As we enter 2019, the Indian banking industry is facing a huge distress debt crisis. Indian banks endured a great deal of distress debt crisis in 2019, which forced them to face a huge capital infusion crisis to survive.

As a result of aggressive lending to the Infrastructure Sector in the aftermath of the Great Recession of 2008-2010 to prop up the Indian economy, as well as fraud and dial perversion of funds, the Indian Banking Sector ended up with a substantial amount of deteriorating debt due to a number of other factors, including fraud and diversion of funds. The Government of India, in order to keep a close eye on fraudulent activities and to prevent the diversion of funds, has introduced the ASM (Agency for Specialized Monitoring) mechanism.

What is Agency for Specialized Monitoring(ASM)?

The Agency for Specialized Monitoring(ASM) is an external agency that monitors huge credit exposures and advances made by banks/consortiums of banks. Consortiums are formed when banks come together to sanction the limits for a specific purpose. A consortium always has a lead bank with the majority of power. Whenever a consortium of banks is involved, the lead bank selects any particular agency and assigns it to monitor accounts.

As a mechanism of a bank, the Agency for Specialized Monitoring (ASM) allows it to take a variety of measures to minimize money laundering cases and misappropriation of funds. In India, ASMs are committed to providing due diligence support. In banking, due diligence services involve conducting an in-depth investigation and analysis of the company's finances, assets, and liabilities. In order to ensure that the deal would be lucrative and safe for the bank, a bank initiates an acquisition or offers a loan to a customer before investing or finalizing a transaction.

Why Agency for Specialized Monitoring(ASM)?

With 90% of frauds occurring in bank credit portfolios, frauds have emerged as the most serious concern in the management of functional risk, according to the RBI. The RBI took action after ever-increasing frauds and the amount of non-performing assets in India increased drastically, introducing new reforms, such as Agencies for Specialized Monitoring (ASM). Bank's cash flows are being monitored and regulated by 83 agencies appointed by the Indian Banks' Association (IBA).

What is the purpose of the Agency for Specialized Monitoring(ASM)?

With the effect of reporting under the Agency for Specialized Monitoring (ASM) will require banks to appoint specialized monitoring agencies that will help us determine problems in advance, such as inventory buildup, receivable delays, and fund diversions, and closely monitor the activities of debtors (borrowers), including purchases/invoices, actual production versus projections, transactions/payments of high value based on beneficiaries and purposes, and cash flow in/outflows. There will be strict vigilance over all transactions. Since banking employees lack expertise in all sectors and related business transactions, ASM's services are required to closely track the activity of each stage of the complex transaction of the borrower.

Agency for Specialized Monitoring Services will be applicable on which debtors:

The Agency for Specialized Monitoring Services(ASM Services) will apply to all debtors with exposure over Rs.250 crores. The scope of works included are as follows:

• Monitoring deviations and fluctuations regularly.

• Monitoring of cash flow and transactions.

• Inputs and outputs of the organization are analyzed.

• Verifying that funds have not been misappropriated or diverted.

• Maintaining compliance with sanction terms and conditions.

• An in-depth analysis of the operations, finances, and transactions of a company.

• Taking a closer look at the Fund Flow Statement.

An Agency for Specialized Monitoring (ASM) is a company whose Chartered Accountants have extensive domain knowledge, experience, and expertise in a variety of sectors, industries, etc. In cases of large exposure or specialized exposure, such agencies provide services such as inspections, stock audits, cash flow monitoring, and end-use verification.

How will R.K Associates help you as an Agency in Specialised Monitoring of Projects & Accounts?

The Indian Banks' Association (IBA) has enlisted R.K Associates as an agency that will offer Agency for Specialized Monitoring Services(ASM Services) to banks and consortia of banks with large credit exposures and specialized exposures. 

With a wide range of skills, experience, and domain knowledge across a wide range of sectors and industries, R.K Associates has a team of professional chartered accountants who can provide inspection services, end-user facility evaluation, progress of project implementation, and projections versus actuals. In order to identify risks and take appropriate actions, we offer services such as actuals, cash flow monitoring, and other related services.