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CAIIB Elective: Commercial Credit & Risk ManagementModule D: Forensic Credit Audit & Early Warning SignalsUnit 18: RBI Early Warning Signals (EWS) & Red Flag Accounts
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Q1. During a credit audit of an NPA borrower, the auditor notices substantial unsecured loans given to group associate companies with zero interest rates while the company pays 12% interest on bank borrowings. This pattern is a primary indicator of:

A
Capital Siphoning & Funds Diversion (RBI Fraud Red Flag EWS #4)
B
Normal Inter-Corporate Business Synergies
C
Tax Minimization Strategy under Income Tax Act
D
Working Capital Margin Shortfall

Incorrect Answer

Formula: Diverted Funds = Non-Operating Advances to Related Parties

Diverting low/zero-interest funds to related entities while servicing high-cost bank debt is a primary RBI Red Flag Indicator (EWS #4 for Funds Diversion & Siphoning).

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