Union Bank of India Directors Report.

President of India/Members of Union Bank of India Report on Audit of the Standalone Financial Statements

Opinion

1. We have audited the standalone financial statements of Union Bank of India (‘the Bank), which comprise the Balance Sheet as at March 31, 2020, the Profit and Loss Account and the Cash Flow Statement for the year then ended, and Notes to Standalone Financial Statements including a summary of Significant Accounting Policies and other explanatory information. Incorporated in these financial statements are returns of 20 branches including 1 treasury branch,18RegionalOfficesaudited by us, 2636 branches audited by statutory branch auditors and 2 foreign branches audited by local auditors. The branches audited by us and those audited by other auditors have been selected by the Bank in accordance with the guidelines issued to the Bank by the Reserve Bank of India. Also incorporated in the Balance Sheet, the Profit and Loss Account and Cash Flow Statement are the returns from 1626 branches, 45 regional offices which have not been subjected to audit. These unaudited branches account for 5.49 percent of advances, 15.45 percent of deposits, 5.98 percent of interest income and 13.81 percent of interest expenses.

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 in the manner so required for bank and are in conformity with accounting principles generally accepted in India and give: a. true and fair view in case of the Balance sheet, of the state of affairs of the Bank as at March 31, 2020; b. true balance of loss in case of Profit and loss account for the year ended on that date; and c. true and fair view of the cash flows in case of cash flows statement for the year ended on that date.

Basis for Opinion:

3. We conducted our audit in accordance with the Standards on Auditing (SAs) issued by the Institute of Chartered Accountants of India (ICAI). 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 together with ethical requirements that are relevant to our audit of the standalone financial statements in accordance with the accounting principles generally accepted in India, including the Accounting Standards issued by ICAI, and provisions of Section 29 of the Banking Regulation Act, 1949 and circulars and guidelines issued by the Reserve Bank of India (‘RBI) from time to time and we have fulfilled 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.

Emphasis of Matters

4. a. We draw your attention to Note 1.4.6 of schedule 18- Notes to Accounts to the standalone financial statements which describes that the extent to which the COVID-19 Pandemic will impact the banks operations will depend on future developments, which are highly uncertain.

b. We draw your attention to Note 3.1 of schedule 18- Notes to Accounts to the standalone financial the impact of the harmonization of provision for the year ended on March 31, 2020, on account of divergence in asset classification across Union Bank of India, Andhra Bank and Corporation Bank as per extant IRACP norms. Our opinion is not modified in respect of these matters.

Key Audit Matters:

5. 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. We have determined the matters prescribed below to be the key audit matters to be communicated in our report:

Sr. No. Key Audit Matters How the Matter was addressed in our report
1. Information Technology (IT) Systems and controls over financial reporting
The Banks financial accounting and reporting systems are highly dependent on the effective working of the Core Banking Solution (CBS) and other IT systems linked to the CBS or working independently. Extensive volume, variety and complexity of transactions are processed daily and there is a risk that automated accounting procedures and related internal controls may not be accurately designed and operating effectively. Particular areas of focus relate to the logic that is fed into the system, sanctity and reliability of the data, access management and segregation of duties. These underlying principles are important because they ensure that changes to applications and data are appropriate, authorized, cleansed and monitored, so that the system generates accurate and reliable reports/ returns and other financial and non-financial information that is used for the preparation and presentation of the financial statements. Our audit procedures included verifying, testing and reviewing the design and operating effectiveness of the IT system by verifying the reports/returns and other financial and non-financial information on a test check basis. Our audit procedures included:
• Ensuring that deficiencies noticed in our verification on test check basis were informed to the management for corrective action;
• Carrying out independent alternative audit procedures like substantive testing in areas were deficiencies were noticed;
• Analytical procedures like ratio analysis, trend analysis, reasonable tests, comparative analysis;
• Reliance on the work performed by the statutory branch auditors and the rectification entries (MOCs) passed based on branch audits;
We have relied on the consistent and accurate functioning of CBS and other IT systems for the following: • Reliance on external vendor inspection reports wherever made available.
• Asset Classification and Income recognition as per the Reserve Bank of India guidelines;
• Provisioning on the advance portfolio;
• Identification of advances and liability items and its maturity pattern in various brackets;
• Reconciliation and ageing of various suspense and sundry accounts, impersonal accounts, inter-branch balances and other such accounts;
• Recording Investment transactions
• Interest expense on deposits and other liabilities;

2. Income Recognition, Asset Classification (IRAC) and provisioning on Loans & Advances and Investments as per the regulatory requirements.

Loans & Advances and Investments are the largest class of assets forming 84.88% of the total assets as on March 31, 2020. Classification, income recognition and loss provisioning on the same are based on objective parameters as prescribed by the regulations (Reserve Bank of Indias prudential norms and other guidelines). The management of the Bank relies heavily on its IT systems (including Core Banking Solution), exercise significant estimates and judgement, manual interventions, and uses services of experts (like independent valuers, Lawyers, legal experts and other professional) to determine asset classification, income recognition and provisioning for losses. Our audit was focused on income recognition, asset classification and provisioning pertaining to advances due to the materiality of the balances and associated impairment provisions.
Our audit procedures included the assessment of controls over the approval, disbursements and monitoring of loans, and reviewing the logic and assumptions used in the CBS and other related IT systems for compliance of the IRAC and provisioning norms and its operating effectiveness. These included:
• We have evaluated and understood the Banks internal control system in adhering to the Relevant RBI guidelines regarding income recognition, asset classification and provisioning pertaining to advances/investments;
• System controls and manual controls over the timely recognition of non-performing assets (NPA/NPI);
• Operational existence and effectiveness of controls over provisioning calculation models from the IT systems;
• Overall Controls on the loan approval, disbursement and monitoring process in case of advances and controls over the purchase, sale and hold decisions making system in case of investments
• We tested sample of loans/investments (in cases of branches visited by us) to assess whether they had been identified as non performing on a timely manner, income recognized and provisioning made as per IRAC norms.
• We have also reviewed the reliability, effectiveness and accuracy of manual interventions, wherever it has come to our notice, on test check basis.
• We have relied on the reports/returns and work done by other Statutory Branch Auditors (SBA) in cases of branches not visited by us to get an overall comfort with respect to overall compliance in accordance with SA 600 - Using the Work of Another Auditor.
• We have reviewed the work done by other experts like Independent valuers, Lawyers, Legal Experts and other such professionals who have rendered services to the Bank, in accordance with SA 620 Using the Work of an Auditors Expert.
• Further we have also reviewed the Banks system of monitoring potentially weak and sensitive accounts which show a sign of stress.
• We have also reviewed the reports and observations of the Banks internal audit/inspection reports and observations of the concurrent auditors for the same.
• Verification of valuation, and income recognition of investments by carrying our substantive test including arithmetic accuracy, data accuracy and control over the financial reporting system.

3. Recognition and measurement of Deferred tax

The Bank has recognised a net deferred tax asset of 7,35,68,800 (in ‘000) as on March 31, 2020. Besides objective estimation, recognition and measurement of deferred tax asset is based on the judgment and numerous estimates regarding the availability and visibility of profits in the future. The recent increase in the amount of deferred tax assets recognised presumes availability and forecasting of profits over an extended period of time thus increasing uncertainty and the inherent risk of inappropriate recognition of the said asset. Our audit procedures included the risk assessment to gain an understanding of the applicable tax laws and relevant regulations applicable to the Bank. Based on our understanding, we performed both tests of related internal key controls and substantive audit procedures with the assistance of tax specialists. We performed the following audit procedures as part of our controls testing including, but not limited to:
• Evaluation of the policies used for recognition and measurement of deferred tax assets in accordance with AS 22 Accounting for Taxes on Income;
• Assessed the method, assumptions and other parameters used with reference to uniformity, management representations, consistency and continuity like budget and midterm projections prepared by the management including earning growth and applicable tax rates and tested the arithmetical accuracy.
• Assessed the probability of the availability and visibility of profits against which the bank will be able to use this deferred tax asset in the future.

4. COVID-9 Pandemic

Modified Audit Procedures carried out in light of COVID-19 outbreak. Due to the outbreak of COVID-19 pandemic that caused nationwide lockdown and other travel restrictions imposed by the Central and State Governments/ Local administration during the period of our audit, we could not travel to the Branches/Regions/Zones/ Verticals/ Corporate Offices and carry out the audit processes physically at the respective offices.
Due to COVID-19 pandemic, Nation-wide lockdown and travel restrictions imposed by Central / State Government / Local authorities during the period of our audit and the RBI directions to Bank to facilitate carrying out audit remotely wherever physical access was not possible, audit could not be conducted by visiting the premises of certain Branches / Regional & Zonal Offices/ Verticals at the Corporate Office of the bank. Wherever physical access was not possible, necessary records/ reports/ documents/ certificates were made available to us by the Bank through digital medium including the designated audit portal of the bank, emails and remote access to CBS and closing package. To this extent, the audit process was carried out on the basis of such documents, reports and records made available to us which were relied upon as audit evidence for conducting the audit and reporting for the current period.
As we could not gather audit evidence in person/physically/ through discussions and personal interactions with the officials at the Branches /Regions & Zones/ Verticals / Corporate Offices, we have identified such modified audit procedures as a Key Audit Matter. Accordingly, we modified our audit procedures (based on regulatory and ICAI advisories) as follows:
Accordingly, our audit procedures were modified to carry out the audit remotely. • Conducted verification of necessary records/ documents/CBS/closing package and other application software electronically through remote access/emails/in respect of some of the Branches/ Regions/Zones/Verticals/Corporate Offices and other offices of the Bank wherever physical access was not possible.
• Carried out verification of scanned copies of the documents, deeds, certificates, returns from branches and the related records made available to us through emails and remote access over secure network of the Bank
• Making enquires and gathering necessary audit evidence through Video Conferencing, dialogues and discussions over phone calls/conference calls, emails and similar communication channels.
• Resolution of our audit observations telephonically/ through email instead of a face to-face interaction with the designated officials.

Other Information:

6. The Banks Board of Directors is responsible for the preparation of the other information. The other information comprises the Highlights for the year, Directors Report including annexures to Directors Report, Key Financial Ratios, Business Responsibility Report and Corporate Governance Report included in the Annual report, but does not include the financial statements and our auditors report thereon and the Pillar III Disclosures under the New Capital Adequacy Framework (Basel III disclosures).

Our opinion on Standalone financial statements does not cover the other information and the Basel III disclosures, and we do not express any form of assurance conclusion thereon.

In connection with the audit of the Standalone financial statements, our responsibility is to read the other information and, in doing so, consider whether the 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 and take appropriate action necessitated by the circumstances and the applicable laws and regulations.

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

7. The Banks Board of Directors is responsible with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial accounting principles generally accepted in India, including the Accounting Standards issued by ICAI, and provisions of Section 29 of the Banking Regulation Act, 1949 and circulars and guidelines issued by the Reserve Bank of India (‘RBI) from time to time. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Bank and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were 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 is responsible for assessing the Banks ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

The Board of Directors are also responsible for overseeing the Banks Financial reporting process.

Auditors Responsibilities for the Audit of the Standalone Financial Statements

8. 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 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, but not for the purpose of expressing an opinion on the effectiveness of the Banks internal control.

• 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 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 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 financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatement in the financial

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.

Other matters: included in the standalone9. We did notauditthe financial statements of the Bank whose financial statements reflect total assets of Rs. 417,84,28,080 (in ‘000) as at March, 31 2020 and total revenue of Rs. (in ‘000) for the year ended on that date, as considered in the standalone financial statements. The financial branches have been audited by the branch auditors whose reports have been furnished to us, and in our opinion in so far as it relates to the amounts and disclosures included in respect of branches, are 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 and Loss Account have been drawn up in accordance with Section 29 of the Banking Regulation 10. The Balance Sheet and the Profit Act, 1949

11. Subject to the limitations of the audit indicated in paragraphs 8 and 9 above and also subject to the limitations of disclosure required therein and 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 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 returns received from the offices and branches of the . Bank have been found adequate for the purposes of our audit

12. We further report that:

a. 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 branches not visited by us;

b. the Balance Sheet, the Profit and Loss Account and the Cash Flows Statement dealt with by this report are in agreement with the books of account and with the returns received from the branches not visited by us;

c. the reports on the accounts of the branch offices audited by branch auditors of the Bank under section 29 of the Banking Regulation Act, 1949 have been sent to us and have been properly dealt with by us in preparing this report; and

d. In our opinion, the Balance Sheet, the Profit and Loss Account and the Cash Flows Statement comply with the applicable accounting standards, to the extent they are not inconsistent with the accounting policies prescribed by RBI.

13. As required by letter no. DOS.ARB.No.6270/08.91.001/2019-20 dated March 17, 2020 on "Appointment of Statutory Central Auditors (SCAs) in Public Sector Banks Reporting obligations for SCAs from FY 2019-20", read with subsequent communication dated May 19, 2020 issued by the RBI, we further report on the matters specified in paragraph 2 of the aforesaid letter as under:

a. In our opinion the aforesaid Standalone Financial Statements comply with the Accounting Standards issued by ICAI, to the extent they are not inconsistent with the accounting policies prescribed by the RBI.

b. In our opinion, there are no observations or comments on financial transactions or matters which have any adverse effect on the functioning of the bank.

c. On the basis of the written representations received from the directors as on March 31, 2020, none of the directors is disqualified as on March 31, 2020 from being appointed as a director in terms of sub-section (2) of Section 164 of the Companies Act, 2013.

d. There are no qualifications, reservations or adverse remarks relating to the maintenance of accounts and other matters connected therewith.

e. As the bank has exercised the option to implement "Internal Financial Controls with reference to the Financial Statements" from the financial year 2020-21 as permitted by RBI on May 19, 2020, we do not provide any comment in this regard.

For C N K & Associates LLP For Kirtane & Pandit LLP For R S Patel & Co.
Chartered Accountants Chartered Accountants Chartered Accountants
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MANISh SAMPAT Sandeep D Welling Rajan B Shah
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MEMBERSHIP NO. 101684 Membership No.044576 Membership No.101998
For M G B & Co. LLP For B M Chatrath & Co. LLP
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Sanjay Kothari Anand Chatrath
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Place: Mumbai
Date: 23rd June, 2020