Solvency certificate is a document stating the details of the financial stability and solvency of an individual or entity. This is generally a requirement to be filled while dealing with government and commercial offices as they need it to be certain about the financial standing of the individuals/entities.
A solvency certificate is mainly required for the following purposes:
Solvency certificate proves the financial strength to the person or entity producing it.
Usually, they are issued on request of the individual or entity by the revenue department and banks. Banks generally issue these certificates to their customers on the basis of the account details and transactions (both current and savings account) and property documents available to them. A net worth certificate issued by the Chartered Accountant pertaining to the financial status of the individual/ entity also facilitates the obtainment of a solvency certificate from the banks.
In order to determine the financial position of any individual or entity the bank will need the following documents from its customers to study and evaluate:
A pre-specified, solvency certificate application form is to be filled by the applicant and submitted to the bank in which the savings or the current account is maintained. However, the banks demand various other documents and details to prepare the solvency certificate.
An identity proof or a current address proof of the applicant is also required.
Banks generally provide the solvency certificate to the customers who are associated with the bank and transacting for a specific period of time. This period differs from bank to bank. Officials of the bank scrutinize the bank statements (either current account or savings account or both) to determine the customer's financial stability. The banks also analyze the loan account or fixed deposit accounts for this purpose.
Banks usually ask from its customers for their income tax returns to get an overall picture of their financial status. In cases of companies /partnership firms, various audited statements will be required, such as cash flows, profit/loss account, balance sheet, etc.
Properties such as land, building etc are also the assets and should be evaluated to determine the financial stability, the bank might ask for original documents. To take the property value into consideration, submit the property valuation report prepared by a Chartered Engineer or Bank Panel Valuer.
Usually, gold in possession is considered to be valuable security considered by the banks while issuing the solvency certificate. Banks normally engage their in- house valuers for this purpose.
Most banks demand a net worth certificate issued by a certified chartered accountant listing all the assets and liabilities.
Other than the documents mentioned above, applicants are also required to produce the investment statements to the bank pertaining to shares, mutual funds, provident funds, etc.
Normally, after the careful scrutiny of the above-mentioned documents and being satisfied with the solvency of the applicant with respect to the liabilities, it issues the solvency certificate to the customer. However, banks do not take any responsibility of the liability incurred in the future on the basis of said insolvency certificate.