Certificate Course
on
Concurrent Audit of Banks
Contents:
1. Legal and Regulatory Frame work
2. KYC norms & Obligation of banks under Prevention of Money Laundering Act (PMLA 2002)
3. Effective Concurrent Audit & Reporting
Compiled by:
CA. Nayan R. Kothari
CA. Nayan R. Kothari M. Com., FCA, NET (UGC) [email protected]|[email protected]|twitter:@kotharinayan|facebook.com/kothari.nayan
CA.NayanR.KothariisapostgraduateofcommercefromMSUniversityofBarodaandaFellowMemberofICAI.HehasalsocompletedpostqualificationcertificatecourseofForensicAuditingandFraudDetectionofICAI.HehadalsoclearedNETexaminationofUGCforlectureship.
Presentlyhis isamanagingpartnerofM/s.ParagPatel&Associates,CharteredAccountants(Estd.1994)and in fulltimepracticeatBaroda.
Hisareasofpractice include InternalAuditsofSMEsandCorporate,consultancy intheareasofFraud Investigationandforensicauditing,businessrestructuringandcorporatefinanceplanning(debtandequity).HeisalsodoingconsultancyintheareasofProjectFinanceandtaxation&companylawmatters.
HeisManagingCommitteememberofBarodaBranchofWIRCofICAIsince6yearsandpresentlyViceChairmanofBarodaBranchofWIRCofICAIandChairmanofBarodaBranchofWICASA.HehadbeenconvenerofBarodaCPEStudyCirclefortheyear201011.
HehasworkedaslectureratFacultyofCommerceofMSUBarodaandtaughtsubjectslikeFMandTaxation. HewasalsoavisitingfacultyatFacultyofLaw,MSUBarodaandwasteachingTaxationatPGDTP. HeisregularlydeliveringlecturesatstudycircleandseminarsofBarodaBranch&otherbranchesofICAIandvariousother
professionalbodieslikeEximclubetc. HehasgivenlectureonHowtodobusinessinIndiatoaSrilankandelegationwhohadvisitedIndiafortheirStudyTour. Hehadalsopresentedpaper in International Seminarorganized jointlyby Facultyof LAW,MSUandCanadian Studies
Centre. HeisavisitingfacultyatNationalAcademyofCustomsExciseandNarcotics(NACEN)atBaroda. Heistheregularfacultyformorethan10batchesatCertificateCourseonConcurrentBankBranchofICAI. He is a faculty for Training Program on Accrual Accounting, Budgetary Control & Audit frame work for official of
MunicipalCorporationofGraterMumbai(organisedbyCommitteeofGovernmentAccountingofICAI). He isvisiting facultyatvarious institutesandBSchoolsandHRSchools. (FacultyofManagementStudiesandFacultyof
SocialWorksofTheMSUniversityofBaroda,CharotarUniversity,ChangaCampus;tonameafew) He has given lecture in Teleconference organised by ICAI and which was broadcasted Live Nationwide on Door
DarshansGyanDarshanChannel. HehasgivenlecturesatInvestorAwarenessProgramsorganisedbyICAI. He is a regular speaker at various branches and study circles of ICAI on subjects related to Auditing, Taxation and
Managementetc. He is regular faculty since last33batchesatOrientationprogramme for IPCC studentsorganizedbyBarodaBranchof
WIRCofICAIandteachingtechnicalsubjectsandalsosubjectsrelatedtosoftskills.HeisalsoaninvitedfacultyatGMCS(ICAIProgramforCAFinalStudents)atSuratbranchofICAI.
HeisregularlydeliveringlecturestostudentsinvariousprogrammesorganizedbyWICASABarodaandotherBranchesofICAI.
HeisalsoafacultyofCareerCounsellingprogrammesorganizedbyWICASAatvariousschoolsofBaroda. HeisConductingCorporateTrainingProgrammesforvariouscorporateandorganizations. HeisregularlycontributingarticlesinnewsletterofBarodabranch. HeisdeeplyinterestedinMusicandGujaratiLiteratureandhisotherhobbiesarephotographyandtravelling.
1
Legal Legal & Regulatory & Regulatory FrameworkFramework
__________________________________CA. Nayan R. Kothari
M. Com., FCA, NET (UGC)[email protected] | [email protected] | twitter: @kotharinayan |
facebook.com/kothari.nayan
CA. Nayan R. Kothari 1
LEGALFrameworkLEGALFramework Banking Regulation Act, 1949 10 Parts 56 sections and 5 Schedules Law relating to banking and provide for nature of
transaction carried out by banks in India.P i i f P f RBI t t l d Provision of Power of RBI to control advances , accounts, audit
Restriction as to minimum paid up capital & reserves, payment of dividend
Validation of license Power of suspension of business and winding up
BankingRegulationAct,1949BankingRegulationAct,1949 Definition of banking & banking company
Licensing
Permitted business Permitted business
Prohibited business
RBIs powers
Control over management
2
Banking means accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise {Section 5(b)}
Banking companymeans any company which transacts the business of banking in IndiaExplanation excludes manufacturing and trading company {Section 5 (c)}
Use of the word bank, banker, banking or banking company - Section 7
PermittedBusinessPermittedBusiness Can carry on business permitted u/s 6
o Borrowing, lending, bill discounting, etc. Buying, selling and dealing in bullion Buying and selling of foreign exchange Travellers cheques Letters of credit Underwriting and dealing in shares, debentures, etc. Safe deposit Collecting and transmitting of money and securities Undertaking/ executing trusts
o Activities that are incidental/ conducive to the promotion/ advancement of its business
o Central Govt. empowered to notify permitted business
Act overrides memorandum, articles, etc.
ProhibitedbusinessProhibitedbusiness Trading prohibited vide Sec 6
Non-banking assets Sec 9o Immoveable property can only be held for own useo Other disposed within 7 yearso Other disposed within 7 years
RBI can give additional 5 year extension
Restriction on nature of subsidiary companies Sec 19
o Permitted business u/s 6o Carrying on banking outside Indiao Credit information businesso Other business with RBI and CG approval
3
LicensingLicensing RBI empowered to issue & cancel licences
o Section 22 criteria Solvency Affairs/ management not detrimental to depositor and public interest Adequate capital structure and capital prospects Public interest will be servedPublic interest will be served Grant of licence not prejudicial to operation and consolidation of
banking system Foreign banks home country does not discriminate against Indian
banks Other conditions specified by RBI
o New bank licencing requirements
Branch licencing u/s 23
ReturnsReturns Section 24
o Monthly return of assets in Indiao DTL on reporting Friday
Section 25o Quarterly return of assets and liabilities at the close of business on the last
Friday of every quarter
Section 27 Section 27o Monthly return on Asset & Liability position as on last Fridayo RBI empowered to direct banks to furnish information within a specified
time frameo RRBs also need to submit a copy to NABARD
Section 26o Return of unclaimed deposits
Section 31o Three copies of annual returns to be submitted to RBI
InspectionInspection Section 35
o Inspect books Also on direction of
CG Copy of report to be
given to bank Empowers RBI
Inspecting officer to examine bank officials under oath
o Also empowers RBI to carry out a scrutiny
4
PowersofRBIPowersofRBI
Sec 35A Power to give directions Sec 35B Prior RBI approval required for
appointment of Chairman, MD, CEO or director Sec 36 Further powers and functions of RBI
o Caution/ give advice regarding certain transaction/ class of transactionso Call for meeting of directors, depute its officer to board meeting, appoint
observer, etco Report on Trend and Progress in Banking in the country
PowersofRBIPowersofRBI ControlControlovermanagementovermanagement
Sec 36AA Power to remove managerial and other persons from office
o Appeal lies with Central Government
Sec 35B Power to appoint additional directors
OtherimportantOtherimportantprovisionsprovisions
Sec 14 Prohibition of charge on unpaid capital Sec 15 Prohibition on payment of dividend unless
intangible assets written off Sec 17 Creation of reserve fund Sec 17 Creation of reserve fund Sec 18 Maintenance of cash reserve ratio (CRR) Sec 20 Restrictions on loans and advances Sec 24 SLR
5
ApplicabilityofBRActApplicabilityofBRAct Nationalised Banks
o Banking Companies (Acquisition and Transfer of Undertakings) Act,1970/1980;
o Section 51 of BR Act makes specific sections applicable
Regional Rural Bankso Regional Rural Banks Act, 1976o Section 51 of the BR Act
Cooperative Bankso Cooperative Societies Act. 1912 or the respective Co-operative
Societies Act of the state concernedo Part V of the B R Act BR (AACS) Act
SomeimportantRBIinstructionsinSomeimportantRBIinstructionsincontextofBRActcontextofBRAct
Master Circularo Loans & Advances Statutory and other
restrictionso Branch authorisationo Branch authorisationo Cash Reserve Ratio and Statutory Reserve Ratio
Others o Restriction on drawdown of reserveso Guidelines on declaration of dividend
LEGALFrameworkLEGALFramework Banking Companies ( Acquisition and Transfer of
Undertaking ) Act, 1970----1980 5 Chapters 3 schedules 21 sections
Provision for acquisition and transfer of the undertakings of banking companies regard to size , resources , coverage .
6
LEGALFrameworkLEGALFramework State Bank of India Act, 1955 : 8 Chapters -53 sections- 4 schedules Act that constitute SBI and transferred to it
the undertaking of Imperial Bank of India To extend banki
