FinBridge Digital Lending Ltd., a non-deposit taking financial intermediary registered with the financial sector regulator, operates an online…

Mr. Mehta should assess the compliance of Prudential Norms by applying the following audit procedures: Check compliance with prudential norms encompassing income recognition, income from investments, accounting standards, accounting for investments, asset classification, provisioning for bad and doubtful debts, capital adequacy norms, prohibition on granting of loans by NBFC against its own shares, prohibition on loans and investments for failure to repay public deposits and norms for concentration of credit/investments.An auditor should ensure that the Board of Directors of every NBFC granting/intending to grant demand/call loans shall frame and implement a policy for the company.An auditor should assess on the basis of examinations conducted by him whether the NBFC has complied with the prudential norms. In particular, he should verify that advances and other credit facilities have been properly classified as standard/substandard/doubtful/loss and that proper provision has been made in accordance with the Directions. Assess whether overdue borrower accounts have been correctly classified as Standard, Sub-standard, Doubtful or Loss Assets in accordance with the Prudential Norms. Mere internal tagging of accounts as "watchlist” cannot override regulatory asset classification requirements. In respect of Non-Performing Assets, an auditor should check whether the unrealised income in respect of such assets has not been taken to the Profit & Loss Account on an accrual basis. Income from NPAs should be accounted for on realisation basis only.Check whether all accounts which have been classified as NPAs in the previous year also continue to be shown as such in the current year also. If the same is not treated as an NPA in the current year, the auditor should specifically examine such accounts to ascertain whether the account has become regular and the same can be treated as performing as per the Directions. Considering the facts of the case, Mr. Mehta should critically examine whether overdue borrower accounts were deliberately retained in "watchlist" categories to avoid NPA classification and provisioning requirements. He should also verify whether income from such stressed accounts has been incorrectly recognised on accrual basis contrary to Prudential Norms. If material non-compliance is identified, appropriate adjustments, additional disclosures and reporting implications should be considered in the audit report.