
are robust, safe and secure and risks are minimized.
An audit involves an objective independent examination of the financial statements of the banks
that enhances their value and credibility based on whether management’s assertions as to
recognition, measurement, presentation, and disclosure of the financial information contained
therein can be supported by facts and evidence. The purpose of such audit is to express an
opinion, and provide a reasonable assurance as to whether or not the financial statements are
presented fairly, in all material respects, that there are no material errors or misstatements and,
besides complying with the statutory and regulatory impositions, give a true and fair view in
accordance with the financial reporting framework.

Given the severe time constraints for the auditor to complete the bank branch audit exercise and
furnish his report as per the applicable auditing and assurance standards, it is imperative that he is
equipped with thorough knowledge of the relevant statutory and regulatory impositions for the time
being in force, the applicable Accounting Standards / Indian Accounting Standards, and has the
requisite expertise and skills to ensure timely execution of the audit assignment as per a
systematic plan. The work performed needs to be well documented to enable him to support his
audit opinion within his reporting responsibilities.

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

To meet the objective of the preparation of a meaningful, effective and qualitative report, the audit
procedures, would include audit planning based on the auditor’s understanding of
 scope of his assignment,
 manner in which economic events and transactions are recorded (origin and source),
 how the related data integrity is maintained / preserved (including in transmission) and
protected from origin to the very end ( whether with or without manual intervention),
 the fraud and risk management, through internal control systems and procedures so as to
address inadequacies, if any therein and, an assessment of the gravity and degree of the
perceived/assessed risks,
 the existence and effectiveness of the monitoring and supervisory mechanism prevalent, and
 the nature and extent of material adverse features, if any reported in the internal monitoring
and supervisory reports and compliance or otherwise thereof.

Banking operations are conducted only at the branches, while other offices act as controlling
authorities or administrative offices that lay down policies, systems and internal control procedures
for conduct of business.

The auditor needs to understand the scope of the assignment and the terms of engagement to
enable him to plan and perform so that all requisite reports/attestations are furnished within the
severe time constraints without, however, sacrificing quality.

Beyond the scope of the statutory audit and furnishing a report pursuant thereto, RBI requires the
banks to obtain, in response to a questionnaire in a structured format, a Long Form Audit Report
(LFAR); and the banks also appoint the auditors to conduct an audit under Section 44AB of the
Income tax Act 1961 and issue a Tax Audit Report as also issue certain validations /certificates

The execution of the assignment as per the audit plan would involve obtaining, and consideration,
of the requisite internal and external evidence as necessary, seeking sufficient appropriate
information/ explanations/ evidence, documenting queries/audit observations and notes on
exceptions and other related issues by nature and quantum, seeking and testing management
representations, having relevance to, and for the purpose of, reporting in the manner required.

It is relevant to state that the centralized system in Banks is expected to incorporate all the
required statutory, regulatory and accounting norms and the same being constantly
reviewed / updated so that the statements generated, based thereon show a ‘true and fair
view’. The system generates on a daily basis, a ‘Daily Exceptional Report’ that needs
Branch Manager’s consideration and compliance. This is pertinent information in audit
verification procedures and must not be ignored.

The objective of the background/reference material is to enable branch statutory auditors to be


equipped with the basic knowledge and skills to ensure that the audit assignment is undertaken
and completed expeditiously and in the manner expected. It is relevant to state that the auditors
are expected to follow the Standards on Quality Control (SQCs) and maintain their working papers
(documentation) in evidence of the performance of their audit procedures (reference may be made
to the Audit Review and Other Standards referred to hereinafter).

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

The audit exercise should involve the following:


S. No. Particulars Remarks
1 Preliminary work/ familiarization exercise:
To effectively and expeditiously carry out the audit
at the Branch level, each member of the audit team,
is expected to be familiar with:

a) Banking Regulation Act 1949 For important provisions


The above is also in line with SA 250 -Consideration refer Section M
of Laws and Regulations in an Audit of Financial
Statements
b) Legal requirements applicable to the particular
bank (banking company, nationalized bank, State
Bank of India, Co-operative bank, Regional Rural
Bank, etc.), particularly as regards financial and
other disclosures and the audit reporting
requirements.
c) Publications of the ICAI, particularly the following:
i. Guidance Notes on Audit of Banks (see Latest
edition); Tax Audit under section 44 AB of the
Income tax Act, 1961 (since Tax Audit is also
covered by the scope of assignment).
ii.Accounting Standards, Indian Accounting Refer Section F, F I, F II
Standards (IND AS), Auditing, Review and
Other Standards.

Audit procedures need to be performed based on


knowledge, and in compliance, of the mandatory
Standards on Auditing and attention is also drawn
to the following:
 Risk Assessment and Response to Assessed  SA 315 Identifying and
Risks Assessing the Risks of
Material Misstatement
through Understanding
the Entity and Its
Environment.
 SA 330 The Auditor’s
Responses to Assessed
Risks.

 Standards on Auditing on Audit Conclusions  SA 700 Forming an Opinion


and Reporting and Reporting on Financial
Statements.
 SA 705 Modifications to the
Opinion in the Independent
Auditor’s Report.
 SA 706 Emphasis of Matter
Paragraphs and Other Matter
Paragraphs in the
Independent Auditor’s
Report.
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BANK BRANCH AUDIT (2017-18) - BACKGROUND

d) Auditor’s responsibilities in relation to frauds/ Refer SA 240 -The


fraudulent activities. Auditor’s Responsibilities
Refer RBI Master Directions on Frauds issued under Relating to Fraud in an
Section 35 A of the Banking Regulation Act, 1949– Audit of Financial
Classification and Reporting by commercial banks Statements and also
and select FIs, as per Circular Section J.
DBS.CO.CFMC.BC.No.1/23.04.001/2016-17 dated
July 1, 2016; and in case of banking companies,
read with Sub sections (12) and (13) of section 143
of the Companies Act 2013, dealing with the powers
and duties of the auditors as to reporting on frauds.
e) Regulatory requirements. guidance/directives, Refer Section I for circulars
including Master Directions/Circulars, issued by issued during the period
the Reserve Bank of India (RBI) to banks, (as from 1-7-2015 to 12-2-
available on the RBI Website, www.rbi.org.in), for 2018, together with the
the conduct of banking business/operations, earlier ones that have not
including those having relevance to the preparation been changed (The RBI
and presentation of the financial statements. Circulars are hyperlinked).
These directions/circulars consolidate and
update the earlier circulars and provide updated
regulatory guidance/directives, on matters of
relative importance. Refer also to other such
circulars issued thereafter.

Refer Section K and K.1


Disclosures required by way of Notes in the financial
statements of banks in line with the existing RBI
Correct and complete
Master Circular DBR.BP.BC No.23/21.04.018/2015- information / data is to be
16 dated July 1, 2015, as also applicable to the year
furnished by Branch
2017-18 and also
Management for audit
DBR.BP.BC.No.63/21.04.018/2016-17 dated April verification and further
18, 2017; to the extent applicable to the branch.
consideration thereof at the
RBI directives, generally pursuant to the legal centralized level.
impositions, are mandatory for compliance by banks
and the non compliance thereof would invite audit
qualification by the auditors. RBI’s (regulatory)
guidance to banks is persuasive in nature and is
expected to be followed by the banks and non
compliance thereof by banks would not be the
subject of audit qualification unless it is in conflict
with the audit reporting responsibilities of the
auditors.
f) Questionnaire prescribed by RBI for Long Form Refer
Audit Report (LFAR) relevant to the bank Section D.L.1 for
branches, as also the additional information required Questionnaire and
to be given for large and specialized branches. The recommended action for
reporting,
responses (to the questionnaire), as prepared by
Section D.L.2 for additional
Branch Management, are required to be matters recommended to be
checked/reported upon by the branch auditor; and included in the LFAR
reference may be made to instructions/guidance as Annexure VIII - Section A for
given in a tabulated form for each question. matters deserving special
attention as listed in the letter
to be sent to Management.

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

g) Knowledge of the nature and type of branch


operations in banks and systems and
understanding of the procedures followed in
banks to record information/data on the basis of
the origination and source of the transactions
and the auditor’s knowledge , experience and skills
to access the records and supporting evidence.
A general understanding of the computerized
environment in which banks work (centralised -
using Core banking solutions as also other platforms
for processing information at the decentralized level)
Of the two main assets in banks, viz., Investments
and Advances, the bank branches deal only with the
latter in terms of classification (for provisioning),
based on their health status, and income recognition
being considered in respect of advances considered
as “performing”. The major heads of expenditure at
the branch comprise Interest on deposits and Staff
Remuneration.
h) Understanding the manner of accounting and This has effect on the audit
preparation of statements verification procedures.
In the manually maintained accounting era as also in
times when branches were automated, accounts at
each office/branch were maintained with physical
access to books and records, based on the slips
generated and validated at that office and based on
supporting evidence available at the Branch.
Information inflows from/to other branches/offices
were recorded through the Inter-branch/Head office
Account. The originating evidence in support of the
transactions as recorded was maintained and was
available be produced for audit verification; and in
respect of entries (Inter branch items) originating at
other branches/offices, usually the reports contained
a disclaimer in the audit reports.
In the core banking scenario, data of the bank is
stored on a central server and accounts of the
branch per se do not exist.
Entries in a branch are initiated and posted from The Auditor is reliant on the
any of the three sources, viz., by the branch system driven information /
personnel, by the system or by personnel from data and cannot verify
another office. Entries could also originate original evidence when
externally from another bank or agency. entries are posted from
Financial statements of a branch depict the data elsewhere and transactions
based on a key relating to the branch. Several do not originate at the
initiatives in delivery of technology enabled existing Branch under audit. He also
and new products and services and make the cannot be certain that the
customers’ banking experience simple, convenient validations of the
and hassle-free – with several value additions centralized information
made under Internet Banking and Mobile system and whether all
Banking. Customers can download, register and statutory, regulatory and

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

activate their app without visiting a Branch or ATM accounting norms /


and, amongst others, have access to and ease of impositions for the time
banking facilities such as, being applicable are
 Online loan application and tracking incorporated in such
system system. He has no option
 Facility for opening online SB accounts (for but to disclaim his
domestic and NRI customers) responsibility for
information that cannot be
 Automatic Account Opening through e- verified by him.
KYC
 e-passbook being offered in regional
languages in all mobile (Smartphone)
platforms
 mobile app for cardless and cashless
transactions across variety of merchants (
with 2-factor authentication enabled for
customer convenience and safety for flight,
bus ticket booking, DTH Recharge and a
wide range of bill payments).
 Missed call to specified numbers to know
account balance for domestic and NRI
customers and to know last few transactions.
 Bill payment facility enabled for corporate
and specified customers.
 Foreign Inward Remittance facility
 Biometric authentication introduced, say for
locker access.
 SMS Alert for SWIFT transactions and
large transactions and balances
 RD closure facility enabled services.
 New Card variants to cater to the
requirements of different segments of
customers, International Travel Prepaid Card
in foreign currency with multi currency wallet
for the convenience of foreign travellers,
special Business Debit Cards etc.
 Facility to subscribe to the Social Security
Schemes of Govt. of India
(Branches, ATMs and Internet Banking).
 Digital Life Certificate – to convenience
payments to Pensioners for payments
without their physical presence at the branch
 Specialised services, MSME Consultancy
Services - ‘Make in India Campaign’ services to
promote manufacturing sector through credit and
other supporting measures.
 Knowledge Dissemination Centres, as
initiatives, to help customers in different segments

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

i) Figures in the year end financial statements To account for any


(based on books as closed as at the year-end anderrors/omissions/non
upon completion of the day/month/year end recording of transactions
procedures), leave no scope for any changes pertaining to the year etc.,
therein at the branch level. Branch Management entries and adjustments
should make available for audit verification, all the
recommended through
Branch returns / statements / schedules (and notMemorandum of Changes
merely the Balance Sheet and Profit and Loss (MOCs) forming part of the
Account), duly stamped, signed and dated by the report of the auditors, are
authorized officials). considered at the
controlling office/head
office.
j) Familiarity with Terminologies used in the Refer Section N - for
Banking industry. abbreviations used by RBI
in its notifications/
circulars/directives).
On acceptance of the assignment, the following action needs to taken by the auditor:
k) Issue of Audit engagement and Letter seeking i. Refer Section A -
information: Communications, including seeking together with requisitions
information from the Branch Management must as per Annexures I, IA,
be sent, on the letter head of the firm: II, III, III.1, III.2, IV, V, VI
i. Upon appointment - Audit engagement / and VII, VIII - soon after
Letter seeking information / Management acceptance.
Representations.
ii. For year-end verification procedures ii. Refer Section B

The recommended text is intended to save time and such communications (self explanatory) are sent
to the Branch, as to the engagement which also covers the basic minimum requisitions on
information, explanations and management representations that would be necessary in connection
with the audit. This initial requisition as per the recommended text can be and further supplemented /
modified / strengthened by any other additional requirements due to matters / issues in the specific
knowledge of the Branch Auditor (due to his past association with the same branch / bank’s affairs /
operations) or otherwise in the course of audit as it progresses), including further clarifications on
responses that may be inadequate.
l) Circulars issued by the Bank’s Head Statutory impositions as
Office/Controlling Authority, to the branches/ well as regulatory
offices of the bank, need to be accessed/reviewed. guidelines/directives of the
These Circulars are expected to be in line with the RBI override any
instructions to the contrary
statutory and regulatory requirements and provide
contained in the bank’s
necessary guidance/ instructions that are mandated internal circular
to be uniformly followed by the branches/offices instructions; and non
from the effective date(s), particularly the Bank’s compliance of the ICAI
instructions relating to closing of accounts at the impositions and statutory
year end. compliances would
necessitate qualified
reporting. Other non
compliance of internal
instructions/guidelines
would need to be brought to
the notice of Management
preferably through the
LFAR.

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

m) Significant Accounting Policies of the Bank, The auditor should


expected to be in line with the applicable Accounting enquire and report any
Standards/Indian Accounting Standards, need to be change in the Bank’s
sought and reviewed to the extent applicable to the accounting policies since
branch. the earlier year, together
with the effect thereof on
the financials of the
Branch, due to change , if
any.

n) Previous/latest reports on the audit of the branch Refer Section A Annexure


as also in connection with the monitoring, I, Para 1 for list of reports.
supervision of activities and operations of the
branch, and compliance of the observations
contained therein, need to be reviewed, to check
compliance.
@
Branch auditors need to be aware that in supercession of the guidelines on 'concurrent audit system in
commercial banks' earlier issued by it (vide circular DOS.No.BC.16/08.91.021/96 dated August 14, 1996 ), RBI
had issued Circular DBS.CO.ARS.No. BC. 2/08.91.021/2015-16 dated July 16, 2015, setting out the scope and
coverage of concurrent audit system in commercial banks. The revised instructions are set out in Annexure I
to that Circular; and Branch auditors need to be aware that there is a prescription for a Minimum Audit
Programme for Concurrent Audit System in Commercial Banks as per Annexure II. Arising out of the
Concurrent audit reports, if the auditor observes that the Bank has not modified its scope of concurrent audit ,
the same needs to be also dealt with in the LFAR, as much as consider any adverse observations in such
reports.

Review of the “handing over charge report” in case A review of the said
of a change of the branch incumbent wherever reports will enable the
there is such a change, as it may contain branch auditor to
information on certain matters like health of comprehend the nature,
advances, status of reconciliations, nominal thrust and volume of the
accounts or other features at the branch that may branch business, the
have effect on the Audit Planning and Reporting. types of errors/
omissions, irregularities
and defaults, if any, in the
past and the compliance
levels etc. so that the
audit risks can be
assessed and addressed
in the audit planning.
o) Calendar of Returns maintained by the Branch:
This will enable an understanding by the auditor, of
the nature of the returns from the branch to various
authorities and level of compliance/discipline by the
branch on returns that have relevance to his
reporting responsibilities.
p) Basic Analytical procedures that may be Refer Section H
adopted (SA 520), based on the initial review of the
financial statements.

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q) Information on Advances:
Provisions for doubtful advances are required to be Auditors need to be
made to the satisfaction of the auditors. Verification conversant with the related
of the advances portfolio at the Branch is of relatively RBI Circulars, particularly
high priority. This involves exercise of judgment to the Master Circular (covering
determine the health status of advances, their bench-marked norms
classification (Standard / Sub standard / Doubtful / prescribed {RBI Master
Loss) as per the applicable prudential RBI income Circular (DBR.No.BP.BC.2/
recognition and asset classification (IRAC) norms. 21.04.048 /2015-16) as well
Such classification will determine the quantum of as the one relating to
minimum bench - marked provision for estimated statutory and other
losses as a prerogative and responsibility of the restrictions on advances
auditors which overrides that of the management. (DBR.No.Dir.BC.10/
Classification is borrower - wise. Certain 13.03.00/2015-16), both
exceptions to the general principle of borrower-wise dated 1-7-2015}.
classification pursuant to which, facility / account-
wise rather than borrower-wise classification may be For summarized provisions
relevant (consequent upon concessions / relief due refer Section E
to restructuring, rehabilitation, re-phasement,
nursing, etc. in projects under implementation, BIFR Subject to specific stipulations
cases, infrastructure lending, refinanced projects and to the contrary by RBI, Income
others covered by special dispensations/change in is recognized/accrued on
management etc.) accounts being Performing
advances (generally classified
The internal classification will also determine
as ’Standard’) while in the Non
recognition/ derecognition /non recognition of Performing Accounts
revenue. (classified as ‘Sub standard’,
Bank records must be kept updated on the ’Doubtful’ or ‘Loss’), it is based
unrealized /unapplied income, otherwise on actual recovery /
contractually due in respect of non performing realization.
advances. Accepted principles of
accounting for appropriation of
The manner of appropriation of recoveries in recoveries as income, warrant
non performing accounts, where there are no that priority be given to
unrealized charges, interest
instructions from the borrower must be understood.
and then towards principal.

2. Audit Plan/procedures:
(Attention is drawn to SA 300 Planning an Audit of Financial Statements)
a) Internal controls:
Audit planning warrants an understanding of the Refer Section G
banking business/operations and an assessment of
the audit risks, so as to determine the nature, timing
and extent of the audit procedures. The audit staff
must be familiar with internal control procedures or
absence/inadequacy/breach thereof; and must keep
in view the consequential audit risks, that warrant
extending the audit procedures.
b) Based on the nature and thrust of operations, nature of
adverse features, level of compliance of previous reports,
and audit risks based on lack of, inadequacy in or breach
of internal controls/ discipline and the familiarization
exercise carried out, an audit plan is drawn up.

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

c) Audit Programme:
Considering that transactions in a bank branch are Refer Pages 1-35 in
voluminous but repetitive, it is appropriate to carry Section C.
out the procedures head-wise as per the financial
statements, giving due importance/priority to
relatively significant matters/items. For this reason,
the Bank Branch Audit Programme is drawn up
head-wise.
In conducting the audit, the auditor must keep in Refer Section G
view the risk based approach. In depth Audit of The Audit Programme
the transactions examined throws light on recommended should not be
compliances as well on accuracy / completeness. taken as rigid and inflexible
and must be extended to
Risk based audit approach, can be adopted,
incorporate therein (in the
based on a Risk Matrix, so that the procedures may space provided under each
be extended in areas where the risk is higher. head), additional procedures
In confirmation of the work completed, the audit staff to cover areas of
must sign against the relevant item of the weaknesses in the system,
programme immediately upon conclusion of each audit risks perceived, as also
part of the assignment handled by him; and if any based on adverse matters that
part is not applicable, it must be so indicated by come to light as the audit
stating “NA.” progresses; and any such
additional procedures that
become necessary should be
documented.
Heads for which no figures appear in the Branch Statements, may yet be relevant and
important for an understanding of the nature and type of activities and flow of information
from the branch to the centralized office for the preparation of the Bank’s financial
statements; e.g., recording at a centralized level, fixed assets acquired/used at the branch,
issuance of drafts that are not controlled at the branch level etc. The Audit Programme,
therefore, covers such items.

The recording of the execution of the work should also be reviewed by the Partner in charge,
to ensure that no part of the work is left out.

Centralisation and physical location of original


loan documents at Loan Processing
Centres/Cells.
There is a propensity in banks to process the loans and It is appropriate to require
advances, including appraisal, sanction, execution of the Branch to enable
documentation, initial disbursements etc. at Loan access to the centralized
Processing Cells/ Centres/ Offices (by whatever name records as required for
called) and to have physical custody/ control over and
verification.
hold all the original documents at such locations; and
such locations may not be in close proximity to the
branch, where the borrowers’ accounts are
maintained/serviced. The Branch places reliance only on
the Sanction letters/ authorizations concerning the
operations in the borrowers’ accounts, on the
presumption that all the required documentation and
formalities are valid and complete at the centralized
location. The Branch also relies on information on the
drawing power/limits as communicated by such Offices.

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

In the absence of the original documents (or even authenticated copies thereof), on an
updated basis, the audit verification process would get tardy, as the files identified for
examination by auditors would become available only on specific request.

Branch auditors must be satisfied that the terms of the sanction and other communications
on borrowers’ accounts to the Branch are authenticated (particularly if these are computer
generated), and complete and duly updated, for all accounts where the sanction was so
conveyed; and further whether the number of accounts and amounts recorded at such
centres / offices, tally with the corresponding data at the branch. It is necessary to verify that
all cheques/instruments, held by such centres/ offices are banked to provide clinical purity to
the outstandings at the branch.

The Branch auditor must call for reports of the monitoring / supervisory authority (Inspection
/ Concurrent Audit) in relation to the advances operated at the branch, to deal with any
adverse observations therein, including on the appraisals, sanctions and documentation
aspects at the centralized location.
In nutshell, the control aspects are important and may be a major audit risk, if
ignored.
3. Execution of the assignment/ Signing of annual financial statements:
a) General:
Since the figures and information get frozen and become final at each day end, the
auditor may, as the very first procedure, check and ensure that the statements are in
agreement as at the year-end with the books, and the returns as finalised and
authenticated by the branch management can be countersigned by the audit firm
with the remarks “SUBJECT TO AUDIT REPORT”.
In the EDP environment, the auditor should also look into the entries relating to
the day end/month end/year end procedures and provisions/adjustments required
to be made at the branch level, before the branch statements are finalized and the
figures finally crystallized.

The audit staff must record under their signature (on the inverse side of each
statement/detail), the date on which each statement is actually received, in evidence of
the actual delivery of the relevant statement by the Branch.

The date of delivery of each statement (hard copy) to auditors should be countersigned
by the Bank officials notwithstanding that on the face of the statement, the date is
different (usually the year-end date). This will explain the delay, if any, in the preparation
by the Branch of the statements and consequently, completion of the audit exercise.
b) Overview of the financial statements:
It is recommended that a comparison be made of the current year’s figures in the branch
financial statements with the corresponding comparative figures of the earlier year to see
if there are any unusual or large variations that need to be enquired into /verified; and
any unusual significant items, new heads of accounts, or prima facie, any divergent trends
(advances and interest income; and deposits and interest expended) that may need to
be covered in the audit procedures.

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

c) Examination of the daily exception reports, both This is on the presumption


as regards systems and transactions assumes that all the required /
significance and can be a source of critical applicable norms have been
inputs into the reports. built into and updated into
the system.
The exceptions can be the
source information for audit
verification / reporting.
d) Areas deserving special attention:
While examining the financial statements, due importance needs to be given to all heads
of accounts, based on the audit risk attached thereto.
i.i. Advances:
Examination needs to be made, of the borrowers’
accounts to determine their appropriate internal
categorisation as per the applicable prudential
norms. For this purpose, attention needs to be paid
to:
Prudential Norms made applicable by RBI (Master Refer Section E for
Circulars/directions by RBI). important circulars
Selection of accounts for audit coverage: Reference may be made to
Selection of advances accounts must be made to the manner of selection of
give priority to examination of critical / adversely advances (Section C I /
commented accounts and coverage of a Section A Annexure IA),
representative number and quality of the portfolio. which inter alia includes
each large borrower
(where the outstanding
amount is in excess of 5%
of the aggregate advances
of the branch or Rs. 2 crore,
whichever is less), for which
information is
recommended to be
obtained in a structured
format (Refer Section A
III). This will not only cover
the reporting requirements
of the LFAR, but also serve
the purpose of incorporation
in the Main Report, of any
observations that affect
classification/income
recognition and provisioning
in such accounts. In
response to the LFAR
questionnaire, such form
duly completed for each
large borrower (by the
branch and verified by the
auditor), could be annexed
to that report.

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

Advances under Restructuring, rehabilitation,


rephrasing, rescheduling, nursing etc.
Banks can restructure borrowers’ accounts Provisions must be
classified under 'standard', 'sub- standard' and considered for such
'doubtful' categories to provide relief and bear advances where the
sacrifice in case of accounts in distress or those not proposals are pending
capable of being serviced on the terms and disposal as at the year-end.
conditions contractually stipulated. The Auditor is
expected to be familiar with the regulatory
impositions/ guidelines and their faithful compliance
by the bank in this regard, as also exercise
judgment as to the appropriate classification status
emerging from the approved cases and those
pending at the year end. In such cases, provisions
at the bench-marked norms including for the bank’s
sacrifice in present value terms
(DBR.No.BP.BC.27/21.04.048/2015-16 July 2, 2015 -
Discount Rate for Computing Present Value of Future
Cash Flows), would constitute total provision.
Upgradation of bad and doubtful assets in the banks,
contrary to RBI prudential norms, helps banks to
reduce the level of non-performing assets (NPAs),
largely driven by restructuring in accounts, in the
garb of preservation of the economic wealth in case
of units considered viable. If such cosmetic application
is devoid of realities and involves attempts to evergreen
the accounts that are intrinsically weak, the auditor, in
exercise of his prerogative, can ask for an adverse re-
classification of the health status of the borrowal account
warranting appropriate provision.
Computation of Drawing Power:
One of the often debated issues relates to the Refer Section P, as to the
computation of Drawing Power and limits that are to be appropriate method of
adhered to in case of cash credit and overdraft advances computation.
accounts involving primary security by way of stocks and
debtors, (including that computed by other banks as
leaders in consortium, and communicated to the branch
being audited).

ii. Accounts maintained in EDP environment:


The audit staff must be familiar with the systems and procedures adopted by the Bank and
determine the extent to which computerization/mechanization has been made. Updation of the
systems and in parameterisation from the effective dates as may be warranted due to
new/modified impositions, at the instance of the RBI or otherwise, need to be checked. Manual
intervention to System generated statements/information, needs special attention of the
Auditor; and he needs to also incorporate additional procedures, if any, in the Audit
Programme, in areas where manual intervention is made.
iii. Nominal /transitory heads of account
Extensive use of such heads increases the risk of errors and frauds, particularly if there
are long outstanding or large items that remain parked in such accounts. These need to
be examined to ensure that there is no risk of any loss requiring provisions.

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

e) Interest Income/Expenditure: Questions are often asked


The auditor should look into unusual / large debits in on the method of
income accounts, to ensure that these have arisen computation of interest
due to genuine reversals required, including on accretion on FCNR (B)
account of Interest Suspense in NPAs identified deposits. Reference may be
during the year or due to wrong computation of made to Section O.
interest earlier recorded.
Similarly, attention needs to be paid to credits in the
expenditure heads.
f) Additional responsibilities in relation to Refer Section J.
Frauds/fraudulent activity etc. It is appropriate that full
Attention is drawn to sub para 4.2.9.(ii) specific to provision be made by the
provisioning norms in respect of all cases of fraud year-end irrespective of
as per RBI Master Circular on IRAC norms formal reporting to RBI as
(DBR.No.BP.BC.2/21.04.048/ 2015-16 dated July 1 the loss is established.
2015), which requires that the entire amount due
to the bank (irrespective of the quantum of security
held against such assets), or for which the bank is
liable (including in case of deposit accounts), is to
be provided for over a period not exceeding four
quarters commencing with the quarter in which the
fraud has been detected;
However, where there has been delay, beyond the
prescribed period, in reporting the fraud to the
Reserve Bank, the entire provisioning is required to
be made at once. Such cases need full provision till
the year end.
g) Management response to the audit
requirements/Management representations:
The management responses to the queries Illustrative Management
made must be specific and in writing. (SA 580). representation letter to be
Management response / compliance to the audit addressed to the Branch
requirements / information initially sought must be Auditor by the Branch
obtained from the Branch simultaneously with management is given in
receipt of the first set of statements, to enable the Section CC, and should
information / explanations to be examined / tested form part of the Audit
for veracity thereof and considered for the purpose working papers.
of the auditor’s report(s). Circumstances may warrant
additional representations
to be obtained based on
requisitions initially made
and in respect of
information further sought in
the course of audit.
Any general / cryptic reply
from the Branch
Management should not be
acceptable and would not be
a reasonable / adequate
response.

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

If Management representation / Response is In preparing his report, the


not received, a letter should be addressed to the Auditor needs to take a view
Branch Management binding them on the on non receipt of response to
information furnished or representations otherwise the requisitions or any part
thereof, any
made during the audit.
misrepresentations by
management or any reply
contrary to facts, or in case
the Bank proclaims having
given information which is
actually not furnished, or if
given, it is found to be
inappropriate / incorrect. Any
limitations/restrictions on the
duties /responsibilities of the
auditor must also form part of
the Main report and may
warrant a disclaimer.
Lack of/ casual response
from the Branch must also
be reported in the LFAR.
The above-mentioned
procedures/work papers and
work done by the audit staff
needs to be evidenced on
record, as it would also be
required for Peer Review of
the audit firm.
h) Observations/Notes/Comments for the purpose of reporting:
The audit notes/observations/work papers and evidence of work done should be
retained in the audit file, duly indexed and easily accessible for reference; and
preferably in the same sequential order as that of the programme, together with
Management representations. This will enable expeditious completion of the
assignment and furnishing of reports.
4. Reports, based on Notes and observations taken while executing the assignment
a) Main Audit Report : Reference may be made to
Auditor’s main report needs to unambiguous, the reporting requirements
complete and clear in conveying what is expected to for the Main Report (Section
be reported. Information which is factual (and not D) and the recommended
means of information), must be ensured and the text of the Main (Statutory)
concept of materiality kept in view, while Report {Section D.1 and
expressing opinion on the Branch financial D.2 (for Nationalised Banks)
statements/returns under audit. and Section D.3 for Banking
Companies)}, with some
While the Banks may require the branch auditors to illustrative comments /
give their reports in the form and manner stipulated observations / qualifications
in the appointment letter, the reporting requirements in Section D.4. The formats
in compliance of the auditing standards, need to be of reports recommended by
kept in view ; and the auditor may, if circumstances the individual banks must be
so warrant give a modified opinion (qualified in compliance with the
opinion, disclaimer of opinion, adverse opinion) statutory/regulatory
requirements.

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

In the EDP environment, it is imperative that Refer Section C III


the auditor is familiar with, and is satisfied that,
all the accounting and other norms/parameters,
including as per the latest applicable RBI
guidelines, are incorporated and built into the
system that generates information/data having a
bearing on the classification/ provisions and
income recognition. The auditor should not go
by the assumption that the system generated
information is correct and can be relied upon.
There must be credible evidence that
demonstrates that the system driven information
is based on validation of the required
parameters for the time being in force and
applicable. The Branch may generally not be
able to satisfy the auditor as to system
validation that will necessitate a disclaimer on
the same in his report.

Memorandum of Changes (MOC) forming part of the Some banks have resorted
Main Audit Report to the practice of
The financial statements of the branches are drawn uploading the reports of
up virtually the same day at the year end and the the auditors on their
unaudited figures are frozen. Based on the audit central servers and
exercise carried out (generally subsequent to the requiring the digital
year end) as per the Audit Programme, it is only signatures of the partner
through the Memorandum of Changes (MOCs), concerned. Due, either to
that the errors/ omissions are remedied at a the system fault, or the
centralized level to give effect to the accounting incapability of the bank’s
adjustments required but not made at the branch up computer to accept the
to the year-end. The MOCs: reports, if these cannot be
i. will also include changes in the classification uploaded, it is imperative
status of the advances accounts, as that the hard copies are
compared to that determined by the branch sent to the Head Office
management, to enable provisions to be Auditors as also through e
made accordingly at the centralized level of mail.
the bank; and wherever such classification
change involves downgrading of the
advance to NPA, the MOC will also deal
with the necessity of derecognition/ non
recognition of income accrued but not
realized.
ii. will require quantification to the extent
possible and ascertainable;
iii. will need to be given by nature, if not
quantified; and
The No. of the MOCs with quantification and the
No. of the MOCs where quantification is not
possible need to be given, along with the
adjustments/provisions not dealt with at the branch
level, as per the Bank’s laid down instructions.

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

b) Long Form Audit Report (LFAR) Refer Section D.L, D.L.1,


LFAR must not be reckoned as a substitute for D.L.2 and D.L.2.1
the Main Report as this is pursuant to a Regulatory While preparing his report,
requirement, expecting the Auditors to examine the the auditor need not limit or
responses to the questionnaire in a structured restrict his report to the
format and is intended for the Management. structured LFAR
Responses prepared by the Branch Management to questionnaire prescribed by
Long Form Audit Report (LFAR) questionnaire RBI. He should also
should be verified by the Auditor for the purpose of elaborate his qualifications
that report. (contained in the Main
Report) and if he comes
across other matters that
deserve the attention of the
Bank management, he
should incorporate such
matters in his report

c)Tax Audit Report:


Some banks have centralized the Bank’s Tax Audit appointment to one auditor. Where
the branch auditor also is appointed for Tax Audit, the Report is expected to be in line
only with the legal requirements in the form and manner prescribed as per the Income
tax Act, 1961, and requires the auditor to examine information on facts/figures made
available at the Branch; and he also places reliance on certain information made known
to the Branch by the Head Office. The related report on facts and opinion are in a
prescribed form.

d) Other Certificates/ attestation:


In giving other certificates/attestations, the Auditor needs to satisfy himself as to the
factual information and the level of assurance that he can take responsibility for.
Circumstances may warrant a negative assurance in some cases (e.g., as in case of the
attestation in Section L) which is recommended for the compliance of the Ghosh and
Jilani Committee requirements, particularly as many of the items of information are
incapable of verification by the Branch Auditor.

5 Auditors are advised to be familiar with the Refer Section Q for Gold
transactions arising from the Gold Monetisation Monetisation Scheme and
Scheme pursuant to the RBI directive Section R for trade credits
No.DBR.IBD.No.45/23.67.003/2015-16 dated 22-10- for imports into India.
2015 applicable to banks opting for the scheme, as
also in relation to trade credits for imports into
India.

6 Internal Peer Review: Refer Section S.


It is advisable that the Auditors carry out an internal
Peer Review and record the same.

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BANK BRANCH AUDIT (2017-18) - BACKGROUND

7 Conclusion:
The entire assignment of audit/attestation as per the terms of appointment should be
completed simultaneously to enable the auditor to furnish all the reports and certificates.
It is hoped that the recommended Audit Programme and other guidance would assist the
Branch Auditor in the expeditious and satisfactory completion of the assignment and
should also enable the preparation of meaningful and effective reports in the manner
expected.

Acknowledgement:
We wish to place on record our deep gratitude to CA. Ashish Agarwal, CA. Anuj Dhingra,
CA. Himanshu Garg, CA Nitin Jain and Shri Rakesh Sharma for their time and valuable
contribution, in the preparation of the Audit Programme and other guidelines / instructions /
reference material.

CA.M. M. KHANNA & CA. SANJAY VASUDEVA


New Delhi;
February 13, 2018

Bnkaud18.sanjay v & mmk 18


(On the letter head of the firm) A

March __, 2018

The Manager
_____________ Bank
_____________(Branch) URGENT
___________________

Dear Sir,

Sub: Audit of the accounts of your Branch for the year 2017-18 - Audit engagement/ Letter
seeking information/Management Representations:

You have already been informed by your Management, that we have been appointed as the
auditors to audit and report on the accounts of the Branch for the year 2017-18.
We have accepted the appointment, and we confirm that the audit shall be carried out in
accordance with the applicable legal provisions and the regulatory requirements, besides the
applicable authoritative pronouncements of the Institute of Chartered Accountants of India, with the
objective of expressing an opinion on the Branch financial statements. For this purpose we will
perform sufficient tests to obtain reasonable assurance as to whether the information contained in
the accounting records and other source data is reliable and sufficient as the basis of the
preparation of the financial statements; and whether the information is properly presented in the
said statements.

Management’s Responsibility for the Financial Statements:


You are aware that it is the Management’s responsibility for the preparation of the financial
statements including adequate disclosures and making judgments and estimates, that are
reasonable and prudent so as to give a true and fair view of the state of affairs of the Branch at the
end of the financial year and of the financial performance (profit or loss) of the Branch for that
period, in accordance with the statutory and Regulatory requirements for the time being applicable.
The Management’s responsibility includes the maintenance of adequate accounting records the
selection and consistent application of appropriate accounting policies and implementation of
applicable accounting standards along with proper explanation relating to any material departures
from those accounting standards and the design, implementation and maintenance of internal
controls, not only for the safeguard of the assets of the Bank/branch, but that are relevant to the
preparation and fair presentation of the financial statements that are free from material
misstatement, whether due to fraud or error.

Our responsibility is to express an opinion on these financial statements based on our audit. An
audit includes examining, on a test basis, and performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The procedures selected will
depend on our judgement, including the assessment of the risks of material misstatement of the
financial statements. In making those risk assessments, we shall consider the internal control
systems to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Branch internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of the
accounting estimates made by management, as well as evaluating the overall presentation of the
financial statements. We will conduct our audit in accordance with the standards on auditing
generally accepted in India and with the requirements of law. These Standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial
statement presentation. However, having regard to the test nature of an audit, persuasive rather
than conclusive nature of audit evidence together with inherent limitations of any accounting and

Bnkad18.sanjay v & mmk 1


(On the letter head of the firm) A
internal control system, there is an unavoidable risk that even some material misstatements of
financial statements, resulting from fraud, and to a lesser extent error, if either exists, may remain
undetected.
In addition to our report on the financial statements, we expect to provide you with a separate letter
concerning any material weaknesses in accounting and internal control systems which might come
to our notice through the Long Form Audit Report (LFAR), essentially in response to the
questionnaire prescribed by the Reserve Bank of India, or otherwise.

We also wish to invite your attention to the fact that our audit process is subject to `peer review’
under the Chartered Accountants Act, 1949 and the reviewer may examine our working papers
during the course of such review.

We wish to complete some audit procedures even prior to the year-end, depending on your state
of readiness/response.

In view of the severe time constraints imposed, we are confident you will make available to us,
strictly within the dates stipulated, the following Branch returns/statements duly completed, pre-
reviewed and duly authenticated, to enable us to furnish our reports in the form and manner
desired of us by law or by the Reserve Bank of India and not necessarily in the form and manner
prescribed by the Bank:
Statements/returns:
a) the Balance Sheet as at 31.3.2018;
b) the Profit and Loss Account for the year 2017-18;
c) the statements relating to the particulars of Advances as at 31.3.2018; and
d) other supporting returns/statements/annexures (including those covering the LFAR
requirements).

In connection with our assignment, we seek from you the Information/ clarifications as stated in
Annexure `I' to this letter and may seek further information on other matters in the course of
audit. As part of the audit process, we will expect to receive from the Management, written
confirmation of the representations made to us and a written response (para-wise), to our
requirements is imperative, and such response is to be based on your verification of facts
and evidence.

To enable us to monitor the progress of the audit and completion of the assignment, please
indicate/mention, the actual date(s) of completion as well as handing over to us of each
statement/return/ confirmation or other information required to be prepared by you (as per
the contents of the letter of appointment sent to us), by your endorsement of the date on
each such statement/return/confirmation, (duly authenticated).
We await your commitment.

We shall be grateful if you could confirm the name(s) of the Officer(s) designated by the Branch
to comply with our requirements in connection with the audit, so that our reports are expedited.

We shall appreciate your co-operation in the matter.

Thanking you,
Yours faithfully,

CHARTERED ACCOUNTANTS

Bnkad18.sanjay v & mmk 2


(On the letter head of the firm) A
Annexure I to letter dated March __, 2018
INFORMATION /REQUIREMENTS IN CONNECTION WITH THE AUDIT OF ACCOUNTS FOR THE YEAR ENDED
MARCH 31, 2018
1. Latest Reports:
For our scrutiny, the following latest reports on the accounts of your Branch, and compliance
by the Branch on the observations contained therein:
a) Branch Audit Report and Accounts;
b) Long Form Audit Report;
c) Internal Inspection Report;
d) Internal/Concurrent Audit Report(s);
e) Credit Audit Report;
f) RBI Inspection Report, if such inspection took place;
g) Income and Expenditure Control Audit/Revenue Audit Report;
h) Quarterly review report;
i) IS/ IT/Computer/EDP Systems Audit; and
j) any special inspection/investigation report.
If there has been a change of Incumbent during the year in the Branch, our attention may be drawn to
any observations/remarks that may have been made by the Incoming Branch Head, with regard to the
the financials of the Branch that have effect on its state of affairs or working, particularly as regards the
classification status of the advances.
2. Circulars in connection with Accounts/financial statements:
Please confirm that you will have at the Branch, for our ready reference, a list and copy of all the
HO/CO/RBI circulars, including the year-end closing of Accounts Circular(s), relevant to the
accounts for the year 2017-18.

3. Accounting Policies:
Please confirm that you will provide us a copy of the Bank’s Accounting Policies as applicable to the
Branch. If there is a change, since the preceding year, in the said policies, as having an impact on the
Branch statements/returns, we may be duly informed of the same and the financial effect thereof may
be computed to enable us to verify the same.

4. Accounts, if maintained on Computer/ in the EDP environment:


Please confirm:
a. the system followed for maintenance of accounts in relation to the branch, including in particular the
system generated information/data and that on the decentralized basis at the branch. We may also
be informed of the nature of software package(s) currently installed at the Branch to supplement
that as per the centralised system; and whether there are any changes/ modifications in the
package(s) since the preceding year, as regards the systems as well as changes in the system
driven information, brought about by virtue of regulatory/statutory amendments and H.O.
Circulars, including in particular affecting the revenue, due to applicability of revised interest rates
on deposits, advances etc.
The nature, basis and the effective dates of the modifications , may please be confirmed to
us.
b. whether the print-out of books is taken and can be available for our review, simultaneously with the
branch returns/statements.
c. the system laid down for computer and data security, back-ups, off-site storage (including locations
and personnel in charge), contingency and disaster recovery system/plans and adherence thereto at
the Branch; and whether the system ensures periodic testing of data.
Any adverse features observed during the year may be confirmed, along with the remedial
action taken.
d. Whether the computerized system applicable for the branch, has been validated to ensure
that all the requisite /applicable parameters are incorporated therein. This may be evidenced.
e. that you will make available for our examination, the file relating to the daily exception reports on
the “system” as well as “transactions”, and that, arising out of these reports, there is no pending
remedial action/ compliance upto the year end; as also that the statements incorporate
adjustments required based on the month-end/day-end procedures as at the year-end. Any such
report that is pending compliance may be brought to our notice.
Bnkad18.sanjay v & mmk 3
(On the letter head of the firm) A
Annexure I to letter dated March __, 2018 (Contd.)

f. whether, all transactions that required manual intervention to the system generated
information/data have been duly adjusted in the books and incorporated in the financial
statements of the Branch.
5. Deposits (Refer also to the format as per Annexure VI)
a) Overdue/matured Term Deposits:
i) Please confirm whether and the extent to which balances comprising unclaimed /overdue/
matured Term Deposits in various categories, as at the year-end, have been treated and
shown as Term Deposits, particularly where the Branch does not have any instructions/
communication for renewal of such deposits from the account holders; and being in the nature
of Demand Deposits, these are required to be disclosed as such in the Branch returns as at the
year end.
ii) We understand that you have the system for automatic/suo moto renewal of term deposits
on maturity. If there are any such deposits to which the automatic renewal (including those prior
to the cut off date when the scheme was made applicable), please confirm the amount of such
deposits and the basis and amount of interest , if any accrued thereon till the year end,
particularly in case of deceased depositors.
It may be confirmed as to whether the interest is
 Simple/compounded interest since the date of last maturity of the original/initial deposit; or
 based on the rate applicable on the date of each maturity of the deposit, on the presumption
of its renewal;
and whether any excess/short provision relating to the prior periods i.e. up to 31.3.2017 has
been considered in the accounts under review.
The computation of interest may be evidenced for our verification.
The number and amount of such deposits and interest till the year end, may be
confirmed, both for Rupee denominated as well as for such foreign currency deposits
which on maturity are to be denominated in Rupees.
iii) Please confirm that the renewals of deposits are made net of tax deducted at source, at
the rates as applicable.
iv) Please let us have a list of deposits, which have been received/ suo moto renewed, but
where:
- deposit receipts are not physically issued, although book entries have been made as per the
computerized system,
- deposit receipts are physically issued but not dispatched to deposit holders (particularly where
the amounts received in foreign currency are to be covered by Deposit Receipts from another
foreign exchange authorized Link Branch).
- renewals have been made by endorsement of renewal on the existing Deposit Receipts of
the deposit holders, without issuing fresh receipts.
A list of such unissued/ undispatched Deposit Receipts in the physical custody of the
Branch may be given and the Receipts produced for our verification.
v) Please also confirm whether any deposits have been renewed other than in the name(s) of the
original holder e.g. in the case of deceased depositors. In such cases, it may be confirmed to
us as to whether the Branch holds the necessary evidence on record.
vi) Please confirm as to whether Interest accrued but not due and for which provision is made as at
the year end, is shown in the balance sheet as part of:
 Rupee denominated Fixed/Term Deposits(indicate interest accrued and not due, if forming of
the Deposits); or
 FCNR(B) deposits (indicate interest accrued and not due forming part of Deposits); or
 Savings Bank Accounts; or
 Other Liabilities – Interest Accrued (indicate interest accrued but not applied to the individual
Savings Bank accounts);
Further, whether Tax is deducted in respect of the same and duly deposited within time.

Bnkad18.sanjay v & mmk 4


(On the letter head of the firm) A
Annexure I to letter dated March __, 2018 (Contd.)
vii) Please confirm whether the Branch holds any foreign currency denominated (FCNR(B)) deposits ,
whether with fixed maturity or otherwise, which have become inoperative. You are aware that in
terms of Foreign Exchange Management (Crystallization of Inoperative Foreign Currency
Deposits) Regulations, 2014 and vide Notification No. FEMA 10A/2014-RB dated March 21,
2014 , issued under Foreign Exchange Management Act (FEMA), 1999 relating to inoperative
foreign currency deposits, directions had been issued under Sections 10(4) and 11(1) of FEMA;
inoperative deposits having a fixed term and those with no fixed term maturity, after the
expiry of a three month notice upon completion of three years , will get crystallized into
Rupees. Please confirm if any such action was required but not taken in the Branch.
b) Tax Deduction at Source
i) Please confirm the system followed by the Bank with regard to deduction of tax at source on
interest on deposits (including in respect of interest accrued but not due as aforesaid), and
whether in respect of interest (based on credit or payment whichever is earlier), including
in respect of cumulative Deposit Schemes and on renewals of matured deposits, Tax as
required to be deducted at source was so deducted on due dates and deposited within the
prescribed period; Cases of non compliance may be listed for our review and incorporated
in Form 3CD (Tax Audit Reporting Format).
ii) We may be informed if there are any amounts of Tax Deducted at source (either due to a
demand raised by the Tax Authorities, or in respect of provisions, or otherwise), which
remains to be linked to the accounts of the depositors /lenders, and in respect of which
the amounts have not yet been incorporated in the related TDS Returns.
c) Back- ended or other subsidies adjustable against advances
Please confirm whether Deposits include any amounts received under specific schemes. If so, the
amount thereof and interest, if any, paid thereon during the year, may be confirmed; and whether
interest on advances is calculated net of Govt. subsidies, if any, in such schemes, contrary to
RBI applicable norms.
d) Deposits held as margins:
Please confirm whether against issue of guarantees/ LCs, the Branch holds any cash margins by
way of fixed deposits, shown as part of the `Deposits’ portfolio.
If so, the aggregate amount of such deposits may be made known to us.
e) Inoperative Deposit Accounts:
Please confirm the procedure followed at the Branch with regard to identification of Dormant/
Inoperative Accounts and safeguards as to operations therein; and whether the identified
accounts are segregated/ maintained in separate distinct ledgers.
Please let us have information as regards debits, if any, in accounts while the accounts were held as
inoperative or dormant.
f) Gold Monetization Scheme (GMS)
Please confirm if the Bank Branch is designated to hold deposits under the Gold Monetization
Scheme (GMS), in terms of the RBI Master Direction No.DBR.IBD.No.45/23.67.003/2015-16 dated
22-10-2015 and also
Please Confirm whether the Branch:
 is designated to accept, from eligible persons, deposits the principal and interest of which under
the Scheme and Directions is to be denominated in gold.
 as accepted any such deposits {STBD (Short term Bank Deposits)} and recorded them in its
books on due dates; and maintains a record of {MLTGD (Medium and Long term Govt. Deposits)}
 has evidence on record as to the option excised by depositor (at the time of making the STBD
deposit) to redeem either in gold or at Rupee equivalent of the gold value.
 has followed the internal controls with regard to acceptance of deposits, including ‘KYC’ norms.
 has kept in safe custody, and is in possession of the gold accepted till the date of commencement
of interest.
 has appropriately disclosed the value of gold held in its Balance Sheet.
 has imported any gold for redemption of STBD; and whether any such deposits were redeemed
as per Scheme.
 has maintained a memoranda record of MLTGD, including safe custody of gold equivalent of
MLTGD on behalf of the Government.
Bnkad18.sanjay v & mmk 5
(On the letter head of the firm) A

Annexure I to letter dated March __, 2018 (Contd.)

 has sold any gold to MMTC for minting India Gold Coins (IGC), or to jewellers and other banks
participating in Gold Monetisation Scheme (GMS).
 has lent gold under Gold Metal Loan (GML) Scheme to MMTC for minting IGC and to jewellers
 has accounted for the advances to jewellers based on the contractual terms to obtain the value of
the gold on completion of tenure of loan together with interest accretion.

6. Balance(s) with other Banks(including RBI/SBI):


Please let us have balance confirmation certificates and the related reconciliation statements in
evidence of the year end outstanding balances with other banks, if any; also confirming whether
there are any entries arising therefrom as have effect on revenue up to 31.3.2018. For this purpose
you may let us know how the pending items in reconciliation were adjusted after 31.3.2018, and
whether these are considered in the Memorandum of Changes (MOCs).
In case a currency chest is attached to the Branch, whether all deposits into and withdrawals
from the Currency Chest, of currency have been duly communicated on a value date basis to
the linked branch of the Bank, unless the Branch itself maintains the account of Reserve Bank
of India, to effect the necessary adjustments. In the latter case, it may be confirmed whether
the inward currency chest slips from other linked offices are recorded on a value date basis till
the year end, unless covered by MOC.

7. Advances:
a) Please confirm whether the aggregate of the advances as per the Branch Balance Sheet as at
31.3.2018 reconciles with the Particulars of Advances (Portfolio) statement after including /considering:
 interest bearing staff advances;
 credit card dues;
 debit balances in Savings/Current deposit accounts;
 unappropriated credit balances (including in litigation) pending adjustment;
 DICGC/ECGC and other credit guarantee claims received and pending adjustment;
 Interest Suspense or any account of similar nature;
 FITL Accounts and related credit towards provision;
 Subsidies (and interest thereon, to the extent requiring adjustment) ; and
 foreign exchange differences on the above, if decentralized.
A summary of the particulars of Advances as per Annexure II may be provided to us.

Centralised Advances Processing Cells/Centres


In case all or any of the loan procedures (whether in connection with grant or renewal of credit
facilities) are not conducted at the Branch, but are centralized at any Loan Processing Cells/Centers,
(e.g., Retail Assets and Small & Medium Enterprises City Credit Centre, Retail Assets Credit
Processing Centre, Retail Credit Processing Centre, or by whatever name called), involving
appraisal, sanction, execution of documents, disbursements, collection and holding of post dated
cheques etc., and the documents are in the custody and control of the said centralized Cell/ office,
please confirm as to your preview of the compliance of the applicable RBI prudential norms of asset
classification, income recognition and provisioning, in so far as the advances at your Branch are
concerned.

We would like you to satisfy us as to the compliance of the appraisal systems, completeness and
accuracy of the original records/documents in the custody and control of the centralized office,
pursuant to which you are maintaining the borrowal account; and in particular:
i. that confirmation is available from the said Office as to the number and amount of the advances
accounts, and whether these tally with the data in the Branch;

Bnkad18.sanjay v & mmk 6


(On the letter head of the firm) A
Annexure I to letter dated March __, 2018 (Contd.)
ii. that the Sanction Letters issued to you by the said centralized office and held by you for your
compliance at the Branch, are duly authenticated (and not merely computer generated, without
authentication), and that the centralized office has confirmed that these sanction letters
subsequent instructions were issued strictly as per the applicable documentation and sanction
terms with all updated modifications/ changes therein; and that these in any case are in
consonance with the applicable prudential regulatory norms, based on the Guidelines/regulatory
impositions in force.
iii. that the system generated data for the Branch advances is in line with the regulatory built in
parameters, based on facts made available from the centralized office as regards matters other
than operation of the credit facilities and accounts recorded at the Branch.
iv.that the drawing power/limits have been properly computed at the centralized office as conveyed to
you for your ensuring that the account of the borrower is monitored at the Branch accordingly,
without any defaults;
v.that adverse features pointed out by the Internal/concurrent/inspection audit of the centralized
office as regards the appraisal, disbursement, sanction, documentation under their control, have
been considered by you for classification of the account; and further that there are no unbanked
post dated cheques held by the said office affecting the borrowers’ accounts.
vi.that for the purpose of audit, the Branch will provide evidence at the Branch, as to the
documents, security and guarantee aspects etc. to justify the classification of the amount reflected
in the branch books as advances; and information sought, including on all large advances, in the
manner required by us.
The above information is critical to our examination/reporting on advances and may please be
ensured at the Branch.
b) Please let us have a list and particulars of advances accounts corresponding to each category as
per the recommended format in Annexure IA to this letter.
c) In respect of Advances(large borrowers), each with outstandings above 5% of the total Advances
Portfolio of the Branch or Rs. 200 lakhs whichever is lower , the year-end Status Report on
may be given as per Annexure III, III.1 and III.2, which includes information as per the
LFAR.
Where there are adverse comments on any borrowal accounts as to classification, please let
us have reasons/justification for not accepting such adverse comments, or change in
classification.
d) Please confirm whether:
- the borrowers' accounts have been classified by the Branch according to the RBI norms for the
time being applicable, particularly the Non-Performing Assets(NPA) [Sub-Standard, Doubtful
or Loss assets].
In case a computerized package is being used for such classification, whether the Branch can
demonstrate effectively that the applicable latest parameters as per the prudential norms of
RBI,have been duly incorporated in the package.
- the Branch has examined the accounts based on documentation security/guarantee/operations
aspects etc., and except as otherwise required by RBI, determined the status borrower-wise
and not account-wise for categorising the accounts, as above; and in case the loan
processing, appraisals, sanction etc. is done at another centralized/designated office, the branch
has evidence on record that the compliance by it, is in consonance with the authentic
information/data received from such centralized location, as also stated in Para 7(a) above.
- the classification as at the year-end of borrowal accounts under consortium arrangements with
other participating banks, and in cases of multiple banking, has been done on the basis of
operation of the accounts as per your Branch, without the necessity of relying on classification
made by other participating banks; however, confirming to us, the status of the borrower, if
adverse, in case of other lenders.

Bnkad18.sanjay v & mmk 7


(On the letter head of the firm) A
Annexure I to letter dated March __, 2018 (Contd.)
- the Branch has evidence of the existence and realistic realizable value of the security and
that the computation of the Drawing Power (DP) has been correctly made , net of margin applicable
on paid for stocks and eligible debtors. In case of consortium advances, where another bank is the
leader, please confirm whether you have received and verified the DP to be in consonance with the
terms of your sanction. Please review all cases to determine if, and to the extent, the DP is required to be
modified on this account and as may have a bearing on the classification of the of the borrower based on
such computation of limits/drawing power. This may also be evidenced.
- parity in classification is maintained at all branches in respect of the same borrower, particularly where the
branch maintains a “sub limit” out of the borrowings sanctioned at another branch of the Bank.
- Please confirm whether there are at the year-end, any stray / other credits (including wrong
entries/adjustments) in any borrowal account but for which the account would be NPA, particularly if
the said credit(s) are reversed after the year-end.
- Please also confirm whether, while preparing the statements of advances at the year-end, no
upgradation in classification of any advance is made , based on any subsequent favourable events,
including recovery of amounts in default that may have caused the borrowing to be NPA.

e) Valuation/market value of tangible Assets:


Please confirm:
- whether in respect of the advances secured against tangible securities, the bank holds evidence of
existence and realistic realizable market value of the relevant securities as at the year-end.
- whether the existence/market value is evidenced, based on physical inspections or otherwise through
stock audit or other verification procedures applied nearer the balance sheet date; which
evidence may be produced for our examination.
- in case of NPAs, the periodicity of valuation, and the basis on which valuation is arrived at in respect of
advances for the year under audit, particularly in case the security valuation reports/dates are older than one
year.
- in respect of facilities of Rs.5.00 crores and above,
 Whether and in which cases stock audit was required, but was not conducted; and
 Cases in which stock audit was conducted where adverse features noticed have not been
addressed and whether it has any effect on classification of any borrowers; and whether the same
has been duly considered.

f) Besides furnishing us information as per Annexure II, may we request you to provide us with a
list of the:
i) Top 25 NPAs and their status as at 31.3.2017 and 31.3.2018;

ii) NPAs upgraded to Standard classification during the period 1.4.2017 to 31.3.2018, justifying
reasons for the same; also indicating the amount of any unapplied interest in such accounts
(not debited/charged to the borrower);- refer Item 4 of Annexure IA.

iii) Cases and Status of restructured accounts (covered by Part B of the RBI Master Circular
(DBR.No.BP.BC.2/21.04.048/2016-17 dated 1-7-2015) – Refer also Items 5,7,9 & 10 of
Annexures IA and IV, including those where proposals / applications received are pending
in the following categories:
 industrial units.
 industrial units under the Corporate Debt Restructuring (CDR) Mechanism
 Small and Medium Enterprises (SMEs)
 all other advances.
Indicating for each category of restructured accounts:
a. The name of the borrower
b. Classification Status pre structuring (standard', 'sub- standard' or 'doubtful' category)
c. Amount of advance requiring restructuring
d. Date of the proposal/ application
e. Date of disposal
f. Sacrifice sought
g. Sacrifice borne by the Bank
h. FITL/WCTL out of interest in default, if any, and retained for provision
Bnkad18.sanjay v & mmk 8
(On the letter head of the firm) A
Annexure I to letter dated March __, 2018 (Contd.)
i. Classification Status post re-structuring
j. Normal Provision made for classification status on 31-3-2017 and 31-3-2018
k. Provision made for sacrifice on 31-3-2017 and 31-3-2018
l. Accounts downgraded for restructured proposals
m. Accounts upgraded, with justification
n. Whether Provision for sacrifice retained in separate account, with distinction for Standard/NPA
accounts for appropriate disclosure in the balance sheet of the Bank.

iv) Refinancing of Project Loans (refer Item 20 of Annexure IA)


Please confirm if the Branch has any advances involving refinancing of the existing
advances referred to in Para 12 of Part A of the RBI Master Circular on prudential norms relating
to Advances

v) Flexible structuring of long term project loans to Infrastructure and Core Industries

Please confirm whether the Branch has any advances involving Flexible structuring of long term
project loans to Infrastructure and Core Industries, which were given prior to 15th July 2014 and
th
fresh ones considered post 15 July 2014(whether in consortium or multiple banking or those
involving financial institutions). A list and classification status thereof may be given, indicating
whether these were restructured in the past or were fresh proposals covered by Paras 10 and 11
of Part A of the RBI Master Circular dated 1-7-2015 on prudential norms. (Refer Item 21 of
Annexure IA).

vi) Borrowers identified/classified as NPAs during the year and whether, and extent to which,
unrealized income on such accounts is reversed/ derecognized. In case the unrealized income
on such accounts has been reversed by giving credit to the accounts of the borrowers, the
amounts so reversed may be made known to us. (Refer Item 23 in Annexure IA).

vii) Post-restructuring classification:


Please confirm as to whether bank guarantees and State and Central Government Guarantees
(otherwise intangible by nature) and which were, for the limited purpose of restructuring, treated at
par with “tangible security”, have not been so considered in the post restructuring classification.
viii) Accounts where there was rehabilitation/ reschedulement/ restructuring/ rephasement indicating in
each case, the number of times the same has been done, and accounts in which the Bank
needs to exercise its right to recompense, indicating the amount at the year end, also giving
reasons for non-recovery thereof;
{The aggregate of such amounts due (party-wise), and the dates on which recoupment is to
be made, may please be made known}.
ix) Cases covered in Part B of the RBI Master Circular (DBR.No.BP.BC. 2 /21.04.048/2016-17 dated
1-7-2015), where pursuant to restructuring, part of the principal and/or interest unrealized and/or
in default was converted to investments by the Bank, including where borrowers were granted
funded interest term loan facilities, and a confirmation as to whether the prudential norms have
been followed for provisioning and income recognition. (It may also be confirmed that during the
pendency of the application for restructuring of the advances, the usual asset classification norms
have been made applicable).
x) List of Borrowers, treated as Standard, where one time settlement was sanctioned, but there is a
default in repayment or in compliance of the terms thereof;
xi) Particulars of Advances where there is divergence of opinion between the Branch Management and
the RBI/Inspection/ Internal/Concurrent audit Reports etc., indicating as to how this has been
addressed by the Branch.
xii) The aggregate of the amounts of advances in the standard category which have the status of
“critical amount due”; and whether any amounts comprised therein are over 90 days in default as at
31.3.2018.
A list of such accounts may be made available and quantified, for our review.

Bnkad18.sanjay v & mmk 9


(On the letter head of the firm) A
Annexure I to letter dated March __, 2018 (Contd.)
xiii) Borrowal accounts (in standard category), which have not been reviewed/ renewed for 180
days since the due date of their last renewal, or where there is a default on the part of the
borrower in submission of stock statements, for a period of 90 days beyond any period
of default/irregularity, including that commencing prior to 31.3.2017; and if so, whether
such borrowers are classified as NPAs.
Particulars of accounts overdue for review/renewal between 6 months and 1 year, and those
over 1 year may be provided.
xiv) accounts which do not fall within the definition of advances, such as interest free employee
advances, but have been shown as such in the accounts of the Branch may be listed for our
review.
xv) advances accounts which have been identified as of the nature of NPAs, and where, pending
formal sanction of the higher authorities, the relevant amounts have yet to be
reclassified/recategorised for the purpose of provision/write off. This covers all accounts
identified by the Bank or internal/external auditors or by RBI inspectors but the amount has
not been written off wholly or partly.
xvi) accounts in which the Bank, or the Branch has itself recommended legal or other coercive action
for recovery of dues and, where no such action has been taken up to the year -end against the
borrowers. A list of such borrowers' accounts may be furnished to us, particularly if such accounts
are in standard or sub standard category.
xvii) borrowal accounts in the “Standard” or “Sub Standard” category which are the subject
matter of reference to BIFR/ DRT or in litigation, justifying their classification.
xviii) Advances to borrowers on the list of willful defaulters (as per the latest list and guidelines of the
RBI).
xix) all accounts where the default resulted in WCTL, FITL, WCDL etc. and whether the
advances would be NPAs but for such facilities.

g) Upgradation of classification:
Please let us have a list of borrowers' accounts (including projects under implementation and
restructured accounts), where classification previously made, has been changed to a better
classification, stating reasons for the same; and whether provision (including for the Interest sacrifice, if
made), on the borrowal accounts, is sought to be reversed contrary to RBI’s master circular.
Please confirm whether Advances comprising Funded Interest, if already recognized as income,
is fully provided for and not reckoned as income till realization/ redemption of securities. This
would also apply to funded interest where the same is converted into securities (equity,
debentures or other instruments), if held at the branch.

h) Devolved Letters of Credit(LCs)/ co-acceptances, and guarantees:


Please confirm:
- the precise procedure followed for accounting treatment of devolved obligations
(guarantees/LCs); and whether the debits have been raised in separate distinct accounts of the
borrowers or to the normal cash credit/overdraft accounts of the borrowers; and whether
these are aggregated for classification of the borrower/account
- whether and the extent to which there are any devolved LCs upto the year-end, which are
pending payment.
For Information on guarantees invoked, and outstanding LCs/ co- acceptances.
Refer format in Para 5(e) of Part 1 of the LFAR questionnaire.
i) Please confirm:
i. In case of one time settlement proposals under consideration or where rehabilitation/
rephasement is being done, whether the amount of sacrifice including anticipated sacrifice
is provided fully.
ii. Particulars of accounts where the borrowers have defaulted in their commitments after sanction of
the compromise proposal, indicating classification of the amounts, may be made available.
iii. Whether the Bank has a recovery policy in cases of compromise/ settlement/write off and is the
policy available at the Branch.
iv. Particulars of cases of compromise/settlement/write off involving write off/ waiver, each
in excess of Rs. 25 lacs, may please be furnished.
Bnkad18.sanjay v & mmk 10
(On the letter head of the firm) A
Annexure I to letter dated March __, 2018 (Contd.)
v. The name and amount outstanding in the case of the borrowers each having working capital limits
of Rs.10.00 lacs and above, as also those subject to compulsory audit under any statute, where
the latest audited accounts are not on record.
vi. Compliance by the Branch of the RBI Master Circular No. DBOD.No.Dir.BC.10/13.03.00/2016-17
dated 1-7-2015, relating to statutory and other restrictions as regards Loans and Advances. In
particular it may be confirmed as to whether, at the Branch:
- there are any loans and advances against security of the Bank’s own shares.
- there is any laid down procedure as regards identification of directors/ officers and their
relatives and of directors of other banks for purposes of sanction of loans to them or to
concerns in which directors are interested, as per the said circular.
- loans have been given to companies for buy back of their shares/securities.
j) Advances to share brokers/NBFCs:
Please confirm whether at the Branch, there are advances to:
- share brokers; if so, the total amount of limits granted and the aggregate advance due as at the
year-end.
- NBFCs; if so please confirm whether the RBI has taken any adverse view as regards their
registration or otherwise. The status on advances to NBFCs may please be made known, along
with their classification.
k) Advances to Staff -Please confirm:
- the procedure with regard to Advances to Staff (interest/non-interest bearing), by the Bank, both in
its capacity as a banker and as an employer; also whether such interest-bearing advances are
being disclosed as Advances.
- the verification procedures followed in respect of Staff Housing Loans, and in particular, whether
the original documents are held at the Branch and can be produced for our examination.
- Are there any cases in default of collection of the principal/interest, where due and recoverable
l) Credit Cards :
Please confirm the system followed at the Bank/Branch for recovery of credit card dues; and
whether, and the extent to which, there are debit outstandings on account of Credit card dues,
have been treated as Advances, and not ‘Other assets’
m) Stressed Assets:
Please let us have the list of borrowers who are falling under the Schemes for Sustainable Structuring /
Stressed Assets and let us have information in the formats given as per Annexure V.
n) Please let us know whether there are any borrower accounts comprising MSME accounts as also large borrower
accounts as stipulated respectively in Circular No. FIDD.MSME & NFS.12/06.02.31/2017-18 dated 24-7-2017
and DBR.No.BP.BC.101/21.04.048/2017-18 dated 12.2.2018 of the RBI with regard to which you have applied
appropriately the IRAC Norms.Please confirm whether this is in accordance with the Board approved Policies.
Special attention may be paid to large restructured accounts requiring reporting as to their credit information and
classification (SMA-0, SMA-1, SMA-2) ; and further accounts that require reconsideration as to the IRAC norms,
if covered by RBI DBR.No.BP.BC.101/21.04.048/2017-18 dated 12.2.2018 circular.

8. Outstandings in Suspense/Sundries:
Please let us have a summary of the year-wise break up of amounts:
- debited to Suspense Account (or similar account) indicating, as at the year end, the number of
entries and the amount thereof, with reasons for non-adjustment of old/large/ unusual entries.
The amount of provision for doubtful amounts may be confirmed.
- credited to Sundries/Sundry Deposit Accounts, indicating the reasons for non- adjustment of
items included therein, particularly in respect of items which are over 3 years old.
(Information may please be provided in the formats as per the LFAR).
- Please confirm the amount at debit on account of TDS paid and outstanding, not linked to
any party.

9. Provisions/Liabilities remaining unadjusted against corresponding advances:


Please confirm whether provisions for known liabilities, up to the year end have been made (also,
based on subsequent entries made); and if, and the extent to which, any provisions are required
towards advances of expenditure nature (e.g. Travel Advance).
Bnkad18.sanjay v & mmk 11
(On the letter head of the firm) A
Annexure I to letter dated March __, 2018 (Contd.)
10. Inter-branch/Office Accounts/Head Office Account:
a) Please let us have a statement of entries (head-wise) which originated prior to the year-end at
other branches, but were responded after the year-end at the Branch, upto the cut off date, if
given by Head Office; otherwise, upto the date of the audit. (Refer Format at Annexure VII ).

b) Date-wise details of debits in various nominal or other sub-heads relating to Inter-branch


transactions, with reasons, particularly for old/ large outstanding amounts, including those
which are pending for over 30 days as at the Balance Sheet date.

c) Please confirm:
- whether there are any temporary debits pertaining to any advance /borrower’s account wrongly
recorded in Inter branch /Head Office account , that have been reversed after the year end.
- whether the Branch has effectively complied with the centralised Reconciliation Cell, all their
queries in relation to unmatched entries.
Communications pending action, and having effect on the accounts for the year, may be
made available for our review.
- the number of old unadjusted entries and the aggregate amount as at the year-end comprising
unlinked debits retained at the Branch, in respect of Drafts and TTs, MTs paid, which remain
outstanding at the Branch; and whether, and the extent to which, provision is being
considered for the same.

- the period up to which the Reconciliation Cell has sent the statements of unmatched entries
(head-wise).
11. Foreign Currency outstanding transactions:
If the Branch is carrying balances (including in off-balance sheet items) in foreign currencies as at the
year-end, whether , and the basis on which, these have been converted as at the year-end, may be
made known.

Evidence/basis of the rates as applied may be made available.


12. Contingent Liabilities etc.:
Please confirm whether:
- there are any demands/claims (whether statutory, regulatory, contractual or otherwise) on account
of litigation, arbitration or other disputes having financial implications, including claims from
customers, fraud cases, for staff claims, municipal taxes, local levies etc. The nature and
extent of such contingent liabilities, if not considered in the Branch financial statements, may
be communicated.
(Reference may also be made to the LFAR - Para II.3).
- guarantees are being disclosed in the Branch Balance Sheet, net of cash margins and term
deposits; and whether, and the extent to which, expired letters of credit, and guarantees
where the claim period has also expired, and obligations have ceased, these continue to be
disclosed in the Branch returns.
The amount of such expired obligations may be made known.
- other obligations assumed, e.g., Letters of comfort have been disclosed in the Branch returns;
and that, based on the related documentation, these do not comprise funded liabilities by or
on behalf of the bank (by way of Buyers’ Credit etc.).
- there are any outstanding contracts on capital account (including for fixed assets to be acquired/
constructed). Details thereof may be given.
- there are any awards in arbitration/litigation or disputes involving any liability (including based on
any awards by the Banking Ombudsman).

Bnkad18.sanjay v & mmk 12


(On the letter head of the firm) A
Annexure I to letter dated March __, 2018 (Contd.)
13.Interest Income/Expenditure:
a) Please let us have a statement showing the rates of interest applicable during the year on
various categories of
- Advances Accounts
- Deposits Accounts
giving reference of the relevant circulars of the Head Office, and indicating the effective dates
and periodicity of application of the interest rates; and evidencing that the computer programme
was modified from such effective date(s), for any changes during the year.
b) Please confirm whether the rates and changes therein for advances, are based on the Credit
rating, as and where applicable and reflected in the accounts/ documentation.
c) Please confirm whether interest being debited at the end of each month on advances, is being
compounded for levy of further interest on a monthly basis.
d) System of appropriation of recoveries in NPAs:
Please confirm the basis on which the Bank exercises the right of appropriation of recoveries in
NPA Accounts, where there are no instructions by the borrowers; and in such cases, whether the
appropriation is made with priority given to “principal” rather than to unrealized charges, and
interest.
Please confirm whether there are upgraded restructured/rehabilitated advances accounts,
where the “right of recompense” of sacrifice borne by the Bank was a precondition, but
the same was not exercised at the time of upgradation of the borrower.
If so, details thereof may please be given to us.
e) As regards advances (including bills), whether any income has been adjusted/recorded to
revenue, contrary to the norms of income recognition issued by the Reserve Bank of India
and/or Head Office circulars issued in this regard; and particularly, in Non Performing
Accounts (including overdue bills) , if the same has been recorded except on actual
realisation from the borrowers, and not out of fresh limits sanctioned by the Bank.
f) Interest income, if recognized on certain advances:
Please confirm whether and the extent to which, you have recognized any interest as income on
the following types of advances:
 On any additional finance under an approved restructuring package treated as 'standard
asset', up to a period of one year where the pre-restructuring facilities were classified as 'sub-
standard' and 'doubtful', or in cases where the restructured asset does not qualify for
upgradation at the end of the specified period (where the additional finance is to be placed in
the same asset classification/ category as the restructured debt as NPA).
 On Central Govt. guaranteed advance, if NPA, but for reasons that the guarantee is not invoked
or repudiated requiring the account to be treated as and retained in, Standard category.
 In cases of restructured accounts, where the income recognized earlier, was, to the extent
unrealized and converted to FITL and fully provided for, is reversed or treated as standard for
further accretion of income.
 in case documents under LC are not accepted on presentation or payment under the LC is not
made on the due date by the LC issuing bank for any reason and the borrower does not
immediately make good the amount disbursed as a result of discounting of concerned bills,
whether the outstanding bills discounted continue to be classified as Standard and treated as
‘performing’.
 the reversal of interest income (i.e derecognised income), is recorded through "Interest
Suspense" or similar account. It may be confirmed whether, and the extent to which,
Interest Suspense or other similar account comprising Interest applied upto the date of
the account becoming NPA, has been reversed and credited to the account of the
borrower during the year. If so, please let us know the amount attributable to the
current year and that pertaining to the year ended 31-3-2017.
 in respect of accounts identified as NPAs during the year, amounts contractually due but
remaining unrealized as interest , fees, commission and other charges are reversed for all
earlier periods; and the unapplied interest has been computed and recorded upto date.
Amount of income accrued, if any, as at 31.3.2018 on NPAs may be made known.

Bnkad18.sanjay v & mmk 13


(On the letter head of the firm) A
Annexure I to letter dated March __, 2018 (Contd.)
g) Please confirm whether interest adjustments on inter branch balances (as per the Transfer Price
Mechanism) as communicated by Head Office, have been duly recorded in the Profit & Loss
Account of the Branch.
Relevant evidence thereof may please be made available to us.

14. Commission on Govt. business


Please confirm whether at the Branch, income is being accounted on cash or on accrual basis.
Income accrued upto 31.3.2018 but not claimed/ recorded/ received may please be confirmed to us,
together with computation thereof.

15. Interest Provision:


Please confirm whether interest provision has been made upto the year end, on Term and Savings
Bank account deposits, on eligible Current Accounts and unclaimed/unpaid deposit accounts of
deceased depositors, in accordance with the applicable contractual rates and latest instructions
of the Head Office; and the amount may be confirmed in respect of the following:
 interest accrued till the date of maturity on FCNR(B) deposits, is included in Deposits.
 Interest accrued but not applied on Savings bank deposits, is treated as part of “Other Liabilities –
Interest Accrued”

Correspondingly, if considered as due, whether Tax deduction at source has been made and
deposited within the prescribed time with the Govt.

16. Employee/Staff Payments and benefits


Please confirm that all payments and staff benefits due to the Branch employees upto the year end,
have been duly computed and recorded under the respective sub heads, including incremental
liability towards arrears, if any.

17. Rent, Rates and Taxes


Please confirm that the rents (payable as tenant, and not as reimbursement to staff towards their rent
obligations), rates and taxes are recorded up to the year end, based on:
- rent/lease agreements for the time being in force and liability has been considered on the basis
of claims/demands and contractual enhancements due;
- municipal taxes and levies are adjusted/provided up to the year-end, based on the demands
accepted; and
- in case of disputed liabilities, if any, the related contingent liability has been disclosed.
18. Penalties/fines etc:
Please confirm whether any fines or penalties have been imposed on the Branch, or incurred or paid
by the Branch during the year as arising out of any defaults to meet statutory or regulatory
requirements or otherwise. If so, the particulars thereof may be made known; as these would require
separate disclosure in the financial statements of the Bank and for consideration in the Tax Audit
Report under Section 44 AB of the Income tax Act 1961 (Form 3 CD).

19. Frauds etc.:


Please confirm whether for the purpose of provisioning, the relevant particulars have been
prepared at the Branch and whether :
- there are any frauds reported/recorded upto 31.3.2018;
- there are any known cases or transactions or events, or any enquiries have been initiated for any
suspected frauds/aberrations.
- there are any cases of vigilance or similar enquiry, or financial claims/potential claims that may
arise, from customers/others in respect of the Branch. The relevant records of these may please
be made available.
- the Branch has complied with the reporting requirements of RBI and communicated the same
as per the requisite formats, including where central investigating agencies have initiated criminal
proceedings or where the RBI had directed that a matter be treated as fraud.

Bnkad18.sanjay v & mmk 14


(On the letter head of the firm) A
Annexure I to letter dated March __, 2018 (Contd.)
20. Recommendations of the Mitra Committee – Bank Frauds
While drawing you attention to the contents of the SA 240 -The Auditor’s Responsibility to Consider
Fraud and Error in an Audit of Financial Statements, issued by the Institute of Chartered Accountants
of India, particularly in that the responsibility for the prevention and detection of fraud and error rests
with the management through the implementation and continued operation of an adequate system of
internal control, we would request you to confirm whether, in relation to the operations/activities of the
Branch, anything has come to light which is in the nature of a fraud, any fraudulent activity, or any
matter susceptible to fraud or foul play, which should receive our attention; and particularly, if there is
anything which invokes, or is the subject matter of any vigilance, enquiry, investigation or
examination as regards any transaction or event that is suggestive of attracting compliance or for
reporting to the competent authorities within the Bank, or to the regulatory authorities.
This would include matters that could arise out of inadequacies in, or absence/breach of the
laid down, internal control systems and procedures (both accounting and administrative).
Your attention is drawn to the RBI relevant Master Circulars Nos. DBR.No.BP.BC.92/21.04.048/2015-
16 April 18, 2016 , DBS.CO.CFMC.BC.No.1/23.04.001/2016-17 dated July 01, 2016, relating to
Frauds – Classification and Reporting; as also Para 4.2.9(ii) of the RBI Master Circular dated 1-
7-2015 covering prudential norms applicable to Advances.

21.Asset Liability Management:


Please let us have, duly authenticated, the financial information regarding the disclosures to be made
as at 31.3.2018, as required by the Reserve Bank of India, indicating the procedure/basis followed to
arrive at the financial data.
Instructions from the Controlling Authority, in this behalf, may be made known.

22.Long Form Audit Report-Branch response to the Questionnaire:


In connection with the Long Form Audit Report, please let us have complete information, and
evidence, as regards each item in the questionnaire, to enable us to verify the same for the
purpose of our audit.
Reference may also be made to the important items as per Annexure VIII.

23.Tax Audit in terms of section 44AB of the Income-Tax Act,1961:


Please let us have the information required for Tax Audit under section 44AB of the Income-tax Act,
1961 to enable us to verify the same for the purpose of our report thereon.

24.Compliance of Ghosh and Jilani Committee recommendations


Please confirm whether the Branch has duly complied with the requirements of the Ghosh and Jilani
Committees and whether such compliance has been got verified from the Bank’s Inspection Division
and/or the Concurrent Auditors.
It may be confirmed as to whether there are any adverse observations in respect of any requirements
that may also have bearing on the financial statements of the Branch; and if so, these may please be
made known to us.

25.Consideration of laws and regulations for the purpose of the audit of financial statements:
Please confirm as to whether the Branch is maintaining a codified list of the related laws and
regulations applicable to the Bank in respect of its operations/activities to cover all transactions and
events, with which it is concerned; and whether the Branch management has come across, or is aware
of anything that needs to be brought to our notice for our consideration or anything suggesting that
there is fundamental effect on the state of affairs or operations of the Branch on account of non-
compliance of these.

Bnkad18.sanjay v & mmk 15


(On the letter head of the firm) A
Annexure I to letter dated March __, 2018 (Contd.)
26. Other Certification
Please let us have, duly authenticated, information as regards other matters which, as per
the letter of appointment, require certification/validation.
The certificates relate to the following (besides the data as per the letter of appointment to us):
a) DICGC
b) PMRY
c) 12 odd dates data for verification of SLR (Refer Annexure A IX)
d) Implementation of the Ghosh and Jilani Committee recommendations
e) Movement Chart of NPAs and Provision of NPAs (Refer Annexure A II)
f) Information relating to restructuring etc. undertaken during the year
g) Others (as communicated to you by Head Office)

27. Transactions and events after the Balance sheet date


Please let us have a statement of any significant transactions or events occurring after the Balance
sheet date but which relate to the period prior to 31-3-2018, whether or not yet recognized or
recorded in the accounts of the Branch. This would include items of income or expense or
capitalization etc. relating to the period prior to the year end. (particularly also, if these are reported
in the inspection/internal/concurrent audit reports relating up to March 2018), which need to be
incorporated in the MOC. This may kindly be communicated to us.

28. Investments:
In case the Branch holds any investments on behalf of the Bank:
a) these may be produced for physical verification and/or evidence of holding the same be
made available.
b) stock of unused security paper stationery/numbered forms like B/Rs, SGL Forms etc. may
please be produced for physical verification.
c) it may be confirmed whether income accrued/collected has been accounted as per the laid
down procedure, and is not reckoned as income of the Branch .
The procedure may please be confirmed to us.
29. Demonetisation:

Please let us know:


- Whether the Branch had any dealing in the demonetised currency during the year.
- Whether the Branch has any demonetised currency in hand.
- Whether in respect of any Branch transactions related to demonetisation, there are any queries /
issues / matters pending compliance as arising from any internal / external inspection, concurrent
audit, RBI, vigilance etc.
and whether the same has any effect on the Branch financials.

Information duly completed in respect of Paras 1 to 29 should be made available


simultaneously with the returns/ statements/ schedules, as committed by the Head
Office to be given by the Branch on 1.4.2018.

We may seek further information on matters as these arise in the course of the audit, including
on verification of information/representations made by you and would request you to respond
to the same expeditiously, considering the severe time constraints on us to complete the
assignment and furnish our report.

CHARTERED ACCOUNTANTS

Bnkad18.sanjay v & mmk 16


(on the letter head of the firm) A
Annexure IA {refer also Para 7 (b)(c ) } Re: Request for list and particulars of advances falling in the following categories (in the format as under)
Category of advances Names of the Borrowers in each category Outstanding as at the Classification as per
year end (Rs.) RBI prudential norms
1. All Large accounts (as defined- Rs. 2.00 crores or 5% of the
Portfolio, whichever is less) -per Annexure III
2. All accounts reported as Special Mention Accounts in SMA –
2 (accounts considered critical).Such accounts with unusual
credits towards year end particularly if these are reversed
after the year end, need special attention.
3. Cases under consideration of Joint Lenders Forum (JLF).
4. NPA accounts upgraded to Standard during the year
5. Advances where Restructuring Proposals/ requests are
pending approval/disposal at year end.
6. Cases where one time settlement (OTS) has been sought.
7. Accounts Restructured in the earlier years to determine their
year-end status, if in default or not classified as per RBI
norms.
8. Accounts in which OTS was accepted but there is default in
compliance.
9. Accounts Restructured during the year to determine their
year-end classification.
10. Restructured advances with moratorium of Interest
where interest is accrued contrary to RBI applicable norms
11. FITL cases arising out of Restructuring where
corresponding provisions are held in “Sundry Liabilities
Account (Interest Capitalization)”.
12. Advances accounts where there is an initiation of
proceedings involving Investigation, vigilance, enquiry and
those where fraud is reported.
13. Staff Advances – where the persons have ceased to be
employees of the Bank; and accounts in default.
14. BIFR cases classified as Standard.
15. SSI/SME cases under rehabilitation as at the year end
16. Standard advances in litigation
17. Central Government guaranteed cases which are non-
performing.
18. Standard accounts where there is Interest Suspense/
Unapplied Interest.
Bnkad18.sanjay v & mmk 17
(on the letter head of the firm) A
Annexure IA (refer Para 7 (c ) Re: Request for list and particulars of advances falling in the following categories (in the format as under)..Contd
Category of advances Names of the Borrowers in each category Outstanding as at the Classification as per
year end (Rs.) RBI prudential norms
19. Advances in the list of willful defaulters of the RBI.
20. Advances subject to re-financing.
21. Cases of Flexible Structuring of Long Term Project Loans to
Infrastructure and Core Industries – Loans sanctioned after
July 15, 2015.
22. Cases of Flexible Structuring of Long Term Project Loans to
Infrastructure and Core Industries - Loans sanctioned before
July 15, 2015.
23. Fresh NPAs identified by the Branch.
24. NPA cases where the assessed realizable value of the
securities has a significant shortfall – 50% or more.
25. NPA cases where the realizable value of the security as
assessed by the Bank/approved valuers /RBI is less than
10% of the outstanding.
26. Standard Accounts with temporary deficiencies per Para
4.2.4 of Master Circular on Advances.
27. Quick Mortality Cases
28. Advances comprising frauds detected (Para 4.2.9.(ii) of the
IRAC Master Circular dated 1.7.2015)
29. MSME Borrowers registered under the GST Regime having
an exposure in aggregate (including non-fund based) up to
Rs. 25 Crore.
30. Other Accounts , not covered above, with adverse
comments in the existing/latest Reports (as per Para 1
above)
In case there are no borrowers in any category, please state “NIL”

Bnkad18.sanjay v & mmk 18


A
Annexure II -Information on Advances (Amt- Rs. In ‘000)
A. CLASSIFICATION OF ADVANCES AS COMPARED TO THE PREVIOUS YEAR-END
Particulars As at 31.3.2018 As at 31.3.2017 Increase/ Remarks
(Decrease)
No Amt (Rs) No. Amt.(Rs.) Amt (Rs.)
A.1. STANDARD
- SME/Direct
Agriculture
- CRE
- Teaser Loans
- Others
A.2. STANDARD
- In SMA -2 Category
Total (A) (A.1+A,2)
B.SUB-STANDARD

C.DOUBTFUL

D.LOSS

E. FRAUD CASES
F.. Total(B+C+D+E)
TOTAL (A+F)

B. FUNDED INTEREST TERM LOANS (FITL) / WORKING CAPITAL TERM LOANS (WCTL)
Particulars As at 31-3-2018 As at 31-3-2017
No. of Accounts Amount (Rs.) No. of Accounts Amount (Rs.)
Total exposure –FITL
Total exposure –WCTL
Provision held
C.PARTICULARS OF AND MOVEMENT IN NPAs AND PROVISIONS
Gross NPA (Rs.) Net NPA Remarks
(Rs.)
As at the beginning of the year
Additions during the year
Less :Deductions
a) Upgradations
b) Recoveries (excluding recoveries from upgraded accounts)

c) Technical/Prudential Write-offs
d) Write-offs other than those under (c) above
(also refer Appendix Part C-2 of Master Circular No .
DBR.No.BP.BC.2/21.04.048/2015-16 dated 1-7-2015)
Balance at the year-end
========= =======
D. Interest etc. (ACCRUED BUT NOT EARNED) on NPAs
Particulars 31.3.2018 31.3.2017
No. of Accounts Amount (Rs.) No. of Accounts Amount (Rs.)
A. Interest
Interest Suspense or other
similar accounts
Unapplied Interest
(Memorandum Interest)
Total (A)

B. Right of Recompense
(in restructured accounts
upgraded to ‘Standard’)
TOTAL (A+B)

Bnkad18.sanjay v & mmk 19


A
______________BANK: ZONE :___________ BRANCH :__________________
ANNEXURE–III. OBSERVATIONS/STATUS REVIEW ON MAJOR ADVANCES ACCOUNTS FOR THE YEAR ENDED 31.3.2018
(Each column needs to be filled in completely and adequately; and in case space is inadequate use inverse side) 1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1. BORROWER:
a) Name of the Borrower : :Group
b) Address :
c) Constitution : Company :Partnership :Sole Prop :Other(specify)_____________________________________
d) Nature of Business :
e) Other Units in the same group :
f) - Name(s) of proprietor/partners/Directors :
- Name of Chief Executive, if any :
g) Whether Borrower or constituents thereof are : No Yes : If Yes, give details:
on the list of willful defaulters of RBI
h) Credit Facilities: : Fund Based(Rs.) Non Fund Based (Rs.)
Nature of facilities and limits (Rs.in lakhs) Term Loans CC/OD Bills Others Total LCs Guarantees Total

Date of Sanction and authority


Due date of renewal, and authority : Actual date of renewal
Particulars of latest balance confirmation
Total exposure of the Branch Borrower (Rs.) Group (Rs.)
(Rs.in Lakhs)
i) Whether project under Implementation : No Yes : Since Category as per RBI master circular I II III
j) Give details, if the account has been subject to: : Sacrifice:* Yes No
-Rehabilitation /Restructuring( including as per BIFR) : Amount : Rs.
-Rephasement of terms Right of recompense:* Yes No
Amount : Rs.

*Basis to be enclosed

Bnkad18.sanjay v & mmk 20


A
______________BANK: ZONE :___________ BRANCH :__________________
ANNEXURE–III. OBSERVATIONS/STATUS REVIEW ON MAJOR ADVANCES ACCOUNTS FOR THE YEAR ENDED 31.3.2018
2
1.BORROWER:
k) Review of Facilities : Due Date : Actual Date Regular Review Yes No :Short Review Yes No
l) Credit Rating applicable during the review period : :Previous Period:
m) General level of compliance by borrower : Satisfactory :Unsatisfactory :Remarks:
2. NATURE OF ADVANCE/ FACILITIES:
In case of Consortium/ Multiple facilities, the following information is confirmed:
A CONSORTIUM: Name of the Bank % Bank’s Share(Rs.in Lakhs)
Participating Banks and their shares Term Loans Cash Credits/ Bills facilities Non Fund
i) Lead Bank (Rs) overdrafts(Rs) (Rs) Based(Rs)

ii) Other Banks(Specify):

B MULTIPLE BANKING:
Particulars of Other Banks @
(evidence thereof to be enclosed)

Note: @ Diligence Report/certificates to be received in terms of RBI Circular DBOD.No. BP.BC.110/08.12.001/2008-09 dated 10-2-2009 must be sought and be examined to ensure
that there are no adverse observations/comments by the person certifying these. The LFAR must contain the names of the companies in respect of which certification has not been
obtained from a C.A./Co. Secretary/Cost Accountant.

Bnkad18.sanjay v & mmk 21


A
______________BANK: ZONE :___________ BRANCH :__________________
ANNEXURE–III. OBSERVATIONS/STATUS REVIEW ON MAJOR ADVANCES ACCOUNTS FOR THE YEAR ENDED 31.3.2018
3.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3. SANCTION (Terms and Conditions)
Security (Rs.in lakhs)
Primary *Value (Rs.) Margin (Rs.) Net Collateral Valuation Value (Rs.)
Value(Rs.) date
a) Stocks/Inventories
(*net of unpaid for stocks)

b) Book Debts
(*Eligible Debts)

c) Others (Specify)

Total Total
(Value and Margins as per working on the inverse side)

b) Other major Terms and conditions:


i)

ii)

iii)

iv)

v)

vi)

vii)

c) Guarantor(s) Central Govt. : *State Govt. : Banks :Financial Institutions :Others


*whether invoked Yes / No

Bnkad18.sanjay v & mmk 22


A
______________BANK: ZONE :___________ BRANCH :__________________
ANNEXURE–III. OBSERVATIONS/STATUS REVIEW ON MAJOR ADVANCES ACCOUNTS FOR THE YEAR ENDED 31.3.2018
4.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
a)Documents Obtained:(Tick as appropriate) Yes No
DPN
Letter of Hypothecation
Mortgage Deed [Equitable/Registered]
Agreement for loan
Letter of Guarantee
Legal Opinion
Non Encumbrance Certificate
Registration of Charge (in case of Company) or evidence thereof
Others (Specify)

b) Documents required but pending completion (Specify with reasons):

c) Furnishing of copy of the Loan Agreement(s) to the Borrower (Refer RBI Circular DBR.No.Dir.BC.10/13.03.00/2015-16 dated 1.7.2015):
Date(s) of Sanction of the Loan(s) ______________________________________________________________________________________
Date(s) of disbursement of the Loan(s) ______________________________________________________________________________________
Date of furnishing of the copy(ies) of the Loan Agreement to the Borrower ______________.

Bnkad18.sanjay v & mmk 23


A
______________BANK: ZONE :___________ BRANCH :__________________
ANNEXURE–III. OBSERVATIONS/STATUS REVIEW ON MAJOR ADVANCES ACCOUNTS FOR THE YEAR ENDED 31.3.2018
__________________________________________________________________________________________________________________________________
5.
ADVANCES PORTFOLIO STATUS : (Figures – Rs. in lakhs for all columns)
Facility Limit Outstanding *Margin on primary Drawing Outstanding on Overdrawn Overdues
(Rs.) (Rs.) security Power 31.3.2018 Amount @ **
% Amount (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)
Fund based
CASH CREDIT
TERM LOANS
WCTL
FITL
Others
BILLS
OTHERS
Total xx
N Invoked/
Non Fund Based Devolved
Letters of Credit
Inland
Foreign
Letters of Guarantee
Letters of Comfort
Total xx

c) Amount at credit unappropriated Rs.___________________ #Rs.______________


d) Interest, if any, held in “Suspense Account” Rs.___________________ #Rs.______________
e) Unapplied Interest Rs.___________________ #Rs.______________
f) Bank’s right of recompense Rs.___________________ #Rs.______________
(# as at previous year end)
[* after deducting unpaid stocks and debts older than stipulated period]
@ Overdrawn amount must be with reference to lower of the limit or drawing power
** Segregate principal and interest amounts in default, indicating separately, if any amount is over 90 days overdue.

Bnkad18.sanjay v & mmk 24


A
______________BANK: ZONE :___________ BRANCH :__________________
ANNEXURE–III. OBSERVATIONS/STATUS REVIEW ON MAJOR ADVANCES ACCOUNTS FOR THE YEAR ENDED 31.3.2018
6.

6.A CLASSIFICATION: (as per RBI norms) (Tick as appropriate) *STANDARD #SUBSTANDARD DOUBTFUL@ LOSS
@ State also whether D1,D2,D3: # based on unsecured/secured exposures(state on inverse) Bank Auditor Bank Auditor Bank Auditor Bank Auditor

a) as at the year-end (31.3.2018)


b) as at the previous year-end(31.3.2017)
c) as at half year-end (30.9.2017)
d) Date of Identification as NPA by Bank (Date) (iv) Other Reasons for Identification as NPA (including frauds ,if any)
e) Reasons for identification as NPA (per RBI norms):
i) Default in servicing of 90 days or more Yes No
ii) Accounts not reviewed/limits not renewed for 180 days or more Yes No
iii) Funded Interest (FITL)-projects under implementation Yes No
f) Whether classification is as per guidelines of the Controlling Authority Yes No
6.B ADVERSE OBSERVATIONS IN LATEST REPORTS
Concurrent Auditor

Internal Inspection

RBI Inspection Reports

Other Reports(including Special Audit/Credit Audit/Stock audit)

*State reasons for upgradation of Account if NPA earlier.


-Whether upgradation is in respect of project under implementation: Yes No
If so, pre-upgradation classification Substandard Doubtful : D1 D2 D3

Bnkad18.sanjay v & mmk 25


A
______________BANK: ZONE :___________ BRANCH :__________________
ANNEXURE–III. OBSERVATIONS/STATUS REVIEW ON MAJOR ADVANCES ACCOUNTS FOR THE YEAR ENDED 31.3.2018
7.
7. OPERATIONS: (Rs. – Actual amounts rounded off)
a) *Term loans: Instalments (Rs.) Interest (Rs.)
st nd rd th st nd
1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. 1 Qtr. 2 Qtr. 3rd Qtr. 4th Qtr.
Due
Realisation
Interest in arrears: Rs.___________(Period of arrears _________): Installments in arrears: (No.________)Rs._________ (Period of arrears _______________)
[* If more than one Term Loan, please give information for each on the inverse side in the same format]
b. Bills purchased/discounted:(Total outstanding as at year end – Rs.________________________) Bills overdue during the year in excess
Bills overdue* Over 90 days -Details overleaf Rs._________ Interest accrued and accounted on overdue Bills of 90 days
- Other Current Bills Rs._________ Rs. __________________________ Yes No
c) Cash Credit/Other facilities: If yes, particulars on inverse
Account Facility Limit Drawing Power Outstanding Outstanding Interest (Rs.)
No. (Rs.) (Rs.) (Rs.) more than D P Due Realised Unrealised for
@ (Rs.) more than 90 days

- Cash Credit

- Devolved
L/Cs

Total

Other facilities

(@ to be worked out net of trade creditors in relation to stocks and margins as stipulated)
d) Unrealised interest accrued upto 31.3.2018, if NPA according to Bank/Auditor: Current year Rs._____________ : Previous year Rs.____________
e)Right of Recompense, if any, in case of restructuring and sacrifice in the past: Current year Rs._____________ : Previous year Rs.____________

Bnkad18.sanjay v & mmk 26


A
______________BANK: ZONE :___________ BRANCH :__________________
ANNEXURE–III. OBSERVATIONS/STATUS REVIEW ON MAJOR ADVANCES ACCOUNTS FOR THE YEAR ENDED 31.3.2018
8.
e) Particulars/Dates of Irregular Drawings* (Rs.in Lakhs)
Date Limit Drawing Power Outstanding Excess over Reasons for Excess Whether excess Date of
(Rs.) (Rs.) (Rs.) Drawing Limit drawings approval
Power reported to the by
(Rs.) controlling
(Rs.) controlling
Authority Authority

* In case of computerized branches information is available/corroborated from exceptional daily reports generated through the system
f) Summary of Account/Summations: (Rs.in Lakhs)
Cash Credit(Rs.) Overdraft (Rs.) Others(Rs.) Remarks
Opening Balance –Debit at the beginning
of the year
Add: Debit Summations
i) Interest
ii)Others
Total
Less: Credit Summations
Balance outstanding debit as at year end

Bnkad18.sanjay v & mmk 27


A
______________BANK: ZONE :___________ BRANCH :__________________
ANNEXURE–III. OBSERVATIONS/STATUS REVIEW ON MAJOR ADVANCES ACCOUNTS FOR THE YEAR ENDED 31.3.2018
9.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
8. SECURITY/GUARANTEE: (Rs.in Lakhs) Nature of Evidence Is there any indication of
a) Evidence on record for existence and Market value of Security: double financing
Primary: Date Particulars
(indicating date of the latest stock a) Stocks (net of unpaid stocks) YES NO
statements/book debts etc.) b) Book Debts (current debts)
c) Others (specify)
Collateral

(Date of last valuation, Nature of encumbrances, if any )


iii) Insurance coverage. Whether adequate Any other Adverse features
Yes No Yes No
Comment on inadequacy in
Insurance coverage and other
adverse features.
iv)Physical Inspection of securities charged as security: Date of latest inspection Date of last Stock Audit Report
Adverse observations, if any
- Reasons for non-inspection(if more than 6 months)

-Major uncomplied adverse observations in Inspection/


Concurrent audit/stock audit/credit audit on securities

Bnkad18.sanjay v & mmk 28


A
______________BANK: ZONE :___________ BRANCH :__________________
ANNEXURE–III. OBSERVATIONS/STATUS REVIEW ON MAJOR ADVANCES ACCOUNTS FOR THE YEAR ENDED 31.3.2018
10.

v) Guarantees Date of Amount Guarantees (Rs.in Lakhs) *Remarks


Guarantee
Particulars (Rs.) *Invoked(Rs.) Repudiated(Rs.)

Central Govt.

State Govt.

Banks

Financial
Institutions

Others(Specify)

* Besides other observations, reasons for non invoking of guarantees to be given in the remarks column
b) Exceptional reports, if any
on documentation, operations, security/guarantee aspects (whether
and when reported to the supervisory / monitoring authority), or
where the same is pending , or
where the same is pending approval/ authorization)
c) Latest audited statements (including audit report, accounting
policies and notes), whether on record
-Whether there are any qualifications in the Notes/Audit Report
having impact on the financial statements (State effect thereof)
- Whether Cost Audit report(if applicable) received

d) Critical Information
Whether any critical information sought from the borrower
remains uncomplied.

Bnkad18.sanjay v & mmk 29


A
______________BANK: ZONE :___________ BRANCH :__________________
ANNEXURE–III. OBSERVATIONS/STATUS REVIEW ON MAJOR ADVANCES ACCOUNTS FOR THE YEAR ENDED 31.3.2018
11.
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
OBSERVATIONS OF BRANCH MANAGEMENT (including responses to adverse observations in Reports stated at Item 6 B above)
Documentation
Operations
Security/ Guarantee
Any other matter
Overview of the borrowal account and its operation

10. COMPLIANCE OF TERMS AND CONDITIONS OF SANCTION (Annexure III.1)


11. KEY FINANCIAL INDICATORS FOR THE LAST 3 YEARS AND PROJECTIONS FOR THE YEAR (Annexure III.2)
______________________________________________________________________________________________________________________________________
Signature of Branch Incharge :
______________________________________________________________________________________________________________________________________

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_____________ BANK ZONE : _______________ BRANCH : ___________________

BANK AUDIT 2017-18


ANNEXURE –III.1 -OBSERVATIONS/STATUS REVIEW ON MAJOR ADVANCES ACCOUNTS FOR THE YEAR ENDED 31.3.2018
Bank: Branch:
Name of Borrower COMPLIANCE OF TERMS AND
Terms and Conditions CONDITIONS OF SANCTION
i) Primary Security
a) Charge on primary security
b) Mortgage of fixed assets
c) Registration of charges with Registrar of Companies
d) Insurance with date of validity of Policy
e) Stock Audit whether conducted-if so when
ii) Collateral Security
a) Charge on collateral security
b) Mortgage of fixed assets
c) Registration of charges with Registrar of Companies
d) Insurance with date of validity of Policy
e) Basis and date of last valuation
iii) Guarantees – Existence and execution of valid guarantees
iv) Asset coverage to the branch based upon the arrangement (i.e. , consortium or
multiple-bank basis)
v) Others:
a) Submission of Stock Statements/ Quarterly Information Statements and other
b) Information Statements.
c) Whether latest audited accounts obtained and analysed including considering effect
d) of qualifications therein.
e) Last inspection of the unit by the Branch officials: Give the date and details of
errors/omissions noticed
In case of consortium advances, whether copies of documents executed by the
company favouring the consortium are available
Any other area of non-compliance with the terms and conditions of sanction.
Note: In case of non/unsatisfactory compliance, action taken by the Bank may be indicated on the inverse side for each item.

(Branch In charge)
31
Bnkad18.sanjay v & mmk
A
___________ BANK ZONE: __________________ BRANCH : _________________________
Borrower : ___________________________________________________

ANNEXURE III.2- Key financial indicators for the last two completed years and projections (Rs.in Lakhs)
Indicators Audited Accounts (year ended) Projected for
31.03.2016 31.03.2017 year
ended
31.03.2018
Turnover
Increase in turnover % over previous year
Profit before depreciation, interest and tax
Less: Interest
Net Cash Profit before tax
Less: Depreciation [*straight line W.D.V ] (*tick as applicable)
Less: Tax
Net Profit after Depreciation and Tax
Net Profit to Turnover Ratio
Capital (Paid-up)
Reserves
Net Worth
Turnover to Capital Employed Ratio
(The term capital employed means the sum of Net Worth and Long Term Liabilities)
Current Ratio
Stock Turnover Ratio
Total Outstanding Liabilities/ total Net Worth Ratio
In case of listed companies, Market value of shares during the year:
a) High
b) Low
c) Closing
** Earning Per Share (Face Value Rs._________)
Whether the accounts were audited? No Yes, upto
If yes, are there any audit qualifications@
** To be based on common denominator of face value of shares :State whether basic: Diluted

@ Audit qualifications may also be stated against item 8 (c) of the form Branch Incharge
Bnkad18.sanjay v & mmk
32
BANK AUDIT 2017-18 A
ANNEXURE IV – INFORMATION ON PENDING RESTRUCTURING PROPOSALS FOR PROVISIONING
A. PENDING PROPOSALS WHERE THE BOOK OUTSTANDINGS ARE LESS THAN RS. 1.00 CRORE EACH
NAME OF AMOUNT Standard Classification Sub Standard Classification Doubtful Classification
BORROWER OUTSTANDING (Provision to be shown as part of (Provision to be shown as deduction from (Provision to be shown as deduction from
Schedule 5 – Other Liabilities and Advances in Schedule 9 in the Balance Advances in Schedule 9 in the Balance
Provisions) Sheet) Sheet)
Normal Sacrifice FITL Normal Sacrifice FITL Normal Sacrifice FITL

 Normal Provision will be as per the prudential norms applicable to each classification status as determined at the year end
 Sacrifice shall be @ 5% as per the policy adopted by the Bank and as permitted by RBI till 31-3-2017 on amounts comprising book balances which
in the aggregate for all facilities, are below Rs.1.00 crore
 FITL if sought for in the proposal would have to be estimated based on request or based on policy of the Bank in similar cases

B. PENDING PROPOSALS WHERE THE BOOK OUTSTANDINGS ARE MORE THAN RS. 1.00 CRORE EACH
NAME OF AMOUNT Standard Classification Sub Standard Classification Doubtful Classification
BORROWER OUTSTANDING (Provision to be shown as part of (Provision to be shown as deduction from (Provision to be shown as deduction from
Schedule 5 – Other Liabilities and Advances in Schedule 9 in the Balance Advances in Schedule 9 in the Balance
Provisions) Sheet) Sheet)
Normal Sacrifice FITL Normal Sacrifice FITL Normal Sacrifice FITL

 Normal Provision will be as per the prudential norms applicable to each classification status as determined at the year end
 Sacrifice shall be estimated based on the request as per application, pending disposal, or as per the policy adopted by the Bank in respect of similar
proposals
 FITL if sought for in the proposal would have to be estimated based on request or based on policy of the Bank in similar cases
(Note: Provision is recommended to be considered for potential losses, as the borrower’s request would be based on the weaknesses in the accounts
that may cause the account to become in default or potentially not serviced on the terms and conditions applicable to the advance)

Bnkad18.sanjay v & mmk


33
A
BANK AUDIT (2017-18) - ACCOUNTS SUBJECT TO RESTRUCTURING
ANNEXURE IV – BOROWER-WISE PARTICULARS OF ACCOUNTS SUBJECT TO RESTRUCTURING
BANK___________________________________BRANCH___________________________
NAME OF THE BORROWER CUSTOMER IDENTIFICATION NO
INDUSTRIAL UNITS
CATEGORY CDR NON CDR SME OTHER
WHETHER RESTRUCTURING DONE IN THE PAST YES NO
NO. OF TIMES ACCOUNT RESTRUCTURED First Time Second Time Third Time or
more
DATE OF APPLICATION/PROPOSAL
WHETHER INELIGIBLE FOR SPECIAL REGULATORY TREATMENT AS COVERED BY THE FOLLOWING CATEGORY *
(*If YES in any category, the special regulatory treatment in Restructuring is ineligible)
a. Consumer and personal advances YES NO
b. Advances classified as Capital market exposures YES NO
c. Advances classified as commercial real estate exposures YES NO
d. Other advances (except for changes in provisions related to changes in DCCO in respect of infrastructure YES NO
as well as non-infrastructure project loans (see paragraph 4.2.15 of the Master Circular).@
WHETHER ELIGIBLE FOR RESTRUCTURING BASED ON VIABILITY ETC. YES NO
(refer Para 17.1 of Part B of the Master Circular DBOD.No.BP.BC.2 /21.04.048/2015-156 dated 1-7-2015)
WHETHER ELIGIBLE FOR SPECIAL REGULATORY TREATMENT@
a. NO. OF DAYS ELAPSED SINCE THE DATE OF: Days
Approval under CDR Mechanism (out of 120 days permitted)
Application in other cases (out of 120 days permitted)
(If in excess of the period of 120 days as applicable) Ineligible
b. OTHER CONDITIONS FOR ELIGIBILITY (Clause 20.2.2 of the Master Circular)
c. Is it fully #secured by tangible security ( without considering collateralized intangibles) YES NO
Other than for:
 SSI now (MSE) borrowers, where the outstanding is up to Rs.25 lakh; and
 Infrastructure projects, provided the cash flows generated from these projects are adequate for repayment
of the advance, the bank has in place mechanism to escrow the cash flows, with clear and legal first
claim thereon.
ii. Will the unit become viable in YES NO
 8 years, if it is engaged in infrastructure activities
 5 years in the case of other units.
iii Does the repayment period of the restructured advance including the moratorium, if any, exceed YES NO
 15 years in the case of infrastructure advances and
 10 years in the case of other advances including restructured home loans;
iv Has a minimum of 20% of banks' sacrifice or 2% of the restructured debt been brought in by the Promoters@@ YES NO
v Has personal guarantee been obtained from the promoter except when the unit is affected by external factors YES NO
pertaining to the economy and industry.
vi Is the restructuring under consideration a 'repeated restructuring' **as defined YES NO
@ARE ALL THE ABOVE CONDITIONS (a+b) SATISFIED AND BORROWER IS ELIGIBLE FOR SPECIAL YES NO
REGULATORY TREATMENT IN COMPLETED PROPOSALS
CLASSIFICATION OF BORROWER (Tick as applicable) STANDARD SUB STD. DOUBTFUL
On Date of Application
Upon Restructuring
DATE OF COMPLETION OF RESTRUCTURING
WHETHER BORROWER UPGRADED YES NO
CLASSIFICATION STATUS AND PROVISIONS FOR COMPLETED CASES Annexure A
WHETHER PROPOSAL/APPLICATION PENDING ON 31-3-2017 YES NO
CLASSIFICATION STATUS AND PROVISIONS FOR PENDING CASES Annexure B
NOTES: (@Refer Para 20.2.3 regarding withdrawal of Special Regulatory Treatment for Asset Classification withdrawn with
effect from 1-4-2015 with the exception of provisions related to changes in DCCO in respect of infrastructure as well as non-
infrastructure project loans (also refer paragraph 4.2.15).
1. #Fully Secured (refer Annexure5 of the Master Circular)- *When the amounts due to a bank (present value of principal and
interest receivable as per restructured loan terms) are fully covered by the value of security, duly charged in its favour in respect
of those dues, the bank's dues are considered to be fully secured. While assessing the realisable value of security, primary as
well as collateral securities would be reckoned, provided such securities are tangible securities and are not in intangible form like
guarantee etc., of the promoter / others. However, for this purpose the bank guarantees, State Government Guarantees and
Central Government Guarantees will be treated on par with tangible security.
2. **When a bank restructures an account a second (or more) time(s), the account will be considered as a 'repeatedly restructured
account'. However, if the second restructuring takes place after the period up to which the concessions were extended under the
terms of the first restructuring, that account shall not be reckoned as a 'repeatedly restructured account
3. @@Promoters' sacrifice and additional funds brought by them should be a minimum of 20 per cent of banks’ sacrifice or 2
per cent of the restructured debt, whichever is higher. This stipulation is the minimum and banks may decide on a higher
sacrifice by promoters depending on the riskiness of the project and promoters’ ability to bring in higher sacrifice
amount. Further, such higher sacrifice may invariably be insisted upon in larger accounts, especially CDR accounts. The
promoters’ sacrifice should invariably be brought upfront while extending the restructuring benefits to the borrowers.
The term 'bank's sacrifice' means the amount of ';erosion in the fair value of the advance'; or “total sacrifice”, to be
computed as per the methodology enumerated in para 17.4.2 (i) and (ii) of the Master Circular.
4. Restructuring includes reschedulement, re-phasement , nursing or rehabilitation, not as part of a universal policy applicable to
any class/category of advances, but specific to a borrower who seeks restructuring as he is incapable of servicing the advance
on the sanctioned terms.
5. Completed Restructuring proposals are to be reported in Annexure A and those pending as at the year end in Annexure B
34
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BANK AUDIT (2017-18) - ACCOUNTS SUBJECT TO RESTRUCTURING
ANNEXURE IV – BOROWER-WISE PARTICULARS OF ACCOUNTS SUBJECT TO RESTRUCTURING

Bank______________________________Branch:____________________ ANNEXURE A
ADVANCES WHERE RESTRUCTURING AS AT 31-3-2018 IS COMPLETE
Borrower____________________________ Customer Identification No___________
CREDIT PRE RESTRUCTURING (Amt. Rs.) POST RESTRUCTURING (Amt. Rs.)
FACILITIES (upgrade only if eligible for special
regulatory treatment-DCCO related –refer
Para 4.2.15 of the Master Circular)
NPA NPA
SUB SUB
STANDARD STANDARD DOUBTFUL STANDARD STANDARD DOUBTFUL
Bills
Cash Credit
Overdraft
Invoked
Guarantees
Other Demand
Loans
term loans
FITL
Additional/fresh
facilities
(post restructuring)
Investments
other than Equity
Instruments
Total
Interest XXXXXXX XXXXXXX XXXXXX
Suspense
Unapplied XXXXXXX XXXXXXX XXXXXX
Interest
Right of XXXXXXXX XXXXXXX XXXXXXX XXXXXX
recompense
PROVISIONS
Normal (A)
On Additional
funding (A.1)
Total (A+A.1)
Sacrifice (B)
FITL (C)
TOTAL
@ DISCLOSURE Other Reduction from Other Reduction from
OF PROVISIONS Liabilities Advances Liabilities Advances
Normal
Sacrifice
FITL
TOTAL
@ Disclosure of Provisions
Provisions
 Other Liabilities, if in Standard Classification (Normal and on additional finance for a period of one year)
 To be reduced from Advances, if in NPA Classification(including Additional funding, where it slips to NPA)
Sacrifice*
 Other Liabilities , if in Standard Classification
 To be reduced from Advances, if in NPA Classification
(* To be computed @ 5% of the aggregate outstanding as per accounts)
FITL (100% to be retained even if accounts upgraded to Standard) to be held in a separate account styled
"Sundry Liabilities Account (Interest Capitalization)"
 Other Liabilities, if Amounts in Standard Classification (Normal and on additional finance for a period of one
year)
 To be reduced from Advances, if in NPA Classification

35

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BANK AUDIT (2017-18) - ACCOUNTS SUBJECT TO RESTRUCTURING
ANNEXURE IV – BOROWER-WISE PARTICULARS OF ACCOUNTS SUBJECT TO RESTRUCTURING

Bank_____________________________________Branch:____________________
ADVANCES WHERE RESTRUCTURING AS AT 31-3-2018 IS PENDING ANNEXURE B
Name of Borrower Customer Identification No.
CREDIT PRE RESTRUCTURING STATUS PRE RESTRUCTURING STATUS
FACILITIES ON THE DATE OF PROPOSAL (Amt. Rs.) AS AT 31-3-2018 (Amt. Rs.)
NPA NPA
STANDARD SUB STANDARD SUB
STANDARD DOUBTFUL STANDARD DOUBTFUL
Bills
Cash Credit
Overdraft
Invoked
Guarantees
Other Demand
Loans
Term loans
FITL
Investments
other than Equity
Instruments
Total
Interest
Suspense
Unapplied
Interest
PROVISIONS
Normal (A)
Sacrifice (B)
FITL (C)
TOTAL(A+B+C)
@DISCLOSURE Other Reduction from Other Reduction from
OF PROVISIONS Liabilities Advances Liabilities Advances
Normal
Sacrifice
FITL
TOTAL
@ Disclosure of Provisions

Provisions (Normal)
 Other Liabilities, if amounts in Standard Classification
 To be reduced from Advances, if in NPA Classification(including Additional funding, where it
slips to NPA)
Sacrifice*
 Other Liabilities , if in Standard Classification
 To be reduced from Advances, if in NPA Classification
(*To be computed @ 5% of the aggregate outstanding as per accounts)
FITL
 Other Liabilities, if in Standard classification
 To be reduced from Advances, if in NPA Classification
 The estimated amount may be considered equal, at least to the Interest Suspense in case of NPAs.

36

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BANK AUDIT (2017-18) – ANNEXURE V
INFORMATION PURSUANT TO THE SCHEME FOR SUSTAINABLE STRUCTURING FOR STRESSED ASSETS

1. Disclosures on Flexible Structuring of Existing Loans


Amount in INR Crores
Period No. of Borrowers Amount of loans taken up for Flexible Exposure weighted average
taken up for restructuring duration of loans taken up for
Flexible flexible restructuring
restructuring Classified as Classified as NPA Before applying After
Standard flexible applying
restructuring flexible
restructuring
Previous financial
year
Current financial
year (From April
to__________)

2. Disclosures on Strategic Debt Restructuring Scheme (accounts which are currently under the stand-still period)
Amount in INR Crores
No. of accounts Amount outstanding as at the Amount outstanding as at the reporting date with respect to
where SDR has reporting date accounts where conversion of debt to equity
been invoked Classified as Classified is pending has taken place
Standard as NPA Classified as Classified as Classified as Classified as
Standard NPA Standard NPA

3. Disclosures on Change in Ownership outside SDR Scheme (accounts which are currently under the stand-still period)
Amount in INR Crores
No. of Amount outstanding Amount outstanding as Amount outstanding as Amount outstanding as
Accounts as on the reporting on the reporting date on the reporting date on the reporting date
where the date with respect to accounts with respect to accounts with respect to
Bank has where conversion of where conversion of accounts where
decided to debt to equity/invocation debt to equity/invocation change in ownership is
effect of pledge of equity of pledge of equity envisaged by issuance
change in shares is pending shares has taken place of fresh shares or sale
ownership of owners’ equity
Classified Classified Classified Classified Classified Classified Classified Classified
as as NPA as as NPA as as NPA as as NPA
Standard Standard Standard Standard

4. Disclosures on Change in Ownership of Projects Under Implementation (accounts which are currently under the stand-
still period)
Amount in INR Crores
No. of project loan accounts Amount outstanding as on the reporting date
where banks have decided to Classified as Standard Classified as Standard Classified as NPA
effect change in ownership restructured

5. Disclosure on the Scheme for sustainable restructuring of stressed assets (S4A), as on__________
Amount in INR Crores
No. of Accounts where Aggregate amount Amount Outstanding Provision held
S4A has been applied outstanding In Part A In Part B
Classified as Standard XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX

Classified as NPA XXXXXXXX XXXXXXXX XXXXXXXX XXXXXXXX

Branch Management

37

Bnkad18. Sanjay v & mmk


BANK __________ ________ Zone:_________________: Region____________: Branch ___________ A
ANNEXURE VI - STATEMENT OF MATURED /OVERDUE /UNCLAIMED DEPOSITS AS AT 31-3-2018
Particulars Rupee Deposits@ FCNR(B)
FIXED/TERM DEPOSITS SAVINGS BANK CURRENT ACCOUNTS TOTAL RUPEE DEPOSITS (Converted to Rupees at year
ACCOUNTS end exchange rates)
No. Amount(Rs) No. Amount(Rs) No. Amount(Rs) No. Amount(Rs) No. Amount(Rs)
Opening Balance at the beginning (A)
Additions during the year (B)
Total (A+B)
Less: Deposits renewed/repaid (C)
Overdue/Unclaimed deposits as at
year-end (A+B-C)
No. and Amount of NRNR Deposits, if
any, included above
Break-up of overdue deposits(period-
wise)
Less than 1 year
1-3 years
3-5 years
5-10 years
Over 10 years
TOTAL
Fixed Deposit Receipts held in
physical custody by Bank
INTEREST PROVISION
1. Provision for Interest accrued till
the year end and on the above
overdue/unclaimed deposits
2. On deceased depositors
– Unclaimed Current Accounts
TOTAL INTEREST PROVISION
@ including FCNR (B) matured deposits crystallized in Rupees

BRANCH MANAGEMENT

Bnkad18.sanjay v & mmk 38


__________________ BANK BRANCH: __________________________
Annexure VII - LIST OF ENTRIES ORIGINATING PRIOR TO 31.3.2018 (AT OTHER BRANCHES) AND RESPONDED AT THE BRANCH AFTER 31.3.2018 A
(This will result in MOC)

Date of Responding ORIGINATING ENTRY AT OTHER BRANCHES Head of Account affected at the Branch Amount
entry after 31.3.2018 at (based on entries responded after 31-3-2018)
the Branch
Branch Name Date of Debit to Credit to
originating entry
Code Head Code Head Rs. P

Branch Management

39

Bnkad18.sanjay v & mmk


A
BANK BRANCH AUDIT (2017-18)
ANNEXURE VIII - LFAR REQUIREMENTS DESERVING SPECIAL ATTENTION

a) Balance confirmation certificates and reconciliation statements with banks indicating


reasons for unadjusted old entries outstanding between 6 months and 1 year, and those
over 1 year old.

b) Responses to Para I.4 of the questionnaire, if and to the extent applicable to the branch.

c) Status of “large advances*” in the light of the reporting requirements as per Item I.5 of the
questionnaire.
(*defined as those in respect of which the outstanding amount is in excess of 5% of
the aggregate advances of the branch or Rs.2 Crores, whichever is less).

d) Data as per the format in Item I.5 (d) (xii) of the questionnaire, relating to
(i) credit guarantee claims, and (ii) subsidies.
e) Particulars of cases of compromise/settlement and write off involving write offs/ waivers in
excess of Rs.50 lakhs.

f) Information [as per item I.5 ( e) of the questionnaire], in a tabulated form as regards
guarantees invoked, letters of guarantee and co-acceptances.

g) Information as per Item I.6 (b) of the questionnaire


h) Details as per the format [ II.2(i) of the questionnaire]
i) List of contingent liabilities not acknowledged as debts in response to item II.3 of the
questionnaire.

j) Statement of divergent trends in major items of income/ expenditure as compared to the


previous year with explanation thereof. Items comprising interest earned on advances and
that paid on deposits may preferably be computed on the basis of monthly average
advances/ deposits for the branch and the current and previous year for comparison.
k) Note on areas of computerisation and Bank’s instructions/guidelines covering matters in
Item IV. (1)(b) of the questionnaire.
l) Statement in response to Item IV. 2 of the questionnaire.
m) List of outstanding debits, if any, in H.O. Account in respect of Inter-branch transactions.
n) Inter-branch Adjustments
o Particulars/status of unresponded/ pending/ uncomplied queries or communications from
the designated offices as regards unmatched items in Inter-branch Adjustments.
o List/status of outstanding old/ large entries at debit comprising Inter- branch Items.

o) Statement of particulars of frauds discovered during the year, as per the prescribed format.

p) Evidence of reconciliation of records of fixed assets, (with a confirmation as to their


updation) with physical inventories last taken.

q) Documents of title of the branch premises, if maintained at the Branch, for production to
auditors.

r) Information/ responses to the questionnaire, if a specialized branch (Refer Appendix – Item


A.3 in particular).

s) Information in the structured format in response to Item B of the Appendix covering


advances, each in excess of Rs.2 crore. (Refer Annexure III)
t) Information in respect of borrowers pursuant to Item C of Appendix.
u) Details of Inward/outward clearing as per the prescribed format (per D2 of the Appendix).

40

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BANK: BRANCH: ____________________

ANNEXURE IX - BRANCH DATA FOR THE YEAR ENDED MARCH 31, 2017 FOR VERIFICATION OF SLR UNDER SECTION 24 OF B.R. ACT, 1949

(Amount (Rs.’000)
Dates (odd Deposits in Current Cash in Hand Balances in Current Accounts with
dates Accounts from Banks (SBI, RBI @SBI @@Subsidiaries of Nationalised Total
specified) and its Subsidiaries, Public SBI Banks Balances
Sector/Nationalised Banks)

@not applicable to SBI Branch audit:@@ not applicable to the particular subsidiary of SBI
BRANCH MANAGEMENT

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Bnkad18.sanjay v & mmk


B
BY HAND
March 30, 2018
The Branch Manager,
_____________Bank,
Dear Sir,
Re: Audit of Accounts for 2017-18.
We are deputing our team headed by Mr. _____________ in connection with the verification of the
following, at the close of business on 31.3.2018 (Friday):

A .Cash balances etc.


a) Cash in hand (including with tellers); b) Cash at sub offices
c) Cash in ATM(s),if operated/controlled; and, if any, with authorized agencies for replenishment;
d) Petty Cash/imprest balances; e) Postage in hand; f) Tokens, if any
g) Foreign Currency, if any. h) Demonetised currency, if any (reasons for holding of
i) Gold, if any which may be given)

In connection with the above, please ensure that you will be getting the verification done
simultaneously, and at all locations, of the balances for the aforesaid items and produce for our
verification the following:
a) Foreign Currency parcels, if any, lying at the Branch.
b) Sealed covers containing cash, if any.
c) Petty Cash and imprest balances held with various officers.
d) Reconciliation of the book balance with that at the ATM, in case of any difference.

B. Security Paper Stationery/ Forms (Unused/ blank) and those issued, but in hand
1. We would be undertaking the physical verification of the unused/blank security paper
stationery/ forms lying at the branch, including for the following:
a) Time/Term Deposits; b) Deposits under various schemes; c) Travellers' Cheques;
d) Drafts; e) Pay Orders/Banker's Cheques, Gift cheques, etc; and
f) Cheque Books/Withdrawal Slips
We would request you to keep ready, a list of stock of all stationery in hand of the nature and
type referred to above, so that verification thereof is expedited; and further ensure that the
relevant registers are upto date to enable us to examine the balances therein.

2. Instruments of the above nature issued but lying in physical custody of the Branch may be listed and
got verified

C. Bills for Collection/Purchased:


All bills in hand (for collection as well as purchased) may be listed out and got physically verified.
D. Fixed Deposit Receipts in physical custody of the Branch, in respect of Deposits received or
renewed (refer Para 6 of Annexure I Section A of our earlier letter):
Such undispatched Receipts in the physical custody at the Branch may be produced, indicating the
number and amount thereof.

E. Your formal confirmations for our record:


Upon completion of the exercise involving physical verification as aforesaid, we would request
you to let us have a confirmation of the balances as at the close of the business as at the
year-end duly signed by the authorised signatories.

F. External Confirmations
May we request you obtain and to let us have, balance confirmation certificates in respect of:
a) balances with other banks as at the year-end along with reconciliation statements, in
evidence of outstandings with such banks (including, if any, with the Reserve Bank of India);
b) borrowings, if any, recorded at the Branch (banks/ institutions)

We expect these certificates/ reconciliation statements, duly authenticated, to be handed over along with
the Branch returns.

We shall be thankful for your co-operation.


Yours faithfully,

CHARTERED ACCOUNTANTS

Bnkad18.sanjay v & mmk


BANK BRANCH AUDIT PROGRAMME (2017-18) C
1. Bank: Branch:
2. Year Ended 31st March, 2018
3. Audit In-charge :
4. Audit Assistants: Name Signature
1.
2.
3.
4.
5.
5. Audit commenced on : Completed on :
6. Submission of Reports Date of Submission
a) Statutory Audit Report
b) LFAR
c) Tax Audit Report

d) Certificates:
i.DICGC Claims
ii Subsidy claims under Prime Minister’s Rojgar Yojna for Unemployed
Youth (PMRY)
iii Data on 12 odd dates for verification of SLR
iv Exposure to Sensitive Sectors
v Implementation of the Ghosh/ Jilani Committee recommendations
vi Movement chart of NPAs and provisions
Other Certificates required by bank (Specify)
 Information on restructuring of Advances
 Interest Subvention to Short term agricultural credit and produce
marketing loans
 Interest claimed under TUFS – SSI/SME Sector
 Credit linked Capital Subsidy Scheme
 Interest subsidy on educational loans

Remarks

1
Bnkad18.sanjay v & mmk
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BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

LIABILITIES – DEPOSITS XX XX XX XX

1 KYC NORMS –
Whether there are any adverse observations in internal
monitoring/ supervisory reports in respect of deposit
accounts - at the time of opening of accounts or in
updating data
2 Have the outstanding balances of deposits been
disclosed to conform to the legal requirements
3 Are there major variations in the comparative figures of
deposits as compared to those of the earlier year that
need to be enquired into
4 Has the branch observed unauthorised overdrafts or
adverse balances in deposits, which required ratification;
and have such accounts been reported to the controlling
authority as required
(Note: This can be observed from the Daily Exception
Reports during and at the year end)
5 LARGE/UNUSUAL TRANSACTIONS – XX XX
Is there a system of identifying, recording and reporting :
a. Cash transactions, in excess of prescribed amounts,
per transaction or in aggregate per day
b. Unusual transactions
c. Have any such large/unusual transactions not been
reported during the year or belatedly reported
d. Does the bank have a system of identifying and
recording of accounts of staff and their relatives,
particularly those requiring preferential treatment as
regards interest, and
Have there been any large or unusual transactions
observed/reported in such accounts
(Entries found based on the basis of Daily Exception Reports
need to be listed, stating the names, dates of entries and the
amounts involved, in respect of items at a to d above)
6 STAGNANT, DORMANT , INOPERATIVE ACCOUNTS XX XX

a. Is there a system of control over accounts that become


stagnant, inoperative or dormant and for revival of
these to make them operative
b. Are there any adverse matters reported where such
system has not been followed
c. Has the branch satisfactorily explained the debits/
withdrawals from stagnant / inoperative and dormant
accounts
7 INTERNAL CONTROLS
a. Is there a system laid down for custody and control
over issue of cheque books, withdrawal slips or of
recording authority to debit deposit accounts
b. Have any non compliance of the system been reported
in the internal laid down system
c. Is there a system of electronic or other direct/immediate
communication to customers while processing of
transactions , particular large debits to their accounts

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BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

d. Are there any reported / recorded customer complaints


for unauthorised debits / operations in their accounts
or disagreement in respect of such transactions or
account balances
e. Are there any adverse observations in any internal
monitoring/supervisory reports as regards the above
having effect on the closing balances or requiring
recording of claims
8 INTEREST COMPUTATION
a. Has interest computation been made at the rates for the
time being in force applicable to various categories of
deposit accounts
b. Has any interest variation been reported in any
monitoring/supervisory internal report(s), including in
internal/concurrent/revenue audit report that warrants
additional procedures to check interest computation
9 CURRENT ACCOUNTS
a. Have you verified that current deposits also include
unpaid/matured term deposits, and those unclaimed as
at the year end
b. Are there any accounts held as current deposits,
including overdue and matured deposits, on which
interest is payable but has not been provided (e.g., in
respect of deceased depositors, sponsored RRBs
where the bank is permitted to give interest) has the
branch prepared the details and quantified the liability
upto the year end, to the extent the provision for
interest is required (check details for reporting)
c. Review three accounts with the highest summations
during the year to determine whether there are any
reportable unusual, large or cash transactions
(Note down the names and observations, if any)
d. Review three staff related accounts
(Note down the names and observations, if any)
e. Are there any large transfer entries towards the end of
each quarter, crediting any advances accounts, that
warrant enquiry and reporting
(Obtain details for record and reporting)
f. Are there any debits in any current accounts that are
dormant/inoperative / stagnant and whether there are
satisfactory explanations to such debits/withdrawals
(Obtain details for record and reporting
unsubstantiated debits )
g. Have you recommended, in the LFAR, that old,
stagnant, unclaimed amounts are centralised

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C
BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

10 SAVINGS BANK ACCOUNTS


a. Are there any savings bank accounts at the branch that
are on the negative list of the Bank /RBI
(List the details and amount)
b. Quantify for reporting, any interest paid/provided on
such impermissible accounts and what is the amount
so paid/provided
c. Based on accretion of interest on daily balances,
whether the liability till the year end, has been
computed and disclosed as that accrued and due (for
the period since the last application of interest in
individual accounts)
(If not, obtain details for reporting)
d. Ascertain that interest accrued till the year end is not
included in “Other Liabilities”
11 FIXED/TERM/TIME DEPOSITS XX XX

A. TERM DEPOSITS – Banks and Institutions XX XX

a. Have confirmation certificates from banks/ institutions,


confirming the deposits, been received and checked
b. Have you checked whether the deposits are in round
figures – and if not, have you ascertained the reasons
for the amounts disclosed in odd figures
c. Has interest “accrued and due” on such term deposits
been checked

B. OTHER DEPOSITS
a. Does the bank have a system of automatic renewal of
term deposits on maturity thereof
i.on rupee denominated deposits
ii.on FCNR (B) - Foreign Currency denominated
deposits
b. Do term deposits disclosed as per branch balance
sheet, include any:
i. matured deposits in respect of which there are no
instructions for renewal, (including prior to the cut
off date when the system for automatic renewal of
deposits was introduced), or
ii. old or unclaimed deposits
(Report amount of such deposits that require to be
included as part of current deposits and not as part of
term deposits, as per RBI guidelines)
c. Are there any old deposits, before a cut off date, which
are not subject to auto renewal of deposits
if yes, whether interest is provided thereon
(Check basis and amount of interest provided)
d. In case of auto renewal of deposits, are these renewed
net of tax deduction at source
(If not, report defaults)
e. Does the branch issue term deposit receipts to
depositors on receipt / renewal of deposits as per RBI
guidelines

Bnkad18.sanjay v & mmk 4


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BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

f. Report number and amount of term deposits in respect


of which deposit receipts are not issued as under:
i. deposit receipts not issued
ii. deposit receipts issued but not delivered (and
lying with branch officials)
iii. deposit receipts in respect of which renewals have
been made by endorsements on the inverse
thereof (Report whether Branch maintains record
of such renewals by endorsement)
Notes:
i. Loss of control over credits in respect of Deposits increase
audit risk and must be reported in the LFAR as a fraud
prone area, particularly if the system is lax or items are
incapable of audit trail.
ii. Credits representing deposits, including by mere book
adjustments on renewal through the computer system, not
backed up by issuance of receipts must be reported, as
such credits are prone to the risk of fraud, due to the
possibility of misuse thereof.

12 INTEREST ACCRUED ON DEPOSITS XX XX

a. Has interest accrued and due (net of tax deduction at


source, as applicable), on various categories of rupee
denominated deposits been shown as part of deposits
(TDS is required to be shown as part of “Other
Liabilities” and not part of Deposits)
b. Has interest computation been done as per RBI
guidelines for FCNR (B) deposits from the date of
receipt till maturity to arrive at the maturity proceeds
and pro rated till the year end on all continuing
deposits
c. Has provision been made for interest accrued but not
due (including on FCNR (B) deposits , and shown as
part of “other liabilities – interest accrued” as required
to be shown in schedule 5 of the Bank’s Balance
Sheet
(Report Interest accrued and not due, if included as
part of Deposits)
d. Has interest provision been made on old, unclaimed
and deposits matured but in which renewal
instructions have not been received, including in case
of deceased depositors, as per applicable guidelines.
13 FOREIGN CURRENCY DENOMINATED DEPOSITS XX XX

Are there any inoperative FCNR (B) fixed term maturity


and non fixed term maturity deposits , which require to be
crystallised to rupee denominated deposits as per clause
2.7 of the RBI master circular dated 1-7-2015
14 ADDITIONAL PROCEDURES (If any)

Bnkad18.sanjay v & mmk 5


C
BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

LIABILITIES – BORROWINGS (in case the branch has XX XX


borrowings)
1 If there are any amounts of the nature of borrowings
recorded at the branch, has the head office/controlling
authority authorised the branch to borrow or seek
refinancing or retain any amounts as borrowings
(including refinance)
2 Check that the disclosure of borrowings has been
properly made in the branch balance sheet and is in
agreement with the books
3 Obtain certificates / confirmations and verify the
borrowings with reference thereto in respect of:
a. Reserve Bank Of India
b. Other Banks
c. Other Institutions and Agencies
d. Industrial Development Bank of India
e. Export Import Bank of India
f. National Bank for Agriculture and Rural Development
g. Others ((Specify in the Audit File))
4 INTEREST ACCRUED XX XX

Check that interest is correctly computed till the year end


and is shown as part of the borrowings if the same is due
5 REPORT XX XX

a. Amounts, if not in the nature of borrowings/refinance


b. If the amount of the borrowings is not evidenced by
confirmation certificates and/or is unreconciled or
wrongly stated
c. If there is wrong disclosure of the borrowings as
secured and unsecured
d. If it includes amount of participation certificates (on
risk sharing basis, not netted from related advances)
e. Amount of interest accrued and due, if wrongly
computed, and not shown as part of the related
borrowings
f. Amount of interest accrued and not due, if included
under the head borrowings
g. VOSTRO balances wrongly grouped under borrowings
instead of deposits
h. NOSTRO (adverse book balances) wrongly grouped
under borrowings instead of deposits
i. Credit balances wrongly included under borrowings
6 OTHER PROCEDURES (If any)

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C
BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

LIABILITIES -OTHER LIABILITIES AND PROVISIONS


1 a. Bills Payable (Applicable where entries are retained at
branches)
b. Enquire into old/large outstandings which remain
unresponded / unadjusted
c. Are there any unlinked debits (on account of drafts paid
without advice/ex advice) appearing in the accounts
(and which require management representation as to
the reasons for such entries)
d. Enquire into any inward pending communication from
the controlling authority, as regards entries originated
earlier from the branch but that may not have been
adjusted at the centralised level
e. BANKERS CHEQUES /PAY ORDERS/ SLIPS XX XX

i Are there any bankers cheques /pay orders/ slips


outstanding as at the year end
ii Check the outstanding entries in bankers cheques
and pay orders, based on the following particulars to
be obtained
Particulars Bankers cheques Pay orders/slips
No. Amount No. Amount
Within 6 months
6 months - 1 year
1-2 years
2-3 years
3 years and above ___ ________ ___ _______
TOTAL
___ ________ ___ _______

iii. Has test check been made for large and other
unusual/suspicious debits to ensure that there is
no frequent cancellation and re-issue of such
instruments, particularly if the names of the
payees is repetitive
iv. Seek confirmation for, and report in LFAR
 Instruments issued but not handed over or
those not dispatched (particularly Banker’s
cheques/Pay Orders)
 Reasons as to why the old balances cannot be
frozen and transferred to a centralized office to
avoid risk of misuse of the credits.
 the risk of misuse of these, if not covered by
proper Internal control system or dual control
2 INTEREST ACCRUED
(comprises interest accrued and NOT DUE on Deposits
and Borrowings)
a. Has it been checked and verified if interest accrued and
due is included under this sub head, particularly in
respect of savings bank accounts
b. Has interest been considered on a pro rata basis till the
year end on FCNR (B) continuing deposits
3 OTHERS (including Provisions):
a. Check balance and computation of advance payments
and unexpired discounts (Rebate on Bills Discounted,
which comprise entries pertaining to the period after
the year end )

Bnkad18.sanjay v & mmk 7


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BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

b. Unless otherwise directed by central/head office of the


bank based on written instructions, have the year end
liabilities /provisions been made, and if not, whether
MOC (forming part of the main report) has been
recommended in respect of
 Rent (as per contractual obligations)
 Rates and Municipal taxes and other local levies
 Electricity and Power bills,
 Telephone, Telegrams, telex etc.,
 Interest payable on Staff security deposits
 Payments and provisions for employees
 Repairs/maintenance bills,
 Travel and other expenditure of the employees for
which advances may have been given and not yet
adjusted
 Professional fees and charges relating to
outsourced Concurrent audit/Internal audit
/Revenue audit /stock audit and other similar
services
 Outsourced security, computer maintenance and
servicing charges
 Depreciation/amortization in respect of assets
acquired , but in respect of which liability has not
been adjusted in full
 Other Expenditure pertaining to the year end,
recorded in the post balance sheet period.
c. Whether known liabilities pertaining up to the year end ,
if unadjusted have been reported through MOC in
respect of
 Items of fixed assets acquired and other capital
expenditure (e.g., progress bills for premises
under construction /renovation
 Other contractual obligations
 Any other expenditure or obligation that may
have been reported in the latest concurrent
/internal audit report

d. CASH MARGINS XX XX

 Report if cash margins have not been actually


realised and held against bills purchased and
discounted and not by lien marking of current
accounts
 Check and report margins contractually agreed
upon but not maintained with the bank or where
these are released without any basis where
guarantee/letters of credit or other similar
obligations have not yet ceased
4 ADDITIONAL PROCEDURES (If any)

Bnkad18.sanjay v & mmk 8


C
BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

ASSETS - CASH AND BALANCES WITH RESERVE XX XX


BANK OF INDIA:
1 CASH XX XX
a. Has physical verification been done at all locations/sub offices
attached to the branch in respect of balances comprising
cash:
At the year end
On first branch visit (Date____________)
During the course of Audit (Date____________)
 Cash in Hand
 Foreign Currency Notes (including inward currency parcels
originated from other branches/offices)
 Petty Cash/Imprest Balances (including with staff)
 Postage (cash) balances
 Tokens
 ATM Balances with reference to the ATM scrolls/tapes
 Recorded after the year end cash remittance in transit
originated by another branch/office on or prior to the year
end but
b. Has a certificate/confirmation been obtained and kept on
record of the balances physically verified
c. Do the balances physically verified tally with the year end
balances as per books.
if not, have the discrepancies been reported in the MOC
d. Does a review of the cash transactions on the last two days of
each calendar quarter reveal any unusual/large movement of
cash that deserves to be reported, whether or not amounting
to window dressing
(These would include heavy cash deposits at the year end and
immediate withdrawals the very next day, particularly in
Advances accounts that may otherwise be in default)
e. In respect of the ATM attached to the branch, have the
differences of cash in ATM and that as per books been
reconciled and considered in the MOC
Where cash of the branch is held with agencies for cash
stuffing/replenishment, has a confirmation certificate been
obtained from the agencies concerned and tallied with the
books as at the year end
(Consider in Main Report as also elaborate in LFAR)
f. Does the branch carry cash far in excess of the norms fixed or
of normal requirements, particularly if has a currency chest
attached to the branch or has easy access to cash as per
arrangements with another bank in the immediate vicinity.
(Consider in LFAR)

g. Is the branch following the system of dual control with periodic


verification of cash
h. Does the branch carry soiled /non exchangeable notes
i.Does the Branch hold any demonetized currency notes.
REPORT

j. Have large cash transactions generated through


“Exception Reports” been reviewed and reported to the
controlling authority (Report unusual items)

Bnkad18.sanjay v & mmk 9


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BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

2 BALANCES WITH RESERVE BANK OF INDIA (RBI) XX XX

Does the branch maintain account(s) with RBI


A. Where branch maintains account(s) with RBI
a. Have the year end balances been verified with reference
to the confirmation certificates/ statement of accounts
received from RBI
b. Are there any differences between the RBI balance
confirmations and the branch books and whether these
have been reconciled
c. Have MOCs been recommended for differences
comprising:
 Entries originated by RBI at debit/credit prior to ,
but which have been recorded after, the year
end
 Entries at debit /credit wrongly recorded in the
books of the branch prior to the year end, but
which require reversal
d. Has interest accrued upto the year end on balances
with RBI, been adjusted in the books of the branch
(including where formal entries in RBI statements are made
after the year-end).
e. Check and report through MOC, on a value date basis,
currency chest withdrawal/deposit entries originated at
other branches prior to, but recorded in the branch
books after, the year end (Inter branch)
f. Report unadjusted claims from RBI that require
provision
B. Where the branch does not maintain account with RBI
(and there is a currency chest attached to the branch)
a. check whether all transactions for withdrawals from,
and deposits into the currency chest maintained have
been duly reported on the same date to the linked
branch where the RBI account is maintained
b. check if there are any claims by RBI for defaults in the
operation of the currency chest, and has this been
reported in the audit report
3 ADDITIONAL PROCEDURES (If any)

Bnkad18.sanjay v & mmk 10


C
BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

ASSETS - BALANCES WITH BANKS AND MONEY AT


CALL AND SHORT NOTICE
1 BALANCES WITH BANKS – Current Accounts
a. Obtain confirmations from each bank as to year end balances
in respect of current account maintained
b. Does the balance in the branch books tally with that on the
confirmation received from the other bank
c. Has a reconciliation statement been prepared
d. Has MOC been prepared for debits/credits originated at other
banks prior to but responded by the branch after, the year
end, based on:
 old/large unadjusted outstanding entries particularly at
debit;
 cash transactions remaining unresponded; and
 items of revenue nature not adjusted.
e. Have entries over one year old as at the balance sheet date
been noted for LFAR and provision recommended through
MOC:
No. of Entries Amount(Rs.)
- Debit
- Credit
2 ADDITIONAL PROCEDURE (if any)

Bnkad18.sanjay v & mmk 11


C
BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

3 NOSTRO BALANCES
a. Is the branch designated to maintain NOSTRO accounts
b. If so, have balance confirmations/ statements been
obtained in evidence of the year end balances
c. Are there entries originated by banks overseas that appear
in the reconciliation statements
d. Has MOC been prepared for items in reconciliation
e. Are there old balances at debit/claims made in NOSTRO
that require provisions through MOC to be recommended
f. Have the year end balances been converted at the rates
notified by the controlling authority in the bank
g. Are entries in NOSTRO Accounts pertaining to funding by
overseas banks against Letters of Undertaking (Trade
Credits) and corresponding outflows’ being recorded in the
books of the Bank
(Report amounts not recorded)
4 BALANCES WITH BANKS – DEPOSIT ACCOUNTS
a. Obtain confirmations from each bank as to year end balances
in respect of deposit account maintained
b. Are the balances of deposits in round figures
c. If not in round figures , have the reasons been ascertained
(e.g., deposit renewals with interest)
d. Has interest accrued and receivable been adjusted on the
deposits till the year end

ASSETS - BALANCES WITH BANKS AND MONEY AT


CALL AND SHORT NOTICE
5 Money At Call And Short Notice (At designated branches)
Is the branch authorised to keep money at call and short notice
If so, have confirmations been obtained and checked from:
Banks
Other Institutions
Has interest computation been checked and adjusted at the
contractual rates agreed
6 ADDITIONAL PROCEDURES (If any)

Bnkad18.sanjay v & mmk 12


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BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

ASSETS - INVESTMENTS:
[NOTES: 1.Generally investments are dealt with on a
centralised basis and verification procedures
on behalf of the office may be restricted to
certain branches only.
2. If the above procedures are not applicable at
the Branch, if may be so indicated.]

1 WHERE INVESTMENTS ARE HELD AT THE BRANCH: XX XX

a. Has the list of investments held on behalf of the head office,


been obtained and checked with the branch records
b. As at the year end, are there any pending adjustments for
purchases/sales on value date basis , if required to be
adjusted at the branch
c. Are there any matured/redeemable investments in respect of
which proceeds have not been received and recorded at the
branch on behalf of head office
d. Have the category-wise investment holdings been verified
with reference to

 Holding certificates where these are held by others

 Depository confirmations/statements where these are in


demat form

 Physical verification procedures

 Allotment letters/documentary evidence for holdings


where the related securities are not held
e. Has the certificate of holdings been issued based on the
verification procedures adopted
f. Does the certificate clearly state discrepancies in the holding
and as per the head office list
2 WHERE VALUE OF INVESTMENTS IS RECORDED AT THE
BRANCH (OTHER THAN THE TREASURY BRANCH):
a. Does the branch have authority to record and deal with
investments
b. Have the purchases/sales been authorised and recorded on
value date basis
c. Have holdings been verified at the year end and tallied with
the book records
3 INCOME
a. Has income on the investments been computed, if required to
be done
b. Has any income been recorded in the books of the branch
contrary to the head office instructions
4 ADDITIONAL PROCEDURES (If any)

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BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

ASSETS - ADVANCES
1 Do the advances figures under each sub head in the branch
balance sheet tally with the break up thereof in the statements
2 Has the branch management provided a confirmation as to
whether all the prudential norms of RBI for the time being in
force applicable, are followed in the preparation of the
statements of advances
3 Has the system of preparation of the statements of advances
been put to check by the branch or head office and is there a
certificate/representation that all the RBI parameters have been
built into the system driven information
(If not, a qualificatory para must be brought into the Main Report)
4 Has a comparison been made of the summary of the year end
advances classification with that of the earlier year and
analysed
5 Has a statement been obtained and checked as to the status of
aggregate NPAs at the branch (opening aggregate balance,
additions during the year, upgradations during the year,
reductions due to repayments and closing balance)
6 Has the status of the branch NPAs been compared with that of
the earlier year and reviewed/analysed
7 Has it been understood that audit verification procedures require
in depth examination of the selected accounts with reference to
 Documentation (based on appraisal)
 Operations
 Security (primary and collateral and guarantees)
 Advance outstanding
8 Is it understood that the objective of verification of advances is
to ensure that
 Disclosures in the branch balance sheet are correct and in
line with the legal requirements
 Internal classification of borrowal accounts at the branch is
as per the applicable RBI regulatory norms (standard, sub
standard, doubtful, loss)
 Provisions can be computed (to the satisfaction of auditors),
based on appropriate classification and consideration of
security/guarantee etc.;
 Income recognition is made on performing accounts and not
recognized / derecognised in respect of non performing
advances
9 Have the daily exception reports been reviewed for a period of at
least three months (prior to the year end), to recognise adverse
features related to advances accounts and have the accounts
that need examination, been identified, and included for
examination

Bnkad18.sanjay v & mmk 14


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BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

ASSETS – ADVANCES (Contd.)


10 Has selection of advances accounts been made for verification
based on the following criteria:

a. All Large Accounts (As per the requirements of reporting in


the LFAR , large advances are those in respect of which the
outstanding amount is in excess of 5% of the aggregate
advances of the branch or Rs. 2 crore, whichever is less)

b. Adversely commented accounts in the latest reports of:


 RBI (Accounts in which there is divergence with RBI)
 Concurrent Auditors
 Inspection
 Statutory Auditors (including in LFAR)
 Latest Quarterly review
 Credit Audit Reports
 Stock audit reports
 Any other special report (Including the Manager’s handing over
charge report, on change of branch Incumbent)
c. Standard Accounts in default
 Irregularity due to non submission of stock statements for 3 months and
such irregularity persisting for 90 days thereafter
 Non review/ renewal of limits within prescribed period

 Others in default in servicing of interest/installments

 Accounts where there is frequency of devolvement of LCs/Guarantees

 Accounts restructured /rehabilitated

 Accounts in the critical list of the Bank

 Accounts frequently overdrawn and regularized towards the end of each


quarter
 Standard Accounts with Interest (Suspense/ Unapplied)
d. BIFR cases classified as Standard

e. NPAs upgraded to Standard

f. Advances involving Fraud

g. Standard/sub standard Accounts in litigation/dispute

h. Accounts where restructuring/rehabilitation is requested

i. Advances where there is substantial erosion in security value

j. Wilful defaulters

k. FITL/WCTL accounts

l. major problem accounts (including in consortium/multiple banking)

m. restructured accounts in default

n. Accounts not subject to special regulatory treatment

o. Advances taken over from other banks

p. One time settlement cases in default

q. Advances identified after the year end as NPAs

r. MSME Borrowers registered under the GST Regime as on 31.1.2018


having an exposure in aggregate (including non-fund based) up to Rs.
25 Crore.
s. Other accounts as per request as per Section A Annexure IA

(Report adverse features and change in classification in the accounts


examined)

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BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

ASSETS – ADVANCES (Contd.)


11 VERIFICATION OF ADVANCES PROCESSED BY CENTRALISED XX XX
PROCESSING CELL
a. Have you examined the documentation in respect of advances
accounts selected , by access to the relevant papers
(Non access to documentation needs a qualification in the
Main Report)
b. Have you examined the operations in accordance with the
authenticated terms of sanction on record in the cases tested
12 BILLS DISCOUNTED AND PURCHASED
a. Does the balance in the books tally with that as per bills
discounted and purchased (Report difference)

b. Are there any old/large bills that are outstanding at the


branch (Report)

c. Has frequent returning of bills been noticed at the branch


and whether these returned bills are replaced by fresh bills,
rather than being paid.(Report)

d. Is interest recovered on the overdue period of the bills


matured and not paid on time.
(Interest due but not recovered to be reported)

e. Are cash margins being received on bills, as per sanction


and not released till realisation of the bill (Report, if
adverse)

f. Has the branch wrongly treated as “secured”, the


following:
 Documentary bills (RR/airway bill/bill of lading) under
delivery-against payment terms which have been parted
with
 Documentary bills under delivery-against acceptance
terms, supply bills where acceptance has been obtained
and bills parted with
(Report as Unsecured)
g. Check and report bills drawn on sister concerns, associates
and unauthorised parties
h. Are there unusual matters like sequentially numbered
invoices/ transporter’s bills to the same drawee, frequent
dishonour of bills by drawees and amounts discharged by
the drawer
13 CASH CREDITS, OVERDRAFTS, DEMAND LOANS
a. Are there any adverse balances in deposits accounts that
need to be shown as advances
(report, if advances do not include these)
b. In the accounts identified and checked, are there any
adverse features as regards appraisal, documentation,
operations, security and outstanding balances that has
effect on the classification
(Report change in classification giving reasons)
c. Does the branch give a copy of the documents executed in
connection with the advance, to the customer
(Report in LFAR, cases where these have not been
sent to the customers)
d. Are there blank/unfilled /incomplete documents executed
with the customers
(Report )

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BANK BRANCH AUDIT PROGRAMME 2017-18
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WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

ASSETS – ADVANCES (Contd.)


CASH CREDITS, OVERDRAFTS, DEMAND LOANS(Contd)
e. Has evidence been seen as regards the existence and
realisable value of security (primary and collateral) in the
cases examined
f. Are adverse comments noted for the purpose of the
report
g. Has the drawing power been computed in the manner
required in respect of stocks and debtors in the cases
examined
h. Has any advance account been regularised towards the
year end by adjustment /transfer entries, but for which
the advance classification would adversely change
i. Has the classification change been discussed with
management and representation obtained
j. Whether the changes in classification of the advances
accounts have been reported with reasons, through the
MOC
k. Have any accounts been identified as intrinsically or
potentially weak, but due to the RBI technical norms
have been treated as advances with ‘standard’
classification
(Report in LFAR))
14 TERM LOANS XX
XX
a. As at the year end, are there any term loans, (classified by the
bank as “standard”) where the amount of instalments of
principal and/or interest remain overdue
 For a period of more than 90 days (other than crop loans)
 For two crop seasons (short duration crops)
 For one crop season (short duration crops)
(Report, giving details)
b. Have any term loans earlier classified as NPA, been upgraded
without any justification (Report)
c. Has any default been observed in the servicing of loans
comprising FITL/WCTL (Report)
d. Housing loans to staff
Are there any defaults in repayments (Report)
Are there any advances to persons who have ceased to be
employees (Report)
15. INCOME RECOGNITION
a. Wherever change in classification is made, has it been
ensured that income earlier accrued but not realised is
reversed
(Report if income is wrongly recognized on NPAs)
b. Has it been ensured that where due to audit verification,
classification of the advance is changed adversely, the
balance in the borrowal account at the branch is net of
interest reversal, to the extent it is not realised
c. Has the branch computed upto the year end, the income
contractually due on NPAs but not recognised (interest
suspense/unapplied interest) – If not, take observation for
reporting in LFAR
d. Check whether, in the absence of instructions of the
borrower, the order of appropriation of receipts from the
borrower is towards principal or interest
(Report, if system is inappropriate)

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BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

ASSETS – ADVANCES (Contd.)


16.
RESTRUCTURING IN ACCOUNTS
a. Has a list of advances involving restructuring been
received
b. Has it been checked that only eligible accounts are
restructured
(Report ineligible cases and the effect thereof)
c. Have reasons / justification been ascertained for
advances subject to restructuring, being in ‘standard ‘
classification
d. Are there any cases of multiple /repeated restructuring
where advances are treated as ‘standard’ (Report such
cases)
e. Are there any advances subjected to refinance, of
change in ownership, where the RBI norms have not
been complied with
(Report such cases and effect on classification /
provisioning)
f. Are there any restructured accounts where moratorium
for payment of interest has been granted and interest is
accrued
(Report such interest wrongly recorded)
g. Has diminution in value / sacrifice been properly
computed in cases of restructuring that are pending at
the year end
(Report such cases and the amounts involved)
h. Has the FITL component of the restructured accounts
been retained in a separate account - "Sundry Liabilities
Account (Interest Capitalization)".
i. Are there any advances accounts for which benefit of
better classification has been given, contrary to RBI
norms
(Report such cases with effect on classification /
provisioning)
17 Additional Procedures(If any)

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WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

ASSETS - FIXED ASSETS:


(in case assets are recorded at the branch)
1 PREMISES:
a. Has the cost of premises been segregated
 Buildings/superstructures on leasehold land
 Superstructure on leasehold land
 Freehold land
 Buildings/superstructures on freehold land
b. Are there any additions during the year to
 Buildings/superstructures on leasehold land
 Superstructures on leasehold land
 Freehold land
 Buildings/superstructures on freehold land
c. Are there any deductions during the year
 Buildings/superstructures on leasehold land
 Superstructures on leasehold land
 Freehold land
 Buildings/superstructures on freehold land

d. Additions/further capitalisation
 Vouch new acquisitions with reference to sale
deed/allotment letters/documents of title
 Check additions/ extensions to existing buildings with
reference to costs incurred as per contracts/agreements
and book entries
 Check that all costs incurred and liabilities till year end are
capitalized
 Capital work in progress – are all progress bills as per
contracts, duly recorded
e. Has profit/loss on sale/disposal of premises, if any,
been vouched
f. DEPRECIATION/AMORTISATION

 Has leasehold land been amortised as per the lease terms


 Are superstructures on lease hold land being depreciated
over the period not exceeding the period of the lease of the
land appurtenant thereto
 Is depreciation in accordance with the laid down
accounting policy and as per the Accounting Standard (AS)
10
g. Do the audit notes /observations cover the following

 Figures in the statements being at variance with those as


per books
 Evidence/documents of title not available in respect of the
ownership of the premises and disputed title to /litigation
on properties
 Adjustments pending in respect of additions/deductions/
capital work in progress
 Short/excess depreciation / amortisation during and till the
year end
 Premises, if not insured or under insured
 Municipal/taxes/levies unadjusted or in dispute

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WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

2 ASSETS-OTHER FIXED ASSETS (including furniture and


Fixtures- in case the value is recorded at the branch):
a. Are figures checked under each sub head in respect and
adverse observations noted in respect of
 Opening cost
 Additions (including internal transfers)

 Assets acquired for which liabilities have not been adjusted


till the year end

 Entries in suspense accounts represented by fixed assets

 Deductions (including internal transfers)


 Closing balance of cost
 Branch renovation and other repairs expenditure –whether
segregated between capital and revenue
 In case of additions to/deductions from assets that were
vouched, is there any authorisation by the delegated authority
b. DEPRECIATION

 Opening depreciation
 Depreciation adjustments during the year as per the
accounting policy, based on actual date(s) of acquisition
/deduction (period of use)
 Aggregate depreciation till the year end
 Profit /loss on sale/disposal/discarding of assets
 Assets remaining uninsured
c. Evidence of Existence f Assets

 Is there a system of taking periodic physical inventory of the


fixed assets and reconciliation thereof with the book records
 Has the system been followed
 Have the discrepancies been adjusted
 Are there any major discrepancies that need reporting
d. Other Procedures (If any)

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BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

ASSETS - OTHER ASSETS


1 Inter-Office Adjustments (net)

a. Has the system of inter branch matching/reconciliation been


understood
b. Have you come across any originating debits(that were not
authorised by head office ), in Head Office Account
maintained at the branch
c. Are there any unattended inward communications from head
office/reconciliation cell that remain responding; and based
on the nature thereof, do these warrant any adjustment
entries through MOC.
d. Does the system warrant the preparation and submission of
daily head office summaries , and if so, has this discipline
been followed
e. Have the entries originated at other branches prior to, but
responded after the year end, been reported through the MOC
f. Are there any old /unadjusted debits in head office/sub heads
accounts that remain unexplained and whether these have
been reported through the MOC
2. ADDITIONAL PROCEDURES (if any)

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BANK BRANCH AUDIT PROGRAMME 2017-18
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WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

3. INTEREST ACCRUED (Comprises that not due)


Report Interest accrued and due at the year end, if included
under the above sub head, in respect of:
a. advances accounts in cash credit, overdraft and bills,
contrary to RBI norms particularly where the bank
debits the borrowers’ accounts with interest at each
month end.
b. Investments, if any at the branch
c. Other interest bearing accounts
4. STATIONERY AND STAMPS
a. Has physical verification as at the year end revealed any
discrepancies in items of critical/security paper stationery as
compared to book records
(Report discrepancies, if noticed)
b. Whether the branch follows the laid down system of internal
control over the receipt, custody, issue and stock of
stationery comprising security paper stationery
(Report inadequacies/breach)
c. Other than security paper stationery

 Does the branch hold bulk stationery


 Has such stationery been physically verified and tallied
with book records
 Are there any material differences that need reporting
a. Does the stock of stamps physically verified at the year
end tally with that as per books

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BANK BRANCH AUDIT PROGRAMME 2017-18
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WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

5. Others – suspense /sundries(or other similar heads of


account):
a. Has the list/year wise analysis of outstandings in such
accounts been obtained
b. Are there any unusual/old/large balances that require
reporting for provisioning
c. Staff Advances (Non Interest bearing)
Are there any old/unusual amounts outstanding in on such
advances, or any adverse features
6. Other Procedures (If any)

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BANK BRANCH AUDIT PROGRAMME 2017-18
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WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

OFF BALANCE SHEET ITEMS - CONTINGENT LIABILITIES XX XX

1. Claims against the bank not acknowledged as debts


a. Has a list of updated claims lodged against the
bank been obtained and status thereof checked , including
based on correspondence /communications and
whether the claims have been contested/not
acknowledged
b. Has a scrutiny been made of details of major law charges
to determine whether any expenditure has nexus to any
claims/ disputes/litigation matters having financial
implications involving possible liability not acknowledged.
c. Whether any claims outstanding as at the previous year-
end have been omitted / ignored unless liability in respect
thereof has ceased.
Report difference in the Main Report.
d. Has information on claims recorded in the post-balance
sheet period been sought to ensure that no items relating
to the year under audit have been ignored.
2 Liability for partly paid investments: (if applicable) -
Report any liability required to be, but not adjusted

3. Liability on account of outstanding forward exchange


contracts: (if applicable)
a. Whether register(s) relating to the outstanding
forward exchange contracts have been checked to
ensure that all transactions contracted upto the year-
end have been correctly recorded.
b. Has the basis of year-end foreign currency conversion
been checked with reference to Head Office/controlling
authority communications
c. Whether the Branch has recorded the net profit/loss upto
the year-end as per R.B.I./FEDAI instructions for the time
being in force.
4. Guarantees given on behalf of constituents:
a. Does a scrutiny of the guarantee register(s) ensure that
the internal control system for issuance of guarantee
documents, is observed and particularly that these are
issued sequentially and are expeditiously recorded
b. Has the list of outstanding guarantees been checked with
the relevant registers to ascertain whether all outstanding
amounts are included as at the year-end
c. Do guarantees include any that have been invoked and
paid
d. Where guarantees are invoked and paid, has the Branch
taken action to recover the amounts and invoked counter
guarantees
e. Are there any expired guarantees, where the claim period
has expired and the obligations have ceased, but these
continue to be disclosed
f. Are there any continuing guarantees where cash margins
received have been reduced
g. Whether secured/unsecured obligations correctly shown
h. Whether year end rates applied for FOREX guarantees

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BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

5. Acceptances, endorsements and other obligations:

6. a) Letters of credit:
 Have the balances in the outstanding Letters of credit
been checked with reference to the relevant L.C.
Registers maintained
 Whether margins / security is obtained and held as per
the terms and conditions in the cases examined.
(keep record of cases tested in the work papers and report
any adverse observations)
b) Bills accepted:
 Check whether recoveries are being made from
customers upon the maturity of the bills accepted by
the Bank
 Are there any old balances that are not warranted,
considering the nature of the bills
7. Bills rediscounted:
 Has it been checked whether contingent liability is shown
only on account of outstanding bills rediscounted and
action was taken as at the year end to reverse the
obligation that ceased.
 Have confirmation certificates from the parties
rediscounting the bills (R.B.I./ I.D.B.I./D.F.H.I. and other
institutions/banks), been obtained and checked in
evidence of the outstandings
8. Letters of Undertaking
 Obtain confirmation that all LOUs issued are duly
recorded upto the year end.
 Verify year-end outstanding obligations in foreign/
domestic currency
 Check inter bank confirmations for outstandings
 Check whether there are any unpaid claims from
overseas banks that are in default (Report these)
9. General:
Has a Management representation been obtained to the
effect that all known liabilities have been duly
incorporated upto the year-end and that there are no
contingent or other liabilities except to the extent disclosed
in the branch returns submitted for audit.

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BANK BRANCH AUDIT PROGRAMME 2017-18
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WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

10. BILLS FOR COLLECTION


a. Has a scrutiny been made of the age-wise details of the
pending bills, to ascertain reasons for retaining bills:
 beyond the normal dates of retention; or
 contrary to instructions of the constituents; or
 those which have been frequently returned, and for
which the customers have not been charged.
b. Are there bills drawn on sister branches that need to be
deleted

11. Additional Procedures (if any)

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YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

INCOME - INTEREST EARNED xx xx

1 Interest/discount on Advances/Bills:
a) Large Advances:
(with balances above 5% of the aggregate branch
advances as at the year-end):

i. Has interest application been checked for the


st
quarter ended 31 March, based on interest rates in
force
ii. Is interest being charged at monthly intervals on all
cash credit and overdraft accounts
iii. Has the effective date been observed in the
computer software programme for any changes in
the rates applicable
iv. Are the rates of interest based on the pricing as per
Credit rating of the borrower (If not, report effect of
the non compliance in the accounts examined)
v. Has interest been charged upto the year end, or has
it been applied to the borrowal accounts on a date
prior to the year end. If so, how much is the short
interest recorded till the year end.
(Accounts examined must be listed in the audit notes
and adverse features reported)
b) Are there any large debits in the Interest Income account
that have not been explained
(Enquire in writing the justification for such debits)
c) Does the system warrant in case of accounts identified as
NPAs during the year , that Interest applied but not realized
is reversed to the account of the borrower, rather to a
separate Interest Suspense Account
(Report the amount of such reversal)
d) Are there any discrepancies reported by Internal/concurrent
auditors/Inspections, that pertain to the year, but not
adjusted
(Report)
e) Has any interest been accrued on NPAs and on amounts
determined/reclassified in audit as NPAs
(Report such interest as wrongly recorded)
f) Are there any communications from borrowers pointing out
differences in Interest charge, and whether action as
justified has been taken in this regard (Report adjustments
required)
g) Are there any large deposits towards the year end in
borrowal accounts towards interest, particularly in cash and
cash withdrawn by the just after the close of the year. If so,
have these been examined
h) whether any adjustments, by manual intervention/editing
have been made as at the year end towards interest and
have these been checked and justified
i) Where moratorium has been allowed in cases of
restructuring of loans, whether interest has been accrued
and justified in standard accounts, contrary to RBI norms
(Report)
k) Is Interest upto December 2017 pending as at the year end
(Report advance as NPA, if not done by Branch)

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YES NO SCHEDULE ASSISTANT
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l) Other Advances:
i) Term Loans:
Has interest been checked for the quarter ended 31-3-
.2018 in
- 5 of the largest accounts
- 2 accounts at random
[List out names of the Accounts checked]

ii) Cash credits, overdrafts, demand loans etc.


Has interest charged in each category of advances
covered by the above sub–head, been checked for one
month (December 2017)
- 2 accounts (largest advances, other than as per (i)
above)
- 3 accounts at random
Report whether interest has been short/excess charged
from borrowers based on application of wrong credit
rating- List such Accounts
iii) Are there any accounts where interest upto December
2017 is in arrears as at the year end (Report borrower as
NPA, if not done by Branch)
(Prepare a list of accounts and periods for which
interest has been checked - as per the
recommended proforma for Report –Section D I.4)
m) Are there any term loans, where installments of principal
are in arrears for 90 days as at the year end , and whether
interest has been accrued thereon (Report)
n) Does the system warrant the computation of Interest
receivable on Term Loans coinciding with each calendar
quarter , or is it based on contractual obligations for each
term loan on stipulated due dates (Report system /
discrepancies)
o) Is interest computed and shown as accrued and due on
Bills that are overdue as at the year end. (Report)
p) Have year end entries been checked for Discount reversal
in Bills Rediscounted with other Banks/Institutions (Report
errors)
q) Are there any discrepancies reported by Internal/concurrent
auditors/Inspections, that pertain to the year, but not
adjusted (Report)
r) Are there any communications from borrowers pointing out
differences in Interest charge, and whether action as
justified has been taken in this regard (Report adjustments
required)
s) Check whether, in the accounts examined interest has
been recorded as income on Non-Performing Accounts
contrary to RBI norms

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NUMBER/
REFERENCE

INTEREST EARNED: (Contd.)


2 Income on Investments:
Has authority/basis for recording income on investments, in
the branch returns, been checked; and if authorized, vouch the
same in-depth.
3 Interest on balances with Reserve Bank of India and other
inter-bank funds:

Has authority/basis for recording income on balances with RBI


and other inter bank funds, been checked in the branch
returns, and if authorised, vouch the same in-depth.

4 Others:

i. Are there any items under the head “Other Assets” in the
Balance Sheet that are interest bearing. Have the interest
adjustments at the year end been checked
ii. Has the basis of interest receivable on security deposits
been determined and has the year end adjustment been
checked
iii. Has the adjustment of interest due from HO been checked
with reference to the HO Advice.

(Record must be kept for items tested)

5 Other Procedures : (if any)

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WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
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REFERENCE

INCOME - OTHER INCOME:


1 Commission, exchange and brokerage:
a) has Test check been made for commission on:
- Bills for collection - for bills in hand as at the year-end
- Letters of credit (those current - 10% of the largest ones
in value)
- Guarantees (those current - 10% of the largest ones in
value)
b) Have entries each in excess of 2% of the aggregate, been
vouched, in each income head in which commission,
exchange and brokerage, is recorded.
c) Have reasons for major discrepancies between locker rent
collected and that normally due on the basis of lockers let
out, been ascertained
d) Whether adjustments to the extent required, have
been made in the accounts in compliance of the
latest reports of:
- the Branch inspection audit,
- Income/Revenue audit,
- concurrent audit, and
- any special audit.
2 Profit on sale of investments (less Loss):
(If applicable at the branch)
Check authority/basis for recording in the Branch returns,
the profit/loss on sale of investments- and vouch the
transactions in depth.

3 Profit on sale of land, buildings and other assets (less


Loss (If applicable at the Branch)
Check authority for disposal of:
a. fixed assets, if any, sold during the year under audit;
and
b. non - banking assets acquired in satisfaction of
claims.
c. Vouch transactions in evidence of profit/loss recorded
by the Branch in respect of assets, as aforesaid.
d. Report if any assets have been revalued and entries
recorded in respect thereof at the Branch level.

4. Profit on exchange transactions (less, Loss):

a) Check that the year-end outstanding entries are


converted at appropriate rates of exchange as
communicated by the Controlling authority, for
recording profit/loss on exchange transactions.

b) Test large transactions (each in excess of 2% of the


aggregate in the ledger), and check whether these
are recorded in compliance with the directions of the
controlling authority.

c) Scrutinize the transactions recorded in the post-Balance


sheet period to ensure that no material items have been
ignored upto the year-end.

d) Enquire into unusually large entries involving huge


gains/losses for the year (and whether these pertain to
the Branch or another linked office).

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YES NO SCHEDULE ASSISTANT
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REFERENCE

INCOME - OTHER INCOME:


5. Miscellaneous Income:

a) Ascertain whether any premises or part thereof is let


out, and if so, whether rent recoveries are recorded
upto the year-end at the rates as applicable.
b) Check items, each in excess of 5% of the aggregate
amount in the income sub-heads relating to
'Miscellaneous income'.

(Take note of work done, in the audit file)


6. OTHER PROCEDURES (If any)

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REFERENCE

INTEREST EXPENDED:
1 Interest on deposits:
Has interest expended been test checked for each category
of deposits, as under and note kept on record
(based on the system and modifications in applicable
rates as made from the effective dates):
(Have ‘exception’ reports been generated on adverse
features and remedied)
2 Are there any large/unusual credits in Interest Expenditure
during the year as per Exception Reports, that remained
unattended to (Report)
3 Does the system warrant computation of Interest on
Unclaimed/Unpaid Deposits
If not, report
4 Are there unclaimed deposits in Current or Deposit Accounts
of deceased depositors on which interest has not been
computed
Report
5 Are there any Current Accounts of RRBs on which interest is
exigible
6 Are there any adjustments pending in respect of Interest
discrepancies pointed out by the Internal/Concurrent/Revenue
auditors (Report)
7 Term Loans
Check interest on year-end Term Loans from Banks
/institutions (100%).
Has the system been reviewed to see if there is scope for
interest accretion again on deposits in which quarterly
/monthly/interim interest is paid/applied
Has tax deduction at source been made and duly deposited
with Govt. in compliance with the Income tax Act and the
Rules made thereunder
Is there any amount of TDS paid that is not linked to any
Depositor, and which requires provision
Are there any adjustments pending in respect of Interest
discrepancies pointed out by the Internal/Concurrent/Revenue
auditors (Report)
Has a comparative analysis been made Interest on Deposits
and divergence noticed as compared to the earlier year
Has a test check been made of interest computation on
FCNR(B) Deposits to see if it is line with RBI Directives

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C
BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

INTEREST EXPENDED
8 Savings Bank Deposits:
Has any divergence been seen in the interest expenditure for
the year vis a vis deposits, as compared to the earlier year;
and if so has this been satisfactorily enquired into
Has provision been made for interest liability for the period
after the last application of interest in the individual accounts,
where such application date does not coincide with the year
end.
Has a test check of accounts revealed any discrepancies
(check 5 accounts at random and take note of accounts
checked)
Are there any adjustments pending in respect of Interest
discrepancies pointed out by the Internal/Concurrent/Revenue
auditors (Report)
9 Interest on R.B.I./inter-bank borrowings
(If applicable):
Has the authority / basis on which the branch has recorded
interest on the above, been checked.
10 Others:
Check interest / discount (100%) on borrowing/refinance
from financial institutions (if borrowings are authorised by
Head Office).
Check interest on non-risk bearing participation certificates
(100%). (if participation is authorised by H.O.)
11 OTHER PROCEDURES (If any)

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C
BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

OPERATING EXPENSES:
1 Payments to and Provisions for employees:
a. Has a review been made of:
 salaries/allowances for one month (Month_______)
 major variances in such salaries, allowances in any
other month; and have reasons for the same been
satisfactorily explained
b. Whether pursuant to any award/settlement or otherwise
any arrears of remuneration are due but not adjusted.
c. Whether HO has authorised any debits and the related
advices have been checked

2 Rent, taxes and Lighting:


a) Check rent for 1 month and verify whether adjustments
have been made for the full year on account of rent at
the rates as applicable and as per agreement in force.
b) If any agreement has expired, check provision for
accelerated demand/claim; and report non
provision/adjustment
c) Report whether Rent includes House Rent Allowance
to employees.
d) Report municipal rates/taxes not paid/adjusted in
respect of the Branch, for the year under audit
e) Report any disputed liability on this account upto the
year-end, not provided/considered as Contingent

3 Printing and Stationery:


Check items, each in excess of 5% of the total expenditure
recorded at the branch.
Check and report if any articles of stationery have been shown
in the Branch statements (Report the same)
4 Advertisement and Publicity:
Check items, each in excess of 5% of the total expenditure
recorded at the branch.

5 Depreciation on Bank's Property:


a) Check H.O. instructions as regards adjustment of
depreciation on the fixed assets of the Branch.
b) Check whether depreciation on fixed assets, has been
adjusted at the rates/basis and in the manner required by
Head Office.
c) Report unadjusted depreciation on assets acquired but
not capitalized.

6 Law Charges:
Review items, each in excess of 10% of the total expenditure
recorded at the branch.

7 Postage, Telegrams, Telephones etc.


a. Check items, each in excess of 10% of the total expenditure
recorded at the branch.
b. Check whether OYT deposits have been written off in
accordance with the system in force.
8 Repairs and Maintenance
Check items, each in excess of 10% of the total expenditure
recorded at the branch.

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C
BANK BRANCH AUDIT PROGRAMME 2017-18
S. No HEAD /SUB HEAD OF ACCOUNT OBSERVATION SIGNATURE
WHETHER IF ADVERSE, OF
YES NO SCHEDULE ASSISTANT
NUMBER/
REFERENCE

1 General Ledger:
Have the closing balances in the statements been checked
as in agreement with the books
Are there any unusual entries in the day end /month end
procedures while closing the books at the year end (that
require reporting).
2. Safe Custody:
Has it been ascertained as to whether:
 securities/parcels/packages of the customers kept in safe
custody with the branch are intact and as per entries
made in the Safe Custody Register maintained.
 seals are intact in respect of sealed covers of
customers (The contents of such covers are not
required to be verified by opening the seals).
 the system warrants safe custody items being returned with
proper acknowledgements from the recipients.
 income on account of safe custody charges.
(Note must be kept in the audit file for work
executed)

3 Frauds/Vigilance Cases:

a. Scrutinise the list of cases recorded at the Branch


including those reported/recorded after the year-end for
considering in the long form audit report, any major
items.
 For frauds
 For Vigilance cases
 Customers’ complaints for unauthorized debits to
their accounts pending enquiry (not covered by the
above)
b. Ascertain whether adequate provision has been made /
recommended for debits arising at the branch on
account of frauds reported/recorded.
5 Corresponding Comparative Figures:

a) Enquire from the Branch Management the reasons for


disproportionate unusual/large variations under income
or expenditure heads as compared to the corresponding
financial figures of the earlier year.
b) Broadly review the trends between:
- the interest earned in relation to advances and
outlay of funds; and
- expenditure by way of interest vis-a-vis the Deposits and
other liabilities,
- current and preceding year’s aggregate of
. Interest Suspense
. Unapplied Interest
and ascertain from the management, reasons for
divergent trends.
Report results of enquiry/ review, if not satisfactorily
explained.
(These matters are more relevant to the long form audit
report).

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II
C
NOTES AND INSTRUCTIONS - DEPOSITS:

1. Legal requirements of disclosure:


A. I. Demand Deposits:
i) From Banks
ii) From Others
II. Savings Bank Deposits
III. Term Deposits:
i) From Banks
ii) From Others
B. i) Deposits of branches in India
ii) Deposits of branches outside India

2. Demand Deposits:
Demand deposits are of the nature of current accounts at credit of parties, are repayable on demand and
include Overdue/matured Deposits, Credit balances in overdraft accounts, Deposits payable at call,
Inoperative current accounts, Vostro Accounts, *Merchant Bankers’ and similar Deposits, Interest accrued
and due on deposits and exclude Margins by way of book adjustments, if any, against bills purchased and
discounted. These are disclosed at gross figures without netting out Overdrawn/adverse balances in deposits.
Such deposits to be separately disclosed in respect of: a)Banks; and b)Others.
a) From Banks- The term "bank(s)" include banking companies, nationalised banks, S.B.I., associate banks
and other institutions, including cooperatives carrying on the business of banking, whether or not
incorporated or operating in India. These include credit balances in VOSTRO accounts . NOSTRO
accounts are expected to be invariably at debit.
b) From others - would comprise all demand deposits other than in (a) above
credit balances in overdraft accounts,
deposits payable at call,
overdue deposits,
inoperative and Dormant current accounts,
matured time deposits/cash certificates/certificates of deposits etc.
(*The reconciliation status of Merchant Banking deposits must be enquired into and reported as
this is a risk prone area)
c) Overdue/matured deposits, not subject to renewal instructions, are to be treated as deposits repayable on
demand and included in the balance sheet as Demand Deposits.
The Bank’s policy for suo moto renewal of deposits and for payment of interest on non renewal period (for the
period between maturity and renewal) of the deposits must be reviewed; and control systems examined and
reported upon, particularly in the EDP environment, where entries are automatically generated on due dates,
without the mandatory issuance of the Deposit Receipt.
Term Deposits are normally expected to be renewed within 14 days of their maturity to take advantage of
retrospective renewal/continuity of the deposit.

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NOTES AND INSTRUCTIONS-DEPOSITS(Contd.):
d) Certificates of Deposits (CDs)
Refer RBI Master Circular (FMRD.DIRD. 03 /14.01.003/2015-16 dated 1-7-2015) in respect of CDs, which,
though considered as a negotiable money market instrument, for issue in dematerialized form or Usance
Promissory Note for a specified short term resource time period (7 days to 1 year for banks, without any lock-in
period for the holders), are to be shown as Deposits as “CDs Issued”, although these have all the
characteristics of a 'borrowing'. These are issued at designated branches at a discount on the face value
(based on negotiated interest rates – fixed or floating), and repayable only at the end of a specified period, i.e.
on maturity. Being negotiable instruments, these attract stamp duty.
CDs can be issued in Demat or in physical form, and in the latter case must be issued on security paper
stationery, in denominations of Rs. 1.00 lac (FOR A SINGLE SUBSCRIBER) or in multiples of Rs.1.00 lac; and
without the benefits of repatriation, if issued to NRIs and not for endorsement to another NRI. Other than for
NRIs these are transferable by endorsement and delivery.
Pre-mature buyback is not permitted and no loans can be taken against CDs except those held by mutual
funds keeping in view provisions of paragraph 44(2) of the SEBI (Mutual Funds) Regulations, 1996; and unless
the RBI relaxes these restrictions for temporary periods.
Upon maturity, the relevant amounts become repayable on demand and are expected (as per RBI instructions)
to be treated as demand deposits.
For audit purposes, the aggregate amount of such CDs issued can be verified also from the data furnished on
the web-based module under the Online Returns Filing System (ORFS). Pro-rated expenditure by way of
discount up to the year- end on each certificate must be accrued / adjusted and included under the head "Other
Liabilities", as the terms of issue warrant that the proceeds be paid only on maturity.
3. Savings Bank Deposits :
a) Savings deposit is a form of demand deposit (by whatever name called), which is subject to the restrictions
as to the number and amounts of withdrawals permitted by the bank during a specified period. The above sub-
balances held in inoperative savings bank accounts.
b) Interest accrued upto the year-end on savings bank accounts which accrues and is due (though not applied
) to the account holders, should be grouped with, and form part of, the amount disclosed against the above
sub-head. Though Banks now have the liberty to apply interest even at less than at quarterly rests, most
banks apply interest and credit the individual Savings Bank Accounts twice a year with a cut-off date prior to
the year-end. Provision for the balance period upto the year-end may made at branches/Head Office,
depending on the practice adopted by each bank. Thus, if interest is actually applied/credited to account
holders upto January, then for February and March, the provision whether made at the branches/Head
office, should form part of the amount disclosed against the sub-head "Savings Bank Deposits".
Interest on savings bank accounts is required to be calculated on a daily product basis in terms of Para
3.2.1 of the RBI Master Circular DBR.No.Dir.BC. 7/13.03.00/2015-16 dated 1-7-2015; and the banks have
been given freedom to fix the rate of interest on savings accounts.
c) Savings Accounts cannot be opened for Government departments/bodies* etc. as per clause 6(m)(i) of
the said RBI Master Circular, such prohibition not being applicable to organizations/ agencies as per
Annexure 2 of the Circular (*Primary Co-operative Credit Society being financed by the bank, Khadi and
Village Industries Boards, Agricultural Produce Market Committees, Societies registered under the Societies
Registration Act, 1860 or any other corresponding law in force in a State or a Union Territory except societies
registered under the State Co-operative Societies Acts and specific state enactment creating Land Mortgage
Banks, Companies governed by the Companies Act, 2013 which have been licensed by the Central
Government under Section 8 of the said Act, or under the corresponding provision in the Indian Companies
Act, Institutions other than those mentioned in clause 6(m)(i)and whose entire income is exempt from
payment of tax under the Income-Tax Act, 1961, Government departments / bodies / agencies in respect of
grants/ subsidies released for implementation of various programmes / Schemes sponsored by Central
Government / State Governments subject to authorization , Development of Women and Children in Rural
Areas (DWCRA), Self-help Groups (SHGs), promoting savings habits among their members, Farmers’ Clubs
– Vikas Volunteer Vahini – VVV)
4. Term Deposits:
a) Term Deposit means a deposit for a fixed period and which is withdrawable only after the expiry of such fixed
period, and includes recurring/cumulative/reinvestment deposits/ cash certificates; and exclude Interest
accrued and not due, which must be included in “Other Liabilities and Provisions – Interest Accrued” in
Schedule 5 annexed to the Balance Sheet. Deposits repayable after a *specified term are required to be
disclosed under the above sub-head separately for banks (which term is defined -refer Para 2(a) above), and
Others.
(*Duration of "specified term" has not been stipulated, but cannot be less than 7 days)

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IV
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NOTES AND INSTRUCTIONS-DEPOSITS(Contd.):
b) Term Deposits from banks should normally be in round figures and reasons for the amounts being in odd
figures (unless renewed with interest due), must be enquired into.
In describing 'Money at call and short notice' as an asset, R.B.I. has used both the terms "deposit" and
"lent", which have relevance to the heads, Deposits/Borrowings. Such moneys being repayable after a
"specified term", would have to be included as 'Term Deposits'.
c) Banks have started renewing overdue term deposits suo moto with formal instructions being obtained at the
time of receipt /renewal of deposits. On maturity dates, the book entries are automatically reversed in the
ledgers (in the EDP environment); and it needs to be ensured that receipts are issued in physical form
(Refer Para 3.21 of the said Master Circular), except in case of accounts frozen by authorities (refer
Para 3.7). Inadequate/loss of control over credits comprising “Deposits” , is a risk/fraud prone area and risks
relating to receipts not issued and those issued but held in its own custody by the branch, needs to be
reported in the LFAR (See Section K).
Interest accrued and due should form part of the Term Deposits.
Interest normally credited to various categories of deposits issued under special schemes, recurring
deposits where interest is on compounded basis and is considered by banks as due, would be included in
Term Deposits.
Interest accrued but not due (comprising provision made/estimated on Deposits for broken periods), are not
to be treated as part of “Deposits” but as “Other Liabilities”
Particular care needs to be taken for FCNR(B) and other deposits in foreign currency, where interest
accrues but is not due till normal maturity of each deposit; thus requiring the provision of interest
accrued ,to be treated as part of “Other Liabilities”.
5. Deposits under the Gold Monetisation Scheme, and interest accrued need to be checked in terms of the
RBI Directive (refer Section Q)
Designated Banks can record in their books only Short Term Bank Deposits (STBD 1-3 years with a roll over in
multiple of one year) equivalent of the gold value accepted as per the Scheme/Directions. Medium and Long
term Govt. Deposits are accepted on behalf of the Govt. and while these are not recorded in the accounts of
the Bank, a memoranda record should be kept due to accountability issues.
6. Balances held in Foreign Currencies:
Deposits under the Scheme mean “term deposits” received by the banks in the designated foreign
currencies, including from NRE accounts (in Pound Sterling, US, Canadian and Australian Dollar, EURO and
Japanese Yen), for a fixed period and withdrawable only after the expiry of the said fixed period; and include
Reinvestment Deposits and Cash Certificates or other deposits of similar nature, but not Recurring deposits.
“FCNR(B) account” means a Foreign Currency Non-Resident (Bank) account referred to in Foreign Exchange
Management (Deposit) Regulations, 2000, as amended from time to time.
As per the directives in the RBI Master Circular (DBR.No.Dir.BC.8/13.03.00/2015-16 dated 1-7-2015), FCNR
(B) deposits, can be received only from Non Resident Indians (individually or jointly, and not from Overseas
Corporate bodies) for periods of 1year and above and up to 2 years, 2-3, 3-4, 4-5 and 5 years only,
including by transfer from NRE Account(s); and interest on the deposits accepted should be calculated on the
basis of 360 days to a year, in the manner stated hereunder (also refer Section O):
a) For deposits up to one year, at the applicable rate without any compounding effect,
b) In respect of deposits for more than 1 year, The interest on FCNR (B) deposits should be calculated at
intervals of 180 days each and thereafter for remaining actual number of days, till normal maturity.
However, the depositor will have the option to receive the interest on maturity with compounding effect.
Interest rates to be adopted by Management shall be within the limits prescribed by RBI, with penalty for
premature encashment/conversion, except in case of death of the depositor.
In terms of Foreign Exchange Management (Crystallization of Inoperative Foreign Currency Deposits)
Regulations, 2014 and vide Notification No. FEMA 10A/2014-RB dated March 21, 2014 , issued under Foreign
Exchange Management Act (FEMA), 1999 relating to inoperative foreign currency deposits, directions have
been issued under Sections 10(4) and 11(1) of FEMA; and as per Clause 2.7 of the RBI Master Circular
DBOD.No.Dir.BC.14/13.03.00/2014-15 dated 1-7-2014, inoperative deposits having a fixed term and
those with no fixed term maturity, after the expiry of a three month notice upon completion of three
years , will get crystallized into Rupees.

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NOTES AND INSTRUCTIONS-DEPOSITS(Contd.):

7. Interest payment in special cases: No interest can normally be paid on Current Account or certain other type
of balances. It can, however, be paid:
a) On Current Accounts:
- to Regional Rural Banks sponsored by the Bank - at the rates as mutually agreed, though banks are
encouraged not to pay interest to RRBs on balances maintained with the Bank (Para 3.10 of the said
Master Circular )
- to claimants/legal heirs/nominees in case of deceased depositors, sole proprietorship concerns as per
Para 3.18 of the Master Circular - interest to be paid only with effect from 1-5-1983, or from the date of
the death whichever is later : at the rate applicable to Savings Bank Accounts on the date of payment;
(in case of NRE Deposit where the claimants are resident, the deposit on maturity is to be treated as a
domestic deposit, interest is to be paid for the subsequent period at a rate applicable to domestic deposit
of a similar maturity; and
b) On Term Deposits (other than FCNR(B)- where the depositor dies:
Bank is required to lay down a transparent policy as per Para 3.18 of the Master Circular referred to above.
c) If a Fixed Deposit Receipt matures and proceeds are unpaid, the amount left unclaimed with the bank will
attract savings bank rate of interest (Para 3.4 of Master Circular for Re. deposits).
8. Inoperative Accounts:
a) A response to the letter addressed to the Branch will assist the Auditor to take a view on the system of
dealing with Inoperative Accounts. Attention needs to be sharply focussed on debits/withdrawals
to ascertain whether these are unauthorised. In testing the debits, attention should be specially paid to
large and repetitive debits out of otherwise dormant accounts.
Centralisation of these needs to be encouraged and such a recommendation needs to be made through the
LFAR.
b) While scrutinising deposit ledgers, it is appropriate to ensure whether there are any stagnant/ inoperative
accounts which remain to be transferred. Computer generated exception reports will also reveal the status of
the Inoperative accounts.
c) Internal controls over Inoperative accounts, is imperative. The identification and transfer to separate ledger
sheets and withdrawal of “specimen signature” cards from active cards are important controls.
[Reference may also be made to the RBI Master Circulars dated 1.7.2015 -
DBR.No.Dir.BC.7/13.03.00/2015-16 and DBR.No.Dir.BC.8/13.03.00/2015-16 relating respectively to
domestic Deposits and FCNR (B) deposits. which have not been repealed]

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NOTES AND INSTRUCTIONS - BORROWINGS


1. Legal requirements of disclosure:
I. BORROWINGS IN INDIA
i) Reserve Bank of India
ii) Other Banks
iii) Other institutions and agencies
II. BORROWINGS OUTSIDE INDIA
III. Secured borrowings included in I & II above

2. Normally borrowings take place in a few designated branches under due authority of the Head Office / controlling
authority; and is in the shape of:

a) Refinance (against advances etc.) including by way of participation certificates on non-risk sharing basis; and
b) Borrowings.

3. Participation certificates on risk-sharing basis comprise amounts received (generally against “standard”
advances), but in case of loan losses/bad debts the participating bank would have to suffer the risk
of loss, based on the arrangements/agreement between the banks. The recipient branch advances
should, therefore, be netted out to the extent of such participation.

4. Where borrowings are shown by the Branch, the auditor must ensure that the borrowings/refinance:
a) is separately disclosed as required by law;
b) balance confirmation certificates are obtained in evidence of borrowings from each lender; and
c) the nature and extent of security is determined and disclosed

5. Amounts received by way of Bills of exchange rediscounted are not borrowings, and the amount would be
reduced from the head "Advances-Bills Purchased and Discounted” and contingent liability disclosed to the
extent of rediscount obtained.
The relevant documentation / correspondence/confirmation will establish as to whether the amounts
are in the nature of refinance/rediscount. The present practice in banks is not to physically part with the Bills
purchased and discounted and only a confirmation that these are held (as trustee) is given to the
Bank/institution rediscounting the Bills. Money received by way of re-discount of bills are to be netted from
Advances and disclosed as `Contingent Liability' and the amounts received not treated as Borrowings.

6. Certificates of Deposits are to be treated (at the discounted value at the year-end), as Deposits and not as
Borrowings.

7. Credit balances, if arising, in NOSTRO represent Deposits repayable on demand as also VOSTRO
Accounts which are akin to Current account balances and do not constitute borrowings unless an
overdraft/borrowing facility is obtained and evidenced on record.
8. As per RBI Circular No. DBOD.BP.BC No.81/ 21.01.002/2009-10 dated 30-3-2010 relating to
Classification in the Balance Sheet - Capital Instruments, RBI has advised that the following classification
may be adopted in the balance sheet from the financial year ending March 31, 2010 :
Under Schedule 1-Capital
(1) Perpetual Non-Cumulative Preference Share (PNCPS)
Under Schedule 4 – Borrowings
(2) Innovative Perpetual Debt Instruments (IPDI)
(3) Hybrid debt capital instruments issued as bonds/debentures
(4) Perpetual Cumulative Preference Shares (PCPS)
(5) Redeemable Non-Cumulative Preference Shares (RNCPS)
(6) Redeemable Cumulative Preference Shares (RCPS)
(7) Subordinated Debt

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NOTES AND INSTRUCTIONS – OTHER LIABILITIES AND PROVISIONS:
1. Legal requirements of disclosure:
I. Bills Payable
II. Inter-office adjustments (Net)
III. Interest accrued
IV. Others (including Provisions)

2. Bills Payable:
a) Bills payable as at the year-end would comprise of undischarged liability in respect of Drafts Payable,
Telegraphic Transfers, Mail Transfers, Cash Orders, Pay Orders, Banker's Cheques, Travellers'
Cheques, Pay Slips, Gift Cheques and similar instruments.
The amounts required to be disclosed under the above sub-head comprise instruments issued by the bank (or
its duly constituted agents/correspondent banks in India or overseas) against consideration received in cash
or by debit to the account of the customer on whose instructions, the instrument was issued, such instruments
constituting a monetary obligation of the Bank to be honoured at any branch of the Bank; and in the books of
the Bank, the credit precedes the payment/debit.
b) Amounts deposited with the bank by constituents against cheques/instruments issued by them e.g. to pay
dividend/ interest to shareholders/debenture-holders, in discharge of their (constituents') liability, will not be
treated as part of 'Bills Payable'.
c) Special care needs to be taken as regards old/large outstanding entries comprising Banker’s cheques, Pay
orders/slips and particularly if these instruments remain undelivered.
d) Internal controls/safeguards over unused security paper/stationery intended for the purpose aforesaid,
are extremely important and total compliance of the internal control procedures is imperative. Any breach of
system should be viewed seriously as this is a fraud prone area.
e) Most banks treat items relatable to the above head as transactions on behalf of Head Office and the sum
total of originating credit entries is transferred to Head office to be set off against the responding debits
communicated by other branches discharging the liability. The net credit for the time being comprises ‘Bills
Payable'. To the extent the entries are routed through Inter branch Account, the debits/credits are matched on
a centralized basis, for the purpose of reconciliation, as in case of other inter-branch items. The accounting
procedure of the bank must, therefore, be understood.
f) Special care needs to be taken as regards debits comprising payments without receipt of
advices/communications from the branches/offices/agents from which the instruments originated or issued; as
also, in case of newly opened branches/accounts, where instruments of large amounts are presented for
payment. Unmatched debits in the process of reconciliation or where there are no corresponding credits
outstanding (including in Inter branch Adjustments, wherever the centralized system is followed), must be
enquired into.
3. Inter-Office adjustments (Net)
a) The Branch usually maintains a Head Office Account, in which there can be no originating debits (unless
specifically permitted by the Controlling Office/Head Office, e.g., at the time of annual closing). The
originating credits that arise are squared up through the Head Office, by a responding debit to square up the
transitory entries that remain in nominal designated sub heads till squared up through the Head Office
Account. There cannot be long outstanding entries in the transitory/nominal sub heads; and if there are debits
over six months old, these call for reporting/ provision.
b) Auditors need to be familiar with the system of Inter branch reconciliation. While matching may be done on a
centralised basis for debits/credits relatable to inter-branch items arising at branches the reconciliation
process and adjustments have to be taken care of at the decentralized level. When the unresponded
entries are adjusted inter-se the branches based on communications:
. from the centralized computer cell where matching of debits/credits is done, or
. directly exchanged inter-se the branches.
c) Special care needs to be taken to ensure that items of Inter Bank nature do not creep into this head, where
for instance there are Draft drawing arrangements with another Bank which is funded for this purpose, or
advances wrongly parked and reversed post the balance sheet date.
4. Interest Accrued:
a) interest accrued but not due must be shown under the above sub-head only in respect of:
i) deposits; and ii) borrowings.
b) Interest payable on:
- staff security deposits, - margin deposits, if any, not included in "deposits",
- participation certificates on risk-sharing basis, - other items not included in deposits/borrowings, etc. is not
be disclosed under this sub-head but to be included against the sub head "Others (including
provisions)".

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NOTES AND INSTRUCTIONS – OTHER LIABILITIES AND PROVISIONS (Contd.):
5. Others (including provisions):
a) Under the above sub-head are to be included all residue items not covered by any specific head/sub-head,
including:
 Unexpired discount/rebate on bills discounted i.e., where part of receipt comprising discount charges on
bills purchased relate to the period beyond the year-end,
 Staff security deposits (and interest accrued thereon),
 Security deposits received from contractors etc.
 Cash margins against guarantees/ Letters of Credit etc.
b) Advances of expenditure nature, like LTA/ Travelling etc. shown as part of "Other Assets", are required
to be provided for, and to be netted while preparing the Bank’s balance sheet. At the Branch it is necessary
to review such advances (under Other Assets) to ascertain that provisions need to be recommended against
the same , unless these are taken care of as part of the usual and necessary provisions made at Head
Office. At the Branch level, the figures may not require to be netted out. The auditor should look into the
relevant H.O. instructions in this regard.
c) Certain items are required by banks to be included under the above sub-head, but these (usual and
necessary provisions), are not normally accounted for at the Branch level, e.g.,
 Provision for taxation,
 Provision for loan losses/doubtful advances,
 Surplus/Ad hoc provisions for doubtful advances (and diminution in the value of investments, if any at
the designated branch),
 Contingency funds not transferred to, or considered as part of, published reserves, and funds
earmarked for specific purposes,
 Depreciation/amortization on assets (where the system of the Bank so warrants),
 Provision for old/unreconciled debits accumulated in Inter branch accounts,
 Proposed dividends/transfer of surplus to Govt. etc.,
 Provision for arrears of staff salary on settlement, bonus, etc.
 Provision for terminal benefits to employees.

The Branch audit programme does not cover verification of these items, and the Branch Auditor's Report
should cover this aspect .

6. Long Form Audit Reporting requirements must be referred to and kept in view for reporting.

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CASH AND BALANCES WITH RESERVE BANK OF INDIA: NOTES /INSTRUCTIONS:
1. Legal requirements of disclosure:
I. Cash in hand (including foreign currency notes)
II. Balances with Reserve Bank of India:
i) In Current Account
ii) In other Accounts
2. Cash:
a) In physical verification:
i) checking must be undertaken of all balances simultaneously at all locations (including for
extension counters and ATM(s), if operated by the Branch), either before banking hours or after cash
counters for public dealings are closed ,so as not to cause inconvenience to the branch in dealing
with their constituents.
ii) actual counting may be undertaken for:
@
NEW NOTES - bundles with packing/seals intact should be counted
OLD NOTES - bundles with packing/seals intact should be counted with a sample
check of few bundles
LOOSE/SOILED NOTES - should be counted in full
COINS - should be counted in lots or by weight.
In large to medium sized branches, including Currency Chests, there is facility of currency/coin
counting machines/ currency sorting machines, that can be used for physical count.
iii) Notes/coins in sealed packets pending investigation/enquiry, should be accepted as such
under a confirmation from the branch management and a note taken on record.
iv) ATM balances as per the daily rolls from the ATM Machine should tally with the book balance and
unrecorded entries will comprise non debit to customers of the same or another branch or debits on
other banks. All ATM balances will be in round figures and comprise notes of the denominations stuffed
in the machines. Any odd balances in ATMs shall require be enquiring into and reporting.
Some banks have appointed agents who are charged with the responsibility of physically stuffing cash
into the ATMs, out of cash given to such agents. Auditors must examine, and report (LFAR); as also if
the bank has assumed the risk of loss of such cash while it is with the agents.
b) Effect of inward foreign currency parcels originating from other branches prior to, but not recorded
up to, the year-end must be reported, at the designated Foreign Exchange branch being audited.
c) Cash balances, if generally observed as varying significantly from the norms fixed by controlling
authority for the Branch or those far in excess of normal requirements, must be covered in the LFAR.
Normal requirements can be gauged from the inflow/outflow of funds (for the period covered by test). This is
relevant particularly if the branch has currency chest facilities or operates a local current
account with another bank.
d) Large volume of soiled/unusable/non exchangeable notes not exchanged/ held since long, must be taken
note of and reported in the LFAR.
It would be necessary to review and report [Refer Para 1.1(a), (b), (c) and (d) of the LFAR], also on:
- inadequacy of insurance cover in relation to cash retention by the Branch,
- breach of H.O. instructions relating to effective joint custody of cash, and
- non-verification of cash at periodic intervals by the authorised officials.
e) Refer to Head Office instructions relating to foreign currency rates, wherever foreign currency is held.
@ Non stapling of fresh/ issuable Note Packets, tendering of soiled notes and non mutilation
In exercise of the powers conferred by Section 35A of the Banking Regulations Act, 1949, the Reserve Bank of
India(RBI) , directed vide its Circular to banks ( DBOD No. Dir. BC. 42&43/13.03.00/2001-02 dated November 7,
2001) that with immediate effect, the banks shall: do away with stapling of fresh / re-issuable / non-issuable note
packets, and instead secure note packets with paper bands;sort notes into issuable and non-issuable, and issue only
clean notes to public;tender soiled notes in unstapled condition to RBI in inward remittances through Currency
Chests; forthwith stop writing of any kind on watermark window of bank notes (instructions reiterated frequently)
Demonetisation (cash exchange/deposits of demonetized currency notes)
Auditors need to make specific enquiry from Management as to whether there is anything observed as
adverse or causing detriment to the bank , pursuant to their implementation of the demonetization scheme,
whether through any investigation/review/inspection/examination/enquiry/vigilance etc., as may be a matter
of concern , including the involvement of fraud by employees/customers), and require them to draw
attention of the auditors thereto for consideration.
Attention is also drawn to Master Direction DCM(CC) No.G -2/03.35.01/2016-17 dated July 20, 2016-Master
Direction on Levy of Penal Interest for Delayed Reporting/Wrong Reporting/Non-Reporting of Currency Chest
Transactions and Inclusion of Ineligible Amounts in Currency Chest Balances, particularly Para 2 which deals with
Penal interest for inclusion of ineligible amounts in the currency chest balances and mandates that Penal interest
will be levied in all cases where the bank has enjoyed 'ineligible' credit in its current account with Reserve Bank on
account of wrong reporting / delayed reporting/non-reporting of transactions. Penal measures will also be taken in
cases of shortages in chest balances / remittances, shortages due to pilferage / frauds, counterfeit banknotes
detected in chest balances / remittances as per the prevailing “scheme of Penalties.
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CASH AND BALANCES WITH RESERVE BANK OF INDIA: (Contd.)
NOTES /INSTRUCTIONS:
3. Balances with Reserve Bank of India (RBI):
a) Only few branches are designated to have account(s) with RBI and the audit procedure would be
applicable only at such branches or those having Currency Chests but not maintaining RBI Accounts.
Withdrawals from, or deposits into, the Currency Chests operated at the branches of the Bank, have an
impact on the RBI Account(s) maintained by the Bank , through such designated branches, as all such
withdrawals and deposits are expected to be simultaneously recorded in the RBI Account(s), whether
maintained at the Branch or a Linked Branch.
If the Branch that maintains a Currency Chest also has the account with RBI in its books, the entries for
deposits into and withdrawals from the Currency Chest are made simultaneously (evidenced by Currency
Chest Slips), in the account of the RBI maintained at the Branch.
The designated Branch also acts as a Link Branch for other branches of the Bank, to which Currency Chests
are attached, but do not maintain an Account with RBI in their books. In such branches, all withdrawals
/deposits in respect of the Currency Chest, are communicated promptly through Inter Branch Advices for
accounting entries to be made in the Account of RBI at the Link Branch.
MOC needs to be passed at the branch maintaining RBI Account, in respect of currency chest
deposits/withdrawals originating prior to the year end at the linked branches that have currency
chests, but responded after the year end. This will negate the effect of RBI entries lying at the year end in
Inter Branch Account. This can be done by scrutiny of the entries after the close of the year , on a value date
basis.
b) Where RBI account is maintained, the relevant balance confirmation/pass sheet from RBI must be obtained
in evidence of the balance at the Branch as at the year-end.
c) It would be advisable if a note is taken of old outstanding transactions in Bank reconciliation statements year-
wise, separately for debit and credit items and a written explanation sought from the Branch
Management as to the precise reasons for non-adjustment of these items. Unreconciled debit entries need
provision, net of related credits.
d) It would be appropriate to ascertain the periodicity of reconciliation of balances by the Branch with those as
per statements/confirmations of Reserve Bank of India.
e) Reference may be made to RBI Master Circular DCM(CC) No.G - 1/03.35.01/2015-16 dated 1-7-2015 for
Levy of Penal Interest for Delayed Reporting/Wrong Reporting/Non-Reporting of Currency Chest Transactions
and Inclusion of Ineligible Amounts in Currency Chest Balances.
The minimum amount of deposit into/withdrawal from currency chest will be Rs.1,00,000/- and thereafter, in
multiples of Rs.50,000/- and the time limit for reporting by Currency Chests should be through ICCOMS on the
same day by 9 PM by uploading data through the Secured Website (SWS) to their respective link offices; and
such link offices must report the consolidated position to the Issue Offices latest by 11 PM that very day.
Failure will involve penal interest, including for delay in
submission of Currency Chest slips .

It is imperative to look into the effect of currency chest operations on the accounts of the Bank and
report precise adjustments (Head-wise),required to be made. Even if the Branch is not maintaining an
account with Reserve bank of India but operates a currency chest, this matter will have relevance as it
may affect the account of RBI maintained at the link branch as aforesaid.

f) The heads/sub-heads of account which gets affected must be reported along with the figures, where entries are
suggested in RBI Account.

g) LFAR [Refer Para 1.2 (b)(iii)], requires reporting on unexplained/ unadjusted entries between 6 months and 1
year, and those above 1 year.

h) Interest on balances maintained with RBI upto the year end needs to be verified. This may be centralised
at one designated office. In case the non adjustment at the branch is not explained satisfactorily, this
must be reported.

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BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE:
NOTES AND INSTRUCTIONS:

1.Legal Requirements of disclosure:


I. In India:
i) Balances with Banks:
a) in Current Accounts
b) in other Deposit Accounts
ii) Money at Call and Short Notice:
a) With Banks
b) With Other institutions

II. Outside India:


i) in Current Accounts
ii) in Other Deposit Accounts
iii) Money at Call and Short Notice

2. Balances with Banks:


a) Under this head would be included balances with other banks (State Bank of India, its subsidiaries and other
banks/institutions), carrying on the business of banking.
As per R.B.I., the term "bank(s)" would include banking companies, nationalised banks, S.B.I., associate
banks and other institutions, including cooperatives carrying on the business of banking, whether or
not incorporated or operating in India; and also would include NOSTRO Accounts.
b) Balance confirmation certificates produced in evidence of balances with other banks must be examined to
ensure that these are issued by the other banks confirming, as per their books, the balances with the
Branch being audited.
c) It is recommended that large and unusual transactions, particularly towards the year-end be reviewed to
determine their nature.
Any adverse observations should be considered in the report.

d) Bank’s branches using the Currency chests of other banks, should ensure that the entries are recorded
through Inter Bank Adjustments, simultaneously with the deposit of /withdrawal of cash at such
currency chests.
The manner of recording such entries is relevant; and it should be ensured that the responding entries
are simultaneous and not cleared by receiving of bank drafts/bankers cheques with a time lag, where
deposits are made.

e) Generally, balances held in current accounts with other banks may be reviewed and reasons for holding
unusually large and unutilized/stagnant balances with such banks, may be ascertained; and in case these
are far in excess of those considered necessary, these should be reported in the LFAR; unless the Branch
management has cogent reasons for holding such balances for long durations of time.

f) Provision may be recommended for old/large unadjusted entries at debit, particularly where these
cannot be satisfactorily explained, and if doubtful of realization.
Any item(s), deserving the special attention of the management including outstanding
balances remaining unexplained/unadjusted for a period between 6 months and 1 year and those
over a year must be reported in the LFAR.

g) The bank reconciliation statements as at the previous year- end should be scrutinized and adjustments arising
from pending entries therein reviewed to ensure that there is no forced/wrong adjustment thereof.

h) Deposit Accounts with Banks, if in odd figures, may be enquired into as deposits are normally expected to be
in round figures; and interest verification can be done to check interest accrued till the year end at the
contractual rate.

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BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE: (Contd.)
NOTES AND INSTRUCTIONS:

3. NOSTRO Accounts
a. These Accounts are accounts maintained in foreign currencies with banks/correspondents
overseas, for convenience of constituents’ transactions in foreign currencies. These accounts are
generally maintained at designated branches of the Bank or with other banks (Correspondents).

b. NOSTRO Accounts should invariably have debit balances; and reasons for credit balances need to
be enquired into and adjustments routed through the Memorandum of Changes.. with effect of
foreign exchange rates.
It would be inappropriate to show such balances as “Borrowings”

c. Only the aggregate of debit balances in NOSTRO Accounts will be included under the above head.

d. Review needs to be made of transactions originating in the accounts of the foreign


banks/correspondents prior to but recorded by the Branch after the year end, as these have an
effect on the closing balances, firstly in terms of foreign currency balances and the consequential
effect on foreign currency conversion

e. Balances in NOSTRO Accounts must, therefore, be evidenced by confirmation certificates and


only after considering the effect of entries having impact on year-end balances, should the
foreign currency balances be converted into Rupees; also to determine the profit/loss on
exchange.

f. If FAX/ e mail confirmations are available in respect of NOSTRO Accounts, a hard copy (duly
authenticated), must be retained as part of the working papers.

(Note: VOSTRO Accounts are balances maintained (in Rupees),and operated by the foreign
banks/correspondents - at designated branches of the Bank and are to be reckoned in the Deposits portfolio).
Year-end confirmation procedures must be applied to Vostro balances as well.

4. Money at Call and Short Notice:


(This activity is only at designated few offices of the Bank, generally at the Treasury Branch).
a) According to R.B.I., Money at call and short notice includes deposits lent in the inter-bank call money
market, repayable within 15 or less than 15 days' notice.

Amounts deposited/lent in excess of the said period should be disclosed as under;

- with banks-as Deposits(in Schedule 7-item I(i)(b)), or


- as Advances(in Schedule 9) depending on the nature of placement/deposit; or
- with other institutions-as Advances(in Schedule 9).

b) Moneys at call and short notice can be placed:


- only at designated branches of the Bank, and
- only under due authorisation of the Head Office/ Controlling authority.

c) Moneys at call and short notice are expected to be in round figures. If otherwise, enquiries must be made to
ascertain the nature of lending, for correct classification thereof.

d) It is recommended that adjustments may be checked for interest accrued on year-end outstanding balances
of Money at Call and short notice, and subsequent realisations be verified.

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NOTES AND INSTRUCTIONS - INVESTMENTS

1. Legal requirements as to disclosure: Remarks/Nature


I. Investments in India in:

i)Government Securities Cover central/State Govt. securities and


Govt. Treasury Bills.
ii)Other approved Securities Comprise securities as per section 5(a) of the
Banking Regulation Act, 1949
- as per section 20(a),(b), (bb),(c), (d), (f), of
the Indian Trusts Act, 1882.
iii) Shares Of Companies/Corporations
iv) Debentures and Bonds of companies/(corporations
v) Subsidiaries and/or joint ventures ) include investments in subsidiaries/ associate
companies and joint ventures.
vi) Others (to be specified) residual investments like gold, commercial
paper and other instruments
II. Investments outside India in:

i) Government Securities foreign Govt. securities including of local


(including local authorities) authorities
ii) Subsidiaries/joint ventures share capital of abroad subsidiaries floated
outside India
iii) Other Investments (to be specified) residual investments
Investments in/outside India have also to be
disclosed separately at Gross Value, Provision for
Depreciation and Net Value, as per the
instructions of RBI

2. The work relating to Investments is generally centralised in most banks, and entries for purchase or sale or holding
appear in the books of the branch. Some branches may hold investments on behalf of the Head Office/
Centralised Investment Cell, generally for collection of income thereon.

3. Investments held in safe custody on behalf of constituents or as security against advances, even if held in the
Bank's name should not be taken as the Bank's investments but as part of the documents comprising security for
advances to borrowers. Accordingly, income received on the same is to be credited to the constituents'
accounts.

4. Investments, if held at the branch, if not physically verified or in respect of which no documentary evidence is
available must be reported, with details thereof incorporated in the long form audit report.

5. The LFAR vide Para 1.4(A), requires response to items (a) to (e) of the questionnaire for branches in India.

6. The RBI Master Circular (DBR No BP.BC.6/21.04.141/2015-16 dated 1.7.2015), relating to the prudential
norms on classification, valuation and operation of investments, is recommended to be seen for the purpose of
knowledge; particularly as to the manner of valuation/carrying cost of investments shifted inter se the
categories (Held to Maturity/Available for Sale/Held for trading).

7. Reference may also be made to the RBI Master Circular DBR.BP.BC No.23/21.04.018/2015-16 dated 1-7-2015
with regard to the disclosure requirements.

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NOTES AND INSTRUCTIONS – ADVANCES:
1. Legal requirements of disclosure:

A. i) Bills purchased and discounted


ii) Cash credits, Overdrafts and loans repayable on demand
iii) Term Loans
B. i) Secured by tangible assets
ii) Covered by Bank/Government guarantees
iii) Unsecured
C. I. Advances in India:
i) Priority sectors
ii) Public sector
iii) Banks
iv) Others
II. Advances outside India:
i) Due from Banks
ii) Due from Others:
a) Bills Purchased and discounted
b) Syndicated loans
c) Others

2. It will be observed from the legal requirements of disclosure, that advances which are good and recoverable,
are required to be disclosed and the classification is based on:
a) Nature and Maturity:
 Short-term in respect of bills, overdrafts, cash credits and loans repayable on demand
etc.
 Longer term in respect of Term loans, which are expected to be given for periods
exceeding 36 months. (amounts include overdue installments)
b)Security and guarantee
 Security of tangible assets, (both primary and collaterals) and including
against book debts treated as tangible
 Guarantee by bank/Govt. including DICGC/ECGC)/ CGFSSI
(Most of the Banks have given up DICGC coverage).
 Unsecured. Include clean loans where the bank has no security cover
c) Location in /outside India
d)Sector-wise as under
for advances in India:
 Public includes undertakings which under statutes sector are treated as public
sector
 Priority which includes public sector advances falling in priority sector

 Banks covers banks, as defined


 Others covers residual category
The Branches which maintain the borrowers' accounts, would have to separately identify/disclose, in the branch
returns, advances in accordance with the RBI applicable guidelines/ norms, so that (based on internal
categorisation as sub-standard/doubtful/loss assets), provision is considered; and such provision must be to the
satisfaction of the auditors. Provision (including prudential/floating/generic) and technical write-off etc. is usually
considered at a centralised level as per the accounting practice prevalent in most banks.

{Reference needs to be made to the RBI Master Circulars dated 1-7-2015 DBR.No.
BP.BC.2/21.04.048/2015-16 - Prudential norms on Income Recognition, Asset Classification and
Provisioning pertaining to Advances and other relevant circulars ( refer also Section E); and Master
Circular DBR.BP.BC No.23/21.04.018/2015-16 with regard to the disclosure requirements.}

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NOTES AND INSTRUCTIONS – ADVANCES: (Contd.)
3. NOTES:
 Advances mean laying out of bank's funds and include overdrafts in Deposit Accounts, invoked guarantees,
credit card dues; and exclude interest-free Advances as Employer to the employees. It would be useful to refer
to have a broad understanding of how the gross advances as recorded at the branch get disclosed net of provisions etc.
at the Bank level.
Note: While sanctioning other fund based credit facilities, limits for non fund based facilities are also
simultaneously sanctioned by banks and these can be divided in three broad categories , viz., Letters of credit,
Guarantees and Co-acceptance of bills/deferred payment guarantees (such co-acceptance limits may also be
sanctioned under Bill Rediscounting Scheme of designated institutions). Till these crystallise, the amount does not
become an advance.
 There is no sub-head in the annual financial statements, to show doubtful advances not provided for by
banks.

4. Relief for MSME Borrowers registered under GST:


As per RBI Circular No. DBR.No.BP.BC.100/21.04.048/2017-18 dated 7.2.2018, the MSME borrowers shall continue to be
classified as a ‘Standard Asset’ in the books of Banks if there is a default in servicing of the advances for over 90 days,
subject to the following conditions:
 The borrower is registered under the GST regime as on January 31, 2018.
 The aggregate exposure, including non-fund based facilities, of banks, to the borrower does not exceed Rs. 25 crore as
on January 31, 2018.
 The borrower’s account is standard as on August 31, 2017.
 Overdue accounts as on September 1, 2017 from the borrower and those due between September 1, 2017 and January
31, 2018 are paid not later than 180 days from their respective original due dates.

5. While provisions for doubtful advances is statutorily required to be made to the satisfaction of the auditors, RBI desires that
a uniform approach be adopted in this regard; and issues guidelines to prescribe the minimum bench-marked
percentages/basis on the borrowal accounts, based on internal classification/categorization as per the account health status
of the borrowers. Based on the criteria laid down as per the Guidelines for the time being in force by RBI, the Borrowers need
to be so internally categorised into Standard and Non Performing Advances (comprising Sub-Standard, Doubtful or Loss
Assets). Based on the compliance or otherwise of the discipline imposed on the borrower in terms of the sanction of
facilities, the borrower is placed in the category that corresponds to the most adverse features/ parameters observed in
servicing any of the facilities /account by the borrower.
The objective and purpose of such categorization is two-fold:
a. To consider provision for debts considered doubtful
b. To consider recognition/derecognition/non recognition of income

While provisions are expected to be made for all accounts of the borrower based on such health status categorization (at
minimum bench-marked percentages/basis prescribed), certain exceptions have been made for some accounts outstanding
that need a varying treatment for classification/categorization and provisioning, e.g., in fresh/additional facilities in accounts
subjected to restructuring/BIFR cases, Central Govt. guaranteed accounts etc.

Proper categorisation will lead to the minimum bench-marked provisions being considered as per the applicable Regulatory
norms; and income being generally accrued/ recognised on Standard Advances; and based on realisation in case of Non-
performing advances (NPAs). (Refer also Section E)

Since provision for bad and doubtful debts has to be statutorily made to the satisfaction of the auditors,
examination of the health status/categorization of the advances and provision required for bad and doubtful
amounts, assumes significance and constitutes a very important part of the audit.

6. It is imperative that the audit procedures cover:


a) Documentation -particular to the status of the borrower (individual/firm/company/Society/ Trust etc.)
-particular to the nature of security (pledge, hypothecation, mortgage, lien etc.)
b) Operation whether the account of the borrower is stagnant or there is a healthy turnover, based
on his business operations and considering the purpose for which the facilities are granted
c)Security/ guarantee the existence and market value of the tangible assets/security (primary and collateral) that
will secure the bank in the event of default in servicing of the loans/advances; and the
nature and extent of any guarantee cover available that also provides the bank a room for
fall back to recover the amounts in default.
d)Advance outstanding the balance and correctness of outstanding as at the year- end

7. The nature and type of adverse features in respect of advances which would have a bearing on
the health classification, can be known through proper scrutiny of the advances accounts - account-wise/ borrower-wise
for each of the facilities.
Attention is drawn to the LFAR requirements vide Item 1.5 (a) to (e) .
It is recommended that notes may be taken indicating the nature of adverse features, preferably using numerical codes
(as suggested in Section C III )for the purpose of convenience; for example, notes/report could be taken in the form as
per Section C II, which will also be the basis of the MOC to be numbered D 6.1.1

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NOTES AND INSTRUCTIONS – ADVANCES: (Contd.)


8. The terms Pledge, Hypothecation, Mortgage, assignment are used for creating a charge on the assets
of the borrower to secure the lender , in the event of a default by the former in repayment of his/its
obligations as contracted.
Pledge involves the lender (pledgee) taking delivery/physical possession of , and having control over the
moveable assets ( goods, fixed/term deposits of the borrower with the Bank, IVPs, KVPs, NSCs,
gold/jewellery etc.); and in the event of a default by the borrower, the pledgee has a right to realize the
proceeds of sale of the assets pledged to recover the principal and interest contractually due. (Refer Section
172 of the Indian Contract Act which defines pledge as the bailment of goods as a security for the payment of
a debt or performance of a promise).
Hypothecation, as defined under the Securitization and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, is "a charge in or upon any movable property, existing or future, created by a borrower
in favour of a secured creditor without delivery of possession of the movable property to such creditor, as a
security for financial assistance, and includes floating charge and crystallization into fixed charge on movable
property". Hypothecation involves the creation of a charge against the security of movable assets, without the
borrower physically parting with the possession of the assets. The lender will have to invoke the security to
realize the amounts in default.
Mortgage , as defined in Section 58 of the "Transfer of Property Act 1882” is the transfer of an interest in
specific immovable property for the purpose of securing payment of money advanced by way of loan.
Mortgage involves the creation of charge against immovable property which including land, buildings or
anything that is attached to the earth or permanently fastened to anything attached to the earth.
Assignment involves the transfer of intrinsic rights, title and beneficial interest under a contract by the assignor
to the assignee (lender) , e.g., the assignment by way of transfer of rights of , and benefits under, a life
insurance policy ( by the policy holder, the assignor) to a lender (the assignee), as a collateral for a loan. In
the event of the death of the assignor, the assignee is paid first and the residue (if any) is paid to the
beneficiary entitled under the policy.
The types of facilities usually provided by the banks and the terms normally used in connection
therewith are given in brief below:
a) Hypothecation (Stocks, book debts, other movable assets, collateralized receivables).
b) Pledge/lock and key facility (tangible movable assets), pledge of shares and securities .
c) Mortgage of property (Registered/Equitable), usually as additional/collateral security
d) Trust Receipts
e) Lien marked fixed/term deposit receipts of the bank, shares of listed companies, assignment of Life
Policies, IVPs, KVPs etc.); or clean advances, which sometimes arise due to adverse balances in
Savings/Current Accounts without any formal authority/sanction
f) Packing credit (Pre-shipment/post-shipment) and other Export loans.
g) Bills facilities ( Overseas and inland Bills purchased and discounted, clean D.D.'s, Advances
against bills for collection etc.).
g) Consortium Advances, syndicated loans and on the basis of participation on risk sharing/ non-risk
sharing basis).
The facilities are sanctioned, based on appraisal; and the terms and conditions stipulated in documents
executed copies of which need to be given to the borrowers.
Banks also assume obligations on behalf of its borrowers by way of guarantees, Letters of credit/comfort etc.
as part of the agency functions, in consideration of commission/fees.
Note: The terminologies and abbreviations used by the bank must be understood clearly when
checking is undertaken to determine the nature of advance/facility.
9. The operations in all major borrowers' accounts must be reviewed and should a detailed scrutiny be called
for due to any unhealthy trends noticed, the account should be carefully looked into, including in the post-
audit period. Large transactions, particularly as at the year-end, in accounts may be reviewed and detailed
notes may be kept on record as to irregularities, if any, noticed in the course of audit in these accounts. A
written note/explanation may be taken and kept on record as regards major/material irregularities in any
account on which any observation is being reported, after obtaining for record, the Branch Management's
view-point.

10. In view of the large number of accounts at many of the branches the audit programme would involve in-
depth checking of selected borrowers' accounts (including the large accounts. The extent of checking/tests to be
applied will depend upon the effectiveness or otherwise of the internal control procedures and the implementation
of the standard procedures laid down by the bank. The matter of classification of debts into those considered
good or doubtful would involve a fair view being taken of the debts, party- wise including for large advances
and others selected for audit coverage.
11. The satisfaction of the Branch auditor would over-ride that of Management in the matter of the health
classification of the advances that has effect on the provisioning and income recognition.

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NOTES AND INSTRUCTIONS – ADVANCES: (Contd.)

12. For purpose of classification of the Advances, the following must be kept in view:
a) Documents, which are usually prescribed for each category of borrower/facility, are properly executed in each
case examined, are complete and in force. Blank documents if held by the Branch in respect of any
borrowal account, should not be accepted as proper documentation in any account.
Over - documentation having the effect of contradiction in terms for classifications must be reported.
b) Where documents are not reviewed/renewed for the stipulated period to classify the borrower as NPA, it should
also be verified as to whether the limitation period has expired. Normally the Branch would have balance
confirmations which extend the limitation period.
c) Evidence should be available on record as to:
- Existence of assets/property charged as security (primary/collateral);
- The market value and realisability of the security, which should preferably be got reassessed periodically,
particularly in cases where the accounts are categorised as non-performing and are in the doubtful or
loss category. The condition and quality of the movable assets and encumbrances to immovable
properties, and factors which dilute the security, are relevant in valuation.
- Credit guarantee cover of institutions like DICGC./ECGC/CGTSI/ Banks (including Cooperative banks).
For the purpose of disclosure in the financial statements, the amounts covered only by guarantees
including Banks/Govt. are to be considered as not secured by tangible securities, even though
they may be good for recovery).
d) Confirmation/evidence is available that:
- hypothecated / pledged goods belonging to the borrowers, are paid for by the borrowers, and are
not old/ obsolete or unsaleable.
- advances against book debts of borrowers relate to their current debts and not old/ doubtful debts
as per sanction terms.
(advances against book debts, not being against tangible assets, are unsecured. Though, as per
RBI directions these are to be disclosed in the financial statements, as secured(by so indicating as
part of the disclosure in the Balance Sheet).
e) insurance policies covering primary and collateral security, are adequate and in force as at the year-end
and cover the Bank/Branch against any risk to the assets charged.
f) in case of companies, where the charge is required to be registered with the Registrar of Companies (except
in case of pledge facilities) whether the certificate of Registration of charge or evidence of such
charge having been registered, is held.
g) Whether borrowers are regular in complying with supply of the requisite information and financial data
and particularly as to the value of primary and collateral security.
h) Whether the financial data as to the party/guarantors, is kept upto date and is available for audit inspection.
It may be relevant to state that it is the NET WORTH of the guarantors that is relevant in case guarantees are
to be invoked.
i) Whether frequent overdrawing beyond Drawing Power/ sanctioned limits is permitted to the borrowers
and whether there is a healthy turnover in the borrowers’ accounts. (Stagnant accounts and those in
which the turnover is low should particularly be carefully looked into).
j) adverse comments, if any, on any borrowers accounts appearing in the latest available
- branch auditor's report(s),
- inspection reports of bank officials/R.B.I,
- manager's handing over charge report when incumbent is changed,
- concurrent auditor's report(s),
- any other special report covering advances,
should not be ignored in making classification.
Attempt to upgrade classification of advances from an adverse category to a better one, having the
consequence of reversal of provisions must be looked into.
13. In respect of bills purchased and discounted, the auditor should in particular examine the following:
a) Party-wise outstandings as at the year end.
b) Whether the bills are for genuine trade transactions and are current (and are not overdue/matured).
c) Documentary bills are supported by related documents evidencing the security, e.g. R.Rs, L.Rs etc.
Irrespective of whether they are clean or documentary, usance or demand, Bills must relate to genuine
trade transactions and not be accommodation bills. One needs to exercise a caution in case of
sequentially numbered and repetitive invoices made in respect of sister concerns and other related
parties, invoices being in round figures, frequent returning of bills and their substitution by fresh bills or
by direct payments by drawers, billing in round figures, bills involving the same set of drawees, or
different drawees at identical addresses, tendering of sequentially numbered lorry receipts (LRs) of only
one particular transport company, drawing bills disproportionate to borrower’s business standing,
repetitive delays in retirement of bills by drawees, frequent instructions of the drawers to deliver
documents free of payment etc.

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NOTES AND INSTRUCTIONS – ADVANCES: (Contd.)

14. In case of consortium/multiple banking arrangements , the corporate borrowers are expected to comply with the RBI
Guidelines and obtain certificates from a C.A./Company Secretary/Cost Accountant (Refer RBI Circular
DBOD.BP.BC.46 and 110/08.12.001/2008-09 dated 19-9-2008 and 10-2-2009 respectively).
15. Though RBI has directed that in case of advances under consortium arrangements, the classification of the
accounts would be determined only on the basis of the operations in the account with the Bank,
independent of others, the auditor should carefully look into the health of the account, in case other banks
have a classification more adverse than as made by the bank, and to see if it otherwise is intrinsically weak
deserving a reclassification.
16. Deposits made in the form of demonetized currency (Specified Bank Notes) in the Advances Accounts , by
borrowers, or on their behalf, and duly accepted by the banks, should be considered as acceptable
transactions, unless these are challenged by any investigative procedures, and having pecuniary
consequences on the bank’s financials and having effect on the true and fair view of the state of affairs or
operating results of the bank/branch.
17. Reference may also be made to Section E and E I , as also:
- Section E II which summarises the RBI prudential norms and the Reckoner may be found useful as
regards classification of Advances; and
- Section E III for provisioning and income recognition, based on categorization of the borrowers.
Reference
Master Circular DBR.No.BP.BC.2/21.04.048 / 2015-16  Part A – General Guidelines
dated 1.7.2015 - Prudential norms on Income  Part B – Prudential Guidelines on Restructuring
Recognition, Asset Classification and Provisioning  Part C – Early recognition of financial distress
pertaining to Advances and also RBI Circular No.
DBR.No.BP.BC.101/21.04.048/2017-18 dated 12.2.2018 –
Resolution of Stressed Assets – Revised Framework
Master Circular DBR.No.BP.BC. 37 /21.04.048/2015-16 Provides an additional 60 days period beyond what is
dated November 21, 2016 - Prudential norms on Income applicable for the concerned regulated entity (RE) for
Recognition, Asset Classification and Provisioning recognition of a loan account as sub-standard in certain
pertaining to Advances cases.
Master Circular DBR.No.BP.BC. 49 /21.04.048/2015-16 Provides an additional 30 days beyond 60 days period
dated December 28, 2016 - Prudential norms on Income applicable for the concerned regulated entity (RE) for
Recognition, Asset Classification and Provisioning recognition of a loan account as sub-standard in certain
pertaining to Advances cases mentioned in the November 21, 2016 circular.
DBR.No.BP.BC.30/21.04.048/2015-16 July 16, 2015 To provide operational flexibility to credit card issuers,
(Prudential Norms on Income Recognition, Asset with effect from the date of the circular, ‘past due’ status
Classification and Provisioning pertaining to Advances – of a credit card account for the purpose of asset
Credit Card Accounts classification would be reckoned from the payment due
date mentioned in the monthly credit card statement.
DBR.No.Dir.BC.10/13.03.00/2015-16( 1-7-2015 ) Loans and Advances – Statutory and Other Restrictions.
Master Direction FIDD No.FSD.BC.2/05.10.001/2016-17 Relief Measures by Banks in Areas Affected by Natural
July 1, 2016 ( Reserve Bank of India (Relief Measures by Calamities
Banks in Areas Affected by Natural Calamities)
Directions, 2016
FIDD.No.FSD.BC.52/ 05.10.001/2014-15 dated March 25,
2015 - Guidelines for Relief Measures by Banks in Areas
Affected by Natural Calamities
Master Circular FIDD.MSME & NFS.BC.No.07/ 06.02.31/2015-16 (1- Lending to Micro, Small & Medium Enterprises (MSME) Sector
7-2015) and also RBI Master Directions FIDD.MSME &
NFS.12/06.02.31/2017-18 dated 24-7-2017
FIDD.CO.Plan.BC.54/04.09.01/ 2014-15 dated April 23, Agriculture: The distinction between direct and indirect
2015 - Priority Sector Lending-Targets and Classification agriculture is dispensed with; but defines “Farm Credit”.
Bank loans to food and agro processing units will form
part of Agriculture
FIDD.CO.FSD.BC.No 9/05.02.001/2016-17 August 4, 2016 Implementation of the Scheme for the year 2016-17 for
(Union Budget – 2016-17 Interest Subvention Scheme short term crop loans upto Rs 3 lakh with certain
stipulations:
FIDD. No .FSD.BC. 19/05.04.02/2016-17 December 26, Interest Subvention Scheme for Short Term Crop Loans
2016 (Interest Subvention Scheme for Short Term Crop during the year 2016-17- Grant of grace period of 60 days
Loans during the year 2016-17 beyond due date
DBR.No.CID.BC.22/20.16.003/2015-16(1-7-2015) Master Circular on Wilful Defaulters.
DBR.No.BP.BC.103/21.04.132/2015-16 dated 13-6-2016 Scheme for Sustainable Structuring of Stressed Assets
DBR.No.BP.BC.33-34/21/04.132/2016-17 dated 10-11-2016 Scheme for sustainable structuring of stressed assets –
revisions
DBR.No.BP.BC.27/21.04.048/2015-16 dated 02-07- Discount Rate for Computing Present Value of Future
2015 Cash Flows.
DBR.No.BP.BC.100/21.04.048/2017-18 dated 07-02-2018 Relief for MSME Borrowers registered under Goods and
Services Tax (GST)

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NOTES AND INSTRUCTIONS – FIXED ASSETS
1. Legal requirements as to disclosure:
I. Premises:

i) At cost as at 31st March of the preceding year


ii) Additions during the year
iii) Deductions during the year
iv) Depreciation to date

2. Other Fixed Assets:(including furniture and fixtures)

i) At cost as at 31st March of the preceding year


ii) Additions during the year
iii) Deductions during the year
iv) Depreciation to date

2. Premises:

a) Normally this item is not dealt with at the Branch and all records are centralised at Head Office. In case the
Branch accounts deal with this head of account the programme stated overleaf should be followed.

In case the documents of title to premises are held at the Branch on behalf of the Head Office/controlling
authority, these should be verified as per instructions of such authority or on behalf of the statutory central
auditors.
As per Accounting Standard (AS) 10, issued by ICAI, Depreciation is the systematic allocation of
depreciable amount of and asset over its useful life and depreciable amount is the cost of an asset, or
other amount substituted for cost, less its residual value. This should also apply to leasehold land, if any,
held by the Bank. It would be appropriate to segregate the cost/value of the land from the building/
superstructures, to ensure that depreciation is appropriately considered particularly in the case of leasehold
land, and superstructures.

b) The value of premises wholly or partly owned by the Bank for the purpose of business including residential
premises, is required to be shown under the above head.

c) The relevant sanction/authority of the Head Office / controlling authority must be examined with
regard to additions/deductions.

d) Buildings under construction, entries in respect of which would normally be recorded in a nominal head of
account, should also be scrutinised to ensure that capitalisation where required is made when due.

e) As per R.B.I. instructions, where sums have been written off on reduction of capital, or if there is a revaluation
of assets, every balance sheet after the first balance sheet subsequent to the reduction or revaluation
should show the revised figures for a period of five years, with the date and amount of revision made.
Disclosure is mandatory in respect of the method adopted to compute the revalued amounts, the
nature of the indices used, the year of any appraisal made, and whether an external valuer was
involved in case the assets are stated at revalued amounts.

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NOTES AND INSTRUCTIONS – FIXED ASSETS (Contd.)

3. Other Fixed Assets (including Furniture and Fixtures)

a) The audit procedures outlined overleaf should be followed in case the branch accounts incorporate the
value of fixed assets.

b) Additions/deductions must be checked with reference to original evidence available at the Branch
along with authorisation of the competent Authority, even where, after acquisition/deduction, the
transactions are communicated for being entered in the centralised records.

c) Insurance coverage, if inadequate or policies not in force, must be reported in the Long Form Audit Report.

d) Assets given on Lease need to be separately shown in same manner as other assets.

e) Depreciation rates may be reconfirmed from the Accounting Policy of the Bank. Special attention is to be
paid for the rate of depreciation on Computers.
(Note: RBI has directed that the rate of depreciation on computers be charged on SLM @33.33% -
refer old Circular No. BP.BC 37/21.04.018/2000 dated 20.10.2000)

(f) Software Acquired

Banks may acquire software at considerable expenditure. The system of recording this expenditure as part
of the fixed assets (so that it may be depreciated) or to defer expenditure (for amortisation over its useful
life) may be reviewed. The Bank’s Accounting Policy in this regard must be enquired into, and a note kept
on record. Non provision for this intangible will not attract the provisions of Section 15 of the Banking
Regulation Act, as per a notification specifically issued by the Govt. of India.

(g) In case of banking companies, they may have to be guided by the provisions of Schedule II to the Companies
Act 2013 as regards depreciation based on useful life of the tangible non current assets.

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NOTES AND INSTRUCTIONS – OTHER ASSETS:
1. Legal requirements of disclosure:
I. Inter-Office adjustments (Net)
II. Interest accrued
III. Tax paid in advance/tax deducted at source
IV. Stationery and Stamps
V. Non-banking assets acquired in satisfaction of claims
VI. Others @
@ In case there is any unadjusted balance of loss (i.e. where the loss exceeds the aggregate of capital,
reserves and surplus), the same may be shown under this item with appropriate footnote.

2. Inter-Office Adjustments (Net):

a) Although all banks show this item separately in their annual accounts, a formal sub-head has been
introduced in the schedule requiring disclosure of the net balance comprising inter-office
transactions which are pending adjustment as at the year-end. The method of recording such entries
and their clearance must be understood.

b) Originating debits are not permitted in Head- Office account. There can be originating credits and
responding debits in such an account. The transitory debits are kept in separate nominal sub-heads
which deserve immediate attention for squaring up. The more liquid the transaction, the quicker
should be the adjustment e.g. entries comprising cash remittances cannot be expected to remain
outstanding at all. Credits invariably precede the debits in the Head Office account.

c) The Account is based on the system of a summary of the daily debits/credits generated for each branch (H.O.
Summary) which indicates the

- * Opening balance of Head Office, ) (* must agree with the Branch General
- the day's debits, ) Ledger Balance)
- the day's credits, and )
- * the closing balance, )

and these summaries are considered for centralized matching at the designated office
This exercise throws up unmatched entries which are communicated to branches as follow-up measure
for effecting reconciliation.

The terms "MATCHING" and "RECONCILIATION" must be understood.

d) At the Branch level, the auditor should ensure that if the system so requires, it should be ensured that such
Summaries are forwarded to the centralized office for matching and no such summaries are pending. This
can be done by a review of the file containing such summaries and correspondence from Head Office on the
subject. It is recommended that the review should cover a period of 6-8 weeks, including the last two weeks of
March.

The opening and closing balances as carried over in the summaries, must be checked with reference to the
balances in the ledger; and any unusual/large entries should be reviewed in depth. If the ledger balance
(H.O. Account) does not tally with the summary, it must be reported.

e) The provisioning requirements for old outstanding debits in Inter-branch accounts continue to apply and
need to be considered to ensure that net debits over 6 months as at 31.3.2018 are provided for without
setting off debits in one category against credits in another.

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NOTES AND INSTRUCTIONS – OTHER ASSETS: (Contd.)

3. Interest Accrued:
a) Under the above sub-head should be included:
- Interest accrued but not due on
. Investments
. Advances (including bills purchased and discounted)
- Interest due but not collected on investments
b) accounts and shown as part of 'Advances'.
c) Only such interest as is capable of being realised in the ordinary course, is expected to be recorded. This is in
conformity with the Accounting Standard, "AS-9-Revenue Recognition" as also with instructions given by
R.B.I. to the effect that interest be not recorded as income in respect of Non Performing Assets.
Interest accrued in the current year in respect of accounts identified as NPAs must be reversed to Income
and de-recognised and cannot be the subject matter of a provision. Income accrued for the earlier year
and remaining unrealised, can be provided for or derecognised.
d) Interest accrued on items other than Investments/Advances e.g. on items appearing as "Other Assets" cannot
be included under the above sub-head but under the sub-head `OTHERS'.

4. Tax Paid in Advance/Tax deducted at source (TDS):


Normally this item is dealt with at Head office and does not appear in the Branch Balance sheet. Audit
procedure is, therefore, not being enumerated for this item.
If there is any TDS , the auditor needs to enquire as to the income to which this pertains so that the Bank
claims it in its assessments. If it is on account of payments that cannot be explained , this need a
provision.

5. Stationery and Stamps:

a) As per R.B.I. instructions, only exceptional items of stationery like bulk purchase of security paper, loose leaf
or other ledgers etc.(which would include bulk paper stocks) should be valued and considered. It is
recommended that this item should be treated as a "quasi-asset" to be written off over a period of time.

b) The valuation of items of bulk stationery is suggested to be at cost/estimated cost without any element
of escalation/appreciation.

c) The extent of write off and basis thereof would have to be determined as per the policy adopted by the Bank
Management. Instructions to the Branch in this regard from Head Office must be referred to.

d) In some banks there are separate Printing and Stationery Cells which look after bulk procurements, printing
of stationery and of its distribution. The branches usually do not stock large quantities. It is the intention to
cut down elaborate accounting procedures on an item which is not material. The banks, while adopting a
simplified procedure at the Head Office level, may still require the branches to prepare details of stocks and
carry out physical verification procedures, as a matter of moral check.

e) Receipts, custody and dual controls over security paper stationery and verification is imperative by
the Branch auditor, of stocks of such un-issued security paper comprising cheque books, DDs, TTs,
Gift cheques, Pay orders, Travelers' cheques etc.
Missing stationery of this nature may cause detriment/loss to the bank and must be reported.
Interest accrued and due on advances is normally expected to be debited to the borrowers'

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NOTES AND INSTRUCTIONS – OTHER ASSETS: (Contd.)

6. Non-banking assets acquired in satisfaction of claims:

Under this sub-head is included value of immovable properties/tangible assets acquired in satisfaction of claims.
The value should normally not exceed the estimated realisable value. Such an item may not exist in most of the
branches.

7. Others :
(Note: This sub-head would include outstanding entries in suspense and other similar nominal heads of account
and deserve special attention of the audit staff, particularly for old/unexplained/ large entries/
outstandings, a critical review of these must be made. RBI has also suggested a quick audit of entries in
Suspense Account and the status thereof to be reported in terms of its circulars dated
6.7.95/18.8.95 and reference may also to be made to the old RBI Circular
DBOD.BP.BC.4/21.04.018/2003-04 dated 19.7.03 (as regards reconciliation of Clearing Differences and
Sundry/Suspense Accounts); which circulars continue to apply.

a) The items that would be covered by this sub-head would include all residue items not covered by any
specific head. All nominal heads like 'Suspense', 'Sundry Assets' and with similar nomenclature are used
by banks to record transitory entries which cannot be adjusted to the respective heads/sub-heads for
want of particulars/details.

b) According to R.B.I., this sub-head will include


- items like claims which have not been met, for instance:
. clearing items(i.e., debit balances comprising clearing differences).
. debit items representing additions to assets or reduction in liabilities which have not been adjusted for
technical reasons/ want of particulars.
. advances given to staff like festival/drought relief/housing advances etc. due to the employer-
employee relationship where normally lien is marked on the terminal benefits of the employee; but
advances against FDRs and other securities etc. are also made.
While distinction needs to be made between advances given by the bank as an "employer" and as
"banker", the RBI's latest applicable circular needs to be kept in view as regards disclosure requirement
of advances in the latter category i.e. as banker. Interest bearing advances are otherwise to be
treated as advances.

- items in the nature of expenses which are pending adjustments. These should be provided for and
the provision netted against this item, so that only the realisable value is shown under this head.
( provisions against debits of expenditure nature would have to be considered here).

- accrued income, other than interest.


(This may imply inclusion of dividends on shares held as Investments in subsidiaries etc.,
which income falls in Schedule 14 of the prescribed form).
(Note : Staff Advances are to be treated as Standard/Performing Assets and interest accrued
thereon except in cases of Staff Suspension/dismissals etc. where there may be loss
of pay etc.)
c) Besides the above, items like the following may normally be included against this sub-head:
- Building under construction,
- Furniture, Fixtures and other fixed assets pending capitalisation,
- Advances to staff pending adjustments either against provisions made at Head Office (e.g. bonus
payments), or other advances towards expenditure to be adjusted pending
submission/clearance/sanction of claims (e.g. travel advance, L.T.C. advance etc.),
-Security Deposits (for electricity, telephones, tenanted premises etc. and advance rent/lease money) etc.
- Prepaid Discount on Bills Rediscounted.

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NOTES AND INSTRUCTIONS - CONTINGENT LIABILITIES:
1. Legal requirements of disclosure:
I. Claims against the Bank not acknowledged as debts.
II. Liability for partly paid investments.
III. Liability on account of forward exchange contracts.

IV. Guarantees given on behalf of constituents:


a) In India
b) Outside India

V. Acceptances, endorsements and other obligations.


VI. Other items for which the bank is contingently liable.

2. Claims against the Bank not acknowledged as debts:


a) Against the above sub-head, would be included the amount comprising claims made by staff(under
suspension/dismissal), constituents (e.g. for dishonour of cheques, frauds in
customers' accounts due to negligence etc.) and any other matters in litigation which are contested by the
bank and not acknowledged as a liability. Such claims may arise from Govt. bodies/authorities/others either
under statute or through litigation/arbitration etc.

b) If would be advisable to obtain an updated list of claims including those in the post-audit period upto the time
the audit is finalised, to account for such claims which relate upto the year-end.

c) Claims outstanding as at the previous year-end, if deleted should be enquired into, to be certain that these
have not been deleted by mistake.

3. Liability for partly paid investments:


This would usually be worked out by the Investment Department at Head office, and normally no figure should
appear in the Branch returns, unless the value of investments is decentralised at some branches.

4. Guarantees given on behalf of Constituents/ Letters of Comfort and Letters of undertaking:


{Reference must be made to the RBI Master Circular on Guarantees and Co-acceptances
(DBR.No.Dir.BC.11/13.03.00/2015-16 dated 1-7-2015)} - Also refer to the LFAR requirements.
a) Guarantees are issued on behalf of customers as part of the agency functions of the bank, and for which the
bank charges commission. There is no outlay of the bank's funds till a claim arises from any
claimant/beneficiary in whose favour guarantee is issued.
b) Guarantees issued may be specific to particular transactions or a series of transactions involving assumption
of obligations upto certain monetary limits. Guarantees are issued for certain specified time limits and have a
claim obligation, unless the guarantee is renewed.
Such obligations are assumed by issuance of a guarantee document normally signed by the authorised
signatories; and the bank normally obtains as a security, either a cash margin based on a percentage
of the obligation or holds fixed deposits and in some cases, marks a lien on the account of the customer.
It also obtains counter-guarantee to be invoked in case the obligation devolves.
c) Entries are imperative in the guarantee register for each guarantee issued. The entries are expected to be
reversed upon expiry of the guarantee/claim period, though in practice the bankers wait even for
return to it, of the relevant documents, out of abundant caution. The auditor must report expired
guarantees where the claim period has also expired and the financial obligations have ceased, which
continue to be included as part of the contingent liability.
d) Guarantees are expected to be issued only on security paper stationery under dual control.
It is imperative that internal control for recording of guarantees is looked into to ensure that entries are made
immediately upon assumption of guarantee obligations.

e) Letters of comfort (LOCs), involving liability assumed must be treated as akin to guarantees issued.

f) Obligations comprising Letters of Undertaking (LOUs), normally used for trade credits, are disclosed in
the Notes in the manner required (by RBI), in foreign currency and Rupee equivalent, that should be at
the year-end rates of exchange.

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NOTES AND INSTRUCTIONS - CONTINGENT LIABILITIES: (Contd.)

5. Acceptances, endorsements and other obligations:


a) This item which used to be shown as 'contra' in the earlier form, has now become an off- balance sheet item
under the above sub-head and would include:
- Letters of credit opened by the bank on behalf of its customers,
- Bills drawn by the customers and accepted or endorsed by the bank to provide security to the payees.

b) Letters of credit are documents under which the bank agrees to meet the obligations of
its customers (usually for purchases/imports).

Letters of credit are normally issued on certain terms, conditions and stipulations, against guarantees of the
customers and may be with/without security/margin. Upon honouring the commitment and making
payment to the other bank/party, the amount is debited to the bank's customer and treated as an
advance; and the margin/security is adjusted depending upon the conditions of the L.C.
The Bank may retain as a percentage of the value of the L.C., a cash margin or take Term Deposit
Receipt(s) or mark a lien on the account of the customers , to enable it to
appropriate such credits in the event of a default by the customer in not honouring its
commitment to the bank.

- Such Letters of credit may be:


. clean,
. documentary - where bills drawn are accompanied by documents of title to goods
. revocable - entirely at the pleasure of the bank at any time prior to shipment of goods
. irrevocable or confirmed
. for single transaction or bill- covering purchases/ imports,
. "revolving" to cover a series of transactions within certain limits/value, sometimes restrictions being
placed on limit of each bill.

6. a) Obligations assumed in foreign currency:


It is the practice of some banks to record the Rupee equivalent of the contingent liability on the date of
assumption of the liability in case these are in foreign currency. Such a liability needs to be expressed
in Rupees, converted at the year-end rates.
b) Common errors:
The common mistakes made by Branches are
. not to take the correct totals of the liability recorded in various registers,
. not to remove liabilities which have lapsed/cleared, and
. not taking action in case of defaults.
In some cases, the relevant columns in the Balance Sheet formats are not disclosed.
These need to be reported.

7. Distinction between LOCs and Letter of undertaking(LOU) must be understood (refer Annexure `R’),
particularly in cases involving Buyers/Suppliers/Trade Credits. RBI accepts that both involve a
`Contingent Liability’ to be disclosed in the Notes on Accounts. Audit procedures warrant the details of
the outstanding LOCs and LOUs being verified and in respect of foreign exchange exposures, to ensure
that correct year end rates applied. Branch maintaining NOSTRO Accounts must ensure incorporation of
the related receipts/outflows from/to other banks overseas.
The outstanding entiries must be examined to determine whether these comprise any funded exposures
by or on behalf of the bank, particularly if these are to overseas banks/associates/branches in foreign
currencies, to fund suppliers in respect of purchases made by the bank’s borrowers under Trade
(Suppliers’) Credit arrangements.

8. Other Items for which the bank is contingently liable:


This would include all residue contingent liabilities not covered under any other sub-head and as per R.B.I.
instructions, includes:
. arrears of cumulative dividends (in case of companies),
. bills of exchange rediscounted, which must not include matured bills.
. commitments under underwriting contracts,
.*estimated amount of contracts remaining to be executed on capital account and not provided for.
(*this item cannot really be considered as a contingent liability, but RBI instructions require Banks to
include this item under the above head.)

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NOTES AND INSTRUCTIONS - BILLS FOR COLLECTION:
1. Bills for collection
a) do not involve an outlay of the Bank's funds as this stems from the agency function of banks. The banks
earn commission for rendering service relating to collection of bills for their customers. Bills not collected
are, therefore, normally returned to the customers, and by and large only current outstanding bills should
figure in the accounts of the branch. Old entries should provoke enquiries.

b) could be of the nature of clean D.D.s., Documentary demand/Usance Bills or cheques; and INWARD
BILLS would be from branches or others and OUTWARD ones to branches or others.

Internal entries inter-se the branches covering bills for collection are to be excluded in the figure to be
disclosed against the above head by the Bank.

2. Normally detailed records are maintained for bills received or sent for collection, including particulars in dispatch
registers, acknowledgements etc. which may provide information as to whether or not these have been
expeditiously forwarded as per instructions relating to collection of the bills.

3. Bills in hand should be physically verified on the date of the first visit as also by surprise check on any
subsequent date; and it should be ensured that the bills held, tally with the entries in the relevant register(s)
maintained. In the case of documentary bills it should be ensured that the related R.R.s./ T.R.s. are held
along with the Invoices/Hundies/Bills and that these have not been parted with. Whenever such R.R.s./
T.R.s. are not held on record, the fact should be reported, giving details.

4. It is imperative that bills expressed in foreign currencies are properly converted at year-end rates of
exchange advised by H.O./controlling authority.

5. The auditor should enquire whether there are any claims against the Bank on account of bills which may
have been lost in transit involving the bank in any proceedings/claims or possible liability.

To avoid risks of this nature, the Bank's procedure may involve obtaining from the drawers(customers), a
letter of undertaking to indemnify the bank against risks involved in collection of bills. In the event of a
detriment/loss caused, the banks are also normally covered by the "Bankers' blanket insurance policy".

6. Since this is an off-Balance sheet item, the branch managements have a tendency to be casual and
ignore casting errors and omissions in the matter of recording bills as also the fact that they do not follow up old
entries to square up the items..

7. Reasons for old unadjusted entries need to be enquired into and reported in the LFAR.

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PROFIT AND LOSS ACCOUNT
NOTES AND INSTRUCTIONS - INTEREST EARNED:
1. Legal requirements of disclosure:
I. Interest/discount on advances/bills
II. Income on investments
III. Interest on balances with Reserve Banks of India and other inter-bank funds
IV. Others
General Principle (Income Recognition):
Income can generally be recognised only on assets that are considered performing,
Income on Non Performing Assets (NPA) cannot be accrued at contractual rates and must not be recorded as
income except on actual realisation. In case of accounts identified as Non performing, the amount of charges
and interest accrued, but not realized, including for past periods is derecognized/provided for and after te date of
the NPA status attaching to the accounts, no further interest is applied. The amount of contractual charges and
interest due but no realized in such accounts is recorded in Interest Suspense or similar account and that
unapplied to the account of the party, is recorded in the Memorandum account.
Interest on NPA if recorded, will be reported by the auditors unless the same is on the basis of
realisation.
2. Interest/discount on advances/bills:
a) With intentions of more disclosure, the break-up of income "earned" is required in the Profit and Loss
Account of Banks; and under the above sub-head the banks would be required to disclose earnings by
way of:
-interest on Term/Demand loans; and
-discount on bills purchased and discounted.
i.e. income in respect of the Advances portfolio of the bank is to be shown against this sub-head.
b) At the Branch level, the income by way of interest and discount charges is expected to be
disclosed, net of reversals required to derecognize income on NPAs. Interest (discount) component
paid on rediscount of bills, is not to be netted off from the discount earned on bills discounted.
c) Advances to customers are expected to be disclosed by the banks, net of moneys received by way of
participation (on risk-sharing basis). Correspondingly, the interest paid on such participation can
logically be reduced from the income earned - as the real earning of the bank would be the net
figure (being the interest differential between that charged from the borrower and the
participating bank/institution).
d) Overdue interest and interest subsidy earned upto the year-end in respect of advances has to be included
under the above head.
e) On all loans the contracted rate is applicable throughout, whether fixed or floating, and interest
rates for the time being in force are to be applied; and the auditor is expected to ascertain the rates
applicable and changes therein during the year under audit.
f) Unapplied interest on NPAs (except those in litigation) must be computed at contracted rates.
g) Vide Master Circular DBR.No.Dir.BC.9/13.03.00/2015-16 dated 1-7-2015, RBI has consolidated and updated
its directives on interest rates on advances; and all categories of domestic rupee loans should be priced only
with reference to the Base Rate System. Banks should have a Board approved policy to approve Base Rate
that includes all those elements of the lending rates that are common across all categories of borrowers.
There can be only one Base Rate for each bank, requiring quarterly review based on cost of funds ,
computed on average / marginal cost of funds or any other methodology in vogue, which is reasonable and
transparent provided it is consistent and made available for supervisory review/scrutiny. There is exemption
to certain categories of advances.
Exemption: DRI advances, loans to banks’ own employees including retired employees, loans to banks’
depositors against their own deposits, Interest Rate Subvention on Crop Loans/Export Credit, could be
priced without reference to the base rate. In case of restructured loans if some of the WCTL, FITL, etc. need
to be granted below the Base Rate for the purposes of viability and there are recompense etc. clauses, such
lending will not be construed a violation of the Base Rate guidelines.
With effect from1-4-2002 , Interest is required to be charged at Monthly Rests, except in agricultural
advances and banks should continue the existing practice of charging / compounding of interest on such
advances linked to crop seasons. (Refer RPCD.No.PLFS.BC.129/05.02.27/97-98 dated June 29, 1998,
where banks need to charge interest on advances for long duration crops at annual rests. As regards other
agricultural advances in respect of short duration crop and allied agricultural activities such as dairy, fishery,
piggery, poultry, bee-keeping, etc., due dates need to be fixed on the basis of fluidity with borrowers and
harvesting / marketing season while charging interest and compounding the same if the loan / installment
becomes overdue.
In a system driven application of interest on advances, if it is observed that debits for interest charged
appear in the accounts of the customers on a date prior to the month /year end, it cannot be
presumed that interest has been actually computed till the month/year end, as further transactions
have not been considered. Any shortfall in computation of interest between the date of application
and the year end needs to be provided.

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PROFIT AND LOSS ACCOUNT
NOTES AND INSTRUCTIONS - INTEREST EARNED: (Contd.)
3 Income on Investments:
This does not include dividends on shares held in the bank’s name by way of pledge in advances
account of borrowers
Normally this is on centralized basis and audit procedures are not being enumerated in the Branch audit
programme. Income, if any, collected by the branch on investments held on behalf of the Head
Office/Investment Department, is expected to be recorded only at Head Office.
In case any income on investments is recorded at the Branch level, it may be vouched with reference to the
authority/instructions of Head Office.
a) As per R.B.I. instructions, income derived from the investment portfolio by way of:
-interest ; and
-dividend,
has to be included under the above sub-head.
b) It will be observed from the prescribed form, that "income earned by way of dividends from subsidiaries/and/or
joint ventures abroad/in India" is to be shown in a separate schedule under the head "OTHER
INCOME". Such income will therefore, not be treated as from the "investment portfolio" although
investments in subsidiaries etc. are treated/disclosed under the head "INVESTMENTS".

4. Interest on balances with Reserve Bank of India and other inter-bank funds:
a) Included under the above sub-head would be interest on:
- balances maintained with R.B.I.,
- money market placements (including money at call and short notice), and
- call loans/deposits with banks,

b) In most cases, it is the Head Office (normally through its Investment/Treasury Department) that monitors
money market placements and balances with R.B.I. and accordingly, in the branch returns, no such
income should normally appear. In designated branches where Head office/ controlling authority may
have permitted the operation of such accounts, the authority of the Head Office/controlling authority to
transact such business would have to be examined; and the income required to be recorded at the branch be
vouched accordingly.

5. Others:
a) Interest/discount other than that recorded under the other sub-heads, would have to be shown in this
residue sub- head.
b) Under this sub-head would be included interest on items like:
- staff advances (given by the bank as an employer/banker)
- security deposits for rented/leased premises/Electricity etc. and on advances/deposits for booking
assets where, as per terms and conditions applicable, interest is recoverable, i.e. on
assets recorded under the head "OTHER ASSETS" in the Balance Sheet.
c) Interest on Inter-branch Account must be examined with reference to relevant HO advices. The profit /loss
of the branch is inclusive of such transfer pricing entries.

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PROFIT AND LOSS ACCOUNT
NOTES AND INSTRUCTIONS - OTHER INCOME:
1. Legal requirements of Disclosure:
I. Commission, exchange and Brokerage
II. Profit on sale of investments
Less: Loss on sale of investments
III. Profit on revaluation of investments
Less: Loss on revaluation of investments
IV. Profit on sale of land, building and other assets
Less: Loss on sale of land, building and other assets
V. Profit on exchange transactions
Less: Loss on exchange transactions
VI. Income earned by way of dividends from subsidiaries/companies and/or joint ventures abroad/in India.
VII. Miscellaneous Income
(Under items II to V loss figures may be shown in brackets).
2. Commission, exchange and brokerage:
a) Under the above sub-head, is to be included earnings on services rendered, such as:
Commission:
- on collections,
- or exchange on remittances and transfers,
- on letters of credit/ guarantees,
- on Govt. business,
- on other permitted agency business (including consultancy and other services),
- letting out of lockers, and
- brokerage etc. on securities.
b) Foreign exchange income is not to be included here, as the same is required to be separately disclosed.
c) Brokerage and commission in connection with Merchant banking activities is also required to be
considered under this sub-head unless it is received on underwriting obligations on devolved liability;
in which case, the investments would be shown at net of the brokerage/ commission attributable to
such devolvement.
3. Profit on sale of Investments (less Loss):
a) Only the net position of profit/loss on sale of investments has to be disclosed by the Banks in their annual
accounts. Since in most banks, the investment portfolio is centralised, no figures on this account would
appear in the branch returns; and the audit procedures are, accordingly, not being enumerated.
b) In case the Branch returns include such figure, ascertain basis thereof and vouch the transactions, in the light
of authority from the Head office/controlling authority - after examining the system/ basis of accounting
for profit/loss on disposal of investments.
4. Profit on revaluation of investments (less Loss):
Since the matter is dealt with at Head Office, the audit procedures are not being enumerated.
5. Profit on sale of land, buildings and other assets (less Loss):
a) Besides Profit/Loss (net) on sale of fixed and other assets, the net profit/loss on revaluation of such
assets is also required to be shown here.
b) As regards surplus on revaluation, reference may again be made to the disclosure requirements under the
head "RESERVES AND SURPLUS - Capital Reserves".
c) Other assets would include Non-banking assets acquired in satisfaction of claims.
6. Profit on Exchange transactions (less Loss):
a) The net figure would have to be shown under the above sub-head; and the transactions
would include:
- Profit/loss on dealing in foreign exchange,
- commission earned by way of foreign exchange,
- commission and charges on foreign exchange transactions,
excluding interest.
b) The figures would appear at branches which have foreign exchange dealings or are
authorised dealers in foreign exchange.
7. Income earned by way of dividends from subsidiaries/ companies and/or joint ventures abroad/ in India:
This would appear only at the Head office/ investments Department of the Bank
8. Miscellaneous Income:
Under the above sub-head would be included:
- godown rent recoveries from customers,
- income from bank's properties (other then locker rents),
- safe custody charges
- security recoveries, and
- any other miscellaneous income.

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PROFIT AND LOSS ACCOUNT:
NOTES AND INSTRUCTIONS - INTEREST EXPENDED:
1. Legal requirements of disclosure:
I. Interest on deposits
II. Interest on Reserve Bank of India/inter-bank borrowings
III. Others

2. Interest on deposits:
a) It is necessary to ascertain for the year under audit, the rates, and terms and conditions on which deposits
are accepted, so that the calculations and interest application is correctly accounted by the branch, and
tested in the course of audit. The relevant circulars from the Head Office/ controlling authority need to be
examined to report deviations, if any, therefrom.
b) The auditor should ascertain the method followed for recording interest in the deposit accounts at
the Branch as well as for accrual of liability upto the year-end.
Where requests are made to pay interest on deposits by means of Pay Orders/Bankers Cheques,
care may be taken to ensure that in respect of such deposit, provision/accrual is not again made
or credit afforded again to the depositor.

c) Interest payment in special cases:


No interest can normally be paid on Current Account or certain other type of balances. At present interest can,
however, be paid:
On Current Accounts:
- to Regional Rural Banks sponsored by the Bank - at the rates as mutually agreed, and encouraged not
to pay interest to RRBs on balances maintained with the Bank
- to claimants/legal heirs/nominees in case of deceased depositors, sole proprietorship concerns as per
Para 3.18 of the Master Circular - interest to be paid only with effect from 1-5-1983, or from the date of
the death whichever is later : at the rate applicable to Savings Bank Accounts on the date of payment;
(incase of NRE Deposit where the claimants are resident, the deposit on maturity is to be treated as a
domestic deposit, interest is to be paid for the subsequent period at a rate applicable to domestic deposit
of a similar maturity; and
d) On Term Deposits (other than FCNR(B)- where the depositor dies:
Bank is required to lay down a transparent policy as per Para 3.18 of the Master Circular referred to above.
e) If a Fixed Deposit Receipt matures and proceeds are unpaid, the amount left unclaimed with the bank will
attract savings bank rate of interest (Para 3.4 of Master Circular for Re. deposits).
f) Review may be made of credits in Interest Expended Accounts to determine nature thereof and to
ensure that credits are appropriate and do not relate to income heads.

3. Interest on Reserve Bank of India/inter-bank borrowings:


This item would not normally be dealt with at the Branch.
In case there are borrowings recorded at the branch, the basis and terms of interest application must be seen
and the entries vouched in toto.
4. Others:
a) Included under the above residue sub-head, would be payments like:
- Interest/discount on borrowings/refinance from financial institutions,
- interest on participation certificates (on non-risk sharing basis),
- penal interest, etc.
b) It is only at designated branches/offices that this would be recorded.

5. Interest paid to Head Office:

This items, if appearing in the Branch returns, is an internal adjustment (inter-se the branches) and has no
effect on the revenue of the Bank. If recorded, this will be checked on the basis of the relevant advice(s) from the
Head Office.

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NOTES AND INSTRUCTIONS - OPERATING EXPENSES:
1. Legal requirements of disclosure:
I. Payments to and provisions for employees
II. Rent, taxes and lighting
III. Printing and stationery
IV. Advertisement and publicity
V. Depreciation on bank's property
VI. Directors' fees, allowances and expenses
VII. Auditors' fees and expenses (including branch auditors' fees and expenses)
VIII. Law Charges
IX. Postages, Telegrams, Telephones, etc.
X. Repairs and maintenance
XI. Insurance
XII. Other expenditure
-------------------------------------------------------------------------------------------------
PROVISIONS AND CONTINGENCIES
2. Payments to and provisions for employees:
a) Under this sub-head would be included:
- staff salaries/wages,
- allowances (including house rent allowance),
- bonus,
- gratuity,
- pension,
- provident fund,
- liveries to staff,
- leave fare concession,
- staff welfare, medical allowances etc.
b) There is no requirement to separately disclose managerial remuneration, which may get covered otherwise
through AS 18 - Related Parties.

3. Rent, taxes and lighting:


It would be advisable to go through the terms and conditions relating to the tenanted premises; to ensure that
adjustments are as per the current obligations as per the tenancy arrangements. Also enquire whether there are
any pending disputes as regards Rent enhancements, Municipal dues or electricity bills etc., that require
adjustments or disclosure of any contingent liability.

4. Printing and stationery:


Ascertain the system followed for charging off expenditure under the above sub-head with reference to H.O
instructions. For the Bank, the bulk purchases of stationery, are to be treated as a quasi-asset to be written
off over a period of time. The policy in this regard may be enquired into.

5. Depreciation on Banks Property:


It would be advisable to understand the system adopted to adjust depreciation on fixed assets; and follow
the H.O. instructions.

6. Repairs and Maintenance:


Scrutiny should be made of this account to determine whether any item requiring capitalisation has been charged
off, particularly in Branch renovation expenditure.

7. Other Expenditure:
Scrutiny should be made of the various major account heads included in this-particularly Travel expenses and
any unusual expenditure may be vouched.

8. Other Provisions:
While reporting, it is necessary to determine as to the items of expenditure that are usually provided or adjusted
at Head Office and make reference thereto in the report.
Items usually omitted to be recorded is the provision for rent, professional charges, concurrent auditor’s fee and
payments for Security and Maintenance service contracts (which must be net of TDS as applicable). Such
expenditure should be provided for.

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NOTES AND INSTRUCTIONS - GENERAL:

1. The audit procedure outlined under the head 'GENERAL' is recommended to be covered, and would give an
idea as to the general housekeeping of records. Review of routine transactions for one day is
recommended for the reason that one would become broadly familiar with:
- the nature and flow of transactions;
- the manner of recording these;
- the terminologies used;
- internal control procedures.
2. It is recommended that suitable letters may be addressed to the Branch Management seeking information which
is relevant to expediting the audit procedures and to seek confirmations as regards certain matters. Refer
Sections A and B

It is imperative to obtain responses to each item in writing.

3. The audit file must be properly maintained to adequately document the notes/observations/working
papers/certificates etc. in evidence of work done, and to be the basis of the reports submitted. Linkage must
be provided in the documentation file to determine the beginning and end of the audit verification
procedures

4. The notes/observations taken head-wise, should be segregated to be incorporated into the relevant reports to
be submitted. It is important to note that the Long Form Audit Report (to the Management) is not a
substitute for the main audit Report to be furnished by the Branch Auditor to the Central Statutory
Auditor.

Items having a material financial effect on the accounts and those covered by the statutory
responsibilities of the auditor must be considered in the main report; and such reports must be in
clear, unambiguous language with quantification of all modifications to the report required as per the
SA 700 (qualifications, adverse remarks, disclaimers) unless the quantification is not possible, in which
case the nature of the adverse features need to be given.

For text of the Main audit reports and the manner of reporting, reference may be made to Section D

Reference may also be made to the reporting requirements of the LFAR


The primary responsibility for response to the questionnaire is that of the Branch management; and
the auditor is expected to verify the information furnished and express his opinion thereon.

5. The figures in the Branch returns once finalised and communicated to Head office, are not changed. The
branch auditor may only report any changes that he wishes, based on his audit observations, through
the Memorandum of changes (MOCs), which will from part of his report.

6. In respect of frauds reported/recorded at the branch, it would be advisable to study the modus operandi
and adopt extended tests and in depth checking in areas which appear to be more risk prone at the
branch.The auditor may extend his audit procedures only if he has reasons to believe that a fraud has been
perpetrated , keeping in view the audit objectives.

7. Averages based on month-end figures of deposits, borrowings and of advances may suffice for working out
the trends of interest earned/expended; and to determine divergent trends, if any.

Bnkad18.sanjay v & mmk


BANK AUDIT 2017-18 C1
SELECTION OF ADVANCES FOR AUDIT VERIFICATION
Basis of selection of Advances accounts to be examined by Branch Auditor No. of Accounts
1. All Large accounts (as defined- Rs. 2.00 crores or 5% of the Portfolio, whichever
is less) -per Annexure III- Section A
2. Cases under consideration of Joint Lenders Forum (JLF).
3. NPA accounts upgraded to Standard during the year
4. Advances where Restructuring Proposals/ requests are pending
approval/disposal at year end.
5. Accounts Restructured in the earlier years to determine their year-end status, if
in default or not classified as per RBI norms
6. Cases where one time settlement (OTS) has been sought.
7. Accounts Restructured during the year to determine their year-end classification.
8. Accounts in which OTS was accepted but there is default in compliance.
9. Restructured advances with moratorium of Interest where interest is accrued
contrary to RBI applicable norms
10. FITL cases arising out of Restructuring where corresponding provisions are held
in “Sundry Liabilities Account (Interest Capitalization)”.
11. Advances accounts where there is an initiation of proceedings involving
Investigation, vigilance, enquiry and those where fraud is reported.
12. Staff Advances – where the persons have ceased to be employees of the Bank;
and accounts in default.
13. BIFR cases classified as Standard.
14. SSI/SME cases under rehabilitation as at the year end
15. Standard advances in litigation
16. Central Government guaranteed cases which are Standard non-performing.
17. Standard accounts where there is Interest Suspense/ Unapplied Interest.
18. Advances in the list of willful defaulters of the RBI.
19. Advances subject to re-financing.
20. Cases of Flexible Structuring of Long Term Project Loans to Infrastructure and
Core Industries – Loans sanctioned after July 15, 2015.
21. Cases of Flexible Structuring of Long Term Project Loans to Infrastructure and
Core Industries - Loans sanctioned before July 15, 2015.
22. Fresh NPAs identified by the Branch.
23. NPA cases where the assessed realizable value of the securities has a
significant shortfall – 50% or more.
24. NPA cases where the realizable value of the security as assessed by the
Bank/approved valuers /RBI is less than 10% of the outstanding.
25. Standard Accounts with temporary deficiencies per Para 4.2.4 of Master
Circular on Advances

26. Quick Mortality Cases


27. Advances comprising frauds detected (Para 4.2.9.(ii) of the IRAC Master
Circular dated 1.7.2015)
28. MSME Borrowers registered under the GST Regime having an exposure in
aggregate (including non-fund based) up to Rs. 25 Crore.
29. Other Accounts, not covered above, with adverse comments in the
existing/latest Reports (as per Para 1 of Annexure I to the initial letter to
Branch)

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BANK AUDIT 2017-18
ANNEXURE C II : COMMON IRREGULARITIES/ ADVERSE FEATURES IN ADVANCES ACCOUNTS
(Illustrative)
Code Nature of Irregularities/ Adverse features
1. CREDIT APPRAISAL:

1.1 Loan application form not obtained / not on record.


1.2 Loan application not complete in all respects or not signed.
1.3 Borrower’s name, whether figuring in the list of willful defaulters of RBI not checked/ indicated
(Refer RBI Master Circular DBR.No.CID.BC.22/20.16.003/2015-16 dated 1-7-2015).
1.4 Information not given as regards borrower being a Director of the Bank/another bank or of being
an officer or a relative of any Director/ officer of the Bank.
1.5 Credit appraisal made for borrowers:
a) in the “negative” list of the bank.
b) where the borrower is a defaulter/willful defaulter/NPA with other banks/ institutions.
1.6 All documents / annexures required with the application form not received by the Bank,
including:
1.6.1 Documents evidencing nature / type and legal status of entity such as Memorandum & Articles
of Association, Partnership Deed, Trust Deed etc. (not received/called for).
1.6.2 Latest financials (duly audited) and / or updated unaudited financials not obtained and / or not
reviewed (including in particular the Notes on Accounts, off balance sheet disclosures and the
report of the auditors on the accounts where audit is required/done);
1.6.3 Audited statements if received are incomplete – without Accounting Polices / Notes / Audit
Report.
1.6.4 Half yearly/quarterly review reports (listed entities), not received/reviewed.
1.6.5 Cost / secretarial audit, if required, not got done, or no report thereof available.
1.6.6 Credit report not obtained from previous bankers / existing bankers from whom account is being
shifted, and reasons for such shifting not justified.
1.6.7 Credit Reports of borrower/guarantor not obtained, or are inadequate, as regards material
particulars
1.6.8 Evidence on certain matters included in financial statements/financial status not
obtained/reviewed (e.g., copies of Vat/Sales tax/ Income tax/Wealth tax returns/orders,
contingent obligations).
1.6.9 Credit reports of borrowers/guarantors, not reviewed, or latest ones not obtained
1.6.10 Adverse features reported upon in Inspection / audit not considered in appraisal in respect of
continuing advances / for enhancement in limits. (eg. off balance sheet exposures, dealings with
other bankers, major variations between audited data and QIS to branch).
1.7 Techno-economic feasibility report not obtained.
1.8. Industry / group exposure and experience of the Bank not dealt in the appraisal note.
1.9. Bank’s policy norms for inventory/book-debts/creditors levels not followed as stipulated by the
management.
1.10. Adverse features observed in reports of concurrent Auditors/ Statutory Auditors/ RBI
Inspection/LFAR not incorporated in the appraisal note, as arising from:
a) RBI Inspection/
b) Concurrent Audit
c) Inspection Audit
d) Internal Audit
e) Statutory Audit/LFAR
f) Stock Audit
g) Special Audit/Credit Audit
h) IT/EDP/Systems Audit
1.11 Explanations not called for, or not justified, in respect of major variations between projected and
actual financial data furnished.
1.12 Credit rating form not attached with credit appraisal note, or if attached, not reviewed.
1.13 Opinion reports of the associate and / or sister concerns of the borrower not called.
1.14 Appraisal of fresh limits made to cure existing defaults in NPA accounts.
1.15 Frequent resorting to short review procedures rather than full review of borrowal account.
1.16 Bank’s rights to recompense not considered in appraisal where recoveries of earlier sacrifice
are being made.
1.17 General level of compliance in the past not indicated.
1.18 Diversion of funds for purposes other than those intended, in the past not considered (including
working capital funds being used for long term deployment).

37
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BANK AUDIT 2017-18
ANNEXURE C II : COMMON IRREGULARITIES/ ADVERSE FEATURES IN ADVANCES ACCOUNTS
(Illustrative)
Code Nature of Irregularities/ Adverse features
2. SANCTIONING AND DISBURSEMENT:

2.1 Proposals sanctioned without the approval of the higher authority / signature of the concerned
authority.
2.2 Facilities disbursed before the completion of documentation and other sanction terms.
2.3. Adhoc limits granted pending completion of appraisal/sanction of regular limits.
2.4. Disbursement made without following procedures relating to confirmation of higher authority as
regards completion of formalities.
2.5. Sanctions in excess of delegated authority.

3. DOCUMENTATION:

3.1 Documents on record are blank, all parts not filled up and / or without signatures of Branch
Manager and witnesses.
3.2 Documents signed by persons other than those authorised.
3.3 Inappropriate set of documents having no nexus to the status of the borrower or with the type
of facility
3.4 Signatures of the executants on all the pages of the documents not found and not obtained on
all corrections / endorsements in the documents.
3.5 Documents have become mutilated / soiled, or have expired and the bank is exposed to the
risk of not enforcing the security.
3.6 Consortium advances – documents not yet executed or not on record.
3.7 Consent from other lenders for creation of security, not on record.
3.8 Guarantee papers not on record / not renewed.
3.9 Revival letters not received.
3.10 Certification of Registration of charges with ROC / or evidence thereof not on record, in case
of companies.
3.11 LIC Policies (together with evidence of surrender value), not obtained or not on
record.
3.12 Bank’s FDRs (lien marked) not obtained or not on record, where FDRs are security
3.13 KVPs not obtained or not on record.
3.14 IVPs not obtained or not on record.
3.15 Second charge on assets, as per terms of sanction, not created in favour of the bank.
3.16 Under-stamping of documents, and Stamping not as per the latest Stamps Act (particularly for
immovable properties)
3.17 Completion certificate, sale deeds, share certificates in societies, etc. not on record for
housing loans.
3.18 Original Staff and other Housing loan documents not on record at the Branch.
3.19 Sales / search report / Title Clearance Report from advocate in respect of immovable property
not obtained or on record.
3.20 Mortgage for property not created, as required.
3.21 Clearance not obtained from Authorities concerned to permit mortgage.
3.22 Copies evidencing lodgment of the original conveyance / sale deeds with the sub-Registrars for
registration, not on record.
3.23 Authority letter / Power of Attorney to the Bank to collect the original documents from the Sub-
Registrar, not on record.
3.24 Loans granted on properties on the basis of Power of Attorney and not ownership.
3.25 Valuer’s report in evidence of gold / gold ornaments not obtained.
3.26 Registration certificates, transfer certificate, driving license, duplicate keys of vehicle and
insurance covers not obtained, in case of loans against vehicles.
3.27 “Nil Encumbrance Certificate/s “or “No Dues Certificate/s” or “No lien Letters” not on record.
3.28 Consent letter not obtained from borrower that the Bank would publish his name in the list of
defaulters, in the event of wilful default in repayment of the Bank’s dues.
3.29 Clause/ stipulation as regards interest rates variations to be as per RBI norms, not notified or
on record.
3.30 Other documents stipulated as per sanction not on record (specify).

38
Bnkad18.sanjay v & mmk
C
BANK AUDIT 2017-18
ANNEXURE C II : COMMON IRREGULARITIES/ ADVERSE FEATURES IN ADVANCES ACCOUNTS
(Illustrative)
Code Nature of Irregularities/ Adverse features
4. REVIEW / MONITORING / SUPERVISION :

4.1 Non compliance of major / repeated adverse features in Audit reports / inspection in relation to
borrowal accounts.

4.2 Stock, book-debts statements / financial statements / other operational data etc., not received
regularly, or belatedly received from the borrower.

4.3 Stock Audit not got conducted and / or latest report not on record.
4.4 Major discrepancies / variations in the stock and other securities (between the annual audited
financial statements / stock audit report and the financial data / returns to the Branch).

4.5 Non-movement of goods in pledge accounts (particularly perishable goods) and accumulation
of old stocks.

4.6 Drawing Power not properly worked out, based on non deduction of:
a) Non-moving/old /unsaleable /ineligible stock,
b) unpaid for stocks,
c) old /ineligible book debts, and
d) margins as stipulated.
4.7 Physical verification of securities not done at periodic intervals, and action not taken on major
adverse observations based on Inspection reports.

4.8 Frequent requests for ratification of transgressions.


4.9 Statutory Liabilities not being paid, or being belatedly discharged, with constant fall back on
the bank.

4.10 Age-wise break-up of debtors not on record.


4.11 Penal interest not charged for delay in submission of various statements.
4.12 Drawing power / limits not updated / revised, as per market value of securities where advances
are against shares / securities.

4.13 End use of funds not ensured; and diversion if observed, not attended to.
4.14 Account is frequently / continuously overdrawn.
4.15 Frequently invoked LCs / guarantees
4.16 Actual performance is well below projections.
4.17 Sale proceeds not routed through Bank and credit summations are on the decline.
4.18 Audited statements of non-corporate borrower having limit beyond Rs. 10 lacs not received
(including Notes on accounts, accounting policies and Auditors Reports).
4.19 Renewal proposals of advances are not received on time and/ or limits not renewed / reviewed
within the stipulated norms (180 days).
4.20 Balance confirmation and acknowledgment of debt not obtained.
4.21 Life Policies taken as primary / collateral not sent for assignment in favour of the bank.
4.22 Insurance cover is inadequate, policies not on record / not renewed / not endorsed in favour of
the Bank.
4.23 Tendencies of expired bills / foreign currency sight bills becoming overdue frequently and not
getting crystallised when due.
4.24 Frequent cancellation of bills and substitution of unpaid bills.
4.25 Confirmation as to genuineness of export transactions not obtained from Bank’s foreign offices
/ correspondents / customs department.
4.26 For import credit, Bill of Entry evidencing import of goods not available.
4.27 Documents not obtained for bills discounted under Letters of Credit.
4.28 Advances requiring guarantee cover of ECGC not brought under its cover.
4.29 Guarantee not invoked although accounts are irregular and called back.
4.30 For allocated limits, full terms of sanction, stock statements, inspection reports, margin etc, not
available or available with considerable delay at monitoring branches.

39
Bnkad18.sanjay v & mmk
C
BANK AUDIT 2017-18
ANNEXURE C II : COMMON IRREGULARITIES/ ADVERSE FEATURES IN ADVANCES ACCOUNTS
(Illustrative)
Code Nature of Irregularities/ Adverse features
4.31 In respect of Consortium arrangements (particularly where others are categorising the borrower
as NPA)
a) Regular meetings not held with other consortium members to review / assess
performance of borrowers.
b) Members of the consortium not advised about the quarterly operating limits / D. P.
c) Minutes of the consortium meetings not found on record.
d) Inspection reports from the consortium member not obtained.
4.32 Capital of the borrower has eroded / net worth is negative / decreasing.
4.33 Cases where adhoc limit remained unadjusted more than 3 months after due dates.
4.34 Copies of invoices and other evidence in relation to purchase of assets financed by the bank
not available for verification.
4.35 Application of wrong rate of interest, processing charges, commission, other charges, etc. (e.g.
due to wrong credit rating / non-revision thereof from effective dates).
4.36 Account becoming a case of “quick mortality” within a short time of sanction (within 12/24
months).
4.37 Margins created by book adjustments upon purchase of bills.
4.38 Income accrued at branch on Advances categorized as NPAs.
4.39 Wrong appropriation of recoveries in NPAs.
4.40 Right of recompense not recorded/ invoked, if stipulated at the time of sacrifice earlier made in
the borrowal account.
4.41 Leakage of income due to PC-cum-CC limits (where PC facilities are being wrongly credited to
CC to take advantage of lower interest rates)

5. ADVANCES-other Adverse features:


5.1 RBI prudential norms not followed (including in cases of substantial erosion of realisable
security).[Substantial erosion (of more than 50-90%) of the security to migrate the advance to
Doubtful/Loss category].
5.2 Existence of saleable/ realisable security in serious doubt.
5.3 Dilution of security and / or Valuation Report of Security / collaterals, not available.
5.4 Installment / interest not received regularly, and default of 90 days or more.
5.5 Legal or other action for recovery of advances not taken, although authorised by the Board /
Controlling Authority.
5.6 Terms of the BIFR scheme not complied.
5.7 Default in servicing of fresh facilities sanctioned pursuant to BIFR orders.
5.8 Delays in the settlement / repayment, in respect of one time settlement / compromise
proposals and sacrifice not adjusted.
5.9 Payment from government for invoked guarantees not received, although guarantees were
unconditional, irrevocable and payable on demand.
5.10 Compromise proposals pending at various levels where local government / outside agencies
are involved as guarantors.
5.11 Irregular / sick / sticky advances not reported to higher authorities.
5.12 Adverse decisions in litigation, not considered.
5.13 Credit card dues not serviced.
5.14 Advances to new borrowers notwithstanding that they are defaulters in other banks/
institutions.
5.15 Restructured Doubtful Accounts and fresh facilities by way of funding unserviced interest, not
considered for categorization/provisioning.
5.16 Repeated rephasement/ restructuring in the same account for evergreening the account.
5.17 Non-reckoning of the default in borrowal accounts transferred from other banks/branches,
affecting the classification thereof.
5.18 Copies of the Loan Documents not given to the Borrower at the time of the sanction or
Disbursement
5.19 Non obtaining of certification in respect of Corporate borrowers under Consortium/ multiple
banking arrangements from a CA/Company Secretary/Cost Accountant.

40
Bnkad18.sanjay v & mmk
(Part of audit working papers on Audit File) CII.1

BANK BRANCH AUDIT 2017-18

____________________BANK ZONE: ________________ REGION : __________ BRANCH : _____________

OBSERVATIONS/STATUS REVIEW ON MAJOR ADVANCES ACCOUNTS FOR THE YEAR ENDED 31.3.2018 (based on analysis of Annexure III and reporting)

Name of the Borrower___________________________________________


OBSERVATIONS OF BRANCH AUDITOR
1. Whether the Borrower requires reclassification Yes@ No Whether reported in Whether reported in LFAR
MOC
2. Has these been frequent devolvement of LCs Yes No Yes No Yes No
3. @Justification/observations requiring change in classification:

@ based on examination of the related account and to be reported as per the MOC

Signature of Audit Assistant


41

Bnkad18.sanjay v & mmk


BANK BRANCH AUDIT 2017-18

___________ BANK ZONE: ____________ REGION: ______________ BRANCH:____________________ ANNEXURE `C II.1.1

SUMMARY OF ADVERSE OBSERVATIONS ON ADVANCES ACCOUNTS AS AT 31.3.2018 (Illustrative)


(Other than Accounts subject to restructuring)

Name of Type of Account Year End Remarks- Classification Code * Valuation of security @@ Financial Effect of observations
the Facility No. Balance Adverse
Borrower (Rs.) Code @ By Recommended By Bank As per Auditor Provision (Rs) Income (Rs.) Remarks
Bank by Auditor (Rs.) (Rs.) (+) (-) (+) (-)

ABC TL 320555 3,38,500 1.5,1.6.3 A C 2,00,000 for all (+) (-) Doubtful over 3 years
1.10(b) facilities since 31-3-2015
Hence Loss Asset

CC 3245234 6,74,600 1.11,1.13 B C (+) (-)

Bills 45328/04 5,38,987 2.2,2.4,3.1 B C (+) (-)

------------,
15,52,087
= ======

DEF TL 23545 68,528 2.2,2.4,3.4 B B.1 55,00,000 for all (+) (-) Realisable security is
exposures less than 10% of total
exposure. Hence
Loss Asset
PC 112013 2,01,05,273 3.10,3.11,4.4 B B.1 (+) (-)

CC 125231 5,07,83,724 4.6,4.17 B B.1 (+) (-)

7,09,57,525
=========

@ Refer to description of Coded Adverse Features {Annexure C II}


@@ Wherever the auditor disagrees with the Bank

*CLASSIFICATION A. STANDARD B. SUB-STANDARD; C. DOUBTFUL(100%) D. LOSS


B.1 SUBSTANDARD 25 %) C.1 DOUBTFUL(OTHERS)

Bnkad18.sanjay v & mmk


42
C II .2
BANK ________________: ZONE _________ REGION ________ BRANCH _______________

AnnexureC II.2 - Summary of Adverse features in Advances Accounts for the year 2017-18

Name of Borrower Outstanding balance Remarks Whether commented in


(Coded Adverse features) Main Report
31.3.2018 Refer Annexure C II.3 Yes No

Refer to alternate format `C II.1.1'

Bnkad18.sanjay v & mmk 43


______________ BANK BRANCH_________________________ C.II.3 / D.5.1.1
FORM OF MOC RELATING TO ADVANCES AMOUNT IN RUPEES
Sr. No. Name of Borrower Account No. Type of Total Classification S/SS/D/L Reversal Net CHANGES SUGGESTED UNDER ALLOCATION OF ADVANCES Remarks
Account outstanding Branch Auditors Charges Interest outstanding Secured Covered by Guarantee of Total Provision as per
C/C,O/D,D/L unrealised by Tangible Bank Govt. ECGC/ Unsecured Branch Auditors
BP/BD of T/L Assets CGTSI
1 2 3 4 5 6 7 8 9= 4-(7+8) 10 11 12 13 14 15 16
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
Coded adverse
features given in C II

SS= Sub Standard : D= Doubtful (to be classified as D1, D2, D3) : L= Loss
Note: See formats in D.5.1.2.1&2

If not covered by the coded remarks, the reasons may be seperately stated.

bnkad18.sanjay&mmk 44
BANK AUDIT - AUDIT IN EDP ENVIRONMENT C III

Banking technology has had to keep pace with the increasing demands of convenience banking of
customers; and the customers have been offered, and are increasingly using, extensive facility of
online and mobile banking.
Online banking, also known as internet banking, e-banking or virtual banking, refers to banking
that can be conducted in a computerized environment over the internet, by registering with the bank
online and creating a login ID and password; and transactions being conducted generally through a
bank’s website under a private profile. It is an electronic payment system that enables customers of
the bank to avail of banking services traditionally offered and to have the convenience of executing
transactions from any place, anytime without the necessity to physically go to the branch.
Mobile banking allows a customer to perform many of the same activities as online banking using a
smartphone or tablet instead of a desktop computer. However, simply accessing the bank’s website
on a mobile device is not the only method of mobile banking. Mobile banking’s versatility includes
using the bank’s mobile banking app to access one’s accounts, transfer moneys, paying bills etc.
This has necessitated extensive computerization in banks, which, however, comes with a bundle of
risks, unless addressed; and while the bank managements may take due care and caution in
establishing the best systems that work in a secure environment, and that ensure that
data/information generated has reliability ,integrity at all locations - from origin /source of economic
events/ transactions to their timely recording, transmission and final storage/retention, these need
to be tested out for their adequacy and effectiveness. Information assurance that is reliable reduces
audit risk and special periodic audits of systems become mandatory.
Some view IT audits as being one of only two type: "general control review" audits or "application
control review" audits.
Information Assurance Audit professionals consider there to be three fundamental types of controls
regardless of the type of audit to be performed.

Information assurance (IA) is the practice of assuring information and managing risks related to the
use, processing, storage, and transmission of information or data and the systems and processes
used for those purposes. This includes protection of the integrity, availability, authenticity, repudiation
and confidentiality of user data. It uses physical, technical and administrative controls to accomplish
these tasks. While focused predominantly on information in digital form, the full range of IA
encompasses not only digital but also analog or physical form. These protections apply to data in
transit, both physical and electronic forms as well as data at rest in various types of physical and
electronic storage facilities. Information assurance as a field has grown from the practice
of information security.

Many frameworks and standards try to break controls into different disciplines or arenas, terming
them “Security Controls“, ”Access Controls“, “IA Controls” in an effort to define the types of controls
involved. At a more fundamental level, these controls can be shown to consist of three types of
fundamental controls: Protective/Preventative Controls, Detective Controls and Reactive/Corrective
Controls.

In an IS system, there are two types of auditors and audits - internal and external. IS auditing, which
considers the potential hazards and controls in information systems, focuses on issues like
operations, data, integrity, software applications, security, privacy, budgets and expenditures, cost
control, and productivity is essentially a part of internal auditing, and is frequently performed by
internal auditors. The statutory auditor needs to review the findings of the internal audit as well as
the inputs, processing and outputs of information systems.
The overall IT/IS policy, processes, controls and accounting procedures and data generation are
implemented by the bank on a centralized level; and not having access to, or being able to test out,
the compliances, the branch auditors face practical problems at fully computerised branches. It is
for the central auditor to review whether the management is performing their role effectively as
regards IT and manual controls, accounting manual, entries and framework built in computerised
systems to generate data /information that is reliable and accurate . Independent IT Audit at
branches is generally not being done as may provide the necessary satisfaction to the branch
auditors to cover them for the risks related to system generated information. They do have access to
the daily exception reports generated by the system and access to primary records and entry level

Bnkad18.sanjay v & mmk 45


BANK AUDIT - AUDIT IN EDP ENVIRONMENT C III

transactions; and on the presumption that there are no flaws in the system, they go by compliance of
the exception reports, as a starting point.
The Branch auditors, however need to be aware of the overall system, both centralised and
decentralized (including month-end and year-end procedures) and the processes and
involvement of IT systems, data processing and data interface under various systems, the
extent of manual intervention and the complementary systems used at branches to process
the system generated information further.
The Branch auditors, should, if they cannot resolve the issues and matters concerning the
branch financial statements, need to bring this out in their report, as a disclaimer.

Audit Risks can very broadly concern Mismanagement of Assets ,Incorrect financial Statements
and Non-Compliance with laws and regulations, as can be observed from the following
broad background and some suggested procedures in a more traditional manner:
Characteristics Paper based Computer Based
Of risks
Audit Trail  Visible  May not always be available
 Easily certifiable  Even if available may not be always
 Adjustments are apparent generated
 Generated Audit trails may not be
understood
Volume  Low level Huge volumes possible
 Limited by speed of
manual processing
Records  Maintained together  Electronic
 Physical Security vital  Sorted by business requirement
 Stored anywhere in the world
Complex  Slow to process Consistent processing
transactions  Error prone
Audit Trail
Audit Trail is a means of tracing all activities affecting a piece of information such as a data or a
record from the time it enters the system to the time it ends where intended i.e. from input to output.
For example, when several people are working on a document in a networked environment, an audit
trail makes it possible to know at what stage and who made a change, or even to see a document
before and after that change.
IT environment risks
 Statutory and Regulatory
 Strategic
 Organisation
 Location
 Outsourcing
Statutory and Regulatory Risks
The Bank’s computer system should have the ability to respond to the changing requirements
of law and regulation, as otherwise there can be:
 Risks due to the change in legislative framework not being effectively addressed or not being
addressed on time
 Risk of non-compliance on account of changes in regulations of the supervisory authority or
the government
IT Operations Risks
 Error
 Interruption
 Disclosure
Transitional Action within the Bank( on switch-over to the computerized system)
In January 1998 RBI had initially compiled a guidance note to guide banks on:
- backup of old records
- retention of records in the system
- preservation in electronic media

Bnkad18.sanjay v & mmk 46


BANK AUDIT - AUDIT IN EDP ENVIRONMENT C III

INTERNAL CONTROL PROCEDURES


It is recognized that there are mainly four types of controls.
A. Deterrent that are designed, including with punitive measures, to deter people,
internal as well as external, from doing undesirable activities. For example,
written policies including the may deter people from doing undesired
activities.
B. Preventive that prevent the cause of exposure from occurring or at least minimise the
probability of unlawful event taking place. For example, security controls
at various levels like hardware, software, application software, database,
network, etc.
C. Detective that bring to surface, the existence of unlawful events aimed at arresting
the adversities caused or likely to be caused.
D. Corrective that are designed to recover from a loss situation. Business Continuity
Planning and disaster recovery is a corrective control. Without corrective
controls in place, the bank has risk of loss of business and other losses
due to its inability to recover essential IT based services, information and
other resources after the disaster has taken place.
The controls in CIS environment would include:
a. Controls on execution and recording of various e-banking and internet banking products;
and manual processing of items not covered
b. MIS reports being generated with reasonable periodicity thereof.
c. Major exception reports and the process of generation and compliance thereof.
d. Parameterisation of the statutory and regulatory requirements and its constant updation
from the real value date.
e. Process of generating information related to various disclosures in the financial
statements and the involvement of the IT systems.
f. Dealing with and resolution of data/system corruption, system break-down, etc., having
bearing on the preparation and presentation of financial statements.
g. Customer complaints related to mistakes in transactions (interest application, balances,
etc.),
h. Validation of the hardware and software to confirm that there is control over the
information and data that is retained at the highest levels of integrity at all stages from
inception , transmission, custody and final retention; and that there is no manual or other
intervention that can reopen or re edit such data.

The timing and extent of audit procedures is heavily dependent on the existence or otherwise of a
robust system of internal controls and strict compliance by the Management of such system. Based
on the level /gravity of the risk, the auditor will have to curtail or extend audit procedures. Additional
responsibilities cast on the auditors and the scope of their work getting extended in the areas of
reporting on offences involving frauds, fraudulent activities, foul play in banking transactions, require
the auditor to specially look into the systems and procedures laid down and the effectiveness of the
controls exercised by Management.

Internal control evaluation assists the auditor to determine the effectiveness or otherwise
of the control systems and of the integrity of the information/data generated and its reliability for
the purpose of his examination and reporting thereon. If evaluation reveals weaknesses, it enables
the auditor to strengthen his audit procedures, and to lay appropriate emphasis on the risk prone
areas. It needs to be emphasized that transactions in banks are voluminous though repetitive,
and fall into limited categories/heads of account. It would , therefore, be appropriate that the
evaluation of the internal controls is made for each class/category of transactions.

Internal controls would, inter alia, involve:


a) Segregation of duties between
* Authorising Supervisors and clerical officers
* Programmers and computer operators
* Asset record keepers and asset custodians

Bnkad18.sanjay v & mmk 47


BANK AUDIT - AUDIT IN EDP ENVIRONMENT C III

b) Software access control


 Examine the procedures for adding and deleting users
 Password control procedures
 Report on attempted access violations, including on ATMs
 Re-perform investigations on attempted violations
c) Physical access control
 Whether unauthorized staff gains access
 Whether program and data files are under control of proper authority
d) Completeness of output based on accuracy of inputs
- all source documents are received and transactions are entries/updated to a file
- Transactions that are lost, missing or duplicated during processing are detected / presented.
- Rejected transactions are subsequently updated.
e) Computer generated data, being of high integrity from inception till finish
(Daily normal and exceptional reports on systems and transactions assume importance)
 Whether seen by authorised persons and attended to as per delegation of authority
 File Continuity
-Check whether opening balances agree with the print out of the earlier data
-Check sample reconciliation reports
-See whether these are authorized by appropriate persons
f) Verification through exceptional reports
Examine the daily exception reports for:
- transactions
- system
and whether effective action is taken by appropriate independent authority on a daily basis.
g) Computer calculations
 Manually check a few calculations
 Re-perform a few calculations
h) Computer summarization
 Check manually with a listing of the transactions
 Arrange a special run and compare the results
i) Categorising and updating
 Check posting for a sample period
j) Authorisation of transactions and identification of the personnel responsible
Ensure that, as per the system:
- only bona fide transactions are processed
- transactions are authorised
- unusual transactions are identified
k) Detailed cycle level controls
Ensure complete, accurate and valid data to avoid duplication/errors in data.
l) Total cycle controls
- output of one update is used as input for the next update
- Prompt recovery in case of processing failure
The audit staff must enquire as to the results of any internal inspection/audit/concurrent audit
of the EDP systems to gauge any weaknesses that would have effect on their audit planning,
and the audit risks they need to address.

Special attention also needs to be paid to the back-ups and access thereto from off-site
storage locations as part of the disaster recovery management in the bank; and particularly
whether these have been tested.

Enquire into areas of manual intervention in the EDP data/information generated and the
related control procedures that may be risk prone.

Bnkad18.sanjay v & mmk 48


C IV
BANK AUDIT - SUMMARY OF ADVANCES OF THE BANK AS AT 31ST MARCH 2018 (for knowledge)
Particulars Amount Rs.
Total Break up of Advances
Bills purchased and Cash Credits, Overdrafts Term Loans
discounted and Loans repayable in
demand
A.GROSS AMOUNT IN BORROWERS' ACCOUNTS AT THE
BRANCH LEVEL(includes for credit cards and interest
bearing staff advances)
Add:
a) Debit balances in Deposit Accounts
b) Invoked Guarantees/devolved L/Cs
TOTAL (A)
B. Less:
a. Amounts pending and capable of appropriation (ECGC/
CGFT(SSI) claims/other amounts recovered and held as
liability/ advances- related subsidies)
b. Interest applied in Borrowers’ accounts and held in Interest
Suspense/other similar account
c. Income derecognized on NPAs identified during the year
and included in A above
d. Participation on risk sharing basis – outstanding amounts,
if not included at the branches
e. Bills rediscounted, if included in (A) above as per
procedure applicable at Branch level

f. Advances held at branches but written off/ Prudentially


written off at H.O
TOTAL (B)
GROSS ADVANCES (A-B) OF THE BANK
Less: PROVISION (For sub-standard/ XXXX
Doubtful/Loss Assets)
BALANCE AS PER BALANCESHEET
See Notes on the following page

Bnkad18.sanjay v & mmk 49


BANK BRANCH AUDIT
SUMMARY OF ADVANCES OF THE BANK AS AT 31ST MARCH, 2017 (for knowledge)….2
NOTES:
1. Advances (non-interest bearing) to employees, (such as Leave Fare Concession Advance, Festival Advance, Drought Relief Advance) should not be treated as part of the Advances
portfolio but are to be considered as part of "OTHER ASSETS-Others". However, if staff advances are interest bearing, these will be part of the Advances Portfolio.

2. Where borrowers' accounts are identified for the first time as NPAs, the unrealised income recorded in the borrowers' accounts, including for Govt. advances, must be reversed, and
to the extent recorded as
a) the current year's income, be derecognised/not treated as income; and
b) the income of the immediately preceding financial year, must be provided for, unless the laid down procedure of the Bank warrants the reversal of current year's income
for such (earlier year's) unrealised interest.

3. Where income is accrued in advances treated as "Standard" by the Bank Management, but such accounts are re-classified as sub-standard, doubtful or loss assets while finalising
the accounts, such interest income accrued but not realised, has also to be reversed, so that the provision can be worked out on the amounts, net of such reversal.
The practice of some banks to reverse such unrealized (applied) interest and give credit to the borrower, is risk prone for the banks, particularly in cases of litigation.

4. Provisions in excess of those necessary for Advances, would have to be treated as of the nature of "reserves" and not deducted from the "Advances". Provision made on adhoc
basis for standard advances would also be of this nature.
Provisions in respect of Standard Advances are part of OTHER LIABILITIES (Schedule 5) while for NPAs it will get reduced from Advances in Schedule 9. This applies to restructured
Advances as well, though as per Para 5.9.10 of the Master Circular the RBI has permitted such provisions to be netted from the advances
Provisions for Diminution of Fair Value (Para 5.9.10)
Provisions for diminution of fair value of restructured advances, both in respect of Standard Assets as well as NPAs, made on account of reduction in rate of interest and /
or reschedulement of principal amount are permitted to be netted from the relative asset.
.
Normal provisions need to be segregated from provision for sacrifice in restructured accounts that will be retained in a separate account, as also for FITL, carved out of interest in default.

5. Provisions are required to be made to the satisfaction of auditors, and if in the opinion of the auditors, provisions made/recommended by the Bank Management as per the
prudential norms of RBI are lower, the auditors would need to qualify their report indicating the shortfall.

6. Debit/adverse balances in Deposit Accounts would normally be “unsecured' advances.

7. Where recoveries are made in NPAs, and there are no instructions of the borrower, the credits in the borrowers' accounts should be appropriated in the following order, preference
being given to the oldest debits:
a) Charges, not recorded/reversed; thereafter
b) income not realised/recorded earlier;
- Interest Suspense
- Unapplied Interest
- Recompense amounts (earlier deferred in cases of sacrifice).
and thereafter
c) the principal amount,
Care must be taken to ensure that to the extent the borrowers' accounts are credited, the unapplied charges and income, and right to recompense, are first applied and
debited to the relevant accounts.

8. Interest should not be accrued as income on accounts identified as non-performing, and after the date of the last application of interest in the borrowal accounts, the interest needs to be
computed and recorded in the memoranda books on updated basis.

Bnkad18.sanjay v & mmk 50


CV

BANK AUDIT : ASSET-LIABILITY MANAGEMENT

Guidelines on disclosure in the annual accounts for the year 2017-18


1. GENERAL
Reference may be made to the disclosure requirements in the Notes to Accounts of Banks, as
contained in Para 3.6 of the Reserve Bank of India Master Circular DBR.BP.BC
No.23/21.04.018/2015-16 dated 1-7-2015, pursuant to the RBI Guidelines on Asset- Liability
Management (ALM) System vide Circular No.DBOD.BP.BC.8/21.04.098/99 dated 10-2-1999 as
amended on 24.10.2007, vide RBI Circular No. DBOD.BP.BC.38/21.04.098/2007-08; requiring,
inter alia that;
(a) the banks may adopt a more granular approach to measurement of liquidity risk by splitting the
first time bucket (1-14 days at present) in the Statement of Structural Liquidity into three time
buckets viz. Next day , 2-7 days and 8-14 days.
(b) the Statement of Structural Liquidity may be compiled on best available data coverage, in due
consideration of non-availability of a fully networked environment. Banks may, however, make
concerted and requisite efforts to ensure coverage of 100 per cent data in a timely manner.
(c) the net cumulative negative mismatches during the Next day, 2-7 days, 8-14 days and 15-28
days buckets should not exceed 5 % ,10%, 15 % and 20 % of the cumulative cash outflows in
the respective time buckets in order to recognise the cumulative impact on liquidity.
(d) banks may undertake dynamic liquidity management and should prepare the Statement of
Structural Liquidity on daily basis.
Besides additional disclosures relating to movements in NPAs and lending to sensitive sectors, the
Reserve Bank of India has prescribed disclosures to be made in the annual financial statements of
the banks, by way of maturity pattern of:
 Deposits
 Loans and Advances
 Investments
 Borrowings
 Foreign Currency Assets and Liabilities
The requirement is to work out the Residual maturity of the related assets and liability of the assets
and liabilities to determine the mismatch, if any, for possible remedial action. Residual maturity means
the balance time that remains for the asset or liability to mature, calculated from the year-end.
Time Buckets
Based on the residual maturity, the assets and liabilities would fall in TIME BUCKETS, in which these
shall be placed. There are as many as 10 time buckets for the purpose of reporting as under:
1. Day 1
2. 2 – 7 days
3. 8 - 14 days.
4. 15 - 28 days
5. 29 days – 3 months
6. over 3 months upto 6 months
7. over 6 months upto 1 year
8. over 1 year upto 3 years
9. over 3 years upto 5 years
10. over 5 years.
Computer generated Data could be prepared, in the format as per Annexures or in any corresponding
manner and would be relevant. This needs to be signed by the authorised branch personnel in all
cases, and in case of audited branches, should be examined and attested by the auditor.
2. MATURITY PATTERN OF DEPOSITS
The deposits of a Bank can broadly be categorised as under:
A. Demand Liabilities
These do not have specific maturity patterns, and comprise:
- Deposits in current accounts
- Savings Bank Deposits
- Credit Balances in Cash Credit/Loan accounts
- Overdue/ matured deposits
By definition these being repayable "On Demand", it is difficult to predict the likely pattern of
the repayment of such deposits, and would, therefore, necessitate sophisticated statistical
techniques or other methods and procedures to determine the likelihood of outflows/maturity
patterns.
This exercise would necessarily have to be carried out at the centralised level by the
Banks.

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B. Time Liabilities
These have relatively predictable maturity patterns, and generally such liabilities (including
inland and foreign deposits and inter-bank term deposits), and fall into the following
categories, in respect of which relevant data would be required to be prepared by the branches:
 Fixed Term Deposits (with interest payment plans during the tenure/period of the deposits),
 Term Deposits in Re-investment schemes
 Cumulative Time Deposits(where interest is compounded)

Time Liabilities are required to be classified according to actual residual maturity of the relevant
deposits as at the year-end..
Residual maturity means the balance time that remains for the deposit to mature, calculated
from the year-end.
The data so prepared on individual deposits is required to be aggregated to fall into specific
period tranches, called Time Buckets, as explained above.

Residual Maturity Concept for Deposits


Deposits repayable after a specified term usually have a stipulated date when the deposits
mature. The date refers to a contractual maturity date on which the depositor may ask for
repayment/renewal. The time period that remains to elapse between the year-end and the
contractual maturity date is referred to as the "Residual Maturity" Period and can be illustrated
by the following, if there are 6 Term Deposits in a branch as under:
_______________________________________________________________________________
Date of Deposit Amount Rate of Interest Due date Time Bucket
(Rs.) %
_____________________________________________________________________________
01.04.2015 50,000 5 01.04.2018 (Explained
01.05.2017 2,00,000 5.5 01.08.2018 below)
01.08.2017 1,50,000 5.5 01.08.2018
30.12.2017 50,000 6 30.01.2019
01.01.2017 1,00,000 6 01.01.2018
01.01.2017 1,00,000 6 01.01.2019
_______________________________________________________________________________

While contractual maturity for the first deposit is for 3 years i.e 36 months, the deposit has already
completed more than 3 years. The balance period for which it will run till the next date of maturity
is 1.4.2018 MINUS the year-end date i.e. in this case the remaining period is 1.4.2017 MINUS
31.3.2018 i.e. one day. This is the residual Maturity of the deposit. Therefore, for the ALM returns,
the amount of this deposit will be shown as deposits maturing within 1 day.
Similarly, in respect of the next deposit, the remaining period is 1.8.2018 MINUS 31.3.2018 i.e. 4
full months. Therefore, this amount will be shown as maturing within 3-6 months time bucket.
Matured/Overdue deposits even if continuing in Term Deposit Ledgers would be reckoned
as demand Liabilities.

2. MATURITY PATTERN OF LOANS AND ADVANCES

It is cumbersome to generate precise data on the maturity pattern of advances in all classifications,
particularly in Cash credit accounts, overdrafts etc. Maturity Pattern of only advances categorized
and identified as STANDARD is more practical to be compiled by the Branches; and all NON
PERFORMING ADVANCES are required to be considered in maturity buckets as under:

Category of NPA Time Bucket


Sub-standard 3-5 Years
Doubtful/Loss Over 5 years

The Advances portfolio of a bank would generally comprise the following; and since the advances are
controlled at the branches, the relevant information would be obtained from them, or from the server,
in respect of the branch concerned - such information usually arising from:

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a) Bills transactions (bills purchased and discounted)


- Inland Bills Purchased
- Inland Usance Bills Purchased
- Inland Usance Bills Discounted
- Advance against Inland Bills for Collection (Supply Bills)
- Foreign Bills Purchased
- Foreign usance Bills Purchased
- Advance against Foreign Bills or Collection

Usance Bills Purchased and Inland Usance Bills Discounted


Details of Inland Usance Bills Purchased/Discounted need to be prepared by the branches in
the recommended format
Advances against Inland Bills for Collection-ABC (Supply Bills) are made in rare cases, and
the banks treat these as akin to the usance bills, as the realisability is according to the
terms of the underlying contract of supply. Details regarding maturity of ABC (supply bills)
would therefore, be furnished in their maturity buckets; and if against demand bills, the
outstandings should fall in the 1 day bucket
Foreign Usance Bills Purchased Advance against Foreign Bills for Collection
Foreign Usance Bill means any Foreign Bill purchased or discounted whether or not
under L/C, which has a due date on which it is expected to realise. As in the case of ABC
(Inland), if advance is made against foreign bills, the same treatment is given as above and
could be against sight bills (Demand Bills) which could not be purchased or negotiated.
Bills which are falling due Maturity Bucket
On 1-4-2018 1 day
Between 2.4.2018 and 7.4.2018 2 to 7 days
between 8.4.2018 and 14.4.2018 8 to 14 days
between 15.4.2018 and 28.4.2018 15 to 28 days
Between 29.4.2018 and 30.6.2018 29 days to 3 months
between 1.7.2018 and 30.9.2018 3 months to 6 months
between 1.10.2018 and 31.3.2019 6 months to 1 year
between 1.4.2019 and 31.3.2020 1 year to 3 years
between 1.4.2021 and 31.3.2023 3 years to 5 years
On or after 1.4.2023 Over 5 years
b) Term Loans
The Maturity pattern of Term Loans is to be computed on the basis of the interim cash
flows i.e. according to the stipulated repayment schedule.
c) Loans re-payable on demand
- Cash Credits
- Overdrafts (including temporary overdrafts and adverse balances in deposit accounts)
- Demand Loans
- Packing Credits
3. MATURITY PATTERN OF INVESTMENT SECURITIES
The investment portfolio of banks is generally controlled on a centralized basis and the maturity
patterns can be worked out at that level. Branches may not, therefore be expected to submit any
information on this item, even if they hold investments on behalf of the Head office.
4. MATURITY PATTERN OF BORROWINGS
Borrowings include re-finance and in the normal course such activities take place at selected few
branches. The information relating to Maturity pattern of these Refinance/Rediscount is also available at
Head Office. Certification of Maturity pattern of Borrowings in the stipulated Buckets can be done at
such branches, and counter-checked at Head Office.
5. MATURITY PATTERN OF FOREIGN CURRENCY ASSETS AND LIABILITIES
Foreign currency assets and liabilities are not expected to be held/ incurred at other than certain
branches, usually designated as `A' category branches. The statement with regard to these would be
prepared and forwarded by only such Branches for consolidation at Head Office.
The RBI directives coincide with the introduction of Asset-liability Management System (ALM) in
Banks during the year 2000-2001. Since the disclosure requirements are mandatory in nature, the
banks would already have devised appropriate forms and returns to ensure that the required data is
expeditiously available from the branches for consolidation and incorporation thereof in the annual
audited accounts.

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REFERENCE MAY BE MADE TO THE FOLLOWING FORMATS IN THE RBI GUIDELINES


BANK:

INFLOWS AMOUNT (Rs.in crores)


RESIDUAL MATURITY IN TIME
BUCKETS
1. Cash
2. Balances with RBI
3.Balances with other Banks XXX XXX XXX XXX XXX XXX
(i) Current Account
(ii) Money at Call and Short Notice, Term Deposits and other
placements
4.Investments (including those under Repos but excluding
Reverse Repos)
5. Advances (Performing) XXX XXX XXX XXX XXX XXX
(i) Bills Purchased and Discounted (including bills under
DUPN)
(ii) Cash Credits, Overdrafts and Loans repayable on demand
(iii) Term Loans
6. NPAs (Advances and Investments) *
7. Fixed Assets
8. Other Assets XXX XXX XXX XXX XXX XXX
(i) Leased Assets
(ii) Others
9. Reverse Repos
10. Swaps (Sell /Buy)/ maturing forwards
11.Bills Rediscounted (DUPN)
12. Interest receivable
13. Committed Lines of Credit
14. Export Refinance from RBI.
15. Others (specify)
C. TOTAL INFLOWS
D. MISMATCH ( C-A )
E. MISMATCH as % to OUTFLOWS
(D as % to A)
F. CUMULATIVE MISMATCH

G. CUMULATIVE MISMATCH
as a % to CUMULATIVE OUTFLOWS
( F as a % to B)

* Net of provisions, interest suspense and claims received from ECGC/DICGC.

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BABANK:
STATEMENT OF STRUCTURAL LIQUIDITY AS ON 31-3-2018
OUTFLOWS AMOUNT (Rs. In crores)
RESIDUAL MATURITY TIME BUCKETS (to
be given in columns)

1. Capital
2. Reserves & Surplus
3. Deposits XXX XXX XXX XXX XXX XXX XXX
(i) Current Deposits
(ii) Savings Bank
Deposits
(iii) Term Deposits
(iv) Certificates of
Deposit
4. Borrowings XXX XXX XXX XXX XXX XXX XXX
(i) Call and Short Notice
(ii) Inter-Bank(Term)
(iii) Refinances
(iv) Others (specify)
5.Other Liabilities & Provisions XXX XXX XXX XXX XXX XXX XXX
(i) Bills Payable
(ii) Provisions
(iii) Others
6.Lines of Credit committed to XXX XXX XXX XXX XXX XXX XXX
(i) Institutions
(ii) Customers
7. Unavailed portion of Cash Credit / Overdraft /
Demand Loan component of Working Capital
8. Letters of Credit /Guarantees
9. Repos
10. Bills Rediscounted (DUPN)
11.Swaps (Buy/Sell) /maturing forwards
12. Interest payable
13. Others (specify)
A. TOTAL
OUTFLOWS
B. CUMULATIVE OUTFLOWS

The disclosures on the items mentioned above are required to be attested by the Auditors, since these
form a part of the audited information. To the extent relevant, the branch auditors need to certify the
information at the branch level; and to the extent they are not satisfied on the basis of the computation at
the branch, they may qualify their report.

REFERENCE MAY BE MADE TO THE MANNER OF PREPARATION OF THE RELATED INFORMATION BY THE
BANK AS GIVEN IN THE FORMATS FOLLOWING (Pages 56to 60).

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BANK AUDIT : ASSET-LIABILITY MANAGEMENT - FORMATS CV

DETAILED STATEMENT OF RESIDUAL MATURITY OF TERM DEPOSITS AS AT 31.3.2018

Date of Deposit (Rs.) Interest Residual Maturity based on 31.3.2016 (maturity date less 31.3.2018) Amount (Rs.)
Deposit Rate
1day 2-7 days 8 - 14 15 - 29 Over 3 Over 6 months Over 1 Over 3 Over 5
days 28d days months upto 1 year year years years
%
ays to 3 upto 6 upto 3 upto 5
month months years years
s

TOTAL XX

Notes: 1.

2.

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MATURITY PATTERN OF BILLS (STANDARD CATEGORY) AS ON 31.3.2018

Amount (Rs.)
Borrower Nature of Borrower Balance of which maturing in
No. Limits Name outstanding
1 day 2 to 7 8-14 15 to 28 29 days to Over 3 Over 6 Over 1 Over 3 Over Total
days days days 3 months months months year and years 5
and upto and upto 1 upto 3 and upto years
6 months year years 5 years

TOTAL

Note : Bills overdue as on 31.3.2018 should be reported in the 1day’s time bucket.

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BANK AUDIT : ASSET-LIABILITY MANAGEMENT CV

FORMAT OF DETAILS OF INLAND TERM LOANS IN STANDARD CATEGORY OUTSTANDING AS ON 31.3.2018


BRANCH ______________________________ BRANCH CODE _____________ REGION ____________________

Borrower’s Sanction Loan Amount Periodicity of No. of Amount of Installment Amount Amount
Name Particulars installments Installments Installment starting from outstanding overdue
Rs. (3/6/12) @ Rs. (DD/MM/YY) Rs. (If any)
Rs.

TOTAL XXX XXX XXX XXX

Notes: @ 3 for Quarterly, 6 for Half yearly, 12 for yearly for convenience.
For the sake of convenience the numerals may be used
Quarterly 3: Half yearly 6: Yearly 12

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ASSET LIABILITY MANAGEMENT
BANK AUDIT 2017-18
BANK:_______________________________________
STATEMENT SHOWING MATURITY PATTERN OF ASSETS AND LIABILITIES Amount (Rs. In Crores)
MATURITY PATTERN Time Buckets
AS ON 31-03-2018 OF
Over 3 Over 1 Over 3
29 days Over 6
2 to 7 15 to months and year and years over 5
Day 1 8-14 days and upto months and Total
days 28 days upto 6 upto 3 and upto years
3 months upto 1 year
months years 5 years

LOANS & ADVANCES


(GROSS)*

INVESTMENT
SECURITIES (GROSS)

DEPOSITS*

BORROWINGS
(GROSS)

FOREIGN CURRENCY
ASSETS

FOREIGN CURRENCY
LIABILITIES

Notes:1. * excluding foreign currency deposits and advances, which are included in foreign currency Assets and Liabilities.
2. The figures in the case of foreign currency assets and liabilities are after revaluation at the year end FEDAI rates.
3. Note on the following lines: The above maturity pattern has been compiled by the management from the information received from the
branches, and ratios arrived at as per RBI guidelines for determining core and volatile portion and apportionment made at Head Office
on the basis of behavioral or contractual residual maturity wherever applicable.

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BANK AUDIT 2017-18 C V
ASSET LIABILITY MANAGEMENT 2017-18 (RECONCILIATION OF ALM WITH BALANCE
SHEET) - ILLUSTRATIVE COMPARATIVE WORKSHEET
Rs. IN CRORE
LOANS & ADVANCES
ALM
ADD
FOREIGN CURR. LOANS
LESS
PROVISIONS
IDBI BILLS REDISCOUNTED
INTEREST SUSPENSE
F.C.TERM LOANS REVALUATION
EBR REVALUATION A/C
CASH CREDIT - FOREIGN
CURRENCY(PCFC)
F.C.D.L.A/C
DICGC CLAIMS SETTLED
RECEIVABLE FROM GOVT.
NON-INTEREST BEARING STAFF
ADVANCES
MISC. PORTION OF PROTESTED BILLS
SUB-TOTAL
ADD
ADJUSTMENTS
MOC ON CC/OD/DL
MOC ON TERM LOANS
SUB-TOTAL
AS PER BALANCE SHEET
DEPOSITS
ALM
ADD
FOREIGN CURR. DEPOSITS
AS PER BALANCE SHEET

INVESTMENTS
ALM
LESS
HAIR CUT ON LISTED SHARES
AS PER BALANCE SHEET

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BANK AUDIT (2017-18) CC
Text of Management Representation Letter to be obtained from the Branch Management

M/s ___________________
Chartered Accountants,
__________________

Dear Sirs,

Re: Audit of the annual financial statements of our Branch for the year 2017-18

This representation letter is provided in connection with your audit of the financial statements of
_____________ Branch of _______________________(Bank), for the year ended March 31, 2018
for the purpose of expressing an opinion as to whether the financial statements give a true and fair
view of the state of affairs of the said Branch as of March 31, 2018 and of the results of operations
for the year then ended. We acknowledge our responsibility for preparation of financial statements in
accordance with the requirements of the Reserve Bank of India and recognised accounting policies
and practices, including the Accounting and Auditing Standards issued by the Institute of Chartered
Accountants of India (ICAI); as also with the Circulars issued pursuant thereto and in line therewith
from time to time and as applicable to the Branch.

The statements/returns furnished for audit, prepared at the Branch, have been pre-reviewed,
authenticated and incorporate information/ data, strictly in accordance with the laid down instructions
of the Bank.

We confirm, to the best of our knowledge and belief, the following representations:

1. Accounting Policies
The accounting policies, which are material or critical in determining the results of operations for
the year or state of affairs as applicable to the Branch and there are no changes in the
accounting policies/practices followed by the branch during the current year.
The financial statements are prepared on accrual basis.
We are not aware of any other changes in the Accounting Policies/practices, as have a bearing
on the financial statements of the branch for the year under audit.
2. Previous Reports - Compliance
We have made available to you the following latest reports on the accounts of our branch, and
compliance by the branch on the observations contained therein:
a) Branch Audit Report and Accounts;
b) Long Form Audit Report;
c) Internal Inspection Report;
d) Internal/Concurrent Audit Report(s);
e) Credit Audit Report;
f) RBI Inspection Report, if such inspection took place;
g) Income and Expenditure Control Audit/Revenue Audit Report;
h) Quarterly review report (s);
i) IS/ IT/Computer/EDP Systems Audit; and
j) Special inspection/investigation report/ stock audit.

Due to effective compliance of the above, the Branch has not received any
communication/intimation/ advice based on monitoring/review/inspection or a show cause,
including from Government of India, Reserve Bank of India or any other monitoring or
regulatory authority; and there are no significant issues /matters remaining unattended that
could have a material effect on the financial statements of the Branch during the year or that
may require any action at the Branch.

3. Books maintained in the EDP environment


The books of the accounts are computerised and hence the subsidiary records are
automatically balanced with the relevant control records, except as otherwise mentioned. In
case of manual sub-ledgers maintained, we confirm that they duly match with the general
ledger balances.
The Branch has attended to all “exception reports” generated during the year, and remedial
action, wherever required has been taken; and there are no major adverse issues/matters that
are pending as at the year end.

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BANK AUDIT (2017-18) CC
Text of Management Representation Letter to be obtained from the Branch Management
Manual intervention to the system generated financial data, wherever required, has been
attended to in the preparation of and incorporation in the financial statements of the Branch,
and are duly authorized as per the laid down procedure.
4. ASSETS
The branch has a satisfactory title to all assets and there are no liens or encumbrances on the
assets of the Branch. The Municipal dues/ local levies / demands and lease/rentals pertaining
to the Branch premises have been duly paid / provided, based on the claim/agreement for the
time being in force, including demands/claims where the rent/lease agreement has expired.
5. Cash and Bank Balances
We confirm that the Branch has followed the laid down system of cash verification at periodic
intervals and of its tallying with the book balances; and confirm that there were no
discrepancies noticed therein during the year.
The Cash balance (including at the sub offices, imprest balances, ATMs attached to the
Branch), as on March 31, 2018 is Rs. ________as verified by us, tallies with the book records.
The balance shown by the year end scroll extracted from the ATM and book balances have
been tallied and the differences between these balances have been analysed and MOC
considered in respect of the same.
Balances held by agents for replenishment of cash in the ATMs, have been appropriately
reflected as CASH of the Branch.
The Branch has obtained and made available, balance confirmation certificate(s) for balances
maintained with other bank(s) and the balances in respect thereof, have been reconciled as at
the year end, requiring no adjustments in respect of any entries prior to the year end.
In respect of Currency Chest deposits/withdrawals, all entries up to the year end have been
simultaneously duly incorporated in the accounts of the Branch, to enable reflection of the
correct balance of the account maintained with the Reserve Bank of India at the link office.

With regard to demonetization, we confirm that there is no adverse feature pointed out
as regards our branch in respect of any investigation, review, examination,
internal/concurrent audit, enquiry or any other internal supervisory mechanism, and
nothing that cause the belief or concern that there has been a fraud involving any
customer/employee that has any adverse pecuniary effect having implications on the
branch financials for the year 2017-18.

6. Advances
6.1 The Branch has a system of internal monitoring, supervision and control over the advances in
all aspects, including in particular the periodic verification of the existence and the realizable
market value of the tangible and other securities charged to the bank In respect of the
advances and the Branch has through such inspection procedures that were necessary and
done, satisfied itself that as at the year end, the same has been considered while classifying
the advances as per their health status in line with the RBI norms.
6.2 We have examined the advances accounts and have categorised the borrowers, according
to the applicable prudential norms and the regulatory parameters prescribed by the Reserve
Bank of India (RBI) , for the purpose of provision and income recognition, into standard, sub–
standard, doubtful or loss assets, except as otherwise permitted as per the said prudential
norms. The borrower-wise categorization is based on the most adverse status in any credit
facility, including that as an investee, except as otherwise permitted in cases like BIFR/
restructured accounts, where the accounts are classified, as required. The information
relating to the borrowal accounts maintained at the Branch has been reviewed with reference
to the recorded and updated loan procedures followed, including appraisals, sanction,
documents and further monitoring and supervision and reference to adverse comments, if
any, in the inspections/audit, irrespective of the physical location of the loan procedure
documents.
The borrowers’ accounts have been simultaneously been categorized into those that are
performing assets or non performing assets (NPAs).

6.3 The classification status of the borrowers made as at the end of the previous year has not
been upgraded and changed to a better classification, except where such upgradation was
permitted as per the RBI prudential norms, or so justified due to recoveries in accounts, or
the curing of the defaults (including recovery of arrears of interest and principal), that were
the cause of the earlier adverse categorization.

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BANK AUDIT (2017-18) CC
Text of Management Representation Letter to be obtained from the Branch Management
6.4 While income is generally accrued and recorded in the accounts of borrowers categorized as
‘Standard’ and performing, no income has been recorded on Non–performing Accounts other
than on actual realisation.

No income has been adjusted / recorded to revenue, contrary to the norms of income
recognition notified by the Reserve Bank of India; and particularly where the chances of
recovery/realisability of the income are remote.

6.5 It is further confirmed that:


a. due care has been taken at the time of appraisal, sanctioning, disbursements and
thereafter at the time of renewals/ review, that the borrower is not in negative list or list of
willful defaulters.

b. stock audits/inspections have been carried out in the case of the borrowers (including
NPAs, at the prescribed periodicity), in case of credit facilities against the inventories to
determine the existence and valuation thereof wherever required, to gauge the adequacy
of the primary security (particularly, where mandatorily required), and the adverse
observations arising therefrom, have been attended to and considered in categorization
of the borrower as per applicable norms.

c. the drawing power/limit has been worked out in the case of credit facilities by the Bank
and in consortium/multiple banking arrangements, by application of the requisite margin
(only on the net paid for stocks, where the credit facilities are against such primary
security).

d. in case of consortium/multiple banking arrangements, the prescribed due diligence


reports from other banks have been obtained and are on record, except as otherwise
stated below:

e. all advances where renewal of limits was required, have been duly reviewed and the
limits renewed within the prescribed time, and no borrower has become NPA on this
account up to the year end.
7. Fixed Assets/ Depreciation
The fixed assets held by Branch have been properly accounted, including purchases during the
year on the correct dates of acquisition and these have been physically verified and reconciled
with the book records as at the year end. No discrepancies are noticed on such verification.
Depreciation on these assets have been adequately provided as per the policy of the bank.
Capital Commitments
At the balance sheet date, there were no outstanding commitments for capital expenditure,
other than those disclosed in the financial statements.
8. Stationery
Unused Stock of security paper stationery like Cheque books, Drafts, Pay Orders, Banker’s
Cheques, Deposit Receipts, Cash Certificates, Stamped Guarantees and similar stationery,
have been verified and tally with the records maintained at the Branch and these have also
been produced for your verification. Dual controls on receipt, custody, issue and holding of
such stationery, have been followed and there have been no exceptions reported in this regard
at the Branch.

9. Other Current Assets


Outstandings In Suspense and similar nominal heads of account
The break up of amounts outstanding in Sundry deposits and similar nominal heads of account
/Sundry assets as at the year end have been properly disclosed and the amounts are justified
to be retained at the Branch as per the system of the Bank.
In the opinion of the Branch management, the other current assets have a value on realisation
in the ordinary course of the business which is at least equal to the amount at which they are
stated in the Branch balance sheet.

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BANK AUDIT (2017-18) CC
Text of Management Representation Letter to be obtained from the Branch Management
LIABILITIES
10. The Branch has recorded all known liabilities in the financial statements.

11. Overdue/ Matured Term Deposits

All overdue/ matured term deposits are held as demand/current deposits.

Term Deposits are subject to the scheme of the Bank for automatic renewal, unless otherwise
instructed by the Deposit holders, the renewals being for the same period as the matured
deposit; and entries are generated through the system for such renewals on due dates. This is
done net of tax deduction at source. Provision for interest at the year end, is properly made for
deposits not contractually due, and is also subject to such deduction at source.
We confirm that the credit in the term deposit accounts/ renewals on due dates (net of
applicable tax), is backed up with adequate controls including by issuance of deposit receipts
in cancellation of the matured deposit receipts or by duly recorded endorsements on the
inverse of the existing receipts. There is control over the unissued receipts, in that these are
issued only when the originals are returned to the Bank. We confirm that there is no breach of
this system at the Branch; and the Branch does not hold any issued receipts that have not been
dispatched to the deposit holders.
12. CONTINGENT LIABILITIES
12.1 The Branch has disclosed in the relevant returns prescribed for the branch, all;
(a) guarantees given to third parties;
(b) Letters of Credit (Local/Import);
(c) Letters of Comfort (Local/Import);
(d) Deferred Payment Credits/Guarantees (Local/Import); and
(e) all other contingent liabilities/obligations.

12.2 Other than for advances, there are no matters involving the Branch in litigation, arbitration or
disputes requiring any provisions/ adjustments in the financial statements or disclosure as
contingent liability having bearing on the Branch financial statements, except as otherwise
stated in the returns/data compiled for this purpose for onward submission to the Controlling
Authority. The Branch has not received any legal notices/claims (including staff claims) for any
statutory or regulatory defaults or claims relating to municipal taxes or local levies or from
customers in relation to the Branch in the course of its business, involving any liability which are
likely to result in a loss/detriment requiring adjustment to the Branch assets or liabilities.

12.3 All contingent obligations assumed are duly incorporated in the Branch records and all
outstanding obligations, including in respect of Guarantees, Letters of Comfort and similar
obligations assumed and outstanding at the year end at the Branch, have been disclosed net
of margins; and where such obligations have ceased these have been correctly deleted from
the branch records/ returns, including in respect of expired guarantees (where the claim
period has also expired) and invoked guarantees/obligations that have been duly discharged.

12.4 Provisions for Claims and Losses


Provision has been made in the accounts for all known expenditure, losses and claims of
material amounts.

13. Profit and Loss Account

13.1 Except as disclosed in the financial statements, the results for the year were not materially
affected by:
(a) transactions of a nature not usually undertaken by the branch;
(b) circumstances of an exceptional or non–recurring nature;
(c) charges or credits relating to prior years;
(d) changes in accounting policies

13.2 Interest Expended/ Earned and Provisions


(a). On Deposits, Interest has been paid/ provided as contractually due in accordance with
the extant instructions of the Controlling Authority/Head office, net of the stipulated Tax
deduction at source.

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BANK AUDIT (2017-18) CC
Text of Management Representation Letter to be obtained from the Branch Management
(b). On Advances identified during the year as NPAs, the interest earlier accrued as income
(and debited to the borrowal accounts), but remaining unrealized, have been
derecognized as income and treated as Interest Suspense; whereafter, the interest
otherwise contractually due, is not recognized as income earned and is not debited to
the borrowal accounts, as per the system in vogue. Record of such unapplied Interest
is separately maintained for potential recovery.
(c). Interest as communicated by the Controlling Authority/Head Office on account of
Transfer Pricing mechanism/Inter branch balances, up to the year end, has been
adjusted at the Branch, as per the laid down system.
13.3. Provisions/adjustments usually made at Head Office:
No adjustments/ provisions have been made in the accounts of the Branch in respect of
matters usually dealt with at Head Office, including in respect of:
(a) Bonus, ex-gratia, and other similar expenditure and allowance to branch employees;
(b) Terminal permissible benefits to eligible employees on their retirement (including additional
retirement benefits), Gratuity, Pension, and liability for leave encashment benefits, and
other benefits covered in terms of ‘AS 15- Employees Benefit’ issued by Institute of
Chartered Accountants of India;
(c) Arrears of salary/wages/allowances, if any, payable to staff;
(d) Staff welfare contractual obligations;
(e) Old unreconciled / unlinked entries at debit under various heads comprising Inter branch
/office adjustments;
(f) Effect of conversion of outstanding Branch balances in foreign exchange as per the system
followed;
(g) Auditors’ fees and expenses;
(h) Items in Suspense, clearing differences, Credit Cards, Frauds/ vigilance cases involving
claims/ liability or loss to the Bank and other provisions on behalf of the Branch;
(i) Provisions in respect of advances as per applicable prudential norms and guidelines of the
Reserve Bank of India and the Bank’s policy in the line therewith (including on standard
advances, floating, ad hoc/generic provisions covering weak standard advances); in
respect of which, unless otherwise stated, is to be considered also in line with the Branch
returns relating to classification prepared at the Branch;
(j) Adjustments/provisions in respect of Interest Suspense and Unapplied Interest for the
earlier year for advances identified as NPA during the year reported in the Memorandum
of Changes (MOCs) ;
(k) Provision for clearing difference and Sundry Assets outstanding, if any, long pending; and
(l) Taxation (subject to adjustments for deferred tax up to the year end).

14. There have been no events subsequent to the balance sheet date that require adjustment of or
disclosure in, the financial statements or notes thereto.

15. Long Form Audit Report — Branch Response To The Questionnaire


In connection with the Long Form Audit Report, complete information as regards each item in
the questionnaire has been made available to you in order to enable you to verify the same for
the purpose of your audit.
16. Other Certification
Duly authenticated, information as regards other matters which, as per the Bank’s letter of
appointment, require certification has been made available to you.
17. General
There is no enquiry going on or concluded during the year by Central Bureau of Investigation
(CBI) or any other vigilance or investigating agency/ authority on the Branch or on its
employees and no cases of frauds, suspected frauds or of misappropriation of Assets of the
branch have come to the notice of the Branch Management during the year other than those
recorded and duly reported in the relevant return relating to frauds to the Controlling
Authority/Head Office.
The provision for non–performing assets, depreciation, provision for income tax, provision for
bonus, gratuity, etc., is made at the Head Office. Therefore, the same has not been provided in
the branch accounts.

18. There have been no irregularities involving management or employees who have a significant
role in the system of internal control that could have a material effect on the financial
statements.

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BANK AUDIT (2017-18) CC
Text of Management Representation Letter to be obtained from the Branch Management
19. The Bank has a system to convert its foreign currency balances outstanding at the year end
rates on a centralized basis; and all balances of this nature at the Branch have been
communicated for this purpose to enable the Controlling Authority to align the balances with the
applicable year end rates.

20. The financial statements are free of material misstatements and omissions.

21. The Branch has complied with statutory/regulatory/accounting requirements and all contractual
obligations that could have a material effect on the financial statements. There has been a
faithful compliance of the KYC norms at the branch.

22. The Branch neither has, nor has it been communicated any plans or intentions that may
materially affect the carrying value or classification of assets and liabilities reflected in the
financial statements.

23. The other particulars required have already been given to you and particulars and other
representations made to you from time to time are true and correct in all respects.
24. Tax Audit
The information required for the tax audit under section 44AB of the Income–tax Act, 1961 has been made
available to you in order to enable you to verify the same for the purpose of your report thereon. In respect
of the Tax Audit, we certify the following:
PART – A
Our status as defined under the Income Tax Act, 1961 is a Company; our Permanent Account No., the
jurisdiction under section 124 of the Income–tax Act, 1961 and other Indirect taxes Registration nos. as
communicated by Head office, has been incorporated correctly in the Form.
PART – B
o There is no change in nature of business in current year as compared to preceding previous year.
o The books of account maintained by us have been correctly disclosed in the prescribed form.
o Our Profit & Loss does not include profits and gains assessable on presumptive basis under sections
44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB, 172 of the Income–tax Act, 1961.
o The method of accounting followed has been consistently followed in the immediately preceding
previous year. There was no change in the method of accounting employed vis–à–vis the method
employed in the immediately preceding previous year. The Accounting Policies of the Bank may be
referred to, as applicable to the Branch.
o No amounts have been credited in Profit and Loss account as required under clause 16 of Form 3CD.
o Sums received from employees towards contributions to any provident fund or superannuation fund or
any other fund mentioned in section 2(24)(x) which is paid/not paid within due dates to concerned
authorities under section 36(1)(va) are mentioned in Clause 20 (b) of our Form 3CD and the same are
correct.
o In Clause 21(a) of Form 3CD, there are no other amounts of such items debited to Profit & Loss
Account.
o No Interest is paid to Micro, Small and Medium Enterprises which is inadmissible under clause 22 of
Form 3CD
o No payments are made to persons specified under section 40A(2)(b).
o There is no amount of profit chargeable to tax u/s. 41 as disclosed under clause 25 of Form 3CD.
o Except for the items shown under clause 26(B) of Form 3CD, no tax, duty or other sum as referred to
Under Section 43B has been provided as at the year end.
o No expenditure/ income of an earlier year has been debited/ credited to the Profit & Loss Account
except to the extent disclosed under clause 27(b) of Form 3CD.
o Section–wise details of deduction admissible under Chapter VI–A.
o No other deductions other than those mentioned in clause 33 of Form 3CD are available to the branch.
o The details of tax deducted at source as required under clause 34(a),(b) &(c) of Form 3CD is given
separately in the Format provided by Head Office

The other particulars and information which have already been given to you and other representations made to
you from time to time are true and correct in all respects.

Thanking you,

Yours faithfully,

Branch Authorised Signatory

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BANK AUDIT 2017-18 AUDIT REPORTING – MAIN REPORT
D
Introduction:
While the Banks may require the branch auditors to give their reports in the form and manner
stipulated in the appointment letter, the compliance of the auditing standards reporting requirements
need to be kept in view as per:
a. SA 700, “Forming an Opinion and Reporting on Financial Statements”;and
b. SA 705, “Modifications to the Opinion in the Independent Auditor’s Report” , where modified; and,
c. SA 706, “Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent
Auditor’s Report” (as applicable).
The bank branch auditors who require to address their reports to the Central Statutory auditors of the
bank, need to quantify their observations in the Memorandum of Changes that forms part of their
report.

Circumstances that m ay r esult in o ther than an Unqualified Opinion, due to factors like
limitation on scope, disagreement with management, disagreement on Accounting Policies
etc.

Types of Modified Opinions:


a. A qualified opinion should be expressed when the auditor concludes that an unqualified
opinion cannot be expressed but that the effect of any disagreement with management
is not so material and pervasive as to require an adverse opinion, or limitation on
scope is not so material and pervasive as to require a disclaimer of opinion. A qualified
opinion should be expressed as being ‘subject to’ or ‘except for’ the effects of the matter
to which the qualification relates.
b. A disclaimer of opinion should be expressed when the possible effect of a limitation on
scope is so material and pervasive that the auditor has not been able to obtain
sufficient appropriate audit evidence and is, accordingly, unable to express an opinion
on the financial statements.
c. An adverse opinion should be expressed when the effect of a disagreement is so
material and pervasive to the financial statements that the auditor concludes that a
qualification of the report is not adequate to disclose the misleading or incomplete nature
of the financial statements.

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D.1
An Illustrative Format of Report of the Branch Auditor of a Nationalised Bank, has been given by the
Institute of Chartered Accountants of India, at Appendix V of the Guidance Note on Audit of Banks
(Latest edition), as under:

“Independent Bank Branch Auditor’s Report


To,
The Statutory Central Auditors
________ Bank
Report on Financial Statements
1. We have audited the accompanying Financial Statements of _______________Branch of ____________
(name of the Bank) which comprise the Balance Sheet as at 31st March 20XX, Profit and Loss Account for
the year then ended, and other explanatory information.

Management’s Responsibility for the Financial Statements:


2. Management of the Branch is responsible for the preparation of these Financial Statements that give true and
fair view of the financial position and financial performance of the Branch in accordance with the Banking
Regulation Act, complying with Reserve Bank of India Guidelines from time to time. This responsibility
includes the design, implementation and maintenance of internal control relevant to the preparation and fair
presentation of the financial statements that are free from material misstatement, whether due to fraud or
error.

Auditors’ Responsibility:
3. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our
audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India.
Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.

4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The Procedures selected depend on the auditors’ judgement, including the assessment
of the risks of material misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the branch’s internal
control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of the accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements

5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
Audit opinion.

Opinion

6. In our opinion, and to the best of our information and according to the explanation given to us, read with the
Memorandum of Changes mentioned in paragraph 11 below, the financial statements give a true and fair view
in conformity with the accounting principles generally accepted in India:
(a) in the case of the Balance Sheet, of the state of affairs of the Branch as at March
31, 20XX; and
(b) in the case of Profit and Loss Account, of the Profit / Loss for the year ended on that date;

Report on Other Legal and Regulatory Requirements

7. The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with Section 29 of the
Banking Regulation Act, 1949;

8. Subject to the limitations of the audit as indicated in Paragraphs 3 to 5 above and paragraph 10 below, we
report that:
a. We have obtained all the information and explanations which to the best of our knowledge and belief were
necessary for the purpose of the audit and have found them to be satisfactory.
b. The transactions of the branch which have come to my/our notice have been within the powers of the Bank.

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BANK AUDIT 2017-18 AUDIT REPORTING – MAIN REPORT
D.1
9. We further report that:
a. the Balance Sheet and Profit and Loss account dealt with by this report are in agreement with the books of
account and returns;
b. in our opinion, proper books of account as required by law have been kept by the branch so far as appears
from our examination of those books;
Other Matters Paragraph
10. No adjustments/provisions have been made in the accounts of the Branch in respect of matters usually dealt
with at Central Office, including in respect of:
(a) Bonus, ex-gratia, and other similar expenditure and allowances to branch employees;
(b)Terminal permissible benefits to eligible employees on their retirement (including additional retirement
benefits), Gratuity, Pension, liability for leave encashment benefits and other benefits covered in terms
of ‘AS 15 –Employee Benefits’ issued by the Institute of Chartered Accountants of India;
(c) Arrears of salary/wages/allowances, if any, payable to staff;
(d) Staff welfare contractual obligations;
(e) Effect of adjustments that might arise upon the reconciliation/ matching of outstanding entries in the inter
office accounts impact of which is presently not quantifiable;
(f) Interest on overdue term deposits;
(g) Depreciation on fixed assets;
(h) Auditors’ fees and expenses;
(i) Taxation (Current Tax and Deferred Tax);
(j) Provision for Standard Assets including Restructured Accounts, Teaser Loan;
(k) Additional provision for sub-standard infrastructure loan accounts;
(l) Provision for unsecured portion and diminution in fair value in respect of Restructured accounts;
(m) Provision for Asset Doubtful of Recovery, Fraud etc.
(n) Provision for FITL.
(o) Project where DCCO has been extended.
(p) Provision for Clearing difference and Sundry Assets outstanding if any long pending.
(q) Provision for unhedged foreign exchange exposure of borrower entities.
1
11. The following is a summary of Memorandum of Changes submitted by us to the branch management .
Memorandum of Changes (summary)
No. Increase Decrease

a. In respect of Income
b. In respect of expenditure
c. In respect of Assets
d. In respect of Liabilities
e. In respect of Gross NPAs
2
f. In respect of Provision on NPAs
g. In respect of Classification of
Advances
h. In respect of Risk Weighted
Assets
i. Other items (if any)
For ABC and Co.
Chartered Accountants
Signature
(Name of the Member Signing the Audit Report)
3
(Designation)
Membership Number
Firm registration number
Place of Signature
Date
1 Where applicable.
2 Applicable in cases where banks determine provision at Branch level.
3 Partner or proprietor as the case may be.”
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Keeping in view the requirements of the SA 700,705 and 706 issued by the ICAI, the following formats – D.2 (Pages 4-
6) for nationalized bank branches and D.4 (Pages for banking Companies are recommended and may be considered;
and the same may be modified for State Bank of India branches and those of its subsidiaries.

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D.2
RECOMMENDED REPORT OF THE INDEPENDENT BRANCH AUDITOR TO THE STATUTORY AUDITORS
ON THE FINANCIAL STATEMENTS OF BRANCH OF BANK FOR THE YEAR 2017-18

FOR NATIONALISED BANKS


We have audited the accompanying financial statements of the _________________________, Branch of
____________ (Bank), which comprise the Balance Sheet as at 31.3.2018 and the Profit and Loss Account of
the said Branch for the year then ended, and other explanatory information.

1. Management’s Responsibility for the Financial Statements

Management of the Branch is responsible for the preparation of these financial statements that give a true and
fair view of the financial position and financial performance of the Branch in accordance with the Banking
Regulation Act 1949, and comply with applicable guidelines of the Reserve Bank of India and, (#except as
otherwise stated), with the Accounting Policies, to the extent applicable to the Branch. This responsibility includes
the design, implementation and maintenance of internal control relevant to the preparation of the financial
statements that are free from material misstatement, whether due to fraud or error.

2. Auditor’s Responsibility

a. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted
our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of
India. These Standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the branch’s internal
control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of the accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.

b. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.

3. Basis of qualified opinion:


(all matters to be given in italics or bold letters)
a. Change in the Accounting Policies and effect thereof at the Branch.
b. Basis of the qualifications that appear in the Memorandum of Changes (MOCs) as quantified,
individually and in the aggregate, that have effect on the assets, liabilities, income or expenditure
for the year.
c. Nature of the qualifications, where quantification is not possible at the branch.
d. Contingent liabilities and other off balance sheet items, being under/over stated.
Reasons for changes in the classification/ categorization of advances, having effect on:
i. provisions that are to be considered at Head Office on a centralized basis; and
ii. amounts accrued as income, that require to be derecognized or modified in respect of the branch.

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D.2
4. Opinion
Subject to what is stated in Paragraph 3 above and the Memorandum of Changes summary of this is
given below,
Summary of Memorandum of Changes (MOCs)
In respect of No. Amount (Rs.)
Increase Decrease
a. Income
b. expenditure
c. Assets
d. Liabilities
e. Contingent Liabilities

f. Other items (if any)


g. Changes in Classification of
Advances:
i. Standard
ii. Sub Standard
iii. Doubtful
iv. Loss
h. Other changes in advances:
i. Secured
ii. Unsecured
iii. Covered by Bank / Govt.
Guarantee
i. Sectoral changes:
i. Priority Sector
ii Public Sector
iii Banks
iv Others
j. Effect of changes in classification
(if quantified)
i. Provisions
ii. Income recognition
k. Disclosures
i. Gross NPAs
ii. Risk Weighted Assets
l. Provision on NPAs
(Effect due to change in
classification)
m. Other items if any(Specify)
and having effect on the branch financial statements, in our opinion and to the best of our information and
according to the explanations given to us, and as shown by the books of the Branch and read with the
Accounting Policies of the Bank (to the extent made known to us and as applicable to the Branch), we have to
report that :
a) the Balance Sheet as at 31.3.2018 of the said Branch of the Bank, as authenticated by us, is a full and
fair Balance Sheet of the Branch containing the necessary particulars and is drawn up so as to exhibit a
true and fair view of the affairs of the Branch as at 31.3.2018.
@@
b) the Profit and Loss Account* authenticated by us, shows a true and fair view of the Profit / loss
of the Branch for the year ended 31.3.2018 (after adjustment of interest as per Head Office
Communications).
5. Report on Other Legal and Regulatory Matters
The Balance Sheet and the Profit and Loss account have been prepared in the formats recommended by the
Central / Head Office and disclose the information as may be necessary to conform to Forms 'A' and 'B'
respectively of the Third Schedule to the Banking Regulation Act, 1949.

Subject to the limitations of the audit indicated in Paragraph 3 above, and as required by the Banking Companies
@@@
(Acquisition and Transfer of Undertakings) Act, 1970/1980 , as applicable to the Branch, and subject to the
limitations of disclosures required therein, we report that:

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BANK AUDIT 2017-18 AUDIT REPORTING – MAIN REPORT

D.2
(a) we have obtained all the information and explanations which, to the best of our knowledge and belief, were
necessary for the purposes of our audit and have found them to be satisfactory;
(b) the transactions of the Branch, which have come to our notice, have been within the powers of the Bank;
(c) the Balance Sheet and Profit and Loss Account* dealt with by this report are in agreement with the books of
account; and
(d) In our opinion, proper books of accounts as required by law have been kept by the branch, so far as appears
from our examination of those books.

6. Other Matters
Provisions / Adjustments relating to the branch, in respect of matters usually dealt
with at Central/Head Office, including in respect of:
i. Bonus, ex-gratia, and other similar expenditure and allowances to branch employees;
ii. Terminal permissible benefits to eligible employees on their retirement (including additional retirement
benefits), Gratuity, Pension, liability for leave encashment benefits and other benefits covered in terms of
‘AS 15 (Revised) – Employee Benefits’ issued by the Institute of Chartered Accountants of India;
iii. Arrears of salary/wages/allowances, if any, payable to staff;
iv. Staff welfare contractual obligations;
v. Old unreconciled / unlinked entries at debit under various heads comprising Inter branch/office Adjustments,
vi. **Depreciation on fixed assets;
vii. **effect of conversion of outstanding Branch balances in foreign exchange as per the system followed ;
viii. Auditors’ fees and expenses;
ix. Items in Suspense, clearing Differences, Credit Cards, Frauds/ vigilance cases involving claims/ liability or
loss to the Bank and other provisions on behalf of the Branches;
x. Provisions in respect of advances as per the applicable prudential norms and Guidelines of the Reserve
Bank of India (including incremental/accelerated provisions) and the Bank’s policy in line therewith
(including on standard advances, floating, ad-hoc/generic provisions covering weak standard advances);
xi. Provision for clearing difference and Sundry Assets outstanding, if any, long pending; and
xii. Taxation (subject to adjustments for deferred tax up to 31.3.2018).
(Also refer D.4 for illustrative observations, and to the extent of qualifications, these may be incorporated based
on audit evidence)
For_______________________
CHARTERED ACCOUNTANTS
Firm Reg. No.____________

(Partner)
M. No.
Place:
Date:
# indicate , if applicable
* the term ‘Statement of Profit and Loss’ can also be used as decided by the Council of the ICAI in their meeting
held in January 2014.
** if centralised at Head Office
@ Refer Annexures for recommended formats of reporting, particularly the MOCs for matters affecting
the annual financial statements.
Notes:
@@
1. Delete what is inapplicable.
2. The concept of “materiality” needs to be kept in mind while reporting.
3. All qualifications must be in bold/italics.
4. Check whether there is any change in the Accounting Policies since the earlier year that needs to be
stated along with the effect thereof.
@@@
5. State 1970 or 1980 as applicable
6. Paras relating to Cash Flows Statements have not been incorporated here as these will be done by
the Main Auditors for the bank as a whole.

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BANK AUDIT 2017-18 AUDIT REPORTING – MAIN REPORT
D.3
RECOMMEMDED FORM OF REPORT OF BRANCH AUDITOR TO THE STATUTORY AUDITORS ON THE
AUDIT OF ACCOUNTS OF ___________BRANCH OF (name of the Banking company) FOR THE YEAR
#
2017-18 (FOR BANKING COMPANIES)

We have audited the accompanying financial statements of the _________________________, Branch of


____________ (name of the Banking company) which comprise the Balance Sheet as at 31.3.2018 and the
Profit and Loss Account *of the said Branch for the year then ended, and other explanatory information.
1. Management’s Responsibility for the Financial Statements
Management of the Branch is responsible for the matters stated in Section 134(5) of the Companies Act, 2013
(“the Act”) with respect to preparation of these financial statements that give a true and fair view of the
financial position and financial performance of the Branch in accordance with the accounting principles
generally accepted in India, including the Accounting Standards specified under section 133 of the Act, read
with Rule 7 of the Companies (Accounts) Rules, 2014 and provisions of Section 29 of the Banking Regulation
Act, 1949 . This responsibility also includes maintenance of adequate accounting records in accordance with
the provisions of the Act for safeguarding of the assets of the Branch and for preventing and detecting frauds
and other irregularities; selection and application of appropriate accounting policies, making judgments and
estimates that are reasonable and prudent; and design, implementation and maintenance of internal financial
controls, that were operating effectively for ensuring the accuracy and completeness of the accounting
records, relevant to the preparation of the financial statements that give a true and fair view and are free from
material misstatement, whether due to fraud or error.

2. Auditor’s Responsibility
a. Our responsibility is to express an opinion on these financial statements based on our audit. We have taken
into account the provisions of the Act, the accounting and auditing standards and matters which are
required to be included in the audit report under the provisions of the Act and the Rules made thereunder.
We conducted our audit in accordance with the Standards on Auditing (“the Standards”) specified under
section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free
from material misstatement.
b. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the Bank’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of the accounting estimates made by the Management of the Branch, as well as evaluating
the overall presentation of the financial statements.
c..We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.

3. Basis of qualified opinion:


(all matters to be given in italics or bold letters)
a. Change in the Accounting Policies and effect thereof at the Branch.
b. Basis of the qualifications that appear in the Memorandum of Changes (MOCs) as quantified,
individually and in the aggregate, that have effect on the assets, liabilities, income or expenditure
for the year.
c. Nature of the qualifications, where quantification is not possible at the branch.
d. Contingent liabilities and other off balance sheet items, being under/over stated.
Reasons for changes in the classification/ categorization of advances, having effect on:
i. provisions that are to be considered at Head Office on a centralized basis; and
ii. amounts accrued as income, that require to be derecognized or modified in respect of the branch.

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BANK AUDIT 2017-18 AUDIT REPORTING – MAIN REPORT
4. Opinion D.3
Subject to what is stated in Paragraph 3 above and the Memorandum of Changes summary of which is
given below,
Summary of Memorandum of Changes (MOCs)
In respect of No. Amount (Rs.)
Increase Decrease
a. Income
b. expenditure
c. Assets
d. Liabilities
e. Contingent Liabilities

f. Other items (if any)


g. Changes in Classification of
Advances:
i.Standard
ii.Sub Standard
iii.Doubtful
iv.Loss
h. Other changes in advances:
i.Secured
ii.Unsecured
iii. Covered by Bank / Govt.
Guarantee
i.Sectoral changes:
i. Priority Sector
ii Public Sector
iii Banks
iv Others
j. Effect of changes in classification (if
quantified)
i. Provisions
iii. Income recognition
k. Disclosures
i. Gross NPAs
ii. Risk Weighted Assets
l. Provision on NPAs
(Effect due to change in classification)
m.Other items if any(Specify)

a) the Balance Sheet as at 31.3.2018 of the said Branch of the Bank, as authenticated by us, is a full and fair
Balance Sheet of the Branch containing the necessary particulars and is drawn up so as to exhibit a true and
fair view of the affairs of the Branch as at 31.3.2018.
@@
b) the Profit and Loss Account* authenticated by us, shows a true and fair view of the profit / loss
of the Branch for the year ended 31.3.2018 (after adjustment of interest as per Head Office Communications).

5. Other Legal and Regulatory Matters

The Balance Sheet and the Profit and Loss Account* have been prepared in the formats recommended by the
Central / Head Office and disclose the information as may be necessary to conform to Forms 'A' and 'B'
respectively of the Third Schedule, as per section 29 of the Banking Regulation Act, 1949, read with section
133 of the Act and Rule 7 of the Companies (Accounts) Rules, 2014 and , except as otherwise stated, comply
with the applicable Accounting Standards.

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BANK AUDIT 2017-18 AUDIT REPORTING – MAIN REPORT
D.3

Subject to the limitations of the audit indicated in Paragraph 3 above, as applicable to the Branch, and subject to
the limitations of disclosures required therein, we report that:

(a) we have obtained all the information and explanations which, to the best of our knowledge and belief, were
necessary for the purposes of our audit and have found them to be satisfactory.

(b) the transactions of the Branch, which have come to our notice, have been within the powers of the Bank.

6. Further, as required by section 143(3) of the Act, we further report that:


a. we have sought and obtained all the information and explanations which to the best of our knowledge and belief
were necessary for the purpose of our audit;

b. in our opinion, proper books of account as required by law have been kept by the branch so far as appears from
our examination of those books;

c. the Balance Sheet and the Profit and Loss account* dealt with by this report are in agreement with the books
of account;

d. in our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified
under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014, to the extent they are
not inconsistent with the accounting policies prescribed by RBI;

e. with respect to the adequacy of the internal financial controls over financial reporting of the Branch and the
operating effectiveness of such controls, refer to our separate Report in “Annexure A”.

f.with respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the
Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to
the explanations given to us:
(a) the Branch has disclosed the impact of pending litigations on its financial position in its financial
statements -Refer Schedule XX -Note XX to the financial statements; (or the Branch does not have any
##
pending litigations which would impact its financial position )
(b) the Branch has made provision, as required under the applicable law or accounting standards, for
material foreseeable losses, if any, on long-term contracts including derivative contracts -Refer Schedule
XX -Note XX to the financial statements; (or the Branch did not have any long-term contracts including
##
derivative contracts for which there were any material foreseeable losses ) and
(c) there has been no delay in transferring amounts, required to be transferred, to the Investor Education and
Protection Fund by the Branch (or, following are the instances of delay in transferring amounts, required to
be transferred, to the Investor Education and Protection Fund by the Branch or there were no amounts
##
which were required to be transferred to the Investor Education and Protection Fund by the Branch ).

7. Other Matters
Provisions / Adjustments relating to the branch, in respect of matters usually dealt with at Central/Head Office,
including in respect of:
i. Bonus, ex-gratia, and other similar expenditure and allowances to branch employees;
ii.Terminal permissible benefits to eligible employees on their retirement (including additional retirement
benefits), Gratuity, Pension, liability for leave encashment benefits and other benefits covered in terms of
‘AS 15 (Revised) – Employee Benefits’ issued by the Institute of Chartered Accountants of India;
iii. Arrears of salary/wages/allowances, if any, payable to staff;
iv. Staff welfare contractual obligations;
v. Old unreconciled / unlinked entries at debit under various heads comprising Inter branch/office
Adjustments,
vi. **Depreciation on fixed assets (including adjustments, if and to the extent, required as per Schedule –II to
the Act, based on the useful life of the assets);
vii. **effect of conversion of outstanding Branch balances in foreign exchange as per the system followed ;
viii. Auditors’ fees and expenses;

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BANK AUDIT 2017-18 AUDIT REPORTING – MAIN REPORT
D.3

ix. Items in Suspense, clearing Differences, Credit Cards, Frauds/ vigilance cases involving claims/ liability or
loss to the Bank and other provisions on behalf of the Branches;

x. Provisions in respect of advances as per the applicable prudential norms and Guidelines of the Reserve
Bank of India (including incremental/accelerated provisions) and the Bank’s policy in line therewith
(including on standard advances, floating, ad hoc/generic provisions covering weak standard advances) ;
xi. Provision for clearing difference and Sundry Assets outstanding, if any, long pending; and

xii. Taxation (subject to adjustments for deferred tax up to 31.3.2018).

(Also refer D.4 for illustrative observations, and to the extent of qualifications, these may be incorporated based
on audit evidence)
For_______________________
CHARTERED ACCOUNTANTS
Firm Reg. No. __________

(Partner)
M.No…………
Place:
Date:
_
* the term ‘Statement of Profit and Loss’ can also be used as decided by the Council of the ICAI in their meeting
held in January 2014.
** if centralised at Head Office
## Applicable in cases where banks determine provision at Branch level.
@ Refer Annexures for recommended formats of reporting, particularly the MOCs for matters affecting
the annual financial statements.
Notes:
@@
1 Delete what is inapplicable.
2. The concept of “materiality” needs to be kept in mind while reporting.
3. All qualifications must be in bold/italics.
4. Check whether there is any change in the Accounting Policies since the earlier year that needs to be
stated along with the effect thereof.
5. Paras relating to Cash Flows Statements have not been incorporated here as these will be done by the
Main Auditors for the bank as a whole.
____________________________________________________________

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BANK AUDIT 2017-18 AUDIT REPORTING – MAIN REPORT
D.3
Annexure A to the independent auditor’s report of even date on the financial statements of _____ Branch of
______Bank Limited

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Act
1. We have audited the internal financial controls over financial reporting of ____Branch of ______ Bank Limited
(‘the Branch’) as at 31.03.2018 in conjunction with our audit of the financial statements of the Branch for the year
ended on that date.

Management’s Responsibility for Internal Financial Controls


2. The Management of the Branch is responsible for establishing and maintaining internal financial controls based
on _____ [for example, “the internal control over financial reporting criteria established by the Branch considering
the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls
Over Financial Reporting (‘the Guidance Note”) issued by the Institute of Chartered Accountants of India (‘the
ICAI”)”.] These responsibilities include the design, implementation and maintenance of adequate internal financial
controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including
adherence to Branch’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors,
the accuracy and completeness of the accounting records, and the timely preparation of reliable financial
information, as required under the Act.

Auditor’s Responsibility
3. Our responsibility is to express an opinion on the Branch’s internal financial controls over financial reporting based
on our audit. We conducted our audit in accordance with the Guidance Note and the Standards on Auditing (‘the
Standards’), issued by the ICAI and deemed to be prescribed under section 143(10) of the Act, to the extent
applicable to an audit of internal financial controls, both issued by the ICAI. Those Standards and the Guidance
Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether adequate internal financial controls over financial reporting was established and
maintained and if such controls operated effectively in all material respects.

4. Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial
controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls
over financial reporting included obtaining an understanding of internal financial controls over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor’s
judgement, including the assessment of the risks of material misstatement of the financial statements, whether
due to fraud or error.

5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion on the Branch’s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls Over Financial Reporting


6. A branch’s internal financial control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A branch’s internal financial control over
financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the branch;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the branch are being made only in accordance with authorizations of management and directors of the bank;
and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the branch’s assets that could have a material effect on the financial statements.

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D.3
Inherent Limitations of Internal Financial Controls Over Financial Reporting
7. Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may occur
and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to
future periods are subject to the risk that the internal financial control over financial reporting may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.

Opinion

8. In our opinion, the Branch has, in all material respects, an adequate internal financial controls system over
financial reporting and such internal financial controls over financial reporting were operating effectively as at
31.03.2018, based on ______ [for example, “the internal control over financial reporting criteria established by the
Branch considering the essential components of internal control stated in the Guidance Note issued by the ICAI”].

For_______________________
CHARTERED ACCOUNTANTS
Firm’s Reg. No. __________

(Partner)
M.No…………
Place:
Date:

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D.4
BANK AUDIT 2017-18 AUDIT REPORTING – MAIN REPORT

ILLUSTRATIVE AUDIT OBSERVATIONS REFERRED TO IN THE FORM OF REPORT OF THE BRANCH


AUDITOR TO THE STATUTORY AUDITORS ON THE AUDIT OF ACCOUNTS OF THE BRANCH FOR THE
YEAR ENDED 31.03.2018

S. No. ILLUSTRATIVE AUDIT OBSERVATIONS Schedule

1. There are unreconciled differences between the control accounts and the
subsidiary records
2. Deposits:
a) Overdue/matured Term Deposits amounting to Rs.________ continue to
be included under “Term Deposits” instead of the same being treated as
“Demand Deposits” as per the disclosure requirements.
b) Interest provision of Rs._________ made at the Branch since the date of
its last application to various Savings Bank Deposits, in our view,
comprises “Interest Accrued and due” rather than “Interest Accrued but
not due”, and considering the nature thereof, should form part of Deposits
under the sub-head “Savings Bank Deposits.”
c) Interest has not been provided on current deposits till the year-end in
respect of:
- deceased constituents (from the date of death)
- RRBs
d) Interest on Overdue/matured Deposits required to be provided up to the
year-end has been wrongly provided in excess/short by Rs.________.
e) Interest has not been provided/short provided/excess provided on various
other deposits to the extent of Rs._______ (Net)

3. Interest on Advances:
a) Interest has been excess/short charged on Advances to the extent of
Rs……….(Net)
b) Interest income has been recovered out of fresh facilities in NPAs, to the
extent of Rs.________, contrary to the prudential norms of the Reserve
bank of India.

4. Advances:
On the basis of our examination of the Advances accounts we observe that:
a) Advances have not been classified as per the prudential norms, having
effect on provisioning and income recognition as under:
- Accounts classified as Standard should have been in the Sub-Standard
category.
- Income accrued on the above needs to be:
 derecognised to the extent of Rs.__________ (being interest
accrued up to the previous year-end not realized till the year-end).
 reversed and not recognised for the year under audit to the extent
of Rs._______
Income reversal would have corresponding effect on Interest Suspense to the
extent of Rs.___________:and correspondingly income and advances would
get reduced to the extent of Rs………. In the accounts of the Branch.
- Accounts classified as Sub-Standard need to be classified as in
 Doubtful category.
 Loss category
b) Recoveries in NPAs have not been appropriated to revenue where such
recoveries are in excess of “Interest Suspense”;
Advances and Income have been accordingly understated to the extent of
Rs.__________
c) While classifying the restructured accounts in the sub-standard category,
the existing facilities comprising NPAs prior to restructuring have been
wrongly categorized as “Standard”, contrary to the applicable RBI
Guidelines.
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D.4
BANK AUDIT 2017-18 AUDIT REPORTING – MAIN REPORT

ILLUSTRATIVE AUDIT OBSERVATIONS REFERRED TO IN THE FORM OF REPORT OF THE BRANCH


AUDITOR TO THE STATUTORY AUDITORS ON THE AUDIT OF ACCOUNTS OF THE BRANCH FOR THE
YEAR ENDED 31.03.2018

S. No. ILLUSTRATIVE AUDIT OBSERVATIONS Schedule

d) Sub-standard Accounts where restructuring / rehabilitation was allowed


but default continued for one year thereafter or in which there was no
satisfactory performance, have been wrongly classified as “Standard” to
the extent of Rs. _________
e) The branch continues to grant / issue fresh L/Cs to certain parties,
notwithstanding that earlier ones have devolved. Devolved L/Cs in default
for a period of over 90 days amount to Rs._________
Provision on these on the basis of the Borrower’s classification needs to be
considered at Head Office.

f) Due to the system followed for appropriation of recoveries in NPAs,


accounts have been reclassified as Standard without recoveries being
made in respect of unapplied/unrealized interest. Such Accounts need to
be downgraded to NPAs till so long as there is unrealized income
including on account of ‘Right of Recompense’ and ‘unapplied interest’.
Due to this, there is change in classification, affecting provisioning and income
to the extent of Rs._______
g) Unapplied Interest has not been computed upto the year-end in NPAs at
the applicable contractual rates for the time being in force; the records of
the Bank are incomplete on this account.
On account of this, the interest is short waived by Rs.____________ in
accounts compromised/settled.

5. Commission on Govt. business


In respect of Govt. business done upto the year-end, income to the extent of
Rs.________ has not been accrued up to the year end at the Branch.

6. Locker rents and Commission


The Bank has accounted on cash basis, income by way of Locker rents and
Commission, contrary to the concept of accrual, one of the basic accounting
assumptions as per AS I of ICAI. The amount of the same and the amount
accrued upto the year-end, have not been computed at the Branch.

7. Reconciliation of Accounts with other Banks


a) Bank confirmation certificates have not been made available in respect of
balances with banks.
b) Adjustments are required to be made in respect of entries arising in bank
reconciliation statements
 as affecting other heads of accounts upto the year-end
 as affecting expenditure / income items

8. Fixed Assets
a) Capitalisation has not been made in respect of assets acquired upto the
year-end to the extent of Rs._______.Advances against such assets
amount to Rs._____
b) Depreciation has been excess / short provided at the Branch to the extent
of Rs.__________ .
c) Renovation expenses at the Branch have been wrongly capitalized,
although amounts aggregating to Rs._____________ pertain to Repairs
and Maintenance.

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D.4
BANK AUDIT 2017-18 AUDIT REPORTING – MAIN REPORT

ILLUSTRATIVE AUDIT OBSERVATIONS REFERRED TO IN THE FORM OF REPORT OF THE BRANCH


AUDITOR TO THE STATUTORY AUDITORS ON THE AUDIT OF ACCOUNTS OF THE BRANCH FOR THE
YEAR ENDED 31.03.2018

S. No. ILLUSTRATIVE AUDIT OBSERVATIONS Schedule

9. Other Assets
a) Provision has not been made in respect of expenditure incurred up to the
year-end, including non-adjustment of advances there against to the extent
of Rs.________ (Annexure___)
b) In respect of old/unadjusted/unexplained entries outstanding in “Other
Assets”/suspense, provision is recommended at Rs.________

10. Guarantees, L/Cs


a) Obligations under Letters of Comfort, amounting to Rs.______ have not
been considered as part of Contingent Liabilities as at the year end.
b) Expired Guarantees and L/Cs where the claim period has expired and
obligations have been confirmed as ceased, continue to be on the record
of the Branch to the extent of Rs.________.
11. There are claims against the Bank at the branch level which have not been
disclosed to the extent of Rs.________.
12. Foreign Currency balances
Outstanding balances of items expressed in foreign currencies have not been
converted and restated at the applicable year-end rates of exchange.
13. Inter branch Adjustments (HO balance :Rs._________)
Effect needs to be given to known entries originated prior to the year-end but
responded after that date till the completion of the audit at the Branch.

Statements (Daily HO summaries) have not been forwarded for matching of entries
to the Central Reconciliation cell.

Entries at debit outstanding under various sub heads since over 6 months as at
31.3.2017 and remaining unadjusted require to be provided for to the extent of
Rs.________.

14. Bills for Collection


These include old entries (over six months old) amounting to Rs.________
reasons for retention of which remain unexplained at the Branch.

15. Rebate on Bills Discounted


Adjustments have not been made to the extent of Rs.__________ in respect of
rebate on bills discounted for income attributable to the period beyond the year-
end.
16. INFORMATION SYSTEM/ EDP AUDIT

We are informed that the reports of the Information System audit, if any, conducted by
Head Office are not available at the Branch, to ascertain whether there are any issues and
matters that need to be addressed by the Bank in connection with its Branch financial
statements, particularly, as regards coverage of all the applicable RBI parameters and
norms/guidelines , including those related to the classification of advances for the purposes
of income recognition and provisioning etc. The Branch management has represented that
all the accounting norms as well as the parameters required by the Regulator have been
built into the system by the Head Office in relation to the Branch financials and that the
Branch financials/data is in consonance therewith. At the Branch, reliance has been placed
on the system generated information/data in the computerized environment based on the
CBS system laid down by the Bank, particularly as to the originating evidence of
transactions and recordings that are not with the Branch.”

(Memorandum of Changes for the above, have been included in Annexure____)


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BANK AUDIT 2017-18 - ILLUSTRATIVE MANNER OF REPORTING D.4

Background:
A whole lot of system generated information is handed over to the auditors and
the branch management does not know whether all the parameters applicable
and effective in respect of the branch have been built in. If enquiries show that
they do not have information and no validation has been done, it is appropriate
to mention the following in the report.

“INFORMATION SYSTEM/ EDP AUDIT

We are informed that the reports of the Information System audit, if any, conducted by Head
Office are not available at the Branch, to ascertain whether there are any issues and matters
that need to be addressed by the Bank in connection with its Branch financial statements,
particularly, as regards coverage of all the applicable RBI parameters and norms/guidelines
, including those related to the classification of advances for the purposes of income
recognition and provisioning etc. The Branch management has represented that all the
accounting norms as well as the parameters required by the Regulator have been built into
the system by the Head Office in relation to the Branch financials and that the Branch
financials/data is in consonance therewith. At the Branch, reliance has been placed on the
system generated information/data in the computerized environment based on the CBS
system laid down by the Bank, particularly as to the originating evidence of transactions and
recordings that are not with the Branch.”
Change in the Accounting Policies and effect thereof
Background:
Banks have resorted to the practice of appropriating recoveries in NPA (where
there are no instructions to the contrary from the borrower), to the principal
dues in priority to the revenue, that was postponed when the account became
NPA. The accounting policies of the banks have undergone a change, thereby
impacting the revenue accordingly.
This can be considered for reporting as under:
We observe that there has been a change in the policy on Revenue Recognition with
regard to accounting of recoveries in NPA Accounts with effect from ________, the
relevant accounting policy being reproduced below:
(“………….”)
The order of appropriation of recoveries in non-performing accounts does not appear
to be justified and is not in line with the regulatory Guidelines / Instructions (refer Para
3.3 of the RBI Master Circular No. DBR.No.BP.BC.2/21.04.048/2015-16 dated 1-7-2015),
reproduced as under:
‘’ 3.3 Appropriation of recovery in NPAs
3.3.1 Interest realised on NPAs may be taken to income account provided the
credits in the accounts towards interest are not out of fresh/ additional credit
facilities sanctioned to the borrower concerned.
3.3.2 In the absence of a clear agreement between the bank and the borrower for the
purpose of appropriation of recoveries in NPAs (i.e. towards principal or interest
due), banks should adopt an accounting principle and exercise the right of
appropriation of recoveries in a uniform and consistent manner.”
As per Para 3.3.1 the recoveries, by way of Interest in all NPA accounts are to be
taken to Income Account, except where the recoveries are out of further /fresh
facilities sanctioned to the borrower.
As regards appropriation in NPAs where the borrower gives instructions as
regards appropriation of the credit towards principal or interest it has been
clarified in Para 3.3.2 above that the appropriation cannot be done at the
discretion of the Bank. Only in cases where there are no instructions
(agreement between the bank and the borrower), the bank is entitled to
exercise its right of appropriation “in a uniform and consistent” manner. The
discretion of the Management can be exercised keeping in view the accepted
accounting principles.

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BANK AUDIT 2017-18 - ILLUSTRATIVE MANNER OF REPORTING D.4

It will be appreciated that the uniform and consistent manner has to be in


consonance with adoption of an accounting principle, which must be logical
and appropriate. In this connection your attention is drawn to the following
paras of the relevant Accounting Standard (AS 9 - Revenue Recognition),
Effect of Uncertainties on Revenue Recognition
Para 9.1 Recognition of revenue requires that revenue is measurable and that
at the time of sale or the rendering of the service it would not be
unreasonable to expect ultimate collection.
Para 9.2 Where the ability to assess the ultimate collection with reasonable
certainty is lacking at the time of raising any claim, e.g., for escalation of
price, export incentives, interest etc., revenue recognition is postponed to
the extent of uncertainty involved. In such cases, it may be appropriate to
recognise revenue only when it is reasonably certain that the
ultimate collection will be made. Where there is no uncertainty as to ultimate
collection, revenue is recognised at the time of sale or rendering of service
even though payments are made by installments.
Para 9.3 When the uncertainty relating to collectible arises subsequent to the
time of sale or the rendering of the service, it is more appropriate to make a
separate provision to reflect the uncertainty rather than to adjust the amount
of revenue originally recorded.
Para 9.4 An essential criterion for the recognition of revenue is that the
consideration receivable for the sale of goods, the rendering of services or from the
use by others of enterprise resources is reasonably determinable. When such
consideration is not determinable within reasonable limits, the recognition of
revenue is postponed.
Para 9.5 When recognition of revenue is postponed due to the effect of
uncertainties, it is considered as revenue of the period in which it is properly
recognized.
Para 13. Revenue arising from the use by others of enterprise resources yielding
interest, royalties and dividends should only be recognised when no significant
uncertainty as to measurability or collectability exists. These revenues are
recognised on the following bases:
(i) Interest : on a time proportion basis taking into account the amount
outstanding and the rate applicable.
(ii) The relevant principle of revenue recognition is embedded in the
Accounting Standard, in that revenue, to the extent it is uncertain of
realization or collection, when normally due under the accrual method
of accounting, is postponed and is considered as revenue of the
period in which the uncertainty ceases to exist. Such postponed
revenue becomes income of the year when realized. This equally
applies to interest contractually accruing but not realized in respect
of advances that are identified as non-performing assets. The
postponed revenue when recorded on realization, cannot logically be
considered as towards the principal, nor can it be considered that the
‘cash method’ of accounting has been followed for such postponed
revenue of the earlier periods.
It will be observed that the policy of the Bank is inappropriate and not in line
with the accepted principles of accounting. This can have serious
implications, as:
i. The accounting policy change is not as per the mandatory Accounting
Standard issued by the Institute of Chartered Accountants of India (ICAI); and
disclosing an inappropriate or wrong accounting policy, will not purge the
accounts of the defects therein; and

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BANK AUDIT 2017-18 - ILLUSTRATIVE MANNER OF REPORTING D.4

ii. Taxation Authorities may not accept the change from a recognized and uniformly
followed method of accounting to that not considered to be in consonance with the
accepted principles, affecting Provision for Taxation, as well as Deferred Tax as
per AS 22 issued by ICAI.

For the year, the effect of the change in policy will have to be computed and
disclosed, by culling out, at the branches, the figures of recovery in NPAs that
have been recorded as the recovery of principal rather than interest income.

BACKGROUND RELATING TO DEPOSITS PORTFOLIO AND SUGGESTED MANNER OF


REPORTING (FACTS ASSUMED)

A. Background
Disclosure of the amount in the Balance Sheets of banks- Interest Accrued
 and due ) Term Deposits, including FCNR(B) deposits
 and not due ) Savings Bank Deposits
Interest accrued and not due on Term Deposits is to be shown as Other Liabilities
in Schedule 5, in respect of deposits that are contractually not matured and in
respect of which there are no instructions to prematurely encash the deposit.
(Refer Notes and Instructions for preparation of accounts issued in RBI Circular
No.DBOD.No.BP.BC.78/C.686/1991-92 dated 6th February 1992)
Interest accretion as a provision till it is due (whether or not applied to the
depositors’ accounts as per the internal convenient procedure of the bank), but if
due it forms part of the Deposits. Credit or payment, whichever is earlier will also
attract TDS as applicable. On maturity and renewal, the same is to be done net of
TDS.
Interest accrues on FCNR(B) deposits, but is not due till the deposits mature for
payment, and cannot form part of the deposits.
Interest on Savings bank Deposits accrue on daily basis and are contractually due
at any time, even though not applied.

Based on facts examined, the following is the illustrative manner of reporting in the
Main Report

Interest Accrued and Due and Interest Accrued but not Due on Deposits:
We observe that as per the past practice and system followed, interest
accrued (as computed by the system), on term deposits that are not yet
matured, is included in and treated as part of the Deposits portfolio of the
Bank, although the same is not due. In respect of interest accrued and due
but not applied on Savings Bank Accounts, the same is included as part of
Other Liabilities. Attention is drawn to the Notes and Instructions in this
regard that have been issued by the Reserve Bank of India (RBI), pursuant
to its Circular No.DBOD.No.BP.BC.78/C.686/1991-92 dated 6th February
1992, prescribing the form and contents of the Bank Balance Sheet and
these suggest the following disclosure requirements that are appropriate:
 Interest accrued and due on Deposits is required to be included and
shown as part of the Deposits portfolio of the Bank in “Schedule 3 -
Deposits ” in the Balance Sheet; and
 Interest accrued but not due on Deposits, is required to be included
and shown as part of “ Interest Accrued” in Schedule 5 –Other
Liabilities and Provisions.
On the basis of the above, the Bank needs to consider the grouping of the
interest accrued and “due” and that “not due” for appropriate disclosure in
the Balance Sheet.
This action needs to be considered for the Bank as a whole and no MOC is
being suggested at the Branch level.

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BANK AUDIT 2017-18 - ILLUSTRATIVE MANNER OF REPORTING D.4

B. Background:
Provision for Interest has to be made at Savings Bank rate for the time being in
force on Unclaimed /Unpaid Deposits, particularly on old deposits outstanding
since the introduction of the scheme for auto renewal of deposits. This will
include in respect of deceased depositors. Liability is to be segregated between
this year and earlier years.
Based on facts, the following may be the manner of reporting in the Main Report:
Interest on Unclaimed/Unpaid deposits:
In terms of Para 3.4 of the RBI Master Circular DBR.No.Dir.BC.7/13.03.00/2015-
16 dated 1-7-2015, Provision for Interest at Savings Bank rate for the time being
in force, has not been made in the accounts on Unclaimed /Unpaid Deposits,
particularly on old deposits outstanding since the introduction of the scheme for
auto renewal of deposits (including in respect of deceased depositors).
Such provision amounts to Rs._______(including Rs.________) pertaining
to the earlier years.
C. Background:
Issuance of Fixed Deposit Receipts in physical form for all deposits and in
cancellation of the expired, but automatically renewed deposits, pursuant to RBI
Directives
(Para 3.21 of the RBI Circular DBR.No.BC.7/13.03.00/2015-16 dated 1-7-2015 (not
repealed by the Master Direction DBR.Dir.No.84/13.03.00/2015-16 dated 3-3-2016)
re: Issue of term deposit receipt, which requires that a bank should issue term deposit
receipt indicating therein full details, such as, date of issue, period of deposit, due
date, applicable rate of interest, etc.). The Para is reproduced hereunder:
“3.21 Issue of term deposit receipt
(a) A bank should issue term deposit receipt indicating therein full details, such as,
date of issue, period of deposit, due date, applicable rate of interest, etc.
(b) It has been observed that Scheduled Commercial Banks, during the course of
acting as Professional Clearing Members of Stock Exchanges/ Clearing
Corporations, issue own Fixed Deposit Receipts with zero percent interest as
security in favour of the Clearing Corporations. In this connection, it is advised that
a Term Deposit Receipt (TDR)/ Fixed Deposit Receipt (FDR) is acknowledgement
for a deposit received by a bank for a fixed term which is withdrawable only after
the expiry of the said fixed period. A bank issues TDR indicating therein full details,
such as date of issue, period of deposit, due date, applicable rate of interest etc. As
such, issue of TDR/ FDR without a corresponding term deposit/ fixed deposit
account in the books of the bank is not in order and will amount to violation of the
extant guidelines on acceptance of deposits. The rate of interest payable on such
deposits would be subject to the extant guidelines on ‘Interest Rates on Rupee
Deposits’.

As per Para 3.7 re: Payment of interest on Term Deposit Accounts of customers
frozen by the orders of the enforcement authorities, however, no new receipt is
required to be issued but a suitable note should be made regarding renewal in the
deposit ledger; and renewal of deposit should be advised by registered letter /
speed post / courier service to the concerned Government department under
advice to the depositor.

Control over credits comprising term deposits- a risk prone area:


 Where receipts are not issued in physical form on maturity, in cancellation of
the old ones.
 Where receipts are issued bit not delivered/dispatched to the depositors
 Where endorsements are made on the inverse of the existing receipts to renew
them and adequacy of records/evidence thereof.
(This is a risk prone area and must be brought to the notice of the Management -

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BANK AUDIT 2017-18 - ILLUSTRATIVE MANNER OF REPORTING D.4

Suggested report para in the LFAR:


TERM DEPOSIT RECEIPTS:
The Bank has a system of renewing term deposits suo moto for the same period and
at the rates for the time being in force on the date(s) of renewal (based on the
conditions stipulated at the time of issuance of the original deposit), by reversal of
the book entries automatically on the date(s) of maturity of the deposits. Other than
generating an advice, the Bank does not issue receipts in physical form (indicating
therein, full details such as date of issue, period of deposit, due date, applicable rate
of interest etc, as required in terms of Para 3.21 of the RBI Circular
DBR.No.Dir.BC.7/13.03.00/2015-16 dated 1-7-2015), except where not so required in
case of accounts frozen by authorities (refer Para 3.7 of the said circular).
Inadequate/ loss of control over book credits comprising DEPOSITS is risk/fraud
prone area, where Deposit receipts are not issued on receipt/renewal of deposits or
where endorsement on the inverse of the existing matured deposit receipts is made;
as absence/inadequacy of the controls may lead to misuse of such credits.
In our view the Term Deposit Advice issued by the Bank cannot be treated as akin to
the requirements of issue of the formal Term Deposit Receipt, normally issued with
control aspects, including issuance on security paper stationery. We observe that
the Bank has the practice of marking lien on such advices relating to term deposits
while granting loans to depositors, rather than obtaining discharged Deposit receipts
to be lien marked and held as part of the documents. This practice needs to be
discouraged. At the Branch there were loans aggregating to Rs.________ against
such lien marked advices, treated as part of the documentation.
The issuance of the advise to depositors is not tantamount to compliance of the said
RBI circular; and we recommend that the bank instructs the branches for a full and
faithful compliance thereof; and hold, as part of documentation, duly discharged and
lien marked formal term deposit receipts, where loans are granted against the same.
D. Margin Money against Letters of Credit and Bank Guarantees:

Background:
As per Notes and Instructions given by the Reserve Bank of India (RBI), pursuant
to its Circular No.DBOD.No.BP.BC.78/C.686/1991-92 dated 6th February 1992,
prescribing the form and contents of the Bank Balance Sheet cash margins for
issuance of LCs and guarantees, should be shown as part of Other Liabilities and
not as deposits.
The following is recommended in the Main Report:

Margin Money against Letters of Credit and Bank Guarantees:


“ Margin money held as deposits for issue of Letters of Credit (Rs.
______) and Bank Guarantees (Rs.___________) are considered as a part
of deposits, instead of ‘Other Liabilities and Provisions’.
MOC has been recommended for the same”.

E. Current Accounts/Advances

Background:
Where the regional/Zonal or other controlling offices/ Centralised Credit Cells
maintain an account with a branch they usually operate that account by issuance
of cheques issued for expenditure etc. of that office. In such cases the amounts
in the current account at debit maintained at the branch are really of the nature
of Inter office adjustments for the bank as a whole.

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BANK AUDIT 2017-18 - ILLUSTRATIVE MANNER OF REPORTING D.4
The following should be incorporated in the Main Report:
“The debit balance in the current accounts aggregating to Rs._________
shown as due from ________ office of the Bank, wrongly shown as part of
the advances portfolio, are of the nature of Inter Office Adjustments and
need to be shown as such. MOC has been recommended for the same”.

LETTERS OF COMFORT FOR TRADE CREDITS:


Background:

Letters of Comfort in relation to Trade Credits for imports into India


Besides issuing guarantees to borrowers as part of the facilities, there is an
increasing tendency for banks to issue “Letters of Comfort” on behalf of the
borrowers; and such letters constitute the banks’ obligation akin to a guarantee,
to be normally reflected as an off balance sheet disclosure.
It is imperative to determine, based on the intrinsic nature of the related
documents, as to whether such letters of comfort comprise liabilities funded by
or on account of the bank, particularly in “buyers’ trade arrangements” where the
bank itself requests for loan funds for specified periods at interest, from its
overseas correspondent banks (including SBI in case of the associated banks)
and the moneys are routed through the bank’s NOSTRO accounts and
disbursed to the suppliers overseas on behalf of the bank’s borrower . The bank’s
constituent (with whom there is privity of contract), gets funded for acquisition it
makes (of supplies) from the overseas vendor.

A thorough review of the documents comprising Letters of Comfort needs


to be made to determine if, intrinsically, it is suggestive of a funded
liability as opposed to a non funded obligation, particularly when there is
request for transfer of funds to the designated Nostro bank accounts
overseas, intended to discharge of the Bank’s constituents’ obligations
under the buyers’ credit facilities. The requisition from the bank, based on
the Letter of Undertaking and the corresponding acknowledgement of the
responding bank may logically suggest the funding of the transaction. As
per the laid down system, the Bank in India also acknowledges, through a
standard confirmation, the debt owed to the overseas bank.

It needs to be determined as to whether in the manner of structuring of the


documents and the intrinsic nature of the transactions for the Bank’s
constituents, the element and possibility of funding on behalf of the Bank, exists
and may not be ruled out. The matter has to be viewed in the light of “substance
over form”. In case this is akin to borrowing of funds overseas, it has implications
on the disclosure requirements in the Bank’s balance sheet and would clearly
have effect on the working of the Capital Adequacy Ratio.
Some banks may not even pass an entry with regard to the entries routed
through the NOSTRO account, for the funding received for onward transmission
of the funds to the overseas supplier of the Indian buyer.
RBI MAINTAINS THAT THESE HAVE NO ENFORCEABILITY, ALTHOUGH VIDE ITS
EARLIER CIRCULAR (4-3-2008) IT HAS INSISTED THAT THE BANKS NEED TO
ENSURE THEIR LEGAL ENFORCEABILITY, while framing their policy in this regard.

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BANK AUDIT 2017-18 - ILLUSTRATIVE MANNER OF REPORTING D.4
Illustratively, the Main Report can be on the following lines at the Branch
level

Letters of Undertaking/Letters of Comfort


We observe that the branch has opened Import LCs (for USD _______), for their
customers as per details in Annexure___ The related bills were received against the
LC with due dates and Buyer’s credit was availed from various overseas bankers, on
letters of request and based on Letters of Undertaking favouring the overseas banks.
The related amounts payable to the overseas suppliers have been routed through the
Bank’s NOSTRO Accounts at the request of the Bank for a loan, repayable after the
stipulated period with interest as agreed, without any deductions.

A prima facie review of the documents comprising Letters of Comfort is suggestive of a


loan with stipulated rates of interest payable at a point of time, by request for transfer
of funds to the Bank’s designated NOSTRO bank account overseas, from which
corresponding payment has been made to the overseas supplier in discharge of the
Bank’s constituents’ obligations under the buyers’ credit facilities. The
acknowledgement of the responding bank also suggests the funding of the transaction.
Going by the manner of structuring of the documents and the intrinsic nature of the
transactions for the Bank’s constituents, the element and possibility of funding on
behalf of the Bank, may not be ruled out. The matter has to be viewed in the light of
“substance over form”. In case this is akin to borrowing of funds overseas, it has
implications on the disclosure requirements in the Bank’s balance sheet and would
clearly have effect on the working of the Capital Adequacy Ratio.
The branch is submitting returns, which contain necessary details of the Letters of
Comfort/ Letters of Undertaking issued by the branch. As per the practice of the Bank,
the amount of Letters of Comfort/ Letters of Undertaking issued on behalf of the
constituents is disclosed under contingent liabilities while drawing up the financial
statements of the Bank, at Head Office.

We are of the opinion, that the above matter needs an in depth review at the apex
level, to determine the intrinsic nature of the transactions and balances, in the
light of the documentation and the same being recorded and disclosed
appropriately in the Bank’s financial statements; and accordingly, at the Branch
level no MOC is being recommended.

CASES OF QUICK MORTALITY WHERE ADVANCES BECAME NPA WITHIN 24 MONTHS OF


SANCTION/ APPRAISAL (Cases above Rs.10.00 lacs)
This, prima facie, reflects deficiencies in and faulty appraisal of the proposals,
including on account of technical and financial viability not having been properly
assessed or examined.
Based on a study of such cases, the causa proxima of incurrence of losses
within a short time after sanction / disbursement of advances needs to be
determined and action initiated to identify and address the deficiencies in the
credit appraisal systems and/or monitoring, that would require to be reviewed/
remedied, the objective being to minimise such occurrences in future; and may
entail imparting appropriate staff training and equipping the personnel with the
requisite skills.

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BANK AUDIT 2017-18 - ILLUSTRATIVE MANNER OF REPORTING D.4
Considering the nature and risk of trade, the Management may need to assess
generic provision, if any required, for cases of quick mortality, based on trends as
may be reflected over a period of time.
Given hereunder are cases, where there was an ostensible failure of the
appraisal system, resulting in quick mortality of the advances, instances of which
are for outstandings, each in excess of Rs.10.00 lacs.
NAME OF THE BORROWER LIMIT DATE OF DATE OF AMOUNT
SANCTIONED SANCTION/ NPA OUTSTANDING (Rs.)
(Rs) APPRAISAL

CASES OF CONSORTIUM/MULTIPLE BANKING WHERE DUE DILIGENCE CERTIFICATES


WERE NOT OBTAINED OR ON RECORD AS AT 31-3-2018
The Bank is expected to obtain in respect of advances under consortium and
multiple banking arrangements, due diligence certificates, duly certified by a
qualified Cost Accountant, Company Secretary or a Chartered Accountant, in the
form and manner specified by the Reserve Bank of India, as also reiterated
earlier vide RBI Circular No. DBOD. No. BP.BC.110/08.12.001/2008-09 dated
February 10, 2009.
It is observed that the Bank has yet to take steps for compliance of the said RBI
instructions. While in the normal course, the classification of the advances is
determined on the basis of the technical prudential norms of the RBI, the
objective of the due diligence exercise in the manner required, will enable a
view being taken as regards any adverse features that may need to be
considered and having effect on the financial information/ statements, and the
corresponding health classification of the related advances, particularly where
there may be signals of intrinsic weaknesses/risks that need to be addressed.
We give hereunder, instances of accounts that were not subjected to the due
diligence exercise in compliance of the said RBI Circular instructions. Where the
Bank is the leader in the arrangements, it should initiate the exercise by
appointment of the qualified professionals and obtaining for its record and
consideration the due diligence report and in case the leader in the consortium is
another bank, it may request for a copy of such a report from the other bank. The
contents of such a report should be kept in view at the time of renewal/review of
the limits.
NAME OF THE BORROWER NATURE OF AMOUNTS CLASSIFICATION STATUS IN
LIMITS OUTSTANDING THE BRANCH
(Rs.)
a. Where the Bank is the
leader

b. Where the Bank is not


the leader

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BANK AUDIT 2017-18 - ILLUSTRATIVE MANNER OF REPORTING D.4
Guidelines on Fair Practices Code for Lenders - Furnishing copy of loan agreement to
the borrowers in each case (Master Circular DBR.No.Dir.BC.10/13.03.00/2015-16 dated
July 1, 2015)
Background:
As per Para 2.5 of the Master Circular DBR.No.Dir.BC.10/13.03.00/2015-16 dated
July 1, 2015 on Loans and Advances – Statutory and Other Restrictions, RBI has advised
that the Boards of the banks should frame a Fair Practices Code based on approval of
the Guidelines on Fair Practices Code for Lenders to be followed by banks . The
Guidelines broadly deal with:
a.Loan Applications
 All application forms should be comprehensive must transparently disclose to the
borrower, and display on the website of the banks, all information about (non-
discriminatory) fees / charges payable/refundable for processing the loan application,
pre-payment options and charges, if any, penalty for delayed repayments if any,
conversion charges for switching loan from fixed to floating rates or vice versa,
existence of any interest reset clause and any other matter which affects the interest of
the borrower. Non disclosure would be an unfair practice.
 Acknowledgements receipts of all applications to state the time frame of disposal (up to
Rs.2.00 lakhs ) In the case of lending under consortium arrangement, the participating
lenders should complete appraisal of proposals in the time bound manner to the extent
feasible, and communicate their decisions on financing or otherwise within a
reasonable time.
 Verification within a reasonable period of time
 Intimation of the main reason/reasons for rejection within a stipulated time.
b.Loan appraisal and terms/conditions
 proper assessment of credit application by borrowers.
 credit limit along with the terms and conditions to be conveyed and the borrower's
acceptance to be with his full knowledge on record.
 Terms and conditions and stipulations arrived at after mutual negotiation should
be recorded and certified by the authorised official. Copy of the loan agreement
along with all enclosures quoted in the loan agreement must be furnished to the
borrower at the time of sanction / disbursement of loans.
 the loan agreement should clearly stipulate credit facilities that are solely at the
discretion of bank, including approval or disallowance of facilities, based on compliance
or otherwise by the borrower of the terms of sanction; as also for non extension of
further credit without proper review of credit limits.
c.Disbursement of loans including changes in terms and conditions
Timely disbursement of loans sanctioned; and communication of any change in the
terms and conditions including
interest rates, service charges etc. which are to be prospective.
d.Post disbursement supervision
 Post disbursement supervision by lenders, to be constructive
 Prior to decision to recall / accelerate payment or performance under the agreement or
seeking additional securities, notice to borrowers to be given as specified in the loan
agreement or a reasonable period, if no such condition exits in the loan agreement.
 release all securities on repayment of loan subject to any legitimate right or lien for
any other claim against borrowers. Right of set off shall be subject to notice.
e.General
 Banks to restrain from interference in the affairs of the borrowers except as per the
terms and conditions of the loan sanction documents (unless new information, not
earlier disclosed by the borrower, has come to the notice of the bank).
 No discrimination on grounds of sex, caste and religion in the matter of lending.
 Banks should not resort to undue harassment viz. persistently bothering the borrowers
at odd hours, use of muscle power for recovery of loans, etc.
 On receipt of request for transfer of borrowal account, the consent or otherwise should
be conveyed within 21 days from the date of receipt of request.
 Appropriate grievance redressal mechanism to resolve disputes should ensure that all
disputes based on decisions of functionaries are heard and disposed of at least at the
next higher level.

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BANK AUDIT 2017-18 - ILLUSTRATIVE MANNER OF REPORTING D.4
The Report may be given in the following manner:
In the following cases, there is no evidence on the records of the branch, with
regard to compliance of the said RBI directives:
Name of the Borrower Amount of Documents on Remarks
limits record dated
sanctioned
(Rs.)

We advise strict compliance of the said RBI requirements.


Change in Accounting practice as regards reversal to borrowers’ accounts of Interest
unrealized in respect of Non Performing Advances

Background:
Banks have adopted the practice to do away with Interest Suspense and accounts with similar
nomenclature, and prefer to retain the unrealized interest in the Memorandum account. In
adopting the change, the amounts earlier debited to the borrowers towards interest accrued,
are sought to be reversed and derecognized as Income of the current period. The reversal is
being made to the account of the borrower, thereby effectively reducing his debit balance,
which may earlier have been acknowledged by him. This is risk prone and needs to be
reported as under:

The attention of the Management is drawn to the Bank’s procedure and


instructions, pursuant to which the reversal of earlier income accrued but
remaining uncollected/unrealized on NPAs identified during the year, is credited
to the account of each related NPA account; the said component of unrealized
interest being required to be held in Memorandum accounts. The effect of this is,
that whereas the statements earlier furnished to customers were on the basis of
gross debits as per ledger accounts, these are now reduced and the statements
sought to be sent accordingly, are at lower figures. On this basis, the
acknowledgement of debt by the borrowers would be on reduced balances.
The legal and other implications of this action do not appear to have been
examined, particularly as to the unrealized interest earlier carried as such in the
books, as also in cases /matters in litigation, nor on the action required in cases of
restructuring involving FITL/WCTL etc. The risk factors also need to be addressed
where the account is identified as NPA in one year and restructuring/rehabilitation
is done in the following.
The Bank needs to re examine the issue and address the risks involved, as also
the effect on the gross/net NPAs and movements therein. The issue of
appropriation of recoveries in such accounts, is also relevant to be dealt with, as
will be the basis of computation of interest on the amounts accrued.

Cases where latest audited statements were not obtained or on record


Name of the Non corporate Limits (Rs.) Amount Classification Status
borrower outstanding(Rs.)
a. Corporate

a. Non Corporate

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BANK AUDIT 2017-18 - ILLUSTRATIVE MANNER OF REPORTING D.4
System and periodicity of Stock Audit
Stock Audits: In case of larger advances accounts (Limit Rs. 5 crore and above) stock audit
is to be carried out by the external auditors annually.
The status of Stock Audit as on 31.03.2018 is under:
Particulars No. of accounts
Stock Audit required to be conducted
Accounts where stock audit was conducted
Accounts where stock audit was not conducted
Reports Due
Reports Received
Reports awaited

Major adverse observations in stock audit reports


(Amount Rs. In lacs)
Name of the Limits Outstanding Nature of major adverse observations
borrower (Rs) balance(Rs.)

Review of non funded limits requiring provision, in cases of weak borrower or those in default:
We observe that the Bank is generally not considering or making any provisions towards
the Non funded limits in NPA cases. It needs to be understood that off-balance sheet
items / non-funded facilities are also to be recognized as credit facilities and involve risk
of loss, which, on fructification, is recorded / provided in the same manner as the loss
arising out of funded exposures. It is also to be noted that as per Accounting Standard
29 (Contingencies) issued by ICAI, the probable loss towards the present obligations
needs to be provided in the accounts, if there are chances of the fructification of the risk
of such losses. In view of the same, the Bank needs to suitably devise its policy for
recognition of such liabilities and provisions towards the same.
At the Branch, we have come across the following cases where there may be probable
losses, due to the devolvement of the contingent obligations that relate to NPAs, with
regard to which, in the absence of any policy of the Bank or guidelines of the RBI, no
provisions are considered at the Branch, but may be considered at the Head Office.
Name of the NPA Nature of Amount likely Remarks
borrower to whom/which obligation to devolve
non funded facility is likely to (Rs.)
given devolve

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______________ BANK BRANCH_________________________ C.1.1 / D.5.1.1
Annexure D.6.1.1 - FORM OF MOC RELATING TO ADVANCES AMOUNT IN RUPEES
Sr. No. Name of Borrower Account No. Type of Total Classification S/SS/D/L Reversal Net CHANGES SUGGESTED UNDER ALLOCATION OF ADVANCES Remarks
Account outstanding Branch Auditors Charges Interest outstanding Secured Covered by Guarantee of Total Provision as per
C/C,O/D,D/L unrealised by Tangible Bank Govt. ECGC/ Unsecured Branch Auditors
BP/BD of T/L Assets CGTSI
1 2 3 4 5 6 7 8 9= 4-(7+8) 10 11 12 13 14 15 16
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
Coded adverse
features given in C II

SS= Sub Standard : D= Doubtful (to be classified as D1, D2, D3) : L= Loss
Note: See formats in D.5.1.2. 1. & D.5.1.2.2

If not covered by the coded remarks, the reasons may be separately stated.

Bnkad18.sanjay v & mmk 27


D.5.1.2….1
RECOMMENDED ANNEXURE TO AUDITORS REPORT
___________________________BANK: BRANCH______________REGION/DISTT./CIRCLE_____________________________
ANNEXURE-D.5.1.2 TO AUDIT REPORT DATED…………….
Statement showing summary of Memorandum of Changes affecting Advances as at 31.3.2018
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Bank/Govt
Particulars Code SecuredGuaranteed Unsecured Doubtful Remarks
Add/(Deduct) Add/(Deduct) Add/(Deduct) Add/(Deduct)
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
I Bills Purchased:
Priority Sector
Public Sector
Banks
Others
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total I
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
II. Cash Credits,
Overdrafts,
Demand Loans etc:
Priority Sector
Public Sector
Banks
Others
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total II
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
III. Term Loans:
Priority Sector
Public Sector
Banks
Others
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total III
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Grand Total (I+II+III)
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NOTES/INSTRUCTIONS:
1. Only one figure must appear against each item & deductions/negative figures must be shown in brackets
2. Reasons for changes must be given in the proforma as per Annexure D.5.1.2

28
Bnkad18.sanjay v & mmk
D.5.1.2….2

RECOMMENDED ANNEXURE TO AUDITORS REPORT


________________________________ BANK: BRANCH____________________REGION/DISTT./CIRCLE_________________

ANNEXURE-D.5.1.2 TO AUDIT REPORT DATED…………….


STATEMENT OF REASONS FOR CHANGES RECOMMENDED IN ANNEXURE D.5.1.1 TO THE REPORT

PARTICULARS CHANGES IN CLASSIFICATION


____________________________________________________________________

Name of the Secured Govt./Bank Unsecured Additional


Party Guarantees Provision
Recommended
Priority Public Banks Additional Existing Remarks
Sector Sector Other Provision Provision
______________________________________________________________________________________________________________________________________

I. Bills Purchased

______________________________________________________________________________________________________________________________________

II. Cash Credits,


Overdrafts,
Demand
Loans etc.:

_____________________________________________________________________________________________________________________________________
Total
_____________________________________________________________________________________________________________________________________

III. Term Loans

_____________________________________________________________________________________________________________________________________
Total
______________________________________________________________________________________________________________________________________

29
Bnkad18.sanjay v & mmk
D.5. 1.3
Annexure D.5.1.3 – Recommended format for MOC

MEMORANDUM OF CHANGES (other than Advances) ANNEXED TO AUDIT REPORT DATED _____________FOR THE YEAR 2017-18
Code Head of Account Profit & Loss Account Items Balance Sheet Items Remarks/ Reasons for
Increase Decrease Increase Decrease Changes/ Report Para
Rs. Rs. Rs. Rs. Reference

Total
OFF BALANCE SHEET HEADS:

Total

Qualifications/observations where the amounts have not been ascertained Paras:

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D.5.1.4
__________________ BANK: BRANCH____________________REGION/DISTT./CIRCLE_________________

List of advances Accounts for which interest calculations checked for the year 2017-18 Nature of Account _______________________

Name of Account No. Credit Rating Period of Interest Correct Excess Short Charged Remarks
the Checking Charged Interest charged
Borrower Applicable Actually Rs. Rs. Rs. Rs.
applied

Signatures

Bnkad18.sanjay v & mmk 31


D.L.1
BANK AUDIT 2017-18
LONG FORM AUDIT REPORT – QUESTIONNAIRE AND RECOMMENDED ACTION FOR REPORTING
1. This Long Form Audit Report should be addressed by the branch auditors to the Chairman of the bank concerned with a copy
thereof to the Central Statutory Auditors.
2. The following paragraphs list the matters which the branch auditors of banks are expected to comment upon in their Long Form
Audit Reports. The appendix to this questionnaire contains questions which are relevant to specialised branches dealing in foreign
exchange transactions, recovery of non-performing assets, clearing house operations and branches having very large advances.
Auditors of foreign branches of Indian Banks should also furnish this report. In the case of such branches, reference to the Reserve
Bank of India should be construed to include the Reserve Bank of India, as well as the relevant regulating authority of the foreign
country where the branch is located.
Where any of the comments made by the auditors in their LFAR is adverse, they should consider whether a qualification in their main
report is necessary. It should not, however, be assumed that every adverse comment in the LFAR would necessarily result in a
qualification in the main report. In deciding whether a qualification in the main report is necessary, the auditors should use their
judgment in the facts and circumstances of each case. Where the auditors have any reservations or adverse remarks with regard to
any of the matters to be dealt with in their Long Form Audit Reports, they may give the reasons for the same. Also, where relevant,
instances of situations giving rise to their reservations or adverse remarks may also be given.
3. There is no prescribed format of reporting, so long as the questionnaire is responded to, preferably in a sequential order.

QUESTIONNAIRE ACTION REQUIRED AND REPORTING


1. ASSETS
1.Cash
a) Does the branch generally carry cash balances, which vary significantly Objective of this information is to ensure better cash
from the limits fixed by the controlling authorities of the bank? Whether management.
excess balances have been reported to the controlling authorities of the Ask if any limits of cash retention have been fixed by the
bank? Controlling Authority in the Bank. If so ask as to whether any
exceptional reports are generated that show any excess amounts
held on any days. If so, if the retention is far in excess of the
norms laid down; and enquire into the reasons for such excess
retention and check what intimation was sent to the controlling
authorities.
Minor variations need not be reported.
Report covers:
Significant variations
Non reporting of such variations

Bnkad18.sanjay v & mmk 32


D.L.1
BANK AUDIT 2017-18
LONG FORM AUDIT REPORT – QUESTIONNAIRE AND RECOMMENDED ACTION FOR REPORTING
The auditor should report any cash retention that appears
abnormally high in the light of the normal requirements of
the branch, particularly, if the branch has easy access to
cash either because it has a currency chest or is in the
immediate vicinity of any currency chest at another branch,
or where cash can be deposited/withdrawn under banking
arrangements with another bank in the immediate vicinity.
b) Does the branch hold adequate insurance cover for cash-on-hand and Normally insurance covers are taken at Head Office. This may be
cash-in-transit? so stated in the report.
If a cover is taken at the Branch, check if it is inadequate,
based on the normal requirements , including for amounts in
transit.
c) Is cash maintained in effective joint custody of two or more officials, as per Normally cash is under dual control, but if it effectively not under
the instructions of the controlling authorities of the bank? dual control, this would require reporting. The Auditor needs
evidence in support of his report if adverse.
d) Have the cash balances at the branch been checked at periodic The Branch usually has a system to record on a daily basis, the
intervals as per the procedure prescribed by the controlling authorities of cash holding under the signatures of two authorized officials .
the bank? The evidence for this can be reviewed. Evidence , if not
available, should be reported.
 Cash includes balances in ATM attached to the branch
and expected to be reflected correctly. ATM balances
must be in round figures corresponding to the
denomination of the notes stuffed in the ATMs; and if
otherwise, this needs to be reported in the Main Report
and repeated/elaborated in the LFAR.
 Since cash may be withdrawn from the ATM after the
cut off time at the year end, the amount of difference
between the ATM Scroll and that as per the books needs
to be reconciled, and if not, the same needs to be
reported.
 Banks have a system of appointing agents who handle
cash for stuffing into the ATMs. It must be checked as to

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what accounting treatment is given to cash held by such
agents (as cash or advances) , at what levels is the
amount held by them. Anything abnormal observed in
this area requires reporting in the LFAR.
 Cash may include soiled notes held at the branch since
long and would have to be reported .
 Cash held in sealed packets, in cases of vigilance/fraud,
if part of the cash balance , may be reported as such.

2. Balances with Reserve Bank of India, State Bank of India and


Other Banks
a) Were balance confirmation certificates obtained in respect of The system of direct confirmation procedures needs to be
outstanding balances as at the year-end and whether the aforesaid checked. The system must ensure that the balances
balances have been reconciled? The nature and extent of confirmation certificates are obtained from the other banks
differences should be reported. for balances as per their books and not by an endorsement
of those banks on the balance confirmation prepared by the
auditee bank for balances in its own books.
If the certificate on the letter head of the other bank shows a
balance at variance with the books of the auditee bank, the
reconciliation must be seen and observations given as
required by the following clauses.
Certificate from RBI will be relevant only at the few
designated branches which maintain RBI Account(s); and
does not apply to lined branches having currency chests. In
case of State Bank of India, accounts with its
associates/subsidiaries will need to be obtained and vice
versa.

b) Your observations on the reconciliation statements may be reported in While there may not normally be any cash transactions that
the following manner: remain to be recorded, it is possible that some revenue
i) Cash transactions remaining unresponded (give details); transactions may remain pending and require to be commented
ii) Revenue items requiring adjustments/write-off (give details); upon.

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iii) Old outstanding balances remaining unexplained / unadjusted.
Give details for: If these are old/large transactions, these may also find place
- Outstanding between six months and one year; and in the Main Report and can be repeated /elaborated in the
- One year and above LFAR.

In branches having RBI Accounts, currency chest


deposits/withdrawals at linked branches that originate prior
to , but are recorded after the year end, need to be reported
in the Main Report through MOC, on a value date basis; and
the same is to be repeated / incorporated in the LFAR.
Similarly care must be taken in respect of cash drawing
arrangements inter se SBI/its associates and other banks,
as this could have effect on the Inter branch balances and
the SBI/its associate bank accounts. If so, this will be
reported in the Main Report and elaborated/repeated in the
LFAR.
c) In case any item deserves special attention of the management, the If the Branch is carrying in its books, old balances
same may be reported. outstanding in accounts which have been closed, or there
are disputed old entries on account of clearing etc. and
these continue to be reflected in the branch balance sheet,
these must be reported.
3. Money at Call and Short Notice This item would normally not appear except at a very few
Has the Branch kept money-at-call and short notice during the year? If designated branches. If so, the authority to place moneys at call
so, whether instructions/ guidelines, if any, laid down by the Controlling and short notice, must be enquired into and the branch needs to
Authorities of the Bank have been complied with? be requested to confirm the guidelines laid down by the Bank in
this regard.

4.. Investments
A) For Branches in India Verification of Investments is generally not required at
a) Are there any investments held by branches on behalf of Head branches as this is the function of the Investment
Office/Other offices of the bank? If so, whether these have been made Department; and the question relates to Investments, if held
available for physical verification or evidences have been produced with physically , at any branch, for collection of interest/yield, if

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regard to the same where these are not in possession of the branch? any locally. This would also be rare as most investments are
b) Whether any amounts received as income on such investments have in demat form.
been reported to the Head Office? However, if so held, the verification needs to be done at the
c) In respect of investments held by branches on behalf of Head Office/other branch, on behalf of the Head Office.
offices of the bank whether any income is accrued/ received and recognized Income, if any received/collected at the Branch, belongs to
as income of the branch contrary to the instructions of the controlling Head Office and cannot be considered as the income of the
authorities of the bank? Branch.
d) Whether there are any matured or overdue investments which have not Investments that are overdue /matured, need to be
been en-cashed? If so, give details? confirmed to the auditors at Head Office, dealing with this
e) Whether the Guidelines of the Reserve Bank of India regarding issue.
Transactions in Securities have been complied with.
f) Whether the Guidelines of the Reserve Bank of India regarding Valuation of
Investments have been complied with.
B) For Branches outside India Not applicable to auditors in India
a) In respect of purchase and sale of investments, has the branch acted within
its delegated authority, having regard to the instructions/ guidelines in this behalf
issued by the controlling authorities of the bank?
b) Have the investments held by the branch whether on its own account or on
behalf of the Head Office/other branches been made available for physical
verification? Where the investments are not in the possession of the branch,
whether evidences with regard to their physical verification have been
produced?
c) Is the mode of valuation of investments in accordance with the RBI
guidelines or the norms prescribed by the relevant regulatory authority of the
country in which the branch is located whichever are more stringent?
d) Whether there are any matured or overdue investments which have not been
en-cashed? If so, give details?
5. Advances
(The answers to the following questions may be based on the auditor’s
examination of all large advances and a test check of other advances. In
respect of large advances, all cases of major adverse features,
deficiencies, etc. should be reported. In respect of other advances, the
auditor may comment upon the relevant aspects generally, along with

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instances of situations giving rise to his reservations or adverse remarks.
For this purposes, large advances are those in respect of which the
outstanding amount is in excess of 5% of the aggregate advances of
the branch or Rs. 2 crore, whichever is less.)

a) Credit Appraisal The auditor is required to enquire into the system of appraisal/re
In your opinion, has the branch generally complied with the procedures/ appraisal of the advances and the manner of making the appraisal
instructions of the controlling authorities of the bank regarding loan as laid down by the Bank.
applications, preparation of proposals for grant/ renewal of advances, In case of existing borrowers where renewal of limits is involved, it
needs to be enquired as to documentation/evidence at the branch,
enhancement of limits, etc., including adequate appraisal documentation
as to whether the following, among others, are considered
in respect thereof.  the past performance of the parties is satisfactory and
 level of compliance by the borrower , of the bank’s
requirements
 whether monitoring, supervision and controls, through
Inspection/internal/concurrent /credit audit reveal any adverse
features that have a bearing on the proposal
 whether the credit rating of the borrower has changed
 whether the projections/purpose in respect of the advance have
changed
The branch needs to make available, cases of quick mortality, of
advances appraised and sanctioned, where within say within 12-24
months the advances have turned NPA. Such cases must be
reported, notwithstanding that these have been classified as such
and provided for.
b) Sanctioning/ Disbursement This clause is restricted to reporting on cases examined
i) In the cases examined by you, have you come across instances of where the branch has exceeded its limit /authority in
credit facilities having been sanctioned beyond the delegated authority sanctioning advances, including ad hoc limits being given.
or limit fixed for the branch? Are such cases promptly reported to higher This requires the auditor to know of the delegation of
authorities? powers of the branch management.
An exception report generated in this regard will reveal the
number of times the authority has been exceeded and
whether the same was reported to the higher authorities.

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ii) In the cases examined by you, have you come across instances where This is relevant in cases examined, where the terms and
advances have been disbursed without complying with the terms and conditions of sanction are not complied with, Details need to
conditions of the sanction? If so, give details of such cases. be given in the LFAR. This would include cases of
restructuring, rehabilitation etc. where disbursements have
been made though conditions imposed have yet to be
complied with
c) Documentation
i) In the cases examined by you, have you come across instances of Details of this need to be given in the LFAR
credit facilities released by the branch without execution of all the
necessary documents? If so, give details of such cases
ii) In respect of advances examined by you, have you come across This would include any over/under documentation or blank
instances of deficiencies in documentation, non-registration of charges, documents executed between the bank and the borrower; and
non-obtaining of guarantees, etc.? If so, give details of such cases. cases need to be listed for documentation defects to be covered
by the LFAR. If it goes to the root of the matter and affects the
classification of the borrower, it will have a bearing on the Main
Report and details may be elaborated in the LFAR.
iii) Whether advances against lien of deposits have been properly granted Care needs to be taken to ensure that the advances against
by marking a lien on the deposit in accordance with the guidelines of the Deposits , are to be given only against those issued by the bank
controlling authorities of the bank. and not against deposits of other banks. Lien marking on the
deposits of the bank is mandatory and the deposit receipt duly
discharged by the holder of the deposit against which he has
availed credit, should be on record. Otherwise this would require
reporting.
d) Review/ Monitoring/ Supervision
i) Is the procedure laid down by the Controlling authorities of the bank, for Any accounts that are due for review /renewal and have not been
periodic review of advances including periodic balance confirmation/ so done, are covered for reporting. In the normal course, such
acknowledgment of debts, followed by the Branch? Provide analysis of accounts would figure for being classification as NPAs and would
the accounts overdue for review/ renewal have been so examined.
A list of such accounts needs to be given in the LFAR
- between 6 months and 1 year, and
Attention is drawn to Clause 4.2.4 of the Master Circular
- over 1 year DBR.No.BP.BC.2/21.04.048/2015-16 dated 1-7-2015 relating to
Accounts with temporary deficiencies, which stipulates that any
outstanding in the account based on drawing power calculated
from stock statements older than three months, would be deemed

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as irregular and will become NPA if such irregular drawings are
permitted in the account for a continuous period of 90 days even
though the unit may be working or the borrower's financial
position is satisfactory. Further, regular and ad hoc credit limits
need to be reviewed/ regularised not later than three months from
the due date/date of ad hoc sanction and delay beyond six months
is not considered desirable as a general discipline. Hence, an
account where the regular/ ad hoc credit limits have not been
reviewed/ renewed within 180 days from the due date/ date of ad
hoc sanction will be treated as NPA.
ii) Are the stock/ book debt statements and other periodic operational data As per the terms of sanction, stock statements and statement of book
and financial statements, etc., received regularly from the borrowers and debts exigible for drawing power (DP) , are required to be received by the
branch at periodic intervals, usually on a monthly basis. In the case of
duly scrutinized? Is suitable action taken on the basis of such scrutiny in consortium banking, it is the leader bank that computes the DP and
appropriate cases? passes it on to the other banks in consortium. On receipt of the
information, the branch is expected to check the same as to its accuracy
/integrity, to ensure that the information is authentic and realistic and is
based on the books and records of the borrower; and further that the
computation of the DP is in consonance with the terms of sanction and
margins have been applied to the net exigible amounts. If prima facie the
DP computed by the leader bank in consortium, is appropriate, it needs to
be accepted ,but must be recomputed , if the same is incorrectly prepared.
As per the system of the bank, there needs to be evidence on record of
the internal verification procedures as regards such information.

iii) Whether there exists a system of obtaining reports on stock audits Banks are expected to have in place a mechanism to get stock
periodically? If so, whether the branch has complied with such system? audits done at periodic intervals to be sure of the existence and
realistically assessed realizable value of the security. With a view
to bringing down divergence arising out of difference in
assessment of the value of security, in cases of NPAs with balance
of Rs. 5 crore and above, stock audit at annual intervals by
external agencies appointed as per the guidelines approved by the
Board are mandatory. Collaterals such as immovable properties
charged in favour of the bank needs to be got valued once in three
years by valuers appointed as per the guidelines approved by the
Board of Directors.

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The system followed by the bank needs to be enquired into and
the LFAR will cover reporting on
 Stock audit required but not got done as per the system or as
per the imposition of the RBI; and
 Stock audit done, but with adverse comments that have effect
on the classification and provisioning
iv) Indicate the cases of advances to non-corporate entities with limits Audited accounts would require that the financial statements with
beyond Rs.10 lakhs where the Branch has not obtained the accounts of notes and accounting policies followed, will be accompanied with
borrowers, duly audited under the RBI guidelines with regard to compulsory an auditors report, so that the same can be considered
audit or under any other statute. appropriately as regards audit qualifications , if any. Mere
certification/attestation on statements, will not mean that these are
audited for the purpose of this clause.
v) Has the inspection or physical verification of securities charged to the Based on information as to the system to be followed, the auditor
Bank been carried out by the branch as per the procedure laid down by the should satisfy himself as to whether inspection of the securities,
controlling authorities of the bank? has taken place and there is evidence on record thereof, to
consider reporting in the LFAR.
vi) In respect of advances examined by you, have you come across Accounts where such deficiencies have been noticed need to be
cases of deficiencies in value of securities and inspection thereof or any other reported. One of the key areas of concern is the existence and
adverse features such as frequent/ unauthorized overdrawing beyond limits, market value of the securities that needs to be evidenced on
inadequate insurance coverage, etc.? record, as also the computation of the Drawing Power. Cases
where there is no insurance coverage or where the same is
inadequate , or where the risk of over insurance will lower the
amount of the claim, or where the policies have lapsed, need to be
reported.
vii) In respect of leasing finance activities, has the Branch complied with the The laid down system needs to be checked and any non
guidelines issued by the controlling authorities of the bank relating to security compliance thereof reported.
creation, asset inspection, insurance, etc? Has the Branch complied with the
accounting norms prescribed by the controlling authorities of the bank relating
to such leasing activities?
viii) Are credit card dues recovered promptly? Normally credit card dues are intimated to the bank’s card holders
at periodic intervals from a centralized division/cell. Normally the
accounts of the credit card holders are debited on a centralized
basis, unless the system warrants the debits to be raised on
communications received at each branch. In case of the latter,
there can be a reporting on this question.

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ix) Has the branch identified and classified advances into standard/ sub- The Auditor , based on examination of the relevant advances
standard/doubtful/loss assets in line with the norms prescribed by accounts, will judge as to whether the branch management has
the Reserve Bank of India classified the advances into their appropriate health status
(The auditor may refer to the relevant H. O. instructions for (Standard/sub standard/doubtful/loss). In this connection, it is the
RBI norms that will be considered, where the bank’s norms are not
identification of NPAs and Classification of Advances)
in consonance with those of the bank.
The Main Report of the auditor will be qualified where he disagrees
with the classification by the branch management and the effect of
any qualification on provisioning and income recognition will form
part of that report, with elaboration in the LFAR.
x) Where the auditor disagrees with the branch classification of advances As stated above
into standard/substandard/doubtful/loss assets, the details of such
advances with reasons should be given. Also indicate whether suitable
changes have been incorporated/ suggested in the Memorandum of
Changes.
xi) Have you come across cases where the relevant Controlling Authority The related details need to be obtained and reported.
of the Bank has authorised legal action for recovery of advances or
recalling of advances but no such action was taken by the branch? If so,
give details of such cases.
xii) Have all non-performing advances been promptly reported to the relevant Rehabilitation covers restructuring, nursing and rephasement of
Controlling Authority of the bank? Also state whether any rehabilitation the loans and advances. Most banks have in place the system of
reporting such accounts and are covered by the lending policy;
programme in respect of such advances has been undertaken, and if so, the and are reported to the controlling authority. Yet, the system
status of such programme. needs to be enquired into and reported as per the system in
generic terms.
xiii) Have appropriate claims for DICGC and Export Credit Guarantee/ Insurance Most banks have opted out of the DICGC Scheme
and subsidies, if any, been duly lodged and settled? The status of pending Details need to be obtained for credit guarantee and given
claims giving year wise break-up of number and amounts involved should be in the format prescribed.
given in the following format.

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S Particulars Number Amount(Rs.)


No.
A Claims as at the beginning of the
year (Give year-wise details)
Total A
B Amounts representing:
a) Claims accepted/ settled
(give year-wise details)
b) Claims rejected
(give year-wise details)
Total B
Balance as at the year-end
(give year-wise details)
A-B
xiv) In respect of non-performing assets, has the branch obtained This is a factual reporting requirement and based on reports
valuation reports from approved valuers for the fixed assets charged to the sought and obtained by the bank in cases of NPA, need to
bank, once in three years, unless the circumstances warrant a shorter be requested.
duration?
xv) In the cases examined by you has the branch complied with the Recovery Based on the compliance of the Recovery Policy, the
Policy prescribed by the controlling authorities of the bank with respect to response can be given.
compromise/ settlement and write-off cases? Details of the cases of Details of the cases of compromise/ settlement and write-off
compromise/ settlement and write-off cases involving write-offs/ waivers in cases involving write-offs/ waivers in excess of Rs.50 lakhs
excess of Rs.50 lakhs may be given. need to be obtained and given.
xvi) List the major deficiencies in credit review, monitoring and supervision This would be on factual basis, based on observations in the
course of audit

e) Guarantees and Letters of Credit


i) Details of outstanding amounts of guarantees invoked and funded by the Branch at This is on factual basis
the end of the year may be obtained from the management and reported in the
following format:

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a) Guarantees invoked, paid but not adjusted This is on factual basis
Sr.No. Date of Name of Name of Amount Date of Remarks
invocation the party beneficiary Recovery

b) Guarantees invoked but not paid This is based on factual basis


Sr.No. Date of Name of Name of Amount Date of Remarks
invocation the party beneficiary Recovery

ii) Details of the outstanding amounts of letters of credit and co-acceptances funded This is on factual basis
by the Branch at the end of the year may be obtained from the management and
reported in the following format.

Sr.No Date of Name of Nature (LC/ Amount Date of Remarks


funding the Party co- Recovery
acceptance,
etc.)

6. Other Assets
a) Stationery and Stamps
i) Does the system of the bank ensure adequate internal control over issue and The bank is expected to have a dual control over numbered
custody of stationery comprising security items (Term Deposit Receipts, Drafts, /critical/security paper stationery. Any breach of the system will
Pay Orders, Cheque Books, Traveller's Cheques, Gift Cheques, etc.)? Whether invite adverse comments in the report. Based on physical
the system is being followed by the branch? verification procedures, the auditor will make his report, if adverse.
The auditor , if he finds any weakness in the system for receipt,
issue, custody, control over, or in transmission of such security
items, or if these are not in dual control at any stage from receipt
till utilization, he will report the same.
ii) Have you come across cases of missing/ lost items of such stationery? This would have to be reported, based on physical verification.
b) Suspense Accounts/ Sundry Assets
i) Does the system of the bank ensure expeditious clearance of items debited to Reporting this aspect is to be on factual basis.
Suspense Account? Details of old outstanding entries may be obtained from the
branch and the reasons for delay in adjusting the entries may be ascertained.
Does your scrutiny of the accounts under various sub-heads reveal balances,
which in your opinion are not recoverable and would require a provision/write-off?
If so, give details in the following format:
Year Amount (Rs.) Remarks

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ii) Does your test check indicate any unusual items in these accounts? Reporting this aspect is to be on factual basis.
If so, report their nature and the amounts involved.
II. LIABILITIES
1. Deposits
i) Have the controlling authorities of the bank laid down any guidelines Banks have a system in place generally with regard to accounts
with respect to conduct and operations of Inoperative Accounts? In the beintg treated as dormant and inoperative and to revive them
cases examined by you, have you come across instances where the under stringent conditions being satisfied. The guidelines, if
guidelines laid down in this regard have not been followed? If yes, give satisfactory, need not be reported. Weakness therein , is the
details thereof. subject matter of report.
ii) After the balance sheet date and till the date of audit, whether there Sudden drop in or increase in figures of deposits need to be
have been any unusual large movements (whether increase or decrease) enquired into and reported if there is unusual movement in
in the aggregate deposits held at the year-end? If so, obtain the deposits, aimed at window dressing the year end figures.
clarification from the management and give your comments thereon
Are there any overdue/ matured term deposits at the end of the year? The banks have adopted a system of auto renewal of
iii)
If so, amounts thereof should be indicated. deposits on maturity, due to a stipulation to that effect in the
Deposit receipts at origination. Since the practice was
commenced from a specified date, it is possible that there
arfe deposits prior to that date that are still held as
unpaid/matured/ overdue deposits, including in cases where
the depositor may have died or the deposit remains
unclaimed for any reason whatsoever. LFAR needs to cover
such deposits.
2. Other Liabilities
Bill Payable, Sundry Deposits, etc.
i) The number of items and the aggregate amount of old outstanding items pending Very likely that at the branch level, there may not be any Bills
for three years or more may be obtained from the Branch and reported Payable, since most banks have centralized transactions relating
under appropriate heads. Does the scrutiny of the accounts under various to Drafts and other similar instruments, However if there are any
sub-heads reveal old balances? If so, give details in the following format: items still retained at branch, a year wise summary may be got
Year No. of Items Amount (Rs.) Remarks generated. It would be useful if even items that are over 6 months
old may be given, as it is not logical that such instruments are not
encashed by the customers. In the course of audit, it may be got
confirmed if the Branch is holding in its custody any such
instruments that remain undelivered. The risks attached to this
may be brought into the report.

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ii) Does your test check indicate any unusual items or material Drafts paid ex-advice or against which there is no prior
withdrawals or debits in these accounts? If so, report their nature and credit , are a matter of serious concern, as the transaction
the amounts involved could be the result of a fraud. Frequent cancellation of such
instruments and their re-issue must be examined with extra
caution, as there is a risk of substitution of the holder.
3. Contingent Liabilities
List of major items of the contingent liabilities (other than constituents’ An enquiry needs to be made in respect of this item and
liabilities such as guarantees, letters of credit, acceptances, endorsements, reported on factual basis.
etc) not acknowledged by the Branch?
III PROFIT AND LOSS ACCOUNT
1. Whether the branch has a system to compute discrepancies in interest/ discount In the normal course such entries are generated by the system,
and for timely adjustment thereof in accordance with the guidelines laid down in without scope for any manual intervention. In case interest is not
this regard by the controlling authorities of the bank? Has the test checking of being charged as per the terms of sanction and the input
interest revealed excess/ short credit of a material amount? If so, give details information is incorrect, that will cause a discrepancy.
thereof. In the cases examined , the interest being compatible with the
credit rating to the parties is of importance, and can cause
discrepancies that need to be reported.
2. Has the branch complied with the Income Recognition norms prescribed by The instructions of the Bank necessarily would be in line with the
RBI? (The Auditor may refer to the instructions of the controlling authorities of the significant accounting policies of the bank as also in line with RBI
bank regarding charging of interest on non-performing assets). stipulations as regards recognizing revenue, as also following the
principles laid down in the AS 9 Revenue Recognition issued by
ICAI. If not, this would be a reportable matter.
3. Whether the branch has a system to compute discrepancies in interest on The Banks in the normal course would have this on a “system
deposits and for timely adjustment of such discrepancies in accordance with the driven” basis. If the contracted rate is wrongly input into the
guidelines laid-down in this regard by the controlling authorities of the bank? Has system, there can be discrepancies, or if there is any manual
the test check of interest on deposits revealed any excess/ short debit of material intervention. What is important is to check whether the system
amount? If so, give details thereof. itself is faulty, e.g., if computation is made on the basis of a 360
instead of a 365 day year. Reference could also be made to
verification of interest by the concurrent auditors or revenue
auditors or in inspection. Ifany entries are being made at the
instance of the borrower for short credit/payment, the reasons
therefore need to be determined, to ensure that this is not due to
any system fault.

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4. Does the bank have a system of estimating and providing interest The system of the bank needs to be enquired into,
accrued on overdue/ matured term deposits? particularly in respect of deposits not covered by the
automatic renewal system; as also in respect of deceased
depositors, where interest needs to be paid.
5. Are there any divergent trends in major items of income and Such a statement must be got prepared and reviewed. The
expenditure, which are not satisfactorily explained by the branch? If divergent trends need to be worked on some logical basis,
so, the same may be reported upon. For this purpose, an appropriate e.g., the monthly averages can be seen in respect of
statement may be obtained from the branch management explaining deposits and advances at the branch; and reasons for
the divergent trends in major items of income and expenditure. divergence enquired into.
IV GENERAL
1. Books and Records
a) In case any books of account are maintained manually, does If any books are manually maintained, this question would
general scrutiny thereof indicates whether they have been properly be relevant.
maintained, with balances duly inked out and authenticated by the
authorised signatories?
b) In respect of computerized branches: A note needs to be taken from Branch Management as
o Whether hard copies of accounts are printed regularly? regards the system followed; and the same needs to be
o Indicate the extent of computerization and the areas of tested for its veracity.
operation covered. It may be confirmed as to which of the systems have
o Are the access and data security measures and other internal centralized control as regards security, disaster recovery,
controls adequate? off site storage.
o Whether regular back-ups of accounts and off-site storage are Based on the review of the system and its implementation,
maintained as per the guidelines of the controlling authorities the necessary report would be made.
of the bank?
o Whether adequate contingency and disaster recovery plans
are in place for loss/ encryption of data?
o Do you have any suggestions for the improvement in the
system with regard to computerized operations of the branch?

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2. Reconciliation of Control and Subsidiary Records
Have the figures, as at the year end, in the control and subsidiary records
been reconciled? If not, the last date upto which such figures have been It is doubtful that there would be unreconciled control and
reconciled should be given under the respective heads, preferably in the subsidiary records, unless these arse from the time prior to
following format: computerization.. the reporting on this issue would be
factual.
Account Date General Subsidiary Last Date
Ledger Balance on which
Balance (Rs.) balanced
(Rs.)

3. Inter Branch Accounts


i) Does the branch forward on a daily basis to a designated cell/ Head The system of matching of entries on a centralized basis and
Office, a statement of debit/credit transactions in relation to other reconciliation needs to be found out. With a totally
branches? computerized system, the only aspect that assumes
importance is the inward communications from the
centralized cell/division, as to clarification on the basis of
the original evidence that will help match the entries.
ii) Does a check of the balance in the Head Office Account as shown in the said
statement during and as at the year-end reveal that the same is in agreement
with the Head Office Account in the general ledger?
iii) Are there any outstanding debits in the Head Office Account in respect of inter-
branch transactions?
iv) Does the branch expeditiously comply with / respond to the communications from
the designated cell/ Head Office as regards unmatched transactions? As at the
year-end are there any unresponded/ uncomplied queries or communications? If
so, give details?
v) Have you come across items of double responses in the Head Office Account? If
so, give details.
vi) Are there any old/large outstanding transaction/ entries at debit as at year-
end which remain unexplained in the accounts relatable to inter-branch
adjustments?

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LONG FORM AUDIT REPORT – QUESTIONNAIRE AND RECOMMENDED ACTION FOR REPORTING
4. Audits/Inspections
i) Is the branch covered by concurrent audit or any other audit/ This a factual reporting
inspection during the year?
ii) In framing your audit report, have you considered the major adverse Previous/latest reports need to be reviewed and for matters/issues
comments arising out of the latest reports of the previous auditors, that remain uncomplied with, if unattended, need to be reported
concurrent auditors, stock auditors or internal auditors, or in the special
audit report or in the Inspection Report of the Reserve Bank of India?
State the various adverse features persisting in the branch, though
brought out in these audit/ inspection reports.
5. Frauds
Furnish particulars of frauds discovered during the year under audit at the Frauds discovered by Management need to be reported based on
branch, together with your suggestions, if any, to minimise the possibilities information to be obtained. If any matters are pending enquiry,
of their occurrence. vigilance etc. it needs to be enquired into.
The knowledge of the modus operandi of the frauds discovered
will enable the auditor to make recommendations to minimize the
risk of frauds.
6. Miscellaneous
i) Does the examination of the accounts indicate possible window dressing? Transactions towards the year end/quarter end need to be
reviewed to ensure that there is no sudden spurt of
deposits/advances that have been adjusted /squared off just after
the close of the period. I transactions are mere book adjustments
that cause the window dressing, these must be reported
ii) Does the branch maintain records of all the fixed assets acquired and The system followed needs to be understood. Evidence of physical
held by it irrespective of whether the values thereof or depreciation verification of assets needs to be reviewed.
thereon have been centralized? Where documents of title in relation to
branch or other branches are available at the branch, whether the same
have been verified.
iii) Are there any other matters, which you as a branch auditor would like This is an important clause and all residue matters that have
to bring to the notice of the management or the Central Statutory engaged the attention of the auditor, must be reported here.
Auditors? Refer D.L.2 and D.L.2.1 for the text recommended in respect
of matters that could be considered for reporting.

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D.L.1
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APPENDIX
QUESTIONNAIRE APPLICABLE TO SPECIALISED BRANCHES

A. For Branches dealing in Foreign Exchange Transactions

1. Are there any material adverse features pointed out in the reports of concurrent auditors, internal auditors and / or the Reserve Bank of
India’s inspection report which continue to persist in relation to NRE/ NRO/ NRNR/ FCNR-B/EEFC/ RFC and other similar deposit
accounts . If so, furnish the particulars of such adverse features.
2. Whether the Branch has followed the instructions and guidelines of the controlling authorities of the bank with regard to the following in
relation to the foreign exchange. If not, state the irregularities:
a) deposits
b) advances
c) export bills
d) bills for collection
e) dealing room operations (where a branch has one)
f) any other area
3. Obtain a list of all Nostro Accounts maintained/ operated by the Branch from the branch management.
a) Are the Nostro Accounts regularly operated?
b) Are periodic balance confirmations obtained from all concerned overseas branches/ correspondents?
c) Are these accounts duly reconciled periodically? Your observations on the reconciliation may be reported.
4. Does the Branch follow the prescribed procedures in relation to maintenance of Vostro Accounts?
B. For branches dealing in very large advances such as corporate banking branches and industrial finance branches or branches
with advances in excess of Rs.100 crores.
1. In respect of borrowers with outstanding of Rs.2.00 crore and above, the
information in the enclosed format should be obtained from the Branch
Management. Comments of the Branch Auditor on advances with significant
adverse features and which might need the attention of the management/
Central Statutory Auditors should be appended to the Long Form Audit Report.
2. What, in your opinion, are the major shortcomings in credit appraisal, monitoring, etc.?

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3. List the accounts (with outstandings in excess of Rs.1.00 crore), which have either been downgraded or upgraded with regard to their
classification as Non Performing Asset or Standard Asset during the year and the reasons therefore.
C. For branches dealing in recovery of Non Performing Assets such as Asset Recovery Branches
1. In respect of borrowers with outstanding of Rs.2.00 crore and above, the information in the enclosed format should be obtained from the Branch
Management. Comments of the Branch Auditor on advances with significant adverse features and which might need the attention of the
management/ Central Statutory Auditors should be appended to the Long Form Audit Report.
2. List the accounts (with outstandings in excess of Rs.2.00 crores), which have been upgraded from Non Performing to Standard during the year and
the reasons therefore.
3. Whether the Branch has a system of updating periodically, the information relating to the valuation of security charged to the bank?
4. Age-wise analysis of the recovery suits filed and pending may be furnished.
5. Is the Branch prompt in ensuring execution of decrees obtained for recovery from the defaulting borrowers? Also list the time barred decrees, if any,
and reasons therefor.
6. List the recoveries and their appropriation against the interest and the principal and the accounts settled/ written off/ closed during the year.
7. List the new borrower accounts transferred to the Branch during the year. Have all the relevant documents and records relating to these borrower
accounts been transferred to the Branch? Has the Branch obtained confirmation that all the accounts of the borrower (including non-fund based
exposures and deposits pending adjustment/ margin deposits) been transferred to the Branch?
D. For branches dealing in clearing House Operations, normally referred to as Service Branches
1. Does the branch have a system of periodic review of the outstanding entries in clearing adjustments accounts? In your view has the system
generally been complied with?
2. Whether review of the clearing adjustments accounts (inwards/ outwards) reveals any old/large/unusual outstanding entries which remain
unexplained? Give year-wise break-up of outstanding in number and value:
Inward Clearing Number Value
Normal Clearing
High Value Clearing
Inter- Branch Clearing
National Clearing
Returned/Dishonoured Clearing
Outward Clearing
Number Value
Normal Clearing
High Value Clearing
Inter- Branch Clearing
National Clearing
Returned/Dishonoured Clearing

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3. Has the Branch strictly followed the guidelines of the controlling authority of the bank with respect to operations related to clearing transactions?
Comment on the systems and procedures followed by the Branch in this regard.
ANNEXURE TO THE Long Form Audit Report
(FOR LARGE/IRREGULAR/CRITICAL ADVANCE ACCOUNTS)
(to be obtained from the branch management by the Branch Auditors of branches dealing in large advances/ asset recovery branches)
1. Name of the Borrower
2. Address
3. Constitution
4. Nature of business/activity
5. Other units in the same group
6. Total exposure of the branch to the Group
Fund Based (Rs.in Lakhs)
Non-Fund Based (Rs.in Lakhs)
7. Name of Proprietor/ Partners/ Directors
8. Name of the Chief Executive, if any
9. Asset Classification by the Branch
a) as on the date of current audit
b) as on the date of previous Balance Sheet
10. Asset Classification by the Branch Auditor
a) as on the date of current audit
b) as on the date of previous Balance Sheet
11. Are there any adverse features pointed out in relation to asset classification by the Reserve Bank of India Inspection or any other audit.
12. Date on which the asset was first classified as NPA (where applicable)
Facilities sanctioned:
Date Nature of Limit Prime Collateral Margin% Balance outstanding at the year-end
of Sanction facilities (Rs. in Security Security
Lakhs)
Current year Previous year

Provision Made: Rs.___ Lakhs

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13 Whether the advance is a consortium advance or an advance made on multiple- bank basis
14. If Consortium,
a) names of participating banks with their respective shares
b) name of the Lead Bank in Consortium
15. If on multiple banking basis, names of other banks and evidence thereof

16. Has the Branch classified the advance under the Credit Rating norms in accordance with the guidelines of the controlling authorities of the
Bank
17. a) Details of verification of primary security and evidence thereof;
b) Details of valuation and evidence thereof

Date verified Nature of Security Value Valued by

Insured for Rs.__________ lakhs (expiring on____)

18. a) Details of verification of collateral security and evidence there of


b) Details of valuation and evidence thereof

Date verified Nature of Security Value Valued by

Insured for Rs. ______ lakhs (expiring on____)

19. Give details of the Guarantee in respect of the advance


a) Central Government Guarantee;
b) State Government Guarantee;
c) Bank Guarantee or Financial Institution Guarantee;
d) Other Guarantee
Provide the date and value of the Guarantee in respect of the above.

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20. Compliance with the terms and conditions of the sanction

Terms and Conditions Compliance


i) Primary Security
a) Charge on primary security
b) Mortgage of fixed assets
c) Registration of charges with Registrar of Companies
d) Insurance with date of validity of Policy

ii) Collateral Security


a) Charge on collateral security
b) Mortgage of fixed assets
c) Registration of charges with Registrar of Companies
d) Insurance with date of validity of Policy

iii) Guarantees – Existence and execution of valid guarantees

iv) Asset coverage to the branch based upon the


arrangement (i.e , consortium or multiple-bank basis)

v) Others:
a) Submission of Stock Statements/ Quarterly
Information Statements and other Information
Statements.
b) Last inspection of the unit by the Branch officials:
Give the date and details of errors/omissions noticed
c) In case of consortium advances, whether copies of
documents executed by the company favouring the
consortium are available
d) Any other area of non-compliance with the terms and
conditions of sanction.

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21. Key financial indicators for the last two years and projections for the Current year (Rs. in lakhs)
st st
Indicators Audited year ended 31 Audited year ended 31 Estimates for year ended
st
March_____ March_____ 31 March____
Turnover
Increase in turnover % over previous year
Profit before depreciation, interest and tax
Less: Interest
Net Cash Profit before tax
Less: Depreciation
Less: Tax
Net Profit after Depreciation and Tax
Net Profit to Turnover Ratio
Capital (Paid-up)
Reserves
Net Worth
Turnover to Capital Employed Ratio (The
term capital employed means the sum of
Net Worth and Long Term Liabilities)
Current Ratio
Stock Turnover Ratio
Total Outstanding Liabilities/ total Net
Worth Ratio
In case of listed companies, Market value
of shares
a) High;
b) Low; and
c) Closing
Earnings Per Share
Whether the accounts were audited?
If yes, upto what date; and are there any
audit qualifications

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LONG FORM AUDIT REPORT – QUESTIONNAIRE AND RECOMMENDED ACTION FOR REPORTING

22. Observations on the operations in the account:


Excess over drawing power Excess over limit

1 No of occasions on which the balance


exceeded the drawing power/ sanctioned
limit (give details)
Reasons for excess drawings, if any
Whether excess drawings were reported
to the Controlling Authority and approved
Debit Summation Credit Summation (Rs. in Lakhs)
(Rs. in Lakhs)
2. Total summation in the account during
the year
Less : Interest
Balance
23. Adverse observations in other audit reports/ Inspection Reports/ Concurrent Auditor’s Report/ Internal Audit Report/ Stock Audit Report/ Special Audit
Report or Reserve Bank of India Inspection with regard to:
i) Documentation;
ii) Operations;
iii) Security/Guarantee; and
iv) Others
24. Branch Manager’s overview of the account and its operation.
25. a) In case the borrower has been identified/ classified as Non-performing Asset during the year, whether any unrealised income including income
accrued in the previous year has been accounted as income, contrary to the Income Recognition Norms.
b) Whether any action has been initiated towards recovery in respect of accounts identified/ classified as Non-performing Assets.

( Signature & Seal of Branch In-charge)


Date:

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BANK BRANCH AUDIT (2017-18) D.L.2
ADDITIONAL MATTERS THAT ARE RECOMMENDED TO BE INCLUDED IN THE LONG
FORM AUDIT REPORT TO MAKE IT MORE USEFUL TO MANAGEMENT
The LFAR is not a substitute for the Main Report and all qualifications are expected to be reported in the
Main Report. Where an audit qualification is necessary in the Main Report by the Auditors, elaboration
thereof may be made in the LFAR.
___________________________________________________________________
Cash

ATM BALANCES:
 DOES THE FIGURE OF THE BALANCE IN THE BRANCH BOOKS IN RESPECT OF
CASH WITH ITS ATM(s) TALLY WITH THE AMOUNTS OF BALANCES WITH THE
RESPECTIVE ATMs, BASED ON THE YEAR END SCROLLS GENERATED BY THE
ATMs?
(The year end scrolls would not tally normally, because of the cut off time adopted
for the branch accounts, as compared to the natural date closure. More
importantly, the difference would be on account of unadjusted debit transactions in
the accounts of the card holders of the bank at the same or another branch as well
as of card holders of other banks. The difference could also be on account of cash
replenishment in the hours after the books of the branch are closed for the day but
before the end of the calendar date in the scroll at midnight. Sometime due to
technical problems in the transmission of data, the withdrawals may not get
debited immediately in the account of the customers). ATM book balances must be
in figures that correspond to the denominations in the ATM and cannot be in odd
figures.
Long outstanding items of withdrawals not recorded must be a matter of serious
concern and must be reported).

 WHERE THE BANK HAS APPPOINTED AGENTS FOR CASH REPLENISHMENT IN


THE ATMs, WHETHER THE BRANCH HOLDS PERIODIC CONFIRMATION OF
BALANCES OF CASH HELD BY SUCH AGENTS, INCLUDING, IN PARTICULAR, A
CONFIRMATION AS AT THE END OF EACH ACCOUNTING PERIOD? AND
WHETHER THE AMOUNT WITH SUCH AGENTS, IS PHYSICALLY VERIFIED AT
PERIODIC INTERVALS BY THE BRANCH OFFICIALS?

 ARE THERE ANY AMOUNTS AT DEBIT IN THE ACOUNTS OF SUCH AGENTS, IN


RESPECT OF AMOUNTS REQUIRED FOR CASH REPLENISHMENT IN THE ATMs?
If so, how are these reflected in the branch balance sheet?
(Non reconciliation, resulting in a Memorandum of Changes, should be reported in the
Main Report as well as the LFAR)

Balances with Reserve Bank of India


Where the Branch maintains an account with the Reserve Bank of India, whether the
following have been reported, through the MOC annexed to the Main Report:
a. Credits and debits originated in the RBI statement, remaining unresponded and
affecting the RBI account balance in the books of the branch.
b. Currency chest operations involving deposits and withdrawals at linked branches
prior to, but communicated to, or recorded by, the branch after the year end.

NOSTRO Accounts (maintained at the designated branches):


a. Whether the Bank has a laid down system to obtain periodic balance confirmation
of NOSTRO account balances and for their reconciliation with the book balances?
b. Whether the system of the Bank ensures that all entries appearing in the overseas
NOSTRO Accounts statements, are duly incorporated in the respective NOSTRO
Accounts maintained by the Branch?
c. Have the balances been converted at the rates of exchange applicable as at the
year end?
d. Any adverse features observed, may be reported, including in respect of closed
and dormant accounts.
Investments (where the Branch holds investments on behalf of Head Office)
Whether there are any matured or overdue investments that remain unrealized and
continue to be included in the investments portfolio? If so, give details?

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BANK BRANCH AUDIT (2017-18) D.L.2
ADDITIONAL MATTERS THAT ARE RECOMMENDED TO BE INCLUDED IN THE LONG
FORM AUDIT REPORT TO MAKE IT MORE USEFUL TO MANAGEMENT

Advances

Credit Appraisal
Have you come across cases of quick mortality in accounts, where the advance
became Non performing within a period of 12/24 months of appraisal/sanction? Details
of such accounts each in excess of Rs.5.00 lacs may be provided.

Documentation
Does the Branch follow the system of giving to each borrower, a copy of the
documents/agreements executed, and any changes/modifications?
Where the system has not been followed or the documents are not so furnished to the
borrowers, the same should be reported.

Review/ Monitoring/ Supervision - Stock/ book debt statements and other periodic
operational data and financial statements
a. Where there is significant divergence between the latest audited accounts (expected to be
on record), and the certified data as on the date of such latest audited statements that
indicate lack of integrity of the data/information having a bearing also on the
classification, how has similar unaudited data as at the balance sheet date been dealt
with and whether and the extent to which reliance has been placed thereon.

b. In case of NPAs with the aggregate outstandings, each in excess of Rs..5 crores, or such
lower outstandings as stipulated by the bank, has the Branch complied with the
mandatory requirements of stock audit once a year; and in respect of immovable assets
charged as security, once in three years, unless, in the opinion of the auditor,
circumstances warrant a shorter duration?
 Cases where this was required but has not done need to be reported
 Adverse features observed in the reports on which action has not been taken and
those which deserve the attention of the Management need to be reported.

Advances controlled by Central Processing Cells to which the branch under audit, is
linked
Have there been any limitations/restrictions/impediments in the audit verification procedures,
where the branch is linked to a Central Processing cell that controls lending procedures
related to appraisal, sanction, documentation, disbursement, monitoring, supervision and
control over the advances?

Liabilities
Deposits
.
 In respect of overdue/ matured term deposits, particularly those not subject to automatic
renewal, whether interest has been accrued on such deposits up to the year end,
including in respect of deceased depositors?
 Does the Branch issue Deposit Receipts to the Depositors upon receipt/ renewal of
deposits, as mandated by the Reserve bank of India? In case the Bank does not
follow this practice, the same should be incorporated in the LFAR.
 Further, where the branch has issued such Deposit Receipts but has not
despatched the same to the depositors, the number and amount thereof must be
reported, considering the attendant risks of likely misuse of such receipts.

Contingent Liabilities
Report in the Main Report and LFAR, whether and the extent to which the branch carries
contingent obligations in respect of L/Cs and guarantees which have expired and where
liability of the bank has ceased, including due to expiry of the claim period.

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BANK BRANCH AUDIT (2017-18) D.L.2
ADDITIONAL MATTERS THAT ARE RECOMMENDED TO BE INCLUDED IN THE LONG
FORM AUDIT REPORT TO MAKE IT MORE USEFUL TO MANAGEMENT

PROFIT AND LOSS ACCOUNT


Whether in respect of advances treated as non performing and those where income is
not recognized, has the branch maintained adequate records and are these updated as
regards:
 Interest Suspense or similar account
 Unapplied Interest
 Right of recompense in cases of accounts subjected to restructuring,
rehabilitation, rephasement etc., particularly in cases covered by the CDR
mechanism?

GENERAL

Books and Records in the EDP Environment

Does the Branch have a system of expeditious disposal of the Daily exception reports
generated by the system?
Are there any major transactions or other pending compliances that deserve the
attention of the Management?

Audits/Inspections/Latest Reports:

Whether the following latest reports on the accounts of the Branch and
compliance by the Branch on the observations contained therein, have been
considered, in preparing the reports?:
a) Branch Audit Report and Accounts;
b) Long Form Audit Report;
c) Internal Inspection Report;
d) Internal/Concurrent Audit Report(s);
e) Credit Audit Report;
f) RBI Inspection Report, if such inspection took place;
g) Income and Expenditure Control Audit/Revenue Audit Report;
h) Quarterly review report;
i) IS/ IT/Computer/EDP Systems Audit; and
j) any special inspection/investigation report?.

Any major area of non compliance, or that deserving the attention of the management
should be reported.

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DL.2.1
BANK AUDIT - MANNER IN WHICH CERTAIN MATTERS CAN BE CONSIDERED IN
THE LONG FORM AUDIT REPORT BASED ON FACTS (Illustrative Paras/formats)

INFORMATION SYSTEM/ EDP AUDIT


At the Branch, reliance has been placed on the system generated information/data in
the computerized environment based on the CBS system laid down by the Bank,
which system is stated to be followed by the Bank/branch. We are informed that the
reports of the IS audit, if any, conducted by the Bank are not available at the
Branch, but at the Head Office, to ascertain whether there are any issues and
matters that need to be addressed by the bank in connection with its financial
statements; particularly, as regards coverage of all the accounting norms as well as
RBI parameters and norms/guidelines, for the time being applicable, related to the
classification of advances for the purposes of provisioning etc. The management has
represented that all the parameters required by the regulator have been built into the
system ; and if, and the extent to which, these are not in consonance with those of
the Bank as per its own policies, or as otherwise required, these would be considered
at Head Office, to the extent these affect the Branch financial statements.

CASES OF QUICK MORTALITY WHERE ADVANCES BECAME NPA WITHIN 24 MONTHS


OF SANCTION/ APPRAISAL (Cases above Rs.10.00 lacs)
This, prima facie, reflects deficiencies in and faulty appraisal of the proposals,
including on account of technical and financial viability not having been properly
assessed or examined.

Based on a study of such cases, the causa proxima of incurrence of losses within a
short time after sanction / disbursement of advances needs to be determined and
action initiated to identify and address the deficiencies in the credit appraisal
systems and/or monitoring, that would require to be reviewed/ remedied, the
objective being to minimise such occurrences in future; and may entail imparting
appropriate staff training and equipping the personnel with the requisite skills.

Considering the nature and risk of trade, the Management may need to assess
generic provision, if any required, for cases of quick mortality, based on trends as
may be reflected over a period of time.

Given hereunder are cases, where there was an ostensible failure of the appraisal
system, resulting in quick mortality of the advances, instances of which are for
outstandings, each in excess of Rs.10.00 lacs.
NAME OF THE LIMIT DATE OF DATE OF AMOUNT
BORROWER SANCTIONED SANCTION/ NPA OUTSTANDING
(Rs) APPRAISAL (Rs.)

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THE LONG FORM AUDIT REPORT BASED ON FACTS (Illustrative Paras/formats)

Guidelines on Fair Practices Code for Lenders - Furnishing copy of loan agreement to
the borrowers in each case

It has been reiterated by Reserve Bank of India, vide DBR.No.Dir.BC.10/13.03.00/2015-16 dated


1.7.2015 that, to avoid any disputes with regard to the terms and conditions of grant of the
loans, the Banks should invariably furnish a copy of the loan agreement along with a copy
each of all enclosures quoted in the loan agreement to all the borrowers at the time of
sanction / disbursement of loans.

In the following cases, there is no evidence on the records of the branch, with regard to
compliance of the said RBI directives:
BRANCH Year:
Name of the Amount of limits Documents on Remarks (indicate , as applicable)
Borrower sanctioned (Rs. in record dated a. No evidence of loan documents
Lacs) handed over to the borrower
b. Consortium advance where the lead
bank has not provided copies of
the loan agreements

We advise strict compliance of the said RBI requirements.

Receiving audited accounts in the case of borrowers with limits beyond prescribed
amount:
The Bank, in the loan policy has stipulated that Reserve Bank of India has given freedom to
individual Banks to fix credit limit above which audited balance sheet has to be insisted upon
from the borrowers. The Bank has fixed limit of Rs.25 Lacs and above for submission of
audited balance sheet, and accordingly the Branch has not obtained audited statements in
case of non-corporate entities with working capital limits beyond Rs.10 Lacs .
A list of accounts where, as per the LFAR prescription, audited accounts were not obtained
from non corporate borrowers is furnished hereunder:
Name of the Non Working capital Amount Classification
corporate borrower Limits (Rs.) outstanding(Rs.) Status

Other cases where latest audited statements were not obtained or on record
Name of the borrower Limits (Rs.) Amount Classification
outstanding(Rs.) Status
a. Corporate

a. Non Corporate

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THE LONG FORM AUDIT REPORT BASED ON FACTS (Illustrative Paras/formats)

System and periodicity of Stock Audit


Stock Audits: In case of larger advances accounts (Limit Rs. __ crore and above) stock audit
is to be carried out by the external auditors annually.
In case of large advances accounts (Limit Rs__ Crores and above) which are showing signs
of incipient sickness and in such accounts where it is felt necessary by the bank stock audit
is to be carried out by the external auditors annually

Branch: No. of Accounts


Particulars -status of Stock Audit as on 31.03.2018

Stock Audit required to be conducted


Accounts where stock audit was conducted
Accounts where stock audit was not conducted
Reports Due
Reports Received
Reports awaited

Major adverse observations in stock audit reports