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Documents to gather Information / Guidelines before Audit

  • Go through Master circulars, RBI Circulars,Advances Manual and other important circulars related to advances department such as discretionary powers,service charges, Interest Ratesetc., which are now available in Intranet sites of the banks.
  • Generate balance jottings of the entire advances of the Bank Branch from system  and  get also a soft copy in Excel to facilitate analysis 
  • Get the Correspondence Files ,documents and EM documents also, for all major borrowal accounts
  • Study the latest Internal inspection reports , Concurrent audit, Stock audit , Credit audit and revenue audit reports so as to know the deficiencies and their present position
  • Get the CC/OD list of accounts in the Branch and also major Term Loans , as these are to be continuously monitored / reviewed , though the sanctions may be , before our audit period.


Audit of advances portfolio of a Branch depends on various type and composition of advances i.e., whether it is Agriculture, SME, Retail or Commercial & Corporate as it differs depending upon the area of the bank branch

In audit of a Bank Branch the following are major areas to be covered

  • All fresh sanctions/renewals/enhancements/disbursals made by the branch / RO/ZO/CO including Non-funded limits.
  • Compliance with Sanction Terms of credit proposals.
  • Exercise of delegation of powers.
  • Documentation and Disbursement
  • Post-sanction follow up of advance accounts.
  • Insurance of primary and collateral securities.
  • Follow up on time barred debts and suit filed advances
  • TOD in CA/SB , Adhoc / Exceeding in CC/OD accounts
  • Recovery of over dues / NPA accounts /Suit filed accounts
  • Classification of advances and quality of assets
  • Detection of Income leakage


  • Whether the Branch is obtaining Loan Applications and whether the appraisal is carried out in the prescribed format. (All applications and process notes under each type of GL head should be verified) 
  • Whether borrower’s photo , necessary proof of identity, address proof, copy of the PAN card obtained to comply with KYC guidelines
  • Whether the Branch has collected processing charges/upfront fee on the New accounts as per guidelines.
  • Whether the Branch is maintaining the Register of “Credit Applications received and sanctioned / rejected “ .
  • Whether the branch is advising the applicant about major information gaps, if any, and in case of delay informing the reasons thereof to the sanctioning Authority, wherever applicable
  • Whether pre-sanction unit visits are conducted and the securities proposed to be offered are inspected by the Manager and the estimated worth certified.


  • Whether latest Audited financial statements are obtained and analyzed before taking the credit decisions, wherever applicable  
  • Whether Branch ensured that the applicant / Co obligant / guarantors names do not figure in latest RBI Defaulters List / Caution List / CIBIL and in case of export accounts whether appear in SAL ( Specific Approval List ) of ECGC.
  • Whether CIR (Credit Investigation Report) from CIBIL is obtained in case of retail credit advances. In case the customer’s CIR is not available in CIBIL website, the report may be obtained from the other three approved agencies of the Bank, 1) Equifax Credit Information Systems, 2) Experian Credit Information company of India Pvt Ltd, 3). High Mark credit Information Services Pvt Ltd.
  • Whether assessment of repayment capacity / viability is properly checked
  • Whether Due diligence report is prepared
  • Whether Opinion Report, No due  is taken in case of ‘Take over advances’
  • Whether Credit rating is done as per guidelines and applicable ROI Spread is applied
  • Whether Legal opinion and valuation reports from Bank’s approved Panel Advocate / Engineer is  taken as per Bank’s guidelines

Income leakage:

  • This is the most important and sensitive part of concurrent audit. In most of the banks there are some income leakage and we have to find out that. Generally income leakage arises due to following reasons and we have to look that:
  • Undercharge of processing fee, upfront fee and other charges by the bank during disbursement of loans.
  • Wrong feeding of interest rates in the system.
  • Wrong calculation of profit in forex transaction etc.
  • Not charging of Unit Visit Charges
  • Under Charging of Documentation Charges
  • CIBIL Charges
  • CERSAI charges


  • At the time of initial disbursement, is end use ensured by properly disbursing the loan by way of DDs / PO after collecting borrower’s margin ?
  • Is disbursement made in stages commensurate with actual need ?
  • In the event of Cash Disbursements, have adequate precautions been taken to ensure end use.
  • Are Bills / Invoices / Engineers Valuation Report available on record for assets created out of Term Loans
  • Are processing charges, Upfront Fee, commission, Exchange properly collected?
  • In case of reimbursement to the customer, are the bills / receipts submitted are less than 12 months old ?
  • Whether Disbursement authority is taken in cases, where sanctioned facility is not availed with in prescribed period (six or twelve months) 


  • Verify whether Joint custodians are really doing it jointly
  • Packets are to be verified and kept in both their presence 
  • Strict  adherence  to key handling procedures
  • Verify whether same Customer ID is used for multiple Jewel Loans and appropriate ROI is charged as applicable to the aggregate loan account as this leads to Revenue Leakage
  • Periodical / surprise verification of Number of packets
  • Auctioning of Jewels in case of overdue Jewel Loans
  • Appraiser attending to clerical work or accessing to system
  • Extending Loans as re- pledge , or loans for jewels marked with names/initials other than that of borrower 
  • Large number of jewel Loans to same Borrower or a group
  • Extending Agriculture Jewel Loans with subsidy to others for Non Agriculture purposes 

Risk Based Internal Audit

  • RBIA is a new Technique evolved with an objective of strengthening internal audit in Banks. Concurrent Auditors are also asked to carry out this quarterly  in many Banks
  • The process is to assess various business / control Risks of the branch / business unit
  • Assessment of Business Risks in various activities
  • Assessment of effectiveness of the control systems
  • Assessment of level & direction of various risks areas
  • Assessment based on qualitative and Quantitative Approach
  • Drawing up of the risk matrix taking into account both factors

To arrive at overall Rating of the unit as Low, Medium, High, Very High
Methodology will be same but quantitative scoring differs in each Bank

Major components of Business Risk category
Credit Risk ,Business Strategy Risk,  Operational Risk

Major components of Control Risk
Internal Control Risk,  Compliance Risk

General Checklist for Documentation of Advances

  1. Photo of the Borrower & Guarantor.
  2. Loan Application shall be properly filled.
  3. Aadhar / PAN/ Voter ID/ Passport of Borrower to be Obtained
  4. GST registration Certificate of Borrower
  5. Income Tax returns for past 3 Assessment Years to be obtained
  6. Financials of the borrower to be obtained and such financials shall be duly attested by Chartered Accountant in Practice.
  7. Tax Audit Report of the Borrower to be obtained ( if Applicable)
  8. CIBIL rating shall be more than 650 points
  9. CERSAI certificate wherever applicable.
  10. If any property is mortgaged, then the deeds relating to such property shall be obtained.
  11. Latest Encumbrance Certificate relating to property shall be obtained.
  12. Legal opinion on such property shall be obtained.
  13. Valuation report of such property shall be obtained
  14. Insurance documents relating to property
  15. Demand Promissory note.
  16. Revival Letter
  17. RTO forms in case of vehicle loans
  18. If borrower is a company then forms for creating charge shall be obtained
  19. Partnership deed /Trust Deed/ MOA/AOA/Incorporation Certificate.
  20. Tax invoice given by supplier in case of vehicle / Machinery Loans.
  21. Final Enforcement Certificate. ( FEC)( for Advances>25 Lakhs)
  22. For MSME loans Udyog Aadhar shall be obtained.


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