The RBI, in September 2020, asked banks to put into operation a revised long format audit report (LFAR) starting FY21, covering credit, market, and operational risks, looking at capital adequacy, going concern assessment and information systems. With this, statutory central auditors (SCAs) would be able to identify and report wilful defaulters as well as examine and comment on recovery from all the written-off accounts during the financial year; on adverse features, regarded important in top 50 standard large advances, and the accounts requiring the management’s attention, among others.
As per the RBI, it would also help examine inactive/ inoperative accounts, which is a fraud-prone area. The SCAs can use the LFAR to give an opinion on issues like know your customer (KYC), anti-money laundering (AML), countering of financing of terrorism (CFT), cybersecurity preparedness, and business performance. The auditors would examine the policy relating to delegation of powers at various levels, appropriateness of checks and balances, adherence to authorised limits, disbursal after complying with its terms and conditions, apart from compliance to the RBI’s instructions, such as exposure norms, interest rates, and other restrictions.
There would be examination of the entire process, including ensuring execution as per the terms of sanction, the structure of documentation in respect of joint/ consortium advances, availability of relevant documents to ensure the creation of charge in favour of banks when required, and renewal of documents.