AU Small Finance Bank Ltd Auditor Reports

To the Members of AU Small Finance Bank Limited
Report on the Audit of the Financial Statements
Opinion

We have audited the accompanying Financial
Statements of AU Small Finance Bank Limited (the
Bank), which comprise the Balance Sheet as at March
31, 2025, the Profit and Loss Account, and Cash Flow
Statement for the year then ended, and notes to
the Financial Statements, including a summary of
significant accounting policies and other explanatory
information (hereinafter referred to as the "Financial
Statements").

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,
the guidelines issued by the Reserve Bank of India
(RBI) from time to time (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,
2025, 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 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 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
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 Financial Statements for the year
ended March 31, 2025. 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	How our audit addressed the Key Audit Matter
identification and provisioning of non-performing advances (NPA): Total Loans and Advances (Net of Provision) as at March 31, 2025: H1,07,09,24,845 (in ‘000s)
Provision for NPA as at March 31, 2025: Rs1,68,56,867 (in ‘000s) (Refer Schedule 9, Schedule 17(4A) and Schedule 18(5(a)))
The Reserve Bank of Indias ("RBI") guidelines on Income recognition and asset classification & Provisioning ("IRAC") and other circulars and directives issued by the RBI from time to time, which prescribe the prudential norms for identification and classification of performing & non-performing assets ("NPA") and the minimum provision required for such assets. The Bank is required to have Board approved policy as per IRAC guidelines for NPA identification & classification of advances and provision thereon.	Our audit procedures with respect to this matter included: Tested the design and operating effectiveness of key controls over approval, recording, monitoring and recovery of loans, monitoring overdue accounts, identification of NPA, provision for NPA and valuation of security and collateral on a test check basis.
	Obtained an understanding of the additional provision carried by the Bank and verified the underlying assumptions used by the Bank for such estimate.
The provision on NPA is estimated based on 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 norms specified by RBI and approved policy of the Bank in this regard.
	Tested application controls included test of automated controls, reports and system reconciliations.
	Reviewed existence and effectiveness of monitoring mechanisms such as Internal Audit, Systems Audit, and Concurrent Audit as per the policies and procedures of the Bank.

 

Key Audit Matter	How our audit addressed the Key Audit Matter
The Bank is also required to apply its judgement to determine the identification and provision required against NPAs 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.	Evaluated the governance process and review controls over calculations of provision of non-performing advances, basis of provisioning in accordance with the Board approved policy. Selected a sample of borrowers based on quantitative and qualitative risk factors for their assessment of appropriate identification & classification as NPA including computation of overdue ageing to assess its correct classification and provision amount as per extant IRAC norms and the Bank policy.
Additionally, the Bank makes additional provisions on Retail Unsecured Portfolio, including Microfinance, Credit Card, Personal Loan and Mortgage Book of the Fincare Unit.
Since the identification of NPAs and provisioning for advances require 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.	Performed other substantive procedures included and not limited to the following:
	• Selected samples of performing loans and assessed independently as to whether those should be classified as NPA.
	• For samples selected, reviewed the collateral valuations, Financial Statements and other qualitative information.
	• 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)/ Centralised Information Management System (CIMS) to identify stress.
	• For selected samples, assessed independently, the accounts that can potentially be classified as NPA.
	• 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 needed to be considered as NPA.
	• Examined the accounts under watchlist report provided by the risk department.
	• Discussed with the management of the Bank on sectors where there is a perceived credit risk and the steps taken to mitigate the risks to identified 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 appropriateness & the adequacy of disclosures against the relevant accounting standards and RBI requirements relating to NPAs.

 

Information Technology (‘IT) systems and controls impacting financial reporting
The Bank has a complex IT architecture to support its day-to- day business operations. Large volume of transactions are processed and recorded on single or multiple applications.	Our Audit procedures with respect to this matter included: For testing the IT general controls, application controls and IT dependent manual controls, we involved IT specialists as part of the audit. The IT team also assisted in testing the accuracy of the information produced by the Banks IT systems.
The reliability and security of IT systems plays a key role in the business operations of the Bank. Since large volume of transactions are processed daily, the IT controls are required to ensure that applications process data as expected and that changes are made in an appropriate manner.
	Obtained a comprehensive understanding of IT applications landscape implemented at the Bank. It was followed by process understanding, mapping of applications to the same and understanding financial risks posed by people-process and technology.
Key Audit Matter		How our audit addressed the Key Audit Matter
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.		Key IT audit procedures includes testing design and operating effectiveness of key controls operating over user access management (which includes user access provisioning, de-provisioning, access review, password configuration review, segregation of duties and privilege access), change management (which include change release in production environment are compliant to the defined procedures and segregation of environment is ensured), program development (which include review of data migration activity), computer operations (which includes testing of key controls pertaining to, backup, batch processing (including interface testing), incident management and data centre security), system interface controls. This included testing that requests for access to systems were appropriately logged, reviewed, and authorized.
We have identified IT systems and controls as key audit matter because of the high level automation, significant number of systems being used by the management and the complexity of the IT architecture and its impact on the financial reporting system.
		In addition to the above, the design and operating effectiveness of certain automated controls, that were considered as key internal system controls over financial reporting were tested. Using various techniques such as inquiry, review of documentation / record / reports, observation, and re- performance. We also tested few controls using negative testing technique.
		Tested compensating controls and performed alternate procedures, where necessary. In addition, understood where relevant changes made to the IT landscape during the audit period.

Information Other than the Financial
Statements and Auditors Report Thereon

The Banks Board of Directors are responsible for the
other information. The other information comprises
the information included in the Annual Report but
does not include the Financial Statements and our
auditors report thereon and the Basel II Disclosures
under New Capital Adequacy Framework (Basel
II Disclosures). The Annual Report is expected
to be made available to us after the date of this
auditors report.

Our opinion on the Financial Statements does not
cover the other information and Basel II Disclosures
and we will 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 identified above when it becomes
available and, in doing so, consider whether the
other information is materially inconsistent with the
Financial Statements, or knowledge obtained in the
audit, or otherwise appears to be materially misstated.

When we read the Annual Report, if we conclude
that there is a material misstatement therein, we are
required to communicate the matter to those charged

with governance and take appropriate action as
applicable under the relevant laws and regulations.

Responsibilities of Management and Those
Charged with Governance for the 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 and presentation of
these 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 the RBI Guidelines. This responsibility
also includes maintenance of adequate accounting
records in accordance with the provisions of the
Act, Banking Regulation Act, 1949 and circulars
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 Financial
Statement that give a true and fair view and are free
from material misstatement, whether due to fraud
or error.

In preparing the Financial Statements, the Board
of Directors 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
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 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 current Year 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 Financial Statements of the Bank for the year
ended March 31, 2024, were audited by previous
joint statutory auditors whose report dated April
24, 2024 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.

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.
During the course of our audit we have
visited 35 branches including 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. I n 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, except for the matters stated
in paragraph 3(h)(vi) below on reporting
under Rule 11(g).

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 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 RBI.

e. The reservation relating to the maintenance
of accounts and other matters connected
therewith are as stated in the paragraph 3(b)
above on reporting under Section 143(3)(b)
and paragraph 3(h)(vi) below on reporting
under Rule 11(g).

f. On the basis of the written representations
received from the directors as on March
31, 2025 taken on record by the Board
of Directors, none of the directors are
disqualified as on March 31, 2025 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 Financial
Statements of the Bank and the operating
effectiveness of such controls, refer to our
separate Report in "Annexure A".

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 Financial Statements -
Refer Note 12 to the Financial Statements.

ii. The Bank did not have any long-term
contracts including derivative contracts
as at year end 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, as disclosed in Note
B(10) of Schedule 18 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, 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, as disclosed in Note
B(10) of Schedule 18 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,
as on the date of this audit report,
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 sub-clause
(i) and (ii) of Rule 11(e) as provided
under (1) and (2) above, contain
any material mis-statement.

v. The Bank has declared and paid
dividend during the year which is in
compliance with section 123 of the Act
and the Banking Regulation Act, 1949.

vi. Based on our examination which
included test checks, the Bank has
used certain accounting softwares for
maintaining its books of account, which
has a feature of recording the audit trail
(edit log) facility, except that audit trail
feature was not enabled for certain
masters in respect of one software to
log any changes.

Further, where enabled, the audit trail
feature has operated for the relevant
transactions recorded in the accounting
softwares. Also, during the course
of our audit, we did not come across
any instance of the audit trail feature
being tampered with in respect of such
accounting softwares. Additionally, the
audit trail feature of prior year(s) has
been preserved by the Bank as per
the statutory requirements for record
retention to the extent it was enabled
and recorded in respective years.

i. 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.

ANNEXURE A TO THE INDEPENDENT AUDITORS REPORT OF EVEN
DATE ON THE FINANCIAL STATEMENTS OF AU SMALL FINANCE
BANK LIMITED FOR THE YEAR ENDED MARCH 31, 2025

[Referred to in paragraph "3(g)" under Report on Other Legal and Regulatory Requirements in the Independent
Auditors Report]

Report on the internal Financial Controls
with reference to the aforesaid Financial
Statements 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 Financial Statements of AU Small Finance
Bank Limited ("the Bank") as of March 31, 2025 in
conjunction with our audit of the 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 Financial Statements and such internal financial
controls with reference to Financial Statements
were operating effectively as at March 31, 2025,
based on the internal control with reference to
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 ICAI") (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 Financial Statements criteria established by the
Bank considering the essential components of
internal control 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 for Internal Financial
Controls

Our responsibility is to express an opinion on the Banks
internal financial controls with reference to 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 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 internal financial
controls with reference to 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 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 Financial Statements.

Meaning of Internal Financial Controls with
Reference to Financial Statements

A Banks internal financial control 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 Banks
internal financial control 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 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 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 internal financial 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.

For M S K A & Associates	For Mukund M Chitale & Co.
Chartered Accountants	Chartered Accountants
ICAI Firm Registration No.: 105047W	ICAI Firm Registration No.: 106655W

 

Tushar Kurani	Abhay Kamat
Partner	Partner
Membership No.: 118580	Membership No.: 039585
UDIN: 25118580BMOHVT1089	UDIN: 25039585BMIWAR7549
Place: Jaipur	Place: Jaipur
Date: April 22, 2025	Date: April 22, 2025