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Common Mistakes & Lapses Noticed in Credit
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V Subramanian, Senior Manager, Andhra Bank
1 Selection of the Borrower is not done properly. Borrower is a new party, introduced by another stranger/new customer/intermediary. 2 Many loans for the same/similar/auxiliary activity have been sanctioned at the same branch, within a short span of time. 3 So many facilities/loans have been sanctioned to a single borrower/family/group.
4 Borrower’s credentials like proof of residence, proof of income, proof of ownership of business/ trade etc. were not verified thoroughly and established beyond doubt. 5 Pre-Sanction Unit Inspection was not done. 6 Borrower’s permanent address, landline number and email ID (if it exists) have not been obtained.
7 Branch has overlooked glaring dissimilarities and discrepancies between various documents produced by the borrower, at the time of submission of the proposal. 8 Appraisal – Quality of appraisal is very poor; appraisal was done by the sanctioning authority himself; the person who has sanctioned the loan does not have powers to sanction the loan in question; the manager has exceeded the powers delegated to him while sanctioning the loan and ineligible persons have been sanctioned the loan/s in question. 9 Verification of Wilful Defaulters’ List, Caution List, CIBIL List and ECGC’s Specific Approval List (in case of export advances) has not been done.
10 Sanction Letter - All the standard terms and conditions have not been incorporated; Borrower and Co-obligants/Guarantors have not acknowledged the receipt of sanction letter and agreed to abide the terms and conditions fully and Sanction letter bears the signature of an officer other than the sanctioning authority, in case of branch sanctions. 11 There are conspicuous inconsistencies between (a) the loan application and its annexures (b) the appraisal note and (c) the sanction letter on major counts.
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12 Disbursement – Payment of Borrower’s margin is not ensured; Disbursements are not made in accordance with the sale agreement, quotation/invoice and reimbursement has been made on the basis of fake or exaggerated bills/invoices, estimates and claims. 13 Disbursement has been made on the basis of lapsed limits. 14 Disbursement has been made, without reviewing the progress of the project at each stage.
15 Disbursement has been made without prior permission from the controlling office. 16 Diversion of funds is evidenced by cash payments/withdrawals, crediting loan amount to borrower’s personal running account (CD/SB) by the bank, transfer of funds to the personal account by the borrower later through a series of inter-related transactions and transfer of funds to the accounts of associate concerns/close relatives of the borrower.
17 Post Sanction - Unit Inspection was not conducted at all/conducted cursorily. 18 There is some serious flaw in the documents of title and the branch has not obtained all the documents mentioned as necessary in the legal opinion, for creating a valid mortgage. 19 Branch has not obtained proper documentation and many/all the documents have been left blank or only partially filled in.
20 Registration of charge with the appropriate authority has not been done. 21 Continuation E.C. evidencing our charge on the properties not obtained. 22 Properties have been over-valued by the bank’s approved engineer.
23 Compliance Certificate not submitted by the branch. 24 Sanctions not reported and reviewed by Concurrent Auditors, in case of branches subjected to Concurrent Audit. 25 Insurance of assets financed and charged to the bank has not been done for adequate value, with the bank clause.
26 Statement of age-wise Stocks, Sundry Creditors and Book Debts (Trade Debtors) duly certified by a qualified Chartered Accountant is not obtained periodically. 27 Drawing Power is calculated wrongly, in violation of sanction terms. 28 New limits released without adjusting the ad hoc limit, recovering the interest and instalments in Term Loan etc.
29 Irregularities pointed out in the latest annual inspection report are allowed to persist. 30. Operations are allowed under credit limits that remain overdue beyond a reasonable period.
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