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To the Members of RBL Bank Limited
REPORT ON THE AUDIT OF THE STANDALONE
We have audited the accompanying Standalone Financial Statements of RBL Bank Limited (the Bank), which comprise the standalone balance sheet as at 31 March 2019, the standalone profit and loss account, the standalone 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.
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 give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Bank
as at 31 March 2019, and profit and its cash flows for the year ended on that date.
Basis for opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specified under
Section 143 (10) of the Act. Our responsibilities under those SAs 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 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
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.
|KEY AUDIT MATTER HOW THE MATTER WAS ADDRESSED IN OUR AUDIT
IDENTIFICATION OF NON-PERFORMING ASSET (NPA) AND PROVISIONS ON ADVANCES P&L CHARGE (INCLUDING WRITE-OFF): INR 466.99 CRORE FOR YEAR ENDED 31 MARCH 2019 PROVISION ON ADVANCES: INR 381.88 CRORE AS AT 31 MARCH 2019
|Refer to the accounting policies in "Note 17(1) to the Standalone Financial Statements: Significant Accounting Policies - Advances" and "Note 12.1 to the Standalone Financial Statements: Asset Quality"|
|Significant estimate and judgment involved
Identification of NPAs and provisions in respect of NPAs are made based on managements assessment of the degree of impairment of the advances subject to and guided by the minimum provisioning levels prescribed under the RBI guidelines with regard to the Prudential Norms on Income Recognition, Asset Classification & Provisioning, prescribed from time to time. The provision on NPA are also based on the valuation of the security available.
|Our key audit procedures included:
Design / controls
We have assessed the design, implementation and operating effectiveness of key internal controls over approval, recording and monitoring of loans, monitoring process of overdue loans, measurement of provisions, identification of NPA accounts and assessed the reliability of management information (including overdue reports).
|We identified identification of NPAs and provision on advances as a key audit matter because of the level of significant management judgement involved in determining the provision and the valuation of the security of the NPA loans and on account of the significance of these estimates to the financial statements of the Bank.|| In addition, for corporate loans we tested controls over the internal ratings process, monitoring of stressed accounts including credit file review processes and review controls over the approval of significant individual impairment provisions.|
| We have evaluated the design, implementation and operating effectiveness of key internal controls over the valuation of security for NPAs.|
| We tested management review controls over measurement of provisions and disclosures in financial statements.|
|Key audit matter||How the matter was addressed in our audit|
| We involved our information system specialist in the audit of this area to gain comfort over data integrity and calculations, including system reconciliations.|
| We performed test of details for a selection of exposures over calculation of NPA provisions including valuation of collaterals for NPAs as at 31 March 2019; the borrower-wise NPA identification and provisioning determined by the Bank and also tested related disclosures by assessing the completeness, accuracy and relevance of data and ensured that the same is in compliance with the RBI guidelines with regard to the Prudential Norms on Income Recognition, Asset Classification & Provisioning.|
| We selected a sample (based on quantitative and qualitative thresholds) of large corporate clients where impairment indicators had been identified by management. We obtained managements assessment of the recoverability of these exposures (including individual provisions calculations) and challenged whether individual impairment provisions, or lack of, were appropriate.|
|This included the following procedures:|
| Reviewed the statement of accounts, approval process, board minutes, credit review of customer, review of special mention accounts reports and other related documents to assess recoverability and the classification of the facility; and|
| For a risk based sample of corporate loans not identified as displaying indicators of impairment by management, challenged this assessment by reviewing the historical performance of the customer and assessed whether any impairment indicators were present.|
valuation of financial instruments (investments - bonds and debentures, commercial papers, certificate of deposits
AND PASS THROUGH CERTIFICATES)
Net value of investments: INR 3,788.18 crore as at 31 March 2019
Refer to the accounting policies in "Note 17(2) to the Financial Statements: Significant Accounting Policies - Investments" and "Schedule 8 to the Financial Statements: Investments"
|Significant estimate and judgment involved||Our key audit procedures included:|
Investments are classified into Held for Trading (HFT), Available for
|Design / controls
We tested the design, implementation and operating effectiveness
|Sale (AFS) and Held to Maturity (HTM) categories at the time of purchase. Investments, which the Bank intends to hold till maturity are classified as HTM investments.||of managements key internal controls over classification and valuation of
We assessed appropriateness of the valuation methodologies with
|We identified fair valuation of investments such as Bonds and||reference to accounting standards / RBI guidelines and Banks own|
|Debentures, Commercial papers, Certificate of deposits and Pass through||valuation policy.|
|certificates classified into HFT and AFS as a key audit matter because|| Read investment agreements / term sheets entered into during|
|of the significant management judgement involved in determining||the current year, on a sample basis, to understand the relevant|
|its valuation and the overall significance of these investments to the||investment terms and identify any conditions that were relevant to|
|financial statements of the Bank.||the valuation of financial instruments.|
| We independently verified the fair valuation of investments on a sample basis with direct observable inputs and external input data such as market value from Financial Benchmarks India|
|Private Limited (FBIL), spreads from The Fixed Income Money Market and Derivatives Association of India (FIMMDA) etc after considering the requirements of RBI guidelines.|
| We assessed that the financial statement disclosures appropriately reflected the requirements of the prevailing accounting standards and the RBI guidelines.|
|Key audit matter||How the matter was addressed in our audit|
|Information technology (IT)
IT systems and controls
The Banks key financial accounting and reporting processes are highly dependent on information systems including automated controls in systems, such that there exists a risk that gaps in the IT control environment could result in the financial accounting and reporting records being misstated. The Bank uses several systems for it overall financial reporting.
|Our key IT audit procedures included:
We have understood General IT Control i.e. Access Controls, Program/ System Change, Program Development, Computer Operations (i.e. Job Processing, Data/System Backup Incident Management) over key financial accounting and reporting systems, and supporting control systems (referred to as in-scope systems).
We tested the General IT Controls for design and operating effectiveness for the audit period over the in-scope systems.
|We have identified IT systems and controls as key audit matter because of the high level automation, significant number of systems being used by the management and the complexity of the IT architecture.|| We understood IT application controls covering
user access and roles, segregation of duties, and
key interfaces, reports, reconciliations and system processing
| We tested the IT application controls for design and operating effectiveness for the audit period.|
| We performed testing to determine that these controls remained unchanged during the audit period or were changed following the standard change management process.|
| We understood IT infrastructure i.e. operating systems and databases supporting the in-scope systems.|
| We tested controls over the IT infrastructure covering user access (including privilege users), data center and system change (e.g. patches).|
INFORMATION OTHER THAN THE STANDALONE FINANCIAL STATEMENTS AND AUDITORS REPORT THEREON
The Banks Board of Directors is responsible for the other information. The other information comprises the information included in the Banks Annual report, but does not include the Standalone Financial Statements and our auditors report thereon. The Banks 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 Banks Annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.
RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE STANDALONE FINANcIAL STATEMENTS
The Banks management and Board of Directors 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 state of affairs, profit 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, provisions of Section 29 of the Banking Regulation Act, 1949 and the circulars and guidelines issued by 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.
In preparing the Standalone Financial Statements, management and 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 management 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
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.
AUDITORS RESPONSIBILITIES FOR THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS (CONTINUED)
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 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 a 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.
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
The standalone balance sheet and the standalone 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.
(a) 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; and
(c) since the key operations of the Bank are automated with the key applications integrated to the core banking systems, the audit is carried out centrally as all the necessary records and data required for the purposes of our audit are available therein. However, during the course of our audit we have visited 26 branches.
(B) Further, as required by Section 143(3) of the Act, we report
(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 standalone balance sheet, the standalone profit and loss account, and the standalone 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 accounting policies prescribed by RBI;
(e) on the basis of the written representations received from the directors as on 31 March 2019 taken on record by the Board of Directors, none of the directors is disqualified as on 31 March 2019 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 over financial reporting 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 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 Standalone Financial Statements - Refer Schedule 12 and Note 30 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 Note 41 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.
(h) The disclosures required on holdings as well as dealing in specified bank notes during the period from 8 November 201 6 to 30 December 2016 as envisaged in notification G.S.R. 308(E) dated 30 March 2017 issued by the Ministry of Corporate Affairs is not applicable to the Bank.
(C) With respect to the matter to be included in the Auditors
Report under section 197(16) of the Companies Act, 2013:
The Bank is a banking company as defined under Banking
Regulation Act, 1949. Accordingly, the requirements prescribed
under Section 197 of the Companies Act, 2013 do not apply.
For B S R & Co. LLP
Firms Registration No: 101248W/W-100022
Manoj Kumar Vijai
Membership No: 046882
18 April 2019
Annexure A to the Independent Auditors Report
ANNEXURE A TO THE INDEPENDENT AUDITORS REPORT OF EVEN DATE ON THE STANDALONE FINANCIAL STATEMENTS OF RBL 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
We have audited the internal financial controls over financial reporting of RBL 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
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). 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 (the Act).
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 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 effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. 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 effectiveness 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.
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.
Meaning of internal financial controls over financial reporting
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 the standalone 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 (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 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.
Inherent Limitations of internal financial controls over financial reporting
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.
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 effectively 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 B S R & Co. LLP
Firms Registration No: 101248W/W-100022
Manoj Kumar Vijai
Membership No: 046882
Mumbai 18 April 2019