The Members of Dhanlaxmi Bank Limited
Report on the Audit of the Financial Statements
We have audited the accompanying financial statements of Dhanlaxmi Bank Limited("the Bank") which comprise the Balance Sheet as at 31 March 2019 the Profitand Loss Account and the Cash Flow statement for the year then ended and notes to thefinancial statements including a summary of significant accounting policies and otherexplanatory information. Incorporated in these financial statements are the returns ofNineteen branches/offices and Treasury division audited by us 242 branches/officesaudited by branch auditors. In our opinion and to the best of our information andaccording to the explanations given to us the aforesaid financial statements togetherwith the Principal Accounting Policies and Notes appended thereto give the informationrequired by the Banking Regulation Act 1949 as well as the Companies Act 2013 (the"Act") in the manner so required for the banking companies and give a true andfair view in conformity with the accounting principles generally accepted in India of thestate of affairs of the Bank as at 31 March 2019 its profit and its cash flows for theyear ended on that date.
Basis for 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 Standards arefurther described in the Auditor's Responsibilities for the Audit of the FinancialStatements section of our report. We are independent of the Company in accordance withthe Code of Ethics issued by the Institute of Chartered Accountants of India together withthe ethical requirements that are relevant to our audit of the financial statements underthe provisions of the Act and the Rules thereunder and we have fulfilled our otherethical responsibilities in accordance with these requirements and the Code of Ethics. Webelieve that the audit evidence we have obtained is sufficient and appropriate to providea basis for our opinion.
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 |
|1 ||Identification of and provisioning for non- performing assets (loans) in accordance with the RBI guidelines. ||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: |
| ||(Refer Schedule 9 read with Note 4-Schedule 17 to the financial statements). ||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; |
| ||The Bank has net advances amounting to `62892819 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 asset classification and 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. Accordingly our audit was focused on income recognition asset classification and provisioning pertaining to advances due to the materiality of the balances and associated impairment provisions. ||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 and discussed the provisions made with senior management including the Managing Director & Chief Executive Officer Chief Financial Officer Chief Risk Officer and Chief Credit Officer. |
|2 ||Key Information Technology (IT) systems used in financial reporting process: ||Our key IT audit procedures included: |
| || ||We focused on user access management change management segregation of duties system reconciliation controls and system application controls over key financial accounting and reporting systems. |
| ||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 misstated. Amongst its multiple IT systems seven systems are key for its overall financial reporting. ||We tested a sample 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. |
| ||In addition large transaction volumes 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. ||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 preventive controls designed to enforce segregation of duties. |
| || ||For a selected group of key controls over financial and reporting systems we independently performed procedures to determine that these control remained unchanged during the year or were changed following the standard change management process. |
| ||We have identified IT systems and 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 architecture. ||Other areas that were assessed included password policies security configurations system interface controls controls over changes to applications and databases and that business users and controls to ensure that 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. |
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. Inconnection with our audit of the financial statements our responsibility is to read theother information and in doing so consider whether the other information is materiallyinconsistent with the financial statements or our knowledge obtained in the audit orotherwise appears to be materially misstated. When we read the Annual Report if weconclude that there is a material misstatement therein we are required to communicate thematter 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 thefinancial statements management is responsible for assessing the Bank's ability tocontinue as a going concern disclosing as applicable matters related to going concernand using the going concern basis of accounting unless management either intends toliquidate the Company or to cease operations or has no realistic alternative but to doso. 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.
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 a 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 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
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 and read with Rule 7 of the Companies (Accounts) Rules2014.
2. As required by Section 30 of the Banking Regulation Act 1949 we report that: a) Wehave obtained all the information and explanations which to the best of our knowledge andbelief were necessary for the purpose of our audit and have found them to besatisfactory; b) In our opinion the transactions of the Bank which have come to ournotice have been within the powers of the Bank; c) The returns received from the Officesand branches of the Bank have been found adequate for the purpose of our audit. Thereports on the accounts of the branch offices audited by branch auditors of the Bank underSection 143(8) of the Act have been sent to us and have been properly dealt with by us inpreparing this report;
3. 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 the bestof our knowledge and belief were necessary for the purpose of our audit;
b) In our opinion proper books of account as required by law have been kept by theBank so far as it appears from our examination of those books;
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 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;
e) On the basis of written representations received from the directors as on 31 March2019 taken on record by the Board of Directors none of the directors are disqualified ason 31 March 2019 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 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.
g) 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 on its financial positionin its financial statements;
ii. The Bank has made provision as required under the applicable law or accountingstandards for material foreseeable losses on long-term contracts including derivativecontracts;
iii. There has been no delay in transferring amounts required to be transferred to theInvestor 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 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.
| ||For Sridhar & Co. |
| ||Chartered Accountants |
| ||Firm Registration Number: 003978S |
| ||I. Jayasindhu |
|Place : Thrissur ||Partner |
|Date : 08 May 2019 ||Membership Number: 205660 |
Annexure 1 to The Independent Auditor's Report of even date on the Financial Statementsof Dhanlaxmi Bank Limited
(Referred to in paragraph 3 (f) under Report on Other Legal and RegulatoryRequirements' section of our report of even date)
Report on the Internal Financial Controls under Clause (i) of Sub-section 3 ofSection 143 of the Companies Act 2013 ("the Act")
The Members of Dhanlaxmi Bank Limited
We have audited the internal financial controls over financial reporting of DhanlaxmiBank Limited ("the Bank") as of 31 March 2019 in conjunction with our audit ofthe financial statements 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 issuedby the Institute of Chartered Accountants of India (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 the Bank's policies thesafeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable 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 Act2013 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 aboutthe adequacy of the internal financial controls system over financial reporting and theiroperating effectiveness. Our audit of internal financial controls over financial reportingincluded obtaining an understanding of internal financial controls over financialreporting assessing the risk that a material weakness exists and testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk. Theprocedures selected depend on the auditor's judgment 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 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 (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the bank; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures of the bank are being made only in accordance with authorizations ofmanagement and directors of the bank; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition use or disposition of thebank'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 31 March 2019 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 Sridhar & Co. |
| ||Chartered Accountants |
| ||Firm Registration Number: 003978S |
| ||I. Jayasindhu |
|Place : Thrissur ||Partner |
|Date : 08 May 2019 ||Membership Number: 205660 |