Value Dating check in relation to Concurrent Audit of Banks

Dear Professional colleagues, Concurrent Audit of Banks are fast gaining significance in the wake of increase in Non-Performing Assets (NPA) and other irregularities which have surfaced in the recent past.

Concurrent Audit is primarily a risk mitigation method wherein various Banking functions are Audited in detail in order to unearth any potential or an on-going irregularity, among others.

Thus, from among various checks involved in the process of Concurrent Auditing, one such check is Value Dating check!

First let us understand as to what is Value Dating?

We all know that these days Banks operate under Core Banking Solutions (CBS) environment, wherein the word CORE stands for Centralised On-line Real-time Environment. Under CBS environment it is not possible to back date a transaction, however, the transaction may be Value Dated. Example:

Let us say that a particular Savings Account holder in a Bank requested the Bank management, by complying with all the required formalities, to open a Fixed Deposit on 1st January 2015 for INR 10,00,000/- but the Bank management or the designated officer forgot to do the same on 1st January 2015 due to some reason. Now, let us say that by the time the designated officer realised the mistake it was already 12th January 2015. So now, the option available with the respective Bank official is to Value Date the transaction which means:

i. The designated officer will open a Fixed Deposit in CBS environment wherein the transaction date will be 12th January 2015, the current date.

ii. However, though the transaction date is 12th January 2015 but there is an option under CBS to affect the Fixed Deposit from a prior date.

Hence, the transaction under CBS system can only be current dated but it can be affected from a previous date and this process of affecting the transaction from a prior date is referred to as Value Dating wherein the Fixed Deposit will be opened on 12th January 2015 but will be made effective from 1st January 2015.

Now, it is important to delve into the details of such transactions in order to check whether:

i. The interest rate applied is the interest rate which was effective on 1st January 2015, the date of application.

ii. That the Savings account has been accordingly debited and Value Dated so that no cascading interest is paid. Which means that though the Fixed Deposit has been opened on 12th January 2015 but the same is effective from 1st January 2015, thus, interest on Fixed Deposit shall be paid from 1st January 2015 but because the Fixed Deposit was opened on 12th January 2015 so the debit in the respective Savings Account must have happened on 12th January 2015 and if this Debit in Savings account is not Value Dated or made effective from 1st January 2015 then Bank will end up paying more interest on the same amount i.e. payment of interest at Savings rate as well as Fixed Deposit rate on the same amount of INR 10,00,000/- for the period 1st January 2015 to 11th January 2015 whereas interest should have only been paid on Fixed deposit rates for the period 1st January 2015 to 11th January 2015.

iii. Thus, it is very important to check such transactions in detail in order to discharge our Professional responsibility effectively.

Regards,

CA Sahil Jolly

Jolly & Co. Chartered Accountants

Email: casahiljolly@gmail.com