HDFC Bank Limited
Report on Audit of the Standalone Financial Statements
I Opinion
1. We have jointly audited the accompanying Standalone Financial Statements of HDFC Bank Limited (“the Bank”), which comprise the Standalone Balance Sheet as at March 31, 2024, and the Standalone Profit and Loss Account and the Standalone Cash Flow Statement for the year then ended, and notes to the Standalone Financial Statements including a summary of 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 Standalone Financial Statements give the information required by the Banking Regulation Act, 1949 as well as the Companies Act, 2013 (“the Act”) in the manner so required for banking companies and are in conformity with accounting principles generally accepted in India 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 cashflows for the year ended on that date.
I 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 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 the ethical requirements that are relevant to our audit of the Standalone 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.
I Key audit matters
4. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Standalone Financial Statements of the current year. These matters were addressed in the context of our audit of the Standalone 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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Identification and Provisioning of Non-performing Advances (NPA):
Total NPA as at March 31,2024: 31,056.65 Crores Provision for NPA as at March 31, 2024: 22,966.09 Crores (Refer Schedule 17 (C)(3), Schedule 18 note 9)
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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 is required to comply with the Master Circular dated April 01, 2023 issued by the Reserve Bank of India (“RBI”) on “Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances” (the “IRAC norms”) and amendments thereto, which prescribe the guidelines for identification and classification of Non-performing Advances and the minimum provision required for
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Our audit procedures included the following:
0 Understood the process and controls, and tested the design and operating effectiveness of key controls, including Information Technology based controls, and focused on the following:
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such assets.
The Bank is also required to apply its judgement to determine the identification and provision required against Non-performing Advances considering various quantitative as well as qualitative factors. The identification of Non-performing Advances is also affected by factors like stress and liquidity concerns in certain sectors.
The provision for identified Non-performing Advances is estimated based on ageing and classification of Non-performing Advances, nature of product, value of security etc., and is also subject to the minimum provisioning norms specified by RBI. Since the identification of Non-performing Advances and provisioning for Non-performing Advances requires considerable level of management estimation, application of various regulatory requirements and in view of its significance to the overall audit, we have identified this as a key audit matter.
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• Monitoring of credit quality which amongst other things includes the monitoring of overdue loan accounts and drawing power;
• Identification and classification of Non-performing Advances in accordance with IRAC norms, other regulatory guidelines issued by the RBI and consideration of qualitative aspects; and
• Testing of application controls including testing of automated controls and reports.
Evaluated the governance process and controls over calculations of provision for Non-performing Advances and tested that the basis of provisioning is in accordance with the Board of Directors approved policy and IRAC norms.
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With respect to classification of Non-performing Advances, verified the date of Non-performing Advances and recomputed the Days Past Due on a sample basis.
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On a test check basis, verified the classification of accounts reported by the Bank as Special Mention Accounts (‘SMA') in RBI's Central Repository of Information on Large Credits (‘CRILC').
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With respect to provisions recognised towards Non-performing Advances, provision calculations on a sample basis taking into consideration the value of security, where applicable, the IRAC norms and the policy of the Bank, and compared our outcome to that prepared by the management and tested relevant assumptions and judgements which were used by the management.
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Appropriateness of accounting for amalgamation of erstwhile Housing Development Finance Corporation Limited (“erstwhile HDFC Limited”) with the Bank , the related adjustments [including adjustments to and integration of Information Technology (IT) systems] and communications
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with RBI relating to the amalgamation (Refer Schedule 18 note 1)
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Key Audit Matter
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How our audit addressed the key audit matter
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The composite scheme for the amalgamation of (i) erstwhile HDFC
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Our audit procedures included the following:
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Investments Limited and erstwhile HDFC Holdings Limited into and with erstwhile HDFC Limited and (ii) erstwhile HDFC Limited into and with the Bank, (the “Scheme”) has been given effect to in the Standalone Financial statements with effect from July 1,2023 (i.e., the appointed and effective date for the Scheme), in accordance with the ‘pooling of interests' method as prescribed in AS-14 “Accounting for Amalgamations”.
The amalgamation entailed transfer of various IT systems of the erstwhile HDFC Limited to the Bank, including integration of some systems with the financial reporting system and other related applications of the Bank; and transfer of underlying financial data of the erstwhile HDFC Limited's business.
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Understood the process and controls, and tested the design and operating effectiveness of key controls, including Information Technology general and application controls relating to accounting for amalgamations, and integration of IT Systems (impacting financial reporting) of erstwhile HDFC Limited;
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Perused the NCLT approved Scheme of Amalgamation for the appropriateness of determination of the effective date of the scheme and the accounting treatment as prescribed in the Scheme;
Traced the assets and liabilities of erstwhile HDFC Limited
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recognised on amalgamation to the special purpose financial
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Further, the Bank had sought certain forbearances from the RBI. The RBI has granted certain forbearances and provided clarifications to the Bank through various communications.
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information as at the appointed and effective date of the Scheme, audited by other auditors;
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Tested the share swap and amalgamation adjustments for
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Considering the magnitude of the amounts involved, complexity of the
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appropriate recording of the resultant impact on the standalone
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transaction and the related adjustments (including those related to IT
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reserves of the Bank;
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systems impacting financial reporting) impacting Standalone Financial Statements, and in view of its significance to the overall Standalone Financial Statements, we have determined the accounting for the amalgamation and the related adjustments (including those to IT systems impacting financial reporting) and communications with RBI relating to the amalgamation, to be a key audit matter.
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Tested on a sample basis the underlying financial data of erstwhile HDFC Limited transferred to the Bank and its integration with the financial information of the Bank as on the effective date;
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Read communications of the Bank with the RBI seeking certain forbearances relating to the operations of the Bank post the amalgamation, having an impact on the financial reporting and assessed their impact on the standalone financial statements;
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Assessed the adequacy and appropriateness of the disclosures relating to the amalgamation made in the standalone financial statements.
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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 IT environment of the Bank is complex and involves a large number of independent and interdependent IT systems used in the operations of the Bank for processing and recording a large volume of transactions.
As a result, there is a high degree of reliance and dependency on such IT systems for the financial reporting process of the Bank.
Appropriate IT general controls and IT application controls are required to ensure that such IT systems are able to process the data as required, completely, accurately, and consistently for reliable financial reporting.
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Our procedures with respect to this matter included the following:
0 In assessing the controls over the IT systems of the Bank, we involved our technology specialists to obtain an understanding of the IT environment, IT infrastructure and IT systems. We evaluated and tested relevant IT general controls over the “inscope” IT systems and IT dependencies identified as relevant for our audit of the standalone financial statements and financial reporting process of the Bank. On such “in-scope” IT systems, we tested key IT general controls with respect to the following domains:
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We have identified certain key IT systems (“in-scope” IT systems) which have an impact on the financial reporting process and the related controls testing as a key audit matter because of the high level of automation, significant number of systems being used by the Bank for processing financial transactions, the complexity of the IT architecture and its impact on the financial records and financial reporting process of the Bank.
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• Program change management, which includes that program changes are moved to the production environment as per defined procedures and relevant segregation of environment is ensured.
• User access management, which includes user access provisioning, de-provisioning, access review, password 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.
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• Program development, which includes controls over IT application development or implementation and related infrastructure, which are relied upon for financial reporting.
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• IT operations, which includes job scheduling, monitoring and backup and recovery.
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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.
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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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I Other Information
5. The Bank's Board of Directors is responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the Standalone 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 Standalone 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 Standalone 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 Standalone 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 Standalone Financial Statements
6. The Bank's Board of Directors is responsible for the matters stated in Section 134(5) of the Act 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 specified under Section 133 of the Act, 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 Standalone 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 Standalone 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. Those Board of Directors are also responsible for overseeing the Bank's financial reporting process.
I Auditor’s responsibilities for the audit of the Standalone Financial Statements
8. Our objectives are to obtain reasonable assurance about whether the Standalone 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 Standalone Financial Statements.
9. As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the Standalone 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 Standalone 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 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 Standalone 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 Standalone Financial Statements, including the disclosures, and whether the Standalone 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 Standalone 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.
I Other Matter
13. The special purpose financial information of erstwhile HDFC Limited as at the day beginning of July 1,2023 (i.e. the appointed and effective date for the Scheme) considered to give effect to the scheme as on that date was audited by other auditors, whose report expressing an unmodified opinion thereon, has been furnished to us by the Management. Our opinion is not modified in respect of above matter.
I Report on other legal and regulatory requirements
14. In our opinion, the Standalone Balance Sheet and the Standalone 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.
15. 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, other than those relating to leasing of immovable properties acquired on amalgamation of the erstwhile HDFC Limited with the Bank, as disclosed in Schedule 18 note 1 to the Standalone Financial Statements; and
(c) during the course of our audit, we have visited 90 branches 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 Bank's Head office located in Mumbai, as all the necessary records and data required for the purposes of our audit are available there.
16. 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 16(h)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (as amended) (“the Rules”);
(c) The Standalone Balance Sheet, the Standalone Profit and Loss Account and the Standalone Cash Flow Statement dealt with by this report are in agreement with the books of account;
(d) In our opinion, the aforesaid Standalone Financial Statements comply with the Accounting Standards specified under Section 133 of the Act, 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 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) With respect to the maintenance of accounts and other matters connected therewith, reference is made to our remarks in paragraph 16(b) above on reporting under Section 143(3)(b) and paragraph 16(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 Standalone 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 Standalone financial statements - Refer Schedule 12(I) and (II), Schedule 17(C)(18) and Schedule 18 note 18.5 and 30(b) to the Standalone Financial Statements;
ii. The Bank has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts - Refer Schedule 17(C)(9) and 17(C)(18), Schedule 18 Note 18.5 and 30(b) to the Standalone Financial Statements;
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 note 34, 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 note 34, 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. The dividend declared and paid during the year by the Bank is in compliance with Section 123 of the Act;
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 that the audit trail feature was not enabled throughout the year for certain masters in two accounting software and for databases (also, refer Schedule 18 note 35 to the Standalone 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 masters and 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.
17. 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 Price Waterhouse LLP
Chartered Accountants Chartered Accountants
Firm Registration Number: Firm Registration Number:
107122W/W100672 301112E/E300264
Sanjay Khemani Sharad Vasant
Partner Partner
Membership Number: 044577 Membership Number: 101119
UDIN:24044577BKFGRY8193 UDIN: 24101119BKFOAN9903
Place: Mumbai Place: Mumbai
Date: April 20, 2024 Date: April 20, 2024
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