Certificate Course on Concurrent Audit of Banks Diligence Reports for Banks

1. Certificate Course on Concurrent Audit of Banks Diligence Reports for Banks Organized by: IASB, ICAI Session By: CA. Sanjay Gupta Sanjay Gupta: FCA, DISA, CISA, CRISC

2. Background and concept Sanjay Gupta: FCA, DISA, CISA, CRISC 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

3. Strengthen Information back-up system Sanjay Gupta: FCA, DISA, CISA, CRISC 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

4. Strengthen Information back-up system Sanjay Gupta: FCA, DISA, CISA, CRISC 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.

5. Strengthen Information back-up system Sanjay Gupta: FCA, DISA, CISA, CRISC 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

6. Strengthen Information back-up system Sanjay Gupta: FCA, DISA, CISA, CRISC Subsequent to the sanction 5. Obtain regular certification from a professional, preferably (but not compulsorily only from) a Company Secretary 6. Make greater use of reports available with CIBIL 7. Banks to incorporate clause in loan documentation, suitable for exchange of credit information, so as to address confidentiality Issues

7. Diligence Reports for Banks 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 Sanjay Gupta: FCA, DISA, CISA, CRISC

8. Diligence Reports for Banks Sanjay Gupta: FCA, DISA, CISA, CRISC 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

9. Diligence Reports for Banks Sanjay Gupta: FCA, DISA, CISA, CRISC 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

10. Diligence Reports for Banks Sanjay Gupta: FCA, DISA, CISA, CRISC 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

11. Diligence Reports for Banks Sanjay Gupta: FCA, DISA, CISA, CRISC 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

12. Diligence Reports for Banks Sanjay Gupta: FCA, DISA, CISA, CRISC 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

13. Diligence Reports for Banks Sanjay Gupta: FCA, DISA, CISA, CRISC 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…

14. Diligence Reports for Banks Sanjay Gupta: FCA, DISA, CISA, CRISC Other Important Aspect 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

15. Diligence Reports for Banks Sanjay Gupta: FCA, DISA, CISA, CRISC Other Important Aspect 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

16. QUESTIONS ??? Sanjay Gupta: FCA, DISA, CISA, CRISC

17. Thank you !!! Sanjay Gupta Sanjay Gupta: FCA, DISA, CISA, CRISC