Sanjay Gupta: FCA, DISA, CISA, CRISC Certificate Course on Concurrent Audit of Banks Diligence...

Sanjay Gupta: FCA, DISA, CISA, CRISC

Certificate Course on Concurrent Audit of Banks

Diligence Reports for Banks

Organized by: IASB, ICAI

Session By: CA. Sanjay Gupta

Based on RBI Circular dated September 19,2008

On recommendation by Central Vigilance Commission, Government of India

In Consultation with Indian Banks Association

Need to improve upon the system of sharing of information amongst lending banks under multiple and consortium banking facilities


Background and concept

At the time of granting fresh advance 1. Information required to be obtained

from the borrower in the form of a declaration w.r.t. various credit facilities enjoyed at present, if any by the applicant

In case of existing borrowers with sanctioned limits above Rs. 5 crores or wherein the bankers are aware that the borrower is enjoying credit facilities with other banks


Strengthen Information back-up system

Annexure 1: Minimum Information to be declared by borrowing entities while approaching for finance under Multiple Banking Arrangements – Part A & B

Annexure II : Revised Format under Multiple Banking Arrangement – Credit Information Exchange – Part -I,II,III,IV,V &VI.

Annexure III : Part -1 -Diligence Report by CA,CA & Cost Accountant and Part II – Certification of Borrowal Companies by CA /CS / ICWA.



Subsequent to the sanction Should exchange information with other

banks at least once in every quarter which contain

information on following broad basis: 1.Profile of the borrower

2.Financial details including IRAC classification

3. Exposure details including repayment schedule and securities offered

4.Experience about conduct of account and overall assessment of the account



Subsequent to the sanction5. Obtain regular certification from aprofessional, preferably (but not compulsorily

only from) a Company Secretary6. Make greater use of reports available with

CIBIL7. Banks to incorporate clause in loan

documentation, suitable for exchange of credit information, so as to address confidentiality Issues




Distinction between

1. Credit Audit Report 2. Stock Audit Report 3. Due Diligence Report 4. Diligence Report 5. Concurrent Audit Report 6. Statutory Audit Report


Diligence Report

1. Based on the records and documents of the borrower 2. Compliance oriented 3. Informative type rather than verification

type 4. The preparator of the report is required to incorporate comments against 25 questions specified in the circular besides his qualification, reservations or adverse remarks



Diligence Report

5. The Report does not requires to comment on the true and fair view or IRAC classification of the borrower account 6. Broad details to be incorporated – RoC related •Board of Directors & Shareholding pattern • Minutes of meeting • Section 372A – Related party • Charge satisfaction, modification, if any



Diligence Report

6. Broad details to be incorporated

– Financial Transactions • New loans given and obtained • Investments made • Borrowing details • Repayment status of borrowing

with special mention of defaults if any



Diligence Report

6. Broad details to be incorporated – Other details • Insurance cover for assets • RBI’s / ECGC’s defaulter’s list • End-use of funds • Declaration of dividend – whether within norms of Companies’ Act? • Compliance with ICAI AS



Diligence Report

6. Broad details to be incorporated – Other details • Payment of Investor’s education & protection fund • Compliance with listing clause • Compliance with PF dues



Other Important Aspect

1. Provision for penalty for non-compliance to be imposed by RBI 2. Availability of Diligence Report during statutory Audits of Banks 3. Status of compliance of the Diligence Reports amongst banks

4. Typical Issues arising out of such reports…




4. Typical Issues arising out of such reports.. – Non-compliance with ECB guidelines – Quantification of derivative, interest swap,

currency swap transactions, – Valuation of Forex exposure – ECBs and Buyers’ Credit to be included – Assets at various locations may not have been Insured – Valuation and classification of Assets




4. Typical Issues arising out of such reports… – Investment decisions taken by the borrower – Frequent cancellation of forward cover or non-obtaining of forward cover – Non-availability of updated books of accounts – Roc Search Report not available – Roc records like Minutes Books are not up-to-

date – Subjectivity in verification of end-use of funds – Non-standardization of stock audit reports




QUESTIONS ???


Thank you !!!

Sanjay Gupta

Sanjay Gupta: FCA, DISA, CISA, CRISC Certificate Course on Concurrent Audit of Banks Diligence...

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