All of us are known to Concurrent Audit of Banks. The one of the key area of Concurrent Audit is to verify the correctness and to report the matters relating to Loans & Advances. Every Bank Official and Higher Authorities are interested to know about the position of Advances. In Short, they are highly worried about NPA (Non Performing Assets). We all know that in case of default of Loan Repayments, banks will offer the opportunity to the borrower to streamline their defaults with new repayment schedule. This can be done by Rescheduling the Repayment Schedule.
What is Rephasement of Repayment Schedule?
Now a days, most of the bank are using Finacle by Infosys. Rephasement is a menu / option in Loans Module which enables the bank officials to change the repayment schedule of the borrower which accordingly effects all the related reports also like Overdue Report, etc.
Difference between Loan Rescheduling Vs. Rephasement of Repayment Schedule?
Both the terms Loan Rescheduling and Rephasement of Repayment Schedule are interchangeably used and also inter linked with each other. But there is a little difference between these two terms in practice. Loan Rescheduling are mostly performed by Higher Authorities i.e. by Zonal Office or Regional Office as the case may be. Bank Manager has no authority to reschedule any loan. Also Loan Rescheduling is done in case of Loans having high exposures. Whereas the Rephasement of Repayment Schedule is done by Bank Manger itself by recording the facts and reasons for rephasement of repayment schedule.
Loan Rephasement is a option in Finacle to modify Repayment terms. In case of Loan Rescheduling by higher authorities, the effect to the same is also given by the Finacle Rephasement option.
Area of Fraud: Last Year, while performing Concurrent Audit of one of the Nationalised Bank, I came to know about the Fraud involved in this area considering the NPA’s of around Rs. 1.50 Cr. For the last 2 years of Concurrent Audits, Statutory Audits, Bank’s Internal Inspection (Field Inspectorate), Zonal Office Short Visits & Inspections has been performed but nobody has reported that NPA. The Loans of around 35 Accounts involving the exposure of Rs. 1.50 Cr are NPA by apparent but nobody has reported it because the Finacle Reports of Overdue Accounts doesn’t shows these accounts as Overdue. Despite of this, there is no documentation for rephasement / rescheduling on record. Here where the Fraud is. Most of the auditors do rely on the Bank System Generated Reports as we all presumed that the system is efficient. But we also need to understand the Loop Holes.
Bank Officials may use Rephasement of Loan Repayment as a tool of Fraud to prevent these accounts from the eyes of Concurrent & Statutory Auditors. Whenever the account becomes overdue, they rephased the loan repayment schedule which results into transfer of Overdue Loan A/c to Normal Operating Loan Account. All overdue instalments + Interest is capitalised with these rephasement option.
In the repayment schedule menu of Finacle, we can see the No. Of Rephasements has been done in this Loan A/c with date of last Rephasement. The increase in no. Of Rephasements shows the alert to the Auditors that definitely is something wrong. In my Fraud Detection, all of you will be surprised to know that one of the Education Loan has been rephased so many times that the Original Repayment tenure has been already expired but still the account is Normal & Operative by extending the schedule and no instalments has been received so far in the last 2 years without any documents on record.
I would like to point the another interesting thing. When I have identified the fraud, the bank officials has given the explanation that the rephasement of schedule or extending tenure are within their powers and they have nothing done wrong. Like for Housing Loan, the maximum tenure can be 25 years. Thus, if the loan is sanctioned for 12 years they have the powers of extending the schedule up to 25 years. But they should be asked that how will they justify for rephasement / rescheduling loan for such an account which is already NPA and further no payments are received from the borrower’s along with no documentation on record.
I urge to all of my friends, if you are doing Concurrent Audits of Branch using Finacle than please do check the No. Of Rephasements of all Loan A/c’s. Every rephasement should be backed with proper documentation and authorisations. Also, we should make efforts to find the similar nature of Loop Holes in other Banking Software’s.
By Rahul Gupta