To the Members of YES BANK Limited
Report on the Audit of the Standalone Financial
Statements
Opinion
We have audited the standalone financial statements of YES BANK Limited ('the Bank'), which comprise the Balance Sheet as at March 31, 2023, the Profit and Loss Account and the Cash Flow Statement for the year then ended, and notes to the standalone financial statements, including a summary of the significant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the section 29 of the Banking Regulation Act, 1949 as well as the Companies Act, 2013 (the 'Act') and circulars and guidelines issued by the Reserve Bank of India, in the manner so required for banking companies and give a true and fair view 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 as amended to the extent applicable, of the state of affairs of the Bank as at March 31, 2023, and its profit, and its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing ('SAs') specified under Section 143 (10) of the Act. Our responsibilities under those SAs 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 ('the ICAI') together with the ethical requirements that are relevant to our audit of the standalone financial statements under the provisions of the Act, and the Rules thereunder, 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 on the standalone financial statements.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the standalone financial statements of the current year. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report:
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Key Audit Matters
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Auditor's Response
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Income Recognition and Asset Classification of Advances and Investments (IRAC) and Provisioning as per regulatory norms
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Please refer to schedule 8 and schedule 9, read with relevant Notes relating to provisions and contingencies, disclosures with regard to Non Performing Investments (NPI) and Asset Quality in respect of movement of Non-Performing Assets (NPAs) and related provisions respectively.
As required under prudential norms issued by the Reserve Bank of India (RBI) in respect of income recognition, asset classification and provisioning pertaining to investments as well as those pertaining to advances, "Resolution framework for Covid-19 related Stress" (the "Resolution Framework") issued by the RBI on August 06, 2020 and May 05, 2021 and relevant other circulars, notifications and directives issued by the RBI which were collectively considered by the Bank till March 31, 2023, classifies advances into performing and non-performing advances (NPA) which consists of Standard, Sub-standard, Doubtful and Loss and makes appropriate provisions.
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Our audit approach included testing the design, operating effectiveness of internal controls and substantive audit procedures in respect of income recognition, asset classification and provisioning pertaining to investments and advances. In particular:
• We have evaluated the Bank's internal control system in adhering to the relevant RBI guidelines regarding income recognition, asset classification and provisioning pertaining to investments and advances;
• We have tested key IT systems/ applications used and their design and implementation as well as operational effectiveness of relevant controls, including involvement of manual process and manual controls in relation to income recognition, asset classification viz., standard, sub-standard, doubtful and loss with reference to their days-past-due (DPD) status (including consideration of non-financial parameters of NPA, including sufficiency of credits in working capital loans, restructuring guidelines, the Regulatory Package and Resolution framework) and provisioning pertaining to investments and advances;
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Key Audit Matters
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Auditor's Response
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Income Recognition and Asset Classification of Advances and Investments (IRAC) and Provisioning as per regulatory norms
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The Bank, as per its governing framework, made the performing and non-performing advances provisions based on Management's assessment of the degree of impairment of the advances subject to and guided by minimum provisioning levels prescribed under RBI guidelines.
The Classification, Provisioning and Write off of Advances including Investments is a Key Audit Matter as the Bank has significant credit risk exposure to a large number of borrowers across various sectors, products, industries and geographies and there is a high degree of complexity, uncertainty and judgment involved in recoverability of advances, nature of transactions and estimation of provisions thereon and identification of accounts to be written off.
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• We have test checked advances to examine the validity of the recorded amounts, loan documentation, examined the statement of accounts, indicators of impairment, impairment provision for non-performing assets, and compliance with income recognition, asset classification and provisioning pertaining to advances in terms of applicable RBI guidelines;
• We have selected restructured accounts on sample basis and tested their compliance with relevant RBI guidelines;
• For the selected non-performing advances, we assessed Management's forecast and inputs of recoverable cash flows, borrower's audited financial statements, valuation of underlying security and collaterals, estimation of recoverable amounts on default and other sources of repayment;
• Reviewed Bank's policy including Standard Operating Procedures with respect to implementation of Regulatory package and Resolution framework ('guidelines') and tested samples to ascertain the implementation of those guidelines by the Bank.
Provisions for advances:
• Tested the Bank's processes for making provision on advances for compliance with RBI regulations and internally laid down policies for provisioning;
• Tested the completeness and accuracy of data transferred from underlying source systems used for computing collective provision;
• We had undertaken the walkthrough for the automated E-NPA system and tested the core functionality for selected samples considering the audit universe.
• Validatedtheparametersused tocalculatecollectiveprovisions with reference to IRAC norms, and Regulatory Package;
• Tested provision created for fraud accounts as at March 31, 2023 as per the RBI circular;
• Re-performed, for a sample of retail and corporate portfolios, as part of our substantive audit procedures the calculation of provisions, to determine the accuracy of the same; (Collective for standard portfolio and case specific for non performing portfolio)
• Assessed the adequacy of disclosures against the RBI Guidelines
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Key Audit Matter on Sale of Stressed Loans to Asset Reconstruction Company
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Please refer to Note No. 17.5.12 relating to Sale of Stressed
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Our Audit procedures with respect to this matter inter-alia
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Loans. As mentioned therein pursuant to the conclusion
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involved an understanding of sale of stressed loan portfolio
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of the Swiss Challenge process, the Board of Directors of
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by the Bank to JCF ARC keeping in view the requirements as
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the Bank, at their meeting held on September 20, 2022,
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per Master Direction - Reserve Bank of India (Transfer of Loan
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approved JC Flowers Asset Reconstruction Private Ltd.
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Exposures) Directions, 2021 dated September 24, 2021 ('Master
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(JCF ARC') for sale of identified stressed loans of the Bank
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Directions'), as amended on December 05, 2022. Our substantive
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aggregating up to ' 480,000 million as at March 31,2022.
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audit procedures includes:
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The gross value of exposures transferred to JCF ARC
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• Inquiry with the senior management to understand the
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was ' 437,158 million, which included exposures worth
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structure of the transaction
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' 151,981 million earlier written-off by the Bank. The net
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• Perusal of various documents viz. term sheet, agreements,
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book value ('NBV') of exposures in the Bank's books as on the date of assignment was ' 49,818 million and the final
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trust deeds, confirmations received / executed by the Bank
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consideration received was ' 80,459 million under 15:85
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• Review of relevant internal/external documents /
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cash and security receipts structure.
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records / reports
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Key Audit Matters
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Auditor's Response
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Key Audit Matter on Sale of Stressed Loans to Asset Reconstruction Company
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The Bank has also acquired 9.9% equity shareholding in
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• Perusal of noting made in minutes of Board & its Committees
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JCF ARC and applied to RBI for increase of stake in JCF
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with respect to sale of loan portfolio to JCF ARC
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ARC from 9.9% to up to 19.9%.
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• Reviews of compliance with the aforesaid Master Directions
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We have identified this transaction as a Key Audit Matter
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with respect to transfer of loan exposure inter-alia basis
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considering it's materiality with reference to gross book
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check-list prepared by the Bank
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value of the stressed assets transferred and complexity.
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• List of Corporate Loans identified by the Bank for sale to ARC vis-a-vis allocation of these accounts amongst various trusts of JCF ARC
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• Procedure for pool identification in case of the retail loan portfolio sold to ARC
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• Accounting for the transfer of loan exposure, its provisioning and receipt of Cash and Security Receipts
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• Valuation of Security Receipts at reporting dates, keeping in view the clarification sought by the Bank from RBI
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• Assessed the adequacy of disclosures as per RBI Guidelines
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IT Systems and Controls over financial reporting
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The Bank's key financial accounting and reporting
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• We have planned, designed and carried out the desired audit
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processes are highly dependent on Core Banking and
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procedures and sample checks, taking into consideration
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Treasury Solutions and other supporting software and
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the IT systems of the Bank. As part of our IT controls testing,
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hardware controls. The volume of transactions processed
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we have tested ITGC as well as ITAC for selected critical
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and recorded is huge. Moreover, a transaction may be
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applications. The focus of testing of ITGCs was based on
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required to be recorded across multiple applications
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the various parameters such as Completeness, Validity,
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depending upon the process and each application has
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Identification/ Authentication, Authorization, Integrity and
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different rules and a different set of user access and
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Accountability. On the other hand, focus of testing automated
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authority matrix. These applications are interlinked using
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controls from applications was whether the controls prevent
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different technologies so that data transfer happens in real
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or detect unauthorized transactions and support financial
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time or at a particular time of the day; in batches or at a
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objectives including completeness, accuracy, authorization
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transaction level and in an automated manner or manually.
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and validity of transactions. The procedures adopted by
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The Core Banking Solution (CBS) itself has many interfaces,
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us are, in our opinion, adequate to provide reasonable
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such that there exists a risk that gaps in the IT control
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assurance on the adequacy of IT controls in place. The areas
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environment could result in the financial accounting and
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for improvement as and when noticed are communicated for
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reporting records being materially misstated. The Bank
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suitable actions to the Bank as part of our audit. The corrective
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has a process for identifying the applications where the
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steps / alternate controls deployed by the Bank are tested
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controls are embedded. It also has a process to ensure
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on sample basis.
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that systems, processes and controls remain relevant
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• In ITGC testing, on sample basis, we reviewed control areas
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and updated. The Bank's IT control framework includes
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such as User Management, Change Management, Systems
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automated, semi-automated and manual controls
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Security, Cyber Security, Interface Testing, deployment of new
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designed to address identified risks. IT controls are stated
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applications, Incident Management, Physical & Environmental
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in Entity Level Controls (ELC), IT General Controls (ITGC)
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Security, Backup and Restoration, Business Continuity and
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and IT Application Controls (ITAC). Such controls contribute
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Disaster Recovery, Service Level Agreement.
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to risk mitigation of erroneous output data.
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• For ITAC, we carried out on sample basis, compliance tests of system functionality in order to assess the accuracy of system calculations. We also carried out procedures such as validations and limit checks on data entered into applications, approvals, process dependencies, restriction on time period in which transactions may be recorded and GL mapping for financial accounting.
• We tested the control environment using various techniques such as inquiry, walkthroughs in live environment, testing in UAT environment, review of documentation / record / reports, observation and re-performance. We had taken adequate samples of instances for our tests considering the audit universe.
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Key Audit Matters
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Auditor's Response
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IT Systems and Controls over financial reporting
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We have identified IT Controls Framework as a Key Audit
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• Wherever deviations were noted either the same were
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Matter as the Bank's business is highly dependent on
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explained to our satisfaction or we tested compensating
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technology, the IT environment is complex and the design
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controls and performed alternate procedures, where
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and operating effectiveness of IT controls have a direct
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necessary, to draw comfort.
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impact on its financial reporting process. Review of these controls allows us to provide assurance on the integrity and completeness of data processed through various IT applications which are used for the preparation of financial reports.
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• In addition, we have also relied on IS audit conducted by internal audit department, and also the testing of Internal Financial Control conducted by the Operational Risk Management department of the Bank.
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Recognition and Measurement of Deferred Tax Asset
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The Bank has recognized a net deferred tax asset of
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Our audit procedures involved gaining an understanding of the
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' 89,412 million as at March 31, 2023, including net
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applicable tax laws and relevant regulations applicable to the
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decrease of ' 2,431 million during the year.
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Bank. We performed the following audit procedures as part of
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Besides objective estimation, recognition and
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our controls testing:
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measurement of deferred tax asset is based on the
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• Evaluation of the policies used for recognition and
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judgment and numerous estimates regarding the
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measurement of deferred tax assets in accordance with
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availability and visibility of profits in the future and also
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AS 22 Accounting for Taxes on Income;
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considering probable impact of Covid-19 pandemic.
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• Assessed the probability of the availability of future taxable
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The amount of deferred tax assets recognized
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profits based on assumptions and other parameters used by
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presumes availability and forecasting of profits over an
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the Management including the probable impact of Covid-19
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extended period of time thus increasing uncertainty
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pandemic against which the Bank will be able to use this
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and the inherent risk of inappropriate recognition of
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deferred tax asset in the future with reference to forecast
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the said asset.
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as noted by the Board of Directors while adopting the standalone financial statements.
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• Assessed the method for determining the Deferred Tax Asset with reference to applicable tax rates and tested the arithmetical accuracy.
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Information other than the standalone financial statements and Auditor's Report thereon
The Bank's management and Board of Directors are responsible for the Other Information. The other information comprises the Management Discussion and Analysis, Directors' Report, including Annexures to Directors' Report and the Pillar 3 Disclosures under the New Capital Adequacy Framework (Basel III disclosures) (collectively called as "Other Information") but does not include the standalone financial statements and our auditor's report thereon. The Annual Report 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 the Other Information is materially inconsistent with the standalone financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
When we read the other information, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements
The Bank's management and Board of Directors are responsible for the matters stated in Section 134(5) of the Act with respect to the preparation and presentation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Bank in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act read with Companies (Accounting Standards) Rules, 2021 as amended to the extent applicable, provisions of Section 29 of the Banking Regulation Act, 1949 and the circulars and guidelines
issued by Reserve Bank of India ('RBI') from time to time, as applicable to the Bank. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act and the RBI Guidelines for safeguarding of the assets of the Bank and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies;making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial statements, the Management and Board of Directors are responsible for assessing the Bank's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.
Those Board of Directors are 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 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 standalone financial statements made by the Management and Board of Directors.
• Conclude on the appropriateness of the Management and Board of Director's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our Auditor's Report to the related disclosures in the standalone financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our Auditor's Report. However, future events or conditions may cause the Bank to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements of the current year 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
1) The balance sheet and the profit and loss account have been drawn up in accordance with the provisions of Section 29 of the Banking Regulation Act, 1949 and Section 133 of the Act and relevant rules issued thereunder.
2) As required by sub-section (3) of Section 30 of the Banking Regulation Act, 1949, 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 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) since the key operations of the Bank are automated with the key applications integrated to the core banking systems, the audit is carried out centrally as all the necessary records and data required for the purposes of our audit are available therein. Nevertheless, during the course of our audit we have visited 56 branches to examine the records maintained at such branches for the purpose of our audit.
3) As required by Section 143(3) of the Act, we report that:
(a) we have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;
(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 standalone balance sheet, the standalone profit and loss account, and the standalone 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 ofthe Act, read with Companies (Accounting Standard) Rules, 2021, as amended, to the extent they are not inconsistent with the accounting policies prescribed by RBI;
(e) on the basis of the written representations
received from the directors as at
March 31, 2023 taken on record by the Board of Directors, none of the directors is disqualified as at March 31, 2023 from being appointed as a director in terms of Section 164 (2) of the Act; and
(f) with respect to the adequacy of the internal financial controls with reference to standalone financial statements of the Bank and the operating effectiveness of such controls, refer to our separate Report in 'Annexure A'.
4) With respect to the other matters to be included in the Auditor's 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 explanations given to us:
(a) the Bank has disclosed the impact of pending litigations as at March 31, 2023 on its financial position in its standalone financial statements
- Refer Note No. 17.5.11 and 17.5.78 to the standalone financial statements;
(b) 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 - Refer Note No. 17.5.75 read with Note No. 17.5.19 to the standalone financial statements;
(c) there has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Bank during the year ended March 31, 2023
- Refer Note No. 17.5.64 to the standalone financial statements.
(d) (i) The management of the Bank has represented that, to the best of its knowledge and belief, other than as disclosed in the notes to accounts (Refer Note No. 17.5.36), 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;
(ii) The management of the Bank has represented that, to the best of its knowledge and belief, other than as disclosed in the notes to accounts (Refer Note No. 17.5.36) 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, 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
(iii) 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 (i) and (ii) above contain any material misstatement.
(e) No dividend has been declared or paid during the year by the Bank.
(f) Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 for maintaining books of accounts using accounting software which has a feature of recording audit trail (edit log) facility is applicable to the Company with effect from April 01,2023; and accordingly, reporting under Rule 11(g) of Companies (Audit and Auditors) Rule, 2014 is not applicable for the financial year ended March 31, 2023.
5) With respect to the matter to be included in the Auditors' Report under section 197(16) of the Act; the Bank is a banking company as defined under Banking Regulation Act, 1949. Accordingly, the requirements prescribed under Section 197 of the Companies Act, 2013 (the 'act') do not apply by virtue of Section 35B(2A) of the Banking Regulation Act, 1949.
For M P Chitale & Co. For Chokshi & Chokshi LLP
Chartered Accountants Chartered Accountants
(Firm Regn. No. 101851W) (Firm Regn. No. 101872W / W100045)
Anagha Thatte Vineet Saxena
Partner Partner
(Membership No. 105525) (Membership No. 100770)
UDIN: 23105525BGVABA7826 UDIN: 23100770BGXLGO1368
Place: Mumbai Place: Mumbai
Date: April 22, 2023 Date: April 22, 2023
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