How you interpret the increase in Contingent liabilities V/s increase in advances of The Kuber Bank Ltd ?

Contingent liabilities of the bank increased to 91.78% in FY 2017 whereas advances increased by 28.61% during the same period. In Contingent liabilities bank undertake to pay the amounts on happening of a contingency. Contingent liabilities mainly contain Bank Guarantees, Letter of Credit, underwritings and credit guarantees. Exceptional growth in contingent liabilities may be the strategy of the bank or bank may not aware on this item. If growth in contingent liabilities is the strategy of bank, it will improve the non interest income of the bank. It generates other business for the bank like deposits in the shape of margins. It does not require funds for income generation. But sudden spurt in contingent liabilities should alarm our control systems and polices. It should attract the attention of management and all stake holders of the bank. Many questions should come in the mind of management: Whether it is a conscious decision? Whether it is according to the prescribed policy? Which type of contingent liabilities are increasing? Who are the beneficiaries? Whether beneficiaries are financially sound? Whether proper assessments were made into consideration? Whether proper margins were taken into consideration? Contingent liabilities attract credit risk which requires capital as per Risk rating of the party. Keeping in view of recent fraud in one of Indian Bank, accounting and monitoring of contingent liabilities require more attention as risk is equivalent to fund based limits.