2. Issues of Supervisory Concern
Content and coverage
CAPITAL • Share capital from societies, individuals and Govt.;
• Share-linking to borrowing by societies/borrowers.
• Arrears in share collection from affiliated inst./individuals
ASSETS CASH • Cash balance at branches, adherence to cash retention limits,
• joint custody of cash, periodic verification
BANK
BALANCES
• Reconciliation of Balances with Banks on monthly basis.
• Details of transactions unresponded /unadjusted (year wise).
• Provision required for long pending unreconciled portion.
INVESTME
NT
• BoD approved Investment policy, Investment Committee,
• ALM, Assessment of Surplus funds, Purchase/sale of securities
• verification/reconciliation, reporting, review
• Valuation profit/loss and changes in mode of valuation
• shortfall and provision made.
• RBI/NABARD guidelines for SLR/Non-SLR invest. followed.
3. Issues of Supervisory Concern
Content and coverage
ADVANCE CREDIT
APPRAISAL,
SANCTION
DISBURSEMENT
DOCUMENTATION
REVIEW
MONITOR
SUPERVISION
•Loan policy and System of appraisal of credit proposals.
•System of receipt and disposal of loan applications,
•Delegation of powers at various levels and adherence.
•Whether disbursements complying terms of sanction,
•Exposure limits to individuals, sectors
• Review/ Renewal/Enhancement of advances.
• Enforceability of documents, Time barred documents.
• Maintenance of document register
•Crop Loan, Insurance, Subvention, RoI, ‘RuPay’,
• Stock/Book Debt stat., Balance sheet, scrutiny.
•physical verification of stocks/ securities. Insurance.
• Identification and classification of NPAs.
• Gold Loan- Quantum (2.0lakh), Repayment (12month)
• Loan to Value (LTV) Ratio of 75%, Bullet Repayment.
4. Issues of Supervisory Concern
Content and coverage
Application
of Prudential
Norms
•The auditors must issue a certificate to the effect that the
implementation the prudential norms is satisfactory or
otherwise and, shortcomings, if any, be duly listed out.
Income
Recognition
•Whether the bank recognized income as per instructions in vogue.
•The procedure followed by bank for accounting derecognised income.
•The total amount of income derecognised (cumulative)
• The amount of derecognised income recovered during the year
Asset
Classification
• NPA management strategy of the bank
• Account wise security details maintained
• Whether Assets classification & provisioning norms complied with.
• If not, the divergence observed and extent of provisions required.
• Extent of NPAs, Provision required and actually provided by bank.
• Write-offs and appropriateness of authority thereto,
• Recovery procedure, including that relating to suit-filed, decree a/c.
5. Issues of Supervisory Concern
Content and coverage
OTHER
ASSETS
•Detail of old outstanding entries in Suspense a/c & reasons
• Unrecoverable balances in various heads to be provided or write off.
•Whether non-banking assets beyond specified period, and reasons.
•Interest Subvention amount receivable from GoI through NABARD -
“Interest subvention receivable from GoI” - Zero % risk for CRAR.
NON FUND
BUSINESS
•Policy, income, service charges on lockers, safe deposit vaults,
•Letter of Credit (LCs), Guarantees issued etc, whether routed through CBS
•All Off Balance Sheet items need complete integration with CBS.
IMBALANCE • No. of PACS with Quantum of imbalances, Reasons and likely impact.
Compliance • Functioning of Audit/ Investment/ Loan/Risk Committee of Board
• Compliance to Audit Report/ NABARD IR, timeliness,. Quality.
• Compliance to B.R. Act’ 1949 (AACS),RBI Act, WBCS Act, bye-laws.
• Compliance to Income Tax Act and other laws in force
Audit of
Computerised
• Efficacy of CBS, Disaster management, Instruction Manual.
• Migration Audit / Information System Audit
6. Issues of Supervisory Concern
Content and coverage
Management
Appraisal
Functioning
of Elected
Board and
Functioning
of CEO
• Composition, Committees, oversight, corporate governance,
•No. of meetings, issues discussed, defaulting Directors, if any,
• violations of bye-laws, etc.
•Implementation of policies issued by GoI/RBI/NABARD.
Earning
Appraisal
• Analysis of items of income and expenditure with imp. ratios.
• Comment on Revenue loss, due to inappropriate interest rates.
• OD interest taken to P&L A/C and corresponding prov. made.
• Extent of overdue interest out of the interest receivable.
• Comment on written back excess provision, if any, to P&L A/C.
• Comment on prov. for NP Loans and erosion in other assets.
• Comment on net profit as per provisions of B.R Act/WBCS Act.
• Comment on operating profit & extent it covers provision reqd.
• Comment on Transfer Price Mechanism/ Profit of branches.
7. Issues of Supervisory Concern
Content and coverage
Liquidity
Management
Cash •Cash balance , adherence to cash retention limit,
•Insurance and adequacy for cash-in-transit/ATMs.
•Joint custody of cash, periodic verification of cash.
SLR/ CRR •System of compiling Demand and Time Liability (DTL)
•System of ensuring compliance, defaults, review by Board.
•Violations in maintenance of CRR/SLR, details and reasons.
Repayment
of
Borrowings
•Comment on ‘Maximum Borrowing Power’,
•Borrowings availed, cost of borrowings,
•Default in repayment, maintenance of Due Date Register.
Deposits • Comment on inoperative/unclaimed a/c, violations.
• KYC Policy, Risk Categorisation of customers, CTR/STR.
•Compliance to Anti Money Laundering (AML) guidelines.
• Assessable deposits and timely premium to DICGCI.
• Comment on composition, growth and new deposit schemes.
8. Issues of Supervisory Concern
Content and coverage
Systems
and
Control
•Manual on accounts– their conformity with Accounting
Standards; Compliance to disclosure norms
House-
keeping
• System of balancing of General Ledger and subsidiary records,
• Whether the bank or auditor has finalised the accounts.
• Balancing of draft payble, DD paid without Advice, Bills payable.
• Periodic Physical verification and uploading of security forms
(Cheque Books, FDRs, DD, MT, etc.) and follow up action.
Inter–branch
Reconciliation
Transitional
accounts
• Continuity of transactions in inter-branch /HO accounts
• Position of outstanding entries; system for locating long
outstanding items of high value
• Steps taken for bringing the reconciliation up-to-date.
• Comments on the system/procedure and records maintained.
• Procedure for remittance of funds, DD, NEFT, RTGS, etc.
9. Issues of Supervisory Concern
Content and coverage
Systems
and
Controls
Suspense/Sundry •Long pendency, reasons; provision required if, any.
Branch Audit/
Inspections /
Concurrent Audit
• Frequency; scope / coverage of branch inspection;
• System of internal/concurrent audit and compliance.
• Monitoring / auditors observations on exceptions reports
Management
Information
System (MIS)
• Comment on accuracy ant timeliness of OSS in ENSURE
• Comment on Online submission of returns to RBI
• Other Management Decisions, Portfolio analysis, Br.Control.
Fraud prevention,
Monitoring and
Control
• Observations on frauds, misappropriations, thefts, robberies,
Modus operandi, action taken, FIR, internal enquiry, recovery
efforts, Provision made, review, Reporting NABARD/RBI.
• Preventive measures to avoid recurrence of frauds, etc
Risk Management
System
• Comment on risk Profile of the bank viz.
Liquidity/credit/exposure interest rate /operational risk
Comment on identifying, managing and mitigating risks
Asset Liability
Management
• Comment on the ALM mechanism in place by the bank.
• Comment on the functioning of ALCO Committee.
10. Issues of Supervisory Concern
Content and coverage
Depositor
Education
and
Awareness
Fund
(DEAF)
• Form I- To submit on the date of transferring the amount to the Fund
• FORM II- A monthly return for the total amount transferred to the Fund.
• Form III - claim for refund from the Fund, after paying to customer
whose unclaimed amount was transferred to Fund
• Form IV - monthly for claims made by 15th of the succeeding month.
• Form V- outstanding at the calendar year end (within thirty days). The
Statutory Auditors need to comment in LFAR
• Whether the bank had registered under DEAF module in ‘E Kuber’;
• system for identifying unclaimed Deposits;
• Transfer of unclaimed deposit to DEAF and Submission of various returns;
• Audit of records by bank and submission of reconciliation certificate;
• customer complaints; refund to depositors. Uploading details in website.
Dividends • No Accumulated Loss, No default in CRR/SLR, No shortfall in Provision
• Net NPA less than 5% of net Loans outstanding
• Dividend Pay out Ratio not to exceed 20% of Net Profit during the year.
11. Audit vis-a-vis Supervisory rating
Audit Rating Parameters Marks Reasons for variation from
Supervisory Rating
CAPITAL ADEQUACY 15 Un-provided for liabilities and short
provisions
Net Worth % to Total Assets 5
CRAR > 9% 10
ASSET QUALITY 15 Divergence in Asset Classification
Gross NPA % Loan O/S 10
Prov. Made % to Prov. Reqd. 5
EARNINGS 10 Net Profit different due to short Prov. +
Unprovided liabilities.
Operating Profit 5
Operating Profit >Prov. reqd. 5
12. Audit vis-a-vis Supervisory rating…contd. 2
Audit Rating Parameters Marks Reasons for variation from
Supervisory Rating
MANAGEMENT 10 Elected BoD, complying “Fit & Proper” norm;
Functioning of minimum 5 committees (ALCO,
Loan, Investment, Risk, Fraud prevention);
Agenda & Discussion; Effectiveness of Board.
Board/ Leadership 2
CEO 2 Confirming to “Fit & Proper” criteria;
Review of business/branch, profitability, etc.
Compliance with regulatory requirements
Second Line of Management 2 Officers in departments with adequate
knowledge and proper succession plan
Organisation, Job description 1 Defined set up, Job described & monitored
Recruitment Policy 1 Defined policy for recruitment
Training 1 Trg. Policy, trg. need assessed, trg. imparted
Rotation of Staff duty 1 Transfer policy, rotation of duty
13. Audit vis -a- vis Supervisory rating…contd. 3
Audit Rating Parameters Marks Reasons for variation from
Supervisory Rating
LIQUIDITY 15
Maintenance of CRR/SLR 5 Violation in Maintenance of CRR/SLR
Repayment of Borrowings 2 No default in repayment of borrowings
Functioning of ALCO/ALM 2 Implementation of ALM, ALCO meetings and
Deposit Management 2 Deposit growth, I D ratio, Pricing
Investment Management 2 Investment Policy, quality/Quantum of invest.
Deposit Insurance 1 Assessable deposit and premium payment
Cash Management 1 Excess Cash and current account balance
14. Audit vis-a-vis Supervisory rating…contd. 4
Audit Rating Parameters Marks Reasons for variation with
Supervisory Rating
System and Control 20
Internal Inspection and Audit 2 Internal/Concurrent, Migration/ IS Audit
Audit Committee of Board 2 Formation, meeting, areas covered
Loans and Advance Policies 3 Defined policy, appraisal, monitoring, doc.
CMA 1 Violation of exposure norm
Accounting Procedure 2 Accts, finance Statement in 3 months.
House keeping 2 Reconciliation of interbank/branch
Risk Management Systems 3 Risk mgmt./Fraud prevent/ Grievance
Comm., Risk identify/measure/mitigation
Computerisation & CBS 5 Effective MIS
15. Audit vis-a-vis Supervisory rating…contd. 5
Audit Rating Parameters Marks Reasons for variation from
Supervisory Rating
Compliance 15
Compliance to KYC/AML 3 policy, guidelines implemented, Risk
rating of customer, Returns to FIU-IND.
Compliance of Audit Report 3 Audit report with qualifying remarks,
rectification of defects, compliance
Compliance on NABARD IR 3 Major observations rectified
Submission of RBI Returns 2 Timeliness, accuracy of online returns
Submission of OSS returns 2 Timeliness, accuracy in ‘ENSURE’
Monitorable Action Plan 2 MAP for sustainable CRAR
