Page 274 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori

Restructured Advances
Restructuring Defined:
- Lenders grant concessions due to borrower's financial difficulties.
- Modifications can include changes to terms, rates, and additional credit facilities.
RBI's Revised Guidelines:
- RBI provides guidelines for restructured accounts.
- Auditors must ensure compliance with these guidelines.
Bank's Restructuring Process:
- An application for restructuring indicates the account's inherent weakness.
- Restructuring cannot be applied retrospectively.
- Banks can restructure accounts in standard, substandard, or doubtful categories.
Implications and Auditor's Role:
- Auditors assess accounts pending for restructuring.
- Post-restructuring, accounts shift from Standard to substandard.
- NPAs remain unchanged in their category if they belong to other categories.
Sale/ Purchase of NPAs
In case of a sale/ purchase of NPAs by the bank, the auditor should examine the policy laid down by the Board
of Directors in this regard relating to procedures, valuation and delegation of powers, including non
performing financial assets that may be purchased/sold, norms or such purchase/sale, valuation procedure and
accounting policy.
Sale: In case of sale of an NPA, the auditor should also ensure that:
• only such NPA has been sold which has remained NPA in the books of the bank for at least 2 years.
• the NPA has been sold at cash basis only, Under no circumstances, NPA can be sold to another bank at a
contingent price. The entire sale consideration has to be received on upfront basis.
• the assets have been sold/ purchased “without recourse‟ only, i.e the entire credit risk associated with the
non-performing asset should be transferred to the purchasing bank.
• subsequent to the sale of the NPA, the bank does not assume any legal, operational or any other type of
risk relating to the sold NPAs.
• on the sale of the NPA, the same has been removed from the books of the account.
• If the sale is at a price below the net book value (NBV) (i.e., book value less provisions held), the short fall
in the net book value has been charged to the profit and loss account.
• where the sale is for a value higher than the NBV, no profit is recognised, and the excess provision has not
been reversed but retained to meet the shortfall/ loss on account of sale of other non-performing financial
assets.
Purchase: Similarly, in case of purchase of NPAs, the auditor should verify that:
• the bank has not purchased an NPA which it had originally sold
• the NPA purchased has been subjected to the provisioning requirements appropriate to the classification
status in the books of the purchasing bank.

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