Audit of Banks

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

18 May 2011 Your firm has been appointed as Central Statutory Auditors of a Nationalised Bank. The Bank follows financial year as accounting year. State your views on the following issues which were
brought to your notice by your Audit Manager:
(a) In computing the aggregate of funded and non-funded exposure of a constituent for purpose of assigning risk weight in regard to capital adequacy, the bank "Netted off' the credit balance of Rs. 10 lakhs in their Current Account against the total exposure of Rs.1crore.
Pls provide answer with conclusion for above question.

Saurabh Saxena

Saurabh Saxena (Expert)
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18 May 2011 it cannot be netted-off because risk exposure under different criterios are different, therefore,it cannot be netted off. Rs10 lakh is in current a/c while total exposure includes non-funded exposure too(which includes even notional principal for deriviative trading)

Therefore, netting off not permissible

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