The Members of UCO Bank
Report On The Financial Statements
1. We have audited the accompanying financial statements of UCO Bank("theBank) which comprises the Balance Sheet as at 31st March 2020 and the Statementof Profit and Loss Account and the Cash Flow Statement for the year then ended and notesto the financial statements including a summary of significant accounting policies andother explanatory information in which are incorporated the returns for the year ended onthat date of:
i) 21 branches inclusive of one treasury branch audited by us
ii) 1471 branches (including Service branches) audited by statutory branch auditors
iii) 2 overseas branches audited by overseas local auditors.
The branches audited by us and those audited by other auditors have been selected bythe Bank in accordance with the guidelines issued to the Bank by the Reserve Bank ofIndia. Also incorporated in the Balance Sheet and the Profit and Loss Account and the CashFlow Statement are the returns from 1594 branches which have not been subjected to audit.These unaudited branches account for 9.49 per cent of advances 31.87 per cent ofdeposits 11.05 per cent of interest income and 32.55 per cent of interest expenses.
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 in the manner so required for bank and are in conformity withaccounting principles generally accepted in India and give:
a. true and fair view in case of the Balance sheet of the state of affairs of the Bankas at 31st March 2020;
b. true balance of losses in case of the Profit and loss account for the year ended onthat date; and
c. true and fair view of cash flows in case of statement of cash flows for the yearended on that date.
Basis for Opinion
2. We conducted our audit of the financial statements in accordance with the Standardson 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 Financial Statements section of our report. We areindependent of the Bank in accordance with the code of ethics issued by the Institute ofChartered Accountants of India together with ethical requirements that are relevant to ouraudit of the financial statements and we have fulfilled our other ethical responsibilitiesin accordance with these requirements and the code of ethics. We believe that the auditevidence we have obtained is sufficient and appropriate to provide a basis for ouropinion.
3. Emphasis of Matter
i) We draw attention to Note No. 20 of Schedule 18 of the Financial Statementsregarding impact of COVID-19 pandemic. The situation continues to be uncertain and Bank'sfinancial performance is dependent on future development. Bank is evaluating the situationon an ongoing basis with respect to the challenges faced.
ii) Refer Note no. 11.1 of Schedule 18 of the Financial Statements relating todeferment of provision of Rs. 224.22 crore pertaining to certain fraud accounts identifiedduring the 1st quarter of the financial year 2020-21 and to be charged to the Profit andLoss accounts in the three quarters of financial year 2020-21 in terms of RBI Circular DBRNo .BP.BC.92/21.04.048/2015-16 dated April 18 2016.
Our opinion is not modified in respect of these matters.
Key Audit Matters
4. Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the financial statements of the current period. These matterswere addressed in the context of our audit of the financial statements as a whole and informing our opinion thereon and we do not provide a separate opinion on these matters. Wehave determined the matters described below to be the key audit matters to be communicatedin our report:
|Key Audit Matters || |
Auditor's Response to Key Audit Matters
|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
|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. |
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.
|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
Assessment of the process and relevant controls implemented to identify legal and tax litigations and pending administrative proceedings.
|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 || |
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.
|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. || |
Analysis of opinion received from the experts where ever available.
Review of the adequacy of the disclosures in the notes to the financial statements.
Modified Audit Procedures carried out in light of COVID-19 outbreak:
With the outbreak of COVID 19 pandemic nationwide lockdown and mobility restrictionswere imposed by the Government authorities which has been extended from time to time andcoincides with the timing for annual financial closing of the bank as well as with theaudit of the bank including its various branches/ other offices. Considering the lockdownrelated mobility restrictions and RBI advisory to facilitate undertaking of the bank auditon remote basis wherever physical access was not feasible. As a consequent of the abovein case of many branches-zones- departmental offices audit were undertaken on remotebasis.
As we could not gather audit evidence in person /physically or through discussions andpersonal interactions with the officials at the Branches/Zonal/Corporate Offices we haveto adopt modified audit procedures to undertake the audit and the same has been consideredas a Key Audit Matter. Accordingly our audit procedures were modified to carry out theaudit remotely.
During the period of our audit due to the COVID 19 Pandemic related lockdown andmobility restrictions as imposed by the Government authorities many of the auditors ofthe Bank could not undertake travel to the allocated Branches/Zonal/Departmental Officesand carry out the audit processes physically at such 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 remoteaccess to CBS/ access through alternative Bank branches/office locations and otherrelevant application software.
To the said extent the audit process were carried out on the basis of such documentsreports and records made available to us which were relied upon as audit evidence forconducting the audit and reporting for the current period.
Further we have also considered the various guidance/advisory issued by the Instituteof Chartered Accountants of India on the COVID 19 related impact on the audit of financialstatements.
In the backdrop of above we have suitably modified our audit procedures as follows:
a. In respect of the certain branches/zones/Other offices of the banks checking ofnecessary records and documents including review of the CBS housed/generated statementsthrough digital mediums/emails etc wherever physical visit/ access was not feasible.
b. Undertaking verification of scanned copies of the documents deeds certificates andthe related records as made available to us through emails and remote access over securenetwork of the Bank.
c. Making enquiries and gathering necessary audit evidence through Video Conferencingdialogues and discussions over phone calls/conference calls emails and similarcommunication channels. Resolution of our audit observations telephonically/ through emailinstead of a face- to-face interaction with the concerned officials of the Bank.
5. We did not audit the financial statements / information of 1471 branches and 2overseas branches included in the Financial Statements of the Bank whose financialstatements/ financial information reflects total advances of Rs.53703.60 crore at 31stMarch 2020 and total interest income of Rs. 5011.27 crore for the year ended on thatdate as considered in the Financial Statements. The financial statements/ information ofthese branches have been audited by the branch auditors whose reports have been furnishedto us and in our opinion in so far as it relates to the amounts and disclosures includedin respect of branches are based solely on the report of such branch auditors.
Our opinion is not modified in respect of above matter.
Information other than the Financial Statements and Auditors' Report Thereon
6. The Bank's Board of Directors is responsible for the preparation of the otherinformation. The other information primarily comprises the information included in theManagement Discussion and Analysis Director's Report Pillar 3 Disclosures under BaselIII Leverage Ratio Liquidity Coverage Ratio Corporate Governance and ShareholdersInformation but does not include the financial statements and our auditor's reportthereon which is expected to be made available to us after that date.
Our opinion on the financial statements does not cover the other information and Pillar3 disclosures under the Basel III disclosure and we do not express any form of assuranceconclusion thereon.
In connection with our audit of the financial statements our responsibility is to readthe other information identified above and in doing so consider whether the otherinformation is materially inconsistent with the financial statements or our knowledge inthe audit or otherwise appears to be materially misstated.
If based on the work we have performed on the other information that we obtained priorto the date of this auditors' report we conclude that there is a material misstatement ofthis other information we are required to report that fact. We have nothing to report inthis regard.
When we read the Directors' Report including annexures in annual report if anythereon if we conclude that there is a material misstatement therein we are required tocommunicate the matter to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the FinancialStatements
7. The Bank's Board of Directors is responsible with respect to the preparation ofthese financial statements that give a true and fair view of the financial positionfinancial performance and cash flows of the Bank in accordance with the accountingprinciples generally accepted in India including the Accounting Standards issued by ICAIand provisions of Section 29 of the Banking Regulation Act 1949 and circulars andguidelines issued 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 is responsible for assessing theBank's ability to continue as a going concern disclosing as applicable matters relatedto going concern and using the going concern basis of accounting unless management eitherintends to liquidate the Bank or to cease operations or has no realistic alternative butto do so.
Auditor's Responsibilities for the Audit of the Financial Statements
8. 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 a highlevel of assurance but is not a guarantee that an audit conducted in accordance with SAswill always detect a material misstatement when it exists. Misstatements can arise fromfraud 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.
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 financial statements or if such disclosures are inadequate to modify our opinion.Our conclusions are based on the audit evidence obtained up to the date of our auditor'sreport. However future events or conditions may cause the bank to cease to continue as agoing 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 othermatters 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 we havecomplied with relevant ethical requirements regarding independence and to communicatewith them all relationships and other matters that may reasonably be thought to bear onour independence and where applicable related safeguards.
From the matters communicated with those charged with governance we determinethose matters that were of most significance in the audit of the financial statements ofthe current period and are therefore the key audit matters. We describe these matters inour auditor's report unless law or regulation precludes public disclosure about the matteror 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
9. The Balance Sheet and the Profit and Loss Account have been drawn up in accordancewith Section 29 of the Banking Regulation Act 1949;
10. Subject to the limitations of the audit indicated in paragraphs 5 and 6 above andas required by the Banking Companies (Acquisition and Transfer of Undertakings) Act1970/1980 and subject also to the limitations of disclosure required therein as requiredby sub-section (3) of section 30 of the Banking Regulation 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 purposes 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.
11. We further report that:
a) 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 purpose of our audit have been received from branches/ offices not visited by us;
b) the Balance Sheet the Profit and Loss Account and the Cash Flow Statement dealtwith by this report are in agreement with the books of account and with the returnsreceived from the branches not visited by us;
c) the reports on the accounts of the branch offices audited by branch auditors of theBank as per the provisions under section 29 of the Banking Regulation Act 1949 have beensent to us and have been properly dealt with by us in preparing this report; and
d) In our opinion the Balance Sheet the Profit and Loss Account and the Cash FlowStatement comply with the applicable accounting standards to the extent they are notinconsistent with the accounting policies prescribed by RBI.
12. As required by letter No. DOS.ARG.No.6270/08.91.001/2019-20 dated March 17 2020 on"Appointment of Statutory Central Auditors (SCAs) in Public Sector Banks - Reportingobligations for SCAs from FY 2019-20" read with subsequent communication dated May19 2020 issued by the RBI we further report on the matters as specified in the aforesaidletter as under:
a) In our opinion the aforesaid Financial Statements comply with the AccountingStandards issued by ICAI to the extent they are not inconsistent with the accountingpolicies prescribed by the RBI.
b) There are no observations or comments on financial transactions or matters whichhave any adverse effect on the functioning of the bank.
c) On the basis of the written representations received from the directors as on March31 2020 none of the directors is disqualified as on March 31 2020 from being appointedas a director in terms of sub-section (2) of Section 164 of the Companies Act 2013.
d) There are no qualifications reservations or adverse remarks relating to themaintenance of accounts and other matters connected therewith.
e) As the Bank has exercised the option to implement "Internal Financial Controlswith reference to the Financial Statements" from the financial year 2020-21 aspermitted by RBI on May 19 2020 we do not provide any comment in this regard.