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IndusInd Bank Ltd.

BSE: 532187 | NSE: INDUSINDBK |

Represents Equity.Intra - day transactions are permissible and normal trading is done in this category
Series: EQ | ISIN: INE095A01012 | SECTOR: Banks - Private Sector

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Annual Report

For Year :
2022 2021 2019 2018 2017 2016 2015 2014 2013

Auditor's Report

Report on the Audit of the Standalone Financial Statements Opinion

We have audited the accompanying standalone financial statements of IndusInd Bank Limited (the Bank), which comprise the Balance Sheet as at March 31,2022, 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 Banking Regulation Act, 1949 as well as the Companies Act, 2013 (the Act) in the manner so required for banking companies and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Bank as at March 31,2022, 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 ''Auditors'' 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.

Emphasis of Matter

We draw attention to Note 4.11 of Schedule 18 to the standalone financial statements which explains that the extent to which COVID-19 pandemic will impact the Bank''s operations and standalone financial statements is dependent on future developments, which are highly uncertain.

Our opinion is not modified in respect of this matter.

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 of the Year ended March 31, 2022. 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.

Key Audit Matters

How our audit addressed the key audit matter

Information Technology (IT) Controls Framework impacting financial controls

The Bank has a complex IT architecture to support its day - to - day business operations. The volume of transactions processed and recorded is huge. Moreover, a transaction may be required to be recorded across multiple applications depending upon the process and each application has different rules and a different set of user access and authority matrix. These applications are interlinked using different technologies so that data transfer happens in real time or at a particular time of the day; in batches or at a transaction level and in an automated manner or manually. The Core Banking Solution (CBS) itself has many interfaces. All these data streams directly affect the financial accounting and reporting process of the Bank.

IT audit specialists are an integral part of our engagement team. Our approach of testing IT General Controls (ITGC) and IT Application Controls (ITAC) is risk based and business centric.

As part of our IT controls testing, we have tested ITGC as well as ITAC. The focus of testing of ITGCs was based on the various parameters such as Completeness, Validity, Identification/ Authentication Authorization, Integrity and Accountability. On the other hand, focus of testing automated controls from applications was whether the controls prevent or detect unauthorized transactions and support financial objectives including completeness, accuracy, authorization and validity of transactions.

Key Audit Matters

How our audit addressed the key audit matter

The Bank has a process for identifying the applications where the controls are embedded. It also has a process to ensure that systems, processes and controls remain relevant. The Bank''s IT control framework includes automated, semi-automated and manual controls designed to address identified risks. IT controls are stated in Entity Level Controls (ELC), IT General Controls (ITGC) and IT Application Controls (ITAC).

We have identified IT Controls Framework as a Key Audit Matter as the Bank''s business is highly dependent on technology, the IT environment is complex and the design and operating effectiveness of IT controls have a direct impact on its financial reporting process. Review of these controls allows us to provide assurance on the integrity and completeness of data processed through various IT applications which are used for the preparation of financial reports.

We gathered an understanding of IT applications landscape implemented at the Bank. It was followed by process understanding, mapping of applications to the same and understanding financial risks posed by people-process and technology.

In ITGC testing, on sample basis, we reviewed control areas such as User Management, Change Management, Systems Security, cyber security, interface testing, deployment of new applications, Incident Management, Physical & Environmental Security, Backup and Restoration, Business Continuity and Disaster Recovery, Service Level Agreement.

For ITAC, we carried out on sample basis, compliance tests of system functionality in order to assess the accuracy of system calculations. We also carried out procedures such as validations and limit checks on data entered into applications, approvals, process dependencies and restriction on time period in which transactions may be recorded.

We tested the control environment using various techniques such as inquiry, walkthroughs in live environment, review of documentation/record/reports, observation and reperformance. We also tested few controls using negative testing technique. We had taken adequate samples of instances for our tests considering the audit universe.

Wherever deviations were noted either the same were explained to our satisfaction or we tested compensating controls and performed alternate procedures, where necessary, to draw comfort.

Classification. Provisioning and Write off of Advances

(Refer Schedule 5, Schedule 9, note 6 of Schedule 17 and note 4.1, 4.7 of Schedule 18 to the standalone financial

statements)

The Bank''s portfolio of loans and advances to borrowers (net of provisions) amounts to '' 2,39,052 crores as at March 31,2022.

As required under prudential norms on Income Recognition, Asset Classification and provisioning pertaining to advances (IRAC norms) issued by the Reserve Bank of India (RBI), Resolution framework for Covid-19 related Stress (the Resolution Framework) issued by the RBI on August 06, 2020 and May 05, 2021 and relevant other circulars, notifications and directives issued by the RBI which were collectively considered by the Bank till March 31, 2022 classifies advances into performing and non-performing advances (NPA) which consists of Standard, Sub-standard, Doubtful and Loss and makes appropriate provisions.

We gained understanding of the processes by carrying out walkthroughs and tested the key controls over borrower risk grading for advances (including larger customer exposures that are monitored individually) for classification of such loans as performing or non-performing. Our audit procedures included, but were not limited to the following:

• Tested on sample basis, the approval of new lending facilities, the annual review/renewal assessments for existing facilities against the Bank''s credit policies, and controls over the monitoring of credit quality;

Key Audit Matters

How our audit addressed the key audit matter

The Bank, as per its governing framework, made the performing and non-performing advances provisions based on Management''s assessment of the degree of impairment of the advances subject to and guided by minimum provisioning levels prescribed under relevant RBI guidelines.

The Classification, Provisioning and Write off of Advances is a Key Audit Matter as the Bank has significant credit risk exposure to a large number of borrowers across various sectors, products, industries and geographies and there is a high degree of complexity, uncertainty and judgment involved in recoverability of advances, nature of transactions and estimation of provisions thereon and identification of accounts to be written off.

The same resulted in significant audit efforts to address the risks around loan recoverability and the determination of related provisions.

Implementation of the RBI circulars also required the Bank to implement changes in its base Information Technology applications.

• Evaluated the design of internal controls relating to borrower wise classification of loan in the respective asset classes viz., standard, sub-standard, doubtful and loss with reference to their days-past-due (DPD) status (including consideration of non-financial parameters of NPA, restructuring guidelines and Resolution framework) and provisioning of advances. Tested the operating effectiveness of these internal controls;

• Tested loans on sample basis to form our own assessment as to whether impact of impairment events have been recognised in a timely manner by the Bank;

• Made inquiries of management regarding any effects considered on the NPA identification and / or provisioning, resulting from observations raised by the RBI during their annual inspection of the Bank''s operations;

• For the selected non-performing advances, we assessed Management''s forecast and inputs of recoverable cash flows, impact of auditor''s comments on the financial statements, valuation of underlying security and collaterals, estimation of recoverable amounts on default and other sources of repayment;

• Obtained the Board approved note for advances written off during the year;

• Held specific discussions with the Credit and Risk departments to ascertain how various Early Warning Signal (EWS) and potential defaults have been identified and assessed in identification of NPA;

• Performed credit assessments of a sample of corporate and retail loans including larger exposures assessed by Bank showing signs of deterioration, or in areas of emerging risk (assessed against external market conditions). We have reviewed the Bank''s risk grading of the loan, their account statement review and assessment of loan recoverability and the impact on the credit provision. To do this, we used the information on the Borrowers loan file, discussed the case with the concerned officials and senior management, and performed our own assessment of recoverability; and

• Reviewed Bank''s policy including Standard Operating Procedures with respect to implementation of Resolution framework (''guidelines'') and tested sample to ascertain the implementation of those guidelines by the Bank.

Key Audit Matters

How our audit addressed the key audit matter

Provisions for advances:

• Tested the Bank''s processes for making provision on advances for compliance with RBI regulations and internally laid down policies for provisioning;

• We had taken the walkthrough of the NPA automation process deployed through CRISMAC in the current financial year and tested the core functionality for selected sample considering the audit universe. Tested the completeness and accuracy of data transferred from underlying source systems used for computing collective provision;

• Considered board approved policy and internal laid down policy for higher provision for advances covered under Resolution Framework, stressed sectors, adopted by the Bank;

• Validated the parameters used to calculate collective provisions with reference to IRAC norms;

• Tested provision created for fraud accounts as at March 31,2022 as per the RBI circular;

• Re-performed, for a sample of retail and corporate portfolios, the calculation of provisions, to determine the accuracy of the same (Collective for standard portfolio and case specific for non performing portfolio);

• With respect to holding provision as at March 31,2022 against the potential impact of Covid-19 pandemic, we broadly reviewed the underlying assumptions and estimates used by the management for the same but as the extent of impact is dependent on future developments which are highly uncertain, we primarily relied on those assumptions and estimates. These assumptions and estimates are a subject matter of periodic review by the Bank;

• We perused the submissions to the Board of Directors for the NPA Provisioning made as at March 31,2022;

• With respect to the Resolution Framework, we have ensured that the Bank''s Board approved policy was in accordance with RBI circulars. On a test check basis, we ensured that restructuring was approved and implemented, and provision made on such restructured accounts are in accordance with the Bank''s board approved policy and the resolution framework; and

• Assessed the adequacy of disclosures against the RBI Guidelines.

Other Information

The Bank''s Board of Directors is responsible for the other information. The other information comprises the information included in the Directors'' Report and Management Discussion and Analysis forming part of the Annual Report, but does not include the standalone financial statements, consolidated financial statements and our auditors'' report thereon. The other information is expected to be made available to us after the date of this auditors'' 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 other information, 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 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 prescribed under Section 133 of the Act, read with the relevant rules issued thereunder, provision of Section 29 of the Banking Regulation Act, 1949 and the circulars, guidelines and directions issued by RBI from time to time (RBI Guidelines). This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act, Banking Regulations Act, 1949 and the RBI Guidelines 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, 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.

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 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.

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 auditors'' 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

One of the current Joint Statutory Auditors has carried out audit of the standalone financial statements of the Bank for the year ended March 31,2021 and issued an unmodified opinion vide its report dated April 30, 2021.

Our opinion is not modified in respect of this matter.

Report on Other Legal and Regulatory Requirements

(1) The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with the provisions of section 29 of the Banking Regulation Act, 1949 and section 133 of the Act read with the relevant rules issued thereunder.

(2) As required under section 143(3) of the Act and section 30(3) of the Banking Regulation Act, 1949, 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 purpose of our audit and have found them to be satisfactory;

b. In our opinion, the transactions of the Bank, which have come to our notice, have been within the powers of the Bank;

c. 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;

d. The financial accounting systems of the Bank are centralized and therefore, accounting returns for the purpose of preparing standalone financial statements are not required to be submitted by the branches; we have visited 40 branches for the purpose of our audit;

e. 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;

f. 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 accounting policies prescribed by RBI;

g. On the basis of the written representations received from the directors as on March 31,2022, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31,2022 from being appointed as a director in terms of section 164(2) of the Act;

h. 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;

i. With respect to the other matters 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.

j. 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 knowledge and

belief, information and according to the explanations given to us:

(i) The Bank has disclosed the impact of pending litigations as at March 31,2022 on its financial position in its standalone financial statements - Refer Schedule 12 and Schedule 18 - Note 15.3 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 long-term contracts including derivative contracts - Refer Schedule 18 - Note 3 and 15.4 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 - Refer Schedule 18 - Note 15.5 to the standalone financial statements;

(iv) (a) The Management has represented that, to the best of its knowledge and belief, other than as

disclosed in the notes to the accounts under Note No. 15.15 (1) of Schedule 18, 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;

(iv) (b) The Management has represented that, to the best of its knowledge and belief, other than as disclosed in the notes to the accounts under Note No. 15.15 (2) of Schedule 18 , 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;

(iv) (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 subclause (i) and (ii) of Rule 11(e), as provided under (a) and (b) above, contain any material misstatement.

(v) As stated in Note 15.12 to the standalone financial statements:

a) The final dividend proposed in the previous year, declared and paid by the Bank during the year is in compliance with section 123 of the Act, as applicable.

b) The Board of Directors of the Bank have proposed final dividend for the year which is subject to the approval of the members at the ensuing Annual General meeting. The amount of dividend proposed is in compliance with Section 123 of the Act, as applicable.

For Haribhakti & Co. LLP For M.P. Chitale & Co.

Chartered Accountants Chartered Accountants

ICAI Firm Registration No.103523W/W100048 ICAI Firm Registration No.101851W

Purushottam Nyati Anagha Thatte

Partner Partner

Membership No. 118970 Membership No. 105525

UDIN: 22118970AICHCI1020 UDIN: 22105525AIJVQE4335

Place: Mumbai Place: Mumbai

Date: April 29, 2022 Date: April 29, 2022