Page 320 - CA Inter Audit PARAM
P. 320
CA Ravi Taori
QNO NPA (Advances under Consortium) Old Course-- (N20E/N21M/N23M)
BA.08 Bhaskar CNO - BA.260
Explain "Advances under Consortium" in the context of Prudential Norms on Income Recognition, Asset
Classification and Provisioning pertaining to Advances.
Answer Advances under Consortium: Consortium advances should be based on the record of recovery of the
respective individual member banks and other aspects having a bearing on the recoverability of the
advances. Where the remittances by the borrower under consortium lending arrangements are pooled
with one bank and/or where the bank receiving remittances is not parting with the share of other
member banks, the account should be treated as not serviced in the books of the other member banks
and therefore, an NPA.
The banks participating in the consortium, therefore, need to arrange to get their share of recovery
transferred from the lead bank or to get an express consent from the lead bank for the transfer of their
share of recovery, to ensure proper asset classification in their respective books.
NPA (Government guaranteed advances) Old Course-- (M23M)
QNO NPA (Advance to staff)
BA.08.50 New Course-- (M24E)
Bhaskar CNO - BA.260
When are following considered as nonperforming as per the RBI guidelines?
(i) Government guaranteed advances
(ii) Advances to staff
OR
MNB bank advanced certain loans guaranteed by government. State the prudential norms for asset
classification and income recognition of such loans.
Answer Government Guaranteed advances:
Central Govt. guaranteed Advances, where the guarantee is not invoked/ rep udiated
would be classified as Standard Assets, but regarded as NPA for Income Recognition
purpose.
The situation would be different if the advance is guaranteed by State Government,
where advance is to be considered NPA if it remains overdue for more than 90 days
for both Provisioning and Income recognition purposes.
Advances to Staff
Interest-bearing staff advances as a banker should be included as part of advances portfolio of
the bank. In the case of housing loan or similar advances granted to staff members where
interest is payable after recovery of principal, interest need not be considered as overdue from
the first quarter onwards. Such loans/advances should be classified as NPA only when there is
a default in repayment of instalment of principal or payment of interest on the respective due
dates. The staff advances by a bank as an employer and not as a banker are required to be
included under the sub-head ‘Others’ under the schedule of Other Assets.
QNO-- Regularization of NPA Account New Course – (J25M)
BA.08.60 Bhaskar CNO – BA.260
Mahavir and Associates is appointed as the statutory auditor of KBC Bank for the financial year 2023-2024.
During the audit, Ms. Chandana, an article trainee, noticed that Sidharth Industries had an outstanding
loan of ₹ 50,00,000 as on March 31, 2024. On March 29, 2024, the company made a payment of ₹
10,00,000, reducing the outstanding loan balance to ₹ 40,00,000. However, on April 4, 2024, Sidharth
Industries initiated a reversal transaction of ₹ 8,00,000, increasing the outstanding loan balance back to ₹
48,00,000. The payment and subsequent reversal occurred within a short period, with the final
outstanding balance remaining ₹ 48,00,000 after the reversal.
Considering this scenario, what should be the response of Mahavir and Associates to this matter,
particularly regarding the classification of the borrower's account and the potential risk of it slipping into
the NPA category?
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