Ref. No.NB.DoS.HO.POL/ 183 /J-1/2010-11 Circular No 183 / DoS - 22 / 2010 15 September 2010 The Managing Director / Chief Executive Officer, All State Cooperative Banks The Managing Director / General Manager All District Central Cooperative Banks Dear Sir, Guidelines for Inspection of DCCBs and branches of SCBs/DCCBs and affiliated societies As you are aware, as a leader of the Cooperative Credit System in the State and as per

the provisions of the State Cooperative Societies Acts/Rules/Bye Laws, State

Cooperative Banks (SCBs) are required to conduct inspection of District Central

Cooperative Banks (DCCBs) affiliated to it. Further, as a lender, the SCBs also conduct

inspection of Apex Societies financed by it.

2. Recently, NABARD had conducted a few studies to ascertain the areas covered by

the SCB in such inspections. The studies had revealed that there was no uniformity

across the SCBs in the periodicity, scope, contents and coverage of inspections. The

Board of Supervision (BoS) for SCBs, DCCBs and RRBs which had reviewed the study

findings had directed that NABARD should prepare model guidelines for inspection of

DCCBs, branches of SCBs/DCCBs and affiliated societies by the State Cooperative

Banks for their guidance.

3. Accordingly, NABARD had prepared draft guidelines which was duly approved by the

BoS in its meeting held on 29 June 2010. A copy of the same is enclosed for your

information and necessary action, together with a CD containing soft copy of the

guidelines.

4. The guidelines are prepared in two parts – Part I containing ‘Guidelines for Inspection

of DCCBs’ and Part II containing areas to be looked into while conducting inspection of

branches of SCB, DCCB and affiliated societies. Proformae of statements that may be

called for from the DCCB before taking up inspection are also suggested in Annexure-I to

III. The same may be adopted with modifications suiting to the bank specific needs. The

periodicity of inspection, composition of inspection team etc., have also been left to the

discretion of the SCBs / DCCBs. Banks may therefore prepare their own policy

guidelines for the same.

5. The guidelines are only illustrative and not exhaustive. SCBs / DCCBs may

incorporate suitable modifications as per their requirements and adopt the same with the

approval of their respective Boards. They are also advised to translate the guidelines into

local language for the guidance of the officers / staff undertaking inspections.

6. Please acknowledge receipt to our Regional Office and advise them of the action

taken by your bank, at the earliest.

Yours faithfully, Sd/- (G.C.Panigrahi) Chief General Manager

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CHAPTER:1 OBJECTIVES OF INSPECTION a. To ensure that the business is conducted in an orderly and prudent manner in

accordance with established policies and practices. b. To ensure observance of rules, regulations, guidelines, etc. issued by NABARD, RBI, Government of India. c. To assess that the bank's performance in various banking activities are being

conducted in conformity with the provisions of the relevant acts, rules, regulations etc.

d. To examine financial and managerial soundness of a bank and evolve an action

plan for developmental role of the affiliates. e. To ensure that the assets are safeguarded and liabilities are properly controlled. f. To ensure that the documents are complete and enforceable. g. Timely submission of various returns to RCS, NABARD, RBI etc. h. Compliance with provisions of Cooperative Societies' Act (CSA) and Rules. i. Management is able to identify and assess the risks to the business and ensure

efficacy of the risk management system of the bank. j. To ensure that the refinance availed of by District Central Cooperative Banks

(DCCBs) from time to time have been deployed in accordance with the terms and conditions of sanction.

In the present context, the inspection strategy should aim at including the effectiveness of supervision over banks and also to ensure that the Inspection Reports serve as an useful management tool for banks. The focus of Inspection should be on the core areas of the bank's function mainly Capital Adequacy, Management, Earnings, Liquidity, Systems and Controls (CAMELS). The important roles of the Inspection Team are to ensure improvement in the systems, operational efficiency and financial soundness.

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CHAPTER: 2 STRATEGY FOR INSPECTION OF DISTRICT CENTRAL COOP. BANKS

a. Inspection coverage:

The performance is examined with a view to assessing the bank's working in its totality with reference to potentials, strengths, weaknesses, opportunities, threats and risks rather than merely bringing out operational deficiencies. Broad areas to be covered are indicated below: i) Financial position and performance:

1. Asset quality 2. Solvency and Capital Adequacy 3. Liquidity 4. Borrowings 5. Earnings

ii) Management and Operating System:

1. Management Quality and MIS 2. Internal Checks and Control System (Inspection, Audit, Vigilance etc.) 3. Risk Management Systems

b. Structure of the Inspection Reports:

The Inspection Report has to focus on important aspects of Bank's operations and major areas of concern. The report may be structured on the following lines.

1. Introduction 2. Financial position - Data 3. Examination of Assets & Liabilities 4. Profit and Loss Account 5. Internal Checks and Control Systems 6. Management 7. Developmental Initiatives

Broad areas to be covered in the inspection report under each of the above items are indicated below for the information of the Inspecting Officers. Guidelines for inspection of branches are covered under part II and various aspects to be examined at the time of visit to Societies are covered in Annexures.

1. Introduction • When the bank was established and commenced its operations

• Area of operation and branch net-work

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• No. of societies affiliated to the bank

• Position regarding audit of the bank and audit classification

• No. and names of branches visited by the Inspecting Officer

• Staff position of the bank

• Audit position of the bank

2. Financial Position Data may be furnished on the main items of Assets and Liabilities, Profit and Loss Account, Capital adequacy, compliance with various provisions of the Banking Regulation Act 1949 (AACS), State Cooperative Societies' Act / Rules & Bye-laws, etc.

3. Examination of Assets and Liabilities

(a) Assets i) Cash and Bank balances

• Cash – custody, retention limits, insurance, remittance, cash vaults, etc. • Permission for opening and maintaining the accounts with other banks, Purpose

for opening the accounts • System of Remittances and control systems, Bank Accounts with other banks, etc. • Year-end balance Confirmation Certificates • Reconciliation of Bank Accounts – at least monthly • Security arrangements for cash at vault/counters, overnight • Installation of alarm system, watch & ward staff/security etc.

ii) Loans and Advances

• loans to affiliated societies (a) Primary Agricultural Credit Societies (PACS) (b) Primary Handloom Weavers Coop. Societies (PHWCS) (c) Cooperative Sugar Factories (CSF) (d) Other types of societies, such as Salary Earners Cooperative Societies,

Marketing/Processing Societies, etc.

• Direct loans

Classification as per priority Sector – General Ledger Heads, Loans to SC/STs, SF/MF, Minorities, Women

i. Farm Sector ii. Non Farm Sector iii. Staff loans, jewel loans, others (non-priority sector loans)

• Policy and procedures

(a) Short Term (Seasonal Agricultural Operations) (b) Cash Credit Limits to Spinning Mills, Sugar Mills, PDS/Non PDS, Wholesale Stores, Marketing Societies, etc.

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(c) Direct Loans like Jewel Loan, Loans against deposits, NFS Loans, Staff Loans, etc.

• Report on Loans and Advances should cover :

(a) Observations on the scheme – Policy related (b) Appraisal (c) Sanction (d) Documentation (e) Disbursement (f) Monitoring and Follow up (g) Asset Classification (h) NPA management (i) General observations (compliance with exposure norms, quarterly review of

large advances, submission of reports to NABARD, credit risk / concentration, Government priority, RBI / NABARD guidelines etc.)

(j) Loan MIS iii) Investments

• Investment Policy and Investment Committee - Proceedings of the meetings,

Issues discussed, delegation of powers to various officials, adherence thereto, violations, if any, noticed, etc.

• Composition of SLR and Non-SLR investments, Adherence to the RBI/NABARD guidelines in respect of various limits fixed for Non-SLR investments

• Whether interest/dividend on investments was received/collected on time? • Funds Management, Fixation of Cash Retention Limits to Branches, periodical

review thereof, adherence to such retention limits by the branches, • Half-Yearly Review of Investments by the Board and submission of reports to

NABARD. • Review of Non-Performing Investments (NPI) • Whether Amortisation Account is being maintained? • Examine the procedure followed for shifting of securities from Permanent to

Current categories and vice-versa? • Accounting for investments - • Valuation of investments, creation of Investment Fluctuation Reserve (IFR) and

Capital Reserve - Procedure. • System of investment dealings and auditing of investment transactions

iv) Other Assets:

• Components of other Assets • Land, Buildings, Furniture, Fixtures, Sundry Debtors (Comments on long

outstanding entries and their realisability, Inter-Branch A/c etc.) • Depreciation and charging to Profit and Loss Account. • Details of DD paid ex-advice, etc.

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v) Recovery of Loans:

• Total Demand • Total Collection • Balance ( Percentage of overdues to demand) • Cash Credits and Overdrafts Outstanding • Of which, unrenewed Cash Credits/Overdrafts • Total overdues

vi) Overdues(Principal and Interest) and NPAs:

Examine and comment on the following: • Purpose-wise overdues • Branch-wise overdues • Age-wise overdues • Details of Overdue Interest • Purpose-wise • Branch-wise • Age-wise • NPA - correctness of classification as per IRAC norms, movement of NPAs • NPA Management – recovery of NPA loans, position of incremental NPAs • Restructuring/rescheduling • Evergreening, • Any irregularities to be commented

vii) Legal action taken:

• Details of Legal action initiated for recovery of loans

viii) Imbalance: • Examine whether the borrowings made by the affiliated societies are fully covered

by the loans and advances outstanding from the members at society's level. • In case the borrowings outstanding are more than the loans outstanding, what are

the reasons for the imbalance ? • Examine whether the DCCB had been monitoring recoveries at the societies' level

and whether it had ensured that all the recoveries had been passed on to it ? • Suggest suitable remedial measures in case of imbalance

(b) Liabilities i) Share Capital

• Comment on increase/decrease in Share Capital - Reasons for reduction of Share Capital over the previous year’s position

• Whether Share Certificates have been issued to all the Shareholder • Whether paid up Share Capital is within the ceilings prescribed in the bye-laws of

the Bank. • Composition of the Share capital, i.e. State Government, Societies and Individual

share to the total share capital.

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• Any share capital in arrears from cooperatives? Adequacy or otherwise of share-linking to be commented

• Amount of share capital contribution received from the State Government during the year and repayments, if any, made during the year by the bank.

• Any bye-law amendment has been made/proposed to be made for increasing the share capital contribution by nominal members and ‘A’ class members.

ii) Free Reserves

• Statutory Reserve • Agricultural Credit Stabilisation Fund • Building Fund • Dividend Equalisation Fund • Contingent Provision for Standard Assets • Comment on increase/decrease over the previous year and reasons thereof. • Whether the bank has adhered to the appropriation of profits for contribution to

various reserves/funds as stipulated in the bank’s bye-laws? • Creation of any special reserve as per any Act provisions (e.g., Income Tax Act,

Cooperative Societies' Act etc,) iii) Capital to Risk weighted Assets (CRAR)

• Whether CRAR was calculated as per RBI guidelines, deficiencies observed. • Comments on increase/ decrease in CRAR, disclosures, etc.

iv) Deposits:

• Composition of Deposit Portfolio • Cost of deposits • Examination of trends (Share of the bank in total deposits mobilised by the banks

in the District) • Share of low cost / zero cost deposits, • Individual v/s. Institutional Deposits (from cooperative institutions/lower tiers) • Details of Deposit Mobilisation Campaigns conducted • Changes in Interest Rate on Deposits and how interest rates on deposits are fixed

by the bank? • Comment on the interest rate-wise position of bank’s deposits and suggest

measures for smooth switchover so as to reduce the cost of funds. • Adherence to Know Your Customer (KYC) / Anti-Money Laundering (AML)

guidelines issued by RBI/NABARD, filing of Cash Transaction Reports (CTRs)/ Suspicious Transaction Reports (STRs) / Counterfeit Currency Reports (CCRs).

• Computation of Assessable deposits for DICGC cover • Payment of premium to DICGC, submission of DICGC returns, etc. • Practice followed for accounting interest accrued on cumulative deposits / other re-

investment deposits, etc. • Maturity profile of deposits

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v) Borrowings:

• Borrowings from various higher financing agencies • Whether the bank’s total borrowings were within the overall ceiling (Reserve

Borrowing Power) stipulated in the bank’s bye-law? Indicate violations, if any. • Interest rate-wise borrowings of the bank. • Maintenance of Borrowing Register • Watch for compliance with NODC • Violation of terms and conditions of borrowings • Cost of Borrowings • Instances of defaults in repayment of borrowings (if any).

vi) Other Liabilities:

• Interest payable on Deposits and Borrowings - Comments whether interest provision worked out correctly/ inadequate provision made.

• Sundry Creditors (Age-wise) • Bills Payable • Unclaimed dividend • Other contingencies payable

4. Profit and Loss Account:

• Analysis of Profit and Loss Account • Comment on increase/decrease in income from Loans and advances and

Investments • Miscellaneous Income, Expenditure, Release of reserves, writing back of

provisions, if any. • Interest paid on Deposits and Borrowings and accounting methodology followed

thereon. • Transfer Price Mechanism (TPM) being followed by the bank to arrive at the branch

profitability. • Risk Cost. Whether the Risk cost is being taken into account while fixing the

interest rate for loans and advances. • Overdue Interest position etc. • Provisions for gratuity, bonus, income tax, prepaid Insurance, etc. • Cost of Management • Methods of appropriation followed by the bank whether within the permissible

limits as per bank’s bye-laws.

5. Internal Checks and Controls:

• General quality of maintenance of various registers / ledgers and other important books of account

• Various procedures adopted by the bank to protect itself from shortcomings, if any, that may eventually result in loss

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• Delegation of powers – systems to ensure adherence to delegated powers, use of discretionary powers.

• System of internal chacks and control and to bring out shortcomings therein with reference to (a) custody and periodical verification, by a responsible official, of investments, securities, bills, parcels, vouchers, blank cheque books, unused stock of fixed deposit receipts / cash certificates / draft forms, pass books, godown keys etc. (b) daily independent checking of previous day’s entries from vouchers, (c) periodical balancing of deposit ledgers, loan/overdraft/CC ledgers, bills purchased / discounted, pay orders, DD/MT/TT registers, suspense and sundry deposit registers, investment ledger etc., by a person other than those writing them, (d) balancing of books by surprise, (e) rotation of duties among the staff and (f) long outstanding items pending adjustment / reconciliation in the suspense / sundry registers and bank accounts reconciliation register.

• Maintenance of CRR / SLR • Working out DTL, deficiencies observed • System followed regarding caution advices from RBI/NABARD • Inspection of branches and societies • Regularity of submission of returns to RBI / NABARD – chronic deficiencies

including false reporting etc. • Review of frauds – modus operandi, amounts recovered, action taken to avoid

recurrence, prompt reporting to NABARD, submission of quarterly returns to NABARD, suggestions for improvement in internal checks etc.

• Setting up of vigilance cell – preventive vigilance • Concurrent audit system – compliance of observations • Methodology for disposal of complaints (Complaint Redressal Mechanism)

6. Management:

General Body:

• Whether the annual general meetings were held regularly by the bank during the period covered by the inspection? If not, reasons therefor.

• Comments on major decisions including important amendments to Bye-laws effecting policy changes in the working of the bank.

Board of Directors and Committees :

• Composition of the Board – Vacancies, if any, in the Board. Deficiencies /

irregularities in constitution of the Board / Committees and their functioning. (See amended CSA provisions post VC-I)

• No. of Board meetings required to be held and actually held. Names of Directors who have been absenting/not attending the Board meeting consecutively on more than three occasions – Action taken there against.

• Whether the bank has been adopting the list of agenda items to be placed before the Board as suggested by NABARD? Deviations, if any, may be indicated. Agenda by circulation – necessity and shortcomings

• Adoption of ‘Fit and Proper’ criteria by the Board.

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• Steps taken by the bank to induct Professionals in the Board. • Whether the bank has constituted Audit Committee by inducting a Chartered

Accountant, if required? • Various Committees constituted by the Board, their functions, meeting periodicity,

no. of meetings required to be held and actually held • Proceedings of Board of Management • Action taken in diversifying the loan portfolio especially in the non-farm activities

and expanding the business of the bank as well as the mobilisation of deposits. • Inadequacy or failure to place other important information / data / statement etc.,

required to be placed in the Board’s / Committee’s meetings. • Whether there were any representatives of defaulting societies on the Board /

Committees? • Vacancies in the Board not filled up since long (with reasons therefor) • Important aspects of the bank’s functions and working not included in the agenda

for Board’s / Committee’s discussions in the meetings. Chief Executive Officer and other Executives :

• Comment on whether the CEO fulfills 'fit and proper' criteria in the State that had

signed MoU for implementation of Revival Package under VC-I. • Comments on the powers vested in / delegated to the Chief Executive Officer

(CEO) of the bank and whether such powers were adequate and properly exercised?

Staffing Pattern :

• Managerial strength available at HO and branch levels (adequacy or otherwise). • Whether the members of the staff in different categories possessed the prescribed

qualifications and whether they have received training in Co-operative banking suitable to the posts held by them?

• Whether the duties of staff particularly in executive cadres included developmental functions for expanding the business of the bank by involving themselves in scheme preparation for term lending for agricultural and allied purposes, such as, animal husbandry, fisheries, poultry, dairy, etc.?

• Whether the bank has any technical staff for dairy, fisheries, poultry, etc., and also for guiding industrial co-operatives, preparing / appraising schemes for them and processing their applications for financial accommodation?

• Whether the bank has chalked out a programme for recruiting and training young officers to take up senior level positions in the course of time?

• Whether the organizational structure of the bank is satisfactory and adequate to serve its needs?

Asset-Liability Management (ALM)

• Whether the bank has been identified by NABARD for implementation of ALM? If so, whether the bank has taken necessary action as indicated in NABARD guidelines

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• Are the bank's operations are computerised to capture the data required for ALM exercise?

• Has the bank identified Nodal Officer for the purpose? • Whether ALCO Committee has been set up and how it is working ? • Whether the bank has been able to compile and generate Residual Maturity and

interest rate sensitivity statements and gap summary Risk Management Systems

• Whether the bank has put in place policies and procedures to mitigate various risks as indicated in NABARD circular dated 06 April 2005 and subsequent guidelines on Credit Risk and Operational Risk Management ?

• Whether the Board had constituted Risk Management Committee and how effective it is?

• Credit Risk, Interest Rate Risk and Operational Risk faced by the bank may be assessed and indicated with suggested remedial measures.

7. Developmental Initiatives:

• Preparation of DAP, execution of MoU • Implementation of DAP • In case the bank was not complying with the provisions of Section 11(1) of the

B.R.Act 1949 (AACS) as per the Inspection Report of NABARD, the action Plan for compliance with Section 11(1) of BR Act-Progress made/ Shortcomings may be examined and commented.

• Review of the Action Plan by the bank’s Board/top management • Examine the financial position of affiliates and comment. • Supervision over Primaries • Efforts of bank in development of Primaries, Steps taken by the bank to implement

Financial Inclusion, Business Correspondent and Business Facilitator schemes, undertaking of Agency business for Insurance, etc.

• Other developmental initiatives such as promotion and linkage of SHGs, formation of Farmers’ Clubs, participation in Government Sponsored programmes, etc.

c) Annexures: Comparative Financial Position for 2/3 years Profit and Loss account NPA statement and divergence, if any.

d) Special Notes, if required: Indicative Notes :

1) Special note on serious violations of statutory provisions, violation of important provisions of Coop. Societies Act / Rules / Bye laws etc., if any 2) Special note on irregularities if any, noticed in utilization of various types of credit limits sanctioned by the SCB which warrant immediate action. 3) Special note on serious frauds / complaints against the bank.

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CHAPTER: 3 I. Selection of Branches / Societies

a) Branches:

With a view to ensuring a reasonable level of coverage of Loan Portfolio in respect of CCBs, 50% of the branches selected for visits must include such branches with larger proportion of loans and advances even at the cost of repetition. The remaining branches must be those which had not been inspected during the previous inspection and considered as problematic /fraud prone branches.

b) Societies: The Societies to be visited include PACS, LAMPS, FSS, Weavers', Marketing, Industrial Societies, etc. The number under each type of Societies to be selected for visits depends on Loan Portfolio of the bank, irregularities noticed (e.g., drawals by societies in excess of limits sanctioned etc). The Inspecting Officer may, at his discretion, select the type of Societies to be visited on the above basis. The defective features recorded on the Societies visited will continue to be forwarded to the bank and in case Registrar of Coop. Societies’ intervention is needed to set right the defects noted, the same has to be forwarded to RCS Office with covering letter. II. Composition of Inspection Team

The composition of inspection team will be decided by the bank. III. Inspection Documents

a) Inspection Report:

Inspection Report will contain two parts viz., 'Part-A' and 'Part-B'. While Part-A contains general information about the bank, Part-B will give a detailed analysis of the bank’s functioning under various portfolios as also defective features as indicated in Chapter II. The deficiencies which could be rectified on the spot may be got rectified and a reference to his may be made in the Inspection Report The Annexures to the Inspection Report will consist of

(a) Comparative financial analysis (b) Analysis of P & L Account for the last three years (c) Erosion in the value of Assets as on 31st march.

b) Note for Internal use (special note):

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The Inspecting Officers may submit a confidential Note meant for Internal use, broadly covering critical comments on Management, Rating of bank, areas suggested for supplementary appraisals, any other issue of confidential nature which warrant immediate action/attention of the higher financing agency (SCB). IV) Duration of inspection The SCB may decide on the time limit for conduct of inspection depending upon the size of the DCCB, geographical spread, composition of inspection team etc., and for drafting and issue of inspection report V) Inspection Statements:

The statements to be obtained from banks for the purpose of conducting of inspection may be decided by the SCB. An illustrative list of Inspection Statements for the inspection of DCCBs are indicated in Annexure-I – III. VI Compliance to Inspection Report :

The SCB may prescribe a time limit for submission of compliance by the DCCBs on the inspection findings (say maximum of 60 days), monitor the quality of compliance and follow-up with the bank for rectification of all deficiencies and implementing suggestions.

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CHAPTER-4 STEPS FOR IMPROVING THE QUALITY AND CONTENT OF INSPECTION

PLACEMENT OF EXPERIENCED STAFF FOR INSPECTION Exercise due care in placing/deputing suitable/experienced staff to conduct

inspection. GENERATE GENERAL INQUISITIVENESS Generate a genuine interest among the inspection staff towards what, why, where, when and how of everything connected with credit and rural banking and also to frame actionable points keeping the short-term and long-term goals in view so as to make their mission successful. PRE AND POST INSPECTION DISCUSSIONS WITH TOP MANAGEMENT Encourage Inspecting Officer to discuss with the General Manager/Department Heads at Head Office at pre and post inspection stages for mutual benefit. TIME SCHEDULE OF INSPECTION JOBS Keep up the time schedule right from programming stage to submission of reports and finally for obtaining proper compliance to the inspection findings. INTERNALISATION OF INSPECTION FINDINGS The inspecting officer may discuss the findings of inspection with the heads of operational departments of HO such as Advances, Recovery & Legal, etc. so that the findings may be utilized by them for policy refinement, release of funds etc. IMPROVED COMMUNICATION SYSTEM Develop effective communication system for achieving better results. QUALITY AND CONTENT OF REPORTS Ensure timely completion of the job with the required quality and coverage.

TRAINING OF INSPECTION STAFF Depute the officers for suitable training programmes whenever opportunities arise.

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INTERNAL MEETINGS WITH THE INSPECTING OFFICERS AND OTHER OFFICIALS

Hold internal meetings with the Inspecting Officers/Senior Officers periodically so as to provide them a forum for exchange of views on the identified issues/problems including updating knowledge of inspecting officers and also for obtaining required clarifications. SYSTEMS IMPROVEMENT

Provide top priority for systems improvement which is expected to bring operational and functional efficiency through sustainable and effective actions.

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CHAPTER-5 IMPORTANT TIPS TO INSPECTING OFFICERS FOR

CONDUCTING INSPECTIONS PLAN YOUR INSPECTION WELL Plan your Inspection well in advance. In case the inspection is taken up by a team of officers, team leader may identify the strength of team members and distribute various items of inspection assignments. PRE-INSPECTION SPADE WORK Gather information about branch/Department related special reports, if any, - previous inspection/compliance report, operations, annual report, audit report, other returns, if any, position regarding concentration of overdues, cash credit accounts, special types of societies, frauds/enquiry reports, if any, etc. The inspecting officer has to keep himself abreast of full background information before commencement of the inspection by obtaining them. IMPORTANT POINTS/DEFECTS OBSERVED Jot down separately portfolio-wise observations. For convenience - compare them with the earlier observations as per the last inspection report - list out points to be probed/further examined and follow it up. BE ALERT Always keep your eyes and ears open - make a mental note or note down important points that may come to your notice for examination/ further probing. Take the earliest opportunity to complete the job by yourself or assign it to others. COLLECTION OF ESSENTIAL PARTICULARS Always keep in mind the way in which an observation/a deficiency has to be presented in the inspection report. Collect information accordingly. Relevant particulars, such as, loans sanctioned. outstanding data, etc., should be furnished invariably. LOOK BEYOND INSPECTION For placing general banking development vis-a-vis the position of the bank, collect information for making valuable suggestions. INFORMAL CONSENT ON IMPORTANT OBSERVATIONS Avail every opportunity for discussing with the CEO / Branch manager/ Departmental in-charge or Officer next to him on important issues/findings to get his view point on the important defects observed. PUNCTUALITY ALWAYS FETCHES Be punctual in attending to the inspection work in the bank – Inspecting Officer’s punctuality and seriousness towards work only evokes commensurate response from all concerned in the bank/branches.

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PLAN YOUR VISITS PROPERLY

Do it in such a manner so as to spend the required time at branch/society and minimise the wastage of time at each stage. MID-TERM REVIEW

Of the work done and to be done - assess the position of time available - schedule the balance work to be done - assess the extra volume of work vis-a-vis the time requirement - if necessary, seek extension of time from headquarters by substantiating with adequate reasoning. COMMUNICATION OF SERIOUS IRREGULARITIES Try to communicate information on serious irregularities, if any, to the General Manager/Top Management, if in the view of the Inspecting Officer, the matter is really serious and such a communication helps in taking a decision even before completion of the inspection. The matter should be handled in a confidential manner. BE CONSCIOUS OF YOUR DEVELOPMENTAL ROLE During the inspection, the Inspecting Officer has to play developmental role by helping the officials to expand their horizon and framing the observations/defects with developmental touch. Rectification of minor defects on the spot as far as possible. Introduction of a system is important more than the rectification of a single defect. Improvement in the systems, operational efficiency and financial soundness are the triple goals of the inspection team. FINAL REVIEW OF WORK

Final review of the work prior to the last day of inspection - note down information gap / missing points/work to be done - try to have a quick coverage of the points to improve the adequacy level of the content. ARRANGEMENT OF STATEMENTS COLLECTED

Arrange the collected material in the proper order and place it safely by indexing before the actual departure to headquarters. OBJECTIVE PRESENTATION Objective presentation with all facts and figures giving adequate coverage by keeping the quality and effectiveness (of the points made) in view within the overall frame-work laid down by the authorities would serve the purpose well for observing the time schedule and for appropriate action.

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CHAPTER-6 DO'S AND DONT'S FOR INSPECTING OFFICERS

DO'S

� Take up the inspection with an open mind.

� Ensure proper team spirit (where inspection is conducted by a team) during and after inspection.

� Create an impression on the bank that the inspection is a fact finding and not a

fault finding mission.

� Maintain secrecy of the matters relating to the DCCB / branch/department under inspection.

� Ensure that normal functioning of the bank / branch / department is not hampered

because of inspection.

� Be alert so as to get important clues or information which facilitate inspection.

� Use your tact for obtaining crucial/confidential information.

� Treat the staff with courtesy and dignity

� Be polite in pointing out deficiencies/irregularities noticed and also be patient in the face of any provocation.

� Ensure that minor defects are rectified during the course of inspection itself to the

maximum extent. DONT'S

� Do not place yourself under any obligation whatsoever to any of the staff.

� Do not take up inspection with any bias.

� Do not keep confidential information/documents in such a manner which would make it easily accessible to outsiders.

� Do not unnecessarily magnify the deficiencies observed in the inspection.

� Do not be carried away with hearsay / tell-tales.

� Do not overemphasize your importance and authority. � Do not express your personal opinion in regard to controversial affairs.

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CHAPTER-7 ATTRIBUTES OF A QUALITY INSPECTION REPORT

� Depiction of the true state of affairs of the bank/branch/department.

� Adequate and proper coverage of all the important aspects/ observations in an in-depth manner.

� Presentation of defects to be in such a manner as to indicate their magnitude.

� Clarity of expression in the report-precise and to the point.

� Instances furnished should support the observation/defect adequately.

� Correctness of the facts and figures. No inconsistencies in the

observations/defects.

� More focus on the systems and deficiencies thereof should be brought out clearly.

� Appropriate classification of defects and arrangement of the same in order of importance.

� Suggestions made to be appropriate and practicable.

� Non-compliance with legal requirements to be brought out clearly.

� Proper headings and sub-headings to the paragraphs.

� Grammatical and spelling mistakes to be avoided lest they leave poor impression

on the report.

� The contents of the inspection report should be clear and specific so that a satisfactory compliance could be expected.

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CHAPTER-8

CHECKLIST OF IMPORTANT ASPECTS TO BE EXAMINED AT DCCB

(A) Share Capital & Reserves.

1. Increase or decrease in the share capital during the period covered by the inspection, steps taken to collect the calls in arrears, if any. Whether the paid-up capital exceeds the authorised share capital?

2. Whether share certificates were prepared and issued to the affiliated societies

promptly?

3. Comment on Government’s share capital received / retired during the period covered by the inspection.

4. In case State Government had availed assistance from NABARD under NRC(LTO)

Fund for share capital contribution to cooperative credit institutions, whether there was undue delay in transfer of funds to the primary societies?

5. Whether all the societies in the areas of operation of the bank were affiliated to it?

If not, the reasons therefor.

6. Ratio of share holdings to borrowings at the CCB / Societies level vis-à-vis the norms prescribed in the Act / Rules / Bye-laws.

7. Adjustment of share capital of societies, if any, towards their dues vis-à-vis the

provisions of the Act / Rules / By-laws.

8. Whether the appropriation of profits was done in accordance with the provisions of Act / Rules / By-laws and the investment of various Reserves, Dividend, ACS Fund, etc., outside the business of the bank, wherever necessary, was in conformity with the said regulations?

9. In case any reserves were drawn upon after the previous inspection, the

circumstances which justified their withdrawal and whether such withdrawal was done as required under the Act / Rules / Bye laws ?

10. Whether investments towards Reserve Fund and other funds have been properly

earmarked by the Board of Directors specifying the necessary details?

20

OTHER LIABILITIES

Examine other liabilities pending adjustment for more than six months with relevant

details viz., total number of cases, aggregate amount involved, period-wise pendency, and furnish a few individual items involving large amounts.

Contingent Liabilities

1. Examine the guarantees issued by the bank on behalf of its constituents i.e. individuals and affiliated societies. Comment on instances where such guarantees issued are without adequate security from the parties etc.

2. Whether the volume of guarantee obligations had exceeded the owned funds of

the bank at any time? If so, instances with details thereof.

3. Whether the unsecured guarantee exceeded 25% of owned funds at any time? If so, instances with details thereof.

4. Examine the guarantees invoked since the date of last inspection.

Letters of Credit

Examine the letters of credit issued by the bank and indicate the deficiencies, if any.

(B) Crop Loans Whether the bank followed the systems and procedures as prescribed for financing societies for SAO with particulars reference to the following : i) Methodology followed for fixation of Scale of Finance (SoF). Is it in accordance with

the guidelines on production oriented system of lending issued by NABARD, whether the SoF fixed as a range showing minimum and maximum amount that can be financed for a particular crop in the particular location.

ii) Adoption of SoF fixed by the Technical Group(TG) – whether the SoF was fixed by TG

followed uniformly by all the branches / PACS. If the scale of finance fixed by TG was used as indicative, whether the range of variation was reasonable?

iii) Proper maintenance of register of rights in lands of members, posting it up-to-date,

annual verification of entries therein with revenue records, verification of cropping pattern of borrowing members indicated in the normal credit limit (NCL) statement with the land records for avoiding inflated/ghost acreage for crops carrying higher scales of finance, etc.,

iv) Preparation and submission by the societies of NCL statement and drawal applications v) Whether all the borrowers of crop loans were issued KCC? If not, the reasons and the

21

extent to which covered under KCC? vi) Whether the drawals of KCC were allowed by branches of DCCB or by PACS only. If

farmers were allowed to operate KCC at branches, whether ‘mirror’ account was maintained in PACS. The efficacy of the system including the margin sharing may be examined and commented upon.

vii) Was there any restrictions by the bank / societies in the disbursement of cash

component? Whether farmers allowed to take kind component in cash subject to production of vouchers?

viii) Whether there was undue delay in disbursement of loans to members of

societies and making payment/adjustment at the bank's level in respect of the fertilizers and other inputs supplied by marketing societies/other agencies to the PACS on behalf of borrowing members?

ix) Disparity in the scales of finance and actual disbursements-Specific reasons may be

ascertained and commented in cases where the banks had higher scales of finance but disbursements were made at a very low level.

x) If the share croppers/tenants/oral lessees etc., were financed for SAO, whether they

were financed on the same scales of finance as fixed for owner cultivators? If not, the basis adopted/steps taken by the bank for financing such cultivators.

xi) Examine the system of financing Joint Liability Groups (JLG) and bring out the

deficiencies observed. xii) Norms of security prescribed/followed by the bank of financing members of societies

for SAO. Limit for issue of surety loan for SAO and its adequacy vis-a-vis the requirements of the cultivators in the area according to the scales of finance fixed by the bank.

xiii) If the scheme of linking of credit with marketing had been introduced by the

bank in its area of operation, effectiveness or otherwise of its working (with relevant figures of recoveries effected through linking arrangements, etc., and concrete suggestions for improvement, if the arrangement is not effective).

xiv) Action taken by banks in implementing the various production programmes

sponsored by GOI/State Government. xv) Whether separate credit limits were sanctioned to PACS for financing

cultivation of oilseeds covered under OPP, pulses under NPDP and DTP for financing Tribals?

xvi) Whether separate DCB register was maintained for cultivation of oil seeds

covered under OPP? If not, reasons. xvii) Whether the norms for identifying small farmers are those fixed by National

22

Bank? If not, the actual norms followed by the bank. xviii) Whether RCS had imposed any restrictions on financing societies? If so, details

thereof. Whether such restrictions affected the flow of credit to new and non-defaulting members of PACS?

xix) In the case of ineligible PACs, arrangements made for ensuring adequate flow

of credit to new and non-defaulting members. Whether RCS had fixed any recovery norms for financing PACS and whether such norms had come in the way of flow of credit to new and non-defaulting members?

xx) Examine the Crop Insurance Scheme introduced in the area of operation of

the bank covering the following aspects:

a) Names of blocks in the district where the scheme is in operation.

b) Crops covered.

c) Farmers covered - No. of farmers to whom loans were disbursed.

d) Area (in hectares) covered crop-wise.

e) Amount of loans disbursed crop-wise.

f) Sum insured (100% of (e) subject to a maximum limit of Rs.10,000 per farmer)

g) Insurance charges recovered.

h) Amount of subsidy to be obtained/obtained in the case of small and marginal farmers.

i) Whether insurance premium deducted out of loans has been passed on to the GIC?

j) On receipt of claim amount from GIC/State Insurance Fund, whether the CCB has

passed on the amounts to the concerned PACS giving full details of the notified area/crop to which the claim relates and the percentage of the sum insured or loan which has been reimbursed.

k) On receipt of claim amount, whether PACS had worked out the actual amount of

claim relating to each of the loan accounts covered by the claim and credited the amounts to the respective accounts?

l) Examine as to how the insurance claim received has been adjusted at CCB and

PACS level. Whether the adjustments were in conformity with the objectives of the scheme/instructions issued by National Bank/GOI?

23

Interest Subvention Scheme of GoI

• Whether the bank had ensured that the interest charged on crop loans by the

societies to the ultimate borrowers was as per the Interest subvention scheme of GoI.

• Whether the DCCB has compiled the claims for interest subvention correctly and discrepancies, if any, observed.

(C) MT (Conversion)

• Whenever natural calamity occurs, steps taken by the bank to provide relief to the

borrowers of cooperative credit system such as approaching the State Government for declaration of Annewari and issue of land revenue certificate from the district authorities, issue of instructions to the PACS for conversion of ST (SAO) loans into Medium Term (Conversion), issue of guidelines to the PACS, etc.

• Examine whether the bank had granted conversion of ST (SAO) loans into Medium Term (Conversion) Loans and the amount converted during the period covered by the inspection.

• Examine the balance in the ACSF and the amount utilised by the bank for conversion during the year. In case the balance in the ACSF was not sufficient, how the bank had met their share?

• Whether the bank had adhered to the criteria and procedures laid down by the RBI / NABARD for granting conversion facilities to the PACS?

• Whether any 'overdue' loans were converted ? • Whether the bank had ensured that the benefit of conversion had been granted in

time to the ultimate borrowers at the society level? • Whether the security obtained for conversion loans was in accordance with the

norms prescribed by the RBI / NABARD ? • Whether the bank had met 15% share in conversion ? If not, how the share was

met ? • Whether the recoveries under MT (C) were passed on promptly to the SCB ? • Whether the bank had ensured that the farmers, for whom conversion was allowed

had been granted fresh loan by the PACS concerned ?

(D) Medium Term loans for Agricultural purposes:

• Whether the bank had framed policy and procedures for grant of Medium term loans for agricultural purposes.

• The purposes for which MT loans are generally advanced and adequacy of standard outlays laid down as per unit cost / per acre basis in respect of any item of investment.

• The manner of working out repaying capacity of borrowers for different types of investment credit.

• In fixing the repayment schedule, whether the bank had taken into account the repaying capacity of the borrower?

• Whether economics of the projects was worked out and pre-sanction appraisal was

24

carried out including borrower appraisal? • Whether security obtained for various medium term loans were as per the norms

fixed by the RBI from time to time? • Method followed for valuation of land and its reasonableness • Whether the due dates were fixed in accordance with the cash flow? • Whether utilisation / end-use of the credit was monitored and records available for

visists carried out by the field staff? • Whether insurance of assets acquired was insisted and whether available during

the pendency of the loan? (E) Cash Credits for non-agricultural pruposes

• Policy followed for sanction of cash credit limits to PACS, Marketing Societies, processing societies etc., for meeting working capital requirements.

• Security and margin – whether as per the norms fixed by RBI / NABARD from time to time ?.

• Adequacy of cover for clean advances • Instructions issued by HO for custody of the goods pledged in case of loans against

pledge • HO instructions regarding insurance of stocks and adequacy • Compliance with the directions of RBI on financing sensitive commodities • Whether the loans/limits sanctioned to a single society is within the ‘net owned

fund’ of the society. If not, steps taken by the bank in bringing the exposure within the net owned funds over a period of time say, three years.

(various aspects to be examined at the branch as well as during visit to the societies in respect of various types of societies are indicated in Annexures)

(F) Salary Earners’ Societies

• Whether the bank had formulated a policy for financing Salary Earners' Cooperative Societies and issued policy circular ?

• Examine the major items contained in the policy circular and ensure that they are in tune with the overall policy of the bank

• Examine the number of Salary Earners Cooperative Societies functioning in the area of operation of the bank and number of societies borrowing.

• Whether the bank has obtained all required documents before sanctioning the limits i.e., application in the prescribed format, resolution of the board of the society, financial particulars of the society for the last 2/3 years, Audit reports, list of members for whom the society proposes to finance and assessment of financial requirements.

• Whether drawals were allowed based on requirements and how it is ensured by the HO

• Whether the bank had ensured that the outstanding borrowing by the society is fully covered by the outstanding loans to members and how frequently it is watched?

• During visit to branches, the operations on the limit may be examined and commented.

25

(G) Financing of Self Help Groups (SHG)

• Whether the bank had formulated policy and operational guidelines for financing Self Help Groups (SHGs)

• Examine the guidelines issued by the bank to the branches in this regard and ensure that the same are in conformity with the guidelines issued by NABARD for SHG-Bank Linkage

• Examine the application format and appraisal format for SHG financing and comment on the same.

• Examine the progress in financing SHGs by the bank vis-a-vis number of SHGs having SB accounts.

• Whether the bank had developed any 'Rating' Model for SHGs and advised the branches ?

• Whether the bank had conducted any evaluation of the SHG-Bank Linkage? (H) Financing of Joint Liability Groups (JLG)

The inspecting officer may examine the financing of JLGs by the bank keeping in view the following broad aspects: A Joint Liability Group (JLG) is an informal group comprising of 4-10 individuals coming together for the purpose of availing bank loan on individual basis or through group mechanism against mutual guarantee. Generally, the members of a JLG would engage in a similar type of economic activity in the Non farm Sector. The members would offer a joint undertaking to the bank that enables them to avail loans. JLG members are expected to provide support to each other in carrying out occupational and social activities. Criteria for membership :

i) Members should belong to similar socio-economic status, background and environment carrying out non- farm activities and agree to function as a Joint Liability Group. This way, the groups would be homogeneous, organized by Individuals and develop mutual trust and respect. ii) The members should be residing in the same village/ area/ neighbourhood and should know and trust each other well enough to take up joint liability for group/ individual Loans. iii) Members who have defaulted to any other formal financial Institution, in the past, are debarred from the Group Membership. iv) More than one person from the same family should not be included in the same JLG. Group Approach: i) All members of the JLG should be active enough to assume leadership of the group to ensure the activities of the JLG. The selection of an effective /able/active leader for the JLG is essential as this will ultimately benefit all the JLG members. The leader fosters a sense of unity, oversees and maintains discipline, shares information and facilitates repayments. For the bank, the leader is the focal point for group activities.

26

ii) The JLG should hold regular meetings which must be attended by all the members regularly to discuss issues of mutual interests. iii) The principles of self - help and group strength need to be emphasised. Group cohesion has to be ensured. Adequate emphasis should be placed on the roles, expectations and functions of the group/ members & the benefits of group dynamics. iv) The JLG can easily serve as a conduit for technology transfer, facilitating common access to market information, for training and technology dissemination in activities relating to non farm sector training and assessing input/ raw material requirements. v) The JLGs for specific non farm activity, e.g. production of handicrafts / other non farm products may be federated at village/ block level for development of the product. vi) The JLG in the clusters on their stabilization could come together in the form of cluster federation or producers’ companies with a view to contributing the entire value chain and thereby achieving economies of scale in production and marketing of the product. vii)The JLGs and evolving JLG structures are expected to build up empathy and understanding and create responsive lending mechanisms leading to greater interaction and interdependence between the members of JLGs. Who can form JLGs :

Business Facilitators, NGOs, Farmers Clubs, Farmers Associations, Panchayat Raj Institutions (PRIs), Krishi Vikas Kendras (KVKs), State Agriculture Universities (SAUs), Agriculture Technology Management Agency (ATMA), Bank branches, PACS, other cooperatives, Govt. Depts., Producer Associations , Artisan Guilds, Department of SMEs, Small Scale industries/ Agro industries, Individuals, Input dealers, and Document writers (in cooperative banks),MFIs /MFOs, etc.

Savings : JLG members need to be encouraged to save regularly. Banks may open savings account by the JLG / individual members of the JLG to ensure regular savings and thrift habit amongst them. However, the quantum of loan to be given to the groups should be related to the credit needs of the enterprise and not to the quantum of savings. JLG Models :

Banks can finance JLGs by adopting any financing individuals in a group or to the group.

(I) Recovery of Non-performing Assets Recovery - General

(a) Assess the quality of the assets of the Bank and comment on the following:

27

a. Volume of unsecured advances and its trend. b. Depletion in value of securities, loss of security, fraudulent transactions taking

place etc., c. No of cases where references are made to initiate Arbitration / Legal Action. d. No. of cases of Conversion / Rephasement has taken place - Amount involved. e. Over drawals permitted in Current Account remain unpaid after due dates. f. No. of discounted instruments returned, devolved LCs, and initiated Bank

guarantees remain unpaid.

(b) Verify the following : a. Whether Bank / Branch categorises special monitoring accounts as required under

policy guidelines and takes effective steps for regularisation / recovery. b. Undertake comparative study of classification of advances as per credit risk code

allotted in comparison to previous year and comment on migration. c. Undertake comparative study of NPA level at the Branch / Bank and compare with

the previous year and comment. d. Study ratio of NPA to total advances and comment. e. Study the movement of NPA accounts and comment. f. Whether the Branches have achieved the annual recovery targets and comment on

achievements. g. Recovery efforts - check points.

i) Exceeding sanctioned limits pending beyond permitted periods. ii) Overdrawals in current account pending beyond specified days. iii) Discounted cheques / clean instruments pending beyond prescribed

period. iv) Bills discounted pending beyond due date. v) LCs invoked / paid are outstanding.

(J) Branch Control

� Whether branch expansion programmes, if any, had been drawn up keeping in view the potential for banking business and viability aspects?

� Performance of newly opened branches during the period covered by the

inspection.

� Powers and functioning of the Branch Advisory Committee, if constituted by the bank.

� Whether the powers vested in / delegated to the Branch Managers were adequate

to ensure smooth and effective functioning of branches?

� Manner in which discretionary powers (vested / delegated) were exercised by the branch Managers.

� Whether the duties of the staff are clearly defined and periodically reviewed?

Whether the duties of staff are so organised that the work of an employee is not

28

allowed to remain unchecked and that he does not have absolute control over any financial operations of important nature?

� The adequacy or otherwise of various returns prescribed / obtained by the HO

from the branches so as to have an effective control over the working of branches.

� Scrutiny and follow-up action by HO on various returns received.

� False reporting etc.

� Periodicity prescribed and followed for reconciliation of inter branch account.

� Entries pending unresponded for unduly long periods i.e. for over 6 months. Give full details such as number of cases, amount involved, period-wise classification of pending amount and a few individual items involving large amounts.

� Methodology adopted by the bank for charging interest on funds lent by HO to the

branches and allowing interest to funds borrowed from the branches with a view to evaluate their viability. (Transfer Price Mechanism – TPM)

� Periodicity of inspection of branches by the HO.

� Arrears of branch inspection.

� Quality and coverage of inspection report.

� Adequacy or otherwise of follow-up action on inspection reports to ensure that the

defects pointed out are promptly rectified by the branches.

� Whether branch inspection report /gist of major findings are placed before the Board of Directors / Executive Committee?

(K) Management Information System MIS)

Since MIS is an important tool to aid Managers in solving problems and making decisions, it should be very effective and accurate.

1) Verify whether the MIS developed by the bank is complete in nature and provides

the information for making decisions regarding the integration of the organisation through the process of management?

2) Whether the data collected is having clarity and consistencies to make correct

decisions to solve the problem?

3) Verify whether the right information has been provided in the right form and at the right time?

4) Verify whether the bank is able to control the operations of the sub-systems of the

bank with the data collected under MIS?

29

5) Conduct test check and ensure that the data furnished under various returns are accurate and reliable.

6) Data collected should be relevant to the problem/ issue to be solved for which MIS

has been designed.

7) Ensure whether the project development team and users have communicated the issue effectively?

8) While designing the MIS whether the project development team has clear mission

and vision of the purpose for which it has been designed.

9) MIS cannot establish, repair or modify the management system, as this can be done only by Managers/ Users therefore the concerned personnel should be trained properly-verify whether the personnel have been trained and organised for implementation?

10) Verify whether proper implementation procedure has been developed and

adopted?

11) Verify whether the hardware, software and other materials acquired are able to take care to install and implement the MIS designed/proposal?

12) Verify the forms designed for a specific MIS is adequate and serve the purpose.

13) Verify whether testing has been properly carried out before implementing the

system?

14) Verify whether key personnel are taking steps to implement the system effectively to achieve the end results?

15) Ensure that the MIS helps the Management in formal review, formulation of an

action plan, and follow up of the decisions taken?

16) Ensure that the periodical returns prescribed under MIS to be submitted by PACS, Field Manager of CCB, Branch of CCB and CCB in order to stabilise the monitoring system, have been reviewed periodically to take decisions to improve the effectiveness of management?

(L) Profit & Loss Account

1. Whether the bank’s profits have been inflated / camouflaged in any manner, for instance, by charging interest on advances, the recovery of which is doubtful or by not duly accounting for depreciation on dead stock / fixed assets or by carrying forward irrecoverable items or not making adequate provision for NPAs, losses due to frauds / misappropriations / embezzlements, etc.?

30

2. Tax Provisions – whether adequate or not? 3. Interest payable on deposits and borrowings, including penal interest on

borrowings - whether accounted for on accrual basis or not?

4. Whether the bank has derived any substantial income or suffered any loss from non-banking business such as purchase / sale / revaluation of investments, premises, other assets, etc.?

5. Whether the cost of management in relation to gross income and to working

capital was high? If so, steps taken by the bank to reduce the same.

6. If any employee / office-bearer was remunerated by the bank in the form of commission or share in profit?

7. Accounting procedure followed by the bank in regard to accrued overdue interest

in respect of (a) loans and advances and (b) investments. Whether the bank debited cash credit account with accrued interest? If so, whether it calculated overdue interest, if any, at the end of the year in respect of such accounts?

8. If the overdue interest was taken to profit and loss account, whether the bank had

made corresponding provision for an equivalent amount?

9. Did the bank make provision for depreciation on various types of assets? If so, adequacy or otherwise of the rates of depreciation for different types of assets?

10.Appropriation of profits vis-a-vis the provisions of the Co-operative Societies Act/

Rules / Bye-laws.

11.If the bank was working at loss continuously / showing declining trend in profit over the past 2 years, reasons therefor and concrete suggestions to improve the profitability of the bank.

12.Method / formula, if any, adopted by the bank for assessing profitability of

individual branches – Transfer Price Mechanism.

13.If some branches were incurring losses continuously / showing declining trend in profit over the past 2 years reasons therefor and concrete suggestions to improve the profitability of such branches.

14.If the increase/decrease in income or expenditure of any head of account in P & L

account compared to the previous year was substantial, examine in detail and comment.

31

ANNEXURE-I

Balance Sheet

Name of the Bank : ______________________________________________________

COMPARATIVE FINANCIAL POSITION DURING THE

LAST THREE FINANCIAL YEARS (Rs. lakh)

Particulars As on

31 March....

31 March

....

31 March ...

2. 3. 4.

LIABILITIES

1. Paid-up capital

Individuals

Cooperative Institutions

State Government

Total:

2. Reserve Fund and other reserves

Statutory Reserve

Agricultural Credit Stabilisation Fund

Building Fund

Dividend Equalisation Fund

Special bad debts reserve

Bad and doubtful debts reserve Investment depreciation reserve

Other funds and reserves (specify)

Total :

3. Principal State Partnership

Fund account for share capital of

(i) PACS

(ii) Other Societies

Total :

4. Deposits

1

ixed *

(a) Individuals of which NRI

(b) Reserve Fund deposits of PACS

32

(c) Special bad debts reserve of PACS

(d) Other deposits of PACS

(* Including Recurring Deposits, Cash Certificates and other Deposits which are wholly in the nature of time deposits.)

(e) Deposits from societies other than PACS

(f) Employees' Provident Fund and staff security deposits

(g) Deposits from other institutions

Sub Total (1) 2

avings

(a) Individuals of which NRI

(b) PACS

(c) Other Societies

(d) Other institutions

Sub Total (2)

3 urrent

(a) Individuals

(b) PACS (c) Other Societies (d) Urban Coop, Banks

Sub Total (3)

4

oney at Call and Short Notice

(a) Individuals

(b) PACS

(c) Other Societies

Sub Total (4)

5 ther deposits (specify) **

Grand Total

** deposit of institution, local bodies, quasi Govt. institutions, etc.

5. Borrowings from

A. Short-term 1. From Apex Bank

(a) ST Agri.

(b) ST Non-Agri. 2. From Other sources

(a) ST Agri.

(b) ST Non-Agri.

B. Medium-term

33

1. From Apex Bank

(a) Normal (b) Conversion

(c) Others

2. From other sources

(a) Normal

(b) Conversion (c) Others

C. Long Term 1. From Apex Bank

(a) Farm Sector (b) NFS (c) Others 2. From Other Sources

(a) Farm Sector (b) NFS (c) Others

IV. State Government

(specify purpose)

VI. Other Sources (specify)

(a)

(b)

(c)

(d)

Total

6. Bills for collection (as per contra)

7. Branch adjustment (Net position)

8. Provision for unrealised interest

9. Interest payable on Deposits

Borrowings

10. Other liabilities

Bills payable

Unclaimed dividends

Suspense

Sundries

Staff provident fund payable to the Regional Provident Fund Commissioner

34

Others (specify)

(a)

(b)

(c)

(d)

Total

11. Profit

Grand Total

Contingent Liabilities

Outstanding liabilities for guarantees issued

(a) Fully secured

(b) Others

Others (specify)

ASSETS

1. Cash on hand

At Head Office

At Branches

Total :

2. Balance with

SCB in Current A/c

State Bank of India and other notified banks

Other institutions (including Post Office and Treasuries)

Current

Savings Fixed

Total

3. Money at call and short notice

4. Investments in

Central and State Government securities (including treasury bills )

Land Development Bank Debentures

Other Trustee securities

Shares in other Cooperative Institutions

Other investments (specify)

State Bank of India and other notified banks

Fixed

35

5. Investment out of the principal

state partnership fund in shares of:

PACS

Other societies

Total

6. Loans and advances

A. Loans to PACS

(i) Short-term for

Seasonal agricultural operation

Marketing of crops i) Secured

ii) Unsecured

Weavers' finance

Other industrial finance

Advances against the security of fixed deposits

Others

(ii) Medium-term loans for (a) Agricultural purposes

Normal

Conversion

Rephasement/Reschedulement

(b) Industrial purposes

Secured

Unsecured

(c) Other purposes

Secured

Unsecured (iii) Long - term loans for (a) Agricultural purposes i. Secured ii. Unsecured (b) Industrial purposes i. Secured ii. Unsecured (c) Other purposes i. Secured ii. Unsecured

B. Cash credits and overdrafts

Agricultural purposes

Industrial purposes

36

Other purposes (specify)

C. Loans and advances to

individuals

I) Secured against

a) Fixed deposits

b) Govt. and other trustee securities

c) Other types of security (specify)

ii) Unsecured

D. Dues from societies under liquidation

i) ST

ii) MT

iii) LT

E. Bills purchased and discounted

Total

7. Interest receivable on

Investments

Loans and advances

a) NPA account

b) Non NPA account

c) Of which dues from Soceities under liquidation)

8. Bills for collection (as per

contra)

9. Branch adjustments (net

position)

10. Land and Buildings

11. Furniture and fixtures

12. Other assets (specify)

Motor Vehicles Suspense and Sundries (specify)

Total

13. Non-banking assets acquired in satisfaction of claims

14. Accumulated Loss

Grand Total

37

38

ANNEXURE-II

Name of Bank:__________________________________________________

PROFIT AND LOSS ACCOUNT FOR THE LAST THREE FINANCIAL YEARS

(Rs. lakh) Items 31

March.

...

31 March.

..

31 March...

1 2. 3. 4.

I. Income

1 Interest on advances and discount

2 Interest and dividend on investments

3 Commission, exchange and brokerage

4 Subsidies and donations*

5 Income from non-banking assets and profit from disposal of such assets

6 Other receipts (specify)

Gross Income (Of which receivable)

II. Expenditure

7 Interest on deposits

8 Interest on borrowings

9 Salaries, allowances, provident fund and gratuity

10 Directors and local committee

members fee and allowances

11 Rent, taxes, insurance, lighting, etc.

12 Law charges

13 Postage, telegrams and telephone charges

14 Auditors' fee

39

15 Depreciation and repairs to property

16 Stationery, printing and advertisement

17 Loss from disposal of non-banking assets

18 Provision for

a) Standard assets

b) Impaired credits

c) Overdue interest d) Others (specify)

xiii) Other expenditure (specify)

Total

III (a) Profit before tax

(b) Profit after tax

IV. Profit - Appropriations to Reserves

19 Statutory reserve fund

20 Agricultural credit stabilisation fund

21 Building Fund

22 Reserve for impaired credits

23 Other Reserves (specify)

24 Amount appropriated for payment of dividend

25 Dividend rate (%)

* Subsidies (other than those received in respect of advances to Weavers' Societies) and donations have to be excluded from gross income while working out percentage of cost of management etc.

40

ANNEXURE-III

ASSET CLASSIFICATION AND PROVISIONING STATEMENT AS ON THE DATE OF

INSPECTION

(For the year ended 31 March _____ ) A. Loans and Advances

(Rs. lakh)

CATEGORY OF CREDIT FACILITY Total A. Classification of loans

and advances

ST SAO

ST OSAO

CC & OD

Bills Term Loans

I . Amount Outstanding II. Assets Classification

1. Standard : 2. (a) Agri. & SME

(b) Others 2. Sub standard 3. Doubtful (i) Secured loans (a) D1 (b) D2 (c) D3 (ii) Unsecured loans 4. Loss assets 5. Total NPA (2+3+4) III. Provisioning

required

1. Standard assets (a) Agri. & SME

(b) Others 2. Sub-standard assets 3. Doubtful assets i) Secured portion a) D1 b) D2 c) D3 ii) Unsecured loan 4. Loss assets IV. Total provision required to be made

(1+2+3+4)

a) Bank's assessment b) Auditor's assessment V. Provision actually

made (excluding Standard Asset Provision)

41

VI. Difference (IV-V) B. Income Recognition

(i) Total interest/dividend on loans and advances and investments taken to P & L a/c

(ii) Of item (i) above, interest accrued but not due

(iii) Of item (i) above, overdue interest accrued and not realised.

(iv) Other income taken to P & L Account but not realised.

(v)Provision required to be made for overdue interest and other income taken to P & L a/c.

(vi) Provision for overdue interest and other income actually made.

C. Other assets/ Liabilities (Rs. Lakh)

Particulars Provision i) Depreciation on investments Required Made

(a) Govt. securities/ bonds, etc. (b) Share in other co-op. institutions (c) Other investments - shares, etc. (d) Repo sold

Total of (i) ii) Frauds, embezzlements, etc. Iii) PF, Gratuity, etc. iv) Other liabilities like rent, rates, taxes, etc. v) Contingent/ off-balance sheet exposures vi) Interest on deposits and borrowings outstanding as liability vii) Depreciation on other assets like land, building, furniture, fixtures, etc.

Grand total

D.(i)Total provision required to be made in Balance Sheet

(ii) Actually made (iii) Deficit (-)/ Surplus (+)

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ANNEXURE –IV

IMPORTANT PROVISIONS OF BANKING REGULATION ACT, 1949 (As Applicable to Cooperative Societies)

(The Inspecting Officer is advised to refer to the Banking Regulation Act 1949 (AACS) and its latest amendments as also clarifications if any, issued by the RBI

from time to time. This write up is only illustrative and not exhaustive)

Section-3 - The Act will not apply to a

a) Primary Agricultural Credit Society. b) Cooperative Land Development Bank. Section-5 - Banking means Accepting for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise. Cooperative Bank means - a) State Cooperative Bank b) Central Cooperative Banks c) Primary Cooperative Banks (Urban Banks) Cooperative Credit Society means -

Primary object of which is to provide financial accommodation to its members and includes Cooperative Land Mortgage Banks. Primary Agricultural Credit Society means - A cooperative society primary object or principal business of which is to provide financial accommodation to its members for Agricultural purposes. Section - 6 - Subsidiary functions -

Agency Business Collection of cheques and bills Guarantees or Indemnity business Acting as Trustees Acting as Administrators Letting out lockers Doing any other Lawful agency business on behalf of the customers.

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Section - 7 - Use of words 'Bank' 'Banker' 'Banking'

No company other than a Banking company shall use such words. Section-8 - Prohibition of Trading - No Banking company shall directly or in directly deal in selling or buying of goods except in connection with realisation of security given to or held by it. Section - 9 -Disposal of Non-Banking Assets: Banks are prohibited from holding immovable property unless it is required for their own use. Section-11(1) - Requirement as to minimum paid up capital and reserves - No cooperative bank shall commence or carry on the business of banking in India unless the aggregate value of paid up share capital and reserves is not less than Rs.1.00 lakh. Section - 11(2) - Value means 'Real or Exchangeable value' and not the 'Nominal value' which may be shown in the Books of the Cooperative Bank concerned. Section - 18 - Cash Reserve Ratio (CRR) Every Cooperative Bank not being a scheduled Cooperative Bank for the time being included in the Second Schedule of the Reserve Bank of India has to maintain by way of Cash Reserve at not less than 3% of its aggregate Net Time and Demand liabilities as obtaining on the last Friday of the 2nd preceding fortnight. For maintaining CRR, the Cooperative Bank has to compute the total Time and Demand Liabilities on the reporting Friday. The aggregate total Time and Demand Liabilities for this purpose shall not include

• Paid up Share Capital • Reserves • Credit Balance in P&L Account • Any advances taken from State Government, RBI, IDBI, EXIM Bank, NHB, SIDBI,

NCDC, NABARD. • Any deposit representing the Reserve Fund investment made by other affiliated

Cooperative Societies. • In the case of any advance taken from the State Cooperative banks of the State

concerned. • Any advance or loan granted by the Cooperative bank against term deposit. • Any advance or credit arrangement drawn and availed of against approved

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securities. TIME AND DEMAND LIABILITIES AS COMPUTED UNDER a) Liabilities to Banking Sector System and Liabilities to others. Banking System includes State Bank of India and its subsidiaries, Nationalised Banks, Commercial Banks, Private Banks, Foreign Banks, Regional Rural Banks and others as stipulated by the Reserve Bank of India from time to time. b) Netting concept:

To arrive at the net Liabilities to Banking system, the Liabilities to Banking system and balances due from the Banking system should be set off or netted against each other. The net liability due to the Banking system should be included in the total TDL for the purpose of maintenance of CRR. c) Maintenance of CRR:

Fortnight shall be the period from Saturday to 2nd following Friday both days inclusive. Since the provisions of revised Section 18 read with Section 56 of the Banking Regulation Act 1949 (AACS) has come into force on 29 March 1985, which is a Friday, that day namely, 29 March 1985 shall be reckoned as a first alternate Friday for the purpose of returns to be made in Form – I. Accordingly, by way of illustration, the first 4 alternate Fridays commencing from 29 March 1985 will be 29 March, 12 April, 26 April, 10 May 1985 etc. The subequent alternate Fridays were determined on the same consecutive basis. CRR in respect of DCCB can be maintained in the form of Cash on hand, credit balance in C/A with RBI / State Cooperative Bank of that State concerned, net balances in Current Account from Banking system. The Cooperative Bank should maintain 100% CRR on daily basis. Section-19 -Restriction on holding shares in other Cooperative Societies:

No Cooperative bank shall hold shares in other Cooperative Societies except to such extent and subject to such conditions as RBI may specify. This condition is not applicable to : Shares acquired through the funds provided by the State Government. District Central Coop. Banks to hold shares of the affiliated State Cooperative Banks. Section - 20 - Restrictions on Loans and Advances:

No Banking company shall

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a) Grant Loans and Advances on security of its own shares. b) Granting Loans to or on behalf of any of its Directors any firm in which any of its Directors is interested as Partner, Manager, employee or Guarantor. Section - 21 - Power of RBI to control Advances by Banking Companies - In public interest, the interest of Depositors, RBI may determine the policy in relation to Advances to be followed by Banking Companies. Such policy may be in regard to all Banking Companies in General or Banking Company in particular. RBI may give directions in regard to purpose of loan to which no loan to be given or given. Margin requirement Maximum amount of loan to be given Rate of Interest Section - 22 - Licencing of Banking Company - No Institution shall carry on Banking business unless it is holding Licence issued by RBI. Banks functioning prior to the commencement of the Act, had to apply for Licence to RBI within a stipulated period. These Banks will continue to function unless RBI refuses in writing, the grant of such Licence. For granting Licence, RBI may require to be satisfied by an Inspection that : .

Bank is in a position to pay its present and future depositors in full as their claim accrue. Affairs of the bank are not conducted in a manner detrimental to the interests of depositors. Management will not function in a manner prejudicial to public interest. Bank should have adequate capital structure. Public interest will be served.

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Section - 23 - Restriction on opening of new place of business and transfer of

existing place of business

Without obtaining prior permission of RBI : a) No Banking company shall open a new place of business in India or change otherwise than with the same city, town, Village, the location of an existing place of business without permission / licence from the RBI. b) This condition is not applicable for

(i) opening a temporary place of business for a period not exceeding one month within a city, town or village, where the Banking company already has a place of business for the purpose of affording banking facilities

(ii) opening (or changing the location of branches) by a Central Cooperative Bank within the area of its operation.

Section - 24 - Maintenance of Statutory Liquidity Ratio (SLR)

The Cooperative Banks have to maintain Liquid Assets at not less than 25% of NTDL. The Cooperative banks have to maintain the required liquid Assets on daily basis without any default. The Liquid Assets may be maintained by Non- Scheduled Cooperative Banks in the following forms. Excess cash balance maintained over and above 3% as required under Section18 of the Act.

Term deposits with State Cooperative Bank of the State concerned, Unencumbered approved securities

Section-26 - Return of unclaimed deposits -

Bank's shall within 30 days after the close of each calendar year submit a return of all deposit accounts to the RBI with copy to NABARD, which have not been operated upon for 10 years.

Section - 27 -Monthly Returns - Banks to submit to RBI before close of the month succeeding that to which it relates, monthly return (Form No.IX) showing its Assets and Liabilities in India at close of business on last Friday of every month. Section - 29 & 31 - Preparation of Year end Balance Sheet and Profit & Loss

Account and publication -

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Preparation of accounts and balance sheet as per forms set out in the Third Schedule or as near thereto as circumstances admit. Submission of the same within six months from the end of the year to RBI and NABARD. Section - 35 - Inspection -

Powers of the RBI to cause Inspection of the bank and its Books and Accounts. The powers exercisable by the RBI under this Section may also be exercised by NABARD in relation to Cooperative Banks, other than Primary Coop. Banks Section - 35A - Power of RBI to give Directions -

In the public interest In the interest of banking policy To prevent the affairs being conducted in a manner detrimental to the interests of the depositors. To secure proper Management of Banking Company RBI may issue directions and Banking Company is bound to comply with such Directions Section - 46 - Penalties - For making wilful false statements in any return, Balance Sheet or any other documents, punishment with imprisonment upto three years and fine also can be imposed.

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ANNEXURE - V

Aspects to be examined at Primary Agricultural Credit Society (PACS)

1) Whether the PACS has received recapitalisation under VC I? If yes, whether the society has attained CRAR of at least 7%.

2) Has the society implemented the Common Accounting System prescribed under

the Revival Package?

3) Did the society have separate owned or rented premises to house its office?

4) Whether the society has increased the membership during the last two years with special reference to small and marginal farmers and steps taken to increase the membership of the society.?

5) Whether the rural artisans were also enrolled as members and financed by the

society?

6) Details the members covered and financed under SGSY and special programmes / schemes for weaker sections.

7) Obtain state partnered particulars of the amount of contribution received from the

Government.

8) To examine normal credit limit statements of the society for the previous and current Co-op years and to bring out deficiencies, if any, in regard to following aspects in particular:-

� Whether the statement had been prepared in two parts Small farmers and part

II for other farmers and whether the classification of farmers was made correctly? [This should be checked with reference to the land registers maintained by the society]

� Whether there is variation in acreage recorded in the register of lands

cultivated and the normal credit limit statements?

� Whether all the members have been issued KCC, if not what are the problems?

� Whether there was a system in the society to verify the crops financed by it?

9) If the society had granted advances against the pledge of produce, comment and bring out deficiencies in regard to following aspects with instances. a) Advances/ stocks outstanding for more than one year.

b) Deficit in margins stipulated and action taken thereon.

c) Adequacy of storage arrangements / segregation of stocks of different

members.

d) Effective custody of produce.

e) Periodical verification of stocks by the officers of the Bank.

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f) Insurance of produce pledged and

g) Recovery of short-term and medium term loan instalments out of pledge

advances.

10) a) Examine the medium term loans granted by the Bank / Society to members

and bring out deficiencies, if any, in the procedure followed for the disbursement of loans.

b) Adequacy of the loan for the purpose for which it was sanctioned.

c) Arrangements for ensuring that, the medium-term loans are properly utilised

for the purpose for which they are advanced.

d) Verification of utilisation of loans by the paid secretary/supervisor and submission of utilization statements / certificates to the CCB.

e) Verify utilisation of few medium-term loan accounts by field visits to bring out the deficiencies/mis-utilization, if any, wherever possible.

11) Examine the loan documents obtained by the society from the borrowers for

short-term and medium-term loans to see whether they are in order or whether there are any time barred pro-notes.

12)

a) Was there a system of issuing receipts / Pass Books to members for recoveries / loans advanced?

b) Whether recoveries effected from members were genuine, accounted for on the

same day and promptly remitted to the Bank? [Comments to be made after examining cash book, loan ledger, members passbook / counter foils / receipts, etc.,].

13) Adequacy of as the maximum borrowing power of society (b) the individual

maximum borrowing power of members for short-term and medium-term agriculture loans.

14) Examine short-term and medium-term loan disbursement statements sent to

the bank with reference to the relative loan applications, cash book and loan ledgers and bring out discrepancies / irregularities, if any, noticed with instances.

15)

a) Was there arrangement of linking of credit with marketing in the area of operation of the society?

b) Did the members of the society deliver their produce to nearby marketing

societies. The role played the credit society in this regard and genuineness or otherwise of the recoveries effected through linking of credit with marketing may be commented.

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16) a) Examine the DCB position of the society for the last 2/3 years and comment on

the steps taken to recover the over dues-The reasons for increase in the over dues, if any-whether DCB position was correctly worked out?

b) Examine the period wise and purpose-wise classification of the over dues in

detail to ascertain the reason for over dues and suggest remedial measures to improve the recovery from farmers.

c) Were all overdues over one year as on the date of inspection covered by legal

action? d) Was legal action initiated by the bank/society on the lines specified in the Act/

Rules/ By laws such as issuing registered notices, obtaining decrees, etc.? e) Was there any delay in taking legal action at any stage? [with instances where

arbitration proceedings not filed within 6 months against wilful defaulters / where arbitration references were filed lying pending for more than 6 months / where EPs filed but pending for more than 6 months].

17) Did the society undertake any other activity beside loaning? If it had borrowed

from the Bank for such purposes whether it had adhered to the terms and conditions stipulated by the Bank?

18)

a) Comment and bring out irregularities, if any, in regard to the arrangements for custody of valuables. Whether the arrangements, were satisfactory? What was the limit fixed for keeping overnight cash balance and whether this was adhered to? [If the limit had been exceeded continuously for long periods, instances may be furnished]

b) Verify the Cash balance with reference to Cash Book and bring out deficiencies

if any shortage/ excess etc.

19) Whether the society has implemented the Income Recognition, Asset Classification and Provisioning (IRAC) norms as prescribed by NABARD and as communicated by the Registrar of Cooperative Societies ? Bring our deficiencies in this regard.

20) When was the society last audited and for which year? was the copy of the

Audit report promptly received by it and rectification report sent within a reasonable time?

21) Whether the Annual General Body and Managing Committee meetings were

held regularly as required under the By-laws/Act/ Rules/ Registrar's instructions?

22) Was any of the Managing Committee members a defaulter to the society? Was any of them elected to office when in default or continued on the Board of Management despite default? [This should be examined with reference to the provisions of By-laws / Acts/ Rules and full details viz., name of the defaulting director, date of election, due date for payment, amount of default at the time of election and due date etc., should be furnished].

23) Comment in particular on the maintenance of registers and ledgers introduced.

24) Efforts made by the society to mobilise deposits with a view to promoting thrift

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among its members and strengthening into financial position and its performance in this regard.

25) Was there any instance of misappropriation /embezzlement of funds etc.? If

so, give full details.

26) Examine the balance sheet of the society as on the date of Inspection and Comment on important items of the liabilities and assets.

27) Whether rates of interest charged by the society for different types of loans

and advances were in accordance with the directives/instructions of the RCC/CCB?

28) Completeness or otherwise of documents obtained from the borrowers in respect of different types of loans and advances.

29) In case of deposit taking PACS, P/L of 'mini banks' to be worked out and commented.

30) Similarly, examine the other business undertaken by the society, such as PDS,

Fertilizer business, procurement and marketing of cloth, distribution of cooking gas etc. and comment on the profitability of each type of activity.

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ANNEXURE – VI

Financing Production and Marketing Activities of Primary Weavers’ Cooperative Cooperative Societies (PWCS) Pattern of Working:

Whether the Society was functioning as a production-cum-sale Society and undertaking production of silk, woollen or cotton handloom or polyester cloth? If there were power looms, were they owned by the society or by its members? Extent of its area of operation, effective membership in relation to weavers in its area, number of looms-active and / or dormant, etc. Viability:

Was the Society identified as viable or potentially viable by the concerned department of the State Government as per the norms prescribed in this behalf? Yarn Purchases:

Could the Society buy its yarn requirements from the Apex/Regional WCS at concessional rates? It not, alternative sources of purchase of yarn and long-term arrangement, if any, giving it advantage of concessional rate? Whether payments for purchase of yarn were made by cheque drawn on the Cash Credit Account? Production : Was the Society getting cloth produced on its own account by issuing yarn to members and paying wages? Had the Society worked out a production chart for each type of cloth produced by its members on its behalf? If so, how often was it revised? Was there any linking between the share holding of a member in the Society and the value of raw materials given to the members for production? Whether the Society stipulated any time limit for the return of finished goods by its members and the latter generally adhered to the time-frame for returning the goods? In case of defaults by members, was the Society prompt in taking action for recovery, steps taken for recovery and amount of advances which are likely to prove bad or doubtful in this behalf. Problems faced in production as also the difficulties, if any, in getting surplus of inputs.

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Outright Purchase of Finished Goods:

Value of cloth purchased on outright basis from other Societies / depots / weavers Society, the profit / loss, earned / incurred in such business during the last few years. Marketing Arrangement:

What were the marketing arrangements for sale of cloth. Whether the location of office, show room, go-downs, etc., was satisfactory? Problems faced by the Society in marketing of its products and reasons for accumulation of stocks, if any and suggestions thereof?

Sales: The basis for fixing the sale price of cloth produced by members and profit margin added to the cost price. The proportion of total sales to the value of cloth produced during the last calendar year. In case the Society has made credit sales, the authority sanctioning credit sales and the amount due thereon. Do the Bye-Laws permit credit sales? Stock: Were the stocks of raw material, finished goods etc., stocked properly? To test-check a few items of the stock of goods with reference to the stock register and to bring out deficiencies, if any. If there were old stocks, say above 24 months, any special measures adopted to clear such stocks? How often were the stocks verified by the bank’s / Department’s Supervisors? Were the stocks of finished goods and yarn adequately insured against fire, theft and other risks and policies held in the joint names of the Society and the bank? Share Capital:

The Government Share Capital contribution received and the breach of terms and conditions stipulated by the RCS / Government in this behalf.

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Maximum Borrowing Power:

The adequacy or otherwise of the maximum borrowing power of the Society. Borrowings:

Did the DCCB take into consideration the NDR, value of annual production, sales turnover, the remittances into Cash Credit Account during the previous year while sanctioning / renewing the Cash Credit Limits? Whether the Society’s NDR was adequate to provide margin for its borrowings? Whether the percentage of margin was fixed as per the instructions of the NABARD? (i.e. 10% for normal/additional limit against pledge / hypothecation limits). Whether the stocks were valued as per age-wise classification. In case of deficits in margin, whether the deficits were covered by other admissible items? Whether the drawals from the Cash Credit Account reflected: cost of yarn, dyes, chemicals, etc., purchased and wages paid and the total repayments with the sale proceeds during the previous financial year? In case of deficits in cover, whether further operations were allowed on the Cash Credit Account and how long did the deficits continue? Did the Society submit a monthly stock statement to the bank regularly within the prescribed time limit? (While examining the stock statements find out whether the value of stock was shown at cost price or sale price and the norms prescribed for valuation of stocks were adhered to? Whether the rate of interest charged by the DCCB to the Society for pledge/hypothecation advances for Working Capital purposes conformed to the rate of interest prescribed by the National Bank? If the Society had been sanctioned any block capital fiancé (ie. For acquisition / modernisation of looms, construction of work shed, installation of new looms, etc.) the basis adopted for such sanction. Violations, if any, in the terms and conditions of sanction stipulated by the DCCB for block capital finance. Violations, if any, in the terms and conditions of sanction in regard to medium-term loans to members of the Society for purchase of shares in consumer type of Co-operative Spinning Mills, as stipulated by the DCCB. Whether the Society’s dues to the DCCB were covered under the Guarantee Scheme? (i.e. 90% Loss Guarantee Scheme, 90% Default Guarantee Scheme, Credit Guarantee Scheme of CGTSI etc.)

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(i)Was the Society maintaining cover for its borrowings (other than deposits) from other sources like NCDC, KVIC, etc? (ii) Violation of the terms stipulated by the credit agencies. Were there overdues under any category of borrowings as on date of inspection? If so, the amount and period of default and the steps taken to clear the default? Cash:

To verify Cash Balance as on the date of visit and bring out deficiencies, if any. Adequacy of arrangements for custody of overnight Cash Balance. Adherence to limit for retention of overnight Cash Balance vis-à-vis provision of Bye-Laws/Insurance Policies. Cost of Establishment: Whether the proportion of the establishment and contingent charges per month to the monthly turnover under sales was reasonable? (2% may be considered reasonable). Accounts: General quality of maintenance of important books of account like general ledger, cash book, personal ledgers, etc. If the society maintained any accounts (other than cash credit) with the DCCB, the need for maintenance of such an account. Audit and Supervision:

Bring out delays / deficiencies in regard to: Annual Audit of the Society. Submission of Compliance Report thereon. Periodical visits / Inspection by staff of DCCB / Department. Availability of technical guidance to and supervision over the Society on a continuing basis. Rebate Claims:

Whether the Society was prompt in submission of rebate claims to Government and the latter settled the claims within a reasonable period (say within 3 months)?

MDA Market Development Assistance(MDA) received and its utilization Interest subvention claims

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Annual General Body and Committee Meetings:

Whether Annual General Body and Managing Committee Meetings were held regularly as required under the By-laws or Act/Rules/Registrar’s instructions? The delays, if any.

Management:

Whether any of the Managing Committee members are in arrears to the Society in respect of return of finished goods or wage advances? Whether there were any Government nominees on the board? If so, were they taking active interest in the working of the Society? Staff:

Did the Society have whole-time paid Secretary/ Manager? If so, had he received any training? Balance Sheet:

Discrepancies/deficiencies, if any, in regard to important items in the Balance Sheet such as investments, long outstanding items under other liabilities, other assets, suspense, sundries etc. Miscellaneous:

Were there instances of misappropriation, embezzlement of funds? If so, give detail. Any other aspect which the Inspecting Officer consider important.

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ANNEXURE - VII

Financing Cooperative Marketing Society

1. Operations and Actives:

a. Particulars of any activity carried on in violation by Bye-Law provisions.

b. Approximate distance to the nearest regulated market or mandi and whether it was located within the area of operation of the Society?

c. Was the Society functioning as Commission agent in the mandi / regulated

market? It there was no regulated market/mandi, how the Society made arrangements for selling agricultural produce?

d. The principal commodities dealt with by the Society/sold in the mandi/regulated

market?

e. Links, if any, between the Marketing Society and the procuring agency operating in the area, e.g., FCI, Civil Supplies Department?

2. Membership and Share Capital: a. Provision in the Bye-laws for nominal membership and purposes for which persons

were admitted as nominal members. Was the provision misused in any way?

b. Receipt and utilization of Government Share Capital contribution for: i) Marketing activities ii) Processing activities

c. The effect of Government Share Capital contribution on the working of the Society

and violation, if any, of the terms and conditions of state partnership.

d. Refund of Government Share Capital contribution, if any. 3. Borrowings:

a. Type of Cash Credit Limits sanctioned by the DCCB to the Society and the extent and manner of utilization of the limits.

b. Compliance or otherwise with the terms and conditions stipulated by the bank in

regard to:

i) Submission of periodical financial and stock statements prescribed in respect of different types of credit limits.

ii) Proper compilation and submission of the prescribed statements / returns in time. iii) Maintenance of prescribed margins

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iv) Whether the borrowings from the bank under repledge finance were fully covered by the advances outstanding against its members.

4. Operational Deficiencies:

a. Admissibility of drawals on the basis of the available drawing power on the account?

b. If there were deficits in cover, did the bank allow further drawals on the limits? To

indicate whether the account was regularized thereafter.

c. If marketing finance was provided by the bank, whether the terms and conditions laid down by the bank had been adhered to by the Society?

d. Instances of misutilisation, if any, by traders, of concessional finance available to

the society from the bank.

5. Pledge Advances:

a. Who was authorized under the Bye-Laws /Board Resolution to grant pledge

advances and who was exercising the authority? Whether pledge advances granted are reported to the Board for ratification?

b. The margins prescribed by the Society for different commodities and adequacy

thereof?

c. Maintenance of prescribed margins while granting pledge advances and during the currency of the loans?

d. Whether the advances were outstanding against any individual in excess of the

prescribed ceiling in the Bye-Law / by the Registrar?

e. Was any advance granted / outstanding for more than the period specified in the Bye-Laws or say, 6 months?

f. Action taken by the Society in cases where members failed to redeem the stocks

before close of the period for which the advance was granted?

g. Effective custody of goods pledged by members.

h. Proper storage of the goods pledged.

6. Other Advances:

a. If the Marketing Society granted / advanced for other purposes to Societies / Individuals whether it was permissible under the Bye-Laws?

b. Whether the Bye-Law provisions were strictly adhered to?

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7. Outright Purchases:

In whom were the powers of outright purchase vested? Were they judiciously used? Were the Bye-Law provisions in this regard adhered to?

8. Distribution of Supplies:

a. If the Society was undertaking the distribution of fertilizer, pesticides, etc., was the procedure adopted by the Society for the distribution of fertilizer pesticides, etc., to members against authorizations from their credit Societies satisfactory? Where the sale proceeds promptly remitted to the Bank/Marketing Federation / Government?

b. Whether the fertilizer distribution business of the Society was affected owing to

competition from other agencies or by the inefficiency and ineffectiveness of the functioning of the Marketing Society itself?

9. Godowns:

a. Godown capacity available to the Society and its utilization.

b. Were the different types of commodities / stocks insured for their full value against risks such as fire, theft, natural calamities? If the Society had borrowed for any type of activity from the bank, were such policies in the joint names or with bank clause?

c. Was there any periodical verification of stocks owned / pledged with the society by the responsible officials of the Society?

d. To verify some of the stocks held by the Society as owner/ pledge and to bring out

deficiencies, if any.

e. Did the Society have old stocks of goods which had depreciated very much in value? What would be the likely loss if the goods were sold at the current market price?

10. Audit and Supervision:

a. When was the Society last Audited and for which year? What was the classification given?

b. Details of the assets considered by the Auditor / Inspecting Officer as bad /

doubtful of realization?

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11. Staff:

a. Was the Manager and other key personnel trained in Co-operative Marketing?

b. Was adequate security obtained from the members of the staff of the staff as per By laws/Rules/ Instruction of the RCS?

12. Accounts:

a. Did the Society maintain up to date all the prescribed books of account and registers? To bring out deficiencies / Shortcomings / Omissions in regard to maintenance of important books and records.

b. To examine the balance sheet of the Society as on the date of inspection and to

comment on important items of the liabilities and assets.

13. Any other Important Aspects.

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ANNEXURE – VIII

Financing Cooperative Processing Society – Sugar Mills

1. Efforts made to ensure that all sugarcane cultivators in the area of operation are enrolled as members.

2. % of Share Capital Contribution made by the Government to the paid up Share

Capital of the Mill.

3. What is the installed capacity of the Mill?

4. Extent of utilisation of the capacity of the plant.

5. Whether all members are supplying sugar cane to the factory?

6. Ascertain the actual sugar production made during the year of inspection- compare the production of the last 2 to 3 years. If any increase / decrease in production noticed ascertain reasons.

7. Any technical guidance / advice assistance is being extended by the Mill to

members to increase sugarcane production.

8. Number of days the Mill is expected to work as per the target fixed for the sugar year vis-à-vis the number of days actually worked – In case of variation ascertain reasons.

9. The sugar cane production in the area of the operation of the Mill is adequate /

inadequate-steps initiated by the Mill to procure sugarcane to make full utilization of the plant capacity.

10. Whether the instructions given by the Directorate of Sugar periodically are being

adhered to?

11. Verify the types of credit facilities availed viz., capital Investment and Working Capital requirement availed by the Mill.

12. Adherence to terms and conditions of sanction.

13. Verify whether the Mill has utilised the financial assistance to the full extent – In

case any under-utilization of the facility is noticed, ascertain reasons?

14. Verify the operations in Cash Credit Account maintained by the Bank with the Books of the Mill.

15. Verify the method of calculation of the Drawing Power.

16. Verify the payment of loan instalments and ensure that they are being made on

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due dates- In case of any defaults, steps taken to regularise the defaults.

17. Verify whether stock statements are submitted on due date i.e. in time?

18. Verify whether the value of stock has been arrived at cost price or sale price?

19. Whether the stocks shown in the stock statements included old and damaged stock?

20. Whether periodical verification of stocks has been done?

21. Verify whether any stock purchased on credit has been included in the stock

statement? If so whether it has been properly reported?

22. Whether adequate cover is available for borrowings after excluding ineligible stocks?

23. Verify whether storage facilities are adequate?

24. Verify whether proper Insurance cover is available for the stock held by the Mill?

25. Verify the advances granted to members and ensure that such advances are in line

with the terms and conditions stipulated in Bye-laws.

26. Verify the Demand collection, Balance position – and ascertain the overdue position. If any increase is noticed ascertain the reasons for increase – steps initiated to reduce ovedues.

27. Verify the purpose for which advances have been granted to Members and ensure

that the advances should be for the purpose other than the purpose for which PACS have granted.

28. Whether sugar mill is prompt in settling the cane dues to members?

29. Verify the quantum of dues pending for settlement.

30. Verify whether the Mill is adhering to the instructions of Director of Sugars. 31. Short margins, if any, in CC pledge A/c - frequency of such short margins. 32. Whether the mill was covered under the package, comments on restructuring

terms loan (status), interest subvention, etc.

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ANNEXURE-IX

NET DISPOSABLE RESOURCES (BORROWING UNIT)

A. INTERNAL RESOURCES

1) Paid up Capital including Government Share Capital Contribution.

2) Reserves - Statutory Reserves and all the funds of permanent nature viz., Special BDR, Price fluctuation fund, depreciation reserve, dividend equalisation and building fund (provided this fund has been utilized in construction of the building)

3) Deposits - Fixed Deposits accepted for business, security deposits from dealers,

and other type of deposit’s like sundries, suspense, etc.

4) Surplus, if any. B. COMMITMENTS

1) Minimum cash and Bank Balances.

2) Permanent Security Deposit with others.

3) Investments in shares of the Bank and other Co-operative Institutions.

4) Investments out of own resources in Fixed Assets.

5) Intangible Assets.

6) Accumulated losses, if any.

NDR = (A) – (B)

64

ANNEXURE – XI

INVESTMENT MANAGEMENT HOW TO ARRIVE AT THE SURPLUS FUNDS I. RESOURCES POSITION:

INTERNAL RESOURCES:

1) SHARE CAPITAL

2) RESERVES

3) DEPOSITS

4) UNDISTRIBUTED PROFITS ALM - Gap statements to find out surplus/ deficits

EXTERNAL RESOURCES:

1) BORROWINGS

2) OTHER SUNDRY LIABILITIES II. COMMITMENT:

1) MAINTENANCE OF STATUTORY CASH RESERVE RATIO AS STIPULATED BY RBI.

2) MAINTENANCE OF STATUTORY LIQUIDITY RATIO @ 25% OF NET TIME AND

DEMAND LIABILITY STIPULATED BY RBI.

3) LOANS AND ADVANCES.

4) INVESTMENTS.

5) INVESTMENTS IN FIXED ASSETS LIKE BUILDING, VEHICLES, FURNITURE AND FITTINGS, LIBRARY, ETC.

6) OTHER SUNDRY ASSETS.

THE SURPLUS FUNDS POSITION = RESOURCES MINUS COMMITMENTS.

65

DECISION MAKING FOR INVESTMETNS

1) LONG TERM RESOURCES (OWNED FUNDS) (+) LONG TERM DEPOSITS (MATURING

1 YEAR AFTER AND ABOVE) LESS 2) CRR 3% & SLR 25% OF NTDL

3) ARRIVE THE BALANCE

4) CALCULATE 25% OR 10% OF THE TOTAL DEPOSITS WHICHEVER IS LESS – THIS

AMOUNT CAN BE TAKEN FOR LONGER DURATION INVESTMENTS. ARRIVE SURPLUS

1) RESOURCES – COMMITMENT = SURPLUS

2) DIVIDE THE SURPLUS INTO MONTH WISE

3) BY GOING THROUGH THE MONTHLY STATEMENT YOU WILL FIND ONE COMMON AMOUNT IN ALL BLOCKS i.e.,

(Rs. in lakh)

JANUARY

FEBRUARY

MARCH

APRIL

MAY

JUNE

JULY

AUGUST

SEPTEMBER

OCTOBER

NOVEMBER

DECEMBER

6.00

7.00

5.00

8.00

9.00

6.00

7.00

6.00

5.00

5.00

6.00

7.00

RS.5.00 LAKH IS THE COMMON AMOUNT, OUT OF RS.5.00 LAKH, 80% CAN BE INVESTED IN LONG TERM INVESTMENT. III. BEFORE DEPLOYING THE SURPLUS FUNDS IN INVESTMENTS, THE FOLLOWING ASPECTS WILL HAVE TO BE LOOKED INTO:

(a) IMMEDIATE COMMITMENT FOR PAYING OF MATURED DEPOSITS (b) COMMITMENT TOWARDS ANY ADVANCES (c) PAYMENT OF INSTALMENT DUES/INTEREST PAYABLE UNDER BORROWINGS FROM

HIGHER FINANCING AGENCIES. (d) REASONABLE AMOUNT REQUIRED TO MAINTAIN LIQUIDITY FOR DAY-TO-DAY

OPERATIONS OF THE BANK. VI. AFTER EARMARKING ENOUGH FUNDS FOR IMMEDIATE COMMITMENTS AS REFERRED TO ABOVE, THE BALANCE SURPLUS FUNDS, IF ANY, CAN BE INVESTED IN LONG/SHORT TERM INVESTMENTS IN SECURITIES. V. HOWEVER, THE EARMARKED TEMPORARY SURPLUS FUNDS FOR THE ABOVE IMMEDIATE COMMITMENTS CAN BE DEPLOYED PROFITABLY IN CALL MONEY MARKET SO AS NOT TO KEEP THE FUND IDLE WITHOUT EARNING ANY REVENUE.

Chapter – 1

Books of Account and Internal Check & Control Systems

i) General quality of maintenance of various registers / ledgers and also other important registers / ledgers, if any, introduced by the bank (deficiencies / short comings should be brought out in the inspection report in brief indicating the name of the office in which they were observed).

ii) Various procedures adopted by the bank to protect itself from the

shortcomings, if any that may eventually result in loss.

iii) System of internal checks and control and to bring out shortcomings therein with particular reference to the following aspects:

a) Custody and periodical verification, by a responsible official of investments, securities, bills, parcels, vouchers, blank cheque books, unused stock of fixed deposit receipts / cash certificates / draft forms, pass books, godown keys, etc.;

b) Daily independent checking of previous day’s entries from vouchers;

c) Periodical balancing (preferably once a month or atleast once a quarter) of deposit ledgers, loan / overdraft / cash credit ledgers, bills purchased / discounted, pay orders, demand drafts, mail transfers, telegraphic transfers registers / ledgers, suspense and sundry deposit register, investment ledger, etc., by persons other than those writing them;

d) Balancing of books by surprise (atleast once a quarter) as may be ordered by supervisory officials of the bank;

e) Rotation of duties among the staff;

f) Long outstanding items pending adjustment / reconciliation in the suspense / sundry registers and bank accounts reconciliation register.

iv) MIS – its adequacy, usefulness. How the top management / Board uses the MIS.

v) Regularity or otherwise in submission of various statutory and non-

statutory returns to the Head Office / Regional Office. Chronic deficiencies including false reporting etc. should be pointed out return-wise with adequate details.

vi) Whether concurrent audit in place?

Chapter – 2 Deposits

1. Confirm that proper opening forms have been obtained for all the deposit accounts and scrutinised by the branch/bank.

2. Whether proper introduction has been obtained wherever required?

3. Whether the Branch is obtaining Confirmation of introduction?

4. Whether the Branch has made proper enquiries about the genuineness of the account holder? 5. Are proper Resolutions authorising the persons to open and operate the accounts obtained and filed in the branch/bank. Are the changes from time to time recorded and filed properly? Specimen signature files are kept in the custody of any officers.

a) Are the Specimen signature and photos scanned?

b) Whether the Branch Manager has signed in all the FD and

other deposit applications?

c) Whether the signature of the introducers is obtained in SB accounts?

d) Whether the nominations are obtained for all types of

accounts?

e) In case of minor’s account see that the proof of date of birth is obtained?

f) Whether the proof of date of birth is obtained for paying

additional interest to the senior citizens under all types of deposit?

g) In case of staff deposits, whether the declaration has been

obtained for paying additional interest.

h) Are the Standing instructions properly recorded in computers and followed?

i) Are the cheque book stock is updated in computers in the

custody of officer and issue register in order? Who is the custodian of these instruments?

j) Are Inoperative accounts, dormant accounts properly watched by the officers? The specimen signature (inoperative) cards are kept in Manager’s custody.

k) Are the rules regarding withdrawals from the CA/SB accounts

followed with cheque book facilities.

l) Are the following registers maintained comment: Cheque returned register, stop payment of cheques register, cheque book issue register.

m) Are any deposit RD, FD are paid before due dates? Was

interest paid as per rules?

n) Whether the branch has submitted the details of all types of unclaimed deposit accounts to HO at the end of the year?

o) If the term deposit is not renewed, the same is transferred to

matured deposit account on the same day?

p) Whether the print outs of due date diaries is taken out and filed and updated monthly/quarterly as per HO circular?

q) Whether matured deposits are paid/renewed as per latest

RBI guidelines?

r) Are the standing instructions relating to joint deposits, company deposits, minors’ deposits etc., noted in the application and in computer?

s) Are the interest calculation on all types of deposits properly

done and checked? Monthly interest in FD’s paid at discounted rate?

t) Comment on any term deposit exceeding Rs.20,000/- paid

over the counter?

u) Verify any death claim is received during the inspection period settled early and as per rules properly.

v) Any complaint lodged by depositors to the branch is properly

dealt with?

w) Confirmation of balance are obtained by the depositors? Any differences are observed?

x) Whether Minimum balance is maintained to claim insurance benefit by the depositor in SB Accounts?

y) Whether the branch has transferred all the unclaimed

matured deposits of more than 10 years to HO?

Adherence to KYC Norms

a) Branches are expected to act with due diligence and adhere to appropriate Know Your Customer (KYC) norms/guidelines at the time of opening accounts and permitting high value transactions through such accounts. Give the particulars of violation of KYC norms, if any. b) Confirm that permanent account No. [PAN], or form No./60-61 is obtained for running accounts viz.,/ Current account Savings Bank account or Overdraft account. This is applicable to all types of customers like individuals, firm, Company, Trust, Association, Society, etc. and accepting a term deposit above Rs.50,000/-. In case of renewal matured term deposits also confirm that PAN / or declaration in Form No.60/61 is obtained.

c) Verify whether any document is produced to confirm the correctness of the address before opening the account?

d) Verify whether the branch is making independent confirmation of the address of the account holder?

e) Verify whether branch follows instructions with regard to obtaining of photographs for opening accounts?

f) Verify whether branch is ensuring that the customers are introducing only genuine persons known to them and displaying this caution in the notice board of the branch as per guidelines?

g) Verify whether operational instructions, cheque series, address and other particulars have been noted in the Ledger/ Register?

h) Whether closed account opening forms are removed and filed separately?

I) Verify whether all new accounts are properly authenticated.

j) Confirm that the branch is destroying the unused Cheque books/leaves of closed accounts and endorsement to this effect is made in the respective ledger folios.

k) Verify whether the customer's standing instructions are carried out properly?

l) Verify whether the incidental charges are collected for non-maintenance of minimum balance?

m) Verify whether the branch is charging the incidental charges half yearly in case of current accounts? n) Verify whether any of Bank Employees is operating third party account on power of Attorney without prior permission from Competent Authority. o) Comment on the issue of cheque books and verify whether:-

1) Confirmation has been obtained in case the cheque books are

issued through third persons.

2) Issue of cheque books, is properly regulated and the signature on the requisition slip is verified before issuing them.

3) In case cheque books are issued against other than requisitions

slip, whether proper care is exercised.

4) Comment the maintenance of cheque books register.

p) Comment on maintenance of the stop payment Register.

q) The Inspectors should comment on maintenance, preservation, and renewal of the signature cards and verification of drawer's signature on cheques before passing and affixing the seal thereon to the effect.

r) The inspectors have to ensure that the deducting of income tax on interest paid to non-resident accounts and domestic deposits, applicable cases as per guidelines issued.

s) The Inspectors should at random check the interest paid on various deposits periodically/on maturity and confirm that the rate applied and the calculations made are in order.

t) Verify the control exercised over non-operative current accounts, and savings bank accounts. Whether such accounts are periodically transferred to separate ledgers and necessary control has been exercised as per the guidelines.

u) Whether the branch maintains a register for recording details of cash deposits/withdrawals Rs.10.00 lakh and above. Whether the transactions are reported to controlling office/ Head office on a fortnightly basis. v) Whether any counterfeit currency was detected and if so, whether it has been reported to HO promptly?

Achievement of Deposit Targets, and other operational aspects

1) (a) Examine the achievement in mobilizing deposits vis-à-vis target fixed during the last 3years and also progress made by the branch in the current year.

(b) Discuss and comment on the performance, keeping in view the potentialities of the centre, customer service offered by the branch and the motivating role played by the Branch / Head office in securing involvement of the staff members in this endeavour etc.

2) Enquire about the performance of other Banks functioning at the

centre and compare with that of the branch performance Comment on the market share in business of the bank.

3) Examine if there is any particular area not explored by the branch in

Deposit mobilisation.

4) In case, inspectors come across clear case of "Window Dressing" at the year end, a detailed note on the same may be prepared with remarks of the Manager.

5) Proportion of High cost/ Low cost/ Zero cost deposits to the total

deposits of the bank.

6) Efforts made by the bank to tap deposits from local bodies - Quasi Government, institutions, charitable institutions, clubs/ Association etc.

7) Whether the rates of interest allowed by the bank on various types of

deposits are inconformity with the relative directives issued by RBI/NABARD/Head office etc.

8) Whether the account opening forms and specimen signature cards duly

authenticated were filed separately and maintained in custody?

9) Whether the bank issued balance confirmation letters/Statement of accounts to the current account holders regularly?

10) Action taken on countermanding payment of cheques by the

bank.

11) Procedure followed by the bank in regard to cheques causing overdraft in current accounts.

12) Whether the bank insisted on production of pass books by

depositors when drawals were allowed through withdrawal forms?

13) Whether the paid fixed deposits receipts were discharged properly?

14) Ensure that while paying/ receiving cash the KYC norms are

strictly adhered to?

15) Maintenance of due date diary of fixed and short term deposits accounts.

16) Issue of notices to the depositors well in advance soliciting their

instructions.

17) Efforts made by the bank to ensure that the borrowing societies invested their Reserve Fund with the bank.

18) Whether the bank was preparing the returns correctly and sending them to DICGC promptly?

19) If target is not achieved, what are the attempts made by the

branch/bank to achieve the target? Any service or programmes like customers meet etc. are arranged?

20) Any staff member does the field work to contact depositors? What are the efforts made by the Branch Manager, involvement of other officers and clerks?

21) What is the suggestion of Inspecting Officer to increase deposit

in this branch/ bank? 22) Are all types of deposit accounts viz., SB, CA, RD & Term

Deposit, etc., are balanced monthly and verified by the officers? Balancing of accounts are pending? Reason for this pendency, test check some balanced accounts.

Current Accounts

1) Verify whether appropriate account opening forms with all requirements are obtained?

2) Confirm whether PAN or form No.60/61 is obtained while opening new

Current account?

3) Issue of balance confirmation letter to current account holder at random to the extent of 5% to 10% of the outstanding accounts.

4) Furnish details regarding over drawals allowed in excess of the

discretionary powers, allowing of frequent over drawals to certain parties etc.

5) Verify whether the over drawals allowed are noted in the over drawal

register, duly signed by the sanctioning authority. Whether approval obtained/ sought for over drawals in excess of the discretionary powers?

6) Verify operations in newly opened accounts and comment on unusual

transactions.

7) Confirm that the branch is following the instructions to exercise caution in allowing operations/opening new accounts to prevent frauds/ hawala / transactions, money laundering and such other unlawful activities.

8) Confirm collection of service charges / incidental charges and service-

tax wherever applicable.

9) Verify whether interest on the debit balances in accounts is debited as and when the account comes to credit?

Savings Bank Accounts

1) Verify whether appropriate account opening forms with all requirements are obtained?

2) Verify in case of minors' accounts whether the date of birth have been

obtained and recorded in the ledger.

3) Confirm whether PAN or form No. 60/61 obtained while opening the account.

4) Whether the branch has opened the accounts in the names of Proprietorship / Partnership/ Limited Companies/ Associations. Payment of interest, are not permitted for Government Department / Bodies, payment of interest is permitted, provided the funds received in the account are not through Budget allocation? Verify for violations of guidelines.

5) Verify whether the branch has followed the instructions contained in

the RBI circular dated 18 February 2009 in case of accounts not operated for more than one year.

6) Verify whether the ledgers having inoperative accounts and their

specimen signature cards are held under the custody / lock and key of the authorised officer.

7) Confirm that the withdrawals from the inoperative accounts are

permitted by the Branch Manager/Authorised person only. Test checks cash withdrawals with the specimen signatures to ensure that the money has been withdrawn by authorised persons only.

8) Verify whether inoperative interest earning accounts have been

identified as per guidelines?

9) Verify the issue of confirmation letters to about 1% of total number of accounts.

10) Verify whether branch is ensuring maintenance of minimum

balance in all accounts and levying service charges / service tax for non-maintenance of minimum balance.

11) Verify operations in newly opened accounts and comment on

adherence to KYC norms and / unusual AML transactions.

12) Verify whether the staff members have intimated the bank in writing, about opening / maintaining accounts with other banks as well as with branches other than their branch of posting.

13) Examine the Savings Banks Accounts of employees and report if

there are any unusual transactions or conduct of the account. 14) Whether nomination was indicated in the pass book? 15) Examine whether interest is calculated on the daily balance

basis as per the RBI instructions.

Term Deposits and Cash Certificates

1) Confirm whether PAN/ Form No. 60/61 is obtained while accepting a term deposit above Rs.50,000/- .

2) Confirm that the maturity value has been verified before payment, to

ensure payment of correct amount due to the depositor.

3) Verify whether the branch has diarised the maturity dates of the term deposits. Are the deposits intimated of the maturity dates in advance?

4) Is the branch transferring the term deposits to Matured Deposit

accounts on the respective due dates?

5) Whether the interest rates recorded are correct and the application of interest is done correctly?

6) Whether the accrued interest on cash certificates is recorded in the

register?

7) Confirm that the renewal of Overdue Term Deposits is made as per the guidelines issued from time to time.

8) Verify whether the branch has taken effective steps for renewal of the

long pending items in Matured Deposit accounts or for transferring them to Dormant Deposit account?

9) Verify whether the branch is deducting income tax at source on

interest on term deposits and the tax is remitted promptly in cases where 15G form is not submitted?

10) Verify whether the form 15G accepted are being forwarded to

the Income Tax Authority duly filled for every financial year?

11) In case of Bulk deposits (where rate of interest is negotiated), the same are to be examined and commented.

Dormant Accounts

1) Confirm that all items outstanding for more than 3 years under

unclaimed deposit, matured deposit and balances in inoperative accounts remaining dormant for more than 3 years are transferred to Dormant Deposit account at the Branch.

2) Verify whether the payments from the dormant accounts have been authorised by the Manager/ Authorised officer?

3) Verify that balancing of dormant deposit accounts is extracted by

referring to individual account and alternate set of balancing books are maintained and balance is extracted by the staff member other than the staff handling the ledger accounts of Dormant Deposit Head.

4) Confirm that balancing extracted is tallied with balance in the General

Ledger maintained for Dormant Deposits.

5) Scrutinise the Dormant Deposits Repaid Accounts register and comment on the lapses/ deviations noticed if any.

6) Verify whether a statement has been submitted in respect of dormant

accounts which have not been operated for the last 10 years, at the end of each calendar year to RBI as per Sec.26 of the Banking Regulations Act. 1949, statement to be sent to Head Office.

Reporting has to be such that deficiencies which can be rectified on the spot are rectified and only outstanding items are reported.

Chapter – 3

Advances

LEGAL ASPECTS OF ADVANCES AND DOCUMENTATION

1. Identification of the Borrower by the Branch beyond any doubt by proper introduction, photograph etc.

2. To ensure that the borrower is competent to enter into a legal

contract.

3. In respect of a partnership firm, a copy of the Partnership Deed is to be obtained and held on record and ensure that the amounts borrowed by the firm are for the purpose of carrying on the firm's business as stated in the deed.

4. In respect of credit facilities to Companies, the following points have to

be examined.

a) Whether the company is a Private Limited Company or a Public Limited Company?

b) That the Company has submitted the following:-

� Certificate of Incorporation, in respect of Private Ltd. Company.

� Memorandum and Articles of Association.

� List of Directors and Managers.

� Names of the persons authorised to operate the Bank

account.

� Names of the persons authorised to execute the documents.

� Names of the person in whose presence the common

seal of the company will have to be affixed to the documents.

� Names of the persons authorised to deposit the title

deeds.

� Certified copy of the resolution seeking credit facilities

from the bank.

c) Whether the credit facilities sought are within the borrowing powers of the company as restricted by its Memorandum or Section 293 (1) (d) of the Companies Act, 1956?

d) Whether the borrowing is for the purpose of achieving the objectives of the company as stated in the Memorandum? Otherwise the contract will be unenforceable at law and ultra vires.

e) Whether the Branch holds on record a resolution passed by the Board of Directors certifying that the borrowings including the proposed borrowings by the company are within the limits specified by the Memorandum / Companies Act or the limit sanctioned by the shareholders at the General Body Meeting?

f) In case, a Company has offered its guarantee, whether the Company is expressly authorised by its Memorandum to stand a guarantor and the guarantee has been offered only after a resolution was passed by the shareholders and also a specific resolution was passed by the Board of Directors?

5. Whether in respect of advances to Societies, the bye-laws have been

studied. Borrowing powers have been ascertained, resolutions by the Managing Committee have been passed?

6. Whether a No-objection letter ceding second charge has been obtained

from the First Charge holder?

7. Whether a letter ceding Pari Passu charge has been obtained from other financial institutions?

8. Whether the borrower(s) / guarantors have duly acknowledged the

Sanction letter and copy thereof is held by the Branch along with the document?

9. Whether, in respect of advances to Companies, the terms of sanction

conveyed by the Bank have been accepted by the Company by means of a resolution passed by the Board of Directors?

10. Whether all the documents have been adequately stamped and

properly cancelled prior to execution of the document?

11. Whether search at the office of the Registrar of Companies was carried out to rule out any prior charges over the assets/properties charged/mortgaged to the Bank?

12. Whether Search of the Register of Charges maintained by the

Company in terms of Section 143 of the Companies Act, 1956 was carried out to cross-check the particulars of the prior charges registered with the Registrar of the Companies under section 125 of the Companies Act and also to ascertain the particulars of other charges like pledge etc.?

13. When immovable property was offered as security, whether search

was carried out at the Registrar of Assurances to rule out any prior mortgages/charges?

14. Whether Encumbrance Certificate was obtained.

15. Whether clearance from the legal advisor was obtained before creating

the mortgage and the property was physically inspected by the branch functionaries?

16. Whether Mortgage has been properly created? Whether in respect of

Simple mortgage obtention of Mortgage Deed duly attested by two witnesses has been ensured.

17. Whether in respect of Equitable Mortgage, deposit of only Original Title

Deeds by the owner of the property or by his authorised agent, creation of mortgage at a Notified Centre, entry of particulars in the Title Deeds Register and confirmation letter from the Mortgagor dated subsequent to the date of deposit having deposited the Title Deeds by means of a Registered Post have been ensured?

18. The following points are to be adhered to by the bank while obtaining

the documents.

a) That no amount was released until all the requisite documents were properly executed by all the parties concerned including the guarantor;

b) That the documents were executed in the presence of the Branch Manager or any other Officer of the bank so as to be able to identify the borrower(s)/ guarantor(s) personally

c) That all the blanks filled up were authenticated by the borrower under his initials.

d) That each document and schedule attached thereto were completed in one sitting and in the same handwriting.

e) That all types of cuttings, deletions, additions, alternations, modifications etc., were authenticated by the borrower under his full signature.

f) That the documents were executed in the Branch premises and that the date and place of execution was mentioned by the borrower under his full signature.

g) That in case of an illiterate borrower, the contents of the documents were explained to him in a language that he could understand.

h) That the borrower has signed in full and in the same style throughout all the documents.

i) That if a borrower had signed in left hand, a small note was annexed to the document recording that the borrower had signed in left hand.

j) That the borrower's full signature was obtained in each page and also across the fold of the document in such a manner that the signature runs on both the pages.

k) That the borrower's full signature was obtained at the end of each document and also at the end of each schedule attached thereto.

l) That in case there was a change in the ink or pen, a suitable endorsement was recorded at the same point in the document under the full signature of the executants.

m) In case of documents to be executed by Companies, it is essential to ensure that the seal is affixed as required by the Article of Association.

n) That the documents taken were entered in the Documents Execution Register, wherever necessary.

o) That the documents were executed by the borrowers in the proper manner appropriate to their status/capacity.

p) That in respect of Partnership Firm, all the partners have signed all the documents and that all the partners have also signed individual guarantee agreement.

q) That the date on the Promissory Note and the date on other documents is the same and that the documents were taken on the Bank's standard forms wherever available and never on Photostat copies.

19. Whether as a post-sanction follow-up in respect of simple mortgage,

Mortgage Deed was registered with the Registrar of Assurances within four months from the date of its execution?

20. Whether in respect of Company advances, charge was created with the

Registrar of Companies under Section 125 of the Companies Act together with the instrument if any, creating or evidencing the charge within 30 days of creation of charge.

21. Whether the Branch has adequately insured all the assets including the

collateral security charged to the bank and that the Policy is in the joint names of the Borrower and the bank?

22. Whether the Insurance Policies have been taken with "Bank Clause"

wherever the policies were taken solely in the name of the borrower?

23. Whether the Branch has obtained periodical Search Reports from the Office of the Registrar of Companies and/or Registrar of Assurances after release of the amount during the time of review or renewal?

24. Whether the Branch has obtained Revival Letter/Balance confirmation

at periodical intervals?

25. Whether revival letters were obtained before the expiry of limitation period as revival letters obtained after expiry of the limitation period will not revive the documents.

26. Whether revival letters were obtained even in case of Term loans

within three years from the date of execution to keep the borrower's personal liability in tact so that the bank can also proceed against the other personal assets of the borrower?

27. Whether revival letters were obtained from both the borrowers and the

guarantors or their duly authorised agents to extent limitation against both of them?

28. Whether in case of Joint borrowers, revival letters were obtained from all the joint borrowers, to extend the limitation against each one of them?

29. Whether in case of more than one guarantor, revival letters were

obtained from all the guarantors, to extend the limitation against each one of them.

30. Whether in case of time barred documents, the Branch has obtained

fresh documents and DP Note for the balance outstanding as on the date of execution of fresh set of documents with fresh guarantee deed from the old guarantor, if possible, or from a new guarantor as the case may be?

31. Whether the Branch had obtained agreements on a proper stamp

paper from the legal heirs of the deceased borrower/guarantor to keep the documents alive?

32. Whether the Branch is maintaining the record of due dates of

documents for timely obtention of revival letters so that the bank's interest is not jeopardised?

33. Whether the pay-in-slips (credit vouchers) paid into the bank as part

payment before expiry of the limitation period were duly signed by the borrower-or by his authorised agent in order to extend the period of limitation?

34. Whether the adhesive stamps were duly cancelled by the Branch

Manager to ensure that they cannot be used again?

35. Whether the contents of the documents were typed on the reverse side of the Non-judicial stamp papers?

36. Whether the revenue stamps affixed on a DP note were properly

cancelled by signing across the stamp by the executants failing which the document becomes invalid?

37. Whether attestations were obtained for all mortgages from two

respectable persons and their addresses recorded along with their signatures?

38. Whether the stamp papers were purchased by the executants in their

own name?

39. Whether the date of document is always subsequent to the date of purchase of the stamp paper (or date of embossing of adhesive stamps)?

40. Whether the suits were filed in a court which has proper territorial and

pecuniary jurisdiction?

41. Whether all suit filed accounts are being properly followed-up with the advocates.

42. Whether in respect of Mortgage suits, application for Final Decree have

been filed wherever courts have granted Preliminary Decree within the limitation period?

43. Whether the Branch has filed EPs in respect of all decreed accounts?

44. Whether the Branch has filed suits within the period of limitation as

applicable to various types of documents? Loans and Advances to :

(a) Primary Agricultural Credit Societies (PACS) (b) Primary Handloom Weavers Coop. Societies (PHWCS) (c) Cooperative Sugar Factories (CSF) (d) Other types of societies such as Salary Earners Cooperative

Societies, Marketing/Processing Societies etc. Various aspects to be looked into are indicated in Annexures to guidelines for inspection of DCCBs. Crop Loans

Operations on the ST (SAO) credit limits sanctioned to various societies coming under the jurisdiction of the branch with particular reference to the following : 1) Preparation and submission by the societies of NCL statement and

drawal applications by the PACS to the branch, 2) Whether all the borrowers of crop loans were issued KCC by the PACS?

If not, the reasons and the extent to which covered under KCC? 3) Whether the drawals of KCC were allowed by branches of DCCB or by

PACS only. If farmers were allowed to operate KCC branches, whether

‘mirror’ account was maintained in PACS. The efficacy of the system including the margin sharing may be examined and commented upon.

4) Was there any restrictions by the bank / societies in the disbursement

of cash component? Whether farmers allowed to take kind component in cash subject to production of vouchers and how the same was ensured by the branch ?

5) Whether there was undue delay in disbursement of loans to members

of societies and making payment/adjustment at the bank's level in respect of the fertilizers and other inputs supplied by marketing societies/other agencies to the PACS on behalf of borrowing members?

6) Disparity in the scales of finance and actual disbursements-Specific

reasons may be ascertained and commented in cases where the banks had higher scales of finance but disbursements were made at a very low level.

7) If the share croppers/tenants/oral lessees etc., were financed for SAO,

whether they were financed on the same scales of finance as fixed for owner cultivators? If not, the basis adopted/steps taken by the bank for financing such cultivators.

8) Examine the system of financing Joint Liability Groups (JLG) and bring

out the deficiencies observed. 9) Norms of security prescribed/followed by the bank of financing

members of societies for SAO. Limit for issue of surety loan for SAO and its adequacy vis-a-vis the requirements of the cultivators in the area according to the scales of finance fixed by the bank.

10) If the scheme of linking of credit with marketing had been introduced

by the bank in its area of operation, effectiveness or otherwise of its working (with relevant figures of recoveries effected through linking arrangements, etc., and concrete suggestions for improvement, if the arrangement is not effective).

11) Examine whether the branch has ensured that the finance by the PACS

to the notified crops in the notified areas are covered under the Crop Insurance Scheme, collection of premia from the PACS, prompt reporting to HO and settlement of claims if any.

12) On receipt of claim amount, whether PACS had worked out the actual

amount of claim relating to each of the loan accounts covered by the claim and credited the amounts to the respective accounts?

13) Examine as to how the insurance claim received has been adjusted at

CCB and PACS level. Whether the adjustments were in conformity with the objectives of the scheme/instructions issued by National Bank/GOI?

Interest Subvention Scheme of GoI

• Whether the branch had ensured that the interest charged on crop loans by the societies to the ultimate borrowers was as per the Interest subvention scheme of GoI.

• Whether the branch has compiled the claims for interest subvention correctly and discrepancies, if any, observed.

Chapter – 4 INSPECTION OF LOANS AND ADVANCES UNDER RETAIL CREDIT

SCHEMES

1. ADVANCES AGAINST DEPOSITS 1. Verify all loan documents and they are properly obtained, stamped and

executed. Confirm that document contain discharged deposit receipts.

2. Verify at random, the lien noting on the deposit receipts as well as in the ledger and confirm that they are authenticated by an officer.

3. Verify whether any loan as been granted against the deposit of other

branches and the branch is holding proper lien acknowledgement letters?

4. Verify whether any loan has been granted against Term Deposit issue

from the Compensation amount awarded by any Tribunal and / or court with specific instruction?

5. Weather Deposit Section Officer is verifying the signature of the

Depositor and Officer verifying it has authenticated it with full signature for having verified the signature?

6. Confirm that all closed Loan accounts are authenticated with full

signature by the officer.

7. Verify whether any advance is continuing where the deposit remains unadjusted towards the outstanding even after maturity of the deposit?

8. Verify that the branch is maintaining the required margin as per the

guidelines.

9. Verify whether the balance exceeds the permissible limit?

10. When loan is arranged against Minor’s deposit, the purpose of the loan is to be indicated by the Guardian and he has to certify that the advance is for the benefit of the Minor / for meeting the necessities of the Minor. Verify loans against Minor’s deposits and confirm that the branch is following guidelines.

11. When Term Deposit is with drawn before completion of a minimum

term period interest at commercial rate as communicated from time to

time shall be charged on the advances granted against such Term Deposits. Confirm branch is obtaining undertaking letter from borrower agreeing to pay normal rate of interest on Loan / Overdraft in such cases.

12. Verify at random the closed Loan / Overdraft account documents to

confirm that there are no fictitious advances arranged.

13. Verify branch is reporting all the Loans / Overdrafts sanctioned against third party Deposits over a certain amount to Head office as per the policy and check the rate of interest on such advances is being charged as per the guidelines issued.

14. Whether the Deposit is the refunded at reduced rate of interest before

maturity, interest on Loan / Overdraft shall be charged the prescribed rate. Test check whether the branch is allowing the concession?

15. As per RBI directives Loans and Advances cannot be granted against

securities on composite basis. Verify from the branch for compliance. 16. In case of deposit standing in joint names, irrespective of the

conditions regarding repayment, all the parties to the deposit should discharge the deposit receipt and sign all the papers and documents be executed by borrowers. Verify such account for compliance.

17.Verify whether the Interest and penal interest have been collected as

per the terms and conditions from the borrowers periodically 2. ADVANCES AGAINST COMMODITIES UNDER PLEDGE

1. Verify whether the movement of keys is properly recorded in the Key Custody Register?

2. Whether the duplicate set of godown keys duly sealed are held under dual control?

3. Confirm holding of the original invoices / lodgement letters and properly executed Delivery Orders.

4. Confirm that the goods pledged are fully paid for.

5. Verify delivery goods is against payment and not against pledge of goods.

6. The value of the goods pledged is as per the invoices and the invoices are in the borrower’s names.

7. Whether proper stipulated margin is maintained?

8. Confirm that the pledged goods values are not inflated to accommodate excess drawing power.

9. Identify the accounts secured by long outstanding unsold / stale / obsolete stock. Furnish the steps taken by the bank / branch to close such Loans.

10. Examine the suitability of the godown.

11. Confirm that the Bank’s Name Plate is displayed.

12. Whether letter of access is obtained wherever necessary?

13. Verify whether the goods pledged are properly stored and identifiable?

14. Carry out a test check of weight, contents and quality of goods pledged in the presence of the borrower or his representatives.

15. Confirm that there are no other goods / stock stored in the godown other than the goods pledged to the bank

16. Verify whether godown chart and godown register are maintained and it is up to date?

17. Whether the drawing power is revised and recorded from time to time?

18. Verify whether advances against commodities like cotton, tobacco requiring licence / permits for dealings/ storing / transportation are obtained and held with the bank / Branch?

19. Confirm that the goods pledged are properly insured and bank’s interest is noted in the Insurance Policy.

20. Ensure that the description of goods and godowns agrees with that mentioned in the policy.

21. Verify whether the branch is maintaining market report book for local commodity and recovering the additional margin whenever the prices fall?

22. Verify whether the locks used have the bank’s name engraved there on?

23. Confirm by test check that the goods pledged are as permitted in the sanction.

24. Whether the branch conducts surprise visits to the godown?

25. Confirm whether all the borrowers under the scheme have been admitted as Associate Members of the bank

26. Quantity in the godown and size of the godown – any mismatches to be seen

27. Verify whether the Interest and penal interest have been collected as per the terms and conditions from the borrowers periodically

3. ADVANCES AGAINST COMMODITIES UNDER HYPOTHECATION

1. Verify whether the drawing power is properly fixed by taking

into account paid stock as per stock statement on monthly basis?

2. Ensure that there is no inflated valuation of stock to

accommodate fixing of higher drawing power.

3. Ensure that the stock shown in the stock statement do not cover unpaid stock, stock which are already under pledge, stocks covered under letter of credit unpaid and stock of no value.

4. Verify whether the stock declared in the stock statements match

with that shown in the financial statement, whether the description of the hypothecated stock is given in stock statements?

5. Test check the goods hypothecated with the invoices stock

books and confirm that they are in order and up to date.

6. Confirm that the goods hypothecated are fully paid for.

7. Verify Whether physical verification of stock is done periodically with reference to stock statement and stock registered and duly authenticated by officer verifying in the stock?

8. Confirm that the goods hypothecated are insured for the full

value as per the guidelines.

9. Whether the Insurance Policies are renewed regularly on due date?

10.Whether details of policy are recorded in Insurance Policy

register?

11.Verify whether the policies are assigned to the bank/ bank’s lien is noted on the Policies?

12.Whether the location of the go down is correctly stated in the

policy?

13.List out cash credit accounts where the turnover in the account is not satisfactory.

14.Verify the stock statement obtained by the branch/bank and

comment on promptness in obtaining stock statement, levying of penal interest for non submission. Whether columns of stock statement are properly filled up?

15.Comment on turn over in the account and stock statement.

16.Confirm whether all the borrowers under the scheme have been

admitted as Associate Member of the bank 17.Verify whether the Interest and penal interest have been

collected as per the terms and conditions from the borrowers periodically

4. VEHICLE LOAN

1. Verify whether the branch holds the following papers / document?

a) True copy of the R.C with Bank’s Hypothecation charge duly noted there in.

b) Copy of the valid route permit (for public vehicles)

c) Valid comprehensive Insurance Policy with Bank clause included.

d) Duplicate Switch key or letter in lieu thereof.

e) Original Invoice Stamped Receipt and / or valuation report (for second hand Vehicle)

f) whether clause of hypothecation recorded in RC.

2. Verify whether loan proceeds are released specifically to the seller / supplier of the Vehicle and obtained acknowledgement from the borrower?

3. Whether the latest Vehicle Inspection Report is on record?

4. In case of default in payment of installments whether the branch makes arrangement to seize the vehicle.

5. Confirm whether all the borrowers under the scheme have been admitted as Associate Members of the Bank

6. Verify whether the Interest and penal interest have been collected as

per the terms and conditions from the borrowers periodically 7. Whether the branch had conducted periodic verification of the

condition of the vehicle ? 5. ADVANCES FOR MECHANISED BOATS / TRAWLERS / DEEP SEA

FISHING VESSELS

1. Confirm that the branch is holding the following papers / documents

a) Registration Certificate showing the Bank’s lien.

b) Certificate of Registration issued by the Port Authorities.

c) Certificate of Registration of mortgage / hypothecation charge.

d) Certificate of Life of the Boat / Trawler / Vessel

e) Sea worthiness certificate.

f) Valid Marine / Fire Insurance Policy with Bank clause and risk of Insurance with partial losses clause stipulated.

g) Periodical inspection report.

2. Verify whether the release of fund is made specifically to the suppliers of Boat / Trawler / Vessel?

3. Confirm that the subsidies from the Government are received in all

eligible cases and they are duly appropriated to the loan dues.

4. Confirm whether all the borrowers under the scheme have been

admitted as Associate Member of the Bank. 5. Verify whether the Interest and penal interest have been collected as

per the terms and conditions from the borrowers periodically 6. LETTER OF CREDIT – CREDIT FACILITY

1. Whether letter of credit facility is sanctioned after duly processing the credit needs of the unit / borrower along with over-all working Capital / Term Loan requirements.

2. Verify whether the LCs are supported by sanction?

3. Whether all the terms / conditions of the sanction are complied with. If

not, identify the cases, reasons there of / approval sought / obtained etc. and report?

4. Verify whether the LC register has been properly maintained and the

outstanding entries therein have been periodically balanced and tallied with the General Ledger?

5. Verify whether the bills under LCs are retired promptly on presentation

of bills / on arrival of goods. If not identify the cases and steps taken to realize the bills?

6. Verify whether the expired LCs are squared up in the books and the

contingent liability is reversed after observing formalities in this regard?

7. Whether the dates of expiry of LCs diarised and action taken to

reverse the expired LCs?

8. Ensure that the margin money is refunded only after all the bills drawn under the LC are received and retired.

9. In case of goods directly supplied to the buyers under special

arrangements (Heavy machinery), verify that the necessary letter of under taking has been obtained from the buyers and credit provides for prompt advice regarding despatch of goods by the beneficiary directly to the opening branch.

10. In case of revolving letter of credit, verify whether a clause to the

effect that the amount of the credit will be restored only on receipt of

advice from the opening branch that the earlier bills have been paid, is included in the terms of condition of the letter of credit.

11. Comment on arrangement made, such as, sanction of credit facility

earmarking in current account for clearing liability under LC on presentation of documents etc.

12. Confirm whether all the borrowers under the scheme have been

admitted as Associate Member of the Bank. 13. Verify whether the Interest and penal interest have been collected as

per the terms and conditions from the borrowers periodically 7. UNSECURED ADVANCES

1. Confirm that the over drawals allowed are as per the HO instructions/ procedure, if not, identify the cases and report separately.

2. Verify and list out the parties who are frequently enjoying the clean

loans, over drawals in current account exceeding in Over Draft account disproportionately and beyond the limits of discretionary powers

3. Confirm that the clean loans, over drawals in current account,

exceeding in Over Draft accounts are not arranged / allowed to meet the margin requirement under other secured advance to the borrower, other parties / sister associate concerns related interse.

4. Confirm that the register of over drawals is maintained on the lines

prescribed and it is up to date.

5. Whether exceeding beyond discretionary powers are reported separately to controlling authority?

6. Verify whether the request letter of over drawals is obtained and

permission recorded therein?

7. In case of demand loans verify whether the branch has sanctioned the same after assessing repayment capacity of the borrowers. Confirm documentation as prescribed is obtained in all cases?

8. Confirm whether all the borrowers under the scheme have been

admitted as Associate Member of the Bank. 9. Verify whether the Interest and penal interest have been collected as

per the terms and conditions from the borrowers periodically

8. ADVANCES AGAINST GOVERNMENT SECURTIES / NSC

1. Ensure that the signature of endorsers tally letter to letter with the name/s of endorsees in previous endorsements.

2. If there are too many endorsements, insist on renewal of securities by

sending them to Public Debt Office of the RBI. 3. Whenever a customer approaches for loan against G.Secs held in

demat after ensuring that the same can be taken as security as per HO guidelines, verify whether the branch has complied with all HO guidelines.

4. Verify whether NSC taken as security has been transferred in the

name of the Bank and Lien is noted in Bank’s favour before releasing the loan / overdraft? Verify that proper margin is maintained.

5. Verify whether all the joint holders of the NSCs have signed the

borrowing documents?

6. Verify whether interest is collected on Government Securities promptly and a register is maintained for issuing income tax deduction certificates?

7. Verify whether interest is collected on NSCs periodically whereever

applicable and steps taken to adjust the same to loan account on due dates?

8. Verify whether on the date of maturity, the Head Office/Branch has

made arrangements to collect the proceeds of NSCs and adjusted towards loan account? Ensure that Head Office / Branch is maintaining due date register.

9. Confirm whether all the borrowers under the scheme have been

admitted as Associate Member of the Bank 10. Verify whether the Interest and penal interest have been collected as

per the terms and conditions from the borrowers periodically

9. ADVANCES AGAINST SHARES, DEBENTURES AND UNITS OF MUTUAL FUNDS

1. Verify whether units taken as security do not have any prohibitive

clause for pledging the same?

2. Verify whether the branch holds the blank transfer deeds / forms signed by the registered holder

3. Verify whether the units are transferred in the name of the Bank, in

the absence of blank transfer forms

4. Verify whether the branch has obtained a letter of authority from the units holder, authorizing the bank to collect the dividend on the pledged units from the Trust / Fund on behalf of the borrower and is forwarded to mutual funds with a forwarding letter in the prescribed form.

5. Ensure that the shares / debentures / bonds accepted as security are

of reputed companies, regularly quoted, fully paid (as far as possible approved companies) and are in marketable lots and satisfy that the scrips / bonds pledged are bonafide and genuine by verifying latest dividend warrant / interest warrant in the name of the borrower.

6. Verify incase of loans against partly / fully convertible debentures, that

the shares received on such conversion are taken as security for the advance.

7. Verify and report whether the amount received on the redemption of

the debenture is adjusted to the loan accounts.

8. Verify that the shares and debentures are not clubbed together as security to sanction loan / advance as per the RBI directives.

9. Verify that the bank / branch holds valid and endorceable blank

transfer forms for each marketable lot / folio and for each certificate odd lots, duly signed and witnessed without date.

10. Verify whether the branch is keeping a watch on the periodical

fluctuations in the market rate of shares noting them in share quotation register and revise the drawing power accordingly? Ensure that the stipulated margin is being maintained and shortfall if any, is recovered as per guide lines.

11. Verify whether lien notices have been forwarded by Registered Acknowledgement Due to the companies and their acknowledgement or refusal letters are kept with the loan paper?

12. Ensure that the part of security released has been recorded and

acknowledged by the borrower.

13. Ensure that the dividend / interest received from the company / are credited to the concerned borrower’s account.

14. Verify whether dividend mandates have been obtained and registered

with the respective companies?

15. Whenever a customer approaches for loans against shares held in demat after ensuring that the shares can be taken as securities as per Bank’s approved list and guidelines, the branch shall, after sanction of facility by the competent sanctioning authority, furnish to customers the regions pledge account member with SHCIL/NSDL, so that customer’s DP(either SHCIL or any other DP) can create pledge in Bank’s favour. Subsequent to confirmation of creation of pledge the loan can be released.

16. Confirm whether all the borrowers under the scheme have been

admitted as Associate Member of the Bank. 17. Verify whether the Interest and penal interest have been collected as

per the terms and conditions from the borrowers periodically

10. ADVANCES AGAINST GOLD ORNAMENTS (JEWEL LOAN)

1. Confirm whether all the borrowers under the scheme have been admitted as Associate Member of the Bank

2. Confirm that the officer has followed the instruction / guidelines issued

to establish the proof of identity of the borrower before issue of Jewel Loan Application (Ration card, Driving License, Employer Identity card, Bank Pass book, Telephone Bill etc.)

3. Confirm that all the Jewels have been appraised by the duly appointed Jewel appraiser and also confirm that the Jewels are appraised in the branch premises itself.

4. Verify that the appraiser’s seal has been affixed on the knot in such a way that it is not possible to untie the knot without tampering the appraiser seal.

5. Ensure that the Jewels received from every borrower shall be separately bunched and kept separately under joint custody.

6. Verify whether the branch is following the stipulation made by Head Office in repayment of interest / principal / any dues and such stipulation is in conformity with RBI instructions?

7. Test check random Jewels pledge with regard to number of items, description, gross weight, net weight, appraised value, margin etc.(where interest is in arrears for more than 3 months are to be invariably checked).

8. Confirm that deposit and withdrawal of Jewels are being done according to the procedure stipulated and ensure that maintenance of the “Jewel Bags Stock Register” is up to date.

9. Verify whether any Jewel Loan has been granted to the Jewel appraiser or his relatives? If yes, who has appraised the Jewels pledged in such loan – comment giving details of such loans?

10. Verify whether the branch has sent periodical statements connected with the issue of Jewel Loan to Head office?

11. Confirm that the branch has maintained overdue Jewel Loans register and follow up action is taken.

12. Ensure that the stipulated margin is maintained and furnish a list of over advanced loans. Branch to collect the deficit in margin to maintain necessary margin.

13. Verify the Jewel Loan register and report whether borrower’s discharge has been obtained at the time of redemption?

14. On repayment of the loan, whether the branch is taking proper care to obtain signature of the borrower for taking delivery of Jewels pledged and officer delivering the Jewels verifies the signature of the borrowers and signs for having delivered the Jewels?

15. Verify whether any death claims are pending against pledged items and comment?

16. Verify whether timely action is taken to action the Jewel pledged, pertaining to the overdue loan. Confirm whether there are any clean Jewel Loans after adjustment of auction proceeds

17. Verify whether action in on irregular loans such as sending registered notices, auction notices etc., are initiated by the Bank / Branch. Whether all procedures have been followed for conducting the auction and auction proceeds are properly accounted as per procedure.

18. In case of priority sector activity including agriculture, branch to confirm that the borrower is pursuing the relevant activity. Documentary proof to that effect has to be obtained and kept along with loan application. Ensure that applicable interest rates and margin are being followed according to the guidelines stipulated. Verify and comment.

19. Verify Jewel Loan appraiser’s file and ensure that a condition has been stipulated that the appraiser is solely responsible for the purity, gross and net weight of the Jewels.

20. Verify whether the Interest and penal interest have been collected as per the terms and conditions from the borrowers periodically

11. CASH CREDIT LIMIT – TRADERS

1. Verify whether the beneficiary is a whole-sale / retail trader and possessing a certificate of registration under General Sales Tax Act (GST) / Sole proprietor?

2. Verify whether the activity for which cash credit has been sanctioned is

with in the approved list of GST?

3. Verify whether the activity proposed is being under taken with in the area of operation of sanctioning office?

4. Verify whether the applicant has been admitted as Associate Member

before sanction of Cash Credit limit?

5. Verify whether the renewals of Cash Credit limits have been made before it is expired and by taking into consideration of the previous years’ performance?

6. Ensure the valuation of stock has been done on the basis of Cost Price

or Market Price whichever is less.

7. Verify whether the Drawing Power has been fixed after deducting the margin amount and from the value of paid stocks and permitted level of book debts?

8. Verify whether the outstanding under each cash credit account is with

in the Limits / Drawing power prescribed?

9. Verify and ensure that the documentation is in order, viz., a) Duly executed Promissory Note b) Hypothecation / Pledge Deed / Agreement duly executed by the applicant.

10. Verify whether all the documents are in custody of the officer / executive who is authorized for this purpose?

11. Verify whether there is a provision in the agreement to inspect the trading concern?

12. Verify whether the stock in trade has been insured in the joint names

of the bank and the trading concern?

13. Verify whether the procedure laid down has been followed to initiate action to regularize the overdues?

14. Verify whether the stock statements are being submitted periodically

before the due dates fixed for submission?

15. Verify the charging of interest to the account - frequency - daily/ monthly and its correctness?

16. Verify whether the Interest and penal interest have been collected as

per the terms and conditions from the borrowers periodically 12. SALARIED EMPLOYEES

1. Verify whether the loan has been sanctioned as per the loan policy of the bank?

2. Verify whether the applicant has been admitted as Associate Members?

3. Verify whether the applicant has executed an undertaking to the effect

that he will not borrow from any financial institutions / Co-operative Society against his salary until the loan is fully discharged?

4. Verify the carry-home salary of the applicant and guarantors and it

should not be less the 25% of gross salary.

5. Ensure that the applicant is maintaining Savings Bank Account with the Bank.

6. Verify the applicant and guarantor’s remaining period of service, and it

should not be less than 2 years.

7. Verify whether the guarantors are his co-employees with good standing.

8. Verify whether the sanction of loan has been as per the terms and

conditions laid down by the Head Office ?

9. Verify the documents submitted by the applicant along with the loan application and ensure that they are complete and in order viz.,

a) Salary Certificate of the applicant and guarantors.

b) Self declaration duly counter-signed by the pay disbursing officer as to the fact that applicant is working in a non-transferable post.

c) Pro-note duly executed jointly by the applicant and guarantors.

d) The irrevocable letter produced by the applicant from his employer addressed to the bank to the effect that the monthly installments of principal, accrued interest, penal interest, charges under the loan account will be deducted from the concerned employee’s salary every month and remited to the bank regularly until the entire loan is cleared.

10. Ensure that the repayment period is within the maximum period as

stipulated by HO. 11. Verify whether the details of disbursement have been intimated to pay

disbursing officer?

12. Check the rate of interest and ensure that rate percentage is as per the regulations and interest is applied properly.

13. Verify whether the installments are being made regularly on or before

the stipulated date and in case of any belated payment, penal interest has been collected?

14. Verify whether the branch is closely monitoring the recoveries and

borrowers who have committed default have been reminded regularly to clear their over dues?

15. Verify whether the defaulted cases have been referred to Head Office

for Legal Action / Arbitration proceedings as per the norms prescribed? 16. Verify whether the interest and penal interest have been collected as

per the terms and conditions from the borrowers periodically

13. LOAN AGAINST MORTGAGE OF PROPERTY

1. Ensure that loan on mortgage of building / property has been granted / sanctioned for any one of the purposes mentioned in the rules / regulation governing the grant of mortgage loans.

2. Ensure that loans have been sanctioned to individuals or group of

individuals who are owning a building/property.

3. Verify whether the loan sanctioned against building / property is within the area of operation of the bank / branch.

4. Verify whether the amount of loan sanctioned is within the maximum

limit prescribed for different type of borrowers.

5. Ensure that whether the loans sanctioned have been restricted / limited to 50% of the estimated value of the property (or as perescribed by the bank).

6. Confirm that the documents obtained by the branch are in order and

enforceable.

7. Verify Head-Office / Branch holds the following documents.

a) Legal opinion from the approved panel lawyer and got approved from Bank’s Legal cell / Section wherever required.

b) List of title deeds.

c) Original property documents recited in the legal opinion.

d) Blue print plan copy.

e) Photograph of the Building.

f) Valuation report given by two officers of the Bank who surveyed the property along with approved valuer.

g) Property / Water Tax payment receipts.

h) Comprehensive Insurance Policy standing in the joint names of the Bank / Borrower and covering all risks.

i) Age of the building

8. Ensure that the value of the site has been assessed as per the

guidance value.

9. Verify whether the relevant documents are properly filled in / completed with date and executed by the mortgagors / all joint holders of the property / borrowers.

10. Whether the Head-Office / Branch has incorporated all the clauses as

per the guidelines / circulars issued from time to time in this regard.

11. Verify whether the legal adviser (Lawyer) has scrutinized the documents and Encumbrance Certificate for 13 years and confirm that legal opinion has certified that the mortgagor has clear marketable title to the property to be mortgaged.

12. Also verify whether the lawyer has scrutinised the flow of title to the

property proposed to be mortgaged to the Bank, for a period of 25 years and certified that there is clear title to the property.

13. Ensure that the borrower has mortgaged the property in favour of the

Bank for the loan amount and registered with the concerned Sub-Registrar’s office before sanction of the loan.

14. Ensure that the borrower has produced further encumbrance

certificate of the property for verification after such registration and before getting disbursement of the loan.

15. Ensure that the borrower has given his acceptance / consent to retain

all the original documents with the Bank pertaining to the property as advised by the legal advisor till the loan is cleared in full.

16. Confirm that the Head-Office / Branch has complied with the

provisions of Urban Land Ceiling Act or any other similar Acts, wherever applicable.

17. Verify whether the branch has obtained E.C. Land Tax receipts

periodically and any alteration of property has been noted while sanctioning the E.C.

18. Verify whether the Head-Office / Branch has inspected the mortgaged

property periodically and maintained record for the visits.

19. Ensure that the period of repayment of the loan has not exceeded the period prescribed by the bank.

20. Ensure that the borrower’s repaying capacity has been properly assessed i.e. his/her monthly income is adequate to repay the monthly installments towards principal and interest and also ensure that the monthly repayment installment should be within his repaying capacity.

21. Ensure that the borrower has been admitted as Associated Member

before sanction of the Loan.

22. Verify the loan application and ensure that the borrowers have furnished additional document namely wiz. Building permit, plan, estimate of construction etc., as required under the loans scheme in the event of availing the loan for extension / repair / renovation of building.

23. Ensure that Head-Office / Branch has obtained a letter of undertaking

from the borrower that he / her will not alter or alienate the property mortgaged to the bank in any form without the prior permission of the bank.

24. Ensure that Head-Office / Branch is closely monitoring and follow up

action is being taken promptly to avoid loan becoming overdue / NPA

25. In the event of overdue / NPA Loans, verify whether the Head-Office / Branch has initiated step to regularise the bad loans.

26. Verify any legal restrictions for sale of property? 27. Verify whether the Interest and penal interest have been collected as

per the terms and conditions from the borrowers periodically 14. HOUSING LOAN

1. Verify whether the member who desires to obtain a loan under

Housing Loan Scheme has submitted the application in the prescribed form along in the following documents?

a) Title Deed in original together with parent Deed.

b) Encumbrance certificate for 13 years till date.

c) Opinion of Bank’s Legal Advisor to prove the Title to the property.

d) Site Plan and Building plan approved by the Competent Authority Viz., Town Planning Authority in case of Construction / out right purchase of House / Flat and up gradation where addition to the living space is involved.

e) Age proof of the Borrower.

f) Estimates for cost of construction Certificate by the approved Engineer.

g) Estimated Value of the House / Flat Certified by the approved Engineer along with documentary proof for the life of the building.

h) Salary Certificate from his Employer / other Income proof as prescribed.

i) Original Agreement with flat promoter in the case of purchase of flat.

j) Second Encumbrance Certificate from the date of issue of first encumbrance certificate.

2. Confirm that the documents obtained by the Head-Office / Branch are

in order and enforceable.

3. Verify whether the Building / Flat proposed to be purchased by the borrower has been inspected and report is kept and confirm that the report does not contain adverse features?

4. Verify whether the lawyer has scrutinized the documents and E.C. for

13 years and confirm that legal opinion has certified that the proposed seller has clear marketable title to the property to be sold?

5. Verify whether any affidavit cum–undertaking has been obtained from

the person applying for such credit facility to the effect that he shall not violate the sanctioned plan and construction shall be strictly as per the sanctioned plan?

6. Verify whether the loans are sanctioned directly to individuals who are

above 18 years of age and within the maximum age as fixed by the bank?

7. Ensure that the borrower has been admitted as Associate Member

before sanction of loan.

8. Ensure that the loan has been sanctioned for the construction of house

on plots under layouts approved by appropriate authority.

9. Ensure that the house purchased by the borrower under the scheme is in good tenantable condition and normal useful age and remain in such condition at least for a minimum period of 20 years from the date of purchase?

10. Verify whether the loan sanctioned is within the purview of “Purpose”

mentioned in the terms of conditions stipulated and satisfied all conditions?

11. Ensure that the quantum of loan sanctioned is within the limits

prescribed for different purposes.

12. Ensure that the property offered as security for loan stands in the name of applicant and unencumbered.

13. If the property is in joint names, parties concerned should have given

consent and join in execution of registered documents-Verify and comment.

14. Ensure whether the loan eligibility in favour of each borrower has been

properly assessed and sanctioned as per norms prescribed?

15. Ensure that the borrower has satisfied / fulfilled all conditions stipulated by the HO viz., a) Not more than one loan has been granted b) The Borrowers are having a regular and adequate source of Income. c) Left over service is at least 5 years for attaining the age of superannuation.

16. Ensure that the Loanee has mortgaged the plot and the house to be

constructed in favour of the Bank by registering the same.

17. Ensure that in the case of purchase of Flat the undivided share in the land and the Flat has been mortgaged by the loanee.

18. Ensure that the Mortgage Deed is signed by the loanee and two

witnesses.

19. Ensure that the Original Deed is with the Head-Office / Notified Branch as per the policy of the bank.

20. Ensure that Evaluation Fees has been collected from the loanee.

21. Ensure that Head Office / Branch has obtained an affidavit cum undertaking to the effect that the built up property has been constructed as per the sanctioned plan and / or building bye laws.

22. Ensure that the disbursement of loan has been done in installments as

per % of loan amount prescribed for each stage of construction.

23. Ensure that in the event of acquiring a House / Flat the payments have been made directly to the sellers.

24. Ensure that in the event of up gradation of the existing House whether

the loan amount has been disbursed in 2 or 3 installments.

25. Ensure that the construction of the House / Flat or up-gradation in the existing House has been carried out exactly in accordance with the approved plan, specifications estimates on the basis of which the amount of loan has been computed and sanctioned.

26. Ensure that the repayment schedule has been fixed as per the income

stream of the borrower but not exceeding the period fixed by the bank.

27. Verify whether there are any cases of default and in such cases penal

interest, stipulated under the scheme has been collected over and above the normal rate of interest?

28. Verify that interest charged on the loans is as per the rate fixed by the

bank. 29. Ensure that the construction has been completed within the stipulated

time from the date of first installment of the loan is paid to the borrower.

30. Verify whether the annual inspection is being carried out in respect of

Houses Constructed by availing loan from the Branch / Head-Office to ensure that the House is maintained well?

31. Ensure that the original documents of title to the plot and property

under mortgage have been obtained from the mortgagor and kept in safe custody along with mortgage deed.

32. Whether the House / Flat constructed / Purchased and House / Flat in

which up gradation has been made out of the loan sanctioned by the Bank has been Insured in the joint names of the borrower and the Bank with the Insurance Company against Fire, Flood, Cyclone and Earthquake etc.?

33. Verify whether the Interest and penal interest have been collected as

per the terms and conditions from the borrowers periodically 34. Ensure that the housing loan granted is as per the RBI / NABARD

guidelines.

HOUSING LOAN ORDERS OF THE DELHI HIGH COURT IMPLEMENTATION OF DIRECTIONS

Ref:- RBI / 2006 -07 / 187 RPCD. R.F. B.C. 35/07.40.06/2006-07 Dated 22/11/06. The Monitoring Committee constituted by the Honorable High Court of Delhi regarding unauthorized construction, Misuse of properties and Encroachment on Public Land has issued the following Directions:- A. HOUSING LOAN FOR BUILDING CONSTRUCTION

i) In cases where the applicant owns a Plot / land and approaches the Banks / Financial Institutions for a credit facility to construct a house, a copy of the sanctioned plan by competent authority in the name of a person applying for such credit facility must be obtained by the Banks / Financial Institutions before sanctioning the home loan. ii) An affidavit cum undertaking must be obtained from the person applying for such credit facility that he shall not violate the sanctioned plan, construction shall be strictly as per the sanctioned plan and it shall be the sole responsibility of the executant to obtain completion certificate within 3 months of completion of construction, failing which the bank shall have the power and the authority to recall the entire loan with interest, costs and other usual Bank Charges. iii) An architect appointed by the Bank must also certify at various stages of construction of building that the construction of the building is strictly as per sanctioned plan and shall also certify at a particular point of time that the completion certificate of the building issued by the competent authority has been obtained. Ensure that the above conditions are satisfied

B. HOUSING LOAN FOR PURCHASE OF CONSTRUCTED PROPERTY / BUILT UP PROPERTY

i) In cases where the applicant approaches the Banks / Financial Institutions for a credit facility to purchase the built up house / flat, it should be mandatory for him to declare by way of an affidavit. Cum undertaking that the built up property has been constructed as per the sanctioned plan and / or building bye-laws and as far as possible has a completion certificate also. ii) An architect appointed by the Bank must also certify before disbursement of the loan that the built up property is strictly as per sanctioned plan and / or building bye-laws. C. No loan should be given in respect of those properties which fall in the category of unauthorized colonies unless and until they have been regularised and development and other charges paid. D. No loan should be given in respect of properties meant for residential use, but which the applicant intends to use for commercial purposes and declares so while applying for loan. All the Banks have been advised to strictly comply with the above directions. 15. LOAN FOR PURCHASE OF CONSUMER DURABLES / HOME NEEDS INCLUDING COMPUTER.

1. Verify whether the loans for purchase of consumer durables under the bank’s scheme have been sanctioned only after obtaining signature of two guarantors who satisfy the prescribed eligibility norms.

2. Ensure that loans sanctioned to persons as per the policy of the bank.

3. Verify whether the Borrower and Guarantors have been admitted as

Associate Members before sanctioning the loan?

4. Verify the articles enlisted in the Invoice, submitted along with the loan application are eligible for purchase under the bank's scheme and also verify whether the Invoices are obtained from Authorized Dealers / Co-op. Super Markets.

5. Verify whether the applicant is eligible as per the scheme formulated

by the bank.

6. Verify the Guarantors’ networth and ensure that he/she has the repaying capacity in case of default by the borrower.

7. Verify whether the following documents have been furnished

a) Certificate issued by the employer duly signed by the competent Authority.

b) Pro-note executed by the Applicant and Guarantors jointly.

c) Hypothecation Deed / Agreement duly executed by the applicant and Guarantors jointly.

d) Pro-forma Invoice from an Authorized Dealer / Co-op. Super Market.

e) Other than the salaried employees- viz., Business people and Professionals have to submit copy of Income Tax. returns / assessment order for the past 3 years.

8. Ensure that all documents are with the custody of Person authorized

for the purpose. 9. Verify whether the loan has been sanctioned by competent Authority.

10. Verify whether the eligibility criteria has been arrived on the basis of

salary / Income of the Applicant?

11. Verify whether the applicant has remitted Margin money as stipulated under the Scheme.

12. Verify whether the repaying capacity of the Borrower has been

properly assessed to fix the loan installments to be repaid under E.M.I.

13. Verify whether the payment has been made directly to supplier / Manufacturer out of the loan sanctioned to the Applicant.

14. Verify whether the loan repayment period under EMI has been

restricted within the period stipulated by the bank.

15. Verify whether the EMI has been arrived after charging interest at the Rate prescribed.

16. Verify the Repayments made under the scheme are regular and is

there any overdue payments (made after due date) in such cases whether the Bank has collected penal interest as prescribed?

17. In cases where default persists, Continuously for 3 months, whether the Bank has exercised the right to recall the loan and send notice to take possession of the articles purchased with the Bank’s advance.

18. Verify whether the goods have been properly Insured by the borrower

as prescribed.

19. Verify whether the over due recovery procedure has been followed to regularize the over dues as prescribed

20. Verify whether the Bank / Branch has initiated action to file arbitration

proceedings in cases whether the loan recoveries are not forth coming even after giving sufficient time to regularize.

21. Verify whether the Interest and penal interest have been collected as

per the terms and conditions from the borrowers periodically 16. ADVANCES AGAINST INLAND BILLS / CHEQUES PURCHASED /

DISCOUNTED

1. Ensure that Discount facility has been extended to customers only against the Bills / Cheques issued by the Government Departments, reputed companies and Bank Drafts.

2. Verify cases where bills have been purchased / discounted in excess of the limits and ensure that the excess have been promptly reported to the higher authorities.

3. Verify whether the Cheques / Bills discounted / Purchased are being

dispatched promptly as per mode stipulated, depending upon the amount of the Cheque / Bill. In case of bills accompanied by LR/RR, they are invariably sent by Registered Post.

4. Incase of Return / Dishonour of Bills / Cheques, whether notice of

dishonour has been served and the amount of dishonoured Bills / Cheques being recovered with interest promptly and a distinct note is made against the bills in the concerned register?

5. Verify whether branch is continuing the practice of debiting returned

bills to cash credit / over draft accounts by over drawing these account or to current accounts causing debit balance.

6. Verify whether the consignments of the returned bills are got

rebooked, if they remain unadjusted.

7. Verify whether any cheque discounted returned item is being time barred / Pending recovery. Full details are necessary for fixing up accountability.

8. Verify whether the cheques discounted are not for accommodation. If

so, identify the cases and steps taken by the branch. (any kite flying involved to be seen)

9. Verify whether immediate credit facility is segregated from general

discounting. Whether self drawn cheques are discounted under this arrangement.

10. Verify whether Discount / Purchase charges have been collected in

addition to commission charges for collecting the Bills / Local and outstation Cheques as prescribed by the Bank from time to time.

11. Verify whether the following documents have been collected from the

parties to whom a bills purchase limit is granted.

α) Application for sanction of Bills / Cheques

β) Stamped Bills Purchase Agreement

χ) Demand Promissory Note

δ) Securities such as FD Receipts, NSC Certificate, Title Deeds etc.,

12. Verify whether the person has been admitted as Associate Member before extending this facility.

13. Ensure that this facility has been extended to a customer who is

maintaining an account in his own name to the satisfaction of the Bank at least for a period of one year or such other period prescribed by the bank.

14. Verify whether this facility extended to customer within the ceiling

permitted.

15. Verify whether the Interest and penal interest have been collected as per the terms and conditions from the borrowers periodically

17. ADVANCES AGAINST LIFE INSURANCE POLICIES

1. Confirm that Life Insurance Policies assigned to the Bank are in the names of borrowers / parties to the borrowing transactions and assignments are duly registered with LIC.

2. Ensure that the Life Insurance Policies are not under the Married

Women’s property Act 1974, Children Endowment, Children Deferred Policies etc.

3. Whether the age is admitted in life Insurance Policies and is inscribed

on the face of the Policy.

4. Whether the branch has maintained the prescribed margin.

5. Whether the premium, on all the assigned policies are paid up to date and the receipts are properly held.

6. Whether premia are paid promptly.

7. Ensure that Loan or advances have been granted to customers of good

standing against Endowment Life Insurance Policy.

8. Ensure that following precautions have been taken / observed while granting advances against Insurance Policies.

a) Insurance must be in force.

b) Premia on the Policies have been paid up to date.

c) Latest premium receipt has been obtained and kept in record.

d) The original policy duly stamped and signed by the Issuing Authority should be obtained.

e) If the duplicate policy is produced by the borrower it should be got confirmed from LIC before the grant of Advance.

f) Policy should be free from encumbrances.

g) A nomination will be cancelled by a subsequent transfer or assignment.

h) Verify whether it contains any clause which restrict its assignment.

9. Verify whether any Advance / Loan have been granted against the

following Policies since they are not eligible for advances.

a) A policy in which a minor is recited as a NOMINEE.

b) Policy which has been assigned to MINOR

c) Children Endowment are Children deferred Policies.

d) A policy taken by a Partnership concern.

e) A policy which restricts its assignment.

10. Verify whether the terms and conditions prescribed under the scheme

has been followed while fixing the limit in relation to % of the surrender value.

11. Verify whether the advance is granted only after policy is assigned in

favour of the Bank and duly attested by a person other than the relative.

12. Verify whether the notice of assignment and the policy have been sent

to LIC for registration and collected it back.

13. There should be a condition clause in agreement that the assured should pay all the future premia and in case of default, the advance will be treated as overdue and recalled.

14. Verify the repaid Loan and Advances and ensure that in such cases

polices have been reassigned in favour of the policy holder only.

15. In case the policy matures, verify whether the Bank has sent completed claim voucher together with the policy duly discharged to LIC to receive the amount.

16. Upon receipt of the amount, whether the Bank has adjusted the same

to Loan account.?

17. Verify whether the Interest and penal interest have been collected as per the terms and conditions from the borrowers periodically.

18. TEMPORARY OVERDRAFT (TOD)

1. Verify whether the overdraft has been sanctioned to a valued customer with regular and satisfactory operations?

2. Ensure that no cash drawals have been permitted under Temporary

Overdraft Account.

3. Ensure that no T.O.D. has been allowed to staff members.

4. Verify the letter of request submitted by the customer with a specific

request to sanction Temporary accommodation.

5. Ensure, that the customer who availed T.O.D. facility has been admitted as Associate Member of the Bank before extending the facility?

6. Whether the customer has executed pro-note for the amount required

as temporary accommodation?

7. Ensure that a fresh pro-note has been obtained as and when Temporary Over Draft is entertained?

8. Ensure that the Temporary overdraft has been sanctioned only by the

Officer / Executive who is competent to sanction T.O.D.

9. Verify whether the outstanding in the T.O.D. accounts are within the delegated limits prescribed by Head Office from time to time to different category of Officers / Executives?

10. Verify that the Temporary accommodation availed by the customers

are regularised by making remittances within the stipulated time limit.

11. Verify whether the interest has been charged to the Current Account holders who have availed the facility of Temporary accommodation as per the guidelines issued by Head Office from time to time?

12. In the event of Overdue accounts, ensure whether the penal interest

has been charged as per the regulations prescribed over and above the regular rate of Interest.

13. Verify whether the Head Office / Branch has insisted the borrower to

provide security by way of assigning LIC Policy, NSC, FD receipts etc., if so, whether proper lien has been marked in the Deposit ledgers with appropriate authority?

14. Verify the T.O.D. accounts and ensure that outstanding in the account

has not exceeded the TOD limit fixed in favour of each customer, even after charging interest to the account at monthly rests.

15. Ensure that Head-Office / Branch has followed the time gap limitation

as specified under this facility while renewing / sanctioning of T.O.D. for second and subsequent times.

16. Ensure that the classification of overdues has been done properly as per guidelines issued and prompt action has been initiated against defaulters to clear the outstanding by issuing Demand notices / Final Demand notices within the time frame work prescribed.

17. In the event, outstanding is not cleared even after final demand notice

has been issued, ensure whether Head Office / Branch has initiated legal action by referring the matter to Legal Department at Head Office is respect of all overdue loans.

18. Ensure that right to recall the advance condition clause has been

incorporated in the terms and conditions to sanction T.O.D. and communicated the same to customer.

19. Ensure that Temporary Overdraft Register has been updated with all

details viz., Name of the customer to whom T.O.D. limit is sanctioned, date of availment, amount availed, due date for repayment etc.

20. Verify whether the periodical return on the loans sanctioned has been

sent by the branch to the HO. 19. EDUCATIONAL LOAN

1. Verify the purpose and ensure that the purpose mentioned in the application is in line with the purpose for which the scheme has been designed.

2. Verify the course mentioned in the application to obtain loan under the

scheme and ensure that whether it is under the enlistment of courses eligible for sanction?

3. Verify whether the college / polytechnic / Institution in which the

borrower has admitted his son / daughter / ward has been approved and recognized by the State Government University / UGC as well as the degree / diploma to be awarded is recognized by the university and any other agency namely AICTE / Government?

4. Whether proper appraisal has been made to assess the repaying

capacity of the borrower to pay loan installments as per schedule?

5. Verify whether the Bank / Branch has obtained the certificate from the college, Institute or University as the case may be confirming the studentship, the course admitted, duration of the course, the approximate expenditure towards the entire course with annual break-up?

6. Verify the loan amount sanctioned is as per the provisions of the

scheme viz., percentage of the total cost, maximum amount prescribed for each course etc.

7. Verify the security aspect for the loan disbursed and ensure that the deeds executed by sureties are as per the stipulations made under the scheme.

8. Verify the valuation certificate issued by the competent authority and

ensure that the property value is equal to the loan amount, if the security offered is property.

9. Verify the period and procedure fixed for repayment and ensure that it

is as per the regulations laid down.

10. Verify the agreement executed and confirm that it is in order.

11. Verify the interest charged / collected from the borrower whether it is as per the procedure prescribed and if any deviation is noticed call for explanation and record the same.

12. Verify whether any rebate in interest has been as per the scheme of

GoI / State Government to students and if so, verify whether the rebate has been extended in such cases.

13. Verify whether proper follow up action has been initiated in default /

over due cases?

14. Ensure that the Education Loan is sanctioned as per RBI instructions

15. Verify whether the Interest and penal interest have been collected as per the terms and conditions from the borrowers periodically

20. SWARNAJAYANTI GRAM SWAROZGAR YOJANA (SGSY)

1. Ensure that the beneficiaries identified under SGSY are duly approved by the Gram Sabha.

2. Verify the list of beneficiaries prepared includes, landless labourers,

educated unemployed and disabled as per the scheme.

3. Verify the repayment period has been fixed as stipulated in the scheme after giving due consideration for gestation.

4. Verify the system of formation of a group with the main objective of

poverty reduction.

5. Ensure that subsidy extended and received under the scheme is kept separately and passed on the benefit to the members only after settlement of all dues to the bank.

6. Verify whether the preference has been given for group activities.

7. Verify whether the initiative has been taken to bring every assisted

family above the poverty line by providing income generating assets.

8. Whether the main objective of build up mutual trust and confidence between the Bankers and the rural poor has shown any encouragement?

9. Whether the philosophy of the linkage has established expected results

viz., the poor has capacity to save, the poor is bankable, the credit follows the thrift etc.?

10. Verify whether the groups formed are within the optimum level i.e.

between 15 and 20 members.

11. Whether the bank has extended financial assistance in a quick and flexible manner.

12. Whether any initiative has been taken by the bank to open SB account

in favour of SHGs members to promote savings habit. Verify whether the SB Accounts have been opened in favour of SHG only.

13. Study the % of recovery of dues from out of the loans extended to

SHGs by comparing the % of recovery of dues from others.

14. Verify whether the loans have been extended to SHGs who have satisfied all eligible criteria

15. Verify the system and procedure followed by the bank in credit rating

to ensure that it is as per the regulations laid down and selection of group has been made accordingly.

16. Verify whether the quantum of loan sanctioned to groups linked to

savings.

17. Verify whether financial assistance has been extended either under

loan or cash credit facility or under both the facilities to group.

18. Verify whether the bank and SHGs have executed agreement before sanction of loan.

19. Verify whether the disbursement of loan by the bank to SHG and SHG

to members are simultaneous.

20. Verify whether any provision has been made in the agreement with regard to repayment of loans to bank by SHG. If so, ensure that the period of repayment should not exceed 5 years.

21. Verify that documents executed by the SHG to bank at the time of

availing Loan / C.C.

22. Verify whether any District Level Monitoring Review committee has been formed to monitor the performance of SHGs.

If possible, a visit may be made to SHG Group – the following aspects

may be seen

1. Verify the size of the group and ensure that it should not exceed 20 members.

2. Verify whether the meetings have been conducted at regular intervals

with a minimum of 75% attendance.

3. Verify the loan ledger and ensure that the bank loan has not been utilized by the SHG for financing a default member.

4. Ensure that recovery of internal and external loans are good say, at

least 85% of the demand.

5. Verify the loan ledger and ensure that at least 50% of group members should have taken internal loans.

6. Verify whether the groups are collecting thrift amount as decided by

them on regular basis.

7. Verify the Books and ledger and satisfy yourself that the groups are maintaining Books of Account properly.

Chapter – 5

CASH & BANK BALANCES

(a) Cash

1. Verification of Cash balance at Head Office and the branches visited and tallying the cash verified with the balance of cash shown in cash balance book, Day Book and General Ledger.

2. Ensure that the branch is observing the usual safeguards while

handling cash in the safe room, in transit, in the cashier's cabin etc., Also verify ATM cash wherever applicable.

3. Examine whether the cash is kept duly sorted into re-issuable, soiled

and slightly mutilated notes?

4. Verify whether cash issued from the double lock to the cashier exceeds the normal requirements?

5. Verify the cash excess / shortage register and ensure that postings are

upto date and that shortages are not frequent.

6. Ensure that excess cash is promptly credited to Head Office Account.

7. Verify whether cash cabin is locked / latched during business hours?

8. Verify whether the customers' movements inside Banking Hall near the safe room and cash cabin are properly monitored / restricted?

9. Verify petty cash held if any, at the branch and ensure that it is under

proper control.

10. Verify whether Manager's scroll and cash Receipts and Payments are properly maintained and tallied daily?

11. Ensure that cash vouchers are signed by the cashier in full and all

vouchers are signed in full by the officer authorised. Receipts are properly accounted and payments are properly authorised.

12. Verify whether inward and outward mail transfer / money order

register is maintained?

13. Confirm whether surprise verification of cash is being done by Head Office periodically?

14. Confirm whether the rubber stamps "Cash Received" "Cash Paid" and

tokens are kept under lock and key, over night?

15. Confirm that cash paid vouchers are stitched, sealed and kept in safe custody on a day to day basis after due verification with scroll/ Cash Receipts and Payments Register / Day Book.

16. Whether remittances are escorted as per the procedure prescribed by

the Bank?

17. Whether the mode of conveyance used is safe, considering the law and order situation prevailing in the area en-route?

18. Verify whether the duplicate keys of the safe & safe room, locker room

are deposited with nearest Commercial Bank and obtained safe custody receipt?

19. Verify whether there are any claims pending under Blanket Insurance

policy in respect of Losses due to theft / burglary or fraud?

20. Verify whether the Branch has furnished the requirements called for, by Insurance Company in respect of the claims submitted. All such particulars are properly recorded and follow-up action initiated?

21. Examine whether the cash retention limit fixed for the branch is

adequate, considering the daily turnover and the facilities available to raise funds?

22. Work out the average cash balance usually maintained by the branch

and see if it is in excess of the requirement continuously for a long period.

23. Examine whether there is large accumulation of cash and comment on

reasons for accumulation and solution for disposal of such funds?

24. Verify whether there is an unduly large accumulation of small notes/ coins and soiled currency notes, if so, suggest remedial steps taken to reduce the same.

25. Common irregularities observed at the time of regular inspection

a. The joint custody arrangements are not strictly adhered to and the joint custodians are personally operating their respective keys.

b. Surprise verification of cash is not done periodically. c. The Branch was not maintaining a register for recording

individual Cash Deposit / withdrawals of Rs.10/- lakh and above. The reporting was not being done to the controlling office as per KYC norms.

26. Whether the bank is following the system of Reserve cash? If so, that

entire cash balance held overnight need not be handed over to the cashier and a portion of it may be kept in the safe.

27. Adequacy of Insurance cover for cash in hand [in safe and at counter] and cash in transit. Violations of the conditions in the insurance policies, if any, and timely renewal of the Insurance Policies.

28. Comments on the strong room ? 29. Comment on security aspects for cash at counters, at strong room.

(b) Balances with other banks

1) Verification of balances held with other banks with reference to pass

books, statement of accounts, deposit receipts etc.

2) Limits, if any, fixed for keeping call deposits with commercial banks. Whether they were exceeded?

3) Whether the permission of RCS was obtained, wherever necessary, for

keeping funds with other banks? Were the balances held within the limits fixed by RCS?

4) Procedure for operation of bank accounts either singly or jointly. Was

there a practice of keeping blank cheques signed?

5) Were the bank accounts reconciled regularly with the statement of accounts obtained from other banks?

6) Whether the reconciliation of Bank accounts was checked by the

Responsible officer?

7) Long outstanding items pending for more than 6 months on which no action was taken by the bank [with details of total number of items, aggregate amount involved, involving large amounts etc.]

8) Procedure for remittance of cash from one branch to another or from

Head Office to branch or from the bank to another bank and vice-versa. Whether the transactions were booked in the accounts of the Head Office / branch on the same day?

Chapter – 6

INFORMATION SYSTEM AUDIT - COMPUTERISED BRANCHES

[A] Access to the system:

i) Verify whether the Computer System is protected against

unauthorized and unlimited attempts of booting /access?

ii) Verify whether the Operating System / Application is protected against unauthorized and unlimited attempts / trial of access?

iii) Verify whether the Operating System / Application generates the

access log?

[B] User-ID / Password Maintenance:

i) Verify whether a USER-ID register is maintained and the custody of the Register ?

ii) Verify whether passwords are changed periodically and at

stipulated intervals?

iii) Verify whether the system forces periodically, the user to change password?

iv) Verify whether the same password can be repeated?

v) Verify whether USER-ID of employees / officers transferred /

resigned / retired etc. are deleted / de-activated? vi) Verify whether Officers and Operators do use their own USER-ID

and password for operations? vii) Verify whether separate USER-ID and passwords are being

provided to Supervisor and Manager? viii) Verify whether any digital certificate / smart card / access card

was issued to the branch staff. If so, verify whether the same have been returned to the branch under proper noting, on transfer / resignation etc., of the employee. Also comment on safe keeping of such items and receipt / return of the same to Head Office?

[C] Day Begin Operations: i) Verify whether the check-sum of day-begin and balances (in case of

SB) are printed during day-begin and tallied with previous day's day-end check-sum & balance; in case of ALPMs?

[D] Operational Review:

i) Verify that all software licenses are available and only authorised software is being used.

ii) Verify whether the operator logs out of the system while leaving

the seat? iii) Verify whether proper access controls are in place for Computer

H/W, S/W, Media, Records etc. Also comment on exercise of proper control on computer service personnel and any third party involved in data-entry / networking / telecommunication etc., services?

iv) Verify whether apparently un-usable media and computer printouts

of waste nature are destroyed in a secure and safe manner?

[E] Computer Environmental Review:

i) Verify Whether the UPS is used only for the Computer Systems and Networking Equipments. Verify, if any other power consuming equipment is connected to the UPS?

ii) Verify whether the batteries of UPS are properly kept in a rack? iii) Verify whether AMC / Warranty is valid in respect of -

1. UPS/ Batteries. 2. Computer System (Servers, PCs, Nodes), Printers etc. 3. Networking Equipments eg., Modems, Switches, Routers etc., if

any.

iv) Does the vendor's representative visits installations periodically for preventive maintenance of i) UPS/ Batteries ii) Computer Systems & Printers iii) Networking Equipments. Date of Last visit, in each case may be commented upon.

v) Verify the Visit register / Call reports and note the details of serious

breakdowns if any. vi) Whether fire extinguishers are provided? If yes,

1. Whether fire extinguishers provided is suitable for computer installation?

2. Verify whether operating staff is aware of its usage? 3. Verify whether it is being serviced and tested periodically?

vii) Verify whether the manual of instructions for operations of all the

applications is supplied by HO and is available for ready reference. viii) Verify whether the procedure manual for Computer Applications

is provided? Also verify that OS, Drivers and Application S/W CDs/Floppies are properly recorded and kept safely.

ix) Verify whether any computer H/W is available in the branch, which

are not installed/not in use? If yes, the reasons therefore. x) Verify that branch ensures creating separate back-up and proper

deletion of branch's data from the Hard Disk(s), before a Computer is shifted to other branch, or is taken by the vendor for repairs /replacement of part thereof.

xi) Verify whether the supervisors and operations staff have received

the training on working of the Applications? xii) Verify whether all branch staff are trained in operations of branch

systems / applications? xiii) Verify whether usage of Systems facilities, Networking, Group

Wise, Internet, E-mail is proper and justified?

[F] Standing Instructions: Verify whether :

i) Validation for closed / stopped / frozen / dormant account is provided.

ii) Standing instructions are executed. iii) Provision for addition / deletion / modification of standing

instructions is provided. iv) Authority for addition / deletion/ modification or execution of

standing instructions is provided. a) Audit trails are produced for all the above operations. b) Standing instructions due on a holiday are executed on the prior

working day. Whether service charges for standing instructions are collected and modified as per revised guidelines, if any.

c) Service charges for standing instructions are entered while entering standing instructions?

[G] Transaction Processing:

i) Verify whether interest on debit balance in CA is debited when the account comes to credit?

ii) Verify whether all the slips / vouchers entered on the System bear

the transaction number generated by the System, with due initials of clerical / supervisory staff for having entered / checked?

[H] GL Operations:

i) Verify whether day book postings, day book, GL, reported are duly

verified and authenticated? ii) Verify whether any on-line help is available for the required codes? iii) Verify whether the correction of any error/data required

authorization? iv) Verify whether system prints the Day Book after matching

automatically before the day end? v) Verify whether the matched Day Book report is being checked and

authenticated by Officer / Manager? vi) Verify whether system prints any GL matched reports? vii) Verify whether GL matched report generated by the system is

checked and authenticated? viii) Verify whether it prints GL automatically or option is there to

print it / view it on screen whenever required? ix) Verify whether special functions at half-year-end are taken care of

by the package automatically? [I] Interest Calculations:

i) Verify whether products can be changed? If yes, whether any

authorization is registered and audit trail produced. Verify audit trail, for product change.

ii) Verify whether rate of interest on OD is modified as per circulars issued from time to time?

iii) Verify whether the interest to be applied in different modules is

correct, for variety of accounts and for the duration of interest application?

iv) Verify whether the branch keeps proper record of the interest

calculations on quarterly / half yearly basis?

[J] Clearing Module:

i) Verify whether the software provides for clearing module? ii) If yes, verify whether the following aspects are taken care of -

a) Warning for the operator before day-end procedure in case the clearing module is not executed?

b) In case of execution of clearing module any report is produced in respect of number of instruments and amount posted?

iii) Verify whether clearing credits are accorded regularly? iv) Verify whether charges for clearing returns are debited manually? v) Verify whether interest/charges for passing cheques against

clearing are debited regularly? [K] Levying of Incidental Service Charges, etc.:

1. Verify whether incidental charges, service charges etc., are

levied as per the latest circulars [L] Cheque Management:

i) Verify whether stop payment option is provided for a single cheque or group of cheques?

ii) Verify whether validation is performed for closed/dormant/ frozen

accounts? iii) Verify whether cheque books issued are entered in the system

regularly? (Scrutinize the exceptional transactions report).

[M] Reports:

i) Verify whether detailed sub-day book is printed daily at day-end? ii) Verify whether balances are printed daily? iii) Verify whether day-end reports like exception reports, MIS report,

access log, User-ID report, parameter changes, sensitive GL head report (in CBS branches) etc. are printed and authenticated / signed by the Branch-Head / authorised person and are filed separately?

iv) Verify whether ledger printing and statement of accounts options

are provided? v) Verify whether ledger extracts are taken regularly and stored, as

per the Bank's latest guidelines or printouts are taken and preserved after binding (SB, CA/ OD, Loan)?

vi) Verify whether branch tallies "All OK" statement on daily basis in

case of TBM branches and total of all accounts of the individual modules tallies with GL, in ALPM Branches? Verify whether, parking GL is nil in case of CBS Branches?

[N] Reports (Day Book / GL Package-In Case of ALPM):

i) Friday Statement ii) Daily HO summary

[O] Demand Draft Module: Whether Demand Draft module is implemented? If yes, observe the following-

i) Access Controls- If access to programs and data is primarily controlled through passwords, whether procedures are adequate?

ii) Audit Trail Facility - Does the Computer System maintain a log of

access activity? iii) Security and Recovery - Do the plans and procedures exist in a

controlled manner to prevent a short term or partial failure and are the same documented? Are concerned officers aware of the same?

[P] Verification of IT-related Registers:

i) Standing instructions register. ii) Stop payment register. iii) Cheque book issue register. iv) Cheque return register.

[P] Back-Up:

i) Verify whether regular back-ups are taken and preserved? a) Daily - before day- end and after day-end. b) Monthly c) Adhoc Backup on HDD / Floppies /DAT etc. (Adhoc Back-up

need not be preserved, but to be kept safely). ii) Verify whether these back-ups have been tested for restoration at

any point of time (preferably immediately after completion of the back-up and before proceeding ahead for any other operation)?

iii) Verify whether daily back-up is taken on separate media, marked

for the day? iv) Verify whether the back-ups are stored in other premises as a

measure of disaster recovery? [Q] DRS and BCP:

i) Verify that latest back-up is stored, off-site?