AUDITING CREDIT PORTFOLIO - PART 1

 

In continuation of my earlier post on the Audit of the Credit Department, this post is written.

• Ask for the concerned Loan/Advance account file and go through the same thoroughly.

The Inspecting Officer may make a cursory glance over the previous records, in case of long-standing loanees.

 

Verify the following :

• Whether there is a prescribed application duly bearing the signature of the borrower?

• Whether the application is properly filled in all respects, i.e. applicable columns and rows?

• Whether relevant documents are obtained along with the application and the same have been verified by the Branch Officials to confirm correctness?

• Whether KYC norms fulfilled?

• Whether Upfront service charges are collected wherever applicable?

• Whether the Branch has given proper acknowledgment to the applicant about the receipt of the Loan application?

• Whether the Branch is maintaining a proper Register for recording receipt of Loan applications and the entries up-to-date?

 

Pre-sanction Process and Appraisal:

 

Verify the following aspects –

• Whether the Branch has conducted proper Due Diligence on the applicant?

• Whether the Branch has confirmed the actual availability of the business in case of Business Loans?

• Whether the proposal was not declined by Higher Offices for any reason?

• Whether the requested quantum of Loan falls within the powers of the Branch Head?

• In case of Takeover of loans/advances from other financial institutions, whether No Objection Certificate is obtained by the Branch?

• In case of Takeover of loans/advances from other financial institutions, whether Credit Opinion/Credit Report has been obtained from the existing Bank/financial institution and scrutinized?

• Whether Takeover norms are complied?

• Whether outstanding amount of loan/advances with the existing Bank/financial institution is obtained?

• Whether the account is in Standard Category?

• Whether the borrower has fulfilled the repayment obligations as per the sanction terms?

• Whether the applicant has cleared all the Statutory dues/including contingent liabilities outstanding?

• Whether CIBIL verification is done and CIBIL Scores are at satisfactory level?

• Whether Balance Sheet analysis has been done by the Branch?

• Whether the Branch has ascertained the repaying capacity of the applicant?

• In case of a new Project, whether the Branch has obtained the Project Report and analyzed the same?

• Whether feasibility check was done by the Branch?

• Whether satisfactory Technical Officer’s Report (wherever required) has been obtained and held on record?

• Wherever required, whether necessary Government approval has been obtained and confirm the same is in order?

• Whether Pollution Control Board Certificate is obtained, in case of loans for establishing a factory/ manufacturing unit?

• Whether Mining approval has been obtained and is in current status, in case of Mining Units like Granite industries etc.

• Whether Explosive Certificate is obtained and the same is in Current status, in the case of Mining Units and Crackers manufacturing/trading units?

• Whether Internal Rating/External Rating has been done, as per extant guidelines?

• Whether Pre-sanction inspection has been conducted and reports are held on record?

• Whether verification of existing mortgages/charges has been done?

• Whether Search has been conducted in respect of properties taken as mortgage – both Primary and Collateral, wherever required and reports are held on record?

• Whether the Branch has conducted Search with Registrar of Companies and Search Report is held on record, in case of loans/advances to Private Limited Companies?

• Whether the Branch has obtained Board Resolution detailing the intention to borrower from the concerned Bank/Branch, Authorised Signatory(ies) in case of loans/advances to Private Limited Companies?

• In case of Jewel Loans, whether the jewels pledged to the Bank are duly appraised by the Appraiser as per extant norms?

• Whether Valuation Certificate given by a Panel Valuer of the Bank is obtained and the value has been by independent verification by Branch Officials?

• Whether proper assessment on requirement of loan is done and is in accordance with the Higher Office regulations?

• Whether the shortcomings in the financial parameters have been discussed in the Process Note and the explanations given therein are satisfactory?

• Whether Stock/Bookdebt Statements are obtained and verified by carrying out pre-sanction inspections by the Branch Officials?

 

Sanction:

 

• Whether the loan is sanctioned as per extant norms with regard to time norms?

• Whether proper Rate of Interest is stipulated as per the guidelines of Higher Offices?

• Whether the loan is recommended by concerned Officer and is sanctioned by the Competent Authority?

• Whether proper sanction has been conveyed to the applicant through Sanction Advice/Sanction Letter?

• Whether the Sanction communication is duly bearing the signatures of the Branch Head/Authorised Officer of the Bank/Branch?

• Whether copies of documents and sanction etc. have been conveyed to the Member Banks in the event of Consortium Advances?

• Whether the applicant has accepted the Terms of Sanction and duly acknowledged without any conditions from their end?

• Whether the Branch has recovered all Service Charges?

• Whether the Branch has completed all documentation process and the same duly stamped (wherever required)?

• Whether all the documents are signed by all the parties, including the Guarantor (wherever required)?

• Whether the Common Seal has been affixed in the documents (in case of Private Limited Copany)?

• Whether the borrower has brought in the required margin into the system?

• Whether the Loan is disbursed strictly as per the sanction terms?

• Whether the Branch has obtained necessary Bills/receipts etc. for the amount/installment disbursed and verified the same for ascertaining proper end use of funds?

• Whether the loan amount is disbursed strictly based on the progress of the Project implementation and necessary site visits are made whenever required?

• Whether necessary securities/charges have been created to safeguard the interest of the Bank?

• Whether Mortgage Register is updated with necessary entries?

• If the loan is for purchase of movable assets like Car, Motorbike, Scooter, etc, whether Bank’s charges have been registered with the concerned RTO?

• Whether the Branch has reported the sanction to Higher Offices in their Weekly/Fortnightly/Monthly Returns?

• Whether the Controlling Office has made any remark about the sanction and if so, the Branch has submitted their satisfactory reply?

• In case of Takeover of loans/advances from other Bank/financial institutions, whether the Branch has directly disbursed the loan to the extent of outstanding with them and local closure letter is obtained and held on record?  Also, whether No Due Certificate has since been obtained from the existing Bank / financial institution and held on record?

• During inspection of Units by the Inspecting Official, ensure that Bank”s Name Board is displayed at a prominent place.  Also, verify whether the Unit name is displayed at the entrance.  Ensure that adequate stocks are available to cover the Bank’s exposure to the borrower.  Unit inspection should be carried out with an authorized Official of the Bank, Unit.
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I will author another elaborate write up on STOCK INSPECTION/STOCK AUDIT.