We have audited the accompanying Standalone FinancialStatements of The Federal Bank Limited (“the Bank"), whichcomprise the Balance Sheet as at March 31, 2025, the Profit andLoss Account, the Cash Flow Statement for the year then ended, andnotes to the Standalone Financial Statements, including a summaryof significant accounting policies and other explanatory information(“the Standalone Financial Statements").
In our opinion and to the best of our information and according tothe explanations given to us, the aforesaid Standalone FinancialStatements give the information required by the BankingRegulation Act, 1949, circular, directions and the guidelines issuedby the Reserve Bank of India (“the RBI") from time to time (“the RBIGuidelines") and the Companies Act, 2013 (“the Act") in the mannerso required for banking companies and give a true and fair view inconformity with the Accounting Standards prescribed under section133 of the Act read with Companies (Accounting Standards) Rules,2021 and other accounting principles generally accepted in India, ofthe state of affairs of the Bank as at March 31, 2025, its profit andits cash flows for the year ended on that date.
We conducted our audit in accordance with the Standards on Auditing('SAs') specified under section 143(10) of the Act and other applicableauthoritative pronouncements issued by the Institute of CharteredAccountant of India (“the ICAI"). Our responsibilities under those SAsare further described in the Auditor's Responsibilities for the Audit ofthe Standalone Financial Statements section of our report. We areindependent of the Bank in accordance with the Code of Ethics issuedby the ICAI together with the ethical requirements that are relevant toour audit of the Standalone Financial Statements under the provisionsof the Act and the Rules thereunder, and we have fulfilled our otherethical responsibilities in accordance with these requirements and theCode of Ethics. We believe that the audit evidence obtained by us, issufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professionaljudgment, were of most significance in our audit of the StandaloneFinancial Statements for the year ended March 31, 2025. Thesematters were addressed in the context of our audit of the StandaloneFinancial 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 keyaudit matters to be communicated in our report.
Sr.
No
Key Audit Matters
How the Key Audit Matters was addressed in our audit
1
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
Provision of NPA: H 3,29,80,485 thousands as at March 31,2025.
(Refer to Schedule 9, Schedule 17(4.2) and of Schedule 18(1.4.1.A1)).
The RBI guidelines on Prudential Norms on Income Recognition,
Our audit procedures in respect of this area included, but not limited
Asset Classification and Provisioning pertaining to Advances
to:
(“IRAC") and other circulars and directives issued by the RBI from
Process understanding and control testing:
time to time pertaining to Advances, prescribes the norms foridentification and classification of performing and NPA and theminimum provisions required for such advances.
•
Obtained an understanding of management’s process, systems/
applications and controls implemented in relation to advances,
identification of NPA and provisions thereon.
The Bank is required to have a Board approved policy in place foridentification and classification of advances in Standard and NPA and
Tested system/application controls including automated process,
provisioning thereon. The Bank is also expected to apply its judgementto determine the identification and provisioning required against NPAby applying quantitative as well as qualitative factors. The provision
controls and system-based reconciliations pertaining to advances,NPA identification and provision on advances as per IRAC normsand Board approved policy.
on NPA is estimated based on the asset classification of NPAs, nature
Performed other substantive procedures including the following, but
of loan product, value of security and other qualitative factors and is
not limited to:
subject to the minimum provisioning as per IRAC and Board approved
Selected samples for testing, based on quantitative and qualitative
policy in this regard.
risk factors. For the selected samples, tested accuracy of dayspast due computation, assets classification at borrower level andprovisioning as per IRAC norms and Board approved policy.
Since the identification of NPAs and provisioning for advances
Verified samples selected based on quantitative and qualitative
requires a significant level of estimation and given its significance
factors to test their conduct, security valuation, impairment
to the overall audit including possible observation by RBI which
indicators basis their financial strength or external factors if any.
could result into disclosure in the Financial Statements, we have
Inquired with the credit and risk departments to ascertain if there
ascertained identification and provisioning for NPAs as a key audit
were indicators of stress or an occurrence of an event of default in
matter.
a particular loan account or any product category which needs to befactored in classification of account as NPA.
Discussed with the management of the Bank on sectors wherethere is perceived credit risk and the steps taken by managementto mitigate the risks pertaining to identified stress sectors.
2
Information Technology ("IT") systems and controls impacting financial controls
The Bank's key financial accounting and reporting processes arehighly dependent on information systems including automatedcontrols in systems, such that there exists a risk that gaps in theIT control environment could result in the financial accounting andreporting records being misstated.
Amongst its multiple IT systems, we scoped in systems that arekey for overall financial reporting.
Appropriate IT general controls and application controls arerequired to ensure that such IT systems are able to process thedata, as required, completely, accurately and consistently forreliable financial reporting.
Key IT audit procedures performed included the following, but notlimited to:
• For testing the IT general controls, application controls and ITdependent manual controls, we involved IT specialists as part ofthe audit. The team also assisted in testing the accuracy of theinformation produced by the Bank's IT systems.
• Obtained a comprehensive understanding of IT applicationslandscape implemented at the Bank. It was followed byprocess understanding, mapping of applications to the sameand understanding financial risks posed by people-processand technology.
We have identified 'IT systems and controls' as a key audit matterconsidering the high level of automation, significant number ofsystems being used by management and the complexity of the ITarchitecture and its impact on overall financial reporting processand regulatory expectation on automation.
Key IT audit procedures includes testing design and operatingeffectiveness of key controls operating over user access management(which includes user access provisioning, de-provisioning, accessreview, password configuration review, segregation of duties andprivilege access), change management (which include changerelease in production environment are compliant to the definedprocedures and segregation of environment is ensured), programdevelopment (which include review of data migration activity),computer operations (which includes testing of key controlspertaining to, backup, Batch processing (including interface testing),incident management and data centre security), System interfacecontrols. This included testing that requests for access to systemswere appropriately logged, reviewed and authorized.
In addition to the above, the design and operating effectiveness ofcertain automated controls, that were considered as key internalsystem controls over financial reporting were tested. Using varioustechniques such as inquiry, review of documentation / record /reports, observation, and re-performance. We also tested fewcontrols using negative testing technique.
Tested compensating controls and performed alternate procedures,where necessary. In addition, understood where relevant changesmade to the IT landscape during the audit period.
The Bank's Board of Directors is responsible for the other information.The other information comprises the information included in the AnnualReport but does not include the Standalone Financial Statements, andour auditor's report thereon. The Annual report is expected to be madeavailable to us after the date of this auditor's report.
Our opinion on the Standalone Financial Statements does not coverthe other information and we will not express any form of assuranceconclusion thereon.
In connection with our audit of the Standalone Financial Statements,our responsibility is to read the other information identified abovewhen it becomes available and, in doing so, consider whether theother information is materially inconsistent with the StandaloneFinancial Statements or our knowledge obtained in the audit, orotherwise appears to be materially misstated.
When we read the Annual Report, if we conclude that there is amaterial misstatement therein, we are required to communicate
the matter to those charged with governance under SA 720 'TheAuditor's responsibilities Relating to Other Information'.
Responsibilities of Management and Those Charged withGovernance for the Standalone Financial Statements
The Bank's Board of Directors is responsible for the matters statedin section 134(5) of the Act with respect to the preparation andpresentation of these Standalone Financial Statements that givea true and fair view of the financial position, financial performanceand cash flows of the Bank in accordance with the accountingprinciples generally accepted in India, including the AccountingStandards specified under section 133 of the Act read withCompanies (Accounting Standards) Rules, 2021 and the BankingRegulation Act, 1949 and the RBI Guidelines. This responsibility alsoincludes maintenance of adequate accounting records in accordancewith the provisions of the Act, Banking Regulation Act, 1949 andRBI Guidelines for safeguarding of the assets of the Bank and forpreventing and detecting frauds and other irregularities; selectionand 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 theaccuracy and completeness of the accounting records, relevantto the preparation and presentation of the Standalone FinancialStatements that give a true and fair view and are free from materialmisstatement, whether due to fraud or error.
In preparing the Standalone Financial Statements, Board of Directorsis responsible for assessing the Bank's ability to continue as a goingconcern, disclosing, as applicable, matters related to going concernand using the going concern basis of accounting unless the Board ofDirectors 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 theBank's financial reporting process.
Our objectives are to obtain reasonable assurance about whether theStandalone Financial Statements as a whole are free from materialmisstatement, whether due to fraud or error, and to issue an auditor'sreport that includes our opinion. Reasonable assurance is a highlevel of assurance but is not a guarantee that an audit conductedin accordance with SAs will always detect a material misstatementwhen it exists. Misstatements can arise from fraud or error and areconsidered material if, individually or in the aggregate, they couldreasonably be expected to influence the economic decisions of userstaken on the basis of these Standalone Financial Statements.
As part of an audit in accordance with SAs, we exercise professionaljudgment and maintain professional skepticism throughout theaudit. We also:
• Identify and assess the risks of material misstatement ofthe Standalone Financial Statements, whether due to fraudor error, design and perform audit procedures responsive tothose risks, and obtain audit evidence that is sufficient andappropriate to provide a basis for our opinion. The risk of notdetecting a material misstatement resulting from fraud ishigher than for one resulting from error, as fraud may involvecollusion, forgery, intentional omissions, misrepresentations,or the override of internal control.
• Obtain an understanding of internal control relevant to theaudit in order to design audit procedures that are appropriatein the circumstances. Under section 143(3)(i) of the Act, weare also responsible for expressing our opinion on whether theBank has adequate internal financial controls with referenceto Standalone Financial Statements in place and the operatingeffectiveness of such controls.
• Evaluate the appropriateness of significant accounting policiesused and the reasonableness of accounting estimates andrelated disclosures made by management of the Bank.
• Conclude on the appropriateness of management use of thegoing concern basis of accounting and, based on the auditevidence obtained, whether a material uncertainty existsrelated to events or conditions that may cast significant doubton the Bank's ability to continue as a going concern. If weconclude that a material uncertainty exists, we are required todraw attention in our auditor's report to the related disclosuresin the Standalone Financial Statements or, if such disclosuresare inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of ourauditor's report. However, future events or conditions maycause the Bank to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of theStandalone Financial Statements, including the disclosures,and whether the Standalone Financial Statements representthe underlying transactions and events in a manner thatachieves fair presentation.
We communicate with those charged with governance regarding,among other matters, the planned scope and timing of the auditand significant audit findings, including any significant deficienciesin internal control that we identify during our audit.
We also provide those charged with governance with a statementthat we have complied with relevant ethical requirements regardingindependence, and to communicate with them all relationshipsand other matters that may reasonably be thought to bear on ourindependence, and where applicable, related safeguards.
From the matters communicated with those charged withgovernance, we determine those matters that were of mostsignificance in the audit of the Standalone Financial Statementsfor the year ended March 31, 2025 and are therefore, the key auditmatters. We describe these matters in our auditor's report unlesslaw or regulation precludes public disclosure about the matteror when, in extremely rare circumstances, we determine that amatter should not be communicated in our report because theadverse consequences of doing so would reasonably be expected tooutweigh the public interest benefits of such communication.
1. The Balance Sheet and the Profit and Loss Account have beendrawn up in accordance with the provisions of Section 29 ofthe Banking Regulation Act, 1949 and Section 133 of the Actand relevant rules issued thereunder.
2. As required by sub-section (3) of section 30 of the BankingRegulation Act, 1949, we report that:
a. we have sought and obtained all the information andexplanations which, to the best of our knowledge andbelief, were necessary for the purposes of our audit andhave found them to be satisfactory.
b. the transactions of the Bank, which have come to ournotice, have been within the powers of the Bank.
c. since the key operations of the Bank are automatedwith the key applications integrated to the core bankingsystems, the audit is carried out centrally as all thenecessary records and data required for the purposesof our audit are available therein. However, during thecourse 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 andexplanations which to the best of our knowledge andbelief were necessary for the purposes of our audit.
b. In our opinion, proper books of account as required bylaw have been kept by the Bank so far as it appears fromour examination of those books.
c. The Balance Sheet, the Profit and Loss Account and theCash Flow Statement dealt with by this Report are inagreement with the books of account.
d. In our opinion, the aforesaid Standalone FinancialStatements comply with the Accounting Standardsspecified under Section 133 of the Act, to theextent they are not inconsistent with the guidelinesprescribed by the RBI.
e. On the basis of the written representations receivedfrom the directors as on March 31, 2025, taken onrecord by the Board of Directors, none of the directors isdisqualified as on March 31, 2025, from being appointedas a director in terms of Section 164 (2) of the Act.
f. With respect to the adequacy of the internal financialcontrols with reference to Standalone FinancialStatements of the Bank and the operating effectivenessof such controls, refer to our separate Reportin “Annexure A".
g. With respect to the other matters to be included inthe Auditor's Report in accordance with Rule 11 of theCompanies (Audit and Auditors) Rules, 2014, in ouropinion and to the best of our information and accordingto the explanations given to us:
i. The Bank has disclosed the impact of pendinglitigations on its financial position in its StandaloneFinancial Statements - Refer Schedule 12, Note4.22 of Schedule 17 and Note 1.12.5 of Schedule18 to the Standalone Financial Statements;
ii. The Bank has made provision, as required underthe applicable law or accounting standards, formaterial foreseeable losses, if any, on long-termcontracts including derivative contracts - ReferSchedule 12, Note 4.22 of Schedule 17 and Note1.12.5 of Schedule 18 to the Standalone FinancialStatements; and
iii. There has been no delay in transferring amounts,required to be transferred, to the Investor Educationand Protection Fund by the Bank- Refer Note 3.10 ofSchedule 18 to the Standalone Financial Statements.
iv. (1) The Management has represented that, to the
best of its knowledge and belief as disclosedin Note 3.12 of Schedule 18 to the StandaloneFinancial Statements, no funds have beenadvanced or loaned or invested (either fromborrowed funds or share premium or anyother sources or kind of funds) by the Bank toor in any other persons or entities, includingforeign entities (“Intermediaries"), with theunderstanding, whether recorded in writing orotherwise, that the Intermediary shall, directlyor indirectly lend or invest in other persons orentities identified in any manner whatsoever byor on behalf of the Bank (“Ultimate Beneficiaries")or provide any guarantee, security or the like onbehalf of the Ultimate Beneficiaries.
(2) The Management has represented, that,to the best of its knowledge and belief, asdisclosed in the Note 3.12 to the StandaloneFinancial Statements, no funds have beenreceived by the Bank from any persons orentities, including foreign entities (“FundingParties"), with the understanding, whetherrecorded in writing or otherwise, that theBank shall, directly or indirectly, lend or investin other persons or entities identified in anymanner whatsoever by or on behalf of theFunding Party (“Ultimate Beneficiaries") orprovide any guarantee, security or the like onbehalf of the Ultimate Beneficiaries.
(3) Based on the audit procedures performedthat have been considered reasonableand appropriate in the circumstances, andaccording to the information and explanationsprovided to us by the management in thisregard nothing has come to our noticethat has caused us to believe that therepresentations 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 theyear which is in compliance with section 123 of theAct and the Banking Regulation Act, 1949.
vi. Based on our examination which included testchecks, the Bank has used an accounting softwarefor maintaining its books of account including thesystem managed and maintained by a third-partysoftware service provider which has a feature ofrecording audit trail (edit log) facility and the samehas been operated throughout the year for all therelevant transactions recorded in the software.Further, during the course of our audit we did notcome across any instance of audit trail featurebeing tampered with. Additionally, the audit trail ofprior year has been preserved by the Bank as perthe statutory requirements for record retention.
h. With respect to the other matters to be included in theAuditor's Report in accordance with the requirements ofSection 197(16) of the Act, as amended, the Bank is abanking Company as defined under Banking RegulationAct, 1949. Accordingly, the requirements prescribedunder 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