To
The Members of Union Bank of India (erstwhile Corporation Bank)
Report on audit of the Standalone Financial Statements Opinion
1. We have audited the accompanying standalone financial statements of
Union Bank of India (‘erstwhile Corporation Bank ‘the Bank), which comprise
the Balance Sheet as at 31 March 2020, the Statement of Profit and Loss and the Statement
of Cash Flows for the year then ended, and notes to financial statements including
significant accounting policies and other explanatory information in which are included
returns for the year ended on that date, of 20 Branches audited by us and 1440 Branches
audited by Statutory Branch 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 included in the Balance Sheet, the Statement
of Profit and Loss and Statement of Cash Flows are the returns from 1048 Branches which
have not been subjected to audit. These unaudited Branches account for 5.46 percent of
advances, 16.48 per cent of deposits, 6.78 per cent of interest income and 15.71 per cent
of interest expenses.
2. 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:
a. 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 the state of affairs of the Bank as at 31st March, 2020;
b. the Profit and Loss Account, read with the notes thereon shows a
true balance of Loss; and
c. the Cash Flow Statement gives a true and fair view of the cash flows
for the year ended on that date.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditing
(SAs) issued by ICAI. 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 ethical requirements that are
relevant to our audit of the financial statements, and we have fulfilled our 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
4. We draw attention to: -
i) Note no 20 of Schedule 18 C regarding the amalgamation of
e-Corporation Bank with Union Bank of India, vide Government of India, Gazette
Notification no. CG-DL-E-04032020-216535 dated 04th March 2020, with effect from 1.4.2020.
ii) Note no 4.4 of Schedule 18A of the accompanying standalone
financial statements regarding impact of COVID 19 pandemic, which captures the prevailing
uncertainties on the business operations of the Bank. We have been informed that the Bank
is evaluating the situation and its impact.
iii) Note no 4.6 of Schedule 18A regarding provision made towards
Harmonization as per the directive of RBI with regard to Income Recognition, Asset
Classification and Provisioning in respect of common exposures;
iv) Note no 3 of Schedule 18 B regarding additional provision made
towards Employee Benefits (Pension Fund);
v) Note no 8c of Schedule 18 B regarding additional provision made
towards Income Tax in respect of earlier assessment years;
vi) Note no 8c of Schedule 18 B regarding reversal of deferred tax
asset;
vii) Note no 12 of Schedule 18 C regarding deferment of provision
pertaining to certain fraud accounts identified during the year ended 31stMarch 2020 and
to be charged to Profit and Loss account in subsequent quarters in terms of RBI circular
DBR no. BPBC.92/21.04.048/2015-16 dated 18th April, 2016.
Our opinion is not modified in respect of these matters.
5. 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 31st March 2020. 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:
| S. No Key Audit Matters |
How the matter was addressed in the audit |
| 1. Classification of Advances, Income
recognition, Identification of and provisioning for non-performing assets (refer schedule
18 A read with note 4and accounting policy no 3 in Schedule 17) |
Our audit procedures included an understanding
of the Banks Core Banking Solution (CBS) software, circulars, guidelines and directives
of the RBI and the Banks internal instructions and procedures in respect of asset
classification to ensure that the reported financial statements are proper and reliable. |
| The advances are classified into standard,
sub-standard, doubtful and loss assets in accordance with the guidelines issued by the RBI
(IRAC norms) and other circulars and directions issued by the RBI from time to time which
provides guidelines relating to classification of Advances into performing and
non-performing advances. |
|
|
Our audit approach consisted of testing
operating effectiveness of internal controls as follows: - |
| The Bank is operating under Core Banking
Solution (CBS). The operational and Financial reporting processes are dependent on IT
Systems for the large volume of transactions at the front end and at the back end. The
Bank accounts for all the transactions related to advances in its Information Technology
System Viz. Core Banking Solution which also identifies whether the advances are
performing or nonperforming. Further NPA classification and calculation of provision is
done through same system. The carrying value of these advances (net of provisions) could
be materially misstated if, either individually or in aggregate, the Prudential norms are
not properly followed. |
Evaluating and critically analysing the Banks
internal control system adheres to the RBI guidelines regarding Income recognition, asset
classification and provisioning pertaining to advances. |
|
Reviewed the documentations,
operations/performance and monitoring of the advance accounts on test check basis to
ascertain any overdue, unsatisfactory conduct or weakness in any advance account,
examination of classification as per prudential norms of the RBI, in respect of
Branches/relevant divisions audited by us. In respect of the Branches audited by the
Branch Statutory Auditors, we have placed reliance on their reports. |
| Advances constitute 55.50 per cent of the
Banks total assets. |
We assessed and evaluated the process of
identification of NPAs and corresponding reversal of income and creation of provision. |
| In view of the significance of the amount of
advances, in the financial statements, regulatory requirements, estimation/judgement
involved in valuation of securities, the classification of advances and provisioning
thereon has been considered as a Key Audit Matter in our Audit Report. |
|
| 2. Classification of Advances into Priority
& Non-Priority Sector (Refer-Schedule 18 C read with Note 9 of financial statements) |
We have assessed the efficacy of the system of
sector wise classification by the Bank. |
|
We have relied on the Branch and zonal
returns, Branch Auditors reports for sector wise classification. |
| Bank has made re-classification of borrowers
accounts between Priority & Non-Priority Sector during the year under Audit. |
We have selected sample of product wise
accounts in priority sector classification to determine the correctness of reporting of
sector wise classification. |
| Consequently, we have considered this as a Key
Audit Matter. |
The system of identification of
priority/non-priority sector advances needs review and revalidation. |
| 3. Classification and Valuation of
Investments, Identification of and provisioning for Non-performing Investments (Refer
-Schedule 18 A read with Note 2 of financial statements) |
Our audit approach towards Investments with
reference to RBI circulars/directives/Investment Policy of the Bank included the review of
internal controls and audit procedures in relation to valuation, classification,
identification of NonPerforming Investments, provisioning/ depreciation related to
Investments as per RBI guidelines/Accounting Policies followed by the Bank in this regard. |
| Investments include investments made by the
Bank in various Government Securities, Bonds, Debentures, Shares, Units of Venture Capital
Funds and Mutual Funds, Security Receipts of ARC, investment in subsidiary, and other
apprved securities. The investments are classified under three categories - Held to
Maturity, Available for Sale and Held for Trading. |
|
| These are governed by the circulars and
directives of the RBI. These directives of the RBI, inter alia, cover valuation of
investments, classification of investments, identification of non-performing investments,
corresponding nonrecognition of Income and provision thereof. The valuation and
consequential adjustment and the identification of Nonperforming investment are contained
in accounting policy No 4 of Schedule 17. |
We reviewed and evaluated the process adopted
for collection of information from various sources for determining fair value of these
investments. |
|
We carried out the audit procedures to verify
the valuation, provision and depreciation in respect of selected sample of investments
within each category. |
| Investments constitute 28.94 percent of the
Banks total assets. |
We assessed and evaluated the process of
identification of NPIs, reversal of income as applicable and also ensuring adequacy of
provision to be made. |
| In view of the significance of the value of
Investments in the standalone financial statements, the same has been considered as a Key
Audit Matter. |
|
| 4. Assessment of Provisions and Contingent
Liabilities in respect of pending litigation under Direct Tax Laws. (refer Schedule 18B
Note no 9 ) |
Obtained an understanding of the current
status of tax assessment/litigations pending before the Appellate Authorities. |
| There is a high level of judgement required in
assessment of the tax litigation pending before Appellate Authorities. The assessment of
the Bank is based on the facts of each case, Judicial Rulings and Expert advice from
Independent Tax Consultants. Any adverse inference drawn by the Tax Assessing Officers,
Appellate Authorities may significantly impact the Banks Profit/Loss. |
Examined the Assessment orders/Appellate
orders/Court orders received during the financial year under report |
|
Evaluated the issues from the legal perspective
and the tax advice received from the Independent Tax Consultants |
|
Discussed with the Tax Team of the Bank on the
issues arising in pursuance to the assessments completed and the submissions made by the
Bank before the Assessing Officers /Appellate Authorities. |
| The above area has been identified as a Key Audit
Matter in the light of uncertainties associated with the outcome of these matters |
Also reviewed the statement of claims against the
Bank by Income Tax Authorities, not acknowledged as debts and the disputed tax paid
against such claims. |
| 5. Modified Audit procedures carried out in
light of COVID-19 outbreak |
We have modified our audit procedures as
follows: |
|
Conducted examination/verification of
necessary records/ documents/reports electronically through e mails and remote access to
the relevant software (Finacle), where it was not possible to physically visit the Offices
of the Bank. |
| Due to outbreak of COVID-19 pandemic and the
consequent nationwide lockdown and travel restrictions imposed by the Central Government/
State Government/Local Authorities during the period of our audit, we could not travel to
the Branches, Zonal Offices, and Head Office to carry out the audit processes physically.
The audit was carried out remotely where physical access was not possible. |
|
|
Carried out verification of scanned copies of
the documents, certificates, reports, financial statements, and related records made
available to us electronically through remote access/ emails. |
| Wherever we were not able to visit various
locations, the necessary records/reports/documents/certificates were made available to us
by the Bank through digital medium, emails and remote access to the relevant application
software (FINACLE). We could not visit most of the Branch Offices and Zones. As informed
to us, most of the Branch Auditors also could not visit the Branches allotted to them and
accordingly they also adopted modified audit procedures. To this extent, the audit process
was carried out on the basis of such documents, reports, and records made available to us,
which were relied upon by us as audit evidence for conducting the audit and reporting for
the year under report. |
Interaction and gathering audit evidence
through video conferencing, scanned copies, documents through emails, telephonic
conversations, and other similar modes of communication. |
| Since we could not gather audit evidence
physically/in person/through meetings with the officials of the Bank at the respective
Branches/zones/head office; we have identified the audit procedure as contained herein as
a Key Audit Matter. |
Resolved audit observations through discussions,
receipt of digital records, telephonic conversations and e mails. |
| 6. Information Technology System (Finacle)
based Financial reporting process. |
We conducted a review and assessment of
information and data derived from Core and Treasury to assure that the reported Financial
Statements are proper and reliable. |
| The Bank is operating under Core Banking Solution
(CBS). The Operational and Financial reporting processes are dependent on IT Systems for
the large volume of transactions at the front end and at the backend. |
Our audit approach consisted of testing
operating effectiveness of internal controls as follows: Obtaining and reviewed the IS
Audit conducted during the year. |
| Core Banking for all transactions including for
integrated treasury management of the Bank has adequate checks, balances ,processes and
controls designed for the effective data capturing and reporting. |
Obtaining an understanding of the Banks IT
Control environment, IT Policies and key changes during the audit period including the
notes placed before the Board. |
| We have considered this as a Key Audit Matter, as
lack of control and inputting errors results in wrong reporting of data to the Management
and Regulators. |
Reviewed the design, implementation and operating
effectiveness of the Banks General IT controls over key IT systems that are critical to
Financial reporting on test check basis. |
|
Test checked key automated and manual business
cycle controls and system generated reports relevant to audit. |
Information Other than the Standalone Financial
Statements and Auditors Report thereon
6. Those charged with governance are 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
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, 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
7. Those charged with governance 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 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, those charged with governance
are 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
8. 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, but
not for the purpose of expressing an opinion on the effectiveness of the Banks internal
control.
• 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.
• 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
9. We did not audit the financial statements / information of 1440
Branches included in the standalone financial statements of the Bank whose financial
statements / financial information reflect total assets of Rs 1,78,749.33 crores as at
31st March 2020 and total revenue of Rs.6,095.95 crores for the year ended on that date,
as considered in the standalone financial statements. The financial statements /
information of these Branches have been audited by the Branch Auditors whose reports have
been furnished to us, 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
10. The Balance Sheet and the Profit and Loss Account have been drawn
up in accordance with Section 29 of the Banking Regulation Act, 1949;
11. Subject to the limitations of the audit indicated in paragraphs 6
to 9 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.
12. We further report that:
a) 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 Branches not
visited by us;
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 and with
the returns received from the Branches not visited by us;
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, the 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.
13. In accordance with letter No. DOS.ARG. No.6270/08.91.001/2019-20
dated 17thMarch, 2020 on “Appointment of Statutory Central Auditors (SCAs) in Public
Sector Banks - Reporting obligations for SCAs from FY 201920” issued by the RBI and
subsequent communication dated 19th May 2020. 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 financial transactions or
matters which have any adverse effect on the functioning of the Bank.
c) Consequent to the Government of Indias direction of Amalgamation,
the Board of the Bank has been superceded; reporting on Directors as on 31stMarch, 2020
from being appointed as a Director in terms of subsection (2) of Section 164 of the
Companies Act, 2013 is not applicable.
d) There are no qualifications, reservations or adverse remarks
relating to the maintenance of accounts and other matters connected therewith.
e) As the Bank has exercised the option to implement “Internal
Financial Controls with reference to the Financial Statements” from the financial
year 2020-21 as permitted by RBI on 19thMay, 2020, there is no reporting requirement for
the current year ended 31st March, 2020.
As per our report of even date
For Chandran & Raman
Chartered Accountants FRN: 000571S
[CA P R Suresh]
(M. No. 027488) Partner
For S. Ramanand Aiyar & Co.
Chartered Accountants FRN: 000990N
[CA Binod C Maharana]
(M. No. 056373) Partner
Place : Mumbai
Date : 23.06.2020
+91-9892691696
