To the Members of
DCB Bank Limited
Report on the Audit of the Financial Statements
Opinion
We have audited the accompanying financial statements of DCB Bank Limited ("the
Bank"), which comprise the Balance sheet as at March 31, 2023, the Profit and Loss
Account, the Cash Flow Statement, and notes to the financial statements, including a
summary of significant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to the explanations
given to us, the aforesaid financial statements give the information required by the
Banking Regulation Act, 1949 as well as the Companies Act, 2013, as amended ("the
Act") in the manner so required for banking companies and give a true and fair view
in conformity with the accounting principles generally accepted in India, of the state of
affairs of the Bank as at March 31, 2023, its profit, its cash flows for the year ended on
that date.
Basis for Opinion
We conducted our audit of the financial statements in accordance with the Standards on
Auditing ("SAs"), as specified under section 143(10) of the Act. Our
responsibilities under those Standards are further described in the Auditors
Responsibilities for the Audit of the Financial Statements section of our report. We are
independent of the Bank in accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical requirements that are relevant to
our audit of the financial statements under the provisions of the Act and the Rules
thereunder, and we have fulfilled our other ethical responsibilities in accordance with
these requirements and the Code of Ethics. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion on the
financial statements.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the financial statements for the financial year ended March
31, 2023. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have determined the matters described below to be the key audit matters to be
communicated in our report. We have fulfilled the responsibilities described in the
Auditors responsibilities for the audit of the financial statements section of our
report, including in relation to these matters. Accordingly, our audit included the
performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial statements. The results of our audit procedures, including
the procedures performed to address the matters below, provide the basis for our audit
opinion on the accompanying financial statements.
| Key audit matters |
How our audit addressed the key audit matter |
| Identification of Non-Performina Advances ("NPA") and Drovisionina of
advances includina compliance with revised Income Recognition and Asset Classification
norms ("IRAC") issued bv Reserve Bank of India ("RBI") and
clarifications issued thereon |
|
| Advances constitute a significant portion of the Banks assets and the quality of
these advances is measured in terms of ratio of NPAs to the gross advances of the Bank.
The Banks net advances constitute 66% of the total assets and the gross NPA ratio of the
Bank is 3.19% as at March 31, 2023. |
The audit procedures performed, among others, included: |
|
• Read the Banks policies for NPA identification and provisioning and assessing
compliance with the IRAC norms. |
|
• Understood the design and operating effectiveness of key controls (including
application controls) around identification of non-performing accounts based on the extant
guidelines on IRAC. |
| RBI has issued IRAC. These guidelines prescribe the prudentialnorms for identification
and classification of NPAs and the minimum provision required for such assets. |
|
|
• Performed substantive audit procedures covering the identification and
provisioning of NPAs by the Bank. |
| The Bank is also required to apply its judgement to determine the identification and
provision required against NPAs by applying quantitative as wellas qualitative factors.
The provisioning for identified NPAs is estimated based on ageing and classification of
NPAs, recovery estimates, value of security and other qualitative factors and is subject
to the minimum provisioning norms specified by RBI. |
These procedures included: |
|
- Tested the exception reports generated from the application systems where the
advances have been recorded. |
|
- Considered accounts reported by the Bank and other banks as Special Mention Accounts
("SMA") in RBIs central repository of information on large credits (CRILC) to
identify stress and the early warning reports generated by the Bank to identify stressed
accounts |
| Additionally, the Bank makes provisions on exposures that are not classified as NPAs
and identified advances or group advances that can potentially slip into NPA. These are
classified as contingency provisions. |
|
|
- Tested account statements and other related information of a sample of borrowers
selected based on quantitative and qualitative risk factors. |
| Since the identification of NPAs and provisioning for advances require significant
levelof estimation/ judgement and given its significance to the overall audit due to
stakeholder and regulatory focus, we have ascertained identification and provisioning for
NPAs and advances as a key audit matter. |
- Performed analytical procedures to identify possible cases of evergreening of loans
and tested these on sample basis. |
|
- Performed inquiries with the credit and risk departments to ascertain if there were
indicators of stress or an occurrence of an event of default in a particular loan account
or any product category which need to be considered as NPA. |
|
- Tested on sample basis, the calculation performed by the management for compliance
with RBI regulations and internally laid down policies for provisioning. |
|
- Evaluated the governance process and review controls over NPA provision calculations
and provision on accounts not classified as NPA. |
|
- Tested the arithmetical accuracy of computation of provision for advances.. |
|
• Assessed disclosure requirements for classification and provisioning of NPAs in
accordance with RBI circulars |
| Information Technology ("IT") Svstems and Controls |
|
| The reliability and security of IT systems plays a key role in the business operations
preparation of the Banks Financial Statements. |
Our audit procedures included the following: |
|
• Tested the design and operating effectiveness of the Banks IT access controls
over the information systems that are critical to financial reporting. |
| The Banks operationaland financialprocesses are dependent on IT systems due to large
volume of transactions that are processed daily and accordingly the IT infrastructure is
critical for smooth functioning of the Banks business operations as well as for timely
and accurate financial reporting and accounting. The Bank has constituted an IT Strategy
Committee at the Board level to oversee implementation of IT strategy. |
|
|
• Tested IT GeneralControls (logical access, change management and aspects of IT
operational controls). This included testing that requests for access to systems were
appropriately reviewed and authorized. |
|
• Tested the Banks periodic review of access rights. We inspected requests of
changes to systems for appropriate approval and authorization. We considered the control
environment relating to various interfaces, configuration and other application layer
controls identified as key to the audit. |
| Due to the pervasive nature and complexity of the IT environment we have ascertained
IT systems and controls as a key audit matter. |
|
|
• Tested compensating controls and performed alternate procedures, where
necessary. |
|
• Understood where relevant, changes made to the IT landscape during the audit
period and tested those changes. |
Information Other than the Financial Statements and Auditors Report Thereon
The Banks Board of Directors is responsible for the other information. The other
information comprises the information included in the Annual report and the pillar 3
disclosure (but does not include the financial statements and our auditors reports
thereon).
Our opinion on the financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read
the other information and, in doing so, consider whether such other information is
materially inconsistent with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated.
When we read the annual report and pillar 3 disclosure, if we conclude that there is a
material misstatement therein, we are required to communicate the matter to Those Charged
with Governance.
Responsibilities of Management and Those Charged with Governance for the Standalone
Financial Statements
The Banks 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 true
and fair view of the financial position, financial performance, cash flows of the Bank in
accordance with provisions of Section 29 of the Banking Regulation Act, 1949, the
accounting principles generally accepted in India, including the Accounting Standards
specified under section 133 of the Act read with Rule 7 of the Companies (Accounts) Rules,
2014 in so far as they apply to the Bank and guidelines and directions issued by Reserve
Bank of India ("RBI") from time to time.
This responsibility also includes maintenance of adequate accounting records in
accordance with the provisions of the Act for safeguarding of the assets of the Bank and
for preventing and detecting frauds and other irregularities; selection and application of
appropriate accounting policies; making judgments and estimates that are reasonable and
prudent; and the design, implementation and maintenance of adequate internal financial
controls, that were operating effectively for ensuring the accuracy and completeness of
the accounting records, relevant to the preparation and presentation of the financial
statements that give a true and fair view and are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, management is responsible for assessing the
Banks ability to continue as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless management either
intends to liquidate the Bank or to cease operations, or has no realistic alternative but
to do so.
Those charged with governance are also responsible for overseeing the Banks financial
reporting process.
Auditors Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud or error,
and to issue an auditors report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with SAs
will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the
basis of these financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial
statements, whether due to fraud or error, design and perform audit procedures responsive
to those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to
design 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 has
adequate internal financial controls with reference to financial statements in place and
the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness
of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of managements use of the going concern basis
of accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Banks
ability to continue as a going concern. If we conclude that a material uncertainty exists,
we are required to draw attention in our auditors report to the related disclosures in
the 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 auditors
report. However, future events or conditions may cause the Bank to cease to continue as a
going concern.
• Evaluate the overall presentation, structure and content of the financial
statements, including the disclosures, and whether the financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied
with relevant ethical requirements regarding independence, and to communicate with them
all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those
matters that were of most significance in the audit of the financial statements for the
financial year ended March 31, 2023 and are therefore the key audit matters. We describe
these matters in our auditors report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so
would reasonably be expected to outweigh the public interest benefits of such
communication.
Report on Other Legal and Regulatory Requirements
1. The Balance Sheet and the Profit and Loss Account have been drawn up in accordance
with the provisions of Section 29 of the Banking Regulation Act, 1949 read with Section
133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014.
2. As required by sub section (3) of section 30 of the Banking Regulation Act, 1949 and
communication received by the Bank from RBI, we report that:
a. We have obtained all the information and explanations which, to the best of our
knowledge and belief, were necessary for the purpose of our audit and have found them to
be satisfactory;
b. The transactions of the Bank, which have come to our notice, have been within the
powers of the Bank; and
c. The financial accounting systems of the Bank are centralized and therefore,
accounting returns for the purpose of preparing financial statements are not required to
be submitted by its branches. We have visited 30 branches for the purpose of our
walkthrough of processes and test of controls at branches by inspection of documents
obtained from branches
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 best
of 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 the
Bank so far as it appears from our examination of those books;
c. The Balance Sheet, the Profit and Loss Account, the Cash Flow Statement dealt with
by this Report are in agreement with the books of account;
d. In our opinion, the aforesaid financial statements comply with the Accounting
Standards 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 accounting
policies prescribed by RBI;
e. In our opinion, there are no material financial transactions or matters that have an
adverse effect on the functioning of the Bank;
f. On the basis of the written representations received from the directors as on March
31, 2023 taken on record by the Board of Directors, none of the directors is disqualified
as on March 31, 2023 from being appointed as a director in terms of Section 164 (2) of the
Act;
g. With respect to the adequacy of the internal financial controls with reference to
these financial statements and the operating effectiveness of such controls, refer to our
separate Report in "Annexure 1" to this report;
h. In our opinion, the entity being a banking company, the remuneration to the managing
director during the year ended March 31, 2023 has been paid by the Bank in accordance with
the provisions of Section 35B (1) of the Banking Regulation Act, 1949;
i. With respect to the other matters to be included in the Auditors Report in
accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended in
our opinion and 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 position
in its financial statements - Refer note 15 to the financial statements;
ii. The Bank did not have any long-term contracts including derivative contracts for
which there were any material foreseeable losses;
iii. There were no amounts which were required to be transferred to the Investor
Education and Protection Fund by the Bank
iv. a) The management has represented that, to the best of its knowledge and belief,
other than as disclosed
in the note 13.6 to the financial statements, no funds have been advanced or loaned or
invested (either from borrowed funds or share premium or any other sources or kind of
funds) by the Bank to or in any other person(s) or entity(ies), including foreign entities
("Intermediaries"), with the understanding, whether recorded in writing or
otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in
other persons or entities identified in any manner whatsoever by or on behalf of the Bank
("Ultimate Beneficiaries") or provide any guarantee, security or the like on
behalf of the Ultimate Beneficiaries;
b) The management has represented that, to the best of its knowledge and belief, other
than as disclosed in the note 13.6 to the financial statements, no funds have been
received by the Bank from any person(s) or entity(ies), including foreign entities
("Funding Parties"), with the understanding, whether recorded in writing or
otherwise, that the Bank shall, whether, directly or indirectly, lend or invest in other
persons or entities identified in any manner whatsoever by or on behalf of the Funding
Party ("Ultimate Beneficiaries") or provide any guarantee, security or the like
on behalf of the Ultimate Beneficiaries; and
c) Based on such audit procedures that were considered reasonable and appropriate in
the circumstances, nothing has come to our notice that has caused us to believe that the
representations under sub-clause (a) and (b) contain any material misstatement.
v. The final dividend paid by the Company during the year in respect of the same
declared for the previous year is in accordance with section 123 of the Act to the extent
it applies to payment of dividend.
vi. As stated in note 13.5 to the financial statements, the Board of Directors of the
Company have proposed final dividend for the year which is subject to the approval of the
members at the ensuing Annual General Meeting. The dividend declared is in accordance with
section 123 of the Act to the extent it applies to declaration of dividend.
vii. As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable for
the Company only w.e.f. April 1, 2023, reporting under this clause is not applicable
ANNEXURE TO THE INDEPENDENT AUDITORS REPORT OF EVEN DATE ON THE FINANCIAL STATEMENTS
OF DCB BANK LIMITED
Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section
143 of the Companies Act, 2013 ("the Act")
We have audited the internal financial controls with reference to financial statements
of DCB Bank Limited ("the Bank") as of March 31, 2023 in conjunction with our
audit of the financial statements of the Bank for the year ended on that date.
Managements Responsibility for Internal Financial Controls
The Banks Management is responsible for establishing and maintaining internal
financial controls based on the internalcontrolover financialreporting criteria
established by the Bank considering the essential components of internal control stated in
the Guidance Note on Audit of InternalFinancialControls Over Financial Reporting issued by
the Institute of Chartered Accountants of India ("ICAI"). These responsibilities
include the design, implementation and maintenance of adequate internal financial controls
that were operating effectively for ensuring the orderly and efficient conduct of its
business, including adherence to the Banks policies, the safeguarding of its assets, the
prevention and detection of frauds and errors, the accuracy and completeness of the
accounting records, and the timely preparation of reliable financial information, as
required under the Companies Act, 2013.
Auditors Responsibility
Our responsibility is to express an opinion on the Banks internal financial controls
with reference to these financial statements based on our audit. We conducted our audit in
accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial
Reporting (the "Guidance Note") and the Standards on Auditing, as specified
under section 143(10) of the Act, to the extent applicable to an audit of internal
financial controls, both issued by ICAI. Those Standards and the Guidance Note require
that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether adequate internal financial controls with reference to
these financial statements was established and maintained and if such controls operated
effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy of
the internal financial controls with reference to these financial statements and their
operating effectiveness. Our audit of internal financial controls with reference to
financial statements included obtaining an understanding of internal financial controls
with reference to these financial statements, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. The procedures selected depend on the auditors
judgement, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion on the Banks internal financial controls with
reference to these financial statements.
Meaning of Internal Financial Controls With Reference to these Financial Statements
A companys internal financial controls with reference to financial statements is a
process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A companys internal financial controls
with reference to financial statements includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorisations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorised acquisition, use, or
disposition of the companys assets that could have a material effect on the financial
statements.
Inherent Limitations of Internal Financial Controls With Reference to Financial
Statements
Because of the inherent limitations of internal financial controls with reference to
financial statements, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may occur and not be
detected. Also, projections of any evaluation of the internal financial controls with
reference to financial statements to future periods are subject to the risk that the
internalfinancial control with reference to financial statements may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Opinion
In our opinion, the Bank has, in all material respects, adequate internal financial
controls with reference to financial statements and such internal financial controls with
reference to financial statements were operating effectively as at March 31, 2023, based
on the internal control over financial reporting criteria established by the Bank
considering the essential components of internal control stated in the Guidance Note
issued by the ICAI.
| For S.R. BATLIBOI & ASSOCIATES LLP |
For SUNDARAM & SRINIVASAN |
| Chartered Accountants |
Chartered Accountants |
| Firm Registration no.: 101049W/E300004 |
Firm Registration no.: 004207S |
| per Sarvesh Warty |
S Ramkumar |
| Partner |
Partner |
| Membership No.: 121411 |
Membership No.: 238820 |
| UDIN: 23121411BGWEGA1386 |
UDIN: 23238820BGYDIJ3861 |
| Place: Mumbai |
Place: Mumbai |
| Date: May 05, 2023 |
Date: May 05, 2023 |
+91-9892691696
