Banking Statistics Overview

Questions and Answers

What classification should be given when the realizable value of security is less than 50% of its assessed value?

Performing asset

Doubtful asset (correct)

Loss asset

Standard asset

What action should be taken if the realizable value of security is less than 10% of the outstanding amount?

Increase the provision for the asset

Reassess the value of the security

Classify it as a doubtful asset

Classify it as a loss asset (correct)

According to the classification rules, which scenario indicates significant erosion in value?

Realizable value is 5% of assessed value

Realizable value is 10% of outstanding amount

Realizable value is 45% of assessed value (correct)

Realizable value equals 60% of assessed value

What might be the appropriate provision for a loss asset?

100% provisioning Signup and view all the answers

What is the total amount of assets listed in the given data?

$1550.00 Signup and view all the answers

Which bank has the highest classified amount listed among the banks?

State Bank of India Signup and view all the answers

What classification should be given when the asset is determined to be doubtful?

Provisioning should be made Signup and view all the answers

If a bank assesses that the market value of a security has dropped to less than 50% of its worth, what should they do?

Straight-away classify under the doubtful category Signup and view all the answers

What are the two main functions of commercial banks in India?

Accepting deposits and granting advances Signup and view all the answers

What is the primary purpose of Regional Rural Banks (RRBs) in India?

To meet the financial needs of rural communities Signup and view all the answers

Which type of bank is allowed to accept restricted deposits but cannot issue loans?

Payments Banks Signup and view all the answers

What distinguishes Co-operative Banks from Commercial Banks in India?

They function based on Cooperative Principles. Signup and view all the answers

What is the role of the Reserve Bank of India (RBI) in relation to the banking industry?

Regulating the banking industry as the central bank Signup and view all the answers

Which bank is known for primarily addressing the financial needs of unserved sectors?

Small Finance Banks Signup and view all the answers

Which of the following is NOT a feature of Payments Banks?

They can issue loans. Signup and view all the answers

What is the primary focus of Development Banks in India?

To facilitate funds for infrastructural development Signup and view all the answers

What additional reporting requirement is specified for auditors of banking companies under Section 143?

Statements on matters covered by the Companies Act, 2013 Signup and view all the answers

Which document must be submitted by Statutory Central Auditors to banks annually by June 30th?

Long Form Audit Report (LFAR) Signup and view all the answers

Why are the Companies (Auditor’s Report) Order, 2020 requirements not applicable to a banking company?

They are exempt under specific clauses in the Banking Regulation Act Signup and view all the answers

What is the purpose of the Long Form Audit Report (LFAR)?

To detail specific audit observations as required by banks Signup and view all the answers

What should an accounting professional do if they find indications of fraud during an audit?

Notify the regulator of any suspected fraudulent activity Signup and view all the answers

Which best describes the format requirement for the Long Form Audit Report (LFAR)?

An executive summary is optional but recommended Signup and view all the answers

What is the primary focus of the RBI Circular regarding auditing for bank frauds?

Clarifying the auditors' responsibilities in identifying fraud Signup and view all the answers

What key aspect is emphasized regarding the auditor's responsibility when detecting fraud?

Failure to report can lead to liability for the auditor Signup and view all the answers

What is the primary requirement of SA 315 regarding the auditor's understanding of the entity?

To identify and assess risks of material misstatement. Signup and view all the answers

Which of the following is NOT a benefit of understanding the bank's accounting process?

Increasing the bank's market share. Signup and view all the answers

How does effective risk management contribute to a bank's operations?

By managing key business and financial risks. Signup and view all the answers

What aspect of internal control is emphasized in understanding the bank and its environment?

Assessing and identifying risks. Signup and view all the answers

What is a necessary component for an effective risk management system in a bank?

Oversight by those charged with governance. Signup and view all the answers

In assessing material misstatement risks, what levels must auditors consider according to SA 315?

Both financial statement and assertion levels. Signup and view all the answers

Which of the following is an outcome of understanding the bank’s environment?

Identifying and assessing risks of material misstatement. Signup and view all the answers

What does effective risk management require from the Board of Directors?

Approval of written risk management policies. Signup and view all the answers

Which of the following best describes a mortgage?

A registered instrument that assigns property to the mortgagee. Signup and view all the answers

What is the main difference between a pledge and hypothecation?

A pledge involves delivery of goods; hypothecation does not involve transfer of possession. Signup and view all the answers

Which type of security involves a transfer of existing or future debts?

Assignment Signup and view all the answers

What type of security is represented by a third party guaranteeing a loan?

Personal Security Signup and view all the answers

Which of the following statements about a registered mortgage is true?

A mortgage deed must be executed and registered. Signup and view all the answers

In a hypothecation agreement, who holds the physical possession of the goods?

The borrower Signup and view all the answers

Which of the following is NOT a type of security accepted by banks?

Personal Checks Signup and view all the answers

What is the nature of a pledge in terms of ownership?

Ownership remains with the pledger while the lender has a charge. Signup and view all the answers

Study Notes

Banking Institutions Overview

State Bank of India, Bank of Baroda, Canara Bank, and others represent major commercial banks in India, with operational values and respective contributions indicated.
There are different classifications of banks: Regional Rural Banks (RRBs) serve rural areas, Co-operative Banks focus on agricultural needs, Payments Banks handle restricted deposits, and Development Banks support infrastructure funding.

Erosion of Security Value and Classification of Assets

Erosion refers to a decline in asset value; assets must be classified as 'doubtful' if realizable value falls below 50% of assessed value.
If the realizable value is under 10% of the outstanding loan, the asset is classified as a 'loss asset,' necessitating write-offs or full provisioning.

Functions of Commercial Banks

Primary functions include accepting deposits and granting advances to diverse clientele across economic sectors.
RRBs, like Punjab Gramin Bank and Tripura Gramin Bank, focus on basic banking needs in rural communities.

Payments and Development Banks

Payments Banks, such as Airtel Payments Bank, accept limited deposits and offer transaction services but cannot issue loans.
Development Banks, including Industrial Finance Corporation of India (IFCI), provide vital funds for economic growth and infrastructure.

Long Form Audit Report (LFAR)

Public and private sector banks need auditors' LFAR to encompass key observations, due by June 30 each year, aiding in effective risk management.

Regulatory Role of Reserve Bank of India (RBI)

RBI regulates Indian banking, overseeing compliance and maintaining stability within the sector.
It is critical for auditors to identify and report any fraudulent activities to RBI and ensure transparency.

Audit Procedures and Risk Management

Auditors must understand banks' environments, assess internal controls, and identify potential risks of material misstatements.
An effective bank risk management system involves support and approval of written policies by the Board of Directors to align with business objectives and regulatory requirements.

Modes of Creating Security

Security mechanisms include:
- Mortgage: Registered (formal deed) and Equitable (title deed delivery for security).
- Pledge: Delivery of goods creating a charge for the bank while retaining ownership with the debtor.
- Hypothecation: Creation of an equitable charge on movable assets without transferring ownership to the bank.
- Assignment: Transfer of rights or debts from one party to another, establishing a legal claim.

Common Types of Securities

Personal guarantees, goods, stocks, gold ornaments, immovable property, and various financial instruments are accepted as securities by banks to secure loans.

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Description

This quiz covers key statistics from various banks, including financial metrics such as assets and liabilities. Test your knowledge on the performance of notable banks like State Bank of India and Bank of Baroda. Understand the financial landscape within the banking sector.