To the Members of HDFC Bank Limited
Report on the Audit of the Standalone Financial Statements
Opinion
1. We have audited the accompanying Standalone Financial Statements of
HDFC Bank Limited ("the Bank"), which comprise the Balance Sheet as at March 31,
2023, and the Profit and Loss Account and the Cash Flow Statement for the year then ended,
and notes to the Standalone Financial Statements including a summary of significant
accounting policies and other explanatory information.
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 as well as the Companies Act,
2013 ("the Act") in the manner so required for banking companies and are in
conformity with accounting principles generally accepted in India and give a true and fair
view of the state of affairs of the Bank as at March 31, 2023, and its profit and its cash
flows for the year ended on that date.
Basis for Opinion
3. 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
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 the ethical requirements that are relevant to our audit
of the Standalone Financial Statements under the provisions of the Act and the Rules
thereunder, and we have fulfilled our other ethical responsibilities in accordance with
these requirements and the Code of Ethics. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
4. Key audit matters are those matters that, in our
professional judgment, were of most significance in our audit of the Standalone Financial
Statements of the current year. 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.
Identification and Provisioning of Non-performing Advances (NPA):
Total NPA as at March 31,2023: Rs 18,011.85 Crores Provision for NPA as
at March 31,2023: Rs 13,643.71 Crores (Refer Schedule 17 (C)(2), Schedule 18 note 12)
Key Audit Matter |
How our audit addressed the
key audit matter |
The Bank is required to comply
with the Master Circular dated April 01,2022 issued by the Reserve Bank of India
("RBI") on "Prudential Norms on Income Recognition, Asset Classification
and Provisioning pertaining to Advances" (the "IRAC norms") and amendments
thereto, which prescribe the guidelines for identification and classification of
Non-performing Advances and the minimum provision required for such assets. |
Our audit procedures included
the following: |
The Bank is also required to
apply its judgement to determine the identification and provision required against
Non-performing Advances considering various quantitative as well as qualitative factors. |
- Understood the process and
controls, and tested the design and operating effectiveness of key controls, including
Information Technology based controls, and focused on the following: |
The identification of
Non-performing Advances is also affected by factors like stress and liquidity concerns in
certain sectors. |
• Monitoring of credit
quality which amongst other things includes the monitoring of overdue loan accounts,
drawing power limit, pending security creation; |
The provision for identified
Non-performing Advances is estimated based on ageing and classification of Non-performing
Advances, nature of product, value of security etc. and is also subject to the minimum
provisioning norms specified by RBI. |
• Identification and
classification of Non- performing Advances in accordance with IRAC norms, other regulatory
guidelines issued by the RBI and consideration of qualitative aspects; and |
|
Since the identification of Non-performing Advances and provisioning for
Non- performing Advances requires considerable level of management estimation, application
of various regulatory requirements and its significance to the overall audit, we have
identified this as a key audit matter. |
• Testing of application
controls including testing of automated controls, reports and system reconciliations. |
|
- Evaluated the governance
process and controls over calculations of provision for Non-performing Advances and tested
that basis of provisioning is in accordance with the Board approved policy and |
|
IRAC norms. |
|
- Tested the controls for
identification of loans with default events and / or breach of key covenant, and for a
sample of performing loans, independently assessed as to whether there was a need to
classify such loans as Non-performing Advances. |
|
- On a test check basis,
verified the accounts classified by the Bank as Special Mention Accounts (‘SMA) in
RBIs Central Repository of Information on Large Credits (‘CRILC). |
|
With respect to provisions
recognised towards Non-performing Advances, we reperformed the provision calculations on a
sample basis taking into consideration the value of security, where applicable, the IRAC
norms and the policy of the Bank, and compared our outcome to that prepared by the
management and tested relevant assumptions and judgements which were used by the
management. |
Information Technology ("IT") Systems and Controls impacting
Financial Reporting
Key Audit Matter |
How our audit addressed the
key audit matter |
The IT environment of the Bank
is complex and involves a large number of independent and interdependent IT systems used
in the operations of the Bank for processing and recording a large volume of transactions. |
Our procedures with respect to
this matter included the following: |
As a result, there is a high
degree of reliance and dependency on such IT systems for the financial reporting process
of the Bank. |
In assessing the controls over
the IT systems of the Bank, we involved our technology specialists to obtain an
understanding of the |
Appropriate IT general
controls and IT 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. |
IT environment, IT
infrastructure and IT systems. We evaluated and tested relevant IT general controls over
the "in-scope" IT systems and |
We have identified certain key
IT systems ("in-scope" IT systems) which have an impact on the financial
reporting process and the related control testing as a key audit matter because of the
high level of automation, significant number of systems being used by the Bank for
processing financial transactions, the complexity of the IT architecture and its impact on
the financial records and financial reporting process of the Bank. |
IT dependencies identified as
relevant for our audit of the standalone financial statements and financial reporting
process of the Bank. On such "in-scope" IT systems, we have tested key IT
general controls with respect to the following domains: |
|
• Program change management,
which includes that program changes are moved to the production environment as per defined
procedures and relevant segregation of environment is ensured. |
|
• User access management,
which includes user access provisioning, de-provisioning, access review, password
management, sensitive access rights and segregation of duties to ensure that privilege
access to applications, operating systems and databases in the production environment were
granted only to authorized personnel. |
|
• Program development,
which includes controls over IT application development or implementation and related
infrastructure, which are relied upon for financial reporting. |
|
• IT operations, which
includes job scheduling, monitoring and backup and recovery. |
|
We also evaluated the design
and tested the operating effectiveness of relevant key IT dependencies within the key
business process, which included testing automated controls, automated calculations /
accounting procedures, interfaces, segregation of duties and system generated reports, as
applicable. |
|
We communicated with those
charged with governance and management and tested a combination of compensating controls
or remediated controls and / or performed alternative audit procedures, where necessary. |
Other Information
5. The Banks Board of Directors is responsible for the other
information. The other information comprises the information included in the annual report
but does not include the Standalone Financial Statements and our auditors report thereon.
The annual report is expected to be made available to us after the date of this auditors
report.
Our opinion on the Standalone Financial Statements does not cover the
other information and we will not express any form of assurance conclusion thereon.
In connection with our audit of the Standalone Financial Statements,
our responsibility is to read the other information identified above when it becomes
available and, in doing so, consider whether the other information is materially
inconsistent with the Standalone Financial Statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated.
When we read the 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 Standalone Financial Statements
6. The Banks Board of Directors is responsible for the matters stated
in Section 134(5) of the Act, with respect to the preparation of these Standalone
Financial Statements that give a true and fair view of the financial position, financial
performance and cash flows of the Bank in accordance with the accounting principles
generally accepted in India, including the Accounting Standards specified under Section
133 of the Act, and the provisions of Section 29 of the Banking Regulations Act, 1949 and
circulars, guidelines and directions 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 Standalone Financial Statements that give a true and fair view and are free from
material misstatement, whether due to fraud or error.
7. In preparing the Standalone 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 and Board of Director either intends to liquidate the Bank or
to cease operations, or has no realistic alternative but to do so. The Board of Directors
are also responsible for overseeing the Banks financial reporting process.
Auditors responsibilities for the audit of
the Standalone Financial Statements
8. Our objectives are to obtain reasonable assurance about whether the
Standalone Financial Statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditors report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit
conducted in accordance with SAs will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these Standalone Financial Statements.
9. As part of an audit in accordance with SAs, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the
Standalone Financial Statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override
of internal control.
• Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in the circumstances. Under
Section 143(3)(i) of the Act, we are also responsible for expressing our opinion on
whether the Bank has adequate internal financial controls with reference to Standalone
Financial Statements in place and the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by management of the
Bank.
• Conclude on the appropriateness of managements use of the going
concern basis of accounting and, based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast significant doubt on the
Banks ability to continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditors report to the related
disclosures in the Standalone Financial Statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
date of our auditors report. However, future events or conditions may cause the Bank to
cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the
Standalone Financial Statements, including the disclosures, and whether the Standalone
Financial Statements represent the underlying transactions and events in a manner that
achieves fair presentation.
10. 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.
11. 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.
12. From the matters communicated with those charged with governance,
we determine those matters that were of most significance in the audit of the Standalone
Financial Statements of 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
13. The Standalone Financial Statements of the Bank for the year ended
March 31, 2022, were jointly audited by MSKA & Associates and M M Nissim & Co LLP,
who, vide their report dated April 16, 2022, expressed an unmodified opinion on those
Standalone Financial Statements.
Report on other legal and regulatory requirements
14. In our opinion, 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 and Section 133 of the Act.
15. As required by 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;
(c) During the course of our audit, we have visited 69 branches to
examine the books of account and other records maintained at the branch and performed
other relevant audit procedures. Since the key operations of the Bank are automated with
the key applications integrated to the core banking system, the audit is carried out
centrally at the Banks Head Office located in Mumbai, as all the necessary records and
data required for the purposes of our audit are available there.
16. As required by Section 143(3) of the Act, we report that:
(a) We have sought and obtained all the information and explanations
which to the best of our knowledge and belief were necessary for the purposes of our
audit;
(b) In our opinion, proper books of account as required by law have
been kept by the Bank so far as it appears from our examination of those books;
(c) The Balance Sheet, the Profit and Loss Account and the Cash Flow
Statement dealt with by this report are in agreement with the books of account;
(d) In our opinion, the aforesaid Standalone Financial Statements
comply with the Accounting Standards specified under Section 133 of the Act, to the extent
they are not inconsistent with the guidelines prescribed by RBI;
(e) On the basis of the written representations received from the
directors as on March 31, 2023 taken on record by the Board of Directors, none of the
directors is disqualified as on March 31,2023 from being appointed as a director in terms
of Section 164(2) of the Act;
(f) With respect to the adequacy of the internal financial controls
with reference to Standalone Financial Statements of the Bank and the operating
effectiveness of such controls, refer to our separate report in "Annexure A";
and
(g) 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 (as
amended), in our opinion and to the best of our information and according to the
explanations given to us:
i. The Bank has disclosed the impact of pending litigations on its
financial position in its Standalone Financial Statements - Refer Schedule 12(1) and (II),
Schedule 17(C)(17) and Schedule 18 note 17(b) and 22 to the Standalone Financial
Statements;
ii. The Bank has made provision, as required under the applicable law
or accounting standards, for material foreseeable losses, if any, on long-term contracts
including derivative contracts - Refer Schedule 17(C)(7) and 17(C)(17), Schedule 18 note
17(b) and 22 to the Standalone Financial Statements;
iii. There has been no delay in transferring amounts, required to be
transferred, to the Investor Education and Protection Fund by the Bank, during the year
ended March 31,2023;
iv. (a) The management has represented that, to the best of its
knowledge and belief, other than as disclosed in the
Note 40, 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, whether, directly or indirectly, lend or invest in
other persons or entities identified in any manner whatsoever by or on behalf of the Bank
("Ultimate Beneficiaries") or provide any guarantee, security or the like on
behalf of the Ultimate Beneficiaries;
(b) The management has represented that, to the best of its knowledge
and belief, other than as disclosed in the Note 40, no funds have been received by the
Bank from any person(s) or entity(ies), including foreign entities ("Funding
Parties"), with the understanding, whether recorded in writing or otherwise, that the
Bank shall, whether, 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; and
(c) Based on such audit procedures that we considered reasonable and
appropriate in the circumstances, nothing has come to our notice that has caused us to
believe that the representations under sub-clause (a) and (b) contain any material
misstatement.
v. The dividend declared and paid during the year by the Bank is in
compliance with Section 123 of the Act; and
vi. As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 (as
amended), which provides for maintaining books of account in accounting software having a
feature of recording audit trail of each and every transaction, creating an edit log of
each change made in books of account along with the date when such changes were made and
ensuring that the audit trail cannot be disabled, is applicable to the Bank only with
effect from financial year beginning April 01, 2023, the reporting under clause (g) of
Rule 11 of the Companies (Audit and Auditors) Rules, 2014 (as amended), is currently not
applicable.
17. In our opinion and to the best of our information and according to
the explanations given to us, the provisions of Section 197 of the Act are not applicable
to the Bank by virtue of Section 35B(2A) of the Banking Regulation Act, 1949. Accordingly,
the reporting under Section 197(16) of the Act regarding payment / provision for
managerial remuneration in accordance with the requisite approvals mandated by the
provisions of Section 197 read with Schedule V to the Act, is not applicable.
For M M Nissim & Co LLP |
For Price Waterhouse LLP |
Chartered Accountants |
Chartered Accountants |
ICAI Firm Registration Number: |
ICAI Firm Registration
Number: |
107122W/W100672 |
301112E/E300264 |
Sanjay Khemani |
Sharad Vasant |
Partner |
Partner |
Membership Number: 044577 |
Membership Number: 101119 |
UDIN: 23044577BGUVME4803 |
UDIN: 23101119BGXIHZ7931 |
Place: Mumbai |
Place: Mumbai |
Date: April 15, 2023 |
Date: April 15, 2023 |
Annexure A to the Independent Auditors
Report
Referred to in paragraph 16(f) of the Independent Auditors Report of
even date to the members of HDFC Bank Limited on the standalone financial statements for
the year ended March 31, 2023
Report on the Internal Financial Controls with
reference to Standalone Financial Statements under clause (i) of sub-section 3 of Section
143 of the Act
1. We have audited the internal financial controls with reference to
Standalone Financial Statements of HDFC Bank Limited ("the Bank") as of March
31, 2023, in conjunction with our audit of the standalone financial statements of the Bank
for the year ended on that date.
Managements Responsibility for Internal
Financial Controls
2. 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 ("the 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 Bankss 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
3. Our responsibility is to express an opinion on the Bankss internal
financial controls with reference to Standalone Financial Statements based on our audit.
We conducted our audit in accordance with the Guidance Note and the Standards on Auditing
deemed to be prescribed under Section 143(10) of the Act to the extent applicable to an
audit of internal financial controls, both applicable to an audit of internal financial
controls and both issued by the ICAI. Those Standards and the Guidance Note require that
we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether adequate internal financial controls with reference to Standalone
Financial Statements was established and maintained and if such controls operated
effectively in all material respects.
4. Our audit involves performing procedures to obtain audit evidence
about the adequacy of the internal financial controls system with reference to Standalone
Financial Statements and their operating effectiveness. Our audit of internal financial
controls with reference to Standalone Financial Statements included obtaining an
understanding of internal financial controls with reference to Standalone Financial
Statements, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. The
procedures selected depend on the auditors judgement, including the assessment of the
risks of material misstatement of the Standalone Financial Statements, whether due to
fraud or error.
5. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion on the Bankss internal financial
controls system with reference to Standalone Financial Statements.
Meaning of Internal Financial Controls With
reference to Financial Statements
6. A Banks internal financial controls with reference to Standalone
Financial Statements is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of Standalone Financial Statements
for external purposes in accordance with generally accepted accounting principles. A
Banks internal financial controls with reference to Standalone Financial Statements
includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Bank; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of Standalone Financial Statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the Bank are being made only in accordance with authorisations of
management and directors of the Bank; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorised acquisition, use, or disposition of the
Banks assets that could have a material effect on the Standalone Financial Statements.
Inherent Limitations of Internal Financial
Controls With reference to financial statements
7. Because of the inherent limitations of internal financial controls
with reference to Standalone Financial Statements, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud
may occur and not be detected. Also, projections of any evaluation of the internal
financial controls with reference to Standalone Financial Statements to future periods are
subject to the risk that the internal financial controls with reference to Standalone
Financial Statements may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Opinion
8. In our opinion, the Bank has, in all material respects, an adequate
internal financial controls system with reference to Standalone Financial statements and
such internal financial controls with reference to Standalone Financial Statements were
operating effectively as at March 31, 2023, based on the internal control over financial
reporting criteria established by the Bank considering the essential components of
internal control stated in the Guidance Note issued by ICAI.
For M M Nissim & Co LLP |
For Price Waterhouse LLP |
Chartered Accountants |
Chartered Accountants |
ICAI Firm Registration Number: |
ICAI Firm Registration
Number: |
107122W/W100672 |
301112E/E300264 |
Sanjay Khemani |
Sharad Vasant |
Partner |
Partner |
Membership Number: 044577 |
Membership Number: 101119 |
UDIN: 23044577BGUVME4803 |
UDIN: 23101119BGXIHZ7931 |
Place: Mumbai |
Place: Mumbai |
Date: April 15, 2023 |
Date: April 15, 2023 |
+91-9892691696
