To the Members of IDFC FIRST Bank Limited Report on the Audit of the standalone
financial statements Opinion
We have audited the accompanying standalone financial statements of IDFC FIRST Bank
Limited (the ‘Bank), which comprise the Balance Sheet as at March 31, 2023, the
Profit and Loss Account, the Cash Flow Statement for the year then ended and notes to the
standalone 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 standalone financial statements give the information required
by the Banking Regulation Act, 1949, the circulars and guidelines issued by the Reserve
Bank of India (‘RBI) from time to time, as applicable (‘RBI Guidelines) and
the Companies Act, 2013 (‘the Act) in the manner so required for banking companies
and give a true and fair view in conformity with the Accounting Standards prescribed under
section 133 of the Act read with Companies (Accounting Standards) Rules, 2021 and other
accounting principles generally accepted in India, of the state of affairs of the Bank as
at March 31, 2023, and its profit, and its cash flows for the year ended on that date.
Basis for opinion
We conducted our audit in accordance with the Standards on Auditing (‘SAs)
specified under section 143(10) of the Act. Our responsibilities under those SAs are
further described in the Auditors Responsibilities for the Audit of the Standalone
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
(‘ICAI) together with the ethical requirements that are relevant to our audit of the
standalone 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 obtained by us, is
sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the standalone financial statements for the year ended March
31, 2023. These matters were addressed in the context of our audit of the standalone
financial statements as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be
communicated in our report.
Key audit matters |
How the key audit matters were addressed in our audit |
Identification of non-performing advances (NPA) and provisions on
advances |
Our audit procedures in respect of this area included, but not
limited to: |
| Total Advances (net of provisions) as at March 31, 2023: Rs. 1,51,795
crore |
Process understanding and control testing- |
| Provision for NPA, Provision for specific assets and Restructuring
provision: Rs. 3,035.17 crore as at March 31, 2023 |
• Obtained an understanding of managements process, systems/
applications and controls implemented in relation to advances, identification of NPA,
restructured advances, identified standard advances (ISA) and provisions thereon. |
| (Refer to Schedule 9 - Advances, Accounting Policy 17.02 - Advances, Note
18.12 - Assets Quality). |
• Tested system/application controls including automated process,
controls and system-based reconciliations pertains to the advances, NPA identification and
provision on advances. |
| The Reserve Bank of India ("RBI") guidelines on Prudential
Norms on Income recognition, asset classification and provisioning pertaining to Advances
("IRAC") and other circulars and directives issued by the RBI from time to time
pertaining to Advances, prescribes the norms for identification and classification of
performing and non-performing advances ("NPA") and the minimum provisions
required for such advances. |
• Evaluated and validated the design, implementation and operating
effectiveness of key internal financial controls pertaining to the identification of NPA
accounts and identified standard advances, borrowers classification of NPA, computation
of provisions on advances (including restructured and ISA) as per IRAC norms and Board
approved policy. |
| The Bank is required to have a Board approved policy in place for NPA
identification and classification of advances and provisioning thereon. The Bank is also
expected to apply its judgement to determine the identification and provisioning required
against NPA by applying quantitative as well as qualitative factors. The risk of
identification of NPAs is affected by factors like stress and liquidity concerns in
certain sectors. The provision on NPA is estimated based on its ageing and classification
of NPAs, recovery estimates, nature of loan product, value of security and other
qualitative factors and is subject to the minimum provisioning as per IRAC and Board
approved policy in this regard. |
• Verified the governance process pertaining to the reporting of NPA
and provisioning thereon, to the Audit Committee and Board of Directors. |
| Additionally, the Bank also makes provisions on standard accounts where
it estimates a possibility of eventual economic loss or prolonged delay in recovery which
may lead to eventual economic loss i.e. Identified Standard Advances (ISA). Such advances
are stated net of such provisions. |
• Verified controls over the adequacy of disclosures made in the
financial statements. |
| Provisions in respect of restructured advances are made based on
managements assessment of the degree of impairment of the advances subject to the minimum
provisioning levels as per IRAC and other relevant RBI Guidelines. |
Performed other substantive procedures including the following, but
not limited to: |
| Since the identification of NPAs and provisioning for advances require a
significant level of estimation and given its significance to the overall audit including
possible observation by RBI which could result into disclosure in the financial
statements, we have ascertained identification and provisioning for NPAs as a key audit
matter. |
• Selected samples for testing, based on quantitative and
qualitative risk factors. For the selected samples, tested accuracy of days past due
computation, assets classification at borrower level and provisioning as per IRAC norms
and Board approved policy. |
|
• Verified selected samples based on quantitative and qualitative
factors pertaining to the large sized corporate borrowers to test their conduct, security
evaluation and its value, impairment indicators basis their financial strength or external
factors if any. |
|
• Obtained and verified the accounts identified by management i.e.
accounts forming a part of credit watchlist, by obtaining managements assessment on
recoverability of these exposures and evaluating the appropriateness of provisions. |
|
• Considered the 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 stressed accounts. |
|
• Verified on sample basis, the accuracy of the days past due (DPD)
computation of corporate advances and assessed independently as to whether those should be
classified as NPA based on IRAC and Board Approved Policy. |
|
• Inquired 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 needs to be factored in classification of
account as NPA. |
|
• Discussed with the management of the Bank on sectors where there
is perceived credit risk and the steps taken by management to mitigate the risks
pertaining to identified stress sectors. |
|
• Selected and tested samples for accounts which are restructured as
per RBI Master Circular - Prudential norms on Income Recognition, Asset Classification and
Provisioning pertaining to Advances; and |
|
• Assessed the appropriateness, accuracy and adequacy of related
presentation and disclosures in accordance with the applicable accounting standards, IRAC
and other requirements of RBI. |
Information technology
Information Technology (IT) systems and controls |
Key IT audit procedures performed included the following, but not
limited to: |
| The Banks key financial accounting and reporting processes are highly
dependent on information systems including automated controls in systems, such that there
exists a risk that gaps in the IT control environment could result in the financial
accounting and reporting records being misstated. |
• For testing the IT general controls, application controls and IT
dependent manual controls, we involved IT specialists as part of our audit. The team also
assisted in testing the completeness and accuracy of the information produced by the
Banks IT systems where applicable. |
| Amongst its multiple IT systems, we scoped in systems that are key for
overall financial reporting. |
• Obtained an understanding of IT applications implemented in the |
| The Bank has also undertaken few data migration projects in the current
financial year. |
Bank and verified design and operating effectiveness of controls over
user access management, change management, segregation of duties, system interface
controls, system application controls and Information Produced by entity (IPE) controls
over key financial accounting and reporting systems. |
| Appropriate IT general controls and application controls are required to
ensure that such IT systems are able to process the data, as required, completely,
accurately and consistently for reliable financial reporting. |
• Verified key controls, on a sample basis, for data migration
operating over the information technology in relation to financial accounting and
reporting systems, user acceptance test (UAT) sign offs, incidents monitoring. |
| Further, IT applications have been made accessible on a remote basis. |
• For a selected group of key controls over financial reporting
systems, performed procedures to independently determine that these controls remained
unchanged during the year or were changed by following the change management process. |
| We have identified ‘IT systems and controls as a key audit matter
considering the high level of automation, significant number of systems being used by
management and the complexity of the IT architecture and its impact on overall financial
reporting process and regulatory expectation on automation. |
• Evaluated other areas including password policies, security
configurations, controls over changes to applications and databases and controls to ensure
that developers and production support did not have access to change applications, the
operating system or databases in the production environment. |
|
• Inquired for data security controls in the context of staff
working from remote locations during the year. |
|
• Verified compensating controls and performed alternate procedures,
where necessary. |
Information other than the Standalone Financial Statements and Auditors Report thereon
The Board of Directors are responsible for the other information. The other information
comprises of the Banks Annual Report but does not include the standalone financial
statements and our auditors report thereon. The other information is expected to be made
available to us after the date of this auditors report.
Our opinion on the standalone financial statements does not cover the other information
and we will not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statements, our responsibility
is to read the other information identified above when it becomes available and, in doing
so, consider whether the other information is materially inconsistent with the standalone
financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated.
When we read the other information, if we conclude that there is a material
misstatement therein, we are required to communicate the matter to those charged with
governance under SA 720 ‘The Auditors responsibilities Relating to Other
Information.
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 standalone financial statements that
give a true and fair view of the financial position, financial performance, and cash flows
of the Bank in accordance with the accounting principles generally accepted in India,
including the Accounting Standards specified under section 133 of the Act, and provisions
of Section 29 of the Banking Regulation Act, 1949 and the circulars and guidelines issued
by the Reserve Bank of India (‘RBI) from time to time (‘RBI Guidelines). This
responsibility also includes maintenance of adequate accounting records in accordance with
the provisions of the Act, Banking Regulation Act, 1949 and RBI Guidelines 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 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 standalone financial statement that give a true and
fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial statements, the Board of Directors of the Bank 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 the Board of Directors either intends to liquidate the Bank or to cease
operations, or has no realistic alternative but to do so.
The Board of Directors are also responsible for overseeing the Banks financial
reporting process.
Auditors responsibilities for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalone
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 standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgement and
maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the standalone
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
internal financial controls with reference to standalone 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 standalone 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 standalone
financial statements, including the disclosures, and whether the standalone 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 standalone financial statements
for the 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.
Other matter
The standalone financial statements of the Bank for the year ended March 31, 2022, were
audited by B S R & Co. LLP and M S K A & Associates, the joint statutory auditors
of the Bank whose report dated April 30, 2022 expressed an unmodified opinion on those
statements.
Our opinion is not modified in respect of this matter.
Report on other legal and regulatory requirements
1. The Balance Sheet and the Statement of Profit and Loss have been drawn up in
accordance with the provisions of Section 29 of the Banking Regulation Act, 1949 and
Section 133 of the Act and relevant rules issued thereunder.
2. As required by sub-section (3) of section 30 of the Banking Regulation Act, 1949, 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 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. since the key operations of the Bank are automated with the key applications
integrated to the core banking systems, the audit is carried out centrally as all the
necessary records and data required for the purposes of our audit are available therein.
However, during the course of our audit we have visited 24 branches / asset centres.
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 and the Cash Flow Statement dealt
with by this Report are in agreement with the books of account.
d. In our opinion, the aforesaid standalone financial statements comply with the
Accounting Standards specified under Section 133 of the Act, to the extent they are not
inconsistent with the guidelines prescribed by the RBI.
e. On the basis of the written representations received from the directors of the Bank
as on March 31, 2023 taken on record by the Board of Directors, none of the directors of
the Bank are disqualified as on March 31, 2023 from being appointed as a director in terms
of Section 164 (2) of the Act.
f. With respect to the adequacy of the internal financial controls with reference to
standalone financial statements of the Bank and the operating effectiveness of such
controls, refer to our separate Report in ‘Annexure A.
g. With respect to the other matters to be included in the Auditors Report in
accordance 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 Act do not apply.
h. 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, 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 standalone financial statements - Refer Schedule 12 and Note 18.53 to the
standalone financial statements.
ii. The Bank has made provision, as required under the applicable law or accounting
standards, for material foreseeable losses, if any, on long-term contracts including
derivative contracts - Refer Schedule 12 and Note 18.53 to the standalone financial
statements.
iii. There has been no delay in transferring amounts, required to be transferred, to
the Investor Education and Protection Fund by the Bank - Refer Note 18.52 to the
standalone financial statements.
iv. a. The Management has represented that,
to the best of its knowledge and belief, other than as disclosed in the Note 18.55 to
the standalone 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, 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 18.55 to the standalone 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, 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.
c. Based on the audit procedures performed that have been considered reasonable and
appropriate in the circumstances, and according to the information and explanations
provided to us by the Management in this regard nothing has come to our notice that has
caused us to believe that the representations under subclause (i) and (ii) of Rule 11(e)
as provided under (a) and (b) above, contain any material mis-statement.
v. The Bank has neither declared nor paid any dividend during the year ended March 31,
2023.
vi. As proviso to rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable for
the Bank only w.e.f. April 1, 2023, reporting under this clause is not applicable during
the year.
For M S K A & Associates |
For KalyaniwaMa & Mistry LLP |
Chartered Accountants |
Chartered Accountants |
ICAI Firm Registration Number: |
ICAI Firm Registration Number: |
105047W |
104607W/W100166 |
Swapnil Kale |
Roshni Marfatia |
Partner |
Partner |
Membership Number: 117812 |
Membership Number: 106548 |
UDIN: 23117812BGXQMA4150 |
UDIN: 23106548BGUVXL1789 |
Mumbai |
Mumbai |
April 29, 2023 |
April 29, 2023 |
Annexure A to the Independent Auditors Report of even date on the Standalone Financial
Statements of IDFC FIRST Bank Limited
[Referred to in paragraph 3(f) under ‘Report on Other Legal and Regulatory
Requirements in the Independent Auditors report]
Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section
143 of the Companies Act, 2013 ("the Act")
Opinion
We have audited the internal financial controls with reference to standalone financial
statements of IDFC FIRST Bank Limited (the ‘Bank) as of March 31, 2023 in
conjunction with our audit of the standalone financial statements of the Bank for the year
ended on that date.
In our opinion, the Bank has, in all material respects, an adequate internal financial
controls with reference to standalone financial statements and such internal financial
controls with reference to standalone financial statements were operating effectively as
at March 31, 2023, based on the internal control with reference to standalone financial
statements criteria established by the Bank considering the essential components of
internal control stated in the Guidance Note on Audit of Internal Financial Controls Over
Financial Reporting issued by the Institute of Chartered Accountants of India (the
‘Guidance Note).
Managements responsibility for internal financial controls
The Banks Management is responsible for establishing and maintaining internal
financial controls based on the internal control with reference to standalone financial
statements criteria established by the Bank considering the essential components of
internal controls stated in the Guidance Note. 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 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 Act.
Auditors responsibility
Our responsibility is to express an opinion on the Banks internal financial controls
with reference to standalone financial statements based on our audit. We conducted our
audit in accordance with the Guidance Note and the Standards on Auditing, issued by ICAI
and deemed to be prescribed under section 143(10) of the Act, to the extent applicable to
an audit of internal financial controls. 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
standalone 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 standalone financial statements and
their operating effectiveness. Our audit of internal financial controls with reference to
standalone financial statements included obtaining an understanding of internal financial
controls with reference to standalone 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 standalone 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 standalone financial statements.
Meaning of internal financial controls with reference to Standalone Financial
Statements
A Banks internal financial control with reference to standalone financial statements
is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of standalone financial statements for external
purposes in accordance with generally accepted accounting principles. A Banks internal
financial control with reference to standalone 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 Bank; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of standalone financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the Bank are being
made only in accordance with authorizations of management and directors of the Bank; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Banks assets that could have a material effect on
the standalone financial statements.
Inherent limitations of internal financial controls with reference to Standalone
Financial Statements
Because of the inherent limitations of internal financial controls with reference to
standalone 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 standalone financial statements to future periods are subject
to the risk that the internal financial control with reference to standalone financial
statements may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
For M S K A & Associates |
For Kalyaniwalla & Mistry LLP |
Chartered Accountants |
Chartered Accountants |
ICAI Firm Registration Number: |
ICAI Firm Registration Number: |
105047W |
104607W/W100166 |
Swapnil Kale |
Roshni Marfatia |
Partner |
Partner |
Membership Number: 117812 |
Membership Number: 106548 |
UDIN: 23117812BGXQMA4150 |
UDIN: 23106548BGUVXL1789 |
Mumbai |
Mumbai |
April 29, 2023 |
April 29, 2023 |
+91-9892691696
