The Members of Central Bank of India
Report on the Audit of the Standalone Financial Statements
1. We have audited the accompanying Standalone Financial Statements of Central Bank ofIndia ('the Bank') which comprise the Balance Sheet as at March 31 2020 the Profit andLoss Account the Cash Flow Statement for the year then ended and notes to the StandaloneFinancial Statements including a summary of significant accounting policies and otherexplanatory information in which are included returns for the year ended on that date of20 Branches audited by us and 2487 branches audited by respective Statutory BranchAuditors. The branches audited by us and those audited by other auditors have beenselected by Bank in accordance with the guidelines issued to the Bank by the Reserve Bankof India ("RBI"). Also incorporated in the Balance Sheet the Profit and LossAccount and the Cash Flow Statement are the returns from 2144 branches which have notbeen subjected to audit. These unaudited branches account for 9.64 per cent of advances28.20 per cent of deposits 11.03 per cent of interest income and 27.53 per cent ofinterest expense.
2. In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid Standalone Financial Statements give the information requiredby the Banking Regulation Act 1949 (hereinafter referred to as "the Act") inthe manner so required for the Bank and are in conformity with the accounting principlesgenerally accepted in India and give:
a. a true and fair view in case of the Balance Sheet of the state of affairs of theBank as at March 31 2020;
b. a true balance of loss in case of Profit and Loss Account for the year ended on thatdate; and
c. a true and fair view of the cash flows in case of the Cash Flow Statement for theyear ended on that date.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditing("SAs") issued by the Institute of Chartered Accountants of India ("theICAI"). Our responsibilities 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 we have obtained is sufficient and appropriate to provide a basis for ouropinion.
Emphasis of Matter
4. We draw attention to Note No 27 of Schedule 18 of the standalone financialstatements which describes that the extent to which the COVID-19 Pandemic will impact theBank's financial performance will depend on future developments which are highlyuncertain.
Our opinion is not modified in respect of this matter.
Key Audit Matters
5. Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the standalone financial statements for the year ended March31 2020. These matters were addressed in the context of our audit of the standalonefinancial statements as a whole and in forming our opinion thereon and we do not providea separate opinion on these matters. We have determined the matters described below to bethe Key Audit Matters to be communicated in our report.
|Key Audit Matters ||Auditors' Response |
|1. Identification and provisioning of nonperforming advances made in accordance with the prudential norms prescribed by Reserve Bank of India on Income recognition Asset Classification and provisioning pertaining to Advances. (refer Schedule 9 read with Note 5 of Schedule 17 to the financial statements) ||Our audit approach included assessment of the design operating effectiveness of key internal controls over approval recording and monitoring of loans and substantive audit procedures in respect of income recognition asset classification and provisioning pertaining to advances. In particular: |
|Advances comprise a substantial portion of the Bank's total assets. Identification of nonperforming advances (NPAs) is carried out based on system identification by the Core Banking Solution (CBS) software in operation based on the various controls and logic embedded therein. || 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; |
|Provisions in respect of such NPAs and restructured advances are made based on management's assessment of the degree of impairment of the advances subject to and guided by the minimum provisioning levels prescribed under RBI guidelines prescribed from time to time. The provision on NPAs are also based on the valuation of the security available. In case of restructured accounts provision is made in accordance with the RBI guidelines. We identified NPA identification and provision on loans and advances as a key audit matter because of the significant efforts involved by the management in identifying NPAs based on the RBI Guidelines the level of management judgement involved in determining the provision (including the provisions on assets which are not classified as NPAs) the valuation of security of the NPAs and on account of the significance of these estimates to the financial statements of the Bank. || We have analyzed and understood key IT systems/ applications used operational effectiveness of relevant controls including involvement of manual process and manual controls in relation to income recognition asset classification and provisioning pertaining to advances. In order to ensure the effectiveness of the operation of the key controls and compliance to the directions of the RBI we have verified whether both CBS system and the management have |
| ||(a) timely recognized the depletion in the value of available security; |
| ||(b) made adequate provisioning based on such time to time monitoring and identification of asset classification including accounts which meet the criteria for asset classification benefit in accordance with the Reserve Bank of India COVID-19 Regulatory Package. |
|2. Investments ||We placed reliance upon the Independent Auditors' Report of the respective Branch Auditors with respect to income recognition asset classification and provisioning as well as Memorandum of changes suggested both at the branches and at Head Office. |
|Investment portfolio of the Bank comprises of Investments in Government Securities Bonds Debentures Shares Security Receipts and other approved securities which are classified under three categories Held to Maturity Available for Sale and Held for Trade. Investments comprise a substantial portion of the Bank's total assets. ||Our audit approach towards Investments with reference to the RBI circulars/directives included the review and testing of the design operating effectiveness of internal controls and substantive audit procedures in relation to valuation classification identification of Non Performing Investments provisioning/depreciation related to Investments. In particular |
|Valuation of Investments identification of Non-performing Investments (NPI) and the corresponding non-recognition of income and provision thereon is carried out in accordance with the relevant circulars/guidelines/directions of RBI. (refer Schedule 8 read with Note 3 of Schedule 17 to the Standalone financial statements) || We assessed and understood the system and internal control as laid down by the Bank to comply with relevant RBI guidelines regarding valuation classification identification of Non-performing Investments Provisioning and depreciation on Investments. |
|The valuation of each type of aforesaid security is to be carried out as per the methodology prescribed in the circulars and directives issued by the RBI which involves collection of data/ information from various sources such as FBIL rates rates quoted on BSE/ NSE financial statements of unlisted companies NAV in case of security receipts etc. || Tested accuracy and compliance for selected sample of investments with the RBI Master circulars and directions by re-performing valuation for each category of security in accordance with the RBI guidelines. |
|As per the RBI directions there are certain investments that are valued at market price however certain investments are based on the valuation methodologies that include statistical models with inherent assumptions assessment of price for valuation based on financial statements etc. The price discovered for the valuation of these Investments is only a fair assessment of the Investments. || We assessed and evaluated the process of identification of NPIs and corresponding reversal of income and creation of provision. |
|Hence the valuation of Investments requires special attention and further in view of the significance of the amount of Investments in the financial statements the same has been considered as Key Audit Matter in our audit. || We carried out substantive audit procedures to recompute independently the provision to be created and depreciation to be provided. |
| || We assessed that the financial statement disclosures appropriately reflected the Bank's exposure to investments valuation risks with reference to the requirements of the prevailing accounting standards and the RBI guidelines. |
|3. Information technology (IT) systems used in financial reporting process || |
|The Bank's operational and financial reporting processes are dependent on IT systems run through Core Banking Solutions (CBS) and other integrated software with automated processes and controls large volume of transactions. ||We conducted an assessment and identified key IT applications database 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) application change controls database management and network operations. In particular: |
|The process and controls are to ensure appropriate user access and management processes in use. The Bank has an in house Department of Information & technology (DIT) run under the supervision of the top management and with the support of expert consulting agencies for maintaining IT services. || |
|Accordingly our audit was focused on key IT systems and controls due to the pervasive impact on the financial statements and the same has been considered as Key Audit Matter in our audit. || 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. |
| || 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. |
| || 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 performed alternate procedures to assess whether there were any unaddressed IT risks that would materially impact the financial statements information other than the Financial Statements and Auditors' Report thereon. |
|4. Modified Audit Procedures carried out in light of COVID-19 outbreak: || |
|Due to COVID-19 pandemic Nation-wide lockdown and travel restrictions imposed by Central/ State Government/ Local Authorities during the period of audit and the RBI directions to Bank to facilitate carrying out audit remotely wherever physical access was not possible audit could not be conducted by visiting the premises of certain Branches/Departments in the Central Office of the Bank. ||Due to the outbreak of COVID-19 pandemic that caused nationwide lockdown and other travel restrictions imposed by the Central and State Governments/ local administration during the period of the audit the auditors (including branch auditors) could not travel to certain Branches/ Departments and carry out the audit processes physically at the respective offices. |
|As the auditors could not gather audit evidence in person/ physically/ through discussions and personal interactions with the officials at the Branches/ Departments auditors have identified such modified audit procedures as a Key Audit Matter. ||Wherever physical access was not possible necessary records/ reports/ documents/ certificates were made available to the auditors by the Bank through digital medium emails and remote access to CBS and other |
|Accordingly the audit procedures were modified to carry out the audit remotely. ||relevant application software. To this extent the audit process was carried out on the basis of such documents reports and records made available to the auditors which were relied upon as audit evidence for conducting the audit and reporting for the current period. Accordingly the audit procedures were modified as follows: |
| ||a. Conducted verification of necessary records/ documents/ Form 111/ CBS and other Application software electronically through remote access/ emails in respect of some of the Branches/Departments of the Bank wherever physical access was not possible. |
| ||b. Carried out verification of scanned copies of the documents deeds certificates and the related records made available to the auditors through emails and remote access over secure network of the Bank. |
| ||c. Making enquiries and gathering necessary audit evidence through Video Conferencing dialogues and discussions over phone calls/conference calls emails and similar communication channels. |
| ||d. Resolution of audit observations telephonically/ through email instead of face-to-face interaction with the designated officials of the Bank. |
Information other than the Consolidated Financial Statements and Auditor's Reportthereon
6. The Bank's Board of Directors is responsible for the other information. The otherinformation comprises the Corporate Governance Report which we obtained at the time ofissuance of this auditors' report and the Directors' Report including annexures andManagement Discussion and Analysis which is expected to be made available to us after thatdate but does not include the financial statements and our auditor's report thereon.
Our opinion on the Standalone financial statements does not cover the other informationand the Pillar 3 disclosures under the New Capital Adequacy Framework (Basel IIIdisclosures) and we do not and will not express any form of assurance conclusion thereon.
In connection with our audit of the Standalone financial statements our responsibilityis to read the other information identified above when it becomes available and in doingso consider whether the other information is materially inconsistent with the Standalonefinancial statements or our knowledge obtained in the audit or otherwise appears to bematerially misstated.
If based on the work we have performed on the other information that we obtained priorto the date of auditors' report we conclude that there is a material misstatement of thisinformation we are required to report that fact. We have nothing to report in thisregard.
When we read the Directors' Report including annexures and Management Discussion andAnalysis if we conclude that there is material misstatement therein we are required tocommunicate the matter to those charged with governance and determine the actions underthe applicable laws and regulations.
Responsibility of Management and those charged with governance for the StandaloneFinancial Statements
7. 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 flows of the Bank in accordance with theaccounting principles generally accepted in India including the Accounting Standardsissued by ICAI and provisions of section 29 of the Banking Regulation Act 1949 andcirculars and guidelines issued by Reserve Bank of India (RBI) from time to time. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding of the assets of the Bank and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; anddesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the Standalone financialstatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.
In preparing the Standalone 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 is also responsible foroverseeing the Bank's financial reporting process.
Auditors' Responsibility for the Audit of the Standalone Financial Statements
8. 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 auditors' 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.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of standalone 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 that for one resulting from error as fraud may involve collusionforgery intentional omission misrepresentation 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 use of the going concern basis ofaccounting 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 auditors' report to the related disclosure in theStandalone financial statements or if such disclosures are inadequate to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditors' 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 the Standalonefinancial statements including the disclosures and whether the Standalone financialstatements represent the underlying transactions and events in a manner that achieves fairpresentation.
Materiality is the magnitude of misstatements in the standalone financial statementsthat individually or in aggregate makes it probable that the economic decisions of areasonably knowledgeable user of the financial statements may be influenced. We considerquantitative materiality and qualitative factors in (i) planning the scope of our auditwork and in evaluating the results of our work; and (ii) to evaluate the effect of anyidentified misstatements in the standalone financial statements.
We communicate with those charge 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 charge with governance with the 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 safeguard.
From the matters communicated with those charge with governance we determine thosematters that were of most significance in audit of the standalone financial statements ofthe current period and are therefore the key audit matters. We describe these matters inour auditors' report unless law or regulation precludes public disclosure about the matteror when in extremely rare circumstances we determine that matters should not becommunicated in our report because of the adverse consequences of doing so wouldreasonably are expected to outweigh the public interest benefit of such communication.
9. We did not audit the financial statements/ information of 2487 branches included inthe Standalone Financial Statements of the Bank whose financial statements/ financialinformation reflect total advances of Rs.95691.37 crore as at March 31 2020 and totalinterest income of Rs.7457.41 crore for the year ended on that date as considered in theStandalone Financial Statements. These financial statements/ information of these brancheshave been audited by branch auditors whose reports have been furnished to us and ouropinion in so far as it relates to the amounts and disclosures included in respect ofbranches is based solely on the report of such branch auditors.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
10. The Standalone Balance sheet and the standalone Profit and Loss Account have beendrawn up in accordance with Section 29 of the Banking Regulation Act 1949;
11. Subject to the limitations of the audit indicated in paragraph 7 to 9 above and asrequired by Banking Companies (Acquisition and Transfer of Undertaking) Act 1970/1980and subject also to the limitations of disclosures required therein 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 purpose of our audit.
12. 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 the branches not visited by us.
b. The standalone Balance Sheet the standalone Profit and Loss Account and thestandalone Cash Flow Statement dealt with by this Report are in agreement with the booksof account and with the returns received from the branches not visited by us.
c. The reports on the accounts of 2487 branches of the bank audited by branch auditorsunder section 29 of the Banking Regulation Act 1949 have been forwarded to us and havebeen properly dealt with by us in preparing this report; and
d. in our opinion the Balance Sheet the Profit and Loss Account and the Cash FlowStatement comply with the applicable accounting standards to the extent they are notinconsistent with the accounting policies prescribed by the RBI.
13. As required by letter no.DOS.ARG.No.6270/08.91.001/2019-20 dated March 17 2020 on"Appointment of Statutory Central Auditors (SCAs) in Public Sector Banks-Reportingobligations for SCAs from FY 2019-20" read with subsequent communication dated May19 2020 issued by the RBI we further report on the matters specified in paragraph 2 ofthe aforesaid letter as under:
a. In our opinion the aforesaid Standalone Financial Statements comply with theAccounting Standards issued by ICAI to the extent they are not inconsistent with theaccounting policies prescribed by the RBI.
b. There are no observations or comments on financial transactions or matters whichhave any adverse effect on the functioning of the Bank.
c. On the basis of the written representations received from the directors as on March31 2020 none of the directors is disqualified as on March 31 2020 from being appointedas a director in terms of sub-section (2) of Section 164 of the Companies Act 2013.
d. There are no qualifications reservations or adverse remarks relating to themaintenance of accounts and other matters connected therewith.
e. As the Bank has exercised the option to implement "Internal Financial Controlswith reference to the Financial Statements" from the financial year 2020-21 aspermitted by RBI on May 19 2020 we do not provide any comment in this regard.
|For BORKAR & MUZUMDAR ||For MUKUND M CHITALE & CO |
|CHARTERED ACCOUNTANTS ||CHARTERED ACCOUNTANTS |
|F.R. No. 101569W ||F.R. No.106655W |
|(CA DARSHIT DOSHI) ||(CA A.V.KAMAT) |
|PARTNER ||PARTNER |
|M.No.133755 ||M.No.039585 |
|UDIN:20133755AAAACK2512 ||UDIN:20039585AAAADW4470 |
|For AAJV AND ASSOCIATES ||For S JAYKISHAN |
|CHARTERED ACCOUNTANTS ||CHARTERED ACCOUNTANTS |
|F.R. No.007739N ||F.R. No. 309005E |
|(CA DEEPAK GARG) ||(CA NEMAI GORAI) |
|PARTNER ||PARTNER |
|M.No.093348 ||M.N.No.057892 |
|UDIN:20093348AAAABF5444 ||UDIN:20057892AAAAFL4824 |
|Place : Mumbai || |
|Date : 29th June 2020 || |