Important RBI Circulars applicable for branch Audit 2022-23
14
Draft Branch Audit programme 2022-23
15
Draft branch enquiry letter 2022-23
15
Draft WRL to be obtained from Branch Management
18
STEP 4 Reached the Branch - What do I do?
21
STEP 5 Balance Sheet Review
27
Special checks in respect of a few account heads in the Balance Sheet
29
Other Liabilities/Other Assets relating to Interest Accrued (Advances & Deposits)
29
Other liabilities
30
Cash on hand
32
Balance with Banks
32
Fixed Assets
33
Other Assets
34
Bank Guarantees, Letters of Credit and other off Balance Sheet items
34
38
STEP 6 Statement of Profit & Loss
43
System Suspense
43
Ledger scrutiny in Finacle environment
43
Expenditure other than Interest on Deposits
45
Interest paid on Deposits
46
Interest on Advances
47
Income recognition on Projects under implementation
53
Income recognition on NPAs/restructured accounts
54
Bank Guarantee/Letters of Credit Commission
57
Other Income Accounts
58
STEP 7 Identification of NPAs : A Practical overview
60
The simplest definition of a Non-Performing Asset (NPA)
60
Record of recovery is the Thumb Rule
60
Responsibility of NPA identification and provisioning
60
NPA date
61
NPA on overdue for more than 90 days
61
Overdue
62
Reversal of income on being classified as NPA
63
Cash Credit/OD account to be NPA when it is “Out of Orderâ€
63
Credits not enough to cover interest debited during quarter
64
CC/OD accounts - Special Checks
66
Interest subvention
68
Interest recovery Staff loans
68
Moratorium in payment of Interest
68
NPAs when regular/ ad hoc credit limits not reviewed/ regularised
68
NPAs when Stock statements not submitted
70
Stages of Asset Classification
70
Accelerated movement of NPA classification
71
Provisioning norms in respect of Frauds
72
Dealing with loan frauds, Early Warning Signals (EWS) and Red Flagged Accounts (RFA)
73
Upgradation of NPAs
78
All facilities to be classified as NPA
81
Consolidation of the amount of devolved LCs and invoked BGs with the primary account
83
Classification with other member banks not relevant in Consortium Advances
84
Normal NPA regulations applicable to State Government Guaranteed Advances
84
NPA classification in case of “inter-changeable limitsâ€
85
Advances against Term Deposits, NSCs, KVPs/IVPs etc.
87
Classification when NPA is either regularised or closed after the year end
87
NPA classification in Takeout Finance
87
NPA when Projects are under implementation (Para 4.2.15 of the Master Circular)
88
Practical checks for identifying potential NPAs
102
Data Analysis of Advances for identifying potential NPAs
103
Other suggested checks on existing Non-performing Assets (NPAs)
108
STEP 8 Non-Performing Advances : Assessment of Provision
110
Provision as per RBI guidelines
110
Provisioning norms under the RBI Circular on MSME Restructuring dated January 1, 2019
115
Accelerated Provisioning
116
Loss Assets
116
Doubtful Assets
116
Sub-standard Assets
118
Classification of accounts as Unsecured Advances
119
Floating Provisions
120
Accounting and disclosure of various kinds of Provisions
122
Provisions on Leased Assets classified as NPA
123
Provision on Standard Assets
123
NPAs in respect of Savings Bank/TOD
124
Advances covered by ECGC guarantee
124
Advances covered by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
125
Practical audit checks for assessment of provision on NPAs as per RBI guidelines
126
STEP 9 Advances : Resolution of Stressed Assets
130
STEP 10 Advances : Restructuring Demystified
136
Which restructuring options are available to banks as on date?
136
What does restructuring involve?
137
Which asset category/ type of accounts can be restructured?
141
Pre-requisites for any restructuring
141
Asset classification norms of restructured accounts applicable in terms of RBI guidelines
142
Prudential norms for conversion of Principal into Debt/ Equity
146
Prudential norms for Conversion of unpaid interest into “Funded Interest Term Loan†(FITL), Debt or Equity instruments
146
Conversion of Principal into Debt/Equity and Unpaid interest into “Funded Interest Term Loan†(FITL), Debt or Equity Instruments
148
STEP 11 Frequently Asked Questions (FAQs)
151
Advances, Identification of NPA and Provisioning
152
Balance Sheet and Profit & Loss
168
Priority Sector Lending
169
MSME
173
UDIN
176
Emergency Credit Line Guarantee Scheme
178
Miscellaneous
186
STEP 12 Important Regulatory Changes during the year : RBI Circulars summary and highlights
191
STEP 13 Housing Loans
196
STEP 14 Audit of Agricultural Advances : Made easy!!
206
Let us first understand some Agricultural terms
206
Long duration crops
206
Short duration crops
206
Rabi Season
206
Kharif Season
207
Mono Cropping Farmers/Mono Crop loans
209
Multi Cropping Farmers/Multi Crop loans
209
Direct and Indirect/Allied Agricultural Advances
210
How do you determine the harvesting period/Crop season?
210
Understanding NPA norms of Agricultural Advances
210
NPA when?
210
Calculating overdue status
211
Farm Credit to agricultural to activities and to non-agriculturists
211
When will the 90 days NPA norms become applicable?
212
Rural Housing Advances
212
Practical Guide for NPA Classification of short duration crops
212
Mono Cropping/Single Cropping
213
Multiple Cropping/Double Cropping
214
Practical Guide for NPA Classification of Long duration crops
215
Form credit extended to agricultural activities eligible for relaxed NPA Norms
216
Agricultural Advances not eligible for relaxed NPA norms but eligible under priority sector
217
Non-application of interest at monthly intervals on Agricultural loans
219
STEP 15 Restructuring - Natural Calamities
225
Natural Calamities - What does it encompass?
225
What kind of loan is covered by this Master Direction on restructuring in case of natural calamities?
226
Agricultural loans - Restructuring norms in case of Natural Calamities
226
Conversion into Term Loan of Short Term Loan
226
Conversion into Term Loan of Long Term Agriculture Loans
227
Other Loans
227
Moratorium period on restructuring
228
Additional Collateral Security
228
Asset Classification on restructuring
228
Restructuring conditions
229
Other guidelines for restructuring
229
STEP 16 IS Audit - Finacle : Guidance
233
Review of Advances and Deposits portfolio
234
For viewing the transactions in the Ledger account –HACLINQ
234
For viewing the account details – HACLINQ
234
To view Scheme Code Details - HACLI
235
Loan Overdue Position Inquiry - HLAOPI
235
Temporary overdraft Inquiry - HACTODI
235
Collateral Lookup - HCLL
236
View Interest Applied Details - HINTTI
237
Interest report for Accounts - HAINTRPT
237
Viewing turnover in Cash Credit/ Other Loan Ac’s - HATOR
238
Print and Save individual accounts/ ledger - HPSP
238
Review of Non-Performing Assets (NPAs)
239
To generate list of NPA Accounts (Classification wise with NPA Date) – HASSCR
239
Printing/Viewing Report generated - HPR
239
Review of Balance Sheet and Profit & Loss
240
Steps to individually review/scrutinize heads of account – HACLINQ
240
Guarantees issued cum liability register - HGILR
240
TDS Inquiry Position - HTDSIP
241
Value dated transactions – HFTR
241
Inventory Status Report (Security Forms) - HISRA
242
Exceptional Transactions Report - HEXCPRPT
242
Review of Advances and Deposits Portfolio
243
Account Details for Deposits – HACDET
243
To generate Account Closed Report
243
Inter Sol Transactions Report – HISTR
244
Bank Guarantee Details - OGM
245
Cash Balance Report – CSHBR
245
Audit Reports – ADTRPT
245
STEP 17 Miscellaneous Guidance on other matters
246
Audit Report
246
Certificate on Asset Liability Management
248
Ghosh & Jilani Committee recommendations
248
Long Form Audit Report
249
STEP 18 Stock Audits : Guidance
261
A step wise practical guidance on how to commence and carry out the Stock audit
261
Draft Engagement Letter
265
Draft Report to be issued by Stock Auditors
268
STEP 19 Asset Classification : Summary of RBI Guidelines
277
Para 2.1.2 : Non-Performing Asset (NPA)
277
Para 2.2.1 : Out of Order
278
Para 2.3 : Overdue
278
Para 4.1 : Categories of NPAs
278
Para 4.2.3 : Security not relevant for NPA classification
279
Para 4.2.4 : Accounts with temporary deficiencies
279
Para 4.2.5 : Upgradation of loan accounts classified as NPAs
279
Para 4.2.6 : Accounts regularised near about the balance sheet date
280
Para 4.2.7 : Asset Classification to be borrower-wise and not facility-wise
280
Para 4.2.8 : Advances under consortium arrangements
280
Para 4.2.9 : Accounts where there is erosion in the value of security/frauds committed by borrowers
281
Para 4.2.11 : Advances against Term Deposits, NSCs, KVP, Indira Vikas Patra etc.
282
Para 4.2.12 : Loans with moratorium for payment of interest
282
Para 4.2.13 : Agricultural Advances
283
Para 4.2.14 : Government guaranteed advances
284
Para 4.2.15 : Projects under implementation
284
Para 4.2.15.2 : Deferment of DCCO
284
Para 4.2.15.3 : Projects under ImplementationChange in Ownership
287
Para 4.2.15.4 : Deemed DCCO
289
Para 4.2.16 : Post-shipment Supplier’s Credit
293
Para 4.2.17 : Export Project Finance
293
Para 4.2.18 : Transfer of Loan Exposures
294
Para 4.2.19 : Credit Card Accounts
294
Appendix 1Draft letter seeking No Objection from the previous auditors
295
Appendix 2Declaration of Independence, Indebtedness and Fidelity & Secrecy (Partners)
296
Appendix 3 Declaration of Independence and Fidelity & Secrecy (Team Members)
297
Appendix 4 Draft Engagement Letter to be sent to the Appointing Authority of the Bank (in terms of SA 210: Agreeing to terms of Audit Engagements)
298
Appendix 5Some important RBI Master Circulars issued during the year 2022-23 relevant to Bank Audit for the year ended 31st March, 2023
304
Appendix 6Pre Sign Off checklist relevant to the signing partner
325
Appendix 7 Draft Bank Branch Audit Programme 2022-23
329
Appendix 8 Draft enquiry letter to be sent to the Branch prior to commencing the audit
362
Appendix 9 Draft Written Representation Letter to be obtained from the Branch Management (Refer to SA 580)
375
Appendix 10 Draft Audit Report of the Branch Auditor of a Nationalised Bank
383
Appendix 11 Draft replies to Ghosh Committee recommendations
389
Appendix 12 Draft replies to Jilani Committee recommendations
396
About the Author
CA Anil K. Saxena
CA Anil K. Saxena qualified as a Chartered Accountant in 1984 and has been in active professional practice since then. He has been practising in the field of Audit and Assurance and, during the past four decades, has gathered a wide range of experience in the Central Statutory Audit of Public Sector, Private Sector, Cooperative and Regional Rural Banks, apart from other types of audits in the banking sector including forensic audit and Concurrent audit of CDR monitored accounts.
Besides the banking sector, he has handled the Statutory and Internal/Management audits of a wide range of Companies in various sectors (Public and Government). He has successfully led teams in conducting Ind AS implementation, SOX compliance, Inspection of Mutual Funds and Stock Exchanges on behalf of SEBI and development and implementation of accounting systems.
He has been very active as a chairman, speaker, convenor and member of various professional bodies and Committees. He has delivered lectures on various forums as a speaker on CARO 2020, Schedule III, Bank Audits, Accounting Standards, Standards on Auditing, AS under IGAAP, Company Law, Mutual Funds and other topics of general interest, including banking, macroeconomics and finance.
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