Karnataka Bank Ltd Auditor Reports

To The Members of

The Karnataka Bank Limited

Report on Audit of the Standalone Financial Statements

Opinion

1. We have jointly audited the accompanying Standalone Financial Statements of The Karnataka Bank Limited (the Bank) which comprise the Balance Sheet as at March 31, 2026, the Statement of Profit and Loss Account and the Statement of Cash Flows for the year then ended, and notes to the Standalone Financial Statements including a summary of significant accounting policies and other explanatory information.

Inouropinionandtothebestofourinformationandaccording to the explanations given to us, the aforesaid Standalone Financial Statements give the information required by the Banking Regulation Act, 1949 and the circulars and guidelines issued by the Reserve Bank of India (the RBI) from time to time, as applicable (the RBI Guidelines) and the Companies Act, 2013, as amended (the Act) in the manner so required for banking companies and give a true and fair view in conformity with the Accounting Standards prescribed under section 133 of the Act read with Companies (Accounting Standards) Rules, 2021, as amended and other accounting principles generally accepted in India, of the state of affairs of the Bank as at March 31, 2026 and its profit and its cash flows for the year ended on that date.

Basis for Opinion

2. 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 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 (ICAI) together with ethical requirements that are relevant to our audit of the Standalone Financial Statements, prepared in accordance with the accounting principles generally accepted in India, including the Accounting Standards prescribed under section 133 of the Act read with the Companies (Accounting Standards) Rules, 2021, as amended and provisions of Section 29 of the Banking Regulation Act, 1949 and circulars and guidelines issued by the RBI from time to time 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

3. 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 March 31, 2026. 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:

Key Audit Matter	Auditors\u2019 Response
a) Classification of Advances, Income Recognition, Identification of and Provisioning for Non-Performing Advances (Refer Schedule 9 read with Note 3 of Schedule 17 to the financial statements)	Our audit procedures in relation to advances focused on compliance with the RBI\u2019s Prudential Norms on Income Recognition, Asset Classification and Provisioning (IRAC), and the Bank\u2019s internal policies. The key elements of our audit approach included:
Advances, which comprise 63.24% of the Bank\u2019s total assets, include bills purchased and discounted, cash credits, overdrafts, demand loans, and term loans.
	Control Evaluation and Process Understanding
	We assessed the design, implementation, and operating effectiveness of key internal controls over loan approval, recording, and monitoring to ensure data completeness, accuracy, and relevance in line with RBI guidelines.
These are categorized as secured (by tangible assets or guarantees) or unsecured, and are governed by the RBI\u2019s Income Recognition, Asset Classification and Provisioning (IRAC) norms and related circulars.
	Substantive Testing and Sample-Based Evaluation
The Bank uses its Core Banking Solution (CBS) to record and monitor all transactions related to advances and to identify performing and non-performing advances. NPA classification and provisioning are carried out through IT systems and related internal processes in line with RBI guidelines.	On a test-check basis, we examined exposures for proper identification of NPAs, calculation of provisions, and valuation of primary and collateral securities\u2014acknowledging the level of management estimation involved.
Given the complexity of the regulatory framework, the volume and nature of advances, and the level of judgment involved in provisioning and valuation of securities, any deviation from IRAC norms could result in material misstatement. Accordingly, this has been identified as a Key Audit Matter.	Monitoring Mechanisms and Internal Audits
	We assessed the existence and effectiveness of internal monitoring systems, such as Internal Audit, Systems Audit, and Concurrent Audit, as per the Bank\u2019s policy framework.
	Document and Governance Review
	Sample testing was performed to verify documentation completeness, adherence to the Bank\u2019s loan approval processes and board decisions, credit reviews, and classification of Special Mention Accounts.
Our audit focused on evaluating the Bank\u2019s compliance with income recognition, asset classification, and provisioning norms for advances, considering their material significance to the financial statements.
	We also reviewed RBI\u2019s Centralised Information Management System (CIMS) reports and related documentation to evaluate management judgement and governance over stressed exposures. Discussions were held with management on high- risk accounts and steps taken for risk mitigation.
	Income Recognition and Provisioning We assessed
	the Bank\u2019s process for identifying NPAs, reversing accrued income, and creating required provisions in accordance with regulatory norms.
	System Interface Testing
	We tested the mapping between advances recorded in the Bank\u2019s application software and the financial statement preparation system to ensure accurate presentation and disclosure as per RBI requirements.
b) Direct and Indirect Taxes	Our audit procedures to test uncertain tax positions included understanding processes, evaluation of adequacy of design and implementation of controls and testing of operating effectiveness of controls over provision for taxation, assessment of uncertain tax positions and disclosure of contingencies.
This matter has been identified as a Key Audit Matter due to the significant level of management judgment required in the estimation of provision for taxes including any write back of provisions, factors like uncertain tax positions and provision for tax involves interpretation of various rules and law. It also involves consideration of on-going disputes and disclosures.
	We have obtained details of completed tax assessments and demands made by authorities from the management of the Bank.
	We discussed with appropriate senior management personnel, independently assessed management\u2019s estimate of the possible outcome of disputed cases and evaluated the management\u2019s underlying key assumptions in estimating the tax provisions.
	We considered legal precedence and other rulings in evaluating management\u2019s position on these uncertain tax positions, the provisions made, and/or write back of the provisions.
	We have also relied upon the opinion given by tax consultant in evaluating management\u2019s assessment for the uncertain tax positions. For those matters where management concluded that no provision should be recorded, we also considered the adequacy and completeness of disclosures.
c) Investments	Our audit procedures for investments were designed with specific reference to the RBI guidelines. They included a review of internal controls and substantive testing related to the valuation, classification, identification of non-performing investments (NPIs), and provisioning/depreciation. Specifically:
Classification and Valuation of Investments;
Identification of and Provisioning for Non-Performing Investments (Schedule 8 read with Note 2 of Schedule 17 to the financial statements)
	a) We reviewed and evaluated the Bank\u2019s internal control systems for compliance with RBI guidelines on valuation, classification, identification of NPIs, and related provisioning/ depreciation.
The Bank\u2019s investment portfolio includes holdings in Government securities, bonds, debentures, shares, security receipts, and other approved securities. Investments represent approximately 20.67% of the Bank\u2019s total assets and are subject to regulatory requirements issued by the RBI. These guidelines govern the classification and valuation of investments, identification of non-performing investments (NPIs), recognition of related income, and provisioning norms.
	b) We assessed the process used by the Bank to gather information from various sources to determine the fair value of investments.
Valuation of each category of investment must adhere to the methods prescribed by the RBI, which require sourcing data from multiple inputs, such as FIMMDA rates, market quotations (BSE/NSE), and financials of unlisted entities.	c) For a representative sample covering all investment categories (based on the nature of the security), we tested the accuracy of valuation and compliance with applicable RBI Master Circulars and directions by independently re-performing the valuation.
The process involves significant judgment, particularly in the assessment of fair value, classification, and impairment. Given the complexity, volume of transactions, reliance on external and internal data, and the high degree of regulatory scrutiny, this area has been identified as a Key Audit Matter.
	d) We evaluated the Bank\u2019s process for identifying NPIs, including how income reversal and provisioning were handled for such investments.
	e) We performed substantive procedures to independently recalculate required provisions and depreciation in line with RBI directives. Samples across all investment categories were tested, and for identified NPIs, we recomputed the necessary provisioning as per RBI guidelines.
Accordingly, our audit focused on evaluating the Bank\u2019s processes and controls over classification and valuation of investments, identification of NPIs, and the adequacy of related provisioning.
	f) We verified the consistency between the investment application software and the financial statement preparation software to ensure correct mapping, presentation, and disclosure in accordance with the relevant RBI requirements.

Information Other than the Standalone Financial Statements and Auditors Report thereon

4. The Banks Board of Directors and Management are responsible for the other information. The other information comprises the Directors Report including annexures to Directors Report, Management Discussion and Analysis, Basel III - Pillar 3 disclosures and Corporate Governance report included in the Annual Report, but does not include the Standalone Financial Statements and our auditors report thereon. The other information 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 do not express any form of assurance or 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 other information, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance & take appropriate action as applicable under the relevant laws and regulations.

Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements

5. The Banks Board of Directors and Management are 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 read with the Companies (Accounting Standards) Rules, 2021, as amended and provisions of Section 29 of the Banking Regulation Act, 1949, and circulars and guidelines issued by RBI from time to time. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the above mentioned Acts & RBI guidelines for safeguarding of the assets of the Bank and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the Standalone Financial Statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the Standalone Financial Statements, Management and Board of Directors 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 and Board of Directors of the Bank either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

The Board of Directors and Management are also responsible for overseeing the Bank financial reporting process.

Auditors Responsibilities for the audit of the Standalone Financial Statements

6. 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.

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 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 system 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.

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.

Materiality is the magnitude of the 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 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 Standalone 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.

Report on Other Legal and Regulatory Requirements

7. The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with Section 29 of the Banking Regulation Act, 1949; and Accounting Standards as per Section 133 of the Act read with the Companies (Accounting Standards) Rules, 2021, as amended.

8. As required by sub-section (3) of section 30 of the Banking Regulation Act, 1949, we report that:

a) We have sought and obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the 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 financial accounting systems of the Bank are centralized and therefore, accounting returns for the purpose of preparing financial statements are not required to be submitted by its branches. However, during the course of our audit, we have visited 101 branches and offices for the purpose of understanding the processes, perform necessary walkthroughs and test of controls and examine the records maintained at such branches and offices.

d) The profit and loss account shows a true balance of profit for the year then ended.

9. Further, as required by Section 143(3) of the Act, based on our audit, we further report to the extent applicable 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.

c) The Balance Sheet, the Statement of Profit and Loss Account and the Statement of Cash Flows dealt with in 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 read with the Companies (Accounting Standards) Rules, 2021 to the extent they are not inconsistent with the policies prescribed by the RBI.

e) On the basis of the written representations received from directors as on March 31, 2026 and taken on record by the Board of Directors, none of the directors are disqualified as at March 31, 2026 from being appointed as a director in terms of section 164(2) of the Act.

f) With respect to the adequacy of internal financial controls over financial reporting with reference to the Standalone Financial Statements of the Bank and the operating effectiveness of such controls, refer to our separate report in Annexure A .

g) With respect to the other matters to be included in the auditors report in accordance with the requirements of section 197(16) of the Companies Act, 2013, we report that since the Bank is a banking company, as defined under the Banking Regulation Act, 1949; the reporting under section 197(16) in relation to whether the remuneration paid by the Bank is in accordance with the provisions of section 197 of the Act and whether any excess remuneration has been paid in accordance with the aforesaid section, is not applicable.

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, as amended, in our opinion and to the best of our knowledge and belief and according to the information and explanation given to us:

i. The Bank has disclosed the impact of pending litigations on its financial position in Note 17 of Schedule 18 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.

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund during the year ended March 31, 2026 by the Bank.

iv. a. The management has represented that, to the best of its knowledge and belief other than, as disclosed in Note 22 (a) of Schedule 18 to the Standalone Financial Statements, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Bank to or in any other person(s) or entity(ies), including foreign entities (Intermediaries), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, 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 Note 22 (b) of Schedule 18 to the Standalone Financial Statements, no funds have been received by the Bank from any person(s) or entity(ies), including foreign entities (Funding Parties), with the understanding, whether recorded in writing or otherwise, 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 were considered reasonable and appropriate by us 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. a. The final dividend declared or paid during the year by the Bank is in compliance with Section 123 of the Companies Act, 2013.

b. As stated in the Note 20 of Schedule 18 to the Standalone Financial Statements, the Board of Directors of the Bank have proposed final dividend for the year which is subject to the approval of the members at the ensuing Annual General Meeting. The dividend proposed is in accordance with section 123 of the Act, to the extent it applies to declaration of dividend, as applicable until the date of this report.

vi. The Bank has used such accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year for all transactions recorded in the software and the audit trail feature has not been tampered with and the audit trail has been preserved by the bank as per the statutory requirements for record retention.

Annexure A to the Independent Auditors Report

(Referred to in paragraph 11 (f) under Report on Other Legal and Regulatory Requirements section of our report of even date on the Standalone Financial Statements of the Karnataka Bank Limited for the year ended March 31, 2026)

Report on the Internal Financial Controls over Financial Reporting with reference to Standalone Financial Statements under Clause (i) of Subsection 3 of Section 143 of the Companies Act, 2013 (the Act)

Opinion

1. We have audited the internal financial controls over financial reporting with reference to Standalone Financial Statements of The Karnataka Bank Limited (the Bank) as of March 31, 2026 in conjunction with our audit of the Standalone Financial Statements of the Bank for the year ended on that date.

2. In our opinion, and to the best of our information and according to the explanations given to us, the Bank has, in all material respects, adequate internal financial controls with reference to Standalone Financial Statements and such internal financial controls were operating effectively as at March 31, 2026, based on the criteria for internal control with reference to Standalone Financial Statements established by the Bank considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants Of India (the ICAI) (the Guidance Note).

Managements Responsibility for Internal Financial Controls

3. The Management and the Board of Directors of the Bank are responsible for establishing and maintaining internal financial controls based on the internal controls 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. 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.

Auditors Responsibility

4. Our responsibility is to express an opinion on the Banks internal financial controls over financial reporting with reference to standalone Financial Statements 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) issued by the Institute of Chartered Accountants of India (the ICAI) and the Standards on Auditing (SAs) 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 with reference to standalone financial statements were established and maintained and if such controls operated effectively in all material respects.

5. Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting with reference to Standalone Financial Statements and their operating effectiveness. Our audit of internal financial controls over financial reporting with reference to Standalone Financial Statements included obtaining an understanding of internal financial controls over financial reporting 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 financial controls 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.

6. 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 with reference to Standalone Financial Statements

Meaning of Internal Financial Controls Over Financial Reporting with reference to Standalone Financial Statements

7. A Banks internal financial controls over financial reporting with reference to standalone financial statements is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A banks internal financial controls over financial reporting 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 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.

Standalone

Inherent Limitations of Internal Financial Controls Over Financial Reporting with reference to Standalone Financial Statements

8. Because of the inherent limitations of internal financial controls over financial reporting 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 over financial reporting with reference to Standalone Financial Statements to future periods are subject to the risk that the internal financial controls over financial reporting 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.