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REPORT ON THE AUDIT OF THE STANDALONE
FINANCIAL STATEMENTS
Opinion
We have audited the accompanying Standalone Financial Statements of RBL Bank Limited ("the Bank”), which comprise the Balance Sheet as at March 31,2024, the Profit and Loss Account and the 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 (hereinafter referred to as "Standalone Financial Statements”).
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 Section 29 of the Banking Regulation Act, 1949 and as well as the Companies Act, 2013 ("the Act”) and circulars and guidelines issued by the Reserve Bank of India, in the manner so required for the banking companies and give a true and fair view in conformity with the accounting principles generally accepted in India, including the Accounting Standards prescribed under Section 133 of the Act, read with rules made thereunder, of the state of affairs of the Bank as at March 31, 2024, its profit and its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with 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 the Standalone Financial Statements section of our report. We are independent of the Bank in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India ("ICAI”) together with the ethical requirements that are relevant to our audit of the Standalone Financial Statements under the provisions of the Act and 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 on the Standalone Financial Statements.
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Sr. No.
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Key audit matter(s) (KAM)
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How our audit addressed the key audit matter
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• In ITGC testing, on sample basis, we reviewed control areas such as User Management, Change Management, Physical & Environmental Security, Creation and maintenance of edit logs, Backup and Restoration etc.
We have also carried out other audit procedures like substantive testing, analytical procedures etc. to verify the accuracy of the data generated from the IT system.
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2.
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Income recognition asset classification (IRAC) and provisioning on loans, advances and investments as per regulatory requirements
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The Management of the Bank relies on its automated IT systems to determine asset classification, income recognition, provisioning for standard and non-performing advances/ investments and for compliance of applicable regulatory guidelines issued by the RBI. The Management supplements its assessment by availing services of experts (like independent valuers, lawyers, legal experts and other professionals) to determine the valuation and enforceability of security of such advances/ investments.
The Bank, as per its governing framework, recognises the performing and non-performing advances/investments provisions based on Management's assessment of the degree of impairment of the advances/investments subject to and guided by minimum provisioning levels prescribed under RBI guidelines.
Advances:
Identification of performing and non-performing Advances involves establishment of proper mechanism. The Bank accounts for all the transactions related to Advances in its Information Technology System (IT System) which also identifies whether the advances are performing or nonperforming and consequent recognition of Income.
Further, bank placed reliance on the data submitted by the borrowers & lead bank for drawing power calculations, and uses services of experts (Lawyer, valuers etc.) where required to support its assessment for security valuations.
Compliance of relevant prudential norms issued by the Reserve Bank of India (RBI) in respect of income recognition, asset classification and provisioning pertaining to advances. Currently certain processes of the Bank requires manual interventions. Further, the Bank has significant exposure to a large number of borrowers across products and there is a high degree of complexity, uncertainty, significant estimates, judgment involved in determining the recoverability of advances, nature of transactions and estimation of provisions commensurate to the level of risks thereon and identification of accounts to be written off.
Investments:
Bank has to classify the investments as performing or non performing based on the guidelines/circulars and directives issued by Reserve Bank of India. Identification of performing and non performing investments. The valuation is done as per the guidelines issued by Reserve Bank of India and the valuations are done based on the price quoted on BSE/ NSE, FIMDA / FBIL rates etc. The Income recognition, asset classification and provisioning if not done properly as per the IRAC norms issued by Reserve Bank of India may materially impact the financial statements of the bank.
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Our audit approach/procedures included the following:
Testing the design, operating effectiveness of internal controls and
substantive audit procedures in respect of income recognition, asset
classification and provisioning pertaining to advances and investments.
In particular:
Advances:
• We have evaluated and understood the Bank's internal control system in adhering to the relevant RBI guidelines regarding income recognition, asset classification and provisioning pertaining to advances;
• We have tested key IT systems/ applications used and their design and implementation as well as operational effectiveness of relevant controls, including involvement of manual process and manual controls in relation to income recognition, asset classification, provisioning pertaining to advances and compliances of other regulatory guidelines issued by the RBI from time to time;
• We have test checked advances to examine the validity of the recorded amounts, loan documentation, examined the statement of accounts, indicators of impairment, impairment provision for non-performing assets, and compliance with income recognition, asset classification and provisioning pertaining to advances in terms of applicable RBI guidelines;
• We have evaluated the past trends of management judgement, governance process and review controls over impairment provision calculations and discussed the provisions made with the top and senior management of the Bank.
Investments:
• Understanding the IT system and controls put in place
• Testing on sample basis whether the classification and valuation of investments is carried out as per the guidelines of Reserve Bank of India.
• Verification on sample basis whether proper provision for depreciation in the value of investments is made as per RBI guidelines.
• Verification whether proper provision for Alternate Investment Fund has been accounted as per the RBI guidelines.
• Reliance made on the internal audit reports, concurrent audit reports and system audit conducted by the bank
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Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Standalone Financial Statements for 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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Sr. No.
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Key audit matter(s) (KAM)
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How our audit addressed the key audit matter
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1.
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Information Technology (IT) Systems and controls over financial reporting
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The Bank's financial accounting and reporting systems are highly dependent on data from various IT applications and Core Banking Solution (CBS) which are interfaced and / or are working independently (the IT applications, CBS, general and related application controls together referred to as "IT Controls Framework”). Considering the Extensive volume, variety and complexity of transactions are processed daily and there is a risk that automated accounting procedures and related internal controls may not be accurately designed and operating effectively. There exists a risk that gaps in the IT control environment could result in the financial accounting and reporting records being materially misstated. Appropriate IT controls are required to ensure that the IT applications operate as planned and the changes made are properly authorized, tested and controlled. Our audit outcome is also dependent on the effective operations of these IT systems and controls throughout the year.
We have identified IT Controls Framework as a Key Audit Matter as the Bank has various applications apart from CBS from which data is extracted for preparation and presentation of the financial statements.
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Our audit approach/procedures included the following:
• We have planned, designed and carried out the desired audit procedures and sample checks, taking into consideration the IT systems of the Bank.
• Assessment and identification of key IT applications including those identified by the management for audit trail (audit log) further verifying, testing, and reviewing the design and operating effectiveness of the IT system based on reports and other financial and non-financial information generated from the system on a test check basis.
• Gaining understanding of IT controls framework through Walkthrough of processes. We also discussed and referred to reports of internal auditors, Internal Financial Control and other assurance functions in carrying out our audit procedures.
• The IT audit specialists (who are integral part of audit team) have carried out testing of effectiveness of general and application controls.
• We also tested key automated and manual business cycle controls and logic for system generated reports relevant to the audit; including testing of compensating controls or performed alternate procedures to assess whether there were any unaddressed IT risks that would materially impact the Financial Statements.
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Sr. No.
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Key audit matter(s) (KAM)
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How our audit addressed the key audit matter
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Advances and Investments constitute 60.67% and 21.36% respectively of total assets of the bank. As advances and investments form part of a significant portion of the Bank's assets and the regulatory compliances are involved, we have considered this aspect as KAM
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Information other than the Standalone Financial Statements and Auditors' Report thereon
The Bank's Board of Directors and Management are responsible for the other information. The other information comprises the information included in the Directors' report, Management Discussion and Analysis, Business Responsibility and Sustainability Report etc. forming part of the Annual Report, but does not include the Standalone Financial Statements, Consolidated Financial Statements and our auditor's report thereon and the Pillar III Disclosures under Basel III Capital Regulation, Leverage Ratio, Liquidity Coverage Ratio and Net Stable Funding Ratio.
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 do 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.
Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements
The Bank's Board of Directors and Management are 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 prescribed under section 133 of the Act, provisions of Section 29 of the Banking Regulation Act, 1949 and the circulars, guidelines and directions issued by 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.
In preparing the Standalone Financial Statements, the Bank's Board of Directors and Management 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 the management 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 Standalone Financial Statements
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 this Standalone 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 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 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 in the Standalone Financial Statements made by The Bank's Board of Directors and Management.
• Conclude on the appropriateness of The Bank's Board of Directors and Management 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.
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 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.
Report on Other Legal and Regulatory Requirements
(1) The Standalone 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 read with Section 133 of the Act read with relevant rules issued thereunder.
(2) 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. The Bank considers its key operations to be automated, with the key applications largely integrated to the Core Banking System, it does not require its branches to submit any financial returns. Accordingly, our audit is carried out centrally at Head Office based on the records and data required for the purpose of Audit being made available to us. During the course of our audit, we have visited and performed select relevant procedures at 20 branches;
d. the profit and loss account shows a true balance of profit for the year then ended
(3) 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;
c. The Standalone Balance Sheet, the Standalone Statement of Profit and Loss Account and the
the year is in accordance with Section 123 of the Act to the extent it applies to payment of dividend.
b. As stated in note 2 of Schedule 18 to the Standalone Financial Statements, the Board of Directors of the Bank have proposed final dividend for the financial year 20232024 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 Companies Act to the extent applicable
(v) Based on our examination which included test checks, the Bank has used an accounting software for maintaining its books of accounts, which has a feature of recording audit trail (edit log) facility and the same has operated
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 prescribed under Section 133 of the Act read with relevant rules issued thereunder 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, and 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 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”;
g. With respect to the other matter to be included in the Auditor's Report in accordance with the requirements of section 197(16) of the Act, as amended:
In our opinion and to the best of our information and according to the explanations given to us, requirements prescribed under Section 197 of the Act is not applicable by virtue of Section 35B (2A) of the Banking Regulation Act, 1949.
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 on Contingent Liabilities 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 longterm contracts including derivative contracts -Refer Note 49 of Schedule 18 to the Standalone Financial Statements in respect of such items as it relates to the Bank;
(iii) There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Bank;
a. The management has represented that, to the best of its knowledge and belief, other than as disclosed in the Note 50 of Schedule 18 to the Standalone Financial Statements, no funds (which are material either individually or in the aggregate) 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 persons or entities, 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 Note 50 of Schedule 18 to the Standalone Financial Statements, no funds (which are material either individually or in the aggregate) have been received by the Bank from any persons or entities, 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;
c. Based on the audit procedures that are 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) above, contain any material misstatement.
(iv) a. The final dividend proposed in the previous
year, declared and paid by the Bank during
throughout the year for all relevant transactions recorded in the software. Further, during the course of an audit we did not come across any instance of audit trail feature being tampered with.
For CNK & Associates LLP For G.M. Kapadia & Co.
Chartered Accountants Chartered Accountants
Registration No. 101961W/ Registration No. 104767W
W100036
Suresh Agaskar Rajen Ashar
Partner Partner
Membership No. 110321 Membership No. 048243
UDIN: 24110321BKETHK6541 UDIN: 24048243BKFFSP3424
Place: Mumbai Place: Mumbai
Date: April 27, 2024 Date: April 27, 2024
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