National Housing Bank, New Delhi invites expression of interest from reputed Audit firms registered with the Reserve Bank of India for appointment as “Internal  / Concurrent Auditors of the Bank for the financial year 2009-10 having head office / branch office (with a partner)  at Delhi / Mumbai.

The expression of interest alongwith the profile, past experiences and annual remuneration expected should be sent to “ The Deputy general Manager,  Development & Risk Management Department, National Housing Bank, Core 5A, 5th Floor, India Habitat Centre, New Delhi – 110 003  within 15 days from the date of this indent, in sealed envelope.” The Auditors should preferably have sufficient experience in conducting internal / concurrent audit of Banks / Development Financial Institutions.

Backdrop:

National Housing Bank (NHB) was established in July, 1988 under the National Housing Bank Act, 1987 (NHB Act) as a wholly owned subsidiary of the Reserve Bank of India (RBI) to function as an apex financial institution in the housing sector.

The Head Office of National Housing Bank is in Delhi and there is an office at Mumbai. Functions at the Head Office include all policy matters, promotional and developmental activities, regulation and supervision of HFCs as well as refinance and project finance operations. Treasury operations are being carried out at Head Office. The functions of NHB are governed under the National Housing Bank Act, 1987. Maintenance of Accounts and preparation of Annual Statement of Accounts are guided by the National Housing Bank General Regulations, 1988.

The finance functions at the Head Office include sanction of refinance for direct housing loans and project loans, loans and advances to other housing finance institutions and sanction and payment of revenue (mainly administrative overheads) and capital expenses, besides staff loans. The finance functions at the Mumbai office include disbursement and recovery of refinance, raising of resources and debt servicing, sanction and payment of revenue (mainly administrative overheads), Investments and capital expenses.  

2. Scope and Objective:

The scope and objective of Internal Audit on a continuous basis will be as follows :

A. Examination of accounts (including resources & investments), expenditure audit, recoverable/payable, fixed assets, scrutiny of suspense and sundry accounts and other related records and verification of assets and liabilities so as to ensure that transactions are promptly and accurately recorded and reconciliation thereof. For the said purpose, transactions accounted for in the books may have to be scrutinized with reference to the initial documents and wherever necessary statistical comparison be made. The objective is to ensure that­

(i)The policies and procedures laid down by the management including risk management and in the absence thereof, established policies and procedures are followed by both Head office and Mumbai office.

ii)         The Statutory requirements viz., the provisions of the National Housing Bank Act, 1987, NHB (Amendment) Act, 2001, The Housing Finance Companies (NHB) Directions,2001, the NHB General Regulations, the provisions of other Statutes, RBI Directives and Guidelines etc., are complied with.

(iii)       Financial propriety especially the Directions, guidelines, rules, regulations, circulars and orders having financial bearing issued by the competent authority of NHB from time to time are observed

(v)        Accounts and the data flowing there from are reliable and accurate.

B.         Examination of the system of internal control including internal check being followed at the Delhi office and the Mumbai office for both soundness in principle and effectiveness in operation and recommendation for improvement/additional safeguards that may be required for strengthening the same. One of the objectives will be to build preventive safeguards against frauds, misappropriations or other losses.

C.        (i) Furnishing observations after a factual review of the procedures relating to risks associated with basic features of refinance schemes, overdue norms for various primary lenders, exposure norms, documentation, claim processing, release of refinance, accounting, etc., maintenance & custody of the documents.

(ii) Observations on whether the disbursements are in accordance with the sanctions, whether sanctions are in accordance with approved policies of the Bank. Compliance of prudential norms such as income recognition, asset classification & other prudential norms.

(iii)       Observation on adequacy of management of Asset Liability mismatches, if any, audit of risk management systems and control procedures in various areas of operations as prescribed by the RBI from time to time.

(iv)       Observations on submission and adequacy of various returns under MIS;

(v)        Comments on preventive safeguards against frauds/misappropriations, prudent practices and reliable/accurate flow of data;

(vii)      Comments in respect of Project Loans;

(viii)     Comments about compliance/ rectification of the discrepancies observed in the previous reports; and

(ix)       Audit of the Capital Gain Bond Issue (Hyderabad based Registrar M/s Karvy).

(x)        Intensified audit of the risk based activities of the Bank such as review of functioning of ALCO, Interest Rate Sensitivity Analysis, Structural Liquidity ratios, Securitisation of Assets & Portfolio buy outs, functions of DRS, rating of NGOs etc.

D. Concurrent audit of treasury operations (including scrutiny of investment transactions& IRS Deals) and compliance of RBI Guidelines etc. with focus on the systems for identifying, measuring, monitoring and controlling of various market risks such as VaR limits, interest rate sensitivity statements, liquidity risks, implementation of ALCO recommendations etc. .

E. (i) Observation on compliance of the NHB Directions by housing finance companies specially with reference to timely submission of statutory returns, scrutiny of returns, submission of inspection reports and follow up and other related items to strengthen the regulatory and supervisory role of the Bank, the overarching objective being to build a strong, sound and healthy housing finance system in India.

F .Report

Internal Audit Reports of the Mumbai Regional Office and Concurrent Audit Report of treasury operations and of Accounts Division on a monthly basis by 10th of the following month to the Chairman.

Internal Audit Reports of the Head Office should be submitted on a quarterly basis, before 30th day of the next month. The reports are to be submitted to the Chairman.

It may be mentioned that the observations contained in the Internal Audit Reports receive due attention of the top management. Besides, as a part of the Investment Policy of the Bank duly approved by the Reserve Bank of India (RBI), the relevant extracts of such reports pertaining to treasury operations of the Bank are submitted to the RBI on a regular basis. A summary of the observations contained in the reports together with the comments of the management thereon is placed before the Audit Committee of the Board from time to time. Hence, it is expected that apart from timely submission of the reports, the irregularities observed during the scrutiny should be got rectified during the course of audit. It should be ensured that the position of compliance/rectification in respect of the previous report(s) is reflected in the subsequent report.

3. Additional Scope of Work & Objective

A. Credit Audit

Credit Audit examines compliance with extant sanction and post-sanction processes/ procedures laid down by the bank from time to time.

(i)  Objectives of Credit Audit

1. Improvement in the quality of credit portfolio

Review sanction process and status of post sanction processes / procedures of all existing accounts with exposure limit equal to or above Rs.500 crore in case of refinance and Rs.25 crore in case of direct finance and monitoring their performance.

• Feedback on regulatory compliance

3. Recommend corrective action to improve credit quality & credit administration .

(ii)  Scope and Coverage

The focus of credit audit needs to be broadened from the account level to look at the overall portfolio and the credit process being followed. The important areas are:

• Portfolio Review: Examine the quality of Credit & Investment

Loan Review: Review of the sanction process and status of post sanction processes/ procedures (not just restricted to large accounts)

• all fresh proposals and proposals for renewal of limits (within 3 - 6 months from date of sanction)
• randomly selected ( say 10%) proposals from the rest of the portfolio
•  Action Points for Review
• Verify compliance of bank's laid down policies and regulatory compliance with regard to sanction
• Examine adequacy of documentation
• Examine the conduct of account and follow up
• Oversee action taken by line functionaries in respect of serious irregularities
• Detect early warning signals and suggest remedial measures thereof

(iii)     Frequency of Review

1. The frequency of review should vary depending on the magnitude of risk (say, for the high risk accounts above 3 months having high exposure of Rs.500 crore & above as refinance / direct finance, for the average risk accounts- 6 months , for the low risk accounts- 1 year).
2. Feedback on general regulatory compliance.
3. Examine adequacy of procedures and practices.
4. Review the Credit Risk Assessment methodology.
5. Examine reporting system and exceptions thereof.
6. Recommend corrective action for credit administration
7. Examine the adequacy of MIS & its observance.

B.  Legal Audit

The major scope may be as under :

(i) Should Cover comprehensively the entire documentation and proper custody in operational areas as per the Bank’s own internal Policy Guidelines.

(ii) Feasible suggestions / remedies / key solutions offered for removing the legal risks / legal lacunae in the documentation / formulation of agreements / collaboration.

 (C ) Audit of Complaints

This is a vital area emerging out of various operations may it be depositors in NHB / HFCs or housing loans granted by HFCs. This primarily relates to Customer service vis –a vis customers satisfaction.  

Such Audit i.e no. of complaints received / disposed of / pending etc. could be audited quarterly within the scope of work related to Internal Audit.

(D) Revenue / Income Leakage