To the Members of Indian Overseas Bank
Report on the Audit of the Standalone Financial Statements Opinion
1. We have audited the standalone financial statements of Indian Overseas Bank("the Bank") which comprise the Balance Sheet as at 31st March 2020 the Profitand Loss account and the Statement of Cash Flows for the year then ended and notes tofinancial statements including a summary of significant accounting policies and otherexplanatory information in which are included returns for the year ended on that date of20 branches audited by us 1586 branches (including 3 overseas branches and 2 RegionalOffices) audited by statutory branch auditors and one Overseas branch reviewed byIndependent Auditor. The branches audited by us and those audited by other auditors havebeen selected by the Bank in accordance with the guidelines issued to the Bank by theReserve Bank of India. Also incorporated in the Balance Sheet the Profit and Loss accountand Statement of Cash Flows are the returns from 1724 branches (Including 46 RegionalOffices and 7 Zonal Offices) which have not been subjected to audit. These unauditedbranches account for 11.85% of advances 30.84% of deposits 9.02% of interest income and28.99% of interest expenses.
2. In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements give the information requiredby the Banking Regulation Act1949("the act") in the manner so required for thebank and are in conformity with accounting principles generally accepted in India and: (i)the Balance Sheet read with the notes thereon is a full and fair Balance Sheet containingall the necessary particulars is properly drawn up so as to exhibit a true and fair viewof state of affairs of the Bank as at 31st March 2020; (ii) the Profit and Loss Accountread with the notes shows a true balance of loss for the year ended on that date; and
(iii) the Cash Flow Statement gives a true and fair view of the Cash Flows for the yearended on that date.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditing (SAs) issued theInstitute of Chartered Accountants of India("the ICAI"). Our responsibilitiesunder those Standards are further described in the Auditor's Responsibilities for theAudit of the Standalone Financial Statements section of our report. We are independent ofthe Bank in accordance with the code of ethics issued by the ICAI together with ethicalrequirements that are relevant to our audit of the Standalone financial statements underthe provisions of the act and we have fulfilled our other ethical responsibilities inaccordance with these requirements and the code of ethics. We believe that the auditevidence we have obtained is sufficient and appropriate to provide a basis for ouropinion.
Emphasis of Matter
4. We draw attention to: a) Note No. 7.1 of Schedule 18 detailing non recognition ofadditional provisioning towards various disputed income tax and Indirect taxes for thereasons stated therein b) Note No 7.3 of Schedule 18 detailing the fact that the bank hasdecided to continue with the existing tax regime and adjustments if any to the carryingamount of Deferred tax asset (Net) to be carried out on reassessment at appropriate stage.c) Note No 32 of Schedule 18 which explains that the extent to which the COVID-19 Pandemicwill impact the Bank's operations will depend on future developments which are highlyuncertain at this stage.
Our Opinion is not modified in respect of the above matters.
Key Audit Matters
5. Key audit matters are those matters that in our professional judgement were ofmost significance in our audit of the financial statements of the current period. Thesematters were addressed in the context of our audit of the financial statements as a wholeand in forming our opinion thereon and we do not provide a separate opinion on thesematters. We have determined the matters described below to be the Key Audit Matters to becommunicated in our Report.
|Sr. Key Audit Matter ||Auditor's Response |
|1 Income Recognition Asset Classification & Provisioning relating to Advances ||Principal Audit Procedures |
|Advances constitute 46.53% of the Bank's total assets. ||Our audit approach consisted testing of the design and operating effectiveness of the internal controls and substantive testing as under :- |
|The recognition of income on accrual basis in respect of advances extended by the Bank Classification of advances into Performing and Non performing and provisioning thereof are in accordance with the extant prudential norms on Income Recognition and Asset Classification and provisioning (IRAC) norms and other circulars and directives issued by Reserve bank of India from time to time (Refer Schedule 17 read with Note 3 of Schedule 18 to the financial statements). ||Evaluating the design of internal controls relating to implementation of prudential norms on IRAC and other related circulars/directives issued by RBI and also the internal policies and procedures of the Bank. |
| ||Examining the efficacy of various internal controls over advances to determine the nature timing and extent of the substantive procedures and compliance with the observations of the various audits conducted as per the monitoring mechanism of the Bank and RBI inspection. |
|Taking into consideration the nature of transactions compliance with the Reserve Bank of India guidelines issues involved in the valuation of securities etc. in our opinion classification of Advances into performing and non performing recognition of income in respect of such advances and also provisioning relating to Performing/Non-Performing advances are considered to be one of the most significant matter in the audit and therefore determined to be a Key audit matter. ||Examining all large advances/stressed advances and other advances on a sample basis including review of valuation reports of independent valuers as provided by the Bank's management. |
| ||Relying on the audit reports of other Statutory Branch Auditors |
| ||Reviewing Memorandum of Changes suggested by the Branch Auditors and take appropriate action. |
| ||Review of various audit and inspection reports made available to us in the relevant areas. |
| ||Placing reliance on the opinions of domain experts on legal matters titles valuation and other aspects of securities charged to the bank. |
| ||Review of files of the borrowers selected on sample basis and operations of such accounts. |
| ||Performing relevant analytical procedures. Test checking of interest application levying of other charges commission etc. |
|2 Contingent Liability ||Principal Audit Procedures |
|The contingent liability as defined in AS 29 provisions contingent liability and contingent assets requires assessment of probable outcomes and cash flows. The identification and quantification of contingent liabilities require estimation and judgment by management. ||We have carried out the validation of information provided by the management by performing the following procedures |
|(Refer Schedule 17 read with Note 18.12 of Schedule 18 to the financial statements) ||Evaluating reasonableness of the underlying assumptions. Understanding the current status of the litigations/tax assessments. |
|In view of associated uncertainty relating to the outcome of the matters relating to litigations involving Direct and ||Examination of recent orders and /or communication received from various tax authorities/judicial forums and follow up action thereon. |
|Indirect taxes various claims filed by other parties not acknowledged as debts we have determined the above area as a Key audit matter ||Examining the relevant documents on record. |
| ||Relying on relevant external evidence available including legal opinion relevant judicial precedents and industry practices. Getting management confirmation where-ever necessary. |
|3 T Systems & Control ||Principal Audit Procedures |
|The entire Preparation of financial statements is highly dependent on CBS and other supporting software and hardware controls. Adequate and appropriate IT controls are required to ensure that these IT application process data as expected and changes are made in an appropriate manner. Such controls ensure mitigating the expected risk of erroneous output data. Audit outcome is dependent on the extant IT controls and systems and accordingly the above areas are determined to be a Key audit matter. ||We have carried out our audit procedures with standards on auditing guidelines towards implementation of IT policies and procedures followed by the bank in order to effectively monitor control and evaluate the IT applications and controls to ensure effective implementation of such policies and procedures. We have also relied on the report issued by the IS Auditor and obtained necessary inputs from IS experts wherever necessary. |
|4 Classification and valuation of Investments identification of and provisioning for non performing investments. ||Principal Audit Procedures |
|(Refer Schedule 17 read with Note 2 of Schedule 18 to the financial statements) ||We evaluated and understood the Bank's internal control systems to comply with relevant RBI guidelines regarding valuation classification identification of Non Performing Investments provisioning and depreciation related to investments. |
|Investments constitute 30.45% of the total assets of the bank. ||Evaluating the process adopted for collection of data from various sources for determining the value of investments. |
|Valuation of Investments are done as per the guidelines circulars and directives issued by RBI from time to time involving applying the rates quoted on BSE/NSE and other agencies relying on the financial statements of unlisted companies etc. Taking into consideration the volume of transactions value of investments being car- ried in the books of the bank complexities involved in the valuation of investments we have considered the above area as a Key audit matter. ||Assessing and evaluating the system of identification of Non performing investments income recognition on such investments and also ensuring creation of necessary provi- sion in respect of Non performing investments. |
|5 Classification of Advances into Priority & Non-Pri- ority Sector ||We have assessed the efficacy of the system of sector wise classification by the Bank. |
|Bank has made re-classification of borrowers' ac- counts between Priority & Non-Priority Sector during the year under Audit. ||We have relied on the Branch audit reports Consolidation of Branches returns at Nodal level for sector wise classifi- cation. |
|Consequently we have considered this as a Key Audit Matter. ||We have selected sample of product wise accounts in pri- ority sector classification to determine the correctness of reporting of sector wise classification. The system of identification of priority/non-priority sector advances needs review and revalidation. |
|6 Modified Audit procedures carried out in light follows: of Wehavemodified our audit procedures as COVID-19 outbreak Due to outbreak of COVID-19 pandemic and the con- sequent nationwide lockdown and travel restrictions imposed by the Central Government/ State Govern- ment/Local Authorities during the period of our audit we could not travel to the Branches Zonal Offices to carry out the audit processes physically. The audit was carried out remotely where physical access was not possible. Two of the Joint auditors could not visit Head office due to lock down. ||Conducted examination/verification of necessary records/ documents/reports electronically through e mails and re- mote access to the relevant software (Finacle) where it was not possible to physically visit theOffices . ofthe Bank Carried out verification of scanned copies of the docu- ments certificates reports financial statements and re- lated records made available to us electronically through remote access/ emails. |
|Wherever we were not able to visit various locations the necessary records/reports/documents/certificates were made available to us by the Bank through digital medium emails and remote access to the relevant ap- plication software (FINACLE). We could not visit most of the Branch Offices and Zones. As informed to us most of the Branch Auditors also could not visit the Branches allotted to them and accordingly they also adopted modified audit procedures. 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 by us as audit evidence for conducting the audit and reporting for the year under report. ||Interaction and gathering audit evidence through video conferencing scanned copies documents through emails telephonic conversations and other similar modes of com- munication. |
|Since we could not gather audit evidence physically/in person/through meetings with the officials of the Bank at the respective Branches/zones/head office; we have identified the audit procedure as contained herein as a Key Audit Matter. ||Resolved audit observations through discussions receipt of digital records telephonic conversations and e mails. |
Information Other than the Standalone Financial Statements and Auditors' Report thereon
6. The Bank's Board of Directors is responsible for the other information. The otherinformation comprises the Corporate Governance report (but does not include the StandaloneFinancial Statements and our auditors' report thereon) which we obtained at the time ofissue of this auditors' report and the Directors' Report including annexures in annualreport if any thereon which is expected to be made available to us after that date.
Our opinion on the Standalone Financial Statements does not cover the other informationand Pillar 3 disclosures under the Basel III Disclosure and we do not and will not expressany form of assurance conclusion thereon.
In connection with our audit of the Standalone Financial Statements our responsibilityis to read the other information identified above and in doing so consider whether theother information is materially inconsistent with the Standalone Financial Statements orour knowledge obtained in the audit or otherwise appears to be materially misstated.
If based on the work we have performed on the other information that we obtained priorto the date of this auditors' report we conclude that there is a material misstatement ofthis other information we are required to report that fact. We have nothing to report inthis regard.
When we read the Directors' Report including annexures in annual report if anythereon if we conclude that there is a material misstatement therein we are required tocommunicate the matter to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the StandaloneFinancial Statements
7. The Bank's Board of Directors is responsible with respect to the preparation ofthese standalone financial statements that give a true and fair view of the financialposition financial performance and cash flows of the Bank in accordance with theaccounting principles generally accepted in India including the Accounting Standardsissued by ICAI and provisions of Section 29 of the Banking Regulation Act 1949 andcirculars and guidelines issued by the Reserve Bank of India (RBI') from time totime. 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 judgements 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 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
8. 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 judgement andmaintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statementswhether due to fraud or error design and perform audit procedures responsive to thoserisks and obtain audit evidence that is sufficient and appropriate to provide a basis forour opinion. The risk of not detecting a material misstatement resulting from fraud ishigher than for one resulting from error as fraud may involve collusion forgeryintentional omissions misrepresentations or the override of internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis ofaccounting and based on the audit evidence obtained whether a material uncertainty existsrelated to events or conditions that may cast significant doubt on the bank's ability tocontinue as a going concern. If we conclude that a material uncertainty exists we arerequired to draw attention in our auditor's report to the related disclosures in thefinancial statements or if such disclosures are inadequate to modify our opinion. Ourconclusions 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 financial statementsincluding the disclosures and whether the financial statements represent the underlyingtransactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of misstatements in the standalone financial statementsthat individually or in aggregate makes it probable that the economic decisions of areasonably knowledgeable user of the standalone financial statements may be influenced. Weconsider quantitative materiality and qualitative factors in (i) planning the scope of ouraudit work and in evaluating the results of our work; and (ii) to evaluate the effect ofany identified misstatements in the standalone financial statements. We communicate withthose charged with governance regarding among other matters the planned scope and timingof the audit and significant deficienciesininternal aud controlthat weidentify during ourit. We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the financial statements of thecurrent period and are therefore the key audit matters. We describe these matters in ourauditor's report unless law or regulation precludes public disclosure about the matter orwhen in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
9. We did not audit the financial statements / information of 1587(number) branchesincluded in the standalone financial statements of the Bank whose financial statements /financial information reflect total assets of Rs.87353.61 crore as at 31stMarch 2020 and total revenue of Rs. 12717.98 crore for the year ended on that date asconsidered in the standalone financial statements. The financ ial statements / informationof these branches have been audited by the branch auditors whose reports have beenfurnished to us and in our opinion in so far as it relates to the amounts and disclosuresincluded in respect of branches is based solely on the report of such branch auditors.Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
10. The Balance Sheet and the Profit and Loss Account have been drawn up in accordancewith Section 29 of the Banking Regulation Act 1949.
11. Subject to the limitations of the audit indicated in paragraph 6 to 8 above and asrequired by the Banking Companies (Acquisition and Transfer of Undertakings) Act1970/1980 and subject also to the limitations of disclosure required therein we reportthat: (a) We have obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the purposes of our audit and have found them tobe satisfactory; (b) The transactions of the Bank which have come to our notice havebeen within the powers of the Bank; and (c) The returns received from the offices andbranches of the Bank have been found adequate for the purposes of our audit.
12. We further report that: a) In our opinion proper books of account as required bylaw have been kept by the Bank so far it appears from our examination of those books andproper returns adequate for the purposes of our audit have been received from branches notvisited by us b) the Balance Sheet the Profit and Loss Statement of Cash Flows dealt withby this report are in agreement with the books of account and with the returns receivedfrom the branches not visited by us branch auditors of the Bank under section 29 of theBanking Regulation Act 1949 have been sent to us and have been properly dealt with by usin preparing this report; and d) in our opinion the Balance Sheet Profit and LossAccount and the Statement of Cash Flows comply with the applicable accounting standardsto the extent they are not inconsistent with the accounting policies prescribed by RBI.13. As required by letter No. DOS.ARG.No.6270/08.91.001/2019-20 dated March 17 2020 on"Appointment of Statutory Central Auditors (SCAs) in Public Sector Banks Reportingobligations for SCAs from FY 2019-20" read with subsequent communication dated May19 2020 issued by the RBI we further report on the matters specified in paragraph 2 ofthe aforesaid letter as under: a) In our opinion the aforesaid Standalone FinancialStatements comply with the Accounting Standards issued by ICAI to the extent they are notinconsistent with the accounting policies prescribed by the RBI. b) There are noobservations or comments on financial transactions or matters which have any adverseeffect on the functioning of the bank. c) On the basis of the written representationsreceived from the directors as on March 31 2020 none of the directors is disqualified ason March 31 2020 from being appointed as a director in terms of sub-section (2) ofSection 164 of the Companies Act 2013. d) There are no qualifications reservations oradverse remarks relating to the maintenance of accounts and other matters connectedtherewith. e) As the Bank has exercised the option to implement "Internal FinancialControls with reference to the Financial and the Statements" from the financial year2020-21 as permitted by RBI on May 19 2020 we do not provide any comment in this regard.
|For R SUBRAMANIAN AND COMPANY LLP ||For S A R C & ASSOCIATES |
|Chartered Accountants ||Chartered Accountants |
|FRN 004137S / S200041 ||FRN 006085N |
|(N KRISHNAMURTHY) ||(CHETAN THAKKAR) |
|Partner ||Partner |
|M.No. 019339 ||M.No. 114196 |
|UDIN : 20019339AAAABK9664 ||UDIN : 20114196AAAABD3827 |
|For PATRO & CO ||For M. SRINIVASAN & ASSOCIATES |
|Chartered Accountants ||Chartered Accountants |
|FRN 310100E ||FRN004050S |
|(P VENKATESWARA RAO) ||(M. SRINIVASAN) |
|Partner ||Partner |
|M.No.208606 ||M.No.022959 |
|UDIN : 20208606AAAADZ2510 ||UDIN : 20022959AAAAAO9969 |
|Place : Chennai || |
|Date : 25.06.2020 || |