The Members of IDBI Bank Limited
Report on the Audit of the Standalone Financial Statements Opinion
We have audited the accompanying Standalone Financial Statements of IDBI Bank Limited("the Bank") which comprise the Balance Sheet as at March 312021 the Profitand Loss Account and the Cash Flow Statement for the year then ended and a summary of thesignificant accounting policies and other explanatory information. Incorporated in theseStandalone Financial Statements are the returns of the foreign branch at Dubai for theyear ended March 31 2021 which has been audited by a local audit firm.
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 Act 1949 as well as the Companies Act 2013 ("theAct") and circulars and guidelines issued by the Reserve Bank of India in the mannerso required for banking companies and give a true and fair view in conformity with theaccounting principles generally accepted in India including the Accounting Standardsprescribed under section 133 of the Act read with rules made thereunder of the state ofaffairs of the Bank as at March 312021 and its profit and its cash flows for the yearended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing ("SAs")specified under section 143(10) of the Companies Act 2013. Our responsibilities underthose Standards are further described in the Auditor's Responsibilities for the Audit ofthe Standalone Financial Statements section of our report. We are independent of the Bankin accordance with the Code of Ethics issued by the Institute of Chartered Accountants ofIndia together with the ethical requirements that are relevant to our audit of theStandalone Financial Statements under the provisions of the Companies Act 2013 and theRules thereunder and we have fulfilled our other ethical responsibilities in accordancewith these requirements and the Code of Ethics. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our opinion.
Emphasis of Matter
We draw attention to Note 18 (A)(X)(15) which describes the business uncertainties dueto the outbreak of SARS-CoV-2 virus (COVID-19). In view of these uncertainties the impacton the Bank's Standalone Financial Statements is significantly dependent on futuredevelopments.
Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in the audit of the Standalone Financial Statements of the current period.These matters were addressed in the context of our audit of the Standalone FinancialStatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters. We have determined the matters described below to bethe key audit matters to be communicated in our report:
|Key Audit Matters ||Auditor's Response |
|Recognition and Measurement of Deferred Tax Asset || |
|The Bank has recognised a net deferred tax asset of ' 14440.91 Crores as on March 31 2021 including net reversal of ' 1308.68 Crores during the year. ||Our audit procedures involved gaining an understanding of the applicable tax laws and relevant regulations applicable to the Bank. We performed the following audit procedures as part of our controls testing including: |
|Besides objective estimation recognition and measurement of deferred tax asset is based on the judgment and numerous estimates regarding the availability and visibility of profits in the future and also considering probable impact of Covid-19 pandemic. || evaluation of the policies used for recognition and measurement of deferred tax assets in accordance with AS 22 Accounting for Taxes on Income; |
|The amount of deferred tax assets recognised presumes availability and forecasting of profits over an extended period of time thus increasing uncertainty and the inherent risk of inappropriate recognition of the said asset. || assessed the probability of the availability of profits based on assumptions and other parameters used by the Management including the probable impact of Covid-19 pandemic against which the Bank will be able to use this deferred tax asset in the future with reference to forecast as noted by the Board of Directors while adopting the Standalone Financial Statements. |
| || assessed the method for determining the Deferred Tax Asset with reference to applicable tax rates and tested the arithmetical accuracy. |
|Income Recognition and Asset Classification of Advances (IRAC) and Provisioning as per regulatory norms || |
|Please refer to Note nos. 18(A) (X)(1) and 18(A)(V)(2) relating to Asset Quality in respect of movement of Non-Performing Assets (NPAs) and related provisions and disclosures with regard to Non Performing Investments (NPI) respectively as also Note no. 18(A)(X)(15) regarding the provisions made due to the probable impact of Covid-19 pandemic. ||Our audit approach included testing the design operating effectiveness of internal controls and substantive audit procedures in respect of income recognition asset classification and provisioning pertaining to advances and investments. In particular: |
|Compliance of relevant prudential norms issued by the Reserve Bank of India (RBI) in respect of income recognition asset classification and provisioning pertaining to advances as well as those pertaining to investments is a key audit matter due to materiality involved and the current processes at the Bank which requires manual interventions management estimates and judgement. || we have evaluated and understood the Bank's internal control system in adhering to the relevant |
| ||RBI guidelines regarding income recognition asset classification and provisioning pertaining to advances and investments; |
| || we have tested key IT systems/ applications used and their design and implementation as well as operational effectiveness of relevant controls including involvement of manual process and manual controls in relation to income recognition asset classification and provisioning pertaining to advances and investments; |
| || we have test checked advances to examine the validity of the recorded amounts loan documentation examined the statement of accounts indicators of impairment impairment provision for non-performing assets and compliance with income recognition asset classification and provisioning pertaining to advances in terms of applicable RBI guidelines; |
| || we have evaluated the past trends of management judgement governance process and review controls over impairment provision calculations and discussed the provisions made with the top and senior Management of the Bank. |
|IT Systems and controls over financial reporting || |
|The Bank's key financial accounting and reporting processes are highly dependent on Core Banking and Treasury Solutions and other supporting software and hardware controls 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. Appropriate IT controls are required to ensure that the IT applications perform as planned and the changes made are properly controlled. Such controls contribute to risk mitigation of erroneous output data. The audit outcome is dependent on the extent of IT controls and systems. || We have planned designed and carried out the desired audit procedures and sample checks taking into consideration the IT |
|Placing reliance on electronic evidence and performing of audit procedures during the mandatory national lockdown due to the Covid-19 pandemic ||systems of the Bank. The procedures adopted by us are in our opinion adequate to provide reasonable assurance on the adequacy of IT controls in place. Towards this end we obtained an understanding of Bank's IT environment. |
|The Bank's procedures of recording and storing information necessary for preparation of Standalone Financial Statements and having them audited is combination of electronic and manual processes. These processes were required to be audited by us remotely without visiting the Bank's premises due to the mandatory national lockdown and thereafter. Consequently we have placed reliance on the completeness and accuracy of the data and records made available to us electronically through e-mail. During the year the Bank provided us a secure virtual private network connection through which we could access the core banking solution and other softwares and the electronic data / information / documents shared on common drives. Had we been physically present at the Company premises we would have otherwise verified the physical copies of critical documents and we would have collected the audit evidence in physical copies. || We discussed with Management regarding integration of systems in the areas of treasury and IRAC to evaluate their adequacy. |
| || In addition we have also relied on IS audit conducted by internal audit department and also the audit of Internal Financial Control over Financial Reporting conducted by an independent firm of Chartered Accountants. |
| || We also tested key automated and manual business cycle controls and logic for system generated reports relevant to the audit; including testing of compensating controls or performed alternate procedures to assess whether there were any unaddressed IT risks that would materially impact the Standalone Financial Statements. |
| ||We have carried out the validation of the electronic evidence provided by the Management by performing the following procedures: |
| || Inquiring with the Management of the controls they have implemented to convert physical documents into electronic versions and understanding them |
| || Inquiring with the Management the method and controls used to extract information from its various softwares including Core Banking Solution Treasury IRAC fixed assets & operating expenses financial reporting and the CRAR computation softwares and understanding how the Management ensures completeness and accuracy |
| || Correlating various attributes of the electronic evidence obtained to ensure consistency and integrity. |
| || Obtaining representations from the Management wherever necessary. |
Information Other Than Standalone Financial Statements and Auditors' Report Thereon
The Bank's Board of Directors is responsible for the preparation of information otherthan the Standalone Financial Statements and Auditor's Report thereon. The OtherInformation comprises the Management Discussion and Analysis Directors' Report includingAnnexures to Directors' Report (collectively called as "Other Information") butdoes not include the Standalone Financial Statements and our auditor's report thereon andthe Pillar III Disclosures under the New Capital Adequacy Framework (Basel IIIdisclosures). The Other information as above is expected to be made available to us afterthe date of this Auditors' report.
Our opinion on the Standalone Financial Statements does not cover the Other Informationand we do not express any form of assurance conclusion thereon.
In connection with our audit of the Standalone Financial Statements our responsibilityis to read the Other Information identified above when it becomes available and in doingso consider whether the Other Information is materially inconsistent with the StandaloneFinancial Statements or our knowledge obtained in the audit or otherwise appears to bematerially misstated. When we read the other information if we conclude that there is amaterial misstatement therein we are required to communicate the matter to those chargedwith governance.
Responsibilities of Management and Those Charged with Governance for the StandaloneFinancial Statements
The Bank's Management and Board of Directors is responsible for the matters stated insection 134(5) of the Companies Act 2013 ("the Act") with respect to thepreparation of these Standalone Financial Statements that give a true and fair view of thefinancial position financial performance and cashflows of the Bank in accordance with theaccounting principles generally accepted in India including the Accounting Standardsspecified under section 133 of the Act and provisions of Section 29 of the BankingRegulation Act 1949 and circulars and guidelines issued by the Reserve Bank of India("RBI") from time to time. This responsibility also includes maintenance ofadequate accounting records in accordance with the provisions of the Act for safeguardingof the assets of the Bank and for preventing and detecting frauds and otherirregularities 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 is responsible forassessing the Bank's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessManagement either intends to liquidate the Bank or to cease operations or has norealistic alternative but to do so.
The Bank's Management is also responsible for overseeing the Bank's financial reportingprocess.
Auditors' Responsibilities for the audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the StandaloneFinancial Statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these Standalone Financial Statements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the StandaloneFinancial Statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
Obtain an understanding of internal control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances. Under section 143(3)(i)of the Companies Act 2013 we are also responsible for expressing our opinion on whetherthe Bank has adequate internal financial controls system in place and the operatingeffectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by Management.
Conclude on the appropriateness of Management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Bank'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe Standalone Financial Statements or if such disclosures are inadequate to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's report. However future events or conditions may cause the Bank to cease tocontinue as a going concern.
Evaluate the overall presentation structure and content of the StandaloneFinancial Statements including the disclosures and whether the Standalone FinancialStatements represent the underlying transactions and events in a manner that achieves fairpresentation.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the Standalone Financial Statementsof the current period and are therefore the key audit matters. We describe these mattersin our auditor's 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 the foreign branch in Dubai included inthe Standalone Financial Statements of the Bank whose financial statements reflect totalassets of ' 1066.21 Crores as at March 312021 and total revenue of ' 74.73 Crores forthe year ended on that date. This branch has been audited by a local branch
y auditor whose report has been furnished to us and our opinion in so - far as itrelates to the amounts and disclosures included in respect of this branch is based solelyon the report of such branch auditor.
Report on Other Legal and Regulatory Requirements
1. The Balance Sheet and the Profit and Loss Account have
T been drawn up in accordance with the provision of Section 29
y of the Banking Regulation Act 1949 read with Section 133 of
the Act and Rules made thereunder.
^ 2. As required by sub-section (3) of section 30 of the Banking
Regulation Act 1949 we report that:
y a. We have obtained all the information and explanations
which to the best of our knowledge and belief were necessary for the purpose of ouraudit and have found them to be satisfactory.
r b. The transactions of the Bank which have come to our
notice have been within the powers of the Bank. c. During the course of our audit wehave visited 27 3 branches to examine the records maintained at such
r branches for the purpose of our audit. As mentioned
T in our paragraph on Key Audit Matters above due to
the local lockdowns the remainder audit procedures ^ were conducted remotely. Thereturns received from
T the offices and branches of the Bank as supplemented
^ with the information furnished by the Management
^ have been found adequate for the purpose of our
3. With respect to the matter to be included in the Auditors' T Report under section197(16) of the Act:
The Bank is a banking company as defined under Banking i Regulation Act 1949.Accordingly the requirements
y prescribed under Section 197 of the Companies Act 2013
i. do not apply by virtue of Section 35B(2A) of the Banking
Regulation Act 1949.
v 4. Further as required by section 143(3) of the Act we report that:
a) we have sought and obtained all the information and
1 explanations which 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 been kept by the Bank so far as appears
). from our examination of those books and proper
returns adequate for the purpose of our audit have ^ been received from the branchesnot visited by us;
c) the report on the accounts of the Dubai branch of the
T Bank audited by other auditor has been forwarded to
y us and the same has been appropriately dealt with;
d) the Balance Sheet and the Profit and Loss Account dealt with by this report are inagreement with the
1 books of account;
e) in our opinion the aforesaid Standalone Financial
T Statements comply with the Accounting Standards
y specified under Section 133 of the Act and Rules made
thereunder to the extent they are not inconsistent with the accounting policiesprescribed by RBI;
f) on the basis of written representation received from the directors as on March 312021 and taken on record by the Board of Directors none of the directors are disqualifiedas on March 31 2021 from being appointed as director in terms of Section 164 (2) of theCompanies Act 2013;
g) with respect to the adequacy of the internal financial controls with reference toStandalone Financial Statements of the Bank and the operating effectiveness of suchcontrols refer to our separate Report in "Annexure A";
h) with respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us;
i) The Bank has disclosed the impact of pending litigations on its financial positionin its Standalone Financial Statements to the extent determinable/ascertainable. - ReferSchedule 18(B)(11)(C) to the Standalone Financial Statements.
ii) The Bank has made provision as required under the applicable law or accountingstandards for material foreseeable losses if any on long term contracts includingderivative contracts. Refer Schedule 18(B)(11)(B) to the Standalone Financial Statements.
iii) There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Bank. Refer Schedule 18(C)(VII) to theStandalone Financial Statements.
Annexure A to the Independent Auditor's Report of even date on the Standalone FinancialStatements of IDBI Bank Limited
Report on the Internal Financial Controls with reference to financial statements underClause (i) of Sub-section 3 of Section 143 of the Companies Act 2013
We have audited the internal financial controls with reference to financial statementsof IDBI Bank Limited ("the Bank") as at March 312021 in conjunction with ouraudit of the financial statements of the Bank for the year ended on that date.
Management's Responsibility for Internal Financial Controls
The Bank's Management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Bank considering the essential components of internal control stated inthe Guidance Note on Audit of Internal Financial Controls Over Financial Reporting("the Guidance Note") issued by the Institute of Chartered Accountants of India("the 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 to theBank's policies the safeguarding of its assets the prevention and detection of fraudsand errors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Companies Act 2013("the Act").
Our responsibility is to express an opinion on the Bank's internal financial controlswith reference to financial statements based on our audit. We conducted our audit inaccordance with the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting ("the Guidance Note") and the Standards on Auditing ("theSAs") issued by the ICAI and deemed to be prescribed under section 143(10) of theAct to the extent applicable to an audit of internal financial controls over financialreporting both issued by the ICAI. Those Standards and the Guidance Note require that wecomply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether adequate internal financial controls with reference to financialstatements was established and maintained and if such controls operated effectively in allmaterial respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system with reference to financial statements and theiroperating effectiveness. Our audit of internal financial controls with reference tofinancial statements included obtaining an understanding of internal financial controlswith reference to financial statements assessing the risk that a material weaknessexists and testing and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk. The procedures selected depend on the auditor'sjudgement including the assessment of the risks of material misstatement of the financialstatements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Bank's internal financial controls systemwith reference to financial statements.
Meaning of Internal Financial Controls with reference to Financial Statements
A Bank's internal financial control with reference to financial statements is a processdesigned to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. Bank's internal financial control with referenceto financial statements includes those policies and procedures that
(1) pertain to the maintenance of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the Bank;
(2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accountingprinciples and that receipts and expenditures of the Bank are being made only inaccordance with authorizations of Management and Directors of the Bank; and
(3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition use or disposition of the Bank's assets that could have amaterial effect on the financial statements.
Inherent Limitations of Internal Financial Controls with reference to FinancialStatements
Because of the inherent limitations of internal financial controls with reference tofinancial statements including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls withreference to financial statements to future periods are subject to the risk that theinternal financial control with reference to financial statements may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.
In our opinion the Bank needs to strengthen its review process and management testingof scrutiny and reconciliations of intermediary/ control accounts. In our opinion theBank has in all material respects an adequate internal financial controls system withreference to financial statements and such internal financial controls with reference tofinancial statements were operating effectively as at March 31 2021 based on theinternal control over financial reporting criteria established by the Bank considering theessential components of internal control stated in the Guidance Note on Audit
of Internal Financial Controls Over Financial Reporting issued by the Institute ofChartered Accountants of India.
Our aforesaid report under section 143(3)(i) of the Act on the adequacy and operatingeffectiveness of the Internal Financial Controls with reference to Financial Statementsinsofar as it relates to the overseas branch audited by the branch auditors is based onthe report of the branch auditor which has been sent to us and has been properly dealtwith by us in preparing this report.
|For M P Chitale & Co. |
|Chartered Accountants |
|Ashutosh Pednekar |
|(Membership No. 041037) |
|UDIN: 21041037AAAACJ2843 |