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Kotak Mahindra Bank Ltd.

BSE: 500247 Sector: Financials
NSE: KOTAKBANK ISIN Code: INE237A01028
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OPEN 1705.05
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VOLUME 162652
52-Week high 1997.00
52-Week low 1630.00
P/E 33.10
Mkt Cap.(Rs cr) 337,941
Buy Price 1701.35
Buy Qty 26.00
Sell Price 1702.40
Sell Qty 16.00
OPEN 1705.05
CLOSE 1714.00
VOLUME 162652
52-Week high 1997.00
52-Week low 1630.00
P/E 33.10
Mkt Cap.(Rs cr) 337,941
Buy Price 1701.35
Buy Qty 26.00
Sell Price 1702.40
Sell Qty 16.00

Kotak Mahindra Bank Ltd. (KOTAKBANK) - Auditors Report

Company auditors report

TO

THE MEMBERS OF

KOTAK MAHINDRA BANK LIMITED

REPORT ON THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS

Opinion

1. We have audited the accompanying standalone financial statements of KotakMahindra Bank Limited ('the Bank') which comprise the Balance Sheet as at 31 March2022 the Profit and Loss Account and the Cash Flow Statement for the year then ended anda summary of the significant accounting policies and other explanatory information.

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 Act 1949 as well as the Companies Act 2013 ('the Act') andcirculars and guidelines issued by the Reserve Bank of India ('the RBI') in the manner sorequired for banking companies and give a true and fair view in conformity with theAccounting Standards specified under section 133 of the Act read with the Companies(Accounting Standards) Rules 2021 and other accounting principles generally accepted inIndia of the state of affairs of the Bank as at 31 March 2022 and its profit and its cashflows for the year ended 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 Act. Our responsibilities under those standards are furtherdescribed in the Auditor's Responsibilities for the Audit of the Standalone FinancialStatements section of our report. We are independent of the Bank in accordance with theCode of Ethics issued by the Institute of Chartered Accountants of India ('ICAI') togetherwith the ethical requirements that are relevant to our audit of the standalone financialstatements under the provisions of the Act and the rules thereunder and we have fulfilledour other ethical responsibilities in accordance with these requirements and the Code ofEthics. We believe that the audit evidence we have obtained is sufficient and appropriateto provide a basis for our opinion.

Key Audit Matters

4. Key audit matters are those matters that in our professional judgment were of mostsignificance in our 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.

5. We have determined the matters described below to be the key audit matters to becommunicated in our report.

Identification of Non-performing Assets ("NPAs") and provisioning onadvances:

Total Loans and Advances (Net of Provision) as at March 31 2022: Rs 271254 CroresProvision for NPAs as at March 31 2022: Rs 4733 Crores Provision Coverage Ratio(including technical write offs) as at March 31 2022: 79.05%.

Refer Schedule 9 Schedule 17(C)(2) Schedule 18(A) note 9 and note 11

Key audit matter How our audit addressed the key audit matter
The Bank is required to comply with the Master Circular dated 1 October 2021 issued by the Reserve Bank of India ("RBI") on "Prudential Norms for Income Recognition Asset Classification and Provisioning pertaining to Advances" (the "IRAC norms") and amendments thereto which prescribes the guidelines for identification and classification of Non-performing Assets ("NPAs") and the minimum provision required for such assets. The Bank is also required to apply its judgement to determine the identification and provision required against NPAs considering various quantitative as well as qualitative factors. Our audit procedures included the following:
• Understood the process and controls and tested the design and operating effectiveness of key controls including Information Technology based controls and focused on the following:
- Approval of new lending facilities in accordance with the Bank's credit policies
- Performance of annual review/renewal of loan accounts.
The identification of NPAs is also affected by factors like stress and liquidity concerns in certain sectors. - Monitoring of credit quality which amongst other things includes the monitoring of overdue loan accounts drawing power limit pending security creation;
The provision for identified NPAs is estimated based on ageing and classification of NPAs value of security recovery estimates etc. and is also subject to the minimum provisioning norms specified by RBI. - Identification and classification of NPAs in accordance with IRAC norms other regulatory guidelines issued by the RBI and consideration of qualitative aspects; and
In addition the Bank is also required to implement "Resolution Framework - 2.0: Resolution of COVID-19 related stress of Individuals and Small Businesses" and "Resolution Framework - 2.0: Resolution of COVID-19 related stress of Micro Small and Medium Enterprises (MSMEs)" issued by the RBI on 5 May 2021 (collectively "Resolution Framework - 2.0") and consider the same in identification of NPAs and measurement of provision against advances. - Assessment of adequacy of NPA provisions.
• Tested the Bank's process for identification of loans with default events and/ or breach of other qualitative factors and for a sample of performing loans independently assessed as to whether there was a need to classify such loans as NPAs.
Since the identification of NPAs and provisioning for advances requires considerable level of management estimation application of various regulatory requirements and its significance to the overall audit we have identified this as a key audit matter. • On a test check basis verified the accounts classified by the Bank as Special Mention Accounts ('SMA') in RBI's Central Repository of Information on Large Credits ('CRILC').
• Inquired with the management of the Bank on sectors where there has been stress and the steps taken by the Bank to mitigate such sectorial risks.
• With respect to provisions recognised towards NPAs we reperformed the provision calculations on a sample basis taking into consideration the value of security where applicable the IRAC norms and NPA policy of the Bank and compared our outcome to that prepared by the management and tested relevant assumptions and judgements which were used by the management.
• Assessed whether the Bank's Board approved policy is in line with the Resolution Framework - 2.0. On a sample basis tested that restructuring was carried out in accordance with the Resolution Framework - 2.0 and re-computed the provision made in accordance with the said framework.
• With respect to additional provisions held by the Bank on account of the impact of COVID-19 pandemic we assessed the underlying assumptions and estimates used by the management for such provisions.
• Read the RBI Annual Financial Inspection report and management's response to the extent provided for the financial year ended 31 March 2021 and other communication with regulators and checked whether the observations therein so far as those relate to identification of NPAs and provisions made against advances have been addressed by the Bank.

Information Technology ("IT") Systems and Controls impacting FinancialReporting

Key audit matter How our audit addressed the key audit matter
The IT environment of the Bank is complex and involves a large number of independent and interdependent IT systems used in the operations of the Bank for processing and recording a large volume of transactions. As a result there is a high degree of reliance and dependency on such IT systems for the financial reporting process of the Bank. Our audit procedures with respect to this matter included the following:
Appropriate IT general controls and IT application controls are required to ensure that such IT systems are able to process the data as required completely accurately and consistently for reliable financial reporting. In assessing the controls over the IT systems of the Bank we involved our technology specialists to obtain an understanding of the IT environment IT infrastructure and IT systems.
We evaluated and tested relevant IT general controls and IT application controls of the "in-scope" IT systems identified as relevant for our audit of the standalone financial statements and financial reporting process of the Bank.
We have identified certain key IT systems ("in-scope" IT systems) which have an impact on the financial reporting process and the related control testing as a key audit matter because of the high level of automation significant number of systems being used by the Bank for processing financial transactions the complexity of the IT architecture and its impact on the financial records and financial reporting process of the Bank. On such "in-scope" IT systems we have tested key IT general controls with respect to the following domains:
a. Program change management which includes that program changes are moved to production environment as per defined procedures and relevant segregation of environment is ensured.
b. User access management which includes user access provisioning de-provisioning access review password management sensitive access rights and segregation of duties to ensure that privilege access to applications operating system and databases in the production environment were granted only to authorized personnel.
c. Program development which comprises IT operations and system development life cycle for relevant in-scope applications operating systems and databases which are relied upon for financial reporting.
d. Other areas that were assessed under the IT control environment included backup management business continuity disaster recovery incident management batch processing and monitoring.
We also evaluated the design and tested the operating effectiveness of key IT application controls within key business processes which included testing automated calculations automated accounting procedures system interfaces system reconciliation controls and key system generated reports as applicable.
Where control deficiencies were identified we tested compensating controls or performed alternative audit procedures where necessary.

Information other than the Financial Statements and Auditor's Report thereon

6. The Bank's Board of Directors are responsible for the other information. The otherinformation comprises the information included in the Annual Report including the Pillar 3Disclosure under the New Capital Adequacy Framework (Basel III disclosures) but does notinclude the standalone financial statements and our auditor's report thereon. The AnnualReport is expected to be made available to us after the date of this auditor's report.

Our opinion on the standalone financial statements does not cover the other informationand we will 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 Annual Report if we conclude that there is a material misstatementtherein we are required to communicate the matter to those charged with governance andtake appropriate action as applicable under the relevant laws and regulations.

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

7. The accompanying standalone financial statements have been approved by the Bank'sBoard of Directors. The Bank's Board of Directors are responsible for the matters statedin section 134(5) of the Act with respect to the preparation and presentation of thesestandalone financial statements that give a true and fair view of the financial positionfinancial performance and cash flows of the Bank in accordance with the AccountingStandards specified under section 133 of the Act read with the Companies (AccountingStandards) Rules 2021 and other accounting principles generally accepted in India andprovisions of section 29 of the Banking Regulation Act 1949 and circulars and guidelinesissued by the 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.

8. In preparing the standalone financial statements the Board of Directors areresponsible for assessing the Bank's ability to continue as a going concern disclosingas applicable matters related to going concern and using the going concern basis ofaccounting unless the Board of Directors either intend to liquidate the Bank or to ceaseoperations or has no realistic alternative but to do so.

9. Those Board of Directors are also responsible for overseeing the Bank's financialreporting process.

Auditor's Responsibilities for the Audit of the Standalone Financial Statements

10. 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.

11. 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 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 Act we are also responsible for expressing our opinion on whether the Bank hasadequate internal financial controls with reference to standalone financial statements inplace and the operating effectiveness 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.

12. We communicate with those charged with governance regarding among other mattersthe planned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.

13. We also provide those charged with governance with a statement that we havecomplied with relevant ethical requirements regarding independence and to communicatewith them all relationships and other matters that may reasonably be thought to bear onour independence and where applicable related safeguards.

14. From the matters communicated with those charged with governance we determinethose matters that were of most significance in the audit of the standalone financialstatements of the current period and are therefore the key audit matters. We describethese matters in our auditor's report unless law or regulation precludes public disclosureabout the matter or when in extremely rare circumstances we determine that a mattershould not be communicated in our report because the adverse consequences of doing sowould reasonably be expected to outweigh the public interest benefits of suchcommunication.

Other Matter

15. The standalone financial statements of the Bank for the year ended 31 March 2021were audited by M/s Walker Chandiok & Co LLP who vide their report dated 03 May 2021expressed an unmodified opinion on those standalone financial statements.

Our opinion is not modified in respect of this matter.

Report on Other Legal and Regulatory Requirements

16. 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 Act.

17. As required by sub-section (3) of section 30 of the Banking Regulation Act 1949we report that:

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) We have visited 120 of branches to examine the books of accounts and other recordsmaintained at the branches for the purpose of our audit. Since the key operations of theBank are automated with the key applications integrated to the core banking system theaudit is carried out centrally as all the necessary records and data required for thepurposes of our audit are available therein.

18. With respect to the matter to be included in the auditor's report under section197(16) of the Act we report that since the Bank is a Banking Company as defined underthe Banking Regulation Act 1949 Section 197 is not applicable to the Bank by virtue ofsection 352B(2A) of the Banking Regulation Act 1949. Accordingly the reporting underSection 197(16) in relation to whether the remuneration paid by the Bank is in accordancewith the provisions of section 197 of the Act and whether any excess remuneration has beenpaid in accordance with the aforesaid section is not applicable.

19. Further as required by section 143 (3) of the Act based on our audit we reportto the extent applicable that:

a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purpose of our audit of theaccompanying standalone financial statements;

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 Balance Sheet the Profit and Loss Account and the Cash Flow Statement dealtwith by this report are in agreement with the books of account;

d) In our opinion the aforesaid standalone financial statements comply with theAccounting Standards specified under section 133 of the Act read with the Companies(Accounting Standards) Rules 2021 to the extent they are not inconsistent with theaccounting policies prescribed by RBI;

e) On the basis of the written representations received from the directors and taken onrecord by the Board of Directors none of the directors is disqualified as on 31 March2022 from being appointed as a director in terms of section 164(2) of the Act;

f) With respect to the adequacy of the internal financial controls with reference tostandalone financial statements of the Bank as on 31 March 2022 and operatingeffectiveness of such controls refer to our separate Report in Annexure A wherein we haveexpressed an unmodified opinion; and

g) 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 (as amended) inour opinion and to the best of our information and according to the explanations given tous:

i. the Bank as detailed in Schedule 12 (I) Schedule 17C - Note 13 and Schedule 18BNote 15(1) to the standalone financial statements has disclosed the impact of pendinglitigations on its financial position as at 31 March 2022;

ii. The Bank as detailed in Schedule 12 (II) 12 (Va) and 12 (Vb) Schedule 17C - Note10 Note 11 and Note 13 and Schedule 18B - Note 10 and Note 15 to the standalone financialstatements has made provision as at 31 March 2022 as required under the applicable lawor accounting standards for material foreseeable losses if any on long-term contractsincluding derivative contracts;

iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Bank during the year ended 31 March2022;

iv. a. The management has represented that to the best of its knowledge and beliefother than as disclosed in Schedule 18B - Note 17 to the standalone financial statementsno funds have been advanced or loaned or invested (either from borrowed funds orsecurities premium or any other sources or kind of funds) by the Bank to or in anyperson(s) or entity(ies) including foreign entities ('the intermediaries') with theunderstanding whether recorded in writing or otherwise that the intermediary shallwhether directly or indirectly lend or invest in other persons or entities identified inany manner whatsoever by or on behalf of the Bank ('the Ultimate Beneficiaries') orprovide any guarantee security or the like on behalf the Ultimate Beneficiaries;

b. The management has represented that to the best of its knowledge and belief otherthan as disclosed in Schedule 18B - Note 17to the standalone financial statements nofunds have been received by the Bank from any person(s) or entity(ies) including foreignentities ('the Funding Parties') with the understanding whether recorded in writing orotherwise that the Bank shall whether directly or indirectly lend or invest in otherpersons or entities identified in any manner whatsoever by or on behalf of the FundingParty ('Ultimate Beneficiaries') or provide any guarantee security or the like on behalfof the Ultimate Beneficiaries; and

c. Based on such audit procedures performed as considered reasonable and appropriatein the circumstances nothing has come to our attention that causes us to believe that themanagement representations under sub-clauses (a) and (b) above contain any materialmisstatement.

v. The dividend declared and paid during the year ended 31 March 2022 by the Bank is incompliance with Section 123 of the Act.

ANNEXURE A TO THE INDEPENDENT AUDITOR'S REPORT

Referred to in paragraph 19(f) of the Independent Auditor's Report of even date to themembers of Kotak Mahindra Bank Limited on the standalone financial statements forthe year ended 31 March 2022

Independent Auditor's Report on the internal financial controls with reference to thestandalone financial statements under Clause (i) of Sub-section 3 of Section 143 of theCompanies Act 2013 ('the Act')

1. In conjunction with our audit of the standalone financial statements of KotakMahindra Bank Limited ('the Bank) as at and for the year ended 31 March 2022 we haveaudited the internal financial controls with reference to standalone financial statementsof the Bank as at that date.

Responsibilities of Management and Those Charged with Governance for Internal FinancialControls

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 of internal controlstated in the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting ("the Guidance Note") issued by the Institute of Chartered Accountantsof India (ICAI). These responsibilities include the design implementation and maintenanceof adequate internal financial controls that were operating effectively for ensuring theorderly and efficient conduct of the Bank's business including adherence to Bank'spolicies the safeguarding of its assets the prevention and detection of frauds anderrors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Act.

Auditor's Responsibility for the Audit of the Internal Financial Controls withReference to the Standalone Financial Statements

3. Our responsibility is to express an opinion on the Bank's internal financialcontrols with reference to the standalone financial statements based on our audit. Weconducted our audit in accordance with the Guidance Note issued by the ICAI and theStandards on Auditing issued by the ICAI and prescribed under Section 143(10) of the Actto the extent applicable to an audit of internal financial controls with reference tofinancial statements. Those Standards and the Guidance Note require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance aboutwhether adequate internal financial controls with reference to the standalone financialstatements were established and maintained and if such controls operated effectively inall material respects.

4. Our audit involves performing procedures to obtain audit evidence about the adequacyof the internal financial controls with reference to the standalone financial statementsand their operating effectiveness. Our audit of internal financial controls with referenceto the standalone financial statements includes obtaining an understanding of internalfinancial controls with reference to the standalone financial statements assessing therisk that a material weakness exists and testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk. The procedures selecteddepend on the auditor's judgement including the assessment of the risks of materialmisstatement 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 withreference to the standalone financial statements.

Meaning of Internal Financial Controls with Reference to the Standalone FinancialStatements

6. A Bank's internal financial controls with reference to the standalone financialstatements is a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles. A Bank's internal financialcontrols with reference to the standalone financial statements include those policies andprocedures 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 the standalone financial statements in accordance with generally acceptedaccounting principles and that receipts and expenditures of the Bank are being made onlyin accordance with authorisations of management and directors of the Bank; and

(3) provide reasonable assurance regarding prevention or timely detection ofunauthorised 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 the StandaloneFinancial Statements

7. Because of the inherent limitations of internal financial controls with reference tothe standalone financial statements including the possibility of collusion or impropermanagement override of controls material misstatements due to error or fraud may occurand not be detected. Also projections of any evaluation of the internal financialcontrols with reference to the standalone financial statements to future periods aresubject to the risk that the internal financial controls with reference to the standalonefinancial statements may become inadequate because of changes in conditions or that thedegree of compliance with the policies or procedures may deteriorate.

Opinion

8. In our opinion the Bank has in all material respects adequate internal financialcontrols with reference to the standalone financial statements and such internal financialcontrols with reference to the standalone financial statements were operating effectivelyas at 31 March 2022 based on the internal control over financial reporting criteriaestablished by the Bank considering the essential components of internal control stated inthe Guidance Note issued by ICAI.

For Walker Chandiok & Co LLP For Price Waterhouse LLP
Chartered Accountants Chartered Accountants
Firm Registration Number: 001076N/N500013 Firm Registration Number: 301112E/E300264
Murad D. Daruwalla Russell I Parera
Partner Partner
Membership Number: 043334 Membership Number: 042190
UDIN: 22043334AIJAKS4902 UDIN: 22042190AIJNDL3154
Place: Mumbai Place: Mumbai
Date: 04 May 2022 Date: 04 May 2022

 

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