The Members of BANDHAN BANK LIMITED
Report on the Audit of the Financial Statements Opinion
We have audited the accompanying financial statements of BANDHANBANK LIMITED (the "Bank") which comprise the Balance Sheet as at March 312020 the Profit and Loss Account the Cash Flow Statement for the year then ended and asummary of significant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to theexplanations given to us the aforesaid financial statements give the information requiredby the Banking Regulation Act 1949 Companies Act 2013 (the "Act") in themanner so required and give a true and fair view in conformity with the AccountingStandards prescribed under section 133 of the Act read with the Companies (AccountingStandards) Rules 2006 as amended ("Accounting Standards") as applicable tobanks and other accounting principles generally accepted in India of the state of affairsof the Bank as at March 31 2020 its profit and its cash flows for the year ended on thatdate.
Basis for Opinion
We conducted our audit of the financial statements in accordance withthe Standards on Auditing specified under section 143(10) of the Act (SAs). Ourresponsibilities under those Standards are further described in the Auditor'sResponsibility for the Audit of the Financial Statements section of our report. We areindependent of the Bank in accordance with the Code of Ethics issued by the Institute ofChartered Accountants of India (ICAI) together with the ethical requirements that arerelevant to our audit of the financial statements under the provisions of the Act and theRules made thereunder and we have fulfilled our other ethical responsibilities inaccordance with these requirements and the ICAI's Code of Ethics. We believe that theaudit evidence obtained by us is sufficient and appropriate to provide a basis for ouraudit opinion on the financial statements.
Emphasis of Matter
We draw attention to Note 39 to Schedule 18 to the Financial Statementswhich fully describes that the Bank has recognised provision on loans to reflect theadverse business impact and uncertainties arising from the COVID 19 pandemic. Suchestimates are based on current facts and circumstances and may not necessarily reflect thefuture uncertainties and events arising from the full impact of the COVID 19 pandemic.
Our opinion/ conclusion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that in our professional judgmentwere of most significance in our audit of the financial statements of the current period.These matters were addressed in the context of our audit of the financial statements as awhole and in forming our opinion thereon and we do not provide a separate opinion onthese matters. We have determined the matters described below to be the key audit mattersto be communicated in our report.
|SL. No. Key Audit Matters ||Auditor's Response |
|1 Identification of Non Performing Advances and provisioning for Advances: (Refer Schedule 9 read with Note 4.3 to Schedule 17 and Note 39 to Schedule 18 to the financial statements) || |
|The Bank has net advances amounting to INR 666299476735 as at 31 March 2020. Identification of and provisioning for non-performing assets (loans) in accordance with relevant prudential norms issued by the Reserve Bank of India (RBI) in respect of income recognition asset classification and provisioning pertaining to advances (herein after referred as "Relevant RBI guidelines") is a Key Audit Matter (KAM) due to level of regulatory and other stakeholders focus. ||Our audit approach included testing the design operating effectiveness of internal controls and substantive audit procedures in respect of income recognition asset classification and provisioning pertaining to advances. In particular: |
| || We have evaluated and understood the Bank's internal control system in adhering to the Relevant RBI guidelines regarding income recognition asset classification and provisioning pertaining to advances; |
| || We have analysed and understood key IT systems/ applications used and tested the design and implementation as well as operational effectiveness of relevant controls including system generated reports and manual process and controls in relation to income recognition asset classification viz. standard sub-standard doubtful and loss with reference to IRAC norms and provisioning pertaining to advances; |
|Also during the year the Bank has also considered additional provisions after evaluating past trends of disruptions and heightened risks observed in micro finance portfolio in certain areas of a North Eastern State and the extent to which COVID-19 pandemic and related RBI guidance's will impact its overall operations and performance. || We test checked advances to examine the validity of the recorded amounts loan documentation examined the statement of accounts indicators of impairment impairment provision for non-performing assets and compliance with income recognition asset classification and provisioning pertaining to advances; and |
|Given the uncertainty over the potential macro- economic condition the impact of the global health pandemic may be different from that estimated as at the date of approval of these financial statements. These additional provisions involves significant management estimates/ judgements and hence identified as Key Audit Matter (KAM). || evaluated the past trends of disruptions management judgement governance process and review controls over provisions for standard and non-performing assets including analysis of collection trends relevant minutes of the Board meetings and discussed the provisions made with senior management . |
|2 Key Information technology (IT) systems used in financial reporting process: || |
|As a Scheduled Commercial Bank that operates on core banking solution ("CBS") across its branches and Door Step Service Centres ("DSC") the reliability and security of IT systems plays a key role in the business operations. The Bank continued to be highly dependent on third party service providers for its core IT infrastructure. Since large volume of transactions are processed daily the IT controls are required to ensure that applications process data as expected and that changes are made in an appropriate manner. ||We involved our IT specialists to obtain an understanding of the Bank's IT related control environment. Furthermore we conducted an assessment and identified key IT applications databases and operating systems that are relevant to our audit and have identified CBS and Treasury System primarily as relevant for financial reporting. For the key IT systems pertaining to CBS and treasury operations used to prepare accounting and financial information our areas of audit focus included access security (including controls over privileged access) program change controls database management and network operations. In particular: |
|The IT infrastructure is critical for smooth functioning of the Bank's business operations as well as for timely and accurate financial accounting and reporting. || We obtained an understanding of the Bank's IT control environment and key changes during the audit period that may be relevant to the audit; |
|Due to the pervasive nature and complexity of the IT environment we have ascertained Key Information technology ("IT") systems used in financial reporting process as a key audit matter. || We tested the design implementation and operating effectiveness of the Bank's General IT controls over the key IT systems that are critical to financial reporting. This included evaluation of Bank's controls to evaluate segregation of duties and access rights being provisioned / modified based on duly approved requests access for exit cases being revoked in a timely manner and access of all users being recertified access of all users being rectified during the period of audit; |
| || We also tested key automated and manual business cycle controls and logic for system generated reports relevant to the audit; including testing of compensating controls or formed alternate procedures to assess whether there were any unaddressed IT risks that would materially impact the financial statements. |
|3 Accounting for scheme of amalgamation of GRUH Finance Limited with the Bank: (Refer Note 38 to Schedule 18 to the financial Our audit procedures included the following: || |
|We obtained and read the Scheme NCLT orders and ROC On January 7 2019 the Board of Directors of the fillings in relation to the amalgamation of Gruh Finance of GRUH Finance Limited with the Bank (the 'Scheme'). Bandhan Bank approved the Scheme of Amalgamation Limited with the Bank. || We evaluated the appropriateness of Pooling of interest The Scheme has received all the necessary regulatory method of accounting adopted by the management to approvals and the certified copies of the orders passed account for the merger in compliance with the requirement of by NCLTs were filed with ROCs on the October 17 2019 the scheme of merger duly approved by NCLTs. |
| ||- becoming the Effective Date on which GRUH Finance Limited has ultimately been merged with Bandhan Bank We evaluated management's alignment of accounting policies Limited. The Scheme has received the RBI approval on and estimates by comparing the significant accounting 14 March 2019. policies and estimates of erstwhile GRUH Finance Limited with the Banks's accounting policies and estimates and performed The Bank accounted for the merger under pooling of procedures to verify the accounting for the Scheme done by interest method. We have determined this to be a key the Bank. audit matter in view of magnitude of the transaction and the significant management judgment involved with respect to alignment of accounting policies between the Bank and Non-Banking Finance Company (NBFC). |
Information Other than the Financial Statements and Auditor's ReportThereon
The Bank's Board of Directors is responsible for the preparationof the other information. The other information comprises the Chairman's Statement theDirectors Report including annexures to the Directors report and Corporate GovernanceReport included in the Annual Report but does not include the financial statement and ourauditors report thereon and the Pillar III Disclosures under New Capital AdequacyFramework (Basel III Disclosures). The other information is expected to be made availableto us after the date of this auditor's report.
Our opinion on the financial statements does not cover the otherinformation and Basel III Disclosures and accordingly will not express any form ofassurance conclusion thereon.
In connection with our audit of the financial statements ourresponsibility is to read the other information and in doing so consider whether theother information is materially inconsistent with the financial statements or ourknowledge obtained during the course of our audit or otherwise appears to be materiallymisstated.
When we read the Other Information if we conclude that there isa material misstatement therein we are required to communicate the matter to thosecharged with governance as required under SA 720 'The Auditor's responsibilities Relatingto Other Information'.
Management's Responsibility for the Financial Statements
The Bank's Board of Directors is responsible for the matters stated insection 134(5) of the Act with respect to the preparation of these financial statementsthat give a true and fair view of the financial position financial performance and cashflows of the Bank in accordance with the provisions of Section 29 of the BankingRegulation Act 1949 Accounting Standards and other accounting principles generallyaccepted in India and the circulars guidelines and the directions issued by the ReserveBank of India from time to time. This responsibility also includes maintenance ofadequate accounting records in accordance with the provisions of the Act for safeguardingthe assets of the Bank and for preventing and detecting frauds and other irregularities;selection and application of appropriate accounting policies; making judgments andestimates that are reasonable and prudent; and design implementation and maintenance ofadequate internal financial controls that were operating effectively for ensuring theaccuracy and completeness of the accounting records relevant to the preparation andpresentation of the financial statement that give a true and fair view and are free frommaterial misstatement whether due to fraud or error.
In preparing the financial statements management is responsible forassessing the Bank's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Bank or to cease operations or has norealistic alternative but to do so.
The Board of Directors are also responsible for overseeing thefinancial reporting process of the Bank.
Auditor's Responsibility for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether thefinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these financial statements.
As part of an audit in accordance with SAs we exercise professionaljudgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of thefinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
Obtain an understanding of internal financial control relevantto the audit in order to design audit procedures that are appropriate in thecircumstances. Under section 143(3) (i) of the Act we are also responsible for expressingour opinion on whether the Bank has adequate internal financial controls system in placeand the operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by the management.
Conclude on the appropriateness of management's use of the goingconcern basis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast significant doubt on theBank's ability to continue as a going concern. If we conclude that a material uncertaintyexists we are required to draw attention in our auditor's report to the relateddisclosures in the financial statements or if such disclosures are inadequate to modifyour opinion. Our conclusions are based on the audit evidence obtained up to the date ofour auditor's report. However future events or conditions may cause the Bank to cease tocontinue as a going concern.
Evaluate the overall presentation structure and content of thefinancial statements including the disclosures and whether the financial statementsrepresent the underlying transactions and events in a manner that achieves fairpresentation.
Materiality is the magnitude of misstatements in the financialstatements that individually or in aggregate makes it probable that the economicdecisions of a reasonably knowledgeable user of the financial statements may beinfluenced. We consider quantitative materiality and qualitative factors in (i) planningthe scope of our audit work and in evaluating the results of our work;
and (ii) to evaluate the effect of any identified misstatements in thefinancial statements.
We communicate with those charged with governance regarding amongother matters the planned scope and timing of the audit and significant audit findingsincluding any significant deficiencies in internal control that we identify during ouraudit.
We also provide those charged with governance with a statement that wehave complied with relevant ethical requirements regarding independence and tocommunicate with them all relationships and other matters that may reasonably be thoughtto bear on our independence and where applicable related safeguards.
From the matters communicated with those charged with governance wedetermine those matters that were of most significance in the audit of the financialstatements of the current period and are therefore the key audit matters. We describethese matters in our auditor's report unless law or regulation precludes public disclosureabout the matter or when in extremely rare circumstances we determine that a mattershould not be communicated in our report because the adverse consequences of doing sowould reasonably be expected to outweigh the public interest benefits of suchcommunication.
The audit of the financial statements of the Bank for the year ended 31March 2019 was carried out by the previous auditors of the Bank. Our opinion on thefinancial statements and our report on Other Legal and Regulatory Requirements below isnot modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
1. As required by Section 143(3) of the Act and Section 30 of theBanking Regulation Act 1949 based on our Audit we report that:
a) We have sought and obtained all the information and explanationswhich to the best of our knowledge and belief were necessary for the purposes of our auditand found them to be satisfactory.
b) In our opinion the transactions of the Bank which have come to ournotice have been within the powers of the bank.
c) As explained in the paragraph 2 below the financial accountingsystem of the Bank are centralised and therefore accounting returns are not required tobe submitted by branches.
d) In our opinion proper books of account as required by law have beenkept by the Bank so far as it appears from our examination of those books
e) The Balance Sheet Profit and Loss Account and the Cash FlowStatement dealt with by this Report are in agreement with the books of account
f) In our opinion the aforesaid financial statements comply with theAccounting Standards specified under Section 133 of the Act as applicable to banks.
g) On the basis of the written representations received from thedirectors as on March 31 2020 taken on record by the Board of Directors none of thedirectors is disqualified as on March 31 2020 from being appointed as a director in termsof Section 164(2) of the Act.
h) With respect to the adequacy of the internal financial controls overfinancial reporting of the Bank and the operating effectiveness of such controls refer toour separate Report in "Annexure A". Our report expresses an unmodified opinionon the adequacy and operating effectiveness of the Bank's internal financial controls overfinancial reporting.
i) With respect to the other matters to be included in the Auditor'sReport in accordance with the requirements of section 197(16) of the Act as amended
In our opinion and to the best of our information and according to theexplanations given to us the entity being a banking company section 197 of the Actrelated to the managerial remuneration is not applicable by virtue of Section 35B(2A) ofthe Banking Regulation Act 1949.
j) With respect to the other matters to be included in the Auditor'sReport in accordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 asamended in our opinion and to the best of our information and according to theexplanations given to us:
i. The Bank has disclosed the impact of pending litigations on itsfinancial position in its financial statements
ii. The Bank has made provision as required under the applicable lawor accounting standards for material foreseeable losses if any on long-term contractsincluding derivative contracts;
iii. There were no amounts which were required to be transferred to theInvestor Education and Protection Fund by the Bank.
2. We report that during the course of our audit we have visited andperformed select relevant procedures at 35 Branches 36 Doorstep Service Centres (DSC) and13 GRUH Centres. Since the Bank considers its key operations to be automated with the keyapplications largely integrated to the Core Banking System it does not require itsbranches to submit any financial returns. Accordingly our audit is carried out centrallyat Head Office and Central Processing Units based on the records and data required for thepurpose of Audit being made available to us.
For Deloitte Haskins & Sells
(ICAI Reg. No 117365W)
G. K. Subramaniam
(Membership No. 109839)
Mumbai May 12 2020
Annexure "A" to the Independent Auditor's Report
(Referred to in paragraph 1(h) under 'Report on Other Legal andRegulatory Requirements' section of our report of even date)
Report on the Internal Financial Controls Over Financial Reportingunder Clause (i) of Sub-section 3 of Section 143 of the Companies Act 2013 ("theAct")
We have audited the internal financial controls over financialreporting of Bandhan Bank Limited ("the Bank") as of March 31 2020 inconjunction with our audit of the financial statements of the Bank for the year ended onthat date.
Management's Responsibility for Internal Financial Controls
The Bank's management is responsible for establishing and maintaininginternal financial controls based on "the internal control over financial reportingcriteria established by the Bank considering the essential components of internal controlstated in the Guidance Note on Audit of Internal Financial Controls over FinancialReporting issued by the Institute of Chartered Accountants of India". Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to Bank's policies the safeguarding of itsassets the prevention and detection of frauds and errors the accuracy and completenessof the accounting records and the timely preparation of reliable financial informationas required under the Companies Act 2013 the Banking Regulation Act 1949 and theguidelines issued by the Reserve Bank of India.
Our responsibility is to express an opinion on the Bank's internalfinancial controls over financial reporting of the Bank based on our audit. We conductedour audit in accordance with the Guidance Note on Audit of Internal Financial ControlsOver Financial Reporting (the "Guidance Note") issued by the Institute ofChartered Accountants of India and the Standards on Auditing prescribed under Section143(10) of the Companies Act 2013 to the extent applicable to an audit of internalfinancial controls. Those Standards and the Guidance Note require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance aboutwhether adequate internal financial controls over financial reporting was established andmaintained and if such controls operated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence aboutthe adequacy of the internal financial controls system over financial reporting and theiroperating effectiveness. Our audit of internal financial controls over financial reportingincluded obtaining an understanding of internal financial controls over financialreporting assessing the risk that a material weakness exists and testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk. Theprocedures selected depend on the auditor's judgement including the assessment of therisks of material misstatement of the financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion on the Bank's internal financialcontrols system over financial reporting.
Meaning of Internal Financial Controls over Financial Reporting
A Bank's internal financial control over financial reporting is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A Bank's internal financial control overfinancial reporting includes those policies and procedures that (1) pertain to themaintenance of records that in reasonable detail accurately and fairly reflect thetransactions and dispositions of the assets of the Bank; (2) provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financial statementsin accordance with generally accepted accounting principles and that receipts andexpenditures of the Bank are being made only in accordance with authorisations ofmanagement and directors of the Bank; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of theBank's assets that could have a material effect on the financial statements.
Inherent Limitations of Internal Financial Controls over FinancialReporting
Because of the inherent limitations of internal financial controls overfinancial reporting including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls overfinancial reporting to future periods are subject to the risk that the internal financialcontrol over financial reporting may become inadequate because of changes in conditionsor that the degree of compliance with the policies or procedures may deteriorate.
In our opinion to the best of our information and according to theexplanations given to us the Bank has in all material respects an adequate internalfinancial controls system over financial reporting and such internal financial controlsover financial reporting were operating effectively as at March 31 2020 based on"the criteria for internal financial control over financial reporting established bythe Bank considering the essential components of internal control stated in the GuidanceNote on Audit of Internal Financial Controls Over Financial Reporting issued by theInstitute of Chartered Accountants of India".
For Deloitte Haskins & Sells
(ICAI Reg. No 117365W)
G. K. Subramaniam
(Membership No. 109839)
Mumbai May 12 2020