Report on Audit of the Standalone Financial Statements Opinion
1. We have audited the accompanying standalone financial statements of Bank of Maharashtra, which comprise the Balance Sheet as at 31st March 2023, 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 the Head Office, 42 Zonal Offices and 20 branches and one Treasury and International Banking Division audited by us, and 576 branches audited by Statutory Branch Auditors of the Bank.
The branches audited by us and those audited by other auditors have been selected by the Bank in accordance with the guidelines issued to the Bank by the Reserve Bank of India. Also incorporated in the Balance Sheet, the Profit and Loss Account and the Statement of Cash Flows are the returns from 1627 branches which have not been subjected to audit. These unaudited branches account for 22.94% of advances, 44.89% of deposits, 15.91% of interest income and 43.56% interest expenses.
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 in the manner so required for bank and are in conformity with accounting principles generally accepted in India and:
a. the Balance Sheet, read with the notes thereon is a full and fair Balance Sheet containing all the necessary particulars, is properly drawn up so as to exhibit a true and fair view of the state of affairs of the Bank as at 31st March, 2023;
b. the Profit and Loss Account, read with the notes thereon shows a true balance of profit for the year ended 31 st March, 2023 and
c. the Cash Flow Statement gives a true and fair view of the 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) issued by the ICAI. Our responsibilities under those Standards are further described in the Auditor's 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 together with ethical requirements that are relevant to our audit of the financial statements prepared in accordance with the accounting principles generally accepted in India, including the Accounting Standards issued by the ICAI, and provisions of section 29 of the Banking Regulation Act, 1949 and circulars and guidelines issued by the Reserve Bank of India (‘RBI”) from time to time and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Emphasis of Matter
3. We draw attention to Note No. 4(h) in Schedule 18 of the Financial Statements where Bank continues to hold COVID-19 related provision of Rs. 1200 Crore as contingency provision as on 31st March 2023.
Our Opinion is not modified in respect of this matter.
Key Audit Matters
4. 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 2023. 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 prescribed below to be the key audit matters to be communicated in our report.
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Classification of Advances, Provisioning and other relevant compliance of RBI Guidelines:
(Refer Note No. 4 of Schedule 17 of Significant Accounting Policy to the Standalone Financial Statements)
The Bank's portfolio comprises of Net Advances of Rs. 171220.67 Crores as at March 31,2023 comprising of wholesale and retail banking. As required by IRAC Norms, guidelines issued by RBI and other circulars, notification and directives issued by RBI, the Bank has classified Advances and has made appropriate provisions in accordance with such guidelines.
Income from Advances constitutes 63.18% of Total Income. The provision in respect of Non-Performing Asset is Rs. 2253.10 Crores which constitutes 14.46% of the total expenditure.
The carrying value of these advances (net of provisions) may be materially misstated if, either individually or in aggregate the IRAC Norms, are not properly followed. The Bank has significant Credit Risk Exposure to a large number of borrowers across a wide range of borrowers, products, industries and
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We have tested the design and operating effectiveness of the Key controls of the system, application, process over approval, recording, monitoring, and recovery of loans, overdue and stressed accounts, identification of NPA, Provision for NPA including verification of valuation reports of experts for primary and collateral securities based on the understanding of the prudential guidelines and overall organisational IT framework of the Bank and its communication through various circulars and reports.
We have evaluated the Internal Controls over sanctioning, monitoring the process and account for system overrides or bypasses to controls of advances, supervisory framework such as Internal Audit, Credit Audit, Concurrent Audit, Systems Audit, as well as Internal Check, effectiveness of such framework as per the policies and procedures of the bank and in compliance with prudential guidelines.
We have tested samples of Performing Assets and assessed the application of IRAC Norms, as prescribed by RBI, individually to ensure compliance of the same. Also reviewed approval of sanctions against Bank's credit Policy and performance of Credit Assessments and controls.
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there is a high degree of complexity, uncertainty, judgement involved in recoverability of Advances, estimation of provisions thereon and identification of accounts to be written off. If such prudential guidelines are not followed by the Bank the profit for the year and the net advances position will be materially mis-stated. Hence, we consider this as a Key Audit Matter.
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Examined early warning signal reports, other exceptional reports generated by the Bank for the purpose of identifying potential NPA and steps taken for monitoring of such accounts including red flagged accounts to overcome assessed risks and ensure effective implementation of risk management and related controls.
We have adopted a framework of carrying out detailed verification of corporate wholesale (including Consortium, Pool Buyout and other large borrowers) by way of review of collateral documents including valuation reports, due diligence report, servicing Agreement, deed of assignment, JLA and External Credit rating reports to assess and focus on larger exposures of the Bank and mitigating the areas of emerging risk. We have discussed with the Senior Management and performed our own assessment including internal and external macroeconomic factors and testing the timelines and the accuracy of risk assessment and risk grading against the Bank's lending policies, IRAC Norms and in accordance with Government Policies.
We have examined the Retail advances portfolio of the Bank on sampling basis to ensure effective monitoring and implementation of IRAC norms including income recognition, provisioning for such loans. The Bank has adopted Loan Life Cycle Management System for retail loans which effectively monitors, controls, the retail portfolio of the Bank and is tested for its effective implementation and performance. We have also tested the completeness and accuracy of the data from the underlying source systems, tested the automated calculation and evaluated the bank's oversight of the portfolio.
We have reviewed the Bank's process for granting moratorium and restructuring to borrowers as per the Regulatory Package announced by RBI. We tested the completeness and accuracy of data used for computing general provisions in line with regulatory package issued by RBI. Also we have relied on the compilation of the data of the restructured accounts at Head office based on the schedules audited by the statutory branch auditors.
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We have examined the adequacy and appropriateness of disclosures against the relevant RBI requirements relating to NPA and applicable Accounting Standards required to be made in accordance with Banking Regulation Act and RBI Circulars.
We have also placed reliance on the Audit reports of the other Statutory Branch Auditors, with whom we have made specific communications.
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Classification and Valuation of Investments:
(Refer Note No. 3 of Schedule 17 of Significant Accounting policies to the Standalone Financial Statements)
Investments are classified into Held for Trading (HFT), Available for Sale (AFS) and Held to Maturity (HTM) categories at the time of purchase. Investments intended to be held till maturity are classified as HTM Investments. Classification of Investments, valuation and provisioning thereof are based on RBI guidelines.
Compliance of Investment Portfolio as per guidelines issued by RBI is mandatory and involves management judgement in determining the value of bonds, debentures and other securities based on the policy and the model adopted by the Bank.
Impact of Impairment assessment is having overall significance to the financial results of the Bank.
Interest Income from Investment of the Bank comprises 23.47% of the total income. In view of these significant points including assessment of non performing Investments and provisions we have identified this aspect as a Key Audit Matter.
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We have tested the design, implementation, and operating effectiveness of management's key internal controls of the Bank towards classification, valuation process, independent price verification, including the Bank's review and approval of the estimates and assumptions used for the valuation including key authorisation and data input controls.
We have examined the investment agreement / term sheet entered during the current year, on a sample basis, to understand the relevant investment terms and identify any conditions that were relevant to the valuation of financial instruments.
Our Audit approach towards Investment Portfolio of the bank is based on compliance and requirements of RBI circulars and directives in relation to valuation, classification, identification of Non-Performing Investments, Provision for Investments and relevant policies and procedures adopted by the Bank including effective implementation of Internal control system and related process.
We tested accuracy and completeness of adoption of RBI guidelines and directions by reperforming valuations for each category of the securities. Various sampling techniques were adopted to ensure coverage of risk weighted Investments based on the nature of security and were tested for its carrying value in the Financial Statements of the Bank.
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We have verified the non performing investments of the bank by the method of independent verification of provisions and depreciation in accordance with RBI guidelines and confirmed the compliance of such guidelines. We have reviewed the application / conversion of interest / principal towards a separate List of Investments and checking whether these Investments are classified as NPI. The samples selected for the same covers the majority categories of Investments to cover the material impact on the income of the Bank.
We have verified Investment portfolio of AFS and HFT on sample basis and performed various substantive analytical procedures in determination of Income, gain / loss on sale and tracked the controls implemented by the Bank through credit / debit in the profit and loss account.
We have tested the portfolio of HTM and made detailed verification of transaction of purchase / sale of such HTM and controls implemented by the TIBD in recognizing the profit / loss to profit and loss account and subsequent appropriation to Capital Reserve Account.
We have examined the adequacy and appropriateness of depreciation and Impairment of each category of Investment and recomputed the provision to be maintained in accordance with the RBI Guidelines and ensured that adequate disclosures have been made in Notes to Accounts.
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Information Technology Systems and Control Framework:
The Bank's key business objective is determined evaluated, controlled, monitored, implemented through complex IT architecture to support high volume of business operation by automation and application which are significant towards Banking business and plays a major role as a backbone in achieving the Business Objective.
The Bank's financial accounting process in respect of recognition of Income, classification of Assets through IRAC Norms and evaluating the performance of the Bank and producing the desired output through various application and other IT general controls to ensure the required business Output and helps us to arrive at the Audit conclusion to ensure quality performance Financial & Accounting Processes.
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Information Technology forms an integral part of operating requirements of the Bank by way of various applications, general, software controls and requires understanding of various systems and procedures in evaluating the Risk based and business centric requirements of the Bank.
We have reviewed the various IT policies and procedures including user management, change management, system security, incident management, physical and environment security, standard operating procedures, Segregation of duty, BCP, DRP, service level agreements, security policies to ensure these are in line with business requirements of the Bank and to comply with government and RBI regulations.
We have adopted various techniques such as enquiry, review of documentation, record, reports, observation, and re performance of various application controls by taking adequate samples of instances for our test. We have also tested validation checks using negative testing technique.
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We have identified various application and control framework in implementing various products and schemes which covers majority of Bank's business and hence we consider Information Technology Systems and Control as a Key Audit Matter.
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We have tested various compensating controls and performed alternate procedures which were necessary and gathered a comprehensive understanding of IT applications landscape implemented by the Bank. It was followed by process understanding mapping of application to the same and understanding financial risk posed by people, process and technology.
We have also assessed areas including password policies, security configuration, system interface controls over changes to applications and databases and that business users and controls to ensure that developers and production support did not have access to change applications, the operating systems or databases in the production environment to ensure proper segregation of duties is in place as per the SOP.
We have tested certain critical aspects of cyber security on network security management mechanism, operational security of key information infrastructure, data and client information management, monitoring and emergency management. through certain data drill conducted by the Management and scrutinised by us and comparing the required results.
We have also assessed the requirement of the implementation of Business Continuity Plan initiated by the Bank due to impact of COVID -19 pandemic and ensured sustainability and growth under COVID -19 circumstances.
We have verified the testing report carried out by the Management on risk of implementation of security control in a more holistic, comprehensive way, ensuring that all business decisions are based on proper Risk assessment and management considering the overall effect of uncertainties on the Bank's Objective.
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Provisions and Contingent Liability:
Assessment of Provisions and Contingent Liability in respect of certain litigations on various claims filed by other parties not acknowledged as debt (Note No. 10 of Schedule 17 and Note No. 16 of Schedule 18)
There is high level of judgement required in estimating the level of provisioning. The Bank's assessment is supported by the facts of matter, their own judgement, past experience, and advice from legal and independent experts wherever considered necessary. Accordingly, unexpected adverse outcomes may significantly impact the Bank's reported profit and state of affairs presented in Balance Sheet.
We determined the above area as a Key Audit Matter in view of associated uncertainty relating to outcome of these matters which requires application of judgement in interpretation of Law.
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We have obtained an understanding of Internal Controls relevant to the audit in order to design our audit procedures that are appropriate in the circumstances.
Understanding the current status of the litigations / tax assessments. Examining recent orders and communications received from various tax authorities / judicial forums and follow up actions thereon;
Evaluated the merit of the subject matter under consideration with reference to the grounds presented therein and available independent legal / tax advice including opinion of experts. Review and analysis of evaluation of the contentions of the Bank through discussions, collection of details of the subject matter under consideration, the likely outcome and consequent potential outflows on those issues.
Verified the disclosures related to significant litigations and taxation matters.
Accordingly, our audit was focused on analysing the facts of subject matter under consideration and judgements / interpretation of law involved.
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Information other than the Standalone Financial Statements and Auditors’ Report thereon
5. The Bank's Board of Directors is responsible for other information. The other information comprises the information other than Standalone Financial Statements and our Auditors' Report thereon and the Pillar III disclosure under the Basel III disclosure.
Our opinion on the Standalone Financial Statements does not cover the other information and Pillar 3 disclosure under the Basel III Disclosure 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 and, in doing so, consider whether the other information is materially inconsistent with the Standalone Financial Statements or our knowledge obtained during the course of audit or otherwise appears to be materially misstated.
When we read the other information and based on the work we perform, if we conclude that there is a material misstatement therein, we are required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with
Governance for the Standalone Financial Statements
6. The Bank's Board of Directors is responsible with respect to the preparation of these Standalone Financial Statements that give a true and fair view of the financial position, financial performance and cash flows of the Bank in accordance with the accounting principles generally accepted in India, including the Accounting Standards issued by ICAI, and provisions of Section 29 of the Banking Regulation Act, 1949 and circulars and guidelines issued by the Reserve Bank of India (‘RBI') from time to time. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Bank and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making 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 is also responsible for overseeing the Bank's Financial Reporting process.
Auditors’ Responsibilities for the Audit of the Standalone
Financial Statements
7. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' 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.
• 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 auditors' 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 auditors' 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.
Materiality is the magnitude of misstatements in the Standalone Financial Statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of 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 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 Financial Statements of the current period 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 Matters
8. We did not audit the financial statements / information of 576 branches included in the Standalone Financial Statements of the Bank whose Financial Statements / Financial Information reflect total advances of Rs. 63295.49 crores as at March 31,2023 and total revenue of Rs. 5151.98 crores for the year ended on that date, as considered in the Standalone Financial Statements. These branches cover 32.49% of advances, 44.35% of deposits and 39.64% of non-performing assets as at March 31, 2023 and 28.34% revenue for the year ended March 31, 2023. The Financial Statements / Information of these branches have been audited by the Branch Auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of branches, is based solely on the report of such Branch Auditors.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
9. The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with Section 29 of the Banking Regulation Act, 1949;
Subject to the limitations of the audit indicated in paragraphs 6 to 8 above and as required by sub section 3 of section 30 of the Banking Regulation Act, 1949, and subject also to the limitations of disclosure required therein, we report that:
a) We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit and have found them to be satisfactory.
b) The transactions of the Bank, which have come to our notice, have been within the powers of the Bank; and
c) The returns received from the offices and branches of the Bank have been found adequate for the purposes of our audit.
10. As required by letter no. DOS.ARG.No.6270/08.91.001/2019-20 dated March 17, 2020 on “Appointment of Statutory Central Auditors (SCAs) in Public Sector Banks - Reporting obligations for SCAs from FY 2019-20”, read with subsequent communications dated May 19, 2020 issued by the RBI, we further report on the matters specified in paragraph 2 of the aforesaid letter as under:
a) In our opinion, the aforesaid Standalone Financial Statements comply with the Accounting Standards issued by ICAI, to the extent they are not inconsistent with the accounting policies prescribed by the RBI.
b) There are no observations or comments on financial transactions or matters which have any adverse effect on the functioning of the bank.
c) As the bank is not registered under the Companies Act, 2013 the disqualifications from being a director of the bank under the sub-section (2) of Section 164 of the Companies Act, 2013 do not apply to the bank.
d) There are no qualifications, reservations or adverse remarks relating to the maintenance of accounts and other matters connected therewith.
e) Our audit report on the adequacy and operating effectiveness of the Bank's internal financial controls over financial reporting is given in Annexure A to this report. Our report expresses an unmodified opinion on the Bank's internal financial controls over financial reporting with reference to the Standalone Financial Statements as at March 31,2023.
11. We further report that:
a) in our opinion, proper books of account as required by law have been kept by the Bank so far as it appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from branches not visited by us;
b) the Balance Sheet, the Profit and Loss Account and the Statement of Cash Flows dealt with by this report are in agreement with the books of accounts and with the returns received from the branches not visited by us;
c) the reports on the accounts of the branch offices audited by branch auditors of the Bank under section 29 of the Banking Regulation Act, 1949 have been sent to us and have been properly dealt with by us in preparing this report; and
d) in our opinion, the Balance Sheet, the Profit and Loss Account and the Statement of Cash Flows comply with the applicable accounting standards, to the extent they are not inconsistent with the accounting policies prescribed by RBI.
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