Union Bank of India Auditors 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 31 March 2019, the Profit and Loss Account and the Cash Flows 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, 18 Regional Offices audited by us, 2,454 branches audited by statutory branch auditors and 4 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 and the Profit and Loss Account are the returns from 1,814 branches, 45 regional offices which have not been subjected to audit. These unaudited branches account for 6.18 percent of advances, 21.53 percent of deposits, 6.92 percent of interest income and 20.18 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 conformitywith 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 31 March, 2019;

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 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 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 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. 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 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 generated from the system on atest 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;
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. • 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 Investmenttransactions
• 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 85.62% of the total assets as on March 31, 2019. 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). 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.
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 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, classification, provisioning 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 Rs 51,720,800 ( in 000) as on March 31,2019. 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:
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.
• Evaluation of the policies used for recognition and measurement of deferred tax assets in accordance with AS 22 Accounting for Taxes on Income;
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. • Assessed the method, assumptions and other parameters used with reference to uniformity, 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. Impact of Pending litigation including Tax litigations
There are 1129 number of pending and ongoing legal disputes (includingtaxlitigations), regulatory investigations and various claims against the bank aggregating to Rs 31,049,729.00 ( in 000) that have not been acknowledged as debts by the banks management. In certain litigation and regulatory matters significant judgement is required by management to determine whether a demand is a liability or a contingent liability. If a present obligation exists and whether a provision should be recognised or a possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the banks control. Ouraudit procedures mainly included:
• Review of the managements judgment to understand the nature and status of legal disputes, regulatory investigations and claims against banks not acknowledged as debt to determine whether or not a provision should be recognized;
• Review of legal opinions obtained by the bank from their in house departments or external experts in this regard (where ever applicable);
• Independent checks to assess the adequacy of provisions and disclosure of contingent liability by comparing assumptions to historical data, verification of claims settled and fresh demands during the year and in certain case representation from the management based on legal opinion.
• Verification of these provisions and related disclosures of the contingent liability as per the RBI guidelines and policies ofthe Bank.
• Reliance of certification by Statutory Branch Auditors.

Other Information:

5. 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. If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We have nothing to report in this regard.

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

6. 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 performance and cash flows of the Bank 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. 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 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.

Auditors Responsibilities for the Audit of the Standalone Financial Statements

7. Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.

As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• 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. Ifwe conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the standalone financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the bank to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Materiality is the magnitude of the misstatements in the standalone financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatement in the financial statements.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Other matters:

8. We did not audit the financial statements of 2,458 branches included in the standalone financial statements of the Bank whose financial statements reflect total assets of Rs. 365,60,19,844 (in ‘000) as at 31 March 2019 and total revenue of Rs. 38,17,80,379 (in ‘000) for the year ended on that date, as considered in the standalone financial statements. The financial statements of these 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

9. The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with Section 29 of the Banking Regulation Act, 1949

10. Subject to the limitations of the audit indicated in paragraphs 6 to 8 above and as required by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, and subject also to the limitations of disclosure required therein, we reportthat:

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.

11. 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 byusin 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.

For S. Bhandari & Co. For CNK& Associates LLP For Kirtane & Pandit LLP
Chartered Accountants Chartered Accountants Chartered Accountants
FRN:000560C FRN: 101961W/ W-100036 FRN: 105215W/W-100057
P P Pareek Suresh S. Agaskar S B Bhagwat
Partner Partner Partner
Membership No.071213 MembershipNo. 110321 Membership No.008072
For R S Patel & Co. For MGB& Co. LLP For B M Chatrath & Co. LLP
Chartered Accountants Chartered Accountants Chartered Accountants
FRN: 107758W FRN: 101169W/ W-100035 FRN: 301011E/E300025
Rajan B Shah Sanjay Kothari Anand Chatrath
Partner Partner Partner
Membership No.101998 Membership No.048215 Membership No. 052975

Place: Mumbai

Date: 14th May, 2019