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Equitas Small Finance Bank Ltd.

BSE: 543243 Sector: Financials
NSE: EQUITASBNK ISIN Code: INE063P01018
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VOLUME 2059108
52-Week high 71.25
52-Week low 37.50
P/E 15.00
Mkt Cap.(Rs cr) 5,490
Buy Price 43.75
Buy Qty 269.00
Sell Price 43.90
Sell Qty 243.00
OPEN 43.20
CLOSE 43.20
VOLUME 2059108
52-Week high 71.25
52-Week low 37.50
P/E 15.00
Mkt Cap.(Rs cr) 5,490
Buy Price 43.75
Buy Qty 269.00
Sell Price 43.90
Sell Qty 243.00

Equitas Small Finance Bank Ltd. (EQUITASBNK) - Auditors Report

Company auditors report

To the Members of Equitas Small Finance Bank Limited

Report on the Audit of the Financial Statements

Opinion

We have audited the accompanying financial statements of Equitas Small Finance BankLimited (the "Bank") which comprise the Balance Sheet as at March 31 2022 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.

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 as amended (the"Act") in the manner so required for Banking Companies and give a true and fairview in conformity with the accounting principles generally accepted in India of the stateof affairs of the Bank as at March 31 2022and its profit and its cash flows for the yearended on that date.

Basis for Opinion

We conducted our audit of the financial statements in accordance with the Standards onAuditing (SAs) as specified under section 143(10) of the Act. Our responsibilities underthose Standards are further described in the ‘Auditor's Responsibilities for theAudit of the Financial Statements' section of our report. We are independent of the Bankin accordance with the ‘Code of Ethics' issued by the Institute of CharteredAccountants of India together with the ethical requirements that are relevant to our auditof the financial statements under the provisions of the Act and the Rules there under andwe have fulfilled our other ethical responsibilities in accordance with these requirementsand the Code of Ethics. We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our audit opinion on the financial statements.

Emphasis of Matter

We draw attention to Schedule 17.2.2 to the accompanying financial statement whichdescribes the economic and social disruption the Bank is facing as a result of COVID-19pandemic and that its possible consequential implications if any on the Bank'soperations and financial results are dependent on future developments which are highlyuncertain.

Our opinion is not 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 2022. 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.

Key Audit Matters How our audit addressed the key audit matter
Identification of non-performing advances and provisioning for advances
Advances form a material portion of the Bank's assets and the quality of the Bank's loan portfolio is measured in terms of the proportion of non-performing assets (NPAs) to the total loans and advances. Identification classification and provisioning of NPAs are governed by the prudential norms on Income Recognition and Asset Classification ("IRAC") and the specific guidelines relating to COVID-19 Regulatory Package issued by the Reserve Bank of India ("RBI") which include rule-based and judgmental factors. Management is also required to make estimates of stress recoverability issues and security erosion in respect of specific borrowers or groups of borrowers on account of specific factors that may affect such borrowers/groups (including factors relating to economic stress arising out of the COVID-19 pandemic). We considered the Bank's accounting policies for NPA identification and provisioning and have assessed the compliance with the IRAC norms prescribed by the RBI read with the specific RBI guidelines relating to COVID-19 Regulatory Package.
We tested the operating effectiveness of the controls (including application and IT dependent controls) for borrower wise classification of loans in the respective asset classes viz. standard sub-standard doubtful and loss with reference to their days-past-due (DPD) status (including consideration of the moratorium on loans offered under the Regulatory Package).
We considered the special mention accounts ("SMA") reports submitted by the Bank to the RBI's central repository of information on large credits (CRILC) and made inquiries of personnel in the Bank's credit and risk departments regarding indicators of stress or the occurrence of specific event(s) of default or other factors affecting the loan portfolio / particular loan product category that may affect NPA identification and/or provisioning.
In view of the significance of this area to the overall audit of financial statements it has been considered as a key audit matter. We have verified the borrowers request letters on sample basis for the restructuring of accounts and also verified the process adopted by the bank in restructuring the same.
Selected the borrowers based on quantitative and qualitative risk factors for
their assessment of appropriate classification as NPA including computation of overdue ageing to assess its correct classification and provision amount as per extant IRAC norms and Bank policy. We performed analytical procedures which considered both financial and non- financial parameters in relation to identification of NPAs and provisioning there against.
Information Technology ("IT") Systems and Controls impacting Financial Reporting
The IT environment of the Bank is complex and involves a large number of independent and interdependent IT systems used in the operations of the Bank for processing and recording a large volume of transactions at numerous locations. As a result there is a high degree of reliance and dependency on such IT systems for the financial reporting process of the Bank. As part of our Audit we have carried out testing of the IT general controls application controls and IT dependent manual controls. We tested the design and operating effectiveness of the Bank's IT access controls over the key information systems including changes made to the IT landscape during the audit period that are critical to financial reporting.
There has been certain enhancement in the information technology (IT) infrastructure of the Bank in the current year. As the IT systems and processes continue to mature in view of the evolving business and regulatory landscape changes in the technology environment have been carried out by the Bank. IT general controls include user access management and change management across applications networks database and operating systems. Due to the pervasive nature and complexity of the IT environment as well as its significance in relation to accurate and timely financial reporting we have identified this area a key audit matter. We tested IT gerneral controls in the nature of controls over logical access changes management and other aspects of IT operational controls. These included testing that requests for access to systems were reviewed and authorized.
Where deficiencies were identified we tested compensating controls or performed alternate procedures.

Information other than the Financial Statements and Auditors' Report thereon

The Bank's Board of Directors is responsible for the other information. The otherinformation comprises the information included in the Annual report but does not includethe financial statements and our auditor's report thereon. The Bank's annual report isexpected to be made available to us after the date of this Auditors' Report.

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 and in doing so consider whether such other information ismaterially inconsistent with the financial statements or our knowledge obtained in theaudit or otherwise appears to be materially misstated. When we read the Bank's annualreport if we conclude that there is a material misstatement of this other information weare required to communicate the matter to those charged with governance.

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 and cash flows of the Bankin accordance with the 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 provisions ofSection 29 of the Banking Regulation Act 1949 and circulars guidelines and directionsissued by Reserve Bank 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 ofappropriate accounting policies; making judgments and estimates that are reasonable andprudent; and the design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the financialstatements that give a true and fair view and are free from material misstatement whetherdue 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 Board of Directors are also responsible for overseeing the Bank's financialreporting process.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement whether due to fraud or errorand to issue an auditor's report that includes our opinion. Reasonable assurance is a highlevel of assurance but is not a guarantee that an audit conducted in accordance with SAswill always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if individually or in the aggregate theycould reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements.

As part of an audit in accordance with SAs 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) ofthe Act we are also responsible for expressing our opinion on whether the Bank hasadequate internal financial controls with reference to financial statements in place andthe operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures 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 2022 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.

Other Matters

The financial statements of the Bank for the year ended March 31 2021 were audited byM/s T R Chadha & Co LLP Chartered Accountants the statutory auditors of the bankwhose report dated April 29 2021 had expressed an unmodified opinion on those financialstatements. Accordingly M/s Varma & Varma Chartered Accountants do not express anyopinion on those figures reported as comparative figures in the financial statements forthe year ended March 31 2022. Our opinion is not modified in respect of this matter.

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 and section 133 ofthe Act 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 beenwithin the powers 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 the branches. Our audit is carried out centrally as all the necessaryrecords and data required for the purposes of our audit are centrally available. Howeverwe have visited 22 branches covering 15.10% of the gross advances as on March 31 2022for the purpose of our audit in compliance with the extant RBI Circular.

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 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 to the extent they are not inconsistent with the accountingpolicies prescribed by RBI;

(e) On the basis of the written representations received from the directors as on March31 2022 taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2022 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 remuneration to the whole-timedirector during the year ended March 31 2022 has been paid / provided 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 to Schedule 12 and Schedule 18.14(k) to thefinancial statements;

ii. The Bank did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses;

iii. There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Bank

iv. (a) The Management has represented that to the best of its knowledge and beliefno funds (which are material either individually or in the aggregate) have been advancedor loaned or invested (either from borrowed funds or share premium or any other sources orkind of funds) by the Bank to or in any other persons / entities including foreignentities (‘Intermediaries') with the understanding whether recorded in writing orotherwise that the Intermediary shall whether directly or indirectly lend or invest inother persons or entities identified in any manner whatsoever by or on behalf of the Bank("Ultimate Beneficiaries") or provide any guarantee security or the like onbehalf of the Ultimate Beneficiaries;

(b) The Management has represented that to the best of its knowledge and belief nofunds (which are material either individually or in the aggregate) have been received bythe Bank from any persons / entities including foreign entities ("FundingParties") that the company shall directly or indirectly lend or invest in otherpersons or entities identified in any manner whatsoever by or on behalf of the FundingParty ("Ultimate Beneficiaries") or provide any guarantee security or the likeon behalf of the Ultimate Beneficiaries;

(c) Based on the audit procedures which we have considered reasonable and appropriatein the circumstances and according to the information and explanations provided to us bythe Management in this regard nothing has come to our notice that has caused us tobelieve that the representations made by the Management under subclause (a) and (b) abovecontain any material misstatement.

v. As stated in Schedule 18.1(c)(v) to the financial statements the company has notdeclared or paid any dividend during the year and hence the related reportingrequirements under sub-clause (f) of Rule 11 of the Companies (Audit and Auditors) Rules2014 is not applicable.

For T R Chadha & Co LLP For Varma & Varma
Chartered Accountants Chartered Accountants
Firm Registration No.: 006711N/N500028 Firm Registration No.: 004532S
Sheshu Samudrala P R Prasanna Varma
Partner Partner
Membership No: 235031 Membership No: 025854
UDIN: 22235031AIKLQJ5076 UDIN: 22025854AIKMZC3642
Place: Chennai Place: Chennai
Date: 04.05.2022 Date: 04.05.2022

Annexure 1

To the Independent Auditor's Report of Even Date on the Financial Statements of EquitasSmall Finance Bank Limited

Report on the Internal Financial Controls with reference to Financial Statements underClause (i) of Sub-section 3 of Section 143 of the Companies Act 2013 ("theAct")

We have audited the internal financial controls with reference to Financial Statementsof Equitas Small Finance Bank Limited (the "Bank") as of March 31 2022 inconjunction with our audit of the financial statements of the Bank for the year ended onthat 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 with reference to Financial Statementscriteria established by the Bank considering the essential components of internal controlstated in the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting 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.

Auditor's Responsibility

Our responsibility is to express an opinion on the Bank's internal financial controlswith reference to Financial Statements based on our audit. We conducted our audit inaccordance with the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting (the "Guidance Note") and the Standards on Auditing as specified undersection 143(10) of the Companies Act 2013 to the extent applicable to an audit ofinternal financial controls both applicable to an audit of Internal Financial Controlsand both issued by the Institute of Chartered Accountants of India. Those Standards andthe Guidance Note require that we comply with ethical requirements and plan and performthe audit to obtain reasonable assurance about whether adequate internal financialcontrols over financial reporting was established and maintained and if such controlsoperated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls with reference to Financial Statements and their operatingeffectiveness. Our audit of internal financial controls with reference to FinancialStatements included obtaining an understanding of internal financial controls withreference to Financial Statements assessing the risk that a material weakness exists andtesting and evaluating the design and operating effectiveness of internal control based onthe assessed risk. The procedures selected depend on the auditor's judgment including theassessment of the risks of material misstatement of the financial statements whether dueto 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 with reference to Financial Statements

A Bank's internal financial control with reference to Financial Statements is a processdesigned to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A Bank's internal financial control withreference to Financial Statements includes those policies and procedures that

1) pertain to the maintenance of records that in reasonable detail accurately andfairly 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 authorizations of management and directors of the bank; and

3) 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 with reference to FinancialStatements

Because of the inherent limitations of internal financial controls with reference toFinancial Statements including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls withreference to Financial Statements to future periods are subject to the risk that theinternal financial control with reference to Financial Statements may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.

Opinion

In our opinion the Bank has in all material respects an adequate internal financialcontrols system with reference to financial statements and such internal financialcontrols with reference to Financial Statements were operating effectively as at March 312022 based on the internal control with reference to Financial Statements 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.

For T R Chadha & Co LLP For Varma & Varma
Chartered Accountants Chartered Accountants
Firm Registration No.: 006711N/N500028 Firm Registration No.: 004532S
Sheshu Samudrala P R Prasanna Varma
Partner Partner
Membership No: 235031 Membership No: 025854
UDIN: 22235031AIKLQJ5076 UDIN: 22025854AIKMZC3642
Place: Chennai Place: Chennai
Date: 04.05.2022 Date: 04.05.2022

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