President of India/Members of Union Bank of India
Report on Audit of the Standalone Financial Statements
1. We have audited the standalone financial statements of Union Bank of India(the Bank') which comprise the Balance Sheet as at 31 March 2019 the Profit andLoss Account and the Cash Flows 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 branch 18 Regional Offices audited by us 2454 branchesaudited by statutory branch auditors and 4 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 and the Profit and Loss Account are the returns from1814 branches 45 regional offices which have not been subjected to audit. Theseunaudited branches account for 6.18 percent of advances 21.53 percent of deposits 6.92percent of interest income and 20.18 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 inconformitywith accounting 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 31 March 2019;
b. true balance of loss in case of Profit and loss account for the year ended on thatdate; and
c. true and fair view in case of cash flows statement for the year ended on that date.
Basis for Opinion:
3. We conducted our audit in accordance with the Standards on Auditing (SAs) issued byICAI. Our responsibilities 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 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 totime and we have fulfilled our other ethical responsibilities in 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.
Key Audit Matters:
4. 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 ||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 generated from the system on atest 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; |
| || || |
| ||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. || 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 Investmenttransactions || |
| || 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 85.62% of the total assets as on March 31 2019. 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). ||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. |
| || || |
| ||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 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 classification provisioning 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 Rs 51720800 (' in 000) as on March 312019. ||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: |
| ||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. || |
| || || |
| || || Evaluation of the policies used for recognition and measurement of deferred tax assets in accordance with AS 22 Accounting for Taxes on Income; |
| ||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. || Assessed the method assumptions and other parameters used with reference to uniformity 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. ||Impact of Pending litigation including Tax litigations || |
| ||There are 1129 number of pending and ongoing legal disputes (includingtaxlitigations) regulatory investigations and various claims against the bank aggregating to Rs 31049729.00 (' in 000) that have not been acknowledged as debts by the bank's management. In certain litigation and regulatory matters significant judgement is required by management to determine whether a demand is a liability or a contingent liability. If a present obligation exists and whether a provision should be recognised or a possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the bank's control. ||Ouraudit procedures mainly included: |
| || Review of the management's judgment to understand the nature and status of legal disputes regulatory investigations and claims against banks not acknowledged as debt to determine whether or not a provision should be recognized; |
| || Review of legal opinions obtained by the bank from their in house departments or external experts in this regard (where ever applicable); |
| || |
| || || Independent checks to assess the adequacy of provisions and disclosure of contingent liability by comparing assumptions to historical data verification of claims settled and fresh demands during the year and in certain case representation from the management based on legal opinion. |
| || || Verification of these provisions and related disclosures of the contingent liability as per the RBI guidelines and policies ofthe Bank. |
| || || Reliance of certification by Statutory Branch Auditors. |
5. 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. If based on the work wehave 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.
Responsibilities of Management and Those Charged with Governance for the StandaloneFinancial Statements
6. 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 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 totime. This responsibility also includes maintenance of adequate accounting records inaccordance with the provisions of the Act for safeguarding of the assets of the Bank andfor preventing 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 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.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
7. 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 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.
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. Ifwe conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe standalone 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 statements including the disclosures and whether the standalone financialstatements represent the underlying transactions and events in a manner that achieves fairpresentation.
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 our audit work and in evaluating the results of our work; and (ii) toevaluate the effect of any identified misstatement in the financial statements.
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.
8. We did not audit the financial statements of 2458 branches included in thestandalone financial statements of the Bank whose financial statements reflect totalassets of Rs. 3656019844 (in 000) as at 31 March 2019 and total revenue of Rs.381780379 (in 000) for the year ended on that date as considered in thestandalone financial statements. The financial statements of these branches have beenaudited by the branch auditors whose reports have been furnished to us and in our opinionin so far as it relates to the amounts and disclosures included in respect of branchesare 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
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 6 to 8 above and asrequired by the Banking Companies (Acquisition and Transfer of Undertakings) Act1970/1980 and subject also to the limitations of disclosure required therein wereportthat:
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 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 returns received 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 byusin 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.
|For S. Bhandari & Co. ||For CNK& Associates LLP ||For Kirtane & Pandit LLP |
|Chartered Accountants ||Chartered Accountants ||Chartered Accountants |
|FRN:000560C ||FRN: 101961W/ W-100036 ||FRN: 105215W/W-100057 |
|P P Pareek ||Suresh S. Agaskar ||S B Bhagwat |
|Partner ||Partner ||Partner |
|Membership No.071213 ||MembershipNo. 110321 ||Membership No.008072 |
|For R S Patel & Co. ||For MGB& Co. LLP ||For B M Chatrath & Co. LLP |
|Chartered Accountants ||Chartered Accountants ||Chartered Accountants |
|FRN: 107758W ||FRN: 101169W/ W-100035 ||FRN: 301011E/E300025 |
|Rajan B Shah ||Sanjay Kothari ||Anand Chatrath |
|Partner ||Partner ||Partner |
|Membership No.101998 ||Membership No.048215 ||Membership No. 052975 |
Date: 14th May 2019