Theresa May to meet DUP leader Arlene Foster to secure minority government deal

Theresa May to meet DUP leader Arlene Foster to secure minority government deal

Theresa May to meet DUP leader Arlene Foster to secure minority government deal

British Prime Minister Theresa May will meet with the leader of the Democratic Unionist Northern Ireland (DUP) Arlene Foster to negotiate an agreement to form a minority government led by the Conservatives. It will be Foster’s headquarters to eliminate conditions of party support and have agreed to vote with the Conservatives in the House of Commons policies to obtain bills.

Mayo said the party, with 10 crucial deputies to constitute a majority in the House of Commons for the Conservatives will not have veto rights over key policies. The DUP should make a better economic deal for Northern Ireland, the central factor in any deal, officially termed “Trust and Supply Agreement.”

“We are entering the talks positively, we are mainly trade unionists and that is how we want to ensure unity. But we approach these talks with the national interest of the heart,” Foster said before the meeting.

Last night, May 1922 has faced members of the hard disk committee of the final part of his party amid a brewing rebellion over the net after his bet to call a General election that failed, leaving conservatives eight seats to the majority.

She would have apologized to conservative parliamentarians accepting personal responsibility for not having won an absolute victory and relinquishing the parliamentary majority she inherited when David Cameron became leader after Brexit referendum last year. “I get into this mess, and I’m going to leave,” May’s party MPs said.

Meanwhile, Parliamentary Affairs will start today as the House of Commons will elect a new president and the House of Lords will begin asserment. After attending a cabinet meeting, followed by his meeting with the head of the DUP at Downing Street in May since traveling to Paris to meet with French President Emmanuel Macron.

Joint plans will be announced from social media companies like Facebook, Twitter and Google if they fail to remove the extremist content from their websites.
“We are united in our utter condemnation of terrorism and our commitment to eliminate this evil,” May said before his visit.

The two leaders will hold bilateral dialogue to attend an international football match against France vs England.
Hopefully an ally of Macron before the official opening of the Brexit negotiations, which should take place next week. It is expected that the Brexit negotiations with the European Union (EU) to start on Monday, have been postponed until next week.

Theresa May to meet DUP leader Arlene Foster to secure minority government deal

Theresa May to meet DUP leader Arlene Foster to secure minority government deal

British Prime Minister Theresa May will meet with the leader of the Democratic Unionist Northern Ireland (DUP) Arlene Foster to negotiate an agreement to form a minority government led by the Conservatives. It will be Foster’s headquarters to eliminate conditions of party support and have agreed to vote with the Conservatives in the House of Commons policies to obtain bills.

Mayo said the party, with 10 crucial deputies to constitute a majority in the House of Commons for the Conservatives will not have veto rights over key policies. The DUP should make a better economic deal for Northern Ireland, the central factor in any deal, officially termed “Trust and Supply Agreement.”

“We are entering the talks positively, we are mainly trade unionists and that is how we want to ensure unity. But we approach these talks with the national interest of the heart,” Foster said before the meeting.

Last night, May 1922 has faced members of the hard disk committee of the final part of his party amid a brewing rebellion over the net after his bet to call a General election that failed, leaving conservatives eight seats to the majority.

She would have apologized to conservative parliamentarians accepting personal responsibility for not having won an absolute victory and relinquishing the parliamentary majority she inherited when David Cameron became leader after Brexit referendum last year. “I get into this mess, and I’m going to leave,” May’s party MPs said.

Meanwhile, Parliamentary Affairs will start today as the House of Commons will elect a new president and the House of Lords will begin asserment. After attending a cabinet meeting, followed by his meeting with the head of the DUP at Downing Street in May since traveling to Paris to meet with French President Emmanuel Macron.

Joint plans will be announced from social media companies like Facebook, Twitter and Google if they fail to remove the extremist content from their websites.
“We are united in our utter condemnation of terrorism and our commitment to eliminate this evil,” May said before his visit.

The two leaders will hold bilateral dialogue to attend an international football match against France vs England.
Hopefully an ally of Macron before the official opening of the Brexit negotiations, which should take place next week. It is expected that the Brexit negotiations with the European Union (EU) to start on Monday, have been postponed until next week.

Bank Audit Audit of NPA with Special Reference to Prudential Norms

Advances constitute greatest amount in the total assets of a bank ’s balance sheet and therefore, audit of advances becomes the most important component of bank audit. case an advance account is classified as NPA (Non- Performing Asset), primary responsibility of making adequate provision for diminution in value of advance is that of the bank management and the statutory auditors. It is, therefore, imperative for the statutory auditors, to have thorough knowledge of the norms prescribed by the Reserve Bank of India (RBI) in Master Circular – ’Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances (IRAC Norms). The author in this article explains those aspects of the Master Circular regarding NPAs which are most relevant during the bank branch audit.

Overview

The prudential norms are formulated on the basis of objective criteria rather than on any subjective consideration. This has brought in uniform and consistent application of the norms and greater transparency in published accounts of banks. The latest Master Circular No. DBOD.

www.icai.org

No. BP.BC.9/21.04.048/2014-15 dated 1st July, 2014 issued by the RBI contains IRAC norms which are applicable for the statutory audit of banks for the year ending 31s,March, 2015. For the first time, the RBI has introduced new frame work for revitalisation of distressed assets in the above circular.

Audit of NPA would basically involve identification of an account as NPA, its correct classification, income recognition, provisioning, if an account is restructured and compliance of various conditions as enumerated in the Master Circular, etc.

  • Types of Assets

Standard Asset: An account is considered as standard asset when it is not non-performing and does not carry more than normal risk attached to the business.

Non-Performing Asset (NPA): An asset becomes NPA when it ceases to generate income for the bank. This would mean that an account would be classified as NPA on the basis of record of recovery rather than security charged in favour of the bank in respect of such account. Thus, an account would become NPA if interest charged to that particular borrower is not realised within the prescribed time frame despite the account being fully secured.

  • Identification of Account as NPA

The RBI has laid down undermentioned criteria for classification of various types of advances as NPA which is based on record of recovery:

  • Term Loan: Interest and/or instalment of principal remain overdue for a period of more than 90 days.

It is very important to note here that as per para

  • of the Master Circular, an account would be classified 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. For example, interest is charged on 30th November, 2014 in a term loan account. Now, if it is not serviced within 90 days from 31st December, 2014, then term loan account would become NPA, not otherwise.
  • Overdraft/Cash Credit: If an account remains out of order, it would become NPA. For this purpose, an account would be treated as ‘out of order’ if:
  1. The outstanding balance remains continuously in excess of the sanctioned

 

limit/drawing power for 90 days or more, or

  1. Even if the outstanding balance in the account is less than the sanctioned limit/ drawing power, there are no credits in the account continuously for 90 days as on the date of the balance sheet, or
  2. Credits in the account are not sufficient to cover interest debited during the same period.

As on 31st March, 2015, if any of the above criteria is satisfied, the account would be classified as NPA. Auditor should verify stock statement to check the correctness of drawing power and whether the same is calculated in accordance with the approved policy of bank. Auditor should not assume sanctioned limit to be the drawing power. There may be instances where drawing power would be less than the sanctioned limit. For example, sanctioned limit of an account may be ^25 lakh but the drawing power of the account may not necessarily be ?25 lakh and it could less than that. A CC/OD account which is classified as standard may get classified as NPA because of an error in calculation of drawing power.

  • Bills Purchased/Discounted: If the bill

purchased or discounted remains overdue for a period of more than 90 days from its due date.

  • Agricultural Advances: A loan granted for-
  1. Short duration crops will be treated as NPA, if the installment of principal or interest thereon remains overdue for two crop seasons.
  2. Long duration crops will be treated as NPA, if the installment of principal or interest thereon remains overdue for one crop season.

For the purpose of these guidelines, “long duration” crops would be crops with crop season longer than one year and NPA date would depend on crop cycle, which is

A credit card account will be treated as NPA, if the minimum amount due, as mentioned in the statement, is not paid fully within 90 days from the next statement date. The gap between two statements should not be more than a month.

Bank Audit decided by State Level Bankers’ committee in each state.

  • The amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction undertaken in terms of guidelines on securitisation dated 1st February, 2006.
  • In respect of derivative transactions, the overdue receivables representing 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.
  • A credit card account will be treated as NPA, if the minimum amount due, as mentioned in the statement, is not paid fully within 90 days from the next statement date. The gap between two statements should not be more than a month.
  • Guidelines for classification of projects under implementation are as under:

Notes:

  1. For all protects financed by the financial institutions FIs) banks after 28th May, 2002, the date of compien n of the project should be clearly spelt ut at the time of financial closure of the project.
  2. ‘Project I an uld mean any term loan which h^’ beer, extended for the purpose of setting up : an economic venture. Banks should fix a Date of Commencement of Commercial perations DCCO) for all project loans at the time t sanction of the loan/financial closure.
  3. The above asset c.abdication norms would applvtothepr ecti ars before commencement of commercial operations.
  4. The above guidelines would not be applicable

for resir        _ advances which are dealt

with dine: -. : sets : guidelines.

  1. Any change m the repayment schedule

 

Before

commencement of commercial operation

Failure to commence commercial operation within two years (IS)/ one year (NIS) from DCCO — Restructuring due to court cases (refer note e’ Restructuring due to other reasons Refer note ‘e’)
Infrastructure Sector (IS) Classify as NPA if interest/instalment is 90 days’ overdue. Classify as NPA even if it is regular as per record of recovery unless restructured and eligible to be classified as Standard. a)        Can be retained as Standard if restructured within two years from original DCCO.

b)        DCCO can be extended up to 4 years beyond the original DCCO

a)        Can be retained as Standard, if restructured within two years from original DCCO.

b)        DCCO can be extended up to 3 years beyond the original DCCO

Non

Infrastructure Sector (NIS)

Classify as NPA if interest/instalment is 90 days’ overdue. Classify as NPA even if it is regular as per record of recovery unless restructured and eligible to be classified as Standard Not applicable a)  Can be retained as Standard, if restructured within one year from original DCCO.

b)  DCCO can be extended up to another one year (beyond the existing extended period of 2 years, i.e., total extension of 3 years)

 

 

Bank Audit Looked upon by the nation Respected by the world

 

Facility is generally used in international trade. In this type of facility, at the request of the buyer, his banker opens an LC, which is sent to the seller. Based on such LC, the seller despatches the goods and then sends the bills and other documents through his banker to the buyer’s banker, which has opened the LC, to make payment of the bill.

  1. The buyer then makes the payment and routes it through his banker to the seller’s banker. In case the buyer fails to make the payment (also known as devolvement of LC), the buyer’s banker, which has opened the LC, is liable to make the payment to the seller.
  2. RBI has mandated banks not to discount bills drawn under LCs or otherwise for beneficiaries, who are not their regular clients.

Reporting of Verification and Rectification

Statutory auditors have to report about discrepancies noted in the advances in two separate reports—one is the Statutory Audit Report for Major/Critical

 

Discrepancies and the other is a detailed report in the Long-Form Audit Report (LFAR) under para 1-5- Advances. If any financial adjustment has to be done (short/excess debit of interest, other charges, etc.), the same should be done through the Memorandum of Change (MOC).

Classification of Advances—Prudential Norms on Income Recognition & Asset Classification and Provisioning-IRAC Norms or also called NPA Norms

This is one of the most important aspects of verification of advances, details of which have been provided in a separate article in this issue of the Journal.

Conclusion

Advances bring income to the bank, but carelessness in sanction of the same may also lead the bank to lose the money advanced. The auditor has therefore to ensure that advances are granted after due diligence, are within the norms prescribed by the RBI and others, are good of recovery and are adequately provided for, if doubtful of recovery. ■

Bank Audit Verification of Non-Funded Advances

While the general verification of funded and non- funded advances is done simultaneously, there are certain components of non-funded advances, which need to be looked into. The RBI has issued a Master Circular dated 1st July, 2014 under Guarantees and Co-acceptances, which can act as a guiding parameter.

Non-funded advances are called off balance sheet items, as their value is not reflected in the balance sheet. They form the contingent liability items of the bank. However, for the purpose of keeping a control over these items, banks have a system of passing contra entries in its books of accounts at the branch level and hence these items get reflected on the liability as well as asset side of the trial balance. However, while preparing the balance sheet of the bank as a whole, the value of these items are reflected in the notes to accounts.

  • Guarantees
  1. Guarantees are of two types—financial guarantee, wherein the guarantor (the bank) promises to pay the stated amount to the beneficiary, if the person for whom the guarantee is given, fails to pay the same (also referred to as invoking the guarantee); performance guarantee, wherein the guarantor promises to pay the beneficiary a stated sum of amount, if the person for whom the guarantee is given, fails to perform, as expected, in a given period of time. Banks are generally discouraged from issuing performance guarantees.
  2. A guarantee transaction usually comprises two independent but related components— one is the guarantee issued by the banker (of the buyer) to the beneficiary {i.e., seller) and the other is a counter guarantee given by the buyer to his banker, who has issued the guarantee.
  3. Generally, guarantees should not be issued on behalf of customers, who do not enjoy credit facilities with the bank.
  4. Since guarantees invoked could get converted into funded advance to a borrower, banks should not encourage borrowers to over exter n u»e : commitments solely on the basis of a __
  5. Guarantee’ c _ c ~ e : : specific transaction (called spt .-.. g_arantee) or it could be for multiple transactions within a specific time frame (ca c c mmuing guarantees). Guarantees sh _.c generally be for short durations; in an. ca.se :s should not have a maturity period >i me re than 10 years.
  6. Unsecured Guarantees to a particular borrower sh _ c generally not exceed 10% of the total exposure
  7. Banks sho_.u ais not concentrate its

unsecured Guarantees to a particular borrower or a _          _ :

  1. Ghosh Committee has recommended

certain precaut:to be taken by banks while issuing                   ■ e s.

  1. Guarantee’^:, generalh issued by keeping margins, either m the form of cash/term deposit or some ther security.
  2. In case or _ _    — ssued on behalf of

share and s:        brokers, the RBI has advised

that bank? sh _.u btam a minimum margin of 50% (v. ;:r 25            – r _ cash margin).

  1. RBI has laid restrictions on guarantees of inter-comp an . deposits loans and inter- institutional g_a rantees.
  2. In the above mentioned circular, the RBI has also given e uensive guidelines on issue of guarantees n behalf of exporters and importers.
  • Co-Acceptance of Bill”
  1. In this tvpc of facility, the seller despatches the gooc’ ana raises the bill on the buyer. The buve: accepts the bill and then it is co-acceptcu bv buver’s banker. The seller’s banker then discounts this bill.
  2. This type or tacility is often used by customer? to float accommodation bills {i.e., bills which are not supported by genuine sale and purchase of goods) and hence auditors should be careful while examining such bills.
  • Letter of Credit

A Letter of Credit (LC) is a promise by a banker to hon nr the payments to be made by its customer the buyer or importer) to the seller or exporter. This type of payment

Bank Audit Demat papers, physical shares, TDR, NSC

The custody of the bank and can be
physically verified by the auditor. In case of loan
against shares, banks have to take out a periodical
statement of valuation of shares pledged to check
whether margin is still maintained.

rectified. Special attention needs to be paid to non-moving stock and obsolete machinery included in the stock statements on the basis of which the DP limit is being determined. Demat papers, physical shares, TDR, NSC, etc., are usually in the custody of the bank and can be physically verified by the auditor. In case of loan against shares, banks have to take out a periodical statement of valuation of shares pledged to check whether margin is still maintained. In case of NPA accounts, it is mandatory for the bank to obtain valuation report for all immovable properties/machinery mortgaged/hypothecated to the bank at least once in three years.

  1. Verification of Charges Due on Advances: An

auditor must at least test check the recovery of following charges which are recoverable on various advances at the rates prescribed by a bank:

  • charges for processing of loan, stamping, insurance, ;
  • interest/charges on the advance, including charges for withdrawals against effects (WAE), temporary overlimit, ; and
  • charges for late/non-submission of stock/ QIS statements, non-renewal of limits, inspection, valuation,

Certain Indicators which could lead to identify Irregular Accounts/Frauds

While an auditor is a watchdog and not a bloodhound, one needs to take extra care in the course of the audit to rule out any irregularities in the loan and advances portfolio. While verifying loans and advances, the auditor has to take cognisance of certain indicators, which may lead to detection of irregular accounts/frauds.

♦ A branch has one or two major borrowers constituting more than 50% to 75% of the total advances of that branch, for whom the branch goes out of its way to give continuous

 

overlimits or withdrawals against uncleared effects or doe^ n : pursue recovery of overdue bills or stoc-. statements are not received in time and yet : . r • er limit is continued

or account ;s r. : renewed on due date or ad hoc limits are : cleared and yet facility is continued, et.

While verit _   : OD a/c and bills a/c,

following observations are made:

  • account remains continuously overdrawn;
  • a number : cheques are bounced due to insufficient funds:
  • cheques dep sited are not honoured and returned unpaid:
  • the acc unt has been granted continuous TOL b\ the branch-for 20 to 25 days every month m re *er at times, such TOLs have beer, granted b\ the Branch Manager without having the power to do so;
  • the 12 month’s turnover in the account does n t c mmensurate with the sale and purchase sh wn in 12 monthly stock statements or the statement of accounts submitted:

the rea isati –  :   bills purchased/bills

dis-c untea t re eived on the due date and subse-uuenth* the same is cleared by debit:    m : :: .sen’s CC/OD a/c;

  • as so r. as the ao e bills are cleared, fresh bills are purchased discounted;
  • the facuur has not been renewed on the

due date an a the reason given is that the bonv .sm       t submitted the necessary

papers:

  • all overt _e CC limits, OD limits, unrealised bills. _nrea-sed interest are bundled together and the borrower is granted WCTL

\\ -• lapitai Term Loan) to avoid the account re-c rung NPA. Generally, such b:the:              ;                 indicator that the account

is hawtg problems;

  • for certain accounts, when papers are asked for, the branch is unduly slow in producing the sans r m . > s a plea that the same have been sent t s me authority and hence is una . . * at the branch or states that the same are not traceable;

m case certain accounts, the Branch Viuraaer p.eads not to put any adverse remark : me rep >rt and that he shall get it rear tied after the audit is over.

♦ While verifying monthly/quarterly stock statements

submitted, following observations are made:

  • generally stock statements are not submitted

on time;                                          ♦

  • the itemwise details of stock is not given and instead lumpsum figures are shown without quantitative details;
  • if itemwise details are given, a comparison of statements submitted over a period of time shows that the same stock is repeated over and over again with the same quantity and value;
  • there is heavy “sundry creditors” indicating unpaid stock, but the said amount has not been deducted from the stock value, before determining the DP limit of the borrower; ♦
  • the stock statement includes certain items which have actually been financed by the branch under LC limit or Packing Credit limit or some other limits;
  • there is a huge difference in the closing stock shown in the stock statement of 31st ♦ March of previous year and the audited/ unaudited accounts submitted subsequently

or better still, the borrower does not submit the stock statement of March or the same is untraceable in the branch;

  • the stock statement reflects an unusually high amount of “stock in transit” every month, which does not commensurate with the monthly purchases or the monthly turnover in the accounts;
  • though mandated, the branch has not obtained the “stock audit report”;
  • the stock audit report has adverse comments, but the branch has not taken any corrective steps or the Branch Manager states that subsequently he has visited the unit and everything is rectified and regularised;
  • the stock inspection done by the branch is superfluous and does not record the details of the stock verified-a few direct indepth

While an auditor is a watchdog and not a bloodhound,
one needs to take extra care in the course of the
audit to rule out any irregularities in the loan and
advances portfolio. While verifying loans and
advances, the auditor has to take cognisance of
certain indicators, which may lead to detection of
irregular accounts/frauds.

questions to the branch staff, who went for the concerned stock inspection, would reveal the quality of the inspection done. While verifying monthly/quarterly book debts statements submitted, following observations are made:

  • book debts due for more than 90 days are not segregated, though the same is mandated in the Sanction letter;
  • a comparison of last 10-12 month’s statement reveals that there are a number of book debts, which probably are being shown for more than 8-10 months and may be bad debts or recovered, but not deducted from the statement;

A comprehensive 10-12 months’ analysis of monthly sales, purchase and stock as shown in the stock statements, the book debts, the turnover in the accounts and the audited financial statements may reveal that the stock statements submitted every month are highly inflated.

Verification of other records at the branch

  • verification of stamping of the immovable property documents under ultra violet rays can reveal whether the document is genuine or a colour xerox copy;
  • in immovable property loans, the branch has not obtained “search report” of the property from the Registrar’s office, or the adverse comments in such report have been ignored;
  • the branch has not obtained NOC from the builder/society or such NOC has been personally brought by the borrower to the branch instead of the same being directly obtained by the branch from the builder/ society;
  • in case of loans to limited companies, details of previous charges have not been obtained or if any adverse observations have been made, the same are ignored, e.g. the report shows that the borrower has borrowed from other banks without the knowledge/ permission of the existing banker, old charges which were supposed to have been cleared have not been done indicating that old loans are still outstanding;

there is correspondence on record, which states that on the same immovable property, the borrower has obtained loans from more than one bank