Important points for Bank Audit while auditing MSME borrowers

CA Kushal Soni 
on 06 April 2019


Below are some of the important points for Bank Audit while auditing MSME borrowers : 

  1. 90 days delinquency norm is a condition for classification of majority of loans into NPA, loans to MSME sector is an exception to it, subject to certain conditions
  2. 90 days delinquency extended to 180 days for MSME entities for amount overdue as on 1st September, 2017 as well as for payments due from 01st September 2017 to 31st December, 2018.
  3. Conditions:
    1. Borrower's account must be under standard category as on 31st August 2017
    2. Borrower must be registered in GST on or before 31st December 2018
    3. Exposure to borrower shall be upto Rs. 25 crores as on 31st January 2018
  4. Provision @5% is mandatory towards such MSME borrower accounts and
  5. Interest due for more than 90 days shall not be recognized on due basis, it shall be recognized on receipt basis. Benefit of additional time is only for asset classification not for income recognition.

RBI also extend benefit of additional time limit to NON-GST registered MSME borrowers with certain conditions:

  1. All previous conditions as mentioned earlier applicable and
  2. Payments due from the borrower as on September 1, 2017 and falling due thereafter up to December 31, 2018 were/are paid not later than 180 days from their original due date.

Restructuring of MSME Accounts

  1. It is a one time benefit for restructuring of MSME accounts, to be classified as standard without downgrade
  2. Exposure shall not exceed Rs 25 Crores as on 1st January 2019
  3. Borrower account is under SMA category (in default but not NPA) as on 1st January 2019 and continue to be classified as standard asset till the date of restructuring
  4. Borrower must be GST registered on the date of restructuring
  5. Restructuring must be implemented on or before 31st March 2020
  6. Additional provision of 5% is require over and above existing provision and
  7. Appropriate disclosure is mandatory by banks in notes

The author has an experience of more than 10 years in auditing public sector banks in statutory audit, concurrent audit, revenue audit, stock audit, information system audit and can also be reached at cakushalsoni@gmail.com. Drop your comment for queries relating to bank audit.


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