Finacle

1
Concurrent Audit of Banks- Loans and Advances

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.
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PRELIMINARIES
• Preliminary Branch audit work (Loans and Advances)
• Advances Master Summary- Grand Total of advances to tally with advances figure in
Balance Sheet
• NPA balances as per Master Sheets (if not generated from Finacle) to tally with NPA as
per finacle. The command used to generate list of NPA accounts from Finacle is
ACS+Enter+F6+002(Asset classification)+ F4
• Preliminary scrutiny of advance sheets- Security, Provisioning.
• List of new advances and enhancement of limits
• List of accounts due for renewal
• List of accounts with pending stock statements
• LFAR annexure of large borrowers
• List of accounts with pending audited Balance Sheet
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CLASSIFICATION OF
ADVANCES
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Classification
of advances
Prudential
Sector wise Security wise
norms
Priority Secured Standard
Non priority Unsecured NPA
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SECTOR WISE CLASSIFICATION
Priority Sector Housing
Loan :In Metropolitan Centres
(Population 10 lacs and
above)- Loans upto Rs. 28
Priority Non Priority lacs provided overall cost of
dwelling unit not to exceed Rs.
• Agriculture • Sectors other than 35 lacs In case of repairs,
• Education priority are covered amount restricted to Rs. 5
• Housing under non priority lacs
sector In Other Centres - Loans upto
• Export credits Rs. 20 lacs provided overall
• MSME cost of dwelling unit not to
• Social Infrastructure exceed Rs. 25 lacs In case of
repairs, amount restricted to
• Renewable energy Rs. 5 lacs
• Others Priority Sector
Education Loans – Upto
Rs 10 lacs
Present target for
priority sector lending –
40%
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Consequence Bank to invest Revenue
of Shortfall/ in Rural Leakage-
Wrong Infrastructure Exemption/co
classification Development ncession in
Bond of processing
NABARD fee and other
charges
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FINACLE COMMAND
Finacle command for sector wise classification of advance
ACLI►ENTER ►ACCOUNT NUMBER ►CONTROL E ►V (IN OPTION CODE) ►F4
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SECURITY WISE CLASSIFICATION
Security Wise
classification
Secured- by
Unsecured
tangible assets
IMPACT: Improper classification results in over /under provisioning . Also

effect the rating of the branch.
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PRUDENTIAL NORMS CLASSIFICATION
Classification of
advances as per
Prudential Norms
Standard NPA Loans

Loans
Special
Standard
Mention Substandard Doubtful Loss
Regular
Account (SMA)
SMA 0 (Accounts showing

stress signals)
SMA 1 (Overdue between 31
to 60 days)
SMA 2 (Overdue between 61
days to 90 days)
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SMA- 0
RBI Circular No DBOD.BP.BC.No.97/21.04.132/2013-14 dated
February 26, 2014
Few illustrative sign of stress in the account for classification as
SMA 0 are :
Returning of 3 or more cheques issued by borrower in 30 days
Actual sales or profit falling short by 40% or more as compared
to projections at the time of sanction
Non payment of devolved LC/Invoked Bank Guarantee within
30 days
Third request for extension of time for creation of securities
against time specified in the sanction
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SUB CLASSIFICATION OF NPA ACCOUNTS
NPA accounts
Sub standard
Doubtful Loss
accounts
Cash credit/
Term loans
OD account
Technical Financial
reason reason
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SUB CLASSIFICATION OF NPA ACCOUNTS
• SUB STANDARD ACCOUNTS- CASH CREDIT/ OD

ACCOUNTS - FINANCIAL REASONS
Account continuously overdrawn over the sanctioned limit or
drawing power which ever is less for 90 days or more
There is no credit or the credits are not enough to cover the
interest during the last quarter .
• SUB STANDARD ACCOUNTS- CASH CREDIT/ OD
ACCOUNTS - TECHNICAL REASONS
Renewal is pending for over 6 months
Non receipt of stock statement for over 3 months
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• SUB STANDARD ACCOUNTS- TERM LOANS
Interest and /or principal remain overdue for a period of more than 90
days.
EXEMPTIONS
Central Government guaranteed advances
Loans against LIC, NSC, FDRs KVP if adequate margin available
SUB STANDARD ACCOUNTS- BILLS DISCOUNTED

Remain overdue for a period over 90 days
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SUBSTANDARD NPA UPTO 1 YEAR
DOUBTFUL OVER 1 YEAR
LOSS DECLARED AS A LOSS ASSET 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
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PROVISIONING
STANDARD
GENERAL 0.40%
AGRICULTURE & MSME 0.25%
REAL ESTATE 0.75%
SUBSTANDARD
SECURED PORTION 15%

UNSECURED 25%
DOUBTFUL
D-1 (UPTO 1 YEAR) 25%

D-2 (1 TO 3 YEARS) 40%
D-3 (OVER 3 YEARS) 100%
UNSECURED PORTION 100%
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PRECAUTIONS
• Auditors to verify and ensure that no adjustment of NPA accounts at fag
end by unauthorized methods made including :
• Granting TOD in other sister concern account
• Increasing days of eligible debtors for calculating DP
• Allowing DP against advances to suppliers
• Year end purchase of cheques
• Inter firm transfers and their reversal in subsequent year
• Manual intervention through MEAC command
• Cash Deposit without actual cash receipt
• Allowing interchangeability from non fund based limit to fund based
• Accounts transferred from other branches. System to recognize overdue
from the date of transfer in the books of transferee branch.
• Intra day transfers from sister concerns accounts to show credit turnover
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TYPE OF ADVANCES
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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

involvement of transfer of funds from the bank to the
borrower. Examples: Letter of credit , bank guarantees, co-
acceptance of bill.
Although in certain cases a non fund facility may

subsequently turn into a funded facility. E.g. where the bank
makes payment under a letter of credit issued by it due to
devolvement
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FUND BASED FACILITIES
Cash Credit
Term Loan
Overdraft
Bill Discounting
Export Loan
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Cash Credit
To finance working capital requirements

Requires periodic renewal (usually yearly)
Requires monthly stock statement for calculation of drawing
power
Requires monitoring of end use of funds
CC accounts in Finacle- ACS+F6+CCA (Scheme code)
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Term Loan
Availed for acquiring fixed assets

Repayment in a fixed period
Term Loan accounts in Finacle- ACS+F6+LAA (Scheme
code)
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Overdraft
Normally against FDR or immovable property

Annual renewal if allowed against property
No requirement for submission of stock statements
End use of funds generally not ensured
OD accounts in Finacle- ACS+F6+ODA (Scheme code)
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Bill Discounting
LC or Non LC bills
Usance bills (payable after a fixed period of usance) or
sight bill (payable on presentation)
Accompanied by bills of exchange. Transporter’s GR
List of bills outstanding in Finacle- FBBR
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Export Loans (Pre Shipment)
Granted to acquire goods

Granted against LC or confirmed orders from overseas
buyer
Liquidated against discounting of export bills or foreign
remittances
Packing Credit accounts in Finacle- ACS+F6+PCA
(Scheme code)
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NON FUND BASED FACILITIES
Post shipment (Export bill discounting)
Exports bills drawn on overseas buyer discounted and Packing

Credit (if availed) liquidated. Otherwise transferred to Current
account.
Realization on due date. If not realized on due date, bills

crystallized .
Bills outstanding in Finacle- FBBR
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Letter of Credit
Bank Guarantee
Co-acceptance of bills
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Letter of Credit
An undertaking from the Bank on behalf of the customer (buyer)

to the seller of the goods to pay the contracted amount in case
the buyer fails to pay on the stipulated date.
Known as LC devolvement In case of default by the customer.
LC outstanding in Finacle- Dcqry
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Bank Guarantee
Financial : to meet financial obligations (like security deposits)

Performance : To meet contractual obligations (like
satisfactory project completion)
Binding on the issuing Bank to pay to the beneficiary the

guarantee amount in case of default by the customer.
Exercise of the right by the beneficiary known as Invocation of

guarantee.
Outstanding BG in Finacle- GI+Enter+A (status)+F4
BG expired : GI+Enter+0 (status)+F4
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Co-acceptance of bills
Bill of exchange drawn by the supplier on the buyer of

goods (customer of the Bank) co accepted by Bank.
Acts as a guarantee by the Bank to the supplier to make
payment in case of non payment by the buyer
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LOANS AND ADVANCES-
GENERAL VERIFICATION
PROCEDURE
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STAGES OF LOAN
Pre Sanction Documentation Post Sanction
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PRE-SANCTION
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• Proper application and other relevant papers – ITR, Balance Sheet, License,
Address Proof, Partnership Deed proprietorship proof, IEC Registration, SSI
registration, Memorandum and Articles of Association
• Due diligence for identification of the borrower including pre sanction visit
• Verification of KYC documents with the originals
• Direct third party verification of documents
• Generation of CIBIL reports, reference to RBI defaulters list, ECGC caution list
• Satisfactory status report from the existing bankers
• Credit risk rating done
• Site verification and valuation of immovable properties by approved valuer and
branch official
• ROC search
• Assessment of limit as per the guidelines
• Loan granted within the discretionary power
• Compliance of Bank’s lending policy stipulations
• Compliance of take over norms
• Issuance of sanction letter and their acceptance by borrowers and guarantor
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Audit of Banks- Loans and Advances
DOCUMENTATION
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• Acceptance of terms of sanction by the borrower and guarantor
• All required documents executed. Entry in document register made
• Vetting of documents by panel advocate
• Creation of Equitable Mortgage as per the guidelines
• Charge registration with ROC in case of company
• Properly filled and signed by the borrower and guarantor
• Proper value of stamp or stamp paper to be used
• Date of stamp paper to be before the date of execution
• Stamp Paper to be in the name of the borrower or the Bank
• Overwriting/Cuttings to be duly authenticate
• Execution of documents by the legally competent persons
• Documents to be alive. Limitation period normally 3 years which can be extended
through execution of fresh documents, obtaining balance confirmation or by making
part payment in the account.
• Documents on the printed format of the Bank. No computer generated documents
except through LAPS (Loan Application Processing System)
• Persons not legally competent to execute the documents: Minor, Insolvent, Insane,
Person of unsound mind, Heavily drunk person
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POST SANCTION
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All terms of sanction duly complied with
Disbursement as per the terms of sanction.
Prescribed margin obtained. Rate of interest correctly fed in
system
Applicable charges recovered
Overdrawings in the account need based, properly reported,
within discretionary power, adjusted in time
Primary securities created and necessary bills held as proof of
purchase
Post disbursement inspection made
Submission of stock statement at prescribed interval,
calculation of DP as per lending policy
Stock audit in applicable cases
Balance confirmation letter at periodic intervals
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Monitoring of operations in account . Prompt action in case of
early warning signals including low turnover, frequent excess,
frequent returning of cheques, huge cash deposits and
withdrawls, frequent LC devolvement
Submission of statements of financial performance (QIS etc)
Insurance of primary and collateral securities
Renewal of working capital limits on annual basis
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LOANS AND ADVANCES-
SPECIFIC VERIFICATION
PROCEDURE
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SPECIFIC AREAS
COVERED
Cash Credit
Term Loans
1) Project Term Loans
2) Retail Loans
Bill Discounting
Export Loans
1) Pre Shipment Loans (Packing Credit)
2) Post Shipment Credit
Non fund based facilities
1) Letter of Credit
2) Bank Guarantee
3) Co-acceptance of bills
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CASH CREDIT
Important areas to be considered while auditing for cash credits are:
Appraisal of Sanction limit

Verification of drawing power
Insurance
Monitoring of accounts
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APPRAISAL OF SANCTION LIMITS
There are 2 methods for appraising the sanction limits:

Turnover Method
Traditional Method
TURNOVER METHOD:
Applicable in case of MSME with sanctioned limit of Rs. 5 crores and for
borrowers other than MSME unit upto Rs. 1 crore. Sanctioned limit allowed
upto 20% of projected sales.
TRADITIONAL METHOD:
Based on MPBF calculated on basis of working capital gap
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VERIFICATION OF DRAWING POWER
DP is the amount of working capital funds allowed to borrower to draw from the
working capital limit allotted to him
Calculated on basis of stock statements submitted by the borrower
There can be 2 situations:
DP exceeds sanctioned DP lower than

limit sanctioned limit
Amount allowed to
withdraw
Santioned
limit Drawing
Power
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General formula for calculation of DP:
Paid Drawing
Stocks Debtors Margin
Power
Paid Stocks is Stocks less trade payables
Method of
calculation differs
from Bank to bank
and governed by
loan policy of each
bank
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IMPORTANT POINTS FOR VERIFICATION OF STOCK
STATEMENTS
Stock statements to be in the Bank’s prescribed format

Submission of Stock Statement at prescribed interval
Stock statement as on last date of the month.
Agewise classification of Sundry Debtors
No DP on book debts against associate concerns if stipulated in
sanction
Quarterly certification of book debts by the Statutory Auditors of the
borrower.
Detail of Sundry Creditors provided
Stocks purchased under LC to be shown separately
Margin calculated correctly
Correct entry in system. Penal interest flag for non submission is “ Y”
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Close monitoring of Stock Statements help in identifying early
warnings in the account
Early Warning in Stock statements include:
Huge buildup of inventory
Huge WIP
Low stocks and huge Sundry Debtors
Huge amount locked up in few parties
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INSURANCE:
Stocks should be fully insured for all risks including fire, earthquake,
burglary, terrorism etc.
Stocks at all locations including stocks with processors need to be
covered under insurance
Bank’s clause in insurance policy
Validity period to be alive
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MONITORING OF ACCOUNTS:
Withdrawals from the account for purchase of material and meeting

day to day operational expenses
Annual review of accounts – Non renewal for over 180 days amount
to slippage of accounts to NPA
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PROJECT TERM LOANS
Granted for acquiring fixed assets like land and building,

machinery
TEV study wherever applicable done
All project approval obtained and held in records
Satisfactory credit report of suppliers of machineries from the
approved rating agency available
Funds released on basis of quotations available after keeping
prescribed margin
Bills in support of assets acquired available in records
Insurance of machineries done
Post disbursement inspection made
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RETAIL LOANS
Some of the common retail loans advanced by banks now a days
are:
Housing Loans
Car Loans
Loans against FDR’s
Loans against LIC Policies
Loans against securities
Gold Loans
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HOUSING LOANS:
Agreement to sell between buyer and seller
NEC from panel advocate
Valuation by approved valuer
Creation of valid mortgage
CERSAI registration
Insurance of house property
Construction of House :
As per RBI circular No DIR.BC.13/08.12.001/2015-16 dated 1/7/2015 , compliance of
following guidelines :
Availability of sanction plan from the competent authority in the name of the applicant
Submission of completion certificate within 3 months from the date of completion.
Failure leads to giving right to the Bank to recall the loan.
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Builders Flat under construction:
Banks prohibited to extend loans to builders for buying land

Financing by branches under projects approved by the higher
authorities
Major documents :
Tripartite agreement
Builders Buyer’s agreement
Builder’s letter confirmation marking of bank’s lien on the subject
property
NOC from the builder for creation of mortgage
Original receipts
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CAR LOANS:
Proper KYC and due diligence
Proper appraisal of limit
Release of loan on basis of quotation of car
Branch to confirm the authenticity of the quotation
Release of funds to the account of the dealer after keeping prescribed
margin
Bill and insurance of car to be obtained
Joint RC to be submitted by the borrower
Post disbursement inspection of the car
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LOAN AGAINST FDR:
No loans against other bank’s deposits as per RBI’s guidelines
No loan against third party deposits if prohibited by Bank’s loan policy
Loan against FDR if in joint name- to be applied and documents to
be executed by joint holders
Prescribed margin maintained
FDR discharged and bank’s lien marked on FDR as well in system
Correct rate of interest charged
LOAN AGAINST LIC POLICIES:

LIC Policy to be in the name of the applicant and it is alive
Surrender value obtained and advance granted on basis of surrender
value after keeping prescribed margin
Up-to-date premium paid
Policy is assigned in favour of the Bank
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LOAN AGAINST SECURITIES:
No loan against partly paid up shares allowed
Maximum amount of loan against shares to individuals :
 Rs 10 lacs if held in physical form
 Rs. 20 lacs if held in dematerialized form
No loan to be granted to a proprietorship concern or a partnership firm against
primary security of shares and debentures
GOLD LOANS:
Loans against pledge of gold ornaments
Banks required to maintain a minimum LTV (Loan to value ratio) of 75% of value
of gold ornaments
LTV to be maintained through out the tenure of the loan and will be computed
against total outstanding including interest
Gold ornaments to be the approved valuer of the Bank
Period of tenure not to exceed 12 months from the date of sanction
Complete detail of inventory in the Security register duly signed by the borrower
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BILL DISCOUNTING
Bill discounting against sanctioned limit of the borrower
Bills to represent genuine trade transaction- no accommodation bills
Facility to be allowed to only customer availing regular credit facilities.
Walk in customers to be avoided.
Bills to be accompanied by GRs of IBA approved transporters.
Bills realized on due dates.
If bills are drawn under LC, ensure that LC is issued through SFMS
(Structured Financial Messaging System - A secured messaging
software developed for inter banks and intra bank applications)
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EXPORT LOANS- PRE SHIPMENT
(PACKING CREDIT)
To be released against LC or confirmed order from the overseas buyer
Satisfactory credit report of overseas buyers from approved credit available
Packing credit utilized for purchasing goods for export purposes
ECGC coverage obtained. ECGC premium to be borne by the borrower.
Packing credit granted for a maximum period of 270 days with further extension
allowed upto 90 days with permission of higher authorities.
Reporting to RBI case Packing Credit not adjusted within 360 days.
In case of over due Packing Credit, ECGC to be duly notified
If export does not take place, interest at commercial rate to be recovered from
the date of released.
Interest subvention, if granted, to be duly claimed. No interest subvention on
overdue packing credits.
Monthly stock statements submitted and release restricted to allowable DP
To be liquidated out of proceeds of export bills . If liquidated from inland
proceeds, commercial rate of interest from the date of release to be charged.
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EXPORT LOANS- POST SHIPMENT CREDIT
Extended in the form of discounting of export bills or advance against export bills for
collection.
Satisfactory credit report of overseas buyer available from the approved rating agency
No existing overdue export bills. Fresh bills not discounted to adjust old overdue bills
Interest subvention claimed . No interest subvention on overdue bills
Overdue bills crystallized within 30 days from the due date
Bills liquidated from export proceeds
ECGC coverage available. Premium on post shipment to be borne by the bank.
In case of extension of bills, ECGC duly notified.
Timely submission of claim to ECGC in case of default by the borrower.
Bills accompanied by export documents including shipping bill, bill of lading, invoice
Authenticity of Shipping Bill issued by the customs verified from the site “
Icegate.gov.in”
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NON FUND BASED FACILITIES- LETTER
OF CREDIT
Issue of LCs through SFMS
Satisfactory credit report of the beneficiary from the approved rating
agency available
LCs cover goods in which the customer deals
Applicable commission charged
LC within the sanctioned limit. Prescribed margin maintained.
Goods transported through IBA approved transporters
Expired LC reversed
No fresh LC in case of existing devolved LC
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NON FUND BASED FACILITIES- BANK
GUARANTEE
Issue of Bank Guarantee through SFMS
Bank guarantee issued within the sanctioned limit
Prescribed margin maintained
Application commission including commission for claim period
recovered
In case of Performance Guarantee, periodical progress report from
competent engineer obtained
Expired Bank Guarantees reversed
RBI Guidelines for Bank Guarantees :
Bank Guarantees exceeding Rs. 50000/- to be signed by 2 branch officials jointly.

Bank Guarantees to Stock Exchange on share brokers- maintenance of minimum
50% margin out of which minimum 25% cash margin to be maintained
Immediate payment of invoked Bank guarantees
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NON FUND BASED FACILITIES- CO-
ACCEPTANCE OF BILLS
Represent genuine trade bills

Co acceptance of bills of Rs. 10000/- or more to be signed by 2 branch
officials jointly
Facility to customers already enjoying credit facilities from the Bank
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MODE OF CREATION OF
SECURITIES
63
MODE OF CREATION OF SECURITIES
Hypothecation
Pledge
Assignment
Set off
Mortgage
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Hypothecation Pledge Assignment Set off Mortgage
• Goods not in • Security • Transfer of • Statutory • Involves

physical under right of right of mortgag
control of physical property in the Bank e of
bank possessi favour of to adjust immovab
• Creation of on of the bank balance le
charge in bank • E.g. lying in property
favour of • E.g. Assignment any
bank through Pledge of LIC deposit
execution of of FDR, policy account
hypothecatio Gold of the
n deed borrower
with the
loan
balance.
65
Type of
Mortgages
Registered Equitable
Mortgage Mortgage
Created by simple deposit of

Mortgage deed executed in
title deed by the mortgagor
favour of the Bank and
with clear intention to create
registered with the
the mortgage in favour of the
appropriate authority
Bank
Refer next slide for

verification process of
equitable mortgage
66
VERIFICATION PROCESS OF EQUITABLE MORTGAGE:
Search on CERSAI site by the branch official to confirm non encumbrance.

Snap shot of the search to be kept as part of the documents.
Complete search of property documents by the panel advocate for the
prescribed period. Original search receipt to be kept as part of documents.
Unqualified Legal Opinion certifying the genuiness of title deed of the property
and the right of the seller to sell the property
Valuation of property by the approved valuer. Valuation report to be
accompanied by the photograph of the property. In case of properties above
Rs. 50 crore, 2 independent valuation reports required as per RBI Guidelines.
Site verification by the branch official.
Creation of Equitable Mortgage on basis of complete chain of title deed as
prescribed by the advocate
Payment of stamp duty as per the applicable state laws.
Laminated title deeds to be avoided
Certified true copy of title deed on basis of which mortgage created to be
obtained from the office of the Registering Authority and compared with the
originals
Registration with CERSAI within 30 days
67
REVENUE LEAKAGE EXERCISE
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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
69
Interest:
Non Charging of interest in the account

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
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 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
70
CASE STUDIES FOR
FRAUDS/SERIOUS IRREGULARITIES
71
CAR LOANS
Modus operandi
Opening of bank accounts on basis of validly held KYC documents

Obtaining car loans on basis of dealer’s quotations
Opening of bank accounts in the name of dealers and encashing the DDs.
Risk Mitigation steps
Availability of name , address , phone numbers and email of authorized dealers

in the branch.
Sending scanned copy of quotations through mail .
Release of funds through RTGS to the current account of the dealer on receipt
of confirmation of quotation mentioning the account number therein
72
LOAN AGAINST FDR
Modus operandi :
Reprinting FDR in the name of an organization
Obtaining loan against FDRs by fraudulently executing loan documents
Release of funds to unauthorized accounts
Risk Mitigation Steps:
Direct Confirmation from the authorized persons

Sending letter of thanks
End use of funds
73
LOAN AGAINST FDR
Modus operandi :
Granting of loan against non existent FDRs
Risk Mitigation steps:
No loan against FDR without marking lien in the system.
74
UNAUTHORISED OPENING OF
LOAN ACCOUNTS
Modus operandi :
Unauthorized opening of loan accounts and release of funds to related

parties
System weakness allowing a single person to open the account.
Maker/Checker concept missing
Maker/checker concept
Verification of new loans
75
UNAUTHORISED TRANSFER OF
FUNDS OF UNAVAILED LIMIT
Modus operandi :
Unavailed limit in housing loan transferred to related parties accounts
Risk mitigation Steps :
Checking of Transfer scrolls

Checking of Term Loan disbursement account
76
ACCOMODATION INLAND LC
Modus operandi:
Opening of accommodation inland LC issued in favour of related parties

LC devolved and funds not paid
Risk mitigation Steps:
Satisfactory credit reports of the beneficiary

No fresh LC till adjustment of devolved LC
77
BILLS DISCOUNTING UNDER
FAKE LC
Modus operandi :
Bills discounted under LC of other Bank which later turned out to be fake
Bills discounting only against LCs issued through SFMS
78
FAKE TITLE DEED
Modus operandi:
Loan against fake title deed of properties
Pre Sanction Visit

Search in CERSAI for existence of any loan on the subject property
Complete chain of title deed. Laminated title deeds to avoid. No mortgage of
certified copy of title deed reported lost till completion of legal formality.
Genuiness certificate from Panel Advocate
Comparison of title deed held in records with Certified true copy obtained from
the office of Registrar.
79
SARFAESI
80
Governed under Securitization and Reconstruction of Financial Assets
and enforcement of Security Interest Act 2002 grants significant power to
banks to possess the securities of the defaulting borrower and recover
the dues.
Applicability on Loans-
Classified as NPA
Dues exceeding Rs 1 lac
In case of consortium loans, Secured Creditors representing at least
60% of the value of outstanding amount agree
81
STEPS TO BE FOLLOWED
All actions to be taken by an authorized official not below the rank of Chief Manager
60 days demand notice under Section 13 (2) of the Act
In case of any objection, reply to be given within 15 days. In case of non reply , further
proceedings against the notice can not be taken
After taking possession, publication in 2 newspaper within 7 days of taking possession
After the expiry of 60 days, possession by the Bank under section 13 (4) of the Act.
Before possession, borrower and guarantor to be informed
Fresh valuation of property by the approved valuer to fix reserve price
30 days notice to the borrower for sale of property
Sale can be made through tender or auction
82
OTHER LOAN
RELATED TOPICS
83
WILFUL DEFAULTER
Defined under RBI CIRCULAR NO
CID.BC.22/20.16.003/2015-16 dated July 1, 2015
Any borrower with sanctioned limit above Rs 25 lacs on the
occurrence of following events :
1) Default in repayment of dues even when it has the capacity to
honour the obligations
2) Diversion of funds
3) Siphoned off the funds
4) Removable of movable or immovable property without the
knowledge of the Bank
84
Diversion of funds:
Transfer of funds to subsidiaries / group companies
Use of short term funds for long term purposes
Use of funds for purpose other than purpose for which granted
Routing of funds through other Banks
Investment in other companies through Shares/debt instruments
Siphoning of Funds:
Utilization of funds for purpose unrelated to operations of the borrower
Consequence of Will Full Default:

No further lending by any Bank/Financial Institution
Legal process to recover due start immediately
Bank get the power to change the management
85
PRESENT POSITION
As per latest report of CIBIL ,

• Total 5275 wilful defaulters with total amount of Rs. 56521
crore
• 9 times increase of wilful defaulters during last 13 years
• NPAs Rs. 4.04 lacs crore- an increase of 450% since March
2011
• Rs. 30873 crore loss during the 4 years due to frauds
86
BASE RATE
Replacement of BPLR system with Base Rate system w.e.f.July 1, 2010
Rate of interest shall not be below the base rate except the following
categories:
DRI (Differential rate of interest) Advances
Loans to Bank’s own employees
Loans to Banks’ own depositors against their own deposits
87
USEFUL FINACLE
COMMANDS
ACS -To view

-New loan accounts opened or closed during a period
-All related accounts of a particular borrower
-All loan accounts of the branch – CCA for CC
ODA for OD
LAA for Loans
PCA for Packing Credit
-All NPA and SMA accounts
88
ACLI To view ledger account
To view scheme detail
To view interest rate
To view sanction detail
To view documents detail
To view overdue/overflow amount
SRM To view stocks detail

To view insurance
To view inspection detail
89
FBBR To view bills detail
GI To view Bank Guarantees detail
DCQRY To view LC details
AINTRPT To generate interest statement
TODRP To view TOD in accounts
ATOR To view account turnover report
90
ANY QUESTIONS?
91
CONTACT DETAILS
CA AKESH VYAS
Email ID: avyasca@gmail.com
Mobile: +91 9818860081
92
THANK YOU
93

Finacle

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1

Concurrent Audit of Banks- Loans and Advances

The views opined herein should not be considered as a professional

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

Priority Secured Standard

Non priority Unsecured NPA

ACLI►ENTER ►ACCOUNT NUMBER ►CONTROL E ►V (IN OPTION CODE) ►F4

IMPACT: Improper classification results in over /under provisioning . Also

Standard NPA Loans

SMA 0 (Accounts showing

• SUB STANDARD ACCOUNTS- CASH CREDIT/ OD

SUB STANDARD ACCOUNTS- BILLS DISCOUNTED

IF THERE IS AN EROSION IN THE VALUE OF ASSETS

BETWEEN 50% TO 90% DOUBTFUL

SECURED PORTION 15%

D-1 (UPTO 1 YEAR) 25%

UNSECURED PORTION 100%

Non fund based advances are those where there is no

Although in certain cases a non fund facility may

To finance working capital requirements

Availed for acquiring fixed assets

Normally against FDR or immovable property

Export Loans (Pre Shipment)

Granted to acquire goods

Post shipment (Export bill discounting)

Exports bills drawn on overseas buyer discounted and Packing

Realization on due date. If not realized on due date, bills

An undertaking from the Bank on behalf of the customer (buyer)

Financial : to meet financial obligations (like security deposits)

Binding on the issuing Bank to pay to the beneficiary the

Exercise of the right by the beneficiary known as Invocation of

Bill of exchange drawn by the supplier on the buyer of

Pre Sanction Documentation Post Sanction

Appraisal of Sanction limit

There are 2 methods for appraising the sanction limits:

There can be 2 situations:

DP exceeds sanctioned DP lower than

Paid Stocks is Stocks less trade payables

Stock statements to be in the Bank’s prescribed format

Withdrawals from the account for purchase of material and meeting

Granted for acquiring fixed assets like land and building,

Banks prohibited to extend loans to builders for buying land

LOAN AGAINST LIC POLICIES:

Bank Guarantees exceeding Rs. 50000/- to be signed by 2 branch officials jointly.

Represent genuine trade bills

• Goods not in • Security • Transfer of • Statutory • Involves

Created by simple deposit of

Refer next slide for

Search on CERSAI site by the branch official to confirm non encumbrance.

Non Charging of interest in the account

Opening of bank accounts on basis of validly held KYC documents

Risk Mitigation steps

Availability of name , address , phone numbers and email of authorized dealers

Risk Mitigation Steps:

Direct Confirmation from the authorized persons

Granting of loan against non existent FDRs

Risk Mitigation steps:

No loan against FDR without marking lien in the system.

Unauthorized opening of loan accounts and release of funds to related

Risk Mitigation Steps:

Unavailed limit in housing loan transferred to related parties accounts

Risk mitigation Steps :

Checking of Transfer scrolls