CITY UNIDN BANK LIMITED
Report on the Audit of the Financial Statements Opinion
We have audited the financial statements of City Union Bank Limited
(the Bank),which comprise the Balance Sheet as at 31st March 2023, the Profit & Loss
Account, and the Cash Flow statement for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies and other explanatory
information, and incorporated in these financial statements are the returns of 24 branches
/ offices audited by us and 733 branches/ offices audited by other Branch Statutory
Auditors. The branches audited by us and those audited by other auditors have been
selected by the Bank in accordance with guidelines issued to the Bank by the Reserve Bank
of India.
In our opinion and to the best of our information and according to the
explanations given to us, the aforesaid financial statements give the information required
by the Banking Regulations Act, 1949 as well as 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 Standards prescribed under section 133 of the Act read with the
Companies(Accounting Standards) Rules, 2006, as amended ("Accounting Standards")
as applicable to banks and other the accounting principles generally accepted in India, of
the
state of affairs of the Bank as at 31st March, 2023, and Profit and its
Cash Flows for the year ended on that date.
Basis of Opinion
We conducted our audit of the Financial Statements 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 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 Act and the rules there
under, and we have fulfilled our other ethical responsibilities in accordance with these
requirements and the ICAIs Code of Ethics. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion on the financial
statements.
Key Audit Matters
Key Audit Matters are those matters that, in our professional
judgement, were of most significance in our audit of the Financial Statements of the
current year ending March 31, 2023. 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. We have determined the matters
described below to be the key audit matters to be communicated in our report.
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Key Audit Matters |
How our Audit procedures addressed the Key
Audit Matters |
| A. |
Income Recognition, Asset Classification
and Provisioning (IRACP) on Loans & Advances |
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(Reference to Schedule 9 read with
Statement of Accounting Policies Note C.3 - Schedule to the Financial Statements) |
Our audit procedures were focused on
ensuring compliance with the income recognition, asset classification and provisioning
norms as stipulated by RBI. We have also obtained an understanding of the inbuilt controls
in the IT systems including CBS, controls with respect to compliance with RBI guidelines,
and the Banks policies for identification and provisioning of non-performing loans &
advances, and planned our audit accordingly. |
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Loans and Advances constitute the largest
class of Assets forming 64.65% of the total assets of the Bank as on the year ended 31st
March 2023. The income recognition, asset classification and provisioning on advances done
by the bank is governed by the directives / regulations issued by |
We have performed audit procedures for
income recognition, classification into performing and |
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the Reserve Bank of India (RBI). The loans
and advances are accounted in the Core Banking Solution (CBS) and the identification of
nonperforming loans and advances is system driven and in accordance with IRACP norms. The
management also relies on independent external valuations, legal advice, other
professional inputs and makes estimates and judgments to determine the income recognition,
asset classification and provisioning for losses on loans and advances. |
non performing advances. We have
considered the stressed accounts reported by the Bank and other banks as Special Mention
Accounts ("SMA") in RBIs Central Repository of Information on Large Credits
(CRILC). |
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We have reviewed the controls over the
timely recognition of non-performing advances (NPA). We have performed other procedures
including substantive audit procedures including test checks on the identification and
provisioning of nonperforming advances in accordance with RBI guidelines. |
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For NPAs identified, we have tested on a
sample basis the asset classification dates, value of available security, income reversal
and provisioning as per IRACP norms and recomputed the provision for NPA wherever
required. |
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Performed other substantive procedures
including but not limited to the following: |
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Selected samples of performing loans and
assessed independently as to whether those should be classified as NPA. For the samples of
performing loans selected, examined the security valuation, financial statements and other
qualitative information. |
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Performed inquiries with the credit and
risk departments to ascertain if there were indicators of stress or an occurrence of an
event of default in a particular loan account or any product category which needed to be
considered as NPA. |
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Reviewed credit committee and risk
management committee minutes and held discussions and inquired with the credit and risk
departments of the Bank to ascertain indicators of stress on loan accounts and sectors
where there are indicators of stress and the steps taken to mitigate the risks. |
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We have also relied on the work performed
by the branch auditors, and also relied on the reports of internal audit, systems audit,
concurrent audit, other audits, work done by lawyers, legal experts, independent valuers
and other professionals, in accordance with SA 600 "Using the Work of Another Auditor
and SA 620 "Using the Work of an Auditors Expert". |
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Key Audit Matters |
How our Audit procedures addressed the Key
Audit Matters |
| B. |
Valuation of Financial Instruments
(Investments) |
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(Reference to Schedule 8 read with
Statement of Accounting Policies Note C.2- Schedule to the Financial Statements) |
Our audit approach/procedures towards
Investments with reference to the RBI Circulars/directives included the understanding of
internal controls, Banks Policies and substantive audit procedures in relation to
valuation, classification, identification of non-performing investments (NPIs) and
provisioning/ depreciation related to Investments. In particular, the appropriateness of
the valuation methodology and test checking the inputs used such as pricing, measure of
volatility and discount factors. We assessed and evaluated the process adopted for
collection of information from various sources for determining market value of the
investments and examined the adequacy and appropriateness of depreciation and impairment
of each category of Investment. |
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Investments are classified into Held for
Trading (HFT), Available for Sale (AFS) and Held to Maturity (HTM) categories at
the time of purchase. Investments classified as HTM are carried at amortized cost and
investments classified as AFS and HFT are marked-to-market on a periodic basis as per the
RBI guidelines. Accordingly, our audit was focused on checking the valuation of
investments as a key audit matter because of the management judgment involved in
determining the value of investments based on the policy of the Bank, impairment
assessment for HTM book and the overall impact on the financial statements of the Bank. |
We assessed and evaluated the process of
identification of NPIs and recomputed the provision to ensure that it is in accordance
with RBI circular. We tested the mapping of investments between the Treasury application
software and the Core banking Solutions software to ensure compliance with the
presentation and disclosure requirements as per the aforesaid RBI Circular/ directions. |
| C. |
Information Technology (IT) Systems and
Controls for financial reporting |
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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 at
numerous locations. We have identified IT systems and controls as key audit matter
because of the level of process automation, large volume of automated transactions, level
of cyber security established by the management and the complexity of the IT architecture
of the Bank. |
We have reviewed Banks information
technology policy, security policy, IT outsourcing policy for those outsourced services
implemented by the Bank and the IT risk management framework. We have also reviewed the
BCP/ DRP of the Bank, adequacy of the IT Policy and implementation of the same. |
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We have tested the application controls
and changes to applications and database, segregation of duties as per SOP, and also
reviewed the mapping of interfaces between systems for generating financial information
for reporting. |
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We have tested the controls in the core
banking solutions and treasury systems. This included testing the integrity of system
interfaces, the completeness and accuracy of data feeds, system reconciliation controls
and automated calculations. We have reviewed the automated |
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asset classification, interest
computation, NPA identification, generation of EWS signals / red flags, and other related
controls. We have also used various techniques such as inquiry, review of documentation,
record, reports, observation and re-performance. |
Information Other than the Financial Statements and Auditors Report
Thereon
The Banks Board of Directors is responsible for the other
information. The other information comprises the Chairmans Statement, CSR
initiatives, Directors Report, Annexures to Directors Report, Shareholders
Information, Business Responsibility Report, Corporate Governance Report, Management
Discussions & Analysis Report, List of Branches, Basel III Disclosures, Decade of
Progress included in the Banks Annual report, but does not include the financial
statements and our auditors report thereon.
Our opinion on the financial statements does not cover the other
information and the Pillar 3 disclosure and the Basel III Disclosures, and accordingly, we
do not express any form of assurance and conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated. When we
read the other information, including annexures in the annual report thereon, if we
conclude that there is a material misstatement therein, we are required to communicate the
matter to those charged with governance. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for
the Financial Statements
The Banks Board of Directors is responsible for the matters
stated in Section 134 (5)of the Act with respect to the preparation of these 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 Rule 7 of the Companies (Accounts) Rules, 2014 in so far as they apply to the Bank
and 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 and the 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 financial
statements that give a true and fair view and are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the 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 either intends to liquidate the Bank or to
cease operations, or has no realistic alternative but to do so.
The respective Board of Directors are also responsible for overseeing
the Banks financial reporting process.
Auditors Responsibilities for the Audit of the Financial Statements
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 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 financial statements.
As part of an audit in accordance with Standards, 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 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 the financial
statement 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 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
financial statements, including the disclosures, and whether the financial statements
represent the underlying transactions and events in a manner that achieves fair
presentation.
Materiality is the magnitude of misstatements in the Financial
Statements that, individually or in aggregate, makes it probable that the economic
decisions of a reasonably knowledgeable user of 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 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 financial
statements of the current year ending March 31st 2023, 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 Matters:
We did not audit the financial statements / information of 733 branches
/ offices included in the Standalone Financial Statements of the Bank whose Financial
Statements / Financial Information were audited by other auditors specially appointed for
this purpose.
These branches had total advances of 36,343.06 crores, total deposits
of 42,946.10 crores and non-performing advances of 1,573.78 crores as at March 31,
2023. These branches cover 80% of advances, 82% of deposits and 82% of non-performing
assets as at March 31, 2023.
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 included in respect of branches, is
based solely on the report of such Branch Auditors.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
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 read with
Section 133 of the Companies Act, 2013 read with the Rule 7 of the Companies (Accounts)
Rules, 2014.
1. As required 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) The returns received from the offices and branches of the Bank have
been found adequate for the purpose of our audit.
2. With respect to the matters to be included in the Auditors
Report under Section 197(16) of the Act: The Bank is a banking company as defined under
Banking Regulation, 1949. Accordingly, the requirements prescribed under Section 197 of
the Companies Act, 2013 do not apply by virtue of Section 35B(2A) of the Banking
Regulation Act, 1949,
3. Further, as required by Section 143(3) of the Companies Act,2013, 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 offices and
branches not visited by us;
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 and with
the returns received from the offices and branches not visited by us;
d) In our opinion, the aforesaid 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 Reserve Bank of India;
e) On the basis of the written representations received from the
directors as on 31stMarch, 2023 taken on record by the board of directors, none of the
directors is disqualified as on 31st March,2023 from being appointed as a director in
terms of section 164 (2) of the Act;
f) with respect to the adequacy of the internal financial controls over
financial reporting of the Bank with reference to these Financial Statement and the
operating effectiveness of such controls, refer to our separate Report in "Annexure A
"to this report; and
g) In our opinion, the entity being a Banking Company, the remuneration
to its Directors during the year ended March 31, 2023, has been paid/provided by the Bank
in accordance with the provisions of Section 35B(1) of the Banking Regulation Act 1949,
and;
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 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 Note 18(11) to the 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 15(V) to the financial statements; and
(iii) There has been no delay in transferring the funds to the Investor
Education and Protection Fund Account by the Bank.
(iv) 1. The Management has represented that,
to the best of its knowledge and belief, other than as disclosed in the
notes to accounts, 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 persons / entities, i n c l u d i n g fo r e i g n e n t i t i e s
(Intermediaries), with the understanding, whether recorded in writing or otherwise, that
the Intermediary has, 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;
2. The Management has represented that, to the best of its knowledge
and belief, other than as disclosed in the notes to accounts, no funds have been received
by the Bank from any persons / entities, including foreign entities, that the company has
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;
3. Based on the audit procedures which we have considered reasonable
and appropriate in the circumstances and according to the information and explanations
provided to us by the Management in this regard, nothing has come to our notice that has
caused us to believe that the representations made by the Management under subclause (1)
and (2) contain any material misstatement; and
v. The Bank has paid dividend during the year which is in compliance
with section 123 of the Act.
Annexure A
To the Independent Auditors Report of even date on the financial
statements of City Union Bank Limited [Refer paragraph 2(g)]
Report on other legal and regulatory requirements in our Independent
Auditors Report]
Report on the Internal Financial Controls over Financial Reporting
under Clause (i) of Sub-Section 3 of Section 143 of the Companies Act 2013
CITY UNIDN BANK LIMITED
We have audited the Internal Financial Controls over Financial
Reporting ("ICFR) with reference to the Financial Statement of City Union Bank
Limited ("the Bank") as of 31stMarch 2023 in conjunction with our audit of the
financial statements of the Bank for the year ended on that date.
Managements Responsibility for Internal Financial Controls over
Financial Reporting
The Banks Management and Board of Directors are responsible for
establishing and maintaining internal financial controls based on 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 ("Guidance Note") issued by the Institute of Chartered
Accountants of India ("ICAI). These responsibilities include the design,
implementation and maintenance of adequate internal financial controls that were operating
effectively for ensuring the orderly and efficient conduct of its Business, including
adherence to 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
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 and the Standards on Auditing as specified under section 143(10) of the
Companies Act, 2013, to the extent applicable to an Audit of Internal
Financial Controls and issued by the Institute of Chartered Accountants
of India. 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 BanksRs. 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 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 inherent limitations of internal financial controls over
financial reporting, including the possibility of collusion 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.
Opinion
In our opinion, the Bank has, in all material respects, an adequate
internal financial controls systems over financial reporting and such internal financial
controls over financial reporting were operating effectively as at 31st March 2023, based
on the internal control over financial reporting criteria established by the Bank
considering the essential components of internal control stated in the Guidance Note on
Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of
Chartered Accountants of India (the "Guidance Note").
Other Matters
Our report, insofar as it relates to the operating effectiveness of
internal financial controls with reference to financial statements of 733 branches/offices
is based on the reports of the respective statutory branch auditors of those branches.
Our opinion is not modified in respect of this matter.
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