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Indian Overseas Bank

BSE: 532388 | NSE: IOB |

Represents Equity.Intra - day transactions are permissible and normal trading is done in this category
Series: EQ | ISIN: INE565A01014 | SECTOR: Banks - Public Sector

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Annual Report

For Year :
2019 2017 2016 2015 2014 2013 2012 2011 2010

Auditor's Report

Report on the Audit of the Standalone Financial Statements Opinion

1. We have audited the standalone financial statements of Indian Overseas Bank (“the Bank”), which comprise the Balance Sheet as at 31st March 2019, the Statement of Profit and Loss and the Statement of Cash Flows for the year then ended, and notes to 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 audited by us and 1614 branches (including 4 overseas branches and 15 Regional Offices) audited by statutory branch auditors and one Overseas branch reviewed by Independent Auditor. 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 1709 branches (Including 33 Regional Offices and 7 Zonal Offices) which have not been subjected to audit. These unaudited branches account for 11.64% of advances, 26.06% of deposits, 8.23% of interest income and 24.65% of interest expenses.

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”) in the manner so required for bank and are in conformity with accounting principles generally accepted in India and:

(i) the Balance Sheet, read with the notes thereon is a full and fair Balance Sheet containing all the necessary particulars, is properly drawn up so as to exhibit a true and fair view of state of affairs of the Bank as at 31st March, 2019;

(ii) the Profit and Loss Account, read with the notes thereon shows a true balance of loss for the year ended on that date; and

(iii) the Cash Flow Statement gives a true and fair view of the 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) issued by the Institute of Chartered Accountants of India (ICAI). Our responsibilities under those Standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the code of ethics issued by the Institute of Chartered Accountants of India together with ethical requirements that are relevant to our audit of the 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.

Emphasis of Matter

4. We draw attention to:

a) Note No. 7.3 of Schedule 18 relating to recognition of Deferred Tax Asset for the year aggregating to Rs.2236.80 Crore.

b) Note No 27 of Schedule 18 relating to MSME restructuring. Bank has restructured 8403 MSME accounts and treated them as standard assets amounting to Rs.373.88 crore as per RBI Circular 2018-19 DBR No BPBC. 18/21.04.048/201819 dated January 1 2019. Further in accordance with the RBI Circular DBR.No.BPBC.108/21.04.048/2017-18 dated 6th June 2018, bank has retained advances of Rs.424.28 crore as Standard asset as on 31st March 2019.

Our Opinion is not modified in respect of the above matters.

Key Audit Matters:

5. Key audit matters are those matters that, in our professional judgement, 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. We have determined the matters described below to be the Key Audit Matters to be communicated in our Report.

Sr. No

Key Audit Matter

Auditor’s Response

1

Income Recognition, Asset Classification & Provisioning relating to Advances

Advances constitute 53.04% of the Bank’s total assets.

The recognition of income on accrual basis in respect of advances extended by the Bank, Classification of advances into Performing and Non performing and provisioning thereof are in accordance with the extant prudential norms on Income Recognition and Asset Classification and provisioning (IRAC) norms and other circulars and directives issued by Reserve bank of India from time to time (Refer Schedule 17, read with Note 3 of Schedule 18 to the financial statements).

Taking into consideration the nature of transactions, compliance with the Reserve Bank of India guidelines, issues involved in the valuation of securities etc., in our opinion classification of Advances into performing and non performing, recognition of income in respect of such advances and also provisioning relating to Performing/Non-Performing advances are considered to be one of the most significant matter in the audit and therefore determined to be a Key audit matter.

Principal Audit Procedures

Our audit approach consisted testing of the design and operating

effectiveness of the internal controls and substantive testing as under :-

- Evaluating the design of internal controls relating to implementation of prudential norms on IRAC and other related circulars/directives issued by RBI and also the internal policies and procedures of the Bank.

- Examining the efficacy of various internal controls over advances to determine the nature, timing and extent of the substantive procedures and compliance with the observations of the various audits conducted as per the monitoring mechanism of the Bank and RBI inspection.

- Examining all large advances/stressed advances and other advances on a sample basis including review of valuation reports of independent valuers as provided by the Bank’s management.

- Relying on the audit reports of other Statutory Branch Auditors

- Reviewing Memorandum of Changes suggested by the Branch Auditors and take appropriate action.

- Review of various audit and inspection reports made available to us in the relevant areas.

- Placing reliance on the opinions of domain experts on legal matters, titles, valuation and other aspects of securities charged to the bank.

- Review of files of the borrowers selected on sample basis and operations of such accounts.

- Performing relevant analytical procedures.

- Test checking of interest application, levying of other charges, commission etc.,

2

Contingent Liability

The contingent liability as defined in AS 29 - provisions, contingent liability and contingent assets requires assessment of probable outcomes and cash flows. The identification and quantification of contingent liabilities require estimation and judgment by management.

(Refer Schedule 17, read with Note 18.12 of Schedule 18 to the financial statements)

In view of associated uncertainty relating to the outcome of the matters relating to litigations involving Direct and Indirect taxes, various claims filed by other parties not acknowledged as debts, we have determined the above area as a Key audit matter

Principal Audit Procedures

We have carried out the validation of information provided by the management by performing the following procedures

- Evaluating reasonableness of the underlying assumptions.

- Understanding the current status of the litigations/tax assessments.

- Examination of recent orders and /or communication received from various tax authorities/judicial forums and follow up action thereon.

- Examining the relevant documents on record.

- Relying on relevant external evidence available including legal opinion , relevant judicial precedents and industry practices.

- Getting management confirmation where-ever necessary.

3

IT Systems & Control

The entire Preparation of financial statements is highly dependent on CBS and other supporting software and hardware controls. Adequate and appropriate IT controls are required to ensure that these IT application process data as expected and changes are made in an appropriate manner. Such controls ensure mitigating the expected risk of erroneous output data. Audit outcome is dependent on the extant IT controls and systems, and accordingly the above areas are determined to be a Key audit matter.

Principal Audit Procedures

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

We have also relied on the report issued by the IS Auditor and obtained necessary inputs from IS experts wherever necessary.

4

Classification and valuation of Investments,

Principal Audit Procedures

identification of and provisioning for non performing

We evaluated and understood the Bank’s internal control systems to

investments.

comply with relevant RBI guidelines regarding valuation, classification,

(Refer Schedule 17, read with Note 2 of Schedule 18 to

identification of Non Performing Investments, provisioning and

the financial statements)

depreciation related to investments.

Investments constitute 26.77% of the total assets

Evaluating the process adopted for collection of data from various sources

of the bank.

for determining the value of investments.

Valuation of Investments are done as per the guidelines,

Assessing and evaluating the system of identification of Non performing

circulars and directives issued by RBI from time to time

investments, income recognition on such investments and also ensuring

involving applying the rates quoted on BSE/NSE and

creation of necessary provision in respect of Non performing investments.

other agencies, relying on the financial statements of

unlisted companies etc. Taking into consideration the

volume of transactions, value of investments being

carried in the books of the bank, complexities involved

in the valuation of investments we have considered the

above area as a Key audit matter.

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 ICAI, 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 judgements 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, 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.

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 judgement and maintain professional scepticism 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 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 financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter, or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Other Matter

8. We did not audit the financial statements / information of 1614 (number) branches included in the standalone financial statements of the Bank whose financial statements / financial information reflect total assets of Rs.1,05,678 crore as at 31st March 2019 and total revenue of Rs. 8,485 crore for the year ended on that date, as considered in the standalone financial statements. The financial statements / information of these branches have been audited by the branch auditors whose reports have been furnished to us, and in our opinion in so far as it relates to the amounts and disclosures included in respect of branches, are based solely on the report of such branch auditors.

Our opinion is not modified in respect of this matter.

Report on Other Legal and Regulatory Requirements

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

10. Subject to the limitations of the audit indicated in paragraph 6 to 8 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.

11. We further report that:

a) In our opinion, proper books of account as required by law have been kept by the Bank so far 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 account and with the returns received from the branches not visited by us

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, Profit and Loss Account and the Statement of Cash Flows comply with the applicable accounting standards, to the extent they are not inconsistent with the accounting policies prescribed by RBI.

For R SUBRAMANIAN AND COMPANY LLP For S A R C & ASSOCIATES

Chartered Accountants Chartered Accountants

FRN 004137S/S200041 FRN 006085N

R SUBRAMANIAN CHETAN THAKKAR

Partner Partner

M.No.08460 M.No. 114196

For PATRO & CO For M. SRINIVASAN & ASSOCIATES

Chartered Accountants Chartered Accountants

FRN 310100E FRN 004050S

N ANANDA RAO M. SRINIVASAN

Partner Partner

M.No.051656 M.No.022959

Place: Chennai

Date: 09.05.2019