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Loan Cases: RBI’ RTI Reply –A Caution to Bankers & CAs Both for avoiding Potential NPAs

CA Certification pic courtesy :istock

Loan Cases: RBI’ RTI Reply –A Caution to Bankers & CAs Both for avoiding Potential NPAs

Opening up of economy to global market forces in India has thrown newer challenges to   busy bankers since last three decades.

Loaned funds are banks’ assets from which they earn interest income .Bankers are expected not only to fund the borrowers loaning needs sincerely quick, but they are also liable for ensuring to monitor loaned funds of borrowers to oversee if their accounts are not getting sticky and such NPAs becoming difficult of recovery.

At the time of sanctioning fresh proposals, renewals of loans where balance sheets are required to be necessarily to be audited by Chartered Accountants, bankers get content with CAs stamps. A CA certification, notwithstanding, does not absolve credit banker of its responsibility of analyzing the financial fundamentals.

Increasing work loads of daily routine of social banking, particularly in Nationalized Banks have been working havoc with branches/BMs as a peep into the credentials of  good borrowers first and then ensuring their accounts regular and hypothecation  or mortgaged  securities intact is all the duty of branches/BMs. Banks have separated their SME branches (For Loan sanctions)from routine branch activities ,yet daily monitoring account remains of BM.

Also,It has been seen that in such banks a culture has been developed in banks branches/in customers that every customer smallest to the big finds easy accessibility to BM leaving no time with him/her to monitor loan accounts.Such bankers resort to help from CAs at times for processing their loan proposals at CAs offices itself .

However, this over dependence on CAs certifications has proved costly as many a big frauds have happened despite this. There have been cases where unscrupulous in both the profession with connivance of fraudulent borrower have put the public money in peril.When appraisal is week,banks will suffer and officials will face accountability.


Normally, RBI is infamous for not replying RTIs early. But, here is an exception when RBI replies to the queries of ‘ NITIN PANDURANG HARGUDE ‘ as to how much is fair to depend upon the services of Chartered Accountants/Auditors etc..  Reproduced in original a RTI reply received which is an eye opener both for banker as well as professionals(CAs):



Tel No: 22661602, 22601000 फै क्स/Fax No: 022-2270 5691

Department of Regulation, Central Office, Central Office Building, 12th/13th Floor, Shahid Bhagat Singh Marg, Fort, Mumbai – 400001





Query Reply
1 Signing on Project Report for Loan Purposes with seal/UDIN of CA thereon. I wish to ask Reserve Bank of India if there is specific circular/notification issued by them to the commercial banks demanding signing on Project Reports/CMA Report by CAs

while advancing New/ Old Loans.

We have not issued any specific instructions in this regard.

However, it may be noted that credit related issues are mostly deregulated. The Reserve Bank of India has advised banks to have documents of investment policy, loan policy, loan recovery policy etc. prepared and duly vetted by their Boards of Directors. Banks are required to take credit related decisions based on Board approved policies subject to the instructions contained in our Master Circular on “Loans and Advances – Statutory and Other Restrictions” issued vide DBR. No.Dir.BC.10/13.03.00/2015-16 dated July 1, 2015

which  is  available  on  our  website

under the head ‘Notifications’.

2 Giving certification/ Signing on Unaudited balance sheets and on Income Tax Returns of Clients (for those who dont fall under category of Audit Cases such as Income Tax, Company Act etc) & generating UDIN thereon. I wish to ask Reserve Bank of India if there is specific circular/notification issued by them to all the commercials banks.
3 I wish to ask any policy drafted by RBI with such

Banks to get Certificate of Know you customer by CA if client is known to him and validity of the same.

We have not issued any specific instructions in this regard.
4 Utilisation Certificate from CAs. Few banks before sanctioning of loan demand CA certificate about stating facts that client will not utilise the loan for any unlawful/ illegal/ terrorists activities. I wish to know how CA can give such certificate for loan benefits enjoyed by client and validity of the same. I wish to ask Reserve Bank of India if there is specific circular/notification issued by them to all the commercials banks.

All above matters are dealt by the concerned bankers with their own/ potential customers for their respective benefits. I wish to know how come a Professional Chartered Accountant comes into the picture to certify/ validate for the acts performed by independent parties.

In connections to this I urge you to please look into this matter on urgent basis and act to issue reply and on my queries which will impact the large

community of professionals like us.

What is being sought is not information in terms of Section 2 (f) of RTI Act, 2005.

However, you may refer to query 1 and 2 above.


ALL CREDITS TO WWW.TAXSCAN.IN    – Simplifying Tax Laws


‘ NITIN PANDURANG HARGUDE ‘ has done a good service to all-borrowers,bankers and CAs.




K B Singh, ex DGM, PNB April 19, 2021 at 2:00 pm

The role of CA firm while auditing the annual accounts of a business entity is very important.

It should be transparent without any pressure from any side means borrower or lender.

Any deviation, diversion, syphoning of funds should be crystallised while undertaking audit.

Rightly, mentioned that mere audit of annual accounts does not absolve responsibility of banker to critically evaluate the balance sheat. At the same time audit by a CA firm lend support in the process of appraisal either at the time of sanction or renewal of credit facility.

brij bhushan goyal April 19, 2021 at 2:39 pm

Very well quipped, sir.Bankers have the prime responsibility of processing and monitoring the borrower accounts.

Mohinder Desor April 19, 2021 at 2:46 pm

All financial decisions have inherent risks. Despite clear cut instructions and guidelines, it is impossible for the human mind to act in a mechanical manner while appraising a proposal. Added to this human factor is the tremendous pressure exerted on the staff at Branches by the administrative offices, and the customers. This results in dependence on the data/analysis of the CAs, who, more often than not, manipulate the figures for obvious reasons.

The Banks need to ensure provision of adequate staff at the branches. This will, in fact, be an investment in the long run.


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