To the Members of RBL Bank Limited
REPORT ON THE AUDIT OF THE STANDALONE
We have audited the accompanying standalone financial statements of RBLBank Limited ("the Bank") which comprise the Balance Sheet as at March 312021 the Profit and Loss Account and the Cash Flow Statement for the year then ended andnotes to the standalone financial statements including a summary of significant accountingpolicies and other explanatory information (hereinafter referred to as "standalonefinancial statements").
In our opinion and to the best of our information and according to theexplanations given to us the aforesaid standalone financial statements give theinformation required by the Banking Regulation Act 1949 as well as the Companies Act2013 ("the Act") in the manner so required for banking companies and give a trueand fair view in conformity with the accounting principles generally accepted in India ofthe state of affairs of the Bank as at March 312021 its profit and its cash flows forthe year ended on that date.
Basis for Opinion
We conducted our audit in accordance with Standards on Auditing (SAs)specified under Section 143(10) of the Act. Our responsibilities under those Standards arefurther described in the Auditor's Responsibilities for the Audit of the StandaloneFinancial Statements section of our report. We are independent of the Bank in accordancewith the Code of Ethics issued by the Institute of Chartered Accountants of India("ICAI") together with the ethical requirements that are relevant to our auditof the standalone financial statements under the provisions of the Act and 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 on thestandalone financial statements.
Emphasis of Matter
We draw attention to Note 11.9 of schedule 18 to the standalonefinancial statements which explains the extent to which COVID-19 pandemic will impact theBank's operations and financial performance is dependent on future developments which arehighly uncertain.
Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that in our professional judgmentwere of most significance in our audit of the standalone financial statements of thecurrent year. These matters were addressed in the context of our audit of the standalonefinancial statements as a whole and in forming our opinion thereon and we do not providea separate opinion on these matters. We have determined the matters described below to bethe key audit matters to be communicated in our report.
|Sr. No. Key audit matters ||How our audit addressed the key audit matter |
|1. Information Technology (IT) Controls Framework The Bank has a complex IT architecture to support its day to day business operations. The volume of transactions processed and recorded is huge. Moreover a transaction may be required to be recorded across multiple applications depending upon the process and each application has different rules and a different set of user access and authority matrix. These applications are interlinked using different technologies so that data transfer happens in real time or at a particular time of the day; in batches or at a transaction level and in an automated manner or manually. The Core Banking Solution (CBS) itself has many interfaces. All these data streams directly affect the financial accounting and reporting process of the Bank. ||IT audit specialists are an integral part of our engagement team. Our approach of testing IT General Controls (ITGC) and IT Application Controls (ITAC) is risk based and business centric. |
| ||As part of our IT controls testing we have tested ITGC as well as ITAC. The focus of testing of ITGCs was based on the various parameters such as Completeness Validity Identification Authentication Authorization Integrity and Accountability. On the other hand focus of testing automated controls from applications was whether the controls prevent or detect unauthorized transactions and support financial objectives including completeness accuracy authorization and validity of transactions. |
| ||We gathered a comprehensive understanding of IT applications landscape implemented at the Bank. It was followed by process understanding mapping of applications to the same and understanding financial risks posed by people-process and technology. |
|The Bank has a process for identifying the applications where the controls are embedded. It also has a process to ensure that systems processes and controls remain relevant. The Bank's IT control framework includes automated semiautomated and manual controls designed to address identified risks. IT controls are stated in Entity Level Controls (ELC) IT General Controls (ITGC) and IT Application Controls (ITAC). ||In ITGC testing we reviewed on sample basis control areas such as User Management Change Management Systems Security Incident Management Physical & Environmental Security Backup and Restoration Business Continuity and Disaster Recovery Service Level Agreement. |
| ||For ITAC we carried out on sample basis compliance tests of system functionality in order to assess the accuracy of system calculations. We also carried out procedures such as validations and limit checks on data entered into applications approvals process dependencies and restriction on time period in which transactions may be recorded. We tested the control environment using various techniques such as inquiry review of documentation/record/reports observation and re-performance. We also tested few controls using negative testing technique. We had taken adequate samples of instances for our tests |
|We have identified IT Controls Framework as a Key Audit Matter as the Bank's business is highly dependent on technology the IT environment is complex and the design and operating effectiveness of IT controls have a direct impact on its financial reporting process. Review of these controls allows us to provide assurance on the integrity and completeness of data processed through various IT applications which are used for the preparation of financial reports. ||Wherever deviations were noted either the same were explained to our satisfaction or we tested compensating controls and performed alternate procedures where necessary to draw comfort. |
|2. Classification Provisioning and Write off of Advances ||Our key audit procedures included but were not limited to the following: |
|(Refer schedule 5 schedule 9 note 1 of schedule 17 and note || |
|11.1 of schedule 18 to the Standalone Financial Statements) The Bank's portfolio of advances to customers amounts to RS 58622.51 crores as at March 31 2021. || We gained understanding of key processes by carrying out walkthroughs testing of key controls identified by us over borrower's risk grading (including larger customer exposures that are monitored individually) and classification of such advances as performing or non-performing. We carried out below audit procedures: |
|In accordance with the Reserve Bank of India (the "RBI") Income Recognition Asset Classification and Provisioning || |
|Norms (IRAC norms) guidelines on COVID 19 related Regulatory Package dated March 27 2020 April 17 2020 and May 23 2020 (together 'Regulatory Package') circulars on Resolution Framework for COVID-19 related stress and restructuring of advances dated August 06 2020 (together || Tested on sample basis effectiveness of controls over annual review /renewal of credits carried out by the management controls over the monitoring of credit quality followed by collection and recoveries. |
|'Resolution Framework') and other circulars notifications and directives issued by the RBI (from time to time) the Bank classifies its advances to performing and nonperforming categories which consists of Standard and Sub-standard Doubtful and Loss (non-standard) and also recognizes appropriate provisions. || Evaluated and tested the design and operative effectiveness of controls over classification of advances under standard sub-standard doubtful and loss categories with reference to their days-past-due (DPD) status (including consideration of non-financial parameters of NPA restructuring guidelines the Regulatory Package and Resolution framework) and provisioning of advances. |
|The Bank as per its governance framework recognises || |
|provisions towards standard / non-standard advances basis Management's assessment of the borrower's credit profile subject to and guided by minimum provisioning levels prescribed underthe RBI guidelines. || Tested loans on sample basis to form our own assessment as to whether impact of impairment events have been recognised in a timely manner by the Bank; |
| || Carried out inquiries of management to ascertain how observations raised by the RBI during their annual inspections have been complied with. |
|The classification provisioning and write off of advances is a Key Audit Matter for us as the Bank has significant exposure to a large number of borrowers across various sectors products industries and geographies and there is a high degree of complexity uncertainty and judgment involved in recoverability of advances nature of transactions estimation of provisions thereon and identification of accounts to be written off. || |
|The same resulted in significant audit efforts to address the risks around loan recoverability classification and the determination of related provisions and write off. || For the selected samples of non-performing advances assessed Management's forecast and inputs on recoverability of cash flows impact of auditor's comments on the financial statements valuation of underlying security and collaterals estimation on recoverability of amount in default and other sources of repayment; |
| || Held specific discussions with the credit and risk departments to ascertain how various Early Warning Signals (EWS) and potential defaults have been identified and assessed in identifying NPA. |
| || Performed credit assessments of a sample of corporate and retail loans including larger exposures assessed by the Bank as showing signs of stress or in areas of emerging risk (assessed against external market conditions). We reviewed the Bank's risk grading of the loan borrower's account statement review assessment of loan recoverability and the impact on the credit provision. To do this we used the information on the borrower's loan file discussed the case with the concerned officials and senior management and performed our own assessment of recoverability. |
| || Reviewed Bank's policy including SOPs with respect to implementation of Regulatory package and Resolution framework ('guidelines') and tested sample to ascertain effectiveness of implementation of those guidelines by the Bank. |
| ||Provisions for advances: |
| || Tested the Bank's processes of recognizing provision on advances for compliance with RBI regulations and internally laid down policies on provisioning; |
| || Tested the completeness and accuracy of data transferred from underlying source systems used for computing collective provision; |
| || Considered board approved policy and internal laid down policy for higher provision for weak standard advances advances covered under Resolution Framework stressed sectors adopted by the Bank; |
| || Validated the parameters used to calculate provisions with reference to IRAC norms internal policies on higher provisions on NPA advances; |
| || Re-performed on sample basis for retail and Corporate portfolios the calculation of provisions to determine the accuracy of the same; |
| || With respect to provisions held as at March 31 2021 against potential impact of COVID -19 pandemic we broadly reviewed the underlying assumptions and estimates used by the management in arriving at the provision amount. However since the full impact of COVID-19 is still dependent on future developments which are highly uncertain we primarily relied on those assumptions and estimates. These assumptions and estimates are a subject matter of periodic review by the Bank. |
| ||Disclosure |
| ||We assessed the appropriateness and adequacy of disclosures against the relevant RBI requirements relating to NPAs including the additional disclosures required to be made in accordance with the Regulatory Package and the extant Resolution Framework. |
The Bank's Board of Directors is responsible for the other information.The other information comprises the information included in the Directors' report andManagement Discussion and Analysis forming part of the Annual Report but does not includethe standalone financial statements consolidated financial statements and our auditor'sreport thereon. The Annual report is expected to be made available to us after the date ofthis auditor's report.
Our opinion on the standalone financial statements does not cover theother information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statementsour responsibility is to read the other information identified above when it becomesavailable and in doing so consider whether the other information is materiallyinconsistent with the standalone financial statements or our knowledge obtained in theaudit or otherwise appears to be materially misstated.
When we read the Annual Report if we conclude that there is a materialmisstatement therein we are required to communicate the matter to those charged withgovernance.
Responsibilities of Management and Those Charged with Governance forthe Standalone Financial Statements
The Bank's Board of Directors is responsible for the matters stated inSection 134(5) of the Act with respect to the preparation of these standalone financialstatements that give a true and fair view of the financial position financial performanceand cash flows of the Bank in accordance with the accounting principles generally acceptedin India including the Accounting Standards prescribed under Section 133 of the Act readwith the relevant rules issued thereunder provision of Section 29 of the BankingRegulation Act 1949 and the circulars guidelines and directions issued by Reserve Bankof India ("RBI") from time to time. This responsibility also includesmaintenance of adequate accounting records in accordance with the provisions of the Actfor safeguarding of the assets of the Bank and for preventing and detecting frauds andother irregularities; 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 isresponsible 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 Management either intends to liquidate the Bank or to cease operationsor has no realistic alternative but to do so.
Those Board of Directors are also responsible for overseeing the Bank'sfinancial reporting process.
Auditor's Responsibilities for the Audit of the StandaloneFinancial Statements
Our objectives are to obtain reasonable assurance about whether thestandalone financial statements as a whole are free from material misstatement whetherdue to fraud or error and to issue an auditor's report that includes our opinion.Reasonable assurance is a high level of assurance but is not a guarantee that an auditconducted in accordance with SAs will always detect a material misstatement when itexists. Misstatements can arise from fraud or error and are considered material ifindividually or in the aggregate they could reasonably be expected to influence theeconomic decisions of users taken on the basis of this standalone financial statements. Aspart of an audit in accordance with SAs we exercise professional judgment and maintainprofessional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of thestandalone financial statements whether due to fraud or error design and perform auditprocedures responsive to those risks and obtain audit evidence that is sufficient andappropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error as fraudmay involve collusion forgery intentional omissions misrepresentations orthe overrideof internal control.
Obtain an understanding of internal control relevant to theaudit in order to design audit procedures that are appropriate in the circumstances. UnderSection 143(3)
(i) of the Act we are also responsible for expressing our opinion onwhether the Bank has adequate internal financial controls with reference to financialstatements in place and the operating effectiveness ofsuch controls.
Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by Management.
Conclude on the appropriateness of Management's use of the goingconcern basis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast
significant doubt on the Bank's ability to continue as a going concern.If we conclude that a material uncertainty exists we are required to draw attention inour auditor's report to the related disclosures in the standalone financial statements orif such disclosures are inadequate to modify our opinion. Our conclusions are based onthe audit evidence obtained up to the date of our auditor's report. However future eventsor conditions may cause the Bank to cease to continue as a going concern.
Evaluate the overall presentation structure and content of thestandalone financial statements including the disclosures and whether the standalonefinancial statements represent the underlying transactions and events in a mannerthatachieves fair presentation.
We communicate with those charged with governance regarding amongother matters the planned scope and timing of the audit and significant audit findingsincluding any significant deficiencies in internal control that we identify during ouraudit.
We also provide those charged with governance with a statement that wehave complied with the relevant ethical requirements regarding independence and tocommunicate with them all relationships and other matters that may reasonably be thoughtto bear on our independence and where applicable related safeguards.
From the matters communicated with those charged with governance wedetermine those matters that were of most significance in the audit of the standalonefinancial statements of the current year and are therefore the key audit matters. Wedescribe these matters in our auditor's report unless law or regulation precludes publicdisclosure about the matter or when in extremely rare circumstances we determine that amatter should not be communicated in our report because the adverse consequences of doingso would reasonably be expected to outweigh the public interest benefits of suchcommunication.
The audit of standalone financial statements for the year ended March31 2020 was carried out and reported by B S R & Co. LLP vide their unmodified auditreport dated May 07 2020 whose report has been furnished to us by the management andwhich has been relied upon by us for the purpose of our audit of the standalone financialstatements.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
(1) The Balance Sheet and the Profit and Loss Account have
been drawn up in accordance with the provisions of Section
29 of the Banking Regulation Act 1949 read with Section
133 of the Act read with relevant rules issued thereunder.
(2) As required under Section 143 (3) of the Act and Section 30
(3) of the Banking Regulation Act 1949 we report that:
a. We have sought and obtained all the information and explanationswhich to the best of our knowledge and belief were necessary for the purpose of ouraudit and have found them to be satisfactory;
b. In our opinion the transactions of the Bank which have come to ournotice have been within the powers of the Bank;
c. In our opinion proper books of account as required by law have beenkept by the Bank so far as it appears from our examination of those books;
d. The financial accounting systems of the Bank are centralized andtherefore accounting returns for the purpose of preparing financial statements are notrequired to be submitted by the branches; we have visited 135 branches for the purpose ofour audit.
e. The Balance Sheet the Profit and Loss Account and the Cash FlowStatement dealt with by this report are in agreement with the books of account;
f. In our opinion the aforesaid standalone financial statements complywith the Accounting Standards prescribed under Section 133 of the Act read with relevantrules issued thereunder to the extent they are not inconsistent with the accountingpolicies prescribed by RBI;
g. On the basis of the written representations received from thedirectors as on March 312021 and taken on record by the Board of Directors none of thedirectors is disqualified as on March 31 2021 from being appointed as a director in termsof Section 164(2) of the Act;
h. With respect to the adequacy of the internal financial controls withreference to financial statements of the
Bank and the operating effectiveness of such controls refer to ourseparate report in "Annexure";
i. With respect to the other matters to be included in the Auditor'sReport in accordance with the requirements of Section 197(16) oftheAct;
In our opinion and to the best of our information and according to theexplanations given to us requirements prescribed under Section 197 of the Act is notapplicable by virtue of Section 35B (2A) of the Banking Regulation Act 1949.
j. With respect to the other matters to be included in the Auditor'sReport in accordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 inour opinion and to the best of our information and according to the explanations given tous:
i. The Bank has disclosed the impact of pending litigations on itsfinancial position in its standalone financial statements - Refer Schedule 12 - ContingentLiabilities to the standalone financial statements;
ii. The Bank has made provision as required under the applicable lawor accounting standards for material foreseeable losses if any on longterm contractsincluding derivative contracts - Refer Note 46 of Schedule 18 to the standalone financialstatements in respect of such items as it relates to the Bank;
iii. There has been no delay in transferring amounts required to betransferred to the Investor Education and Protection Fund bythe Bank.
|For Haribhakti & Co. LLP |
|Chartered Accountants |
|ICAI Firm Registration No.103523W / W100048 |
|Diwaker Sudesh Bansal |
|Membership No. 409797 |
|UDIN No. 21409797AAAAAE3445 |
|Place: Mumbai |
|Date: May 4 2021 |
Annexure to the Independent Auditor's Report
ANNEXURE TO THE INDEPENDENT AUDITOR'S REPORT
[Referred to in paragraph 2(h) under Report on Other Legal andRegulatory Requirements' section in our Independent Auditor's Report of even date tothe members of RBL Bank Limited on the standalone financial statements for the year endedMarch 31 2021]
Report on the Internal Financial Controls with reference to FinancialStatements under clause (i) of sub-section 3 of Section 143 of the Companies Act 2013("the Act")
We have audited the internal financial controls with reference tofinancial statements of RBL Bank Limited ("the Bank") as of March 31 2021 inconjunction with our audit of the standalone financial statements of the Bank for the yearended on that date.
Management's Responsibility for Internal Financial Controls
The Bank's management is responsible for establishing and maintaininginternal financial controls based on the internal control with reference to financialstatements criteria established by the Bank considering the essential components ofinternal control stated in the Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting (the "Guidance Note") issued by the Institute of CharteredAccountants of India ("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 Act.
Our responsibility is to express an opinion on the Bank's internalfinancial controls with reference to financial statements based on our audit. We conductedour audit in accordance with the Guidance Note and the Standards on Auditing specifiedunder Section 143(10) of the Act to the extent applicable to an audit of internalfinancial controls both issued by the ICAI. Those Standards and the Guidance Note requirethat we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether adequate internal financial controls with reference tofinancial statements was established and maintained and if such controls operatedeffectively in all material respects.
Our audit involves performing procedures to obtain audit evidence aboutthe adequacy of the internal financial controls
with reference to financial statements and their operatingeffectiveness.
Our audit of internal financial controls with reference to financialstatements included obtaining an understanding of internal financial controls withreference to financial statements assessing the risk that a material weakness exists andtesting and evaluating the design and operating effectiveness of internal controls basedon the assessed risk. The procedures selected depend on the auditor's judgement includingthe assessment of the risks of material misstatement of the financial statements whetherdue to fraud or error.
We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion on the Bank's internal financialcontrols with reference to financial statements.
Meaning of Internal Financial Controls with reference to FinancialStatements
A Bank's internal financial control with reference to 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 financialcontrol with reference to 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) providereasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles and thatreceipts and expenditures of the Bank are being made only in accordance withauthorisations of the management and directors of the Bank; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorised acquisition use ordisposition of the Bank's assets that could have a material effect on the financialstatements.
Inherent Limitations of Internal Financial Controls with reference toFinancial Statements
Because of the inherent limitations of internal financial controls withreference to 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 financial statements to future periods are subject to the riskthat the internal financial controls with reference to financial statements may becomeinadequate because of changes in conditions or that the degree of compliance with thepolicies or procedures may deteriorate.
In our opinion the Bank has in all material respects adequateinternal financial controls with reference to the financial statements and such internalfinancial controls with reference to standalone financial statements were operatingeffectively as at March 31 2021 based on the internal control with reference to thefinancial statements criteria established by the Bank considering the essential componentsof internal controls stated in the Guidance Note issued bythe ICAI.
|For Haribhakti & Co. LLP |
|Chartered Accountants |
|ICAI Firm Registration No.103523W/W100048 |
|Diwaker Sudesh Bansal |
|Membership No. 409797 |
|UDIN: 21409797AAAAAE3445 |
|Place: Mumbai |
|Date: May 04 2021 |