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CSB Bank Ltd.

BSE: 542867 Sector: Financials
NSE: CSBBANK ISIN Code: INE679A01013
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VOLUME 5287
52-Week high 372.95
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P/E 17.15
Mkt Cap.(Rs cr) 4,725
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OPEN 272.80
CLOSE 269.45
VOLUME 5287
52-Week high 372.95
52-Week low 197.05
P/E 17.15
Mkt Cap.(Rs cr) 4,725
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

CSB Bank Ltd. (CSBBANK) - Auditors Report

Company auditors report

To the Members of CSB Bank Limited

 

(formerly The Catholic Syrian Bank Limited)

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Opinion

We have audited the financial statements of CSB Bank Limited (formerly The CatholicSyrian Bank Limited) (the ‘Bank') which comprise the balance sheet as at

31 March 2021 the profit and loss account the cash flow statement for the year thenended and notes to the financial statements including a summary of the significantaccounting policies and other explanatory information.

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 Regulation Act 1949 as well as the Companies Act 2013 (the ‘Act') in themanner so required for banking companies and give a true and fair view in conformity withthe accounting principles generally accepted in India of the state of affairs of the Bankas at

31 March 2021 and its profit and its cash flows for the year ended on that date.

BASIS OF OPINION

We conducted our audit in accordance with the Standards on Auditing (‘SAs')specified under Section 143(10) of the Act.

Our responsibilities under those SAs are further described in the Auditor'sResponsibilities for the Audit of the Financial Statements section of our report. Weare independent of the Bank in accordance with the Code of Ethics issued by the Instituteof Chartered Accountants of India together with the ethical requirements that are relevantto our audit of the financial statements under the provisions of the Act and the Rulesthereunder and we have fulfilled our other ethical responsibilities in accordance withthese requirements and the Code of Ethics. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our opinion on thefinancial statements.

KEY AUDIT MATTERS

Key audit matters are those matters that in our professional judgment 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 a whole and informing our opinion thereon and we do not provide a separate opinion on these matters.

Key audit matter How the matter was addressed in our audit
Provisions on advances Charge: INR 2971590 thousands for year ended 31 March 2021 Provision: INR 3891135 thousands at 31 March 2021
Refer to the accounting policies in "Note 3 to the Financial Statements: Significant Accounting Policies - Use of estimates" and "Schedule 9 and Schedule 5 to the Financial Statements: Advances and Other Liabilities and Provisions"
Subjective estimate Our key audit procedures included:
Provisions in respect of non-performing and restructured advances are made based on the policy approved by the Board of Directors of the Bank based on management's assessment of the degree of impairment of the advances subject to the minimum provisioning levels prescribed under the Prudential Norms on Income Recognition Asset Classification & Provisioning prescribed by the RBI from time to time. Design / controls
The provision on non-performing assets (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. • Assessing the design implementation and operating effectiveness of key internal financial controls over monitoring of watch list loans including monitoring process of overdue loans (and those which became overdue subsequent to the reporting date) measurement of provision identification of NPA accounts assessing the reliability of management information which included overdue reports. Also assessing how management has factored in the deterioration in the overall economic environment arising from COVID-19 in its NPA assessment.
We identified provision on advances as a key audit matter because of the management judgement involved in determining the provision and the valuation of the security available on NPAs particularly on the Bank's gold advances portfolio and because of its significance to the financial results of the Bank. • Understanding management's approach interpretation systems and controls implemented in relation to NPA computation.
The Bank's advance portfolio majorly comprises of gold loans which are disbursed against the pledge of gold jewellery. Further considering gold as the security existence of gold both physical security as well as purity are considered to be critical focus areas for the Bank • For corporate loans testing controls over the monitoring of the credit watch list credit file review processes approval of external collateral valuation vendors and review controls over the approval of significant individual impairments.
We have also identified the impact of and uncertainty related to the COVID-19 pandemic as a key event and consideration for recognition and measurement of NPAs on account of greater levels of management judgement and therefore increased levels of audit focus in the Bank's estimation of provision for NPAs. • Evaluating the design implementation and operating effectiveness of key internal controls over the valuation of the securities for the NPAs and watch list cases.
Management has assessed the impact of COVID-19 on the loan portfolio in evaluating the need for recording additional provisions on loans at 31 March 2021. • Testing of review controls over measurement of provisions including documentation of the relevant approvals along with basis and rationale of the provision and disclosures in financial statements.
• Involving information system specialist to gain comfort over data integrity and calculations including system interface reconciliations
• Testing key controls operating over the information technology in relation to NPA systems including system access and system change management program development and computer operations.
• Understanding Bank's policy over appointment of external appraiser for gold loans and storage of pledged gold and assessing the design implementation and operating effectiveness of key controls.
Substantive tests
• Test of details over of calculation of NPA provisions including provisions on restructured loans as at the year-end for assessing the completeness accuracy and relevance of data and to ensure that the same is in compliance with the Bank's NPA provision policy and Prudential Norms on Income Recognition Asset Classification & Provisioning and the Resolution Framework for COVID-19 related stress announced by the RBI .
• Testing a sample (based on quantitative and qualitative thresholds) of larger sized corporate clients where impairment indicators had been identified by management. Obtaining management's assessment of the recoverability of these exposures (including individual provisions calculations) and challenging whether individual impairment provisions or lack of were appropriate.
This included the following procedures:
• Evaluating the statement of accounts approval process board minutes credit review of customer review of SMA reports and other related documents to assess recoverability and the classification of the facility.
• Assessing external collateral valuer's work and the results and comparing external valuations to values used in management's assessment.
• For a selection of corporate loans not identified as displaying indicators of impairment by management challenged this assessment by reviewing the historical performance of the customer and formed our own view whether any impairment indicators were present.
• For selection of samples for gold loans inspected external appraiser's valuation report certifying the purity of the pledged gold and checked the quantity and weight mentioned in the valuation report
• Conducted physical visits for selection of branches for verifying the existence of pledged gold.
• Evaluating management rationale for the creation of additional provision reflecting impact of COVID-19 and testing the computation.
• Assessing the factual accuracy and appropriateness of the financial statements disclosures made by the Bank in context of impact of COVID-19 and restructured loans including those required by RBI Guidelines issued from time to time.
Information technology system and controls- We involved IT specialists to cover the following key audit procedures:
The Bank's key financial accounting and reporting processes are highly dependent on information systems including automated controls in systems such that there exists a risk that gaps in the IT control environment could result in the financial accounting and reporting records being materially misstated. Amongst its multiple IT systems we scoped in systems that are key for the overall financial reporting.
Further the prevailing COVID-19 situation has caused the required IT applications to be made accessible on a remote basis. • We focused on user access management change management segregation of duties system interface/ reconciliation controls system application controls Information Provided by the entity (IPE) controls over key financial accounting and reporting systems.
We have identified 'IT systems and automated controls' as key audit matter because of considerable level of automation and number of systems being used by management. • We tested a selection of key controls operating over
the information technology in relation to financial accounting and reporting systems including system access and system change management program development and computer operations.
• We tested the design and operating effectiveness of key controls over user access management which includes granting access right new user creation removal of user rights and preventative controls designed to enforce segregation of duties.
• For a selected group of key controls over financial and reporting systems we have performed procedures to determine that these controls remained unchanged during the year or were changed following the standard change management process.
• We have also assessed other areas which include password policies security configurations system interface controls controls over changes to applications and databases and controls to ensure that business users developers and production support did not have access to change applications the operating system or databases in the production environment.
• Based on the procedures performed above we have identified areas where the Bank's general IT controls need improvement particularly in relation to change management user access rights and admin user rights/ activity review. As a consequence the Bank identified compensating controls over these areas and we performed a range of other procedures such as:
• Reconciliation of manual list vs list of changes from the respective vendors backup files maintained by Bank etc. to confirm the completeness and accuracy.
• Review of year end controls such as user access rights and admin user rights/ activity review performed by Management in March 2021

INFORMATION OTHER THAN THE FINANCIAL STATEMENTS AND AUDITOR'S REPORT THEREON

The Bank's management and the Board of Directors are responsible for the otherinformation. The other information comprises the information included in the Bank's Annualreport but does not include the financial statements and our auditor's report thereon.The Bank's Annual report is expected to be made available to us after the date of thisauditor's report.

Our opinion on the financial statements does not cover the other information and wewill not express any form of assurance conclusion 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 Bank's Annual Report if we conclude that there is a materialmisstatement therein we are required to communicate the matter to those charged withgovernance.

MANAGEMENT'S AND THE BOARD OF DIRECTOR'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The Bank's management and the Board of Directors are responsible for the matters statedin Section 134(5) of the Act with respect to the preparation of these financial statementsthat give a true and fair view of the state of affairs profit / loss and cash flows ofthe Bank in accordance with the accounting principles generally accepted in Indiaincluding the Accounting Standards specified under Section 133 of the Act provisions ofSection 29 of the Banking Regulation Act 1949 and the circulars and guidelines issued bythe Reserve Bank of India (‘RBI') from time to time. This responsibility alsoincludes maintenance of adequate accounting records in accordance with the provisions ofthe Act for safeguarding of the assets of the Bank and for preventing and detectingfrauds and other irregularities; selection and application of appropriate accountingpolicies; making judgments and estimates that are reasonable and prudent; and designimplementation and maintenance of adequate internal financial controls that were operatingeffectively for ensuring the accuracy and completeness of the accounting records relevantto the preparation and presentation of the financial statements that give a true and fairview and are free from material misstatement whether due to fraud or error.

In preparing the financial statements management and the Board of Directors areresponsible for assessing the Bank's ability to continue as a going concern disclosingas applicable matters related to going concern and using the going concern basis ofaccounting unless management and the Board of Directors either intend to liquidate theBank or to cease operations or has no realistic alternative but to do so.

The Board of Directors are also responsible for overseeing the Bank's financialreporting process.

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 or errorand to issue an auditor's report that includes our opinion. Reasonable assurance is a highlevel of assurance but is not a guarantee that an audit conducted in accordance with SAswill always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if individually or in the aggregate theycould reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements. As part of an audit in accordance with SAs weexercise professional judgment and maintain professional skepticism 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. Under section 143(3)(i)of the Act we are also responsible for expressing our opinion on whether the Bank hasadequate internal financial controls with reference to financial statements in place andthe operating effectiveness of such controls.

• evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures in the financial statements made bymanagement and the Board of Directors.

• conclude on the appropriateness of management and the Board of Directors' use ofthe going concern basis of accounting and based on the audit evidence obtained whether amaterial uncertainty exists related to events or conditions that may cast significantdoubt on the Bank's ability to continue as a going concern. If we conclude that a materialuncertainty exists we are required to draw attention in our auditor's report to therelated disclosures in the financial statements or if such disclosures are inadequate tomodify our opinion. Our conclusions are based on the audit evidence obtained up to thedate of our auditor's report. However future events or conditions may cause a Bank tocease to continue as a going 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.

We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings includinganysignificantdeficienciesininternalcontrolthatweidentify during our audit. We alsoprovide those charged with governance with a statement that we have complied with relevantethical requirements regarding independence and to communicate with them allrelationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards. From the matters communicated withthose charged with governance we determine those matters that were of most significancein the audit of the financial statements of the current period and are therefore the keyaudit matters. We describe these matters in our auditor's report unless law or regulationprecludes public disclosure about the matter or when in extremely rare circumstances wedetermine that a matter should not be communicated in our report because the adverseconsequences of doing so would reasonably be expected to outweigh the public interestbenefits of such communication.

OTHER MATTER

The comparative figures for the year ended 31 March 2020 provided in the financialstatements have been audited by the predecessor auditor who expressed an unmodifiedopinion on those financial statements vide their Independent Auditor's Report dated 15June 2020.

Our opinion on the financial statements is not modified in respect of this matter.

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 and Section 133 of theAct.

A. As required by 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 purposes of our audit are available therein.However during the course of our audit we have visited 20 branches.

B. Further as required by Section 143(3) of the Act 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 purposes 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;

(c) 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;

(d) in our opinion the aforesaid financial statements comply with the Accounting

Standards specified under Section 133 of the Act to the extent they are notinconsistent with the accounting policies prescribed by the RBI;

(e) on the basis of the written representations received from the directors as on

31 March 2021 taken on record by

Directors none of the directors is disqualified as on 31 March 2021 from beingappointed as a director in terms of Section 164 (2) of the Act; and

(f) with respect to the adequacy of the internal financial controls with reference tothe financial statements of the Bank and the operating effectiveness of such controlsrefer to our separate Report in ‘Annexure A'.

C. 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 has disclosed the impact of pending litigations as at 31 March 2021 on itsfinancial position in its financial statements - Refer Schedule 12 and Note 5.7 to thefinancial statements; ii. the Bank has made provision as required under the applicablelaw or accounting standards for material foreseeable losses if any on long-termcontracts including derivative contracts - Refer Schedule 5 and Note 5.7 to the financialstatements; and iii. there has been no delay in transferring amounts required to betransferred to the Investor Education and Protection Fund by the Bank.

D. With respect to the other matters to be included in the Auditor's Report inaccordance with the requirements of Section 197(16) of the Act as amended:

The Bank is a banking company as defined under the Banking Regulation Act 1949.Accordingly the requirements prescribed under Section 197 of the Act are not applicable.

Annexure A to the Independent Auditor's Report of even date on the financial statementsof CSB Bank Limited (formerly The Catholic Syrian Bank Limited) for the year ended 31March 2021

Report on the internal financial controls with reference

Board of to the aforesaid financial statements under Clause (i) of Sub-section 3 ofSection 143 of the Companies Act 2013 (Referred to in paragraph (B)(f) under ‘Reporton Other Legal and Regulatory Requirements' section of our report of even date)

OPINION

WE HAVE AUDITED THE INTERNAL FINANCIAL CONTROLS WITH reference to financial statementsof CSB Bank Limited (formerly The Catholic Syrian Bank Limited) (the "Bank") asof 31 March 2021 in conjunction with our audit of the financial statements of the Bank forthe year ended on that date.

In our opinion the Bank has in all material respects adequate internal financialcontrols with reference to financial statements and such internal financial controls wereoperating effectively as at 31 March 2021 based on the internal financial controls withreference to financial statements 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

The Bank's management and the Board of Directors are responsible for establishing andmaintaining internal financial controls based on the internal financial controls withreference to financial statements criteria established by the Bank considering theessential components of internal control stated in the Guidance Note. 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 Banks'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 (hereinafter referred to as the"Act").

AUDITOR'S RESPONSIBILITY

Our responsibility is to express an opinion on the Bank's internal financial controlswith reference to financial statements based on our audit. We conducted our audit inaccordance with the Guidance Note and the Standards on Auditing prescribed under section143(10) of the Act to the extent applicable to an audit of internal financial controlswith reference to financial statements. Those Standards and the Guidance Note require thatwe comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether adequate internal financial controls with reference to financialstatements were established and maintained and whether such controls operated effectivelyin all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls with reference to financial statements and their operatingeffectiveness. Our audit of internal financial controls with reference to financialstatements included obtaining an understanding of such internal financial controlsassessing 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 judgement 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 Bank's internal financial controls withreference to financial statements.

MEANING OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO FINANCIAL STATEMENTS

The bank's internal financial controls with reference to financial statements 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. The bank's internal financial controls withreference to financial statements include those policies and procedures that (1) pertainto the maintenance of records that in reasonable detail accurately and fairly reflectthe transactions and dispositions of the assets of the bank; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles and that receiptsand expenditures 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 WITH REFERENCE TO FINANCIALSTATEMENTS

Because of the inherent limitations of internal financial controls with reference tofinancial statements 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 withreference to financial statements to future periods are subject to the risk that theinternal financial controls with reference to financial statements may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.

For B S R & Co. LLP

 

Chartered Accountants

ICAI Firm Registration No: 101248W/W-100022

Sd/-

Vaibhav Shah

 

Partner

Membership No: 117377

UDIN (21117377AAAABL6137)

Place : Mumbai

Date : 08 May 2021

.