Report on the Audit of the Standalone Financial Statements Opinion
1. We have audited the accompanying standalone financial statements of Indian Overseas Bank (“the Bank”), which comprise the Balance Sheet as at 31st March 2023, the Profit and Loss account and the Statement of Cash Flows for the year then ended and notes to financial statements including a summary of significant accounting policies and other explanatory information in which are included the returns for the year ended on that date of the Central Office.
(i) 20 branches audited by us and
(ii) 838 branches including 2 Regional Offices, audited by the Statutory Branch Auditors
(iii) 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, the Profit and Loss account and Statement of Cash Flows are the returns from 2418 branches (Including 47 Regional Offices) which have not been subjected to audit. These unaudited branches account for 26.38% of advances, 55.00% of deposits, 60.79% of interest income and 64.92% of interest expenses.
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:
(i) the Balance Sheet, read with the notes thereon is a full and fair Balance Sheet containing all the necessary particulars, is properly drawn up so as to exhibit a true and fair view of state of affairs of the Bank as at 31st March, 2023;
(ii) the Profit and Loss Account, read with the notes thereon shows a true balance of profit for the year ended on that date; and
(iii) the Cash Flow Statement gives a true and fair view of the Cash Flows 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 (“ICAI”). Our responsibilities under those Standards are further described in the Auditor's
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 prepared in accordance with the Accounting Principles generally accepted in India including the Accounting Standards issued by the ICAI, and provisions of section 29 of Banking Regulation Act, 1949 and circular 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.
Emphasis of Matter
3. We draw attention to following notes in Schedule 18 of Standalone Financial Statements:
i. Note No. 7.2 regarding Tax paid in Advance (Net of provision) where amounts pending assessment, appeals and under dispute are under reconciliation.
ii. Note No. 7.3 relating non providing of any additional provisioning towards various disputed income tax and indirect taxes for the reasons stated therein.
iii. Note No. 14 (h) (1) of the statement regarding amortization of additional liability on account of revision in family pension amounting to Rs. 425.86 Crores. The Bank has charged an amount of Rs.85.17 crores to the profit and loss account for the year ended 31st March 2023 and the balance unamortized expense of Rs. 255.52 crore has been carried forward in terms of RBI Circular No.RBI/2021-22/105 DOR.ACC. REC.57/ 21.04.018/ 2021-22 dated October 4, 2021.
iv. Note No.17 to the statement which explains that the extent to which the Covid-19 pandemic's impact on the bank's operation will depend on future developments, which are highly uncertain.
Our Opinion is not modified in respect of the above matters.
Key Audit Matters
4. Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the Key Audit Matters to be communicated in our Report.
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Sr.
No
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Key Audit Matter
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Auditor’s Response
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1
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Income Recognition, Asset Classification & Provisioning relating to Advances
Advances constitute 50.09% of the Bank’s total assets.
The recognition of income on accrual basis in respect of advances extended by the Bank, Classification of advances into Performing and Non performing and provisioning thereof are in accordance with the extant prudential norms on Income Recognition and Asset Classification and provisioning (IRAC) norms and other circulars and directives issued by Reserve bank of India from time to time (Refer 2.1 of Schedule 17, read with Note 2 of Schedule 18 to the financial statements).
Taking into consideration the nature of transactions, compliance with the Reserve Bank of India guidelines, issues involved in the valuation of securities etc., in our opinion classification of Advances into performing and non performing, recognition of income in respect of such advances and also provisioning relating to Performing/ Non-Performing advances are considered to be one of the most significant matter in the audit and therefore determined to be a Key audit matter.
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Principal Audit Procedures
Our audit approach consisted testing of the design
and operating effectiveness of the internal controls and
substantive testing as under: -
• Evaluating the design of internal controls relating to implementation of prudential norms on IRAC and other related circulars/directives issued by RBI and also the internal policies and procedures of the Bank.
• Examining the efficacy 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.
• Examining large advances/stressed advances and other advances on a sample basis including review of valuation reports of independent valuers as provided by the Bank's management.
• Relying on the audit reports of other Statutory Branch Auditors.
• Relying on the returns and financial statements shared by the branch head in respect of unaudited branches.
• Reviewing Memorandum of Changes suggested by the Branch Auditors and take appropriate action.
• Review of various audit and inspection reports made available to us in the relevant areas.
• Placing reliance on the opinions of domain experts on legal matters, titles, valuation and other aspects of securities charged to the bank.
• Review of files of the borrowers selected on sample basis and operations of such accounts.
• Performing relevant analytical procedures.
• Test checking of interest application, levying of other charges, commission etc.,
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2
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Contingent Liability
The contingent liability as defined in AS 29 - Provisions, Contingent Liability and Contingent Assets requires assessment of probable outcomes and cash flows. The identification and quantification of contingent liabilities require estimation and judgment by the management.
(Refer 13 of Schedule 17, read with Note 8(AS 29) of Schedule 18 to the financial statements)
In view of associated uncertainty relating to the outcome of the matters relating to litigations involving Direct and Indirect taxes, various claims filed by other parties not acknowledged as debts, and as a result we have determined the above area as a Key audit matter.
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Principal Audit Procedures
We have carried out the validation of information provided
by the management by performing the following procedures
• Evaluating reasonableness of the underlying assumptions.
• Understanding the current status of the litigations/tax assessments.
• Examination of recent orders and /or communication received from various tax authorities/judicial forums and follow up action thereon.
• Examining the relevant documents on record.
• Relying on relevant external evidence available including legal opinion, relevant judicial precedents and industry practices.
• Getting management confirmation where-ever necessary.
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3
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IT Systems & Control
The entire Preparation of financial statements is highly dependent on CBS and other supporting software and hardware controls. Adequate and appropriate Information Technology (IT) controls are required to ensure that these IT application process data as expected and changes are made in an appropriate manner. Such controls ensure mitigating the expected risk of erroneous output data, Other compliances to regulators etc., are an important part of the process. Such reporting is highly dependent on the effective working of Core Banking Software and other allied systems. Audit outcome is dependent on the extant IT controls and systems, and accordingly the above areas are determined to be a key audit matter.
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Principal Audit Procedures
We have carried out our audit procedures with standards on auditing guidelines towards implementation of IT policies and procedures followed by the bank in order to effectively monitor, control, and evaluate the IT applications and controls to ensure effective implementation of such policies and procedures.
We have also relied on the report issued by the IS Auditor and obtained necessary inputs from IS experts wherever necessary and advised the management to implement the recommendations.
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4
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Classification and Valuation of Investments,
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Principal Audit Procedures
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Identification of and Provisioning for Non Performing Investments.
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We evaluated and understood the Bank's internal control
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systems to comply with relevant RBI guidelines regarding
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(Refer 4 of Schedule 17, read with Note 1 of Schedule 18
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valuation, classification, identification of Non-Performing
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to the financial statements)
Investments constitute 26.49% of the total assets of the bank.
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Investments, provisioning and depreciation related to investments.
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Valuation of Investments are done as per the guidelines,
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Evaluating the process adopted for collection of data from
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circulars and directives issued by RBI from time to time involving applying the rates quoted on BSE/NSE and other agencies, relying on the financial statements of unlisted
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various sources for determining the value of investments.
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companies etc., Taking into consideration the volume of
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Assessing and evaluating the system of identification of
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transactions, value of investments being carried in the
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Non performing investments, income recognition on such
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books of the bank, complexities involved in the valuation
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investments and also ensuring creation of necessary
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of investments, the above area has been considered as a key audit matter.
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provision in respect of Non performing investments.
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Our opinion is not modified in respect of the above matters.
Information Other than the Standalone Financial Statements and Auditors’ Report thereon
5. The Bank's Board of Directors is responsible for the other information. The other information comprises the Corporate Governance report (but does not include the Standalone Financial Statements and our auditors' report thereon).
Our opinion on the Standalone Financial Statements does not cover the other information and Pillar 3 disclosures under the Basel III Disclosure and we do not and will not express any form of assurance conclusion thereon.
I n connection with our audit of the Standalone Financial Statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the Standalone Financial Statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
I f, based on the work we have performed on the other information that we obtained prior to the date of this auditors' report, 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 Bank's Board of Directors are 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 judgements and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is
responsible for assessing the Bank's 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.
Auditor’s Responsibilities for the Audit of the Financial Statements
7. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with SAs, we exercise
professional judgement and maintain professional skepticism
throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's 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 bank's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the bank to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of misstatements in the standalone financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the standalone 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 misstatements in the standalone financial statements.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's 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 / information of 842 branches (including 2 Regional Offices and 4 Overseas Branches) included in the standalone financial statements of the Bank whose financial statements / financial information reflect total assets of Rs.162325.70 (in crores) as at 31st March 2023 and total revenue of Rs.10,896.78 (in crores) for the year ended on that date, as considered in the standalone financial statements. These branches and processing centers cover 45.24% of advances, 43.57% of deposits and 22.01% of non-performing assets as at 31st March 2023 and 28.25% of revenue for the year ended 31st March 2023. The financial statements / information of these branches have been audited by the branch auditors and in our opinion in so far as it relates to the amounts and disclosures included in respect of branches, is based solely on the report of such branch auditors.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
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.
Subject to the limitations of the audit indicated in paragraph 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 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.
10. As required by letter No. DOS.ARG. 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) I n 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) 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 31,2023, none of the directors is disqualified as on March 31, 2023 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) Our Audit report on the adequacy and operating effectiveness of the bank's internal financial controls over financial reporting is given in Annexure-A to this report. Our Report Expresses an unmodified opinion on the Bank's Internal financial control over financial reporting as at 31st March, 2023.
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 it appears from our examination of those books.
b) The Balance Sheet, the Profit and Loss Account and the Statement of Cash Flows dealt with by this report are in agreement with the books of account.
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, Profit and Loss Account and the Statement of Cash Flows comply with the applicable accounting standards, to the extent they are not inconsistent with the accounting policies prescribed by RBI.
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