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 31 March 2019 the Profit and LossAccount the Cash Flow Statement for the year then ended and a summary of 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 Companies Act 2013 ("the Act") in the manner sorequired and give a true and fair view in conformity with the Accounting Standardsprescribed under section 133 of the Act read with the Companies (Accounting Standards)
Rules 2006 as amended ("Accounting Standards") and other accountingprinciples generally accepted in India of the state of affairs of the Bank as at 31 March2019 and 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 specified under section 143(10) of the Act (SAs). Our responsibilities underthose Standards are further described in the Auditors' Responsibility for the Audit of theFinancial Statements section of our report. We are independent of the Bank in accordancewith the Code of Ethics issued by the Institute of Chartered Accountants of India (ICAI)together with the ethical requirements that are relevant to our audit of the financialstatements under the provisions of the Act and the Rules made thereunder and we havefulfilled our other ethical responsibilities in accordance with these requirements and theICAI's Code of Ethics. We believe that the audit evidence obtained by us is sufficient andappropriate to provide a basis for our audit opinion on the financial statements.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the financial current period. These matters were addressed inthe context of our audit of the financial statements as a whole and in forming ouropinion thereon and we do not provide a separate opinion on these matters. We havedetermined the matters described below to be the key audit matters to be communicated inour report.
|Sr. ||Key Audit Matters ||Auditors' Response |
|No. || || |
|1 ||Identification of and provisioning for non- performing assets (loans) in accordance with the RBI guidelines (Refer Schedule 9 read with Note 5-Schedule 17 to the financial statements) The Bank has net advances amounting to ` 235679972 thousands as at 31 March 2019. Identification of and provisioning for non-performing assets (loans) in accordance with relevant prudential norms issued by the Reserve Bank of India (RBI) in respect of income recognition classification and asset provisioning pertaining to advances (herein after referred as "Relevant RBI guidelines") is a key audit matter due to the current processes at the Bank which requires manual interventions management estimates and judgement and level of regulatory and other stakeholders focus. ||Our audit approach included testing the design operating effectiveness of internal controls and substantive audit procedures in respect of income recognition asset classification and provisioning pertaining to advances. In particular: |
| ||Accordingly our audit was focused on income recognition classification and asset provisioning pertaining to advances due to the materiality of the balances and associated impairment provisions. || 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; |
| || || we have analysed and understood key IT systems/ applications used and tested the design and implementation as well as 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 ; |
| || || we test checked advances to examine the validity of the recorded amounts loan documentation examined the statement of accounts indicators of impairment impairment provision for non-performing assets and compliance with income recognition asset classification and provisioning pertaining to advances; and |
| || || evaluated the past trends of management judgement governance process and review controls over impairment provision calculations including minutes of the Specific Provisions Review Committee meetings and discussed the provisions made with seniormanagementincludingtheChiefExecutiveOfficerChiefFinancialOfficer Chief Risk Officer and Chief Credit Officer. |
|2 ||Key Information technology (IT) systems used in financial reporting process The Bank's operational and financial processes are dependent on IT systems due to large volume of transactions that are processed daily. The Bank has constituted an IT Strategy Committee at the Board level to oversee implementation of IT strategy. ||We involved our IT specialists to obtain an understanding of the Bank's IT related control environment. Furthermore we conducted an assessment and identified key IT applications databases 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) program change controls database management and network operations. In particular: |
| ||Accordingly our audit was focussed on key IT systems and controls due to the pervasive impact on the financial statements. || 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 and reviewed the minutes of IT Strategy Committee meetings; |
| || || 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 based on duly approved requests access access rights being provisioned / modified for exit cases being revoked in a timely manner and access of all users being re- certified during the period of audit; |
| || || 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
The Bank's Board of Directors is responsible for the preparation of the otherinformation. The other information comprises the Chairman's Statement the Directors'Report including annexures to Directors' Report and Corporate Governance Report includedin the Annual report but does not include the financial statements and our auditors'report thereon and the Pillar III
Framework (Basel III disclosures).
Our opinion on the financial statements does not cover the other information and theBasel III disclosures and accordingly we do not express any form of assurance conclusionthereon.
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 during thecourse of our audit or otherwise appears to be materially misstated.
If based on the work we have performed we conclude that there is a materialmisstatement of this other information we are required to report that fact. We havenothing to report in this regard.
Management's Responsibility for the Financial Statements
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 financialposition financial performance and cash flows of the Bank in true and fair view ofthe with the provisions of Section 29 of the Banking Regulation Act 1949 the AccountingStandards and other accounting principles generally accepted in India and the guidelinesissued by the Reserve Bank of India. This responsibility also includes maintenance ofadequate accounting records in accordance with the provisions of the Act for safeguardingthe assets of the Bank and for preventing and detecting frauds and other irregularities;selection and application of appropriate accounting policies; making judgments andestimates that are reasonable and prudent; and design implementation and maintenance ofadequate internal financial controls that were operating effectively for ensuring theaccuracy and completeness of the accounting records relevant to the preparation andpresentation of the financial are free from material misstatement whether due to fraud orerror.
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 Board of Directors are also responsible for overseeing the Bank's financialreporting process.
Auditors' Responsibility 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 auditors' 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 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.
Obtain an understanding of internal financial 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
Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by the 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 auditors' 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 auditors'report. 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 financial statementsincluding the disclosures and whether the financial statements represent the underlyingtransactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of misstatements in the financial statements thatindividually 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 financial statements.
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 ourauditors' 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
1. As required by Section 143(3) of the Act and Section 30 of the Banking RegulationAct 1949 based on our audit we report that: a) We have sought and obtained all theinformation and explanations which to the best of our knowledge and belief were necessaryfor the purposes of our audit and found them to be satisfactory. b) In our opinion thetransactions of the Bank which have come to our notice have been within the powers of theBank. c) As explained in paragraph 2 below the financial accounting systems of the Bankare centralised and therefore accounting returns are not required to be submitted by thebranches. d) In our opinion proper books of account as required by law have been kept bythe Bank so far as it appears from our examination of those books. e) The Balance Sheetthe Profit and Loss Account and the Cash Flow Statement dealt with by this Report are inagreement with the books of account. f) In our opinion the aforesaid financial statementscomply with the Accounting Standards specified under Section 133 of the Act as applicableto banks. g) On the basis of the written representations received from the directors as on31 March 2019 taken on record by the Board of Directors none of the directors isdisqualified as on 31 March 2019 from being appointed as a director in terms of Section164 (2) of the Act. h) With respect to the adequacy of the internal financial controlsover financial reporting of the Bank and the operating effectiveness of such controlsrefer to our separate Report in "Annexure A". Our report expresses an unmodifiedopinion on the adequacy and operating effectiveness of the Bank's internal financialcontrols over financial reporting. i) With respect to the other matters to be included inthe Auditors' Report in accordance with the requirements of Section 197(16) of the Act asamended: In our opinion and to the best of our information and according to theexplanations given to us the entity being a banking company Section 197 of the Actrelated to the managerial remuneration is not applicable by virtue of Section 35B (2A) ofthe Banking Regulation Act 1949. j) With respect to the other matters to be included inthe Auditors' Report in accordance with Rule 11 of the Companies (Audit and Auditors)Rules 2014 as amended in our opinion and to the best of our information and according tothe explanations given to us: i. The Bank has disclosed the impact of pending litigationson its financial position in its financial statements; ii. The Bank has made provision asrequired under the applicable law or accounting standards for material foreseeablelosses if any on long-term contracts including derivative contracts; iii. There were noamounts which were required to be transferred to the Investor Education and ProtectionFund by the Bank.
2. We report that during the course of our audit we have visited and performed selectrelevant procedures at 20 branches. Since the Bank considers its key operations to beautomated with the key applications largely integrated to the core banking systems itdoes not require its branches to submit any financial returns. Accordingly our audit iscarried out centrally at the Head Officeand Central Processing Units based on thenecessary records and data required for the purposes of the audit being made available tous.
| ||For DELOITTE HASKINS & SELLS |
| ||Chartered Accountants |
| ||(Firm's Registration No.117365W) |
| ||Kalpesh J. Mehta |
| ||Partner |
|Mumbai 18 April 2019 ||(Membership No. 48791) |
ANNEXURE "A" TO THE INDEPENDENT
(Referred to in paragraph 1 (h) under Report on Other Legal and
Regulatory Requirements' section of our report of even date)
Report on the Internal Financial Controls Over Financial Reporting under Clause (i) ofSub-section 3 of Section 143 of the Companies Act 2013 (the "Act")
We have audited the internal financial reporting of DCB Bank Limited (the"Bank") as at 31 March 2019 in conjunction with our audit of the financialstatements of the Bank for the year ended on that date.
Management's 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 Internal Financial Controls Over Financial Reporting (the "GuidanceNote") issued by the Institute of Chartered Accountants of India. 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 the Bank's policies the safeguarding ofits assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Companies Act 2013 the Banking Regulation Act 1949and the guidelines issued by the Reserve Bank of India.
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 issued by the Institute of Chartered Accountants of India and the Standardson Auditing prescribed under Section 143(10) of the Companies
Act 2013 to the extent applicable to an audit of internal financial controls. ThoseStandards and the Guidance Note require that we comply with ethical requirements and planand perform the audit to obtain reasonable assurance about whether adequate internalfinancial controls over financial reporting was established and maintained and if suchcontrols operated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacyfinancialcontrols system over of the internal 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 controls based on the assessed risk. Theprocedures selected depend on the auditors' judgement including the assessment of therisks of material 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 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 controls over financial external purposes inaccordance with generally accepted accounting principles and other applicable regulations.A Bank's internal financial control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that in reasonable detailaccurately and fairly reflect the transactions and dispositions of the assets of the Bank;(2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accountingprinciples and that receipts and expenditures of the Bank are being made only inaccordance with authorisations of Management and Directors of the Bank; and (3) providereasonable assurance regarding prevention or timely detection of unauthorised acquisitionuse or disposition of the Bank's assets that could have a material effect on thefinancial statements.
Inherent Limitations of Internal Financial Controls Over
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 to the best of our information and according to the explanations givento us the Bank has in all material respects an adequate internal financial controlssystem over financial reporting and such internal financial controls over financialreporting were operating effectively as at 31 March 2019 based on the internal controlover financial reporting criteria established by the Bank considering the essentialcomponents of internal control stated in the Guidance Note issued by the Institute ofChartered Accountants of India.
| ||For DELOITTE HASKINS & SELLS |
| ||Chartered Accountants |
| ||(Firm's Registration No.117365W) |
| ||Kalpesh J. Mehta |
| ||Partner |
|Mumbai 18 April 2019 ||(Membership No. 48791) |