1. We have jointly audited the accompanying Standalone
Financial Statements of The Karnataka Bank Limited
("the Bank") which comprise the Balance Sheet as at March
31, 2026, the Statement of Profit and Loss Account and
the 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 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 and the circulars and guidelines
issued by the Reserve Bank of India (the "RBI") from time to
time, as applicable (the "RBI Guidelines") and the Companies
Act, 2013, as amended ("the Act") in the manner so required
for banking companies and give a true and fair view in
conformity with the Accounting Standards prescribed under
section 133 of the Act read with Companies (Accounting
Standards) Rules, 2021, as amended and other accounting
principles generally accepted in India, of the state of affairs of
the Bank as at March 31,2026 and its profit and its cash flows
for the year ended on that date.
Basis for Opinion
2. We conducted our audit in accordance with the Standards
on Auditing ("SAs") specified under section 143(10) of
the Act. Our responsibilities under those Standards
are further described in the '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
ethical requirements that are relevant to our audit of the
Standalone Financial Statements, prepared in accordance
with the accounting principles generally accepted in
India, including the Accounting Standards prescribed
under section 133 of the Act read with the Companies
(Accounting Standards) Rules, 2021, as amended and
provisions of Section 29 of the Banking Regulation Act,
1949 and circulars and guidelines issued by the RBI
from time to time 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.
Key Audit Matters
3. 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 year ended March
31, 2026. 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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Key Audit Matter
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Auditors' Response
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a) Classification of Advances, Income Recognition,
Identification of and Provisioning for Non-Performing
Advances (Refer Schedule 9 read with Note 3 of Schedule
17 to the financial statements)
Advances, which comprise 63.24% of the Bank's total
assets, include bills purchased and discounted, cash
credits, overdrafts, demand loans, and term loans.
These are categorized as secured (by tangible assets or
guarantees) or unsecured, and are governed by the RBI's
Income Recognition, Asset Classification and Provisioning
(IRAC) norms and related circulars.
The Bank uses its Core Banking Solution (CBS) to record and
monitor all transactions related to advances and to identify
performing and non-performing advances. NPA classification
and provisioning are carried out through IT systems and
related internal processes in line with RBI guidelines.
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Our audit procedures in relation to advances focused on
compliance with the RBI's Prudential Norms on Income
Recognition, Asset Classification and Provisioning (IRAC), and the
Bank's internal policies. The key elements of our audit approach
included:
• Control Evaluation and Process Understanding
We assessed the design, implementation, and operating
effectiveness of key internal controls over loan approval,
recording, and monitoring to ensure data completeness,
accuracy, and relevance in line with RBI guidelines.
• Substantive Testing and Sample-Based Evaluation
On a test-check basis, we examined exposures for proper
identification of NPAs, calculation of provisions, and valuation
of primary and collateral securities—acknowledging the level
of management estimation involved.
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Key Audit Matter
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Auditors' Response
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Given the complexity of the regulatory framework, the
volume and nature of advances, and the level of judgment
involved in provisioning and valuation of securities,
any deviation from IRAC norms could result in material
misstatement. Accordingly, this has been identified as a Key
Audit Matter.
Our audit focused on evaluating the Bank's compliance with
income recognition, asset classification, and provisioning
norms for advances, considering their material significance
to the financial statements.
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• Monitoring Mechanisms and Internal Audits
We assessed the existence and effectiveness of internal
monitoring systems, such as Internal Audit, Systems Audit,
and Concurrent Audit, as per the Bank's policy framework.
• Document and Governance Review Sample testing was
performed to verify documentation completeness, adherence
to the Bank's loan approval processes and board decisions,
credit reviews, and classification of Special Mention Accounts.
We also reviewed RBI's Centralised Information Management
System (CIMS) reports and related documentation to evaluate
management judgement and governance over stressed
exposures. Discussions were held with management on high-
risk accounts and steps taken for risk mitigation.
• Income Recognition and Provisioning We assessed
the Bank's process for identifying NPAs, reversing accrued
income, and creating required provisions in accordance with
regulatory norms.
• System Interface Testing We tested the mapping between
advances recorded in the Bank's application software and the
financial statement preparation system to ensure accurate
presentation and disclosure as per RBI requirements.
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b) Direct and Indirect Taxes
This matter has been identified as a Key Audit Matter due
to the significant level of management judgment required
in the estimation of provision for taxes including any write
back of provisions, factors like uncertain tax positions and
provision for tax involves interpretation of various rules and
law. It also involves consideration of on-going disputes and
disclosures.
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Our audit procedures to test uncertain tax positions included
understanding processes, evaluation of adequacy of design and
implementation of controls and testing of operating effectiveness
of controls over provision for taxation, assessment of uncertain
tax positions and disclosure of contingencies.
We have obtained details of completed tax assessments and
demands made by authorities from the management of the Bank.
We discussed with appropriate senior management personnel,
independently assessed management's estimate of the possible
outcome of disputed cases and evaluated the management's
underlying key assumptions in estimating the tax provisions.
We considered legal precedence and other rulings in evaluating
management's position on these uncertain tax positions, the
provisions made, and/or write back of the provisions.
We have also relied upon the opinion given by tax consultant
in evaluating management's assessment for the uncertain tax
positions. For those matters where management concluded
that no provision should be recorded, we also considered the
adequacy and completeness of disclosures.
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c) Investments
Classification and Valuation of Investments;
Identification of and Provisioning for Non-Performing
Investments
(Schedule 8 read with Note 2 of Schedule 17 to the financial
statements)
The Bank's investment portfolio includes holdings in
Government securities, bonds, debentures, shares, security
receipts, and other approved securities. Investments
represent approximately 20.67% of the Bank's total assets
and are subject to regulatory requirements issued by the
RBI. These guidelines govern the classification and valuation
of investments, identification of non-performing investments
(NPIs), recognition of related income, and provisioning norms.
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Our audit procedures for investments were designed with
specific reference to the RBI guidelines. They included a review of
internal controls and substantive testing related to the valuation,
classification, identification of non-performing investments (NPIs),
and provisioning/depreciation. Specifically:
a) We reviewed and evaluated the Bank's internal control
systems for compliance with RBI guidelines on valuation,
classification, identification of NPIs, and related provisioning/
depreciation.
b) We assessed the process used by the Bank to gather
information from various sources to determine the fair value
of investments.
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Key Audit Matter
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Auditors' Response
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Valuation of each category of investment must adhere to
the methods prescribed by the RBI, which require sourcing
data from multiple inputs, such as FIMMDA rates, market
quotations (BSE/NSE), and financials of unlisted entities.
The process involves significant judgment, particularly in
the assessment of fair value, classification, and impairment.
Given the complexity, volume of transactions, reliance on
external and internal data, and the high degree of regulatory
scrutiny, this area has been identified as a Key Audit Matter.
Accordingly, our audit focused on evaluating the Bank's
processes and controls over classification and valuation
of investments, identification of NPIs, and the adequacy of
related provisioning.
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c) For a representative sample covering all investment categories
(based on the nature of the security), we tested the accuracy
of valuation and compliance with applicable RBI Master
Circulars and directions by independently re-performing the
valuation.
d) We evaluated the Bank's process for identifying NPIs, including
how income reversal and provisioning were handled for such
investments.
e) We performed substantive procedures to independently
recalculate required provisions and depreciation in line with
RBI directives. Samples across all investment categories were
tested, and for identified NPIs, we recomputed the necessary
provisioning as per RBI guidelines.
f) We verified the consistency between the investment
application software and the financial statement preparation
software to ensure correct mapping, presentation, and
disclosure in accordance with the relevant RBI requirements.
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Information Other than the Standalone Financial
Statements and Auditors' Report thereon
4. The Bank's Board of Directors and Management are
responsible for the other information. The other
information comprises the Directors' Report including
annexures to Directors' Report, Management Discussion
and Analysis, Basel III - Pillar 3 disclosures and Corporate
Governance report included in the Annual Report, but
does not include the Standalone Financial Statements
and our auditors' report thereon. The other information 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 or 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 & take appropriate action as applicable under
the relevant laws and regulations.
Responsibilities of Management and Those
Charged with Governance for the Standalone
Financial Statements
5. 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 specified under section 133 of the Act read
with the Companies (Accounting Standards) Rules, 2021,
as amended and provisions of Section 29 of the Banking
Regulation Act, 1949, and circulars and guidelines issued
by RBI from time to time. This responsibility also includes
maintenance of adequate accounting records in accordance
with the provisions of the above mentioned Acts & 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 and Board of Directors 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
Management and Board of Directors of the Bank either
intends to liquidate the Bank or to cease operations, or
has no realistic alternative but to do so.
The Board of Directors and Management are also
responsible for overseeing the Bank financial
reporting process.
Auditors' Responsibilities for the audit of the
Standalone Financial Statements
6. Our objectives are to obtain reasonable assurance about
whether the Standalone Financial Statements as a whole
are free from material misstatement, whether due to fraud
or error, and to issue an Auditor's Report that includes
our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted
in accordance with SAs will always detect a material
misstatement when it exists. Misstatements can arise from
fraud or error and are considered material, if individually
or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the
basis of these Standalone Financial Statements.
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 system with
reference to Standalone Financial Statements in place
and the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by management.
• Conclude on the appropriateness of management's
use of the going concern basis of accounting and,
based on the audit evidence obtained, whether
a material uncertainty exists related to events or
conditions that may cast significant doubt on the
Bank's ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are
required to draw attention in our auditor's report to
the related disclosures in the Standalone Financial
Statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based
on the audit evidence obtained up to the date of
our auditor's report. However, future events or
conditions may cause the bank to cease to continue
as a going concern.
• Evaluate the overall presentation, structure and
content of the Standalone Financial Statements,
including the disclosures and whether the Standalone
Financial Statements represent the underlying
transactions and events in a manner that achieves
fair presentation.
Materiality is the magnitude of the misstatements in the
Standalone Financial Statements that, individually or in
aggregate, makes it probable that the economic decisions
of a reasonably knowledgeable user of the Standalone
Financial Statements may be influenced. We consider
quantitative materiality and qualitative factors in (i) planning
the scope of our audit work and evaluating the results of
our work; and (ii) to evaluate the effect of any identified
misstatements in the Standalone Financial Statements.
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 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.
Report on Other Legal and Regulatory
Requirements
7. The Balance Sheet and the Profit and Loss Account have
been drawn up in accordance with Section 29 of the
Banking Regulation Act, 1949; and Accounting Standards
as per Section 133 of the Act read with the Companies
(Accounting Standards) Rules, 2021, as amended.
8. As required by sub-section (3) of section 30 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 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 financial accounting systems of the Bank are
centralized and therefore, accounting returns for
the purpose of preparing financial statements
are not required to be submitted by its branches.
However, during the course of our audit, we have
visited 101 branches and offices for the purpose of
understanding the processes, perform necessary
walkthroughs and test of controls and examine the
records maintained at such branches and offices.
d) The profit and loss account shows a true balance of
profit for the year then ended.
9. Further, as required by Section 143(3) of the Act, based on
our audit, we further report to the extent applicable 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.
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 Balance Sheet, the Statement of Profit and
Loss Account and the Statement of Cash Flows
dealt with in this report are in agreement with the
books of account.
d) In our opinion, the aforesaid Standalone Financial
Statements comply with the Accounting Standards
specified under section 133 of the Act read with the
Companies (Accounting Standards) Rules, 2021 to
the extent they are not inconsistent with the policies
prescribed by the RBI.
e) On the basis of the written representations received
from directors as on March 31,2026 and taken on record
by the Board of Directors, none of the directors are
disqualified as at March 31, 2026 from being appointed
as a director in terms of section 164(2) of the Act.
f) With respect to the adequacy of internal financial
controls over financial reporting with reference to the
Standalone 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 matters to be included in the
auditor's report in accordance with the requirements
of section 197(16) of the Companies Act, 2013, we
report that since the Bank is a banking company,
as defined under the Banking Regulation Act, 1949;
the reporting under section 197(16) in relation to
whether the remuneration paid by the Bank is in
accordance with the provisions of section 197 of
the Act and whether any excess remuneration has
been paid in accordance with the aforesaid section,
is not applicable.
h) With respect to the other matters to be included
in the Auditors 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 and according to the
information and explanation given to us:
i. The Bank has disclosed the impact of
pending litigations on its financial position in
Note 17 of Schedule 18 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.
iii. There has been no delay in transferring
amounts, required to be transferred, to the
Investor Education and Protection Fund during
the year ended March 31,2026 by the Bank.
iv. a. The management has represented that, to
the best of its knowledge and belief other
than, as disclosed in Note 22 (a) of Schedule
18 to the Standalone Financial Statements,
no funds have been advanced or loaned
or invested (either from borrowed funds
or share premium or any other sources
or kind of funds) by the Bank to or in any
other person(s) or entity(ies), including
foreign entities ("Intermediaries"), with
the understanding, whether recorded in
writing or otherwise, that the Intermediary
shall, whether, directly or indirectly lend or
invest in other persons or entities identified
in any manner whatsoever by or on behalf
of the Bank ("Ultimate Beneficiaries") or
provide any guarantee, security or the like
on behalf of the Ultimate Beneficiaries;
b. The management has represented that, to
the best of its knowledge and belief other
than, as disclosed in Note 22 (b) of Schedule
18 to the Standalone Financial Statements,
no funds have been received by the Bank
from any person(s) or entity(ies), including
foreign entities ("Funding Parties"), with
the understanding, whether recorded
in writing or otherwise, that the Bank
shall, whether, directly or indirectly, lend
or invest in other persons or entities
identified in any manner whatsoever by or
on behalf of the Funding Party ("Ultimate
Beneficiaries") or provide any guarantee,
security or the like on behalf of the Ultimate
Beneficiaries; and
c. Based on such audit procedures that were
considered reasonable and appropriate
by us in the circumstances, nothing has
come to our notice that has caused
us to believe that the representations
under sub-clause (a) and (b) contain any
material misstatement.
v. a. The final dividend declared or paid during
the year by the Bank is in compliance with
Section 123 of the Companies Act, 2013.
b. As stated in the Note 20 of Schedule 18
to the Standalone Financial Statements,
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 dividend proposed is in accordance
with section 123 of the Act, to the extent
it applies to declaration of dividend, as
applicable until the date of this report.
vi. The Bank has used such accounting software
for maintaining its books of account which has
a feature of recording audit trail (edit log) facility
and the same has been operated throughout
the year for all transactions recorded in the
software and the audit trail feature has not
been tampered with and the audit trail has
been preserved by the bank as per the statutory
requirements for record retention.
For Ravi Rajan & Co. LLP. R.G.N. Price & Co.
Chartered Accountants Chartered Accountants
Firm Regn. No.009073N/N500320 Firm Regn. No.002785S
CA Sumit Kumar CA Sriraam Alevoor M
Partner Partner
Membership. No.512555 Membership. No: 221354
Date: 19th May, 2026 Date: 19th May, 2026
Place: Mangaluru Place: Mangaluru
UDIN: 26512555TIPZJB7375 UDIN: 26221354UWIFZY2134
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