Audit of loan documentation in banks

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Sumit Agarwal

CA Final Student

79 Points Joined February 2013

Hello, I would like to know that while conducting bank audit, at the time of loan documentation whether we should check that the quotqtion provided for purchase of asset suppose machinery is fair or not i.e. it has not been inflated and if yes how should we check it. Eg. There is a machinery costing Rs.35 lacs so as per Bank norms 80% of this amount can be financed but the bank manager and the client under an arrangement agree to get inflated quotations of rupees 45 lacs so that its 80% amounting to Rs.36 lacs can be financed Regards, Sumit Agarwal

Replies (2)

Gaurav Verma

none

198 Points Joined September 2010

Yes, if u have any doubt on price of quatation u can ask for same or personally conduct quaries from sellers of machine.

harish sama

Article assistant

81 Points Joined October 2015

That is the least possible scenario to the best of my knowledge, because most of the banks has a practice, that the bank agrees to pay say 80%/85% of the total price of the asset, what banks do is they will take the margin amount(the amount the bank's customer agrees to pay) from the customer and the bank will pay the whole amount to the seller of the asset, also the bank keeps with it the invoice raised after payment which will show the cost of asset. As you said that the bank manager and the customer might come into an agreement, I think that is not possible unless all the employees have colluded to get mutual benefit