1 CONCURRENT AUDIT IN BANKSPRESENTATION BY K S N MURTHY, FCMA 19TH FEBRUARY, 2017 – ICAI HYDERABAD CHAPTER

2 WHAT CAN BE EXPECTED OVERVIEW OF THE BANKING SYSTEMDEALING WITH CBS ENVIRONMENT KYC / AML CASH TRANSACTIONS DEPOSITS LETTERS OF CREDIT / BANK GUARANTEES HOUSE KEEPING STATUTORY COMPLIANCES

3 OVERVIEW OF THE BANKING SYSTEMFinancial Stability and Development Council (FSDC) Commercial Banks Public Sector Banks Private Sector Banks Scheduled Banks Non Scheduled Banks Indian Branches of Banks incorporated outside India Regional Rural Banks Cooperative Banks State Cooperative Banks District Cooperative Banks Urban Cooperative Banks Land Development Banks Payment Banks Small Finance Banks

4 ACTIVITIES CARRIED BY BANKSAcceptance of Deposits Granting of Advances Remittances – TT / MT / NEFT / RTGS Collections – ECS Debit / ECS Credit / Clearing House Services / Cheque Truncation System / Clearing House Interface / Presentation Clearing / Return Clearing Receipt of Foreign Contribution on behalf of registered persons / organisation Cash Management Products Issuance of Letters of Credit / Letters of Guarantees Merchant Banking Business Credit Cards / Debit Cards Technology Based Services – Phone Banking / Net Banking /SMS alerts etc. Dividend / Interest / Refund Warrants Safe Keeping Services – For Scrips, Valuables of Customers Lockers Handling Government Business Depository Participant Services Automated Teller Machines (ATMs)

5 ACTIVITIES CARRIED BY BANKSExchange of Notes Auto Sweep facility in Saving Accounts Third Party Advertisement in ATM Net work Derivatives Para Banking Activities such as Equipment Leasing, Hire Purchase and Factoring Services Investment in Venture Capital Funds Mutual Fund Business Money Market Mutual Funds Entry into Insurance Business Primary Dealership in Business Pension Funds Management Portfolio Management Services Underwriting of Corporate Shares /Debentures Underwriting of Bonds of Public Sector Undertakings Sponsors of Infrastructure Debt Funds Membership of Currency Derivative Segment of SEBI approved Stock Exchanges Retailing of Government Securities Referral Services Prepaid Payment Instruments – Mobile Wallets,etc

6 TYPES OF BANK BRANCHES Personal Banking Branches Commercial / Industrial Finance Branches Asset Recovery Branches Housing Finance Branches Agricultural Finance Branches Service Branches Commodity Specific Branches Overseas / International Banking or Foreign Exchange Branches Corporate Banking /SME / SSI Branches NRI Branches Securities Branches

7 ROLE OF HEAD OFFICE IN BANKING OPERATIONSLaying down policies and procedures for smooth and efficient functioning of the bank and to review them periodically. Deciding on the extent of powers – financial and administrative – which may be vested in various functionaries of the bank. Planning and performance budgeting. Asset-liability management. Laying down lending policy of the bank, the risk management guidelines, and the rehabilitation and recovery guidelines including policies for compromise, settlement and write-off. Deciding about the interest rates on both the deposits and the loans as well as about charges for various services and review interest rates and charges periodically. Treasury and investment management (usually handled by the head office, though in some cases, select large branches may also be involved in this function). Monitoring and controlling the functioning of various offices of the bank. Periodic inspections and internal audit are important constituents of such monitoring and control mechanism. Reconciling the transactions among various offices of the bank. Introducing new products and services and reviewing the existing ones. Issuing instructions to branches and other offices from time to time on matters deserving their attention or requiring compliance by them.

8 SPECIAL CHARACTERISTICS OF BANKSCustody of large volumes of monetary items, including cash and negotiable instruments, whose physical security has to be ensured. This applies to storage and the transfer of monetary items making banks vulnerable to misappropriation and fraud necessitating establishment of formal operating procedures, well- defined limits for individual discretion and rigorous systems of internal control. Engagement in a large volume and variety of transactions in terms of number and value which necessarily requires complex accounting and internal control systems and widespread use of Information Technology (IT). Operation through a wide network of geographically dispersed branches and departments necessitating a greater decentralization of authority and dispersal of accounting and control functions, with consequent difficulties in maintaining uniform operating practices and accounting systems, particularly when the branch network transcends national boundaries. Assumption of significant commitments without any transfer of funds. These items, called 'off-balance sheet' items, may at times not involve accounting entries and the failure to record such items may be difficult to detect. Engagement in transactions that are initiated at one location, recorded at a different location and managed at yet another location. Direct Initiation and completion of transactions by the customer without any intervention by the bank’s employees. For example, over the Internet or through automatic teller machines (ATMs). Integration and linkages of national and international settlement systems could pose a systemic risk to the countries in which they operate. Regulatory requirements by governmental authorities often influence accounting and auditing practices in the banking sector.

9 SPECIAL AUDIT CONSIDERATIONS FOR BANK AUDITParticular nature of risks associated with the transactions undertaken; Scale of banking operations and the resultant significant exposures which can arise within short period of time; Extensive dependence on IT to process transactions; Effect of the statutory and regulatory requirements; and Continuing development of new products & services and banking practices which may not be matched by the concurrent development of accounting principles and auditing practices. Evolution of technology and providing services through Net Banking and Mobiles has exposed Banks to a huge operational and financial risk.

10 LAWS WHICH AFFECT THE BANKING BUSINESSBanking Companies (Nationalization of Undertakings) Act, 1970 Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 Negotiable Instruments Act, 1881 State Bank of India Act, 1955 State Bank of India (Subsidiary Banks) Act, 1959 Regional Rural Banks Act, 1976 Companies Act, 2013 Co-operative Societies Act, 1912 or the relevant State Cooperative Act Information Technology Act, 2000 Prevention of Money Laundering Act, 2002 Credit Information Companies Regulation Act, 2005 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 Transfer of Property Act, 1882 Recovery of Debts Due to Banks and Financial Institutions Act, 1993

11 LAWS WHICH AFFECT THE BANKING BUSINESSPayment and Settlement Act, 2007 Foreign Exchange Management Act, 1999 and the rules made thereunder Foreign Contribution Regulation Act 2010 Limitation Act Indian Contract Act, 1872 Power of Attorney Act, 1882 Indian Stamps Act, 1992 Registration Act Indian Income Tax Act Central Excise Act and Service Tax

12 INDUSTRY STANDARDS / REGULATIONS APPLICABLE TO BANKSBASEL III (BASEL COMMITTEE ON BANKING SUPERVISION) FOREIGN EXCHANGE DEALERS ASSOCIATION OF INDIA (FEDAI) RULES ACCOUNTING STANDARDS AND GUIDANCE NOTES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015

13 FEATURES OF CORE BANKING SYSTEMREAL TIME GENERAL LEDGER INTEGRATION OF DIFFERENT STAND ALONE SYSTEMS / APPLICATIONS INTEGRATED CUSTOMER INFORMATION SYSTEM(CIS) CENTRALIZED MANAGEMENT INFORMATION SYSTEMS (MIS)

14 OVERALL RISK CONTROL ENVIRONMENT IN BANKSBoard of Directors, Senior Management and its Committees Internal Audit Revenue Audit Branch Inspection Head Office Inspection Concurrent Audit Systems Audit Vigilance Function in Banks RBI Inspection

15 STRUCTURE OF THE INTERNAL CONTROL PROCEDURES IN BANKSDelegation of Powers Authorisation of Transactions Reporting to the next higher level Entry into different applications requiring authorization at different levels Deviation from procedures requires confirmation / intimation to higher authorities Periodic reporting to controlling authorities Segregation of duties and Rotation of Duties Maintenance of adequate records and documentation Maintenance of prescribed records / formats / books / registers Putting of Unique code assigned to each branch on specific transactions Periodical balancing of books Reconciliation of Inter branch transactions periodically Accountability for and safeguarding of assets

16 STRUCTURE OF THE INTERNAL CONTROL PROCEDURES IN BANKSParticulars of lost security forms which are immediately advised to branches to exercise caution. Specimen signatures of all officers are captured and scanned in the system Instruments of fund remittances above a cut-off level are to be signed by more than one official. Important financial messages, when transmitted electronically, are generally encrypted. Negative lists like stop-payment cheques or stop payment instructions are kept which may deal with the particular kind of transaction. There may be a caution list for advances also. Sensitive items like currency, valuables, draft forms, term deposit receipts, traveller’s cheques and other such security forms are in the custody of at least two officials of the branch. All assets of the bank/charged to the bank are physically verified at specified intervals. System Configuration and Account Mapping Independent Checks

17 OBJECTIVES OF CONCURRENT AUDITTo supplement efforts of the Bank in carrying out simultaneous internal checks of transactions and compliance with the systems and procedures of the Bank. To perform substantive checking in key areas and rectification of deficiencies in the earliest possible period to preclude the incidence of serious errors and fraudulent manipulation. To reduce the interval between a transaction and its examination by an independent person not involved in its documentation. To improve the functioning of the branch, leading to up gradation of working of the branch and prevention of fraud. Compliance with internal control as well as RBI/Government of India guidelines. Identification of areas/activities requiring corrective action and urgency. The transactions are properly recorded/documented and vouched The irregularities are rectified immediately The systems and procedures of the bank are implemented properly The transactions are performed or decisions are taken within the policy parameters stipulated by the Head Office, and is not violating the instructions or policy prescriptions of the RBI The delegated authority is exercised and the same is within the terms and conditions of the delegated authority

18 CONCURRENT AUDIT PLANNINGKnowing the Branch Considering the Risk Based Internal Audit (RBIA) Ratings of the Branch Collecting reference material (Policies / Procedures / Guidelines) BEFORE COMMENCEMENT OF AUDIT – (Permanent Files) BOOKS OF INSTRUCTIONS – Rules regarding Operations & Functioning MANUAL OF DOCUMENTATION – Advances & Deposits. LOAN POLICY DOCUMENT – Objectives & Stipulations for each financial year. MANAGER’S DISCRETIONARY LENDING POWER– Credit facilities sanctioned by the Branch Manager. LOAN & DEPOSIT PRODUCTS – Category of Loans & Deposits & its conditions which can be traced from the Bank’s website or Intranet. Areas of automation particularly in application of Income and expenditure and manual activities carried out Relevant software menus / information accessible to the concurrent auditor Banks product / schemes codes, balance sheet coding scheme, GL Head /Sub GL Heads and Accounts numbers for impersonal accounts

19 CONCURRENT AUDIT PLANNINGAFTER COMMENCEMENT OF AUDIT – (Current Files) MONTHLY REPORTS & WORKINGS – includes all the reports generated from CBS, audit workings & findings, other data collected, etc. for the Respective month. PENDING & FOLLOW –UP REGISTER– regarding the Areas which are pending and are required to be followed-up in succeeding months. UPDATION OF PERMANENT FILES – particularly concerned with recent Circulars issued by RBI/Bank HO, Loan products, Changes in Interest rates & Service charges. AUDIT NOTE ON KEY AREAS – based on matters discussed with Branch officials. Perusal of following reports: CONCURRENT AUDIT REPORT OF THE PREVIOUS MONTH – to understand the Current Status of concurrent audit. RBI/CO INSPECTION REPORT (Latest) – to make note of the Major findings & observations regarding any account, particularly Advances. STOCK AUDIT REPORTS – regarding Cash credit accounts more than Rs. One crores. REVENUE AUDIT REPORTS – to understand the major deficiency found in the Revenue aspect of the Branch SPECIAL AUDITS (if any) – regarding any prime issue covered under such audits.

20 CONCURRENT AUDIT PLANNINGEXTENT / FREQUENCY OF CHECKING The extent of checks to be carried out would depend primarily on the professional judgment, the following points are worth noting in this regard: In case of balance sheet items, investment portfolio, foreign exchange transactions, fraud prone/sensitive areas, outstanding advances more than a specified amount and also in accounts with less than a specified amount, if any unusual feature is found, it would be better auditor to increase the coverage of the items checked. In case of income and expenditure items, inter bank, inter branch transaction, interest paid and interest received, clearing transactions and deposit accounts, the check may use test checks. At a branch with poor performance in certain areas such as monitoring on house keeping, advances, investment, may carry out a more detailed checking of such areas. Concentrate on high-value transactions having financial implication for the Bank, rather than those involving lesser amount although number-wise, they may be large. Verify accuracy of statements and returns, compliance with internal inspection/audit reports and aspects relating to customer service. Identify problem areas at branch level and offer his suggestions to overcome them. In case of any shortcomings, where an adverse remark is required to be given, should give reasons therefore and also suggest steps that may be taken to avoid their recurrence. Make maximum efforts for removal/rectification of irregularities on the spot. List of irregularities should be given on a daily basis to the Section In-charge against his receipt under intimation to the Controlling Officer and it is suggested that their rectification should be monitored by the Controlling Officer Focus is on adherence to laid down systems, procedures and safeguards and statutory compliances Frequency of checking will depend on the guidelines issued by the Bank or RBI and also on the basis of risk perception arrived by the Auditor

21 DEALING WITH CBS ENVIRONMENTFollowing factors to be evaluated to determine the effect of CIS environment on the audit: Extent to which the CIS environment is used to record, compile and analyse accounting information; System of internal control in existence in the bank with regard to: (i) flow of authorised, correct and complete data to the processing centre; (ii) processing, analysis and reporting tasks undertaken; and the impact of computer-based accounting system on the audit trail that could otherwise be expected to exist in an entirely manual system Factors contributing to nonreduction of audit risk to an acceptable level by performance of substantive tests are: Extensive use of IT & EFT Systems – audit evidence is available only electronic form and produced by banks own systems High volume of transactions – making reliance on substantive test almost impracticable Geographic spread of operations of the bank Complex trading transactions

22 DEALING WITH CBS ENVIRONMENTInformation Produced by the Entity (IPE) typically consists of three elements: (1) Source data: (2) Report logic (3) Report parameters:. Understanding the IPE What is the purpose of the IPE? If in connection with the operation of a control, does the user depend on the accuracy and completeness of the information? If not, how is the user able to validate that the information is accurate and complete? What is the nature of the IPE? Is it a standard or custom report? Is the IPE system-generated or manually created? If manually created, what is the process for creating it? How is it created? What is the relevant source data and where does the source date reside? Is the source data subject to the general IT controls (e.g., access controls)?

23 DEALING WITH CBS ENVIRONMENTWhere does the report logic reside? If system-generated, is the report logic subject to the general IT controls (e.g. access and program change controls)? Is the report generated through a report writer tool? Is the report writer tool subject to the general IT controls (e.g. access and program change controls)? What functions are being performed by the report logic, including: How is the data extracted, transformed or loaded Are algorithms or calculations performed on the source data Is the information further manipulated after the IPE is generated by the system Is there additional information that is manually added to the report? Does the user enter parameters when the IPE is generated? If so what are the user-entered parameters? Have any errors been identified in the IPE? If so, what type of errors?

24 KYC / AML REQUIREMENTS In terms of Rule 3 of the Prevention of Money Laundering (Maintenance of Records) Rules 2005, the following records to be maintained by every reporting entity  All Cash Transaction of the value of more than Rupees ten lacs or its equivalent in foreign currency All series of cash transactions integrally connected to each other which have been valued below Rs. 10 Lacs or its equivalent in foreign currency where such series of transactions have taken place within a month Al transactions involving receipts of non profit organisations of value more than Rs. 10 Lacs or its equivalent in foreign currency All cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine or where any forgery of a valuable security or a document has taken place facilitating the transactions All suspicious transactions whether or not made in cash and by way of as specified in the rule All cross border wire transfers of the value of more than Rs. 5 Lac rupees or its equivalent in foreign currency where either the origin or destination of fund is in India All purchases and sale by any person of immovable property valued at fifty lac rupees or more that is registered by the reporting entity

25 KNOW YOUR CUSTOMER (KYC) POLICY KYC / AML REQUIREMENTS KNOW YOUR CUSTOMER (KYC) POLICY RBI had mandated Banks for a board approved KYC policy which contains the following CUSTOMER ACCEPTANCE POLICY RISK MANAGEMENT CUSTOMER IDENTIFICATION PROCEDURES MONITORING OF TRANSACTIONS

26 KYC / AML REQUIREMENTS CUSTOMER ACCEPTANCE POLICYNo Account is opened in Anonymous or fictitious / benami name No Account should be opened if the Customer Due Diligence procedures could not be completed No account or account based relationship should be undertaken without following the customer due diligence procedure Mandatory information to be obtained while opening an account should be specified Optional /additional information is obtained with the explicit consent of the customer after opening the account In case joint holders, Customer Due Diligence procedures should be done for all the joint holders Circumstances in which a customer is permitted to act on behalf of another is clearly spelt out Suitable system is put in place to ensure that the identity of the customer does not match with any person or entity whose name appears in the sanctions lists circulated by RBI

27 CUSTOMER IDENTIFICATION PROCEDURESKYC / AML REQUIREMENTS CUSTOMER IDENTIFICATION PROCEDURES Decision making functions of determining compliance with the KYC norms shall not be outsourced Introduction shall not be sought while opening accounts Customers shall not be required to furnish an additional OVD if the OVD submitted contains proof of identity and address Customer shall not be required to furnish a separate proof of address for permanent and current addresses, if they are different. In case of proof of address given is for current address, letter / declaration to be obtained from the customer towards address for correspondence Local address for correspondence for which proof of address is not available shall be verified through POSITIVE CONFIRMATION such as acknowledgment of receipt of letter, cheque books, ATM cards, telephonic conversations, visits to the place or the like Change in address – fresh proof of address to be obtained within six months

28 Risk categorisation should be undertaken based onKYC / AML REQUIREMENTS RISK MANAGEMENT Customers should be categorised as Low, Medium and High Risk Category based on the assessment and risk perception of the Bank Risk categorisation should be undertaken based on Customer’s identity Social /Financial Status Nature of Business activity Information about the client’s business and Location etc.

29 KYC / AML REQUIREMENTS OFFICIALLY VALID DOCUMENT (OVD)- Any one of the six documents can be submitted for proof of identity and proof of address Passport Driving Licence Permanent Account Number (PAN) Voter’s Identity Card Job Card issued by NREGA duly signed by an officer of the State Government Aadhar Card

30 KYC / AML REQUIREMENTS DEEMED OVD – FOR IDENTITY OF THE CUSTOMERS UNDER SIMPLIED PROCEDURES Identity card with applicant’s photograph issued by Central / State Government Departments, Statutory / Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions Letter issued by a Gazetted Officer with a duly attested photograph of the person DEEMED OVD – FOR ADDRESS PROOF OF THE CUSTOMERS UNDER SIMPLIED PROCEDURES Utility bill which is not more than two months old of any service provider (electricity, water, telephone, post paid mobile, piped gas) Property or Municipal Tax Receipt Bank Account or Post Office Savings Bank account statement Pension or Family Pension Payment Orders issued to retired employees by Government Departments or PSUs, if they contain the address Letter of allotment of accommodation or Leave & Licence Agreements from employer issued by State / Central Government Departments, Statutory or Regulatory Bodies, PSUs, Scheduled Commercial Banks, Financial Institutions and Listed Companies Documents issued by Government departments of Foreign Jurisdictions or letter issued by Foreign Embassy or Mission in India In case the person who proposes to open an account does not have OVD as proof of address, he can provide OVD of relative as defined in Section 2(77) of Companies Act, 2013 with whom the person is staying Copy of the marriage certificate issued by State Government or Gazette Notification indicating change in name together with a certified copy of the OVD in the existing name of the person shall be obtained

31 KYC / AML AUDIT PROCEDURESMinimum prescribed procedures to be done during Concurrent Audit Adherence to KYC/AML guidelines in opening new accounts and monitoring of transactions in such accounts Accounts opened and Closed within a short span of time i.e. quick mortality Activation and operation of inoperative accounts Revival of dormant accounts and account with minimum activities Multiple credits to single accounts Record keeping of KYC documentation

32 KYC / AML AUDIT PROCEDURES - INDIVIDUALSAvailability of Sanction Lists Whether such lists are available at the Branch for reference at the KYC audit Check the Bank Intranet for such lists (which normally containing such lists) Account Opening Form(AOF) and documents- INDIVIDUALS One Certified copy of the OVD One Recent Photograph Small Accounts Self attested photograph While opening the account, the designated officer certifies that the person opening account has affixed his signature or thumb impression in his presence Such accounts are opening only in CBS BRANCHES and no foreign remittances are credited to such accounts unless the identity of the customer is fully established through OVD Stipulated monthly / annual limits on aggregate of transactions are not breached Accounts of Migrant Workers Opened on the basis of one address proof – permanent or current residence only If not proof of current residence is available, account opened on the basis of declaration

33 KYC / AML AUDIT PROCEDURES - INDIVIDUALSMinor’s Accounts Minors of any age can open savings / fixed / recurring bank deposit account through their natural / legal guardian Minors above the age of 10 years may be allowed to open and operate savings bank accounts independently subject to fixing the limits in terms of age and operations by the Bank Management On attaining majority Such accounts should be made KYC compliant Fresh AOF , fresh operating instructions and specimen signature to be obtained Photograph fresh has to be obtained Salaried Employees Certificate / letter of identity and / or address (issued by a corporate and other reputed entities) has been obtained Only OVD or utility bill has been obtained Accounts of Foreign Students Accounts to be opened as NRO Passport (with visa and immigration endorsement) bearing the proof of identify and address in the home country together with a photograph to be obtained Declaration about the local address within a period of 30 days of account opening obtained and verified by the Bank During initial period of 30 days, the account has been operated with a condition of allowing foreign remittances not exceeding USD 1000 or equivalent into the account and a cap of monthly withdrawal of Rs pending verification of address

34 KYC / AML AUDIT PROCEDURES - INDIVIDUALSSelf Help Groups OVD of Office bearers of Self Help Groups High Risk Customers Accounts of following customers are to be categorised as HIGH RISK and to be opened in a separately identifiable code Non Residents High Net worth Individuals (HNIs) Trusts, Charities, NGOs, Organisations receiving donations Companies having close family shareholding or beneficial ownership Firms with Sleeping Partners Politically Exposed Persons of foreign origin, customers who are close relatives of such persons and accounts of which such person is the beneficial owner Non face to face customers Customers who open accounts without visiting the bank or meeting officials of bank Those with dubious reputation as per public information available Accounts of bullion dealers / sub dealers and jewellers

35 KYC / AML AUDIT PROCEDURES - INDIVIDUALSPolitically Exposed Persons (PEPs) Individuals who are or have been entrusted with prominent public functions in a foreign country – Heads of States /Governments, Senior Politicians, Senior Government / Judicial / Military Officers / Executives of state owned corporations, important political party officials Opening of such accounts approved by higher authorities and such accounts are separately identifiable Details regarding accounts of family members or close relatives of PEP obtained for monitoring purposes

36 KYC / AML AUDIT PROCEDURESKYC – ACCOUNTS OF PROPRIETORY FIRMS  Certified copy of the OVD in proof of identity and address of the proprietor At least any two document in the name of the proprietorship firm has been obtained along with AOF Registration Certificate Certificate / license issued by the Municipal authorities under Shops and Establishment Act Sales and Income Tax Returns CST/VAT Registration certificate Certificate / Registration document issued by Sales Tax / Professional Tax /Service Tax Authorities Licence /Certificate of Practice issued by the professional body incorporated under a Statute Complete Income Tax Return (not just acknowledgment) in the name of sole proprietorship firm where the firms name is reflected duly authenticated / acknowledged by the income tax authorities Utility bills such as Electricity, Water, Telephone etc. If any of the two documents are not submitted, the bank may at its discretion accept only one of those documents as proof of address / business / activity – provided they visit the premises or undertake contact point verification and collect such other information

37 KYC / AML AUDIT PROCEDURESKYC – COMPANY Certificate of Incorporation Memorandum and Articles of Association Resolution passed by the Board of Directors Power of Attorney granted to its managers, employees, officers to act transact on behalf of the Company An OVD in respect of the managers, officers or employees holding an attorney to transact on behalf of the company KYC – PARTNERSHIP FIRM / TRUST Registration Certificate Partnership Deed / Trust Deed OVD in respect of the person holding the power of attorney to transact In respect of Trust, check whether the identity of the Trustees, Settlors of Trust, Grantors, Protectors, beneficiaries and signatories has been verified and beneficiaries if any defined, have been defined. KYC COMMON – UNINCORPORATED ASSOCIATIONS Resolution of the Managing Body of such association or Body of Individuals Power of Attorney granted to transact the business on behalf of UIA/BOI OVD in respect of the person holding power of Attorney Such information as may be required to collectively establish the legal existence of such an UIA/BOI

38 KYC / AML AUDIT PROCEDURESADDITIONAL CONSIDERATIONS FOR CURRENT ACCOUNTS Declaration about the credit facilities enjoyed by the Customer has been obtained (declaration to be obtained whether the facilities are enjoyed or not) No objection Certificate has been obtained from the lender Bank (if NOC is not received from the lender bank within fortnight, bank should allow opening the account) It is verified by the drawee bank that the initial deposit is made by the Cheque Verification from CRILC database (Central Repository on Information on Large Credits) about the credit facilities enjoyed if any

39 KYC / AML AUDIT PROCEDURESCOMMON REQUIREMENTS WHILE OPENING NEW ACCOUNTS Check whether Unique Customer Identification Code (UCIC) has been allotted Copy of PAN card or Form 60 has been obtained Self Certification under FATCA – CRS requirements about residence status for tax purposes Nomination information is available in Accounting Opening Form (AOF) Nomination has been registered and nomination registration number has been allotted and noted on pass books / statements Beneficial owners have been identified and their identities have been verified Verification by Competent Official and Authorisation by BM /Authorised Officer WALK IN CUSTOMERS – TRANSACTIONS CARRIED OUT BY NON ACCOUNT BASED CUSTOMERS Identity and address proof are taken on records and verified for transactions for an amount equal to or more than Rs conducted as a single transaction or several transactions that appear to be connected intentionally structured by the Customer Reported in STR if there is reason to believe that such transactions have been structured to be below Rs All international money transfer operations are captured by the system as exceptions / alerts Identity of the Customer is verified / taken on records for each international money transfer operations

40 KYC / AML AUDIT PROCEDURESFOREIGN CONTRIBUTION (REGULATION) ACT- FCRA 2010 Ascertain whether there are any such accounts in the Branch Provision of FCRA especially regarding opening of accounts have been adhered meticulously Cheques in favour of associations which are registered /recognised under the ACT only are collected Only through a designated account – all remittances to be received To ensure that the account is designated account and the account holder is registered under FCRA Report of receipt of contributions in excess of 100 Lacs or equivalent thereto in a single transaction or in transactions within a duration of thirty days- such report should be sent to Central Government within 30 days from the date of last transaction

41 KYC / AML AUDIT PROCEDURESRECORD MANAGEMENT KYC documentation is preserved at least for five years Necessary records of transactions both domestic and international have been maintained for at least 5 years Maintain necessary information in respect of transactions prescribed under PML Act so as to permit reconstruction of individual transactions including the following: Nature of transactions Amount of the transaction and the currency in which it was denominated Date on which the transaction was conducted Parties to the transaction

42 Minimum prescribed procedures to be done during Concurrent Audit CASH TRANSACTIONS Minimum prescribed procedures to be done during Concurrent Audit Surprise physical verification of cash at Branch and ATM along with safekeeping and custody Daily Cash transactions, particularly abnormal receipts and payments Surprise verification of cash by an officer other than the joint custodian Proper accounting of and availability of insurance cover for inward and outward cash remittances Accounting of currency chest transactions and delays / omissions in reporting to RBI Reporting of Counterfeit Currency Reporting of cash transactions above Rs. 10 Lacs in CTR Cash Transactions above Rs invariably indicate PAN / Form No. 60

43 CASH TRANSACTIONS – CASH AT BRANCHPhysical verification of Cash in the presence of joint custodians – cash balance physically available should match with the Cash Book Balance and General Ledger balance Cut notes are sorted – comment on the balances of cut notes held – period of holding Daily cash balances Book is maintained properly – writing balances in words and figures and putting of signatures of both the custodians Distribution of cash among cashiers and bringing Cash back to the Head Cashier is properly recorded Excess / Shortage of cash is recorded and reported to higher authorities ‘BAIT Money’ is held and is changed periodically Daily cash report is scrutinized and verified with vouchers All petty cash vouchers are dully authorised by competent official Physical petty cash balance is verified by an independent official regularly Stapling of note packets is not done (as per RBI Clean Note Policy) Notes are sorted into re-issuable and soiled and only clear notes are issued to the public Do not write on the watermark window of bank notes All cash paid paid instruments (self cheques, withdrawal forms, cash receipt vouchers) are daily verified and such instruments are kept in safe custody

44 CASH TRANSACTIONS – CASH AT BRANCHCash Tokens are physically verified and tally with the actual cash token to be held Non Judicial Stamps and stamped forms are held in joint custody and register of stamps is maintained properly – where Franking Machine is available for Judicial and Postal stamps check whether the balance as per the Machine is agreeing with the Register maintained and also with the General Ledger Surprise cash verification is done by an officer other than the joint custodians at irregular intervals (but regularly) and such verification is evidenced from the records Entry into Cash Cabin, Strong Room is restricted to authorised persons only Inward and Outward remittance of Cash is done by following the Bank’s policy / procedure / instructions Check whether the bank is equipped with ultra violet lamps /other appropriate sorting / detection equipment to detect counterfeit currency Record of cash transactions of Rs. 10 Lacs and above integrally connected transactions are maintained and captured by the software- scrutinized by the Branch Manager / supervising official Acknowledgments have been obtained and properly recorded / filed for the cash remitted Cash Safe / room keys are under joint custody

45 CASH TRANSACTIONS – CASH AT BRANCHThe following registers are maintained / updated regularly and are up-to date Safe-in and Safe-out / Vault Register Strong Room Inventory Register Cut /Soiled / Mutilated notes exchange Register Cash Inward / Cash Outward remittance register Cash Shortage / Excess Register also known as Cash Discrepancy Register Petty Cash Book / Register Register for exchange of cash between cashiers /tellers Cash-Custodians Key hand over – takeover register

46 CASH TRANSACTIONS CASH AT ATMPhysical verification of cash in ATM – physical balance to tally with cash as per log report of ATM and as per General Ledger Cash at ATM has been verified at irregular intervals by officials other than custodians JP (Journal Printers) Longs are taken out and scrutinized daily ATM Cash replenishment Book is maintained – with amount in Figures and Words and authenticated by authorised official ATM keys are kept in Joint Custody and ATM Key Register – recording the movement of Keys maintained properly CASH RETENTION LIMIT AND INSURANCE Obtain HO letter fixing the CRL for the Branch Daily cash balance at the Branch is within the Cash Retention Limit (CRL) Excess cash held has been reported to the controlling office Check whether the insurance has been taken for various risks – Fire, Burglary, Fidelity, Cash Movement, Cash and other valuables stored – for both at the Branch and ATM – check the currency of the policy and coverage is adequate to cover the risks

47 CASH TRANSACTIONS CURRENCY CHEST TRANSACTIONSCash receipts from the branches are accounted on the same day Branch cash is not mixed with the currency chest balance and is kept separately Sorting of notes is done regularly Branch is advising chest operations details regularly as per RBI Guidelines – through ICCOMS on the same day by 9 PM by uploading the date In case of delay in reporting Penal interest has been calculated on T+0 and interest for delay in submission of chest slips in the case of single chest / STO directly linked to the Issue Department of RBI Penal Interest chargeable for wrong reporting (in Link Transactions even if the chest slips are correct) Penal interest also is chargeable for inclusion of ineligible amounts in the returns / reporting – for the period of inclusion to the date of exclusion Penal interest rate is 2% above prevailing Bank Rate Soiled notes should not be included in the chest balances – only balances held in the joint custody and freely available should be reported

48 CASH TRANSACTIONS COUNTERFEIT CURRENCYNotes in denominations above Rs. 100 are not recirculated without the notes being machine processed for authenticity All currency chest branches should be equipped with verification, processing and sorting machines Counterfeit currency detected should not be returned to the Customer / depositor or destroyed by the Branch officers Such notes should be impounded by stamping COUNTERFEIT NOTE on the same and separately recorded in a register Acknowledgment receipt of the counterfeit note receipt to be given to the tenderer – the receipt to be authenticated by the Cashier and Tenderer In case of receipt of four pieces, in a single transaction, consolidated report to be prepared and sent to the Nodal Bank Officer and to the Nodal Police Station In case of receipt of 5 or more pieces, in a single transaction, report to be prepared and sent to the Nodal Bank Officer and to the Local Police authorities / Nodal Police Station and FIR filed with the local police authorities Copy of the Monthly consolidated report / FIR shall be sent to the Forged Note Vigilance Cell constituted at the Head Office of the Bank Acknowledgement of the Police authorities to be obtained on all the reports submitted to them Counterfeit Currency report should be submitted on a monthly basis to RBI by the Bank

49 In respect of DD/Pay Orders ensure thatCASH TRANSACTIONS REMITTANCES To check whether all transactions of NEFT /RTGS have been responded and charges have been collected All records regarding the payment instructions are preserved for a period of 10 years In respect of DD/Pay Orders ensure that Using Cello tape on words and figures Punching at appropriate digits Writing employee code numbers Signatures as per the delegated authority All such instruments are crossed to be account payee Obtaining acknowledgements from the recipients of DD/PO Proper charges have been collected In respect of issue of duplicate DD/PO suitable indemnity bond has been obtained Cancelled DD/POs are preserved and proper commission has been charged and recovered

50 DEPOSITS Minimum prescribed procedures to be done during Concurrent Audit Settlement of Claims of Deceased Customers Payment of TDRs against Lost Receipts Value Dated Transactions

51 DEPOSITS – GENERAL CONDITIONSMinimum tenor of domestic term deposits shall be seven days Bulk Deposits means single rupee term deposit of Rupees 1 Crores and above Cannot discriminate in the matter of interest paid between one deposit and another accepted on the same date and for the same maturity – whether accepted in the same branch or different branches Interest rates payable on deposits shall not be subject to negotiation between the depositor and bank Allowed to offer differential rate on domestic terms deposits on the basis of tenure and size of deposit and availability of early withdrawal option All term deposits of individuals (jointly or singly) of 15 Lacs and below should necessarily have premature withdrawal facility For other deposits without the option of premature withdrawal customer has to be given an option of having premature withdrawal option and such option has been communicated to the customer transparently and duly documented Information on the method of calculation of interest on deposit should be made available to the depositors and displayed in the branches For Unclaimed matured deposits, interest at the savings bank interest rate should be provided Banks have the option of calculation interest at intervals shorter than quarterly intervals Record of all customers having multiple UCIC are held Consent letters / evidence has been taken on record for deposits made on behalf of third parties Repayment of Term Deposits exceeding Rs shall not be made in Cash Check whether SB and CD accounts are periodically classified into in-operative if there are no transactions for more than two yearsActivation of inoperative accounts are done after obtaining latest KYC documents and after obtaining permission from the concerned BM / as per the guidelines issued by Central Office Inoperative accounts are kept in a separate ledger and specimen signature cards of inoperative accounts are kept separate in joint custody of

52 DEPOSITS – NON RESIDENTS –NRC / FCNR(B)FCNR (B) Can be opened in the form of TERM Deposit with maturity of such period prescribed by RBI. Rate of Interest also shall be as prescribed by RBI Permissible Credits Proceeds of remittances to India in any permitted currency Proceeds of personal cheques drawn by the account holder on his foreign currency account/ Travellers Cheques, Bank Drafts payable in any permitted currency The Authorised dealer is satisfied that the account holder is still resident outside india During the temporary visit of Non Resident to India Provided that the amount was declared in Currency Declaration Form (CDF) The notes were tendered by the account holder himself to the AD AD is satisfied that the account holder is a person resident outside India Transfers from other NRE /FCNR (B) ACCOUNTS Interest accruing on the funds held in the account Current Income in India due to the account holder – subject to payment of taxes in India Maturity or sale proceeds of any permissible investment in India which was originally made by debit to the account holder’s NRE/FCNR account or out of remittances from outside India through banking channels Refund of Share / Debenture subscriptions to new issues of Indian Companies or portion thereof which was originally made by debit to the account holder’s NRE/FCNR account or out of remittances from outside India through banking channels Refund of application / earnest money / purchase consideration made by the house building agencies / seller on account of non-allotment of flat/plot/cancellation of bookings etc. Any other credit covered under general special permission granted by RBI

53 DEPOSITS – NON RESIDENTS –NRC / FCNR(B)Loans can be granted against the security of funds to the account holder or to any third party in or outside India without any limits subject to margin requirements Operations can be allowed by Power of Attorney – such operations are restricted to withdrawals for local payments or remittance to the account holder though banking channels Resident Power of Attorney holder not allowed to Open NRE Account Repatriate funds in the account other than to the account holder himself Make payment by way of gift to a resident on behalf of account holder Transfer of funds to another NRE account Interest income on balances standing to the credit NRE account are exempt from Income Tax Permissible Debits Local disbursements Remittances outside India Transfer to NRC / FCNR (B) accounts of the account holder or any other person eligible to maintain such accounts Investment in shares /securities / for purchase of house property Any other credit covered under general special permission granted by RBI

54 DEPOSITS – NON RESIDENTS –NROAccount can be held jointly with residents on ‘former or survivor’ basis. NRIs and PIOs may hold NRO account jointly with other NRIs / PIOs Loans can be granted against the deposits to the account holder or third party on security of the FCNR account subject to margin requirements. Loan cannot be used for relending , agricultural / plantation activities or investment in real estate Account can be designated as resident account on return of the account holder to India Operations allowed in terms of a power of attorney provided such operations are restricted to All local payments in rupees Remittance outside India of current income in India of the NRI account holder net of taxes Permissible Credits Proceedings of remittances received in any permitted currency from outside India through normal banking channels Permitted currency tendered by the NRI during his temporary visit to India Transfers from rupee accounts of Non Resident Banks Legitimate dues in India of the Account Holder Transfers from other NRO accounts

55 DEPOSITS – NON RESIDENTS –NROPermissible Debits Local payments in rupees including payments for investments subject to compliance of relevant RBI regulations Remittance outside India of current income in India of the account holder net of applicable taxes Transfers to other NRO Accounts Settlement of charges on International Credit Cards issued by the authorised dealer banksin India to NRI / PIOs. Balances cannot be repatriated except by the NRIs upto USD One Million. Funds can be transferred to NRE account within the limit of USD One Million

56 DEPOSITS – RESIDENTS – FOREIGN CURRENCY - EEFCExchange Earner’s Foreign Currency (EEFC) Account Permissible Credits 100 percent of the foreign exchange earnings by way of inward remittance through normal banking channel, (other than loans or investments); Payments received for the purpose of counter trade; Advance remittance received by an exporter towards export of goods or services; Professional earnings including director’s fees, consultancy fees, lecture fees, honorarium and similar other earnings received by a professional by rendering services in his individual capacity; Interest earned on the funds held in the account; Re-credit of unutilised foreign currency earlier withdrawn from the account; Repayment of trade related loans/ advances (which were granted to the account holder's importer customer out of balances held in the EEFC accounts); and Disinvestment proceeds received by the resident account holder on conversion of shares held by him to ADRs/ GDRs under the ADR/GDR Scheme approved by the Government of India. Permissible Debits Payment outside India towards capital or current account transactions in ccordance with the provisions of Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 or Foreign Exchange Management (Current Account Transactions) Rules, 2000, respectively; Payment in foreign exchange towards cost of goods purchased from a 100 percent Export Oriented Unit or a Unit in an Export Processing Zone/ Software Technology Park/ Electronic Hardware Technology Park;

57 DEPOSITS – RESIDENTS – FOREIGN CURRENCY - EEFCPayment of customs duty in accordance with the provisions of Export Import Policy; Trade related loans/ advances, by an exporter account holder to his importer customer outside India, subject to complying the provisions of FEMA and the rules/ regulations made thereunder; Payment in foreign exchange to a person resident in India for supply of goods/ services including payments for air fare and hotel expenditure Withdrawal in Rupees are permitted in this account provided the amount so withdrawn cannot be recredited into the account The account will be in the form NON INTEREST BEARING ACCOUNT Claims settled by ECGC / Insurance Companies not to be construed as export realisation in FE Sum Total of credits during the calendar month should be converted into Indian Rupees on or before the last day of the succeeding Calendar month after adjusting for utilisation of the balances for approved purposes Fund Based / Non Fund based credit facilities should be granted against EEFC accounts

58 DEPOSITS – RESIDENTS – FOREIGN CURRENCY- RESIDENT FOREIGN CURRENCY (RFC) ACCOUNTResident in India permitted to RFC account out of FE received or acquired by him though: Pension or superannuation benefits from his overseas employer; Converting assets which were acquired by him when he was a non-resident or inherited from or gifted by a person resident outside India and repatriated to India; Before July 8, 1947 or any income arising or accruing thereon which is held outside India in pursuance of a general or special permission granted by the Reserve Bank; Received as proceeds of LIC claims/ maturity/ surrendered value settled in forex from an Indian insurance company permitted to undertake life insurance business by the Insurance Regulatory and Development Authority. Balances in RFC Accounts free from any restrictions with regard to their utilisation Account can be opened jointly with a resident relative on ‘ former or survivor” basis. However the resident relative cannot operate the account during the lifetime of the resident holder

59 DEPOSITS – RESIDENTS – FOREIGN CURRENCY- RESIDENT FOREIGN CURRENCY DOMESTIC (RFC-D) ACCOUNTA resident individual may open an RFC(D) account to retain in a bank account in India the foreign exchange acquired in the form of currency notes, bank notes and travellers cheques from overseas sources such as: Payment while on a visit abroad for services not arising from any business or anything done in India; Honorarium or gift or for services rendered or in settlement of any lawful obligation from any person not resident in India and who is on a visit to India; Honorarium or gift while on a visit to any place outside India; Gift from a relative; Unspent foreign exchange acquired from an authorised person for travel abroad; Disinvestment proceeds received by the resident account holder on conversion of shares held by him to ADRs/ GDRs under the ADR/GDR Scheme approved by the Government of India; Earnings received as the proceeds of life insurance policy claims/ maturity/ surrender values settled in foreign currency from an insurance company in India permitted to undertake life insurance business by the Insurance Regulatory and Development Authority Sum Total of credits during the calendar month should be converted into Indian Rupees on or before the last day of the succeeding Calendar month after adjusting for utilisation of the balances for approved purposes Balances in the account can be used for any current or capital account transactions

60 TERM DEPOSITS Duly filled AOF obtained and scrutinizedIn case of deposits of more than Rs or aggregating more than Rs lacs in a financial year, PAN /Form 60 is to be obtained and such information is captured by the Software Cash Deposits exceeding Rs in a day are captured and PAN is quoted on such deposits or FORM NO 60 obtained If the deposit holder is a minor who does not have any income tax chargeable to tax he shall quote PAN of his father / mother or guardian KYC/AML documents obtained for new customer Reference of Customer ID and adherence to KYC/AML documents made in case of existing customer Value Date Transaction (transactions effective from a retrospective date) Should be made only in accordance with the Bank Policy Such transactions are captured in the daily exception / alert reports Early Withdrawal Appropriate rate of interest has been applied as per RBI Instructions and Bank Policy Premature withdrawal penalty applied in terms of banks policy Deposits with Either or Survivor or Either or Former instructions are repaid after obtaining signatures of all the depositors

61 TERM DEPOSITS Deposits made by senior citizensNomination form obtained Appropriate interest rate has been applied Clause on automatic transfer to the nominee in the event of death included In case of deposit held by HUF, preferential rate for senior citizen should not be offered even if the Karta of the HUF is a senior citizen Deposits in the name of Staff members In respect of savings or term deposit account opened in the name of Member or a retired member of banks staff either singly or jointly with any member or members of his / her family The spouse of deceased member or a deceased retired member of the banks staff An Association or a fund, members of which are members of the bank’s staff Suitable declaration has been obtained that the funds for the deposits have been sourced from own sources Appropriate concessional rate of interest as per policy of the Bank is applied Repayment of Deposits in the name of third parties Consent / Release Orders obtained Repayment made to authorised persons as per bank records Due discharge from the deposits has been taken on the TDR

62 Settlement of Claims of Deceased personsTERM DEPOSITS Settlement of Claims of Deceased persons Ascertain whether such instances of settlement of claims are recorded / captured by the software in the exceptions report Duly filled in and signed prescribed Claim Form has been obtained Necessary supporting documents such as NOC from all legal heirs are obtained and scrutinised Interest payable on the deposit account of deceased depositor paid as per the RBI Guidelines / Bank policy Claims paid within the prescribed time as per the mandate available for repayment Payment of TDRS against Lost Receipts Suitable indemnity has been obtained as per Bank guidelines Payments are approved by the Competent Authority Procedure prescribed by the Bank has been followed

63 DEPOSITS – IMPORTANT AREAS TO REVIEWWhether deposit accounts are opened, after thorough scrutiny of postal address through Ration Card/Passport/Voters Identity Card/I.T. Pan Card etc. In newly opened accounts, if there is deposit of large amount of cheque and there is immediate withdrawal of the bulk amount is it being monitored by the management staff. Whether specimen signature cards and other documents signed by the customers are kept under duel control always. Passbooks deposited for updating are being duly acknowledged and no box is maintained for receipt of passbooks. Delivery of pass-book is made after scrutiny. In outward bills collection register (OBC), if outstation instruments viz. cheques Demand Drafts, Banker's cheque, refund orders are deposited and on immediate realization are withdrawn from newly opened accounts are those payments duly monitored. File for noting number of lost leaves of Demand Draft, banker's cheque, credit authorization note/credit note etc is maintained and kept readily available for use.

64 NON FUND BASED BUSINESS – BANK GUARANTEES / LETTERS OF CREDITMinimum Audit procedures to be performed LC/BG issued / amended as per the approved format and standard limitation clause incorporated Counter indemnity obtained Any deviation from the terms of sanction Payment made to the debit of party’s account on due date without creating overdraft / debiting suspense

65 NON FUND BASED BUSINESS – BG/LCSISSUE Duly filled and signed application for sanctioning the limits obtained Declaration of credit limits enjoyed with other banks obtained Limits / Sanctions given to persons who regularly enjoy the credit facilities with the bank If the BGs are issued to the customers of cooperative banks then it should be based on the counter guarantees of the Cooperative Banks At the time of sanction of limit, it is ensured that the borrower has enough experience, capacity and means to perform the obligations under the contract Margin / security, purpose, period beneficiary requirements have been met Bank charges and commission have been recovered Guarantees have been appropriately classified – Financial and Performance BG has been properly worded and does not contain onerous clauses; contains Limitation clause Maturity period of the BG does not exceed 10 years Unsecured Medium / long term guarantees are not issued Name, cod number, designation of the officers signing have been mentioned Bank Guarantees are issued on serially numbered security forms Guarantees for Rs and above are signed by two officials

66 NON FUND BASED BUSINESS – BG/LCSDuly signed counter indemnity in prescribed format obtained – appropriate stamp duty paid In respect of multi year bank guarantees the commission collected upfront should be classified as current year commission and unearned commission and amortised accordingly Periodical balancing of the BG register and removal of expired BGs after claim period to be done Extension of Bank Guarantee is properly recorded and appropriate commission has been collected LCs without recourse have not been opened and bills purchasing / discounting /negotiation of bills with without recourse clause not done Blank LC / LG forms are kept in joint custody INVOKED / PAYMENT Invocations are duly recorded in the register Laid down policies are followed LCs invoked – amounts are debited to the CC / OD account

67 BILLS – PURCHASE / DISCOUNTINGMinimum Audit procedures to be performed Documents of title obtained in favour of the bank and the concerned transporters are on the IBA approved list Report bills / cheques purchased - accommodation bills Proper follow upfor overdue bills purchased /discounted /negotiated has been made

68 BILLS – PURCHASE / DISCOUNTINGApplication for bills purchase / discounting obtained with supporting documents and scrutinized by the bank officials Transporter is on the IBA approved list Bank clause is available in the terms and conditions of the LR and discounting bank as consignee Consignor has put signatures on endorsement in blank or endorsement in favour of the bank on the LR Only consignee copy of the LR has been accepted Serial number, quantity LR number and value have been duly verified Lodgers instructions as stipulated in the bills are followed meticulously Charges – interest, commission, postage are recovered Instruments are despatched to the drawee bank promptly Bills over threshold limit have approval of two authorised officers Sanctions beyond delegations are reported Bills drawn on sister / associate concerns should be specially reviewed to check accommodation Bills drawn on same address Bills of round figure Bills drawn by parties who generally have local business only Address of drawee and drawer same Securities available are sufficient Fresh bills cheques have not been accepted to adjust the old / unadjusted bills / cheques Bills returned unpaid are recorded and reported promptly Registers balanced regularly and monitored Bills discounted / purchased /negotiated are not with “without recourse” clause

69 BILLS – PURCHASE / DISCOUNTINGIn case of Bills that have been returned without recovery, give details indicating date of return, reason for nonpayment, status of goods covered, insurance protection, etc. In respect of LCBR-whether goods are appropriately protected with insurance. Examine the total number of Bills and amount returned and recovered during the period under review. Whether satisfactory credit report on drawees in respect of Bills/Drawers in respect of cheques is held? Whether LC documents (LCBR) were verified with LC terms? Whether LC bill was rejected by the importer for any reason of non- compliance with LC terms, etc? Whether cheque/bills are dispatched promptly, at least on the next day? Whether interest/commission, as prescribed, are collected? If any excess was allowed and not reported, mention the date of excess, amount name of the party, nature of facility, sanctioning authority, etc. Does the branch ensure dispatch of returned cheques by registered post if they are not collected immediately? In case any deviation is noticed, please give full details. For supply bills, verify whether the branch ascertained the genuineness of the underlying contract and Power of Attorney registered in the Bank's favour? What is the system of follow up for the recovery of returned bills? How long have they been kept pending? Are sales against firm order whether the bills relate to genuine trade transactions? Are the goods covered generally traded items/dealt with? Any unusual features noticed in the handling of portfolio of bills?

70 BILLS – PURCHASE / DISCOUNTINGIn respect of all overdue and returned bills, please examine and comment on the fate of goods and report details of such bills including LCBRs remaining unpaid after arrival of goods, indicating action taken by the branch. In respect of export bills purchased and discounted, expressed in foreign currency, whether overdue bills were promptly converted into rupees under report to the central office. Whether packing credit was adjusted where applicable. Comment on cases where payment is received under reserve. ECGC policy as applicable is held-Drawee Limit is mentioned for compliance. Wherever LR is accompanied check whether they were issued by approved lorry companies? Whether appropriate margin/exchange/postage has been collected as per sanction stipulation? Whether the turnover in Bills limit reflects the true position of sales as evidenced from balance sheet? Large variation should be commented. In case of Foreign Bills Purchased/Discounted for export on FOB and C&F terms, whether the contingency risks policy as per Head Office instructions and Exchange Control requirements.

71 REVENUE LEAKAGE Revenue Checking Verify and report non-recovery of:Locker rent. Folio charges. Penal interest for delayed/non-submission of returns, financial statement required to be submitted. Penal interest on advances in respect of lapsed sanction/limit. Penal interest on excess over limit. Overdue interest on all types of bills, loans and packing credits for overdue period. Commitment fee for unutilized limit is collected as per rules. Commission of letter of credit, letter of guarantee and charges for safe custody etc. Standing information charges. Stop payment charges. Processing fee on advances. Ledger folio charges.

72 Minimum prescribed procedures to be done during Concurrent Audit HOUSEKEEPING Minimum prescribed procedures to be done during Concurrent Audit Exceptional transactions reports are generated and verified by bank staff Review of all balance sheet heads and outstanding entries in accounts – suspense, sundry and inter bank accounts Review of follow up of entries pending for reversal Scrutiny of daily vouchers with more emphasis on high value transactions including high value expenses and debit entries in suspense accounts Debits in accounts where signatures are pending Compliance of provisions related to TDS, Service Tax, Trade Tax, and other duties and cesses Physical verification of inventory, control over issue of inventory, safe keeping and custody of security stationary

73 HOUSEKEEPING Whether the branch is generating and reviewing the Exceptional Transaction Reports (ETR) as per the guidelines specified by HO Follow up actions – how the ETR items are disposed off Impersonal accounts – such as Sundry Suspense, etc Are reviewed and routine entries in such accounts are scrutinized and pruned off regularly Entries to such accounts are made only after proper authorisation Age wise and reason wise break up of entries outstanding are held on records All daily reports are printed and scrutnizied by authorised official as per HO guidelines TDS compliance and Service Tax Compliance Physical verification of Inventory, Control over Issue of Inventory Register of sensitive stationery – cheque books, draft forms, TDRs forms, stock of credit / debit cards is maintained properly Receipts and issues are duly authenticated Details of such inventory are updated in the Software that the software inventory matches with the manual registers maintained. These are reconciled regularly, in case of discrepancy Cheque books are issued only on the basis of requisition slips and relevant charges are debited Security stationery is periodically verified by an officer other than the joint custodians (at intervals as prescribed by the Bank guidelines) Maintenance of Due dates of various control returns / statements Whether such returns are submitted in due dates

74 HOUSEKEEPING Daily vouchers of all departments are bundled and stitched regularly Voucher bundling slips giving the number of vouchers and signatures of the concernedoffical are fixed on voucher bundles Vouchers are kept securely under joint custody Specimen Signature Cards are securely kept and regularly scanned and updated in the computer master Ensure that the maintenance and balancing of accounts, ledgers and registers including cash book is proper. Prompt and regular reconciliation of entries outstanding in the inter-branch and inter-Bank accounts, suspense account, sundry deposit account, DDP account, Drafts Account etc. Ensure early adjustment of large value entries. Carry out a percentage check of calculations of interest, discount, commission, and exchange. Check whether debits in income account have been permitted by the competent authorities. Check the transactions of staff members. In case of difference in clearing, there is a tendency to book it in an intermediary suspense account instead of locating the difference. Examine the day book to verify as to how the difference in clearing has been adjusted. Such instances should be reported to Controlling Office in case the difference persists. Detection and prevention of revenue leakages through close examination of income and expenditure. Check cheques returned/bills returned register and look into reasons for return of those instruments. Checking of inward and outward remittances (DDs, MTs and TTs). Reconciliation of bankers accounts. Other items - High value transactions. In case the branch has been entrusted with Government Business, ensure that the transactions are done in accordance with the instructions issued by Government, RBI and Controlling Office. Study internal inspection/audit reports and ensure that the branch gives proper compliance thereto. Ensure that customer complaints are dealt with promptly.

75 HOUSEKEEPING - COMPUTER INFRASTRUCTURE RELATEDWhether Server Room (in case of PBM/TBM branches) is locked overnight, kept neat and clean with air conditioner working perfectly. Whether access to Server Room / computers / nodes / ALPMs is restricted to authorized persons only. In case of any breakdown, whether the same is noted in Machine Breakdown-cum- Vendor- Visit Register. Verify whether UPS is working fine and in case of power failure, sufficient battery back up is available. Verify that any other load (other than computer and peripherals) is not put on the UPS power points. Whether back up is taken daily on floppy/cartridge tape/other media by authorized official and are properly labeled with the days taken and date taken is noted a label outside. Whether off-site storage of back-up of system and data are maintained? Whether secrecy of passwords is maintained. Whether passwords are changed periodically (verify whether periodical changes are recorded by mentioning the date of change of password). Whether the user having only one user id. Whether users the terminals without logging out? Whether operators are given access to DOS/UNIX prompt?

76 HOUSEKEEPING - COMPUTER INFRASTRUCTURE RELATEDWhether any unauthorized software programmes are installed/used? If yes, collect details thereof. Whether all balances are tallied with GL heads on day to- day basis Whether all transactions are authorized daily. Whether signature scanning is done regularly for all newly-obtained signature cards. Whether proper procedure is followed for data input and proper rubber stamp is affixed on the reverse of each voucher/data source and the same is filled up and initialled. Whether latest anti-virus software has been installed. Whether all reports/printouts are checked, signed by concerned official and filed properly. Whether day book is prepared on the basis of checked final supplementary. Whether summary balance report (fall back report) is taken and filed to meet contingency requirements. Whether check sum is generated at day end and is tallied with that generated at next day begin and proper record of the same is maintained. Whether or not any exceptional report is generated and checked by branch manger or not

77 LOCKERS Locker Accessing Register are signed by customer before operating the locker. Locker rent is collected each year. In case of Locker Rent Arrears, Reminders has been sent & customers are prohibited from accessing the locker. After the Locker is closed, the bank should interchange the Lock & Keys before sanctioning it to another customer. Locker account is linked with the Fixed Deposit received so that the Locker rent can be set off against the interest received In case of a locker not being accessed for a longer time, the Branch has referred the higher authority for breaking the lock

78 STATUTORY COMPLIANCESTDS deduction on rental agreements, Service / AMC Contracts Particulars of Form60 are submitted to IT department in Form 61 within one month of end of each half year Furnishing statement of financial transactions (Form 61A) to income tax department at the end of each year Issue of TDS certificates in Form 16A generated through TIN Website with a unique TDS certificate number and authenticated by digital /manual signature Filing of Quarterly TDS returns 24Q, 26A and 27A within the due dates TDS on interest on Deposits Accounts opened in multiple customer IDs have been merged into one Unique Customer Identification Code (for the bank as a whole) as per RBI Instructions Deduction has been made timely and remitted paid TDS paid has been recovered at the time of repayment of deposit Income Tax declaration form 15G/15H for TDS exemption have been received from payees and acknowledgment given to them. The information of submission of 15G/15H has been updated in Computer software by appropriate Flag. Details of the 15G/15H have been entered into the return and submitted to the Income Tax Department 15G/15H have been accepted only from Individuals / HUF Whose income is less than Rs Lacs Record of Form 15H/15G giving a unique identity number to such forms is maintained The declarations have been digitized and uploaded on the income tax web site every quarter

79 STATUTORY COMPLIANCESService Tax has been collected on Commission Income Brokerage Agency charges Portfolio management charges Account maintenance charges Credit / Debit card charges Penalties, retention charges Service tax on reverse charge basis has been paid on Advocate service charges Renting / Hiring of motor vehicles Goods Transport Agency Man power supply Works contract service Services provided by recovery agent / insurance agent / mutual fund agent Input tax credit is taken at 50% of the total credit available

80 GOVERNMENT BUSINESS AND OTHER SERVICES / PRODUCTSCheck whether the commission has been claimed on Government transactions eligible for agency commission Revenue receipts and payments on behalf of Central /State Govt Pension payments in respect of Central /State Gpvt PPF Senior Citizen Savings Scheme PENSION PAYMENTS Life certificates from pensioners received Acknowledgements are mandatorily issued to pensioners Pension scrolls for different departments are generated and submitted to link branch Pensions are credited to pensioners accounts within due dates TDS has been deducted on pensions paid Pension reimbursement claims are submitted timely TAX COLLECTIONS (DIRECT AND INDIRECT TAXES) Collection of taxes are duly recorded /scrolls prepared Tax collections are accounted for in appropriate accounts Tax collected are remitted to Government accounts timely PUBLIC PROVIDENT FUND PPF accounts are opened adhering to KYC / AML Norms

81 GOVERNMENT BUSINESS AND OTHER SERVICES / PRODUCTSAll PPF subscriptions are recorded / scrolls are prepared and authenticated Subscriptions are received within statutory limits as applicable for the FY Withdrawals allowed only as per limits Interest has been credited timely and verified for correctness PPF subscriptions are remitted to Link branches NATIONAL PENSION SYSTEM / ATAL PENSION YOGNA Application form for NPS/APY documents are received and scrutinized Subscriptions are recorded and scrolls are prepared Excess collections are refunded Withdrawals allowed as per guidelines