Effective Concurrent Audit

DISCLAIMER
The views expressed in the following presentation should not be

construed as the view of ICAI or my firm.
The views opined herein should not be considered as a professional

advice
This presentation should not be reproduced in part or in whole, in

any manner or form, without my written permission.
The failure of such may attract civil or criminal liabilities.
2
Effective Concurrent Audit by CA Akesh Vyas
BACKGROUND OF
CONCURRENT AUDIT
3
• Concurrent audit system formally introduced by RBI in its circular
dated 11.10.1993 based on the recommendations of Ghosh Committee
on frauds and malpractices in India.
• Originally conceived as a transaction based audit with an attempt to

shorten the interval between a transaction and its examination by an
independent person.
4
VARIOUS TYPES OF BANK AUDITS
TYPES OF BANK AUDITS
1. RBI Annual Financial Inspection

2. Bank and Branch Statutory Audit
3. Concurrent Audit
4. Revenue Audit
5. Credit Audit
6. Stock Audit
7. Risk Based Internal Audit
8. Information System Audit
9. Forensic Audit
10. Other Audits (KYC Audit, Migration audit, Cleanliness
audit , Demonetization audit , current accounts verification
audit etc)
5
RBI GUIDELINES ON
CONCURRENT AUDIT SYSTEM
6
RBI/2019-20/64 DBS.CO.ARS.NO.BC.01/08.91.021/2019-20 DATED
SEPT.18TH, 2019
Scope of work Discreation of the Bank
Appointment Discretion of the Bank- By bank own staff or

external auditors. Bars a firm if a partner is
a director in the bank
Accountability on Cancellation of appointment and reporting

serious act of to RBI and ICAI
omission or
commission
Tenure Maximum 5 years with maximum 3 years
with a branch
Remuneration Discretion of the bank
Minimum area of 13 as per RBI circular
coverage
7
SCOPE OF
CONCURRENT AUDIT
8
Concurrent Audit Procedure by CA Akesh Vyas
• SUBMISSION OF LONG FORM REPORT (LFAR)
In terms of RBI Circular No RBI/2014-15/626

DBS.CO.ARS.BC.8/08.91.001/2014-15 June 4, 2015
LFAR for the branches which are not subjected to statutory audit shall be
submitted by the concurrent auditors as reproduced below :
“ In respect of branches below the cut-off point, which are subject to concurrent
audit by chartered accountants, henceforth, LFARs and other certifications done
earlier by SBAs will now be submitted by the concurrent auditors and such
branches may not generally be subject to statutory audit.”
9
ICAI GUIDELINES :
As per the “Guidance Note on Independence of Auditors”

Concurrent audit and assignment of quarterly review of the same
bank can not be under taken simultaneously as the concurrent
audit being a kind of internal audit and the quarterly review being a
kind of statutory audit , both the assignments can not be
undertaken simultaneously.
10
RBI /2012-13/524DBS.FrMC.BC.No.7/23.04.001/2012-13 dated 7th June 2013
Legal Audit of title documents in respect of large value loan

accounts
The banks should also subject the title deeds and other documents in respect
of all credit exposures of ` 5 crore and above to periodic legal audit and re-
verification of title deeds with relevant authorities as part of regular audit
exercise till the loan stands fully repaid.
3. The banks may furnish a review note to its Board/ Audit Committee of the
Board at quarterly intervals on an ongoing basis giving therein the information
in respect of such legal audits which should cover aspects, inter alia, like
number of loan accounts due for legal audit for the quarter, how many
accounts covered, list of deficiencies observed by the auditors, steps taken to
rectify the deficiencies, number of accounts in which the rectification could not
take place, course of action to safeguard the interest of bank in such cases,
action taken on issues pending from earlier quarters.
11
BASIC PREPARATIONS
I) Acceptance of appointment
II) Going through the guidelines
III) Going through the reports and certificates to be submitted
IV) Familiarization with Bank’s loan schemes, service charges,
rate of interest available at Bank’s site.
12
At branch :
i) Going through the latest RBIA report, latest concurrent audit
reports
ii) Preparation of data base of major borrowal accounts
consisting of important information such as
• Detail of sanctioned limits
• Date of last sanction
• Rate of interest as per last sanction
• Compliance of terms of sanction at a future date
• Expiry date of external rating , if any.
• Prescribed margin
• Insurance amount , date of expiry
• Concession, if any , as per last sanction
13
METHOD OF REPORTING
Main report
Off Line
Online
14
On Line reporting software
eThics Indian Bank, Indian Overseas Bank

SBI, Syndicate , Bank of India , UBI
AMS (Audit management system) IDBI Bank
IIAMS OBC
15
SOURCE OF
INFORMATION
16
• Bank’s Credit and other policies from Bank’s Intranet :
• Bank’s Circulars from Bank’s Intranet
• Bank’s internet site : Latest service charges , various loan
schemes, latest rate of interest of deposits and advances
• RBI site : Master circulars /Master directions
• Bank’s Books of Instructions
• System generated reports
17
SOURCE OF USEFUL SYSTEM
GENERATED REPORTS
BANK SOURCE OF REPORTS
Allahabad Bank, Central Bank of Short cut to reports
India, Bank of Maharashtra
Bank of India MISRPT
Bank of Baroda BOBMENU
Indian Bank CDC reports
United Bank of India EODDRPT, UNIRPT
Indian Overseas Bank FINRPT
Oriental Bank of Commerce MISREP
Punjab National Bank PNBRPT
Punjab & Sind Bank PSBRPT

Syndicate Bank Day end reports
18
SOURCE OF USEFUL SYSTEM
GENERATED REPORTS
BANK SOURCE OF REPORTS
Allahabad Bank, Central Bank of Short cut to reports
India, Bank of Maharashtra
Bank of India MISRPT
Bank of Baroda BOBMENU
Indian Bank CDC reports
United Bank of India EODDRPT, UNIRPT
Indian Overseas Bank FINRPT
Oriental Bank of Commerce MISREP
Punjab National Bank PNBRPT
Punjab & Sind Bank PSBRPT

Syndicate Bank Day end reports
19
SOME FINACLE COMMANDS
ACLI
1. To View Ledger account : Account No + F4

2. To view Rate of Interest : Account No.+ Control E+0 (at option code)+F4+F6
3. To view Sector (Priority/Non Priority) : Account No +Control E +V (At option
code)+F4
4. To view Sanction detail : Account No +Control E +H (At option code)+F4+ S (at
operation option)
5. To view Drawing Power : Account No +Control E +H (At option code)+F4+ D (at
operation option)
6. To View Asset Classification (Standard/NPA) : Account No +Control E +Y (At
option code)
7. To view Documents detail : Account No +Control E +X (At option code)
8. To view overdue installments in term loan accounts :
Account No. + Control E+ E (at option code) +F4
In addition , various other information like PAN, Beneficial owners, Cust. ID,
TOD detail, Lien in account etc can be obtained.
20
ACS
1. To view account opened during a period : Open date (low)+open date (high)
+F6+Scheme type (SBA for Savings Bank, CAA for current account, TDA for
term deposits, CCA for CC, ODA for OD and LAA for loans)
2. To view NPA accounts : F6+002 (at main asset classification)+F4
3. To view all accounts of a customer : Cust ID+F4
21
BANKING OPERATIONS AT A BRANCH
GENERAL
LOANS AND FOREIGN
OPERATIONS
ADVANCES EXCHANGE
22
EFFECTIVE
CONCURRENT AUDIT-
LOANS AND ADVANCES
23
CLASSIFICATIONS
SECTOR WISE
SECURITY WISE
PERFORMANCE
WISE
24
SECTOR WISE CLASSIFICATION
Priority Sector Housing
Loan :In Metropolitan
Centres (Population 10 lacs
and above)- Loans upto Rs.
35 lacs provided overall cost
of dwelling unit not to exceed
Priority Non Priority Rs. 45 lacs In case of
• Agriculture • Sectors other than repairs, amount restricted to
Rs. 5 lacs
• Education priority are covered In Other Centres - Loans
• Housing under non priority upto Rs. 25 lacs provided
sector
• Export credits overall cost of dwelling unit
not to exceed Rs. 30 lacs In
• MSME case of repairs, amount
• Social Infrastructure restricted to Rs. 2 lacs
• Renewable energy Priority Sector
• Others Education Loans –
Upto Rs 10 lacs
Social Infrastructure-
Rs 5 crore
Present target for
priority sector lending –
40%
Agriculture Loan : 18%
25
DEFINITION OF MSME
As defined under MSMED Act 2006:
Sector Micro Small Medium
Manufacturing Upto Rs 25 lacs Over Rs 25 lacs Over Rs 5 crore

Sector (investment in upto Rs 5 crore upto Rs 10 crore
plant and machinery)
Service Sector Upto Rs 10 lacs Over Rs 10 lacs Over Rs 2 crore

(investment in upto Rs 2 crore upto Rs 5 crore
equipment)
26
Documents required for ascertaining the status of an entity as
MSME (As per RBI master direction dated 24th July 2017)
• A Copy of invoice of plant and machinery or

• A certificate issued by a Chartered Accountant regarding
purchase price of plant and machinery or
• Gross block for investment in plant and machinery as shown
in the audited accounts
27
RBI Circular No BP.BC.34/21.04.048/2019-20 dated
February 11, 2020 -restructuring of advances to MSME Sector
Allowing one time restructuring of loans to MSME without classifying as
NPA subjected to :
• Account is in default but is a standard asset as on 1st January 2020

and continuous to be classified as “ Standard” till the date of
implementation of the restructuring.
• Aggregate exposure (fund as well non fund based ) from banks and
NBFC not to exceed Rs 25 crores as on 1st Jan 2020
• GST registered as on date of restructuring (not applicable in case of
GST exempted entity)
Additional 5% provisioning is required in such accounts
28
MSME INCLUDES RETAIL TRADE
RBI Circular No RPCD.CO.Plan.BC. 24 /04.09.01/2009-10 dated

18th Sept 2009 read with Govt of India communication dated 12th
June 2009 :
“ There will be no separate category for "Retail Trade" under

priority sector. Loans granted by banks for Retail Trade [i.e.
advances granted to retail traders dealing in essential commodities
(fair price shops), consumer co-operative stores; and advances
granted to private retail traders with credit limits not exceeding Rs.
20 lakh) would henceforth be part of the Small (Service)
Enterprises”
29
INTEREST SUBVENTION FOR MSME
RBI Circular No RBI/2018-19/125 dated 21st Feb.2019
Pre Requisite- Valid Udyog Aadhar Number
Interest relief at 2% p.a. on incremental term loan or fresh term loan or

incremental or fresh working capital extended during current FY from 2 nd
November 2018 and next FY.
Maximum coverage- Rs. 100 lakh
Not eligible -
MSME exporters availing interest subvention
NPA accounts
30
SECURITY WISE CLASSIFICATION
Security Wise
classification
Secured- by
Unsecured
tangible assets
31
TYPES OF
SECURITIES
PRIMARY SECURITY
The security against which credit is extended by the Bank
such as Stocks, Book debts , Machineries
COLLETRAL SECURITY
An additional security which provides a cushion to the bank
in case of needs such as immovable property
32
TYPES OF
SECURITIES
PRIMARY SECURITY
The security against which credit is extended by the Bank
such as Stocks, Book debts , Machineries
COLLETRAL SECURITY
An additional security which provides a cushion to the bank
in case of needs such as immovable property
33
SECURED BY GUARANTEE
• Personal guarantee of an individual :

To ensure that the guarantor has the capacity and is eligible to
give guarantee. Payment of commission to give guarantee is
prohibited.
• Corporate Guarantee :
Guarantee given by a company in respect of loan taken by
another person.
34
• CGTMSE SCHEME
Accounts covered under CGTMSE (Credit Guarantee Fund Trust
for Micro and Small Enterprises) scheme
a) Eligible accounts- only micro and small enterprises
b) No collateral and third party guarantee
c) Maximum finance Rs 2 crore
d) Payment of annual guarantee fee
ECGC (EXPORT CREDIT GUARANTEE CORPORATION):

• Coverage of export loans
• Premium to be paid on monthly basis (In case of pre-shipment, to
be borne by the borrower, in case of post shipment, to be borne
by the Bank)
• Prior Permission to extend loan to an NPA account
• Satisfactory credit report of overseas buyer not older than one
year
35
PRUDENTIAL NORMS CLASSIFICATION
Classification of
advances as per
Prudential Norms
Standard NPA Loans

Loans
Standard Special
Mention Substandard Doubtful Loss
Regular
Account (SMA)
SMA 0 (Overdue upto 30 days)
SMA 1 (Overdue between 31

to 60 days)
SMA 2 (Overdue between 61
36
days to 90 days)
STAGES OF ASSET CLASSIFICATION
SUBSTANDARD NPA UPTO 1 YEAR

DOUBTFUL OVER 1 YEAR
LOSS DECLARED AS A LOSS BY THE AUDITORS
INSTANCE WHEN A SUB STANDARD ACCOUNT ( AS PER THE

PERIOD) MAY BE DIRECTLY CLASSIED AS DOUBTFUL OR LOSS
• IF THERE IS AN EROSION IN THE VALUE OF ASSETS

BETWEEN 50% TO 90% DOUBTFUL
OVER 90% LOSS
37
NPA NORMS
• SUB STANDARD ACCOUNTS- CASH CREDIT/ OD ACCOUNTS -
FINANCIAL REASONS
90
❖ Account overdrawn> Lesser of (Sanctioned limit or drawing power)
days or
more
❖ No credits or credits insufficient to cover the interest during the previous
quarter.
• SUB STANDARD ACCOUNTS- CASH CREDIT/ OD ACCOUNTS –

TEMPORARY DEFICIENCIES
❖ Renewal pending More than 180 days
❖ DP calculated from stock statement older than 3 months and

continuance of such irregularity for
More than 90 days
38
• SUB STANDARD ACCOUNTS- TERM LOANS
❖ Interest and /or principal remain overdue
More than 90 days
EXEMPTIONS
× Central Government guaranteed advances. However, no exemption in income
recognition.
× Loans against LIC, NSC, FDRs KVP if adequate margin available
× Loan to staff members where interest is payable after recovery of principle
amount.
× Loan where there is moratorium period for payment of interest
SUB STANDARD ACCOUNTS- BILLS DISCOUNTED

Remain overdue
More than 90 days
39
Accounts regularised near about the balance sheet date
RBI Circular No DBR.No.BP.BC.2/21.04.048/2015-16

Dated July 1, 2015
Para 4.2.6
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 available, the account should
be deemed as a NPA. In other genuine cases, the banks must furnish
satisfactory evidence to the Statutory Auditors/Inspecting Officers about
the manner of regularisation of the account to eliminate doubts on their
performing status.
40
TYPE OF ADVANCES
41
• Fund based advances are those where there is an actual transfer of
funds from the bank to the borrower. Examples : Cash credit, term
loans, overdraft, bill discounting, export loans etc.
• Non fund based advances are those where there is no immediate

involvement of transfer of funds from the bank to the borrower.
Examples: Letter of credit , bank guarantees, co-acceptance of bill.
42
FUND BASED FACILITIES
Cash Credit
Term Loan
Overdraft
Bill Discounting
Export Loan
43
ACCOMODATION BILLS
Bills are raised by drawer and accepted by drawee as per the

mutual understanding without any actual sale/purchase
transaction taking place. Funds raised by the drawer through
discounting of bill.
The practice is strictly prohibited
44
Transactions under Accomodation Bills
▪ Bills are raised by drawer (seller of goods) and accepted by
drawee (purchaser) as per the mutual understanding without any
actual sale/purchase transaction taking place.
▪ Funds are raised by the drawer through discounting of bill while

the drawee includes the stocks in the stock statement for availing
Cash Credit limit resulting in double financing against the
transaction with out actual sale/purchase transaction taking place.
▪ Such bills are highly risky for banks since in case , the same are
drawn under LC, the Bank issuing the LC is under statutory
obligation to make the payment of the bills in case the drawee
(purchaser) fails to do so.

CASE STUDIES-
ACCOMODATION BILLS
46
CASE STUDY-1
Facts
ABC Ltd enjoying CC and LC limits under sole banking.
Account facing liquidity problem. Frequent LC devolvement inspite of
healthy financials as per audited balance sheet (huge turnover, healthy
profits, all debtors outstanding below 6 months)
Findings
-Audited financials submitted to the branch not filed with ROC for 3
years
-Borrower dealing in steel items as per records, LCs of Rs. 15 crore
issued for purchase of rice,
-In stock statement, the amount due to sundry creditor is only Rs. 4.31
lacs. As per explanation later provided by the borrower, the amount
due to the suppliers under LC are not credited to party’s account but
credited to LC Payable account.
-Underreporting of Creditors with excess DP allowed.
-Major debtor one party which deals in IT products
47
CASE STUDY-2
Facts
ABC Ltd availing CC as well LC limits from the consortium of
bankers .
Account turning NPA due to irregular CC caused by LC
devolvement
Findings
LCs issued in favour of parties with dubious credentials. VAT
registration cancelled with pending CBI cases for fraudulent
activities. Goods transported through unapproved transporters.
Cases of round tripping.
Use of short term funds amounting to Rs. 20.81 crore for long term
purposes.
48
Concealment of facts at the time of initial sanction. Net profit of Rs.
43 crore as per audited balance sheet without considering Rs. 63
crore of bad debts claimed in ITR . Audit report submitted to the
bank without page containing undisputed statutory dues of Rs
30.84 crore as reported in CARO.
Huge decline in financials :
Financials Year of sanction Year of NPA
Raw material consumption 67.59% 99.51%

to sales
Sundry Debtors over 6 Rs 28.25 Rs 280.60 crore
months Lacs (76% of total
debtors)
Net profit/Loss Rs 42.57 crore (-) Rs 105.94

Crore
49
CASE STUDY-3
Facts
ABC Ltd availing CC as well LC limits from the
consortium of 4 bankers .
Account turning NPA due to irregular CC caused by LC
devolvement.
ABC Ltd filed petition with NCLT under IBC for
resolution due to huge losses and inability to pay bank
dues.
50
Findings :
Increase in share capital of Rs. 23 crore out of which 41% fresh capital
introduced through transfer of funds from CC account to various sister
concern accounts.
LCs issued in favour of related party. Cases of round tripping. Movement

of goods through unapproved transporters.
Accumulated Losses of Rs. 166 crore claimed on basis of huge provision

of debtors (around Rs. 100 crore) in last 2 years not supported by Income
tax returns. No filing with MCA. Debtors unconfirmed.
51
CASE STUDY-4
Facts
ABC Ltd availing CC as well LC limit from bank. Account become

NPA due to continuous over in CC account due to LC devolvement.
Findings
LCs issued in favour of supplier reported “Untraceable” by D&B in its

report.
80% reduction in value of collateral within last 2 years.
52
Findings :
Increase in share capital of Rs. 23 crore out of which 41% fresh capital
introduced through transfer of funds from CC account to various sister
concern accounts.
LCs issued in favour of related party. Cases of round tripping. Movement

of goods through unapproved transporters.
Accumulated Losses of Rs. 166 crore claimed on basis of huge provision

of debtors (around Rs. 100 crore) in last 2 years not supported by Income
tax returns. No filing with MCA. Debtors unconfirmed.
53
RISK MITIGATION
I. LCs to be issued for and on behalf of customers with sound credentials
and adequate margin
II. No fresh LCs should be issued till regularization of earlier devolved LC
III. Availability of satisfactory credit report of the beneficiary
IV. Movement of goods through IBA approved transport operators. Proper
justification recorded in writing for movement of goods by non
approved transporter.
V. Verification of bill of entry through icegate.gov.in
54
NON FUND BASED FACILITIES
Letter of Credit
Bank Guarantee
LOUs
55
RECENT MAJOR BANKING
FRAUDS-SYSTEM FAILURES
56
Letter of undertaking
Banned w.e.f March 13, 2018
Parties involved in the transactions
A - Customer of an Indian Bank

B- An Indian Bank which is issuing LOU at the request of the
customer
C- Overseas supplier of the customer
D- A Foreign Bank or overseas branch of an Indian Bank
which is releasing funds on the basis of LOU
Need for LOU :

Availability of cheaper foreign funds to the customer
57
Letter of undertaking
Banned w.e.f March 13, 2018
Process: (At the time of Issuance of LOU)
Indian Bank Overseas

(3) Issue of LOU
having Indian Branch of
customer’s A/c (4) Transfer of Forex in NOSTRO A/c Indian Bank
(2) Request for arranging Forex for payment to vendor (5) Payment
(1) Supply of goods

Foreign
Indian Customer
Vendor
58
INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LTD
➢Huge exposure of Rs 106483 crore as at 31st March 2018 with low capital base.
Debt equity ratio 13:1 much above the bench mark level
➢Complex structure with several subsidiaries, joint ventures and SPVs.
➢Use of short term funds for long term project financing leading to Asset Liability
mismatch.
➢No meeting of risk management committee since June 2015 inspite of huge
increase in company’s borrowing during last 3 years
➢Wrong risk rating
➢Ever greening of accounts in IFIN by non identifying accounts as NPA and
providing fresh loans to adjust old irregular accounts
➢Difference in calculation of Net Owned Funds (NOF) and capital adequacy ratio
(CRAR) between RBI and audited accounts. As per RBI, the above are in negative.
59
➢Net Profit of ILFS for 2017-18 Rs 584 crore on stand alone basis
but group incurred losses of Rs.1869 crore. Increase in audit fee
from Rs. 4.50 crore (2015) to Rs 13.70 crore (2018) .Audit of 141
subsidiaries, 12 associates and 26 joint ventures done by other
firms other than main auditors.
➢SFIO has filed 800 pages charge sheet against 30 entities

including directors and auditors of IFIN , an NBFC arm of ILFS.
➢Over 90% of loans of IFIN identified as NPAs. 37% of total

advances made to group concerns
60
PUNJAB AND MAHARASHTRA COOPERATIVE BANK LTD
(PMC BANK)
➢Huge exposure (over 70%) to a single group HDIL (now under

insolvency process)
➢Account NPA not classified as standard
➢21049 fictitious accounts opened belonging to dead account
holders or to persons who had closed the accounts to hide 44
accounts belonging to HDIL group
61
STAGES OF LOAN
Pre Sanction Documentation Post Sanction
62
AUDIT PROCEDURE
Appraisal
Documentation & Release
Monitoring
Stock Statement, Insurance, Renewals
SMA & NPA
63
GENERAL BANKING
OPERATIONS
• Cash
• ATM
• Deposits
• KYC
• AML
• Revenue Leakage
• Lockers
• House Keeping
• Window dressing
• Important reports
• Miscellaneous
64
CASH AUDIT PROCEDURE
• Conducting a surprise physical verification of cash in hand, on any day during the
month.
• Cash to be under the dual custody
• Tallying of physical cash with the system
• Verifying whether currency notes are sorted and bundled properly.
• Bank’s main gate to be kept locked both at the time of withdrawing cash from safe
and from depositing cash in safe at the end of the day
• Verifying whether soiled / mutilated notes are kept separately as per the RBI norms
and disposed off properly.
• Verifying the number of times the branch exceeded the Cash Retention Limit and
action taken by the branch to dispose off the surplus cash.
• Late cash receipt- Proper entry in cash balance book under the authority of the
branch head.
• Surprise verification of cash done by officer other than joint custodian
officer/manager at prescribed interval
• Maintenance of Cash Movement’ register as per guidelines
• Prescrolling of cash deposits
• Maintenance of bait money with record in Bait money register.
• Branches following clean note policy of RBI
65
COUNTERFEIT CURRENCY
• Bank Notes tendered over the counter should be examined for authenticity through machines and
those determined as counterfeit notes shall be stamped as “Counterfeit Note” and impounded.
• Each such counterfeit note shall be recorded in a separate register.
• An acknowledge receipt must be issued to the tender after stamping the note as counterfeit note
Receipt should be in running serial number and needs to be authenticated by the cashier and
tenderer.
• No credit to be given to the customer’s account for the counterfeit note.
• Notice to this effect should be displayed prominently at the branch for the information of the public.
• For cases of detection of counterfeit notes up to 4 pieces in single transaction, a consolidated

report should be sent to the police authorities along with suspect counterfeit notes at the end of the
month.
• For cases of detection of counterfeit notes of 5 or more pieces in a single transaction the counterfeit
notes should be forwarded to the local police authorities for investigation and for filing FIR.
• A copy of the monthly consolidated report / FIR shall be sent to the Forged Note Vigilance Cell
66
constituted at the Head office of the bank.
REVENUE LEAKAGE EXERCISE
67
Revenue Leakage
Processing Fee
Interest
Service Charges
Processing Fee:
Non charging of Processing fee
Non Charging of Processing fee for broken period
Non Charging of Processing fee on non fund based limits
Service Charges:
Non charging of commitment charges
Non Charging of annual lead bank charges
Bank Guarantee Commission : Improper classification of Bank
Guarantee, Non charging of commission in subsequent years when the
same to be charged on annual basis.
68
Interest:
Non Charging of interest in the account

Wrong periodicity – Interest charged on quarterly instead of
monthly basis.
Reversal of penal interest for non renewal due to back dated
history change
Loan against FDR- Increase in rate of interest of FDR without
corresponding change in the rate of interest of the Loan account
Loan against FDR- Loan exceeding security value . Balance over
security value to be treated as clean loan attracting higher ROI
Non charging of penal interest for non submission of stock
statement, non renewal of account
Non charging for penal interest for non compliance of terms of
sanction like failure to obtain external rating
Continuation of charging concessional rate of interest/applicable
charges even after the lapse of sanction
Non charging commercial rate of interest from the date of release
in export limits where export has not taken place
Charging of rate of interest lower than applicable rate of interest
Continuation of charging simple interest instead of compounded
interest in case of education loans where repayment has started
69
FOREIGN EXCHANGE
OPERATIONS
Bank Accounts
Credits
Remittances
70
BANK ACCOUNTS
FCNR (B)
NRE
NRO
RFC
EEFC
71
EXPORT CREDITS
Credits
Pre Shipment
Post Shipment
72
TYPES OF REMITTANCES
REMITTANCE
INWARD OUTWARD
73
QUIZ
74
Education Loan is classified as a priority sector loan where the amount
of loan does not exceed Rs :
a) 10 lacs
a)
b) 20 lacs
c) 28 lacs
d) 30 lacs
75
• Exercise of rights by the beneficiary of bank guarantee is known
as
a) Devolvement of guarantee b)
b) Invocation of guarantee
c) Transfer of Bank Guarantee
d) None of above
• A bank Guarantee can be

a) Performance Bank Guarantee
b) Financial Bank Guarantee d)
c) Inland Bank Guarantee
d) All of above
76
• Housing loan is classified as priority sector loans in metropolitan cities
where loan amount does not exceed
a) Rs. 10 lacs
b) Rs. 20 lacs c)
c) Rs. 35 lacs
d) Rs. 50 lacs
In case of loan against property, an immovable property is a

a) Primary security
b) Collateral Security
a)
c) Additional Security
d) None of above
77
• Non payment of bills under LC on due date by the customer is
known as
a) Devolvement of LC
a)
b) Invocation of LC
c) Expiry of LC
d) None of above
• The person on whose behalf a Bank Guarantee is issued is

called the :
a) Creditor d)
b) Beneficiary
c) Guarantor
d) Customer
78
• Under Cash Credit where the goods are hypothecated to Bank
a) Ownership of goods is transferred to the Bank
b) Possession of goods is transferred to the Bank
d)
c) Both are transferred to the Bank
d) Both are not transferred to the Bank
• The facility of Bills discounting is allowed to the borrowers

a) To meet their financial requirements for fixed assets
b) To meet working capital requirement for maintaining
inventory
c) To meet working capital requirement for credit sales
d) All of above
c)
79
• Which out of the following is a post shipment credit in case of
export loans :
a) Packing Credit
b) Foreign Letter of credit d)
c) Stand by LC
d) Export bill discounting
• Who amongst the following is not eligible to provide

guarantee in respect of loan taken by another person
a) Illiterate
b) Senior citizen
(d)
c) Pardanasheen women
d) Minor
80
• HYPOTHECATION IS APPLICABLE IN CASE OF
a) Movable goods
a)
b) Immovable property
c) Book debts
d) Corporate guarantee
81
• Loan against life insurance policy is provided on the
a) Face value of the policy
b) Surrender value of the policy b)
c) None of above
d) Both of above
• ROC charge is required to be created in case of

a) Pledge of goods
d)
b) Hypothecation of stocks
c) Hypothecation of book debts
d) All of above
82
• The full Form of MPBF is :
a) Maximum provision of bank factors
b) Minimum Possible Bank finance c)
c) Maximum Permissible Bank Finance

d) None of the above
• A Bank has lent Rs 5 lacs to a private Ltd company for purchase of car for
its director’s personal use , There fore the Bank’s charge :
a) has to be registered with ROC and RTO

b) need not to be registered with ROC since car is meant for personal use of
a director
c) Registration is optional a)
83
• In case of a Bank Guarantee issued by a Bank on behalf of a company
which has since gone into liquidation , the bank on invocation of the
Bank Guarantee by the beneficiary is required to pay the amount to
a) Liquidator and not to the beneficiary
b) The Court c)
c) The Beneficiary
d) Need not pay since on liquidation, the bank guarantee lapses
• In case of fraud committed by a customer on whose behalf the bank

has issued a bank guarantee , the Bank on invocation :
a) Need not pay the amount to the beneficiary b)
b) Has to pay the beneficiary
c) Direct the beneficiary to recover the amount from customer
84
• AS PER THE RBI GUIDELINES, VALUATION OF PROPERTY BY 2 INDEPENDENT VALUERS
IS REQUIRED WHERE THE VALUE OF PROPERTY EXCEEDS RS. :
a) 5 Crore
b) 10 Crore
c) 50 Crore c)
d) No such requirement
• THE LOANS WHERE THE RATE OF INTEREST CAN BE BELOW THE MCLR ARE :
a) Loans to depositors against own deposits
b) Agriculture Loans
c) Loans to bank’s own employees
d) All of above d)
85
• A car loan is secured by
a) Assignment
b) Pledge
c)
c) Hypothecation
d) Mortgage
• As per the RBI guidelines, diversion of funds take place when

a) Short term funds are used for long term purposes
b) Long term funds are used for short term purposes
c) Both of above
a)
d) None of above
86
• Bank Guarantees to be signed by 2 officials jointly in case amount is:
a) Rs. 20000 OR MORE
b) Rs. 50000 OR MORE b)
c) Rs. 100000 OR MORE
• Minimum margin on bank guarantees issued on behalf of share brokers is:

a) 10%
b) 20%
c) 50%
c)
d) 75%
87
• Stamp duly on which of the following document does not vary
from the state to state:
a) Mortgage agreement
b) Hypothecation Agreement
d)
c) Guarantee agreement
d) Bill of exchange
• As per the fair practice code for lenders , copy of the loan
agreements and documents are to be given by the bank to the
borrower :
a) On the request of the borrower in writing
c)
b) On the request of the guarantor in writing
c) Even without any request
d) On the basis of creditworthiness of the borrower
88
• The date of stamp papers on which documents are executed
should be
a) Before the date of execution of documents
b) Same as date of execution of documents
d)
c) After the date of execution of documents
d) a and b
• MCLR is decided by
a) Individual banks
a)
b) Indian Banking Association
c) RBI
d) Corporate borrowers
89
• Application of IRAC norms is
a) Account wise
c)
b) Facility wise
c) Borrower wise
d) Group wise
• If the account is not paid on due date, it becomes

a) NPA
b) SMA-1 d)
c) SMA-2
d) Overdue
90
Effective Concurrent Audit of Banks- by CA Akesh Vyas
A term loan account shall be treated as NPA if principal or interest or both
remain overdue for
a) 90 days or more b)
b) Over 90 days
c) 180 days or more
d) Over 180 days
A cash credit or overdraft account shall be treated as

NPA if the account remains continuously out of order for
a) 90 days or more a)
b) Over 90 days
c) 180 days or more
d) Over 180 days
91
• An account is exempted from being NPA if it guaranteed by
a) State Government
b) Central Government
c) Both of above b)
d) None of above
• An account is NPA if renewal is pending for :

a) More than 60 days
b) More than 90 days
c) More than 180 days c)
d) None of above
92
• Points to be considered while classifying an account as NPA is
a) Available security
b) Net worth of borrower
a)
c) Net worth of guarantor
d) None of above
• On classification of account as NPA, income reversal should be made for

a) Unrealized interest
b) Unrealized commission
c) Unrealized fee d)
d) All of above
93
• An account may be directly classified as Doubtful if value of security has
depleted by more than :
a) 25%
b) 50% b)
c) 75%
d) None of above
• An account may be directly classified as Loss if value of security has

depleted by more than :
a) 40%
c)
b) 50%
c) 90%
d) None of above
94
• In case of a consortium account, the account is irregular for over 90 days in the
books of the lead bank. Accordingly,
a) The account will be NPA with lead bank only
b) All facilities with all member banks will be NPA a)
c) The account will remain standard as security
Is sufficient
d) None of above
• The following account can not be restructured “

a) Standard
d)
b) SMA-2
c) Doubtful
d) Loss
95
• The maximum times a loan can be downgraded or upgraded during a year
is
a) 1
d)
b) 2
c) 5
d) No limit
• Banks can not restructure a loan account with

a) Prospective effect
b) Retrospective effect b)
c) Immediate effect
d) No restrictions
96
A credit card account will be treated as NPA if
a) Full amount is not paid within 90 days from the current statement
date
b) Full amount is not paid within 90 days from the next statement date
c) Minimum amount as required to be paid as per the statement is not
paid within 90 days from the due date
d) NPA norms do not apply on credit cards c)
IRAC is an abbreviation for :

a) Income Recognition and Asset Classification
b) Income recovery and Asset Classification
a)
c) Income recovery at cost
97
A sub standard asset is one which has been classified as NPA for
a period exceeding :
a) 24 months
d)
b) 36 months
c) 12 months
d) None of above
A doubtful asset is one which has been classified as NPA for a

period exceeding :
a) 24 months
d)
b) 36 months
c) 18 months
d) 12 months
98
Concurrent audit system was formally introduced by RBI based on the
recommendations of
a) Naik Committee
b) Goiporia Committee c)
c) Ghosh Committee
d) A C Shah Committee
99
• Duplicate keys of Cash Safe and Strong Room are generally kept with –
(i) Branch in charge (ii) In custody of Joint Custodians (iii) Any nearby branch
a. (i)
b. (ii)
c. (i) or (ii)
d)
d. (iii)
• Verification of cash by Auditors, should involve –

(i) An element of surprise, (ii) Signing in the Cash Book (iii) Checking for Soiled /
Mutilated Notes (iv) Checking the cash-in-hand with that as per Cash Book / GL.
a. (i) & (iii)

b. (i), (iii) & (iv) d)
c. (i)
d. All of the above
100
• In case of counterfeit currency, what procedure bank is supposed to follow –
i) Return the currency notes to the customer
ii) Destroy the currency notes
a) i) c)
b) ii)
c) None of the above
d) Any one of the above
• Cash Movement’ register contains details of which the following -
a) Movement of Cash between the Cash Safe and the Teller

a)
b) Movement of Cash between the Chest and the branch
c) Movement of Cash between the branch and the Customer
d) Movement of Cash between the Chest and the RBI
101
• “Clean Note Policy” does not cover which of the following –
c)
a) To use bands instead of staple pins
b) To tender soiled notes to the Reserve bank
c) Customers should stop writing of any kind on watermark window of bank notes.
d) To provide exchange facility to members of public all over the country
• Surprise physical verification of cash-in-hand shall be undertaken by –
a) Joint Custodians of Cash b)

b) An independent officer from the branch
c) Joint Custodians of Cash and an independent officer from the branch
d) Anyone of (a), (b), (c)
102
• In case of counterfeit currency, FIR is required to filed in case of detection of
a) 1 or more piece in a single transaction
b) 3 or more piece in a single transaction
c) 4 or more piece in a single transaction d)
d) 5 or more piece in a single transaction
• Counterfeit currency is required to preserved for a period of
a) 2 years
b) 3 years
c) 4 years
d) 5 years b)
103
• Nomination can not be extended in favor of
a) An illiterate
b) A minor
d)
c) A senior citizen
d) None of above
• Nomination is not available for accounts in

a) Individual capacity
b) HUF d)
c) Partnership firms
d) b and c
104
A minor who wants to make a nomination in favour of his sister is
a) Allowed to nominate
b)
b) Not allowed to nominate
c) Allowed to nominate with the consent of his mother
d) No restriction
Signature on the nomination form are to be witnessed by :

a) One witness
b) Two witness
c)
c) Not required
d) As per the requirement of bank
105
ANY QUESTIONS?
106
CONTACT DETAILS
CA AKESH VYAS
Email ID: avyasca@gmail.com
Mobile: +91 9818860081
107

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DISCLAIMER

The views expressed in the following presentation should not be

The views opined herein should not be considered as a professional

This presentation should not be reproduced in part or in whole, in

• Originally conceived as a transaction based audit with an attempt to

TYPES OF BANK AUDITS

1. RBI Annual Financial Inspection

Scope of work Discreation of the Bank

Appointment Discretion of the Bank- By bank own staff or

Accountability on Cancellation of appointment and reporting

In terms of RBI Circular No RBI/2014-15/626

As per the “Guidance Note on Independence of Auditors”

Legal Audit of title documents in respect of large value loan

eThics Indian Bank, Indian Overseas Bank

AMS (Audit management system) IDBI Bank

Punjab & Sind Bank PSBRPT

Punjab & Sind Bank PSBRPT

1. To View Ledger account : Account No + F4

2. To view NPA accounts : F6+002 (at main asset classification)+F4

3. To view all accounts of a customer : Cust ID+F4

Sector Micro Small Medium

Manufacturing Upto Rs 25 lacs Over Rs 25 lacs Over Rs 5 crore

Service Sector Upto Rs 10 lacs Over Rs 10 lacs Over Rs 2 crore

• A Copy of invoice of plant and machinery or

• Account is in default but is a standard asset as on 1st January 2020

Additional 5% provisioning is required in such accounts

RBI Circular No RPCD.CO.Plan.BC. 24 /04.09.01/2009-10 dated

“ There will be no separate category for "Retail Trade" under

RBI Circular No RBI/2018-19/125 dated 21st Feb.2019

Pre Requisite- Valid Udyog Aadhar Number

Interest relief at 2% p.a. on incremental term loan or fresh term loan or

• Personal guarantee of an individual :

ECGC (EXPORT CREDIT GUARANTEE CORPORATION):

Standard NPA Loans

SMA 0 (Overdue upto 30 days)

SMA 1 (Overdue between 31

SUBSTANDARD NPA UPTO 1 YEAR

INSTANCE WHEN A SUB STANDARD ACCOUNT ( AS PER THE

• IF THERE IS AN EROSION IN THE VALUE OF ASSETS

• SUB STANDARD ACCOUNTS- CASH CREDIT/ OD ACCOUNTS –

❖ DP calculated from stock statement older than 3 months and

SUB STANDARD ACCOUNTS- BILLS DISCOUNTED

RBI Circular No DBR.No.BP.BC.2/21.04.048/2015-16

The asset classification of borrowal accounts where a solitary or a few

• Non fund based advances are those where there is no immediate

Bills are raised by drawer and accepted by drawee as per the

The practice is strictly prohibited

▪ Funds are raised by the drawer through discounting of bill while

Concurrent Audit Procedure by CA Akesh Vyas

Financials Year of sanction Year of NPA

Raw material consumption 67.59% 99.51%

Net profit/Loss Rs 42.57 crore (-) Rs 105.94

LCs issued in favour of related party. Cases of round tripping. Movement

Accumulated Losses of Rs. 166 crore claimed on basis of huge provision

ABC Ltd availing CC as well LC limit from bank. Account become

LCs issued in favour of supplier reported “Untraceable” by D&B in its

LCs issued in favour of related party. Cases of round tripping. Movement

Accumulated Losses of Rs. 166 crore claimed on basis of huge provision