To the Members of DCB Bank Limited Report on the Audit of the Financial Statements
We have audited the accompanying financial statements of DCB Bank Limited ("theBank") which comprise the Balance sheet as at March 31 2021 the Profit and LossAccount the Cash Flow Statement for the year then ended and notes to the financialstatements including a summary of significant accounting policies and other explanatoryinformation.
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") inthe manner so required for banking companies and give a true and fair view in conformitywith the accounting principles generally accepted in India of the state of affairs of theBank as at March 31 2021 its profit and its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit of the financial statements in accordance with the Standards onAuditing (SAs) 0as specified under section 143(10) of the Act. Our responsibilities underthose Standards are further described in the 'Auditor's Responsibilities for the Audit ofthe Financial StatementsRs.section of our report. We are independent of the Bank inaccordance with the 'Code of EthicsRs.issued by the Institute of Chartered Accountants ofIndia together with the ethical requirements that are relevant to our audit of thefinancial statements under the provisions of the Act and the Rules thereunder and we havefulfilled our other ethical responsibilities in accordance with these requirements and theCode of Ethics. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion on the financial statements.
Emphasis of Matter
We draw attention to Note 5.13 of Schedule 18 to the financial statements whichdescribes the extent to which the Covid-19 pandemic will impact the Bank's operations andits financial metrics which are dependent on uncertain future developments. Our opinion isnot modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the financial statements for the financial year ended March31 2021. These matters were addressed in the context of our audit of the financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters. For each matter below our description of how our auditaddressed the matter is provided in that context.
We have determined the matters described below to be the key audit matters to becommunicated in our report. We have fulfilled the responsibilities described in the"Auditor's Responsibilities for the Audit of the Financial Statements section of ourreport including in relation to these matters. Accordingly our audit included theperformance of procedures designed to respond to our assessment of the risks of materialmisstatement of the financial statements. The results of our audit procedures includingthe procedures performed to address the matters below provide the basis for our auditopinion on the accompanying financial statements.
|Key audit matters ||How our audit addressed the key audit matter |
|Identification and Drovisionina of Non-Performina Advances f"NPA"1 including comDliance with Covid 19 related reaulatorv guidelines issued bv RBI and Denouncements made bv Honorable SuDreme Court of India || |
|Advances constitute a significant portion of the Bank's assets and the quality of these advances is measured in terms of ratio of NPAs to the gross advances of the Bank. The Bank's net advances constitute 65.55% of the total assets and the gross NPA ratio of the Bank is 4.09% as at March 31 2021 ||The audit procedures performed among others included: - Read the Bank's policies for NPA identification and provisioning and assessing compliance with the IRAC norms. |
|The Reserve Bank of India's ("RBI") guidelines on Income recognition and asset classification ("IRAC") prescribes the prudential norms for identification and classification of NPAs and the minimum provision required for such assets. RBI also issued circulars in relation to Covid-19 Regulatory Package impacting the classification and provisioning of advances. In addition to these circulars the Hon. Supreme Court also issued various orders which impacted the classification of NPAs (collectively all these regulations referred to as "Regulatory Directions") ||- Understood and tested the design and operating effectiveness of key controls (including application controls) around identification of non-performing accounts based on the extant guidelines on IRAC. - Performed substantive audit procedures covering the identification and provisioning of NPAs by the Bank. These procedures included: |
|These Regulatory Directions required management to apply judgement and make estimates including manual interventions with respect to classification and provisioning of advances. ||- Tested the exception reports generated from the application systems where the advances have been recorded. |
|The Bank is also required to apply its judgement to determine the identification and provision required against NPAs by applying quantitative as wellas qualitative factors. The risk of identification of NPAs is affected by factors like stress and liquidity concerns in certain sectors. The provisioning for identified NPAs is estimated based on ageing and classification of NPAs recovery estimates value of security and other qualitative factors and is subject to the minimum provisioning norms specified by RBI. ||- Considered accounts reported by the Bank and other Banks as Special Mention Accounts ("SMA") in RBI's central repository of information on large credits (CRILC) to identify stress and the early warning reports generated by the Bank to identify stressed accounts |
|Additionally the Bank makes provisions on exposures that are not classified as NPAs including advances in certain sectors and identified advances or group advances that can potentially slip into NPA. These are classified as contingency provisions. ||- Tested account statements and other related information of the borrowers selected based on quantitative and qualitative risk factors. - Performed analytical procedures to identify possible cases of evergreening of loans and tested these on sample basis. |
|Since the identification of NPAs and provisioning for advances require significant levelof estimation/ judgement and given its significance to the overall audit due to stakeholder and regulatory focus we have ascertained identification and provisioning for NPAs and advances as a key audit matter. ||- Performed inquiries with the credit and risk departments to ascertain if there were indicators of stress or an occurrence of an event of default in a particular loan account or any product category which need to be considered as NPA. |
| ||- Tested on sample basis the calculation performed by the management for compliance with RBI regulations and internally laid down policies for provisioning. - Tested compliance on test check basis with Regulatory Directions on classification and provisioning of NPAs including compliance with Hon. Supreme Court orders and circulars issued by RBI in this regard. - Tested the arithmetical accuracy of computation of provision for advances. |
|Information Technology T"IT"T Svstems and Contr als || |
|The reliability and security of IT systems plays a key role in the business operations preparation of the Bank's Financial Statements. ||- For testing the IT general controls application controls and IT dependent manual controls we involved IT specialists as part of the audit. |
|The Bank's operationaland financialprocesses are dependent on IT systems due to large volume of transactions that are processed daily and accordingly the IT infrastructure is critical for smooth functioning of the Bank's business operations as well as for timely and accurate financial reporting and accounting. The Bank has constituted an IT Strategy Committee at the Board level to oversee implementation of IT strategy. ||- Tested the design and operating effectiveness of the Bank's IT access controls over the information systems that are critical to financial reporting. |
|Due to the pervasive nature and complexity of the IT environment we have ascertained IT systems and controls as a key audit matter. ||- Tested IT GeneralControls (logical access change management and aspects of IT operational controls). This included testing that requests for access to systems were reviewed and authorized. |
| ||- Tested the Bank's periodic review of access rights. We inspected requests of changes to systems for approvaland authorization. We considered the control environment relating to various interfaces configuration and other application layer controls identified as key to the audit. |
| ||- Tested compensating controls and performed alternate procedures where necessary. |
| ||- Understood changes made to the IT landscape during the audit period and tested those changes. |
Information Other than the Financial Statements and Auditors Report Thereon
The Bank's Board of Directors is responsible for the other information. The otherinformation received by us comprises the information included in the Annual Report (butdoes not include the financial statements and our auditor's reports thereon) which weobtained prior to the date of this auditor's report and Annual Report which is expectedto be made available to us after that date.
Our opinion on the financial statements does not cover the other information and we donot 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 and in doing so consider whether such otherinformation is materially inconsistent with the financial statements or our knowledgeobtained in the audit or otherwise appears to be materially misstated. If based on thework we have performed on the other information that we have obtained prior to the date ofthis auditor's report we conclude that there is a material misstatement of this otherinformation we are required to report that fact. We have nothing to report in thisregard.
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 cash flows of the Bank inaccordance with the provisions of Section 29 of the Banking Regulation Act 1949accounting principles generally accepted in India including the Accounting Standardsspecified under section 133 of the Act read with Rule 7 of the Companies (Accounts) Rules2014 in so far as they apply to the Bank and guidelines and directions issued by ReserveBank of India ("RBI") from time to time.
This responsibility also includes maintenance of adequate accounting records inaccordance with the provisions of the Act for safeguarding of the assets of the Bank andfor preventing and detecting frauds and other irregularities;
selection and application of appropriate accounting policies; making judgments andestimates that are reasonable and prudent; and the design implementation and maintenanceof adequate internal financial controls that were operating effectively for ensuring theaccuracy and completeness of the accounting records relevant to the preparation andpresentation of the financial statements that give a true and fair view and are free frommaterial misstatement whether due to fraud or error.
In preparing the financial statements management is responsible for assessing theBank's ability to continue as a going concern disclosing as applicable matters relatedto going concern and using the going concern basis of accounting unless management eitherintends to liquidate the Bank or to cease operations or has no realistic alternative butto do so.
Those charged with governance are also responsible for overseeing the Bank's financialreporting process.
Auditors 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 we exercise professional judgment andmaintain 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 system in place and the operating effectiveness ofsuch controls.
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.
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 for thefinancial year ended March 31 2021 and are therefore the key audit matters. We describethese matters in our auditor's report unless law or regulation precludes public disclosureabout the matter or when in extremely rare circumstances we determine that a mattershould not be communicated in our report because the adverse consequences of doing sowould reasonably be expected to outweigh the public interest benefits of suchcommunication.
The comparative financial statements of the Bank for the corresponding year ended March31 2020 were audited by a predecessor auditor who expressed an unmodified opinion onthose financial statements on May 23 2020.
Report on Other Legal and Regulatory Requirements
1. The Balance Sheet and the Profit and Loss Account have been drawn up in accordancewith the provisions of Section 29 of the Banking Regulation Act 1949 read with Section133 of the Companies Act 2013 read with Rule 7 of the Companies (Accounts) Rules 2014.
2. 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. The financial accounting systems of the Bank are centralized and thereforeaccounting returns for the purpose of preparing financial statements are not required tobe submitted by its branches; we have visited 39 branches for the purpose of our audit.
3. 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 the Cash Flow Statement dealt withby this Report are in agreement with the books of account;
d. In our opinion the aforesaid financial statements comply with Companies (AccountingStandard) Rules 2006 (as amended) specified under section 133 of the Act read withCompanies (Accounts) Rules 2014 to the extent they are not inconsistent with theaccounting policies prescribed by RBI;
e. On the basis of the written representations received from the directors as on March31 2021 taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2021 from being appointed as a director in terms of Section 164 (2) of theAct;
f. With respect to the adequacy of the internal financial controls over financialreporting of the Bank with reference to these financial statements and the operatingeffectiveness of such controls refer to our separate Report in "Annexure 1" tothis report;
g. In our opinion the entity being a banking company the remuneration to thewhole-time director during the year ended March 31 2021 has been paid by the Bank inaccordance with the provisions of Section 35B (1) of the Banking Regulation Act 1949; 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 as amended inour opinion and to the best of our information and according to the explanations given tous:
i. The Bank has disclosed the impact of pending litigations on its financial positionin its financial statements - refer Schedule 12 - Contingent liabilities and Note 17 ofSchedule 18 to the financial statements;
ii. The Bank has made provision as required under the applicable law or accountingstandards for material foreseeable losses if any on long-term contracts includingderivative contracts - refer Note 18 of Schedule 18 to the financial statements; and
iii. There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Bank.
ANNEXURE 1 TO THE INDEPENDENT AUDITORS REPORT OF EVEN DATE ON THE FINANCIALSTATEMENTS OF DCB BANK LIMITED
Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 ("the Act")
To the Members of DCB Bank Limited
We have audited the intemalfinanaalcontrols over financial reporting of DCB BankLimited ("the Bank") as of March 31 2021 in conjunction with our audit of thefinancial statements of the Bank for the year ended on that date.
Managements Responsibility for Internal Financial Controls
The Bank's Management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Bank considering the essential components of internal control stated inthe Guidance Note on Audit of InternalFinancialControls Over Financial Reporting issued bythe Institute of Chartered Accountants of India. These responsibilities include thedesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the orderly and efficient conduct of its businessincluding adherence to the Bank's policies the safeguarding of its assets the preventionand detection of frauds and errors the accuracy and completeness of the accountingrecords and the timely preparation of reliable financial information as required underthe Act.
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 (the"Guidance Note") and the Standards on Auditing as specified under section143(10) of the Companies Act 2013 to the extent applicable to an audit of internalfinancial controls both applicable to an audit of Internal Financial Controls and bothissued by the Institute of Chartered Accountants of India. Those Standards and theGuidance Note require that we comply with ethical requirements and plan and perform theaudit to obtain reasonable assurance about whether adequate internal financial controlsover financial reporting was established and maintained and if such controls operatedeffectively in all material 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 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 internal financial controls system overfinancial reporting with respect to these financial statements of the Bank.
Meaning of Internal Financial Controls Over Financial Reporting
A company's internalfinancialcontrolover 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 company'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 company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures of the company are being made only in accordance with authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition use or disposition of thecompany's assets that could have a material effect on the financial statements.
Inherent Limitations of Internal Financial Controls Over Financial Reporting
Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or 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.
In our opinion the Bank has in all material respects an adequate internal financialcontrols system over financial reporting and such internal financial controls overfinancial reporting were operating effectively as at March 31 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.
For S.R. BATLIBOI & ASSOCIATES LLP
ICAI Firm registration number: 101049W/E300004
per Sarvesh Warty
Membership No.: 121411
Date: May 08 2021