Presentation on theme: "BANK AUDIT KANNUR BRANCH OF SIRC OF ICAI KANNUR By"— Presentation transcript:
1 BANK AUDIT KANNUR BRANCH OF SIRC OF ICAI KANNUR 22.03.2014 By CA A Mony , B Com , FCA, DISA
2 MAJOR ISSUES MOUNTING NPAs REGULATORS APPROACH STRESS FOR PROFITS/BOTTOMLINETHE UNITED BANK ISSUE.RESTRUCTURING OF LOANSSALE OF NPAsNFB EXPOSURE TURNING TO BE FBSYSTEM SYNCRONISATION ISSUES
3 PRESENT ISSUES LEADING TO b) CENTRALISATION OF RECORDS. ADVENT OF IT AND CORE BANKINGLEADING TOa) LACK OF PHYSICAL TRANSFER.b) CENTRALISATION OF RECORDS.c) VERIFICATION OF ACCURACY OF RECORDS SHIFTING TO INTEGRITY OF DATA.d) CENTRALISED APPLICATION OF INTEREST,CHARGES.
4 NEW CHALLENGES ACCURACY LEAVING WAY TO LOGIC INTEGRITY OF GRANULAR DATA.SAME DATA BASE USED BY DIFFERENT INVESTIGATORS / REGULATORSSYSTEM GENERATED NPA STATEMENT.CASH MANAGEMENT OF ATMsELECTRONIC FUND TRANSFER.SHARING OF ATM, EURONET
5 IMPUTES HO The reports of the other auditors The closing circular issued by the bankHO The reports of the other auditors RBI master circular on prudentialnorms
6 APPROACH DISCUSS WITH THE BRANCH MANAGER PREPARE CHECK LIST ISSUE LETTER FOR CLARIFICATION REQUIREDGIVE EMPHASIS TO DATA FLOW/DOCUMENT FLOW/INPUT FLOWOBSERVE FAILURES OF SYSTEM DURING THE YEAR.
7 THE APPROACH. To see whether the branch is a specialized branches as OVERSEAS, SSI, NRI, ARM, FOREX Etc….. · To see the extend of computerization as ALPM, TBA,CBS Etc.. · To see the extend of internal supervision as INTERNAL AUDIT, CONCURRENT AUDIT, RBI audit, REVENUE AUDIT Etc…. · The accounting or transactions which are controlled by the Central Head Office viz.. DEPRECIATION AND FIXED ASSETS, INTER-BRANCH, SERVICE TAX, BCCT Etc… · Provisions as per IRAC norms which are made at HO mostly in respect of PROVISION FOR STANDARD ASSETS, AUDIT FEE,
8 AUDIT OF ADVANCES- FLOW CHART List Loans to be verifiedClassify the loans bySize of advanceConstitutionScheme of advanceRestructured loansFresh NPAsUpgraded NPAs
10 AUDIT OF ADVANCES FLOW CHART (CONTD…) OTS ACCOUNTSBORDERLINE ACCOUNTSACCOUNTS CLOSED AT THE YEAR END.FRESH ADVANCES AT YEAR ENDENHANCED /ADHOC LIMITS AT YEAR END.BORROWER WITH RUPEE CREDIT, FC CREDIT AND EXPORT CREDIT.BORROWER WITH STANDALONE NON FUNDED EXPOSURES.
11 NITTI GRITTIES MULTIPLE FINANCE CIRCUITOUS TRANSACTIONS PRE SHIPMENT AND POST SHIPMENT ADVANCESNON FUNDED EXPOSURES OF POTENTIAL NPASEXPOSURES DISBURSED OVERSEAS BY ECB ROUTEADHOC LIMITSTEMPORARY OVERDRAFTS.
12 OTHER DOCUMENTS STOCK AUDIT REPORT CREDIT AUDIT REPORT MI REPORT IN CDR CASESCONSORTUIM MINUTESCREDIT INFORMATION SHARING BY OTHER BANKS.CIBIL REPORTSEARCH REPORT FROM ROC.
13 KEY AREAS DRAWING POWER MARGINS VALUATION OF SECURITY SHARING OF SECURITYLEGALITY OF SECURITYENFORCEABILITY OF SECURITY.RECOVERABILITY OF SECURITY
14 NPAS IDENTIFICATION : BASED ON RECORD OF RECOVERY Term loans: interest /installment overdue for more than 90 daysCash credit / overdraft: account remains “ out of order” for more than 90 days. ie. Outstanding balance in the account remains in excess of the sanctioned limit/ Drawing powerBills purchased and discounted : overdue for more than 90 daysAgricultural loansshort duration crops: principal or interest overdue for two crop seasonsLong duration crops : principal or interest over due for one crop seasonDerivative transactions; Overdue receivables remain unpaid for 90 days from the specified due dateDevolved LCs: not paid for more than 90 days from the due dateInvoked Guarantees: not paid for more than 90 from the due dateAn amount is “Overdue” if not paid on the due date fixed by the bank
15 NPA IDENTIFICATION : OTHER CRITICAL CONSIDERATIONS Project loans forInfrastructure sector: to be classified as NPA for the failure to commence commercial operations within two years from the original DCCO(Date of Commencement of Commercial Operations)Non infrastructure sector (other than commercial real estate exposures) : to be classified as NPA for the failure to commence commercial operations within one year from the original DCCOCommercial Real Estate: failure to commence commercial operation within one year from the date of original DCCO and no change in other terms and conditions: possible shift in the repayment schedule and servicing of the loan by equal or shorter duration permitted.
16 INCOME RECOGNITIONIncome from NPA not to be recognized on accrual basis ie. Income from NPAs, including government guaranteed accounts to be booked on cash basis.Free and commissioned income to be recognized on accrual basis over the rescheduled extension of period of creditIncome, if any, recognized on NPAs prior to the date of NPA to be reversed ie. The balance in an NPA account will be equal to the sanctioned limit/principal amount after reversal of the interestInterest realized on NPAs can be recognized as income as per the bank.Future interest not to be charged and taken to income unless realized
17 Asset Classification Standard assets b. Sub standard Assets: Remaining as NPA upto 12 monthsc. Doubtful Assets : Remaining as Sub standard for a period of 12 Monthsd. Loss asset : Identified by the bank , internal or external auditors or the RBI inspection
18 PROVISION ON STANDARD ASSETS Direct advance to Agriculture and SME sector-0.25%Commercial Real Estate-1%Commercial real estate residential housing sector – 0.75%Housing loan at teaser rates i.e. Lower rates – 2%Restructured advancesNew reconstructed standard account with effect from – 5%Increase in phased manner for the stock of reconstructed standard asset as on May 31, 2013 (2.75 % prescribed as per circular dated Nov 26,2012)3.5% with effect from Mar 31, 20144.25% with effect from Mar 31, 20155 % with effect from Mar 31, 2013Provision for diminution in the fair value accounts on account of restructuringOther Loans & advances not included in above – 0.40%
19 PROVISIONING Primary responsibility with bank and statutory auditors Assessments of RBI to assist the bank management and statutory auditors to takeproper decisionNormsLoss assets – 100%Doubtful assets –Unsecured Portion -100%Secured portion ;Up to 1 Year -25%1 to 3 years -40%> 3 years -100%Valuation of Security portionStock audit at annual intervals where the balance in the NPA is more than Rs.5 croresCollaterals to be valued once in three yearsSub standard assets –General – 15%Unsecured exposure-General 25% of the outstanding balanceInfrastructure 20% of the outstanding balance
20 PROVISIONING (CONTD…) ‘Unsecured exposure’ means an exposure with realizable value of security less than 10% of the outstanding exposure , abinitio.‘Exposure’ includes funded and non funded‘security’ means tangible security properly discharges to the bank and will not include intangible securities like guarantees (including government guarantees)
21 GENERAL PRINCIPLES OF RESTRUCTURING EligibilityStandardSub standardDoubtfulCannot be reschedule with retrospective effectThe usual asset classification norms continue to apply duringthe period of processing the restructuring proposal.Asset classification status on the date of approval of the asset classification status of the account after restructuring/rescheduling/negotiation
22 General Principles of Restructuring (contd...) Elements of special regulatory framework of restructured accountsIncentive for quick implementation of restructuring packageRetention of the asset classification in the pre restructuring asset classification categoryAsset classification to be restored to the position prior of restructuring.If implemented within 120 days from the date of approval under CDR.Within 120 days from date of receipt of application in the case of non CDROther conditions to be fulfilled
23 Restructuring contd….ASSET TO SLIP TO NEXT INFERIOR CLASSIFICATION ON RESTRUCTURING – EXCEPT SPL REGULATORY FRAME WORK.UPGRADATION POSSIBLE AFTER SATISFACTORY PERFORMANCE FOR ONE YEAR.INCOME RECOGNITION PROVISIONS REMAIN UN TOUCHED.
24 COMPUTERISED ENVIRONMENT THRUST DATA VALIDATION CHECKSDATA FLOW AND MISSING CONTROLSAUTHORISATION AND AUTHENTICATION ISSUESSHARING OF DATA IN SHARED NETWORKS/INFRASTRUCTUREPHYSICAL & LOGICAL CONTROLS TO BE ENSUREDROUTING ACCOUNTS
25 THRUST (Contd….) MASTER DATA UPDATIONS SOFT WARE ISSUES SYSTEM ISSUES WHITE BOX APPROACHENSURE VERIFIED DATA ONLY IS ATTESTED.
26 AUDIT MODULE OBTAIN PASS WORD and ENABLE AUDIT MODULE. VERIFY THE AUDIT MENUVERIFY REPORTS AVAILABLE.ENSURE VALIDITY OF SYSTEM GENERATED IRAC REPORTSSEE WHETHER IT ADDRESS INTERFACE ISSUES
27 MENU OPTION READ THE MENU OPTIONS AVAILABLE IN THE SYSTEM FLAG THE MENUS APPLICABLE TO AUDITBROWSE THROUGH THE MENU TO SATISFY OUTPUTKNOW ABOUT MIS SOFTWARES OTHER THAN MAIN SOFT WARE.
28 EXCEPTION REPORTS LIEN MARKED REPORTS PARAMETER CHANGED/MODIFIED REPORTCASH DRAWINGS IN EXCESS OF 10 LAKHSVERIFY SYSTEM OF GENERATION, UP KEEP, FILING AND ATTESTING OF EXCEPTION REPORTS.
30 MANUAL CALCULATIONS MAJOR ADVANCE ACCOUNTS DEPOSIT ACCOUNTS INTEREST RATE CHANGES APPLIED – DATE & RATECHARGES UPDATION
31 Incremental NPAs to Opening gross advances A PRACTICAL APPROACHRATIO ANALYSISNet NPA to net advancesGross NPA to gross advanceIncremental NPAs to Opening grossadvancesStandard advancesProvision for loss assets to Gross Advances
32 Value Addition to Branch Audit REPORTINGOBSERVATIONS TO FORM PART OF MAIN REPORTANALYSIS OF FINANCIAL STATEMENT.CREDIT APPRAISAL OF BORROWEROVERTRADINGDIVERSIONINDULGIUNG IN UNKNOWN SECTORSBUSINESS IN RISKY S ECTORSCOMPANY PROVISIONS
33 IMPORTANT CERTIFICATES CAPITAL ADEQUECYDIGCG/ECGCSLR REQUIREMENT 12 ODD DATESPMRY / JAWAHAR ROZGAR YOJNAGHOSH COMMITTEEJILANI COMMITTEE
34 THANK YOU CA A Mony, B.Com, FCA, DISA BY Partner Sankar and Moorthy Calicut