To the Members of CSB Bank Limited
Report on the Audit of the Financial Statements
OPINION
1. We have audited the accompanying financial statements of CSB Bank Limited (‘the Bank'}, which comprise the Balance Sheet as at 31 March 2024, the Statement of Profit and Loss and the Statement of Cash Flows for the year then ended, and notes to the financial statements, including a summary of the significant accounting policies and other explanatory information,
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 as well as the Companies Act, 2013 (‘the Act') and circulars and guidelines issued by the Reserve Bank of India (‘the RBI'}, in the manner so required for banking companies and give a true and fair view, in conformity with the Accounting Standards specified under section 133 of the Act, read with the Companies (Accounting Standards) Rules, 2021 and other accounting principles generally accepted in India, of the state of affairs of the Bank as at 31 March 2024, and its profit and its cash flows for the year ended on that date.
BASIS FOR OPINION
3. We conducted our audit in accordance with the Standards on Auditing specified under section 143(10) of the Act. 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 (‘ICAI') together with the ethical requirements that are relevant to our audit of the financial statements under the provisions of the Act and the rules thereunder, 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 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.
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5. 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 matter
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How our audit addressed the key audit matter
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Classification of advances, identification of non-performing advances, income recognition and provisioning for advances
As at 31 March 2024, the Bank reported total loans and advances (net of provisions) of R 24,336 crores (2023: R 20,651 crores), gross NPAs of R 361 crores (2023: R 263 crores), and provision for non-performing assets (including claims) of R 236 crores (2023: R 191 crores). Refer to the accounting policies in "Note 3 to the Financial Statements: Significant Accounting Policies - Use of estimates” and "Schedule 9 and Schedule 5 to the Financial Statements: Advances and Other Liabilities and Provisions”
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Advances include Bills purchased and discounted, Cash credits, Overdrafts, Loans repayable on demand and Term loans. The Bank's advances portfolio majorly comprises of gold loans disbursed against pledge of gold collateral.
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Our key audit procedures included but were not limited to the following:
Design/Controls
• Understood and considered the Bank's accounting policies for NPA identification and provisioning and assessing compliance with the IRACP norms prescribed by the RBI including the additional provisions made on advances.
• Obtained an understanding of management's approach, interpretation, systems and controls implemented in relation to NPA computation.
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Key audit matter
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How our audit addressed the key audit matter
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The classification of advances and identification of
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• Assessed the design, implementation and operating
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non-performing advances involves establishment
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effectiveness of key internal financial controls
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of proper mechanism and judgement is applied to
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(including application controls for system driven
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identify and determine the amount of provision
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identification of NPAs) over approval, recording,
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required against non-performing assets (‘NPA') and
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monitoring and recovery of loans, monitoring overdue
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restructured advances as per the policy approved
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/ stressed accounts, measurement of provision,
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by the Board of Directors of the Bank and based
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valuation of security, assessing the reliability of
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on management's assessment of the degree of
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management information which included testing
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impairment of the advances subject to the minimum
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overdue reports.
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provisioning levels prescribed under the ‘Prudential
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• Understood the Bank's policy over appointment
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Norms on Income Recognition, Asset Classification
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of external appraiser for gold loans and storage
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& Provisioning' ("IRACP norms”) prescribed by the
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of pledged gold. Further, assessed the design,
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Reserve Bank of India (the "RBI”) from time to time.
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implementation and operating effectiveness of key
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Similarly, the Bank is also required to make judgements to identify advances which are non-recoverable and
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controls identified.
• Obtained an understanding for contingency provision
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thereby determined to be written off.
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carried by the Bank and verified the underlying
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The provision for advances is estimated based on
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assumptions for such estimate along with events
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ageing and classification of such advances, underlying
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identified by the management for usage for such
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valuation, adequacy and existence of the security amongst other factors. In case of restructured
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provision.
• Tested review controls over measurement of provisions
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accounts, provision is made in accordance with the
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including documentation of the relevant approvals
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RBI guidelines. The management also makes provisions
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along with basis and rationale of the provision and
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on exposures on the basis of advances lent to certain stressed sectors.
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disclosures in financial statements.
• Tested the application controls on sample basis
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The management of the Bank relies on the CBS
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including testing of automated and manual controls,
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(Core Banking Solutions) along with other allied
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reports and system reconciliations, in relation to
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IT systems accompanied by various estimates,
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income recognition, asset classification, provisioning
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prudent judgements relating to credit assessment of borrowers, valuation of collateral, including services of
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pertaining to advances.
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independent valuers, professionals for completeness
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Substantive tests
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and timing of recognition of NPAs, asset classification,
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• Performed test of details over of calculation of NPA
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income recognition and provisioning thereon.
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provisions, including provisions on restructured
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We have identified classification of advances,
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loans for assessing the completeness, accuracy and
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identification of NPAs, provisioning of advances and
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relevance of data and to ensure that the same is in
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income recognition as a key audit matter because this
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compliance with the Bank's NPA provision policy and
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requires proper control mechanism, significant level of
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IRACP Norms.
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management judgement especially in determining the
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• Tested samples of advances (based on quantitative and
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provision and the valuation of the security, heightened
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qualitative thresholds) where impairment indicators
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regulatory compliances and its significance to the
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had been identified by management. Obtained
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overall financial statements of the Bank.
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management's assessment of the recoverability of these exposures (including individual provisions calculations) and challenged whether individual impairment provisions, or lack of, were appropriate.
• Evaluated the statement of accounts, approval process, credit review of customer, review of SMA reports, valuation reports of collaterals for corporate loans and other related documents to assess recoverability and the classification of the advance.
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Key audit matter
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How our audit addressed the key audit matter
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• For selected samples for gold loans, inspected external appraiser's valuation report certifying the purity of the pledged gold and checked the quantity and weight mentioned in the valuation report. Conducted independent visits to branches/offices to examine documentation and other records relating to advances and to verify existence of pledged gold for samples selected. Further, for the gold appraiser's valuation reports relied upon by the management, assessed the competency, independence, scope of work for the purpose of our audit.
• Verified on sample basis whether the loan write-offs during the year is in accordance with Board approved policy.
• Sought independent confirmation of account balances for sample borrowers.
• Read the minutes of management committees and credit committee meetings and performing inquiries with the credit, credit monitoring, risk, asset recovery, compliance and vigilance departments to ascertain key changes and observations.
• Considered key observations arising out of Internal Audits, Systems Audits and Concurrent Audits conducted as per the policies and procedures of the Bank.
• Considered the RBI Annual Financial Inspection report on the Bank, the Bank's response to those observations and other communications with RBI.
• Assessed disclosures included in the financial statements in respect of asset classification, and provisioning, including specific disclosures required by IRACP norms.
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Information Technology (‘IT’) Systems and Internal Controls for Financial Reporting
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Key audit matter
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How our audit addressed the key audit matter
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The IT environment of the Bank is complex as it
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We included specialized IT auditors as part of our audit
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involves a number of independent and inter-dependent
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team to perform audit procedures which included, but were
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IT systems which are used in the operations of the
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not limited to the following:
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Bank for processing and recording a large volume of
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• Obtained an understanding of IT applications
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transactions at numerous locations on a daily basis.
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landscape implemented at the Bank, followed by
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As a result, there is a high degree of reliance and
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process understanding, mapping of applications to
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dependency on the IT systems for the Bank's financial
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the processes related to financial reporting
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accounting and reporting processes which impacts
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• Based on our understanding, we have evaluated and
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key financial accounting and reporting items such
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tested relevant IT general controls and IT application
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as advances, interest income, provision on advances
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controls on the systems ("in-scope”) identified as
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amongst others and thereby there exists a risk that
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relevant for our audit of the financial statements.
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gaps in the IT control environment could result in the financial accounting and reporting records being
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• On such in-scope IT systems, we have tested key IT general controls with respect to the following domains:
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materially misstated. Amongst its multiple IT systems, we scoped in systems that are key for the overall
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a. User access management which includes user
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financial reporting.
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access provisioning, de-provisioning, access
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We have identified testing of such IT systems and
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review, password management, sensitive access rights and segregation of duties to ensure that
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related control environment as key audit matter because of the high level of automation, significant
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privilege access to applications, operating system and databases in the production environment
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number of systems being used by the Bank for
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were granted only to authorized personnel.
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processing financial transactions, importance in relation to accurate and timely financial reporting
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b. Program change management which includes
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and its impact on the financial records and financial
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controls on moving program changes to
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reporting process of the Bank.
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production environment as per defined
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procedures and with relevant segregation of environments
c. Other areas that were assessed under the IT control environment included backup management, incident management, batch processing and system interfaces.
• We also evaluated the design and tested the operating effectiveness of key IT application controls in key business processes, which included loan origination, sanctioning, disbursements, repayments and covered automated calculations and automated accounting procedures, as applicable focusing on advances, interest income, provision on advances amongst others.
• Where deficiencies were identified, tested compensating controls or performed alternative procedures.
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INFORMATION OTHER THAN THE FINANCIAL
STATEMENTS AND AUDITOR’S REPORT THEREON
6. The Bank's Board of Directors are responsible for the other information. The other information comprises the information included in the Annual Report including the Pillar III Disclosure under the New Capital Adequacy Framework (Basel III disclosures), but does not include the financial statements and our auditor's report thereon. The Annual Report is expected to be made available to us after the date of this auditor's report.
Our opinion on the financial statements does not cover the other information and we do 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 when it becomes available 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.
When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.
RESPONSIBILITIES OF MANAGEMENT AND THOSE
CHARGED WITH GOVERNANCE FOR THE FINANCIAL
STATEMENTS
7. The accompanying financial statements have been approved by the Bank's Board of Directors. The Bank's Board of Directors are responsible for the matters stated in section 134(5) of the Act with respect to the preparation and presentation 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 Standards specified under section 133 of the Act, read with the Companies (Accounting Standards) Rules, 2021 and other accounting principles generally accepted in India, and provisions of section 29 of the Banking Regulation Act, 1949 and circulars and guidelines issued by the 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.
8. In preparing the financial statements, the Board of Directors 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 the Board of Directors either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.
9. The Board of Directors is also responsible for overseeing the Banks's financial reporting process.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE
FINANCIAL STATEMENTS
10. 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 Standards on Auditing 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.
11. As part of an audit in accordance with Standards on Auditing specified under section 143(10) of the Act, 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;
• Obtain an understanding of internal control relevant to the audit in order to design 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 has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls;
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;
• Conclude on the appropriateness of Board of Directors' 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; and
• 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.
12. 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.
13. 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.
14. 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
15. The financial statements of the Bank for the year ended 31 March 2023 were jointly audited by the predecessor auditor, BSR & Co. LLP and Mukund M. Chitale & Co., who have expressed an unmodified opinion on those financial statements vide their audit report dated 28 April 2023. Accordingly, Walker Chandiok & Co LLP do not express any conclusion or opinion on the figures reported in the Statement for the quarter and year ended 31 March 2023. Our opinion is not modified in respect of this matter.
REPORT ON OTHER LEGAL AND REGULATORY
REQUIREMENTS
16. The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with the provisions of section 29 of the Banking Regulation Act, 1949 and section 133 of the Act.
17. As required by sub-section (3) of section 30 of the Banking Regulation Act, 1949, 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 purpose 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;
c) We have visited 32 of branches to examine the books of accounts and other records maintained at the branch for the purpose of our audit. Since the key operations of the Bank are automated with the key applications integrated to the core banking system, the audit is carried out at centrally as all the necessary records and data required for the purposes of our audit are available therein.
18. With respect to the matter to be included in the auditor's report under section 197(16) of the Act, we report that since the Bank is a banking company, as defined under the Banking Regulation Act, 1949;
the reporting under section 197(16) in relation to whether the remuneration paid by the Bank is in accordance with the provisions of section 197 of the Act and whether any excess remuneration has been paid in accordance with the aforesaid section is not applicable.
19. Further, as required by section 143 (3) of the Act, based on our audit, we report, to the extent applicable, that:
a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit of the accompanying financial statements;
b) 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;
c) The financial statements dealt with by this report are in agreement with the books of account;
d) In our opinion, the aforesaid financial statements comply with the Accounting Standards specified under section 133 of the Act read with the Companies (Accounting Standards) Rules, 2021, to the extent they are not inconsistent with the accounting policies prescribed by RBI;
e) On the basis of the written representations received from the directors and taken on record by the Board of Directors, none of the directors is disqualified as on 31 March 2024 from being appointed as a director in terms of section 164(2) of the Act;
f) With respect to the adequacy of the internal financial controls with reference to financial statements of the Bank as on 31 March 2024 and operating effectiveness of such controls, refer to our separate report in Annexure I wherein we have expressed an unmodified opinion; and
g) With respect to the other matters to be included in the Auditor's Report in accordance with rule 11 of the Companies (Audit and Auditors) Rules, 2014 (as amended), in our opinion and to the best of our information and according to the explanations given to us:
i. The Bank, as detailed in schedule 12 and note 3.14 to the financial statements, has disclosed the impact of pending litigations on its financial position as at 31 March 2024;
ii. The Bank, as detailed in schedule 5 and note 3.14 to the financial statements, has made provision as at 31 March 2024, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts;
iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Bank during the year ended 31 March 2024;
iv. a. The management has represented that,
to the best of its knowledge and belief, on the date of this audit report, as disclosed in note 4.10(a) to the financial statements, no funds have been advanced or loaned or invested (either from borrowed funds or securities premium or any other sources or kind of funds) by the Bank to or in any person(s) or entity(ies), including foreign entities (‘the intermediaries'), with the understanding, whether recorded in writing or otherwise, that the intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Bank (‘the Ultimate Beneficiaries') or provide any guarantee, security or the like on behalf the Ultimate Beneficiaries;
b. The management has represented that, to the best of its knowledge and belief, on the date of this audit report as disclosed in note 4.10(b) to the financial statements, no funds have been received by the Bank from any person(s) or entity(ies), including foreign entities (‘the Funding Parties'), with the understanding, whether recorded in writing or otherwise, that the Bank shall, whether directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (‘Ultimate Beneficiaries') or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
c. Based on such audit procedures performed, as considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the management representations under sub-clauses (a) and (b) above contain any material misstatement.
v. The Bank has not declared or paid any dividend during the year ended 31 March 2024.
vi. Based on our examination which included test checks, the Bank, in respect of financial year commencing on or after 1 April 2023, has used an accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year for all relevant transactions recorded in the software. Further, during the course of our audit we did not come across any instance of audit trail feature being tampered with.
For Walker Chandiok & Co LLP
Chartered Accountants Firm Registration No.: 001076N/N500013
Sd/-
Sudhir Pillai
Partner
Membership No. 105782 UDIN: 24105782BKFIZN4733
Place: Mumbai Date: 26 April 2024
For Mukund M. Chitale & Co.
Chartered Accountants Firm Registration No.: 106655W
Sd/-
Abhay V. Kamat
Partner
Membership No. 039585 UDIN: 24039585BKCZKN1455
Place: Mumbai Date: 26 April 2024
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