KANNUR BRANCH OF SIRC OF ICAIKANNUR

22.03.2014

By CA A Mony , B Com , FCA, DISA

MOUNTING NPAs REGULATORS APPROACH STRESS FOR PROFITS/BOTTOMLINE THE UNITED BANK ISSUE. RESTRUCTURING OF LOANS SALE OF NPAs NFB EXPOSURE TURNING TO BE FB SYSTEM SYNCRONISATION ISSUES

• ADVENT OF IT AND CORE BANKING LEADING TO

a) LACK OF PHYSICAL TRANSFER. b) CENTRALISATION OF RECORDS. c) VERIFICATION OF ACCURACY OF RECORDS SHIFTING

TO INTEGRITY OF DATA. d) CENTRALISED APPLICATION OF INTEREST, CHARGES.

ACCURACY LEAVING WAY TO LOGIC INTEGRITY OF GRANULAR DATA. SAME DATA BASE USED BY DIFFERENT

INVESTIGATORS / REGULATORS SYSTEM GENERATED NPA STATEMENT. CASH MANAGEMENT OF ATMs ELECTRONIC FUND TRANSFER. SHARING OF ATM, EURONET

NEW CHALLENGESNEW CHALLENGES

IMPUTESIMPUTES

The closing circular issued by the bank HO

 The reports of the other auditors

  RBI master circular on prudential norms

APPROACHAPPROACH DISCUSS WITH THE BRANCH

MANAGER PREPARE CHECK LIST ISSUE LETTER FOR CLARIFICATION

REQUIRED GIVE EMPHASIS TO DATA

FLOW/DOCUMENT FLOW/INPUT FLOW OBSERVE FAILURES OF SYSTEM

DURING THE YEAR.

 

THE APPROACHTHE APPROACH

. To see whether the branch is a specialized branches as OVERSEAS, SSI, NRI, ARM, FOREX Etc…..·  To see the extend of computerization as ALPM, TBA,CBS Etc..·  To see the extend of internal supervision as INTERNAL AUDIT, CONCURRENT AUDIT, RBI audit, REVENUE AUDIT Etc….·  The accounting or transactions which are controlled by the Central Head Office viz.. DEPRECIATION AND FIXED ASSETS, INTER-BRANCH, SERVICE TAX, BCCT Etc…·  Provisions as per IRAC norms which are made at HO mostly in respect of PROVISION FOR STANDARD ASSETS, AUDIT FEE,

List Loans to be verified Classify the loans by

◦Size of advance◦Constitution◦Scheme of advance◦Restructured loans◦Fresh NPAs◦Upgraded NPAs

OTS ACCOUNTS BORDERLINE ACCOUNTS ACCOUNTS CLOSED AT THE YEAR END. FRESH ADVANCES AT YEAR END ENHANCED /ADHOC LIMITS AT YEAR END. BORROWER WITH RUPEE CREDIT, FC

CREDIT AND EXPORT CREDIT. BORROWER WITH STANDALONE NON

FUNDED EXPOSURES.

MULTIPLE FINANCE CIRCUITOUS TRANSACTIONS PRE SHIPMENT AND POST SHIPMENT

ADVANCES NON FUNDED EXPOSURES OF POTENTIAL

NPAS EXPOSURES DISBURSED OVERSEAS BY

ECB ROUTE ADHOC LIMITS TEMPORARY OVERDRAFTS.

STOCK AUDIT REPORT CREDIT AUDIT REPORT MI REPORT IN CDR CASES CONSORTUIM MINUTES CREDIT INFORMATION SHARING BY OTHER

BANKS. CIBIL REPORT SEARCH REPORT FROM ROC.

DRAWING POWER MARGINS VALUATION OF SECURITY SHARING OF SECURITY LEGALITY OF SECURITY ENFORCEABILITY OF SECURITY. RECOVERABILITY OF SECURITY

NPAS IDENTIFICATION : BASED ON NPAS IDENTIFICATION : BASED ON RECORD OF RECOVERYRECORD OF RECOVERY

a. Term loans: interest /installment overdue for more than 90 days

b. Cash credit / overdraft: account remains “ out of order” for more than 90 days. ie. Outstanding balance in the account remains in excess of the sanctioned limit/ Drawing power

c. Bills purchased and discounted : overdue for more than 90 days

d. Agricultural loans i. short duration crops: principal or interest overdue for two

crop seasonsii. Long duration crops : principal or interest over due for one

crop season

e. Derivative transactions; Overdue receivables remain unpaid for 90 days from the specified due date

f. Devolved LCs: not paid for more than 90 days from the due date

g. Invoked Guarantees: not paid for more than 90 from the due date

An amount is “Overdue” if not paid on the due date fixed by the bank

NPA IDENTIFICATION : OTHER NPA IDENTIFICATION : OTHER CRITICAL CONSIDERATIONSCRITICAL CONSIDERATIONS

Project loans for I.Infrastructure sector: to be classified as NPA for the failure to commence commercial operations within two years from the original DCCO(Date of Commencement of Commercial Operations)

I.Non infrastructure sector (other than commercial real estate exposures) : to be classified as NPA for the failure to commence commercial operations within one year from the original DCCO

I.Commercial Real Estate: failure to commence commercial operation within one year from the date of original DCCO and no change in other terms and conditions: possible shift in the repayment schedule and servicing of the loan by equal or shorter duration permitted.

INCOME RECOGNITIONINCOME RECOGNITION

a. Income from NPA not to be recognized on accrual basis ie. Income from NPAs, including government guaranteed accounts to be booked on cash basis.

b. Free and commissioned income to be recognized on accrual basis over the rescheduled extension of period of credit

c. Income, if any, recognized on NPAs prior to the date of NPA to be reversed ie. The balance in an NPA account will be equal to the sanctioned limit/principal amount after reversal of the interest

d. Interest realized on NPAs can be recognized as income as per the bank.

e. Future interest not to be charged and taken to income unless realized

Asset Asset ClassificationClassification

a. Standard assets

b. Sub standard Assets: Remaining as NPA upto 12 months

c. Doubtful Assets : Remaining as Sub standard for a period of 12 Months

d. Loss asset : Identified by the bank , internal or external auditors or the RBI inspection

PROVISION ON STANDARD PROVISION ON STANDARD ASSETSASSETS

a) Direct advance to Agriculture and SME sector-0.25%b) Commercial Real Estate-1%c) Commercial real estate residential housing sector – 0.75%d) Housing loan at teaser rates i.e. Lower rates – 2%e) Restructured advances

i. New reconstructed standard account with effect from 01.07.2013 – 5%

ii. Increase in phased manner for the stock of reconstructed standard asset as on May 31, 2013 (2.75 % prescribed as per circular dated Nov 26,2012)a. 3.5% with effect from Mar 31, 2014b. 4.25% with effect from Mar 31, 2015c. 5 % with effect from Mar 31, 2013

iii. Provision for diminution in the fair value accounts on account of restructuring

f) Other Loans & advances not included in above – 0.40%

PROVISIONING PROVISIONING Primary responsibility with bank and statutory auditorsAssessments of RBI to assist the bank management and statutory auditors to take proper decision Norms Loss assets – 100% Doubtful assets –a) Unsecured Portion -100%b) Secured portion ; • Up to 1 Year -25%• 1 to 3 years -40%• > 3 years -100%Valuation of Security portioni.Stock audit at annual intervals where the balance in the NPA is more than Rs.5 croresii.Collaterals to be valued once in three yearsSub standard assets –a) General – 15%b) Unsecured exposure- General 25% of the outstanding balance Infrastructure 20% of the outstanding balance

PROVISIONING PROVISIONING (CONTD…) (CONTD…)

‘Unsecured exposure’ means an exposure with realizable value of security less than 10% of the outstanding exposure , abinitio.

‘Exposure’ includes funded and non funded ‘security’ means tangible security properly discharges to the bank and will not include intangible securities like guarantees (including government guarantees)

GENERAL PRINCIPLES OF GENERAL PRINCIPLES OF RESTRUCTURINGRESTRUCTURING

a) Eligibilityi. Standard ii. Sub standard iii.Doubtfulb)Cannot be reschedule with retrospective effectc) The usual asset classification norms continue to

apply during the period of processing the restructuring proposal.d)Asset classification status on the date of approval of

the asset classification status of the account after restructuring/rescheduling/negotiation

General Principles of Restructuring General Principles of Restructuring (contd...)(contd...)i) Elements of special regulatory framework of

restructured accountsj) Incentive for quick implementation of restructuring

packagek) Retention of the asset classification in the pre

restructuring asset classification categoryl) Asset classification to be restored to the position

prior of restructuring.i. If implemented within 120 days from the date of

approval under CDR.ii. Within 120 days from date of receipt of application

in the case of non CDRiii. Other conditions to be fulfilled

ASSET TO SLIP TO NEXT INFERIOR CLASSIFICATION ON RESTRUCTURING – EXCEPT SPL REGULATORY FRAME WORK.

UPGRADATION POSSIBLE AFTER SATISFACTORY PERFORMANCE FOR ONE YEAR.

INCOME RECOGNITION PROVISIONS REMAIN UN TOUCHED.

DATA VALIDATION CHECKS DATA FLOW AND MISSING CONTROLS AUTHORISATION AND AUTHENTICATION

ISSUES SHARING OF DATA IN SHARED

NETWORKS/INFRASTRUCTURE PHYSICAL & LOGICAL CONTROLS TO BE

ENSURED ROUTING ACCOUNTS

THRUSTTHRUST (Contd….)(Contd….) MASTER DATA UPDATIONS SOFT WARE ISSUES SYSTEM ISSUES WHITE BOX APPROACH ENSURE VERIFIED DATA ONLY IS

ATTESTED.

AUDIT MODULEAUDIT MODULE

OBTAIN PASS WORD and ENABLE AUDIT MODULE.

VERIFY THE AUDIT MENU VERIFY REPORTS AVAILABLE. ENSURE VALIDITY OF SYSTEM

GENERATED IRAC REPORTS SEE WHETHER IT ADDRESS

INTERFACE ISSUES

MENU OPTIONMENU OPTION

READ THE MENU OPTIONS AVAILABLE IN THE SYSTEM

FLAG THE MENUS APPLICABLE TO AUDIT BROWSE THROUGH THE MENU TO

SATISFY OUTPUT KNOW ABOUT MIS SOFTWARES OTHER

THAN MAIN SOFT WARE.

LIEN MARKED REPORTS PARAMETER CHANGED/MODIFIED REPORT CASH DRAWINGS IN EXCESS OF 10 LAKHS VERIFY SYSTEM OF GENERATION, UP KEEP,

FILING AND ATTESTING OF EXCEPTION REPORTS.

ACCOUNT STATISTICS REPORT INTEREST RATE MASTER REPORT FAILURE INTEREST CHECK REPORT ACCOUNT CLASSIFIACTION REPORT OVERDUE BILLS REPORT TOD / TOL REPORT LOANS OVERDUE REPORT SUSPENSE JOTTING REPORT

MANUAL CALCULATIONSMANUAL CALCULATIONS

MAJOR ADVANCE ACCOUNTS DEPOSIT ACCOUNTS INTEREST RATE CHANGES APPLIED –

DATE & RATE CHARGES UPDATION

Net NPA to net advances Gross NPA to gross advance Incremental NPAs to Opening gross

advances Incremental NPAs to Opening gross

Standard advances Provision for loss assets to Gross

Advances

A PRACTICAL APPROACHA PRACTICAL APPROACHRATIO ANALYSISRATIO ANALYSIS

REPORTING OBSERVATIONS TO FORM PART OF MAIN

REPORT ANALYSIS OF FINANCIAL STATEMENT. CREDIT APPRAISAL OF BORROWER

OVERTRADINGDIVERSIONINDULGIUNG IN UNKNOWN SECTORS BUSINESS IN RISKY S ECTORSCOMPANY PROVISIONS

IMPORTANT CERTIFICATESIMPORTANT CERTIFICATES

• CAPITAL ADEQUECY• DIGCG/ECGC • SLR REQUIREMENT 12 ODD DATES• PMRY / JAWAHAR ROZGAR YOJNA• GHOSH COMMITTEE• JILANI COMMITTEE

THANK YOUTHANK YOU

BYBYCA A Mony, B.Com, FCA, DISACA A Mony, B.Com, FCA, DISA

Partner Partner Sankar and MoorthySankar and Moorthy

CalicutCalicutlrp2201@yahoo.co.inlrp2201@yahoo.co.in