1. We have audited the accompanying financial statements
of The Karur Vysya Bank Limited ( the Bank ), which
comprise the Balance Sheet as at 31 March 2025, the
Profit and Loss Account 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 the
returns for the year ended on that date, of:
i) 22 branches including Treasury Branch audited by us
and
ii) 971 branches including processing centres audited
by statutory branch auditors located across India.
2. In our opinion and to the best of our information and
according to the explanations given to us, and based on
the consideration of the reports of the statutory branch
auditors as referred to in paragraph 6 below, the aforesaid
financial statements, read with notes thereon, give the
information required by the Banking Regulation Act, 1949
as well as the Companies Act, 2013 (‘the Act'), as amended
in the manner so required for banking companies and
circulars and guidelines issued by the Reserve Bank of India
(‘RBI'), in the manner so required for banking companies
and give a true and fair view and are in conformity with the
accounting principles generally accepted in India including
the Accounting Standards prescribed under section 133
of the Act read with Companies (Accounting Standards)
Rules, 2021, of the state of affairs of the Bank as at 31
March 2025, its profit and its cash flows for the year ended
on that date.
Basis for Opinion
3. We conducted our audit of the financial statements 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
‘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 (the “ICAI")
together with ethical requirements that are relevant to our
audit of the financial statements in accordance with the
accounting principles generally accepted in India, including
the Accounting Standards prescribed under section 133
of the Act read with Companies (Accounting Standards)
Rules, 2021, provisions of section 29 of the Banking
Regulation Act, 1949, circulars and guidelines issued by
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 and that obtained by the statutory branch
auditors, in terms of their reports referred in paragraph
6 is sufficient and appropriate to provide a basis for our
opinion.
Key Audit Matters
4. Key audit matters are those matters that, in our professional
judgment, and based on the consideration of the reports of
the statutory branch auditors as referred to paragraph 6
below, were of most significance in our audit of the financial
statements for the financial year ended March 31, 2025.
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. For each matter below, our description
of how our audit addressed the matter is provided in that
context.
5. We have determined the matters described below to be the
key audit matters to be communicated in our report. We
have fulfilled the responsibilities described in the Auditor's
responsibilities for the audit of the financial statements
section of our report, including in relation to these
matters. Accordingly, our audit included the performance
of procedures designed to respond to our assessment
of the risks of material misstatement of the financial
statements. The results of our audit procedures, including
the procedures performed to address the matters below,
provide the basis for our audit opinion on the accompanying
financial statements.
A. Identification of Non-Performing Assets (‘NPA’) and
Provisions thereon
(Schedule 9 read with Note 3 of Schedule 17 and Note 4.1
and Note 14.5 of Schedule 18 to the financial statements)
Key Audit Matter
Identification of Non-Performing Assets (“NPA") and
provisions in respect of NPAs and restructured advances
are made based on management's assessment in
accordance with norms, circulars and directions issued by
the RBI on Prudential Norms on Income Recognition, Asset
Classification and Provisioning (“IRACP") pertaining to
Advances from time to time which are also used to classify
investments.
The provision on NPA is based on the valuation of the
security available and also requires management estimates
and judgements. In case of restructured accounts, provision
is made for diminution in fair value of restructured loans, in
accordance with the RBI guidelines.
Accordingly, our audit focused on identification of NPAs
and provision on assets as a key audit matter because of the
level of management estimates and judgment involved in
determining the provision and the valuation of the security
of the NPA loans and the resultant impact on the financial
statements of the Bank. Given the significance of the
amount of advances and investments and its significance
to overall audit due to stakeholder and regulatory focus,
identification of non-performing assets and provision
thereon has been considered as Key Audit Matter.
Auditor’s Response
Our key audit approach/procedures towards Classification
of Advances, Identification of Non-performing Advances,
Income Recognition and Provision on Advances and
investments included:
- Understanding and considering the Bank's policies
for NPA identification and provisioning and assessing
compliance with the IRACP Norms.
- Understanding, evaluation and testing the design and
operating effectiveness of key controls (including
system based automated controls) for identification
and provisioning of impaired accounts based on the
extant guidelines on IRACP laid down by the RBI.
- Performing other procedures including substantive
audit procedures covering the identification of NPAs
by the Bank. These procedures included:
(a) Considering testing of the exception reports
generated from the application systems where
the advances have been recorded.
(b) Considering the accounts reported by the
Bank and other banks as Special Mention
Accounts (“SMA") in RBI's central repository of
information on large credits (CRILC) to identify
stress.
(c) Reviewing account statements, drawing
power calculation, security and other related
information of the borrowers selected based on
quantitative and qualitative risk factors.
(d) Reading of minutes of management committee
and credit committee meetings and performing
inquiries with the credit and risk departments
to ascertain if there were indicators of stress or
an occurrence of an event of default in a loan
account or any product.
(e) Considering key observations arising out of
Internal Audits, Systems Audits, Credit Audits
and Concurrent Audits conducted as per the
policies and procedures of the Bank.
(f) Considering the RBI Annual Financial Inspection
report on the Bank, the Bank's response to the
observations and other communication with RBI
during the year.
(g) Examination of advances including stressed/
restructured advances on a sample basis with
respect to compliance with the RBI Master
Circulars / Guidelines.
(h) Visits to branches/offices and examination of
documentation and other records relating to
advances.
(i) Considered the branch audit reports submitted
by the Statutory Branch Auditors of branches of
the Bank.
- For Non- performing advances identified,
we, based on factors including stressed
sectors and account materiality, tested
on a sample basis the asset classification
dates, compliance of income recognition,
value of available security and provisioning
as per IRACP norms. We recomputed the
provision for NPA on such samples after
considering the key input factors and
compared our measurement outcome to
that prepared by management.
- Additionally, the Bank makes provisions on
exposures that are not classified as NPAs
including advances in certain sectors and
identified advances or group advances that
can potentially slip into NPA. These are
classified under ‘Other liabilities'.
B. Information Technology - IT Systems and Controls
Key Audit Matter
The Bank's operations utilise many independent and inter¬
dependent information technology systems for processing
and recording large volume of transactions in numerous
locations on a daily basis. As a result, there is a high
degree of reliance and dependency on such IT systems
for financial reporting process of the Bank. Controls
over access and changes to IT systems are critical to the
recording of financial information and the preparation of a
financial statements which provides a true and fair view of
the Bank's financial position and performance. Appropriate
automated general and application controls are required to
ensure that such IT systems and applications are able to
process the data, as required, completely, accurately and
consistently, which directly impacts the completeness and
accuracy of financial reporting.
The IT systems and controls, as they impact the financial
recording and reporting of transactions, is a key audit
matter as our audit approach could significantly differ
depending on the effective operation of the Bank's IT
controls.
Auditor’s Response
We tested the technology control environment for key
IT applications (systems) used in processing significant
transactions and recording balances in the general ledger.
We also tested key automated controls embedded within
these systems which link the technology-enabled business
processes. Our further audit procedures included:
- Identification of critical application softwares used
in the Bank with reference to its functionalities and
impact on the books and records of the Bank.
- Assessing the governance and higher-level controls
across the IT Environment, including those regarding
policy design, review and awareness, and IT Risk
Management practices;
- Evaluation and understanding the key IT systems
being used by the Bank;
- Design and operating effectiveness testing of controls
across the User Access Management Lifecycle,
Change Management as well as effectiveness testing
of automated business process controls including
segregation of duties
- Design and operating effectiveness testing of controls
to enable Change Management including how
changes are initiated, documented, approved, tested
and authorised prior to migration into the production
environment of critical IT Applications. We assessed
the appropriateness of users with access to release
changes to IT application production environments in
the Bank;
- Evaluated other areas including password policies,
security configurations, controls over changes to
applications and databases and controls to ensure
that developers and production support did not have
access to change applications.
- Verified the audit trail (edit log) on test check basis
for identified accounting softwares.
Reviewing effectiveness of mappings and flagging of
financial transactions and automated reconciliation
controls (both between systems and intra-system) and
Data integrity of critical system reporting used in our audit
to select samples and analyse data used by management to
generate financial reporting.
C. Direct and Indirect Taxes
(Schedule 5 and 12 read with Note 15 of Schedule 17 to
the financial statements)
Key Audit Matter
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, due to 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 related disclosures.
Auditor’s Response
- Our audit procedures to test uncertain tax positions
included understanding processes, evaluation of
relevant controls and testing thereof over provision
for taxation, assessment of uncertain tax positions
and disclosure of contingencies.
- We have obtained details of completed tax
assessments and demands from the management of
the bank.
- We discussed with appropriate senior management
personnel, evaluated the management's underlying
key assumptions in estimation of tax provisions and
independently assessed management's estimate of
the possible outcome of the disputed cases. We have
also relied upon the opinion given by tax consultants
while evaluating management's assessment for the
uncertain tax positions.
- We considered past assessments and appellate orders
for earlier years and other relevant legal precedence
and rulings in evaluating management's position on
these uncertain tax positions, the provisions made,
and/or written back.
- We also considered the adequacy and completeness
of the disclosures made in relation to matters where
management concluded that no provision should be
recorded.
Other Matters
6. We did not audit the financial statements / information
of 971 domestic branches including processing centres
included in the financial statements of the Bank whose
financial statements / financial information reflects total
assets of ^. 1,03,38,95,244 thousand as at March 31,
2025 and total revenue of ^.9,44,41,855 thousand for
the year ended on that date, as considered in the financial
statements. These branches and processing centres
cover 77.19% of advances, 82.86% of deposits, 66.08%
of non-performing assets as at March 31, 2025 and
82.07% of revenue for the year ended March 31, 2025.
The financial statements/ information of these branches
have been audited by the statutory branch auditors whose
reports have been furnished to us and our opinion on the
financial statements, in so far as it relates to the amounts
and disclosures included in respect of branches including
processing centres, and our report in terms of Section
143(3) of the Act, in so far as it relates to the aforesaid
branches including processing centres, are based solely on
the reports of such statutory branch auditors.
Our opinion on the financial statements, and our report
on other legal and regulatory requirements below, are not
modified in respect of the above matters with respect to
our reliance on the work done by and the reports of the
statutory branch auditors.
7. The financial statements of the Bank for the year ended
March 31, 2024 were audited by predecessor auditors
whose report dated May 13, 2024 expressed an unmodified
opinion on those financial statements.
Our opinion is not modified in respect of above matters.
Information Other than the Financial Statements and
Auditors’ Report thereon
8. The Bank's Board of Directors is responsible for the
other information. The other information comprises the
Corporate Overview, 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 financial statements and our auditor's 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 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 identified
above when it becomes available and, in doing so, consider
whether such other information is materially inconsistent
with the 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
governances.
Responsibilities of Management and Those Charged with
Governance for the Financial Statements
9. 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 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 Companies
(Accounting Standards) Rules, 2021 in so far as they apply
to the Bank and provisions of Section 29 of the Banking
Regulation Act, 1949 and circulars and guidelines issued
by the 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 the 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.
10. 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 management either
intends to liquidate the Bank or to cease operations, or has
no realistic alternative but to do so.
11. The Board of Directors are also responsible for overseeing
the Bank's financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial
Statements
12. 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.
13. 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.
• 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 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 financial statements
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.
• Obtain sufficient appropriate audit evidence regarding
the financial information of the Bank to express an
opinion on the financial statements. We are responsible
for the direction, supervision and performance of the
audit of the financial information of the Bank and
such branches included in the financial statements, of
which we are the independent auditors. For the other
branches included in the financial statements, which
have been audited by statutory branch auditors, such
branch auditors remain responsible for the direction,
supervision and performance of the audits carried out
by them. We remain solely responsible for our audit
opinion.
14. Materiality in the magnitude of the misstatements in the
financial statements that, individually or aggregate, makes
it probable that the economic decisions of a reasonably
knowledgeable user of the financial statements may
be influenced. We consider quantitative materiality and
qualitative factors in (i) planning of the scope of our audit
work and evaluating the results of our work; and (ii) to
evaluate the effect of any identified misstatement in the
financial statements.
15. 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.
16. 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.
17. 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 for the
financial year ended March 31, 2025 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
18. 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 Companies
(Accounting Standards) Rules, 2021.
19. As required by sub-section (3) of section 30 of the Banking
Regulation Act, 1949, and on the consideration of the
reports of the statutory branch auditors as referred in
paragraph 6 above, 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 to be adequate for the
purpose of our audit.
20. With respect to the matter to be included in the auditor's
report under section 197(16) of the Act, we report that
since the Bank is a banking company as defined under
the Banking Regulation Act, 1949; the reporting under
section 197(16) of the Act 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.
21. As required by Section 143(3) of the Act, based on our
audit and on the consideration of the reports of the
statutory branch auditors as referred to in paragraph 6
above, 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 accounts 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 the branches not visited by us.
(c) the reports on the accounts of the branches and
processing centres of the Bank audited under section
143(8) of the Act by the statutory branch auditors of
the Bank have been sent to us and have been properly
dealt with by us in preparing this report.
(d) The Balance Sheet, Profit and Loss Account and the
Cash Flow Statement dealt with by this Report are in
agreement with the books of account.
(e) In our opinion, the aforesaid financial statements
comply with the Accounting Standards specified
under section 133 of the Act read with Companies
(Accounting Standards) Rules, 2021 to the extent
they are not consistent with the policies prescribed by
the RBI.
(f) On the basis of the written representation received
from the directors and taken on record by the Board
of Directors, none of the directors is disqualified as on
March 31, 2025 from being appointed as a director in
terms of section 164(2) of the Act.
(g) With respect to the adequacy of internal financial
controls with reference to the financial statements
of the Bank and the operating effectiveness of
such controls, our separate report in Annexure A is
attached.
(h) The entity being a banking company as defined under
Banking Regulation Act, 1949, the remuneration to
its directors during the year ended March 31, 2025
has been paid / provided by the Bank in accordance
with the provisions of Section 35B(1) of the Banking
Regulation Act, 1949.
(i) 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 Schedule
12 and Note 14.12 of Schedule 18 to the
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 as
detailed in Schedule 12 and note 7 of Schedule
18 to the financial statements and
iii. Except for a delay of 12 days in transferring
unclaimed share application money amounting
to Rs. 475 thousand, which as explained to us
was due to technical issues in the MCA portal
as stated in Note.14.13 of Schedule 18 to
the financial statements, there has been no
delay in transferring the amounts required to
be transferred to the Investor Education and
Protection Fund by the Bank during the year
ended March 31, 2025.
iv. a) The management has represented that,
to the best of its knowledge and belief,
other than as disclosed in the note 15 of
Schedule 18 to the 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 the note 15 of
Schedule 18 to the 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
Based on such audit procedures that were
considered reasonable and appropriate in
the circumstances, nothing has come to our
notice that has caused us to believe that the
representations under sub-clause (a) and (b)
above contain any material misstatement.
v. As stated in note 1.2 of Schedule 18 to the
financial statements and as disclosed in Profit
and Loss Account under ‘Appropriations' to the
Financial Statements:
(a) The final dividend proposed in the previous
year, declared, and paid by the Bank during
the year is in accordance with Section 123
of the Act, as applicable.
(b) The Bank did not pay any interim dividend
during the year.
(c) 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
accordance with section 123 of the Act, as
applicable, until the date of this report.
vi. Based on our examination which included test
checks the Bank has used accounting softwares
for maintaining its books of account, which
have a feature of recording audit trail (edit log)
facility and the same has operated throughout
the year for all relevant transactions recorded
in the respective software except that actions
taken by the service provider at database level of
Loan Origination System were not logged as per
the System and Organisation Controls (SOC2)
Type 2 report. As informed to us, during the
year, there was no request by the Bank to the
service provider to access the database of Loan
Origination System.
Further, for the periods where audit trail (edit log)
feature was enabled and operated throughout
the year for the respective accounting software,
we did not come across any instance of the audit
trail feature being tampered with during the
course of our audit.
Pursuant to the requirements of Rule 3(1) of
the Companies (Accounts) Rules, 2014 and as
required under Rule 11(g) of the Companies
(Audit and Auditors) Rules, 2014, the audit trail
has been preserved by the Bank in compliance
with the applicable statutory requirements for
record retention except for the matter stated
above and logs were retained for the period
commencing from June 13, 2023, July 9, 2023
and February 1, 2024 for digital gold loan,
people soft HRMS and bullion precious metal
software, respectively.
Kalyaniwalla & Mistry LLP Varma & Varma
Chartered Accountants Chartered Accountants
Firm Regn. No. 104607W/W100166 Firm Regn. No. 004532S
Anil A. Kulkarni Vivek Krishna Govind
Partner Partner
Membership No.047576 Membership No. 208259
Date: May 19, 2025 Date: May 19, 2025
Place: Karur Place: Karur
UDIN: 25047576BMKXJI4224 UDIN: 25208259BMOINK2351
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