DUE DILIGENCE REPORTS FOR BANKS
What is Due Diligence:
Due diligence is a process of research and analysis that is initiated before an
acquisition, investment, business partnership or bank loan, in order to determine
the value of the subject of the due diligence or whether there are any major issues
involved. Such findings are then summarized in a report which is known as the due
diligence report.
Due Diligence in case of Banks.
Most of times, when the company intends to borrow money from the Banks or the
company intend to continue its credit facilities from the bank, the bank may get
itself prepared or may ask the companies to get the Due Diligence Reports from
the Professionals specifically the Company Secretaries as mentioned in the
Notification issued by the Reserve Bank of India dated 10.02.2009 vide
Notification no. DBOD. NO. BP.BC.110/08.12.001/2008-09. The wording of the
notification is as follows:
“Please refer to Paragraph 2(iii) of our circular RBI/2008-
09/183/DBOD.No.BP.BC.46 /08.12 .001/2008-09 dated September 19,
2008 on the captioned subject.
2. In terms of Paragraph 2(iii) of the above circular, in order to
strengthen the information sharing system among banks in respect of the
borrowers enjoying credit facilities from multiple banks, the banks are
required to obtain regular certification by a professional, preferably a
Company Secretary, regarding compliance of various statutory
prescriptions that are in vogue, as per specimen given in Annex III to
the above circular.
3. In this context it is clarified that in addition to Company Secretaries,
banks can also accept the certification by a Chartered Accountants &
Cost Accountants. Further, on the basis of suggestions received from
Indian Banks Association, Annex III - Part I & Part II (copy
enclosed) has also been modified.”
Why banks Need Due Diligence Reports
1. The objective of the Diligence Report on Governance for Banks is to
examine the records of a borrowing entity to assess borrowers conduct
(as a corporate entity) from the perspective of status of governance
2. To confirm the compliance of certain statutory and procedural
requirements to provide comfort to the banks.
3. To verify the details of directors of the company, their relation with
the company i.e. promoters, independent or otherwise
4. To examine the previous and existing lending of the company
5. To know the defaulting status of directors and the company in past
6. To confirm whether the comp[any ahs complied with all the
provisions of the law specially Companies ACT
7. To know the forex exposure and Overseas Borrowing of the company
as on date
8. To confirm whether the company ahs insured all its assets or not so
that in case of any mis-happening, no burden on the funding of the banks
should be dealt with.
Format of Due Diligence Report as provided as per above
notification is as follows:
To,
The Manager,
___________________ (Name of the Bank)
I/We have examined the registers, records, books and papers of
____________ Limited having its registered office
at……………………………………………………… as required to be
maintained under the Companies Act, 2013 (the Act) and the rules made
thereunder , the provisions contained in the Memorandum and Articles
of Association of the Company, the provisions of various statutes,
wherever applicable, as well as the provisions contained in the Listing
Agreement/s, if any, entered into by the Company with the recognized
stock exchange/s for the half year ended on…………… . In my/our
opinion and to the best of my/our information and according to the
examination carried out by me/us and explanations furnished to me/us
by the Company, its officers and agents. I/We report that in respect of
the aforesaid period:
1. The management of the Company is carried out by the Board of
Directors comprising of as listed in Annexure …., and the Board was
duly constituted.
During the period under review the following changes that took place in
the Board of Directors of the Company are listed in the Annexure ….,
and such changes were carried out in due compliance with the provisions
of the Companies Act, 2013.
2. The shareholding pattern of the company as on ------- was as detailed
in Annexure….
During the period under review the changes that took place in the
shareholding pattern of the Company are detailed in Annexure…….:
3. The company has altered the following provisions of
(i) The Memorandum of Association during the period under review and
has complied with the provisions of the Companies Act, 2013 for this
purpose.
(ii) The Articles of Association during the period under review and has
complied with the provisions of the Companies Act, 2013 for this
purpose.
4. The company has entered into transactions with business entities in
which directors of the company were interested as detailed in
Annexure….. .
5. The company has advanced loans, given guarantees and provided
securities amounting to Rs. ____________ to its directors and/or persons
or firms or companies in which directors were interested, and has
complied with Section–185 of the Companies Act, 2013.
6. The Company has made loans and investments; or given guarantees or
provided securities to other business entities as detailed in Annexure
….and has complied with the provisions of the Companies Act, 2013.
7. The amount borrowed by the Company from its directors, members,
financial institutions, banks and others were within the borrowing limits
of the Company. Such borrowings were made by the Company in
compliance with applicable laws. The break up of the Company's
domestic borrowings were as detailed in Annexure ….. :
8. The Company has not defaulted in the repayment of public deposits,
unsecured loans, debentures, facilities granted by banks, financial
institutions and non-banking financial companies.
9. The Company has created, modified or satisfied charges on the assets
of the company as detailed in Annexure…. Investments in wholly owned
Subsidiaries and/or Joint Ventures abroad made by the company are as
detailed in Annexure ……
10. Principal value of the forex exposure and Overseas Borrowings of
the company as on ………… are as detailed in the Annexure under"
11. The Company has issued and allotted the securities to the persons-
entitled thereto and has also issued letters, coupons, warrants and
certificates thereof as applicable to the concerned persons and also
redeemed its preference shares/debentures and bought back its shares
within the stipulated time in compliance with the provisions of the
Companies Act,2013 and other relevant statutes.
12. The Company has insured all its secured assets.
13. The Company has complied with the terms and conditions, set forth
by the lending bank/financial institution at the time of availing
any facility and also during the currency of the facility
14. The Company has declared and paid dividends to its shareholders as
per the provisions of the Companies Act, 2013.
15. The Company has insured fully all its assets.
16. The name of the Company and or any of its Directors does not
appear in the defaulters' list of Reserve Bank of India.
17. The name of the Company and or any of its Directors does not
appear in the Specific Approval List of Export Credit Guarantee
Corporation.
18. The Company has paid all its Statutory dues and satisfactory
arrangements had been made for arrears of any such dues.
19. The funds borrowed from banks/financial institutions have been used
by the company for the purpose for which they were borrowed.
20. The Company has complied with the provisions stipulated in Section
186 of the Companies Act in respect of its Inter Corporate loans and
investments.
21. It has been observed from the Reports of the Directors and the
Auditors that the Company has complied with the applicable Accounting
Standards issued by the Institute of Chartered Accountants in India.
22. The Company has credited and paid to the Investor Education and
Protection Fund within the stipulated time, all the unpaid dividends and
other amounts required to be so credited.
23. Prosecutions initiated against or show cause notices received by the
Company for alleged defaults/offences under various statutory
provisions and also fines and penalties imposed on the Company and or
any other action initiated against the Company and /or its directors in
such cases are detailed in Annexure….. .
24. The Company has (being a listed entity) complied with the
provisions of the Listing Agreement.
25. The Company has deposited within the stipulated time both
Employees' and Employer's contribution to Provident Fund with the
prescribed authorities.
Note: The qualification, reservation or adverse remarks, if any, are
explicitly stated may be stated at the relevant paragraphs above place(s).
Place: Signature:
Date: Name of Company
Secretary/Firm:
C.P. No.:
Disclaimer: The author is based at Jalandhar and is a practicing
company Secretary deal in Secretarial and FDI Matters and also a
Certified CSR Professional who deals in matters pertaining to Corporate
Social Responsibility.
The information contained in this write up, as
provided by the author, is to provide a general guidance to the intended
user. The information should not be used as a substitute for specific
consultations.
Authors recommend that professional advice is sought
before taking any action on specific issues. The author can be however
contacted for further clarification via mail
at csmohitsaluja@gmail.com
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