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Jammu and Kashmir Bank Ltd.

BSE: 532209 Sector: Financials
NSE: J&KBANK ISIN Code: INE168A01041
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VOLUME 10233
52-Week high 44.35
52-Week low 14.10
P/E 6.31
Mkt Cap.(Rs cr) 3,339
Buy Price 37.75
Buy Qty 3041.00
Sell Price 37.90
Sell Qty 4785.00
OPEN 37.50
CLOSE 37.15
VOLUME 10233
52-Week high 44.35
52-Week low 14.10
P/E 6.31
Mkt Cap.(Rs cr) 3,339
Buy Price 37.75
Buy Qty 3041.00
Sell Price 37.90
Sell Qty 4785.00

Jammu and Kashmir Bank Ltd. (J&KBANK) - Auditors Report

Company auditors report

To

The Members of

The Jammu & Kashmir Bank Limited

Report on Audit of the Standalone Financial Statements

Opinion

1. We have audited the accompanying standalone financial statements of The Jammu &Kashmir Bank Limited ('the Bank') which comprise the Balance Sheet as at 31stMarch 2020 the Statement of Profit and Loss and the Statement of Cash Flows for the yearthen ended and notes to the financial statements including a summary of significantaccounting policies and other explanatory information. In which are included the Returnsof 64 branches/offices audited by us and 923 branches audited by Statutory Branch Auditorsfor the year ended on that date. The Branches/offices audited by us and those audited byother auditors have been selected by the Comptroller & Auditor General of India inaccordance with the guidelines issued to the Bank by the Reserve Bank of India.

2. In our opinion and to the best of our information and according to the explanationsgiven to us and based on the consideration of the reports of other auditors on separateaudited financial statements/financial information of the branches as referred to inparagraphs 12 below the aforesaid financial statements give the information required bythe Banking Regulation Act 1949 (the 'Act') in the manner so required for bank and are inconformity with accounting principles generally accepted in India and:

a) the Balance Sheet read with the notes thereon is a full and fair Balance Sheetcontaining all the

necessary particulars is properly drawn up so as to exhibit a true and fair view ofthe state of affairs of the Bank as at 31st March 2020;

b) the Profit and Loss Account read with the notes thereon shows a true balance ofloss and

c) 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) specifiedunder section 143(10) of the Companies Act 2013. Our responsibilities under thoseStandards are further described in the Auditor's Responsibilities for the Audit of theStandalone Financial Statements section of our report. We are independent of the Bank inaccordance 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 thefinancial statements under the provisions of the Companies Act 2013 and the Rulesthereunder and we have fulfilled our other ethical responsibilities in accordance withthese 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.

Key Audit Matters

4. Key audit matters are those matters that in our professional judgment are of mostsignificance in our audit of the financial statements of the current period. Thesematters were addressed in the context of our audit of the financial statements of theBranch and in forming our opinion thereon and we do not provide a separate opinion onthese matters.

We have determined the matter described below to be the key audit matter to becommunicated in our report:

Key audit matters How our audit addressed the key audit matter
Identification of Non-performing advances (NPA):
Advances constitute a significant portion 59% of the Bank's assets and the quality of these advances is measured in terms of ratio of Non-Performing Advances. Due to imposition of restrictions in J&K w.e.f. August 5 2019 on account of re-organization of J&K State all the business activities came to a halt thereby adversely impacting the cash flows in all sectors as a result of which a large number of accounts came under stress. The Reserve Bank of India's ("RBI") guidelines on Income recognition and asset classification ("IRAC") prescribe the prudential norms for identification and classification of NPA and the minimum provision required for such assets from time to time. The Bank is also required to apply its judgment to determine the identification and provision required against NPA by applying quantitative as well as qualitative factors. The audit procedures performed remotely and among others included:
- Considering the Bank's policies for NPA identification and provisioning and assessing compliance with the IRAC norms.
- Performing other procedures including substantive audit procedures covering the identification of NPA by the Bank's Branch. These procedures included:
• Testing of the reports generated from the application systems where the advances have been recorded.
• Testing of the available SLAC generated for immediate earlier date(s).
The bank runs System Level Asset Classification (SLAC) application for identification of NPA. The Bank did not run SLAC on March 31 2020 to maintain the status quo of asset classification as on 29.02.2020 to implement COVID-19 Regulatory Package. Identification of NPA ascertaining realizable value of securities and provisioning for credit losses require significant level of estimation and given its significance to the overall audit including possible observations by RBI which could result in disclosures in the financial statements we have ascertained identification and provisioning for NPA as a key audit matter. • Reading the accounts reported Special Mention Accounts ("SMA") to identify stress.
• Reading account statements and other related information of the borrowers selected based on quantitative and qualitative risk factors.
• Performing inquiries with the Bank's Branch to ascertain if there were indicators of stress or an occurrence of an event of default in a particular loan account or any product category which need to be considered as NPA.

Emphasis of Matter

5. We draw attention to relevant note of Schedule 18 to the Financial Results whichexplains that the extent to which COVID-19 pandemic will impact the Bank's operations andfinancial results is dependent on future developments which are highly uncertain.

Our opinion is not modified in respect of this matter.

Information Other than the Financial Statements and

Auditor's 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 financialstatements and our auditor's report thereon) which we obtained prior to the date of thisauditor's report and Directors' Report including annexures if any thereon which isexpected to be made available to us after that date.

Our opinion on the financial statements does not cover the other information and Pillar3 disclosure under Basel Ill and we do not and will not express any form of assuranceconclusion thereon.

Responsibilities of Management and Those Charged with Governance for the StandaloneFinancial Results

7. These standalone Financial Results have been prepared on the basis of the standaloneannual financial statements and reviewed quarterly standalone Financial Results up to theend of the third quarter. The Bank's Management and Board of Directors are responsible forthe matters stated in section 134(5) of the Companies Act 2013 ('the Act') with respectto the preparation of these standalone Financial Results that give a true and fair view ofthe net loss and other financial information in accordance with the recognition andmeasurement principles laid down in the Accounting Standards specified under Section 133of the Act the relevant provisions of the Banking Regulation Act 1949 the circularsguidelines and directions issued by the Reserve Bank of India (RBI) from time to time("RBI Guidelines") and other accounting principles generally accepted in Indiaand in compliance with Regulation 33 of the Listing Regulations. This responsibility alsoincludes maintenance of adequate accounting records in accordance with the provisions ofthe Act for safeguarding of the assets of the Bank and for preventing and detecting fraudsand other irregularities; selection and application of appropriate accounting policies;making judgments and estimates that are reasonable and prudent; and design implementationand maintenance of adequate internal financial controls that were operating effectivelyfor ensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the standalone Financial Results that give a true and fairview and are free from material misstatement whether due to fraud or error.

In preparing the standalone Financial Results Management is responsible for assessingthe Bank's ability to continue as a going concern disclosing as applicable mattersrelated to going concern and using the going concern basis of accounting unless managementeither intends to liquidate the Bank or to cease operations or has no realisticalternative but to do so.

The Board of Directors is also responsible for overseeing the Bank's financialreporting process.

Auditor's Responsibilities for the Audit of the Standalone

Financial Results

8. Our objectives are to obtain reasonable assurance about whether the standaloneFinancial Results as a whole are free from material misstatement whether due to fraud orerror and to issue an auditor's report that includes our opinion. Reasonable assurance isa 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 Results.

As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the standaloneFinancial Results 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 the Board of Directors.

• Conclude on the appropriateness of management's use of the goin gconcern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Bank'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe financial statements or if such disclosures are inadequate to modify our opinion.Our conclusions are based on the audit evidence obtained up to the date of our auditor'sreport. However future events or conditions may cause the Bank to cease to continue as agoing concern.

• Evaluate the overall presentation structure and content of the standaloneFinancialResults including the disclosures and whether the standalone Financial Resultsrepresent the underlying transactions and events in a manner that achieves fairpresentation.

We communicate with those charged with governance regarding among othermatters theplanned scope and timing of the audit and significant audit findingsincluding anysignificant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.

From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the financial statements 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.

Other Matters

9. We did not audit the financial statements/information of 923 branches/officesincluded in the standalone Financial Results of the Bank whose Financial Results

reflect total advances of Rs. 65259.51 Crores and total revenue of Rs.6128.04 Crores asat 31st March 2020 as considered in the standalone Financial Results. Thefinancial statements/ information of these branches has been audited by the branchauditors whose reports have been furnished to us and in our opinion in so far as itrelates to the amounts and disclosures included in respect of branches is based solely onthe report of such branch auditors. Our opinion on the standalone financial statementsdoes not cover the other information and the Basel-III disclosure and we do not expressany form of assurance conclusion thereon.

10. The annual financial results include the results for the quarter ended 31st March2020 being the balancing figure between the audited figures in respect of the fullfinancial year and the published unaudited year to date figures up to the third quarter ofthe current financial year which were subjected to limited review by us.

Report on Other Legal and Regulatory Requirements

11. The Balance Sheet and the Profit and Loss Account have been drawn up in accordancewith the provisions of Section 29 of the Banking Regulation Act 1949 and Section 133 ofthe Companies Act 2013 read with Rule 7 of the Companies (Accounts) Rules 2014.

12. The Comptroller and Auditor General of India has issued directions indicating theareas to be examined in terms of sub-section (5) of section 143 of the Companies Act2013 the compliance of which is set out in "Annexure-A" to this Report.

13. Subject to the limitations of the audit indicated in paragraphs 4 to 10 above andas required by subsection (3) of section 30 of the Banking Regulation Act 1949 we reportthat:

a) we have obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the purpose of our audit and have found them tobe satisfactory;

b) the transactions of the Bank which have come to our notice have been within thepowers of the Bank;

c) the returns received from the offices; and branches of the Bank have beenfoundadequate for the purposes ofour audit.

14. 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 tothe best ofour 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 theBank so far as it appears from our examination of those books;

c) the reports on the accounts of the branch offices of the bank audited undersection143(8) of the Act by branch auditors of the Bank have been sent to us and have beenproperly dealt with by us in preparing this report;

d) the Balance Sheet the Statement of Profit and Loss and the Statement ofCash Flowsdealt with by this report are in agreement with the books ofaccount;

e) in our opinion the aforesaid standalone financial statements comply with theAccounting Standards specified under Section 133 of the Act read with Rule7 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 received from the directors as on 31stMarch 2020 and taken on record by the Board of Directors none of the directors isdisqualified as on 31st March 2020 from

being appointed as adirector in terms of Section 164(2) of the Act;

g) with respect to the adequacy of the internal financial controls over financialreporting of the Bank and the operating effectiveness of such controls refer to ourseparate Report in "Annexure B";

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) Rules2014 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 financial statements in Schedule 18-Notes on Accounts attached;

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

iii. there has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Bank.

Annexure-A to Para 12 of independent auditor's report of even date on thestandalone financial statements of Jammu & Kashmir Bank Limited.

Directions/sub-directions of Comptroller and Auditor General of India under Section143(5) of Companies

Act 2013 for the Financial Year 2019-20

Sn Directions/Sub directions Auditor's comments including action taken wherever required Impact on accounts and financial statements
i If the Company has been selected for disinvestment a complete status report in terms of valuation of Assets (including intangible assets and land) and Liabilities (including Committed & General Reserves) may be examined including the mode and present stage of disinvestment process Since the Company has not been selected for disinvestment directions are not applicable. Nil
2 Please report whether there are any cases of waiver/ write off of debts/ loans/interest etc. if yes the reasons there for and the amount involved. There are 1493 cases of waiver/write off of debts/ loans/ interest etc. amounting to Rs. 13.15 Crores in addition to the waiver of unapplied interest of Rs.369.80 Crores on account of negotiated settlement with the borrowers defaulting in payment due to the circumstances beyond their control such as death/disappearance of the borrower recession in economy no enforceable security natural calamities such as earthquake flood drought change in Govt. policy genuine business failure in-spite of sincere efforts made by borrower etc. and where the recovery chances through normal business operations are bleak. Waiver/Write off resulted in loss of Rs.382.95 Crores.
During the financial year one account (NPA) was sold to Asset Construction Companies (ARC) having total principal NPA balance of Rs. 102.19 Crores and unapplied interest of Rs. 69.94 Crores against sale proceeds of Rs. 65.29 Crores resulting in sacrifice of Rs. 106.84 Crores Sale of NPAs to ARC resulted in release of Provision held by Rs.45.96 Crores and increase of profits by Rs.9.06 Crores. This has also resulted in reduction in NPAs by Rs. 102.19 Crores.
3 Whether proper records are maintained for inventories lying with third parties & assets received as gift from Govt. or other authorities As per explanations given to us the company has not received any assets as gift/grant(s) from government or other authorities. The company has no inventories lying with third parties. NIL
4 A report on age-wise analysis of pending legal/arbitration cases including the reasons of pendency and existence/ effectiveness of a monitoring mechanism for expenditure on all legal cases (foreign and local) may be given. There are 466 Cases involving Rs. 588.39 Crores pending legal/arbitration cases being claims against the bank not acknowledged as debts. Bank hold a provision of Rs.12.58 Croresin cases which have been decided against the bank but Bank has filed appeals against the orders.
5 Whether the restructuring of loan was done as per the provisions of the Reserve Bank of India and Bank's own Restructuring of loan Policy. RBI under superv down gradation standard accounts of Rs. 63.34 Crore not in compliance Additional provisi was provided by th isory process directed of 2 restructured with total outstanding s as restructuring was of extant guidelines. n for Rs. 6.43 Crores e bank as on 31.03.2020 Total provision for Rs. 15.88 Crores was required and bank having provided Rs. 9.45 Crores only and as such additional provision for Rs. 6.43 Crores was created as per RBI directions. This resulted in reduction of Profits by Rs. 6.43 Crores
6 Whether the Bank is maintaining/ developing various assets of the State Govt. The treatment of the assets and expenditure incurred and revenue earned may be examined and comment may be offered. As per informat given to us the developing Parks Golf Course which bank. The bank Crores for mainta of these parks. ion and explanations bank is maintaining/ and Gardens including are not owned by the has incurred Rs. 3.56 ining and development The expenditure amounting to Rs. 3.56 Crores has been incurred and revenue of Rs.1.56 Crores has been earned for maintaining/ developing parks/gardens and amounts have been debited/ credited to the Profit and Loss Account.
7 Whether the branches were doing window dressing and its impact/ materiality on the overall deposit portfolio. As per information to us no branch a case of window dr and explanation given ditor has reported any essing. Nil
8 Whether the Bank has been able to achieve the targets under Priority sector lending if not impact on the financial health of the Bank by lending the shortfall amount in Rural infrastructure Development Fund Small industrial Development Bank of India etc. may please be brought out. As per informat given to us the Ba achieve the target lending. As a resu has to make depos with the following on 31-03-2020: ion and explanations nk has not been able to s under priority sector t of shortfall the bank its of low yield interest designated agencies as The impact on the financial health is lower rate of return of interest ranging from 3.40% p.a. to 4.50% p.a. received from the agencies with which deposits were made for shortfall.

 

Particulars Rs.in Crores
NABARD 1327.52
RIDF(NABARD) 1088.90
SIDBI 1184.24
NHB 292.64
MUDRA 149.15
Total 4042.45

 

9 Whether there were cases of greening of advances up gradation of loan account at the fag end of the Financial Year or delay/non-declaration of Nonperforming Assets as per RBI guidelines. Its impact on the profitability and Asset Classification. Advances amounti were not declare guidelines which w those were identi Auditors and addi 140.03 Crores and interest Rs.6.34 C ng to Rs. 525.99 Crores d as NPA as per RBI ere downgraded after fied by the Statutory tional provision of Rs. reversal of unrealized ores was suggested. Auditors identified the said NPAs where by advances of Rs. 525.99 Crores have been downgraded from the bank's standard assets classification. The impact thereof on increase of profit is as follows: 1.Interest Reversal: Rs.6.34 Crores 2.Increase in NPA provision Rs. 140.03 Crores

 

10 Whether Co. has complied with the direction issued by RBI for a. NBFCs b. Capital adequacy norms for NBFCs. c. Classification of NPA As per information and explanation given to us the bank has complied with all the directions issued by RBI. Nil
11 Whether introduction of any scheme for settlement of dues and extensions thereto complied with the policy/ guidelines of Company/ Govt. As per information and explanation given to us the bank is complied with the instructions/guidelines issued from time to time by RBI and comply with the Policy framed for the same. Nil
12 Whether the Co. has a system to ensure that loans were secured by adequate security free from encumbrances and have first charge on the mortgaged assets. Further instances of undue delay in disposal of seized units may be reported. As per information and explanation given to us the bank has a system to ensure that loans are secured by adequate security free from encumbrances and have charge on mortgaged assets and bank has framed policy for the same. Nil
13 Whether the bank guarantees have been revalidated in time? As per information and explanation given to us the Guarantees are revalidated within the time period at the request of borrower. However 1179 expired guarantees amounting to Rs. 197.10 Crores (Net of Margin) are outstanding in the books of bank This may add to the liability of the bank.
14 Comment on the confirmation of balances of trade receivable trade payable term deposits bank account and cash obtained Being banking company there are no trade payable/receivable. However confirmation for term deposit is not required Nil
15 Whether the company has system in place to process all the accounting transactions through IT system? If yes the implications of processing of accounting transactions outside IT system on the integrity of the accounts along with the financial implication if any may be stated. As per information and explanation given to us the bank has system in place to process all the accounting transactions through IT. Nil
16 Whether the company has cleared title/ lease deeds for freehold and leasehold land respectively? If not please state the area of freehold and leasehold land for which title/lease deeds are not available. As per information and explanation given to us the bank does not have clear title/ lease deeds for freehold and leasehold lands for the following properties: - The acquisition value of the said lands/properties has been capitalized and the value as on 31.03.2020 is Rs. 60.76 Crores.

 

Sn Land Area
i. Vashi (1st Floor) 5400 Sft
2. Budgam 4 Kanals
3. Ansal Plaza Khelgaon 17925Sft
4. Kargil 1 Kanal 4 Marla
5. Land at Kulgam 2 Kanals

 

It is advised to complete the documentation for clear title at the earliest. During the current financial year the Bank has revalued Immovable properties based on the reports obtained from external independent valuers. The revaluation surplus amounting to '406.80 Crore is credited to Revaluation Reserve.
17 Examine the system of effective utilization of loans/Grant-in-Aid/ Subsidy. List of cases diversion of fund The loans received are utilized for the intended purpose. However there were no Grant-in-Aid/Subsidy received during the financial year Nil
18 Examine the cost benefit analysis of major capital expenditure/Expansion including IRR and payback period. As per information and explanation given to us the major expenditure is being incurred on opening of new business units and as per historical data majority of new business units within J&K States attain breakeven within one year of its operation Nil
19 If the audited entity has computerized its operation or part of it assess and report how much of the data in the company is in electronic format which of the area such as accounting sale personnel information payroll inventory etc. has been computerized and the company has evolved proper security policy for data/software/ hardware. As per information and explanation given to us all the operation of the bank including accounting payroll in HRMS inventory in FAM system are computerized and the bank have evolved proper security policy for data/software/ hardware. Nil
20 Other Matter Other Assets include ' 3955.23 Crores due form UT of J&K comprising agency account commission due & pension payments. The advance is interest free & is in the nature of clean overdraft to the Government. Not Available

Annexure-B to Independent Auditor's report of even date on the standalone financialstatements of

Jammu and Kashmir Bank Limited.

Report on the Internal Financial Controls under Clause(i)of Sub-section 3 of Section143 of the Companies Act 2013

1. We have audited the internal financial controls over financial reporting of Jammuand Kashmir Bank Limited ('the Bank') as at 31st March 2020 in conjunction with our auditof the standalone financial statements of the Bank for the year ended on that date.

Management's Responsibility for Internal Financial Controls

2. The Bank's Board of Directors is responsible for establishing and maintaininginternal financial controls based on the internal control over financial reportingcriteria established by the Bank considering the essential components ofinternal controlstated in the "Assessment of Adequacy of Internal Financial Controls Over FinancialReporting"in line with the Guidance Note on Audit of Internal Financial ControlsoverFinancial Reporting ("Guidance Note") issued by the Institute of CharteredAccountants of India('the ICAI'). These responsibilities include the designimplementation and maintenance of adequate internal financial controls that were operatingeffectively for ensuring the orderly and efficient conduct of its business includingadherence to Bank's policies the safeguarding of its assets the prevention and detectionof frauds and errors the accuracy and completeness of the accounting records and thetimely preparation of reliable financial information as required under the Companies Act2013('the Act').

Auditor's Responsibility

3. Our responsibility is to express an opinion on the Bank's internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting('the Guidance Note') and the Standards on Auditing ('the Standards') issued by the ICAIand deemed to be prescribed under section 143(10) of the Act to the extent applicable toan audit of internal financial controls both issued by the ICAI. Those Standards and theGuidance Note require that we comply with ethical requirements and plan and perform theaudit to obtain reasonable assurance about whether adequate internal financial controlsover financial reporting was established and maintained and if such controls operatedeffectively in all material respects.

4. Our audit involves performing procedures to obtain audit evidence about the adequacyof the internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining and understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgement including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.

5. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Bank's internal financial controls systemover financial reporting.

Meaning of Internal Financial Controls over Financial

Reporting

6. A Bank's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A Bank's internal financial control over financialreporting includes those policies and procedures that:

(a) pertain to the maintenance of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the Bank;

(b) 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

(c) 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 over Opinion Financial Reporting

7. Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become in adequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.

8. (a) The Bank's finance department require

professionals like Chartered Accountants to strengthen internal financial controls overfinancial reporting.

(b) In our opinion the Bank has in all material respects an adequate internalfinancial controls system over financial reporting and such internal financial controlsover financial reporting were operating effectively as at 31st March 2020based on the internal control over financial reporting criteria established by the Bankconsidering the essential components of internal control stated in the Guidance Noteissued by the ICAI.

.