Banks should to be more discerning in classifying standard and non performing assets (NPA), according to a senior member of Institute of Chartered Accountants of India (ICAI).
"Classification of NPA is an important part of bank audit. We have seen in many cases, there are accounts, which can be potential NPAs. However, many banks classify them as standard asset. Banks should be more discerning in asset classification," said Suvendu Chunder, chairman, ICAI, Eastern India Regional Council.
However, the banking sector in the country was well regulated, as evident from the recent global economic meltdown, he added.
"An auditor cannot assume that all the extension of securities are proper.
The facts are to be proved by clear sanction and other documentations and if needed with a confirmation of the higher sanctioning authorities. If the sanction is ambiguous and vague, this may be a point for report," said R Subramaniam, partner, R Subramaniam and company, Chennai.
In certain cases, there are confusions whether an account is a NPA or not. For example, if a NPA account be regularised and considered as standard after considering subsequent recoveries after 31st March, according to Subramaniam.
There was no specific RBI circular regarding this, he added. "However RBI circular DBOD BP.BC 9/21.04.048 dated January, 29, 1997 makes an indirect reference on subsequent recoveries; but this circular is confusing as to the references on ‘date of the balance sheet’ and ‘balance sheet date’. Prima-facie it appears that as per this circular, subsequent recoveries up to the ‘date of signing the balance sheet’ can be considered for the purpose of asset classification." he said.
