NRF Bank Ltd. is suffering from huge number of NPAs. During the month of April 2023, the management of the bank decided to sell some of its NPAs.…

In case of Sale of NPA by Bank, the auditor should examine that: The policy laid down by the Board of Directors in this regard relating to procedures, valuation and delegation of powers including non-performing financial assets that may be sold, norms or such sale, valuation procedure and accounting policy.Only such NPA has been sold which has remained NPA in the books of the bank for at least 2 years.The assets have been sold “without recourse' only i.e., the entire credit risk associated with the non-performing asset should be transferred to the purchasing bank.Subsequent to the sale of the NPA, the bank does not assume any legal, operational or any other type of risk relating to the sold NPAs.The NPA has been sold at cash basis only. Under no circumstances, NPA can be sold to another bank at a contingent price. The entire sale consideration has to be received on upfront basis.The bank has not purchased an NPA which it had originally sold.On the sale of the NPA, the same has been removed from the books of the account of selling bank on transfer;If the sale is at a price below the net book value (NBV) (i.e., book value less provisions held), the shortfall should be debited to the profit and loss account of that year.If the sale is for a value higher than the NBV, the excess provision shall not be reversed but will be utilised to meet the shortfall/ loss on account of sale of other non-performing financial assets. In the given situation, management of NRF Bank Ltd. is considering to sell following NPAs, during the month of April, 2023: Name NPA since F.Y. Amount (₹ in lakh) Fin Pvt. Ltd. 2019-20 36.55 Dairy Works 2021-22 55.24 Book Store 2018-19 29.85 Fancy Corp. 2017-18 61.42 RSM and Associates 2020-21 19.25 In view of above-mentioned conditions, the auditor is required to ensure that only such NPA has been sold which has remained NPA in the books of the bank for at least 2 years. Considering the facts given in the question all the NPAs, except for Dairy Works, are prior to April 2021 i.e., 2 years prior to April 2023. In view of the above provisions, management of NRF Bank Ltd. can sell all the NPAs except for NPA of 55.24 lakh rupees of Dairy Works as it has remained NPA in the books of the banks less than 2-year duration.