The Members of UCO Bank
Report on Audit of the Standalone Financial Statements
1. We have audited the accompanying Standalone Financial Statements ofUCO Bank("the Bank") which comprises the Balance Sheet as at 31st March 2022and the Statement of Profit and Loss Account and the Cash Flow Statement for the year thenended and notes to the standalone financial statements including a summary of significantaccounting policies and other explanatory information in which are incorporated thereturns for the year ended on that date of:
i) the Head Office 42 Zones 21 branches inclusive of 1 treasury branchaudited by us
ii) 1007branches (including Service branches) audited by statutorybranch auditors
iii) 2 overseas branches audited by overseas local auditors.
The branches audited by us and those audited by other auditors havebeen selected by the Bank in accordance with the guidelines issued to the Bank by theReserve Bank of India. Also incorporated in the Balance Sheet and the Profit and LossAccount and the Cash Flow Statement are the returns from 2044 branches which have not beensubjected to audit. These unaudited branches account for 16.52%of advances 43.28% ofdeposits 11.68 % of interest income and 44.04% of interest expenses.
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 in the manner so required forbank and are in conformity with accounting principles generally accepted in India andgive:
a. true and fair view in case of the Balance sheet of the state ofaffairs of the Bank as at 31st March 2022;
b. true balance of profit in case of the Profit and loss account forthe year ended on that date; and
c. true and fair view of cash flows in case of statement of cash flowsfor the year ended on that date.
Basis for Opinion
2. We conducted our audit in accordance with the Standards on Auditing(SAs) issued by the Institute of Chartered Accountants of India(ICAI). Ourresponsibilities under those Standards are further described in the Auditor'sResponsibilities for the Audit of the standalone financial statements section of ourreport. We are independent of the Bank in accordance with the code of ethics issued by theInstitute of Chartered Accountants of India together with ethical requirements that arerelevant to our audit of the standalone financial statements and we have fulfilled ourother ethical responsibilities in accordance with these requirements and the code ofethics. We believe that the audit evidence we have obtained is sufficient and appropriateto provide a basis for our opinion.
3. Emphasis of Matter
i) We draw attention to Note No. 14(k) of Schedule18 of the FinancialStatements regarding impact of COVID-19 pandemic. The situation continues to be uncertainand Bank's financial performance is dependent on future development. Bank is evaluatingthe situation on an ongoing basis with respect to the challenges faced.
Our opinion is not modified in respect of this matter.
4. 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 period. 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:
|Key Audit Matters ||Auditor's Response to Key Audit Matters |
|Information Technology (IT) Migration of Data and controls impacting financial Reporting: ||Our audit approach included: - |
| ||Our audit procedures includes assessment and identification of key IT applications and further verifying testing and reviewing the design and operating effectiveness of the IT system on the basis of reports /returns and other financial and non-financial information generated from the system on a test check basis. |
|During the year the Bank has migrated from Finacle 7 to Finacle 10. || |
|The Bank's financial accounting and reporting systems are highly dependent on the effective working of the Core Banking Solution (CBS) and other IT systems linked to the CBS or working independently. || |
| ||The audit procedures included: |
| ||a) Obtained an understanding of the Bank's IT control environment IT policies and data migration approach during the audit period. |
|Our areas of focus relate to the logic that is fed into the system accuracy of migrated data sanctity and reliability of the data access management and segregation of duties. These underlying principles are important because they ensure that changes to applications and data are appropriate authorized cleansed and monitored so that the system generates accurate and reliable reports/ returns and other financial and non-financial information that is used for the preparation and presentation of the financial statements. ||b) Testing IT general controls related to User and Application controls Change Management Controls and Data backup. |
| ||c) Where we identified the need to perform additional procedures we placed reliance on manual compensating controls; such as reconciliations between systems and other information sources or performing additional testing; extended our sample sizes to obtain adequate and appropriate audit evidences. |
| ||d) Reliance on the work performed by the statutory branch auditors and the rectification entries (MOCs) passed based on branch audits; |
|The Bank's operational and financial processes generate extensive volume on daily basis and process varied and complex transactions which are highly dependent on IT systems. There is a risk that automated accounting procedures and related internal controls may not be accurately designed and operating effectively hence considered as a key audit matter. || |
| ||e) Reliance on external vendor inspection reports wherever made available. |
| ||Our Result: |
| ||The system needs to be strengthened for its efficacy to control persisting deficiencies of input/output data from the system. We suggest bank to conduct IS Audit post migration to Finacle 10 to strengthen its efficacy & controls. |
|Classification of Advances Identification and Provisioning for non-performing advances ||We obtained an understanding of the Bank's Software circulars guidelines and directives of the RBI and the Bank's internal instructions and procedures in respect of asset classification and its provisioning and adopted the following audit procedures We evaluated and tested of the effectiveness of the IT software controls and other key internal control mechanisms with respect to the advances monitoring identification/ classification including testing of relevant data quality and review of the data entered in the software. |
|Advances include Bills purchased and discounted Cash credits Overdrafts Loans repayable on demand and Term loans. These are further categorized as secured by Tangible assets (including advances against Book Debts) covered by Bank/ Government Guarantees and Unsecured advances. || |
|The advances are classified as performing and non-performing advances (NPA) and provisioning thereon is made in accordance with the prudential norms as prescribed by the Reserve Bank of India (RBI). The classification and provisioning is done by Bank's IT software under its Core Banking Solution (CBS).The extent of provisioning of NPA under the prudential norms are mainly based on its ageing and recoverability of the underlined security. || |
| ||Review of the documentations operations/ performance and monitoring of the advance accounts on test check basis of the large and stressed advances to ascertain any overdue unsatisfactory conduct or weakness in any advance account to verify that its classification is in accordance with the prudential norms of RBI. Further we have also referred many of the reports of the internal/regulatory inspection concurrent auditors etc. and evaluated the consequent impact of the observations therein on the advance portfolio of the Bank. |
|In the event of any improper application of the prudential norms or consideration of the incorrect value of the security as the valuation of the security involves high degree of estimation and judgement the carrying value of the advances could be materially misstated either individually or collectively and in view of the significance of the amount of advances in financial statements the classification of the advances and provisioning thereon has been considered as Key Audit Matter in our audit. || |
|Classification and Valuation of Investments Identification of and provisioning for Non-Performing Investments ||Our audit approach 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) provisioning/depreciation related to Investments. |
|Investments include investments made by the Bank in various Government Securities Bonds Debentures Shares Security receipts and other approved securities. || |
| ||We evaluated and made an understanding of the Bank's internal control mechanism to comply with relevant RBI directions regarding valuation classification identification of NPIs provisioning/depreciation related to investments; |
|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 the corresponding non-recognition of income and provision there against. ||We also assessed and evaluated the process adopted for collection of information from various sources like FIMMDA rates rates quoted on BSE/NSE etc for determining fair value of these investments; |
|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 FIMMDA rates rates quoted on BSE/NSE financial statements of unlisted companies etc. 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. || |
| ||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. |
| ||We also assessed and evaluated the process of identification of NPIs and corresponding reversal of income and creation of provision thereagainst; |
|Accordingly our audit was focused on valuation of investments classification identification of non-performing investments and provisioning related to investments. ||In addition to above we also carried out substantive audit procedures to re-compute independently the provision to be maintained and depreciation to be provided in accordance with the circulars and directives of the RBI. We also evaluated the presentations of the various investment portfolio related disclosures in terms of RBI directions. |
|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 || |
| ||Our audit procedure in response to this key Audit Matter included |
|The Bank is involved in a number of taxation and other disputes for which final outcomes cannot be easily predicted and which could potentially result in significant liabilities. The assessment of the risks associated with the litigations is based on complex assumptions which require the use of judgement and such judgement relates primarily to the assessment of the uncertainties connected to the prediction of the outcome of the proceedings and to the adequacy of the disclosures in the financial statements. Because of the judgement required the materiality of such litigations and the complexity of the assessment process the area was considered a key matter for our audit. || Assessment of the process and relevant controls implemented to identify legal and tax litigations and pending administrative proceedings. |
| || Assessment of assumptions used in the evaluation of potential legal and tax risks performed by the Bank considering the legal precedence and other rulings in similar cases. |
| || Inquiry with the legal department regarding the status of the most significant disputes and inspection of the key relevant documentation. |
| || Analysis of opinion received from the experts where ever available. |
| || Review of the adequacy of the disclosures in the notes to the financial statements. |
5. A. These standalone financial statements incorporate the relevantreturns of 1009 branches including 2 foreign branches audited by the other auditorsspecially appointed for this purpose. These branches audited by other auditors cover 39.40% of advances 49.14 % of deposits and 28.52 % of Non-performing assets as on 31 March2022 and 18.93% /19% of revenue for the quarter ended 31 March 2022/ for the period 1stApril 2021 to 31st March 2022. The financial statements/ information of these brancheshave been audited by the Statutory Branch Auditors whose reports have been furnished tous and in our opinion in so far as it relates to the amounts and disclosures included inrespect of branches are based solely on the report of such branch auditors.
B. In conduct of our audit we have taken note of the unaudited returnsin respect of 2044 branches cover 16.52 % of advances43.28% of deposits and 9.05 % ofNon- Performing assets as on 31st March 2022 and 30.86%/28.42% of revenue for the quarterended 31 March 2022/ for the period 1st April 2021 to 31st March 2022.
Our opinion is not modified in respect of above matter.
Information other than the Financial Statements and Auditors' ReportThereon
6. The Bank's Board of Directors is responsible for the preparation ofthe other information. The other information primarily comprises the information includedin the Management Discussion and Analysis Director's Report Pillar 3 Disclosures underBasel III
Leverage Ratio Liquidity Coverage Ratio Corporate Governance andShareholders Information but does not include the financial statements and our auditor'sreport thereon which is expected to be made available to us after that date.
Our opinion on the financial statements does not cover the otherinformation and Pillar 3 disclosures under the Basel III disclosure and we do not expressany form of assurance conclusion thereon.
In connection with our audit of the financial statements ourresponsibility is to read the other information identified above and in doing soconsider whether the other information is materially inconsistent with the financialstatements or our knowledge in the audit or otherwise appears to be materially misstated.
If based on the work we have performed on the other information thatwe obtained prior to the date of this auditors' report we conclude that there is amaterial misstatement of this other information we are required to report that fact. Wehave nothing to report in this regard.
When we read the Directors' Report including annexures in annualreport if any thereon if we conclude that there is a material misstatement therein weare required to communicate the matter to those charged with governance.
Responsibilities of Management and Those Charged with Governance forthe Financial Statements
7. The Bank's Board of Directors is responsible with respect to thepreparation of these financial statements that give a true and fair view of the financialposition financial performance and cash flows of the Bank in accordance with theaccounting principles generally accepted in India including the Accounting Standardsissued by ICAI and provisions of Section 29 of the Banking Regulation Act 1949 andcirculars and guidelines issued by the Reserve Bank of India ('RBI') from time to time.This responsibility also includes maintenance of adequate accounting records in accordancewith the provisions of the Act for safeguarding of the assets of the Bank and forpreventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgments and estimates that are reasonable andprudent; and design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the financialstatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.
In preparing the financial statements management is responsible forassessing the Bank's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Bank or to cease operations or has norealistic alternative but to do so.
Auditor's Responsibilities for the Audit of the Financial Statements
8. Our objectives are to obtain reasonable assurance about whether thefinancial 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 financial statements. As part of an audit in accordance withSAs we exercise professional judgment and maintain professional skepticism throughout theaudit. We also:
Identify and assess the risks of material misstatement of thefinancial 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 theaudit in order to design audit procedures that are appropriate in the circumstances butnot for the purpose of expressing an opinion on the effectiveness of the Bank's internalcontrol.
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 thebank's ability to continue as a going concern. If we conclude that a material uncertaintyexists we are required to draw attention in our auditor's report to the relateddisclosures in the financial statements or if such disclosures are inadequate to modifyour opinion. Our conclusions are based on the audit evidence obtained up to the date ofour auditor's report. However future events or conditions may cause the bank to cease tocontinue as a going concern.
Evaluate the overall presentation structure and content of thefinancial statements including the disclosures and whether the financial statementsrepresent the underlying transactions and events in a manner that achieves fairpresentation.
Materiality is the magnitude of misstatements in the standalonefinancial statements that individually or in aggregate makes it probable that theeconomic decisions of a reasonably knowledgeable user of standalone financial statementsmay be influenced. We consider quantitative materiality and qualitative factors in (i)planning the scope of our audit work and in evaluating the results of our work; and (ii)to evaluate the effect of any identified misstatements in the standalone financialstatements.
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 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 financialstatements of the current period and are therefore the key audit matters. We describethese matters in our auditor's report unless law or regulation precludes public disclosureabout the matter or when in extremely rare circumstances we determine that a mattershould not be communicated in our report because the adverse consequences of doing sowould reasonably be expected to outweigh the public interest benefits of suchcommunication.
Report on Other Legal and Regulatory Requirements
9. The Balance Sheet and the Profit and Loss Account have been drawn upin accordance with Section 29 of the Banking Regulation Act 1949;
10. Subject to the limitations of the audit indicated in paragraphs 5and 6 above and as required by the Banking Companies (Acquisition and Transfer ofUndertakings) Act 1970/1980 and subject also to the limitations of disclosure requiredtherein as required by sub-section (3) of section 30 of the Banking Regulation 1949 wereport that:
a) We have obtained all the information and explanations which to thebest of our knowledge and belief were necessary for the purposes of our audit and havefound them to be satisfactory;
b) The transactions of the Bank which have come to our notice havebeen within the powers of the Bank; and
c) The returns received from the offices and branches of the Bank havebeen found adequate for the purposes of our audit.
11. We further report that:
a) 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 and properreturns adequate for the purpose of our audit have been received from branches/ officesnot visited by us;
b) 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 and withthe returns received from the branches not visited by us;
c) the reports on the accounts of the branch offices audited by branchauditors of the Bank as per the provisions under section 29 of the Banking Regulation Act1949 have been sent to us and have been properly dealt with by us in preparing thisreport; and
d) In our opinion the Balance Sheet the Profit and Loss Account andthe Cash Flow Statement comply with the applicable accounting standards to the extentthey are not inconsistent with the accounting policies prescribed by RBI.
12. As required by letter No. DOS.ARG.No.6270/08.91.001/2019-20 datedMarch 17 2020 on "Appointment of Statutory Central Auditors (SCAs) in Public SectorBanks - Reporting obligations for SCAs from FY 2019-20" read with subsequentcommunication dated May 19 2020 issued by the RBI we further report on the matters asspecified in the aforesaid letter as under:
a) In our opinion the aforesaid Financial Statements comply with theAccounting Standards issued by ICAI to the extent they are not inconsistent with theaccounting policies prescribed by the RBI.
b) There are no observations or comments on financial transactions ormatters which have any adverse effect on the functioning of the bank.
c) On the basis of the written representations received from thedirectors as on March 31 2022 none of the directors is disqualified as on March 31 2022from being appointed as a director in terms of sub-section (2) of Section 164 of theCompanies Act 2013.
d) There are no qualifications reservations or adverse remarksrelating to the maintenance of accounts and other matters connected therewith.
e) Our audit report on the operating effectiveness of the internalfinancial controls over financial reporting of the Bank is given in Annexure A to thisreport. Our report expresses an unmodified opinion on the operating effectiveness ofinternal financial controls over financial reporting of the Bank as at 31st March 2022
|For KHANDELWAL KAKANI & CO ||For R GOPAL & ASSOCIATES |
|Chartered Accountants ||Chartered Accountants |
|Registration No. 001311C ||Registration No. 000846C |
|(CA SANTOSH DESHMUKH) ||(CA G D AGARWALA) |
|Partner ||Partner |
|Membership No. 071011 ||Membership No. 051609 |
|UDIN: 22071011AIXWZV2422 ||UDIN: 22051609AIXWCW3396 |
|For S K AGRAWALAND CO CHARTERED ACCOUNTANTS LLP ||For GHOSHAL & GHOSAL |
|Chartered Accountants ||Chartered Accountants |
|Registration No. 306033E/E300272 ||Registration No. 304013E |
|(CA SANDEEP AGRAWAL) ||(CA AMIYA KUMAR GHOSHAL) |
|Partner ||Partner |
|Membership No. 058553 ||Membership No. 005254 |
|UDIN: 22058553AIXUIS3928 ||UDIN: 22005254AIXVDK5640 |
|Place: Kolkata || |
|Dated : 13-05-2022 || |
Annexure A to the Independent Auditor's Report
(Referred to in paragraph 10(a) under 'Report on Other Legal andRegulatory Requirements' section of our report of even date)
Report on the Operating Effectiveness of Internal Financial ControlsOver Financial Reporting as required by the Reserve Bank of India (the "RBI")Letter DOS.ARG.No. 6270/08.91.001/2019-20 dated March 17 2020 (as amended) (the"RBI communication")
1. We have audited the Operating Effectiveness of internal financialcontrols over financial reporting of UCO Bank ('the "Bank") as of 31st March2022 in conjunction with our audit of the financial Statements of the Bank for the yearended on that date which includes internal financial controls over financial reporting ofthe Banks branches.
Management's Responsibility for Internal Financial Controls overFinancial Reporting
2. The Management of the Bank is responsible for establishing andmaintaining internal financial controls based on the internal control over financialreporting criteria established by the Bank considering the essential components ofinternal control stated in the Guidance Note on Audit of Internal Financial Controls overFinancial Reporting issued by the Institute of Chartered Accountants of India. Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to Bank's policies the safeguarding of itsassets the prevention and detection of frauds and errors the accuracy and completenessof the accounting records. and the timely preparation of reliable financial informationas required under the Banking Regulation Act 1949 and the circulars and guidelines issuedby the Reserve Bank of India.
3. Our responsibility is to express an opinion on the operatingeffectiveness of internal financial controls over financial reporting of the Bank based onour audit. Our audit of internal financial controls over financial reporting includes anevaluation of the adequacy of the design and implementation of such internal financialcontrols over financial reporting.
4. We conducted our audit in accordance with the Guidance Note on Auditof Internal Financial Controls Over Financial Reporting (the "Guidance Note') issuedby the Institute of Chartered Accountants of India (the "ICAI") and theStandards on Auditing (SAs) issued by the ICAI to the extent applicable to an audit ofinternal financial controls. Those Standards and the Guidance Note require that we complywith ethical requirements and plan and perform the audit to obtain reasonable assuranceabout whether adequate internal financial controls over financial reporting operatedeffectively in all material respects.
5. Our audit involves performing procedure to obtain audit evidenceabout the operating effectiveness of the internal financial control over financialreporting of the Bank. The procedures selected depend on the auditor's judgementincluding the assessment of the risk of material misstatement of the financial statementswhether due to fraud or error.
6. We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our audit opinion on the operating effectiveness ofthe Bank's internal financial controls over financial reporting.
Meaning of internal Financial Controls over Financial Reporting
7. A Bank's internal financial controls over financial reporting is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A Bank's internal financial controls 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 FinancialReporting
8. Because of the inherent limitations of internal financial controlsover financial reporting including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls overfinancial reporting to future periods are subject to the risk that the internal financialcontrols over financial reporting may become inadequate because of changes in conditionsor that the degree of compliance with the policies or procedures may deteriorate.
9. In our opinion and to the best of our information and according tothe explanations given to us the Bank has in all material respects adequate internalfinancial controls over financial reporting and such internal financial controls overfinancial reporting were operating effectively as at March 31 2022 based on the criteriafor internal control over financial reporting established by the Bank considering theessential components of internal control stated in the Guidance Note on Audit of InternalFinancial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India.
10. Our aforesaid report insofar related to the operating effectivenessof Internal Financial Control over Financial Reporting of 370 branches in which 350branches are audited by the branch auditors appointed for this purpose and 20 branchesaudited by us. While ascertaining the operating effectiveness of Internal FinancialControl over Financial Reporting of 350 branches we have relied on the correspondingreports of the respective branch auditors of those branches.
Our opinion is not modified in respect of this matter.