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How does an Agency for Specialized Monitoring (ASM) provide Due Diligence support in India for the Banking Industry?

How does an Agency for Specialized Monitoring (ASM) provide Due Diligence support in India for the Banking Industry? Back

What is an Agency for Specialized Monitoring?

In the year 2019, banks have approximately provided 200 billion rupees as loans, and the amount of non-performing assets or dead assets increased drastically. An indispensable contributor to this was the lack of an efficient regulatory mechanism for loans. Therefore, the government approved the formation of the Agency for Specialized Monitoring.

An Agency for Specialized Monitoring is a mechanism or body of the bank, which allows it to take several steps to prevent or minimize the number of money laundering cases and misappropriation of funds. The IBA appointed several auditory firms to monitor and regulate the flow of cash. A few of its functions include the following: -

·       Regular auditing and scrutinizing deviations or fluctuations

·       Monitoring of cash flow

·       Monitoring shares

·       Analysis of the organization’s work input and output.

·       Check for misappropriation of funds or diversion of funds.

How does an Agency for Specialized Monitoring (ASM) provide Due Diligence support in India for the Banking Industry?
  • Due Diligence Support in India


    Apart from the previously mentioned functions, ASMs are committed to providing due diligence support in India. The literal meaning of due diligence is scrutinizing the veracity of facts before taking any decision. In commercial language, it is a process, which involves steps of examining the financial records and other relevant assets before a business enters any transaction.

    In the banking world, the explanation for due diligence support & services involves an in-depth investigation and analysis of the business or person’s credits, assets, and liabilities. A bank before investing or finalizing a transaction in a business initiates acquisition or gives out a loan to a customer to ensure that the deal would be lucrative and safe for the bank.

    Process of due diligence support & services

    After a positive exchange of dialogues and negotiations between the bank and the client, the long process of providing due diligence support & services begins. The procedure of due diligence support in India is as follows: -

    ·       The very first step is gathering of crucial documents such as identity proof, sources of income, legal documents, and financial documents, taxation files, etc. along with vital details such as a political and social image of the corporate, the key stakeholders, and partners of the business along with the commercial network of the niche. Additionally, information about the functioning and protocols of the company alongside the bureaucratic structure is scrutinized as well.

    ·       The subsequent step in due diligence support & services involves a watch list screening of third parties involved with the client. These are associates who are linked to the organization and seen as potentially risky. The nature of the political influence of these third parties is investigated too.

    ·       The next step is risk assessment. The agency investigates each sector to look for the probability of corruption. Further, the collaborative endeavors are evaluated for risk factors in addition to analysis of the skills of employees along with their quantity. Lastly, the policies, the altruist activities, etc. are assessed.

    ·       Following the above, the veracity of the collected information is checked by tallying it with other government or public information such as account, credit score, etc. However, when the risk is found to be high, a deeper analysis of records and finance department takes place.

    ·       Auditing due diligence is the next stage in this process. A detailed record of all the vetted data is maintained by the niche, in which, guidelines and regulations along with terms and conditions are laid out based upon risk factors and prospects. These terms and conditions are then deliberated upon by both the parties.

    The process of providing due diligence in India is a laborious and time taking procedure. Nevertheless, it is highly essential to ensure that banks do not suffer from fraud. Without such a process, it would be easy for the borrower to manipulate documents of income or assets or credit scores. Additionally, the risk of misappropriation of funds would increase drastically without strict scrutiny.
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