05 April 2016
What would be the Audit Procedure (In Brief) in case of Bank Branch Statutory Audit ? 1) Preparation of Audit Plan 2) Work Allocation 3) Reading of Closing Circular, Bank policy, Delegation of Authority 4) Have a look on LFAR points, List of Certificates which requires to sign, Various system generated reports – Exception report, Exceeding report, SMA II report, etc. 5) Reading and noting the points from Concurrent Audit Report, Inspection Report, RBIA report, System Audit Report, Last year’s financial statements. 6) Verification of GLA with FormA and FormB. 7) Selection of Advances according to Portfolio of Branch (Needs to ask for facility-wise jotting). It should be sample basis with coverage of all the products – While checking the advances go through the detail current file of communication, Latest Annual financials, Stock Audit Report, Credit Audit Report, Credit rating, CIBIL report, Valuation report of Collateral, Search Report, Mortgage papers, etc. Filling of Checklist is preferable according to facility. 8) Verification of KYC norms for the accounts opened during the audit period. 9) Stationery Verification – DD, Cheque books, FD, Lockers, Stamps ,etc. 10) Cash and ATM cash (if any) verification. 11) FormA - FormB head wise analysis with last year comparison and if variation is more than 5%-10% then reason for the same. 12) FormB – On Test basis vouchers-supporting of the expenses needs to verify. 13) Interest Verification – CC, OD, TL, RD, etc. 14) Commission Verification of DD, BG, LC, etc. 15) If AD Branch then foreign exchange related transactions needs to verify with proper supporting – Preferably checklist of the same needs to fill. 16) Based on the above audit needs to fill up the LFAR and verify the Certificates. 17) Verify the Provisioning on advances as per the RBI guidelines or not ? 18) Verify the classification of advances – Priority, Others, Staff, etc 19) Verify the Basel II – III report, Verify the Risk Weightage and cross tally the same with total advances. 20) Verify the transactions on test basis through black box testing. 21) Form A Verification – Long outstanding entries, age-wise break ups, subsequent clearance of parking entries (if any), grouping of advances, etc. What are the Category of Advances and Provisioning Norms for Advances ? 1) Classification of Advances – i) Standard Assets ii) Sub- Standard Assets iii) Doubtful Assets iv) Loss Assets 2) Provisioning Norms (In General) – Provisioning are on the basis of Borrower wise and not on the facility wise: i) On Standard assets - The provisioning requirements for all types of standard assets stand as below. Banks should make general provision for standard assets at the following rates for the funded outstanding on global loan portfolio basis: (a) Farm Credit to agricultural activities and Small and Micro Enterprises (SMEs) sectors at 0.25% (for medium enterprises 0.40%) (b) Advances to Commercial Real Estate (CRE) Sector at 1.00 %; (c) Advances to Commercial Real Estate – Residential Housing Sector (CRE - RH) at 0.75% (d) Restructured Standard Assets – 5.00% (e) All other loans and advances not included in (a) (b) and (c) above at 0.40 per cent. ii) On Sub-Standard Assets – In General 15% and on unsecured portion (if any) then additional provision of 10% iii) On Doubtful Assets – On Unsecured portion 100% and on secured portion as follows:-
Period for which the advance has remained in ‘doubtful’ category Provision requirement (%) Up to one year 25 One to three years 40 More than three years 100
iv) On Loss Assets – 100%
What is the provision requirement for Restructured Advances? Restructured advances is a weak advances but weakness is of for the temporary nature. And on the basis of probable inflow bank has restructured the facilities. Provision for above type of advances is 5.00% but restructured advances turn into the Non-Performing Asset then the date of NPA should be original date of NPA before restructuring. If any advances classified as NPA then non served interest from the date of NPA should be reversed by the bank.
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