The Members of Bank of Baroda
Independent Auditors' Report on Standalone Financial Statements of Bank of Baroda
1. We have audited the accompanying Standalone Financial Statements of Bank of Baroda("the Bank") which comprise the Balance Sheet as at March 31 2020 the Profitand Loss Account Cash Flow Statement for the year then ended and Notes to the StandaloneFinancial Statements including Significant Accounting Policies and other explanatoryinformation in which are included returns of head office 18 Zone office 20 branchesand 1 Specialized Integrated Treasury Branch audited by us 4227 domestic branchesaudited by the respective Statutory Branch Auditors and 36 foreign branches audited by therespective Local Auditors. The branches audited by us and those audited by other auditorshave been selected by the Bank in accordance with the guidelines issued to the Bank by theReserve Bank ofIndia ("RBI").
Also incorporated in the Balance Sheet the Profit and Loss Account and the Cash FlowStatement are the returns from 5235 domestic branches which have not been subjected toaudit. These unaudited branches account for 9.52% of advances 25.72% of deposits 8.13%of interest income and 22.45% of interest expenses.
In our opinion and to the best of our information and according to explanations givento us the aforesaid Standalone Financial Statements give the information required by theBanking Regulation Act 1949 (the "Act") in the manner so required for the Bankand are in conformity with the accounting principles generally accepted inIndia and give:
a. true and fair view in case of the Balance Sheet of the state of affairs of the Bankas at 31st March 2020;
b. true balance of Profit in case of Profit and Loss Account for the year ended on thatdate; and
c. true and fair view of the cash flows in case of statement of cash flows for the yearended on that date.
Basis for Opinion
2. We conducted our audit in accordance with the Standards of Auditing("SAs") issued by the Institute of Chartered Accountants ofIndia ("theICAI") Our responsibility under those standards are further described in theAuditors' Responsibilities for the Audit of the Standalone Financial Statements section ofour report. We are independent of the Bank in accordance with the Code of Ethics issued bythe ICAI together with the ethical requirements that are relevant to our audit of theStandalone Financial Statements and we have fulfilled our other ethical responsibilitiesin accordance with these requirements and the Code of Ethics. We believe that the auditevidence obtained by us is sufficient and appropriate to provide a basis of our opinion.
Emphasis of Matter
3. We draw attention to
a. Note no. C-16 of the Schedule 18 of the Financial Statements which explains that theextent to which COVID-19 pandemic will impact the Bank's operations and financial resultsis dependent on future developments which are highly uncertain. The Bank is continuouslymonitoring the economic conditions and any impact on the Bank's Operations and FinancialStatements is uncertain as on the date of approval of this financial statements.
b. Note no. A-3.4 of the Schedule 18 of the Financial Statements relating todeferment of provision of Rs. 349.51 crore (March 31 2019 Nil) pertaining to certainfraud accounts identified during the year ended March 31 2020 and to be charged to theProfit & Loss Account in the three quarters of FY2020-21 in terms of RBI Circular DBRNo. BP.BC.92121.04.048/2015-16 dated April 18 2016.
Our opinion is not modified in respect of these matters.
Key Audit Matters
4. Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the standalone financial statements of the current period.These matters were addressed in the context of our audit of the standalone financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters.
|Key Audit Matters ||How the matter was addressed in our audit |
|Information Technology (IT) and controls impacting financial reporting ||Our Audit Approach |
|During the year in view of the amalgamation of Dena Bank and Vijaya bank with effect from April 1 2019 as stated in note A-1( C ) and C-8 of Schedule 18 of the Financial Statements the bank operates in three different software for the respective verticals namely EDena Bank branches EVijaya Bank branches and other branches. In view of the above the IT environment has become complex and pervasive to the operations of the Bank with regards to the financial reporting process since the same is highly dependent on information technology including automated and manual controls and availability of complete and accurate electronic data due to the size and complexity of the operations. Pending the systems integrated / migration of the three software the process of consolidated of data to be reported is manual. ||We have obtainedunderstanding of the ITrelated environment of allthe three verticals of the Bank and had accordingly identified IT applications databases and operating systems to conduct risk assessment which may impact on the financial reporting. |
|Unauthorized or extensive access rights changes in IT environment operational controls lack of segregation of duties which may cause a risk of misstatement of financial information and could have a material consequence on the completeness and accuracy of the financial statements. ||Our audit procedures with respect to all three verticals in this area included among others: |
| || Testing IT general controls related to User and Application controls |
| ||Change Management Controls and Data backup. |
|Due to high level of automation number of integrated / non integrated systems used the manual process used for the consolidation of the three verticals this is a significant matter for our audit. || Assessing whether appropriate restrictions were placed on access to core systems through reviewing the permissions and responsibilities of authorised personnel. |
| ||Where we identified the need to perform additional procedures we placed reliance on manual compensating controls; such as r e c onciliations between systems and other information sources or performing additional testing; extended our sample sizes to obtain adequate and appropriate audit evidences. |
| || Reviewed the controls with respect to manual processes consolidation of data of all verticals and ensured data integrity with respect to such consolidation. |
|Classification of Loans and Advances provision thereon and recognition of income ||Our Audit Approach |
|The net advances of the Bank constitutes of 59.60% of the total assets which is the significant financial statements. ||We had obtained understanding from the Bank about the controls built in the system checks and balances incorporated with respect to adherence to the RBI guidelines part of the and related Bank's Policies for identification of non performing assets provisioning and had accordingly planned our audit procedures. |
|Besides following the prudential norms on Income Recognition Asset Classification and Provisioning relating to Advances issued by the Reserve Bank of India ("RBI") the Bank also has certain policies for provisioning on non performing assets. ||We have audited top 20 domestic branches and have relied on the work done by the branch auditor for other domestic and foreign branches selected by the Bank. |
|Due to reliance placed on data submitted by the borrowers & lead bank for Drawing Power calculations third party for security valuation computation of provisions as per various guidelines issued by the RBI management judgements for impairing advances computation of diminution value for restructured advances and recognition of interest income including in non performing advances; we have considered this to be a key audit matter. ||The lockdown announced due to Covid 19 pandemic by the Central Government and the State Government the Disaster Management (DM) Act 2005 restricted the physical visit to be Branch. Thus we have relied on alternative audit procedures as per the Standards on Auditing prescribed by the Institute of Chartered Accountants of India (ICAI) Auditing and Assurance Standards Board of ICAI and RBI Directives on the matter. Based on the advisory the bank has provided documents/ information required by us through electronic medium. As a result of the above the entire statutory audit of the advances of the branches regional office zonal office and zones including the consolidation at head office has been carried out based on data in the form of reports and documents in an electronic form including scanned copies of the documents and excel worksheet and other documents as furnished by the respective units as well as additional documents provided to us in response to our requirements. It has been represented by the Management that the data and information provided electronically through reports records etc for the purpose of our audit are correct complete reliable and are directly generated from the accounting system of the Bank extracted from the borrower files withoutany further manualmodificationsmaintain its integrity authenticity readability andcompleteness. In addition based on our review of thevarious internal audit reports / inspection reports / reports issued by the concurrent audit for the year under audit nothing has come to our knowledge that make us believe that such alternate audit procedure would not be adequate. |
| ||Our audit procedures with respect to our audit of top 20 domestic branches based on the process described above focused on |
| || Review of design and operating effectiveness of key controls around the process of loan performance monitoring which includes basis of assessing drawing power and security valuations. |
| || For non-performingadvances on samplebasis we haveperformed loan filereviews to inspectfinancial particulars existence of security and assessed the adequacy of the provisions recognized in the books of accounts including valuation of collateral and the cash flows. |
| || Verification income credited on a monthly basis with the input data such as principal amounts contractual interest rates currencies and maturity dates were tested through substantive testing and tracing to source documents. |
| ||Made enquiries through video conferencing discussions over phone emails and similar communication channels. |
| ||Besides above we have also referred to the reports of the concurrent auditor and other audits conducted by the Bank. In addition to the branches audited by us we have carried out the Assessment of design implementation and operating effectiveness of controls of IT System used with respect to the classification of advances recognition of income and provisioning pertaining to non performing advances. |
|Classification and Valuation of Investments Identification of and provisioning for Non- Performing Investments ||Our Audit Approach |
|(Schedule 8 read with Note A-2 of Schedule 18 of the Financial Statements) Investments include investments made by the Bank in various Government Securities Bonds Debentures Shares Security receipts and other approved securities. ||Our audit approach towards Investments with reference to the RBI Circulars/ directives included the understanding of internal controls and substantive audit procedures in relation to valuation classification identification of non performing investments (NPIs) provisioning/ depreciation related to Investments. |
|Investments constitute 23.71% of the Bank's total assets. These are governed by the circulars and directives of the RBI. These directions of RBI inter-alia cover valuation of investments classification of investments identification of non- performing investments the corresponding non- recognition of income and provision there against. ||As stated in the earlier KAM we have relied on alternative audit procedures as per the Standards on Auditing prescribed by the ICAI. As a result of the above the entire statutory audit of the Treasury branch has been carried out based on data in the form of reports and documents in an electronic form including scanned copies of the documents and excel worksheet and other documents as furnished by the branch. It has been represented by the manager/ Chief manager of the Branch that the data and information provided electronically through reports records etc for the purpose of our audit are correct complete reliable and are directly generated from the accounting system of the Bank. |
|The valuation of unquoted investments and thinly traded investments is an area of inherent risk because of market volatility unavailability of reliable prices and macroeconomic uncertainty. Accordingly our audit was focused on valuation of investments classification identification of non- performing investments and provisioning related to investments. The valuation of each category (type) of the aforesaid securities is to be done as per the method prescribed in circulars and directives issued by the RBI which involves collection of data/information from various sources such as FIMMDA rates rates quoted on BSE/NSE financial statements of unlisted companies etc. ||Our audit procedures with respect to our audit of Treasury focused on - |
| ||a) We evaluated and understood the Bank's internal control system to comply with relevant RBI guidelines regarding valuation classification identification of NPIs provisioning/ depreciation related to investments; |
|Considering the complexities and extent of judgement involved in the valuation volume of transactions investments on hand and degree of regulatory focus this has been determined as a Key Audit Matter. ||b) For the selectedsample of investments in hand we tested accuracy and compliance with the RBI Master Circulars and directions by re- performing valuation for each category of the security. Samples were selected after ensuring that all the categories of investments (based on nature of security) were covered in the sample; |
| ||c) Independently test- checked valuation of unquoted investments based on the financial statements for the year ended March 31 2019 in terms of the RBI guidelines. |
| ||d) We assessed and evaluated the process of identification of NPIs and corresponding reversal of income and creation of provision; |
| ||e) We carried out substantive audit procedures to re- compute independently the provision to be maintained and depreciation to be provided in accordance with the circulars and directives of the RBI. Accordingly we selected samples from the investments of each category and tested for NPIs as per the RBI guidelines and recomputed the provision to be maintained in accordance with the RBI Circular for those selected sample of NPIs; |
Information Other than the Standalone Financial Statements and Auditors' Report thereon
5. The Bank's Board of Directors is responsible for the other information. Theother information comprises the information included in the Annual report but does notinclude the financial statements and our auditor's report thereon. The Annual Report isexpected to be made available to us after the date of this auditor's report.
Our opinion on the financial statements does not cover the other information and Pillar3 disclosures under Basel III disclosures and we will not express any form of assuranceconclusion thereon.
In connection with our audit of the financial statements our responsibility is to readthe other information identified above when it becomes available and in doing soconsider whether the other information is materially inconsistent with the financialstatements or our knowledge obtained in the audit or otherwise appears to be materiallymisstated.
When we read the Other Information if we conclude that there is a material misstatementtherein we are required to communicate the matter to those charged with governance andtake appropriate actions necessitated by the circumstances and the applicable laws andregulations.
Responsibilities of Management and Those Charged With Governance for the StandaloneFinancial Statements
6. The Bank's Board of Directors is responsible with respect to the preparation ofthese Standalone Financial Statements that give a true and fair view of the financialposition financial performance and cash flow of the Bank in accordance with theaccounting principles generally accepted in India including the Accounting Standardsspecified by ICAI as applicable to banks provisions of Section 29 of the BankingRegulation Act 1949 and the circulars and guidelines issued by RBI from time to time.This responsibility also includes maintenance of adequate accounting records in accordancewith the provisions of the Act for safeguarding of the assets of the Bank and forpreventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgements and estimate that are reasonable andprudent; and design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the Standalonefinancial statements that give true and fair view and are free from material misstatementwhether due to fraud or error.
In preparing the standalone financial statements the Board of Directors is responsiblefor assessing the Bank's ability to continue as a going concern disclosing asapplicable matters related to going concern and using the going concern basis ofaccounting unless Board of Directors either intends to liquidate the Bank or to ceaseoperations or has no realistic alternative but to do so. The Board of Directors are alsoresponsible for overseeing the Bank's financial reporting process.
Auditors' Responsibilities for the Audit of the Standalone Financial Statements
7. Our objectives are to obtain reasonable assurance about whether the standalonefinancial 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 standalone financial statements.
8. As part of an audit in accordance with SAs we exercise professional judgment andmaintain professionalscepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financialstatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances but not for the purposeof expressing an opinion on the effectiveness of the Bank's internal control.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Bank'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe financial statements or if such disclosures are inadequate to modify our opinion.Our conclusions are based on the audit evidence obtained up to the date of our auditor'sreport. However future events or conditions may cause the Bank to cease to continue as agoing concern.
Evaluate the overall presentation structure and content of the financialstatements including the disclosures and whether the financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of the misstatement in the statement that individually orin aggregate makes it probable that the economic decisions of a reasonably knowledgeableuser of the statement may be influenced. We consider quantitative materiality andqualitative factors in; (i) planning the scope of our audit work and evaluating theresults of our work; and (ii) to evaluate the effects of any identified misstatements inthe statement.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the standalone financial statementsof the current period and are therefore the key audit matters. We describe these mattersin our auditor's report unless law or regulation precludes public disclosure about thematter or when in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
9. We did not audit the financial Statements of 4227 domestic branches and 36foreign branches whose financial statements reflects advances of Rs. 436595.37 crore andtotal revenue of Rs. 43690.98 crore for the year ended on that date as considered in thestandalone financial statements. The financial statements of these branches have beenaudited by the Bank's Statutory Branch Auditors whose reports have been furnished to usand in our opinion in so far as it relates to the amounts and disclosures included inrespect of branches is based solely on the reports of such branch auditors.
10. As stated in Note no. C-17 of the Schedule 18 of the Financial Statement theFinancial Statements for the year ended March 31 2020 includes operations of erstwhileVijaya Bank and erstwhile Dena Bank which are amalgamated with the Bank w.e.f. April 12019 and hence the figures for year ended March 31 2020 are not comparable withcorresponding year ended March 31 2019.
11. We did not audit the financial statements of erstwhile Vijaya Bank and erstwhileDena Bank (the "Transferor Banks") included in the financial statementspursuant to amalgamation with the Bank (refer Note no. A-1( C ) and C-8 of the Schedule 18of the Financial Statements) which constitute total assets of Rs. 300809.66 crore andnet assets of Rs. 11792.07 crore as at April 1 2019. The financial statements and otherfinancial information of the Transferor Banks have been audited by other auditors whosereports have been furnished to us and our opinion on the financial statements to theextent they have been derived from such financial statements is based solely on the reportof such other auditors.
12. The Statement also includes figures for the year ended March 31 2019 auditedby the joint auditors of the Bank three of whom were the predecessor audit firms wherethey had expressed an unmodified opinion on such Standalone Financial Statements videtheir report dated May 22 2019.
Our opinion is not modified in respect of above matters.
Report on other legal and regulatory requirements
13. The Balance Sheet and the Profit and Loss account have been drawn up inaccordance with the provisions of Section 29 of the Banking Regulation Act 1949 and asper the Accounting Standards issued by ICAI to the extent they are not inconsistent withthe accounting policies prescribed by the RBI:
14. As required by the Banking Companies (Acquisition and Transfer of Undertakings)Act 1970 we report that;
(a) We have obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the purposes of our audit and have found them tobe satisfactory;
(b) The transactions of the Bank which have come to our notice have been within thepowers of the Bank; and
(c) The returns received from the offices and branches of the Bank have been foundadequate for the purposes of our audit.
15. We further report that:
(a) in our opinion proper books of account as required by law have been kept by theBank so far as it appears from our examination of those books and proper returns adequatefor the purposes of our audit have been received from branches not visited by us;
(b) The Balance Sheet and Profit and Loss account and Cash flow statements dealt withby this report are in agreement with the books of account and returns;
(c) The reports on the accounts of the branch offices audited by branch auditors of theBank under section 29 of the Banking Regulation Act 1949 have been sent to us and havebeen properly dealt with by us in preparing this report; and
(d) As required by the letter No. BCC:CA&T:SCK/112/128 dated March 18 2020 on"Appointment of Statutory Central Auditors (SCAs) for Financial Year 2019-20 Reporting Obligation of SCAs from Financial Year 2019- 2020" to be read withsubsequent communication dated June 10 2020 issued by the Bank we further report on thematters specified in the aforesaid letter as under:
In our opinion the Balance Sheet the Profit and Loss Account and the Statementof Cash Flows comply with the applicable accounting standards to the extent theyare not inconsistent with the accounting policies prescribed by RBI;
The financial transactions of the Bank which have come to our notice do nothave any adverse effect on the functioning of the Bank.
On the basis of the written representations received from the directors as onMarch 31 2020 taken on record by the Board of Directors none of the directors isdisqualified as on March 31 2020 from being appointed as a director in terms of Section164(2) of the Companies Act 2013.
in our opinion proper books of account as required by law have been kept by theBank so far as it appears from our examination of those books and proper returns adequatefor the purposes of our audit have been received from branches not visited by us;
Since the bank has informed us vide their letter dated June 10 2020 that thebank has opted for the deferment of implementation of Internal Controls over FinancialReporting Accordingly we are not required to report on the adequacy of the internalfinancial controls system over financial reporting and operating effectiveness of suchcontrols as at March 31 2020.