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Bank Audit Manual by CA. Sanjay K Agarwal Page No.1
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CA. Sanjay K Agarwal
B.Sc., FCS, FCA, CPA(USA)
83 / 8 5, N S Road , S ui t e: 41 7
Kolkata -700 001
Cell: +91 9331023275
+91-33-3291 3756, 2243 1088
BE HAPPY MAKE HAPPY ---
Bank Audit Manual by CA. Sanjay K Agarwal Page No.2
Index of Pages:
Key Points 3
Asset Classification & Provisioning – a ready
Income Recognition & Asset Classification Norms
- at a Glance 5-6
Asset Classification – at a Glance 11-12
Important Audit Checks 13-15
Draft Management Representation Letter 16-18
Format of Letter to Branch 19-22
Checklist for Audit of Advances accounts 23-25
Checklist for Audit of LFAR 26-31
Remuneration to Auditors 32-34
Overall Audit Plan- Audit Programme 35-36
Format of Certificate from Bank Branch 36
Audit Program for Branch Audit of a Bank 37
Other Charts / Formats (including Audit Report
Format) which may be used during Audit 38-42
Prudential Guidelines on Restructuring of
Advances by Banks 43-47
Bank Audit Manual by CA. Sanjay K Agarwal Page No.3
Break Even Date for NPA is 02.01.2016 for the year 2015-2016
Once an account has been classified as NPA, all the facilities granted to the borrower will be
treated as NPA except in respect of Primary Agricul tural Credit Societies (PACS)/Farmers
Service Societies (FSS).
Overdue period starts immediately on expiry of due date, concept of ‘past due’ has already been
dispensed with in past years.
Stock statements older than 3 months should not be considered
Interest on advances (accrued and outstanding) shou ld be calculated as on 31st
March (few banks
charges interest on advances few days prior to 31 st
March which should not be considered)
Long outstanding entries (unexplainable and where t here is no movement at all) in suspense
account should be suggested for provisioning.
‘NIL’ MOC Certificate should be issued even if ther e is no MOC
MOC should also be countersigned by Branch Manager (views of the BM if any has to be
attached on a separate sheet duly signed by him)
Submit all the REPORTS including TAX AUDIT REPORTS & LFAR immediately on
completion of Audit and before leaving the branch
Make a columnar list of documents to be submitted t o branch/regional/zonal/other office before
commencement of Audit. (it is advisable to get all documents in your custod y duly signed b y the
Branch Manger at the beginning of Audit)
Must get CERTIFICATE OF ATTENDENCE signed b y Branch Manager in duplicate before
leaving the branch
Availability of security or net worth of borrower/g uarantor should not be considered for the
purpose of NPA recognition – it should always be ba sed on recovery
100% provision is required for assets which has bec ome doubtful for more than 3 years i.e. NPA
date on or before 31.03.2012.
To specifically report simultaneously to the CEO of the bank (and Audit Committee or Board as
per the requirement of the Companies Act, 2013) and regional office of the Dept of Banking
Supervision RBI where the HO of the bank is situate d, any matter susceptible to be fraud or
fraudulent activity or an y foul play in any transac tions. Any deliberate failure on part of the
Auditors should render himself liable for action. I f amount of fraud involve Rs 1 Crore or more –
central office of the Dept of Banking Supervision, RBI, Mumbai (and Central Govt in Form
ADT-4 as per the requirements of section 143(12) of the Companies Act, 2013 and Rules
thereon) to be reported immediately.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.4
Asset Classification & Provisioning as on 31.03.201 6 – A Ready Reckoner
Quarter of NPA ASSET CLASSIFICATION Provision for 2015-2016
Year Quarter March
SST D1 D2 D2 D3 100 % of outstanding for all NPAs
on or before 31.03.2012, irrespective of securities available
Jun SST D1 D2 D2
40 % of Secured portion of outstanding and 100% of
Unsecured portion of outstanding
for NPAs from 01.04.2012 to 31.03.2014
Sep SST D1 D2 D2
Dec SST D1 D2 D2
SST D1 D2 D2
Jun SST D1 D2
Sep SST D1 D2
Dec SST D1 D2
SST D1 D2
Jun SST D1
25 % of Secured portion of outstanding and 100% of
Unsecured portion of outstanding for NPAs from 01.04.2014 to
Sep SST D1
Dec SST D1
General – 15% of outstanding
(25% of outstanding if ab-initio
unsecured) for NPAs on or after
2016 Mar SST
Bank Audit Manual by CA. Sanjay K Agarwal Page No.5
INCOME RECOGNITION AND ASSET CLASSIFICATION NORMS - AT A GLANCE
An asset, including a leased asset, becomes non per forming when i t ceases to generate income for
2. Banks should, classify an account as NPA only if th e interest due and charged during any quarter
is not servi ced full y within 90 days from the end o f the quarter.
3. FACILITY WISE CHART:
Credit Facility Basis for treating a Credit Facility
Term loans Interest and/or instalment of principal
remain overdue for a period of more
than 90 days.
upto 29 th
Sept 2004: In respect of
advances granted for agricultural
purposes where interest and/or
instalment of princi pal remai ns
overdue for a period of more than two
harvest seasons but for a period not
exceeding two half years, the advance
should be treated as NPA.
Position wef 30 th
: A loan
granted for short duration crops will
be treated as NPA, if the instal ment of
princi ple or interest remain overdue
for two crop season and a loan
granted for long duration crops will
be treated as NPA, if the instal ment of
princi ple or interest remain overdue
for one crop season
crops means crops
with crop season longer than one year
Short duration crops are those other
than long duration crops Overdue
An amount due to the bank under
any credit facility i s ‘Overdue’ if i t is not paid
on the due date fixed by the bank.
The crop season for each crop, which means
the period up to harvesting of the crops raised,
would be as determined by the State Level
Bankers’ Committee in each State.
The account remains continuously
“out of order” for a period of more
than 90 days; i.e., outstanding
balance remains continuously in
excess of the sanctioned limit/drawing
there are no credits continuously for a
period of 90 days as on the date of
Bal ance Sheet
credi ts are not enough to cover the
interest debited during the same
Banks may not classify an account merely due
to exi stence of some deficiencies, which are of
temporary nature such as non-availability of
adequate drawing power, bal ance outstanding
exceeding the li mi t, non-submission of stock
statements and non-renewal of the li mi ts on
the due date, etc.
However, generall y stock statements older
than three months would be deemed irregular
and the working capital borrowal account will
become NPA i f such irregular drawings are
permitted in the account for a continuous
period of 90 days even though the uni t may
be working or the borrower’s financial posi tion
Regular and ad hoc credit limits need to be
reviewed/ regularised not later than three
Bank Audit Manual by CA. Sanjay K Agarwal Page No.6
months from the due date/date of ad hoc
sanction. In case of constraints such as non-
availability of financial statements and other
data from the borrowers, the branch should
furnish evidence to show that renewal/ review of
credit limits is already on and would be
completed soon. In any case, delay beyond six
months is not considered desirable as a general
discipline. Hence, an account where the
regular/ ad hoc credit limits have not been
reviewed/ renewed within 180 days from the
due date/ date of ad hoc sanction will be treated
Discounted The bills purchased/discounted
remains overdue for a period of more
than 90 days.
Overdue interest should not be charged and
taken to i ncome account in respect of overdue
bills unless it i s realised.
The amount of liquidity facility
remains outstanding for more than 90
Securi tisation Transacti on undertaken in
terms of guidelines dated 01.02.2006.
the overdue receivables representing
posi tive mark-to-market value of a
derivative contract, if these remain
unpai d for a period of 90 days from
the specified due date for payment.
Any amount to be received i n respect
of that facili ty remains overdue for a
period of more than 90 days.
As on 31.03.2016, State
government guaranteed advances
and investment in State government
guaranteed Securiti es would attract
asset classification and provi si oning
norms if interest and/or princi ple or
any other amount due to the bank
remains overdue for more than 90
The credit facilities backed by gu arantee of
Central government though overdue may
be treated as NPA only when the government
repudi ates i ts guarantee wh en invoked.
However, income shall not be recognised
if the interest or instalment has remai ned
overdue or the account has remai ned
continuously out of order or the bills or any
other facility has remained overdue for a
period of more than 90 days.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.7
Key Words Particulars
Exclusion Undernoted categories of advances should be exclude d, as NPA
norms are not normally applicable to them:
Advances granted on or afte r 02.01.2016;
All staff loans sanctioned under various staff loan schemes including
Project Finance (within Moratorium), Education Loan , Agriculture
Loan etc. wherein moratorium period is not complete d and
interest/installment have not fallen due;
Advances against Banks deposits, NSC, IVP, KVP and LIP etc
provided adequate margin is available to cover the unrealized
Relief granted to the Agricultural borrowers affect ed by natural
calamities in the form of conversion of short term loan or re-
schedulement of term loan;
Credit facilities backed by Central Govt Guaranteed (if not
Restructured accounts under Standard category;
Credit facilities backed by State Govt. Guarantees where the default
does not exceed 90 days as on 31.03.2016;
All Standard and Regular Advances.
All Facilities Once an account has been classified as NPA, all the facilities granted by a
bank to a borrower and investment in all the securi ties issued by the
borrower will have to be treated as NPA/NPI except in respect of advances
granted under on-landing facility to Primary Agricu ltural Credit Societies
(PACS)/Farmers Service Societies (FSS). Also, in re spect of additional
facilities sanctioned as per package finalised by B IFR and/or term lending
institutions, provision may be made after a period of one year from the
date of disbursement in respect of additional facil ities sanctioned under
the rehabilitation package. The original facilities granted would however
continue to be classified as sub-standard/doubtful, as the case may be
Margin Interest on advances against term deposits, NSCs, I
VPs, KVPs and Life
policies may be taken to income account on the due date, provided
adequate margin is available in the accounts. Advan ces against gold
ornaments, government securities and all other secu rities are not covered
by this exemption.
Income Till the time the account is identified as NPA, inc
ome is recognised
irrespective of whether realised or not. Where an a ccount is identified as
NPA during the year, unrealised income should not b e recognised for the
year. Banks should reverse the interest already cha rged and not collected
by debiting Profit and Loss account, and stop furth er application of
interest. However, banks may continue to record suc h accrued interest in
a Memorandum account in their books. For the purpos e of computing
Gross Advances, interest recorded in the Memorandum account should not
be taken into account. This will apply to Government guaranteed
Bank Audit Manual by CA. Sanjay K Agarwal Page No.8
In respect of NPAs, fees, commission and similar in come that have
accrued should cease to accrue in the current perio d and should be
reversed with respect to past periods, if uncollect ed.
The finance charge component of finance income [as defined in ‘AS 19
Leases’ issued by the Council of the Institute of C hartered Accountants of
India (ICAI)] on the leased asset which has accrued and was credited to
income account before the asset became nonperformin g, and remaining
unrealised, should be reversed or provided for in t he current accounting
sheet date The asset classification of borrowal accounts where
a solitary or a few
credits are recorded before the balance sheet date should be handled with
care and without scope for subjectivity. Where the account indicates
inherent weakness on the basis of the data availabl e, the account should
be deemed as a NPA. In other genuine cases, the ban ks must furnish
satisfactory evidence to the Statutory Auditors/Ins pecting Officers about
the manner of regularisation of the account to elim inate doubts on their
NPAs If arrears of interest and principal are paid by th
e borrower in the case of
loan accounts classified as NPAs, the account shoul d no longer be treated
as non-performing and may be classified as ‘standar d’ accounts. With
regard to upgradation of a restructured/ reschedule d account which is
classified as NPA contents please check master circ ular of RBI at the end
of this booklet.
negotiations) Fees and commissions earned by the banks as a resul
t of re-negotiations
or rescheduling of outstanding debts should be reco gnized on an accrual
basis over the period of time covered by the re-neg otiated or rescheduled
extension of credit.
guarantees If the debits arising out of devolvement of letters
of credit or invoked
guarantees are parked in a separate account, the ba lance outstanding in
that account also should be treated as a part of th e borrower’s principal
operating account for the purpose of application of prudential norms on
income recognition, asset classification and provis ioning.
NPAs Interest realised on NPAs may be taken to income ac
count provided the
credits in the accounts towards interest are not ou t of fresh/ additional
credit facilities sanctioned to the borrower concer ned.
In the absence of a clear agreement between the ban k and the borrower
for the purpose of appropriation of recoveries in N PAs (i.e. towards
principal or interest due), banks should adopt an a ccounting principle and
exercise the right of appropriation of recoveries i n a uniform and
recognition Income on NPA accounts to be recognized on realisat
(conservative approach). However, banks may recogni se income on
accrual basis in respect of the projects under impl ementation, which are
classified as ‘standard’. Funded Interest: Income recognition in respect of
the NPAs, regardless of whether these are or are no t subjected to
restructuring/ rescheduling/ renegotiation of terms of the loan agreement,
Bank Audit Manual by CA. Sanjay K Agarwal Page No.9
should be done strictly on cash basis, only on real isation and not if the
amount of interest overdue has been funded. If, how ever, the amount of
funded interest is recognised as income, a provisio n for an equal amount
should also be made simultaneously. In other words, any funding of
interest in respect of NPAs, if recognised as incom e, should be fully
In the case of bank finance given for industrial p rojects or for
agricultural plantations etc. where moratorium is a vailable for payment of
interest, payment of interest becomes 'due' only af ter the moratorium or
gestation period is over. Therefore, such amounts o f interest do not
become overdue and hence do not become NPA, with re ference to the
date of debit of interest. They become overdue afte r due date for
payment of interest, if uncollected.
ii. In the case of housing loan or similar advances gra nted to staff
members where interest is payable after recovery of principal, interest
need not be considered as overdue from the first qu arter onwards. Such
loans/advances should be classified as NPA only whe n there is a default in
repayment of instalment of principal or payment of interest on the
respective due dates.
Accounts In credit card accounts, the amount spent is billed
to the card users
through a monthly statement with a definite due dat e for repayment.
Banks give an option to the card users to pay eithe r the full amount or a
fraction of it, i.e., minimum amount due, on the du e date and roll-over
the balance amount to the subsequent months’ billin g cycle.
A credit card account will be treated as non-perfor ming asset if the
minimum amount due, as mentioned in the statement, is not paid fully
within 90 days from the next statement date. The ga p between two
statements should not be more than a month.
Banks should follow this uniform method of determin ing over-due status
for credit card accounts while reporting to credit information companies
and for the purpose of levying of penal charges, vi z. late payment
charges, etc., if any.
Signs of Stress SMA-0 Principal or interest payment not overdue for more than 30 days but
account showing signs of incipient stress
SMA-1 Principal or interest payment overdue between 31-60 days
SMA-2 Principal or interest payment overdue between 61-90 days
Illustrative list of signs of stress for categorisi ng an account as
1. Delay of 90 days or more in
(a) submission of stock statement / other stipulate d operating control
statements or (b) credit monitoring or financial st atements or (c) Non-
renewal of facilities based on audited financials.
2. Actual sales / operating profits falling short o f projections accepted for
loan sanction by 40% or more; or a single event of non-cooperation /
prevention from conduct of stock audits by banks; o r reduction of Drawing
Power (DP) by 20% or more after a stock audit; or e vidence of diversion
of funds for unapproved purpose; or drop in interna l risk rating by 2 or
more notches in a single review.
3. Return of 3 or more cheques (or electronic debit instructions) issued by
borrowers in 30 days on grounds of non-availability of balance/DP in the
Bank Audit Manual by CA. Sanjay K Agarwal Page No.10
account or return of 3 or more bills / cheques disc ounted or sent under
collection by the borrower.
4. Devolvement of Deferred Payment Guarantee (DPG) instalments or
Letters of Credit (LCs) or invocation of Bank Guara ntees (BGs) and its
non-payment within 30 days.
5.Third request for extension of time either for cr eation or perfection of
securities as against time specified in original sa nction terms or for
compliance with any other terms and conditions of s anction.
6. Increase in frequency of overdrafts in current a ccounts.
7. The borrower reporting stress in the business an d financials.
8. Promoter(s) pledging/selling their shares in the borrower company due
to financial stress.
Wilful Defaulters The provisioning in respect of existing loans/expos ures of banks to
companies having director/s (other than nominee dir ectors of
government/financial institutions brought on board at the time of
distress), whose name/s appear more than once in th e list of wilful
defaulters will be 5% in cases of standard accounts ; if such account is
classified as NPA, it will attract accelerated prov isioning. This is a
prudential measure since the expected losses on exp osures to such
borrowers are likely to be higher. It is reiterated that no additional
facilities should be granted by any bank/FI to the listed wilful defaulters,
in terms of paragraph 2.5 (a) of Master Circular of RBI on Wilful
Defaulters dated July 1, 2014.
With a view to discouraging borrowers/defaulters fr om being
unreasonable and non-cooperative with lenders in th eir bonafide
resolution/recovery efforts, banks may classify suc h borrowers as non-
cooperative borrowers, after giving them due notice if satisfactory
clarifications are not furnished. Banks will be req uired to report
classification of such borrowers to CRILC. Further, If any particular entity
reported as non-cooperative, any fresh exposure to such a borrower will
by implication entail greater risk necessitating hi gher provisioning.
Banks/FIs will therefore be required to make higher provisioning as
applicable to substandard assets in respect of new loans sanctioned to
such borrowers as also new loans sanctioned to any other company that
has on its board of directors any of the whole time directors/promoters of
a non-cooperative borrowing company or any firm in which such a non-
cooperative borrower is in charge of management of the affairs. However,
for the purpose of asset classification and income recognition, the new
loans would be treated as standard assets. This is a prudential measure
since the expected losses on exposures to such non- cooperative
borrowers are likely to be higher.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.11
ASSET CLASSIFICATION — AT A GLANCE
Category Conditions to be
Provision amount Remarks
Does not disclose any
problem and which does
not carry any more than
normal ri sks attached to
Agriculture/SME Adv –
Commercial Real Estate ( CRE)
Sector – 0.75%
HL (teaser rate period) – 2%
Other Loan & Advances –
[ Special rates for
restructured advances as
mentioned in remarks
Such an asset is not a NPA.
[Provision requirement in case
of Restructured account from
Standard – 4.25% for 2014-
( for two years from
date), Restructured (upgraded
from NPA to Standard) – as
prescribed from ti me to time (
for one year from the date of
Classified as NPA for a
period not exceeding
Such an asset will have well
defined credit weaknesses
that jeopardi se the
liquidation of the debt and
are characteri sed by the
distinct possi bility that the
banks will sustain some
loss, if deficiencies are not
Classification of an asset
should not be upgraded
merel y as a result of
rescheduling, unless there
is sati sfactory compliance
of the required conditions
at l east for one year.
A general provision of 15%
on total outstanding should
be made without making
any allowance for ECGC
guarantee cover and
securities available .
Additional provision of 10%
on unsecured exposure.
exposure where realizable
value of security is not more
than 10%, ab-initio, of the
In respect of accounts where
there are potential threats of
recovery on account of erosion
in the value of security or non-
availability of security and
existence of other factors such
as frauds committed by
borrowers, it will not be
prudent for banks to first
classi fy them as sub-standard
and then as doubtful after
expiry of 12 mths from the
date the account has become
sub-standard. Such accounts
should be straightaway
classi fied as doubtful or loss
asset, as appropriate,
irrespective of the period for
which it has remained as NPA.
a. Erosion in the value of
security can be reckoned as
significant when the realisable
value of the security is less than
50 per cent of the value
assessed by the bank or
accepted by RBI at the time of
last inspection, as the case may
be. Such NPAs may be
straightaway classified under
If the realisable value of the
security, as assessed by the
bank/ approved valuers/ RBI is
less than 10 per cent of the
outstanding in the borrowal
accounts, the existence of
security should be ignored and
the asset should be
straightaway classified as loss
Bank Audit Manual by CA. Sanjay K Agarwal Page No.12
a peri od of Twelve months.
100% to the extent to which
the advances are not covered
by the realisable value of the
security to which the bank has
a valid recourse and the
realizable value is esti mated
on realistic basi s. Over and
above the aforesaid,
depending upon the period for
whi ch the asset h as remained
doubtful, provision on the
secured portion to be made on
the following basis:
1. Up to 1 year 25%
2. 1 to 3 years 40%
Over 3 years: 100%
It has all the weaknesses
inherent in that of a sub-
standard asset with the added
characteristic that the
weaknesses make the collection
/ liquidation in full, highly
questionable and improbable, on
the basis of current known facts,
conditions and values.
required in cases
involving NPAs balances above
of Security to be
done every three years.
Assets Loss asset is one where loss
has been identified by the
bank, external or internal
auditors or the RBI
inspection, but the amount
has not been wri tten off
100% of the outstanding
should be provided for/wri tten
Such an asset is considered
uncollecti ble and of such littl e
value that its continuance as a
bankabl e asset i s not
warranted although there may
be some sal vage or
Bank Audit Manual by CA. Sanjay K Agarwal Page No.13
IMPORTANT AUDIT CHECKS
(Term/Saving /Current /FCNR/NRE/NRNR)
Verify transactions during the year relating to: New Accounts opened; Accounts closed;
Dormant Accounts; Interest calculations; Scrutiny o f account statements for
unusual /l arge/overdraft transacti ons; Overdue Term deposits & its policies and practi ces of
renewal ; Accrual of interest; RBI Norms for Non-res ident deposits & its operations - giving due
i mportance to opening and operation of accounts lik e NRE, NRNR, FCNR, RFC, etc.; interest on
various types of deposits; Tax Deducted at Source.
Large deposits placed at the end of the year ( probable window dressing).
Examine unusual trend in account opening or account closing, dormant accounts that have
suddenl y been reactivated by heavy cash wi thdrawals or deposits, overdrawi ngs, etc.
Examine interest trends as compared to average annu al deposi ts (monthl y average fi gures).
Review monitoring reports (irregularity reports) se nt by the branch to the controlling authorities in
respect of irregular advances.
Review appraisal system, Files of large as well as critical borrowers, sanctions, disbursement,
renewal s, documentation, systems, securiti es, etc.
Review on test check basis operations in the Advanc es Accounts.
Compli ance of sanction terms and conditions in the case of new advances.
Whether the borrower is regular in submission of st ock statements, book debt statements,
insurance policies, bal ance sheets, half yearly res ults, etc. and whether penal interest i s charged in
case of default/delay in submission of such data.
Charge of interest and recovery for each quarter or as applicable to be veri fied.
Review th e monitoring system, i.e. moni toring end u se of funds, analyti cal system prevalent for
the advances, cash fl ow monitoring, branch follow-u p, consortium meeti ngs, inspection reports,
stock audi t reports, market intelligence (industry an alysis), securiti es updation, etc.
Check classification of advances, i ncome recognitio n and provisioning as per RBI Norms/Circulars.
Examine interest trends as compared to average annu al advances (monthly average figures).
Scrutini ze the final advances statements with regar d to assets classifi cation, security value,
documentation, drawing power, outstandings, provisi ons, etc.
Check whether Non-Fund based (Letter of Credits/Ban k Guarantees) exposure of the borrowers is
wi thin the sancti oned limits.
Compare projected financial figures given at the ti me of project appraisal with actual figures from
audited financial statements for relevant period and ascertain reasons for larg e variance.
Profit & Loss Account
Short debit of interest/commission on advances;
Excess credi t of interest on deposits;
In case the di screpancies are existing in large num ber of cases, the auditor should consider the
impact of the same on the accounts;
Determine whether the di screpancies noticed are int entional or by error;
Check whether the recurrence of such discrepanci es are general or in respect of some specific
Proper authority in sanction and di sbursement of ex penses as also the correctness of the
accounting treatment gi ven as to revenue/capital /de ferred expenses.
Check accrual of income/expenditure especi all y for the last month of the financial year.
Divergent Trends :
Divergent trends i n income/expenditure of the curre nt year may be analysed wi th the figures
of the previous year.
Wherever a divergent trend is observed, obtai n an e xplanation along with supporti ng evidences
like monthly average figures, composition of the in come/expenditure, etc.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.14
Cash & bank balances
Physically verify the cash balance/ATM cash balance as on March 31, 2016 or reconcile the cash
balance from the date of verification to March 31, 2016.
Confi rm and reconcile the balances with banks as on March 31, 2016.
Physically verify the investments hel d by the branc h on behalf of Head Office and issue
certificate of physical verification of investments to bank’s Investments Department.
Check recei pt of interest and its subsequent credi t to be given to Head Offi ce.
As per RBI norms, unreali sed i nterest on NPA accoun ts should be reversed and not charged to
“Advance Accounts”. Reversal of unrealised interest of previous years in case of NPA accounts is
requi red to be checked.
Partial recovery in respect of NPA accounts should be generally appropriated against principal
amount in respect of doubtful assets.
Check inter-branch transfer memos rel ating to fixed assets and whether they have been correctl y
classifi ed in the accounts and depreciation account ing thereof.
Inter Branch Reconciliation (IBR)
Understand the IBR system and accordingly prepare a n audit plan to review the IBR
transactions. The large volume of Inter Branch Tran sactions and the large number of
unreconciled entries in the banking system makes th e area fraud-prone.
Check up head office inward communi cation to branch to ascertain date up to which statements
relating to inter-branch reconciliation have been s ent.
Check and report
Reversal of any large/old/unexplained entries, whic h had remained outstanding in IBR.
Items of revenue nature, cash-in-transit (for examp l e, cash meant for deposi t into currency
chest) which remains pending for more than a reason abl e period.
Doubl e responses to the entri es in the accounts.
Test check accuracy and correctness of “Dail y state ments” which are prepared by the branch
and sent to IOR department.
The auditor should dul y consider the extent of non- reconciliation in forming his opinion on the financial
statements. Wh ere th e amounts involved are material , the auditor should sui tably qualify his audit
report. Attention is drawn on the paper on “Certain Signifi cant Aspect of Statutory Audit of banks”
issued by the Council of ICAI in March 1994, publis hed in the C. A. journal.
Further, vi de its circular No. BP.BC.22/21.04.018/9 9 dated March 24, 1999, the Reserve Bank of Indi a
(RBI) advised the banks to maintain category-wise ( head-wise) accounts for various types of
transactions put through inter-branch accounts so t hat the netting can be done category-wise. Further,
RBI advised banks to make 100 percent provision (ca tegory-wise) for net debit position in their inter-
branch accounts ari sing out of the unreconciled ent ries, both debit and credi t, outstanding for more
than two years.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.15
Suspense accounts, sundry deposits, etc.
Suspense accounts are adjustment accounts in which certain debit transactions are temporarily posted
whose authorisation is pending for approval.
Sundry Deposit accounts are adjustment accounts in which certain credit transactions are temporaril y
posted whose authorisation is pending for approval .
As and when the transactions are dul y authorised by the concerned offi ci als they are posted to th e
respective accounts and the Suspense account/Sundry Deposi t account i s credi ted/debited
Ask for and analyse thei r year-wise break-up.
Check the nature of entries parked in such Accounts .
Check any movement in such old bal ances and whether the same is genuine and has been
properly authori sed by the competent authority.
Check for any revenue items lying in such accounts and whether proper treatment has been
given for the same.
Auditors Report & Memorandum of Changes
The Audi tors Report should be a self contained docu ment and should contain no reference of
any point made in any other report including the LF AR;
Include Audit Qualifications in the Auditors Report and not in the LFAR;
Quanti fy the Audit Quali fications for a better appr eciation of the point made to the reader;
For suggesting any changes in the financial stateme nts of the branch, quanti fy the same in the
Memorandum of Changes (MOC) and make it a subject m atter of qualification and annexe it to
the Auditors Report. Summary of Memorandum of Chang es (MOC) is required to be given in
Auditors Report as per revised format as issued by ICAI.
Long Form Audit Report (LFAR)
Study the LFAR Questi onnaire thoroughly;
Plan the LFAR work along with the statutory audit r i ght from day one;
The LFAR questionnaire i s a useful tool for pl annin g the statutory audi t of a bank’s branch;
Complete and submit the Auditors Audit Report as we ll as the LFAR simultaneously;
Be speci fic while repl ying the LFAR;
Give instances of shortcomings/weaknesses existing in the respecti ve areas of the branch
functioning in the LFAR;
Advances check-list for giving list of accounts wit h adverse
The LFAR should be sufficiently detailed and quanti fi ed so that they can be expeditiously
consolidated by the bank.
Revi ew off-site backup and dail y backup procedure of Bank
Exception reports viz. password errors, limit verif icati on, irregul ar advances
Custodi an of pass word and unauthorized access of p assword, computer room
Periodical report to controlling authori ty on funct ioning of computerised system and compliance
of controlling authori ty instructions in this respe ct
Send a l etter of your requi rements to the branch be fore commencing the audit.
Obtain the latest status of cases invol ving fraud, vigilance and matters under investigation
having effect on the accounts and its reporting req uirement.
Obtain a Management Representati on Letter (MRL)
Obtain a certificate from Branch-in-charge on speci fic issues (format as per page 33 )
Bank Audit Manual by CA. Sanjay K Agarwal Page No.16
Draft of Management Representation Letter to be obt ained from the Branch Management
M/s. XYZ & Co.
Sub.: Audi t for the period ended 31-3-2016
This representation letter i s provided in connectio n wi th your audit of the financial statements of
_____________ branch of _______________ BANK for the period ended 31-3-2016 for the purpose of
expressi ng an opinion as to whether the financial s tatements give a true and fair vi ew of the financial
position of ___________ branch of _______________ BANK as of 31-3-2016 and of the results of
operations for the period then ended. We acknowledg e our responsibility for preparation of financial
statements in accordan ce with the requirements of t he Reserve Bank of Indi a and recognised
accounti ng policies and practi ces, incl uding the Ac counting and Auditing Standards i ssued by the
Institute of Chartered Accountants of India.
We confirm, to the best of our knowl edge and belief , the following representations:
1. The accounti ng policies, which are material or crit ical in determining the results of operati ons
for the period or financial position are set out in the financi al statements and are consi stent wi th
those adopted in the financial statements for the p revious peri od. The financi al statements are
prepared on accrual basis except as stated otherwis e in the financial statements.
2. The branch has a satisfactory title to all assets a nd there are no liens or encumbrances on the
3. The net book values at whi ch fixed assets are state d in the balance sheet are arrived at:
. after taking into account all capital expenditure o n addi tions thereto, but no expenditure
properly chargeable to revenue;
a. after eliminating the cost and accumulated deprecia tion relati ng to items sold, discarded,
demolished or destroyed;
b. after provi ding adequate depreci ation on fixed asse ts during the period.
4. At the bal ance sheet date, there were no outstandin g commitments for capital expenditure
excepting those discl osed in Note No. ___ to the fi nanci al statements.
5. The current investments as appeari ng in the balance sh eet consist of onl y such investments as
are by their nature readil y reali sabl e and intended to be held for not more than one year from
the respective dates on which they were made. All o ther investments have been shown in the
balance sheet as `long-term investments'.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.17
6. Current investments h ave been valued at the lower o f cost or fair value. Long-term investments
have been valued at cost, except that any permanent di mi nution in their value has been
provi ded for in ascertaining their carrying amount.
7. In respect of offers of ri ght i ssues received durin g the year, the rights have been ei ther been
subscribed to, or renunci ated, or allowed to lapse. In no case have they been renunciated in
favour of third parties wi thout considerati on which has been properly accounted for in the books
8. All the investments produced to you for physical ve rification belong to the entity and they do
not include any investments held on behal f of any o ther person.
9. The entity has cl ear titl e to all its investments i ncluding such investments whi ch are in the
process of being registered i n the name of the enti ty or which are not held in the name of the
entity. There are no charges against the investment s of the entity except those appearing in the
records of the entity.
LOANS AND ADVANCES
10. The following items appearing in the books as at 31 st March, 2016 are consi dered good and
fully recoverable wi th the exception of those speci fi call y shown as "doubtful " in the Balance
Loans and Advances Rs.
OTHER CURRENT ASSETS
11. In the opinion of the Board of Directors, other cur rent assets have a value on realizati on in the
ordinary course of the company's business, which i s atleast equal to the amount at whi ch they
are stated in the bal ance sheet.
CASH & BANK BALANCES
12. The cash balance as on 31st March, 2016 is Rs._____ _.
The bank balances as on ________________ is as unde r:
__________________ Bank Rs.______________
__________________ Bank Rs.______________
__________________ Bank Rs.______________
13. We have recorded all known liabilities in the finan cial statements.
14. We have disclosed in notes to the financi al stateme nts all guarantees th at we have given to
third parties and all other contingent liabiliti es.
15. Contingent liabilities disclosed in the notes to th e financial statements do not include any
contingenci es, which are li kely to resul t i n a loss and which, therefore, require adjustment of
assets or liabiliti es.
PROVISIONS FOR CLAIMS AND LOSSES
16. Provision has been made in the accounts for all kno wn losses and claims of material amounts.
17. There have been no events subsequent to the balance sheet date, which require adjustment of,
or disclosure in, the financial statements or notes thereto.
PROFIT AND LOSS ACCOUNT
18. Except as disclosed in the financial statements, th e results for the peri od were not materiall y
. Transactions of a nature not usually undertaken by the bank;
a. Circumstances of an excepti onal or non-recurring na ture;
b. Charges or credits relating to prior years;
c. Changes i n accounting policies.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.18
19. The following have been properl y recorded and, when appropriate, adequatel y disclosed in the
. Losses ari si ng from sale and purchase commitments.
a. Agreements and options to buy back assets previousl y sold.
b. Assets pledged as collateral.
20. There have been no irregul ariti es involving managem ent or empl oyees who have a significant
rol e in the system of internal control that could h ave a material effect on the financial
21. The financial statements are free of material misst atements, including omissions.
22. The company has complied with all aspects of contra ctual agreements that coul d have a
material effect on the financial statements in the event of non-compliance. There has been no
non-compliance with requirements of regularity auth ori ties that could have a materi al effect on
the financial statements in the event of non-compli ance.
23. We have no pl ans or intentions that may materiall y affect th e carrying value or classi fication of
assets and liabilities reflected in the financial s tatements.
24. The branch has not received any notice, show cause, i nspection advice, etc. from Government
of India, Reserve Bank of India or any other monito ring authority of India that could have a
material effect on the financial statements.
For & on behalf of
___________ branch of _______________ Bank
Bank Audit Manual by CA. Sanjay K Agarwal Page No.19
Draft Letter of Requirements to be sent to the Bran ch
April 1, 2016
The Branch Manager
_____________ Branch Mumbai
Dear Sir :
Sub.: Statutory Audit of your branch for the year 2015-20 16
As you are aware, we have been appointed as the Sta tutory Auditor to report on the accounts of your
Branch for the year 2015-2016.
Our Tentative Program for Branch Visit is as below:
In order to en able us to finali se the audi t program me and furnish our report on the audit of the
accounts for the year 2015-2016 of your branch, may we request you to keep ready th e
information/clarifi cation as stated below and make the same available to our audit team at the earliest.
a. Latest Reports The following l atest reports on the accounts of yo ur bank, and compliance by
the bank on the observati ons contained therein may be kept ready for our perusal:
a. Latest RBI Inspection Report;
b. Internal/Concurrent Audi t Reports;
c. Previous Statutory Audit Report
d. Head Office Inspecti on Reports;
e. Internal Inspection Reports;
f. Revenue Audi t Report (if any);
g. Income and Expenditure Control Report (if any);
h. Report on any other Inspection/Audit that may have been conducted during the course
of the year relevant to the financial year 2015-201 6.
b. Circulars in connection with accounts
Please let us have a copy of the Head Office circul ars/instructions in connection with the closing
of your accounts for the year, to the extent not co mmunicated to us or incorporated in our
letter of appointment.
c. Accounting policies
Ki ndl y confirm whether, as compared to the earlier year, there are any ch anges in the
accounti ng policies during the year under audi t.
If so, please let us have a list and a copy of the accounti ng policy/i es amended by the bank
during the year covered by the current audit and co mpute the financial effect thereof to enable
us to verify the same.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.20
d. Balancing of books
Ki ndl y confirm the present status of balancing of t he subsidiary records with the relevant control
accounts. In case of differences between balances i n the control and subsidiary records, please
give the details thereof and let us know the effort s bei ng made to reconcil e/balance the same.
This informati on may be given head-wise for the rel evant control accounts, i ndi cating the date
when the bal ances were last tallied.
a. Please let us have the interest rate structure, app licable for the current year, for all the
types of deposits accepted by the branch.
b. Ki ndl y confirm having transferred Overdue/Matured T erm Deposits to Current Account
Deposi t. If not, details/particulars of credit bala nces comprising Overdue/Matured Term
Deposi ts as at the year-end which continue to be sh own as Term Deposit, particularl y
where the branch does not have any instructions/com munication for renewal of such
deposits from the account holder and amount of prov ision of interest made on such
overdue/matured term deposits, should be separately marked out and be kept ready for
a. Ki ndl y confirm whether in respect of the advances a gainst tangible securities, the branch
holds evi dence of existence and latest market value of the relevant securiti es as at the
b. Ki ndl y inform the year-end status of the accounts, particularly those which have been
adversely commented upon in the latest repo rts of R BI/Internal Auditors/Concurrent
Auditors/Statutory Audi tors, etc. on the branch as also accounts in respect of which
provi si ons have been made/recommended as at the pre vious year-end.
Information in rel ation to such advances accounts w here provision
computed/recommended may please be prepared indicat ing:
a. Name of the borrower
b. Type of facility
c. * Total amount outstanding as at the year-end (both for princi pal and interest)
speci fyi ng the date up to which interest has been l evi ed and recovered.
d. Particul ars of securiti es and value on the basis of l atest report/statement.
e. Nature of defaul t and action taken.
f. Brief history and present status of the advance.
g. * Provision already made/recommended.
h. NPA since when (please specify the date)
* Corresponding figures for the previous year-end m ay please be gi ven.
c. Ki ndl y confirm whether the borrowers’ account have been categori sed according to the
norms applicable for the year into Standard, Sub-st andard, Doubtful or Loss assets, wi th
speci al emphasi s on Non-Performing Assets (NPA) and whether such cl assification has
also been made appli cabl e by the branch to advances with bal ances of l ess than Rs.
Ki ndl y confirm whether you have examined the accoun ts and applied the norms
borrower-wise and not account-wise for categorising the accounts. Pl ease let us have th e
particul ars of provisions computed/recommended in r espect of the above during the
financial year under audit.
d. A list of all advances accounts which have been ide nti fied as bad/doubtful accounts and
where pending formal sanction of the higher authori ti es, the relevant amount have not
been re-classifi ed/re-categori sed in the book of th e branch for provision/write off. This
covers all account identi fied by the branch or inte rnal/external auditor or by RBI
inspectors but the amount has not been written-off wholly or partl y.
In case the bank has recommended action against the borrowers or for initiati ng legal or
Bank Audit Manual by CA. Sanjay K Agarwal Page No.21
other coerci ve action for recovery of dues, a list of such borrowers’ accounts may be
furnished to us.
e. Please let us have a li st of borrowers’ accounts wh ere classi fication made as at the end
of the previous year has been changed to a better c lassifi cation, stating reasons for the
f. Ki ndl y also confirm whether any income has been adj usted/recorded to revenue,
contrary to the norms of income recognition notifie d by the Reserve Bank of India and/or
Head Office circulars issued in this regards; and p articularl y where the chances of
recovery/reali sability of the income are remote.
Ki ndl y also confi rm whether any income has been rec orded on Non-Performing Accounts
other than on actual realisation.
c. Outstanding in Suspense/Sundry Account
Ki ndl y l et us have a year-wise/entry-wise break up of amounts outstanding in Suspense/Sundry
accounts as on 31-3-2016. Kindly explain the nature of the amounts in brief. Supporting
evidences relating to the existence of such amounts in the aforesai d accounts may be kept
ready at the branch for verifi cation. Reasons for n on-adjustment of i tems included in these may
be made known.
d. Inter-branch/Office Accounts/Head Office Account
a. Please let us have a statement of entri es (head-wis e) whi ch originated prior to the year-
end at other branches, but were responded during th e period after 31-3-2016 at the
b. Date-wise detail s of debits in various sub-heads re lating to Inter-Branch transactions
and reasons for outstanding amounts particul arly th ose, which are over 30 days as at
the Balance Sheet date.
e. Contingent liabilities
a. Ki ndl y confirm whether other th an for advances, the re are any matters involving the
bank in any claims in litigation, arbitrati on or ot her disputes in which there may be some
financial i mplications, including for staff clai m, muni ci pal taxes, local levies etc. If so,
these may be listed for our verification, and you m ay confirm whether you have included
these as conti ngent liabilities.
b. Ki ndl y confirm whether guarantees are being disclos ed net of margi ns, or otherwise as at
the year-end, and whether th e expired guarantee wh e re the cl aim year has also expired,
continue to be di sclosed in the branch return. Plea se confirm specifi cally.
f. Interest provision
a. Ki ndl y confirm whether interest provi sion has been made on deposi ts etc. in accordance
with the latest instruction of the RBI/interest rat e structure of the bank. A copy of such
instructions/rate structure may be made available f or our scrutiny.
b. Ki ndl y confirm whether any amount recorded as incom e up to the year-end, which
remains unrecovered or not realisable, has been rev ersed from any of the income heads
or has been debited to any expenditure head during the financial year. If so, please l et
us have details to enable us to verify the same.
c. Ki ndl y confirm the accounting treatment as regards reversal, if any of interest/other
income recorded up to the previous year-end; and th e amount reversed during the year
under audit; i.e., income of earli er years derecogn i sed during the year.
g. Foreign currency outstanding transactions
a. Ki ndl y confirm whether amount outstanding as at the year-end have been converted as
at the year-end rates prescribed by FEDAI. An authe nticated copy of the FEDAI rates
applied may be gi ven for our records.
b. Ki ndl y confirm the amount of inward value of foreig n currency parcels, if any, which
originated prior to the year-end from other banks, but coul d not be recorded as these
were in transit and for which entries were made aft er the year end.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.22
For Investment held by the branch: a. These may be produced for physical verifi cation and /or evidence of holding the same be
made availabl e.
b. Stock of unused security paper stationery/numbered forms like B/Rs, SGL forms, etc.
may please be produced for physical verifi cation.
c. It may be confirmed whether income accrued/collecte d has been accounted as per the
laid down procedure.
d. It may be confi rmed whether Investment Valuation ha s been done as per the extant RBI
i. Long Form Audit Report - Branch response to the Que stionnaire
In connecti on with the Long Form Audit Report, plea se let us have complete information as
regards each item in the questi onnaire, to enable u s to verify the same for the purpose of our
j. Tax Audit in terms of section 44AB of the Income-ta x Act, 1961
Please let us have the information required for the tax audi t under secti on 44AB of the Income-
tax Act, 1961 to enable us to veri fy the same for t he purpose of our report thereon.
k. Other certification
Please furnish us the duly authenticated informatio n as regards other matters, which as per the
letter of appointment require certification.
l. Bank reconciliation and confirmations
Please let us have the dul y reconcil ed statements f or all Nostro as well as Local bank accounts.
A copy of the year-end bal ance confirmation stateme nts shoul d also be called for and kept
ready for our review.
m. Books of account and records
Ki ndl y keep ready all the books of accounts an d oth er records like vouchers, documents, fi xed
assets register, etc. for our verifi cation.
We shall appreciate your kind co-operation in the m atter.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.23
Check-list for Audit of Advance Accounts
1. Name of the borrower
Nature of business/activi ty
Other units in the same group
Total exposure of the branch to the Group - Fund ba sed (Rs. in lakhs) - Non-fund
based (Rs. in lakhs)
Name of Proprietor/Partners/Di rectors
Name of the Chi ef Executive, if any
Asset classi fication by the branch
a. during the current year
b. during the previous year
10. Asset classi fication by the Branch Auditor
a. during the current year
during the previ ous year Are there any adverse feat ures pointed out in
rel ation to asset cl assification by the Reserve Bank of Indi a Inspection or
any other audi t.
11. Date on which the asset was first classified as NPA
(where appli cable)
12. Facilities sanctioned:
Margin% Balance outstanding
at the year-end
Provision made: Rs.________ lakhs
13. Whether the advance i s a consortium advance or an a dvance made on mul tipl e-
14. If Consorti um,
a. names of parti ci pating banks with their respective shares
b. name of the Lead Bank in Consortium
15. If on multiple banking basis, names of other banks
and evidence thereof
16. Has the Branch classified the advance under the Cre dit Rating norms i n
accordan ce with the guidelines of the controlling authorities of the Bank
Detail s of verification of primary security and evi dence thereof;
b. Detail s of val uation and evi dence thereof
Date verified Nature of security Value Valued by
Insured for Rs. _______ lakhs (expiring on ________ )
18. i. Detail s of verification of collateral security and evidence thereof
ii. Detail s of val uation and evi dence thereof
Bank Audit Manual by CA. Sanjay K Agarwal Page No.24
Date verified Nature of security Value Valued by
Insured for Rs. _______ lakhs (expiring on ________ )
19. Give detail s of the guarantee in respect of the advance
a. Central Government guarantee;
b. State Government guarantee;
c. Bank guarantee or financial institution guarantee;
d. Other guarantee
Provi de the date and value of the guarantee in resp ect of the above.
20. Compliance with the terms and conditions of the sanction
Terms and Conditions
i. Pri mary Security
i. Charge on primary security
ii. Mortgage of fixed assets
iii. Registration of charges with Registrar of Companies
iv. Insurance with date of validity of policy
ii. Collateral Security
i. Charge on collateral security
ii. Mortgage of fixed assets
iii. Registration of charges with Registrar of Companies
iv. Insurance with date of validity of policy
iii. Guarantees - Existence and execution of valid guara ntees
Asset coverage to the branch based upon the arrange ment (i.e.,
consortium or multiple-bank basis)
Submission of Stock Statements/Quarterly Informatio n Statements
and other Information Statements
Last inspection of the unit by the Branch officials : Give the date and
details of errors/omissions noticed
iii. In case of consortium advances, whether c
opies of documents
executed by the company favouring the consortium ar e availabl e
21. Key financial indicators for the last two years and
projections for the current year (Rs. i n lakhs)
Indicators Audited year
year ended 31st
Increase in turnover % over previous
Profi t before depreci ation, interest and
Net Cash Profit before tax
Less: Tax/Net Profit after
Depreciation and Tax
Net Profit to Turnover Ratio
Bank Audit Manual by CA. Sanjay K Agarwal Page No.25
Turnover to Capi tal Employed Ratio (The
term capital employed means th e sum of
Net Worth and Long Term Liabili ties)
Stock Turnover Ratio
Total Outstanding Liabilities/total Net
In case of listed companies, Market Value
b. Low; and
Earnings Per Share
Whether the accounts were audited? If
yes, up to what date; and are there any
audit qualifi cations
22. Observations on the operations in the account:
1. No of occasions on which the Bal ance exceeded the drawing
power/sanctioned limi t (give details)
Reasons for excess drawi ngs, if any
Whether excess drawings were reported to the Contro lling
Authority and approved
(Rs. in lakhs)
(Rs. in lakhs)
2. Total summation in the account during the year
23. Adverse observations in other audit reports/Inspect ion Reports/Concurrent
Auditor’s Report/Internal Audi t Report/Stock Audit Report/Special Audit Report or
Reserve Bank of Indi a Inspection wi th regard to:
3. Security/Guarantee; and
24. Branch Manager’s overview of the account and its op
25. 1. In case the borrower has been identified/cl assified as Non-performing Asset
during the year, whether any unrealised income incl uding income accrued
in the previ ous year has been accounted as income, contrary to the Income
Whether any action has been i niti ated to recover ac counts
identified/classified as Non-performing Assets.
Date: Signature and Seal of Branch-in-Charge
Bank Audit Manual by CA. Sanjay K Agarwal Page No.26
Advances checklist for LFAR
a) In respect of common irregulari ties, the Audi tors c an give thei r comments borrower-wise in the
format given hereunder:
Facility Limit Amount
o/s. as at
1 2 3 4 5 6 7 8 9
b) In respect of Column 9 above, “Irregularity No.” , the number as given in the “Glossary to
Irregularities” in Point 5, under the head “Item” below should be given for the irregulari ty
applicable to respective borrower.
In case the auditors feel that in spi te of the list of irregularities given below, there are some
other i rregularities, which the audi tor would like to bring to noti ce, the auditor may separatel y
disclose under the given head by giving “appropri at e number”.
For the aforesaid purpose, “appropriate number” wou ld mean, for example, if the auditors feels
that in case of “Review/Monitoring/Supervision” , which has the number “4”, any additional
irregulari ty has to be incorporated, he may gi ve a number after the last number appeari ng in
the list such as “4.52”, and onwards. Simil arly in case of “Credit Appraisal” which has the
number “1”, any additional irregulari ty may be give n “1.14”, and so on.
c) The borrower-wise details may be given in descending order based on the Amount
d) In addition to the above, auditors wanting to give notes in respect of Critical Advances (large or
small) wi th gross irregularities should give the sa me as per the format given in “Point 6” bel ow.
e) GLOSSARY TO IRREGULARITIES
1 Credit Appraisal
1.1 Loan application not on record at branch.
1.2 The apprai sal form was not filled up correctly and thereby the appraisal and assessment
was not done properl y.
1.3 Loan application is not in the form prescribed by Head Offi ce.
1.4 The bank did not receive certain necessary document s and Annexures required with the
1.5 Basic documents such as Memorandum & Articles of Associ ation, Partnershi p deed, etc.,
which are a pre-requisite to determine the status of the borrower, not obtained.
1.6 Certain adverse features of the borrower not incorp orated in the appraisal note forwarded
to the management.
1.7 Industry/group exposure and past experi ence of the bank i s not dealt in the apprai sal
note sent to the management for sanction.
1.8 The level for inventory/book-debts/creditors for finding out the working capital is not
1.9 Techno-economi c feasibility report, which is required to know the technical aspects of the
borrower’s business, is not obtained from Technical Cell.
1.10 Credi t report on principal borrowers and confidenti al report from their banks are not
insisted from the borrowers.
1.11 The opinion reports of the associate and/or sister concerns of the borrower are not
Bank Audit Manual by CA. Sanjay K Agarwal Page No.27
1.12 The opinion reports of the associ ate and/or sister concerns of the borrower are not called
1.13 The opinion reports of the associate and/or sister concerns of the borrower are not
1.14 The opinion reports of the associate and/or sister concerns of the borrower are not
1.15 The opinion reports of the associate and/or sister concerns of the borrower are not
scrutinised/called for/not updated/not satisfactory.
1.16 The procedure/instructions of head office regarding preparation of proposal s for grant not
1.17 The procedure/instructions of head office regarding preparation of proposals for renewal
of advances not followed.
1.18 The procedure/instructions of head office regarding preparation of proposals for
enhancement of limi ts, etc. not followed.
1.19 No exposure limits are fixed for forward contract for foreign exchange sales/purchase
2 Sanctioning and disbursement
2.1 Credi t facility sanctioned beyond the del egated authority or limit of the branch
2.2 Certain proposal s were sanctioned pending approval of higher authorities wherever
2.3 Ad hoc limits were granted for which sanctions were pending since long.
2.4 Facilities were disbursed before completion of documentation.
2.5 Facilities were disbursed without following sanction terms.
2.6 Facilities were disbursed without any sancti on.
2.7 Sanction letter was missing in the branch.
2.8 Guarantor as required in the sanction letter was no t obtained.
2.9 Required promoters stake not invested before disbur sement of loan.
2.10 Sanctions were made wi thout proper appraisal .
2.11 Security charge not created before disbursement as required by sanction letter/renewed
2.12 Full di sbursement of the facility not made.
2.13 Sanction terms were not complied wi th or were not recorded.
Di sbursement made without proper sanction.
Term loan was di sbursed by creating the cash credit or savings account of the borrower.
The security against which the advance was sanction was not available/was not on
3.2 Mortgage for the property given as security is not created.
3.3 Mortgage for the property given a
s securi ty created, was inadequate, as compared to
terms of sanction.
3.4 Second charge as required, on assets is not cre ated in favour of the bank.
3.5 Documents of second charge on assets i s not on the record.
3.6 Documents pertaining to registration
of charges with ROC or any other concerned
authority requi ring charging of assets is not obtai ned.
3.7 Copi es evidencing lodgment of the original conv eyance/sale deeds with the Sub-
Registrars for registration not on record.
3.8 Authority letter/Power of
Attorney to the bank to collect the original docume nts from the
Sub-Registrar not on record.
3.9 Documents pertaining to consortium advances not yet executed/not avail able with bank.
Documents signed by persons not duly authorised to sign or who have signed i n other
capacity accepted by the bank.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.28
3.11 Signatures of the executants were not found on all the pages of the documents
3.12 Some of the documents on record were blank, without signatures of Branch Manager,
witnesses, or guarantors, etc.
3.13 Revival l etters in respect of documents to be reviewed from the borrowers not recei ved.
3.14 Guarantors have expired.
3.15 Guarantors not on record.
3.16 Guarantors not renewed.
3.17 Guarantors not assi gned.
3.18 Worth of the guarantors not available.
3.19 Stamping not as per the amended Stamps Act.
3.20 Documents have become mutilated, soil ed, time barre d or not obtained.
3.21 Opinion report by the fiel d officer for the borrowers not found on record.
3.23 “Nil Encumbrance Certifi cate/s” or “No Dues Certificate/s” or “No Lien Letters” not
obtained for the mortgage/s.
3.24 Advances for vehicle loans, Regi stration certi ficate, transfer certificate, etc. not obtained.
3.25 Work completion certifi cate, sale deeds, share cert ificates i n societies, etc. not on record
for housing loans.
Documents are not duly attested/signed by concerned officials/not renewed.
The agreements for hypothecation do not contain det ails regarding goods hypothecated.
Copy of Bills/receipts, on the basis of which the amount was di sbursed not found on
record. For example Vehi cl e Loans, Plant and Machin ery.
Charge on main &/or coll ateral securiti es not creat ed in terms of sancti on letter.
Ori ginal security papers/sale deed/l ease deed/ti tle deed/agreement of sale not availabl e
TDR are not discharged or renewed.
Control returns not sent to the H.O.
The branch has not taken any action for not complia nce with terms of agreement
No documents executed for enhancement of limit/docu ment not on record.
ECGC post shi pment policy not obtained.
Credi t facility released wi thout execution of all n ecessary documents.
Common Seal not affixed on Letter of Comfort.
Confirm orders for export credit not found on recor d for faciliti es released.
4.1 The account is frequently overdrawn.
4.2 The account is continuously overdrawn.
The account is overdrawn and the branches have not taken sufficient steps to regularise
the accounts promptl y.
4.4 The balance outstandi ng have exceeded the drawi ng power.
4.5 Balance confi rmation and acknowledgment of debt not obtained.
4.6 The stock, book-debts statements not received regul arly/promptly.
4.7 The FFI/financial statements/audited statements/FFR 1 & 2/other operational data, etc.,
not received regularly/promptly.
4.8 The stock, book-debts statements, etc., not scrutinised and no sui table action is taken.
4.9 The FFI/financial statements/audited statements/FFR 1 & 2/other operational data, etc.,
not received regularly/promptly/not scrutinised and no suitable action is taken.
4.10 Non-moving stock is not deducted to arri ve at the drawing power.
4.11 The age-wise break-up of debtors i s not found on record. The borrowers are allowed to
draw money on entire outstanding debt, whi ch must r ather be for the recent debts as
prescribed for particul ar industri es and as per margi n prescri bed in the sanction letter.
4.12 Wide discrepanci es observed i n the stock statements and stock figures in the annual
Bank Audit Manual by CA. Sanjay K Agarwal Page No.29
audited financial statements.
4.13 No penal interest has been charged for delay in sub mission of various statements as per
the terms of agreement depending upon the type of l oan/credit availed by the borrower.
4.14 Many branches have not adhered to the prescribed frequency of physical verification of
securities given against loans and advances.
4.15 Drawing power li mi ts are not revised as per market value of shares for advances against
security of shares.
4.16 End-use of funds not ensured/not known funds utili sed for purpose other than for which
4.17 The projecti ons submitted by the borrower stay far beyond the actu al performance.
Further, no explanation for the same is taken from the borrower.
4.18 Major sale proceeds of the borrower not routed through the bank.
4.19 Audi ted statements of non-corporate borrowers having limi t beyond Rs. 10 l akh s not
4.20 Renewal proposals of advances not recei ved on time and in many cases the li mits are not
4.21 Application of wrong rate of interest, processing charges, commission, other charges, etc.
resulting in income l eakage/excess booki ng of interest of the Bank.
4.22 Insurance cover for stock/property is inadequ ate/no t on record/not renewed/not endorsed
in favour of the Bank.
4.23 Inspection/physical verification of securi ty charged, not been carried out.
4.24 Expired bills/foreign currency si ght bills which are outstanding, have not been crystallised.
4.25 EBW statements on write-off of overdue export bills of ECM not found on record.
4.26 Confirmation as to genuineness of export transactio ns not obtained from Bank’s foreign
4.27 Import credi t, bill of entry evidencing i mport of goods not found.
4.28 Documents are not obtained for bill s discounted under Letter of Credit.
4.29 Advances, which are eligibl e for whol e turnover pac ki ng credit guarantee cover of ECGC,
are not brought under its cover.
4.30 Though government guaranteed accounts are i rregular si nce long, the issue of invocation
of guarantee does not seem to have been considered.
4.31 Prescribed margins not maintained as per sanctions.
4.32 Allocated limits, full terms of sanctions, stock statements, inspection reports, margin, etc.
not availabl e at moni toring branches.
4.33 For allocated limits, inordinate delays were notice d in responding to transfer by th e
4.34 Regular meetings not held wi th other consortium mem bers to review the performance of
borrowers and to assess the current state of affairs/not been held as per norms.
4.35 Individual members of the consortium are not advise d about the quarterly operating
limits/D. P. allocated to each one of them.
4.36 Minutes of the consortium meetings not found on record/not been held as per norms.
4.37 Inspection report from the consortium members not o btained.
4.38 The capi tal of the borrower has eroded/networth is negative/decreasing. Close monitoring
needs to be done.
4.39 The drawing power i s calculated wrongly and/or henc e the borrower is allowed to enjoy
excess credit than actually eligibl e.
4.40 Signboard of SBI is not displayed in godown, where the pledged/hypothecated stock is
4.41 Limit not fully utili sed by the borrower/No commitment charge i s levied for the limit not
fully utilised by the borrower.
4.42 Loan against TDR/STDR, whi ch is matured, is nei ther renewed nor credited to loan
Bank Audit Manual by CA. Sanjay K Agarwal Page No.30
4.43 The Stock and Debtors Audit Report not found on rec ord. No audi t has been done for
accounts of the borrower.
4.44 The valuation report in respect of tangi ble security from government approved valuer
have not been obtained.
4.45 Guarantees, Opinion Reports Financial statements, IT assessment orders and etc. of the
guarantor are not found on record.
4.46 Opinion report on guarantor is not obtained.
4.47 For small Government sponsored loan accounts, secur ity cover could not be ascertained
since neither any record was availabl e at branch nor physical veri fication conducted by
4.48 Pre-sancti ons and/or post-sanctions inspection reports were not on record.
4.49 The account was overdue for repayment and/or no cre di t was received from the borrower
for a long ti me.
4.50 The borrower i s absconding or deceased and l egal formali ties are incomplete and there is
wilful default from the borrower. Either establishment was closed or security was disposed
of or no action taken by the branch.
4.51 Subsidy claim process was incompl ete or subsi dy was yet to be received or needs follow-
4.52 Security disposed of/entity cl osed by borrower and no action taken by the branch.
4.53 Irregul arity not advised to controllers.
4.54 Letter of subordinati on of deposits not taken.
4.55 Secured and unsecured portion not segregated properly in advance return of the branch.
4.56 Renewal of limits was done before the receipt of financial statements.
4.57 Heavy cash withdrawal for whi ch consent of corporate Gu arantor is not taken.
4.58 Proper val uation of stock not done/needs critical scrutiny.
4.59 Security obtained i s inadequate/lower as compared t o amount of outstanding/no collateral
4.60 The party was dealing with other bank also tough it was not permitted.
4.61 Sticky accounts require close follow-up by the management.
5 Bad and doubtful advances
5.1 The IRAC norms for cl assification of advances were not followed and the same is
i mplemented through Memorandum of Changes by audito rs during audit.
5.2 Instalments were not recei ved from the borrowers.
5.3 Interest was not recei ved from the borrowers.
5.4 Legal action for recovery of advances was not taken although authori sed by the
Di scontinuance of appli cation of interest not follo wed al though authorised by the
5.6 Government guarantees have expired and fresh gu arantees not obtained/not renewed.
5.7 Terms of the BIFR scheme not complied.
Payment from government not received although guara ntees were unconditional,
irrevocable and payable on demand.
5.9 Delays in the settlement/repayment in respect o f sanctioned proposals.
The repayment accepted in case of compromise cases inadequate vis-à-vis value of
Compromise proposals pending at various levels wher e local government/outside
agencies are invol ved as guarantors.
Copy of Search Report not on record.
Decree awarded but no further steps taken for recov ery.
DI&CGC claims submitted/rejected/pending data not a vailable.
Irregul ar/sticky advance not reported to the contro lling authority promptl y.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.31
5.16 Compromise/OTS proposal is recommended an d is under negotiation since long but not
finalised. Suit i s filed in the court/DRT and pending to be finali sed.
5.17 ECGC claim not submitted/lodged for recovery.
f) Format for reporting Large/Irregular Advances
Name of the Branch & Region :
Name of the Borrower :
Asset Classification (IRAC Status) :
(Rupees in lakhs)
Facility Sanctioned Limit Drawing Power Outstanding as on 31.3.2015
g) Security :
h) Pri mary :
i) Collateral :
Financial performance :
Operational comments :
Other comments (if any) :
Bank Audit Manual by CA. Sanjay K Agarwal Page No.32
A. Remuneration for Branch Audit work of the Bank
Category of bank branch
(on the basis of quantum of advances) Rates of audit fees
( ` )
Up to ` 10 crore 40250/-
Above ` 10 crore up to ` 20 crore 57500/-
Above ` 20 crore up to ` 30 crore 79350/-
Above ` 30 crore up to ` 50 crore 120750/-
Above ` 50 crore up to ` 75 crore 138000/-
Above ` 75 crore up to ` 125 crore 182850/-
Above ` 125 crore up to ` 175 crore 228850/-
Above ` 175 crore up to ` 300 crore 287500/-
Above ` 300 crore up to ` 500 crore 324300/-
Above ` 500 crore up to ` 1000 crore 359950/-
Above ` 1000 crore up to ` 5000 crore 395600/-
Above ` 5000 crore 431250/-
The main operating office of the bank (irrespective of the fact whether it is attached to Head / Central
Office of the bank or functions as a separate unit) , CPUs/LPUs/and other centralized hubs by whatever
nomenclature called which are taken up for the purp ose of statutory branch audit during a particular
year so as to cover 90% of advances of a bank will be treated as any other branch and the fees
admissible for the audit work thereof will be on th e basis of the above mentioned schedule.
For branches where there is no advances portfolio s uch as service branches, specialised branches
etc., or those operating as NPA recovery branches t he banks, in consultation with the Audit Committee
of the Board, should propose the revised fees depen ding on the volume of business of the branches,
existing fee, etc. for the approval of RBI on a cas e to case basis.
B. Fees for LFAR
Head Office / Controlling Offices 25% of the basic audit fee excluding fee
for scrutiny and incorporation of branch
Branches 10% of the basic audit fee payable for
audit of respective branch.
In respect of branches below the cut-off point of t he threshold limit of branches to be taken up for
statutory audit, as stipulated from time to time, w hich may not generally be subjected to statutory au dit
but are subjected to concurrent audit by chartered accountants and where LFARs and other
certifications done earlier by SBAs are required to be submitted by the concurrent auditors, the fees
payable to the concurrent auditors may be based on the above prescription.
No separate TA/HA shall be payable for LFAR / Tax A udit of Head / Controlling Offices and branches.
C. Fees for additional certifications
It has been decided that an additional remuneration @ 12% of the basic audit fees shall be payable for
the following certifications/validations required t o be made in terms of various circulars/guidelines
Remuneration payable to the Statutory Central and B ranch Auditors from the year 2012-
2013 as per RBI circular No. DBS.ARS.No.BC. 08/ 08.92.001/ 2012-13 June 25, 2013
Bank Audit Manual by CA. Sanjay K Agarwal Page No.33
issued by RBI and any other certification/validatio n included from time to time as per RBI
i) Verification of SLR requirements under Section 24 of BR Act, 1949 on 12 odd dates in different
months in a year, not being Fridays.
ii) A certificate to the effect that the bank has been following RBI guidelines regarding (a) asset
classification, (b) income recognition (c) provisio ning, and also to the effect that the bank has
followed RBI guidelines in regard to the investment transactions/treasury operations.
iii) A certificate in respect of reconciliation of bank’s investments (on own account as also under
iv) A certificate for compliance in key areas by t he banks.
v) A certificate in respect of custody of unused B R forms.
vi) Authentication of bank’s assessment of Capital Adequacy Ratio in the ‘Notes on Accounts’
attached to the balance sheet and various other rat ios / items to be disclosed in the ‘Notes on
vii) Certificate regarding loan portfolio review if the bank seeks World Bank assistance (Capital
viii) Certification regarding DICGC items.
ix) Verification of SLR and CRR returns submitted by the bank to RBI during the period under audit
and confirming the same to RBI and the bank under a udit.
x) To comment upon the status of compliance by the bank as regards the implementation of the
recommendations of the Ghosh Committee and the Work ing Group on internal controls.
xi) Commenting upon the credit deposit ratio in th e rural areas as per the instructions of Government
xii) Reporting of instances of suspected fraud if any, noticed during the course of statutory audit a s
per Mitra Committee Recommendations.
As hitherto, no fee is payable to branch auditors f or additional attestations.
D. Fees for additional certifications required by S ecurities and Exchange Board of India (SEBI)
As regards fee for additional certificates / attest ations prescribed by SEBI and other regulators, the
banks may decide in consultation with the Audit Com mittee of the Board/ Board.
E. Fees for auditing of consolidated financial stat ements
For this purpose banks may pay a maximum of Rs.20,6 25/- only per subsidiary / associate whose
accounts are to be consolidated in the balance-shee t of a bank. The banks have freedom to offer
lesser fee if the subsidiary / associate concerned is not active or is dormant.
F. Fee for quarterly / half yearly limited review
The fee for carrying out quarterly / half yearly li mited review to be paid to statutory central audito rs may
continue to be 20% of the basic audit fee. It is fu rther clarified that revised basic audit fee payable from
2012-13 will be applicable for computing the fee fo r limited review from the quarters ending June 30,
2013 onwards and not for the review carried out dur ing the quarters ended June 30 / September 30 /
December 31, 2012.
The concurrent auditors assisting the review proces s may continue to be paid a reasonable token fee
as advised in our circular letter DBS.ARS.No.BC.17/ 08.91.001/2002-03 dated June 05, 2003.
H. Reimbursement of Travelling and Halting Allowanc es and Daily Conveyance Charges
Bank Audit Manual by CA. Sanjay K Agarwal Page No.34
1. For reimbursement of the lodging & boarding charges , travelling allowance and daily conveyance
payable to statutory auditors, the banks are given the discretion to decide the same in a cost effective
manner in mutual consent with the auditors. Further , in no circumstances should the rate exceed the
IBA prescription for the respective ceiling. The ca tegories of officers linked for the purpose of deciding
the ceiling limits are given below:
Sl. No. Category of Audit officials Equivalent scale of Bank officials (as per IBA)
1 Partners/proprietors VII – General Manager
2 Qualified Assistants III – Senior Manager
3 Un-Qualified Assistants I - Officers
2. With regard to the reimbursement of travelling, hal ting allowance and daily conveyance charges,
following observations may be noted:
i) Wherever banks have Guest House or Visiting Offi cers’ Flats, the same may be utilized to cater to
the needs of the auditors.
ii) Banks should call for such details as are neces sary for verification of bills in this regard and the
statutory central auditors as well as branch audito rs shall furnish such details for verification of
the actual expenses.
iii) Where the statutory central auditors have thei r headquarters at a place different from that where
the Head/Central Office of the bank is situated, bu t have an office at the same place as the
Head/Central Office of the bank, the TA/HA, if any, should be nominal for the central audit.
However, to ensure the quality of audit, there should be no objection to the partners of the firm
visiting the Head/Central Office of the bank as and when they deem it necessary.
iv) Where the statutory central auditors or branch auditors have an office at the place where the
branches/offices of the bank to be audited are situ ated, they will not be reimbursed TA/HA.
However, local conveyance may be reimbursed.
v) The TA/HA should be kept to the minimum.
vi) In case of dispute between the auditors and the bank regarding settlement of their bills, the
CMD/MD of the bank shall be the final authority to decide the claims. The CMD/MD has to
satisfy himself that the actual expenses have been incurred by a particular auditor and the
claims are settled keeping in view the aforesaid RB I guidelines.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.35
Overall Audit Plan - Audit Programme
Whil e drafting the audit programme, the type of rep orts to be submitted have to be
considered. There are four types of reports.
a. Unqualified Report
b. Qualified Report
c. Discl aimer of Opinion
d. Adverse Report
B. Various types of reports include :
• Jilani Committee Report
• Ghosh Committee Report
• Special Reports as applicabl e (Prime Minister Rojga r Yojana Scheme Report etc.)
• Long Form Audit Report
• Tax Audit Report
• Main Report (Sec. 30(3) of Banking Regulation Act, 1949)
C. Accounting standards not applicable to bank
Of the effective twenty eight standards, the follow ing standards are not applicable to banks to the
(a) AS 13, Accounting for Investments, does not apply t o investments of banks.
(b) AS 11, “The Effects of Changes in Foreign Exchange Rates”, does not apply to accounting of
exchange difference arising on a forward exchange contract entered into to hedge the foreign
currency risk of a firm commitment or a highly probable forecast transaction.
D. Considerations for overall audit Plan
1. The terms of his engagement and any statutory respo nsibilities
2. The nature and timing of reports or other communica tion
3. The applicable legal or statutory requirements
4. The accounting policy adopted b y bank and changes i n these polices
5. The identification of significant audit areas
6. The degree of reliance he expects to be placed on a ccounting systems and internal control
7. The nature and timing of audit evidence obtained
8. The work of internal auditors and extent of their i nvolvement
9. The involvement of expert
10. The allocation of work to be undertaken between joi nt auditors and procedures for its control and
11. Establishing and coordinating staffing requirements
Following certificates should be obtained from management
Cash Retention Limit duly certified by the Branch M anager
A photo copy each of the confirmation certificates for Balances with RBI, SBI and other banks
A cop y of the reconciliation statement in respect o f differences in such balances with RBI, SBI and
List of overdue or matured investments at the end o f the year duly confirmed by the Branch
A certificate stating that the Branch did not hold any investments on behalf of the Head Office (if
there are no such investments held by the Branch)
List of large advances i.e. those in respect of whi ch the outstanding amount is in excess of 5% of the
aggregate advances of the Branch or Rs.2.00 crores whichever is less duly certified by the Branch
A cop y of the letter from Head Office regarding San ction limit of the Branch Manager;
List of cases where the Branch has not obtained sto ck/book debts statements at the end of the year;
Bank Audit Manual by CA. Sanjay K Agarwal Page No.36
List of cases where insurance copies are yet to be received at the end of the year
A cop y of the Head office instructions for identifi cation of NPAs and classification of advances
List of major items pending for reconciliation unde r Inter-Branch Accounts;
List of all fraud cases reported to RBI as fraud up to March 31st
F. Auditor should plan his work based on the client? s business to enable him to conduct an effective
audit in an efficient and timel y manner as per AAS 8
G. Non applicability of CARO, 2015
Statement of companies (Auditor’s Report ) order 2 015 i s not applicable to banking company as
defined in cl ause (c) of section 5 of Banking regulation Act, 1949 Banking company means an y
compan y, which transacts the business of banking in India;
Any company which is engaged in the manufacture of goods or carri es on any trade and which
accepts deposits of money from the publi c merely for the purpose of financing i ts business as such
manufacturer or trader sh all not be deemed to trans act the busi ness of banking
FORMAT OF CERTIFICATE FROM BRANCH MANAGER
Bank: XYZ Bank Branch:
M/s ABC & Co
Chartered Accountants Certified Date: 1 Our Cash Retention Limit is
2 Our Balances with RBI, SBI and other Banks are
3 List of accounts where Stock Statements are not received
4 List of accounts where Insurance is pending or Insu
Policy not received
5 List of accounts where Review / Renewal not Recei
6 Status of our Lease Agreement for Premises
7 My Sanction Limit is:
8 Number of Fraud Cases
a) Detected in Branch during the year, and their current status
b) previous cases - disposal still pending
9 Our Branch was covered with following audits duri ng the year: Date of
Inspection Audit Yes / No
Revenue Audit Yes / No
Concurrent Audit Yes / No
Statutory Audit (last such audit) Yes / No
10 We further certify that, all payments relating to a
ny expenditure covered under section 40(A)(3) of
the Income Tax, 1961 were made by account payee che ques drawn on a bank or account payee
bank draft, as the case may be.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.37
Specimen Audit Program
ABC & Co
Bank: XYZ Bank Date of
Branch Date of Finalisation:
Accounting Year : 2015-2016
Sl. Job Performed By Initials
1 B/S and P/L from Abstract
2 Advance Ledgers (CC, TL, DL, BG)
4 Form - 3CA & 3CD
6 Other Certificates
7 Statutory Audit Report
8 Records & Register
10 Service Tax Challan/Returns
12 Fixed Assets - Addition and Depreciation
14 Interest Calculation on Deposits
15 Unit Visit
16 Stock Statement Analysis
17 Previous Audit Reports (Revenue, Statutory,
18 Certificate to be obtained
Cash Retention Limit etc
Cash Balance Certificate
Receipts for documents submitted
Bank Audit Manual by CA. Sanjay K Agarwal Page No.38
OTHER CHARTS/FORMATS WHICH MAY BE USED IN THE COURS E OF AUDIT
ADVANCE DETAILS ABC & Co
XYZ Bank Branch: ……… Year Ended: 31.03.2016
Sl Type A/C
No Limit Name
March Date of
STOCK STATEMENT ANALYSIS ABC & Co
Bank: XYZ Bank
Branch: Year: 2015-2016
No Type of
Account Name Dec Jan Feb Mar BM Party
Bank Audit Manual by CA. Sanjay K Agarwal Page No.39
DOCUMENTS ANALYSIS ABC & Co
Bank Branch: Year: 2015-2016
No Type of
Account Name Financials Sanction Security Insurance Renewal
/ Review Remarks
FORMAT OF CASH BALANCE CERTIFICATE
Bank: XYZ Bank
Receipt Total Payment
(1) (2) (3) (1+2-3)
1st April 2016
2nd April 2016
3rd April 2016
4th April 2016
5th April 2016
6th April 2016
7th April 2016
8th April 2016
Bank Audit Manual by CA. Sanjay K Agarwal Page No.40
FORMAT OF RECEIPT BY BRANCH (ON BRANCH’S LETTER HE AD)
ABC & Co, Chartered Accountants Year: 2015-2016
We hereby certify that following representatives of above referred Chartered Accountants Firm
Visited our Branch as given below for the purpose o f Statutory Audit for the year
Sl Name & Designation From To
Date Time Date Time
We further certify that we hav e received following documents from them in respect of our
statutory audit for the year:
Particulars No of Copies Remarks if any
Bank Audit Manual by CA. Sanjay K Agarwal Page No.41
An Illustrative Format of Report of the Branch
Auditor of a Nationalised Bank
Independent Bank Branch Auditor’s Report
The Statutory Central Auditors
Report on Financial Statements
1. We have audited the accompanying Financial State ments of _______________Branch of
____________ (name of the Bank) which comprise the Balance Sheet as at 31
st March 20XX, Profit and Loss
Account for the year then ended, and other explanat ory information.
Management’s Responsibility for the Financial State ments:
2. Management of the Branch is responsible for the preparation of these Financial Statements that give
true and fair view of the financial position and fi nancial performance of the Branch in accordance wit h the
Banking Regulation Act, complying with Reserve Bank of India Guidelines from time to time. This responsibility
includes the design, implementation and maintenance of internal control relevant to the preparation and fair
presentation of the financial statements that are f ree from material misstatement, whether due to frau d or error.
Auditors’ Responsibility :
3. Our responsibility is to express an opinion on t hese financial statements based on our audit. We
conducted our audit in accordance with the Standard s on Auditing issued by the Institute of Chartered
Accountants of India. Those Standards require that we comply with ethical requirements and plan and pe rform
the audit to obtain reasonable assurance about whet her the financial statements are free from material
4. An audit involves performing procedures to obtai n audit evidence about the amounts and disclosures in
the financial statements. The Procedures selected d epend on the auditors’ judgement, including the
assessment of the risks of material misstatement of the financial statement, whether due to fraud or error. In
making those risk assessments, the auditor consider s internal control relevant to the entity’s preparation and
fair presentation of the financial statements in or der to design audit procedures that are appropriate in the
circumstances. An audit also includes evaluating th e appropriateness of accounting policies used and t he
reasonableness of the accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
5. We believe that the audit evidence we have obtai ned is sufficient and appropriate to provide a basis for
our Audit opinion.
6. In our opinion, and to the best of our informati on and according to the explanation given to us, read with
the Memorandum of Changes mentioned in paragraph 11 below, the financial statements give a true and fair
view in conformity with the accounting principles g enerally accepted in India:
(a) in the case of the Balance Sheet, of the state of affairs of the Branch as at March 31, 20XX; and
(b) in the case of Profit and Loss Account, of the Profit / Loss for the year ended on that date;
Report on Other Legal and Regulatory Requirements
7. The Balance Sheet and the Profit and Loss Accoun t have been drawn up in accordance with Section
29 of the Banking Regulation Act, 1949;
8. Subject to the limitations of the audit as indic ated in Paragraphs 3 to 5 above and paragraph 10 be low,
we report that:
a. We have obtained all the information and explana tions which to the best of our knowledge and belief were
necessary for the purpose of the audit and have fou nd them to be satisfactory.
b. The transactions of the branch which have come t o my/our notice have been within the powers of the Bank.
9. We further report that:
Bank Audit Manual by CA. Sanjay K Agarwal Page No.42
a. the Balance Sheet and Profit and Loss account de alt with by this report are in agreement with the
books of account and returns;
b. in our opinion, proper books of account as requi red by law have been kept by the branch so far as
appears from our examination of those books;
10. No adjustments/provisions have been made in the accounts of the Branch in respect of matters
usually dealt with at Central Office, including in respect of:
(a) Bonus, ex-gratia, and other similar expenditu re and allowances to branch employees;
(b) Terminal permissible benefits to eligible emplo yees on their retirement (including additional retirement
benefits), Gratuity, Pension, liability for leave e ncashment benefits and other benefits covered in
terms of ‘AS 15 –Employee Benefits’ issued by the I nstitute of Chartered Accountants of India;
(c) Arrears of salary/wages/allowances, if any, pay able to staff;
(d) Staff welfare contractual obligations;
(e) Old unreconciled/unlinked entries at debit unde r various heads comprising Inter branch/office
(f) Interest on overdue term deposits;
(g) Depreciation on fixed assets;
(h) Auditors’ fees and expenses;
(i) Taxation (Current Tax and Deferred Tax).
11. The following is a summary of Memorandum of Cha nges submitted by us to the branch management
Memorandum of Changes (summary)
No. Increase Decrease
In respect of Income
In respect of expenditure
In respect of Assets
In respect of Liabilities
In respect of Gross NPAs
In respect of Provision on NPAs2
In respect of Classification of
In respect of Risk Weighted
Other items (if any)
For ABC and Co.
(Name of the Member Signing the Audit Report)
Firm registration number
Place of Signature
1 W here Applicable
2 Applicable in cases where banks det ermine provisi on at Branch level.
3 Partner or propriet or as the case may be
Bank Audit Manual by CA. Sanjay K Agarwal Page No.43
Prudential Guidelines on Restructuring of Advances by Banks
(RBI Master Circular No RBI/2015-16/101 DBR.No.BP.BC.2/21.04.048/2015-16 dated 01.07.2015)
Link to download full text of circular
15.1 The guidelines issued by the Reserve Bank of I ndia on restructuring of advances (other than those
restructured under a separate set of guidelines iss ued by the Rural Planning and Credit Department
(RPCD) of the RBI on restructuring of advances on a ccount of natural calamities) are divided into the
following four categories :
(i) Guidelines on restructuring of advances extende d to industrial units.
(ii) Guidelines on restructuring of advances extend ed to industrial units under the Corporate Debt
Restructuring (CDR) Mechanism
(iii) Guidelines on restructuring of advances exten ded to Small and Medium Enterprises (SME)
(iv) Guidelines on restructuring of all other advan ces.
In these four sets of guidelines on restructuring o f advances, the differentiations were broadly made based
on whether a borrower is engaged in an industrial a ctivity or a non-industrial activity. In addition, an
elaborate institutional mechanism was laid down for accounts restructured under CDR Mechanism. The
major difference in the prudential regulations was in the stipulation that subject to certain conditions, the
accounts of borrowers engaged in industrial activit ies (under CDR Mechanism, SME Debt Restructuring
Mechanism and outside these mechanisms) continued t o be classified in the existing asset classification
category upon restructuring. This benefit of retent ion of asset classification on restructuring was not made
available to the accounts of borrowers engaged in n on-industrial activities except to SME borrowers.
Another difference was that the prudential regulati ons covering the CDR Mechanism and restructuring of
advances extended to SMEs were more detailed and co mprehensive than that covering the restructuring of
the rest of the advances including the advances ext ended to the industrial units, outside CDR Mechanis m.
Further, the CDR Mechanism was made available only to the borrowers engaged in industrial activities.
15.2 Since the principles underlying the restructur ing of all advances were identical, it was felt that the
prudential regulations needed to be aligned in all cases. Accordingly, the prudential norms across all
categories of debt restructuring mechanisms, other than those restructured on account of natural calam ities
which will continue to be covered by the extant gui delines issued by the RPCD, were harmonised in Augu st
15.3 In the backdrop of extraordinary rise in restr uctured standard advances, these prudential norms w ere
further revised by taking into account the recommen dations of the Working Group (Chairman: Shri B.
Mahapatra) to review the existing prudential guidel ines on restructuring of advances by banks/financia l
institutions. These prudential norms applicable to all restructurings including those under CDR Mechan ism
are included in this circular. The details of the i nstitutional / organizational framework for CDR Mec hanism
and SME Debt Restructuring Mechanism are given in A nnex - 4.
15.4 The CDR Mechanism (Annex - 4) will also be ava ilable to the corporates engaged in non-industrial
activities, if they are otherwise eligible for rest ructuring as per the criteria laid down for this pu rpose.
Further, banks are also encouraged to strengthen th e co-ordination among themselves in the matter of
restructuring of consortium / multiple banking acco unts, which are not covered under the CDR Mechanism .
16. Key Concepts
Key concepts used in these guidelines are defined i n Annex - 5.
17. General Principles and Prudential Norms for Res tructured Advances
The principles and prudential norms laid down in th is paragraph are applicable to all advances including the
borrowers, who are eligible for special regulatory treatment for asset classification as specified in para 20.
17.1 Eligibility criteria for restructuring of advances
17.1.1 Banks may restructure the accounts classifie d under 'standard', 'sub- standard' and 'doubtful'
17.1.2 Banks cannot reschedule / restructure / rene gotiate borrowal accounts with retrospective effect.
While a restructuring proposal is under considerati on, the usual asset classification norms would cont inue
to apply. The process of re- classification of an a sset should not stop merely because restructuring
Bank Audit Manual by CA. Sanjay K Agarwal Page No.44
proposal is under consideration. The asset classifi cation status as on the date of approval of the
restructured package by the competent authority wou ld be relevant to decide the asset classification status
of the account after restructuring / rescheduling / renegotiation. In case there is undue delay in san ctioning
a restructuring package and in the meantime the ass et classification status of the account undergoes
deterioration, it would be a matter of supervisory concern.
17.1.3 Normally, restructuring cannot take place un less alteration / changes in the original loan agreement
are made with the formal consent / application of t he debtor. However, the process of restructuring ca n be
initiated by the bank in deserving cases subject to customer agreeing to the terms and conditions.
17.1.4 No account will be taken up for restructurin g by the banks unless the financial viability is established
and there is a reasonable certainty of repayment fr om the borrower, as per the terms of restructuring
package. Any restructuring done without looking int o cash flows of the borrower and assessing the viab ility
of the projects / activity financed by banks would be treated as an attempt at ever greening a weak cr edit
facility and would invite supervisory concerns / ac tion. Banks should accelerate the recovery measures in
respect of such accounts. The viability should be d etermined by the banks based on the acceptable viab ility
benchmarks determined by them, which may be applied on a case-by-case basis, depending on merits of
each case. Illustratively, the parameters may inclu de the Return on Capital Employed, Debt Service
Coverage Ratio, Gap between the Internal Rate of Re turn and Cost of Funds and the amount of provision
required in lieu of the diminution in the fair valu e of the restructured advance. As different sectors of
economy have different performance indicators, it w ill be desirable that banks adopt these broad
benchmarks with suitable modifications. Therefore, it has been decided that the viability should be
determined by the banks based on the acceptable via bility parameters and benchmarks for each parameter
determined by them. The benchmarks for the viabilit y parameters adopted by the CDR Mechanism are
given in the Appendix to Part – B of this Master Ci rcular and individual banks may suitably adopt them with
appropriate adjustments, if any, for specific secto rs while restructuring of accounts in non-CDR cases .
17.1.5 While the borrowers indulging in frauds and malfeasance will continue to remain ineligible for
restructuring, banks may review the reasons for cla ssification of the borrowers as wilful defaulters, specially
in old cases where the manner of classification of a borrower as a wilful defaulter was not transparen t, and
satisfy itself that the borrower is in a position t o rectify the wilful default. The restructuring of such cases
may be done with Board's approval, while for such a ccounts the restructuring under the CDR Mechanism
may be carried out with the approval of the Core Gr oup only.
17.1.6 BIFR cases are not eligible for restructurin g without their express approval. CDR Core Group in the
case of advances restructured under CDR Mechanism, the lead bank in the case of SME Debt
Restructuring Mechanism and the individual banks in other cases, may consider the proposals for
restructuring in such cases, after ensuring that al l the formalities in seeking the approval from BIFR are
completed before implementing the package.
17.2 Asset classification norms
Restructuring of advances could take place in the f ollowing stages:
(a) before commencement of commercial production / operation;
(b) after commencement of commercial production / o peration but before the asset has been classified as
(c) after commencement of commercial production / o peration and the asset has been classified as 'sub-
standard' or 'doubtful'.
17.2.1 The accounts classified as 'standard assets' should be immediately re- classified as 'sub-standard
assets' upon restructuring.
17.2.2 The non-performing assets, upon restructurin g, would continue to have the same asset classification
as prior to restructuring and slip into further low er asset classification categories as per extant as set
classification norms with reference to the pre-rest ructuring repayment schedule.
17.2.3 Standard accounts classified as NPA and NPA accounts retained in the same category on
restructuring by the bank should be upgraded only w hen all the outstanding loan/facilities in the account
perform satisfactorily during the ‘specified period ’ (Annex - 5), i.e. principal and interest on all facilities in the
account are serviced as per terms of payment during that period.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.45
17.2.4 In case, however, satisfactory performance a fter the specified period is not evidenced, the asset
classification of the restructured account would be governed as per the applicable prudential norms wi th
reference to the pre-restructuring payment schedule .
17.2.5 Any additional finance may be treated as 'st andard asset' during the specified period (Annex – 5)
under the approved restructuring package. However, in the case of accounts where the pre-restructuring
facilities were classified as 'sub-standard' and 'd oubtful', interest income on the additional finance should be
recognised only on cash basis. If the restructured asset does not qualify for upgradation at the end o f the
above specified period, the additional finance shal l be placed in the same asset classification catego ry as
the restructured debt.
17.2.6 If a restructured asset, which is a standard asset on restructuring in terms of para 20.2, is subjected
to restructuring on a subsequent occasion, it shoul d be classified as substandard. If the restructured asset
is a sub-standard or a doubtful asset and is subjec ted to restructuring, on a subsequent occasion, its asset
classification will be reckoned from the date when it became NPA on the first occasion. However, such
advances restructured on second or more occasion ma y be allowed to be upgraded to standard category
after the specified period (Annex-5) in terms of th e current restructuring package, subject to satisfactory
17.3 Income recognition norms
Subject to provisions of paragraphs 17.2.5, 18.2 an d 19.2, interest income in respect of restructured
accounts classified as 'standard assets' will be re cognized on accrual basis and that in respect of th e
accounts classified as 'non-performing assets' will be recognized on cash basis.
17.4 Provisioning norms
17.4.1 Provision on restructured advances
(i) Banks will hold provision against the restructu red advances as per the extant provisioning norms.
(ii) Restructured accounts classified as standard a dvances will attract a higher provision (as prescribed
from time to time) in the first two years from the date of restructuring. In cases of moratorium on pa yment of
interest/principal after restructuring, such advanc es will attract the prescribed higher provision for the period
covering moratorium and two years thereafter.
(iii) Restructured accounts classified as non-perfo rming assets, when upgraded to standard category wi ll
attract a higher provision (as prescribed from time to time) in the first year from the date of upgradation.
(iv) The above-mentioned higher provision on restru ctured standard advances (2.75 per cent as prescrib ed
vide circular dated November 26, 2012) would increa se to 5 per cent in respect of new restructured
standard accounts (flow) with effect from June 1, 2 013 and increase in a phased manner for the stock o f
restructured standard accounts as on May 31, 2013 a s under :
3.50 per cent - with effect from March 31, 2014 (s pread over the four quarters of 2013-14)
4.25 per cent - with effect from March 31, 2015 (s pread over the four quarters of 2014-15)
5.00 per cent - - with effect from March 31, 2016 (spread over the four quarters of 2015-16)
17.4.2 Provision for diminution in the fair value of restr uctured advances
(i) Reduction in the rate of interest and / or resc hedulement of the repayment of principal amount, as part of
the restructuring, will result in diminution in the fair value of the advance. Such diminution in valu e is an
economic loss for the bank and will have impact on the bank's market value of equity. It is, therefore,
necessary for banks to measure such diminution in t he fair value of the advance and make provisions for it
by debit to Profit & Loss Account. Such provision s hould be held in addition to the provisions as per existing
provisioning norms as indicated in para 17.4.1 abov e, and in an account distinct from that for normal
For this purpose, the erosion in the fair value of the advance should be computed as the difference
between the fair value of the loan before and after restructuring. Fair value of the loan before restructuring
will be computed as the present value of cash flows representing the interest at the existing rate charged on
the advance before restructuring and the principal, discounted at a rate equal to the bank's BPLR or b ase
5 (whichever is applicable to the borrower) as on the date of restructuring plus the appropriate term
5 This change has been i ntroduced as a resul t of the i ntroduction of Bas e Rate System w.e.f. J uly 1, 2010 vi de circular DBOD.No.Dir.BC.88/13.03.00/2009-10 dat ed
April 9, 2010 on ‘Guidelines on the Base Rat e’.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.46
premium and credit risk premium for the borrower ca tegory on the date of restructuring. Fair value of the
loan after restructuring will be computed as the pr esent value of cash flows representing the interest at the
rate charged on the advance on restructuring and th e principal, discounted at a rate equal to the bank's
BPLR or base rate (whichever is applicable to the b orrower) as on the date of restructuring plus the
appropriate term premium and credit risk premium fo r the borrower category on the date of restructuring.
The above formula moderates the swing in the diminu tion of present value of loans with the interest rate
cycle and will have to be followed consistently by banks in future. Further, it is reiterated that the provisions
required as above arise due to the action of the ba nks resulting in change in contractual terms of the loan
upon restructuring which are in the nature of finan cial concessions. These provisions are distinct from the
provisions which are linked to the asset classifica tion of the account classified as NPA and reflect t he
impairment due to deterioration in the credit quali ty of the loan. Thus, the two types of the provisions are not
substitute for each other.
ii) It was observed that on a few occasions, there were divergences in the calculation of diminution o f fair
value of accounts by banks. Illustratively, diverge nces could occur if banks are not appropriately fac toring in
the term premium on account of elongation of repaym ent period on restructuring. In such a case the term
premium used while calculating the present value of cash flows after restructuring would be higher than the
term premium used while calculating the present val ue of cash flows before restructuring. Further, the
amount of principal converted into debt/equity inst ruments on restructuring would need to be held unde r
AFS and valued as per usual valuation norms. Since these instruments are getting marked to market, the
erosion in fair value gets captured on such valuati on. Therefore, for the purpose of arriving at the erosion in
the fair value, the NPV calculation of the portion of principal not converted into debt/equity has to be carried
out separately. However, the total sacrifice involv ed for the bank would be NPV of the above portion p lus
valuation loss on account of conversion into debt/e quity instruments.
Banks are therefore advised that they should correc tly capture the diminution in fair value of restructured
accounts as it will have a bearing not only on the provisioning required to be made by them but also o n the
amount of sacrifice required from the promoters (Re f. para 20.2.2.iv). Further, there should not be any effort
on the part of banks to artificially reduce the net present value of cash flows by resorting to any so rt of
financial engineering. Banks are also advised to pu t in place a proper mechanism of checks and balance s
to ensure accurate calculation of erosion in the fa ir value of restructured accounts.
(iii) In the case of working capital facilities, th e diminution in the fair value of the cash credit / overdraft
component may be computed as indicated in para (i) above, reckoning the higher of the outstanding
amount or the limit sanctioned as the principal amo unt and taking the tenor of the advance as one year .
The term premium in the discount factor would be as applicable for one year. The fair value of the term loan
components (Working Capital Term Loan and Funded In terest Term Loan) would be computed as per
actual cash flows and taking the term premium in th e discount factor as applicable for the maturity of the
respective term loan components.
(iv) In the event any security is taken in lieu of the diminution in the fair value of the advance, it should be
valued at Re.1/- till maturity of the security. Thi s will ensure that the effect of charging off the e conomic
sacrifice to the Profit & Loss account is not negat ed.
(v) The diminution in the fair value may be re-comp uted on each balance sheet date till satisfactory
completion of all repayment obligations and full re payment of the outstanding in the account, so as to
capture the changes in the fair value on account of changes in BPLR or base rate (whichever is applica ble
to the borrower), term premium and the credit categ ory of the borrower. Consequently, banks may provid e
for the shortfall in provision or reverse the amoun t of excess provision held in the distinct account.
(vi) If due to lack of expertise / appropriate infr astructure, a bank finds it difficult to ensure com putation of
diminution in the fair value of advances, as an alt ernative to the methodology prescribed above for
computing the amount of diminution in the fair valu e, banks will have the option of notionally computing the
amount of diminution in the fair value and providin g therefor, at five per cent of the total exposure, in
respect of all restructured accounts where the tota l dues to bank(s) are less than rupees one crore.
17.4.3 The total provisions required against an acc ount (normal provisions plus provisions in lieu of
diminution in the fair value of the advance) are ca pped at 100% of the outstanding debt amount.
Bank Audit Manual by CA. Sanjay K Agarwal Page No.47
a. Restructured housing loans should be risk weight ed with an additional risk weight of 25 percentage
b. With a view to reflecting a higher element of in herent risk which may be latent in entities whose
obligations have been subjected to restructuring / rescheduling either by banks on their own or along with
other bankers / creditors, the unrated standard / p erforming claims on corporates should be assigned a
higher risk weight of 125% until satisfactory perfo rmance under the revised payment schedule has been
established for one year from the date when the fir st payment of interest / principal falls due under the
c. For details on risk weights, Master Circular DBR .No.BP.BC.1/21.06.201/2015-16 dated July 1, 2015 on
‘Basel III Capital Regulations’ may be referred.