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Federal Bank Ltd.

BSE: 500469 Sector: Financials
NSE: FEDERALBNK ISIN Code: INE171A01029
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VOLUME 2577450
52-Week high 107.65
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P/E 12.09
Mkt Cap.(Rs cr) 20,659
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OPEN 100.00
CLOSE 100.40
VOLUME 2577450
52-Week high 107.65
52-Week low 49.80
P/E 12.09
Mkt Cap.(Rs cr) 20,659
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Federal Bank Ltd. (FEDERALBNK) - Auditors Report

Company auditors report

To the Members of The Federal Bank Limited

Report on the Audit of the Standalone Financial Statements Opinion

We have audited the accompanying standalone financial statements of TheFederal Bank Limited (‘the Bank') which comprise the standalone Balance Sheetas at March 31 2021 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 2021 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 in the ‘Auditor'sResponsibilities for the Audit of the Financial Statements' section of our report. Weare independent of the Bank in accordance with the "Code of Ethics" issued bythe Institute of Chartered Accountants of India together with the ethical requirementsthat are relevant to our audit of the standalone financial statements under the provisionsof 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 audit opinion on the standalone financial statements.

Emphasis of Matter

We draw attention to Note No. 1.4.6(B)-7 of Schedule 18 to theStandalone financial statements regarding the impact of COVID-19 pandemic on theBank's operations and financial position which will depend on various uncertainaspects including actions taken to mitigate the same 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 2021. 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
Classification of Advances Identification of Non-Performing Advances Income Recognition and Provision on Advances (Schedule 9 read with Note 4.2 of Schedule 17 and Note 1.4 and Note 3.1 of Schedule 18 to the standalone financial statements)
(i) 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:
- 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 made on advances considering the current uncertain economic environment arising out of COVID 19 pandemic.
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 evaluation and testing the design and operating effectiveness of key controls (including application controls) for identification and provisioning of impaired accounts based on the extant guidelines on IRACP laid down by the RBI.
Key Audit Matters How our audit addressed the Key Audit Matters
The identification of performing and non- performing advances 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 non-performing asset (‘NPA') applying both quantitative as well as qualitative factors prescribed by the regulations. - Performing other procedures including substantive audit procedures covering the identification of NPAs by the Bank. These procedures included:
(a) Considering testing of the exception reports generated from the application systems where the advances have been recorded.
Significant judgements and estimates for NPA identification and provisioning could give rise to material misstatements on: (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.
- Completeness and timing of recognition of non-performing assets in accordance with criteria as per IRACP norms; (c) Reviewing account statements and other related information of the borrowers selected based on quantitative and qualitative risk factors
(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
- Measurement of the provision for non- performing assets based on loan exposure ageing and classification of the loan realizable value of security; (e) Considering audit reports and memorandum of changes issued by statutory branch auditors.
- Appropriate reversal of unrealized income on the NPAs. (f) Considering Internal Audit Systems Audit Credit Audit and Concurrent Audit as per the policies and procedures of the Bank.
Further due to the various COVID-19 pandemic restrictions imposed by the Government / Local Authorities during the period of our audit audit could not be conducted by physically visiting the premises of certain Branches of the Bank. (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.
Accordingly our audit procedures were required to be modified to carry out the audit remotely. (h) Examination of advances including stressed advances on a sample basis with respect to compliance with the RBI Master Circulars / Guidelines.
Since the classification of advances identification of NPAs and creation of provision on advances (including additional provisions arising out of COVID-19 pandemic) and income recognition on 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 after considering the key input factors and compared our measurement outcome to that prepared by management.
- Requires proper control mechanism and significant level of estimation by the Bank; Wherever physical access to branches was not possible due to restrictions arising from COVID-19 pandemic we modified our audit procedures to cover review of sample advances based on scanned records/ reports/
- Has significant impact on the overall financial statements of the Bank; documents/ certificates made available to us by the Bank through digital medium emails and remote access to CBS and other relevant application software over secure network of the Bank. 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. These audit procedures were supplemented where relevant by gathering further evidence through enquiries and discussions with relevant Bank staff using Video Conferencing/ phone calls/ emails and similar communication channels.
- Could not be entirely covered through personal visits/ physical interaction with relevant branch staff as originally planned; we have ascertained this area as a Key Audit Matter.
Key Audit Matters How our audit addressed the Key Audit Matters
(ii) Valuation of Investments Identification of and provisioning for Non-Performing Investments (Schedule 8 read with Note
4.1 of Schedule 17 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 -
- 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;
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 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 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 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:
- We tested the design and operating effectiveness of the Bank's IT access controls over the information systems that are critical to 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. Further the prevailing COVID-19 situation has caused the required IT applications to be made accessible on a remote basis. - We tested 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.
Key Audit Matters How our audit addressed the Key Audit Matters
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. - In addition to the above we tested the design and operating effectiveness of certain automated controls that were considered as key internal 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 (Refer note 4.13& 4.20 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;
- Understanding the current status of the litigations/tax assessments;
- Examining recent orders and/or communication received from various tax authorities/ judicial forums and follow up action thereon;
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 legal and independent 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. - 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; and
- 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.
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. - 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.
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. - 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 andAuditor's Report Thereon

The Bank's Board of Directors is responsible for the otherinformation. The other information comprises the information included in the AnnualReport but does not include the standalone financial statements and our auditor'sreport thereon. The Bank's annual report is expected to be made available to us afterthe date of this auditor's report.

Our opinion on the standalone financial statements does not cover theother information and we will 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 Rule 7 of the Companies (Accounts) Rules 2014 in so far as theyapply to the Bank and provisions of Section 29 of the Banking Regulation Act 1949 andcirculars and guidelines issued by the Reserve Bank of India (‘RBI') from timeto 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 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 standalonefinancial statements that give a true and fair view and are free from materialmisstatement 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 Directors are also responsible for overseeing theBank's financial reporting process.

Auditor's 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 auditor's 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 the audit inorder to design audit procedures that are appropriate in the circumstances. Under section143(3)(i) of the Act we are also responsible for expressing our opinion on whether theBank has adequate internal financial controls system with reference to standalonefinancial 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 the goingconcern basis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast significant doubt on theBank'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 therelated disclosures in the standalone financial statements or if such disclosures areinadequate to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditor's report. However future events or conditionsmay 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.

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 wehave complied with relevant ethical requirements regarding independence and tocommunicate with them all relationships and other matters that may reasonably be thoughtto bear on our independence and where applicable related safeguards.

From the matters communicated with those charged with governance wedetermine those matters that were of most significance in the audit of the standalonefinancial statements for the financial year ended March 31 2021 and are therefore the keyaudit matters. We describe these matters in our auditor's report unless law orregulation precludes public disclosure about the matter or when in extremely rarecircumstances we determine that a matter should not be communicated in our report becausethe adverse consequences of doing so would reasonably be expected to outweigh the publicinterest benefits of such communication.

Other Matters i. We did not audit the financial statements of 614branches included in the standalone financial statements of the Bank whose financialstatements reflect total assets of Rs.84157 crores as at March 31 2021 and total revenueof Rs.3755 crores for the year ended on that date as considered in the standalonefinancial statements. The financial statements of these branches have been audited bybranch auditors whose reports have been furnished to us and our opinion in so far as itrelates to the amounts and disclosures included in respect of these branches is basedsolely on the reports of such branch auditors. ii. The standalone financial statements ofthe Bank for the year ended March 31 2020 were audited by predecessor auditors whosereport dated May 28 2020 expressed an unmodified opinion on those standalone financialstatements.

Our opinion is not modified in respect of the above matters.

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 Rule 7 of theCompanies (Accounts) Rules 2014.

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 ournotice have been within the powers of the Bank; and (c) the returns received from theoffices and branches of the Bank have been found adequate for the purposes of our audit.

Further 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 best of ourknowledge and belief were necessary for the purpose of our audit; b) In our opinionproper books of account as required by law have been kept by the Bank so far as it appearsfrom our examination of those books and proper returns adequate for the purposes of ouraudit have been received from branches not visited by us; c) The reports on the accountsof the branch offices of the bank audited under section 143(8) of the Act by branchauditors of the Bank have been sent to us and have been properly dealt with by us inpreparing 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 comply with theAccounting Standards specified under Section 133 of the Act read with Rule 7 of theCompanies (Accounts) Rules 2014 to the extent they are not inconsistent with theaccounting policies prescribed by RBI; f) On the basis of written representations receivedfrom the directors as on March 31 2021 and taken on record by the Board of Directorsnone of the directors is disqualified as on March 31 2021 from being appointed as adirector in terms of Section 164(2) of the Act; g) With respect to the adequacy of theinternal financial controls over financial reporting of the Bank with reference to thesestandalone financial statements and the operating effectiveness of such controls refer toour separate Report in "Annexure A" to this report; h) In our opinion theentity being a banking company the remuneration to its directors during the year endedMarch 31 2021 has been paid/provided by the Bank in accordance with the provisions ofsection 35B (1) of the Banking Regulation Act 1949 and; i) With respect to the othermatters to be included in the Auditor's Report in accordance with Rule 11 of theCompanies (Audit and Auditors) Rules 2014 as amended in our opinion and to the best ofour information and according to the explanations given to us: i. The Bank has disclosedthe impact of pending litigations on its financial position in its standalone financialstatements - Refer Schedule 12 and Note No 4.7 under Schedule 18 to the standalonefinancial statements; ii. The Bank has made provision as required under the applicablelaw or accounting standards for material foreseeable losses if any on long termcontracts including derivative contracts - Refer Note 4.12 under Schedule 18 to thestandalone financial statements; and iii. There has been no delay in transferring amountsrequired to be transferred to the Investor Education and Protection Fund by the Bank.

For Varma & Varma For Borkar & Muzumdar
Chartered Accountants Chartered Accountants
FRN: 004532S FRN: 101569W
R Rajasekharan Devang Vaghani
Partner Partner
M. No.22703 M. No. 109386
UDIN:21022703AAAAAF3064 UDIN: 21109386AAAAEV9122
Kochi-19 Mumbai-55
May 17 2021 May 17 2021

ANNEXURE A TO THE INDEPENDENT AUDITOR'S REPORT OF EVEN DATE ON THESTANDALONE FINANCIAL STATEMENTSOF 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 2021 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 . 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 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 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 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 and the Guidance Note requirethat 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 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 themaintenance of records that in reasonable detail accurately and fairly reflect thetransactions and dispositions of the assets of the bank; (2) provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financial statementsin accordance 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 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.

Opinion

In our opinion the Bank has in all material respects an adequateinternal financial controls system over financial reporting with reference to financialstatements and such internal financial controls over financial reporting were operatingeffectively as at March 31 2021 based on the internal control over financial reportingcriteria 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.

Other Matters

Our aforesaid report in so far as it relates to the operatingeffectiveness of internal financial controls over financial reporting of 614 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
R Rajasekharan Devang Vaghani
Partner Partner
M. No.22703 M. No. 109386
UDIN: 21022703AAAAAF3064 UDIN: 21109386AAAAEV9122
Kochi-19 Mumbai-55
May 17 2021 May 17 2021

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