To The President of India
Report on Audit of the Standalone Financial Statements
1. We have audited the accompanying Standalone Financial Statements ofState Bank of India ("the Bank") which comprise the Balance Sheet as at March31 2019 the Profit and Loss Account and Cash Flow Statement for the year then endedand Notes to Standalone Financial Statements including a summary of SignificantAccounting Policies and other explanatory information in which are included returns forthe year ended on that date of: i. The Central offices 16 Local Head offices 1 Admin& Business unit Global Market Unit International Business Group Corporate AccountsGroup (Central) Commercial Client Group (Central) Stressed Asset Resolution Group(Central) Central Accounts Offices and 42 branches audited by us; ii. 14758 Indian branches auditedby Statutory Branch Auditors; iii. 38 Foreign branches audited by Local Auditors; The branchesaudited by us and those audited by other auditors have been selected by the Bank inaccordance with the guidelines issued to the Bank by the Reserve Bank of India. Alsoincorporated in the Balance Sheet the Profit and Loss Account are the returns from 8447 Indian branches(including other accounting units) and those have not been subjected to audit. These unauditedbranches account for 3 percent of advances 11.44 per cent of deposits 7.35 per cent ofinterest income and 12.80 per cent of interest expenses.
In our opinion and to the best of our information and according to theexplanations given to us the aforesaid Standalone Financial Statements give theinformation required by the Banking Regulation Act 1949 and State Bank of India Act 1955 inthe manner so required for the Bank and are in conformity with accounting principlesgenerally accepted in India and give: a) true and fair view in case of the Balance Sheetof the State of Affairs of the Bank as at March 31 2019; b) true balance of profit in case ofProfit & Loss Account for the year ended on that date; and c) true and fair view incase of Cash Flow Statement for the year ended on that date.
Basis for Opinion
2. We conducted our audit in accordance with the Standards on Auditing(SAs) issued by the Institute of Chartered Accountants of India (the ICAI). 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 theICAI together with ethical requirements that are relevant to our audit of the StandaloneFinancial Statements under the provisions of the Act and we have fulfilled our otherethical responsibilities in accordance with these requirements and the code of ethics. Webelieve that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our opinion.
Key Audit Matters
3. Key Audit Matters are those matters that in our professionaljudgment were of most significance in our audit of the Standalone Financial Statements for theyear ended March 31 2019. These matters were addressed in the context of our audit of theStandalone Financial Statements as a whole and in forming our opinion thereon and we donot provide a separate opinion on these matters. We have determined the matters describedbelow to be the Key Audit Matters to be communicated in our report:-
|Key Audit Matters i Classification of Advances and Identification of and 3 of Schedule 17 to the financial statements) Advances include Bills purchased and discounted Cash credits Overdrafts loans repayable on demand and Term loans. These are further categorised as secured by Tangible assets (including advances against Book Debts) covered by Bank / Government Guarantees and Unsecured advances. ||Auditors' Response Our audit approach towards advances with reference to the IRAC norms and other related circulars / directives issued by RBI and also internal policies and procedures of the Bank includes the testing of the following: - The accuracy of the data input in the system for income recognition classification into performing and non- performing Advances and provisioning in accordance with the IRAC Norms in respect of the branches allotted to us; |
|Advances constitute 59.38% of the Bank's total assets. They are inter-alia governed by income recognition asset classification and provisioning (IRAC) norms and other circulars and directives issued by the RBI from time to time which provides guidelines related to classification of Advances into performing and non-performing Advances (NPA). The Bank classifies these Advances based on IRAC norms as per its accounting policy No. 3. Identification of performing and non-performing Advances involves establishment of proper mechanism. The Bank accounts for all the transactions related to Advances in its Information Technology System (IT System) viz. Core Banking Solutions (CBS) which also identifies whether the advances are performing or non-performing. Further NPA classification and calculation of provision is done through another IT System viz. Centralised Credit Data Processing (CCDP) Application. The carrying value of these advances (net of provisions) may be materially misstated if either individually or in aggregate the IRAC norms are not properly followed. Considering the nature of the transactions regulatory requirements existing business environment estimation/ judgement involved in valuation of securities it is a matter of high importance for the intended users of the Standalone Financial Statements. Considering these aspects we have determined this as a Key Audit Matter. Accordingly our audit was focused on income recognition asset classification and provisioning pertaining to advances due to the materiality of the balances. Classification and Valuation of Investments Identification of and provisioning for Non-Performing Investments (Schedule 8 read with Note 2 of Schedule 17 to the financial statements) Investments include investments made by the Bank in various Government Securities Bonds Debentures Shares Security receipts and other approved securities. Investments constitute 26.27% of the Bank's total assets. These are governed by the circulars and directives of the Reserve Bank of India (RBI). These directions of RBI inter-alia cover valuation of investments classification of investments identification of non-performing investments the corresponding non-recognition of income and provision there against. The valuation of each category (type) of the aforesaid securities is to be done as per the method prescribed in circulars and directives issued by the RBI which involves collection of data/information from various sources such as FIMMDA rates rates quoted on BSE / NSE financial statements of unlisted companies etc. Considering the complexities and extent of judgement involved in the valuation volume of transactions investments on hand and degree of regulatory focus this has been determined as a Key Audit Matter. ||- Existence and effectiveness of monitoring mechanisms such as Internal Audit Systems Audit Credit Audit and Concurrent Audit as per the policies and procedures of the Bank; We have examined the ef_cacy of various internal controls over advances to determine the nature timing and extent of the substantive procedures and compliance with the observations of the various audits conducted as per the monitoring mechanism of the Bank and RBI Inspection. In carrying out substantive procedures at the branches allotted to us we have examined all large advances/stressed advances while other advances have been examined on a sample basis including review of valuation reports of independent valuer's provided by the Bank's management. Reliance is also placed on Audit Reports of other Statutory Branch Auditors with whom we have also made specific communication. We have also relied on the reports of External IT System Audit experts with respect to the business logics / parameters inbuilt in CBS for tracking identification and stamping of NPAs and provisioning in respect thereof. Our audit approach towards Investments with reference to the RBI Circulars / directives included the review and testing of the design operating effectiveness of internal controls and substantive audit procedures in relation to valuation classification identification of Non Performing Investments Provisioning / depreciation related to Investments. In particular a. We evaluated and understood the Bank's internal control system to comply with relevant RBI guidelines regarding valuation classification identification of Non Performing Investments Provisioning / depreciation related to investments; b. We assessed and evaluated the process adopted for collection of information from various sources for determining fair value of these investments; c. For the selected sample of investments in hand we tested accuracy and compliance with the RBI Master Circulars and directions by re-performing valuation for each category of the security. Samples were selected after ensuring that all the categories of investments (based on nature of security) were covered in the sample; |
|Accordingly our audit was focused on valuation of investments classification identification of Non Performing Investments and provisioning related to investments. iii Assessment of Provisions and Contingent liabilities in respect of certain litigations including Direct and Indirect Taxes various claims filed by other parties not acknowledged as debt. (Schedule 12 read with Note 18.9 of Schedule 18 to the financial statements) : There is high level of judgement required in estimating the level of provisioning. The Bank's assessment is supported by the facts of matter their own judgment past experience and advices from legal and independent tax consultants wherever considered necessary. Accordingly unexpected adverse outcomes may significantly impact the Bank's reported profit and the Balance Sheet. We determined the above area as a Key Audit Matter in view of associated uncertainty relating to the outcome of these matters which requires application of judgment in interpretation of law. Accordingly our audit was focused on analysing the facts of subject matter under consideration and judgments/ interpretation of law involved. ||d. We assessed and evaluated the process of identification of NPIs and corresponding reversal of income and creation of provision; e. We carried out substantive audit procedures to recompute independently the provision to be maintained and depreciation to be provided in accordance with the circulars and directives of the RBI. Accordingly we selected samples from the investments of each category and tested for NPIs as per the RBI guidelines and recomputed the provision to be maintained in accordance with the RBI Circular for those selected sample of NPIs; f. We tested the mapping of investments between the Investment application software and the financial statement preparation software to ensure compliance with the presentation and disclosure requirements as per the aforesaid RBI Circular/directions. Our audit approach involved :- a. Understanding the current status of the litigations/tax assessments; b. Examining recent orders and/or communication received from various Tax Authorities/ Judicial forums and follow up action thereon; c. Evaluating the merit of the subject matter under consideration with reference to the grounds presented therein and available independent legal / tax advice ; and d. Review and analysis of evaluation of the contentions of the Bank through discussions collection of details of the subject matter under consideration the likely outcome and consequent potential outflows on those issues. |
Information Other than the Standalone Financial Statements andAuditors' Report thereon
4. The Bank's Board of Directors is responsible for the otherinformation. The other information comprises the Corporate Governance report (but does notinclude the Standalone Financial Statements and our auditors' report thereon) whichwe obtained at the time of issue of this auditors' report and the Directors'Report including annexures if any thereon which is expected to be made available to usafter that date. Our opinion on the Standalone Financial Statements does not coverthe other information and the Basel III Disclosure and we do not and will not express anyform of assurance conclusion thereon. In connection with our audit of the Standalone Financial Statementsour responsibility is to read the other information identified above and in doing soconsider whether the other information is materially inconsistent with the StandaloneFinancial Statements or our knowledge obtained in the audit or otherwise appears to bematerially misstated. If based on the work we have performed on the other informationthat we obtained prior to the date of this auditors' report we conclude that thereis a material misstatement of this other information we are required to report that fact.We have nothing to report in this regard. When we read the Director's Reportincluding annexures if any thereon if we conclude that there is a material misstatementtherein we are required to communicate the matter to those charged with governance.
Responsibilities of Management and Those Charged with Governance forthe Standalone Financial Statements
5. The Bank's Board of Directors is responsible with respect tothe preparation of these Standalone Financial Statements that give a true and fair view ofthe financial position financial performance and cash flows of the Bank in accordance withthe accounting principles generally accepted in India including the Accounting Standardsissued by ICAI and provisions of Section 29 of the Banking Regulation Act 1949 theState Bank of India Act 1955 and circulars and guidelines issued by RBI 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 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 financialstatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.
In preparing the Standalone Financial Statements management isresponsible for assessing the Bank's ability to continue as a going concerndisclosing as applicable matters related to going concern and using the going concernbasis of accounting unless management either intends to liquidate the Bank or to ceaseoperations or has no realistic alternative but to do so.
Those Board of Directors are also responsible for overseeing theBank's financial reporting process.
Auditors' Responsibility for the Audit of Standalone FinancialStatements
6. Our objectives are to obtain reasonable assurance about whether theStandalone Financial Statements as a whole are free from material misstatement whether dueto fraud or error and to issue an auditor's report that includes our opinion.Reasonable assurance is a high level of assurance but is not a guarantee that an auditconducted in accordance with SAs will always detect a material misstatement when itexists. Misstatements can arise from fraud or error and are considered material ifindividually or in aggregate they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these Standalone Financial Statements. As part of anaudit in accordance with SAs we exercise professional judgment and maintain professionalskepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of theStandalone Financial Statements whether due to fraud or error design and perform auditprocedures responsive to those risks and obtain audit evidence that is sufficient andappropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error as fraudmay involve collusion forgery intentional omissions misrepresentations or the overrideof internal control.
Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of thegoing concern basis of accounting and based on the audit evidence obtained whether amaterial uncertainty exists related to events or conditions that may cast significant doubton the Bank's ability to continue as a going concern. If we conclude that a materialuncertainty exists we are required to draw attention in our auditors' report to therelated disclosures in the Standalone Financial Statements or if such disclosures areinadequate to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditors' report. However future events or conditionsmay cause the Bank to cease to continue as a going concern.
Evaluate the overall presentation structure and content of theStandalone Financial Statements including the disclosures and whether the StandaloneFinancial Statements represent the underlying transactions and events in a manner thatachieves fair presentation.
Materiality is the magnitude ofmisstatements in the Standalone Financial Statements that individually or in aggregatemakes it probable that the economic decisions of a reasonably knowledgeable user of the financialstatements 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 misstatements in the financial statements. We communicatewith those charged with governance regarding among other matters the planned scope andtiming of the audit and significant audit findings including any significant defficiencies in internalcontrol that we identify during our audit.
We also provide those charged withgovernance with a statement that we have complied with relevant ethical requirementsregarding independence and to communicate with them all relationships and other mattersthat may reasonably be thought to bear on our independence and where applicable relatedsafeguards.
From the matters communicated withthose charged with governance we determine those matters that were of most significance inthe audit of the Standalone Financial Statements of the current period and are thereforethe Key Audit Matters. We describe these matters in our auditors' report unless lawor regulation precludes public disclosure about the matter or when in extremely rarecircumstances we determine that a matter should not be communicated in our report becausethe adverse consequences of doing so would reasonably be expected to outweigh the publicinterest benefits of such communication.
7. We did not audit the financial statements / information of14796 branches included in the standalone financial statements of the Bank whose financialstatements / financial information reflect total advances of ` 1400731.01 crores at 31st March2019 and total interest income of ` 106540.62 crores for the year ended on that date asconsidered in the standalone financial statements. The financial statements / information ofthese branches have been audited by the branch auditors whose reports have been furnishedto us and in our opinion in so far as it relates to the amounts and disclosures includedin respect of branches is based solely on the report of such branch auditors.
Our opinion is not modified in respect of above matters.
Report on Other Legal and Regulatory Requirements
8. The Balance Sheet and the Profit and Loss Account have been drawnup in accordance with Section 29 of the Banking Regulation Act 1949; and these giveinformation as required to be given by virtue of the provisions of the State Bank of IndiaAct 1955 and regulations there under. Subject to the limitations of the audit indicated in paragraph 5 to7 above and as required by the State Bank of India Act 1955 and subject also to thelimitations of disclosure required therein we report that: a) We have obtained all theinformation and explanations which to the best of our knowledge and belief werenecessary for the purposes of our audit and have found them to be satisfactory; b) Thetransactions of the Bank which have come to our notice have been within the powers ofthe Bank; and c) The returns received from the offices and branches of the Bank havebeen found adequate for the purposes of our audit.
We further report that: a) In our opinion proper books of account asrequired by law have been kept by the Bank so far as it appears from our examination ofthose books and proper returns adequate for the purposes of our audit have been receivedfrom branches not visited by us; b) the Balance Sheet the Profit and Loss Account andCash Flow Statement dealt with by this report are in agreement with the books of accountand with the returns received from the branches not visited by us; c) the reports on theaccounts of the branch offices audited by branch auditors of the Bank as per the provisions ofthe section 29 of the Banking Regulation Act 1949 and the State Bank of India Act 1955have been sent to us and have been properly dealt with by us in preparing this report; andd) in our opinion the Balance Sheet and the Profit and Loss Account and Cash FlowStatement comply with the applicable accounting standards to the extent they are notinconsistent with the accounting policies prescribed by the RBI.