A note on Diversion of Funds in Banking by Sharukh Sir (AKM - Banking & Finance Division)
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Diversion of Funds:
The early warning signals which help in detecting diversion of funds are indicated below:-
1. Poor credit turnover in the account.
2. Credit turnover is not commensurate with the sales estimate.
3. Routing of transactions through other Bank/ Non Member Banks.
4. Frequent request for allowing over drawing in the account.
5. Delay in submission of Stock Statement/ Other control Statements/ Financial Statements.
6. Return of Cheques issued by Borrowers devolvement of DPG installment and non-payments within a reasonable period.
7. Frequent devolvement of LC and non-payment within a reasonable period.
8. Frequent invocation of BGs and non-payment within a reasonable period.
9. Return of Bill/ Cheques discounted.
10. Non-payment of bills discounted or under collection.
11. Poor financial perfomance in terms of declining sales and profit cash losses, net losses, erosion of net worth etc.
12. Incomplete documentation in terms of creation/ registration of charge/ mortgage etc.
13. Non-compliance of terms and conditions of sanction.
14. Receiving clearing cheques for payment drawn in favour of its associates and/ or to a single party.
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