To the Members of The Federal Bank Limited
Report on the Audit of the Standalone Financial Statements
We have audited the accompanying standalone financial statements of TheFederal Bank Limited (the Bank?) which comprise the standalone Balance Sheetas at March 31 2022 the standalone Profit and Loss Account the standalone Cash Flowstatement for the year then ended and notes to the standalone financial statementsincluding a summary of significant accounting policies and other explanatory informationin which are included the Returns for the year ended on that date audited by the branchauditors of the Bank?s branches located across India.
In our opinion and to the best of our information and according to theexplanations given to us the aforesaid standalone financial statements give theinformation required by the Banking Regulation Act 1949 as well as the Companies Act2013 (the Act?) in the manner so required for banking companies and give a trueand fair view in conformity with accounting principles generally accepted in India of thestate of affairs of the Bank as at March 31 2022 and its profit and its cash flows forthe year ended on that date.
Basis for Opinion
We conducted our audit of the standalone financial statements inaccordance with the Standards on Auditing (SAs?) specified under section143(10) of the Act. Our responsibilities under those Standards are further described inthe Auditors? Responsibilities for the Audit of the Financial Statements?section of our report. We are independent of the Bank in accordance with the "Code ofEthics" issued by the Institute of Chartered Accountants of India together with theethical requirements that are relevant to our audit of the standalone financial statementsunder the 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 audit opinion on the standalone financial statements.
Emphasis of Matter
We draw attention to Note No. 3.14 of Schedule 18 to the Standalonefinancial statements regarding the impact of COVID-19 pandemic. As stated therein in viewof continuing uncertainties the extent of impact of the pandemic on the Bank?soperations and financial position would depend on several factors including actions takento mitigate its impact and other regulatory measures.
Our opinion is not modified in respect of this matter.
Key Audit Matters
Key Audit Matters are those matters that in our professional judgmentwere of most significance in our audit of the standalone financial statements for thefinancial year ended March 31 2022. These matters were addressed in the context of ouraudit of the standalone financial statements as a whole and in forming our opinionthereon and we do not provide a separate opinion on these matters. For each matter belowour description of how our audit addressed the matter is provided in that context.
Description of Key Audit Matters
|Key Audit Matters ||How our audit addressed the Key Audit Matters |
|(i) Classification of Advances Identification of Non-Performing Advances Income Recognition and Provision on Advances (Schedule 9 read with Note 5.2 of Schedule 17 and Note 1.4 and Note 1.14.5 of Schedule 18 to the standalone financial statements) || |
|Advances include Bills purchased and discounted Cash credits Overdrafts Loans repayable on demand and Term loans. These are further categorised as secured by Tangible assets (including advances against Book Debts) covered by Bank/Government Guarantees and Unsecured advances. ||Our audit approach / procedures towards Classification of Advances Identification of Non-performing Advances Income Recognition and Provision on Advances included the following: |
|The Reserve Bank of India ('RBI') has prescribed the 'Prudential Norms on Income Recognition Asset Classification and Provisioning' in respect of advances for banks ('IRACP Norms') including circulars in relation to COVID-19 Regulatory Package - Asset Classification and Provisioning. ||- Understanding and considering the Bank's accounting policies for NPA identification and provisioning and assessing compliance with the prudential norms prescribed by the RBI (IRACP Norms) including the additional provisions and asset classification benefit extended on restructured advances under RBI's COVID-19 Regulatory Package. |
|The identification of performing and non-performing advances (including advances restructured under applicable IRACP Norms) involves establishment of proper mechanism and the Bank is required to apply significant degree of judgement to identify and determine the amount of provision required against each advance applying both quantitative as well as qualitative factors prescribed by the regulations. ||- Understanding evaluation and testing the design and operating effectiveness of key controls (including system based automated controls) for identification and provisioning of impaired accounts based on the extant guidelines on IRACP laid down by the RBI. |
|Significant judgements and estimates for NPA identification and provisioning could give rise to material misstatements on: ||- Performing other procedures including substantive audit procedures covering the identification of NPAs by the Bank. These procedures included: |
|- Completeness and timing of recognition of non-performing assets in accordance with criteria as per IRACP norms; ||(a) Considering testing of the exception reports generated from the application systems where the advances have been recorded. |
|- Measurement of the provision for non-performing assets based on loan exposure ageing and classification of the loan realizable value of security; ||(b) Considering the accounts reported by the Bank and other banks as Special Mention Accounts ("SMA") in RBI's central repository of information on large credits (CRILC) to identify stress. |
| ||(c) Reviewing account statements drawing power calculation security and other related information of the borrowers selected based on quantitative and qualitative risk factors |
|- Appropriate reversal of unrealized income on the NPAs. ||(d) Reading of minutes of management committee and credit committee meetings and performing inquiries with the credit and risk departments to ascertain if there were indicators of stress or an occurrence of an event of default in a loan account or any product |
|Since the classification of advances identification of NPAs and creation of provision on advances (including additional provisions on restructured advances under applicable IRACP Norms) and income recognition on advances: ||(e) Considering audit reports and memorandum of changes issued by statutory branch auditors. |
|- Requires proper control mechanism and significant level of estimation by the Bank; ||(f) Considering Internal Audit Systems Audit Credit Audit and Concurrent Audit as per the policies and procedures of the Bank. |
|- Required to be aligned with changes in IRACP Norms during the year arising out of the COVID 19 pandemic ||(g) Considering the RBI Annual Financial Inspection report on the Bank the Bank's response to the observations and other communication with RBI during the year. |
|- Has significant impact on the overall financial statements of the Bank; ||(h) Reviewing the report submitted by external expert appointed by the Bank to verify compliance with the RBI circular on Automation of IRACP processes through the Bank's core banking system. |
|we have ascertained this area as a Key Audit Matter. ||(i) Examination of advances including stressed/ restructured advances on a sample basis with respect to compliance with the RBI Master Circulars / Guidelines. |
| ||(j) Visits to branches/offices and examination of documentation and other records relating to advances. |
| ||For Non- performing advances identified we based on factors including stressed sectors and account materiality tested on a sample basis the asset classification dates reversal of unrealized interest value of available security and provisioning as per IRACP norms. We recomputed the provision for NPA on such samples after considering the key input factors and compared our measurement outcome to that prepared by management. |
|(ii) Valuation of Investments Identification of and provisioning for Non-Performing Investments (Schedule 8 read with Note 5.1 of Schedule 17 and Note 1.2 and Note 1.14.5 of Schedule 18 to the standalone financial statements) || |
|Investments include investments made by the Bank in various Government Securities Bonds Debentures Shares Security receipts and other approved securities. RBI Circulars and directives inter-alia cover valuation of investments classification of investments identification of non-performing investments non-recognition of income and provisioning against non-performing investments. ||Our audit approach/procedures towards Investments with reference to the RBI Circulars/directives included the understanding of internal controls and substantive audit procedures in relation to valuation classification identification of non-performing investments (NPIs) and provisioning/ depreciation related to Investments. In particular - |
|The valuation of each category (type) of the aforesaid securities is to be done as per the method prescribed in circulars and directives issued by the RBI which involves collection of data/information from various sources such as FIMMDA rates rates quoted on BSE/NSE financial statements of unlisted companies etc. ||- We evaluated and understood the Bank's internal control system to comply with relevant RBI guidelines regarding valuation classification identification of NPIs reversal of income on NPIs and provisioning/ depreciation related to investments; |
|We identified valuation of investments and identification of NPI as a Key Audit Matter because of the management judgement involved in determining the value of certain investments (Bonds and Debentures Pass-through certificates) based on applicable Regulatory guidelines and the Bank's policies impairment assessment for HTM book based on management judgement the degree of regulatory focus and the overall significance to the financial results of the Bank. ||- We assessed and evaluated the process adopted for collection of information from various sources for determining market value of these investments; |
| ||- For the selected sample of investments in hand we tested accuracy and compliance with the RBI Master Circulars and directions by re-performing valuation for each category of the security; |
| ||- We carried out substantive audit procedures to recompute independently the provision to be maintained in accordance with the circulars and directives of the RBI. Accordingly we selected samples from the investments of each category and tested for NPIs as per the RBI guidelines and recomputed the provision to be maintained and if accrual of income is in accordance with the RBI Circular for those selected sample of NPIs; |
| ||- We tested the mapping of investments between the Investment application software and the financial statement preparation software to ensure compliance with the presentation and disclosure requirements as per the aforesaid RBI Circular/directions. |
|(iii) Information Technology ('IT') Systems and Controls for financial reporting || |
|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 materially misstated. ||As a part of our audit procedures for review of the Bank's IT systems and related controls for financial reporting: |
|The Bank uses several systems for its overall financial reporting and there is a large volume of transactions being recorded at multiple locations daily. In addition there are increasing challenges to protect the integrity of the Bank's systems and data since cyber security has become a more significant risk in recent periods. ||- We tested the design and operating effectiveness of the Bank's IT access controls over the information systems that are critical to financial reporting. |
|Due to the pervasive nature and complexity of the IT environment as well as its importance in relation to accurate and timely financial reporting we have identified this area as a Key Audit Matter. ||- We tested sample IT general controls (logical access changes management and aspects of IT operational controls). This included testing that requests for access to systems were reviewed and authorised. We inspected requests of changes to systems for approval and authorisation. We considered the control environment relating to various interfaces configuration and other application layer controls identified as key to our audit. |
| ||- We reviewed the Bank's controls over opening and unauthorized operations in internal/ office accounts. |
| ||- In addition to the above we tested the design and operating effectiveness of certain automated controls that were considered as key internal financial controls over financial reporting. Where deficiencies were identified we sought explanations regarding compensating controls or performed alternate audit procedures. In addition we understood where relevant changes made to the IT landscape during the audit period and tested those changes that had a significant impact on financial reporting. |
|(iv) Assessment of Provisions and Contingent Liabilities (Schedule 5 and 12 read with Notes 5.13 & 5.21 of Schedule 17 to the standalone financial statements) || |
|Assessment of Provisions and Contingent liabilities in respect of certain litigations including Direct and Indirect Taxes various claims filed by other parties not acknowledged as debt (Schedule 12 to the standalone financial statements) and various employee benefits schemes (Schedule 5 to the standalone financial statements) was identified as a significant audit area. ||Our audit approach / procedures involved: |
| ||- Obtaining an understanding of internal controls relevant to the identification of litigations and legal cases to be reported; |
|There is high level of judgement involved in estimating the level of provisioning required as well as in the disclosure of both Provisions and Contingent Liabilities in respect of tax matters and other legal claims. The Bank's assessment is supported by the facts of matter their own judgment past experience and advice from independent legal / tax consultants wherever considered necessary. Accordingly unexpected adverse outcomes may significantly impact the Bank's reported profit and state of affairs presented in the Balance Sheet. ||- Understanding the current status of the litigations/tax assessments; |
|The valuations of the employee benefit liabilities are calculated with reference to multiple actuarial assumptions and inputs including discount rate rate of inflation and mortality rates. The valuation of funded assets in respect of the same is also sensitive to changes in the assumptions. ||- Examining recent orders and/or communication received from various tax authorities/ judicial forums and follow up action thereon; |
|We determined the above area as a Key Audit Matter in view of associated uncertainty relating to the outcome of the matters which requires application of judgment in interpretation of law circumstances of each case and estimates involved. ||- Evaluating the merit of the subject matter under consideration with reference to the grounds presented therein and available independent legal / tax advice including opinion of the Bank's tax consultants; |
| ||- Review and analysis of evaluation of the contentions of the Bank through discussions collection of details of the subject matter under consideration the likely outcome and consequent potential outflows on those issues; |
| ||- Testing the design and operating effectiveness of key controls over the completeness and accuracy of the data the measurement of the fair value of the schemes' assets understanding the judgements made in determining the assumptions used by management to value the employee liabilities with specific schemes and market practice; |
| ||- Our audit procedures included an assessment of the assumptions used by the actuary by comparing life expectancy assumptions with relevant mortality tables benchmarking inflation and discount rates against external market data. We verified the value of plan assets to the statements provided by asset management companies managing the plan assets; |
| ||- Verification of disclosures related to significant litigations taxation matters and Employee benefits liabilities in the standalone financial statements. |
Information other than the standalone Financial Statements andAuditors? Report Thereon
The Bank?s Board of Directors is responsible for the otherinformation. The other information comprises the information included in the Bank?sAnnual Report but does not include the standalone financial statements and ourAuditors? Report thereon. The Bank?s Annual Report is expected to be madeavailable to us after the date of this Auditors? Report.
Our opinion on the standalone financial statements does not cover theother information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statementsour responsibility is to read the other information when it becomes available and indoing so consider whether the other information is materially inconsistent with thestandalone financial statements or our knowledge obtained in the audit or otherwiseappears to be materially misstated. When we read the Bank?s annual report if weconclude that there is a material misstatement of this other information we are requiredto communicate the matter to those charged with governance.
Responsibilities of Management and Those Charged with Governance forthe standalone Financial Statements
The Bank?s Board of Directors is responsible for the mattersstated in section 134(5) of the Act with respect to the preparation of these standalonefinancial statements that give a true and fair view of the financial position financialperformance and cash flows of the Bank in accordance with the accounting principlesgenerally accepted in India including the Accounting Standards specified under section133 of the Act read with relevant rules issued thereunder provisions of Section 29 ofthe Banking Regulation Act 1949 and circulars and guidelines issued by the Reserve Bankof India (RBI?) 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 design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the standalone financial statements that give a true andfair view and are free from material misstatement whether due to fraud or error.
In preparing the standalone financial statements Management and Boardof Directors are responsible for assessing the Bank?s ability to continue as a goingconcern disclosing as applicable matters related to going concern and using the goingconcern basis of accounting unless management either intends to liquidate the Bank or tocease operations or has no realistic alternative but to do so. Those Board of Directorsare also responsible for overseeing the Bank?s financial reporting process.
Auditors? Responsibilities for the audit of the standaloneFinancial Statements
Our objectives are to obtain reasonable assurance about whether thestandalone financial statements as a whole are free from material misstatement whetherdue to fraud or error and to issue an auditors? report that includes our opinion.Reasonable assurance is a high level of assurance but is not a guarantee that an auditconducted in accordance with SAs will always detect a material misstatement when itexists. Misstatements can arise from fraud or error and are considered material ifindividually or in the aggregate they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs we exercise professionaljudgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of thestandalone financial statements whether due to fraud or error design and perform auditprocedures responsive to those risks and obtain audit evidence that is sufficient andappropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error as fraudmay involve collusion forgery intentional omissions misrepresentations or the overrideof internal control.
Obtain an understanding of internal control relevant to theaudit in order to design audit procedures that are appropriate in the circumstances. Undersection 143(3)(i) of the Act we are also responsible for expressing our opinion onwhether the Bank has adequate internal financial controls system with reference tostandalone financial statements in place and the operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures in the standalone financialstatements made by management.
Conclude on the appropriateness of management?s 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 amaterial uncertainty exists we are required to draw attention in our auditors?report to the related disclosures in the standalone financial statements or if suchdisclosures are inadequate to modify our opinion. Our conclusions are based on the auditevidence obtained up to the date of our auditors? report. However future events orconditions may cause the Bank to cease to continue as a going concern.
Evaluate the overall presentation structure and content of thestandalone financial statements including the disclosures and whether the standalonefinancial statements represent the underlying transactions and events in a manner thatachieves fair presentation.
Materiality is the magnitude of the misstatements in the standalonefinancial statements that individually or aggregate makes it probable that the economicdecisions of a reasonably knowledgeable user of the financial statements may beinfluenced. We consider quantitative materiality and qualitative factors in
(i) planning of the scope of our audit work and evaluating the resultsof our work; and
(ii) to evaluate the effect of any identified misstatement in thefinancial statements.
We communicate with those charged with governance regarding amongother matters the planned scope and timing of the audit and significant audit findingsincluding any significant deficiencies in internal control that we identify during ouraudit. We also provide those charged with governance with a statement that we havecomplied with relevant ethical requirements regarding independence and to communicatewith them all relationships and other matters that may reasonably be thought to bear onour independence and where applicable related safeguards. From the matters communicatedwith those charged with governance we determine those matters that were of mostsignificance in the audit of the standalone financial statements for the financial yearended March 31 2022 and are therefore the key audit matters. We describe these matters inour auditors? report unless law or regulation precludes public disclosure about thematter or when 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.
We did not audit the financial statements of 331 branches included inthe standalone financial statements of the Bank whose financial statements reflect totalassets of `52539 crores as at March 31 2022 and total revenue of `2091crores for the yearended on that date as considered in the standalone financial statements. These branchescover 15.80 % of advances 26.11% of deposits and 23.33% of Non-performing assets as at31st March 2022 and 13.27 % of revenue for the year ended 31st March 2022. The financialstatements of these branches have been audited by branch auditors whose reports have beenfurnished to us and our opinion in so far as it relates to the amounts and disclosuresincluded in respect of these branches is based solely on the reports of such branchauditors.
Our opinion is not modified in respect of the above matter.
Report on Other Legal and Regulatory Requirements
The standalone Balance Sheet and the standalone Profit and Loss Accounthave been drawn up in accordance with the provisions of Section 29 of the BankingRegulation Act 1949 and Section 133 of the Companies Act 2013 read with relevant rulesissued thereunder.
As required by sub-section (3) of section 30 of the Banking RegulationAct 1949 we report that:
(a) we have obtained all the information and explanations which to thebest of our knowledge and belief were necessary for the purpose of our audit and havefound them to be satisfactory;
(b) the transactions of the Bank which have come to our notice havebeen within the powers of the Bank;
(c) the returns received from the offices and branches of the Bank havebeen found adequate for the purposes of our audit;
(d) the profit and loss account shows a true balance of profit for theyear then ended.
Further as required by section 143(3) of the Act we report that:
a) We have sought and obtained all the information and explanationswhich to the best 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 beenkept by the Bank so far as it appears from our examination of those books and properreturns adequate for the purposes of our audit have been received from branches notvisited by us;
c) The reports on the accounts of the branch offices of the bankaudited under section 143(8) of the Act by branch auditors of the Bank have been sent tous and have been properly dealt with by us in preparing this report;
d) The standalone Balance Sheet the standalone Profit and LossAccount the standalone Cash Flow Statement dealt with by this Report are in agreementwith the books of account and with the returns received from the branches not visited byus;
e) In our opinion the aforesaid standalone financial statements complywith the Accounting Standards specified under Section 133 of the Act read with relevantrules issued thereunder to the extent they are not inconsistent with the accountingpolicies prescribed by RBI;
f) On the basis of written representations received from the directorsas on March 31 2022 and taken on record by the Board of Directors none of the directorsis disqualified as on March 31 2022 from being appointed as a director in terms ofSection 164(2) of the Act;
g) With respect to the adequacy of the internal financial controls overfinancial reporting of the Bank with reference to these standalone financial statementsand the operating effectiveness of such controls refer to our separate Report in"Annexure A" to this report;
h) In our opinion the entity being a banking company the remunerationto its directors during the year ended March 31 2022 has been paid/provided by the Bankin accordance with the provisions of section 35B (1) of the Banking Regulation Act 1949and;
i) With respect to the other matters to be included in theAuditors? 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 accordingto the explanations given to us:
i. The Bank has disclosed the impact of pending litigations on itsfinancial position in its standalone financial statements - Refer Schedule 12 and Note No3.6 under Schedule 18 to the standalone financial statements;
ii. The Bank has made provision as required under the applicable lawor accounting standards for material foreseeable losses if any on long term contractsincluding derivative contracts - Refer Note 3.8 under Schedule 18 to the standalonefinancial statements; and
iii. There has been no delay in transferring amounts required to betransferred to the Investor Education and Protection Fund by the Bank. Refer Note 3.10under Schedule 18 to the standalone financial statements.
iv. a) The Management has represented that to best of its knowledgeand belief as disclosed in the Note No.3.12 under Schedule 18 to the standalone financialstatements no funds (which are material either individually or in the aggregate) havebeen advanced or loaned or invested (either from borrowed funds or share premium or anyother sources or kind of funds) by the Bank to or in any other person or entity includingforeign entity ("Intermediaries") with the understanding whether recorded inwriting or otherwise that the Intermediary shall whether directly or indirectly lend orinvest in other persons or entities identified in any manner whatsoever by or on behalf ofthe Bank ("Ultimate Beneficiaries") or provide any guarantee security or thelike on behalf of the Ultimate Beneficiaries;
b) The Management has represented that to best of its knowledge andbelief as disclosed in the Note No. 3.12 under Schedule 18 to the standalone financialstatements no funds (which are material either individually or in the aggregate) havebeen received by the Bank from any person or entity including foreign entity("Funding Parties") with the understanding whether recorded in writing orotherwise that the Bank shall whether 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 performed that have been consideredreasonable and appropriate in the circumstances nothing has come to our notice that hascaused us to believe that the representations under sub-clause (i) and (ii)of Rule 11(e) as provided under (a) and (b) above contain any materialmisstatement; and
d) The dividend declared and paid by the Bank is in accordance withsec.123 of the Act to the extent it applies to declaration of dividend.
|For Varma & Varma ||For Borkar & Muzumdar |
|Chartered Accountants ||Chartered Accountants |
|FRN: 004532S ||FRN: 101569W |
|Vijay Narayan Govind ||Kaushal Muzumdar |
|Partner ||Partner |
|M. No.203094 ||M. No. 100938 |
|UDIN: 22203094AIMXOI3853 ||UDIN: 22100938AIMXNC4215 |
|Kochi ||Kochi |
|06th May 2022 ||06th May 2022 |
Annexure A to the Independent Auditors? Report of even date on thestandalone financial statements of The Federal Bank Limited
Report on the Internal Financial Controls Over Financial Reporting withreference to standalone financial statements under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 ("the Act")
We have audited the internal financial controls over financialreporting with reference to standalone financial statements of The Federal Bank Limited(the Bank?) as at March 31 2022 in conjunction with our audit of thestandalone financial statements of the Bank for the year ended on that date.
Management?s Responsibility for Internal Financial Controls overFinancial Reporting
The Bank?s Management is 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(ICAI?). 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 toBank?s policies the safeguarding of its assets the prevention and detection offrauds and errors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Act.
Our responsibility is to express an opinion on the Bank?s internalfinancial controls over financial reporting 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 (theStandards?) as specified under section 143 (10 ) of the Act to the extentapplicable to an audit of internal financial controls both issued by the ICAI. 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 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 auditors? judgement including the assessment ofthe risks of material misstatement of the financial statements whether due to fraud orerror.
We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion on the Bank?s internal financialcontrols system over financial reporting.
Meaning of Internal Financial Controls Over Financial Reporting
A bank?s internal financial control over financial reporting is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A bank?s internal financial controlover financial reporting includes those policies and procedures 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 asnecessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles and that receipts and expenditures of the bank are beingmade only in accordance with authorizations of management and directors of the bank; and
(3) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition use or disposition of the bank?s assets thatcould have a material effect on the financial statements.
Inherent Limitations of Internal Financial Controls Over FinancialReporting
Because of the inherent limitations of internal financial controls overfinancial reporting with reference to financial statements including the possibility ofcollusion or improper management override of controls material misstatements due to erroror fraud may occur and not be detected. Also projections of any evaluation of theinternal financial controls over financial reporting to future periods are subject to therisk that the internal financial control over financial reporting may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.
In our opinion the Bank has in all material respects an adequateinternal financial controls system over financial reporting with reference to itsstandalone financial statements and such internal financial controls over financialreporting were operating effectively as at March 31 2022 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 ICAI.
Our aforesaid report in so far as it relates to the operatingeffectiveness of internal financial controls over financial reporting of 331 branches isbased on the corresponding reports of the respective branch auditors of those branches.
Our opinion is not modified in respect of this matter.
|For Varma & Varma ||For Borkar & Muzumdar |
|Chartered Accountants ||Chartered Accountants |
|FRN: 004532S ||FRN: 101569W |
|Vijay Narayan Govind ||Kaushal Muzumdar |
|Partner ||Partner |
|M. No.203094 ||M. No. 100938 |
|UDIN: 22203094AIMXOI3853 ||UDIN: 22100938AIMXNC4215 |
|Kochi ||Kochi |
|06th May 2022 ||06th May 2022 |