President of India/Members of Union Bank of India Report on Audit of the StandaloneFinancial Statements
1. We have audited the standalone financial statements of Union Bank of India(the Bank') which comprise the Balance Sheet as at March 31 2020 the Profit andLoss Account and the Cash Flow Statement for the year then ended and Notes to StandaloneFinancial Statements including a summary of Significant Accounting Policies and otherexplanatory information. Incorporated in these financial statements are returns of 20branches including 1 treasury branch18RegionalOfficesaudited by us 2636 branches auditedby statutory branch auditors and 2 foreign branches audited by local auditors. Thebranches audited by us and those audited by other auditors have been selected by the Bankin accordance with the guidelines issued to the Bank by the Reserve Bank of India. Alsoincorporated in the Balance Sheet the Profit and Loss Account and Cash Flow Statement arethe returns from 1626 branches 45 regional offices which have not been subjected toaudit. These unaudited branches account for 5.49 percent of advances 15.45 percent ofdeposits 5.98 percent of interest income and 13.81 percent of interest expenses.
2. In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid Standalone Financial Statements give the information requiredby the Banking Regulation Act 1949 in the manner so required for bank and are inconformity with accounting principles generally accepted in India and give: a. true andfair view in case of the Balance sheet of the state of affairs of the Bank as at March31 2020; b. true balance of loss in case of Profit and loss account for the year ended onthat date; and c. true and fair view of the cash flows in case of cash flows statement forthe year ended on that date.
Basis for Opinion:
3. We conducted our audit in accordance with the Standards on Auditing (SAs) issued bythe Institute of Chartered Accountants of India (ICAI). Our responsibilities under thoseStandards are further described in the Auditor's Responsibilities for the Audit of theStandalone Financial Statements section of our report. We are independent of the Bank inaccordance with the code of ethics issued by the Institute of Chartered Accountants ofIndia together with ethical requirements that are relevant to our audit of the standalonefinancial statements in accordance with the accounting principles generally accepted inIndia including the Accounting Standards issued by ICAI and provisions of Section 29 ofthe Banking Regulation Act 1949 and circulars and guidelines issued by the Reserve Bankof India (RBI') from time to time and we have fulfilled accordance with theserequirements and the code of ethics. We believe that the audit evidence we have obtainedis sufficient and appropriate to provide a basis for our opinion.
Emphasis of Matters
4. a. We draw your attention to Note 1.4.6 of schedule 18- Notes to Accounts to thestandalone financial statements which describes that the extent to which the COVID-19Pandemic will impact the bank's operations will depend on future developments which arehighly uncertain.
b. We draw your attention to Note 3.1 of schedule 18- Notes to Accounts to thestandalone financial the impact of the harmonization of provision for the year ended onMarch 31 2020 on account of divergence in asset classification across Union Bank ofIndia Andhra Bank and Corporation Bank as per extant IRACP norms. Our opinion is notmodified in respect of these matters.
Key Audit Matters:
5. Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the Standalone financial statements of the current period.These matters were addressed in the context of our audit of the Standalone financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters. We have determined the matters prescribed below to bethe key audit matters to be communicated in our report:
|Sr. No. Key Audit Matters ||How the Matter was addressed in our report |
|1. Information Technology (IT) Systems and controls over financial reporting || |
|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. Extensive volume variety and complexity of transactions are processed daily and there is a risk that automated accounting procedures and related internal controls may not be accurately designed and operating effectively. Particular areas of focus relate to the logic that is fed into the system 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. ||Our audit procedures included verifying testing and reviewing the design and operating effectiveness of the IT system by verifying the reports/returns and other financial and non-financial information on a test check basis. Our audit procedures included: |
| || Ensuring that deficiencies noticed in our verification on test check basis were informed to the management for corrective action; |
| || Carrying out independent alternative audit procedures like substantive testing in areas were deficiencies were noticed; |
| || Analytical procedures like ratio analysis trend analysis reasonable tests comparative analysis; |
| || Reliance on the work performed by the statutory branch auditors and the rectification entries (MOCs) passed based on branch audits; |
|We have relied on the consistent and accurate functioning of CBS and other IT systems for the following: || Reliance on external vendor inspection reports wherever made available. |
| Asset Classification and Income recognition as per the Reserve Bank of India guidelines; || |
| Provisioning on the advance portfolio; || |
| Identification of advances and liability items and its maturity pattern in various brackets; || |
| Reconciliation and ageing of various suspense and sundry accounts impersonal accounts inter-branch balances and other such accounts; || |
| Recording Investment transactions || |
| Interest expense on deposits and other liabilities; || |
2. Income Recognition Asset Classification (IRAC) and provisioning on Loans& Advances and Investments as per the regulatory requirements.
|Loans & Advances and Investments are the largest class of assets forming 84.88% of the total assets as on March 31 2020. Classification income recognition and loss provisioning on the same are based on objective parameters as prescribed by the regulations (Reserve Bank of India's prudential norms and other guidelines). The management of the Bank relies heavily on its IT systems (including Core Banking Solution) exercise significant estimates and judgement manual interventions and uses services of experts (like independent valuers Lawyers legal experts and other professional) to determine asset classification income recognition and provisioning for losses. ||Our audit was focused on income recognition asset classification and provisioning pertaining to advances due to the materiality of the balances and associated impairment provisions. |
| ||Our audit procedures included the assessment of controls over the approval disbursements and monitoring of loans and reviewing the logic and assumptions used in the CBS and other related IT systems for compliance of the IRAC and provisioning norms and its operating effectiveness. These included: |
| || We have evaluated and understood the Bank's internal control system in adhering to the Relevant RBI guidelines regarding income recognition asset classification and provisioning pertaining to advances/investments; |
| || System controls and manual controls over the timely recognition of non-performing assets (NPA/NPI); |
| || Operational existence and effectiveness of controls over provisioning calculation models from the IT systems; |
| || Overall Controls on the loan approval disbursement and monitoring process in case of advances and controls over the purchase sale and hold decisions making system in case of investments |
| || We tested sample of loans/investments (in cases of branches visited by us) to assess whether they had been identified as non performing on a timely manner income recognized and provisioning made as per IRAC norms. |
| || We have also reviewed the reliability effectiveness and accuracy of manual interventions wherever it has come to our notice on test check basis. |
| || We have relied on the reports/returns and work done by other Statutory Branch Auditors (SBA) in cases of branches not visited by us to get an overall comfort with respect to overall compliance in accordance with SA 600 - Using the Work of Another Auditor. |
| || We have reviewed the work done by other experts like Independent valuers Lawyers Legal Experts and other such professionals who have rendered services to the Bank in accordance with SA 620 Using the Work of an Auditor's Expert. |
| || Further we have also reviewed the Bank's system of monitoring potentially weak and sensitive accounts which show a sign of stress. |
| || We have also reviewed the reports and observations of the Bank's internal audit/inspection reports and observations of the concurrent auditors for the same. |
| || Verification of valuation and income recognition of investments by carrying our substantive test including arithmetic accuracy data accuracy and control over the financial reporting system. |
3. Recognition and measurement of Deferred tax
|The Bank has recognised a net deferred tax asset of ` 73568800 (in 000) as on March 31 2020. Besides objective estimation recognition and measurement of deferred tax asset is based on the judgment and numerous estimates regarding the availability and visibility of profits in the future. The recent increase in the amount of deferred tax assets recognised presumes availability and forecasting of profits over an extended period of time thus increasing uncertainty and the inherent risk of inappropriate recognition of the said asset. ||Our audit procedures included the risk assessment to gain an understanding of the applicable tax laws and relevant regulations applicable to the Bank. Based on our understanding we performed both tests of related internal key controls and substantive audit procedures with the assistance of tax specialists. We performed the following audit procedures as part of our controls testing including but not limited to: |
| || Evaluation of the policies used for recognition and measurement of deferred tax assets in accordance with AS 22 Accounting for Taxes on Income; |
| || Assessed the method assumptions and other parameters used with reference to uniformity management representations consistency and continuity like budget and midterm projections prepared by the management including earning growth and applicable tax rates and tested the arithmetical accuracy. |
| || Assessed the probability of the availability and visibility of profits against which the bank will be able to use this deferred tax asset in the future. |
4. COVID-9 Pandemic
|Modified Audit Procedures carried out in light of COVID-19 outbreak. ||Due to the outbreak of COVID-19 pandemic that caused nationwide lockdown and other travel restrictions imposed by the Central and State Governments/ Local administration during the period of our audit we could not travel to the Branches/Regions/Zones/ Verticals/ Corporate Offices and carry out the audit processes physically at the respective offices. |
|Due to COVID-19 pandemic Nation-wide lockdown and travel restrictions imposed by Central / State Government / Local authorities during the period of our audit and the RBI directions to Bank to facilitate carrying out audit remotely wherever physical access was not possible audit could not be conducted by visiting the premises of certain Branches / Regional & Zonal Offices/ Verticals at the Corporate Office of the bank. ||Wherever physical access was not possible necessary records/ reports/ documents/ certificates were made available to us by the Bank through digital medium including the designated audit portal of the bank emails and remote access to CBS and closing package. 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 gather audit evidence in person/physically/ through discussions and personal interactions with the officials at the Branches /Regions & Zones/ Verticals / Corporate Offices we have identified such modified audit procedures as a Key Audit Matter. ||Accordingly we modified our audit procedures (based on regulatory and ICAI advisories) as follows: |
|Accordingly our audit procedures were modified to carry out the audit remotely. || Conducted verification of necessary records/ documents/CBS/closing package and other application software electronically through remote access/emails/in respect of some of the Branches/ Regions/Zones/Verticals/Corporate Offices and other offices of the Bank wherever physical access was not possible. |
| || Carried out verification of scanned copies of the documents deeds certificates returns from branches and the related records made available to us through emails and remote access over secure network of the Bank |
| || Making enquires and gathering necessary audit evidence through Video Conferencing dialogues and discussions over phone calls/conference calls emails and similar communication channels. |
| || Resolution of our audit observations telephonically/ through email instead of a face to-face interaction with the designated officials. |
6. The Bank's Board of Directors is responsible for the preparation of the otherinformation. The other information comprises the Highlights for the year Directors'Report including annexures to Directors' Report Key Financial Ratios BusinessResponsibility Report and Corporate Governance Report included in the Annual report butdoes not include the financial statements and our auditors' report thereon and the PillarIII Disclosures under the New Capital Adequacy Framework (Basel III disclosures).
Our opinion on Standalone financial statements does not cover the other information andthe Basel III disclosures and we do not express any form of assurance conclusion thereon.
In connection with the audit of the Standalone financial statements our responsibilityis to read the other information and in doing so consider whether the information ismaterially inconsistent with the standalone financial statements or our knowledge obtainedin the audit or otherwise appears to be materially misstated.
When we read the other information if we conclude that there is a materialmisstatement therein we are required to communicate the matter to those charged withgovernance and take appropriate action necessitated by the circumstances and theapplicable laws and regulations.
Responsibilities of Management and Those Charged with Governance for the StandaloneFinancial Statements
7. The Bank's Board of Directors is responsible with respect to the preparation ofthese standalone financial statements that give a true and fair view of the financialposition financial accounting principles generally accepted in India including theAccounting Standards issued by ICAI and provisions of Section 29 of the BankingRegulation Act 1949 and circulars and guidelines issued by the Reserve Bank of India(RBI') from time to time. This responsibility also includes maintenance of adequateaccounting records in accordance with the provisions of the Act for safeguarding of theassets of the Bank and for preventing and detecting frauds and other irregularities;selection and application of appropriate accounting policies; making judgments andestimates that are reasonable and prudent; and design implementation and maintenance ofadequate internal financial controls that were accuracy and completeness of theaccounting records relevant to the preparation and presentation of the standalonefinancial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.
In preparing the standalone 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.
The Board of Directors are also responsible for overseeing the Bank's Financialreporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
8. Our objectives are to obtain reasonable assurance about whether the standalonefinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the standalonefinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient to provide a basisfor our opinion. The risk of not detecting a material misstatement resulting from fraud ishigher than for one resulting from error as fraud may involve collusion forgeryintentional 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 but not for the purposeof expressing an opinion on the effectiveness of the Bank's 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 the bank's ability tocontinue as a going concern. If we conclude that a material uncertainty exists we arerequired to draw attention in our auditor's report to the related disclosures in thestandalone financial statements or if such disclosures are inadequate to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's report. However future events or conditions may cause the bank to cease tocontinue as a going concern.
Evaluate the overall presentation structure and content of the standalonefinancial and whether the standalone financial statements represent the underlyingtransactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of the misstatements in the standalone financialstatements that individually or in aggregate makes it probable that the economicdecisions of a reasonably knowledgeable user of the financial statements may beinfluenced. We consider quantitative materiality and qualitative factors in (i) planningthe scope of evaluating the results of our work; and (ii) to evaluate the effect of anyidentified misstatement in the financial
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the standalone financial statementsof the current period and are therefore the key audit matters. We describe these mattersin our auditor's report unless law or regulation precludes public disclosure about thematter or when in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
Other matters: included in the standalone9. We did notauditthe financialstatements of the Bank whose financial statements reflect total assets of Rs.4178428080 (in 000) as at March 31 2020 and total revenue of Rs. (in 000)for the year ended on that date as considered in the standalone financial statements. Thefinancial branches have been audited by the branch auditors whose reports have beenfurnished to us and in our opinion in so far as it relates to the amounts and disclosuresincluded in respect of branches are 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 and Loss Account have been drawnup in accordance with Section 29 of the Banking Regulation 10. The Balance Sheet and theProfit Act 1949
11. Subject to the limitations of the audit indicated in paragraphs 8 and 9 above andalso subject to the limitations of disclosure required therein and as required by subsection 3 of Section 30 of the Banking Regulation Act 1949 we report that:
a. We have obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the 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
12. 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 purposes of our audit have been received from branches not visited by us;
b. the Balance Sheet the Profit and Loss Account and the Cash Flows 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 under section 29 of the Banking Regulation Act 1949 have been sent to us and havebeen 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 FlowsStatement comply with the applicable accounting standards to the extent they are notinconsistent with the accounting policies prescribed by RBI.
13. As required by letter no. DOS.ARB.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 specified in paragraph 2 ofthe aforesaid letter as under:
a. In our opinion the aforesaid Standalone Financial Statements comply with theAccounting Standards issued by ICAI to the extent they are not inconsistent with theaccounting policies prescribed by the RBI.
b. In our opinion 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 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.
|For C N K & Associates LLP ||For Kirtane & Pandit LLP ||For R S Patel & Co. |
|Chartered Accountants ||Chartered Accountants ||Chartered Accountants |
|FRN: 101961W/ W-100036 ||FRN: 105215W/ W-100057 ||FRN: 107758W |
|MANISh SAMPAT ||Sandeep D Welling ||Rajan B Shah |
|PARTNER ||Partner ||Partner |
|MEMBERSHIP NO. 101684 ||Membership No.044576 ||Membership No.101998 |
|For M G B & Co. LLP || ||For B M Chatrath & Co. LLP |
|Chartered Accountants || ||Chartered Accountants |
|FRN: 101169W/ W-100035 || ||FRN: 301011E/E300025 |
|Sanjay Kothari || ||Anand Chatrath |
|Partner || ||Partner |
|Membership No.048215 || ||Membership No. 052975 |
|Place: Mumbai || || |
|Date: 23rd June 2020 || || |