INB Bank Ltd. is suffering from huge number of NPAs. During the month of April 2025, 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 INB Bank Ltd. is considering to sell following NPAs, during the month of April, 2025: Name NPA since F.Y. Amount (In Lakh) Cut Pvt. Ltd. 2021-22 38.55 Dairy Farm 2023-24 56.32 City Book 2020-21 27.50 Fashion Hub 2019-20 62.35 GRW and Associates 2022-23 19.75 Perry Cream 2023-24 11.25 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 Farm and Perry Cream are prior to April 2023 i.e., 2 years prior to April 2025. In view of the above provisions, management of INB Bank Ltd. can sell all the NPAs except for NPA of 56.32 lakh and - 11.25 Lakh of Dairy Farm and Perry Cream since it remained NPA in the books of INB Bank Ltd. for less than 2-year duration.