Bandhan Bank Limited
Report on the Audit of the Financial Statements
Opinion
1. We have audited the accompanying financial statements of Bandhan Bank Limited (the "Bank") which comprise the Balance Sheet as at March 31, 2024, the Profit and Loss Account, the Cash Flow Statement for the year then ended, and notes to the Financial Statements including a summary of significant accounting policies and other explanatory information ("the Financial Statements").
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 the circulars and guidelines issued by Reserve Bank of India, in the manner so required for banking companies and are in conformity with the accounting principles generally accepted in India including the accounting standards specified under Section 133 of the Act as applicable to banks and give a true and fair view of the state of affairs of the Bank as at March 31, 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 (SAs) 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 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 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:
Identification and Provisioning of Non-performing Advances (NPA):
Total NPA as at March 31, 2024: '4,784.88 crore Provision for NPA as at March 31, 2024: '3,437.27 crore (Refer Schedule 9, 18.6 & 18.7 to the Financial Statements)
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Key Audit Matter
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How our audit addressed the key audit matter
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Identification of NPA and measurement of provision on account
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Tested the design and operating effectiveness of key controls
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of NPA is made based on the assessment of various criteria
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(including application controls) over approval, recording,
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stipulated in the Reserve Bank of India ('RBI') guidelines on
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monitoring, and recovery of loans, monitoring overdue/
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'Prudential Norms on Income Recognition, Asset Classification
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stressed accounts, identification of NPA, provision for NPA,
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and Provisioning pertaining to advances' ('IRACP').
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and valuation of security including collateral. Testing of
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The Bank is also required to apply its judgement to determine the identification and provision required against NPAs by applying
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Application controls includes testing of automated controls, reports and system reconciliations.
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quantitative as well as qualitative factors. The risk of identification
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Evaluated the governance process and tested controls over
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of NPAs is affected by factors like stress and liquidity concerns in
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calculations of provision on non-performing advances, basis
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certain sectors.
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of provisioning in accordance with the Board approved
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The provision against advances is based on criteria such as past
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policy.
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due status, out of order status etc. The provision in respect of
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Selected the borrowers based on quantitative and qualitative
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such NPAs are made based on ageing and classification of NPAs,
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risk factors for their assessment of appropriate classification
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recovery estimates, value of security, nature of loan products and
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as NPA including computation of overdue ageing to assess its
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other qualitative factors and is subject to minimum provisioning
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correct classification and provision amount as per the IRACP
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levels prescribed by the RBI and approved policy of the bank in
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norms and Bank policy.
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this regard. In addition to this, for restructured accounts, provision is made for erosion/ diminution in fair value of restructured loans, in accordance with the RBI guidelines. Further, NPA classification
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Performed other substantive procedures including but not limited to the following:
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is made borrower wise whereby if one facility of the borrower
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Selected sample of performing loans and assessed them
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becomes NPA then all facilities of such a borrower will be treated
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independently as to whether these should be classified as
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as NPA.
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NPA;
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We have identified 'Identification of NPA and Provisioning on
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For sample selected, examined the security valuation,
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Advances' as a key audit matter in view of the significant level
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financial statements and other qualitative information of the
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of estimation involved, as well as the stringent compliances laid
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borrowers;
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down by the RBI in this regard.
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Considered the accounts reported by the Bank and other Banks as Special Mention Accounts ("SMA") in RBI's Central Repository of Information on Large Credits (CRILC) to identify stress;
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Performed inquiries with the credit and risk departments to ascertain if there were indicators of stress or an occurrence of an event of default in a particular loan account or any product category which needs to be considered as NPA;
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Assessed the appropriateness of asset classification and adequacy of related provisioning by performing procedures such as computation of overdue ageing, assessment of borrower level, NPA identification and verification of applicable provision rates as per IRACP norms and Bank's Policy on test check basis; and assessed the adequacy of disclosures against the relevant accounting standards and RBI requirements relating to NPAs.
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Information Technology ("IT") Systems and Controls impacting 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 Bank has a complex IT architecture to support its day-to-day business operations. High volume of transactions are processed
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Our procedures with respect to this matter included the following: In assessing the controls over the IT systems of the Bank, we
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and recorded on single or multiple applications.
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involved our technology specialists to obtain an understanding of
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The reliability and security of IT systems plays a key role in the
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the IT environment, IT infrastructure and IT systems. We evaluated
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business operations of the Bank. Since large volume of transactions
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and tested relevant IT general controls over the "in-scope" IT
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are processed daily, the IT controls are required to ensure that
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systems and IT dependencies identified as relevant for our audit
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applications process data as expected and that changes are made
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of the financial statements and financial reporting process of
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in an appropriate manner.
Appropriate IT general controls and application controls are
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the Bank. On such "in-scope" IT systems, we have tested key IT general controls with respect to the following domains:
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required to ensure that such IT systems are able to process the
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• Program change management, which includes that program
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data, as required, completely, accurately and consistently for
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changes are moved to the production environment as per
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reliable financial reporting.
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defined procedures and relevant segregation of environment is ensured.
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We have identified 'IT systems and controls' as key audit matter
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because of the high level automation, significant number of
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• User access management, which includes user access
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systems being used by the management and the complexity of the
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provisioning, de-provisioning, access review, password
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IT architecture and its impact on the financial reporting system.
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management, sensitive access rights and segregation of duties to ensure that privilege access to applications, operating systems and databases in the production environment were granted only to authorized personnel.
• Program development, which includes controls over IT application development or implementation and related infrastructure, which are relied upon for financial reporting. In addition, understood where relevant, changes made to the IT landscape during the audit period.
• IT operations, which includes job scheduling, monitoring and backup and recovery.
We also evaluated the design and tested the operating effectiveness of relevant key IT dependencies within the key business process, which included testing automated controls, automated calculations/ accounting procedures, interfaces, segregation of duties and system generated reports, as applicable.
We communicated with those charged with governance and management and tested a combination of compensating controls or remediated controls and/or performed alternative audit procedures, where necessary.
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Other Information
5. The Bank's Board of Directors are responsible for the other information. The other information comprises the information included in the annual report 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 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 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 and take appropriate action as applicable under the relevant laws and regulations.
Responsibilities of management and those charged with governance for the Financial Statements
6. 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 principles generally accepted in India, including the Accounting Standards specified under Section
133 of the Act read with the Companies (Accounting Standards) Rules, 2021, and the provisions of Section 29 of the Banking Regulations Act, 1949 and circulars, guidelines and directions 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.
7. In preparing the Financial Statements, the Board of Directors are 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 and Board of Director either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.
The Board of Directors are also responsible for overseeing the Bank's financial reporting process.
Auditor's Responsibilities for the Audit of the Financial
Statements
8. 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.
9. 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.
• 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 internal financial controls with reference to the 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 of the Bank.
• 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.
10. 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.
11. 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.
12. 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 year 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.
Report on other legal and regulatory requirements
13. In our opinion, 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.
14. 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) During the course of our audit, we have visited 22 branches and 37 banking units to examine the books of account and other records maintained at the branch and performed other relevant audit procedures. Since the key operations of the Bank are automated with the key applications integrated to the core banking system, the audit is carried out centrally at the Bank's Head Office located in Kolkata, as all the necessary records and data required for the purposes of our audit are available there.
15. As required by Section 143(3) of the Act, we report that:
(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;
(b) In our opinion, proper books of account as required by law have been kept by the Bank so far as it appears from our examination of those books, except for the matters stated in paragraph 15(h)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (as amended) ("the Rules");
(c) The Balance Sheet, the Profit and Loss Account and the Cash Flow Statement 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 Companies (Accounting Standards) Rules 2021, to the extent they are not inconsistent with the guidelines prescribed by RBI;
(e) On the basis of the written representations received from the directors as on March 31, 2024 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2024 from being appointed as a director in terms of Section 164(2) of the Act;
(f) The modifications relating to the maintenance of accounts and other matters connected therewith, reference is made to our remarks in paragraph 15(b) above on reporting under Section 143(3)(b) of the act and paragraph 15(h)(vi) below on reporting under Rule 11(g) of the Rules;
(g) With respect to the adequacy of the internal financial controls with reference to Financial Statements of the
Bank and the operating effectiveness of such controls, refer to our separate report in "Annexure A"; and
(h) 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 has disclosed the impact of pending litigations on its financial position in its Financial Statements -Refer Schedule 12 & 18.17 to the Financial Statements;
ii. The Bank did not have any long term contract including derivative contracts for which there were material foreseeable losses;
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 March 31, 2024;
iv. (a) The management has represented that, to the
best of its knowledge and belief, other than as disclosed in the Schedule 18.33 to the Financial Statements, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Bank to or in any other person(s) or entity(ies), including foreign entities ("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 ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
(b) The management has represented that, to the best of its knowledge and belief, other than as disclosed in the Schedule 18.33 to the Financial Statements, no funds have been received by the Bank from any person(s) or entity(ies), including foreign entities ("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 that we considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representations under sub-clause (a) and (b) contain any material misstatement.
v. (a) The final dividend proposed in the previous year,
declared and paid by the bank during the year is in accordance with the Section 123 of the Act, as applicable; and
(b) As stated in Schedule 18.3 to the Financial Statements, the Board of Directors of the Bank have proposed dividend for the financial year 2023-24 which is subject to the approval of the members at the ensuing Annual General Meeting. The amount of dividend proposed is in accordance with Section 123 of the Act, as applicable, until the date of this report.
vi. Based on our examination, which included test checks, the Bank has used various accounting software for maintaining its books of account which have a feature of recording audit trail (edit log) facility, which have operated throughout the year for all relevant transactions recorded in the software, except;
(a) the audit trail feature was not enabled throughout the year at the database level in respect of two accounting software(s) to log any direct data changes and in case of one accounting software audit trail was enabled at database level from February 18, 2024;
(b) non-availability of sufficient appropriate audit evidence regarding recording of audit trail and non-disabling thereof in respect of two sunset software which were discontinued during the year (also, refer schedule 18.37 to the financial statements of the Bank).
Based on our procedures performed, we did not notice any instance of the audit trail feature being tampered with. In respect of the aforesaid databases, in the absence of audit trail for the said period, the question of our commenting on whether the audit trail was tampered with, does not arise.
16. In our opinion and to the best of our information and according to the explanations given to us, the provisions of Section 197 of the Act are not applicable to the Bank by virtue of Section 35B(2A) of the Banking Regulation Act, 1949. Accordingly, the reporting under Section 197(16) of the Act regarding payment/ provision for managerial remuneration in accordance with the requisite approvals mandated by the provisions of Section 197 read with Schedule V to the Act, is not applicable.
For M M Nissim & Co LLP For Singhi & Co
Chartered Accountants Chartered Accountants
(Firm Registration No. 107122W/ W100672) (Firm Registration No. 302049E)
Navin Kumar Jain Ankit Dhelia
Partner Partner
Membership No. 090847 Membership No. 069178
UDIN: 24090847BKFEHH7745 UDIN: 24069178BKFDOD6107
Place: Kolkata Place: Kolkata
Date: May 17, 2024 Date: May 17, 2024
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