Canara Bank

Report on the Financial Statements:

1. We have audited the accompanying financial statements of Canara Bank as at 31stMarch 2011, which comprise the Balance Sheet as at 31st March 2011, Profit & LossAccount and the Cash Flow Statement for the year then ended, significant AccountingPolicies and other explanatory information. Incorporated in these financial statements arethe returns of 20 branches audited by us, 2716 branches audited by Branch Auditors and 4foreign branches audited by local auditors. The Branches audited by us and those auditedby other auditors have been selected by the Bank in accordance with the guidelines issuedby the Reserve Bank of India. Also incorporated in the Balance Sheet and the statement ofProfit & Loss are the returns from 521 Branches, which have not been subjected toaudit. These unaudited branches account for 0.37 per cent of advances, 1.61 per cent ofdeposits, 0.16 per cent of interest income and 1.20 per cent of interest expenses.

Management’s Responsibility for the Financial Statements:

2. Management is responsible for the preparation of these financial statements inaccordance with the Banking Regulation Act, 1949. This responsibility includes the design,implementation and maintenance of internal control relevant to the preparation of thefinancial statements that are free from material misstatement, whether due to fraud orerror.

Auditor’s Responsibility:

3. Our responsibility is to express an opinion on these Financial Statements based onour audit. We conducted our audit in accordance with the Standards on auditing issued bythe Institute of Chartered Accountants of India. Those Standards require that we complywith ethical requirements and plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free from material misstatement.

4. An audit involves performing procedures to obtain audit evidence about the amountsand disclosures in the financial statements. The procedures selected depend on theauditor’s judgment, including the assessment of the risks of material misstatement ofthe financial statements, whether due to fraud or error. In making those risk assessments,the auditor considers internal control relevant to the bank’s preparation and fairpresentation of the financial statements in order to design audit procedures that areappropriate in the circumstances. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of the accounting estimates made by themanagement, as well as evaluating the overall presentation of the financial statements

5. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion.

Emphasis of Matter:

6. Without qualifying our opinion, we draw attention to Note No.5.3 to the Schedule 18of the financial statements, which describes deferment of pension and gratuity liabilityof the Bank to the extent of Rs.2026.48 Crore pursuant to the exemption granted by theReserve Bank of India to the Public Sector Banks from the application of the provisions ofAccounting Standard (AS) 15, Employee Benefits, vide its circular No. DBOD. BP.BC/80/21.04.018/2010-11 dated 09.02.2011 on Re-opening of Pension Option to Employees ofPublic Sector Banks and Enhancement in Gratuity Limits Prudential Regulatory Treatment.

Opinion:

7. In our opinion, as shown by the books of the bank, and to the best of ourinformation and according to the explanations given to us:

(i) the Balance Sheet read together with the Accounting Policies and the Notes thereon,is a full and fair balance sheet containing all the necessary particulars, is properlydrawn up so as to exhibit a true and fair view of the state of affairs of the Bank as atMarch 31, 2011, in conformity with the accounting principles generally accepted in India;

(ii) the Profit & Loss Account read together with the Accounting Policies and Notesthereon shows a true balance of profit, in conformity with the accounting principlesgenerally accepted in India, for the year covered by the account; and

(iii) the Cash Flow Statement gives a true and fair view of the cash flows for the yearended on that date.

Report on Other Legal and Regulatory Requirements:

8. The Balance Sheet and the Profit & Loss Account have been drawn up in Forms“A” and “B” respectively of the Third Schedule to the BankingRegulations Act, 1949.

9. Subject to the limitations of the audit indicated in paragraph 1 to 5 above and asrequired by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970,and subject also to the limitations of disclosure required therein, 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.

c. The returns received from the Offices and Branches of the Bank have been foundadequate for the purposes of our audit.

10. In our opinion, the Balance Sheet, Profit & Loss Account and Cash FlowStatement comply with the applicable Accounting Standards.