Sr.

No.
Area Sub-area Bud.
Time
Act.
Time
Name Remarks
1 Legal
requirements
as to
appointment
1. Acceptance of Appointment
2. Communication with previous auditors in case of 1
st
year of audit.
2 Briefing by
PC
! "eview of last
year#s file
1. Business process
2. $eneral observations
!. Critical issues of P%
& "eview of
'(P system
INTERNAL CONTROL & INTERNAL CHECKS
a) *nderstand the accounting software
b) *nderstand code assigned for various nature of transaction and
chec+ that it is followed by the Branch during the period under
Audit.
c) ,erify ' ( P chec+s for the following-
i. .imely recording of transactions
ii. /atching the balances with the control ledger and general
ledger.
iii. .ransaction in foreign currency should be recorded as per the
guidelines issued by "B 0 1'(A
d) List out the control register generated by the system
e) Chec+ how often it is balanced. dentify the person responsible for
balancing.
f) 2ee that subsidiary register generated by the system are balance by
the system and recorded properly in the boo+s of account. Also
note the period by which the subsidiary register is balanced.
3 "eview of
internal
control
STRUCTURE O BRANCH
a) 4btain the 5etwor+ of the Ban+0Branch along with list of offices.
b) dentify the 6ead and audit co7ordinator at each branch 8Along
with address and contact 5o etc.)
c) 4btain organisation structure along with 5ature of responsibility
and authority given to each /anager 0 officer with sanction limit.
i. A brief 9ob7profile of +ey officers: if available: should be
obtained from the ban+
ii. .eam member should see that +ey officers and manager have
functioned according to authorities granted by the
management
RE!IE" O !ARIOUS RE#ORTS
/a+e note of important issues and stand ta+en by ban+ during the
relevant period for the observation made from the following-
. nternal audit report
. ncome ; '<penditure report
. Previous year statutory report
,. "B inspection report
,. Concurrent Audit "eport
,. 6ead 4ffice Audit "eport
,. 2ystem Audit "eport
= ,arious Areas to be covered for ,ouching ; ,erification
=.1 4pening Balance .racing
=.2 Cash Balance !ERIICATION O CASH$
1) 5otes-
Count the total notes in hand
2) Coins-
Count the total coins in hand. >eigh if necessary.
!) "eceipts Cash Boo+-
.est chec+ total for the last two days.
&) Payment Cash Boo+-
.est Chec+ total for the last day. 2ee voucher for any big payment.
3) Chec+ the totals of cost counted with -
. Cash Boo+
. $eneral ledger Balance.
. Cash Balance Boo+
?) 1oreign Currency 5otes to be verified by actual inspection. 2ee
that these currencies are translated at 1'(A rate at year7end.
=) @eep on record a statement of cash ,erification.
A) Chec+ any petty Cash mprest +ept at the Branch.
B) >hat is the chec+ on CashC (ouble loc+: arrangements for
custody etc. 8 s it in the 9oint custody of two or more person
1D) 2ee that no private cash is lying in the safe.
11) 2ee that cash is being chec+ed daily by Cashier. Periodically this
should be chec+ed by an authoriEed officer. .his would be duly
evidenced in the "egisters. f not done report.
12) "eview the procedures for duplicate +eys and see whether it is
adequate.
1!) '<amine the normal requirements of Branch Cash balance. 'nsure
that Branch observes the retention limit.
1&) Any e<cess whether reported to the controlling Authority and
sanction obtained for the same.
13) 2ee that branch hold adequate ; valid insurance cover for cash.
!ERIICATION O CASH "ITH RESER!E BANK O
IN%IA$
1) 2ee the Balance confide motion Certificate.
2) Chec+ reconciliation of the last day.
!) 'nsure that cash +ept at the .reasury chest has been accounted for
as payment to ". B. .
2
&) 'nsure that there are no old reconciliation items.
!ERIICATION O CASH IN TRANSIT$
Chec+ with relevant advice#s available at branch.
=.! Ban+ Balance !ERIICATION O BALANCES "ITH OTHER BANKS$
1) 2ee the balance confirmation certificates.
2) .est Chec+ "econciliation entries for the last day.
!) 'nsure that there are on old reconciliation items.
!ERIICATION O BALANCE "ITH RBI & SBI.
1) 2ee the balance confirmation statement at the year7end.
2) 2ee the reconciliation statement and report as under-
a) Cash transaction remaining unresponded by Ban+.
b) "evenue item requiring write off 0 Ad9ustment
c) 4ld une<plained entries for over one year.
=.& Advances (ifferent +inds of loans and advances are listed below-
i. Term Loa's (mai')* +i,e' -or t.e -o))o/i'+0
1. Purchase of ,ehicles.
2. Purchase of /achinery 0 'quipment#s.
!. Purchase of gala and premises.
&. 6ousing loan to staff.
3. Loan against consumer goods.
ii. %ema'd Loa's
1. Advance against 1("s 0 52(s 0 2hares.
2. Cash Credit against 1("s 0 2hares 0 2toc+ 0 Boo+ debts.
iii. orei+' Tra'sactio's
1. Pre ; post 2hipment advances to '<porters
2. Advance against duty drawbac+ 0 Bill discounting etc.
i,. Ot.er Ad,a'ces$
.he ,arious types of Advances given by the Ban+ are as under-
1. Bridge finance
2. Advance against shares ; securities
!. Agriculture loan
&. (" Advance to small Borrower
3. Loan against Consumer goods
?. Advance against hypothecation of Boo+7debts 0 2toc+s etc.
=.3 1i<ed Assets ) P"'/2'2 A5( 1*"5.*"' A5( 1F.*"'2-
1) a) Chec+ whether premises are owned or leased. f leased: chec+ the
rent payable and particulars of lease.
b) f owned verify the title deeds and the registration thereof. And
chec+ the fi<ed Assets "egister.
c) 2ee that premises are properly and fully insured
2) 'nsure that the correct rate of depreciation is charged and the
calculation is correct.
!) 5ew purchases and sales 7 2ee 6ead office sanction and vouch in
the usual manner.
a) Advance paid for capital '<penditure is debited to 2uspense
A0C. initially and payments made unto the relevant date !1st
/arch of every year are capitaliEed. f any items of assets have
been actually received and put to use but no payments have
been paid and they are not boo+ed: a note must be ta+en for
consideration by partner 7 in 7 charge. t would be necessary to
ensure that consistency is maintained in recording of Capital
'<penditure.
b) 1or new branches the Capital '<penditure is initially boo+ed in
suspense A0C of other e<isting branches which buy the capital
assets for the use of the relevant new Branch. 4nce the new
!
branch is opened it has to record the capital e<penditure in its
own boo+s. t must be ensure that this is done
&) 2ee physical verification report.
=.? 4ther Assets 1) Chec+ the list of stationery with the "egister +ept by the branch
including stoc+s of blan+ security forms li+e term (eposit:
"eceipts: (rafts: pay orders: Cash 4rders: Chec+ boo+s:
travelers: cheques: gift cheques etc.
2) 'nsure that the mode of ,aluation and actual valuation are
correct.
!) Chec+ stamps7on 7 hand and verify the Balance with stamp
"egister and $eneral Ledger.
&) Provision 0 >ritten off: of outstanding Balances -
2crutinise the accounts under various subheads for old
outstanding balances which are not recoverable and require
provision 0 write off7 prepare "etails there of.
3) nter office Ad9ustment -
"econciliation of 6.4. A0C should be chec+ed and entries
remaining unresponded for a longer time should be reported
?) 5on7 Ban+ing assets acquired satisfaction of claim-
a) 5on7Ban+ing assets acquired in satisfaction of claim if any
should be chec+ed and it should be recorded at their
realiEation value and not at the value at which the account is
settled.
b) 'nquire what action to dispose off the assets is proposed.
SUS#ENSE ACCOUNTS$
1or suspense balance: an age7wise brea+7up showing nature of the
debit0credit should be obtained. .he 2uspense Account details of the
branches should be scrutinised and notes ta+en of important long
outstanding items. /onitor the progress in clearing old suspense items.
>here hard care entries persist: consider need for write off0write bac+.
INTER BRANCH RECONCILIATION$
nter7branch reconciliation is done in two stages 7 branches within a
local center and for other branches. .wo accounts are queries or
pending unreconciled items are promptly attended. 4btain age
composition of unreconciled inter 7 branch items. 'nsure that
appropriate and timely action is ta+en to trace causes of outstanding
entries. /onitor progress achieved in ad9ustments.
=.= (eposits .he above fall broadly into the following categories-
A. 2avings Accounts 0 "ecurring (eposits etc.
B. Current Accounts and Contingency Accounts.
C. 1i<ed (eposit Accounts 8of various types). .he Audit Programme
to be carried out for the (eposit and other accounts would broadly
be as under-7
1) "eview Confirmation of Balances-
a) As+ for total number of Accounts and verify with the sub7
ledger.
b) 6ow many confirmation requests sent by the ban+.
c) 6ow many "eceived bac+7test chec+ about 3G of such
confirmations 7 compare the signatures of the customers with
specimen cards in a few cases.
d) 2crutinise and discuss with /anager a few cases where there
is a difference in Balance confirmed by customers.
2) "enew of statements of accounts-
>hat are the laid down control procedures when statements of
account are sent to customers 6ow are complaints from any
&
customers about mista+es in the same dealt with. f any file is
+ept for complaints: e<amine it.
!) Compare the totals of the .rial Balances with the respective
control account balances in the $eneral Ledger.
&) "eview the nternal control on unused forms of 1.( "s. unused
chec+ boo+s etc. 2eriality control and other control to be seen.
3) 'nsure that 2ecurity (eposits from staff are +ept in separate
2aving Ban+ Accounts.
?) 2crutinise the nature of a few contingency Accounts.
=) Chec+ nterest calculations on a test basis.
A) Chec+ provision for interest accrued on a test basis.
B) 2ee that nternal Control procedures are regularly implemented:
by the concerned officer.
Te)e+ra1.ic tra's-er2 %ema'd dra-ts$
1) All the .ts H((s issued by the branch should be immediately
confirmed by the advices to the concerned branch
2) >hen payments are made in anticipation of advice: it should be
only to specific +nown parties and it should be debited to
separate account. '<amine such transaction and see that no fa+e
drafts are paid.
!) ,erify the balance in (0( register with the balance in general
ledger
&) (0( outstanding for a longer period should be intimated
regularly and should be transfer to 6.4.
=.A 4ther
Liabilities
1) 2ecurities suspense Account brea+7up: follow7up: action:
subsequent payment 0 clearance and reasons for each
outstanding verified and noted.
2) ,erify other liability with vouchers: subsequent payment etc.
!) P"4,245 14" 4*.2.A5(5$ LABL.'2
5o provision is generally made for sundry Creditors and
outstanding liabilities. 6owever: if there are large and material
accounts that have not been provided for: a note should be ta+en
and may be consider at 6.4 >hether a provision should be
insisted upon.
=.B Contingent
Liabilities
1) ,erify with appropriate: records: documents in each case to
ensure that full amount is stated. Are there any cases where
ban+ has been called upon to meet the guarantee on behalf of
ConstituentsC ,erify the provision made in respect of invo+ed
guarantees if payments are not made.
2) 2crutinise legal e<penses account to ensure that all contested
claims against the Ban+ are included in contingent liabilities.
!) 4btain a certificate from Agent as to the person authorised to
sign guarantees on behalf of the Ban+ and that all guarantee
issued have been entered in the $uarantee "egister.
&) 2ee copies of Letters of credit issued 7 2ee that only out
standing items are included in the statement.
3) Are there any cases where ban+ has called upon to ma+e
payment under the guarantee issued it on behalf of its
constituentsC f so: please give details of all these cases both
where actual payment has been made by the ban+ or where it
has not been made so far for any reason 85ame of the party on
whose behalf guarantee: is given: name of beneficiary: nature of
guarantee: amount claimed from ban+: reason for the claim
3
particulars of security: if any: possibility of the ban+ having to
meet the obligation provision necessary in your option in regard
to the same 8if any) etc.
?) '<amine the guarantee register and obtain a certificate from the
Branch /anager as to the persons authorised to sign guarantees
on behalf of ban+ and that all guarantees on behalf of the Ban+
and that all guarantee issued have been entered in the guarantee
register.
=.1D Bills for
Collection
=.11 Profit ; Loss
a0c
AU%IT O #ROIT AN% LOSS ACCOUNT $
C4/PA"245 41 AC.*AL 1$*"'2 41 .6' B"A5C6#2
P'"14"/A5C' >.6 B*($'. A5( C4//'5. 45
2$51CA5. ,A"A.452
1) Chec+ vouchers for one month with (ay Boo+ 8for profit and Loss
Account) and see that these are signed by the Authorised officer.
2) Chec+ charge ledger for items of Profit and Loss Account7 2ee if
there are unusual debited and credits .est chec+ a few vouchers7
'<amine the officer#s powers for sanctioning e<penditure.
!) 2ee if the system for charging e<penses to various accounts is
uniform 7 "ead circular for classifying various e<penses to
respective heads and see that instructions are followed.
&) Compare the periodical income and e<penditure totals with
corresponding previous periods and investigate into the cause of
wide fluctuations.
3) Agreements for rent etc. to be verified.
?) .est chec+ 'stablishment "egisters.
) /onthly payments with signature.
) ncrements 0 Bonus with circulars 0 2anctioned free head
office.
) f rent is to be recovered from Branch /anager 0 Account:
chec+ the deductions.
,) 1or new staff see appropriate sanction.
=) ,erify due provision has been made in the accounts for e<penses
incurred.
?
=.12 4ther Assets AU%IT O STA CUSTO%3 TRANSACTIONS$
*nder this head: the shares: bends: $overnment papers: parcels:
pac+ages: etc. are +ept by the customers with the ban+ for safe custody
against a nominal charges. .he contents of such pac+ages are entered
in the safe custody "egister customer wise against which a receipt is
issued to the customer in the articles received: whenever the articles
are delivered bac+ safe custody "egister is issued to the customer in
ac+nowledgement of the articles received whenever the articles are
delivered bac+ to the customer. A mention thereof made in the safe
custody "egister. .est chec+ a few items.
a) 2afe Custody register: the pac+age etc. received from the customer.
b) 1or items covered in test chec+7where the sealed parcels 0 envelops:
etc. are received from the customers: see that the customers seal is
intact. .he seal: in such case should not be bro+en to verify the
contents of the pac+ages. But where the seal is put by the safe
Custody "egister by brea+ing open the seal in a few cases.
c) 2ee that the collection of charges from the customers for +eeping
the securities in safe custody with the ban+ is made regularly and is
fully accounted for in the boo+s.
1ollowing types of transactions are also monitored by the branch-
i) Audit of PP1 transactions
ii) Audit of other government business
iii) Audit of nterest .a< returns
) 15AL "','> 41 B"A5C6 BALA5C' 26''. ; 2$55$
.
) P"'PA"A.45 41 4B2'",A.45 "'P4".
) '52*"' ALL 2.A.'/'5.2 A"' P"4P'"L% 1LL'( 5-
1) Long form I Audit "eport
2) Anne<ure 7 I Provision for (oubtful debts
!) Anne<ure 7 I /emorandum charges
&) .a< Audit format
3) C(2 8.P) Certificate
?) 2eeuy 2cheme Certificate
=) Audit "eport
A) Any other information.
SECURITIES A4AINST A%!ANCES$
.he valuation for classification of advance as secured and unsecured
will be the depreciated value as per latest audited accounts or the
mar+et value: if any ascertained by the officers of the ban+ for report
to the Jonal office. n the absence of both: the depreciated value based
on depreciation prescribed in . .. Act be wor+ed out as the valuation
of security for classification of advance.
CLAI5S$
Please ensure that claims to (C$C 0 'C$C0 nsurance cos. are
promptly sent wherever required. .he amounts received from (C$C
for such claims can be identified in 2unday (eposit A0C.
REHABILITATION SCHE5ES$
'<amine in detail the outcome of the rehabilitation programme applied
to the sic+ units for suggestion if any. .he present portion of this
2cheme also should be ascertained for report in L1A"
IN-O#ERATI!E ACCOUNTS$
(ebit entries in the in operative deposit ledgers should be e<amined to
se that the payments represented by these debits are properly and
correctly made. List out doubtful cases.
=
=.1! (ocumentatio
n
A%!ANCES$
,erify documents and securities for advances granted during the year.
1) 2ee that documents mentioned in the sanction letter are obtained
duly signed by the borrowers: guarantors or as the case may be.
2) 2ecurities as stipulated are obtained along with the related
documents.
1or '<ample-
a) .ime deposit receipts given as primary and collateral securities
are discharged by all the holders of all the receipts.
b) Pledge letters are signed by the holders of the time deposit
receipts.
c) /achinery#s hypothecated are listed out for identification both for
the hypothecation agreement and for periodical inspection.
d) 1or vehicles: certificate of registration copies should be verified to
ensure that the vehicles are in the names of the borrowers and
hypothecation remar+ is recorded in ".C. boo+. Blan+ transferee
form duly signed by the borrowers also should be on record of the
ban+.
e) 1or premises: mortgage deeds registered with the sub registered
should be verified. n the absence of the mortgage deeds. (eposit
of title deeds are stipulated: in this cases it should be verified
whether search report e<ists to show clear title of the borrowers to
the premises: the title deeds are registered and their deposit is
recorded in the prescribed manner also power of attorney duly
noted by the notary public is obtained with reference to the title
deeds. n case of co7operative societies it should be verified that
the consent of the society for mortgaging the premises is obtained
and the relative share certificate of the society issued in the name
of the borrower are deposited in the ban+.
f) 1or shares: (ebentures etc: the valuation at mar+et rate on the
close of accounts are wor+ed out to ensure that the security value
less prescribed margin is adequate.
g) "eturns of the hypothecated stoc+s0boo+ debts are regularly
reviewed as per (rawing Power "egistered and the drawing
power revised accordingly to regulate the quantum of advance.
h) nsurance policies for all types of securities mentioned above are
+ept current and the ban+Ks name appears in the policies as a
beneficiary.
!) n respect of advances sanctioned for term loans: it should be
ensured that the advance is utilised for the purpose for which it is
guaranteed. .his is done by arranging direct payments by the ban+
to the suppliers or by obtaining from the borrowers the invoices
receipts to show the *tilisation of advance.
&) 1or clean advances the sanction to be verified for terms and their
time bound recovery.
3) n respect of advances pic+ed up from the listing of health code
nos. 3 to A the documents should be verified to ensure their
validity and their securities should be verified for soundness and
value. .hereafter correspondence relating to follow up should be
pre used to find out the reasons for the slow0 bad recoveries.
Listing should be made up of all such cases where recoveries are
not forthcoming for long periods. .he detail in this listing should
indicate the amount outstanding. 4verdue amount interest
outstanding date of last recovery reasons for slow0bad recoveries
A
value of security and outstanding balance not recovered by the
security value.
?) List of suit filed cases with value should be obtained to see that
the amounts for which suits are filed are not less than those
appearing in the accounts.
=) 'ach case where decree has been obtained should be e<amined to
find out whether e<ecution of decree by attachment of the
properties will fetch the full outstanding value including interest.
(oubtful recoveries should be listed.
BILLS %ISCOUNTE%&#URCHASE%
1) 1or purchase of sight documentary bills and cheques. 2ee that
discount and commission at the prescribed rate are recovered at
the time of purchase in case where the amount is collected beyond
seven days: overdue interest is recoverable which should be test
chec+ed for correction.
2) 1or usance bills discounted for correction of interest due and
commission etc.
!) >here such cheques: bills are returned unpaid. nterest should be
recovered from the date of discount 0 purchase to the date receipts
of money from the borrower .n addition: cheques 0 bills of the
related parties should not be accepted in future.
&) '<amine that the value outstanding in this account does not e<ceed
the sanctioned limits.
3) Bill wise listing of outstanding balance should be reviewed to
identify any dues doubtful of recovery
LETTERS O CRE%IT$
1) 2ee that L0C is opened only for approved customer and in favour
of overseas /anufacturing 0 suppliers0 shippers.
2) ,erify that the customer holds valid importer code and has a valid
e<change control copy of import license or the item to be imported
is covered under 4$L 84pen $eneral License)
!) 2ee that the payment for import is made only by permitted methods
of payments as per e<change control manual
&) 2ee that the payment is to be made only against delivery of
shipping documents. .he terms and conditions are properly
reproduced on letter of credit and the method is correctly
indicated.
3) 2ee that the aggregate drawing under revolving letters of credit
opened by the ban+ are limited to the balance available in the
import license.
I5#ORT BILLS & I5#ORT LOANS$
1. .hat import documents receive from the correspondent are
scrutinised to see that they are strictly in conformity with the
terms of the credit-
2. .hat where marine insurance ris+ has been covered by the import:
the policy is +ept in force till the bill is retiredL
!. .hat the usance bills are presented to the drawees for acceptance
without delay and that such acceptance does not result in
postponing the payment beyond a period of ? months from the
date of shipment or such period as the '<change Control has
authoriEed.
&. .hat in the case of import bills received under letters of credit: the
importer#s liability on the foreign currency bill is crystalliEed into
rupee liability as laid down in 1'(A guidelinesL
3. .hat the debit to the 5ostro Account by the correspondent is duly
B
responded by credit to mirror account and the contra debit is to the
appropriate account L
?. .hat interest is collected in accordance with 1'(A "ules from
the date of debit to the 5ostro Account
=. .hat the letter of credit liability is reversed on retirement of bill
#RE-SHI#5ENT INANCE$
1) .hat pac+ing credit facility is allowed against lodgment of
irrevocable letters of credit or firm e<port orders0 sale contracts
duly signed by the buyers 0 sellers or their authorised
representatives and where cable advice are accepted the e<porters
are required to produce letters of credit or firm orders0 contracts in
confirmation of such cables within a reasonable time 8the
production of letters of credit or firm orders 0 contracts may be
waived in the case of certain commodities as permitted by the
"eserve Ban+).
2) .hat in the case of pac+ing credits granted on the basis of letters
of credit: the branch ascertains the status of the concerned foreign
ban+s and where firm contracts 0 orders are accepted status reports
on the foreign buyers are procured from overseas ban+s0
correspondents the '<port Credit $uarantee Corporation of ndia
Ltd. 8'C$C) etc.
!) .hat the quantum of pac+ing credit granted does not normally
e<ceed the 1.4.B. value of the goods to be e<ported or their
domestic value: whichever is less: e<cept in cases where rela<ed
&) .hat disbursements of pac+ing credit are lin+ed to actual
purchases of raw materials or goods: that the amount is paid direct
to the suppliers: where possible: and that the stipulated margin is
maintained.
3) .hat advances are granted in the form of loans 8e<cept in cases
where running accounts have been specifically permitted by the
"eserve Ban+) and ad9usted by negotiation of the relative e<port
bills: claims on $overnment (epartments for cash assistance: duty
draw7bac+: etc. and that limits for purchasing 0 discounting
e<ports bills are already sanctioned to the e<porters.
?) .hat no charges other that those approved by 1'(A are debited
to the pac+ing credit account.
=) .hat the branch has a system of periodical inspection of the
security with a view to ensuring that ban+ finance at concessional
rates is not diverted to other purposes or otherwise misused.
A) .hat where the e<port does not /aterialiEe for whatsoever reason
the advance is ta+en out of the category of pac+ing credits and is
charged normal rate of interest as also penal rate not e<ceeding
2G over the rate: form the date of the advance.
B) .hat separates accounts in respect of each borrower and
appropriate records including contract7wise and customer7 wise
pac+ing credit loan ledgers are maintained at the branch.
#OST SHI#5ENT INANCE$
1) .hat where e<port bills presented are drawn under letters of
credit: the credit has been opened by a first class ban+
2) .hat where bills are not drawn under letter of credit they are
covered by the credit insurance 0 guarantee policies of 'C$C and
are purchased or discounted under limits sanctioned by the 6ead
4ffice unless the bill come under the discretionary power of the
Branch /anager.
!) .hat the e<port documents are submitted to the ban+ for
1D
negotiation 0 collection with the stipulated period of 21 days from
the date of the shipment.
&) .hat the usance bill are being properly stamped before leaving
ndia and are for periods permissible under 1'(A "ules and
'<change Control "egulations.
3) .hat there is a proper procedure to ensure that all the e<port
document are in order i.e. bill or lading 0 airways bill does not
suffer from any disability: $"0PP etc. form has been fully and
properly completed documents do not reveal any material interest
discrepancies etc.
?) .hat in respect of bill remaining unpaid after due date the foreign
currency amount is reversed from the e<ports bills purchased
portfolio as provided in 1'(A guidelines.
=) .hat the interest charged on e<port bills purchased 0 discounted
does not e<ceed the rate stipulated by the "eserve Ban+.
A) .hat various formalities prescribed under the e<change control
"egulations such as submission of copies of $"0PP etc. forms
appropriate stage obtaining its permission where realiEation of
"egisters in the manner laid down in the e<change control /anual
submission of periodical statements to the "eserve Ban+ 8'C() in
the prescribed forms showing overdue e<port bills: etc. are duly
observed.
4UARANTEES
1. ,erify the $uarantee bond as e<ecuted by the guarantor on the
requisite stamp paper when documents are renewed fresh
guarantee bond should be e<ecuted
2. .he authority should relive the guarantor from his responsibility
and release guarantee papers only on revocation of the guarantee.
!. Are there any cases where ban+ has been called upon to ma+e
payment under the guarantees issued by it on behalf of its
constituentsC f so: please give details of all these cases both
where actual it has already been made by the ban+ or where it has
not been made so far for any reason 85ame of the party on whose
behalf guarantee is given: name of beneficiary: nature of
guarantee amount claimed from ban+ reason for the claim
particulars of security if any possibility of the ban+ having to meet
the obligation provision necessary in your option in regard to the
same 8if any) etc.
&. '<amine the guarantee register and obtain a certificate from the
Branch /anager as to the persons authorised to sign guarantees
on behalf of the Ban+ and that all guarantees issued have been
entered in the guarantee register.
3. Call for the statement of margins recovered for guarantees and
chec+s the guarantees issued 0 released during the year for
correctness of commission recovered. .he rates of commission
are different for full margin and partial margin.
?. Also test chec+ counter guarantees obtained for guarantees issued
with partial margin.
=. n the case of guarantees issued to $ovt. departments see that on
e<piry the guarantee documents are obtained bac+ by the ban+
peruse the files for follow guarantees are not +ept open 0 e<tended
without recovery of commission.
A. '<amine thoroughly cases where payments had to be made by the
Ban+ on guarantees and such payments remise to be recovered
from the party.
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Verify Advances granted / disbursed during the year on the following
lines:
'<amine the loan application on appropriate form prescribed by
the central office.
'<amine the Approved proposal: terms and conditions of
2anction. /argin requirements: 2ecurity stipulated and note the
deviation.
,erify Credit committee 0 6.4 approval note.
2ee that the Advance granted 0 enhanced are within power
delegated to the Branch0 Ban+. 5ote the e<ceptions.
,erity the value of 2ecurities held by the Ban+.
2ee that the constitution of borrower is not changed.
'nsure that the documents required by the Ban+ are properly
e<ecuted by the party.
Document to be seen are of the following nature:
1or different categories of Advance 0 Loan 0 Cash Credits and
4verdrafts: different combination of loan documents is prescribed.
(ocuments may depending on the borrower e. g. ndividual: 6. *. 1.
Partnership: company etc
a) (emand Promissory 5ote e<ecuted by the borrower.
b) Letter of Continuity.
c) Particulars of 2ecurities provided.
d) nstructions regarding payment 0
"e7payments.
e) Letter of hypothecation.
f) Letter of >aiver. Certification of "4C charges u0s 123 of the
Companies Act: registering charges in Ban+#s favour.
g) Letter of lien.
h) Copy of /emorandum of Association ; Articles of A association
i) "esolution of Board of (irection in case of limited company.
(This is not an exhaustive list and the Audit staff should also check the
other relevant documents as required for granting advances by the
bank!
"ther #eneral As$ects to be seen is as under:
a) 2ee that Ban+ has Complied with C.4 procedure regarding
preparation of proposal for grant 0 renewal etc. 2ee if the limit is
e<ceeded: the same has been reported to higher authority.
b) 2ee whether interest is charged and collection regularly for all
performing Accounts. 1or 5PAKs the income should be boo+ed
only on receipt basis.
c) 2ee that validity of documents is not barred by time. 8$enerally
three years is the time barring period. .he period may be rec+oned
from the date of latest balance confirmation available)
d) 2ee that the balance is within both the sanction limit and drawing
power at all times. 4therwise: the account will be treated
overdraft. f overdraft position remains continuously for any two
quarters: such account will be treated as 5PA.
e) .est chec+ in some cases that details mentioned in the 2ecurity
Ledger is noted down on the Advance sheets. Also see that all
documents 0 securities mentioned in "egister are physically
available.
f) 2ee whether ban+ is conducting physical ,erification 2ecurity
6ow often the security value is re7assessed by the ban+. 2ee that
/., of 2ecurity is property arrived by the Ban+.
g) All the accounts which e<ceed the sanctioned limit or drawing
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power or are against unapproved securities or the insurance cover
is inadequate or are otherwise irregular should be noted and
reported.
h) 2ee that periodic statements are in line with "B06.4
requirements.
i) 2ee that the 2toc+ 0 Boo+ debts: /24( statements etc. are
obtained by the branch periodically ..he Limits of the borrower
has to be revised based on the figures submitted in above periodic
statement.
9) n case of Advance0limits of "s are 1D07 Lacs and above is granted
to non7corporate entities: 2ee that "B guidelines regarding
compulsory audit is complied with.
+) ,erify the calculation of (C$C 0 'C$C claim lodged by the
ban+.
S1ecia) 1oi'ts o' ,eri-icatio' o- Bi))s 1urc.ased a'd discou'ted.
1) ,erify all documents of title which are assigned to Ban+
2) ,erify the percentage of margin +ept by the ban+. .he margin
+ept by the ban+ should be predetermined and should not be
changed from borrower to borrower.
!) 2ee that immediate steps are ta+en to recover the amounts if Ban+
could not collect the bills on due dates.
&) 2ee that the discount received on bill purchased is amortised over
the period of bill
3) All irregular accounts should be reported.
?) >here the bills are accompanied with: the documents and the
same are to be parted withL the bills to be considered a clean bill.
.hese types of bills are shown as unsecured 8>hen bills are
accompanied with documents of title: they are called documentary
bills.
=) .he Bills purchased and discounted being part of advancesL it
should be classified along with schedule of advances.
BILLS OR COLLECTION$
1. 2ee that documents accompanying bills should be received and
are duly entered in the register.
2. .he parties account should be credited only after proper collection
of bills or an advice to that effect is received from the branch.
!. n case where bill is sent for collection by one branch to another
branch: at the time of consolidation: see that the receiving branch
reverse the entry regarding such inter branch bills.
,erify the Balance of the final statement of Bills discounted
with relevant ledgers and Balance Boo+s.
Count the Bills on the date of visit. ,erify the clearance of the
bills outstanding on !1st /arch but cleared in the current year
before the date of the audit by chec+ing the "egister.
2ee whether Bills are cleared on due dates. f Bills are
dishonoured frequently by any party the reasons should be
investigated.
"evise carefully all overdue Bills and get e<planations from
the officers in charge for such overdue Bills. Consider
whether any Bills are doubtful of recovery. f so: see that they
are classified property and provision is made accordingly.
1!
=.1& 5on7
Performing
Advances
CLASSIICATION O ASSETS
.he assets are classified in the following broad groups-
1) 2tandard Assets
2) 2ub72tandard Assets
!) (oubtful Assets
&) Loss Assets
) Sta'dard Assets$
2tandard asset is one which does not disclose any problems and
does not carry more than normal ris+ attached to the business.
) Sub-Sta'dard Assets$
2ub72tandard asset is one with has been classified as 5PA for a
period upto twelve months. n other words: such an asset has well
defined credit wea+nesses that 9eopardise the liquidation of a debt
and is characterised by the distinct possibility that the ban+ will
sustain some loss if deficiencies
6owever in respect of accounts where there are potential threats
of recovery on account of erosion in the value of security or non
available of security and e<istence of other factors such as frauds
committed by borrowers: it will not be prudent for ban+s to
classify them first as sub7 standard and then as doubtful after
e<piry of eighteen months from the date the account has become
5PA. 2uch accounts should be straightaway classified as doubtful
asset or loss asset as appropriate: irrespective of the period for
which it has remained as 5PA.
) %oubt-u) Assets$
A doubtful asset is one which has remained 5PA for a period
e<ceeding twelve months.
A loan classified as doubtful has all the wea+ness inherent that
been classified as sub7standard with the added characteristic that
the wea+ness ma+e collection or liquidation in full: on the basis of
currently +nown facts: conditions and values: highly questionable
and improbable.
,) Loss Assets$
A loss asset is one where loss has been identified by the ban+ on
internal or e<ternal audit or the "eserve Ban+ of ndia inspection
but the amount has been written off: wholly or party. n other
words: such an asset is considered uncollectible
%ote:
1) Any change in the classification requires minimum one years of
satisfactory performing observation.
2) An advance can be re scheduled only once after the commercial
production is commenced.
!) .he provision on 5PAKs is to be calculated on 5et 402 advances
i.e. the advances should e<clude-
i) Cash margin money: if any: +ept by the ban+.
ii) (C$C cover as per (C$C policy
&) /ar+et value of security is to be arrived at as per valuation report
from the relevant authority: 6owever auditor may discount for
contingency as per his '<penditure or past 9udgment.
=.2& Assignment
"eview
"eview by 2C
"eview by PC
Analytical "eview
Preparation of (raft "eport
(iscussion with /anagement
ssue of 1inal "eport
1&
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