A solvency certificate is an essential financial document issued by the bank to validate the financial strength/stability of a person or organisation. The bank issues this certificate based on the account transactions and/or a report attested by a chartered accountant. The solvency certificate is required as important evidence while applying for visas or government tenders. The certificate may also be required in legal matters or court proceedings.
Solvency certificate: Who is eligible to issue a solvency certificate?
Source: Pinterest
The certificate may be issued by the revenue department and banks at the request of the individual or organisation that needs it. The banks use the financial records of their customers’ current and savings accounts, transaction details and property documents, if there are any, to issue the solvency certificate. In addition to that, a financial report attested by a chartered accountant, validating the net worth of an individual/organisation, may also help in getting the certificate from the respective bank.
Solvency certificate: Documents needed for application
While issuing the certificate, the bank will need other essential documents that should be submitted with the application form. These are:
- Address and Identity proofs – A valid identity proof (Aadhaar card/Voter ID card/Driver’s licence/Passport) and proof of current address will be required to submit.
- Bank statement – A detailed bank statement based on current accounts, savings, Fixed Deposits, and loans (if any) is required to get the solvency certificate.
- Gold valuation – If you possess some gold, the bank’s panel valuer will be needed to value that gold and create a statement. Most banks have their in-house gold valuers for the job.
- Financial statements and tax returns – For an individual, the banks may ask to submit income tax return statements to issue the certificate. For organisations, however, several other audited financial statements, like cash flow, profit/loss, balance sheet, etc., will be needed.
- Provident fund statement – If you have an existing PF account, a stamped statement should be submitted during the application process.
- Mutual funds and shares – If you have invested in mutual funds or shares, a detailed report on the surrender value will be required by the bank to issue the certificate.
- Property documents and valuation – Properties, like a land, house or anything else, should also be evaluated to prepare the certificate. You can either submit the property documents or get them valued by the bank’s panel valuer to issue a report based on the same.
- Net worth certificate by a CA – Besides all these, you may also need to submit a net worth certificate issued by a chartered accountant to establish your financial status to the bank.
Apart from these, the bank may also ask for other financial statements, like insurance documents, encumbrance certificates on the property you are holding, mortgage certificates, liability amount certificates, lease agreements, self-declaration statements of the applicant, photos of the applicant, etc. Upon careful evaluation of all the statements and reports submitted, the bank will issue the solvency certificate to the individual or organisation.
Take a look at the sample below:
Source: Pinterest/Canara Bank
Solvency certificate: Validity
The certificate is valid only for a certain amount of time, generally one year.
Solvency certificate: Liabilities
Issuing a solvency certificate is a work of tremendous responsibility, true. However, the banks are not held responsible for any liability that may arise in future. Further, they take responsibility only for those customers who they know and who have been transacting from their banks for a considerable period. In fact, the bank manager is allowed to issue a specified number of certificates for their long-term clients only. If this number exceeds, the bank will forward the request to the higher authorities for approval. Also, the banks will not do it for free. You will be required to pay a certain amount to issue a solvency certificate by them.
Solvency certificate: Submitting application and time taken
Once you submit the application form with all the necessary documents, the bank will review the same and generally issue the certificate within seven days. However, if there is any incongruence, the bank executives will notify you, and then you may need to re-submit the application after resolving the problem.
FAQs
How much time does it take to get the certificate issued?
On submission, the bank will take some time to evaluate each document along with the application. Generally, it takes about a week to issue the certificate to the individual or organisation.
Are liquidity and solvency the same for a commercial body?
No! Liquidity refers to a company’s ability to resolve short-term financial obligations and sell assets to obtain quick cash. But the company’s ability to meet long-term obligations without hampering its functionality is termed solvency.
What does solvency mean for an organisation?
In the simplest terms, solvency is the company's ability to handle financial obligations while staying in business. It is the financial strength of the company that determines whether it can pay off debts or loans within a certain period.
What is the validity of a solvency certificate issued by the bank?
The bank-issued solvency certificates may be valid for 12 months from the date of issue.
What fees do the banks charge to issue the certificate?
It may differ from one bank to another. However, most banks charge a nominal fee of INR 2,000 for the job.
Do I need to submit original documents to the bank?
No! You can submit photocopies of the original documents along with photographs and the application form.
