Page 272 - CA Final PARAM Digital Book.

Discuss the approach of CA. Muni, statutory branch auditor of Nariman Point branch, Mumbai of KNB Bank, in
the matter of asset classification of the above borrower account. Also discuss considerations for classifying
said account at the Solapur branch.
Answer Sometimes, a customer is sanctioned a cash credit limit at one branch but is authorised to utilise such
overall limit at several other branches also, for each of which a sub-limit is fixed.

In such a case, the determination of status of the account as NPA or otherwise should be determined at the
limit-sanctioning branch with reference to the overall sanctioned limit/drawing power and not by each of
the other branches where a sub-limit has been fixed.

The auditor of the limit-sanctioning branch should examine whether it receives particulars of all
transactions in the account at sub-limit branches and whether status of the account has been determined
considering the total position of operation of the account at all

concerned branches. The standalone matter of no credit transactions for more than 90 days as on 31st
March,2022 at Solapur branch is irrelevant.

Hence, keeping in view above, CA. Muni should consider asset classification considering the total position
of operation of the account at all concerned branches.

Regarding sub-limit at branches, the classification adopted by the limit-sanctioning branch should be
followed. Hence, the Solapur branch has to follow asset classification made by the limit-sanctioning branch.

QNO NPA (Classification of Assets Pressure by Bank Manager) Old Course – (N18M)
449.010 TITANIUM CNO—BA.400
M/s. S Ltd. is a MSME unit. The company does multiple banking. The company is availing cash credit limit
from U Bank of Rs. 25 crores. The limit availed remained less than Rs. 5.00 crores during all the days of
F.Y. 2017-18. The company has not done any credit in cash credit account during the year as it is
operating current account in newly opened another bank branch adjoining to company premises. The

company is having sufficient security of stocks and debtors and DP of Rs.25.00 crores remain all over the
year. The company is availing term loans from other bank branches. Now the Bank Manager is insisting
to route the sale proceeds through U Bank, otherwise cash credit limit and term loan accounts with
other banks will be treated as Non-Performing Accounts. Now company seeks your opinion.
Answer Part I -- Relevant Laws
▪ Classification of Account as NPA in case of Multiple Banking
Part II -- Requirements of Relevant Laws
➢ If the account remains overdue for more than 90 days, the account becomes Non-Performing
Assets. The account will also be called as overdue, if there are not sufficient credits in the cash
credit account which even could not serve the interest charged.
Part III – Case Discussion
➢ In this case, there are no credits in accounts, it means interest has not been served in the account.
Thus, accounts become overdue after 90 days for non-credit of amounts which could even serve
the interest amount. Thus, cash credits will become as NPA if no credits/sale proceeds are
deposited in that account.
Part IV – Conclusion
➢ However, in multiple banking system, each bank is independent for classification of account as
NPA. If SBI declares the account as NPA due to non-serving of interest amount, other bank will be
free and will not classify the term loan accounts as NPA, if they are regular.

QNO NPA (credit limit renewal) Old Course – (SM21)
449.050 TITANIUM CNO—BA.400 New Course – (SM23)
ABC Bank had sanctioned credit limits of Rs.100 lakh to M/s Volkart Ltd on 1st September 2018. The
renewal of limits was due on 1st September 2019. While doing the statutory branch audit for the year
ended 31st March 2020, you find that the renewal has not been done even though 180 days are over.
The bank says that the renewal process has been initiated on time and most of the documents are

received. The account is operated regularly and is in order; balance is maintained within drawing power.
It also shows a letter from Volkart stating that due to a sudden death of their auditor, a new auditor had
to be appointed. Procedure for appointment took some time and the new auditor was doing the audit all
over again. The limit was not renewed till 31/3/2020. However, the audited financials are received on
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