The Members of Dhanlaxmi Bank Limited Report on the Audit of Financial Statements
We have audited the accompanying financial statements of Dhanlaxmi Bank Limited("the Bank") which comprise the Balance Sheet as at 31st March 2021 theProfit and Loss Account and the Cash Flow statement for the year then ended and notes tothe financial statements including a summary of significant accounting policies and otherexplanatory information. Incorporated in these financial statements are the returns ofTwenty-Two branches/offices and Treasury division audited by us 234 branches/officesaudited by statutory branch auditors.
In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid financial statements together with the Principal AccountingPolicies and Notes appended thereto give the information required by the BankingRegulation Act 1949 as well as the Companies Act 2013 (the "Act") in themanner so required for the 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 31st March 2021 its profit and its cash flows for the year ended on thatdate.
Basis for 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 Company 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 Code of Ethics. We believethat the audit evidence we have obtained is sufficient and appropriate to provide a basisfor our opinion on the Financial Statement.
Emphasis of Matter
We call attention to Note No. 4.3 of Schedule 18 of the Accompanying FinancialStatement wherein the impact of the COVID-1 9 pandemic and its implications on theaccounts for the quarter/year ended 31st March 2021 has been stated. The extent to whichthe pandemic will impact the Bank's operations and financial position depends on severalfactors including the steps taken to reduce such impact and other regulatory measureswhich is highly uncertain.
Our opinion on the financial results is not modified in respect on the above matters.
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.
|Sr. No. Key Audit Matters ||Auditors' Response/Procedure |
|1 Identification and classification of assets into NPAs is made based on the assessment of various criteria stipulated in the Reserve Bank of India ('RBI') guidelines with regard to the 'Prudential Norms on Income Recognition Asset Classification and Provisioning' ('RBI Guidelines'). ||Design / controls |
|Provisions in respect of such NPAs and restructured advances are made subject to the minimum provisioning levels prescribed by RBI from time to time. Excess provisioning is based on the management's evaluation of the degree of impairment of the advances. The provision on NPA's is also based on the valuation of the security available. || Assessing the design implementation and operating effectiveness of key internal controls over approval recording and monitoring of loans identification of NPA accounts measurement of NPA provisions indicators of impairment and assessing the reliability of management information which included overdue reports. |
| || Understanding the management's approach interpretation systems and controls implemented in relation to NPA computation particularly in light of the COVID-19 regulatory package. |
| || For corporate loans we tested controls over the internal ratings process monitoring of stressed accounts including credit file review processes and review controls over the approval of significant individual impairment provisions. |
| || Evaluating the design implementation and operating effectiveness of key internal controls over the valuation of securities for NPAs and Special Mention Accounts ('SMA'). |
|The NPA classification and provisioning of loans and advances was construed as a key audit matter due to the significant efforts involved by the management in identifying and classifying advances as NPAs based on the RBI Guidelines the level of management judgment involved in determining the provisions (including the provisions on assets which are not classified as NPAs) the valuation of security of the NPAs and the significance of these estimates on the financial statements of the Bank. || Analysing the key IT systems/applications used its design and implementation as well as operational effectiveness of relevant controls including the considerations of manual processes and manual controls. |
|On 11 March 2020 the World Health Organization declared the Novel Coronavirus (COVID-19) outbreak to be a pandemic and the continued lockdown and travel restrictions imposed by the Govt of India and the respective State Government/ Union Territory due to COVID-19 'Second Wave'. || |
|We have 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: ||Substantive tests |
| Short- and long-term macroeconomic effect on businesses in the country and globally and its consequential first order and cascading negative impact on revenue and employment generation opportunities; || Test of details for a selection of exposures in relation to calculation of NPA provisions including valuation of collaterals for NPAs as at 31 March 2021; provisioning determined by the Bank and also testing related disclosures by assessing the completeness accuracy and relevance of data and to ensure that the same is in compliance with the RBI guidelines with regard to the Prudential Norms on Income Recognition Asset Classification and Provisioning. |
| impact of the pandemic on the Bank's customers and their ability to repay dues; and || Samples (based on quantitative and qualitative thresholds) of large corporates where impairment indicators have been identified by management were chosen.. |
| application of regulatory package and relaxations announced by the Reserve Bank of India (RBI) on asset classification regulatory reporting and provisioning. ||We obtained management's assessment of the recoverability of these exposures (including individual provisions calculations) and evaluated whether individual provisions or lack of were appropriate |
| || This included the following procedures: - |
| ||- Reviewing the statement of accounts approval process board and credit committees' minutes credit review of customer review of Special Mention Accounts ('SMA') reports and other related documents to assess recoverability and the classification of the facility; - |
| ||Assessed external collateral valuer's credentials and comparing external valuations to values used in management's assessments; and |
| ||- Analysing the effect of Stay given by Honourable Supreme Court and its consequent effect on the vacation of stay on nonclassification of NPA. |
| || Assessing the factual accuracy and appropriateness of additional disclosures made in connection to the impact of COVID-19 pandemic on the financial statements of the Bank. |
| || Verification of concurrent audit reports and inspection for NPA issues Covid related issue and the guidelines issues by Head Office. |
|2 IT systems and automated controls The extent to which the Bank's key financial accounting and reporting processes depend on information systems including automated controls in systems is considerably high that there exists a risk of gaps in the IT control environment that could potentially result in the financial accounting and reporting records being materially misstated. || Our key IT audit procedures included: |
|The Bank uses several systems for its overall financial reporting. In addition to this large volumes of transactions and the increasing challenges to protect the integrity of the Bank's systems and data cyber security has become a more significant risk in recent periods. || Testing and understanding the IT systems of the bank and integration of various software. |
|We have identified 'IT systems and automated controls' as key audit matter because of the high-level automation significant number of systems being used by the management and the complexity of the IT structure. || We focussed on user access management change management segregation of duties system reconciliation controls and system application controls over key financial accounting and reporting systems. |
| || 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 system 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 that business users developers and production support did not have access to change applications the operating system or databases in the production environment. |
| || Security configuration review and related tests on certain critical aspects of cyber security on network security management mechanism operational security of key information infrastructure data and client information management monitoring and emergency management. |
| || Assessment of data security controls in the context of a large population of staff working from remote location at the year end. |
| || Verification of systems audit in IT related area and corrective mechanism |
|3 Modified Audit Procedure carried out in light of COVID-19 outbreak: || Wherever physical access was not possible necessary records/ reports/ documents/ certificates were made available to us by the Bank through digital medium emails and remote access to CBS and other relevant application software. |
|Due to COVID-1 9 pandemic and consequent nationwide lockdown and travel restrictions imposed by Central / State Government / Local Authorities during the period of audit and the Reserve Bank of India directions to Banks to conduct audit remotely wherever physical access was not possible we couldn't carry out audit by visiting the premises of certain Branches / Departments and Corporate Office. ||To this extent the audit process was carried out on the basis of such documents reports and records made available to us which were relied upon as audit evidence for conducting the audit and reporting for the current period. Accordingly we modified our audit procedure as follows: |
|Since we were unable to gather audit evidence physically or in person the same was carried through discussions and personal interactions with the officials at the Branches/Departments / Corporate Office. We have identified such modified audit procedure as a Key Audit Matter. ||a) Carried out verification of necessary records/ documents/ CBS and other application software electronically through remote access/ emails in respect of the Branches/ Departments and Corporate Office where physical access was not possible. |
|Accordingly our audit procedure was modified to carry out the audit remotely ||b) Carried out verification of scanned copies of the documents deeds certificates returns and the related records made available to us through emails and remote access over secured network of the Bank. |
| ||c) Making enquiries and gathering necessary audit evidence through conferencing dialogues and discussions over phone calls/ conference calls emails and similar communication channels. |
| ||d) Resolution/ Replies of our audit observations through email/ telephone instead of a face-to-face interaction with the designated officials. |
Information other than the Financial Statements and Auditor's Report thereon
The Bank's Management and Board of Directors are responsible for the other information.The other information comprises the Directors Report including the annexures to Directors'Report Secretarial audit Report Management Discussion & Analysis Report andCorporate Governance Report included in the Annual report but does not include thefinancial statements and our auditor's report thereon and the Pillar III Disclosures underthe New Capital Adequacy Framework (Basel III disclosures). The Annual Report is expectedto be made available to us after the date of this auditor's report.
Our opinion on the financial statements does not cover the other information and BaselIII Disclosures and we will 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 Annual Report if we conclude that there is a material misstatementtherein we are required to communicate the matter to those charged with governance.
Responsibilities of Management and those charged with governance for the FinancialStatements
The Bank's Management and Board of Directors are responsible for the matters stated insection 134(5) of the Act with respect to the preparation of these financial statementsthat give a true and fair view of the financial position financial performance and cashflows of the Bank in accordance with the provisions of Section 29 of the BankingRegulation Act 1949 and accounting principles generally accepted in India including theAccounting Standards specified under section 133 of the Act read with Rule 7 of theCompanies(Accounts) Rules 2014 in so far as they apply to the Bank and the guidelinesissued by the Reserve Bank of India from time to time. This responsibility also includesmaintenance of adequate accounting records in accordance with the provisions of the Actfor safeguarding of the assets of the Bank and for preventing and detecting frauds andother irregularities; selection and application of appropriate accounting policies makingjudgments and estimates that are reasonable and prudent; and the design implementationand maintenance of adequate internal financial control that were operating effectively forensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the financial statements that give a true and fair viewand are free from material misstatement whether due to fraud or error.
In preparing the financial statements management and 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 Board of Directors either intends to liquidate theCompany 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 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 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 with reference to the financial statement in placeand the operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management and Board of Directors.
Conclude on the appropriateness of management and Board of Directors use of thegoing 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 the related disclosures in the financial statements or ifsuch disclosures are inadequate to modify our opinion. Our conclusions are based on theaudit evidence obtained up to the date of our auditor's report. However future events orconditions may cause a bank to cease 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 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 and read with Rule 7 of the Companies (Accounts) Rules 2014.
1. As required by Sub Section 3 of section 30 of the Banking Regulation Act 1949we report 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) In our opinion the transactions of the Bank which have come to our noticehave been within the powers of the Bank;
c) The returns received from the Offices and branches of the Bank have been foundadequate for the purpose of our audit. The reports on the accounts of the branch officesaudited by branch auditors of the Bank under section 143(8) of the Act have been sent tous and have been properly dealt with by us in preparing this report;
2. Further as required by section 143(3) of the Act we further report that:
a) We have sought and obtained all the information and explanations which to thebest of 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;
c) The reports on the accounts of 234 branches of the Bank audited by branchauditors under Section 143(8) of the Act have been forwarded to us and have been properlydealt 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;
e) In our opinion the aforesaid financial statements comply with the AccountingStandards specified under Section 133 of the Act read with Rule 7 of the Companies(Accounts) Rules 2014 as applicable to banks and not inconsistent with the accountingpolicies prescribed by RBI;
f) On the basis of written representations received from the directors as on 31March 2021 taken on record by the Board of Directors none of the directors aredisqualified as on 31 March 2021 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 1" to this report. Our report expresses anunmodified opinion on the adequacy and operating effectiveness of the Bank's internalfinancial controls over financial reporting.
3. 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:
a) The Bank has disclosed the impact of pending litigations as at 31 March 2021 onits financial position in its financial statements;
b) The Bank has made provision as required under the applicable law or accountingstandards for material foreseeable losses on long-term contracts including derivativecontracts;
c) There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Bank.
4. With respect to the matter to be included in the Auditors' Report under Section197(16):
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 RB. Vijayaraghavan& Co. |
| ||Chartered Accountants |
| ||FRN: 004721S |
| ||RB. Santhanakrishnan |
| ||Partner |
|Place: Chennai ||M.No: 020309 |
|Date: 29-05-2021 ||UDIN: 21020309AAAAGE5329 |
Annexure 1 to The Independent Auditor's Report of even date on the Financial Statementsof Dhanlaxmi Bank Limited for the year ended 31st March 2021.
(Referred to in paragraph 2 (g) under 'Report on Other Legal and RegulatoryRequirements' section of our report of even date) Report on the Internal FinancialControls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act 2013("the Act")
To The Members of Dhanlaxmi Bank Limited
We have audited the internal financial controls over financial reporting of DhanlaxmiBank Limited ("the Bank") as of 31st March 2021 in conjunction withour audit of the financial statements of the Bank for the year ended on that date.
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 control over financialreporting criteria established by the Bank considering the essential components ofinternal control stated in the Guidance Note on Audit of Internal Financial Controls overFinancial Reporting issued by the Institute of Chartered Accountants of India (the"Guidance Note"). 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 have conducted our audit in accordancewith the Guidance Note and the Standards on Auditing as specified under section 143(10) ofthe Companies Act 2013 to the extent applicable to an audit of internal financialcontrols both applicable to an audit of Internal Financial Controls and both issued bythe Institute of Chartered Accountants of India. Those Standards and the Guidance Noterequire that 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 internal financial controls system overfinancial reporting.
Concept 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
A. pertain to the maintenance of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the bank;
B. 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 authorizations of management and directors of the bank; and
C. 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 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 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.
| ||For RB.Vijayaraghavan & Co. |
| ||Chartered Accountants |
| ||FRN: 004721S |
| ||RB. Santhanakrishnan |
| ||Rartner |
|Date: 29-05-2021 ||M.No.: 020309 |
|Place: Chennai ||UDIN: 21020309AAAAGE5329 |