CA. Sanjay K Agarwal: Bank Audit Manual

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BANK AUDIT
MANUAL
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2013-2014
CA. Sanjay K Agarwal

B.Sc., FCS, FCA, CPA(USA)
83/85, N S Road, Suite: 417
Kolkata -700 001
Cell: +91 9331023275

+91-33-3291 3756, 2243 1088, 2231 0073
Fax: +91-33-2243 1088
E-mail:
[email protected]
--- BE HAPPY MAKE HAPPY ---
Bank Audit Manual by CA. Sanjay K Agarwal
Page No.1
Index of Pages:
Particulars
Page Nos
Key Points
Asset Classification & Provisioning a ready

reckoner
Income Recognition & Asset Classification Norms

- at a Glance
Asset Classification at a Glance
Important Audit Checks
5-7
8
9-11
Draft Management Representation Letter
12-14
Format of Letter to Branch
15-18
Checklist for Audit of Advances accounts
19-21
Checklist for Audit of LFAR
22-27
Remuneration to Auditors
28-30
Overall Audit Plan- Audit Programme
31
Format of Certificate from Bank Branch
32
Audit Program for Branch Audit of a Bank
33
Other Charts / Formats (including Audit Report

Format) which may be used during Audit
34-38
Page No.2
KEY POINTS
Break Even Date for NPA is 01.01.2014 for the year 2013-2014
Auditor Report should be in New Format (please see page 37-38) as issued in the year 2012-13.
Once an account has been classified as NPA, all the facilities granted to the borrower will be
treated as NPA except in respect of Primary Agricultural Credit Societies (PACS)/Farmers
Service Societies (FSS).
Overdue period starts immediately on expiry of due date, concept of past due has already been
dispensed with in past years.
Stock statements older than 3 months should not be considered
Interest on advances (accrued and outstanding) should be calculated as on 31st March (few banks
charges interest on advances few days prior to 31st March which should not be considered)
Long outstanding entries (unexplainable and where there is no movement at all) in suspense
account should be suggested for provisioning.
NIL MOC Certificate should be issued even if there is no MOC
MOC should also be countersigned by Branch Manager (views of the BM if any has to be
attached on a separate sheet duly signed by him)
Submit all the REPORTS including TAX AUDIT REPORTS & LFAR immediately on
completion of Audit and before leaving the branch
Make a columnar list of documents to be submitted to branch/regional/zonal/other office before
commencement of Audit. (it is advisable to get all documents in your custody duly signed by the
Branch Manger at the beginning of Audit)
Must get CERTIFICATE OF ATTENDENCE signed by Branch Manager in duplicate before
leaving the branch
Availability of security or net worth of borrower/guarantor should not be considered for the
purpose of NPA recognition it should always be based on recovery
100% provision is required for assets which has become doubtful for more than 3 years i.e. NPA
date on or before 31.03.2011.
To specifically report simultaneously to the CEO of the bank and regional office of the Dept of
Banking Supervision RBI where the HO of the bank is situated, any matter susceptible to be
fraud or fraudulent activity or any foul play in any transactions. Any deliberate failure on part
of the Auditors should render himself liable for action. If amount of fraud involve Rs 1 Crore or
more central office of the Dept of Banking Supervision, RBI, Mumbai to be reported
immediately.
Page No.3
Asset Classification & Provisioning as on 31.03.2014 A Ready Reckoner
Quarter of NPA
Year
Quarter
D1
D2
D2
D3
Jun
SST
D1
D2
D2
Sep
SST
D1
D2
D2
Dec
SST
D1
D2
D2
Mar
SST
D1
D2
D2
Jun
SST
D1
D2
Sep
SST
D1
D2
Dec
SST
D1
D2
Mar
SST
D1
D2
Jun
SST
D1
Sep
SST
D1
Dec
SST
D1
Mar
SST
D1
Mar
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2014
ASSET CLASSIFICATION
March
March March March March
2010
2011
2012
2013
2014
SST
Jun
SST
Sep
SST
Dec
SST
Mar
SST
Provision for 2013-2014

100 % of outstanding for all NPAs
on or before 31.03.2010,
irrespective of securities available
40 % of Secured portion of
outstanding and 100% of
Unsecured portion of outstanding
for NPAs from 01.04.2010 to
31.03.2012
25 % of Secured portion of
outstanding and 100% of
Unsecured portion of outstanding
for NPAs from 01.04.2012 to
31.03.2013
General 15% of outstanding

(25% of outstanding if ab-initio
unsecured) for NPAs on or after
01.04.2013
Page No.4
INCOME RECOGNITION AND ASSET CLASSIFICATION NORMS - AT A GLANCE
1. An asset, including a leased asset, becomes non performing when it ceases to generate income for the
bank.
2. Banks should, classify an account as NPA only if the interest due and charged during any quarter is not
serviced fully within 90 days from the end of the quarter.
3. FACILITY WISE CHART:
Credit
Facility
Basis for treating a Credit Facility Remarks

as NPA
Term loans
Interest
or
instalment
remains Overdue: An amount due to the bank under
overdue for a period of more than 90 any credit facility is Overdue if it is not paid
days.
on the due date fixed by the bank.
Agricultural Advances:
Position upto 29th Sept 2004: In
respect of advances granted for
agricultural purposes where interest
and/or instalment of principal remains
overdue for a period of more than two
harvest seasons but for a period not
exceeding two half years, the advance
should be treated as NPA.
Position wef 30th Sept 2004: A loan
granted for short duration crops will
be treated as NPA, if the instalment of
principle or interest remain overdue for
two crop season and a loan granted for
long duration crops will be treated as
NPA, if the instalment of principle or
interest remain overdue for one crop
season
Long duration crops means crops with crop season
longer than one year
Short duration crops are those other than long duration
crops
Cash Credits The account remains continuously out

and
of order for a period of more than 90
days; i.e., outstanding balance remains
Overdrafts
continuously
in
excess
of
the
sanctioned limit/drawing power
or
Banks may not classify an account merely due

to existence of some deficiencies, which are of
temporary nature such as non-availability of
adequate drawing power, balance outstanding
exceeding the limit, non-submission of stock
statements and non-renewal of the limits on
the due date, etc.
there are no credits continuously for a However, generally stock statements older
period of 90 days as on the date of than three months would be deemed irregular
Balance Sheet
and the working capital borrowal account will
become NPA if such irregular drawings are
or
permitted in the account for a continuous
period of 90 days even though the unit may
credits are not enough to cover the be working or the borrowers financial position
interest debited during the same is satisfactory.
period.
Page No.5
Further, an account where the regular/ad-hoc

credit limits have not been reviewed/renewed
within 180 days from the due date/date of ad
hoc sanction respectively will be treated as
NPA.
The bills purchased/discounted remains Overdue interest should not be charged and
overdue for a period of more than 90 taken to income account in respect of overdue
days.
bills unless it is realised.
Bills
Purchased
and
Discounted
Derivative
the overdue receivables representing
Transactions positive mark-to-market value of a
derivative contract, if these remain

unpaid for a period of 90 days from the
specified due date for payment.
Any amount to be received in respect
of that facility remains overdue for a
period of more than 90 days.
Other
Accounts
Government As on 31.03.2014, State government

guaranteed guaranteed advances and investment
advances
in
State
government
guaranteed
Securities
would
attract
asset
classification and provisioning norms if
interest and/or principle or any other
amount due to the bank remain
overdue for more than 90 days.
The credit facilities backed by guarantee of

Central government though overdue may
be treated as NPA only when the government
repudiates its guarantee when invoked.
However, income shall not be recognised
if the interest or instalment has remained
overdue or the account has remained
continuously out of order or the bills or any
other facility has remained overdue for a
period of more than 90 days.
Important Points
Key Words Particulars

Exclusion
Undernoted categories of advances should be excluded, as NPA norms are not

normally applicable to them:
All
Facilities
Advances granted on or after 01.01.2014;

All staff loans sanctioned under various staff loan schemes including housing
loans;
Project Finance (within Moratorium), Education Loan, Agriculture Loan etc.
wherein moratorium period is not completed and interest/installment have not
fallen due;
Advances against Banks deposits, NSC, IVP, KVP and LIP etc provided adequate
margin is available to cover the unrealized interest;
Relief granted to the Agricultural borrowers affected by natural calamities in the
form of conversion of short term loan or re-schedulement of term loan;
Credit facilities backed by Central Govt Guaranteed (if not repudiated) ;
Restructured accounts under Standard category;
Credit facilities backed by State Govt. Guarantees where the default does not
exceed 90 days as on 31.03.2014;
All Standard and Regular Advances.
Once an account has been classified as NPA, all the facilities granted to the borrower
will be treated as NPA except in respect of Primary Agricultural Credit Societies
(PACS)/Farmers Service Societies (FSS). Also, in respect of additional facilities
sanctioned as per package finalised by BIFR and/or term lending institutions, provision
may be made after a period of one year from the date of disbursement in respect of
Page No.6
additional facilities sanctioned under the rehabilitation package. The original facilities
granted would however continue to be classified as sub-standard/doubtful, as the case
may be
Interest on advances against term deposits, NSCs, IVPs, KVPs and Life policies may be
taken to income account on the due date, provided adequate margin is available in the
accounts. Advances against gold ornaments, government securities and all other
Adequate
Margin
securities are not covered by this exemption.

Reversal of
Income
Till the time the account is identified as NPA, income is recognised irrespective of
whether realised or not. Where an account is identified as NPA during the year,
unrealised income should not be recognised for the year. Banks should reverse the
interest already charged and not collected by debiting Profit and Loss account, and stop
further application of interest. However, banks may continue to record such accrued
interest in a Memorandum account in their books. For the purpose of computing Gross
Advances, interest recorded in the Memorandum account should not be taken into
account. This will apply to Government guaranteed accounts also.
In respect of NPAs, fees, commission and similar income that have accrued should cease
to accrue in the current period and should be reversed with respect to past periods, if
uncollected.
Leased Assets
The finance charge component of finance income [as defined in AS 19 Leases issued by
the Council of the Institute of Chartered Accountants of India (ICAI)] on the leased asset
which has accrued and was credited to income account before the asset became
nonperforming, and remaining unrealised, should be reversed or provided for in the current
accounting period.
Regularised
before
balance
sheet date
Fees
and
commissions
(re-
If the accounts of the borrowers have been regularised before the balance sheet date
by repayment of overdue amounts, the same should be handled with care and without
scope for subjectivity. Where the account indicates inherent weakness on the basis of
the data available, the account should be deemed as a NPA. In other genuine cases,
the banks must furnish satisfactory evidence to the Statutory Auditors/Inspecting
Officers about the manner of regularisation of the account to eliminate doubts on their
performing status.
Fees and commissions earned by the banks as a result of re-negotiations or
rescheduling of outstanding debts should be recognized on an accrual basis over the
period of time covered by the re-negotiated or rescheduled extension of credit.
negotiations)
LOC
or
guarantees
Income
recognition
If the debits arising out of devolvement of letters of credit or invoked guarantees are
parked in a separate account, the balance outstanding in that account also should be
treated as a part of the borrowers principal operating account for the purpose of
application of prudential norms on income recognition, asset classification and
provisioning.
Income on NPA accounts to be recognized on realisation basis (conservative
approach). Funded Interest: Income recognition in respect of the NPAs, regardless of
whether these are or are not subjected to restructuring/ rescheduling/ renegotiation of

terms of the loan agreement, should be done strictly on cash basis, only on realisation and
not if the amount of interest overdue has been funded. If, however, the amount of funded
interest is recognised as income, a provision for an equal amount should also be made
simultaneously. In other words, any funding of interest in respect of NPAs, if recognised as
income, should be fully provided for.
Page No.7
ASSET CLASSIFICATION AT A GLANCE

Category
Conditions to be
satisfied
Standard Does not disclose any

Assets
problem and which does
not carry any more than
normal risks attached to
business
Provision amount
Agriculture/SME Adv
0.25%
Commercial Real Estate - 1%
HL (teaser rate period) 2%
Other Loan & Advances
0.4%
[ Special rates for
restructured advances as
mentioned in remarks
column]
SubClassified as NPA for a A general provision of 15%

Standard period
not
exceeding
of
total
sub-standard
Assets
Twelve months.
assets.
Additional
provision
of
10%
on
unsecured
exposure.
Classification of an asset
should not be upgraded
merely as a result of
rescheduling, unless there
is satisfactory compliance
of the required conditions
at least for one year.
Unsecured Exposure means

exposure where realizable
value of security is not more
than 10%, ab-initio, of the
outstanding exposure.
Doubtful Remained Substandard 100% to the extent to which

Assets
for a period of Twelve the advances are not covered
months.
by the realisable value of the
security to which the bank
has a valid recourse. Over
and above the aforesaid,
depending upon the period
for which the asset has
remained doubtful, provision
on the secured portion to be
made on the following basis:
1.
2.
3.
Loss
Assets
Up to 1 year 25%
1 to 3 years 40%
Over 3 years: 100%
Loss asset is one where 100% of the

loss has been identified by should
be
the bank, external or for/written off.
internal auditors or the
RBI inspectors, but the
amount has not been
written off (wholly/partly).
Remarks
Such an asset is not a NPA.
[Provision requirement in case
of Restructured account from
Standard 2% ( for two years
from restructuring /moratorium
date), Restructured (upgraded
from NPA to Standard) 2% (
for one year from the date of
upgradation)]
In respect of accounts where
there are potential threats of
recovery on account of erosion
in the value of security or nonavailability of security and
existence of other factors such
as
frauds
committed
by
borrowers, it will not be
prudent for banks to first
classify them as sub-standard
and then as doubtful after
expiry of 12 mths from the
date the account has become
sub-standard. Such accounts
should
be
straightaway
classified as doubtful or loss
asset,
as
appropriate,
irrespective of the period for
which it has remained as NPA.
It has all the weaknesses inherent

in that of a sub- standard asset
with the added characteristic that
the weaknesses make the
collection / liquidation in full,
highly
questionable
and
improbable, on the basis of
current known facts, conditions
and values.
Stock Audit required in cases
involving NPAs balances above
5 Crores.
Valuation of Security to be done
every three years.
outstanding Such an asset is considered

provided uncollectible and of such little
value that its continuance as a
bankable
asset
is
not
warranted although there may
be some salvage or recoverable
value.
Page No.8
IMPORTANT AUDIT CHECKS
Deposit
(Term/Saving /Current /FCNR/NRE/NRNR)
Verify transactions during the year relating to: New Accounts opened; Accounts closed;
Dormant
Accounts;
Interest
calculations;
Scrutiny
of
account
statements
for
unusual/large/overdraft transactions; Overdue Term deposits & its policies and practices of
renewal; Accrual of interest; RBI Norms for Non-resident deposits & its operations - giving due
importance to opening and operation of accounts like NRE, NRNR, FCNR, RFC, etc.; interest on
various types of deposits; Tax Deducted at Source.
Large deposits placed at the end of the year (probable window dressing).
Examine unusual trend in account opening or account closing, dormant accounts that have
suddenly been reactivated by heavy cash withdrawals or deposits, overdrawings, etc.
Examine interest trends as compared to average annual deposits (monthly average figures).
ADVANCES
Review monitoring reports (irregularity reports) sent by the branch to the controlling authorities in
respect of irregular advances.
Review appraisal system, Files of large as well as critical borrowers, sanctions, disbursement,
renewals, documentation, systems, securities, etc.
Review on test check basis operations in the Advances Accounts.
Compliance of sanction terms and conditions in the case of new advances.
Whether the borrower is regular in submission of stock statements, book debt statements,
insurance policies, balance sheets, half yearly results, etc. and whether penal interest is charged in
case of default/delay in submission of such data.
Charge of interest and recovery for each quarter or as applicable to be verified.
Review the monitoring system, i.e. monitoring end use of funds, analytical system prevalent for
the advances, cash flow monitoring, branch follow-up, consortium meetings, inspection reports,
stock audit reports, market intelligence (industry analysis), securities updation, etc.
Check classification of advances, income recognition and provisioning as per RBI Norms/Circulars.
Examine interest trends as compared to average annual advances (monthly average figures).
Scrutinize the final advances statements with regard to assets classification, security value,
documentation, drawing power, outstandings, provisions, etc.
Check whether Non-Fund based (Letter of Credits/Bank Guarantees) exposure of the borrowers is
within the sanctioned limits.
Compare projected financial figures given at the time of project appraisal with actual figures from
audited financial statements for relevant period and ascertain reasons for large variance.
Profit & Loss Account
Income/Expenditure: Verify:
Short debit of interest/commission on advances;
Excess credit of interest on deposits;
In case the discrepancies are existing in large number of cases, the auditor should consider the
impact of the same on the accounts;
Determine whether the discrepancies noticed are intentional or by error;
Check whether the recurrence of such discrepancies are general or in respect of some specific
clients;
Proper authority in sanction and disbursement of expenses as also the correctness of the
accounting treatment given as to revenue/capital/deferred expenses.
Check accrual of income/expenditure especially for the last month of the financial year.
Divergent Trends:
Divergent trends in income/expenditure of the current year may be analysed with the figures
of the previous year.
Wherever a divergent trend is observed, obtain an explanation along with supporting evidences
like monthly average figures, composition of the income/expenditure, etc.

Page No.9
Balance Sheet
Cash & bank balances
Physically verify the cash balance/ATM cash balance as on March 31, 2013 or reconcile the cash
balance from the date of verification to March 31, 2013.
Confirm and reconcile the balances with banks as on March 31, 2014.
Investments
Physically verify the investments held by the branch on behalf of Head Office and issue
certificate of physical verification of investments to banks Investments Department.
Check receipt of interest and its subsequent credit to be given to Head Office.
Advances provisioning
As per RBI norms, unrealised interest on NPA accounts should be reversed and not charged to
Advance Accounts. Reversal of unrealised interest of previous years in case of NPA accounts is
required to be checked.
Partial recovery in respect of NPA accounts should be generally appropriated against principal
amount in respect of doubtful assets.
Fixed assets
Check inter-branch transfer memos relating to fixed assets and whether they have been correctly
classified in the accounts and depreciation accounting thereof.
Inter Branch Reconciliation (IBR)
Understand the IBR system and accordingly prepare an audit plan to review the IBR
transactions. The large volume of Inter Branch Transactions and the large number of
unreconciled entries in the banking system makes the area fraud-prone.
Check up head office inward communication to branch to ascertain date up to which statements
relating to inter-branch reconciliation have been sent.
Check and report
Reversal of any large/old/unexplained entries, which had remained outstanding in IBR.

Items of revenue nature, cash-in-transit (for example, cash meant for deposit into currency
chest) which remains pending for more than a reasonable period.
Double responses to the entries in the accounts.
Test check accuracy and correctness of Daily statements which are prepared by the branch
and sent to IOR department.
The auditor should duly consider the extent of non-reconciliation in forming his opinion on the financial
statements. Where the amounts involved are material, the auditor should suitably qualify his audit
report. Attention is drawn on the paper on Certain Significant Aspect of Statutory Audit of banks
issued by the Council of ICAI in March 1994, published in the C. A. journal.
Further, vide its circular No. BP.BC.22/21.04.018/99 dated March 24, 1999, the Reserve Bank of India
(RBI) advised the banks to maintain category-wise (head-wise) accounts for various types of
transactions put through inter-branch accounts so that the netting can be done category-wise. Further,
RBI advised banks to make 100 percent provision (category-wise) for net debit position in their interbranch accounts arising out of the unreconciled entries, both debit and credit, outstanding for more
than two years.
Page No.10
Suspense accounts, sundry deposits, etc.

Suspense accounts are adjustment accounts in which certain debit transactions are temporarily posted
whose authorisation is pending for approval.
Sundry Deposit accounts are adjustment accounts in which certain credit transactions are temporarily
posted whose authorisation is pending for approval.
As and when the transactions are duly authorised by the concerned officials they are posted to the
respective accounts and the Suspense account/Sundry Deposit account is credited/debited
respectively.
Ask for and analyse their year-wise break-up.

Check the nature of entries parked in such Accounts.
Check any movement in such old balances and whether the same is genuine and has been
properly authorised by the competent authority.
Check for any revenue items lying in such accounts and whether proper treatment has been
given for the same.
Auditors Report & Memorandum of Changes
The Auditors Report should be a self contained document and should contain no reference of
any point made in any other report including the LFAR;
Include Audit Qualifications in the Auditors Report and not in the LFAR;
Quantify the Audit Qualifications for a better appreciation of the point made to the reader;
For suggesting any changes in the financial statements of the branch, quantify the same in the
Memorandum of Changes (MOC) and make it a subject matter of qualification and annexe it to
the Auditors Report. Summary of Memorandum of Changes (MOC) is required to be given in
Auditors Report as per revised format as issued by ICAI.
Long Form Audit Report (LFAR)
Study the LFAR Questionnaire thoroughly;
Plan the LFAR work along with the statutory audit right from day one;
The LFAR questionnaire is a useful tool for planning the statutory audit of a banks branch;
Complete and submit the Auditors Audit Report as well as the LFAR simultaneously;
Be specific while replying the LFAR;
Give instances of shortcomings/weaknesses existing in the respective areas of the branch
functioning in the LFAR;
Advances check-list for giving list of accounts with adverse features;
The LFAR should be sufficiently detailed and quantified so that they can be expeditiously
consolidated by the bank.
System
Review off-site backup and daily backup procedure of Bank
Exception reports viz. password errors, limit verification, irregular advances
Custodian of pass word and unauthorized access of password, computer room
Periodical report to controlling authority on functioning of computerised system and compliance
of controlling authority instructions in this respect
General
Send a letter of your requirements to the branch before commencing the audit.
Obtain the latest status of cases involving fraud, vigilance and matters under investigation
having effect on the accounts and its reporting requirement.
Obtain a Management Representation Letter (MRL)
Obtain a certificate from Branch-in-charge on specific issues (format as per page 33 )
Page No.11
Draft of Management Representation Letter to be obtained from the Branch Management

Date: ____________
M/s. XYZ & Co.
Chartered Accountants
Mumbai
Dear Sirs,
Sub.: Audit for the period ended 31-3-2014
This representation letter is provided in connection with your audit of the financial statements of
_____________ branch of _______________ BANK for the period ended 31-3-2014 for the purpose of
expressing an opinion as to whether the financial statements give a true and fair view of the financial
position of ___________ branch of _______________ BANK as of 31-3-2014 and of the results of
operations for the period then ended. We acknowledge our responsibility for preparation of financial
statements in accordance with the requirements of the Reserve Bank of India and recognised
accounting policies and practices, including the Accounting and Auditing Standards issued by the
Institute of Chartered Accountants of India.
We confirm, to the best of our knowledge and belief, the following representations:
ACCOUNTING POLICIES
1. The accounting policies, which are material or critical in determining the results of operations
for the period or financial position are set out in the financial statements and are consistent with
those adopted in the financial statements for the previous period. The financial statements are
prepared on accrual basis except as stated otherwise in the financial statements.
ASSETS
2. The branch has a satisfactory title to all assets and there are no liens or encumbrances on the
company's assets.
FIXED ASSETS
3.
.
a.
b.
The net book values at which fixed assets are stated in the balance sheet are arrived at:
after taking into account all capital expenditure on additions thereto, but no expenditure
properly chargeable to revenue;
after eliminating the cost and accumulated depreciation relating to items sold, discarded,
demolished or destroyed;
after providing adequate depreciation on fixed assets during the period.
CAPITAL COMMITMENTS
4. At the balance sheet date, there were no outstanding commitments for capital expenditure
excepting those disclosed in Note No. ___ to the financial statements.
INVESTMENTS
5. The current investments as appearing in the balance sheet consist of only such investments as
are by their nature readily realisable and intended to be held for not more than one year from
the respective dates on which they were made. All other investments have been shown in the
balance sheet as `long-term investments'.
Page No.12
6. Current investments have been valued at the lower of cost or fair value. Long-term investments
have been valued at cost, except that any permanent diminution in their value has been
provided for in ascertaining their carrying amount.
7. In respect of offers of right issues received during the year, the rights have been either been
subscribed to, or renunciated, or allowed to lapse. In no case have they been renunciated in
favour of third parties without consideration which has been properly accounted for in the books
of account.
8. All the investments produced to you for physical verification belong to the entity and they do
not include any investments held on behalf of any other person.
9. The entity has clear title to all its investments including such investments which are in the
process of being registered in the name of the entity or which are not held in the name of the
entity. There are no charges against the investments of the entity except those appearing in the
records of the entity.
LOANS AND ADVANCES
10. The following items appearing in the books as at 31st March, 2014 are considered good and
fully recoverable with the exception of those specifically shown as "doubtful" in the Balance
Sheet:
Loans and Advances Rs.
OTHER CURRENT ASSETS
11. In the opinion of the Board of Directors, other current assets have a value on realization in the
ordinary course of the company's business, which is atleast equal to the amount at which they
are stated in the balance sheet.
CASH & BANK BALANCES
12. The cash balance as on 31st March, 2014 is Rs.______.
The bank balances as on ________________ is as under:
__________________ Bank Rs.______________
__________________ Bank Rs.______________
__________________ Bank Rs.______________
LIABILITIES
13. We have recorded all known liabilities in the financial statements.
14. We have disclosed in notes to the financial statements all guarantees that we have given to
third parties and all other contingent liabilities.
15. Contingent liabilities disclosed in the notes to the financial statements do not include any
contingencies, which are likely to result in a loss and which, therefore, require adjustment of
assets or liabilities.
PROVISIONS FOR CLAIMS AND LOSSES
16. Provision has been made in the accounts for all known losses and claims of material amounts.
17. There have been no events subsequent to the balance sheet date, which require adjustment of,
or disclosure in, the financial statements or notes thereto.
PROFIT AND LOSS ACCOUNT
18. Except as disclosed in the financial statements, the results for the period were not materially
affected by:
Transactions of a nature not usually undertaken by the bank;
a.
Circumstances of an exceptional or non-recurring nature;
b.
Charges or credits relating to prior years;
c.
Changes in accounting policies.
GENERAL
Page No.13
19. The following have been properly recorded and, when appropriate, adequately disclosed in the
financial statements:
Losses arising from sale and purchase commitments.
a.
Agreements and options to buy back assets previously sold.
b.
Assets pledged as collateral.
20. There have been no irregularities involving management or employees who have a significant
role in the system of internal control that could have a material effect on the financial
statements.
21. The financial statements are free of material misstatements, including omissions.
22. The company has complied with all aspects of contractual agreements that could have a
material effect on the financial statements in the event of non-compliance. There has been no
non-compliance with requirements of regularity authorities that could have a material effect on
the financial statements in the event of non-compliance.
23. We have no plans or intentions that may materially affect the carrying value or classification of
assets and liabilities reflected in the financial statements.
24. The branch has not received any notice, show cause, inspection advice, etc. from Government
of India, Reserve Bank of India or any other monitoring authority of India that could have a
material effect on the financial statements.
For & on behalf of

___________ branch of _______________ Bank
Authorised Signatory
Page No.14
Draft Letter of Requirements to be sent to the Branch

April 1, 2014
The Branch Manager
_____________ Bank
_____________ Branch
Mumbai
Dear Sir:
Sub.: Statutory Audit of your branch for the year 2013-2014
As you are aware, we have been appointed as the Statutory Auditor to report on the accounts of your
Branch for the year 2013-2014.
Our Tentative Program for Branch Visit is as below:
..
In order to enable us to finalise the audit programme and furnish our report on the audit of the
accounts for the year 2013-2014 of your branch, may we request you to keep ready the
information/clarification as stated below and make the same available to our audit team at the earliest.
a. Latest Reports The following latest reports on the accounts of your bank, and compliance by
the bank on the observations contained therein may be kept ready for our perusal:
a. Latest RBI Inspection Report;
b. Internal/Concurrent Audit Reports;
c. Previous Statutory Audit Report
d. Head Office Inspection Reports;
e. Internal Inspection Reports;
f. Revenue Audit Report (if any);
g. Income and Expenditure Control Report (if any);
h. Report on any other Inspection/Audit that may have been conducted during the course
of
the
year
relevant
to
the
financial
year
2013-2014.
b. Circulars in connection with accounts
Please let us have a copy of the Head Office circulars/instructions in connection with the closing
of your accounts for the year, to the extent not communicated to us or incorporated in our
letter of appointment.
c. Accounting policies
Kindly confirm whether, as compared to the earlier year, there are any changes in the
accounting policies during the year under audit.
If so, please let us have a list and a copy of the accounting policy/ies amended by the bank
during the year covered by the current audit and compute the financial effect thereof to enable
us to verify the same.
Page No.15
d. Balancing of books
Kindly confirm the present status of balancing of the subsidiary records with the relevant control
accounts. In case of differences between balances in the control and subsidiary records, please
give the details thereof and let us know the efforts being made to reconcile/balance the same.
This information may be given head-wise for the relevant control accounts, indicating the date
when the balances were last tallied.
e. Deposits
a. Please let us have the interest rate structure, applicable for the current year, for all the
types of deposits accepted by the branch.
b. Kindly confirm having transferred Overdue/Matured Term Deposits to Current Account
Deposit. If not, details/particulars of credit balances comprising Overdue/Matured Term
Deposits as at the year-end which continue to be shown as Term Deposit, particularly
where the branch does not have any instructions/communication for renewal of such
deposits from the account holder and amount of provision of interest made on such
overdue/matured term deposits, should be separately marked out and be kept ready for
our
reference.
b. Advances
a. Kindly confirm whether in respect of the advances against tangible securities, the branch
holds evidence of existence and latest market value of the relevant securities as at the
year-end.
b. Kindly inform the year-end status of the accounts, particularly those which have been
adversely commented upon in the latest reports of RBI/Internal Auditors/Concurrent
Auditors/Statutory Auditors, etc. on the branch as also accounts in respect of which
provisions have been made/recommended as at the previous year-end.
Information
in
relation
to
such
advances
accounts
computed/recommended may please be prepared indicating:
where
provision
a. Name of the borrower

b. Type of facility
c. * Total amount outstanding as at the year-end (both for principal and interest)
specifying the date up to which interest has been levied and recovered.
d. Particulars of securities and value on the basis of latest report/statement.
e. Nature of default and action taken.
f. Brief history and present status of the advance.
g. * Provision already made/recommended.
h. NPA since when (please specify the date)
* Corresponding figures for the previous year-end may please be given.
c. Kindly confirm whether the borrowers account have been categorised according to the
norms applicable for the year into Standard, Sub-standard, Doubtful or Loss assets, with
special emphasis on Non-Performing Assets (NPA) and whether such classification has
also been made applicable by the branch to advances with balances of less than Rs.
25,000
each.
Kindly confirm whether you have examined the accounts and applied the norms
borrower-wise and not account-wise for categorising the accounts. Please let us have the
particulars of provisions computed/recommended in respect of the above during the
financial year under audit.
d. A list of all advances accounts which have been identified as bad/doubtful accounts and
where pending formal sanction of the higher authorities, the relevant amount have not
been re-classified/re-categorised in the book of the branch for provision/write off. This
covers all account identified by the branch or internal/external auditor or by RBI
inspectors but the amount has not been written-off wholly or partly.
In case the bank has recommended action against the borrowers or for initiating legal or
Page No.16
other coercive action for recovery of dues, a list of such borrowers accounts may be
furnished to us.
e. Please let us have a list of borrowers accounts where classification made as at the end
of the previous year has been changed to a better classification, stating reasons for the
same.
f. Kindly also confirm whether any income has been adjusted/recorded to revenue,
contrary to the norms of income recognition notified by the Reserve Bank of India and/or
Head Office circulars issued in this regards; and particularly where the chances of
recovery/realisability of the income are remote.
Kindly also confirm whether any income has been recorded on Non-Performing Accounts
other than on actual realisation.
c. Outstanding in Suspense/Sundry Account

Kindly let us have a year-wise/entry-wise break up of amounts outstanding in Suspense/Sundry
accounts as on 31-3-2014. Kindly explain the nature of the amounts in brief. Supporting
evidences relating to the existence of such amounts in the aforesaid accounts may be kept
ready at the branch for verification. Reasons for non-adjustment of items included in these may
be made known.
d. Inter-branch/Office Accounts/Head Office Account

a. Please let us have a statement of entries (head-wise) which originated prior to the yearend at other branches, but were responded during the period after 31-3-2014 at the
branch.
b. Date-wise details of debits in various sub-heads relating to Inter-Branch transactions
and reasons for outstanding amounts particularly those, which are over 30 days as at
the Balance Sheet date.
e. Contingent liabilities
a. Kindly confirm whether other than for advances, there are any matters involving the
bank in any claims in litigation, arbitration or other disputes in which there may be some
financial implications, including for staff claim, municipal taxes, local levies etc. If so,
these may be listed for our verification, and you may confirm whether you have included
these as contingent liabilities.
b. Kindly confirm whether guarantees are being disclosed net of margins, or otherwise as at
the year-end, and whether the expired guarantee where the claim year has also expired,
continue to be disclosed in the branch return. Please confirm specifically.
f.
Interest provision
a. Kindly confirm whether interest provision has been made on deposits etc. in accordance
with the latest instruction of the RBI/interest rate structure of the bank. A copy of such
instructions/rate structure may be made available for our scrutiny.
b. Kindly confirm whether any amount recorded as income up to the year-end, which
remains unrecovered or not realisable, has been reversed from any of the income heads
or has been debited to any expenditure head during the financial year. If so, please let
us have details to enable us to verify the same.
c. Kindly confirm the accounting treatment as regards reversal, if any of interest/other
income recorded up to the previous year-end; and the amount reversed during the year
under audit; i.e., income of earlier years derecognised during the year.
g. Foreign currency outstanding transactions

a. Kindly confirm whether amount outstanding as at the year-end have been converted as
at the year-end rates prescribed by FEDAI. An authenticated copy of the FEDAI rates
applied may be given for our records.
b. Kindly confirm the amount of inward value of foreign currency parcels, if any, which
originated prior to the year-end from other banks, but could not be recorded as these
were in transit and for which entries were made after the year end.
Page No.17
h. Investment/Stationery
For Investment held by the branch:
a. These may be produced for physical verification and/or evidence of holding the same be
made available.
b. Stock of unused security paper stationery/numbered forms like B/Rs, SGL forms, etc.
may please be produced for physical verification.
c. It may be confirmed whether income accrued/collected has been accounted as per the
laid down procedure.
d. It may be confirmed whether Investment Valuation has been done as per the extant RBI
guidelines.
i.
Long Form Audit Report - Branch response to the Questionnaire

In connection with the Long Form Audit Report, please let us have complete information as
regards each item in the questionnaire, to enable us to verify the same for the purpose of our
audit.
j.
Tax Audit in terms of section 44AB of the Income-tax Act, 1961

Please let us have the information required for the tax audit under section 44AB of the Incometax Act, 1961 to enable us to verify the same for the purpose of our report thereon.
k. Other certification
Please furnish us the duly authenticated information as regards other matters, which as per the
letter of appointment require certification.
l.
Bank reconciliation and confirmations

Please let us have the duly reconciled statements for all Nostro as well as Local bank accounts.
A copy of the year-end balance confirmation statements should also be called for and kept
ready for our review.
m. Books of account and records

Kindly keep ready all the books of accounts and other records like vouchers, documents, fixed
assets register, etc. for our verification.
We shall appreciate your kind co-operation in the matter.
Thanking you,
Yours truly,
Page No.18
Check-list for Audit of Advance Accounts

1.
Name of the borrower
2.
Address
3.
Constitution
4.
Nature of business/activity
5.
Other units in the same group
6.
Total exposure of the branch to the Group - Fund based (Rs. in lakhs) - Non-fund
based (Rs. in lakhs)
7.
Name of Proprietor/Partners/Directors
8.
Name of the Chief Executive, if any
9.
Asset classification by the branch

a. during the current year
b. during the previous year
10. Asset classification by the Branch Auditor

a. during the current year
b. during the previous year Are there any adverse features pointed out in
relation to asset classification by the Reserve Bank of India Inspection or
any other audit.
11. Date on which the asset was first classified as NPA (where applicable)
12. Facilities sanctioned:
Date
of Nature
of Limit
Margin% Balance outstanding Prime
Sanction
facilities
(Rs.
in
at the year-end
security
Lakhs)
Current
Year
Collateral
security
Previous
Year
Provision made: Rs.________ lakhs

13. Whether the advance is a consortium advance or an advance made on multiplebank basis
14. If Consortium,
a. names of participating banks with their respective shares
b. name of the Lead Bank in Consortium
15. If on multiple banking basis, names of other banks and evidence thereof
16. Has the Branch classified the advance under the Credit Rating norms in
accordance with the guidelines of the controlling authorities of the Bank
17.
a. Details of verification of primary security and evidence thereof;

b. Details of valuation and evidence thereof
Date verified
Nature of security
Value
Valued by
Insured for Rs. _______ lakhs (expiring on ________)

18.
i.
ii.
Details of verification of collateral security and evidence thereof

Details of valuation and evidence thereof
Page No.19
Date verified
Nature of security
Value
Valued by
Insured for Rs. _______ lakhs (expiring on ________)

19. Give details of the guarantee in respect of the advance
a.
b.
c.
d.
Central Government guarantee;

State Government guarantee;
Bank guarantee or financial institution guarantee;
Other guarantee
Provide the date and value of the guarantee in respect of the above.
20. Compliance with the terms and conditions of the sanction
Terms and Conditions

Compliance
i.
ii.
iii.
iv.
v.
Primary Security
i.
Charge on primary security
ii.
Mortgage of fixed assets
iii.
Registration of charges with Registrar of Companies
iv.
Insurance with date of validity of policy
Collateral Security
i.
Charge on collateral security
ii.
Mortgage of fixed assets
iii.
Registration of charges with Registrar of Companies
iv.
Insurance with date of validity of policy
Guarantees - Existence and execution of valid guarantees
Asset coverage to the branch based upon the arrangement (i.e.,
consortium or multiple-bank basis)
Others:
i.
Submission of Stock Statements/Quarterly Information Statements
and other Information Statements
ii.
Last inspection of the unit by the Branch officials: Give the date and
details of errors/omissions noticed
iii.
In case of consortium advances, whether copies of documents
executed by the company favouring the consortium are available
21. Key financial indicators for the last two years and projections for the current year (Rs. in lakhs)
Indicators
Audited
year Audited
year Estimates
for
ended
31st ended
31st year ended 31st
March___
March___
March ___
Turnover
Increase in turnover % over previous
year
Profit before depreciation, interest and
tax
Less: Interest
Net Cash Profit before tax
Less: Depreciation
Less: Tax/Net Profit after
Depreciation and Tax
Net Profit to Turnover Ratio
Capital (Paid-up)
Reserves
Net Worth
Page No.20
Turnover to Capital Employed Ratio (The

term capital employed means the sum of
Net Worth and Long Term Liabilities)
Current Ratio
Stock Turnover Ratio
Total Outstanding
Worth Ratio
Liabilities/total
Net
In case of listed companies, Market Value

of Shares
a. High;
b. Low; and
c. Closing
Earnings Per Share
Whether the accounts were audited? If
yes, up to what date; and are there any
audit qualifications
22. Observations on the operations in the account:
Excess
over Excess over
drawing power
limit
1. No of occasions on which the Balance exceeded the drawing
power/sanctioned limit (give details)
Reasons for excess drawings, if any
Whether excess drawings were reported to the Controlling
Authority and approved
Debit summation Credit summation
(Rs. in lakhs)
(Rs. in lakhs)
2. Total summation in the account during the year
Less: Interest
Balance
23. Adverse observations in other audit reports/Inspection Reports/Concurrent
Auditors Report/Internal Audit Report/Stock Audit Report/Special Audit Report or
Reserve Bank of India Inspection with regard to:
1.
2.
3.
4.
Documentation;
Operations;
Security/Guarantee; and
Others
24. Branch Managers overview of the account and its operation.

25. 1.
2.
In case the borrower has been identified/classified as Non-performing Asset

during the year, whether any unrealised income including income accrued
in the previous year has been accounted as income, contrary to the Income
Recognition Norms.
Whether any action has been initiated to recover accounts
identified/classified as Non-performing Assets.
Date:
Signature and Seal

of
Branch-inCharge
Page No.21
Advances checklist for LFAR

a)
b)
In respect of common irregularities, the Auditors can give their comments borrower-wise in the
format given hereunder:
Name
of Name
borrower of
branch
Region IRAC Sanctioning

status authority
Facility Limit Amount

Irregularity
o/s. as at No.
the
year
end
In respect of Column 9 above, Irregularity No., the number as given in the Glossary to
Irregularities in Point 5, under the head Item below should be given for the irregularity
applicable to respective borrower.
In case the auditors feel that in spite of the list of irregularities given below, there are some
other irregularities, which the auditor would like to bring to notice, the auditor may separately
disclose under the given head by giving appropriate number.
For the aforesaid purpose, appropriate number would mean, for example, if the auditors feels
that in case of Review/Monitoring/Supervision, which has the number 4, any additional
irregularity has to be incorporated, he may give a number after the last number appearing in
the list such as 4.52, and onwards. Similarly in case of Credit Appraisal which has the
number 1, any additional irregularity may be given 1.14, and so on.
c)
d)
e)
The borrower-wise details may be given in descending order based on the Amount
outstanding.
In addition to the above, auditors wanting to give notes in respect of Critical Advances (large or
small) with gross irregularities should give the same as per the format given in Point 6 below.
GLOSSARY TO IRREGULARITIES
Item REMARK
1
Credit Appraisal
1.1
Loan application not on record at branch.
1.2
The appraisal form was not filled up correctly and thereby the appraisal and assessment
was not done properly.
1.3
Loan application is not in the form prescribed by Head Office.
1.4
The bank did not receive certain necessary documents and Annexures required with the
application form.
1.5
Basic documents such as Memorandum & Articles of Association, Partnership deed, etc.,
which are a pre-requisite to determine the status of the borrower, not obtained.
1.6
Certain adverse features of the borrower not incorporated in the appraisal note forwarded
to the management.
1.7
Industry/group exposure and past experience of the bank is not dealt in the appraisal
note sent to the management for sanction.
1.8
The level for inventory/book-debts/creditors for finding out the working capital is not
properly assessed.
1.9
Techno-economic feasibility report, which is required to know the technical aspects of the
borrowers business, is not obtained from Technical Cell.
1.10 Credit report on principal borrowers and confidential report from their banks are not
insisted from the borrowers.
1.11 The opinion reports of the associate and/or sister concerns of the borrower are not
scrutinised.
Page No.22
1.12 The opinion reports of the associate and/or sister concerns of the borrower are not called
for.
updated.
satisfactory.
scrutinised/called for/not updated/not satisfactory.
1.16 The procedure/instructions of head office regarding preparation of proposals for grant not
followed.
1.17 The procedure/instructions of head office regarding preparation of proposals for renewal
of advances not followed.
1.18 The procedure/instructions of head office regarding preparation of proposals for
enhancement of limits, etc. not followed.
1.19 No exposure limits are fixed for forward contract for foreign exchange sales/purchase
transactions.
2
Sanctioning and disbursement
2.1
Credit facility sanctioned beyond the delegated authority or limit of the branch
2.2
Certain proposals were sanctioned pending approval of higher authorities wherever

required.
2.3
Ad hoc limits were granted for which sanctions were pending since long.
2.4
Facilities were disbursed before completion of documentation.
2.5
Facilities were disbursed without following sanction terms.
2.6
Facilities were disbursed without any sanction.
2.7
Sanction letter was missing in the branch.
2.8
Guarantor as required in the sanction letter was not obtained.
2.9
Required promoters stake not invested before disbursement of loan.
2.10 Sanctions were made without proper appraisal.

2.11 Security charge not created before disbursement as required by sanction letter/renewed
letter.
2.12 Full disbursement of the facility not made.
2.13 Sanction terms were not complied with or were not recorded.
2.14 Disbursement made without proper sanction.
2.15 Term loan was disbursed by creating the cash credit or savings account of the borrower.
3
Documentation
3.1
The security against which the advance was sanction was not available/was not on
record.
3.2
Mortgage for the property given as security is not created.
3.3
Mortgage for the property given as security created, was inadequate, as compared to
terms of sanction.
3.4
Second charge as required, on assets is not created in favour of the bank.
3.5
Documents of second charge on assets is not on the record.
3.6
Documents pertaining to registration of charges with ROC or any other concerned

authority requiring charging of assets is not obtained.
3.7
Copies evidencing lodgment of the original conveyance/sale deeds with the SubRegistrars for registration not on record.
3.8
Authority letter/Power of Attorney to the bank to collect the original documents from the
Sub-Registrar not on record.
3.9
Documents pertaining to consortium advances not yet executed/not available with bank.
3.10 Documents signed by persons not duly authorised to sign or who have signed in other
capacity accepted by the bank.
Page No.23
3.11 Signatures of the executants were not found on all the pages of the documents
3.12 Some of the documents on record were blank, without signatures of Branch Manager,
witnesses, or guarantors, etc.
3.13 Revival letters in respect of documents to be reviewed from the borrowers not received.
3.14 Guarantors have expired.
3.15 Guarantors not on record.
3.16 Guarantors not renewed.
3.17 Guarantors not assigned.
3.18 Worth of the guarantors not available.
3.19 Stamping not as per the amended Stamps Act.
3.20 Documents have become mutilated, soiled, time barred or not obtained.
3.21 Opinion report by the field officer for the borrowers not found on record.
3.23 Nil Encumbrance Certificate/s or No Dues Certificate/s or No Lien Letters not
obtained for the mortgage/s.
3.24 Advances for vehicle loans, Registration certificate, transfer certificate, etc. not obtained.
3.25 Work completion certificate, sale deeds, share certificates in societies, etc. not on record
for housing loans.
3.26 Documents are not duly attested/signed by concerned officials/not renewed.
3.27 The agreements for hypothecation do not contain details regarding goods hypothecated.
3.28 Copy of Bills/receipts, on the basis of which the amount was disbursed not found on
record. For example Vehicle Loans, Plant and Machinery.
3.29 Charge on main &/or collateral securities not created in terms of sanction letter.
3.30 Original security papers/sale deed/lease deed/title deed/agreement of sale not available
on record.
3.31 TDR are not discharged or renewed.
3.32 Control returns not sent to the H.O.
3.33 The branch has not taken any action for not compliance with terms of agreement
3.34 No documents executed for enhancement of limit/document not on record.
3.35 ECGC post shipment policy not obtained.
3.36 Credit facility released without execution of all necessary documents.
3.37 Common Seal not affixed on Letter of Comfort.
3.38 Confirm orders for export credit not found on record for facilities released.
4
Review/Monitoring/Supervision
4.1
The account is frequently overdrawn.
4.2
The account is continuously overdrawn.
4.3
The account is overdrawn and the branches have not taken sufficient steps to regularise
the accounts promptly.
4.4
The balance outstanding have exceeded the drawing power.
4.5
Balance confirmation and acknowledgment of debt not obtained.
4.6
The stock, book-debts statements not received regularly/promptly.
4.7
The FFI/financial statements/audited statements/FFR 1 & 2/other operational data, etc.,

not received regularly/promptly.
4.8
The stock, book-debts statements, etc., not scrutinised and no suitable action is taken.
4.9
The FFI/financial statements/audited statements/FFR 1 & 2/other operational data, etc.,

not received regularly/promptly/not scrutinised and no suitable action is taken.
4.10 Non-moving stock is not deducted to arrive at the drawing power.

4.11 The age-wise break-up of debtors is not found on record. The borrowers are allowed to
draw money on entire outstanding debt, which must rather be for the recent debts as
prescribed for particular industries and as per margin prescribed in the sanction letter.
4.12 Wide discrepancies observed in the stock statements and stock figures in the annual
Page No.24
audited financial statements.

4.13 No penal interest has been charged for delay in submission of various statements as per
the terms of agreement depending upon the type of loan/credit availed by the borrower.
4.14 Many branches have not adhered to the prescribed frequency of physical verification of
securities given against loans and advances.
4.15 Drawing power limits are not revised as per market value of shares for advances against
security of shares.
4.16 End-use of funds not ensured/not known funds utilised for purpose other than for which
granted.
4.17 The projections submitted by the borrower stay far beyond the actual performance.
Further, no explanation for the same is taken from the borrower.
4.18 Major sale proceeds of the borrower not routed through the bank.
4.19 Audited statements of non-corporate borrowers having limit beyond Rs. 10 lakhs not
received.
4.20 Renewal proposals of advances not received on time and in many cases the limits are not
renewed.
4.21 Application of wrong rate of interest, processing charges, commission, other charges, etc.
resulting in income leakage/excess booking of interest of the Bank.
4.22 Insurance cover for stock/property is inadequate/not on record/not renewed/not endorsed
in favour of the Bank.
4.23 Inspection/physical verification of security charged, not been carried out.
4.24 Expired bills/foreign currency sight bills which are outstanding, have not been crystallised.
4.25 EBW statements on write-off of overdue export bills of ECM not found on record.
4.26 Confirmation as to genuineness of export transactions not obtained from Banks foreign
offices/correspondents/customs department.
4.27 Import credit, bill of entry evidencing import of goods not found.
4.28 Documents are not obtained for bills discounted under Letter of Credit.
4.29 Advances, which are eligible for whole turnover packing credit guarantee cover of ECGC,
are not brought under its cover.
4.30 Though government guaranteed accounts are irregular since long, the issue of invocation
of guarantee does not seem to have been considered.
4.31 Prescribed margins not maintained as per sanctions.
4.32 Allocated limits, full terms of sanctions, stock statements, inspection reports, margin, etc.
not available at monitoring branches.
4.33 For allocated limits, inordinate delays were noticed in responding to transfer by the
allocator branch.
4.34 Regular meetings not held with other consortium members to review the performance of
borrowers and to assess the current state of affairs/not been held as per norms.
4.35 Individual members of the consortium are not advised about the quarterly operating
limits/D. P. allocated to each one of them.
4.36 Minutes of the consortium meetings not found on record/not been held as per norms.
4.37 Inspection report from the consortium members not obtained.
4.38 The capital of the borrower has eroded/networth is negative/decreasing. Close monitoring
needs to be done.
4.39 The drawing power is calculated wrongly and/or hence the borrower is allowed to enjoy
excess credit than actually eligible.
4.40 Signboard of SBI is not displayed in godown, where the pledged/hypothecated stock is
stored.
4.41 Limit not fully utilised by the borrower/No commitment charge is levied for the limit not
fully utilised by the borrower.
4.42 Loan against TDR/STDR, which is matured, is neither renewed nor credited to loan
account.
Page No.25
4.43 The Stock and Debtors Audit Report not found on record. No audit has been done for
accounts of the borrower.
4.44 The valuation report in respect of tangible security from government approved valuer
have not been obtained.
4.45 Guarantees, Opinion Reports Financial statements, IT assessment orders and etc. of the
guarantor are not found on record.
4.46 Opinion report on guarantor is not obtained.
4.47 For small Government sponsored loan accounts, security cover could not be ascertained
since neither any record was available at branch nor physical verification conducted by
the branch.
4.48 Pre-sanctions and/or post-sanctions inspection reports were not on record.
4.49 The account was overdue for repayment and/or no credit was received from the borrower
for a long time.
4.50 The borrower is absconding or deceased and legal formalities are incomplete and there is
wilful default from the borrower. Either establishment was closed or security was disposed
of or no action taken by the branch.
4.51 Subsidy claim process was incomplete or subsidy was yet to be received or needs followup.
4.52 Security disposed of/entity closed by borrower and no action taken by the branch.
4.53 Irregularity not advised to controllers.
4.54 Letter of subordination of deposits not taken.
4.55 Secured and unsecured portion not segregated properly in advance return of the branch.
4.56 Renewal of limits was done before the receipt of financial statements.
4.57 Heavy cash withdrawal for which consent of corporate Guarantor is not taken.
4.58 Proper valuation of stock not done/needs critical scrutiny.
4.59 Security obtained is inadequate/lower as compared to amount of outstanding/no collateral
security.
4.60 The party was dealing with other bank also tough it was not permitted.
4.61 Sticky accounts require close follow-up by the management.
5
Bad and doubtful advances
5.1
The IRAC norms for classification of advances were not followed and the same is
implemented through Memorandum of Changes by auditors during audit.
5.2
Instalments were not received from the borrowers.
5.3
Interest was not received from the borrowers.
5.4
Legal action for recovery of advances was not taken although authorised by the
Board/Controlling Authority.
5.5
Discontinuance of application of interest not followed although authorised by the

Board/Controlling Authority.
5.6
Government guarantees have expired and fresh guarantees not obtained/not renewed.
5.7
Terms of the BIFR scheme not complied.
5.8
Payment from government not received although guarantees were unconditional,

irrevocable and payable on demand.
5.9
Delays in the settlement/repayment in respect of sanctioned proposals.
5.10 The repayment accepted in case of compromise cases inadequate vis--vis value of
security.
5.11 Compromise proposals pending at various levels where local government/outside
agencies are involved as guarantors.
5.12 Copy of Search Report not on record.
5.13 Decree awarded but no further steps taken for recovery.
5.14 DI&CGC claims submitted/rejected/pending data not available.
5.15 Irregular/sticky advance not reported to the controlling authority promptly.
Page No.26
5.16 Compromise/OTS proposal is recommended and is under negotiation since long but not
finalised. Suit is filed in the court/DRT and pending to be finalised.
5.17 ECGC claim not submitted/lodged for recovery.
f)
Format for reporting Large/Irregular Advances

Name of the Branch & Region :
Name of the Borrower :
Asset Classification (IRAC Status) :
(Rupees in lakhs)
Facility
Sanctioned Limit Drawing Power Outstanding as on 31.3.2014
Fund based:
Non-Fund based:
g)
h)
i)
Security :
Primary :
Collateral :
Financial performance :
Operational comments :
Other comments (if any) :
Page No.27
(
Remuneration payable to the Statutory Central and Branch Auditors from the year 20122013 as per RBI circular No. DBS.ARS.No.BC. 08/ 08.92.001/ 2012-13 June 25, 2013
A. Remuneration for Branch Audit work of the Bank
Category of bank branch
(on the basis of quantum of advances)
Up to ` 10 crore
Above ` 10 crore up to ` 20 crore
Above ` 5000 crore
Rates of audit fees

(`)
40250/57500/79350/120750/138000/182850/228850/287500/324300/359950/395600/431250/-
The main operating office of the bank (irrespective of the fact whether it is attached to Head / Central
Office of the bank or functions as a separate unit), CPUs/LPUs/and other centralized hubs by whatever
nomenclature called which are taken up for the purpose of statutory branch audit during a particular
year so as to cover 90% of advances of a bank will be treated as any other branch and the fees
admissible for the audit work thereof will be on the basis of the above mentioned schedule.
For branches where there is no advances portfolio such as service branches, specialised branches
etc., or those operating as NPA recovery branches the banks, in consultation with the Audit Committee
of the Board, should propose the revised fees depending on the volume of business of the branches,
existing fee, etc. for the approval of RBI on a case to case basis.
B. Fees for LFAR
Head Office / Controlling Offices
Branches
25% of the basic audit fee excluding fee

for scrutiny and incorporation of branch
returns.
10% of the basic audit fee payable for
audit of respective branch.
In respect of branches below the cut-off point of the threshold limit of branches to be taken up for
statutory audit, as stipulated from time to time, which may not generally be subjected to statutory audit
but are subjected to concurrent audit by chartered accountants and where LFARs and other
certifications done earlier by SBAs are required to be submitted by the concurrent auditors, the fees
payable to the concurrent auditors may be based on the above prescription.
No separate TA/HA shall be payable for LFAR / Tax Audit of Head / Controlling Offices and branches.
C. Fees for additional certifications
It has been decided that an additional remuneration @ 12% of the basic audit fees shall be payable for
the following certifications/validations required to be made in terms of various circulars/guidelines
Page No.28
issued by RBI and any other certification/validation included from time to time as per RBI
requirements.
i) Verification of SLR requirements under Section 24 of BR Act, 1949 on 12 odd dates in different
months in a year, not being Fridays.
ii) A certificate to the effect that the bank has been following RBI guidelines regarding (a) asset
classification, (b) income recognition (c) provisioning, and also to the effect that the bank has
followed RBI guidelines in regard to the investment transactions/treasury operations.
iii) A certificate in respect of reconciliation of banks investments (on own account as also under
PMS).
iv) A certificate for compliance in key areas by the banks.
v) A certificate in respect of custody of unused BR forms.
vi) Authentication of banks assessment of Capital Adequacy Ratio in the Notes on Accounts
attached to the balance sheet and various other ratios / items to be disclosed in the Notes on
Accounts.
vii) Certificate regarding loan portfolio review if the bank seeks World Bank assistance (Capital
Restructuring Loan).
viii) Certification regarding DICGC items.
ix) Verification of SLR and CRR returns submitted by the bank to RBI during the period under audit
and confirming the same to RBI and the bank under audit.
x)
To comment upon the status of compliance by the bank as regards the implementation of the
recommendations of the Ghosh Committee and the Working Group on internal controls.
xi) Commenting upon the credit deposit ratio in the rural areas as per the instructions of Government
of India.
xii) Reporting of instances of suspected fraud if any, noticed during the course of statutory audit as
per Mitra Committee Recommendations.
As hitherto, no fee is payable to branch auditors for additional attestations.

D. Fees for additional certifications required by Securities and Exchange Board of India (SEBI)
As regards fee for additional certificates / attestations prescribed by SEBI and other regulators, the
banks may decide in consultation with the Audit Committee of the Board/ Board.
E. Fees for auditing of consolidated financial statements
For this purpose banks may pay a maximum of Rs.20,625/- only per subsidiary / associate whose
accounts are to be consolidated in the balance-sheet of a bank. The banks have freedom to offer
lesser fee if the subsidiary / associate concerned is not active or is dormant.
F. Fee for quarterly / half yearly limited review
The fee for carrying out quarterly / half yearly limited review to be paid to statutory central auditors may
continue to be 20% of the basic audit fee. It is further clarified that revised basic audit fee payable from
2012-13 will be applicable for computing the fee for limited review from the quarters ending June 30,
2013 onwards and not for the review carried out during the quarters ended June 30 / September 30 /
December 31, 2012.
The concurrent auditors assisting the review process may continue to be paid a reasonable token fee
as advised in our circular letter DBS.ARS.No.BC.17/ 08.91.001/2002-03 dated June 05, 2003.
H. Reimbursement of Travelling and Halting Allowances and Daily Conveyance Charges
Page No.29
1. For reimbursement of the lodging & boarding charges, travelling allowance and daily conveyance
payable to statutory auditors, the banks are given the discretion to decide the same in a cost effective
manner in mutual consent with the auditors. Further, in no circumstances should the rate exceed the
IBA prescription for the respective ceiling. The categories of officers linked for the purpose of deciding
the ceiling limits are given below:
Sl. No.
Category of Audit officials
Equivalent scale of Bank officials (as per IBA)
1
2
3
Partners/proprietors
Qualified Assistants
Un-Qualified Assistants
VII General Manager

III Senior Manager
I - Officers
2. With regard to the reimbursement of travelling, halting allowance and daily conveyance charges,
following observations may be noted:
i) Wherever banks have Guest House or Visiting Officers Flats, the same may be utilized to cater to
the needs of the auditors.
ii) Banks should call for such details as are necessary for verification of bills in this regard and the
statutory central auditors as well as branch auditors shall furnish such details for verification of
the actual expenses.
iii) Where the statutory central auditors have their headquarters at a place different from that where
the Head/Central Office of the bank is situated, but have an office at the same place as the
Head/Central Office of the bank, the TA/HA, if any, should be nominal for the central audit.
However, to ensure the quality of audit, there should be no objection to the partners of the firm
visiting the Head/Central Office of the bank as and when they deem it necessary.
iv) Where the statutory central auditors or branch auditors have an office at the place where the
branches/offices of the bank to be audited are situated, they will not be reimbursed TA/HA.
However, local conveyance may be reimbursed.
v) The TA/HA should be kept to the minimum.
vi) In case of dispute between the auditors and the bank regarding settlement of their bills, the
CMD/MD of the bank shall be the final authority to decide the claims. The CMD/MD has to
satisfy himself that the actual expenses have been incurred by a particular auditor and the
claims are settled keeping in view the aforesaid RBI guidelines.
Page No.30
Overall Audit Plan - Audit Programme

A. While drafting the audit programme, the type of reports to be submitted have to be
considered. There are four types of reports.
a. Unqualified Report
b. Qualified Report
c. Disclaimer of Opinion
d. Adverse Report
B.
Various types of reports include:

Jilani Committee Report
Ghosh Committee Report

Special Reports as applicable (Prime Minister Rojgar Yojana Scheme Report etc.)
Long Form Audit Report
Tax Audit Report
Main Report (Sec. 30(3) of Banking Regulation Act, 1949)

C. Accounting standards not applicable to bank
Of the effective twenty eight standards, the following standards are not applicable to banks to the
extent specified.
(a) AS 13, Accounting for Investments, does not apply to investments of banks.
(b) AS 11, The Effects of Changes in Foreign Exchange Rates, does not apply to accounting of
exchange difference arising on a forward exchange contract entered into to hedge the foreign
currency risk of a firm commitment or a highly probable forecast transaction.
D. Considerations for overall audit Plan
1. The terms of his engagement and any statutory responsibilities
2. The nature and timing of reports or other communication
3. The applicable legal or statutory requirements
4. The accounting policy adopted by bank and changes in these polices
5. The identification of significant audit areas
6. The degree of reliance he expects to be placed on accounting systems and internal control
7. The nature and timing of audit evidence obtained
8. The work of internal auditors and extent of their involvement
9. The involvement of expert
10. The allocation of work to be undertaken between joint auditors and procedures for its control and
review
11. Establishing and coordinating staffing requirements
E. Documentation
Following certificates should be obtained from management
Cash Retention Limit duly certified by the Branch Manager
A photo copy each of the confirmation certificates for Balances with RBI, SBI and other banks
A copy of the reconciliation statement in respect of differences in such balances with RBI, SBI and
other banks
List of overdue or matured investments at the end of the year duly confirmed by the Branch
Manager;
A certificate stating that the Branch did not hold any investments on behalf of the Head Office (if
there are no such investments held by the Branch)
List of large advances i.e. those in respect of which the outstanding amount is in excess of 5% of the
aggregate advances of the Branch or Rs.2.00 crores whichever is less duly certified by the Branch
Manager
A copy of the letter from Head Office regarding Sanction limit of the Branch Manager;
List of cases where the Branch has not obtained stock/book debts statements at the end of the year;
Page No.31
List of cases where insurance copies are yet to be received at the end of the year
A copy of the Head office instructions for identification of NPAs and classification of advances
List of major items pending for reconciliation under Inter-Branch Accounts;
List of all fraud cases reported to RBI as fraud upto March 31st
F. Auditor should plan his work based on the client?s business to enable him to conduct an effective
audit in an efficient and timely manner as per AAS 8
G. Non applicability of CARO, 2003
Statement of companies (Auditors Report ) order 2003 is not applicable to banking company as
defined in clause (c) of section 5 of Banking regulation act.1949 Banking company means any
company, which transacts the business of banking in India;
Any company which is engaged in the manufacture of goods or carries on any trade and which
accepts deposits of money from the public merely for the purpose of financing its business as such
manufacturer or trader shall not be deemed to transact the business of banking
FORMAT OF CERTIFICATE FROM BRANCH MANAGER

Bank:
XYZ Bank
Year:
2013-14
Branch:
To,
M/s ABC & Co
Certified Date:
1
Our Cash Retention Limit is
2
Our Balances with RBI, SBI and other Banks are
List of accounts where Stock Statements are not
3
received
List of accounts where Insurance is pending or
4
Insurance Policy not received
5
List of accounts where Review / Renewal not Received
6
Status of our Lease Agreement for Premises
7
My Sanction Limit is:
8
Number of Fraud Cases
a) Detected in Branch during the year, and their current
status
b) previous cases - disposal still pending
Our Branch was covered with following audits during
9
the year:
Inspection Audit
Yes / No
Revenue Audit
Yes / No
Concurrent Audit
Yes / No
Statutory Audit (last such audit)
Yes / No
10
Date of Report
Status
(open/closed)
We further certify that, all payments relating to any expenditure covered under section
40(A)(3) of the Income Tax, 1961 were made by account payee cheques drawn on a bank or
account payee bank draft, as the case may be.
Page No.32
Specimen Audit Program
ABC & Co
Chartered Accontants
Bank:
Date of
Commencement:
XYZ Bank
Date of Finalisation:
Branch
Audit Program
Accounting Year :
Sl.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Job
2012-13
Performed By
Initials
B/S and P/L from Abstract

Advance Ledgers (CC, TL, DL, BG)
Advance Files
Form - 3CA & 3CD
LFAR
Other Certificates
Statutory Audit Report
Records & Register
TDS Challan/Returns
Service Tax Challan/Returns
Cash Verification
Fixed Assets - Addition and Depreciation
Expenses
Interest Calculation on Deposits
Unit Visit
Stock Statement Analysis
Previous Audit Reports (Revenue, Statutory,
Inspection, Concurrent)
Certificate to be obtained
Attendance Certificate
Cash Retention Limit etc
Cash Balance Certificate
Receipts for documents submitted
TEAM:
Page No.33
OTHER CHARTS/FORMATS WHICH MAY BE USED IN THE COURSE OF AUDIT
ABC & Co
ADVANCE DETAILS
Chartered
Accountants
XYZ Bank
Sl
A/C
No
Type
Year
Ended:
31.03.2014
Unrealised
Interest
Provision
Required
Branch:
Limit
Name
o/s as
on 31st
March
Date of
NPA
Remark
ABC & Co
STOCK STATEMENT ANALYSIS
Chartered
Accountants
Bank:
Branch:
XYZ Bank
Year:
2013-14
Signature
Sl
Account
No
Type of
Account
Name
Dec
Jan
Feb
Mar
BM
Party
Page No.34
ABC & Co
DOCUMENTS ANALYSIS
Chartered
Accountants
Bank:
Account
No
XYZ Bank
Type of
Account
Branch:
Name
Financials
Year:
Sanction
Security
Insurance
Renewal
/ Review
2013-14
Remarks
FORMAT OF CASH BALANCE CERTIFICATE

XYZ Bank
Bank:
Branch:
Date
Opening
Balance
Total
Receipt
Total
Payment
Closing
Balance
(1)
(2)
(3)
(1+2-3)
st
31 Mar 2014
1st April 2014
2nd April 2014
3rd April 2014
4th April 2014
5th April 2014
6th April 2014
7th April 2014
8th April 2014
Page No.35
FORMAT OF RECEIPT BY BRANCH (ON BRANCHS LETTER HEAD)

Re: ABC & Co, Chartered Accountants
Year:
2013-14
We hereby certify that following representatives of above referred Chartered Accountants Firm
Visited our Branch as given below for the purpose of Statutory Audit for the year
Sl
Name & Designation
From
Date
To
Time
Date
Time
1
2
3
4
5
We further certify that we have received following documents from them in respect of our
statutory audit for the year:
Sl
1
2
3
4
5
6
7
Particulars
No of Copies
Remarks if any
Page No.36
An Illustrative Format of Report of the Branch

Auditor of a Nationalised Bank
Independent Bank Branch Auditors Report
To,
The Statutory Central Auditors
________ Bank
Report on Financial Statements
1.
We have audited the accompanying Financial Statements of _______________Branch of
____________ (name of the Bank) which comprise the Balance Sheet as at 31st March 20XX, Profit and Loss
Account for the year then ended, and other explanatory information.
Managements Responsibility for the Financial Statements:
2.
Management of the Branch is responsible for the preparation of these Financial Statements that give
true and fair view of the financial position and financial performance of the Branch in accordance with the
Banking Regulation Act, complying with Reserve Bank of India Guidelines from time to time. This responsibility
includes the design, implementation and maintenance of internal control relevant to the preparation and fair
presentation of the financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility:
3.
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered
Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free from material
misstatement.
4.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The Procedures selected depend on the auditors judgement, including the
assessment of the risks of material misstatement of the financial statement, whether due to fraud or error. In
making those risk assessments, the auditor considers internal control relevant to the entitys preparation and
fair presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of the accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
5.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our Audit opinion.
Opinion
6.
In our opinion, and to the best of our information and according to the explanation given to us, read with
the Memorandum of Changes mentioned in paragraph 11 below, the financial statements give a true and fair
view in conformity with the accounting principles generally accepted in India:
(a) in the case of the Balance Sheet, of the state of affairs of the Branch as at March 31, 20XX; and
(b) in the case of Profit and Loss Account, of the Profit / Loss for the year ended on that date;
Report on Other Legal and Regulatory Requirements
7.
The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with Section
29 of the Banking Regulation Act, 1949;
8.
Subject to the limitations of the audit as indicated in Paragraphs 3 to 5 above and paragraph 10 below,
we report that:
a. We have obtained all the information and explanations which to the best of our knowledge and belief were
necessary for the purpose of the audit and have found them to be satisfactory.
b. The transactions of the branch which have come to my/our notice have been within the powers of the Bank.
9.
We further report that:
Page No.37
a.
b.
the Balance Sheet and Profit and Loss account dealt with by this report are in agreement with the
books of account and returns;
in our opinion, proper books of account as required by law have been kept by the branch so far as
appears from our examination of those books;
Other Matters
10.
No adjustments/provisions have been made in the accounts of the Branch in respect of matters
usually dealt with at Central Office, including in respect of:
(a) Bonus, ex-gratia, and other similar expenditure and allowances to branch employees;
(b) Terminal permissible benefits to eligible employees on their retirement (including additional retirement
benefits), Gratuity, Pension, liability for leave encashment benefits and other benefits covered in
terms of AS 15 Employee Benefits issued by the Institute of Chartered Accountants of India;
(c) Arrears of salary/wages/allowances, if any, payable to staff;
(d) Staff welfare contractual obligations;
(e) Old unreconciled/unlinked entries at debit under various heads comprising Inter branch/office
Adjustments;
(f) Interest on overdue term deposits;
(g) Depreciation on fixed assets;
(h) Auditors fees and expenses;
(i) Taxation (Current Tax and Deferred Tax).
11.
The following is a summary of Memorandum of Changes submitted by us to the branch management2.

Memorandum of Changes (summary)
No. Increase Decrease
In respect of Income
In respect of expenditure
In respect of Assets
In respect of Liabilities
In respect of Gross NPAs
In respect of Provision on NPAs3
In respect of Classification of
Advances
In respect of Risk Weighted
Assets
Other items (if any)
For ABC and Co.
Signature
(Name of the Member Signing the Audit Report)
(Designation)4
Membership Number
Firm registration number
Place of Signature
Date
3
4
Where applicable.
Applicable in cases where banks determine provision at Branch level.
Partner or proprietor as the case may be.
Page No.38

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Bank Audit Manual by CA. Sanjay K Agarwal

Asset Classification & Provisioning a ready

Income Recognition & Asset Classification Norms

Draft Management Representation Letter

Format of Letter to Branch

Checklist for Audit of Advances accounts

Checklist for Audit of LFAR

Overall Audit Plan- Audit Programme

Format of Certificate from Bank Branch

Audit Program for Branch Audit of a Bank

Other Charts / Formats (including Audit Report

Bank Audit Manual by CA. Sanjay K Agarwal

Asset Classification & Provisioning as on 31.03.2014 A Ready Reckoner

Bank Audit Manual by CA. Sanjay K Agarwal

Provision for 2013-2014

General 15% of outstanding

INCOME RECOGNITION AND ASSET CLASSIFICATION NORMS - AT A GLANCE

Basis for treating a Credit Facility Remarks

Cash Credits The account remains continuously out

Banks may not classify an account merely due

Bank Audit Manual by CA. Sanjay K Agarwal

Further, an account where the regular/ad-hoc

derivative contract, if these remain

Government As on 31.03.2014, State government

The credit facilities backed by guarantee of

Key Words Particulars

Undernoted categories of advances should be excluded, as NPA norms are not

Advances granted on or after 01.01.2014;

Bank Audit Manual by CA. Sanjay K Agarwal

securities are not covered by this exemption.

whether these are or are not subjected to restructuring/ rescheduling/ renegotiation of

Bank Audit Manual by CA. Sanjay K Agarwal

ASSET CLASSIFICATION AT A GLANCE

Standard Does not disclose any

SubClassified as NPA for a A general provision of 15%

Unsecured Exposure means

Doubtful Remained Substandard 100% to the extent to which

Over 3 years: 100%

Loss asset is one where 100% of the

It has all the weaknesses inherent

outstanding Such an asset is considered

Bank Audit Manual by CA. Sanjay K Agarwal

IMPORTANT AUDIT CHECKS

Bank Audit Manual by CA. Sanjay K Agarwal

Reversal of any large/old/unexplained entries, which had remained outstanding in IBR.

Bank Audit Manual by CA. Sanjay K Agarwal

Suspense accounts, sundry deposits, etc.

Ask for and analyse their year-wise break-up.

Bank Audit Manual by CA. Sanjay K Agarwal

Draft of Management Representation Letter to be obtained from the Branch Management

Bank Audit Manual by CA. Sanjay K Agarwal

Bank Audit Manual by CA. Sanjay K Agarwal

For & on behalf of

Bank Audit Manual by CA. Sanjay K Agarwal

Insured for Rs. _ lakhs (expiring on __)

Insured for Rs. _ lakhs (expiring on __)