TO
THE MEMBERS OF
KOTAK MAHINDRA BANK LIMITED
REPORT ON THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS
Opinion
1. We have audited the accompanying standalone financial statements of Kotak
Mahindra Bank Limited (the Bank), which comprise the Balance Sheet as at 31 March
2022, the Profit and Loss Account and the Cash Flow Statement for the year then ended, and
a summary of the 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) and
circulars and guidelines issued by the Reserve Bank of India (the RBI), in the manner so
required for banking companies and give a true and fair view, in conformity with the
Accounting Standards specified under section 133 of the Act, read with the Companies
(Accounting Standards) Rules, 2021 and other accounting principles generally accepted in
India, of the state of affairs of the Bank as at 31 March 2022 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 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 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 period.
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.
5. We have determined the matters described below to be the key audit matters to be
communicated in our report.
Identification of Non-performing Assets ("NPAs") and provisioning on
advances:
Total Loans and Advances (Net of Provision) as at March 31, 2022: Rs 2,71,254 Crores
Provision for NPAs as at March 31, 2022: Rs 4,733 Crores Provision Coverage Ratio
(including technical write offs) as at March 31, 2022: 79.05%.
Refer Schedule 9, Schedule 17(C)(2), Schedule 18(A) note 9 and note 11
| Key audit matter |
How our audit addressed the key audit matter |
| The Bank is required to comply with the Master Circular dated 1 October, 2021 issued
by the Reserve Bank of India ("RBI") on "Prudential Norms for Income
Recognition, Asset Classification and Provisioning pertaining to Advances" (the
"IRAC norms") and amendments thereto which prescribes the guidelines for
identification and classification of Non-performing Assets ("NPAs") and the
minimum provision required for such assets. The Bank is also required to apply its
judgement to determine the identification and provision required against NPAs considering
various quantitative as well as qualitative factors. |
Our audit procedures included the following: |
|
• 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: |
|
- Approval of new lending facilities in accordance with the Banks credit policies |
|
- Performance of annual review/renewal of loan accounts. |
| The identification of NPAs 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 NPAs is estimated based on ageing and classification of
NPAs, value of security, recovery estimates etc. and is also subject to the minimum
provisioning norms specified by RBI. |
- Identification and classification of NPAs in accordance with IRAC norms, other
regulatory guidelines issued by the RBI and consideration of qualitative aspects; and |
| In addition, the Bank is also required to implement "Resolution Framework - 2.0:
Resolution of COVID-19 related stress of Individuals and Small Businesses" and
"Resolution Framework - 2.0: Resolution of COVID-19 related stress of Micro, Small
and Medium Enterprises (MSMEs)" issued by the RBI on 5 May 2021 (collectively
"Resolution Framework - 2.0"), and consider the same in identification of NPAs
and measurement of provision against advances. |
- Assessment of adequacy of NPA provisions. |
|
• Tested the Banks process for identification of loans with default events and/
or breach of other qualitative factors, and for a sample of performing loans,
independently assessed as to whether there was a need to classify such loans as NPAs. |
| Since the identification of NPAs and provisioning for 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. |
• 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). |
|
• Inquired with the management of the Bank on sectors where there has been stress
and the steps taken by the Bank to mitigate such sectorial risks. |
|
• With respect to provisions recognised towards NPAs, we reperformed the
provision calculations on a sample basis taking into consideration the value of security,
where applicable, the IRAC norms and NPA 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. |
|
• Assessed whether the Banks Board approved policy is in line with the
Resolution Framework - 2.0. On a sample basis, tested that restructuring was carried out
in accordance with the Resolution Framework - 2.0 and re-computed the provision made in
accordance with the said framework. |
|
• With respect to additional provisions held by the Bank on account of the impact
of COVID-19 pandemic, we assessed the underlying assumptions and estimates used by the
management for such provisions. |
|
• Read the RBI Annual Financial Inspection report and managements response to
the extent provided for the financial year ended 31 March 2021 and other communication
with regulators and checked whether the observations therein so far as those relate to
identification of NPAs and provisions made against advances, have been addressed by the
Bank. |
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. As a result, there is a high degree of reliance
and dependency on such IT systems for the financial reporting process of the Bank. |
Our audit procedures with respect to this matter included the following: |
| 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. |
In assessing the controls over the IT systems of the Bank, we involved our technology
specialists to obtain an understanding of the IT environment, IT infrastructure and IT
systems. |
|
We evaluated and tested relevant IT general controls and IT application controls of
the "in-scope" IT systems identified as relevant for our audit of the standalone
financial statements and financial reporting process of the Bank. |
| 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. |
On such "in-scope" IT systems, we have tested key IT general controls with
respect to the following domains: |
|
a. Program change management, which includes that program changes are moved to
production environment as per defined procedures and relevant segregation of environment
is ensured. |
|
b. 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 system and databases in the
production environment were granted only to authorized personnel. |
|
c. Program development, which comprises IT operations and system development life
cycle for relevant in-scope applications, operating systems, and databases, which are
relied upon for financial reporting. |
|
d. Other areas that were assessed under the IT control environment included backup
management, business continuity, disaster recovery, incident management, batch processing
and monitoring. |
|
We also evaluated the design and tested the operating effectiveness of key IT
application controls within key business processes, which included testing automated
calculations, automated accounting procedures, system interfaces, system reconciliation
controls and key system generated reports, as applicable. |
|
Where control deficiencies were identified, we tested compensating controls or
performed alternative audit procedures, where necessary. |
Information other than the Financial Statements and Auditors Report thereon
6. The Banks Board of Directors are responsible for the other information. The other
information comprises the information included in the Annual Report including the Pillar 3
Disclosure under the New Capital Adequacy Framework (Basel III disclosures) 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
7. The accompanying standalone financial statements have been approved by the Banks
Board of Directors. The Banks Board of Directors are responsible for the matters stated
in section 134(5) of the Act with respect to the preparation and presentation 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
Standards specified under section 133 of the Act, read with the Companies (Accounting
Standards) Rules, 2021 and other accounting principles generally accepted in India, and
provisions of section 29 of the Banking Regulation Act, 1949 and circulars and guidelines
issued by the 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.
8. In preparing the standalone financial statements, the 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 the Board of Directors either intend to liquidate the Bank or to cease
operations, or has no realistic alternative but to do so.
9. Those Board of Directors are also responsible for overseeing the Banks financial
reporting process.
Auditors Responsibilities for the Audit of the Standalone Financial Statements
10. 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.
11. 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 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.
12. 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.
13. 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.
14. 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.
Other Matter
15. The standalone financial statements of the Bank for the year ended 31 March 2021,
were audited by M/s Walker Chandiok & Co LLP, who vide their report dated 03 May 2021
expressed an unmodified opinion on those standalone financial statements.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
16. 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.
17. 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) We have visited 120 of branches to examine the books of accounts and other records
maintained at the branches for the purpose of our audit. 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 as all the necessary records and data required for the
purposes of our audit are available therein.
18. With respect to the matter to be included in the auditors report under section
197(16) of the Act, we report that since the Bank is a Banking Company as defined under
the Banking Regulation Act, 1949, Section 197 is not applicable to the Bank by virtue of
section 352B(2A) of the Banking Regulation Act, 1949. Accordingly, 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.
19. Further, as required by section 143 (3) of the Act, based on our audit, we 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 of the
accompanying standalone financial statements;
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 read with the Companies
(Accounting Standards) Rules, 2021, to the extent they are not inconsistent with the
accounting policies prescribed by RBI;
e) On the basis of the written representations received from the directors and taken on
record by the Board of Directors, none of the directors is disqualified as on 31 March
2022 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 as on 31 March 2022 and operating
effectiveness of such controls, refer to our separate Report in Annexure A wherein we have
expressed an unmodified opinion; 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, as detailed in Schedule 12 (I), Schedule 17C - Note 13 and Schedule 18B
Note 15(1) to the standalone financial statements, has disclosed the impact of pending
litigations on its financial position as at 31 March 2022;
ii. The Bank, as detailed in Schedule 12 (II), 12 (Va) and 12 (Vb), Schedule 17C - Note
10, Note 11 and Note 13 and Schedule 18B - Note 10 and Note 15 to the standalone financial
statements, has made provision as at 31 March 2022, 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 by the Bank during the year ended 31 March
2022;
iv. a. The management has represented that, to the best of its knowledge and belief,
other than as disclosed in Schedule 18B - Note 17 to the standalone financial statements,
no funds have been advanced or loaned or invested (either from borrowed funds or
securities premium or any other sources or kind of funds) by the Bank to or in any
person(s) or entity(ies), including foreign entities (the 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 (the Ultimate Beneficiaries) or
provide any guarantee, security or the like on behalf the Ultimate Beneficiaries;
b. The management has represented that, to the best of its knowledge and belief, other
than as disclosed in Schedule 18B - Note 17to the standalone financial statements, no
funds have been received by the Bank from any person(s) or entity(ies), including foreign
entities (the 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 performed, as considered reasonable and appropriate
in the circumstances, nothing has come to our attention that causes us to believe that the
management representations under sub-clauses (a) and (b) above contain any material
misstatement.
v. The dividend declared and paid during the year ended 31 March 2022 by the Bank is in
compliance with Section 123 of the Act.
ANNEXURE A TO THE INDEPENDENT AUDITORS REPORT
Referred to in paragraph 19(f) of the Independent Auditors Report of even date to the
members of Kotak Mahindra Bank Limited on the standalone financial statements for
the year ended 31 March 2022
Independent Auditors Report on the internal financial controls with reference to the
standalone financial statements under Clause (i) of Sub-section 3 of Section 143 of the
Companies Act, 2013 (the Act)
1. In conjunction with our audit of the standalone financial statements of Kotak
Mahindra Bank Limited (the Bank) as at and for the year ended 31 March 2022, we have
audited the internal financial controls with reference to standalone financial statements
of the Bank as at that date.
Responsibilities of Management and Those Charged with Governance for Internal Financial
Controls
2. 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 (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 the Banks 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 Act.
Auditors Responsibility for the Audit of the Internal Financial Controls with
Reference to the Standalone Financial Statements
3. Our responsibility is to express an opinion on the Banks internal financial
controls with reference to the standalone financial statements based on our audit. We
conducted our audit in accordance with the Guidance Note issued by the ICAI and the
Standards on Auditing issued by the ICAI and prescribed under Section 143(10) of the Act
to the extent applicable to an audit of internal financial controls with reference to
financial statements. 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 the standalone financial
statements were 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 with reference to the standalone financial statements
and their operating effectiveness. Our audit of internal financial controls with reference
to the standalone financial statements includes obtaining an understanding of internal
financial controls with reference to the 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 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 Banks internal financial controls with
reference to the standalone financial statements.
Meaning of Internal Financial Controls with Reference to the Standalone Financial
Statements
6. A Banks internal financial controls with reference to the 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 with reference to the standalone financial statements include 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 the 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 financial statements.
Inherent Limitations of Internal Financial Controls with Reference to the Standalone
Financial Statements
7. Because of the inherent limitations of internal financial controls with reference to
the 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 the standalone financial statements to future periods are
subject to the risk that the internal financial controls with reference to the 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, adequate internal financial
controls with reference to the standalone financial statements and such internal financial
controls with reference to the standalone financial statements were operating effectively
as at 31 March 2022, 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 Walker Chandiok & Co LLP |
For Price Waterhouse LLP |
| Chartered Accountants |
Chartered Accountants |
| Firm Registration Number: 001076N/N500013 |
Firm Registration Number: 301112E/E300264 |
| Murad D. Daruwalla |
Russell I Parera |
| Partner |
Partner |
| Membership Number: 043334 |
Membership Number: 042190 |
| UDIN: 22043334AIJAKS4902 |
UDIN: 22042190AIJNDL3154 |
| Place: Mumbai |
Place: Mumbai |
| Date: 04 May 2022 |
Date: 04 May 2022 |
+91-9892691696
