Annexure – I 

Areas of serious concern requiring Focussed Attention- 

We list below certain common deficiencies, though not exhaustive, 
nevertheless illustrative 
  LFAR 2016-17 - Certain Common Deficiencies – Bullet Points 
Sr.  (indicative only – not exhaustive) 
No. 
1  Single borrower limit, Group Borrower limit sanctioned and exceeded 
by overseas and domestic branches during FY 2016-17 
2  Need to improve/strength overall internal control to avoid special 
report accounts  
3  The capital and other contracted commitments of boffowers are not 
considered to assess the overall risk profile. 
4  CERSAI registration is not done 
5  Credit  Sanction  not  acknowledged  by  the  Borrowers  and  the 
Guarantors 
6  Common Seal not affixed and witnessed 
7  All  required  Clearances  /  Statutory  Approvals  not  obtained  from  the 
Competent authorities 
8  Insurance Renewal pending 
9  Form 60 H not obtained from the Depositor 
10  No Lien marked 
11  Deposit Receipt not discharged 
12  Board Resolution not obtained 
13  Share particulars not filled in the Security Delivery Letter 
14  Sanction  Letters  from  all  the  Member  Banks  in  the  Consortium  not 
obtained 
15  Insurance for the mortgaged properties not available 
16  Dematerialization of the Pledged Shares not available 
17  Valuation of Prime Security is not made available for verification 
18  Credit summation is low 
19  Sanction Letter not acknowledged by the Guarantors 
20  Borrower  has  not  infused  the  required  capital  as  per  terms  of 
sanction. 
21  Verification  of  stocks  becomes  difficult  when  two units are operating 
at the same address 
22  Quarterly Sales Tax Returns not obtained 
23  Regular exchange of information amongst lenders not taking place 
24  Vetting of Documents not done 
25  Non-levy of Penal Interest 
26  Documentation Fees not charged 
27  Terms of Sanction not complied with 
28  Term Loan Instalments pending 
29  Debit Balance Confirmation not obtained 
30  Property Tax Receipts not held 
31  Policy Bond for Insurance of Collateral Security not available 
32  Charge not registered with ROC 
33  Exercise of Due Care for inter unit transaction found lacking 
34  Account overdrawn 
35  Original Title Deed of Property is not available 
36  NOC from other Bank is required 
37  Turnover not routed through the Account 
38  Documents incomplete 
39  Partnership Firm not registered with Registrar of Firms. 
40  Undertaking to retain entire profit is not obtained 
41  Change  in  Constitution  -  Necessary  documentation/Confirmation 
from competent authorities missing 
42  KYC Documents not held 
43  Sales Tax Registration Certificate not held on record. 
44  Regular Monitoring of information like VAT Returns not obtained 
45  Non-Satisfaction of Charge in favour of other Institutions 
46  Observations made in the COIR still pending 
47  Internal Rating has not been done 
48  Broken period Encumbrance Certificate not obtained 
49  Pre/Post-Inspection Report has not been done 
50  Only Release Deed is in records 

51  Limit enhanced. Charge not created. 

52  Advance for Land and Flat considered as Short Term Advances 
53  CIBIL Report not satisfactory 
54  Short  Review  is  done.  Account  expired.  No  Renewal  done  till  the 
date of audit. 
55  Closing  Stock  differs  from  Stocks  which  are  reckoned  for  Insurance 
purpose.  
56  Overvaluation of stocks. In some cases, Stocks are under insured.   

57  Unit Visit of Property not held 

58  Transactions not commensurate with the Limits sanctioned 
 59  Unit on Leasehold. Lease Deed is not obtained 
60  CIBIL Report not verified 
61  Unit Visit Report not found on records 
62  Bank Clause not incorporated in the Insurance Policy 
63  End-use of funds not verified  
64  Bills  submitted  are  not  proper  and  complete  in  respect  of  the  Term 
Loan disbursed 
65  Adhoc granted more than 20% of the Limit 
66  Account  frequently  overdrawn  in  excess  of  the  discretion  of  the 
Branch Officials 
67  Age-wise  list  of  Book  Debts  not  received  by  the  Branch  –  Monitoring 
CC Accounts difficult  
68  Insurance  Cover  Notes  are  not  regularly  obtained  in  the  case  of 
Vehicle Loans 
69  Devolvement  of  LCs  -  no  real  substantial  /  physical  assets  were 
covered  by  the  LC  s  Bills  –  Found  to  be  only  paper  transactions  with 
no assets 
70  Undertaking  from  the  Borrower  /  Directors/Partners  in  Court Cases , is 
pending to be received 
71  Exchange of information among Banks not obtained 
72  Credit Audit Report not obtained 
73  Inspection of Securities not carried out 
74  Devolvement  of  LCs  should  be  verified  immediately  to  ascertain  the 
actual  movement  and  receipt  of  goods  at  factory  premises  /  stores. 
Monitoring not done. 

75  Due  Diligence  Certificate  from the Company Chartered Accountant 

not held 
76  Periodic Review of Advances not done properly 
77  Incomplete RAM Rating by the Branch 
78  Latest Search Report unavailable 
79  Minutes of the last Consortium Meeting conducted - not on record 
 
Q 
 
 
Annexure – II 
 
LFAR 2016-17 - GIST OF DEFICIENCES  
Deficiencies grouped, in detail, with the Auditors’ Suggestions 
Non – Performing Assets 
 ➢ Need  for  improvement/strengthening  of  overall  internal  control  to 
avoid quick mortality of advances.   
➢ In  a  few  cases,  Credit  Appraisal  for  Group  &  Associate  Concern 
accounts  no analysis of total Security Coverage of underlying securities 
offered by the borrower is clearly made. 
➢ The  Financial  Statements,  Projected  Financial  Statements,  etc., 
submitted by the borrower are not critically analyzed and assessed.   
➢ Treatment regarding the Intangible Assets and Intra-Group transactions 
needs improvement. 
➢ The  Capital  and  other  contracted  Commitments  of  borrowers  are  not 
considered  to  assess  the  overall  risk  profile  of  the  borrower  at  the 
appraisal stage. 
➢ Key  factors  or  constraint  factors  attached  to  the  nature  of  the 
operation/business/industry  of  the  borrower,  needs  to  be  studied 
properly. 
➢ Non-receipt  of  copies  of  Income  Tax  and  Wealth  tax  returns  of  the 
guarantors to substantiate the net worth 
➢ A  comprehensive  product  linked  risk  assessment  document  is  not  in 
place.   
Suggestions 
➢ The  Bank  should  design  and  put  in  place  a  product  specific  and 
product linked risk analysis document for better appraisal of proposals. 
➢ Appropriate  training  is  vital  to  empower  the  officials  concerned  at  all 
levels. 
Sanctioning / Disbursement 
➢ In  some  cases,  it  is  observed  that  certain  conditions  stipulated  in  the 
sanction letter are not duly complied with. 
➢ Adhoc  limits  sanctioned  need  strict  monitoring,  especially  in  the  case 
of  sanction  of  such  limits  to  irregular  accounts  and  potential  NPAs. 
Needs close Review. 
➢ Conversion  of  Non-Fund  Based  Limits  to  Fund  Based  Limits  should  be 
done after proper re-appraisal. 
Documentation   
➢ Title  deeds  not  deposited,  Equitable  Mortgage  not  created;  broken 
period EC not obtained; Legal opinion not obtained. 
➢ Certificate of Registration of charge not taken on record.  
➢ CERSAI Registration not done. 
➢ Valuation not taken afresh once in three years. 
➢ Whenever there is difference in value by over 10%, a third valuation not 
held in few cases. 
➢ Consortium Advance: Joint deed / Inter se Agreement not executed.  
➢ Revival letter not obtained.  
➢ Applications  not  duly  filled  in  /  No  sanction  letter  held  on  record  / 
Sanction  advices  not  issued  to  borrowers  /  No  signature  of  the 
signatory on the sanction letter. 
 ➢ It  is  noticed  that  the  sanction  letter  are  more general in nature without 
striking/deletion  of  unwarranted  conditions  or  is  without  including  the 
required terms specific to the loan product.  
➢ Insurance  Policies  not  available  at  branches,  under  insurance  of 
securities and bank clause missing in insurance policies. 
➢   In  the  category  of  TL  Liqui-rent,  the  mandatory  Tri-partite  Agreement 
among the Borrower, Banker and Tenant not followed in many cases.  
Suggestions: 
➢ It  is  suggested  that  documents  required  including  the  check  list  of 
required  documents  for  each  type  of  loan  may  be  made  available 
“Online” for execution of documents.  
➢ Also, the loan shall not be sanctioned/disbursed/ apprised/reviewed/ 
renewed  without  updation  of  online  check  list  by  appropriate 
authority.  
➢ The  executed  documents  should  be  tagged  to  the  advance  account 
to make it operational. 
System of documentation in respect of Joint/Consortium advances 
➢ The  staff  training,  with  regard to obtention of documents needs improvement 
in  the  case  of  Syndication,  Securitization  of  Assets  through  Escrow 
Arrangements. Knowledge level at the Branch inadequate. 
➢ important  documents  like allocation of DP on a monthly basis, joint inspection 
reports,  consortium  minutes,  information  to  be  received  from  joint  lenders  in 
case of multiple banking arrangement etc.. is not followed up and obtained. 
➢ Even  in  cases  where  it  is  obtained,  proper  appraisals  of  such 
documents are not done at branch level.  
➢ The  remedial  actions  to  be  taken  are  not  followed  up  with  the 
consortium members.  
➢ The  interest  of  the  bank  for  getting  share  of  credits  received  by  the 
leader,  information  of  allocation  of  credits  from escrow account etc. is 
not  properly  done  at  branch  level  or  is  monitored  by  the  controlling 
offices.  
➢ The  important  matters  deliberated  at  the  consortium  meetings  to 
protect  the  interest  of  the bank are not documented and circulated in 
the meeting.  
➢ The  inclusion  of  such  deliberations  is  not  followed  up  to  be  included  in 
the consortium minutes. 
 
Review/ Monitoring/ Supervision  
➢ The  comprehensive  renewal  of  loan  accounts  are  not  planned  and 
focused.  Branches  are  also  not  following  up  with  the  borrowers  for 
timely renewal.  
➢ The  system  control  of  suspension  of  operations,  restrictive  operations 
etc is to be introduced for inculcating discipline at the borrowers point.   
➢ The  short review and extension of time for renewal are practiced which 
should  be  restricted  only  for  genuine  cases  as  sanctioned  by  the  next 
higher authority of sanction hierarchy.  
 ➢ The  list  of  accounts  where  short  review  or  extension  of  review  date  is 
permitted  should  be  monitored  by  the  vertical  head  at  the  respective 
ZO.   
➢ It  is  also  observed  that  the  monitoring  and  review  of  non  fund  based 
exposures  of  borrowers  whose  fund  based  limits  are  under  watch 
category  or NPA need improvement.  It is observed that in some cases, 
limits  are  enhanced/disbursed  for  meeting  the  non  fund  based 
commitments of sticky and irregular borrowal accounts 
➢ The  quarterly  financial  statements  and  periodical  financial  reports  are 
are  not  analyzed  properly  with  special  emphasis  on  business 
performance and potential impact on cash flows. 
➢ No  monitoring  of  the  performance  of  the  Company  in  the  form  of 
downloading  the  quarterly  published  financial  statements  of  listed 
companies  and  studying  it  for  taking appropriate decisions on a timely 
basis.  
➢ Critical  analysis  of  purpose  and  legal impacts of change /modification 
in  constitution of borrowers, financial re-organization are not done from 
the risk perspective of the bank as a lender.  
➢ Early warning signals of loan accounts  
Receiving  regular  information,  stock/  book  debt  statements,  Balance  Sheet 
etc. 
➢ Stock / Book Debt Statements not obtained by Branches regularly 
➢ Tthe Drawing Power is not periodically up dated in the system.   
➢ The  Drawing  Power  is  not reduced zero when the Branch fails to obtain 
the Stocks/Book-Debt Statement.  
➢ Non-charging  of  penal  interest  for  delayed  submission  of  stock 
statement,  availing  the facility above the Drawing power etc.  resulting 
in impairing the Asset Classification  
➢ The  Receivables  &  Book  Debts  Statements  are  seen  attested  by 
auditors other than Statutory Auditors of the borrowers.  
Suggestions 
➢ The  Filing  of  Book  Debt  and  Stock Statements should be made On line 
and  linked  to  strengthen  the  system  of  calculation  of  DP,  charging  of 
penal interest, etc. 
 
System of scrutiny and follow-up by the bank 
➢ Timely  receipt  of  control  and  monitoring  returns  like  CAF  -  1,  CAF  -  3, 
CAF -4, ERI, and CSS should be ensured.  
➢ Compliance of observations made on these returns is to be improved. 
➢   The  documentation  and  filing  of  unit  inspection  reports  follow  up 
action on concurrent audit reports are lacking at the branches.  
➢ Taking  immediate  action  on  Concurrent  Audit  Report,  Bank  Inspection 
Report, RBI Inspection Report, etc. 
➢ Overall  system  of  review  of  Stock  Statements  and  Audited  financials 
submitted  by  borrowers  for  taking  action  and  follow  up,  in  our  opinion 
needs to be strengthened for effective monitoring / supervision. 
System  of  periodic  physical  verification  or  inspection  of  stock,  equipment 
and machineries and other securities  
➢ Submissions of Stock Audit Reports are inordinately delayed.   
➢ Non-cooperation by the customer to conduct Stock Audit.   
➢ Delay  from  Regional  Offices  in  advising  the  status  of  Stock  Audit 
progress  is  to be avoided.  A clearly defined time-frame for completion 
of Stock Audit. 
➢ Officers visiting the borrowers should compulsorily submit the reports.   
➢ The  Documentation  and  Filing  of  Unit  Inspection  Reports  needs 
improvement 
➢ Lack  of  Follow-  up  action  on  Concurrent  Audit  Reports,  at  the  Branch 
level. 
Norms and awarding of Credit Rating  
➢ In  certain  cases,  the  concerned  borrowers  have  not obtained External 
Credit Rating in spite of specific stipulation in the Sanctioned Terms.   
➢ No  additional  interest/penalty  has  been  charged/recovered/nor  has 
waiver been obtained, in these cases. 
Suggestions  
➢ The  MIS  of  accounts  where short review is done has to be monitored at 
the ZO level.  
➢ The  age  wise  report  of  pendency  should  be  followed  up  at  the  ZO 
level. 
  
System  of  monitoring  of  off-balance  sheet  exposures  including  periodic 
reviews 
➢ The  branches  have  to  desist  from  or  should  be  prudent  in  establishing 
LCs  and  BGs  for  watch  category  borrower  accounts,  even  though the 
sanctioned limits are available to the borrower.  
➢ Credit  Reports  of  Suppliers  have  not  been  obtained  even  in  cases  of 
large exposures, while establishing LCs. 
➢ Transport  Receipts  issued  by  the  approved  transporters  have  not been 
obtained under the LCs.  
➢ The  transit  insurance  on  the  merchandise  has  not  been  insisted  on  the 
merchandise under most of the LCs established.  
Restructuring: -  
➢ The  terms  of  restructuring  need  to  be  properly  communicated  to  the 
branches  and  the  Regional  Offices  for  better  implementation  of 
structuring package in true spirit. 
➢ The  revenue  impact  of  the  restructuring  should  be  calculated  and 
vetted thoroughly, by way of  
● sacrifice, 
● interest reversal,  
● interest concessions  
➢ The  recompense  clause  included  in  the  terms  of  sanction  is  not 
quantified and communicated to the borrower. 
Suggestions: 
➢ A  thorough  exercise  of  revisiting  the  entire  restructured  accounts 
should  be  done  to  make  corrections  and/or  recoveries  in  respect  of 
excess provision made, excess interest reversed etc.  
➢ The  quantification  has  to  be  included  in  the  sanction  letter  itself  and 
any  concession/reduction  should  be  as  per  a  new  policy  guidelines 
introduced.  
➢ The  policy  guidelines  should  include  treatment  of  restructured  cases 
turning  to  be  NPA  for  further  activating  the  legal  proceedings, 
withdrawal  of  concessions  granted  on  restructure  etc  need  to  be 
specified. 
➢ The  plaint amount for proceeding for the suit is reported to be the gross 
amount  withdrawing  all  concessions.  However,  proper  administrative 
procedures  of  fixing  the  plaint  amount  with  the  co-ordination  of  CDR 
cell and legal department should be made as a policy. 
Large Advances  
➢ To  maintain  the  asset  quality  of  the  account,  the bank has to evolve a 
strict  monitoring  mechanism  of  suspending/freezing  the  sanction  of 
non-fund  exposures  to  any  borrower  once  the  funded  exposures  are 
irregular.  
➢ Bank  should  desist  from  opening  LCs  in  cases  where  the  Account  has 
become irregular 
➢   The  sanction  of  SBLC  and  Funded  limits  to  meet  Non-Funded  obligations  of 
the borrower both in Domestic and Overseas exposure should be restricted.