We have jointly audited the accompanying financial statements
of UTKARSH SMALL FINANCE BANK LIMITED (the Bank"),
which comprise the Balance Sheet as at March 31, 2025, Profit
and Loss Account, the Cash Flow Statement for the year then
ended, and a summary of 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 financial statements
give the information required by the Banking Regulation Act,
1949 and the Companies Act, 2013 (the “Act”) in the manner
so required and give a true and fair view in conformity with the
Accounting Standards prescribed under section 133 of the Act
(“Accounting Standards”) as applicable to the Bank, the relevant
circulars, guidelines and directions issued by the Reserve Bank
of India (“RBI”) from time to time and other accounting principles
generally accepted in India, of the state of affairs of the Bank as at
March 31,2025, and its profit and its cash flows for the year ended
on that date.
Basis for Opinion
We conducted our audit of the financial statements in accordance
with the Standards on Auditing (“SA”s) specified under section
143(10) of the Act. Our responsibilities under those Standards
are further described in the Auditor’s Responsibility for the
Audit of the Financial Statements section of our report. We are
independent of the Bank in accordance with the Code of Ethics
issued by the Institute of Chartered Accountants of India (“ICAI”)
together with the ethical requirements that are relevant to our
audit of the financial statements under the provisions of the Act
and the Rules made thereunder, and we have fulfilled our other
ethical responsibilities in accordance with these requirements
and the ICAI’s Code of Ethics. We believe that the audit evidence
obtained by us is sufficient and appropriate to provide a basis for
our audit opinion on the financial statements.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period. These matters were addressed
in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. 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 Matter
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Auditor’s Response
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1. Identification of and Provisioning against Non-performing Assets (“NPAs”):
Total Loans and Advances (Net of Provision) as at March 31, 2025: Rs. 18,71,648 Lakhs
Provision for NPAs as at March 31, 2025: Rs. 94,910 Lakhs
Refer Schedule 9, Schedule 17(B)(c) and Schedule 18.4.1
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Advances constitute a significant portion of the Bank’s assets and
the quality of these advances is measured in terms of ratio of NPA to
the gross advances of the Bank.
The Bank is required to comply with the Master Circular issued by
the Reserve Bank of India ('RBI’) on 'Prudential Norms for Income
Recognition, Asset Classification and Provisioning pertaining
to Advances’ (the’ IRAC norms’) and amendments thereto (“RBI
guidelines”) which prescribes the norms for identification and
classification of Non-performing Assets ('NPAs’) and the minimum
provision required for such assets.
The Bank is also required to apply its judgement to determine the
identification and provision required against NPAs considering
various quantitative as well as qualitative factors.
As the identification of and provisioning against NPAs requires
considerable level of management estimation, application of
various regulatory requirements and its significance to the overall
audit due to stakeholder and regulatory focus, we have identified
this as a key audit matter.
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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. In particular:
• We have evaluated and understood the Bank’s internal
control system in adhering to the RBI guidelines;
• We have analysed and understood key IT systems/
applications used and tested the design and implementation
as well as operational effectiveness of relevant controls
in relation to income recognition, asset classification, viz.,
standard, sub-standard, doubtful and loss with reference to
RBI guidelines and provisioning pertaining to advances;
• We test checked advances to examine the validity and
accuracy of the recorded amounts, impairment provision for
NPAs, recognition of floating asset provision based on board
approved policy and its utilisation based on RBI’s approval, in
compliance with IRAC norms and other RBI Guidelines.
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Sr. No.
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Key Audit Matter
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Auditor’s Response
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Information Technology (‘IT’) Systems and Controls impacting Financial Reporting
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As a Scheduled Commercial Bank that operates on core banking
solution (“CBS”) and other applications across its branches, the
reliability and security of IT systems plays a key role in the business
operations. Since large volume of transactions are processed daily,
the IT controls are required to ensure that applications process data
as expected and that changes are made in an appropriate manner.
The IT infrastructure is critical for smooth functioning of the Bank’s
business operations as well as for timely and accurate financial
accounting and reporting.
Due to the pervasive nature and complexity of the IT environment
we have ascertained Key Information technology (“IT”) systems
used in financial reporting process as a key audit matter.
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In assessing the controls over the IT systems of the Bank, we
involved our technology specialists to understand the IT control
environment, IT infrastructure and IT systems.
We conducted an assessment and identified key IT systems
that are critical for accounting and financial reporting process
and are relevant for our audit and tested their internal controls. In
particular:
• We obtained an understanding of the Bank’s IT control
environment and key changes during the audit period that
may be relevant to the audit;
• We tested the design, implementation and operating
effectiveness of the Bank’s General IT controls over the key
IT systems that are critical to financial reporting. This included
evaluation of Bank’s controls to evaluate segregation of
duties and access rights being provisioned / modified based
on duly approved requests, access for exit cases being
revoked in a timely manner and access of all users being
recertified during the period of audit;
• We tested key automated and manual business cycle
controls and logic for system generated reports relevant to
the audit; and
• We also tested compensating controls and performed
alternate procedures to assess whether there were any
unaddressed IT risks that would materially impact the
financial statements.
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Information Other than the Financial Statements
and Auditor’s Report Thereon
Ý The Bank’s Board of Directors is responsible for the
preparation of the other information. The other information
comprises the Chairman’s Statement, the Directors Report
including annexures to the Directors report included in the
Annual Report but does not include the financial statements
and our auditors report thereon and the Basel II Disclosures
under New Capital Adequacy Framework (Basel II
Disclosures).
Ý Our opinion on the financial statements does not cover the
other information and Basel II Disclosures and we do not
express any form of assurance conclusion thereon.
Ý In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained during the course of our audit or otherwise appears
to be materially misstated.
Ý If, based on the work we have performed on the other
information that we obtained prior to the date of this auditor’s
report, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We
have nothing to report in this regard.
Responsibilities of Management and those
charged with Governance for the 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 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 provisions of Section 29 of
the Banking Regulation Act, 1949, Accounting Standards and
other accounting principles generally accepted in India and the
circulars, guidelines and the directions issued by RBI, from time to
time. This responsibility also includes maintenance of adequate
accounting records in accordance with the provisions of the
Act for safeguarding 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 financial statements that
give a true and fair view and are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, 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 intend to liquidate
the Bank or to cease operations, or has no realistic alternative but
to do so.
The Bank’s Board of Directors is also responsible for overseeing
the Bank’s financial reporting process.
Auditor’s Responsibility for the Audit of the
Financial Statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with SAs will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
As part of an audit in accordance with SAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:
Ý Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate
to provide a basis for our opinion. The risk of not detecting
a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the
override of internal control.
Ý Obtain an understanding of internal financial controls
relevant to the audit in order to design audit procedures that
are appropriate in the circumstance. 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.
Ý Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and related
disclosures made by the management.
Ý Conclude on the appropriateness of management’s use of
the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant
doubt on the Bank’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related
disclosures in the financial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may
cause the Bank to cease to continue as a going concern.
Ý 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 financial
statements that, individually or in aggregate, makes it probable
that the economic decisions of a reasonably knowledgeable
user of the financial statements may be influenced. We consider
quantitative materiality and qualitative factors in (i) planning the
scope of our audit work and in evaluating the results of our work;
and (ii) to evaluate the effect of any identified misstatements in the
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 financial controls 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 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. As required by Section 143(3) of the Act, and Section 30(3)
of the Banking Regulation Act, 1949, based on our audit 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, the transactions of the Bank which have
come to our notice have been within the powers of
the bank.
c) As explained in the paragraph 2 below, the financial
accounting system of the Bank are centralised and,
therefore, accounting returns are not required to be
submitted by branches.
d) 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.
e) The Balance Sheet, Profit and Loss Account and the
Cash Flow Statement dealt with by this Report are in
agreement with the relevant books of account.
f) In our opinion, the aforesaid financial statements comply
with the Accounting Standards specified under Section
133 of the Act as applicable to the Banks.
g) 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.
h) With respect to the maintenance of accounts and other
matters connected therewith, reference is made to our
remarks in paragraph 1(b) above on reporting under
Section 143(3)(b) and paragraph 1(k)(vi) below on
reporting under Rule 11(g) of the Rules;
i) With respect to the adequacy of the internal financial
controls with reference to financial statements of the
Bank and the operating effectiveness of such controls,
refer to our separate Report in “Annexure A”. Our report
expresses an unmodified opinion on the adequacy and
operating effectiveness of the Bank’s internal financial
controls with reference to financial statements.
j) 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, in our opinion
and to the best of our information and according to the
explanations given to us, the entity being a banking
company, section 197 of the Act related to the managerial
remuneration is not applicable by virtue of Section
35B(2A) of the Banking Regulation Act, 1949.
k) 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 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
financial statements - Refer Schedule 12 to the
financial statements;
ii. The Bank did not have any long-term contracts
including derivative contracts for which there were
any material foreseeable losses.
iii. There were no amounts which were required to be
transferred to the Investor Education and Protection
Fund by the Bank.
iv. (a) The Management has represented that, to the
best of its knowledge and belief, as disclosed in
the Schedule 18.28 to the financial statements
no funds have been advanced or loaned
or invested (either from borrowed funds or
share premium or any other sources or kind of
funds) by the Bank to or in any other person(s)
or entity(ies), including foreign entities
(“Intermediaries”), with the understanding,
whether recorded in writing or otherwise, that
the Intermediary shall, 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 Schedule 18.28 to the financial
statements, no funds have been received by
the Bank from any person(s) or entity(ies),
including foreign entities (“Funding Parties”),
with the understanding, whether recorded
in writing or otherwise, that the Bank shall,
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.
(c) Based on the audit procedures performed
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 (i)
and (ii) of Rule 11(e), as provided under (a) and
(b) above, contain any material misstatement.
v. The final dividend proposed in the previous year,
declared and paid by the Bank during the year
is in accordance with section 123 of the Act,
as applicable.
vi. Based on our examination, which included test
checks, the Bank has used accounting software
systems for maintaining its books of account for
the financial year ended March 31, 2025 which have
the feature of recording audit trail (edit log) facility
and the same has operated throughout the year for
all relevant transactions recorded in the software
systems. Further, during the course of our audit we
did not come across any instance of the audit trail
feature being tampered with and the audit trail has
been preserved by the Bank as per the statutory
requirements for record retention.
2. We report that during the course of our audit we have
visited and performed select relevant procedures at 40
branches. Since the Bank considers its key operations to be
automated, with the key applications largely integrated to
the Core Banking System, it does not require its branches to
submit any financial returns. Accordingly our audit is carried
out centrally at Head Office based on the records and data
required for the purpose of Audit being made available to us.
For Deloitte Haskins & Sells For Kirtane & Pandit LLP
Chartered Accountants Chartered Accountants
(Firm Registration No. 117365W) (Firm Registration No.105215W/W100057)
G. K. Subramaniam Sandeep Welling
Partner Partner
Membership No. 109839 Membership No. 044576
UDIN: 25109839BMOFVH3118 UDIN: 25044576BMKQXS3892
Place: Mumbai Place: Mumbai
Date: May 03, 2025 Date: May 03, 2025
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