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The Members of The Karnataka Bank Limited
Report on audit of the Standalone Financial Statements
1.01 We have audited the standalone financial statements of The Karnataka Bank Limited (the Bank), which comprise the Balance Sheet as at 31 March 2019, the Profit and Loss Account and Statement of Cash Flows for the year then ended, and notes to the financial statements including a summary of the significant accounting policies and other explanatory information. Incorporated in these financial statements are the returns for the year ended on that date of 33 Branches/Offices audited by us and 835 Branches/Offices audited by the Statutory Branch Auditors.
1.02 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 in the manner so required for the Banking Companies and are in conformity with the accounting principles generally accepted in India and give a true and fair view of the state of a airs of the Bank as at 31 March 2019, and its Profit and Cash Flows for the year ended on that date.
Basis for Opinion
2.01 We conducted our audit in accordance with the Standards on Auditing(SAs) specified under section 143(10) of the Companies Act, 2013. 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 Companies Act, 2013 and the Rules thereunder, and we have ful lled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is suficient and appropriate to provide a basis for our opinion.
Key Audit Matters
3.01 Key audit matters are those matters that, in our professional judgment, were of most signi cance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
|Key Audit Matter||Auditors Response/Procedures|
|Identi cation of Non Performing Assets and Adequacy of Provisions||We have assessed the Banks systems in place for classification of the assets, identi cation and provision for the non performing assets including assessment of realizable securities and their valuation. Our audit approach consisted of testing the design of the systems for identi cation of the non performing assets to ensure conformity with the guidelines of the RBI in the matter and test checking identi cation and valuation of the non performing assets. We have reviewed the Branch audit reports and ensured that changes suggested by the Branch Auditors were duly carried out wherever necessary.|
|Loans and Advances and Investments are classified as performing and non performing assets in accordance with the prudential norms issued by the Reserve Bank of India. The identi cation of non performing assets and creation of provision on such assets involves key management judgments relating to performance, determination of realizable securities available to the Bank and their valuation.|
|Recognition of Deferred Tax Asset|
|Deferred Income Tax re ects the impact of timing difference between taxable income and accounting income. Deferred Tax Asset is not recognized unless there is a virtual certainty that suficient future taxable income will be available against which such asset will be realized.||We have relied upon the management estimates and expert opinions taken by the Bank regarding eligibility of carried forward tax losses for seto against future taxable income and used our own internal expertise in evaluating the claims, assumptions and profitability forecasts and assertions of the management provided to us, that suficient future taxable income will be available for set o against the tax losses carried forward.|
|Contingent Liabilities and Claims|
|Contingent liability is a possible obligation, outcome of which is contingent upon occurrence or non occurrence of one or more uncertain future events. In the judgment of the management, such claims and litigations including tax demands against the Bank would not eventually lead to a liability. However, should there be an adverse outcome, the Bank will be liable to pay the disputed amounts with interest/penalty as may be decided by the competent authorities, the impact of which is uncertain/unascertainable at this stage||We have reviewed the management note and the expert/legal opinions obtained by the Bank regarding the claims and tax litigations and involved our internal team to review the nature of such litigations and claims, their sustainability and likelihood of claims/litigations materializing into eventual liability upon nal resolution, from the available records and developments to date.|
Responsibilities of the Management and those charged with governance for the Standalone Financial Statements
4.01 The Banks Board of Directors is responsible for the matters stated in section 134(5) of the Companies Act, 2013 (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 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 the ectively 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.
4.02 In preparing the financial statements, management is responsible for assessing the Banks ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.
Auditors Responsibilities for the audit of the Financial Statements
5.01 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 the Standards on Auditing(SA) 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.
5.02 As part of an audit in accordance with the 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 suficient 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 Companies Act, 2013, we are also responsible for expressing our opinion on whether the Bank has adequate internal financial controls system in place and theoperating the ectiveness of such controls;
Evaluate the appropriateness of the accounting policies used and the reasonableness of the 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 Audit report. However, future events or conditions may cause the Bank to cease to continue as a going concern; and
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.
5.03 We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit ndings, including any significant de ciencies in internal control that we identify during our audit.
5.04 We also provide those charged with governance with a statement that we have complied with the 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.
5.05 From the matters communicated with those charged with governance, we determine those matters that were of most signi cance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our Audit 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.
6.01 We did not audit the financial statements/information of 835 Branches/Offices included in the standalone financial statements of the Bank whose financial statements/financial information reflect total assets of Rs. 28727 crore as at 31 March 2019 and total revenue of Rs.3597 crore 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 our opinion in so far as it relates to the amounts and disclosures pertaining to such Branches, is based solely on the report of the Branch Auditors.
6.02 Our opinion is not modi ed in respect of this matter.
Report on Other Legal and Regulatory Requirements
7.01 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 Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014.
8.01 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) the returns received from the o ces; and Branches of the Bank have been found adequate for the purposes of our audit.
9.01 Further, 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 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 the Branches/o ces not visited by us;
(c) the reports on the accounts of the Branch/Offices of the Bank audited under section 143(8) of the Act by the Statutory Branch Auditors of the Bank 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 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/Offices not visited by us] ;
(e) in our opinion, the aforesaid standalone 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 the Reserve Bank of India;
(f) on the basis of written representations received from the directors as on 31 March 2019 and taken on record by the Board of Directors, none of the Director is disquali ed 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 the ectiveness of such controls, separate Report in "Annexure A" may please be referred;
(h) with respect to 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 Schedule 18 Note No. 5 to the financial statements;
(ii) the Bank does not have any long term contracts including derivative contracts Refer Schedule 18 Note No 1.3.3 (ii) to the financial statements and
(iii) there has been no delay in transferring amounts required to be transferred to the Investor Education and Protection Fund, by the Bank.
Annexure A to the Independent Auditors Report of even date on the standalone financial statements of The Karnataka Bank Limited
Report on the Internal Financial Controls over Financial Reporting under Clause (i) of sub section 3 of Section 143 of the Companies Act, 2013
1.01 We have audited the internal financial controls over financial reporting of The Karnataka Bank Limited (the Bank) as at 31 March 2019 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 over Financial Reporting
2.01 The Banks Board of Directors 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 (the ICAI).
2.02 These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating the ectively for ensuring the orderly and the cient 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 Companies Act, 2013 (the Act).
3.01 Our responsibility is to express an opinion on the Banks internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the Guidance Note) and the Standards on Auditing (the Standards), issued by the ICAI and deemed to be prescribed under section 143(10) of the Act, to the extent applicable to an audit of internal financial controls, 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 over financial reporting was established and maintained and if such controls operated the ectively in all material respects.
4.01 Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating the ectiveness. 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 the ectiveness of internal control based on the assessed risk. The procedures selected depend on the Auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
5.01 We believe that the audit evidence we have obtained is suficient 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
6.01 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:
a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the bank;
b) provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with the generally accepted accounting principles, and that receipts and expenditure of the Bank are being made only in accordance with authorizations of the management and Directors of the bank; and
c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Banks assets that could have a material the ect on the financial statements.
Inherent Limitations of Internal Financial Controls Over Financial Reporting
7.01 Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial 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.
8.01 In our opinion, the Bank has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating the ectively 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 issued by the ICAI.
|For MANOHAR CHOWDHRY & ASSOCIATES||For BADARI, MADHUSUDHAN & SRINIVASAN|
|Chartered Accountants||Chartered Accountants|
|Firm Regn. No. 001997S||Firm Regn. No. 005389S|
|(Murali Mohan Bhat)||(N. Srinivasan)|
|M. No. 203592||M. No. 027887|
|Place : Mangaluru|
|Date : 13.05.2019|