Reserve Bank of India Department of Co-operative Bank Supervision Mumbai Regional Office Inspection under Section 35 of the Bankin, i i 9 Regulation Act, 1949 (AACS)-Punjab and Maharashtra Co-operative Bank Ltd., Mumbai — Financial Position as on March 31, 2015 4. Introduction The XX inspection of Punjab and Maharashtra Co-operative Bank Ltd,, Mumbai, a multi-state scheduled Co-operative bank was conducted between September 8 and October 06, 2015 with reference to its audited financial position as on March 31, 2015 (Date of Present Inspection-DP) For the purpose of the inspection, the bank's Head Office and 17 branches were inspected covering 83.81% of the bank's total advances. The bank was last inspected with reference to its audited financial position as on March 31, 2014 (Date of Last Inspection-DLl). The particulars of important items of liabilities and assets as on DP! and DP! have been furnished in Annex-!. The inspection report is based on the ‘audited books and records of the bank, the statutory returns and other information furnished by the bank and information obtained from other sources believed to be reliable. The branch network of the bank increased from 91to 103branches during FY 2014-15 after opening of 12 new branches were opened during the period under review. The bank had 103 onsite ATMs and five offsite ATMs as (DP!) ‘Area of operation of the bank was confined to the state of Andhra Pradesh, Maharashtra, Delhi, Karnataka, Goa, Madhya Pradesh and Gujarat. 2. Assessment of Net Worth - Paid up Share Capital 2.4 The paid-up share capital (at book value) of the bank stood at 218725,95 lakh as on DPI, posting an increase of £4267.99 lakh (29.52%) since the date of last inspection This increase in share capital was mainly due to contribution of additional share capital by existing members/depositors. However, the bank was exempt from mandatory share-linking norms as the CRAR exceeded 12.0% on a continuous basis for more than two years. 2.4.4 The bank had fixed maximum upper limit of shares was 25.00 lakh for individuals and 210.00 lakh for firms ete. The maximum limit for investment purpose was 215.00 lakh for individuals and 225.00 lakh for firms etc. 2.4.2 The borrowing nominal members 5495 constituted 9.61% of regular members (67156) which was within the prescribed limit of 20%.Punjab and Maharashtra Co-operative Bank Ltd. SE oa ae se t items), capital 2.2 The details of total assets, risk-weighted assets (including off-balance sheet resis funds Capital, and CRAR are furnished below isy. As reported by the bank As a be 5 |No.|__ Particulars 31.03.2014 | 31.03.2015 tazan eS |_1_| Total Assets 652812.04 | 66.15 | 6528. ETAT [2 [Risk Weighted Assets 371609.35 | _501300.75 406330. 888.77 |_3 | Tier | Capital 5 . 37882.04 47982.97 | __35324.59 $748 3 _4 [Tier Capital ___} 10317.14 | 14307.73| 3876.26 eee [Total pital Funds 48199.18 62290.70 49200.85 | 61504. Capital Ratios [Tier (%) 10.2 957 | 8.68 9.04 [8 [Tier il ___(%) 28 2.86 | 3.42 3.12 7 [Overall CRAR _(%) “73.00 12.43] 12.10 12.16 2.3 Assessed CRAR of the bank increased from!2.10% as on DLIto12.16% as on DPI, mainly due ‘o Increase in risk weighted assets by 24 48% vis-&-vis capital funds which increased by 25.01% The bank had transferred outside liabilities aggregating to 2293.85 lakh to statutory reserve and General reserve on various dates during FY 2008 and 2016. 10 had therefore, reduced the said Teserve by that amount while calculating CRAR. Further for the purpose of assessing net-worth, the outside liahilties were increased iby the seme amount while the reserves were reduced to tha extent, 2.3.1 The bank created special reserve under section 36 of Income Tax Act against which it had deferred tax liabilities Solvency / Net Worth 2.4 The realisable value of assets of the bank (assessed at 2766982 .20 lakh) as on the date of Present inspection after making provisions and depreciation was more than outside liabilities of £718191.61 lakh as worked out in Annex-VI. The real or exchangeable value of paid-up share capital and reserve (net worth) had been assessed at £48790.59 lakh. The divergence between the book value and the assessed value is analysed in Annex VII 2.8 There was an increase of €8753,60 lakh (21.86%) in the real or exchangeable value of paid-up capital and reserves since the date of last inspection, when it was placed at 24003698 lakh 2.6 With the real or exchangeable value at %48790.59 lakh, the bank was considered to have adequate assets to meet its lablities as required under Section 22(3)(a) of the Banking Regulation Act, 1949 (AACS). Further, the bank complied with the requirement of minimum capital and reserves prescribed under Section 11(1) of the Act, ibid 2.7 The assessed value of the net worth further showed that with reference to the book value, the paid-up share capital of the bank were intact. The real and exchangeable value of paid-up sharePunjab and Maharashtra Co-operative Bank Ltd. capital, reserves and items not in the nature med 6.79% of the outside the nature of outside tiabi ae jliies formed 6.79% of Sl 3. Funds Management 3.1 The bank's resource base constituted mainly of deposits (687031.93 lakh), paid-up share en eserves and profit for the year (251101.39 lakh) and borrowings in the form of refinance (%8342.1 lakh). The \totalidepositsiofithelbank as on DPI increased by 248298156llakh (28.80%) from 2568733 37 lakh as on DLP to 2687031.93 as on DPI. Average Cost of deposits increased from 8 52% to 8.64% due to decrease in CASA deposits from 18.22% to 17.91% during the period under review 3.1.1 The bank had accepted deposits of 255288/81lakh from other (non-scheduled) UCBs which formed 9.725% of its previous year's deposits and were within the permissible limit of 10% Deposits from Co-operative credit societies and other institutions aggregated at 258206:38iilakh and 2 53680/57/lakh and formed 8.47% and 7.81% of the total deposits respectively as on DPI. The bank had also Non-resident deposits of 2 8420.47 lakh as on DPI. The bank had borrowed funds amounting to 28342.11 lakh from NHB at an average cost of 9.79% and deployed the amount for sanctioning housing loans at an average rate of 11.5%. The bank was found to be active in CBLO ‘operation, the average amount of CBLO borrowing stood at 25039 52 lakh. However, there was no outstanding borrowing under CBLO as on DPI. During the period under review, the bank had, on a daily average basis, borrowed % 214 11 lakh under CBLO at average rate of 7.70% for the purpose of bridging gap in deposits and advances growth. The daily average CBLO lending during the period under review of 211963. 01 lakh under CBLO where in it had earned an average return of 7.84%. It had not participated in call money market during the period under review. 3.1.2 The maturity profile of term deposits as on the DPI revealed that 61.92% of the term deposits were repayable within a period of one year, followed by 28.00% repayable within one to three years Where as 9.08% of total term deposits were having a maturity period of above three years However, the bank had experienced that around 72.98% of its deposits got renewed on maturity as the bank had carried out the behavioural exercise on renewal of maturity pattern of fixed deposits during the period under review. 3.1.3 Top 20 deposit holders having total deposits of ® 6803512 lakh accounted for 9.90% of the total deposits. The bank had bulk deposits of €31578.55 lakh which formed 4.60% of total deposit. Of the total 1227175 deposit accounts, 132982 (10.84%) accounts each having balance in excess of 21.00 lakh aggregating %504015.05 lakh and accounted for 73.96% of total deposits (687031 93 lakh). Thus the bank's deposit were reasonably broad based. 3.4.4 The bank had revised its rates of interest on fixed deposits downwards on three occasions during FY 2014-16. The existing rates of interest were ranging between 4.0% and 9.5% with-b and Maharashtra Co-operative Bank Ltd. Punjat ‘outstanding deposits additional 0.5% being offered to senior citizens, However, the bank had old PMC-200) from @11% or more as on DPI. The bank had introduced a special deposit er ae. January 1, 2015 with interest rate of 8.5%. It had garnered deposits of %5509. i eee bank and bulk deposits, the Managing Director was authorised to negotiate interest ra aligned to the prevailing market rate from time to time, The interest rates offered by the bank were alig! ind term market. The bank had deployed the resources under loans and advances, investments a! deposits with higher financing institutions and other banks. The bank had matured deposits aggregating 25621.49 lakh as on DPI, for which it had made a provision of 2485.75 lakh towards interest payable. 3.2 The credit-deposit (CD) ratio of the bank had increased from 65.96% as on DLI to 71.02% as on DPI mainly on account of increase in advances by 30.06% vis-a-vis deposits which increased by 20.80% during the period under review. 4. Investments 4.1 The coverage of bank's investment policy, last reviewed on December 13, 2014. Its coverage was generally in tune with RBI guidelines, 4.2.1 The bank's investment portfolio had increased by % 16735.37 lakh (11.67%) from %143405.95 lakh as on DLI (excluding CBLO lending) to % 160141.32 lakh as on DPI mainly due to purchase of new Govt. Securities. 1.0 had considered CBLO lending as part of deposit placement with institution for the position as on DPI 4.2.2 The investment in G-Secs and other approved securities (156935.21 lakh) constituted 26.10% of the applicable NDTL of 2601336 98 lakh as on DPI and as such the bank had complied with RBI stipulation in this regard. The bank had an SGL account with PDO, RBI. The average yield on total investments stood at 8.11% during FY 2014-15 as against 7.78% during FY 2013-14. The yield on SLR and Non-SLR investments stood at 7.91% and 10.91% respectively as on DPI as against 7.70% and 9.56% respectively as on DLI, 4.2.3 Non-SLR investments stood at €3206.11 lakh as on DPI, which constituted 0.56% of the previous year's total deposits which was within the regulatory ceiling of 10%.The Non-SLR portfolio as on DPI included investment in PSU and other bonds (22704.62 lakh), banks’ bonds (2500.00 lakh), and shares of % (2 0.26 lakh), (20.87 lakh) and ( 036 lakh). The bank had adhered to the individual exposure limit for its Non-SLR portfolio during the period under review. The bank had received dividend of 20.09 lakh and 20.02 lakh for FY 2013-14 on the shares of respectively. However, the bank had not received dividend on share of (2 0.36 lakh) during FY 2014-15 which were considered Non Performing Investment against which the bank had made a provision of 21.23 lakh. 4.2.4 Its placements (deposits and current account balances) with various scheduled commercial,Prudential inter-bank counter party limit of 5.0% 4:28 The bank had maintained current accounts with two scheduled UCBs viz for line of credit (foreign LCs). Ag Ince in these current accounts \gregate balance in these it rent accout 4.3.4 The bank had classified its investment portfolio in HTM category at 2114023.37 lakh, AFS cotedory at €38074/73 lakh ‘end RHFT, al €6043.22 as on DPI, The Investment in HTM category Sonittited '18.96% (of the =pplicable NDTLSs on DPI whieh was within the Permissible mit of 25% Of NDTL. The bank had amortized premium of 8237.03 lekh during FY 2014-16 towards G-Sece held in HTM category. As on DPI, the bank held IFR of 23564.64 lakh as against required IFR of %2305 89 lakh (5% of 2 46117.95 lakh, ie. Investments held in AFS and HFT category). The Surplus of IFR above 5% of AFS/HFT portfolio (1258.75 lakh) was considered for calculation of net worth of the bank. 4.3.2 The bank had not shifted any security from AFS to HTM and vice-versa during the period under review. 4.3.3 The bank had marked to market its AFS portfolio and depreciation of £36.61 lakh was arrived at. The bank had IDR for depreciation of G-Securities of 860.00 lakh as against requirement of %36.61 lakh as on DPI. The excess IDR to the tune of @ 24.26 lakh as on DPI was considered while arriving at net worth and CRAR of the bank. During the period under review the bank reversed back an IDR of ® 650.00 lakh and credited to P&L account. 4.3.4 The bank was trading in Government securities and during the period under review, it had undertaken 4262 trading transactions of securities comprising of 2136 sale and 2126 purchase transactions aggregating 21865463.58 lakh. The bank had earned profits of 1075.37 lakh on sale of G-Secs, and 2815.77 on sale of mutual fund. Thus, in total, the bank had earned a net trading profit of £1891.14 lakh during FY 2014-15 as reflected in Annex Il. 4.3.5 The bank was having an approved panel of 16 brokers. Out of 4262 transactions, 139 deals for 89687.70 lakh were made through brokers. The prudential limit of transactions with individual broker (5.0% of total transactions) was adhered to by the bank. An amount of 21,94 lakh was paid as brokerage during FY 2014-15 as against 21.48 lakh during FY 2013-14. The deals were generally conducted on NDS-OM platform. The bank had lent %10989.80 lakh under CBLO as on. the date of DPI. 4.4 Investment portfolio was subjected to concurrent audit by Chartered ‘Accountants Mumbai. Quarterly certificates of holding of investments were sent with delay to RB! initd. Punjab and Maharashtra Co-operative Bank Ltd ee ene -15 dated July 1, 2014 violation of para 15.3 of MC No. UBD.BPD (PCB).MC.No. 12/16.20. 000/2014- 1014- to RBI during FY 2 on Investments. Further, half yearly review of investments was submitted (Action) 15. 5. Loans, Fixed Assets and Other Assets beam 5.1.1 The bank had last reviewed its credit policy on August 30, 2014. A serious flaw the Credit Policy was the fact that the Cash Credit limits were sanctioned for three years at a stretch and were not subject to an annual review as envisaged in para 4.8 of the Master Circular no UBD BPD. (PCB) MC No.5/13.05.000/2014-15 July 1, 2014 by the Board of Directors in its meeting held on May 18, 2007 The Policy envisaged a limited financial review annually (ie for the intervening two years tl full review). This was contravention of Bara48/ofiCircularino|UBD'BPD. (POB) MC INo15/13.05,000/2014-15 Uuly4/"20%4! which envisages a stringent review to(6nSUre 5.1.2 The limits were reviewed for a period of a year during the intervening two years at a level ‘ower than the sanctioning authority as laid down in the bank's credit policy. The process was not as envisaged in the Master Circular. 5-1.3 The bank followed a five stage rating policy which was further subdivided into 19 sub stages based on vanous parameters. It was observed that the bank used the rating model only for the Sanction of cash credit against stock and book debts. 5.1.4 The bank had not adopted the policy of having two independent valuations of property valued 5.1.6 The bank had 2 system of allowing ad-hoc quantum in cash credit accounts for urgent Business needs subject to availability of DP. However, the limits and duration for such limits was Not laid down in Policy. The bank also did not have a reporting mechanism and ratification of such ad-hoc limits as envisaged in para 4.6.4 (a) and (b) of the Circular UBD.BPD (PCB) Mc No.5/13.05.000/2014-15 July 1, 2014. (Action: All paras) 5.2 Loans and advances of the bank increased from %375126.34 lakh as on March 31, 2014 to %487908.06 lakh as on March 31, 2015 registering a growth of 30,06% since the DPI 5.2.1 Based on the owned funds of the bank as on DLI, the individual and group exposures were fixed at ®6000 lakh and %16500 lakh respectively. The bank had not exceeded the individual and group exposure limits (as observed from proposals seen during the course of the Present inspection. 5.2.2 The bank's exposure to housing and commercial real estate at 244568 .80 lakh, formed 6.86% of previous year’s total assets (2651242.91 lakh), Exposure to housing and commercial real estate included housing loans up to ®25 lakh of 218129.15 lakh formed 2.79% of previous year's total 6Punjab and Maharashtra Co-operative Bank Ltd. assets. ‘Tus Bank exposUre te housingjand|commercial realestate was\within15.0%or ewended” 5.2.3 Unsecured advances aggregating %3772.21 lakh formed 0.57% of last year's. total assets?651242.91 lakh was within permissible limit of 10%. 5.2.4 The bank had reported having achieved the target for priority sector lending at 2196203 53 lakh, i.€.53.6% of Adjusted Net Bank Credit (ANBC) of previous year and its lending to weaker sections (%27423.19 lakh, 7.5%) continued to lag behind the stipulated target of 10% of ANBC of Previous year (36617899 lakh). Being after pointed out the deficiencies in classification and compilation of the priority sector related data, the bank recalculated it at 294426.86 lakh which formed 25.78% of the ANBC Thus the bank failed to achieve the targets under priority and weaker section lending as laid down in circular no UBD.PCB.Cir No.26/09.09.001/2007-08 dated November 30, 2007 on Priority Sector Lending. (Action) 5.2.5 There was one outstanding loan to directors/ relatives amounting to 28.52 lakh as on March 31, 2015 against FDs. The bank had reported this transaction to RBI in OSS form No 6. No other loan against the directors and their relatives was outstanding as on the date of inspection. The bank hadhad maintained a list of Directorsand their relatives in the bank's intranet website. ‘However it"id notiimaintain theynamesjofifentities tin which "the directers”/"their relatives! were!” ‘interested/in the system” (Action) 5.3.1 The bank had Pricing Policy which was based on a credit rating model having three grades (A B and C) which was divided in further subgrades based on various quantitative and qualitative parameters. Pricing of loan was finally done by keeping in view of credit scoring model ranging from PLR to PLR + 3%. Only those borrowers having credit facilities against stock and book-debts were ‘subjected to pricing based on the credit rating model, 5.3.2 Consortium/Multiple Banking-The bank had sanctioned credit facility under consortium advance to the four borrowers under 17 accounts (List of instances — Example at LOI 1). It had also sanctioned credit facility under multiple banking to three borrowers in five accounts (Example at LO! 2) 5.3.3 The bank was a member of and the report of was used before sanctioning of credit facilities. The bank generally registered equitable mortgage with The bank was not member of other Credit Information Companies.(Action) 5.3.4 The bank had laid down process of credit appraisal. Assessment of working capital was done by using Tumover Method or by assessing operating cycle of the borrower's activity. In some cases permissible bank finance was assessed using projected balance sheet method (working capital gap analysis). In respect of term finance, computation of total project cost was ensured. Projected ratios such as debt-equity, DSCR, interest coverage, etc. were calculated. Means of financing for theMaharashtra Co-operative Bank Ltd. served Punjab and: credit deficiencies ob’ project was examined and financial closure was ensured. Some appraisal was as under eer i. The bank had a system to renew cash credit/overdraft credit facilities once ! rear eneae nual renewal. reviewed annual financials of the borrower only against the RBI guidelines of an loans were not reviewed annually aes il, Timeline of renewals/ review was not strictly adhered to by the bank as there were 25 CCIOD accounts pending for renewal and review respectively as on March 31, 2015. ili The bank was not obtaining statutory due certificate from the borrowers certified by their Auditors ‘and commenting upon in the loan proposal process note before sanctioning the credit faclities(Example at LO! 3) iv. a 9 f accountability Was niot/examined inisuch cases for.quick mortality of loan’ (Example at Lol 4) y) In some of the cash credit accounts, frequent ad-hoc limits were sanctioned/allowed on different occasions without obtaining the approval of the Head office during FY 2014-15 (Example at LO! 5) vi) Credit limit sanctioned to the borrowers were not commensurate with the required financials of the borrower (Example at LO! 6) vii) Latest financial statements of the borrowers were not on record. (Example at LO! 7) (Action: all paras) 5.4 The bank had @ well-defined scheme of delegation of power for sanction and renewal of credit limits by officers at various levels. No instance of transgression of delegated powers was reported during the period under review. 5.5 Post-disbursement credit supervision needed to be strengthened further in certain areas. Some of the deficiencies observed during the random scrutiny were as under: i) Temporary overdrafts (TODs) sanctioned in working capital loan accounts by the branch managers were not reported to the head office for information and ratification (Example at LO! 8) ii) Stock/debtors statement submitted by the borrowers were not showing segregation of periodic classification of un-current, obsolete stock and, list of debtors (Example at LOI 9) iii) Certified stock/debtors statement were not obtained by the bank from the borrowers who were enjoying working capital credit facility (Example at LOI 10) iy) Diversion of funds/ end use of fund was not monitored by the bank, a large scale intergroup fund transfer was observed without confirming bonafide need during the period under review (Example at LOI 11) v) Insurance of policy of property / stock / vehicle not on record. (Example at LOI 12) w of R.C. book with Bank's charge not on record. (Example at LOI 13)Punjab and Maharashtra Co-operative Bank Ltd. vii) Business inspection report not in file. E xample 5.5.1 Special Mention Accounts: eee The bank’had sanctioned TOD almost through year which showed the financial weakness of the borrowers and need close monitoring ae ; (Example at LO! 15) .6.2 Restructuring of loan accounts: During the period under review the bank had restructured five standard accounts of three borrowers. (Example at LO! 16) As on DPI, the bank had disclosed five accounts as restructured aggregating 21348.96 lakh in the “Notes on Accounts’ forming part of the Annual Report for the financial year 2014-15 as required in terms of para 9 of Annex 4 to Master Circular on Management of Advances. 5.6 The bank needed to ensure strict adherence to IRAC norms as some divergences in asset Classification were observed as detailed in Annex V. The bank failed to classify NPA based on record of recovery in borrowal accounts (Action) 5.7 The category-wise profile of advances is furnished below: (Zin lakh) " Last Inspection Present Inspection Particulars (31.3.2014) (34.3.2015) e As perbank | AsperlO | Asperbank| As perlO (1) Standard Assets | 372037.01 | _362793.47 | 482651.78 | _-473791.54 (2) Sub-Standard Assets | 968.67 | 9268.59 1602.64 | 6999.49 | [(@) Doubtful Assets 2104.93 [3048.75 3438.91 7472.50 [(@) Loss Assets = [ S155) ae) 15.53 | 15.33 (5) Gross NPAs 3089.33) 12332.87| «5257.28 14187.52 (% of Gross NPAs) (0.82%) | __(3.3%) | (1.08) | ___(2.80) | [(@)Gross Advances _ 375126.24 | _375126.34| _487909.06| _487909.06 [@) BODR. seal 2360.18 | 2360.18 3060.18 | 3060.18 (8)Prov.forint Capitalisation || f= = (9) Net Advances 372766.06 | _372766.06| 484848.88| _484848.88 (10) Net NPAs 729.15 9972.69 2197.10 11127.34 | (% of Net NPAs) (0.2) (2.7) (0.45) (2.30) | As can be seen from the above table, the assessed gross NPAs had increased in absolute term from 212332.87 lakh to 214187.52 lakh as on DPI since the date of DLI. However, it decreased in percentage terms from 3.3% to 2.9% during the same period. The assessed Net NPAs also increased in absolute term from 9972.69 lakh to 211127.34 lakh as on DPI since the date of DL! and decreased in percentage terms from 2.7% as on DLI to 2.3% as on DPI. 5.8 The details of recovery and additions of NPAs are set out below: (in lakh) NPAs at Write-Off | Recoveries Additions to NPAs as at end Year beginning | during the | during the | NPAs during of the year ofthe year | __Year year the year 2012-13 6736.50 63.68 778.37 991.40 885.65 2013-14 6885.65 4019.26 | _ 766.06 7132.56 1232.87 2014-15 1232.87 0 1520.29 3474.94 14187.52maharashtra co-operative Bank Lt, Punjab and .94 lakh (including of #3474 h slippages to the tune The bank's recovery effort were off- set by fresh slipp een the diversion detected by the Inspecting Officer) during the peri ee ieee Ee itis Out of 674 NPAs accounts, bank had sent registered notice in respect a pe a. h, further awards were under execution in 109 accou oe 2135.64 lakh) and 42 accounts (294. 84 lakh) awal cases for (23.84). (Action) aggregating to 4452.69 lak! 47 accounts were under arbitration, ( pending for execution. The bank had not taken any action in 7 NPA 5.8.1 Write Offs During the period under review the bank had not wi ne NPAs during the period under review under OTS. Total outstanding In these acco\ i ind 2448.83 lakh (principal outstanding %317.73, penal interest including interest 2127.38 lakh o other charges to be recovered 23 72lakh) The bank recovered 2346.80 lakh excluding reversal share capital of £9.11 lakh and waived interest and other charges (including forfeiture/surrender of ritten off any NPA. The bank had settled 76 old share money) of 2102.03 lakh 5.9 The other assets aggregating 714367.27 lakh consisted mainly of Advance Tax paid and TDS (net) of 27094.04 lakh, Advances and Deposits with landlord of 22605.18 lakh, Deposit with CCIL of %2452 42 lakh, sundry debtors of 21013.99 lakh, repaid expenses of 2508.20 lakh and various other items as detailed in Annex 1. Out of the other assets legal expenses receivable for suit filed cases 2145.26 lakh were treated as intangible for which the bank had made adequate provision. 5.9.1 Non-Banking assets: The bank was holding two non-banking assets valued at 2154.70 lakh as on DPI for less than seven years. The bank acquired these assets against it settlement of claim from the borrower e.g. (date of acquisition March 31, 2012) 6 Management 6.1 The general management of the bank was vested with a Board of Directors (BOD). The election of the members of the Board was held on March 25, 2015 and the present Board of assumed charge on April 1, 2015 for a period of 5 years i.e. up to March 31, 2020. The Board consisted of 15 Directors. The BoD had adequate representation for women, by having 3 women directors in terms of its by-laws, one Director representing SC/ST and two Professional Directors. The bank did not have representation of members beyond the district, and beyond the state as envisaged in para 1 of Annex to para 1.4 of circular UBD.CO. BPD. MC. No.8/12.05.001/2014-15 July 1, 2014, (Action) 6.1.2 The BoD held 16 meetings during the year under review. 6.1.3 The reviews placed before the Board were generally in conformity with the Calendar of Reviews. 10Punjab and Maharashtra Co-operative Bank Ltd. 6.1.4 was the Chairman of the bank upto January 12, 2015 ‘Subsequently took over as. Chairman. There were four sub-committees of the BoD l.e, Executive Committee (4 meetings), Loan & Investment committee (11 meetings), Audit Committee (7 meetings) and Recovery committes (2 meetings). There was scope for improvement in the functioning of the Audit and Loan Sub-committees as mentioned in relevant paras, 6.1.5 It was observed that the Audit Committee was not consiituted as envisaged in Para 3.1 of the MC UBD.CO. BPD. MC. No.8/12,06.001/2014-15 July 1, 2014.The Audit committee was consisted of Chairman and two Directors of the Board, whereas effectively the Audit Committee comprised of only two Directors of the Board throughout while there was no leave of absence of 3% Director recorded in the minutes of the Audit Committee of the Board, The functioning of the Audit Committee of the Board was not considered effective as the audit observations pending for closure were not reviewed by it (Action) 62 (8. Com) was the Chief Executive Officer (CEO) of the bank since March 02, 1987. The CEO was designated as Managing Director. The Executives’ team at Head Office of the bank comprised of the MD, two General Managers, four Joint GMs, nine DGMs and five Assistant General Managers. The bank's executive team needed to be more pro-active towards ensuring adherence to Master Circulars, and effective internal control through the audit machinery and the review processes for MIS for facilitating review and control in the bank's operations. (Action) 6.2.1 The bank had two-tier organizational structure as all its branches report directly to the Head Office. It had formulated a Policy for staff recruitment and staff accountability. The staff ‘strength of the bank increased from 1228 as on DLI to 1413 as on DPI. Business per employee increased from 2768.61 lakh during the year 2013-14 to 2831.52 lakh during the year 2014-15. Profit per employee had increased from 25.18 lakh as on DLI to 25.53 lakh as on DPI. The bank had conducted 11 induction programs for 224 staff members, 20 programs for skill development for 597 staff members and deputed its 24 staff members to 15 external training programmes conducted by etc. The bank had migrated its system to Finnacle and had imparted training in 34 dedicated Finnacle oriented training programs for hand holding its staff. 7. Earnings Appraisal 7.1 The analysis of profitability for 2013-14 and 2014-15 is furnished in Annex-ll. The operating profit of the bank had increased by 21872.58 lakh (19.66%) from 9525.57 lakh to 211398.15 lakh. This was mainly due to increase in operating Income by 216538.00 lakh during FY 2014-15 which was mainly contributed by increase in interest/discount income by %15292.60 lakh, as compared to increase in total operating expenses by %14665.42 lakh. Net operating profit of the bank increased by 22240.41 lakh from 27942.88 lakh during 2013-14 to %10184.29 lakh during 2014-15.Thetive Bank Ltd. punjab and Maharashtra Co-opere! ih to #1212.00 lakh during 2014-15, The various risk provisions made, increased from 8555.58 lal svete #919220 ath, bank had also reversed the excess provision of 2285.11 lakh (| i. ee investment depreciation 2650.00 lakh, provision for impaired assets %124.. Reserves 2318.00 lakh) during FY 2014-15. Bi (98.39%) eri 7.4.4. Reported net profit (before tax) of the bank increased by 23459 qe 8995 95 lakh during FY 2013-14 to €12449.73 lakh during FY 2014-15.The bank had a me the quidelines relating to appropriation of profit to statutory reserves and other general provisi The bank paid dividend at the rate of 12% for equity shares for the FY 2014-15, The dividend pay- Out ratio was worked out to be 24.94%. 7.1.2 Net interest income (Nll) and average total assets had increased by 14.89% and 23.27% Tespectively during FY 2014-15. While net interest margin (NIM) decreased from 3. 96% to 3.69% during the same period. Cost income ratio improved from 59.87% to 57.44% due to decrease in other overhead cost to total income during 2014-15, and RoA and RoE increased from 1 43% and 1.60% as on DLI to 1.63% and 1.78% respectively as on DPI. 7.2 Assessed Net Profit and Profitability Ratios (in lakh) | Sr. No. Particulars I 2013-14[ 2014-15 | [1 Net Profit as reported by the bs 2 6355.16 2 | Net profit (As assessed by 10) 3__| Net Interest Margin (%) E 4 5 ___| Cost Income Ratio (%) __5 | Staff Cost to Total Income Ratio (%) 6 | Other Overheads Income Ratio (%) | Return on Average Total Assets (%) * Return on Average Earning Assets (96) * He (“on assessed PBT) 7.3. Segment-wise Details of Income and Expenditure: [Particulars of Income and Expenditure | 2013-14 2014-15 Income from Advances zs 53633.40 65650.92 | [Investments 11516.33 14791.41 | Other Operating Income 3224.35 4470.72 Non —Operating Income 1053.07 2265.47 | Expenditure: Interest on Deposits/Borrowings 43064.84| 5068.53 Other Operating Expenses 5281.28 6851.99 | Other expenses 10502.39[ _41593.41 Of the total operating expenses, other operating expenses had increase by 29.74% followed by interest expenses by 27.87% and other expenses 10.39%. Of other operating expenses staff expenses had increased by 1533.27 lakh (30.41%) due to increase in number of staff from 1228 during FY 2013-14 to 1413 during FY 2014-15. R___Punjab and Maharashtra Co-operative Bonk Ltd. BGR ATM Mncritenrmsttoneso mn reece renee of additional provision for loan losses %104.88 lakh MERIC and reversal of capitalised interest in NPA accounts 21 168.98 lakh, 7.4 The bank had undertaken peripheral activities in the form of mutual fund advisory business, Me and non-life insurance business, energy bill collection facility on behalf of bill collection facility and vendor services (franking). It had earned ® 130.08 lakh on account of such Peripheral services during FY 2014-15 against *158.19 lakh during FY 2013-14 for the same activities, 7.4.4 The bank had paid donations amounting to £31.00 lakh during the period under review. It included donations to 8.00 lakh, 2B lakh 24.00 lakh and 211.00 lakh. The donations paid during FY 2014-15 were less than 1% of net profits of FY ended as March 31, 2014 No director had any interest in the Institutions to which the donations were paid by the bank during FY 2014-15 8. Liquidity 8.1. The bank maintained the required level of CRR / SLR during FY 2014-15. The computation of NDTL was found to be in order. However, the bank had maintained two separate NDTL Le. for purpose of CRR and SLR. For SLR it was deducting Loan against FDs of its own customers from NDTL, which was not in order in terms of Para 5.6 of UBD BPD. (PCB).MC. No 15/12.03.000/2014- 15 dated July 1, 2014 (Action) 8.1.1 The bank was preparing the required ALM statements i.e. structural liquidity statement, interest rate sensitivity and short term dynamic liquidity statement. 8.2 The bank had an ALM policy, which was last reviewed on July 26, 2014. It had constituted an Asset Liability Management Committee (ALCO) comprising of executives and senior officers of the bank to monitor asset liability management of the bank. The ALCO had met on 13 occasions during the period under review. 8.2.1 As per statement of structural liquidity statement prepared by the bank as on DPI, there was no negative mismatch in short term buckets up to 28 days. However, there were cumulative negative mismatches of 14% and 13% of net outflow in 1-3 years and 3-5 years’ time buckets respectively. It had fixed tolerance limit for negative mismatch at 20% of net outflow for all the buckets and the negative mismatches were within limit. 8.2.2 As per statement of interest rate sensitivity prepared by the bank as on DPI, Rate Sensitive Liabilities (RSL) of €655817.31 lakh constituted 82.52% of total liabilities. As against this, Rate Sensitive Assets (RSA) of €373236.58 lakh which constituted almost 85.76% of total assets.ra co-operative Bank Ltd. punjab and Maharasht ranches had scope for interbank debit entries xh for less than in two, 9, Systems and Control 9.1 Housekeeping: at the 9.4.1 The quality of housekeeping at the Head Office as well a5 ay i i improvement. During the period under review, there were 20 unrecon es lakh and seven credit entries amounting {0 z e outstanding for less thar than three months. d from the involving an amount of ® 28.711 in interbank reconciliation two entries of & 2181/- wer were outstanding for less ank was deficient as evidence’ three months. | years and three entries amounting to & 1854/- 9.1.2 Management Information System (MIS) of the bs various paras of the IR. MIS needed improvement to take necessary/adequate management decision in time for proper control. (Action) 9.1.3 The bank had entered into agreement with during FY 2014-15 for making payments where the bank was not h: {or issue of cheques/pay order at par faving its branches. DDs in ‘excess of 0.50 lakh were issued through account transfers. 9.1.4 The bank was prompt in submission of returns to DICGC and had compiled the assessable deposits correctly. The bank had pald DICGC premium of %296.19 lakh for half year ended September 2014 and %332.30 lakh for half year ended March 2015. The bank had forwarded Statutory Audit Certificate to DICGC stating that assessable deposits were computed correctly 9.4.8 The percentage of cheque returns received through inward clearing was 3.26% and for the bank as a whole during F.Y. 2014-15. SIVAUAHBlinspection!) The overall control of the HO over the branches was ensured through concurrent audit, internal audit, snap audit and visit by higher executives to the branches besides: essential daily returns. The bank had formulated an Audit policy and had put in place an Audit & Inspection Department to oversee auditfinspection operations and Implementation of bank's policies and guidelines. 9.2.1 The’ Audit Policy was ‘considered 'deficient) as it did not envisage the monitoring of pending audit observations as well as the age wise outstanding observations of the Audit Report. The Audit Policy did not lay down the levels for closure of the observations made in the ACB. There were 7 observations categorised in medium risk of FY 2012-13 and 37 and FY 2013-14 pending for closure. 2 High risk observations of 2014-15 and 86 medium risk observations of 2014-15 were also pending till closure of DPI, though it had far exceeded the compliance/ closer time as laid down in the Audit Policy. The same need to be apprised to the Board and Audit Policy should be drafted accordingly. No qualitative inputs / guidance from the ACB was observed in the Minutes of the ACB, in this context (Action) Pending observations of Concurrent Audit as on March 31, 2015 (LO! 17) 14Punjab and Maharashtra Co-operative Bank Ltd. 9.2.2 It was observed that all the branches were covered under concurrent audit However the tr ee oe : ly. The reports on operational areas were generally received after three weeks from the close of the quarter. This delayed the compliance considerably and review by the ACB as they were placed in the subsequent quarter, sometimes after a gap of 4- 5 months from the month to which it pertained. Thus, it defeated the purpose of the Concurrent ‘Audit The bank may frame its Audit Policy as envisaged in the Master Circular UBDCO.BPD. (PCB). MC.No.9/12.05.001/2014-15 dated July 1, 2014 (Action) 9.2.3 The scope and coverage of internal audit needed to aligned to look into the position of irregularities pointed out in the inspection report of RBI and the risk prone areas of the bank of as mentioned in Para 2.3.1 of Master Circular No. UBDCO.BPD (PCB). MC.No.9/ 12.05.001/ 2014-15 dated July 1, 2014. The internal audit did not undertake the audit as envies: (Action) 9.2.4 Effectiveness of Statutory Audit: The Statutory Audit for the year 2014-15 was conducted by Chartered Accountants, Mumbai. It was observed that the Statutory Auditor had not provided the LFAR. The coverage of the audit and scope of work as assigned to the Auditor and the cut off limit of loans and advances decided by the bank for purpose of the Audit was not laid down. This was pointed out in the IR for FY 2013-14 as well (Action) The bank was awarded “A” classification. The report was received by the bank on June 43, 2015 and the compliance thereto was yet to be submitted. 9.2.5 The bank was last inspected by RBI with reference to its financial position 25 on March 31 2014. Some deficiencies in pre sanction credit appraisal and post sanction monitoring, KYC documentation and risk profiling etc were slill persisting (Action) 9.2.6 The bank had implemented a Management Information System (Mis), though the same was not considered adequate for decision making and proper control as evidenced in the various paras of the IR. 9.2.7 The bank submitted Returns through OSS as well as the applicable XBRL Returns timely. 9.3 Computerization 9.3.1 The bank had migrated from OMNI Core Banking Solution (CBS) to Finnacle during the year simultaneously. The bank had undertaken data migration audit by ISSACS and it was observed that the issues observed by the audit team were closed under change management. The bank's Data Centre was housed at its Head Office at Bhandup. Its Disaster Recovery Cell (DRC) was housed with 9.3.2 The bank had undertaken IS Audit in the areas of Finacle CBS, Intemet Banking Application( ld) Mobile Banking Application Data Centre ‘Audit report, Windows /Citrix Critical & Non Critical Servers, AIX Servers having Finacle, CTS and Internet Banking, Anti-Virus Moni orkPunjab and Maharashtra Co-operative Bank Ltd. ite. It was observed that 3 Devices & Firewall at DC site, Network Devices & Firewall at OR site. It NEE an observations (medium risk ) pertaining to Finacle, 1 observation (High Ris! ) pe area of mobile Centre Audit, 6 observations ( high risk )and 8 observations ( medium ee din Ae banking, one observation each pertaining to Servers hosting the applications ant jay ensure solutions categorized ( both medium risk ) risk were pending closure. The bank may (Action) appropriate closure of the audit observations at the earliest. ae 9.3.3 EDP Audit —The EDP audit of the bank was conducted by certified auditor. It had conducted vulnerability assessment of all servers, network devices, and firewall of Data Centre site as well as DR site. It was also doing anti-virus monitoring of all servers and desktops on real time basis, 9.3.4 Payment and Settlement System (P&SS) — The bank was offering products (related to Payment and settlements system) such as ATM/VISA (Business Debit Card) , Rupay Debit Card, Visa Chip Cards (International Debit Cards) and Internet Banking facilities including NEFT/RTGS to ‘ts customers. It also provided mobile SMS alerts (Pull and push) on transactions as well as intimation on EMI dues. The bank was extending NFS facility to RRBs and Non-Scheduled Co- ‘operative banks for providing NFS services Operations of ATM-cum-debit card were sent to DPSS on a half yearly basis. The Bank had raised 1633 credit adjustments as on DPI. The Bank had also sponsored membership of 7 UCBs in the National Financial switch (NFS) for facilitating ATM. The Bank had 2 Business Continuity Plan (BCP) and Disaster Recovery Plan (DRP) in place The Bank provided mobile Banking, internet Banking, 106 Bunch Note Acceptor (BNA) and 32 Kiosk machines as part of its channel Banking services. The Intemet Banking of the Bank was also subjected to VAPT by the IS auditors. The Bank was also sending the mobile Baking Data to DPSS, RBI on a monthly basis (Annexure G). As on 31.03.2015 50428 & 50051 customers registered for Inter banking and mobile banking respectively. The Bank had joined NPCI for Aadhar credit (subsidies), ACH debit, ACH credit, NECS credit and Debit. The Bank had issued 51736 Rupay and 230494 VISA debit cards til the date of inspection. The Bank had received permission to appoint Business Correspondent (BC) and was in the process of implementing the same The Bank had a system of internal audit, based on Infrastructure guidelines as per the instructions of CCIL, for the respective systems in NDS-OM such as NDS-CALL, CROMS, NDS-Auction, ete The Bank had implemented CTS 2010 of NPC| and was sharing its infrastructure of the Clearing House Interface with 29 other UCBs and foreign Banks on the basis of tripartite or bipartite agreement and providing hardware services to small Banks which were not capable of investing in hardware. The Bank was issuing CTS cheques to all customers and the non CTS clearing of the at present comprises of 0.8% of the total clearing. 16Punjab and Maharashtra Co-operative Bonk Ltd. 8.4 During the period under review, the bank had not reported a single case of fraud As on date of present inspection 10 cases of old fraud involving an amount of 255.80 lakh were reported to RBI in FMR Ill, against which the bank held required provision of 241.57 lakh. In two cases involving an amount of 214.23 lakh, there was no monetary liability on the bank hence it had not made provision for the same The bank had a policy on redressal of customer complaints. The bank had maintained complaint registers and had installed complaint suggestion boxes at all the branches. During the period under review, the bank had received seven complaints through RBI, five through the office of the. Banking Ombudsman (BO), 15 from customer help desk and eight directly from customers to Head Office of the bank. Most of the complaints were in connection with charges for renewal/ closure of accounts, increase in ROI, cheques retumed for insufficiency of funds, implementation of KYC norms/ KYC up gradation, payment of interest on late fund of shares and delay in issuance of Share Certificate. All complaints received were replied to by the bank. There was no unattended compliant 95 KYC Guidelines 9.5.1 The bank had framed KYC/AML policy which was last reviewed on July 7, 2014 and was generally in accordance with RBI guidelines. 9.5.2. ‘AllIthE branches Of the bank Were!generally following’ the KYO guidelines! However, some deficiencies in the KYC identification’ documentation as observed during the inspection, (Example at LOI 18) 9.5.3 The bank had designated , Dy General Manager as the Principal Officer As per the RBI guidelines the bank should have designated an officer from senior management as Principal Officer. As per the RBI guidelines in terms of para 2.15 of UBD, BPD. (PCB) MC.No.16 dated July 1, 2014 (Action) 9.5.4 The bank had introduced a system of assigning risk category (low, medium, high) to its existing as well as new customers. It had completed the risk categorization of its customers’ accounts. Out of total 727817 customer accounts as on DPI, 103264 (14.19%) accounts were classified as high risk, 184289 (25.32%) accounts were classified as medium risk and remaining and 440264 (60.49%) accounts were under low risk. As on DPI 55299 accounts were pending for KYC updation. However, at end of August 2015, 3163 accounts that were non-compliant and served two notices as per Circular no RBI/2014-15/274 UBD. BPD (PCB). Cir.No.23/14.01 062/2014-15. October 22, 2014 were taken up for partial freezing. Another lot of 5712 customers were identified for sending the 2% notice as per the said circular before taking up for partial freezing.punjab and Maharashtra Co-operative Bank tt aoe m to its new/existing i tification Code (UCIC) 9.5.5 The bank had started allotting Unique Customer Ident See pe " t to be customers, A total of 108807 (13.02%) of customers were yel a i iad set product 9.5.6 The bank had furnished CTR to FIU New Delhi on monthly basis. The bank bs i ie a based thresholds for customer types and transaction types based on the rule set, generated however, and the bank did not have the system of generating alerts based on the profile of customer in terms of Master Circular DBOD AML.BC.No.22/14.01.001/14-15 dated July 01, 2014. The bank had reported nine STR during the period covered under present inspection. The bank had submitted CBWT report during the period under review. The bank had submitted 472 cases of CCR and 438 NTRs during the period under review. (Action) 9.5.7 The bank was generally observing the Clean Note Policy. The bank had provided ultra violet lamps, currency note counting machines, CCTV cameras and alarm systems. 8.6 Other Issues: 9.6.1 The bank was using abridged name PMC along with its full name Punjab and Maharashtra Co-operative Bank using same font size. 9.6.2 The bank had published its annual report along with SA certificate in dally newspaper on August 20, 2015 and three copies thereof were submitted to RBI on August 21, 2015. 9.6.3 Agricultural Debt Waiver and Debt Relief Scheme (ADWODR): As on DPI, there was no outstanding under ADWDR scheme. 9.6.4 The bank had transferred 321.81 lakh (17810 accounts) to DEAF on June 30, 2014. It had Put in place a system to identify unclaimed deposits with accrued interest thereon for transfer to DEAF. However, the bank had transferred @ 8 32 lakh (195 accounts) towards excess remittance for which the claim was raised in the month of April 2015 (i) The records of DEAF was maintained properly as mandated in the Para 3(vili) of the Scheme. (i) The bank had submitted the returns as prescribed in para (4) of the Circular No DBOD. No. DEAF Cell. BC.114/30.01.002/2013-14 dated May 27, 2014 (ili) It was also included under the coverage of concurrent audit as per para 6 of Circular No DBOD. No. DEAF BC. 114/30.01.002/2013-14 dated May 27, 2014. (iv) The bank had received 136 claims amounting to 16.36 lakh up to March 31, 2015. It had refunded the amount to customers and requested refund of the same to RBI vide letter dated March 14, 2015. 9.6.5 The bank had transferred unclaimed DDs / POs, and miscellaneous entries to Statutory Reserve Fund/General Reserves instead of keeping it as other liabilities aggregating 2112.98 lakh and 2180.87 lakh respectively on different dates during the period FY 2006 and FY 2015, Para 3 (il) 18Punjab and Maharashtra Co-operative Bank Ltd, () of RBI circular DBOD No DEAF Cell.BC.114/30.01 002/201 3-14 dated May 27, 2014 it amount to be transferred to RBI for DEAF, - hte report, there were eight cases of Staff Accountability resulting transfers (3 cases); and (c) termination (1 case) 10. Foreign Exchange Business In (@) issue of warning (4 cases), (b) 10:1 The bank had a licence as Authorised Dealer Category-I which was valid till August 22, 2015. thad applied for renewal thereof in June 2014. It had one 2B’ and 101 ‘C’ category branches as on DPI, whereas 'A’ category business was being carried out from the Corporate Office in Bhandup. The DGM (Forex & Treasury) was in-charge of Forex business of the bank and reported, to the Joint General Manager. The bank's dealing room was located at its Corporate Office Building. The bank had segregated its front office and back office functions. However, mid-office was also located at the same place and headed by the Joint General Manager. Total turnover of the bank's forex business during F.Y 2014-15 was 214175.10 crore where on it earned income of 2 6.99 crore. Turnover (in crores) 2013-14 2014-15 es Particulars Merchant | Inter- % of | Merchant | Inter-bank | % of (2) __| bank (b)_| (a) to (b) ©) | _(@)__| (c)to(@) Purchases | 25350" 4124.37 [30.38 | 1410.18 | 5126.37 27.50] | Sales | 1583.63 | 3799.13 417 | 1954.09 [5684.45 { Total | 2837.13 | 7923.50 | 35.8% | 3364.28 | 1081062 During the period under review, merchant transactions were of 23364.28 crore while the Inter Bank transactions were 210810.82 crore. The percentage of the bank's merchant transactions to inter- bank transactions during the year had decreased from 35.8% to 31.11% since the DLI The bank had fixed Net Overnight Open Position Limit (NOOPL) of the bank at £650.00 lakh and Aggregate Gap Limit (AGL) at USD 50.0 Million. It had not breached the limits during the period under review. The bank maintained one Nostro account each in USD, EUR, GBP and JPY. As on DPI, no entry was pending for reconciliation for more than a year in any Nostro account. The bank was submitting statements daily to RBI which contained details of their open positions, AGL maintained, and VaR computation. The rate scan report was being generated through system at every two hours. The bank had fixed internal limit / exposure limit for market risk management such as VaR limits, Daylight limits, counter party exposure limits etc. The bank's cut loss limit fixed for the year 2013-14 was USD 5000 per currency pair per day and for cross currency deals, the cut loss limit fixed wasPunjab and Maharashtra Co-operative Bank Ltd, Tesi modified duration USD 25000 per currency per month. The portfolio was covered by standardized a pl ortfolio approach for computation of capital charge for market risk for its investment a i ‘and forex open positions. The bank had formulated USD currency cheque c* B hes. August 30, 2013 and displayed at its 'B’ category branct eee 10.2 Conduct of NRE Accounts: The bank's NRE/NRO/FCNR deposits aggregated lakh as on March 31, 2015. The STAT 8 report was being generated and consolidated at Central office for onward submission to RBI. The bank had generally followed guidelines issued on opening and maintenance of NRE accounts. However, there were some deficiencies noticed while in operations of NRE accounts maintained in Bhandup Branch. (Example at LO! 19) (éetion) 10.3 The Head Office was prompt in submission of statements including XOS, BEF, R-Return etc to Foreign Exchange Department, Mumbai Regional Office. There were no export bills outstanding in XOS statement for half year ending December 2014 and June 2015. Under BEF statement, the bank had reported nil statement for both half years June 2014 and December 2014, regarding import payments of USD 100000 and above. As per the information furnished by the bank, 17 bills of entries (below $ 1.00 lakh) aggregating 2128.96 lakh were outstanding for more than one year as on March 2015. (Action) 10.3.1 As a non-shareholding member of SWIFT, the bank was having tie up arrangements for two of their MTSS products - MoneyGram and Xpress Money. It was observed that licence to conduct MTSS business was first issued from the year 2010, with validity of one year and which was subsequently renewed four times with Present validity up-to February 22, 2016, During the period under review, the bank had undertaken total 1046 transactions involving 2500.61 lakh, earning commission of 1.99 lakh from the MTSS activity. It provided service to 779 customers and 267 non-customers, paying out £434.14 lakh and 266.47 lakh respectively. 10.3.2 During the period under review, concurrent audit of the forex dealing room was conducted by CA firm . Mumbai. It was observed that two areas in High Risk Category and 4 jin Medium Risk Category were pending closure. (Action) 11. off-Balance Sheet Business The bank's off-balance sheet exposure as on DPI included bank” guarantees (BGs) with an outstanding amount of €22736'37 lakh. The bank had issued 302 BGs amounting to ®1747 52 lakhs during the period under review. However, the BGs were not serially numbered (Action) There were outstanding amount LCs of was 223129 .69 lakh which included foreign LC for & $772.55 lakh as on DPI. The bank had line of credit from eight other banks < for the purpose of LC and BG facility for its customers. The exposure a 20Punjab and Maharashtra Co-operative Bank Ltd. was within the limits during the period under review During the period under review, three BGs aggregating 2215.24 lakh were invoked and No LC had devolved. Further 82 BGs involving 2333.26 lakh stood expired and needed to be cancelled (Action) 41.1 Forward Contracts The bank's exposure to Forward Contracts decreased during the year with outstanding contracts of 213582.32 lakh as on DPI as against outstanding contracts of 217242.33 lakh as on DLI. Profit” loss on revaluation of forward contract had been taken to P&L which was reversed on April 1, 2015 The bank confirmed not having cancelled and rebooked any contract 12. Summary of Policy Compliance) 12.1 The bank failed to act 12.2 13. Summary of Regulatory Compliance sve the targets for lending to priorityweaker section during FY 2014-15. The bank had adhered to regulatory guidelines/instructions issued by RBI from time to time in respect of maintenance of CRR and SLR, exposure on unsecured advances, real estate 14, Major Findings Positive features i. The assessed CRAR of the bank stood at 12.16%. (Para 2.2) ii. The assessed net worth of the bank increased by 28753.60 lakh (21.86%) from #40036.98 lakh, as on March 31, 2014 to 248790.59 lakh as on March 31,2015, (Para 26) Negative features i Share of CASA deposits declined from 18.9% in FY2014 to 17.90% in FY2018 (Para 3.2) i The bank failed to achieve the targets under priority and weaker section lending (Para 5.2) il Credit appraisal and supervision left much scope for improvement. (Para 5.3855) iv. The Audit Policy was considered deficient, as it did not envisage the monitoring of pending audit observations as well as the age wise outstanding observations of the Audit Report \. The bank needed to put in place an effective and pro-active mechanism for examining and identifying alerts/ transactions for reporting of STR. 2