To the Members of IndusInd Bank Limited
Report on the Audit of the Standalone Financial Statements Opinion
We have audited the accompanying Standalone Financial Statements of IndusInd BankLimited ("the Bank") which comprise the Balance sheet as at March 31 2019 theProfit and Loss Account the Cash Flow Statement for the year then ended and notes to thefinancial statements including a summary of significant accounting policies and otherexplanatory information (hereinafter referred to as "the Standalone FinancialStatements").
In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid financial statements give the information required by theBanking Regulation Act 1949 as well as the Companies Act 2013 as amended ("theAct") in the manner so required for banking companies and give a true and fair viewin conformity with the accounting principles generally accepted in India of the state ofaffairs of the Bank as at March 312019 its profit and its cash flows for the year endedon that date.
Basis for Opinion
We conducted our audit of the standalone financial statements in accordance with theStandards on Auditing (SA) specified under section 143(10) of the Act. Ourresponsibilities under those Standards are further described in the "Auditor'sResponsibilities for the Audit of the Standalone Financial Statements" section of ourreport. We are independent of the Bank in accordance with the Code of Ethics issued by theInstitute of Chartered Accountants of India together with the ethical requirements thatare relevant to our audit of the Standalone Financial Statements under the provisions ofthe Act and the Rules thereunder and we have fulfilled our other ethical responsibilitiesin accordance with these requirements and the Code of Ethics. We believe that the auditevidence we have obtained is sufficient and appropriate to provide a basis for our auditopinion on the standalone financial statements.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the Standalone Financial Statements for the year ended March31 2019. These matters were addressed in the context of our audit of the StandaloneFinancial Statements as a whole and in forming our opinion thereon and we do not providea separate opinion on these matters. For each matter below our description of how ouraudit addressed the matter is provided in that context.
We have determined the matters described below to be the key audit matters to becommunicated in our report. We have fulfilled the responsibilities described in the"Auditor's Responsibilities for the Audit of the Standalone FinancialStatements" section of our report including in relation to these matters.Accordingly our audit included the performance of procedures designed to respond to ourassessment of the risks of material misstatement of the Standalone Financial Statements.The results of our audit procedures including the procedures performed to address thematters below provide the basis for our audit opinion on the accompanying StandaloneFinancial Statements.
|Key audit matters ||How our audit addressed the key audit matter |
|Identification of and provisioning for Non-performing advances (Refer Schedule 18 - Note 4.1 to the Standalone Financial Statements): || |
|Advances constitute a significant portion of the Bank's assets and the quality of these advances is measured in terms of ratio of Non-Performing Advances ("NPA") to the gross advances of the Bank. As at 31 March 2019 the Bank's net advances amount to ' 186394 crores and the gross NPA ratio of the Bank is 2.10% as at March 312019. ||The audit procedures performed among others included: |
| ||- Considering the Bank's policies for NPA identification and provisioning and assessing compliance with the IRAC norms. |
| ||- Understanding evaluating and testing the design and operating effectiveness of key controls (including application controls) around identification of nonperforming advances based on the extant guidelines on IRAC. |
|Key audit matters ||How our audit addressed the key audit matter |
|The Reserve Bank of India's ("RBI") guidelines on Income recognition and asset classification ("IRAC") prescribe the prudential norms for identification and classification of NPA and the minimum provision required for such assets from time to time. The Bank is also required to apply its judgement to determine the identification and provision required against NPA by applying quantitative as well as qualitative factors. ||- Performing other procedures including substantive audit procedures covering the identification of NPA by the Bank. These procedures included: |
| ||- Testing of the exception reports generated from the application systems where the advances have been recorded. |
| ||- Reading the accounts reported by the Bank and other banks as Special Mention Accounts ("SMA") in RBI's central repository of information on large credits (CRILC) to identify stress. |
|The provisioning for identified NPA is estimated based on ageing and classification of NPA value of security and other qualitative factors and is subject to the minimum provisioning norms specified by RBI. ||- Reading account statements and other related information of the borrowers selected based on quantitative and qualitative risk factors. |
|Since the identification of NPA and provisioning for advances require significant level of estimation and given its significance to the overall audit including possible observations by RBI which could result in disclosures in the financial statements we have ascertained identification and provisioning for NPA as a key audit matter. || |
| ||- Performing 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 need to be considered as NPA. Examining the early warning reports generated by the Bank to identify stressed loan accounts. |
| ||- Holding specific discussions with the management of the Bank on sectors where there is perceived credit risk and the steps taken to mitigate the risks to identified sectors. |
| ||- Read the RBI Annual Financial Inspection report for the financial years 2016-17 and 2017-18 and other communication with regulators. |
| ||- Read the minutes of meeting of board level committees risk management committee credit and NPA review committees and internal audit reports for any recorded instances of nonrecognition of NPA and inadequate provisioning on NPA than as required by the IRAC. |
| ||With respect to provisioning of advances we performed the following procedures: |
| ||- Gained an understanding of the Bank's process for provisioning of advances. |
| ||- Tested on a sample basis the realizable value of assets provided as security against loans classified as nonperforming for determining the provision. |
| ||- Tested on a sample basis the calculation performed by the management for compliance with RBI regulations and internally laid down policies for provisioning. |
|Information Technology ("IT") Systems and controls: || |
|The Bank's operations rely on multiple integrated / nonintegrated IT Systems and applications. The reliability and security of IT systems plays a key role in the business operations of the Bank. Since large volume of transactions are processed daily the IT controls are required to ensure that applications process data as expected and that changes are made in an appropriate manner. These systems also play a key role in the financial accounting and reporting process of the Bank. ||- We involved specialized IT auditors as part of the audit team for testing IT General Controls (logical access change management and aspects of IT operations controls) application controls and IT dependent manual controls implemented by the Bank and testing the information produced by the Bank's. |
| ||- Tested the design and operating effectiveness of the Bank's IT access controls over the information systems that are critical to financial reporting. |
|Due to the pervasive nature and complexity of the IT environment we have ascertained IT systems and controls as a key audit matter. ||- Tested the Bank's periodic review of access rights. We inspected requests of changes to systems for approval and authorisation. |
| ||- Considered the control environment relating to various interfaces configuration and other application layer controls identified as key to our audit. |
| ||- Tested key application controls to evaluate their operating effectiveness. |
| ||- Where deficiencies were identified we tested compensating controls or performed alternate procedures. |
Information Other than the Standalone Financial Statements and Auditor's Report Thereon
The Bank's Board of Directors is responsible for the other information. The otherinformation received by us comprises the information included in the Basel III - Pillar 3disclosures but does not include the financial statements and our auditor's reportsthereon which we obtained prior to the date of this auditor's report and other elementsof the Annual Report which are expected to be made available to us after that date.
Our opinion on the Standalone Financial Statements does not cover the other informationand we do not express any form of assurance conclusion thereon.
In connection with our audit of the Standalone Financial Statements our responsibilityis to read the other information identified above and in doing so consider whether suchother information is materially inconsistent with the Standalone Financial Statements orour knowledge obtained in the audit or otherwise appears to be materially misstated. Ifbased on the work we have performed on the other information that we have obtained priorto the date of this auditor's report we conclude that there is a material misstatement ofthis other information we are required to report that fact. We have nothing to report inthis regard.
Other elements of the Annual Report are expected to be made available to us after thedate of this auditor's report.
When we read the other elements of the Annual Report if we conclude that there is amaterial misstatement therein we are required to communicate the matter to those Chargedwith Governance and shall comply with the relevant applicable requirements of the Standardon Audit for The Auditor's Responsibility in relation to Other Information in Documentscontaining Audited Financial Statements.
Responsibilities of Management and those Charged with Governance for the StandaloneFinancial Statements
The Bank's Board of Directors is responsible for the matters stated in section 134(5)of the the Act with respect to the preparation of these Standalone Financial Statementsthat give a true and fair view of the financial position financial performance and cashflows of the Bank in accordance with the provisions of Section 29 of the BankingRegulation Act 1949 accounting principles generally accepted in India including theCompanies (Accounting Standards) Rules 2006 (as amended) specified under section 133 ofthe Act read with the Companies (Accounts) Rules 2014 in so far as they apply to theBank and the guidelines and directions issued by the Reserve Bank of India from time totime.
This responsibility also includes maintenance of adequate accounting records inaccordance with the provisions of the Act for safeguarding of the assets of the Bank andfor preventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgments and estimates that are reasonable andprudent; and the design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the StandaloneFinancial Statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.
In preparing the Standalone Financial Statements management is responsible forassessing the Bank's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Bank or to cease operations or has norealistic alternative but to do so.
Those Charged with Governance are also responsible for overseeing the Bank's financialreporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the StandaloneFinancial Statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SA will always detect a material misstatement when it exists. Misstatements can arisefrom fraud or error and are considered material if individually or in the aggregate theycould reasonably be expected to influence the economic decisions of users taken on thebasis of these Standalone Financial Statements.
As part of an audit in accordance with SA we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financialstatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order todesign 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 hasadequate internal financial controls system in place and the operating effectiveness ofsuch controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Bank'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe standalone financial statements or if such disclosures are inadequate to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's report. However future events or conditions may cause the Bank to cease tocontinue as a going concern.
Evaluate the overall presentation structure and content of the StandaloneFinancial Statements including the disclosures and whether the Standalone FinancialStatements represent the underlying transactions and events in a manner that achieves fairpresentation.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those Charged with Governance we determine thosematters that were of most significance in the audit of the Standalone Financial Statementsfor the financial year ended March 312019 and are therefore the key audit matters. Wedescribe these matters in our auditor's report unless law or regulation precludes publicdisclosure about the matter or when in extremely rare circumstances we determine that amatter should not be communicated in our report because the adverse consequences of doingso would reasonably be expected to outweigh the public interest benefits of suchcommunication.
The Standalone Financial Statements of the Bank for the corresponding year ended March31 2018 were audited by a predecessor auditor who expressed an unmodified opinion onthose financial statements vide their report dated April 19 2018.
Report on Other Legal and Regulatory Requirements
1. The Balance Sheet and the Profit and Loss Account have been drawn up in accordancewith the provisions of Section 29 of the Banking Regulation Act 1949 read with theCompanies (Accounting Standards) Rules 2006 (as amended) specified under section 133 ofthe Act read with the Companies (Accounts) Rules 2014.
2. As required sub section (3) of section 30 of the Banking Regulation Act 1949 wereport that:
(a) We have obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the purpose of our audit and have found them tobe satisfactory;
(b) The transactions of the Bank which have come to our notice have been within thepowers of the Bank; and
(c) The financial accounting systems of the Bank are centralised and thereforeaccounting returns for the purpose of preparing financial statements are not required tobe submitted by the branches; we have visited 124 branches for the purpose of our audit.
3. As required by Section 143(3) of the Act we report that:
(a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit;
(b) In our opinion proper books of account as required by law have been kept by theBank so far as it appears from our examination of those books;
(c) The Balance Sheet the Profit and Loss Account and the Cash Flow Statement dealtwith by this Report are in agreement with the books of account;
(d) In our opinion the aforesaid standalone financial statements comply with theCompanies (Accounting Standards) Rules 2006 (as amended) specified under section 133 ofthe Act read with the Companies (Accounts) Rules 2014;
(e) On the basis of written representations received from the directors as on March312019 taken on record by the Board of Directors none of the directors is disqualifiedas on March 312019 from being appointed as a director in terms of Section 164 (2) of theAct;
(f) With respect to the adequacy of the internal financial controls over financialreporting of the Bank and the operating effectiveness of such controls refer to ourseparate Report in "Annexure 1" to this report;
(g) In our opinion the entity being a banking company the remuneration to whole-timedirectors during the year ended March 31 2019 has been paid by the Bank in accordancewith 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 Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 as amended inour opinion and to the best of our information and according to the explanations given tous:
i. The Bank has disclosed the impact of pending litigations on its financial positionin its financial statements - Refer Schedule 12 and Schedule 18 - Note 9.4 to thefinancial statements;
ii. The Bank has made provision as required under the applicable law or accountingstandards for material foreseeable losses if any on long-term contracts includingderivative contracts - Refer Schedule 18 - Note 9.5 to the financial statements; and
iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Bank.
| ||For S. R. BATLIBOI & CO. LLP |
| ||Chartered Accountants |
| ||Firm's Registration No.: 301003E/E300005 |
| ||per Viren H. Mehta |
| ||Partner |
| ||Membership Number: 048749 |
|Mumbai || |
|May 22 2019 || |
Annexure 1 to Independent Auditors' Report
ANNEXURE 1 TO THE INDEPENDENT AUDITOR'S REPORT OF EVEN DATE ON THE STANDALONE FINANCIALSTATEMENTS OF INDUSIND BANK LIMITED
Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 (the "Act")
To the Members of IndusInd Bank Limited
We have audited the internal financial controls over financial reporting of IndusIndBank Limited (the"Bank") as of March 312019 in conjunction with our audit ofthe Standalone Financial Statements of the Bank for the year ended on that date.
Management's Responsibility for Internal Financial Controls
The Bank's Management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Bank considering the essential components of internal control stated inthe Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issuedby the Institute of Chartered Accountants of India. These responsibilities include thedesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the orderly and efficient conduct of its businessincluding adherence to the Bank's policies the safeguarding of its assets the preventionand detection of frauds and errors the accuracy and completeness of the accountingrecords and the timely preparation of reliable financial information as required underthe Companies Act 2013.
Our responsibility is to express an opinion on the Bank's internal financial controlsover financial reporting based on our audit. We conducted our audit in accordance with theGuidance Note on Audit of Internal Financial Controls Over Financial Reporting (the"Guidance Note") and the Standards on Auditing as specified under section143(10) of the Companies Act 2013 to the extent applicable to an audit of internalfinancial controls both applicable to an audit of Internal Financial Controls and bothissued by the Institute of Chartered Accountants of India. Those Standards and theGuidance Note require that we comply with ethical requirements and plan and perform theaudit to obtain reasonable assurance about whether adequate internal financial controlsover financial reporting were established and maintained and if such controls operatedeffectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgement including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the internal financial controls system overfinancial reporting.
Meaning of Internal Financial Controls Over Financial Reporting
A bank's internal financial control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A bank's internal financial control over financialreporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the bank; (2) provide reasonable assurance that transactionsare recorded as necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles and that receipts and expenditures of the bankare being made only in accordance with authorisations of management and directors of thebank; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorised acquisition use or disposition of the bank's assets that could have amaterial effect on the financial statements.
Inherent Limitations of Internal Financial Controls Over Financial Reporting
Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.
In our opinion the Bank has in all material respects an adequate internal financialcontrols system over financial reporting and such internal financial controls overfinancial reporting were operating effectively as at March 31 2019 based on the internalcontrol over financial reporting criteria established by the Bank considering theessential components of internal control stated in the Guidance Note on Audit of InternalFinancial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India.
| ||For S.R. BATLIBOI & CO. LLP |
| ||Chartered Accountants |
| ||ICAI Firm Registration Number: 301003E/E300005 |
| ||per Viren H. Mehta |
| ||Partner |
| ||Membership Number: 048749 |
|Mumbai || |
|22 May 2019 || |