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BANK AUDIT

Robert

Vadapuram

Banking
Banking Regulation Act of India, 1949 defines
Banking as accepting, for the purpose of lending or of
investment of deposits of money from the public,
repayable on demand or otherwise or withdrawable by
cheque, draft order or otherwise. The Reserve Bank of
India Act, 1934 and the Banking Regulation Act, 1949,
govern the banking operations in India .

Structure of Banks in India

List of commercial banks


Public
sector
bank
State Bank of India
Punjab & Sind Bank
Dena Bank

Bank of Maharashtra

Allahabad Bank

Punjab National Bank

Indian Bank

Canara Bank

Andhra Bank

Syndicate Bank

Indian Overseas Bank

Central Bank of India

Bank of Baroda

Union Bank of India

Oriental Bank of Commerce

Corporation Bank

Bank of India

United Bank of India

IDBI Bank

UCO Bank

Vijaya Bank

Indian private banks


*Axis Bank

*IndusInd Bank

*Bank of Rajasthan

*ING Vysya Bank

*Bharat Overseas Bank

*Jammu & Kashmir Bank

*Catholic Syrian Bank

*Karnataka Bank Limited

*Centurion Bank of Punjab

*Karur Vysya Bank

*City Union Bank

*Kotak Mahindra Bank

*Development Credit Bank

*Lakshmi Vilas Bank

*Dhanalakshmi Bank

*Nainital Bank

*Federal Bank

*Ratnakar Bank
*SBI Commercial and International Bank

*Ganesh Bank of Kurundwad


*HDFC Bank

*South Indian Bank

*ICICI Bank

*Tamilnad Mercantile Bank Ltd.

*YES Bank

List of Foreign banks in India

ABN-AMRO Bank
Abu Dhabi Commercial Bank Ltd
American Express Bank Ltd
Citibank
DBS Bank Ltd
Deutsche Bank
HSBC Ltd
Standard Chartered Bank

Bank audit
general guidelines

Bank Audit

NPA

identification
Year closing manual
RBI master circulars
ICAI Guidance note
Audit reports at branch
Analysis of financial statement

Importance of
Long Form audit report
Standardisation of reports
Coverage
Internal control evaluation
Ready Audit program

Structure of
Long Form audit report

Does the branch generally carry or

comply
In the cases examined by you
Verification on test check basis

STRUCTURE OF
LONG FORM AUDIT REPORT

Important clauses
Cash and Bank balances
Advances
Other Assets
Deposits and other liabilities
Profit and Loss
General

Cash balances
Cash balance being maintained
Reporting of excess cash
Insurance coverage
Joint Custody
Physical verification

Bank balances
Obtain Balance confirmation
Verify reconciliation entries
Old pending entries
Un-responded cash

transactions
Booking of expenses
Report differences

Advances - Appraisal
Appropriate forms
Completely filed and signed
Functioning normally
Adequate securities
End use of funds
Difference in Audited and

Projected

Advances - Sanctioning
Sanctioning limits
Loan

Sanctioned
Temporary overdraft
Withdrawal against pending
cheques

Disbursement of loan without

EM
Disbursement of loan without

Advances - Documentation
Obtain a sample checklist for

reference
Non registration of charges
Non obtaining of guarantee
Marking of Lien (Offline and
Online)

Advances - Review
Identify accounts overdue and report
Submission of financial statements
Submission of other information
Obtain and analyse review note
Overdue more than 180 days = NPA
(Para 4.2.4 (ii) Master circular on Prudential norms July, 2013)

Advances - Review
Scrutinise the stock statement
Non submission of stock statement

= NPA
(Para 4.2.4 (i) Master circular on Prudential norms
July, 2013)

Limits > 10 lacs = Audited FS


Physical verification of Security
Inadequate security coverage

Advances - Review

Clause 5(d)(ix)
Clause 5(d)(x)

Clause 5(d)(ix) and (x)


ix) Has the branch identified and classified
advances into standard/ substandard/ doubtful/
loss assets in line with the norms prescribed
by the RBI.
x) Where the auditor disagrees with the branch
classification
of
advances
into
standard/
substandard/ doubtful/ loss assets, the details of
such advances with reasons should be given.
Also indicate whether suitable changes have
been
incorporated/
suggested
in
the
Memorandum of Changes.

Non Performing Assets


An asset of a bank (such as a loan given by the bank) turns into a

non-performing asset (NPA) when it ceases to generate regular


income such as interest etc for the bank.
In other words, when a bank which lends a loan does not get back
its principal and interest on time, the loan is said to have turned
into an NPA
Banks have to classify their assets as performing and nonperforming in accordance with RBI's guidelines. Under these
guidelines, an asset is classified as non-performing if any amount
of interest or principal installments remains overdue for more than
90 days, in respect of term loans. In respect of overdraft or cash
credit, an asset is classified as non-performing if the account
remains out of order for a period of 90 days and in respect of bills
purchased and discounted account, if the bill remains overdue for
a period of more than 90 days.

Classification of non-performing Assets


Standard assets: Standard assets service their interest and

principal installments on time although they occasionally


default up to a period of 90 days. Standard assets are also
called performing assets. They yield regular interest to the
banks and return the due principal on time and thereby
help the banks earn profit and recycle the repaid part of
the loans for further lending.
Sub-standard assets: Sub-standard assets are those assets
which have remained NPAs (that is, if any amount of
interest or principal installments remains overdue for more
than 90 days) for a period up to 12 months

Doubtful assets: An asset becomes doubtful if it remains

a sub-standard asset for a period of 12 months and


recovery of bank dues is of doubtful
Loss assets: Loss assets comprise assets where a loss has
been identified by the bank or the RBI. These are
generally considered uncollectible. Their realizable value
is so low that their continuance as bankable assets is not
warranted. They should be entirely written off. If this is
not done, provisioning should be made for 100% of the
amount shown as outstanding

Identification - npa
Interest / Instalment due > 90 days
Out of Order
Continuously in excess OR
No credits / insufficient credits for 90 days

Bill overdue > 90 days


Agricultural advance > One/Two crop
season
(Para 4.2.13 Master circular on Prudential norms July,
2013)

Classification

LFAR Other Assets


Physical Verification
Stationery
ATM

Cards and PIN

Issue and Custody


Instances of Lost items

LFAR Other Assets


Sundries / Suspense Account
Verify old entries
Camouflaging NPAs or Old
expenses
Reporting
Working

paper with reasons


MOC, if required
Highlight in main audit report

deposits & other liabilities


Inoperative accounts
Guidelines

for Inoperative accounts


Customer initiation
Signature verification

Large movement in Deposits


Overdue/matured term deposits

deposits & other liabilities


Old outstanding BP, Sundry

Deposits
Contingent Liabilities
Obtain

list of consumer court cases


Claim from government departments
Demand of any statutory liability
Management representation

Profit & loss - Income


Mechanism to address

discrepancies
Compliance to revenue audit
reports
Interest
Periodicity of levy
Correctness of levy
Master verification

Other Incomes (Charges, Fees etc)

Profit & loss - Expenses


Discrepancies with interest
Correctness of accrued interest
Effect of change of interest on
deposits
Policy on overdue deposits
(Savings rate interest to be paid RBI)

Co-relate interest paid to average

deposits

General
Obtain list of exceptional reports
Data security measures
No sharing of user passwords
Deactivate left employees
Map leave to login
Backups (Offsite and Onsite)
Physical restraint to server room

General
Reconciliation
Control & Subsidiary
Inter Branch Accounts
Regular

reports being shared with

HO / RO
Account with HO / RO / ZO
Entries originating at other branches
Expeditious clearing of entries

Miscellaneous
Window dressing
Large movement in advances and
deposits
Deposits and Advances to same group
Account regularisation near FS date
Under utilised facility into deposits
Unsecured shown as secured
Restructuring of Accounts

Thank
you