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Report on the Financial Statements
We have audited the financial statements of City Union Bank Limited(the Bank),which comprise the Balance Sheet as at 31 March, 2019, the Profit & Loss Account, and the 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. Incorporated in these financial statements are the return of 14 branches and office audited by us and 639 branches & offices audited by branch statutory auditors. The branch audited by us and those audited by other auditors have been selected by the Bank in accordance with guidelines issued to the Bank by the Reserve Bank of India.
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 Regulations Act, 1949 as well as 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 principles generally accepted in India, of the state of affairs of the Bank as at 31 March, 2019 and Profit and its Cash Flows for the year ended on that date.
Basis of 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 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 opinion.
Key Audit Matters
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 whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
A. Identification of Non-Performing Assets (NPA) and Provisions on Advances
(Reference to Schedule 9 read with Statement of Accounting Policies Note 6 Schedule to the Financial Statements) (र in thousands)
Significant estimates and judgment involved
Key Audit Matter
Identification of NPAs and provisions in respect of NPAs and restructured advances are made based on managements assessment in accordance with norms issued by Reserve Bank of India on Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances.
The provision on NPA are based on the valuation of the security available and also requires management estimates and judgements. In case of restructured accounts, provision is made for diminution in fair value of restructured loans, in accordance with the RBI guidelines.
Accordingly, our audit focused on identification of NPAs and provision on advances as a key audit matter because of the level of management estimates and judgement involved in determining the provision and the valuation of the security of the NPA loans and the resultant impact on the financial statements of the Bank.
Our key audit approach included assessing the design, implementation and operating effectiveness of key internal controls and substantive audit procedures over approval, recording and monitoring of loans, assessing the reliability of documentation, measurement of provisions, identification of NPA accounts and Valuation of Security for NPA accounts along with basis and rationale for various other management informations.
We have evaluated details for a sample of exposures for identification of NPA and calculation of Loan Loss provisions including valuation of primary and collaterals as at 31 March, 2019 involving certain degree of estimation.
We have evaluated and understood the Banks internal control systems completeness, accuracy and relevance of data and to ensure that the same is in compliance with the RBI guidelines on the Prudential Norms on Income Recognition, Asset Classification & Provisioning.
We also selected samples to test potential cases of "ever greening" of loans.
We tested samples to ensure completeness of documentation, adherence of the approval process to the Banks Policy and board minutes, credit review of customers, review of Special Mention Accounts (SMA) reports and other related documents including evaluation of the past trends of management judgement, governance and review of internal control.
B. Valuation of Financial Instruments (Investments)
(Reference to Schedule 8 read with Statement of Accounting Policies Note 5 Schedule to the Financial Statements)
Subjective estimates and judgment involved
Key Audit Matter
Investments are classified into Held for Trading (HFT), Available for Sale (AFS) and Held to Maturity (HTM)categories at the time of purchase. Investments classified as HTM are carried at amortized cost and investments classified as AFS and HFT are Marked-to-Market on a periodic basis as per the RBI guidelines.
Accordingly, our audit was focused on valuation of investments as a key audit matter because of the management judgement involved in determining the value of investments based on the policy of the Bank, impairment assessment for HTM book and the over all impact on the financial statements of the Bank.
Our audit approach included assessing the design, implementation and operating effectiveness of managements key internal controls over classification and valuation of Investments. The appropriateness of the valuation methodology and test checking the inputs used such as pricing, measure of volatility and discount factors. Compared the valuation methodology in accordance with the relevant Accounting Standards / RBI circulars, master directions and guidelines issued from time to time.
We test checked the investments and re-performed independent valuation where no direct observable inputs were used. We reviewed the assumptions used, by considering the alternate valuation method and sensitivity of other key factors assessing whether the financial statement disclosures appropriately reflect the Banks exposure to investments valuation risks with reference to the requirements of the prevailing Accounting Standards and RBI guidelines.
C. Information Technology - IT Systems and Controls
Key Audit Matter
The Banks Key Information Technology (IT) systems is used to record all the operational and financial transactions on a daily basis. The financial accounting and reporting process are highly dependent on information systems and hence we tested automated controls in IT systems.
In addition, large transaction volumes, ensuring integrity and data protection the Banks Information systems has to be capable to handle the increased cyber risk emanating across the globe.
We have identified IT systems and controls as key audit matter because of the level of process automation, large volume of automated transactions, level of cyber security established by the management and the complexity of the IT architecture of the Bank.
We involved our IT Specialists to obtain a detailed understanding of the Banks IT Systems and its related controls. We tested a sample of assessment in the areas of applications, databases and operating systems that are relevant to our audit in the fields of Core Banking Solutions (CBS) and Treasury Systems.
We obtained a detailed understanding on the General IT controls which includes evaluation of Bank s control to evaluate granting access right, segregation of duties, new user creation, removal of user rights and preventive controls.
We involved our IT Specialists to evaluate and review the security configuration on certain critical aspects of cyber security on network security, operational security, data and client informations, monitoring and recovery management.
D. Direct and Indirect Taxes
(Reference to Notes to Accounts, Note 10.1 & 12.1 read with Statement of Accounting Policies Note 13 & 14 Schedule to the Financial Statements)
Key Audit Matter
The Bank has evaluated tax positions including matters under dispute which involves significant judgements to determine the possible outcome of these disputes.
We have reviewed the nature of the amounts recoverable, obtained details of completed tax assessments and demands for the year ended 31 March, 2019, the sustainability and the likelihood of the amounts recoverable which are pending final resolution.
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 CSR initiatives, Directors Report, Annexures to Directors Report, Shareholders Information, Business Responsibility Report, Corporate Governance Report, Management
Discussions & Analysis Report, List of Branches, Basel III Disclosures, Decade Progress included in the Banks Annual report, but does not include the financial statements and our auditors report thereon.
Our opinion on the financial statements does not cover the other information and the Basel III Disclosures, and accordingly, 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 and, in doing so, consider whether the other information is materially in consistent with the financial statements or our knowledge obtained in the auditor otherwise appears to be materially misstated. If, based on the work we have performed, 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 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 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, provisions of Section 29 of the Banking Regulation Act,1949 and the circulars and guidelines 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 safe guarding 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 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, 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 management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.
Those Board of Directors are also responsible for over seeing 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 Standards, 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. 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 the financial statement are 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 a 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 safe guards.
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 out weigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
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 the Rule 7 of the Companies (Accounts) Rules, 2014.
1. As required Sub Section (3) of Section 30 of the Banking Regulation Act, 1949, 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) 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 purpose of our audit are available therein. However, during the course of our audit we have visited 14 branches and offices. The returns received from the offices and branches of the Bank not visited by us have been found adequate for the purpose of our audit.
2. Further, as required by Section 143(3) of the Companies Act, 2013, 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;
(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 and proper returns adequate for the purposes of our audit have been received from offices and branches not visited by us;
(c) The reports on the accounts of the offices and branches audited by other branch auditors of the Bank under Section 143(8) of the Companies Act, 2013 have been sent to us and have been properly dealt with by us in preparing this report;
(d) 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 and with the returns received from the offices and branches not visited by us;
(e) 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 Reserve Bank of India;
(f) On the basis of the written representations received from the directors as on 31 March, 2019 taken on record by the board of directors, none of the directors is disqualified as on 31 March, 2019 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 over Financial Reporting of the Bank and the operating effectiveness of such controls, refer to our separate Report in "Annexure A" to this report; and
(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 disclosed the impact of pending litigations on its financial position in its financial statements - Refer Note 12.1 to the financial statements;
(ii) The Bank has made provision, as required under the applicable law or accounting standards, for material foreseeable losses on long-term contracts including derivative contracts - Refer Note 10.1 to the financial statements; and
(iii) There has been no delay in transferring the funds to the Investor Education and Protection Fund Account by the Bank.
(iv) The disclosures required on holdings as well as dealing in Specified Bank Notes during the period from 8 November, 2016 to 30 December, 2016 as envisaged in notification G.S.R. 308(E) dated th 30 March, 2017 issued by the Ministry of Corporate Affairs is not applicable to the Bank.
(v) With respect to the matter to be included in the Auditors Report in accordance with the requirements of Section 197(16) of the Companies Act, 2013 as amended:
In our opinion and to the best of our information and according to the explanations given to us, the entity being a Banking Company, Section 197 of the Act related to the managerial remuneration is not applicable by virtue of Section 35B (2A) of the Banking Regulation Act, 1949.
|For M/s. Sundaram & Srinivasan|
|P. Menakshi Sundaram|
|Date : 17 May, 2019||M. No.217914|
To the Independent Auditors Report of even date on the Financial Statements of City Union Bank Limited [Refer Para 2(9)] Report on Other Legal and Regulatory requirements in Auditors Report
Report on the Internal Financial Controls over Financial Reporting under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013
We have audited the Internal Financial Controls over
Financial Reporting ("ICFR") of City Union Bank Limited ("the Bank") as of 31 March, 2019 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 Systems over Financial Reporting and such Internal Financial Controls over Financial Reporting were operating effectively as at 31 March, 2019, 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 (the "Guidance Note").
Managements Responsibility for Internal Financial
Controls over Financial Reporting
The Banks Management and Board of Directors are responsible for establishing and maintaining internal financial controls based on 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 ("Guidance Note") 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.
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 and the Standards on Auditing as specified under Section 143(10) of the Companies Act, 2013, to the extent applicable to an Audit of Internal Financial Controls and both issued by the Institute of Chartered Accountants of India. 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 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 System 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 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 System over Financial Reporting.
Meaning of Internal Financial Controls over Financial Reporting
A Banks Internal Financial Control 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 Control 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 inherent limitations of Internal Financial Controls over Financial Reporting, including the possibility of collusion 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 Control over Financial Reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
|For M/s. Sundaram & Srinivasan|
|P. Menakshi Sundaram|
|Date : 17 May, 2019||M. No.217914|