To the Members of Indian Overseas Bank
Report on the Audit of the Standalone Financial Statements Opinion
1. We have audited the accompanying standalone financial statements of Indian
Overseas Bank ("the Bank"), which comprise the Balance Sheet as at 31st
March
2023, the Profit and Loss account and the Statement of Cash Flows for
the year then ended and notes to financial statements including a summary of significant
accounting policies and other explanatory information in which are included the returns
for the year ended on that date of the Central Office.
(i) 20 branches audited by us and
(ii) 838 branches including 2 Regional Offices, audited by the
Statutory Branch Auditors (iii) 4 foreign branches audited by local Auditors. The branches
audited by us and those audited by other auditors have been selected by the Bank in
accordance with the guidelines issued to the Bank by the Reserve Bank of
India. Also incorporated in the Balance Sheet, the Profit and Loss
account and Statement of Cash Flows are the returns from 2418 branches (Including 47
Regional Offices) which have not been subjected to audit. These unaudited branches account
for 26.38% of advances, 55.00% of deposits, 60.79% of interest income and 64.92% of
interest expenses.
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 in the manner so required for
bank and are in conformity with accounting principles generally accepted in India and: (i)
the Balance Sheet, read with the notes thereon is a full and fair Balance Sheet containing
all the necessary particulars, is properly drawn up so as to exhibit a true and fair view
of state of affairs of the Bank as at 31st March, 2023;
(ii) the Profit and Loss Account, read with the notes thereon shows a
true balance of profit for the year ended on that date; and (iii) the Cash Flow Statement
gives a true and fair view of the Cash Flows for the year ended on that date.
Basis for Opinion
2. We conducted our audit in accordance with the Standards on Auditing
(SAs) issued by the Institute of Chartered Accountants of India ("ICAI"). Our
responsibilities under those Standards 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 together with ethical requirements that are relevant to our audit
of the Standalone financial statements prepared in accordance with the Accounting
Principles generally accepted in India including the Accounting Standards issued by the
ICAI, and provisions of section 29 of Banking Regulation Act, 1949 and circular and
guidelines issued by the Reserve Bank of India ("RBI") from time to time 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 opinion.
Emphasis of Matter
3. We draw attention to following notes in Schedule 18 of Standalone
Financial Statements: i. Note No. 7.2 regarding Tax paid in Advance (Net of provision)
where amounts pending assessment, appeals and under dispute are under reconciliation. ii.
Note No. 7.3 relating non providing of any additional provisioning towards various
disputed income tax and indirect taxes for the reasons stated therein. iii. Note No. 14
(h) (1) of the statement regarding amortization of additional liability on account of
revision in family pension amounting to Rs. 425.86 Crores. The Bank has charged an amount
of Rs.85.17 crores to the profit and loss account for the year ended 31st March 2023 and
the balance unamortized expense of Rs. 255.52 crore has been carried forward in terms of
RBI Circular No.RBI/2021-22/105 DOR.ACC. REC.57/ 21.04.018/ 2021-22 dated October 4, 2021.
iv. Note No.17 to the statement which explains that the extent to which the Covid-19
pandemics impact on the banks operation will depend on future developments,
which are highly uncertain.
Our Opinion is not modified in respect of the above matters.
Key Audit Matters
4. Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial statements of the
current period. 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. We have determined the matters described below to be
the Key Audit Matters to be communicated in our Report.
| Key Audit Matter |
Auditors Response |
| 1 Income Recognition, Asset
Classification & Provisioning relating to Advances Advances constitute
50.09% of the Banks total assets. |
Principal Audit Procedures |
| Our audit approach consisted testing of the
design and operating effectiveness of the internal controls and substantive testing as
under: - |
| The recognition of income on
accrual basis in respect of advances extended by the Bank, Classification of advances into
Performing and Non performing and provisioning thereof are in accordance with the extant
prudential norms on Income Recognition and Asset Classification and provisioning (IRAC)
norms and other circulars and directives issued by Reserve bank of India from time to time
(Refer 2.1 of Schedule 17, read with Note |
• Evaluating the design of internal
controls relating to implementation of prudential norms on IRAC and other related
circulars/directives issued by RBI and also the internal policies and procedures of the
Bank. |
| • Examining the efficacy of
various internal controls over advances to determine the nature, timing and extent of the
substantive procedures and compliance with the observations of the various audits
conducted as per the monitoring mechanism of the Bank and RBI inspection. |
| 2 of Schedule 18 to the financial
statements). Taking into consideration the nature of transactions, compliance with the
Reserve Bank of India guidelines, issues involved in the valuation of securities etc., in
our opinion classification of Advances into performing and non performing, recognition of
income in respect of such advances and also provisioning relating to Performing/
Non-Performing advances are considered to be one of the most significant matter in the
audit and therefore determined to be a Key audit matter. |
| • Examining large advances/stressed
advances and other advances on a sample basis including review of valuation reports of
independent valuers as provided by the Banks management. |
| • Relying on the audit reports of other
Statutory Branch Auditors. |
| 2 Contingent Liability |
• Relying on the returns and financial
statements shared by the branch head in respect of unaudited branches. |
| • Reviewing Memorandum of Changes
suggested by the Branch Auditors and take appropriate action. |
| • Review of various audit and inspection
reports made available to us in the relevant areas. |
| • Placing reliance on the opinions of
domain experts on legal matters, titles, valuation and other aspects of securities charged
to the bank. |
| • Review of files of the borrowers
selected on sample basis and operations of such accounts. |
| • Performing relevant analytical procedures. |
| • Test checking of interest application,
levying of other charges, commission etc., |
| Principal Audit Procedures |
| The contingent liability as
defined in AS 29 Provisions, Contingent Liability and Contingent Assets requires
assessment of probable outcomes and cash flows. The identification and quantification of
contingent liabilities require estimation and judgment by the management. (Refer 13 of
Schedule 17, read with Note 8(AS 29) of Schedule 18 to the financial statements) |
We have carried out the validation of
information provided by the management by performing the following procedures |
| • Evaluating reasonableness of the
underlying assumptions. |
| • Understanding the current status of the
litigations/tax assessments. |
| • Examination of recent
orders and /or communication received from various tax authorities/judicial forums and
follow up action thereon. |
| In view of associated uncertainty
relating to the outcome of the matters relating to litigations involving Direct and
Indirect taxes, various claims filed by other parties not acknowledged as debts, and as a
result we have determined the above area as a Key audit matter. |
| • Examining the relevant documents on record. |
| • Relying on relevant external evidence
available including legal opinion, relevant judicial precedents and industry practices. |
| • Getting management confirmation
where-ever necessary. |
| 3 IT Systems & Control |
Principal Audit Procedures |
| The entire Preparation of
financial statements is highly dependent on CBS and other supporting software and hardware
controls. Adequate and appropriate Information Technology (IT) controls are required to
ensure that these IT application process data as expected and changes are made in an
appropriate manner. Such controls ensure mitigating the expected risk of erroneous output
data, |
We have carried out our audit procedures with
standards on auditing guidelines towards implementation of IT policies and procedures
followed by the bank in order to effectively monitor, control, and evaluate the IT
applications and controls to ensure effective implementation of such policies and
procedures. |
| We have also relied on the report
issued by the IS Auditor and obtained necessary inputs from IS experts wherever necessary
and advised the management to implement the recommendations. |
| Other compliances to regulators etc., are an
important part of the process. Such reporting is highly dependent on the effective working
of Core Banking Software and other allied systems. Audit outcome is dependent on the
extant IT controls and systems, and accordingly the above areas are determined to be a key
audit matter. |
| 4 Classification and Valuation
of Investments,Principal Audit Procedures Identification of and Provisioning for Non
Performing Investments. |
| We evaluated and understood the
Banks internal control systems to comply with relevant RBI guidelines regarding
valuation, classification, identification of Non-Performing Investments, provisioning and
depreciation related to investments. |
| (Refer 4 of Schedule 17, read with Note 1 of
Schedule 18 to the financial statements) |
| Investments constitute 26.49% of the total
assets of the bank. |
Evaluating the process adopted for
collection of data from various sources for determining the value of investments. |
| Valuation of Investments are done
as per the guidelines, circulars and directives issued by RBI from time to time involving
applying the rates quoted on BSE/NSE and other agencies, relying on the financial
statements of unlisted companies etc., Taking into consideration the volume of
transactions, value of investments being carried in the books of the bank, complexities
involved in the valuation of investments, the above area has been considered as a key
audit matter. |
| Assessing and evaluating the system of
identification of Non performing investments, income recognition on such investments and
also ensuring creation of necessary provision in respect of Non performing investments. |
Our opinion is not modified in respect of the above matters.
Information Other than the Standalone Financial Statements and
Auditors Report thereon
5. The Banks Board of Directors is responsible for the other
information. The other information comprises the Corporate Governance report (but does not
include the Standalone Financial Statements and our auditors report thereon).
Our opinion on the Standalone Financial Statements does not cover the
other information and Pillar 3 disclosures under the Basel III Disclosure and we do not
and 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 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.
If, based on the work we have performed on the other information that
we obtained prior to the date of this auditors report, we conclude that there is a
material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for
the Standalone Financial Statements
6. The Banks Board of Directors are responsible 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 issued by ICAI and provisions of Section 29 of the Banking Regulation Act, 1949
and circulars and guidelines issued by the 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 judgements 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 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.
Auditors Responsibilities for the Audit of the Financial
Statements
7. 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
judgement 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.
• 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.
Materiality is the magnitude of misstatements in the standalone
financial statements that, individually or in aggregate, makes it probable that the
economic decisions of a reasonably knowledgeable user of the standalone financial
statements may be influenced. We consider quantitative materiality and qualitative factors
in (i) planning the scope of our audit work and in evaluating the results of our work; and
(ii) to evaluate the effect of any identified misstatements in the standalone financial
statements.
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 of the current period 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 Matters
8. We did not audit the financial statements / information of 842
branches (including 2 Regional Offices and 4 Overseas Branches) included in the standalone
financial statements of the Bank whose financial statements / financial information
reflect total assets of Rs.162325.70 (in crores) as at 31st March 2023 and total revenue
of Rs.10,896.78 (in crores) for the year ended on that date, as considered in the
standalone financial statements. These branches and processing centers cover 45.24% of
advances, 43.57% of deposits and 22.01% of non-performing assets as at 31st March 2023 and
28.25% of revenue for the year ended 31st
March 2023. The financial statements / information of these branches
have been audited by the branch auditors and in our opinion in so far as it relates to the
amounts and disclosures included in respect of branches, is 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 accordance with Section 29 of the Banking Regulation Act, 1949.
Subject to the limitations of the audit indicated in paragraph
6 to 8 above and as required by the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1970/1980, 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 our knowledge and belief, were necessary for the
purposes 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 returns received from the offices and branches of the Bank have
been found adequate for the purposes of our audit.
10. As required by letter No. DOS.ARG.
No.6270/08.91.001/2019-20 dated March 17, 2020 on "Appointment of
Statutory Central Auditors (SCAs) in
Public Sector Banks Reporting obligations for SCAs from FY
2019-20", read with subsequent communication dated
May 19, 2020 issued by the RBI, we further report on the matters
specified in paragraph 2 of the aforesaid letter as under: a) In our opinion, the
aforesaid Standalone Financial Statements comply with the Accounting Standards issued by
ICAI, to the extent they are not inconsistent with the accounting policies prescribed by
the RBI.
b) There are no observations or comments on fina ncial transactions or
matters 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 March 31, 2023, none of the
directors is disqualified as on March 31, 2023 from being appointed as 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 the maintenance of accounts and other matters connected therewith.
e) Our Audit report on the adequacy and operating effectiveness of the
banks internal financial controls over financial reporting is given in Annexure-A
to this report. Our Report Expresses an unmodified opinion on the Banks Internal
financial control over financial reporting as at 31st March, 2023.
11. We further report that: a) In our opinion, proper books of account
as required by law have been kept by the Bank so far it appears from our examination of
those books. b) The Balance Sheet, the Profit and Loss Account and the
Statement of Cash Flows dealt with by this report are in agreement with
the books of account. c) The reports on the accounts of the branch offices audited by
branch auditors of the Bank under section 29 of the Banking Regulation Act, 1949 have been
sent to us and have been properly dealt with by us in preparing this report; and d) In our
opinion, the Balance Sheet, Profit and Loss Account and the Statement of Cash Flows comply
with the applicable accounting standards, to the extent they are not inconsistent with the
accounting policies prescribed by RBI.
ANNEXURE "A" TO THE INDEPENDENT AUDITORS REPORT
(Referred to in paragraph 11(e) under ‘Report on Other Legal and Regulatory
Requirements section of our report of even date) Report on the Internal Financial
Controls Over Financial Reporting as required by the Reserve Bank of India (the
"RBI") Letter DOS.ARG. No.6270/08.91.001/2019-20 dated March 17, 2020 (as
amended) (the "RBI communication")
We have audited the Internal Financial Controls Over Financial
Reporting of Indian Overseas Bank ("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 which includes Internal Financial Controls Over Financial Reporting of
the Banks branches.
Managements Responsibility for Internal Financial Controls
The Banks management is responsible for establishing and
maintaining internal financial controls 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 on Audit of Internal Financial Controls Over
Financial Reporting issued by the Institute of Chartered Accountants of India. 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 Banking Regulation Act, 1949 and the circulars and
guidelines issued by the Reserve Bank of India.
Auditors Responsibility
Our responsibility is to express an opinion on the Banks
Internal Financial Controls Over Financial Reporting 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") issued by the
Institute of Chartered Accountants of India (the "ICAI") and the Standards on
Auditing (SAs) issued by the ICAI, 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 Over Financial Reporting were 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 Over Financial Reporting and their operating effectiveness.
Our audit of Internal Financial Controls Over Financial Reporting included obtaining an
understanding of Internal Financial Controls Over Financial Reporting, assessing the risk
that a material weakness exists and testing and evaluating the design and operating
effectiveness of internal financial controls 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 and the audit evidence obtained by the
branch auditors, in terms of their reports referred to in the Other Matters paragraph
below, is sufficient and appropriate to provide a basis for our audit opinion on the
Banks Internal Financial Controls Over Financial Reporting.
Meaning of Internal Financial Controls Over Financial Reporting
A Banks Internal Financial Controls Over Financial Reporting 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 Banks Internal Financial Controls
Over Financial Reporting 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 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 financial statements.
Inherent Limitations of Internal Financial Controls Over Financial
Reporting
Because of the inherent limitations of Internal Financial Controls Over
Financial Reporting, 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 Over
Financial Reporting to future periods are subject to the risk that the Internal
Financial Controls Over Financial Reporting 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, and to the best of our information and according to the
explanations given to us and based on the consideration of the reports of the branch
auditors referred to in the Other Matters paragraph below, the Bank has, in all material
respects, adequate Internal Financial
Controls Over Financial Reporting and such Internal Financial Controls
Over Financial Reporting were operating effectively as at March 31, 2023, based on
"the criteria for internal control over financial reporting 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
ICAI".
Other Matters
Our aforesaid report in so far as it relates to the operating
effectiveness of Internal Financial Controls over financial report of 842 branches is
based on the corresponding reports of the respective branch auditors of those branches. In
our opinion, the Bank needs to strengthen the process including testing and adoption of
the RCMs covering branches, specialized branches and all controlling office departments
and processes. Our communication in this regard has been submitted to the Management to
further strengthen the Internal Financial Controls Over Financial Reporting of the Bank.
Our opinion isnotmodifiedinrespect .matter ofthis
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