Page 53 - Banking Finance September 2020

RBI CIRCULAR

respectively, an account where the regular/ad-hoc in the Gazette of India (Part III - Section 4) dated August
credit limits have not been reviewed/renewed within 22 – August 28, 2020.
the prescribed timeline from the due date/date of ad-
hoc sanction will be treated as Non-Performing Asset. (Sudhansu Mohan Parida)
3. Banks are, therefore, expected to have a detailed General Manager
Board approved policy on methodology and periodicity
for review/renewal of credit facilities within the overall Long Form Audit Report (LFAR) - Review
regulatory guidelines, and adhere to the same strictly.
RBI/2020-21/33
4. However, an analysis of practices followed by the
lenders while reviewing/renewing credit facilities has September 05, 2020
brought out certain supervisory concerns, including that 1. Please refer to RBI circular No. DBS.CO.PP.BC.11/
of frequent/repeated ad-hoc review/renewal of credit 11.01.005/2001-2002 dated April 17, 2002 on revision
facilities instead of regular review/renewals, non- of Long Form Audit Report (LFAR).
capturing and/or inaccurate capturing of review/ 2. Keeping in view the large scale changes in the size,
renewal data in the banking/information systems, and complexities, business model and risks in the banking
non-coverage of review/renewal activities under the operations, a review of the LFAR formats, in
concurrent audit/internal audit mechanism. consultation with the stakeholders, including the
5. In this connection, we reiterate that timely and Institute of Chartered Accountants of India (ICAI), was
comprehensive review/renewal of credit facilities should undertaken and it has been decided to make the
be an integral part of the Board approved loan policy and following changes.
credit risk management framework, and banks should 3. The format of LFAR, as mentioned below, have been
avoid frequent and repeated ad-hoc/short review/renewal revised:
of credit facilities without justifiable reasons. Banks are a. Annex I for Statutory Central Auditors (SCA)
also advised to capture all the data relating to regular as
well as ad-hoc/short review/renewal of credit facilities in b. Annex II for Branch Auditors
their core banking systems/management information c. An Appendix as part of Annex II for the specialized
systems and make the same available for scrutiny as and branches and
when required by any audit or inspection by Auditors/RBI. d. Annex III on Large / Irregular / Critical accounts
Further, the processes governing review/renewal of credit for branch auditors.
facilities should be brought under the scope of concurrent/
internal audit/internal control mechanism of banks with The revised formats are enclosed.
immediate effect. 4. The revised LFAR formats are required to be put into
6. We advise that all banks should follow above instructions operation for the period covering FY 2020-21 and
in letter and spirit. onwards. The mandate and scope of the audit will be as
per this format and if the SCA feels the need of any
(Ajay Kumar Choudhary) material additions, etc., this may be done by giving
Chief General Manager specific justification by the SCA and with the prior
intimation of the bank’s Audit Committee of Board (ACB).
Exclusion of “Westpac Banking 5. Regarding other operational issues relating to
Corporation” from the Second Schedule submission of LFAR, we further advise as under:
a. Timely receipt of LFARs from the auditors should
to the Reserve Bank of India Act, 1934
be ensured;
RBI/2020-21/30
September 03, 2020 b. The LFAR on the bank, after due examination,
should be placed before the ACB / Local Advisory
We advise that the “Westpac Banking Corporation” has Board of the bank indicating the action taken/
been excluded from the Second Schedule to the Reserve proposed to be taken for rectification of the
Bank of India Act, 1934 vide Notification DOR.IBD.No.99/ irregularities, if any, mentioned therein; and
23.13.138/2020-21 dated July 18, 2020, which is published c. A copy each of the LFAR (i.e. for the bank / all

BANKING FINANCE | SEPTEMBER | 2020 | 53