1. We have audited the accompanying financial statements
of The Karur Vysya Bank Limited (the Bank), which
comprise the Balance Sheet as at March 31, 2024, 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 and Expense
Management Cell audited by us and
ii) 908 branches 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 19 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 March 31, 2024, 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
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 19 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 19 below, were of most significance in our
audit of the financial statements for the financial year
ended March 31, 2024. 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 on Advances
Significant estimates and judgment involved
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 pertaining to Advances
from time to time.
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 advances 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.
Auditor’s Response
Our key audit approach included assessing the design,
implementation and operating effectiveness of key
internal controls and substantive audit procedures over
approval, recording and monitoring of loans, assessing the
reliability of documentation, measurement of provisions,
identification of NPA accounts, and Valuation of Security
for NPA accounts along with basis and rationale for various
other management information's.
We have read the Bank's policies for NPA identification
and provisioning and assessing compliance with the
IRAC norms.
We have evaluated details for a sample of exposures
for identification of NPA and calculation of Loan Loss
provisions including valuation of primary and collaterals as
at March 31, 2024 involving certain degree of estimation.
We have evaluated and understood the Bank's internal
control systems completeness, accuracy, and relevance of
data and to ensure that the same is in compliance with the
RBI guidelines, circulars and directions on the Prudential
Norms on Income Recognition, Asset Classification &
Provisioning issued from time to time.
We also selected samples to test potential cases of “ever-
greening" of loans.
We tested on a samples basis to ensure completeness
of documentation, adherence of the approval process
to the Bank's Policy and board minutes, credit review of
customers, review of Special Mention Accounts (SMA)
reports in RBI's Central Repository of Information on Large
Credits (CRILC) and other related documents including
evaluation of the past trends of management judgement,
governance, and review of internal control. Held discussion
with the management of the Bank on sectors wherein
there has been stress and the steps taken by the Bank to
mitigate such sectorial risks.
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'.
We have also assessed disclosure requirements for
classification and provisioning of NPAs in accordance with
RBI circulars including those issued specifically issued for
Covid-19 related matters.
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 automated controls embedded within these
systems which link the technology-enabled business
processes. Our further audit procedures included:
• Assessing the governance and higher-level controls
across the IT Environment, including those regarding
policy design, review and awareness, and IT Risk
Management practices;
• 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;
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 by us
in our audit to select samples and analyse data used by
management to generate financial reporting.
C. Direct and Indirect Taxes
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 disclosures of related contingencies.
Auditor’s Response
Our audit procedures to test uncertain tax positions
included understanding processes, evaluation of design
and implementation of controls and testing of operating
effectiveness of the bank's controls 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, relied upon opinion given by tax specialists,
evaluated the management's underlying key assumptions
in estimating the tax provisions and independently
assessed management's estimate of the possible outcome
of the disputed cases.
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.
For those matters where management concluded that
no provision should be recorded, we also considered the
adequacy and completeness of the banks disclosures made
in relation to contingent liabilities.
Information Other than the Financial Statements and
Auditors’ Report thereon
6. 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.
7. Our opinion on the financial statements does not cover
the other information and we do not express any form of
assurance conclusion thereon.
8. 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.
9. 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 Financial Statements
10. 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.
11. 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.
12. 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
13. 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.
14. 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.
15. 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.
16. 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.
17. 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.
18. 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, 2024
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 Matters
19. We did not audit the financial statements / information
of 908 domestic branches including processing centres
included in the financial statements of the Bank whose
financial statements / financial information reflects total
assets of ^ 94,817.00 Crore at March 31, 2024 and
total revenue of ^. 9087.14 Crore for the year ended
on that date, as considered in the financial statements.
These branches and processing centres cover 77.25%
of advances, 88.88% of deposits, 58.74% of non¬
performing assets as on March 31, 2024 and 92.14% of
revenue for the year ended March 31, 2024. The financial
statements/ information of these branches have been
audited by the statutory branch auditors whose reports
have been furnished to us and in our opinion on the
financial statements, in so far as it relates to the amounts
and disclosures included in respect of branches, and our
report in terms of Section 143(3) of the Act, in so far as it
relates to the aforesaid branches, are based solely on the
report of such statutory branch auditors.
20. 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.
Report on Other Legal and Regulatory Requirements
21. 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.
22. As required by sub-section (3) of section 30 of the Banking
Regulation Act, 1949 and communication received by the
Bank from Reserve Bank of India, and on the consideration
of the reports of the statutory branch auditors as referred
in paragraph 19 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.
23. 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) 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.
24. 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 19
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 branch offices 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, 2024 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, 2024
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, Note 14.11 of Schedule 18 of 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. 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, 2024;
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
c) 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) contain any
material misstatement.
v. As stated in note 1.2 of Schedule 18 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. Reporting under Rule 11(g) of the Companies
(Audit and Auditors) Rules, 2014 is applicable
from April 01, 2023.
Based on our examination which included test
checks the Company 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 subject to the following observations:
a. The feature of recording audit trail (edit
log) facility was enabled at the database
level of the accounting software used
relating to Core Banking Solution and
investments for a short period of time.
The Bank has deployed a Database
Access Management Tool (DAM) which
records the audit trail captured in the
Software's database on a real time
basis which also gets archived. Based
on the above, the audit trail (edit log)
requirement is operative from April 01,
2023 to March 31, 2024.
b. Audit trail (edit log) facility with respect
to Digital Gold Loan, PeopleSoft HRMS
and Bullion Precious Metal was enabled
at database level / captured in DAM tool
from June 13, 2023, July 09, 2023 and
February 01, 2024 respectively.
Further, for the periods where audit trail (edit log)
facility 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.
For Sundaram & Srinivasan, For R.G.N. Price & Co.,
Chartered Accountants Chartered Accountants
FRN:004207S FRN:002785S
P. Menakshi Sundaram Sriraam Alevoor M
Partner Partner
M.No. 217914 M.No. 221354
UDIN: 24217914BKBOTY3030 UDIN: 24221354BJZZXZ2691
Place : Karur Place : Karur
Date : May 13, 2024 Date : May 13, 2024
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