To
The Members of Oriental Bank of Commerce
Opinion
1. We have audited the financial statements of Oriental Bank of Commerce (the ‘Bank’) which comprise the Balance Sheet as at 31st March, 2019, the Profit and Loss Account and the Cash Flow Statement 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 returns for year ended on that date of 20 branches audited by us and 1388 branches audited by statutory branch 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 included in the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement are the returns froRs.982 branches which have not been subjected to audit. These unaudited branches account for 6.04 percent of advances, 17.74 per cent of deposits, 4.34 per cent of interest income and 16.83 per cent of interest expenses.
2. In our opinion and to the best of our information and according to the explanations given to us, the aforesaid financial statements give the information required by the Banking Regulation Act, 1949 (the ‘Act’) in the manner so required for bank and are in conformity with accounting principles generally accepted in India and give:
a) true and fair view in case of the Balance sheet, of the state of affairs of the Bank as at 31st March, 2019;
b) true balance of profit in case of Profit and Loss Account for the year ended on that date; and
c) true and fair view in case of Cash Flow Statement for the year ended on that date.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditing (SAs) issued by the Institute of Chartered Accountants of India (ICAI). Our responsibilities under those Standards are further described in the Auditor’s Responsibilities for the Audit of the 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 financial statements in India, 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 financial statements of the current year. 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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Key Audit Matters
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How our matter was addressed in the audit
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Advances - classification and provisioning
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Our Audit Procedure:
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(Refer Schedule 9 to the financial statements, read with the Accounting Policy No. 17.5)
The advances are classified as performing and nonperforming advances (NPA) and provisioning thereon is made in accordance with the prudential norms as prescribed by the Reserve Bank of India (RBI). The classification and provisioning is done by the Bank’s IT software integrated with its Core Banking Solution (CBS). The extent of provisioning of NPA under the prudential norms are mainly based on its ageing and recoverability of the underlined security.
In the event of any improper application of the prudential norms or consideration of the incorrect value of the security, as the valuation of the security involves high degree of estimation and judgement, the carrying value of the advances could be materially misstated either individually or collectively, and in view of the significance of the amount of advances in the financial statements i.e. 58.58% of total assets, the classification of the advances and provisioning thereon has been considered as Key Audit Matter in our audit.
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We obtained an understanding of the Bank’s software, circulars, guidelines and directives of the RBI and the Bank’s internal instructions and procedures in respect of the assets classification and its provisioning and adopted the following audit procedures:
- Evaluation and testing of the effectiveness of the IT Software controls and other key internal control mechanisms with respect to the advances monitoring, identification / classification, assessment of the loan impairment including testing of relevant data quality, and review of the real data entered / existing in the software.
- Verification / review of the documentations, operations / performance and monitoring of the advance accounts, on test check basis of the large and stressed advances, to ascertain any overdue, unsatisfactory conduct or weakness in any advance account, to ensure that its classification is in accordance with the prudential norms of RBI, in respect of the branches / verticals audited by us. In respect of the branches audited by the branch statutory auditors, we have placed reliance on their reports.
- Review of the reports of the credit audit, inspection audit, internal audit, concurrent audit, regulatory audit and any other audit / inspection mechanisms to ascertain the advances having any adverse indication / comments, and review of the control mechanisms of the bank to ensure the proper classification of such advances and provisioning thereof.
Our Results:
The results of our audit process were observed to be adequate and satisfactory considering the materiality of the transactions.
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Investments - valuation, and identification and
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Our Audit Procedure:
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provisioning for Non-Performing Investments
(Refer Schedule 8 to the financial statements, read with
the Accounting Policy No. 4)
Investment portfolio of the bank comprises of Investments in Government Securities, Bonds, Debentures, Shares, Security Receipts and other Approved Securities which are classified under three categories, Held to Maturity, Available for Sale and Held for Trade.
Valuation of Investments, identification of Non-performing Investments (NPI) and the corresponding nonrecognition of income and provision thereon, is carried out in accordance with the relevant circulars / guidelines / directions of RBI. The valuation of each category (type) of aforesaid security is to be carried out as per the methodology prescribed in circulars and directives issued by the RBI which involves collection of data/ information from various sources such as FBIL rates, rates quoted on BSE/ NSE, financial statements of unlisted companies, NAV in case of security receipts etc. As per the RBI directions, there are certain investments that are valued at market price however certain investments are based on the valuation methodologies that include statistical models with inherent assumptions, assessment of price for valuation based on financial statements etc. Hence, the price discovered for the valuation of these Investments may not be the true representative but only a fair assessment of the Investments as on date. Hence the valuation of Investments requires special attention and further in view of the significance of the amount of Investments in the financial statements i.e. 29.15% of total assets), the same has been considered as Key Audit Matter in our audit.
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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,
- We evaluated and understood the system and internal control as laid down by the Bank to comply with relevant RBI guidelines regarding valuation, classification, identification of Non Performing Investments, Provisioning/ depreciation related to Investments.
- We assessed and evaluated the process adopted for collection of information from various sources for determining fair value of these investments.
- For selected sample of investments (covering all categories of investments based on nature of security) we tested accuracy and compliance with the RBI Master circulars and directions by re-performing valuation for each category of security in accordance with the RBI Master Circular/ directions.
- We assessed and evaluated the process of identification of NPIs, and corresponding reversal of income and creation of provision.
- We carried out substantive audit procedures to re-compute independently the provision to be created.
Our Results:
The results of our audit process were observed to be adequate and satisfactory considering the materiality of the transactions.
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Information Other than the Financial Statements and Auditor’s 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 financial statements and our auditor’s report thereon), which we obtained prior to the date of this auditor’s report, and Directors’ Report, including annexures, if any, thereon, which is expected to be made available to us after that date.
Our opinion on the financial statements does not cover the other information and Pillar 3 disclosure under Basel III and we do not and will not express any form of assurance conclusion thereon.
In connection with our audit of the 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 financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s 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.
When we read the Directors’ Report, including annexures, if any, thereon, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.
Responsibilities of the Management and Those Charged with Governance for the Financial Statements
6. The Bank’s Board of Directors is responsible with respect to the preparation of these 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 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 judgment 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.
- 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.
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 Matter
8. We did not audit the financial statements/ information of 1388 branches included in the financial statements of the Bank whose financial statements/ information reflect total assets of Rs. 75543 crores as at 31st March, 2019 and total revenue of Rs. 6241 crores for the year ended on that date, as considered in these financial statements. The financial statements/ information of these branches have been audited by the branch auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of these 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;
10. Subject to the limitations of the audit indicated in paragraphs 5 to 7 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.
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 by us in preparing this report; and
d) In our opinion, the Balance Sheet, the Profit and Loss Account and the Cash Flows Statement comply with the applicable accounting standards, to the extent they are not inconsistent with the accounting policies prescribed by RBI.
For B. C. Jain & Co. For S. N. Dhawan & Co. LLP
Chartered Accountants Chartered Accountants
FRN:001099C FRN: 000050N/N500045
(Pooja Jain) (S. K. Khattar)
Partner Partner
M. No. 406783 M. No. 084993
For S. P. Chopra & Co. For Batra Deepak & Associates
Chartered Accountants Chartered Accountants
FRN: 000346N FRN: 005408C
(Pawan K. Gupta) (Kapil Kumar Bhagirath)
Partner Partner
M. No. 092529 M. No. 095639
Place: Gurugram
Dated: May 13, 2019
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