CITY UNION BANK LIMITED
Report on the Financial Statements
We have audited the financial statements of City Union Bank Limited('the Bank') whichcomprise the Balance Sheet as at 31 March 2021 the Profit & Loss Account and theCash Flow statement for the year then ended and notes to the financial statementsincluding a summary of significant accounting policies and other explanatory information.Incorporated in these financial statements are the return of 16 branches and officeaudited by us and 691 branches & offices audited by other branch statutory auditors.The branch audited by us and those audited by other auditors have been selected by theBank in accordance with guidelines issued to the Bank by the Reserve Bank of India.
In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid financial statements give the information required by theBanking Regulations Act 1949 as well as Companies Act 2013 (the 'Act') in the manner sorequired for banking companies and give a true and fair view in conformity with theAccounting Standards prescribed under Section 133 of the Act read with theCompanies(Accounting Standards) Rules 2006 as amended ("Accounting Standards")as applicable to banks and other the accounting principles generally accepted in India ofthe state of affairs of the Bank as at 31 March 2021 and Profit and its Cash Flows forthe year ended on that date.
Basis of Opinion
We conducted our audit in accordance with the Standards on Auditing ('SAs') specifiedunder Section 143(10) of the Act. Our responsibilities under those Standards are furtherdescribed in the Auditor's Responsibilities for the Audit of the Financial StatementsSection of our report. We are independent of the Bank in accordance with the Code ofEthics issued by the Institute of Chartered Accountants of India together with the ethicalrequirements that are relevant to our audit of the Financial Statements under theprovisions of the Act and the rules thereunder and we have fulfilled our other ethicalresponsibilities in accordance with these requirements and the ICAI's Code of Ethics. Webelieve that the audit evidence we have obtained is sufficient and appropriate to providea basis for our opinion on the financial statements.
Emphasis of Matter
We draw attention to Note No. 12.14 of the Other Notes forming part of financialresults which describes the impact and complications due to the outbreak of second wave ofnovel coronavirus (COVID-19). The situation continues to remain uncertain and in view ofits impact on the Bank's financial results which is significantly dependent on futuredevelopments.
Our Opinion is not modified in respect of this matter.
Key Audit Matters
Key Audit Matters are those matters that in our professional judgement were of mostsignificance in our audit of the Financial Statements of the current period. These matterswere addressed in the context of our audit of the financial statements as whole and informing our opinion thereon and we do not provide a separate opinion on these matters. Wehave determined the matters described below to be the key audit matters to be communicatedin our report.
A. Identification of Non-Performing Assets ('NPA') and Provisions on Advances includingImplementation of COVID-19 Reserve Bank of India Regulatory Package
(Reference to Schedule 9 read with Statement of Accounting Policies Note 6 and Note No.12.14 of the Other Notes forming part of Financial Results - Schedule to the FinancialStatements)
| ||(Rs in thousands) |
|Gross Advances ||370205458 |
|Provisions ||8627170 |
|Net Advances ||361578288 |
|COVID-19 Provisions ||1505505 |
Significant estimates and judgment involved
Key Audit Matter
Identification of NPAs and provisions in respect of NPAs and restructured advances aremade based on management's assessment in accordance with norms issued by Reserve Bank ofIndia on Prudential Norms on Income Recognition Asset Classification and Provisioningpertaining to Advances.
The provision on NPA are based on the valuation of the security available and alsorequires management estimates and judgements. In case of restructured accounts provisionis made for diminution in fair value of restructured loans in accordance with the RBIguidelines.
Accordingly our audit focused on identification of NPAs and provision on advances as akey audit matter because of the level of management estimates and judgment involved indetermining the provision and the valuation of the security of the NPA loans and theresultant impact on the financial statements of the Bank.
Due to the ongoing pandemic and second wave of COVID-19 during our audit we have alsoidentified implementation of the "COVID-19 Regulatory Package - Asset Classificationand Provisioning" ('Regulatory
Package') issued by the RBI on 17 April 2020 as a matter of significance inmeasurement of provision for advances. Since the Bank is permitted to grant moratorium onrepayment of loan installments and / or deferment of interest due between 1 March 2020 to31 August 2020 including relaxation in certain parameters to all eligible borrowerswithout considering the same as restructuring as per RBI's announcement on 27 March 2020separate asset classification and provisioning norms have been also prescribed by the RBIin the Regulatory package for such borrowers availing the moratorium benefit.
Since the identification of NPAs and provisioning for such advances requiresconsiderable level of estimation and given its significance to the overall audit includingpossible observations by RBI which could result in disclosures in the financial statementsand regulatory changes due to COVID-19 we have identified this as a key audit matter.
Our key audit approach included assessing the design implementation and operatingeffectiveness of key internal controls and substantive audit procedures over approvalrecording and monitoring of loans assessing the reliability of documentation measurementof provisions identification of NPA accounts and Valuation of Security for NPA accountsalong with basis and rationale for various other management information's.
We have evaluated details for a sample of exposures for identification of NPA andcalculation of Loan Loss provisions including valuation of primary and collaterals as at31 March 2021 involving certain degree of estimation.
We have evaluated and understood the Bank's internal control systems completenessaccuracy and relevance of data and to ensure that the same is in compliance with the RBIguidelines on the Prudential Norms on Income Recognition Asset Classification &Provisioning.
We also selected samples to test potential cases of "ever greening" of loans.
We tested samples to ensure completeness of documentation adherence of the approvalprocess to the Bank's Policy and board minutes credit review of customers review ofSpecial Mention Accounts (SMA) reports and other related documents including evaluation ofthe past trends of management judgement governance and review of internal control. Helddiscussion with the management of the Bank on sectors wherein there has been stress andthe steps taken by the Bank to mitigate such sectorial risks.
Obtained an understanding of implementation of the Regulatory Package and with respectto borrowers to whom a moratorium was granted on a sample basis we tested that suchmoratorium was granted in accordance with the board approved policy. We re-performed thecalculations for the additional general provisions made in accordance with the"Regulatory Package".
We assessed the appropriateness and adequacy of disclosures against the relevantaccounting standards and RBI requirements relating to NPAs including the additionaldisclosures required to be made in accordance with the Regulatory Package.
B. Valuation of Financial Instruments (Investments)
(Reference to Schedule 8 read with Statement of Accounting Policies Note 5 Schedule tothe Financial Statements)
Subjective estimates and judgment involved
Key Audit Matter
Investments are classified into 'Held for Trading' ('HFT') 'Available for Sale'('AFS') and 'Held to Maturity' ('HTM')categories at the time of purchase. Investmentsclassified as HTM are carried at amortized cost and investments classified as AFS and HFTare marked-to-market on a periodic basis as per the RBI guidelines.
Accordingly our audit was focussed on valuation of investments as a key audit matterbecause of the management judgment involved in determining the value of investments basedon the policy of the Bank impairment assessment for HTM book and the overall impact onthe financial statements of the Bank.
Our audit approach included assessing the design implementation and operatingeffectiveness of management's key internal controls over classification and valuation ofInvestments. The appropriateness of the valuation methodology and test checking the inputsused such as pricing measure of volatility and discount factors. Compared the valuationmethodology in accordance with the relevant accounting standards / RBI circulars masterdirections and guidelines issued from time to time.
We test checked the investments and re-performed independent valuation where no directobservable inputs were used. We reviewed the assumptions used by considering thealternate valuation method and sensitivity of other key factors assessing whether thefinancial statement disclosures appropriately reflect the Bank's exposure to investmentsvaluation risks with reference to the requirements of the prevailing accounting standardsand RBI guidelines.
C. Information Technology - IT Systems and Controls
Key Audit Matter
The Bank's Key Information Technology (IT) systems is used to record all theoperational and financial transactions on a daily basis. The financial accounting andreporting process are highly dependent on information systems and hence we testedautomated controls in IT systems.
In addition large transaction volumes ensuring integrity and data protection theBank's Information systems has to be capable to handle the increased cyber risk emanatingacross the globe.
We have identified 'IT systems and controls' as key audit matter because of the levelof process automation large volume of automated transactions level of cyber securityestablished by the management and the complexity of the IT architecture of the Bank.
We involved our IT Specialists to obtain a detailed understanding of the Bank's ITSystems and its related controls. We tested a sample of assessment in the areas ofapplications databases and operating systems that are relevant to our audit in the fieldsof Core Banking Solutions (CBS) and Treasury Systems.
We obtained a detailed understanding on the General IT controls which includesevaluation of Bank' s control to evaluate granting access right segregation of dutiesnew user creation removal of user rights and preventive controls.
We involved our IT Specialists to evaluate and review the security configuration oncertain critical aspects of cyber security on network security operational security dataand client information's monitoring and recovery management.
D. Direct and Indirect Taxes
(Reference to Notes to Accounts Note 10.1 & 12.1 read with Statement of AccountingPolicies Note 13 & 14 - Schedule to the Financial Statements)
Key Audit Matter
The Bank has evaluated tax positions including matters under dispute which involvessignificant judgements to determine the possible outcome of these disputes.
We have reviewed the nature of the amounts recoverable obtained details of completedtax assessments and demands for the year ended 31 March 2021 the sustainability and thelikelihood of the amounts recoverable which are pending final resolution.
Information Other than the Financial Statements and Auditor's Report Thereon
The Bank's Board of Directors is responsible for the other information. The otherinformation comprises the Chairman's Statement CSR initiatives Director's ReportAnnexures to Director's Report Shareholder's Information Business Responsibility ReportCorporate Governance Report Management Discussions & Analysis Report List ofBranches Basel III Disclosures Decade of Progress included in the Bank's Annual reportbut does not include the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and theBasel III Disclosures and accordingly 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 and in doing so consider whether the other information ismaterially inconsistent with the financial statements or our knowledge obtained in theauditor otherwise appears to be materially misstated. If based on the work we haveperformed we conclude that there is a material misstatement of this other information weare required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the FinancialStatements
The Bank's Board of Directors is responsible for the matters stated in Section 134 (5)of the Act with respect to the preparation of these financial statements that give a trueand fair view of the financial position financial performance and cash flows of the Bankin accordance with the accounting principles generally accepted in India including theAccounting Standards specified under Section 133 of the Act provisions of Section 29 ofthe Banking Regulation Act1949 and the circulars and guidelines issued by Reserve Bank ofIndia ('RBI') from time to time. This responsibility also includes maintenance of adequateaccounting records in accordance with the provisions of the Act for safeguarding of theassets of the Bank and for preventing and detecting frauds and other irregularities;selection and application of appropriate accounting policies; making judgments
and estimates that are reasonable and prudent; and design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the financial CSR statements that give a true andfair view and are free from material misstatement whether due to fraud or error.
In preparing the financial statements the Board of Directors is responsible forassessing the Bank's ability to continue as a going concern disclosing as Statutory 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. Those Board of Directors are also responsible foroverseeing the Bank's financial reporting process. Financial
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement whether due to fraud List ofor error and to issue an auditor's report that includes our opinion. Reasonableassurance is a high level of assurance but is not a guarantee that an audit conducted inaccordance with SAs will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered Basel III materialif individually or in the aggregate they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Standards we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
l Identify and assess the risks of material misstatement of the financial statementswhether due to fraud or error design and perform audit procedures responsive to thoserisks and obtain audit evidence that is sufficient and appropriate to provide a basis forour opinion. The risk of not detecting a material misstatement resulting from fraud ishigher than for one resulting from error as fraud may involve collusion forgeryintentional omissions misrepresentations or the override of internal control. l Obtainan understanding of internal control relevant to the audit in order to design auditprocedures that are appropriate in the circumstances. Under Section 143(3)(i) of the Actwe are also responsible for expressing our opinion on whether the Bank has adequateinternal financial controls with reference to the financial statement are in place and theoperating effectiveness of such controls.
l Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.
l Conclude on the appropriateness of management's 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 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 a Bank to cease to continue as agoing concern.
l Evaluate the overall presentation structure and content of the financial statementsincluding the disclosures and whether the financial statements represent the underlyingtransactions and events in a manner that achieves fair presentation.
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 financial statements of thecurrent period and are therefore the key audit matters. We describe these matters in ourauditor's report unless law or regulation precludes public disclosure about the matter orwhen 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.
Report on Other Legal and Regulatory Requirements
The Balance Sheet and the Profit and Loss Account have been drawn up in accordance withthe provisions of Section 29 of the Banking Regulation Act 1949 read with Section 133 ofthe Companies Act 2013 read with the Rule 7 of the Companies (Accounts) Rules 2014.
1. As required Sub Section (3) of Section 30 of the Banking Regulation Act 1949 wereport that;
(a) We have obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the purpose 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) Since the Key operations of the Bank are automated with the Key applicationsintegrated to the Core Banking Systems the audit is carried out centrally as all thenecessary records and data required for the purpose of our audit are available therein.However during the course of our audit we have visited 16 branches and offices. Thereturns received from the offices and branches of the Bank not visited by us have beenfound adequate for the purpose of our audit.
2. Further as required by Section 143(3) of the Companies Act 2013 we report that;
(a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purpose of our audit;
(b) 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 offices and branches not visited byus;
(c) The reports on the accounts of the offices and branches audited by other branchauditors of the Bank under Section 143(8) of the Companies Act 2013 have been sent to usand have been properly dealt with by us in preparing this report;
(d) The Balance Sheet the Profit and Loss Account and the Cash Flow Statement dealtwith by this report are in agreement with the books of account and with the returnsreceived from the offices and branches not visited by us;
(e) In our opinion the aforesaid financial statements comply with the AccountingStandards specified under Section 133 of the Act read with Rule 7 of theCompanies(Accounts) Rules 2014 to the extent they are not inconsistent with theAccounting Policies prescribed by Reserve Bank of India;
(f) On the basis of the written representations received from the directors as on 31March 2021 taken on record by the board of directors none of the directors isdisqualified as on 31 March2021 from being appointed as a director in terms of Section164 (2) of the Act;
(g) with respect to the adequacy of the Internal Financial Controls Over FinancialReporting of the Bank and the operating effectiveness of such controls refer to ourseparate Report in "Annexure A"to this report; and
(h) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us;
(i) The Bank disclosed the impact of pending litigations on its financialposition in its financial statements - Refer Note 12.1 to the financial statements;
(ii) The Bank has made provision as required under the applicable law oraccounting standards for material foreseeable losses on long-term contracts includingderivative contracts - Refer Note 10.1 to the financial statements; and
(iii) There has been no delay in transferring the funds to the InvestorEducation and Protection Fund Account by the Bank.
(iv) The disclosures required on holdings as well as dealing in Specified bank notesduring the period from 8 November 2016 to 30 December 2016 as envisaged in notificationG.S.R. 308(E) dated 30 March 2017 issued by the Ministry of Corporate Affairs is notapplicable to the Bank.
(v) With respect to the matter to be included in the Auditors' Report inaccordance with the requirements of Section 197(16) of the Companies Act 2013 as amended:
In our opinion and to the best of our information and according to the explanationsgiven to us the entity being a Banking Company Section 197 of the Act related to themanagerial remuneration is not applicable by virtue of Section 35B (2A) of the BankingRegulation Act 1949.
| ||For M/s. Sundaram & Srinivasan |
| ||Chartered Accountants |
| ||(Firm No.004207S) |
| ||P. Menakshi Sundaram |
| ||Partner |
|Place: Kumbakonam ||M. No.217914 |
|Date : 28 May 2021 ||UDIN - 21217914AAAAIK7183 |
To the Independent Auditors' Report of even date on the financial statements of CityUnion Bank Limited [Refer paragraph 2(g)] Report on other legal and regulatoryrequirements in our Independent Auditors' Report]
Report on the Internal Financial Controls over Financial Reporting under Clause (i) ofSub-Section 3 of Section 143 of the Companies Act 2013
CITY UNION BANK LIMITED
We have audited the Internal Financial Controls over Financial Reporting("ICFR") of City Union Bank Limited ("the Bank") as of 31 March 2021in conjunction with our audit of the financial statements of the Bank for the year endedon that date.
In our opinion the Bank has in all material respects an adequate Internal FinancialControls Systems Over Financial Reporting and such Internal Financial Controls OverFinancial Reporting were operating effectively as at 31 March 2021 based on the InternalControl Over Financial Reporting criteria established by the Bank considering theessential components of internal control stated in the Guidance Note on Audit of InternalFinancial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India (the "Guidance Note").
Management's Responsibility for Internal Financial Controls over Financial Reporting
The Bank's Management and Board of Directors are responsible for establishing andmaintaining internal financial controls based on 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 ("Guidance Note") issued by the Institute of Chartered Accountants ofIndia ("ICAI''). These responsibilities include the design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the orderly and efficient conduct of its Business including adherence to theBank's policies the safeguarding of its assets the prevention and detection of fraudsand errors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Companies Act 2013.
Our responsibility is to express an opinion on the Bank's Internal Financial ControlsOver Financial Reporting based on our audit. We conducted our audit in accordance with theGuidance Note on Audit of Internal Financial Controls over Financial Reporting and theStandards on Auditing as specified under Section 143(10) of the Companies Act 2013 tothe extent applicable to an Audit of Internal Financial Controls and both issued by theInstitute of Chartered Accountants of India. Those Standards and the Guidance Note requirethat we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether adequate Internal Financial Controls Over FinancialReporting was established and maintained and if such controls operated effectively in allmaterial respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe Internal Financial Controls System Over Financial Reporting and their operatingeffectiveness. Our audit of Internal Financial Controls Over Financial Reporting includedobtaining an understanding of Internal Financial Controls Over Financial Reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgment including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Banks' Internal Financial Controls SystemOver Financial Reporting.
Meaning of Internal Financial Controls Over Financial Reporting
A Bank's Internal Financial Control Over Financial Reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A Bank's Internal Financial Control Over FinancialReporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the Bank; (2) provide reasonable assurance that transactionsare recorded as necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles and that receipts and expenditures of the Bankare being made only in accordance with authorizations of management and directors of theBank; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition use or disposition of the Bank's assets that could have amaterial effect on the financial statements.
Inherent limitations of Internal Financial Controls Over Financial Reporting
Because of inherent limitations of Internal Financial Controls Over FinancialReporting including the possibility of collusion improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the Internal Financial Controls Over FinancialReporting to future periods are subject to the risk that the Internal Financial ControlOver Financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.
| ||For M/s. Sundaram & Srinivasan |
| ||Chartered Accountants |
| ||(Firm No.004207S) |
| ||P. Menakshi Sundaram |
| ||Partner |
|Place: Kumbakonam ||M. No.217914 |
|Date : 28 May 2021 ||UDIN - 21217914AAAAIK7183 |