• Indicates operational / liquidity stress

• Possible weak monitoring by bank

• Higher risk of account slipping into NPA

• Review frequency of overdrawings

• Check duration (temporary vs continuous)

• Verify sanction terms & permitted deviations

• Examine penal interest / charges applied

• Analyse pattern over the year (not just year-end)

• Correlate with cash flows & business cycle

• Identify whether irregularity is systemic

• Report significant cases in LFAR

📣 Auditor's Note
Occasional OD may be operational, but frequent OD signals deeper stress. Always analyse the pattern.

• Indicates cash flow stress in borrower’s operations

• Risk of incorrect income recognition by bank

• Possible hidden NPA classification

• Verify overdue interest status

• Check frequency and timing of interest servicing

• Identify cases of interest debited but not actually serviced

• Review if interest is being capitalised or adjusted artificially

• Compare account status with IRAC norms

• Verify if income recognition is appropriate

• Check whether account should be classified as NPA

• Flag inconsistencies in LFAR

📣 Auditor's Note
Interest not serviced is often the first sign of stress. Don’t ignore it.

• Indicates regulatory non-compliance

• Reflects weak credit monitoring by bank

• May lead to incorrect asset classification

• Verify due date of last renewal / review

• Identify accounts where limits are overdue for renewal

• Check whether operations continue without valid sanction

• Review compliance with sanction conditions

• Check if account should be treated as ‘out of order’ / NPA

• Correlate with account conduct & overdue status

• Highlight delays in LFAR under compliance weaknesses

📣 Auditor's Note
Expired limits are not just procedural lapses, they can impact asset classification.

• Possible window dressing to show better asset quality

• Temporary adjustment to avoid NPA classification

• May not reflect genuine repayment capacity

• Compare month-wise outstanding trends

• Analyse large credits near year-end

• Check for reversal of entries in April

• Verify source of funds used for reduction

• Review post year-end transactions (April data)

• Perform transaction trail for large credits

• Correlate with cash flows & borrower’s financial position

• Report such cases appropriately in LFAR

📣 Auditor's Note
Year-end numbers can mislead. Always look beyond March.

• Possible artificial regularisation of account

• May be used to avoid NPA classification

• Raises concerns on genuineness and source of funds

• Analyse cash deposit trends during the year

• Identify unusual spikes near balance sheet date

• Verify linkage with business activity & cash sales

• Check for immediate withdrawals or reversals

• Trace source of cash deposits

• Correlate with cash flow & turnover patterns

• Review post year-end utilisation of funds

• Report such instances in LFAR

📣 Auditor's Note
Cash at year-end may look comforting, but always question its source.

• Leads to artificial turnover / inflated business volume

• May be used for evergreening or temporary adjustment of accounts

• Indicates possible fund diversion or manipulation

• Identify circular movement of funds across accounts

• Check transactions with related parties / group entities

• Analyse timing, amounts, and immediate reversals

• Look for multiple layers in fund routing

• Use transaction mapping / fund flow analysis

• Track end-to-end movement of funds

• Correlate with underlying business transactions

• Report suspicious patterns in LFAR

📣 Auditor's Note
Not all transactions create value. Some just create illusion. Follow the flow carefully.

• Weakens legal enforceability of bank’s security

• Increases recovery risk in case of default

• Reflects deficiency in documentation & control processes

• Verify completeness of documentation file

• Check execution, stamping & registration of documents

• Ensure charge creation (ROC) where applicable

• Identify expired / pending documentation

• Prepare a documentation deficiency list

• Highlight critical gaps affecting enforceability

• Follow up on pending execution / registration

• Report clearly in LFAR

📣 Auditor's Note
Strong security on paper is useless without proper documentation. A single missing signature can invalidate an entire agreement.

• Indicates lack of transparency

• Restricts bank’s ability for proper credit monitoring

• May hide deteriorating financial position

• Verify due dates vs actual submission dates

• Identify accounts with continuous delays / non-submission

• Check whether latest financials are available for review

• Review impact on renewal / assessment process

• Flag such accounts as high-risk for monitoring

• Correlate with account conduct & irregularities

• Evaluate impact on limit renewal & asset classification

• Report in LFAR under compliance weaknesses

📣 Auditor's Note
No financials, no clarity. Always question accounts operating without updated information.

• Indicates possible financial stress or manipulation

• May involve diversion or temporary adjustments

• Unusual behaviour without business reason is a concern

• Compare current vs. historical transaction trends

• Identify unusual spikes or pattern shifts

• Check for new counterparties or routing channels

• Correlate with business activity

• Perform trend & behavioural analysis

• Investigate significant deviations

• Link with cash flows & account conduct

• Report observations in LFAR

📣 Auditor's Note
Patterns tell stories. When behaviour changes suddenly, dig deeper.

• May indicate bogus liabilities or inflated balances.

• Possible window dressing of financial position.

• Impacts true assessment of working capital.

• Compare creditors with purchases & turnover ratios.

• Identify top creditors and ageing.

• Verify genuineness of major balances.

• Check consistency with financial statements.

• Perform ratio & trend analysis.

• Verify major creditor balances selectively.

• Correlate with purchase patterns & GST data.

• Report concerns in LFAR.

📣 Auditor's Note
Not all liabilities are real. Always validate the substance behind numbers.

• Risk of fund diversion or non-arm’s length dealings, potentially enriching insiders.

• May distort the true financial position and operational performance of the borrower.

• Possible misuse of bank funds, masking underlying financial distress.

• Identify all related parties and group entities through filings and internal records.

• Review the nature, volume, and frequency of transactions with these entities.

• Check if transactions are genuine, justified by business rationale, and conducted at market rates.

• Correlate with financial disclosures and compliance with regulatory requirements.

• Map the entire group structure and connections between all entities.

• Perform detailed fund flow analysis between related entities to detect circular movements or unusual transfers.

• Verify the business rationale and commercial terms of all significant related party transactions.

• Report any concerns regarding non-arm's length transactions or fund diversion appropriately in the LFAR.

📣 Auditor's Note
Related party transactions need extra scepticism. Always question the intent behind complex inter-company dealings.

• Risk of fund diversion across banks.

• Incomplete view of borrower’s overall exposure.

• Weakens credit monitoring and control mechanisms.

• Review bank statements for transfers to other undeclared banks.

• Check sanction terms regarding permissible banking arrangements.

• Verify disclosures made in financial statements and borrower declarations.

• Cross-check with available credit reports or public records for other banking relationships.

• Perform detailed fund flow analysis across all known bank accounts.

• Proactively identify unreported banking relationships through data analysis and enquiries.

• Evaluate the impact of undisclosed accounts on drawing power and overall credit exposure.

• Report all instances of non-disclosure and potential risks in the LFAR.

📣 Auditor's Note
If all bank accounts are not visible, neither is the real risk. Comprehensive visibility is key to effective credit assessment.

• Indicates liquidity issues

• Impacts creditworthiness & repayment capacity

• Early signal of financial stress

• Review cheque return register / system reports

• Analyse frequency and reasons for returns

• Check linkage with cash flow position

• Identify repeat patterns

• Analyse trend over the year

• Correlate with account irregularities

• Evaluate impact on asset classification

• Highlight in LFAR

📣 Auditor's Note
Cheque returns are early warning signals. Don’t ignore recurring patterns.

• Affects reliability of Drawing Power (DP), as it may be based on outdated inventory values.

• Indicates weak financial discipline and potentially poor internal controls.

• Increases risk of inaccurate credit assessment and higher exposure to the bank.

• Verify submission frequency against bank policies and sanction terms.

• Assess if Drawing Power (DP) is being computed using outdated or estimated data.

• Identify patterns of chronic delays and their average duration.

• Review the impact of these delays on overall account operations and collateral monitoring.

• Treat Drawing Power (DP) calculations with higher audit scepticism, especially for accounts with recurring delays.

• Recompute DP using the latest available verified data, and flag any significant variances.

• Correlate stock statement trends with actual stock movement and sales turnover to identify discrepancies.

• Report persistent delays and their potential implications clearly in the LFAR.

📣 Auditor's Note
Timely stock data is critical for accurate risk assessment. Delays can hide real exposure and compromise the integrity of credit monitoring.

• Exposes the bank to potential losses in case of damage, theft, or unforeseen events.

• Indicates weak risk management and operational oversight by the borrower.

• Significantly weakens the security cover, impacting the recoverability of the loan.

• Verify the validity period and coverage amount of all insurance policies.

• Confirm that all assets charged to the bank are comprehensively covered.

• Review expiry dates and ensure timely renewal, noting any lapses.

• Compare insurance coverage with the current market value of stock and other charged assets.

• Ensure proactive measures for adequate and appropriate insurance coverage for all collateral.

• Identify and flag immediately all expired or insufficient policies and communicate urgency to the bank management.

• Highlight significant gaps in the security comfort affecting the bank's exposure.

• Report all findings and recommendations regarding insurance deficiencies in the LFAR.

📣 Auditor's Note
Security without robust insurance coverage is merely a partial protection. Always ensure the collateral is fully safeguarded.

• Indicates persistent financial stress.

• May be used to delay NPA (Non-Performing Asset) recognition.

• Impacts true asset quality and the bank's financial health.

• Review history of restructuring / rescheduling for each loan account.

• Check compliance with RBI (Reserve Bank of India) guidelines and internal bank policies on restructuring.

• Analyse post-restructuring performance to assess effectiveness and borrower commitment.

• Verify correct asset classification as per prudential norms following restructuring.

• Evaluate the genuineness and viability of each restructuring proposal, looking beyond mere compliance.

• Correlate restructuring patterns with the borrower's repayment capacity and cash flow projections.

• Check the impact of restructuring on IRAC (Income Recognition and Asset Classification) norms and provisioning requirements.

• Report appropriately in LFAR (Long Form Audit Report) regarding the frequency, reasons, and implications of restructuring.

📣 Auditor's Note
Restructuring can support recovery for temporary distress, but repeated use signals deeper, unresolved problems that require stricter scrutiny and potential reclassification.