Bank Audit for FY 2020-21 Discussion and Considerations

Explore essential discussions and considerations from the Bank Audit for FY 2020-21 including restructuring of MSME advances, regulatory packages for COVID-19 accounts, Supreme Court orders, and factors influencing sampling basis. Dive into case discussions on term loans and cash credit.

• Bank Audit
• FY 2020-21
• MSME
• Regulatory Package
• Supreme Court Orders

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Presentation Transcript

1. Bank Audit for the FY 2020 21 4/19/2025 1

2. Agenda Discussion Bank Audit/ Special attention on the Documentation Use of Excel as a tool of Audit, Analysis and Reporting Concluding Session 4/19/2025 2

3. Things to consider One-time restructuring of MSME advances permitted in terms of the aforesaid circular. Accordingly, a one-time restructuring of existing loans to MSMEs classified as 'standard' without a downgrade in the asset classification is permitted. (very Important Impact :- clause 5(f)(ii) whether your opinion, are the major shortcomings in credit appraisal) COVID-19 Regulatory Package for the Accounts which were standard as on February 29, 2020. Rescheduling of Payments Term Loans and Working Capital Facilities for the period of March 01, 2020 to May 31,2020. Easing of Working Capital Financing by reducing margins. 4/19/2025 3

4. Things to consider Interim order of honorable Supreme Court dated September 03, 2020 :- the accounts which were not declared NPA till 31.08.2020 shall not be declared NPA till further orders . Final Order March 23, 2021:- No compound interest on the installment due from March 2020 to August 2020. No further Loan monitorium. 4/19/2025 4

5. Things to consider Collecting Branch Profile. (Attachment -1) List of Accounts. (Attachment -2) 4/19/2025 5

6. Things to consider Factors influencing Sampling Basis:- Amount (capture 10% of branch exposure or 10 cr. which ever is less.) Nature Asset classification Type of Loan Etc. Conversion of Text to Excel. 4/19/2025 6

7. Case Discussions Term Loans Case Study Loan Amount :- 1 cr Term of Loan :- 7 years Monthly Installment starts from 01.04.2020 calculation through Excel (Attachment -3) 4/19/2025 7

8. Term Loan (Check List) Sanction Letter Whether System feeding is as per Sanction letter. Special attention to EMI chart feed. Compare the same with the Excel Sheet. Data feeding error Support in reporting of new LFAR clause no. a. 5(i) :- transaction audit b. 5(b)(iii) :- interest rate feeding c. 5(b)(iv) :- proper interest rate 4/19/2025 8

9. Case Discussions Cash Credit Para no. 4.2.6 :-Accounts regularized near about the balance sheet date The asset classification of borrowal accounts where a solitary or a few credits are recorded before the balance sheet date should be handled with care and without scope for subjectivity. Where the account indicates inherent weakness on the basis of the data available, the account should be deemed as a NPA. In other genuine cases, the banks must furnish satisfactory evidence to the Statutory Auditors/Inspecting Officers about the manner of regularization of the account to eliminate doubts on their performing status 4/19/2025 9

10. Cash Credit (Check List) Sanction Letter Calculation of Drawing Power Definition of stock (As per bank circulars) Calculation through Excel Common Irregularity Clause no. 4.2.6 of IRAC norms Double Financing Support in reporting of new LFAR clause no. a. 5(e)(ii):- DP properly computed. 4/19/2025 10

11. Case Discussions NPA Balance/date Hera Pheri (Vlook up Excel function). (clause no. 5(f)) Realizable value of Security value Movable Security (Special Attention) 4/19/2025 11

12. Case Discussions Same Debit and Credit in Cash Credit (Attachment) Fraud by the borrower (ITR - 4S case) Special Attention on quick mortality accounts Adhoc Sanctions ( Clause 5 (b)(v)) 4/19/2025 12

13. Case Discussions Allocation of repayment in Standard Account. Allocation of recovery in NPA Account. (clause 5(f)(x)) Para 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. 4/19/2025 13

14. Extent of verification Top 5 standard advances of the branch. Advance which are adversely commented by RBI inspection team, previous concurrent auditors, bank s internal inspection etc. Special Focus on SMA 2 Account. CRILC Reports Advance which are sanctioned during the year Other small account on sample basis (As per SA 530) 4/19/2025 14

15. Concluding Session Name P.No E mail ID :-CA. Anagh Gupta :- +91 9810702664 :- Anaghgupta@kaag.in 4/19/2025 15