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Bank of Maharashtra

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Auditor's Report (Bank of Maharashtra) Year End : Mar '19

To

The Members of Bank of Maharashtra

Report on the Audit of the Standalone Financial Statements

Opinion

1. We have audited the standalone financial statements of Bank of Maharashtra (“the Bank”), which comprise the Balance Sheet as at March 31, 2019, and the Statement of Profit and Loss and Statement of Cash Flows for the year then ended, and notes to the standalone financial statements including a summary of significant accounting policies and other explanatory information in which are included returns for the year ended on that date of 20 branches and Treasury and International Banking Division audited by us, 1283 branches audited by statutory branch auditors of the Bank. The branches audited by us and those audited by other auditors have been selected by the Bank in accordance with the guidelines issued to the Bank by the Reserve Bank of India. Also included in the Balance Sheet, the Statement of Profit and Loss and Statement of Cash Flows are the returns from 573 branches which have not been subjected to audit. These unaudited branches account for 8.85% of advances.

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 (“the Act”),the requirements of the Reserve Bank of India, in the manner so required for Bank and give a true and fair view in conformity with the accounting principles generally accepted in India including accounting standards issued by The Institute of Chartered Accountants of India, of the state of affairs of the Bank as at March 31, 2019, and its loss and its cash flow for the year ended on that date.

Basis for opinion

3. We conducted our audit in accordance with the Standards on Auditing (SA’s) issued by The Institute of Chartered Accountants of India. 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 together with ethical requirements that are relevant to our audit of the standalone financial statements under the provisions of the Act, 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.

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.

The Key Audit Matters in relation to audit of the Bank and description of auditor’s response are as follows:-

Key Audit Matter

Audit Procedure followed to address the Key Audit Matter

1. Compliance of guidelines of Reserve Bank of India on Income Recognition, Assets classification and Provisioning Norms on advances. Refer Note No. 4 of Schedule 17 Significant Accounting Policies.

The Income from Advances constitutes 52.97% of total income.

The provision in respect of NonPerforming asset is Rs.7,227

crores which constitutes 42.06% of the expenditure.

The Loans and Advances to borrowers constitutes 50.24% of total assets of the bank. These

advances are governed by Income Recognition and Asset Classification and Provisioning Framework (IRAC) issued by Reserve Bank of India.

Reserve Bank of India has issued these prudential guidelines from time to time by way of master circulars and subsequent notifications. Under the guidelines, income recognition, and provisioning in respect of a credit facility are based on its status of classification as performing or nonperforming. A credit facility becomes non-performing “when it ceases to generate income for a bank”. Detailed guidelines have been laid down for determining the status of different kinds of credit facilities (term loans, cash credits and overdrafts, bills purchased and discounted, and other credit facilities) which are mandatory for bank for the purpose of recognition of income, classification of advances and provisioning thereof. The Bank classifies its advances on these norms which are also explained in the Note No. 4 of Schedule 17 Significant Accounting Policies.

Considering the nature of transactions, its magnitude, as well as regulatory requirements which include estimation, judgment and valuation of securities on materiality basis, audit of Income on Advances and Provisions thereof required significant efforts. The profit/ Loss for the year and the net advances position will be materially misstated if the prudential guidelines are not followed by the bank. Hence we have considered this as Key Audit Matter.

We have performed following substantive audit

procedures:-

- We have Understood and Tested design and operative effectiveness of the system for identification of NonPerforming Assets and its further classification. This involved understanding of the prudential guidelines and incorporating the same in the overall organisational and IT framework of the bank and its communication through various internal circulars and reports.

- We have evaluated Internal Controls over sanctioning and monitoring of advances, delegation of powers. Critically evaluated monitoring/ supervisory framework such as credit audit, concurrent audit and systems audit as well as internal check and balances and effectiveness of such framework for the purpose of compliance of prudential guidelines.

- We have done sample testing of financial as well as non-financial factors for identification of non-performing assets by observing conduct of the accounts, using standardised reports as well as running structured queries on the data sample especially to the branches allotted to us.

- Performed Sample verification of interest reversals and unrecovered Charges on identification of Non-Performing Asset.

- Communicated and made aware to Branch auditors, about IRAC related norms, process and verification guidelines while conducting the audit at branches.

- Ensured completeness and verification of Memorandum of Changes passed by Branch Auditors.

- Deliberated and critically assessed the security valuation, probability of recovery for the purpose of provisioning in sample cases.

- Understood and tested correctness on sample advances for Classification of Non-Performing Assets by the system in to Substandard, Doubtful, Loss as per extant prudential guidelines.

- Verified provisions on the non-performing assets based on IRAC classification at the rates adopted as per accounting policy.

2. Compliance of Investments of the Bank as per the guidelines issued by Reserve Bank of India. Investment form major share of the business of the bank we have considered this aspect as Key Audit Matter

We have performed following substantive audit procedures:-

- Obtained list of investments as at reporting period from Bank and ascertained the completeness of the same by reconciling with the holding status in the SGL/ RBI holding statement, Demat statement etc. as applicable.

Valuation methodology adopted by the Bank.

- Checked the carrying amount of investments and ensured that the same is calculated on a consistent basis as per RBI guidelines. This is normally calculated by the Bank’s E-treasury system; hence on test basis we checked the calculation for ensuring accuracy.

- In case wherever quotes were available, checked the source of capturing market price/ fair value as at reporting date. In case quotes are not available, checked the calculation for fair value as at the reporting date to ensure compliance with RBI guidelines.

Non-Performing Investments and provisions made thereon.

- Identified Non Performing Investments (NPI) based on RBI guidelines and reviewed the calculation of provision for depreciation thereon by the Bank.

- Reviewed that the depreciation on NPI has not been set-off against the appreciation in respect of other performing securities.

- Obtained a separate list of investments as a result of conversion of interest/ principal and checking whether these investments have been classified as NPI, if the loan’s classification is NPA on implementation of the restructuring scheme.

Computation of Gain or Loss on sale of investments.

- Examined whether the profit or loss on sale of investments has been computed properly and consistently on similar basis.

- In case of Held to Maturity (HTM) investments, we test checked whether the Net Profit on sale of investments in this category was first taken to the Profit & Loss Account, and thereafter appropriated to the ‘Capital Reserve Account’ net of taxes and proportionate transferred to Statutory Reserve, whereas Net Loss was recognized in the Profit & Loss Account.

- In case of Available for Sale (AFS) and Held for Trading (HFT) investments, on a test check basis, reconciled the method of computation of such gain or loss on sale of investments and checked whether the same was appropriately debited/ credited in the profit and loss statements.

3. Evaluation of uncertain tax Liabilities (Contingent). Refer Schedule 12 forming part of financial statement.

Considering it’s probable impact on Profitability / Loss, we have considered this as Key Audit Matters.

We have performed following substantive

audit procedures:-

- Obtained details of completed tax assessments and demands up to the year ended March 31, 2019 from management.

- We performed our internal procedures to analyse the management’s underlying assumptions in estimating the tax provision and the possible outcome of the disputes.

- We also considered legal precedence, referred to various case laws and other rulings in evaluating management’s position on these uncertain tax litigations.

- Additionally, we considered the impact of latest information in respect of uncertain tax positions as on March 31, 2019 to evaluate whether any change was required to management’s position on these uncertainties.

4. Evaluation of Information Technology (IT) Department.

Monitoring IT Controls and procedures with regard to its policies and governance to reduce frauds and to increase credit worthiness and compliance with RBI Guidelines.

We have considered evaluation of IT department as a key audit matter since operational and financial processes of the bank are largely dependent on its IT systems. Lapses, failures/ incorrect output, if any, of such systems may result in material misstatement in the Financial Statements.

We have performed following substantive

audit procedures:-

- We have carried out our audit procedures in accordance with standards on auditing, guidelines towards implementation of IT policies and procedures followed by the bank in order to have effective monitoring, control and evaluate the IT applications and controls to ensure effective implementation of IT policies and procedures.

- We have reviewed the framework which ensure Strict monitoring and implementation of controls to ensure overall organisational objective is achieved.

- We have manually verified select cases and satisfied about the accuracy of the reports with the manual calculations for validating the output generated by the system.

Information other than the Financial Statements and Auditor’s Report Thereon

5. The Bank’s Board of Directors is responsible for the other information. The other information comprises the information included in the Management report and Chairman’s Statement but does not include the financial statements and auditor’s report thereon.

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 and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If based on the work we performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We have nothing to report in this regards.

Responsibilities of Management and Those Charged with Governance for the standalone Financial statements

6. The Bank’s Board of Directors is responsible 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 issued by The Institute of Chartered Accountants of India, and provisions of Section 29 of the Banking Regulation Act, 1949 and circulars and guidelines issued by the Reserve Bank of India (RBI) from time to time. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Bank and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, 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.

The respective Board of Directors are also responsible for overseeing the Bank’s financial reporting process.

Auditor’s responsibilities for the Audit of the Financial statements

7. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

- Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

- Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieve fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters.

We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Emphasis of Matter

8. Without qualifying our opinion, we draw attention to Note No.18 of Schedule 18 Notes on Accounts regarding MSME borrowers, Note No.4 of Schedule 18 Notes to Accounts regarding provisioning on NPA as well as Standard Assets, Note No. 19 of Schedule 18 Notes on Accounts regarding provisioning of ILFS group accounts and Note No.10.11 of Schedule 18 Notes on Accounts regarding recognition of Deferred Tax Assets.

other Matter

9. We did not audit the financial statements of 1283 branches included in the standalone financial statements of the Bank whose financial statements reflect total assets of Rs.1,28,438.71 crores as at 31st March 2019 and total revenue of Rs.6,589.28 crores for the year ended on that date, as considered in the standalone financial statements have been audited by the statutory branch auditors whose reports have been furnished to us, and our opinion in so far it relates to the amounts and disclosures included in respect of branhes, is based solely on the report of such statutory branch auditors. Further we did not audit the financial statements of 573 branches inculded in the standalone financial statement if the Bank whose financial statements reflect total assets of Rs.31,000.83 crores as at 31st March, 2019 and total revenue of Rs.1,776.73 cores for the year ended on that date, as considered in the Standalone financial statements have been drawn by the management.

Our opinion is not modified in respect of this matter.

Report on other Legal and Regulatory Requirements

10. The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with Section 29 of the Banking Regulation Act, 1949;

11. Subject to the limitations of the audit indicated in paragraphs 6, 7 and 9 above and as required by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, and subject also to the limitations of disclosure required therein, we report that:

a) We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit and have found them to be satisfactory;

b) The transactions of the Bank, which have come to our notice, have been within the powers of the Bank; and

c) The returns received from the offices and branches of the Bank have been found adequate for the purposes of our audit.

12. We further report that:

a) in our opinion, proper books of account as required by law have been kept by the Bank so far as it appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from branches not visited by us.

b) the Balance Sheet, the Profit and Loss Account and the Statement of Cash Flows dealt with by this report are in agreement with the books of accounts.

c) the reports on the accounts of the branch offices audited by branch auditors of the Bank under section 29 of the Banking Regulation Act, 1949 have been sent to us and have been properly dealt with by us in preparing this report; and

d) in our opinion, the Balance Sheet, the Profit and Loss Account and the Statement of Cash Flows comply with the applicable accounting standards issued by Institute of Chartered Accountants of India, to the extent they are not inconsistent with the accounting policies prescribed by RBI.

for p parikh & Associates for M D Gujrati & Co For p G Bhagwat For K Gopal rao & Co.

FRN: 107564W FRN: 005301N FRN: 101118W FRN: 000956S

Chartered Accountants Chartered Accountants Chartered Accountants Chartered Accountants

CA Jitesh Jain CA Manohar das Gujrati CA Nachiket deo CA K Gopal rao

Parther Parther Parther Parther

Membership No: 114920 Membership No. 081552 Membership No. 117695 Membership No. 018230

Place : Pune

Date : 29th April, 2019

Source : Dion Global Solutions Limited
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