To the Members of RBL Bank Limited
REPORT ON THE AUDIT OF THE STANDALONE
We have audited the accompanying Standalone Financial Statements of RBL Bank Limited(the 'Bank') which comprise the standalone balance sheet as at 31 March 2019 thestandalone profit and loss account the standalone cash flow statement for the year thenended and notes to the Standalone Financial Statements including a summary ofsignificant accounting policies and other explanatory information.
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') in themanner so required for banking companies and give a true and fair view inconformity with the accounting principles generally accepted in India of the state ofaffairs of the Bank
as at 31 March 2019 and profit and its cash flows for the year ended on that date.
Basis for opinion
We conducted our audit in accordance with the Standards on Auditing ('SAs') specifiedunder
Section 143 (10) of the Act. Our responsibilities under those SAs are further describedin the Auditor's Responsibilities for the Audit of the Standalone Financial Statementssection of our report. We are independent of the Bank in accordance with the Code ofEthics issued by the Institute of Chartered Accountants of India together with the ethicalrequirements that are relevant to our audit of the Standalone Financial Statements underthe provisions of the Act and the Rules thereunder and we have fulfilled our otherethical responsibilities in accordance with these requirements and the Code of Ethics. Webelieve that the audit evidence we have obtained is sufficient and appropriate to providea basis for our opinion.
Key audit matters
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.
|KEY AUDIT MATTER HOW THE MATTER WAS ADDRESSED IN OUR AUDIT |
IDENTIFICATION OF NON-PERFORMING ASSET ('NPA') AND PROVISIONS ON ADVANCES P&L CHARGE (INCLUDING WRITE-OFF): INR 466.99 CRORE FOR YEAR ENDED 31 MARCH 2019 PROVISION ON ADVANCES: INR 381.88 CRORE AS AT 31 MARCH 2019
|Refer to the accounting policies in "Note 17(1) to the Standalone Financial Statements: Significant Accounting Policies - Advances" and "Note 12.1 to the Standalone Financial Statements: Asset Quality" || |
|Significant estimate and judgment involved |
Identification of NPAs and provisions in respect of NPAs are made based on management's assessment of the degree of impairment of the advances subject to and guided by the minimum provisioning levels prescribed under the RBI guidelines with regard to the 'Prudential Norms on Income Recognition Asset Classification & Provisioning' prescribed from time to time. The provision on NPA are also based on the valuation of the security available.
|Our key audit procedures included: |
Design / controls
We have assessed the design implementation and operating effectiveness of key internal controls over approval recording and monitoring of loans monitoring process of overdue loans measurement of provisions identification of NPA accounts and assessed the reliability of management information (including overdue reports).
|We identified identification of NPAs and provision on advances as a key audit matter because of the level of significant management judgement involved in determining the provision and the valuation of the security of the NPA loans and on account of the significance of these estimates to the financial statements of the Bank. || In addition for corporate loans we tested controls over the internal ratings process monitoring of stressed accounts including credit file review processes and review controls over the approval of significant individual impairment provisions. |
| || We have evaluated the design implementation and operating effectiveness of key internal controls over the valuation of security for NPAs. |
| || We tested management review controls over measurement of provisions and disclosures in financial statements. |
|Key audit matter ||How the matter was addressed in our audit |
| || We involved our information system specialist in the audit of this area to gain comfort over data integrity and calculations including system reconciliations. |
| ||Substantive tests |
| || We performed test of details for a selection of exposures over calculation of NPA provisions including valuation of collaterals for NPAs as at 31 March 2019; the borrower-wise NPA identification and provisioning determined by the Bank and also tested related disclosures by assessing the completeness accuracy and relevance of data and ensured that the same is in compliance with the RBI guidelines with regard to the 'Prudential Norms on Income Recognition Asset Classification & Provisioning'. |
| || We selected a sample (based on quantitative and qualitative thresholds) of large corporate clients where impairment indicators had been identified by management. We obtained management's assessment of the recoverability of these exposures (including individual provisions calculations) and challenged whether individual impairment provisions or lack of were appropriate. |
| ||This included the following procedures: |
| || Reviewed the statement of accounts approval process board minutes credit review of customer review of special mention accounts reports and other related documents to assess recoverability and the classification of the facility; and |
| || For a risk based sample of corporate loans not identified as displaying indicators of impairment by management challenged this assessment by reviewing the historical performance of the customer and assessed whether any impairment indicators were present. |
valuation of financial instruments (investments - bonds and debentures commercialpapers certificate of deposits
AND PASS THROUGH CERTIFICATES)
Net value of investments: INR 3788.18 crore as at 31 March 2019
Refer to the accounting policies in "Note 17(2) to the Financial Statements:Significant Accounting Policies - Investments" and "Schedule 8 to the FinancialStatements: Investments"
|Significant estimate and judgment involved ||Our key audit procedures included: |
Investments are classified into 'Held for Trading' ('HFT') 'Available for
|Design / controls |
We tested the design implementation and operating effectiveness
|Sale' ('AFS') and 'Held to Maturity' ('HTM') categories at the time of purchase. Investments which the Bank intends to hold till maturity are classified as HTM investments. ||of management's key internal controls over classification and valuation of Investments. |
We assessed appropriateness of the valuation methodologies with
|We identified fair valuation of investments such as Bonds and ||reference to accounting standards / RBI guidelines and Bank's own |
|Debentures Commercial papers Certificate of deposits and Pass through ||valuation policy. |
|certificates classified into HFT and AFS as a key audit matter because || Read investment agreements / term sheets entered into during |
|of the significant management judgement involved in determining ||the current year on a sample basis to understand the relevant |
|its valuation and the overall significance of these investments to the ||investment terms and identify any conditions that were relevant to |
|financial statements of the Bank. ||the valuation of financial instruments. |
| ||Substantive tests |
| || We independently verified the fair valuation of investments on a sample basis with direct observable inputs and external input data such as market value from 'Financial Benchmarks India |
| ||Private Limited ('FBIL')' spreads from 'The Fixed Income Money Market and Derivatives Association of India ('FIMMDA') etc after considering the requirements of RBI guidelines. |
| || We assessed that the financial statement disclosures appropriately reflected the requirements of the prevailing accounting standards and the RBI guidelines. |
|Key audit matter ||How the matter was addressed in our audit |
|Information technology (IT') |
IT systems and controls
The Bank's key financial accounting and reporting processes are highly dependent on information systems including automated controls in systems such that there exists a risk that gaps in the IT control environment could result in the financial accounting and reporting records being misstated. The Bank uses several systems for it overall financial reporting.
|Our key IT audit procedures included: |
We have understood General IT Control i.e. Access Controls Program/ System Change Program Development Computer Operations (i.e. Job Processing Data/System Backup Incident Management) over key financial accounting and reporting systems and supporting control systems (referred to as in-scope systems).
We tested the General IT Controls for design and operating effectiveness for the audit period over the in-scope systems.
|We have identified 'IT systems and controls' as key audit matter because of the high level automation significant number of systems being used by the management and the complexity of the IT architecture. || We understood IT application controls covering |
user access and roles segregation of duties and
key interfaces reports reconciliations and system processing
| || We tested the IT application controls for design and operating effectiveness for the audit period. |
| || We performed testing to determine that these controls remained unchanged during the audit period or were changed following the standard change management process. |
| || We understood IT infrastructure i.e. operating systems and databases supporting the in-scope systems. |
| || We tested controls over the IT infrastructure covering user access (including privilege users) data center and system change (e.g. patches). |
INFORMATION OTHER THAN THE STANDALONE FINANCIAL STATEMENTS AND AUDITOR'S REPORT THEREON
The Bank's Board of Directors is responsible for the other information. The otherinformation comprises the information included in the Bank's Annual report but does notinclude the Standalone Financial Statements and our auditor's report thereon. The Bank'sAnnual report is expected to be made available to us after the date of this auditor'sreport.
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 Bank's 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 FOR THE STANDALONEFINANcIAL STATEMENTS
The Bank's management and Board of Directors are 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 state of affairs profit and cash flowsof the Bank in accordance with the accounting principles generally accepted in Indiaincluding the Accounting Standards specified under Section 133 of the Act provisions ofSection 29 of the Banking Regulation Act 1949 and the circulars and guidelines issued byReserve Bank of 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 and the Board of Directorsare responsible for assessing the Bank's ability to continue as a going concerndisclosing as applicable matters related to going concern and using the going concernbasis of accounting unless management either intends to liquidate the Bank or to ceaseoperations or has no realistic alternative but to do so.
The Board of Directors are also responsible for overseeing the Bank's financialreporting process.
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the StandaloneFinancial Statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these Standalone Financial Statements.
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS(CONTINUED)
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 system in place and the operating effectiveness ofsuch 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 a bank to cease tocontinue as a going concern.
Evaluate the overall presentation structure and content of the StandaloneFinancial Statements including the disclosures and whether the Standalone FinancialStatements represent the underlying transactions and events in a manner that achieves fairpresentation.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the Standalone Financial Statementsof the current period and are therefore the key audit matters. We describe these mattersin our auditor's report unless law or regulation precludes public disclosure about thematter or when in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
The standalone balance sheet and the standalone profit and loss account have been drawnup in accordance with the provisions of Section 29 of the Banking Regulation Act 1949 andSection 133 of the Act.
(a) As required by sub-section (3) of Section 30 of the Banking
Regulation Act 1949 we 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; and
(c) since the key operations of the Bank are automated with the key applicationsintegrated to the core banking systems the audit is carried out centrally as all thenecessary records and data required for the purposes of our audit are available therein.However during the course of our audit we have visited 26 branches.
(B) Further as required by Section 143(3) of the Act we report
(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;
(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 standalone balance sheet the standalone profit and loss account and thestandalone cash flow statement dealt with by this Report are in agreement with the booksof account;
(d) in our opinion the aforesaid Standalone Financial Statements comply with theAccounting Standards specified under Section 133 of the Act to the extent they are notinconsistent with the accounting policies prescribed by RBI;
(e) on the basis of the written representations received from the directors as on 31March 2019 taken on record by the Board of Directors none of the directors isdisqualified as on 31 March 2019 from being appointed as a director in terms of Section164 (2) of the Act;
(f) with respect to the adequacy of the internal financial controls over financialreporting of the Bank and the
operating effectiveness of such controls refer to our separate Report in 'Annexure A';
(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 in our opinionand to the best of our information and according to the explanations given to us:
i. The Bank has disclosed the impact of pending litigations on its financial positionin its Standalone Financial Statements - Refer Schedule 12 and Note 30 to the StandaloneFinancial Statements;
ii. The Bank has made provision as required under the applicable law or accountingstandards for material foreseeable losses if any on long-term contracts includingderivative contracts - Refer Note 41 to the Standalone Financial Statements;
iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Bank.
(h) The disclosures required on holdings as well as dealing in specified bank notesduring the period from 8 November 201 6 to 30 December 2016 as envisaged in notificationG.S.R. 308(E) dated 30 March 2017 issued by the Ministry of Corporate Affairs is notapplicable to the Bank.
(C) With respect to the matter to be included in the Auditors'
Report under section 197(16) of the Companies Act 2013:
The Bank is a banking company as defined under Banking
Regulation Act 1949. Accordingly the requirements prescribed
under Section 197 of the Companies Act 2013 do not apply.
For B S R & Co. LLP
Firm's Registration No: 101248W/W-100022
Manoj Kumar Vijai
Membership No: 046882
18 April 2019
Annexure A to the Independent Auditor's Report
ANNEXURE A TO THE INDEPENDENT AUDITOR'S REPORT OF EVEN DATE ON THE STANDALONE FINANCIALSTATEMENTS OF RBL BANK LIMITED Report on the Internal Financial controls Over FinancialReporting under clause (i) of sub-section 3 of Section 143 of the companies Act 2013
We have audited the internal financial controls over financial reporting of RBL BankLimited (the 'Bank') as at 31 March 2019 in conjunction with our audit of the StandaloneFinancial Statements of the Bank for the year ended on that date.
Management's responsibility for internal financial controls over financial reporting
The Bank's Board of Directors is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Bank considering the essential components of internal control stated inthe Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the'Guidance Note') issued by the Institute of Chartered Accountants of India (the 'ICAI').These responsibilities include the design implementation and maintenance of adequateinternal financial controls that were operating effectively for ensuring the orderly andefficient conduct of its business including adherence to the Bank's policies thesafeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information as required under the Companies Act 2013 (the 'Act').
Our responsibility is to express an opinion on the Bank's internal financial controlsover financial reporting based on our audit. We conducted our audit in accordance with theGuidance Note and the Standards on Auditing (the 'Standards') issued by the ICAI anddeemed to be prescribed under Section 143 (10) of the Act to the extent applicable to anaudit 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.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an 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 judgment including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Bank's internal financial controls systemover financial reporting.
Meaning of internal financial controls over financial reporting
A bank's internal financial control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reporting and thepreparation of the standalone financial statements for external purposes in accordancewith generally accepted accounting principles. A bank's internal financial control overfinancial reporting includes those policies and procedures that (1) pertain to themaintenance of records that in reasonable detail accurately and fairly reflect thetransactions and dispositions of the assets of the bank; (2) provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financial statementsin accordance with generally accepted accounting principles and that receipts andexpenditures of the bank are being made only in accordance with authorizations ofmanagement and directors of the bank; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition use or disposition of thebank's assets that could have a material effect on the financial statements.
Inherent Limitations of internal financial controls over financial reporting
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 inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.
In our opinion the Bank has in all material respects an adequate internal financialcontrols system over financial reporting and such internal financial controls overfinancial reporting were operating effectively as at 31 March 2019 based on the internalcontrol over financial reporting criteria established by the Bank considering theessential components of internal control stated in the Guidance Note issued by the ICAI.
For B S R & Co. LLP
Firm's Registration No: 101248W/W-100022
Manoj Kumar Vijai
Membership No: 046882
Mumbai 18 April 2019