We have audited the accompanying Standalone Financial
Statements of The Federal Bank Limited (“the Bank"), which
comprise the Balance Sheet as at March 31, 2025, the Profit and
Loss Account, the Cash Flow Statement for the year then ended, and
notes to the Standalone Financial Statements, including a summary
of significant accounting policies and other explanatory information
(“the Standalone Financial Statements").
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, circular, directions and the guidelines issued
by the Reserve Bank of India (“the RBI") from time to time (“the RBI
Guidelines") and the Companies Act, 2013 (“the Act") in the manner
so required for banking companies and give a true and fair view in
conformity with the Accounting Standards prescribed under section
133 of the Act read with Companies (Accounting Standards) Rules,
2021 and other accounting principles generally accepted in India, of
the state of affairs of the Bank as at March 31, 2025, 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 and other applicable
authoritative pronouncements issued by the Institute of Chartered
Accountant of India (“the ICAI"). 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 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 obtained by us, is
sufficient and appropriate to provide a basis for our opinion.
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 year ended March 31, 2025. 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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Sr.
No
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Key Audit Matters
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How the Key Audit Matters was addressed in our audit
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1
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Identification of and provisioning for Non-Performing Advances ("NPA")
Total Advances (Net of Provisions) as at March 31, 2025: H 2,34,83,63,947 thousands
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Provision of NPA: H 3,29,80,485 thousands as at March 31,2025.
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(Refer to Schedule 9, Schedule 17(4.2) and of Schedule 18(1.4.1.A1)).
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The RBI guidelines on Prudential Norms on Income Recognition,
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Our audit procedures in respect of this area included, but not limited
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Asset Classification and Provisioning pertaining to Advances
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to:
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(“IRAC") and other circulars and directives issued by the RBI from
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Process understanding and control testing:
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time to time pertaining to Advances, prescribes the norms for
identification and classification of performing and NPA and the
minimum provisions required for such advances.
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•
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Obtained an understanding of management’s process, systems/
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applications and controls implemented in relation to advances,
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identification of NPA and provisions thereon.
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The Bank is required to have a Board approved policy in place for
identification and classification of advances in Standard and NPA and
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•
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Tested system/application controls including automated process,
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provisioning thereon. The Bank is also expected to apply its judgement
to determine the identification and provisioning required against NPA
by applying quantitative as well as qualitative factors. The provision
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controls and system-based reconciliations pertaining to advances,
NPA identification and provision on advances as per IRAC norms
and Board approved policy.
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on NPA is estimated based on the asset classification of NPAs, nature
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Performed other substantive procedures including the following, but
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of loan product, value of security and other qualitative factors and is
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not limited to:
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subject to the minimum provisioning as per IRAC and Board approved
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•
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Selected samples for testing, based on quantitative and qualitative
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policy in this regard.
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risk factors. For the selected samples, tested accuracy of days
past due computation, assets classification at borrower level and
provisioning as per IRAC norms and Board approved policy.
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Since the identification of NPAs and provisioning for advances
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•
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Verified samples selected based on quantitative and qualitative
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requires a significant level of estimation and given its significance
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factors to test their conduct, security valuation, impairment
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to the overall audit including possible observation by RBI which
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indicators basis their financial strength or external factors if any.
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could result into disclosure in the Financial Statements, we have
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•
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Inquired with the credit and risk departments to ascertain if there
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ascertained identification and provisioning for NPAs as a key audit
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were indicators of stress or an occurrence of an event of default in
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matter.
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a particular loan account or any product category which needs to be
factored in classification of account as NPA.
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Sr.
No
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Key Audit Matters
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How the Key Audit Matters was addressed in our audit
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•
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Discussed with the management of the Bank on sectors where
there is perceived credit risk and the steps taken by management
to mitigate the risks pertaining to identified stress sectors.
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2
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Information Technology ("IT") systems and controls impacting financial controls
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The Bank's key financial accounting and reporting processes are
highly dependent on information systems including automated
controls in systems, such that there exists a risk that gaps in the
IT control environment could result in the financial accounting and
reporting records being misstated.
Amongst its multiple IT systems, we scoped in systems that are
key for overall financial reporting.
Appropriate IT general controls and application controls are
required to ensure that such IT systems are able to process the
data, as required, completely, accurately and consistently for
reliable financial reporting.
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Key IT audit procedures performed included the following, but not
limited to:
• For testing the IT general controls, application controls and IT
dependent manual controls, we involved IT specialists as part of
the audit. The team also assisted in testing the accuracy of the
information produced by the Bank's IT systems.
• Obtained a comprehensive understanding of IT applications
landscape implemented at the Bank. It was followed by
process understanding, mapping of applications to the same
and understanding financial risks posed by people-process
and technology.
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We have identified 'IT systems and controls' as a key audit matter
considering the high level of automation, significant number of
systems being used by management and the complexity of the IT
architecture and its impact on overall financial reporting process
and regulatory expectation on automation.
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•
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Key IT audit procedures includes testing design and operating
effectiveness of key controls operating over user access management
(which includes user access provisioning, de-provisioning, access
review, password configuration review, segregation of duties and
privilege access), change management (which include change
release in production environment are compliant to the defined
procedures and segregation of environment is ensured), program
development (which include review of data migration activity),
computer operations (which includes testing of key controls
pertaining to, backup, Batch processing (including interface testing),
incident management and data centre security), System interface
controls. This included testing that requests for access to systems
were appropriately logged, reviewed and authorized.
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•
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In addition to the above, the design and operating effectiveness of
certain automated controls, that were considered as key internal
system controls over financial reporting were tested. Using various
techniques such as inquiry, review of documentation / record /
reports, observation, and re-performance. We also tested few
controls using negative testing technique.
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•
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Tested compensating controls and performed alternate procedures,
where necessary. In addition, understood where relevant changes
made to the IT landscape during the audit period.
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Information Other than the Standalone Financial Statements
and Auditor's Report Thereon
The Bank's Board of Directors is responsible for the other information.
The other information comprises the information included in the Annual
Report 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 will 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 Annual Report, if we conclude that there is a
material misstatement therein, we are required to communicate
the matter to those charged with governance under SA 720 'The
Auditor's responsibilities Relating to Other Information'.
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 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 and the Banking
Regulation Act, 1949 and the RBI Guidelines. This responsibility also
includes maintenance of adequate accounting records in accordance
with the provisions of the Act, Banking Regulation Act, 1949 and
RBI Guidelines for safeguarding of the assets of the Bank and for
preventing and detecting frauds and other irregularities; selection
and application of appropriate significant 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, 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.
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 Standalone Financial Statements in place and the operating
effectiveness of such controls.
• Evaluate the appropriateness of significant accounting policies
used and the reasonableness of accounting estimates and
related disclosures made by management of the Bank.
• Conclude on the appropriateness of management 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
for the year ended March 31, 2025 and are therefore, the key audit
matters. We describe these matters in our auditor's report unless
law or regulation precludes public disclosure about the matter
or when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because the
adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
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 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 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.
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. However, during the
course of our audit we have visited 152 branches.
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 Balance Sheet, the 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, to the
extent they are not inconsistent with the guidelines
prescribed by the RBI.
e. On the basis of the written representations received
from the directors as on March 31, 2025, taken on
record by the Board of Directors, none of the directors is
disqualified as on March 31, 2025, from being appointed
as a director in terms of Section 164 (2) of the Act.
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".
g. 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, in our
opinion and to the best of our information and according
to the explanations given to us:
i. The Bank has disclosed the impact of pending
litigations on its financial position in its Standalone
Financial Statements - Refer Schedule 12, Note
4.22 of Schedule 17 and Note 1.12.5 of Schedule
18 to the Standalone 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 - Refer
Schedule 12, Note 4.22 of Schedule 17 and Note
1.12.5 of Schedule 18 to the Standalone Financial
Statements; and
iii. There has been no delay in transferring amounts,
required to be transferred, to the Investor Education
and Protection Fund by the Bank- Refer Note 3.10 of
Schedule 18 to the Standalone Financial Statements.
iv. (1) The Management has represented that, to the
best of its knowledge and belief as disclosed
in Note 3.12 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 persons or entities, including
foreign entities (“Intermediaries"), with the
understanding, whether recorded in writing or
otherwise, that the Intermediary shall, 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.
(2) The Management has represented, that,
to the best of its knowledge and belief, as
disclosed in the Note 3.12 to the Standalone
Financial Statements, no funds have been
received by the Bank from any persons or
entities, including foreign entities (“Funding
Parties"), with the understanding, whether
recorded in writing or otherwise, that the
Bank shall, 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.
(3) Based on the audit procedures performed
that have been considered reasonable
and appropriate in the circumstances, and
according to the information and explanations
provided to us by the management in this
regard nothing has come to our notice
that has caused us to believe that the
representations under sub-clause (i) and (ii)
of Rule 11(e) as provided under (1) and (2)
above, contain any material mis-statement.
v. The Bank has declared and paid dividend during the
year which is in compliance with section 123 of the
Act and the Banking Regulation Act, 1949.
vi. Based on our examination which included test
checks, the Bank has used an accounting software
for maintaining its books of account including the
system managed and maintained by a third-party
software service provider which has a feature of
recording audit trail (edit log) facility and the same
has been operated throughout the year for all the
relevant transactions recorded in the software.
Further, during the course of our audit we did not
come across any instance of audit trail feature
being tampered with. Additionally, the audit trail of
prior year has been preserved by the Bank as per
the statutory requirements for record retention.
h. With respect to the other matters to be included in the
Auditor's Report in accordance with the requirements of
Section 197(16) of the Act, as amended, the Bank is a
banking Company as defined under Banking Regulation
Act, 1949. Accordingly, the requirements prescribed
under Section 197 of the Act do not apply.
For M S K A & Associates For Suri & Co
Chartered Accountants Chartered Accountants
ICAI Firm Registration ICAI Firm Registration
Number: 105047W Number: 004283S
Swapnil Kale G. Rengarajan
Partner Partner
Membership Number: 117812 Membership Number: 219922
UDIN: 25117812BMNULE6303 UDIN: 25219922BMISTM4657
Mumbai Mumbai
April 30, 2025 April 30, 2025
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