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South Indian Bank Ltd.

BSE: 532218 Sector: Financials
NSE: SOUTHBANK ISIN Code: INE683A01023
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OPEN 8.92
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VOLUME 1418373
52-Week high 13.95
52-Week low 7.00
P/E
Mkt Cap.(Rs cr) 1,869
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

South Indian Bank Ltd. (SOUTHBANK) - Auditors Report

Company auditors report

To the Members of The South Indian Bank Limited Report on the Audit of the FinancialStatements

Opinion

We have audited the financial statements of The South Indian Bank Limited (‘theBank’) which comprise the Balance Sheet as at March 31 2021 the Profit and LossAccount the Cash Flow statement for the year then ended and notes to the financialstatements including a summary of significant accounting policies and other explanatoryinformation in which are included the Returns for the year ended on that date audited bythe branch auditors of the Bank’s branches located across India.

In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid financial statements give the information required by theBanking Regulation Act 1949 as well as the Companies Act 2013 (‘the Act’) inthe manner so required for banking Companies and give a true and fair view in conformitywith accounting principles generally accepted in India of the state of affairs of theBank as at March 31 2021 and its profit and its cash flows for the year ended on thatdate.

Basis for Opinion

We conducted our audit of the financial statements in accordance with the Standards onAuditing (SAs) specified under section 143(10) of the Act. Our responsibilities underthose Standards are further described in the ‘Auditor’s Responsibilities for theAudit of the Financial Statements’ section of our report. We are independent of theBank in accordance with the "Code of Ethics" issued by the Institute ofChartered Accountants of India together with the ethical requirements that are relevant toour audit of the financial statements under the provisions of the Act 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 audit opinion on thefinancial statements.

Emphasis of Matter

We draw attention to Note No. A.12.1 of Schedule 18 to the financial statementsregarding the impact of COVID-19 pandemic and the adjustments made in the accounts for theyear ended 31st March 2021 on account of the same. As stated therein in viewof continuing uncertainties the extent of impact of the pandemic on the Bank’soperations and financial position would depend on several factors including the stepstaken by the Governments Reserve Bank of India (RBI) and the Bank to mitigate the same.

Our opinion is not modified in respect of this matter.

Key Audit Matters

Key Audit Matters are those matters that in our professional judgment were of mostsignificance in our audit of the financial statements for the financial year ended March31 2021. These matters were addressed in the context of our audit of the financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters. For each matter below our description of how our auditaddressed the matter is provided in that context.

Description of Key Audit Matters

Key Audit Matters How our audit addressed the Key Audit Matters
Classification of Advances identification of non-performing advances Income Recognition and provisioning on Advances (Refer Note 3 of Schedule 17 and Note A 9 of Schedule 18 to the financial statements)
(i) Advances include Bills purchased and discounted Cash credits Overdrafts Loans repayable on demand and Term loans. These ware further categorised as secured by Tangible assetws (including advances against Book Debts) covered by Bank/Government Guarantees and Unsecured advances. Our audit approach / procedures towards advances with reference to the prudential norms for classification of advances identification of non-performing advances income recognition and provisioning on advances (IRACP norms) and other related circulars/directives issued by the Reserve Bank of India (RBI) and also internal policies and procedures of the Bank includes the following:
The Reserve Bank of India (‘RBI’) prescribes the prudential norms for income recognition asset classification and provisioning of non-performing assets (including circulars in relation to COVID-19 Regulatory Package – Asset Classification and Provisioning) (IRACP Norms) and prescribes the minimum provision required for such assets. - Understanding and considering the Bank’s accounting policies for NPA identification and provisioning and assessing compliance with the prudential norms prescribed by the RBI (IRACP Norms) including the additional provisions made on advances considering the current uncertain economic environment arising out of COVID 19 pandemic.
The identification of performing and non- performing advances involves establishment of proper mechanism and the Bank is required to apply significant degree of judgement to identify and determine the amount of provision required against each non-performing asset (‘NPA’) applying both quantitative as well as qualitative factors prescribed by the regulations. - Understanding evaluation and testing the design and operating effectiveness of key controls (including application controls) for identification and provisioning of impaired accounts based on the extant guidelines on IRACP laid down by the RBI.
Significant judgements and estimates for NPA identification and provisioning could give rise to material misstatements on: - Performing other procedures including substantive audit procedures covering the identification of NPAs by the Bank. These procedures included:
- Completeness and timing of recognition of non- performing assets in accordance with criteria as per IRACP norms; (a) Considering testing of the exception reports generated from the application systems where the advances have been recorded.
- Measurement of the provision for non- performing assets based on loan exposure ageing and classification of the loan realizable value of security; (b) Considering the accounts reported by the Bank and other banks as Special Mention Accounts ("SMA") in RBI’s central repository of information on large credits (CRILC) to identify stress.
- Appropriate reversal of unrealized income on the NPAs (c) Reviewing account statements and other related information of the borrowers selected based on quantitative and qualitative risk factors
Since the identification of NPAs and provisioning of advances (including additional provisions considering the current situation arising out of COVID-19 pandemic) requires proper mechanism and significant level of estimation and given its significance to the overall audit we have ascertained identification of NPAs and provisioning of advances as a key audit matter. (d) Reading of minutes of management committee and credit committee meetings and performing inquiries with the credit and risk departments to ascertain if there were indicators of stress or an occurrence of an event of default in a loan account or any product
(e) Considering audit reports and memorandum of changes issued by statutory branch auditors.
(f) Considering Internal Audit Systems Audit Credit Audit and Concurrent Audit as per the policies and procedures of the Bank.
(g) Considering the RBI Annual Financial Inspection report on the Bank the bank’s response to the observations and other communication with RBI during the year.
(h) Examination of advances including stressed advances on a sample basis with respect to compliance with the RBI Master Circulars / Guidelines. For Non- performing advances identified we based on our sample on factors including stressed sectors and account materiality tested the asset classification dates value of available security and provisioning as per IRACP norms. We recomputed the provision for NPA after considering the key input factors and compared our measurement outcome to that prepared by management.

 

(ii) Classification and Valuation of Investments Identification of and provisioning for Non-Performing
Investments (Schedule 8 read with Note 2 of Schedule 17 to the financial statements)
Investments include investments made by the Bank in various Government Securities Bonds Debentures Shares Security receipts and other approved securities. These are governed by the circulars and directives of the RBI. These directions of RBI inter-alia cover valuation of investments classification of investments identification of non-performing investments non recognition of income and provisioning against non-performing investments. Our audit approach/procedures towards Investments with reference to the RBI Circulars/directives included the understanding of internal controls and substantive audit procedures in relation to valuation classification identification of non-performing investments (NPIs) and provisioning/ depreciation related to Investments. In particular
Investments are classified into ‘Held for Trading’ (‘HFT’) ‘Available for 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. a. We evaluated and understood the Bank’s internal control system to comply with relevant RBI guidelines regarding valuation classification identification of NPIs and provisioning/ depreciation related to investments;
Investments classified as HTM are carried at amortised cost. Where in the opinion of management a diminution other than temporary in the value of investments has taken place appropriate provisions are made. b. We assessed and evaluated the process adopted for collection of information from various sources for determining market value of these investments;
Investments classified as AFS and HFT are marked- to-market on a periodic basis as per the relevant RBI guidelines. c. For the selected sample of investments in hand we tested accuracy and compliance with the RBI Master Circulars and directions by re-performing valuation for each category of the security. Samples were selected after ensuring that all the categories of investments (based on nature of security) were covered in the sample;
The valuation of each category (type) of the aforesaid securities is to be done as per the method prescribed in circulars and directives issued by the RBI which involves collection of data/information from various sources such as FBIL /FIMMDA rates rates quoted on BSE/NSE financial statements of unlisted companies etc. d. We assessed and evaluated the process of identification of NPIs and corresponding reversal of income and creation of provision;
Considering the complexities and extent of judgement involved in the valuation volume of transactions investments on hand and degree of regulatory focus this has been determined as a Key Audit Matter. Accordingly our audit was focused on valuation of investments classification identification of non-performing investments and provisioning related to investments. e. We carried out substantive audit procedures to recompute independently the provision to be maintained in accordance with the circulars and directives of the RBI. Accordingly we selected samples from the investments of each category and tested for NPIs as per the RBI guidelines and recomputed the provision to be maintained in accordance with the RBI Circular for those selected sample of NPIs;
f. We tested the mapping of investments between the Investment application software and the financial statement preparation software to ensure compliance with the presentation and disclosure requirements as per the aforesaid RBI Circular/directions.

 

(iii) Pension valuation retirement benefit obligations and provision for wage revisions
The Bank operates defined benefit schemes like gratuity pension and leave benefits for its employees which in total are significant in the context of the overall balance sheet. The valuations of the employee benefit liabilities are calculated with reference to multiple actuarial assumptions and inputs including discount rate rate of inflation and mortality rates. The net defined benefit asset is sensitive to changes in the assumptions. - We tested the design and operating effectiveness of key controls over the completeness and accuracy of data extracted and supplied to the Bank’s actuaries which is used to calculate the defined benefit schemes’ surplus or deficit.
Considering the significant level of judgements and estimates and the materiality involved we have included this as a Key Audit Matter. - We also tested the controls associated with the actuarial assumptions setting process and the measurement of the fair value of the schemes’ assets.
- We understood the judgements made in determining the assumptions used by management to value the retirement benefit liabilities and we examined whether these assumptions met the requirements of the applicable accounting standards the specific circumstances of the schemes and their participants and were in line with market practice.
- Our audit procedures included an assessment of the assumptions used by the actuary by comparing life expectancy assumptions with relevant mortality tables benchmarking inflation and discount rates against external market data. We have also evaluated the independence qualifications and results of work performed the actuaries involved in the valuation process
- We verified the value of plan assets to the statements provided by asset management companies managing the plan assets.
- Verified the disclosures provided by the Bank in accordance with AS 15(R) Employee Benefits

 

(iv) Information Technology (‘IT’) Systems and Controls for financial reporting
Our audit procedures have a focus on those IT systems and controls which are material from a financial reporting perspective due to the pervasive nature and complexity of the IT environment the large volume of transactions processed in numerous locations daily and the reliance on automated and IT dependent manual controls. Our areas of audit focus included user access management developer access to the production environment and changes to the IT environment. These are key to ensure that IT dependent and application-based controls are operating effectively. Due to the pervasive nature and complexity of the IT environment we have ascertained IT systems and controls as a Key Audit Matter. - We tested the design and operating effectiveness of the Bank’s IT access controls over the information systems that are critical to financial reporting. We tested IT general controls (logical access changes management and aspects of IT operational controls). This included testing that requests for access to systems were reviewed and authorised. We tested the Bank’s periodic review of access rights. We inspected requests of changes to systems for approval and authorisation. We considered the control environment relating to various interfaces configuration and other application layer controls identified as key to our audit.
- In addition to the above we tested the design and operating effectiveness of certain automated controls that were considered as key internal controls over financial reporting.
- Where deficiencies were identified we tested compensating controls or performed alternate procedures. In addition we understood where relevant changes were made to the IT landscape during the audit period and tested those changes that had a significant impact on financial reporting.

 

(v) Provisions and Contingent Liabilities (Refer note 14 of Schedule 17 to the financial statements)
Assessment of Provisions and Contingent liabilities in respect of certain litigations including Direct and Indirect Taxes various claims filed by other parties not acknowledged as debt (Schedule 12 to the financial statements) Our audit approach / procedures involved:
There is high level of judgement required in estimating the level of provisioning. The Bank’s assessment is supported by the facts of matter their own judgment past experience and advice from legal and independent tax consultants wherever considered necessary. Accordingly unexpected adverse outcomes may significantly impact the Bank’s reported profit and state of affairs presented in the Balance Sheet. - Obtaining an understanding of internal controls relevant to the audit in order to design our audit procedures that are appropriate in the circumstances;
We determined the above area as a Key Audit Matter in view of associated uncertainty relating to the outcome of these matters which requires application of judgment in interpretation of law. - Understanding the current status of the litigations/tax assessments;
Accordingly our audit was focused on analysing the facts of subject matter under consideration and judgments/ interpretation of law involved. - Examining recent orders and/or communication received from various tax authorities/ judicial forums and follow up action thereon;
- Evaluating the merit of the subject matter under consideration with reference to the grounds presented therein and available independent legal / tax advice including opinion of our internal tax experts;
- Review and analysis of evaluation of the contentions of the Bank through discussions collection of details of the subject matter under consideration the likely outcome and consequent potential outflows on those issues; and
- Verification of disclosures related to significant litigations and taxation matters.

 

(vi) Modified Audit Procedures carried out in light of COVID-19 outbreak:
Due to the various COVID-19 pandemic restrictions imposed by the Government / Local Authorities during the period of our audit audit could not be conducted by physically visiting the premises of certain Branches of the Bank. Accordingly our audit procedures were required to be modified to carry out the audit remotely. Due to the outbreak of COVID-19 pandemic that caused lockdown and other travel restrictions imposed by the Governments/local administration during the period of our audit we could not travel to certain Branches of the Bank to carry out the audit processes physically at the respective offices. Wherever physical access was not possible necessary records/ reports/ documents/ certificates were made available to us by the Bank through digital medium emails and remote access to CBS and other relevant application software. To this extent the audit process was carried out on the basis of such documents reports and records made available to us which were relied upon as audit evidence for conducting the audit and reporting for the current period.
As we could not fully gather audit evidence in person/ physically/ through discussions and personal interactions with the officials at the Branches we have identified such modified audit procedures as a Key Audit Matter. Accordingly we modified our audit procedures as follows:
- Conducted verification of necessary records/ documents/ CBS and other Application software electronically through remote access/emails in respect of some of the Branches of the Bank wherever physical access was not possible.
- Carried out verification of scanned copies of the documents deeds certificates and the related records made available to us through emails and remote access over secure network of the Bank.
- Making enquiries and gathering necessary audit evidence through Video Conferencing and discussions over phone calls/conference calls emails and similar communication channels.

Information other than the 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 Annual Report but does not includethe financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we donot express any form of assurance conclusion thereon.

In connection with our audit of the financial statements our responsibility is to readthe other information and in doing so consider whether the other information ismaterially inconsistent with the financial statements or our knowledge obtained in theaudit or otherwise appears to be materially misstated. If based on the work we haveperformed we conclude that there is a material misstatement of this other information weare required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the FinancialStatements

The Bank’s Board of Directors is responsible for the matters stated in section134(5) of the Act with respect to the preparation of these financial statements that givea true and fair view of the financial position financial performance and cash flows ofthe Bank in accordance with the accounting principles generally accepted in Indiaincluding the Accounting Standards specified under section 133 of the Act read with Rule7 of the Companies (Accounts) Rules 2014 in so far as they apply to the Bank andprovisions of Section 29 of the Banking Regulation Act 1949 and circulars and guidelinesissued by the Reserve Bank of India (‘RBI’) from time to time. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding of the assets of the Bank and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; anddesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the financial statements thatgive a true and fair view and are free from material misstatement whether due to fraud orerror. In preparing the financial statements Management and Board of Directors areresponsible 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. Those Board of Directors arealso responsible for overseeing the Bank’s financial reporting process.

Auditor’s Responsibilities for the audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement whether due to fraud or errorand to issue an auditor’s report that includes our opinion. Reasonable assurance is ahigh level of assurance but is not a guarantee that an audit conducted in accordance withSAs will always detect a material misstatement when it exists. Misstatements can arisefrom fraud or error and are considered material if individually or in the aggregate theycould reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements As part of an audit in accordance with SAs weexercise professional judgment and maintain professional skepticism throughout the audit.We also:

• Identify and assess the risks of material misstatement of the financialstatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control.

• 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 concernbasis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast significant doubt on theBank’s ability to continue as a going concern. If we conclude that a materialuncertainty exists we are required to draw attention in our auditor’s report to therelated disclosures in the financial statements or if such disclosures are inadequate tomodify our opinion. Our conclusions are based on the audit evidence obtained up to thedate of our auditor’s report. However future events or conditions may cause the Bankto cease to continue as a going concern.

• Evaluate the overall presentation structure and content of the financialstatements including the disclosures and whether the financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.

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 alsoprovide those charged with governance with a statement that we have complied with relevantethical requirements regarding independence and to communicate with them allrelationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards. From the matters communicated withthose charged with governance we determine those matters that were of most significancein the audit of the financial statements for the financial year ended March 31 2021 andare therefore the key audit matters. We describe these matters in our auditor’sreport unless law or regulation precludes public disclosure about the matter or when inextremely rare circumstances we determine that a matter should not be communicated in ourreport because the adverse consequences of doing so would reasonably be expected tooutweigh the public interest benefits of such communication.

Other Matters

We did not audit the financial statements of 824 branches included in the financialstatements of the Bank whose financial statements reflect total assets of Rs.84639.61Crores as at March 31 2021 and total revenue of Rs.5091.16 Crores for the year ended onthat date as considered in the financial statements. The financial statements of thesebranches have been audited by the branch auditors whose reports have been furnished to usand in our opinion in so far as it relates to the amounts and disclosures included inrespect of branches is based solely on the report of such branch auditors.

Our opinion is not modified in respect of this matter.

Report on Other Legal and Regulatory Requirements

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

As required by sub-section (3) of section 30 of the Banking Regulation Act 1949 wereport 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) the returns received from the offices and branches of the Bank have been foundadequate for the purposes of our audit. Further as required by section 143(3) of the Actwe report 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;

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 and proper returns adequatefor the purposes of our audit have been received from branches not visited by us;

c) The reports on the accounts of the branch offices of the Bank audited under section143(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 Profit and Loss Account the Cash Flow Statement dealt withby this report are in agreement with the books of account and with the returns receivedfrom the branches not visited by us;

e) In our opinion the aforesaid financial statements comply with the AccountingStandards specified under Section 133 of the Act read with Rule 7 of the Companies(Accounts) Rules 2014 to the extent they are not inconsistent with the accountingpolicies prescribed by RBI;

f) On the basis of written representations received from the directors as on March 312021 and taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2021 from being appointed as a director in terms of Section 164(2) of theAct;

g) With respect to the adequacy of the internal financial controls over financialreporting of the Bank with reference to these financial statements and the operatingeffectiveness of such controls refer to our separate Report in "Annexure A" tothis report;

h) In our opinion the entity being a banking company the remuneration to itsdirectors during the year ended March 31 2021 has been paid/provided by the Bank inaccordance with the provisions of section 35B (1) of the Banking Regulation Act 1949and;

i) 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 has disclosed the impact of pending litigations on its financial positionin its financial statements - Refer Schedule 12.I and Sl.no 1 of Note 9 under Schedule18.B to the financial statements;

ii. The Bank has made provision as required under the applicable law or accountingstandards for material foreseeable losses if any on long term contracts includingderivative contracts - Refer Note 10 under Schedule 18.B to the financial statements; and

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

For Varma & Varma
Chartered Accountants
ICAI Firm Registration No.004532S
V Sathyanarayanan
Partner
Kochi Membership No.021941
May 21 2021 ICAI UDIN: 21021941AAAACF4549

ANNEXURE A TO THE INDEPENDENT AUDITOR’S REPORT OF EVEN DATE ON THE FINANCIALSTATEMENTS OF THE SOUTH INDIAN BANK LIMITED

REPORT ON THE INTERNAL FINANCIAL CONTROLS OVER FINANCIAL REPORTING WITH REFERENCE TOFINANCIAL STATEMENTS UNDER CLAUSE (I) OF SUB-SECTION 3 OF SECTION 143 OF THE COMPANIESACT 2013 ("THE ACT")

We have audited the internal financial controls over financial reporting with referenceto financial statements of The South Indian Bank Limited (‘the Bank’) as atMarch 31 2021 in conjunction with our audit of the financial statements of the Bank forthe year ended on that date.

Management’s Responsibility for Internal Financial Controls over FinancialReporting

The Bank’s Management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Bank considering the essential components of internal control stated inthe Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issuedby the Institute of Chartered Accountants of India . These responsibilities include thedesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the orderly and efficient conduct of its businessincluding adherence to Bank’s policies the safeguarding of its assets theprevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired under the Companies Act 2013.

Auditor’s Responsibility

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 as specified under section143 (10 ) of the Companies Act 2013 to the extent applicable to an audit of internalfinancial controls both applicable to an audit of internal financial controls and bothissued by the Institute of Chartered Accountants of India. 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 judgement 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 controlssystem over financial reporting.

Meaning of Internal Financial Controls Over Financial Reporting

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

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

(2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accountingprinciples and that receipts and expenditures of the bank are being made only inaccordance with authorizations of management and directors of the bank; and

(3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition use or disposition of the bank’s assets that could have amaterial effect on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Because of the inherent limitations of internal financial controls over financialreporting with reference to financial statements including the possibility of collusionor improper management override of controls material misstatements due to error or fraudmay occur and not be detected. Also projections of any evaluation of the internalfinancial controls over financial reporting to future periods are subject to the risk thatthe internal financial control over financial reporting may become inadequate because ofchanges in conditions or that the degree of compliance with the policies or proceduresmay deteriorate.

Opinion

In our opinion the Bank has in all material respects an adequate internal financialcontrols system over financial reporting with reference to financial statements and suchinternal financial controls over financial reporting were operating effectively as atMarch 31 2021 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 issuedby the Institute of Chartered Accountants of India.

Other Matters

Our aforesaid report in so far as it relates to the operating effectiveness of internalfinancial controls over financial reporting of 824 branches is based on the correspondingreports of the respective branch auditors of those branches.

Our opinion is not modified in respect of this matter.

For Varma & Varma
Chartered Accountants
ICAI Firm Registration No.004532S
V Sathyanarayanan
Partner
Kochi Membership No.021941
May 21 2021 ICAI UDIN: 21021941AAAACF4549

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