Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Standalone Financial Statements for the financial 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.

• As a process, we have read the Bank's policies for NPA identification and provisioning and assessing compliance with the IRACP norms.

• We have evaluated details on a test check basis of exposures for identification of NPA and calculation of provisions including valuation of primary and collateral securities which involves certain degree of management estimation.

• We have evaluated and understood the Bank's internal control systems to ensure 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 and Provisioning issued from time to time.

• 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 the RBI's Central Repository of Information on Large Credits (CRILC) and other related documents and reports including evaluation of the past trends of management judgement, governance, and review of internal control. Held discussion with the management of the Bank on various accounts wherein there has been stress and steps taken to mitigate such risks.

• We have also assessed disclosure requirements for classification and provisioning of NPAs in accordance with the RBI circulars including those specifically issued for Covid 19 related matters.

B. Information Technology (IT) Systems and Controls

Key Audit Matter

The IT environment of the Bank is complex. 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 Standalone Financial Statements. 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 impact the completeness and accuracy of financial reporting.

The IT systems and controls is identified as a key audit matter because of high level of automation, significant number of systems being used and complexity of the IT infrastructure and its impact on the financial reporting system since 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:

• Assessing the governance and higher-level controls across the IT Environment and performing review of IT general controls.

• Evaluation and understanding the key IT systems being used by the Bank for its Core Banking and other operations.

• Assessing operative effectiveness of key controls within various business processes. It included testing of integrity of system interfaces, completeness and accuracy of the data, system reconciliation controls and automated calculations.

• Design and operating effectiveness testing of controls across the User Access Management, Change Management, backup, other IT operational controls as well as effectiveness testing of automated business process controls.

• Data integrity of critical system reports used by us in our audit to select samples and analyse data used by management to generate financial reports.

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.

Auditor's Response

• 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 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 specialist 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.

D. Centralised Audit of the Bank Key Audit Matter

Till year 2020-21, the audit of Branches (other than top 20 branches and certain other locations) was carried out by the Branch Statutory Auditors appointed by the Bank. However, since previous year, the Joint Statutory Auditors have performed the audit of the Bank centrally. Considering this fact, it has been considered as a key audit matter.

Auditor's Response

• We have assessed the Bank's systems and procedures for carrying out centralized operations under various areas including process of consolidation at the central level.

• Visited certain branches to understand the operations carried out at Branches and potential issues.

• Performed analysis of information provided at central level.

• Reviewed the reports in respect of various audits including concurrent audit, internal inspections carried out at branches on a sample basis.

Information Other than the Standalone Financial Statements and Auditors' Report thereon

The Bank's Board of Directors are 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 Standalone and Consolidated 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 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 such other information is materially inconsistent with the Standalone Financial Statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

When we read the other information, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements

The Bank's Board of Directors is responsible for the matters stated in Section 134(5) of the Act with respect to the preparation of these Standalone Financial Statements that give a true and fair view of the financial position, financial performance and cash flows of the Bank in accordance with the accounting principles generally accepted in India, including the Accounting Standards prescribed under section 133 of the Act read with the 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 and the Banking Regulations Act, 1949 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 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, the Management and 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 the Board of Directors 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.

Auditor's Responsibilities for the Audit of the Standalone Financial Statements

Our objectives are to obtain reasonable assurance about whether the Standalone Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of 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

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

1. The Standalone Balance Sheet and the Standalone 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.

2. 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 purpose 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 99 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.

3. 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.

4. 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, Profit and Loss Account and the Cash Flow Statement dealt with by 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, 2023 and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2023 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 with reference to the Standalone Financial Statements of the Bank and the operating effectiveness of such controls, our separate report in Annexure A is attached.

(g) the entity being a banking company as defined under Banking Regulation Act, 1949, the remuneration to its directors during the year ended 31 March 2023 has been paid / provided by the Bank in accordance with the provisions of Section 35B (1) of the Banking Regulation Act, 1949.

(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. There are no material foreseeable losses in respect of 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 31 March 2023.

iv. (a) The management has represented that, to the best of its knowledge and belief, as disclosed in the note 21 (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, as disclosed in the note 21 (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

Based on the audit procedures that have been 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 (iv) (a) and (iv) (b) contain any material misstatement.

v. (a) The final dividend proposed for the previous year, declared, and paid by the Bank during the year is in accordance with Section 123 of the Act, as applicable.

(b) As stated in the note 19 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. As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable for the Bank only with effect from April 1, 2023, reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014, is not applicable.

For Kalyaniwalla & Mistry LLP

Chartered Accountants

Firm Registration No. 104607W/W100166

Anil A. Kulkarni

Partner

M. No. 047576

UDIN: 23047576BGUVEF4662

Place: Mangaluru

Date: May 26, 2023

For Sundaram & Srinivasan

Chartered Accountants

Firm Registration No. 004207S

P Menakshi Sundaram

Partner

M. No. 217914

UDIN: 23217914BGWPDL1030

Place: Mangaluru

Date: May 26, 2023