Page 202 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes Banks should put in place a reporting system to report to the top management, on a weekly
basis, the details of transactions in securities, details of bouncing of SGL transfer forms issued by
other banks, BRs outstanding for more than 15 days, capital market exposures, a review of
investment transactions undertaken during the period and overall risk management and internal
controls.

The internal audit department should audit the transactions in securities on an on-going basis,
monitor the compliance with the laid down management policies and prescribed procedures
and report the deficiencies directly to the management of the bank. In regard to securitisation
transactions depending upon their categorisation i.e. if they are investments then the internal
controls as referred hereinabove may be applied otherwise as applicable to advances may be
applied.

!
Caution Under no circumstances should an SGL transfer form be issued in favor of another
bank, resulting in bouncing back for want of sufficient balances. In such an event the
selling bank issuing the form would be liable to penal action by RBI against it.
All Ready-forward deals in Government Securities including Treasury bills are prohibited.

10.9.1 Special Purpose Vehicle (SPV)

An SPV is an entity specially created for doing the securitization deal. It invites investments
from investors, uses the invested funds to acquire the receivables of the originator and then uses
the realizations from the receivables transferred to it to pay the investors, thereby giving them
a reasonable return. An SPV may be a trust, corporation, or any other legal entity. Its activities
include holding title to transferred financial assets, issuing beneficial interest, collecting cash
proceeds from assets held, reinvesting the proceeds in financial instruments pending distribution
to the holders of beneficial interests and otherwise servicing the assets held. Generally, the
beneficial interests in the qualifying SPV are sold to investors and the proceeds are used to pay
the transferor for the assets transferred. Those beneficial interests may comprise either a single
class having equity characteristics or multiple classes of interests, some having debt characteristics
and others having equity characteristics.

Figure 10.1: Special Purpose Vehicle

196 LOVELY PROFESSIONAL UNIVERSITY