To the Members of Ujjivan Small Finance Bank Limited
REPORT ON THE AUDIT OF THE FINANGAL STATEMENTS
We have audited the financial statements of Ujjivan Small Finance Bank Limited("the Bank") which comprise the Balance sheet as at March 31 2020 the profitand Loss Account Cash Flow Statement For the year then ended and notes to the financialstatements including a summary of significant accounting policies and other explanatoryinformation.
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 by the Banking Companies and give a true and fair view inconformity with the accounting principles generally accepted in India of the state ofaffairs of the Bank as at March 31 2020 its profit and its cash flows for the year endedon that date.
Basis for opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder Section 143(10) of the Act. Our responsibilities under those Standards are furtherdescribed in the Auditor's Responsibilities for the Audit of the Financial Statementssection of our report. We are independent of the Bank in accordance with the Code ofEthics issued by the Institute of Chartered Accountants of India ("ICAI")together with
the ethical requirements that are relevant to our audit of the financial statementsunder the provisions of the Act and the Rules thereunder and we have fulfilled our otherethical responsibilities in accordance with these requirements and the Code of Ethics. Webelieve that the audit evidence we have obtained is sufficient and appropriate to providea basis for our opinion.
Emphasis of Matter
We draw attention to Note 34 to the financial statements which describes that theextent to which the COVID-19 Pandemic will impact the Bank's financial statement willdepend on future developments which are incapable of assessment at this point in time.
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 of the current year. 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.
Identification of Non-Performing Assets ('NPA') and Provisioning on Advances
|Total Loans and Advances (Net of Provision) as at March 312020 ||: '14043.64 Crores |
|Gross NPA as at March 312020 ||: '137.14 Crores |
|Provision for NPA as at March 312020 ||: '109.65 Crores |
Refer Schedule (9) and Schedule 18(4.1) to the financial statement
|Key Audit Matter ||How our audit addressed the key audit matter |
|Identification of NPA and measurement of provision on account of NPA is made based on the assessment of various criteria stipulated in the Reserve Bank of India ('RBI') guidelines on 'Prudential Norms on Income Recognition Asset Classification and Provisioning pertaining to advances' ('IRACP'). The Bank is required to prepare a Board approved policy as per the IRACP guidelines for NPA identification and provision. ||Tested the design and operating effectiveness of key controls (including application controls) over approval recording monitoring and recovery of loans monitoring overdue / stressed accounts identification of NPA provision for NPA and valuation of security and collateral. |
|Testing of Application controls include testing of automated controls reports and system reconciliations. |
|the IRACp guidelines stipulate the requirement to identify NpA through defined criteria such as past due status out of order status etc. provisions in respect of such NpAs and restructured advances are made based on minimum provisioning levels prescribed under the IRACp and Bank's internal credit policy. ||Evaluated the governance process and review controls over calculations of provision of non-performing advances basis of provisioning approved in accordance with the Board approved policy. |
| ||An inclusive list of substantive procedures performed is mentioned below: |
|the provision on NpAs are also based on the valuation of the security available. In case of restructured accounts provision is made for erosion/ diminution in fair value of restructured loans in accordance with the RBI guidelines. Further NpA classification is made borrower wise whereby if one facility to the borrower becomes an NpA then all facilities to such a borrower will be treated as an NpA. || |
| || For sample borrowers assessed the appropriateness of asset classification and adequacy of related provisioning by performing procedures such as computation of overdue ageing assessment of borrower level NpA identification and verification of applicable provision rates as per IRACp norms and Bank's policy; |
|the Bank has framed policies in line with the RBI's guidelines vide 'COVID-19 - Regulatory package' and 'COVID-19 Regulatory package - Asset Classification and provisioning' thereby providing moratorium as a relief measure to the borrowers and creating required provisions against these reliefs. Additionally the Bank makes provisions on exposures that are not classified as NpAs for identified advances that can potentially slip into NpA. || |
| || Selected samples of performing loans to assess whether they should be classified as NpA; |
| || For selected samples reviewed the collateral valuation performed by the Bank; |
| || performed inquiries with the Management of the Bank to ascertain if there were indicators of stress perceived credit risk or occurrence of an event of default in any particular class of borrowers product category or loan account that warrants NpA assessment; |
|We have identified 'Identification of NpA and provisioning on Advances' as a key audit matter in view of the significant level of estimation involved as well as the stringent compliances laid down by the RBI in this regard. || |
| || Selected samples for standard and overdue accounts to assess compliance with the RBI guidelines vide its circulars 'COVID-19 - Regulatory package' and 'COVID-19 Regulatory package - Asset Classification and provisioning'. |
| || Reviewed the adequacy and accuracy of disclosures against the relevant accounting standards and RBI requirements relating to NpA. |
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 Director's Report and Annual Reportbut does not include the financial statements and our auditor's reports thereon which weobtained prior to the date of this auditor's Report and Annual Report which is expectedto be made available to us after that date.
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 have performed we conclude that there is a material misstatement of this otherinformation we are required to report that fact. We have nothing to report in thisregard.
When we read the Annual Report if we conclude that there is a material misstatementtherein we are required to communicate the matter to those Charged with Governance.
Responsibilities of Management and Those charged with Governance for FinancialStatements
The Bank's Board of Directors is responsible for the matters stated in Section 134(5)of the Act with respect to the preparation of these financial statements that give a trueand fair view of the financial position financial performance and cash flows of the Bankin accordance with the accounting principles generally accepted in India including theAccounting Standards specified under section 133 of the Act and provisions of Section 29of the Banking Regulation Act 1949 and circulars
guidelines and directions issued by the Reserve Bank of India from time to time asapplicable to Bank. This responsibility also includes maintenance of adequate accountingrecords in accordance with the provisions of the Act for safeguarding of the assets of theBank and for preventing and detecting frauds and other irregularities; selection andapplication of appropriate of accounting policies; making judgments and estimates that arereasonable and prudent; and design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe financial statement that give a true and fair view and are free from materialmisstatement whether due to fraud or error.
In preparing the financial statements the Board of Directors 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 unlessthe Board of Directors either intends to liquidate the Bank or to cease operations or hasno realistic alternative but to do so.
Those Board of Directors are also responsible for overseeing the Bank's financialreporting 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 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 we exercise professional judgment andmaintain 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 hasinternal financial controls with reference to financial statements in place and theoperating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by Management.
Conclude on the appropriateness of Management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Bank'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our Auditor's report to the related disclosures inthe 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 other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the financial statements for thefinancial year ended March 31 2020 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
1. the Balance Sheet and the profit and Loss Account have been drawn up in accordancewith the provisions of Section 29 of the Banking Regulation Act 1949 read with Section133 of the Companies Act 2013 read with Rule 7 of the Companies (Accounts) Rules 2014.
2. As required by Section sub-section 3 of Section 30 of the Banking Regulation Act1949 we 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 purposes of our audit and have foundthem to be satisfactory;
b) The transactions of the Bank which have come to our notice during the course of ouraudit have been within the powers of the Bank;
c) During the course of our audit we have visited 5 branches to examine the books ofaccount and other records maintained at branch and performed other relevant auditprocedures. Since the key operations of the Bank are automated with the key applicationsintegrated to the core banking system the audit is carried out centrally as all thenecessary records and data required for the purposes of our audit are available therein
3. As required by Section 143(3) of the Act we 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 purposes of our audit;
b) In our opinion proper books of account as required by law have been kept by theBank so far as it appears from our examination of those books;
c) the Balance Sheet the profit and Loss and the Cash Flow Statement dealt with bythis Report are in agreement with the books of account;
d) 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 the Reserve Bank of India;
e) on the basis of the written representations received from the directors as on March31 2020 taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2020 from being appointed as a director in terms of Section 164 (2) of theAct.
f) With respect to the adequacy of the internal financial controls with reference tofinancial statements of the Bank and the operating effectiveness of such controls referto our separate Report in "Annexure A".
g) With respect to the other matters to be included in the Auditor's Report inaccordance with the requirements of section 197(16) of the Act as amended.
The Bank is a Banking Company as defined under Banking Regulation Act 1949.Accordingly the requirements prescribed under section 197 of the Companies Act 2013 donot apply; and
h) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us:
i. The Bank has disclosed the impact of pending litigations on its financial positionin its financial statements - Refer Schedule 12 and Schedule 18 (26.6) to the financialstatements;
ii. The Bank has made provision as at March 31 2020 as required under the applicablelaw or accounting standards for material foreseeable losses if any on long-termcontracts - Refer Schedule 18 (26.6) to the financial statements. The Bank did not haveany derivative contracts as at March 31 2020;
iii. There were no amounts which were required to be transferred to the InvestorEducation and protection Fund by the Bank.
| ||For MSKA & Associates |
| ||Chartered Accountants |
| ||ICAI Firm Registration No. 105047W |
| ||Swapnil Kale |
| ||Partner |
|Mumbai ||Membership No.117812 |
|May 19 2020 ||UDIN: 20117812AAAAGA5061 |
Annexure A to the Independent Auditor's Report of even date on the Financial Statementsof Ujjivan Small Finance Bank Limited
[Referred to in paragraph 3(f) under 'Report on Other Legal and RegulatoryRequirements' in the Independent Auditor's Report of even date to the Members of ujjivanSmall Finance Bank limited on the Financial Statements for the year ended March 31 2020]
REPORT ON THE INTERNAL FINANCIAL CONTROLS UNDER CLAUSE (I) OF SUB-SECTION 3 OF SECTION143 OF THE COMPANIES ACT 2013 ("THE ACT")
We have audited the internal financial controls with reference to financial statementsof ujjivan Small Finance Bank limited ("the Bank") as of March 31 2020 inconjunction with our audit of the financial statements of the Bank for the year ended onthat date.
MANAGEMENT'S RESPONSIBILITY FOR INTERNAL FINANCIAL CONTROLS
The Bank's Management is responsible for establishing and maintaining internalfinancial controls based on the internal control with reference to financial statementscriteria established by the Bank considering the essential components of internal controlstated in the Guidance Note on Audit of Internal Financial Controls over FinancialReporting issued by the Institute of Chartered Accountants of India (ICAI) (the"Guidance Note"). These responsibilities include the design implementation andmaintenance of internal financial controls that were operating effectively for ensuringthe orderly and efficient conduct of its business including adherence to Bank's policiesthe safeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information as required under the Act.
Our responsibility is to express an opinion on the Bank's internal financial controlswith reference to financial statements based on our audit. We conducted our audit inaccordance with the Guidance Note and the Standards on Auditing issued by ICAI and deemedto be prescribed under section 143(10) of the Act 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 internal financial controls with reference to financial statements wasestablished and maintained and if such controls operated effectively in all materialrespects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls with reference to financial statements and their
operating effectiveness. Our audit of internal financial controls with reference tofinancial statements included obtaining an understanding of internal financial controlswith reference to financial statements assessing the risk that a material weaknessexists and testing and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk. The procedures selected depend on the auditor'sjudgement including the assessment of the risks of material misstatement of the financialstatements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Bank's internal financial controls withreference to financial statements.
meaning of internal financial controls with reference to financial statements
A Bank's internal financial control with reference to financial statements is a processdesigned to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A Bank's internal financial control withreference to financial statements includes those policies and procedures that (1) pertainto the maintenance of records that in reasonable detail accurately and fairly reflectthe transactions and dispositions of the assets of the Bank; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles and that receiptsand expenditures 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 WITH REFERENCE TO FINANCIALSTATEMENTS
Because of the inherent limitations of internal financial controls with reference tofinancial statements including the possibility of collusion or improper management
override of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls withreference to financial statements to future periods are subject to the risk that theinternal financial control with reference to financial statements may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.
In our opinion the Bank has in all material respects adequate internal financialcontrols with reference to financial statements and such internal financial controls withreference to financial statements were
operating effectively as at March 31 2020 based on the internal control withreference to financial statements criteria established by the Bank considering theessential components of internal control stated in the Guidance Note.
| ||For MSKA & Associates |
| ||Chartered Accountants |
| ||ICAI Firm Registration No. 105047W |
| ||Swapnil Kale |
| ||partner |
|Mumbai ||Membership No.117812 |
|May 19 2020 ||uDIN: 20117812AAAAGA5061 |