We have audited the accompanying Standalone FinancialStatements of The Federal Bank Limited (“the Bank”), whichcomprise the Balance Sheet as at March 31, 2026, the Profit andLoss Account, the Cash Flow Statement for the year then ended,and notes to the Standalone Financial Statements, including asummary of significant accounting policies and other explanatoryinformation (“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 (“the Banking Regulations”), circular,directions and the guidelines issued by the Reserve Bank ofIndia (“the RBI”) from time to time (“the RBI Guidelines”) and theCompanies Act, 2013 (“the Act”) in the manner so required forbanking companies and give a true and fair view in conformitywith the Accounting Standards prescribed under section 133 ofthe Act read with Companies (Accounting Standards) Rules, 2021and other accounting principles generally accepted in India, of thestate of affairs of the Bank as at March 31, 2026, its profit and itscash flows for the year ended on that date.
We conducted our audit in accordance with the Standards onAuditing (SAs) specified under section 143(10) of the Act andother applicable authoritative pronouncements issued by theInstitute of Chartered Accountant of India (“the ICAI”). Ourresponsibilities under those SAs are further described in theAuditor's Responsibilities for the Audit of the Standalone FinancialStatements section of our report. We are independent of the Bankin accordance with the Code of Ethics issued by the ICAI togetherwith the ethical requirements that are relevant to our audit of theStandalone Financial Statements under the provisions of the Actand the Rules thereunder, and we have fulfilled our other ethicalresponsibilities in accordance with these requirements and theCode of Ethics. We believe that the audit evidence obtained byus, is sufficient 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, 2026. 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, 2026: H 2,64,59,43,671 thousandsProvision of NPA as at March 31, 2026: H 3,77,46,598 thousands(Refer to Schedule 9, Schedule 17(4.2) and of Schedule 18(1.4.1.A)).
The RBI guidelines on Prudential Norms on Income Our audit procedures in respect of this area included, butRecognition, Asset Classification and Provisioning not limited to:
pertaining to Advances (“IRAC”) and other circulars and Process understanding and control testing:
directives issued by the RBI from time to time pertaining
to Advances, prescribes the norms for identification and • Obtained an understanding of management's process, systems/classification of performing and NPA and the minimum applications and controls implemented in relation to advances,provisions required for such advances. identification of NPA and provisions thereon.
The Bank is required to have a Board approved policy in place • Tested system/application controls including automatedfor identification and classification of advances in Standard process, controls and system-based reconciliations pertainingand NPA and provisioning thereon. The Bank is also expected to advances, NPA identification and provision on advances asto apply its judgement to determine the identification and per IRAC norms and the Board approved policy.provisioning required against NPA by applying quantitative as Performed other substantive procedures including the following,well as qualitative factors. The provision on NPA is estimated but not limited to:based on the asset classification of NPAs, nature of loan
• Selected samples for testing, based on quantitative and qualitative
product, value of security and other qualitative factors and
risk factors. For the selected samples, tested accuracy of days
is subject to the minimum provisioning as per IRAC and the
past due computation, assets classification at borrower level and
Board approved policy in this regard.
provisioning as per IRAC norms and the Board approved policy.
Key Audit Matters How the Key Audit Matters was addressed in our audit
Since the identification of NPAs and provisioning for • Verified samples selected based on quantitative andadvances requires a significant level of estimation and qualitative factors to test their conduct, security valuation,given its significance to the overall audit including possible impairment indicators basis their financial strength or externalobservation by the RBI which could result into disclosure in factors if any.
the Standalone Financial Statements, we have ascertained # Squired with the credit and risk departments to ascertain if
identification and provisioning for NPAs as a key audit there were indicators of stress or an occurrence of an eventmatter
of default in a particular loan account or any product categorywhich needs to be factored in classification of account as NPA.
• Discussed with the Bank's Management on sectors wherethere is perceived credit risk and the steps taken by Bank'sManagement to mitigate the risks pertaining to identifiedstress sectors.
2 Information Technology (“IT”) systems and controls impacting financial controls
The Bank's key financial accounting and reporting processes Key IT audit procedures performed included the following, butare highly dependent on information systems including not limited to:
automated controls in systems, such that there exists a risk ^ For testing the IT general controls, application controls andthat gaps in the IT environment could result in the it dependent manual controls, we involved IT specialists as
financial accounting and reporting records being misstated. part of the audit.
Amongst its multiple |T systems, we scoped in systems that ^ Obtained a comprehensive understanding of IT applicationsare key for °veraN financial reporting. landscape implemented at the Bank. It was followed by
Appropriate IT general controls and application controls process understanding, mapping of applications to the sameare required to ensure that such IT systems are able to and understanding financial risks posed by people-processprocess the data, as required, completely, accurately and and technology.
consistently for reliable financial reporting. ^ Key |T audit procedures includes testing design and operating
We have identified 'IT systems and controls' as a key audit effectiveness of key controls operating over user accessmatter considering the high level of automation, significant management (which includes user access provisioning, de¬number of systems being used by the Bank's Management provisioning, access review, password configuration review,and the complexity of the IT architecture and its impact segregation of duties and privilege access), change managementon overall financial reporting process and regulatory (which include change release in production environmentexpectation on automation. are compliant to the defined procedures and segregation of
environment is ensured), program development (which includereview of data migration activity), computer operations (whichincludes testing of key controls pertaining to, backup, Batchprocessing (including interface testing), incident managementand data centre security), System interface controls. Thisincluded testing that requests for access to systems wereappropriately logged, reviewed and authorized.
• In addition to the above, the design and operating effectivenessof certain automated controls, that were considered askey internal system controls over financial reporting weretested. Using various techniques such as inquiry, reviewof documentation / record / reports, observation, and re¬performance. We also tested few controls using negativetesting technique.
• Tested compensating controls and performed alternateprocedures, where necessary. In addition, understoodwhere relevant changes made to the IT landscape duringthe audit period.
The Bank's Board of Directors is responsible for the otherinformation. The other information comprises the informationincluded in the Annual Report but does not include the StandaloneFinancial Statements, and our auditor's report thereon. TheAnnual report is expected to be made available to us after thedate of this auditor's report.
Our opinion on the Standalone Financial Statements does notcover the other information and we will not express any form ofassurance conclusion thereon.
In connection with our audit of the Standalone FinancialStatements, our responsibility is to read the other informationidentified above when it becomes available and, in doingso, consider whether the other information is materiallyinconsistent with the Standalone Financial Statements or ourknowledge obtained in the audit, or otherwise appears to bematerially misstated.
When we read the Annual Report, if we conclude that there is amaterial misstatement therein, we are required to communicatethe matter to those charged with governance under SA 720 'TheAuditor's responsibilities Relating to Other Information'.
The Bank's Board of Directors is responsible for the mattersstated in section 134(5) of the Act with respect to the preparationand presentation of these Standalone Financial Statementsthat give a true and fair view of the financial position, financialperformance and cash flows of the Bank in accordance with theaccounting principles generally accepted in India, including theAccounting Standards specified under section 133 of the Actread with Companies (Accounting Standards) Rules, 2021 and theBanking Regulations and the RBI Guidelines. This responsibilityalso includes maintenance of adequate accounting records inaccordance with the provisions of the Act, Banking Regulationsand the RBI Guidelines for safeguarding of the assets of the Bankand for preventing and detecting frauds and other irregularities;selection and application of appropriate significant accountingpolicies; making judgments and estimates that are reasonableand prudent; and design, implementation and maintenanceof adequate internal financial controls, that were operatingeffectively for ensuring the accuracy and completeness of theaccounting records, relevant to the preparation and presentationof the Standalone Financial Statements that give a true and fairview and are free from material misstatement, whether due tofraud or error.
In preparing the Standalone Financial Statements, the Bank'sBoard of Directors is responsible for assessing the Bank's abilityto continue as a going concern, disclosing, as applicable, mattersrelated to going concern and using the going concern basis ofaccounting unless the Bank's Board of Directors either intendsto liquidate the Bank or to cease operations, or has no realisticalternative but to do so.
The Bank's Board of Directors are also responsible for overseeingthe Bank's financial reporting process.
Our objectives are to obtain reasonable assurance about whetherthe Standalone Financial Statements as a whole are free frommaterial misstatement, whether due to fraud or error, and toissue an auditor's report that includes our opinion. Reasonableassurance is a high level of assurance but is not a guarantee thatan audit conducted in accordance with SAs will always detect amaterial misstatement when it exists. Misstatements can arisefrom fraud or error and are considered material if, individually orin the aggregate, they could reasonably be expected to influencethe economic decisions of users taken on the basis of theseStandalone 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 responsiveto those risks, and obtain audit evidence that is sufficientand appropriate to provide a basis for our opinion. Therisk of not detecting a material misstatement resultingfrom fraud is higher than for one resulting from error, asfraud may involve collusion, forgery, intentional omissions,misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant tothe audit in order to design audit procedures that areappropriate in the circumstances. Under section 143(3)(i) of the Act, we are also responsible for expressing ouropinion on whether the Bank has adequate internal financialcontrols with reference to Standalone Financial Statementsin place and the operating effectiveness of such controls.
• Evaluate the appropriateness of significant accountingpolicies used and the reasonableness of accounting estimatesand related disclosures made by the Bank's Management.
• Conclude on the appropriateness of the Management use ofthe going 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 arebased 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 contentof the Standalone Financial Statements, including thedisclosures, and whether the Standalone Financial
to the Standalone Financial Statements,no funds have been advanced or loanedor invested (either from borrowed fundsor share premium or any other sourcesor kind of funds) by the Bank to or inany other persons or entities, includingforeign entities (“Intermediaries”), withthe understanding, whether recorded inwriting or otherwise, that the Intermediaryshall, directly or indirectly lend or invest inother persons or entities identified in anymanner whatsoever by or on behalf of theBank (“Ultimate Beneficiaries”) or provideany guarantee, security or the like on behalfof the Ultimate Beneficiaries.
b. The Bank's Management has represented,that, to the best of its knowledge and belief,as disclosed in the Note 3.12 of Schedule18 to the Standalone Financial Statements,no funds have been received by the Bankfrom any persons or entities, includingforeign entities (“Funding Parties”), withthe understanding, whether recorded inwriting or otherwise, that the Bank shall,directly or indirectly, lend or invest in otherpersons or entities identified in any mannerwhatsoever by or on behalf of the FundingParty (“Ultimate Beneficiaries”) or provideany guarantee, security or the like on behalfof the Ultimate Beneficiaries; and
c. Based on the audit procedures performedthat have been considered reasonableand appropriate in the circumstances,and according to the information andexplanations provided to us by the Bank'sManagement in this regard nothing hascome to our notice that has caused us tobelieve that the representations under sub¬clause (i) and (ii) of Rule 11(e) as providedunder (a) and (b) above, contain anymaterial mis-statement.
Statements represent the underlying transactions andevents 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 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 requirementsregarding independence, and to communicate with themall relationships and other matters that may reasonably bethought to bear on our independence, 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, 2026 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 expectedto outweigh the public interest benefits of such communication.
1. The Balance Sheet and the Profit and Loss Account havebeen drawn up in accordance with the provisions of Section29 of the Banking Regulations and Section 133 of the Actand relevant rules issued thereunder.
2. As required by sub-section (3) of Section 30 of the BankingRegulations, 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 auditand have 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 corebanking systems, the audit is carried out centrally asall the necessary records and data required for thepurposes of our audit are available therein. However,During the course of our audit we have visited 95branches and 35 regional business support centres toreview the records maintained therein and carried outother relevant audit procedures.
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 requiredby law have been kept by the Bank so far as it appearsfrom our 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, 2026, takenon record by the Board of Directors, none of thedirectors is disqualified as on March 31, 2026, frombeing appointed as a director in terms of Section 164(2) of the Act.
f. With respect to the adequacy of the internalfinancial controls with reference to StandaloneFinancial Statements of the Bank and the operatingeffectiveness of such controls, refer to our separateReport in “Annexure A”.
g. With respect to the other matters to be includedin the Auditor's Report in accordance with Rule11 of the Companies (Audit and Auditors) Rules,2014 (as amended), in our opinion and to thebest of our information and according to theexplanations given to us:
i. The Bank has disclosed the impact of pendinglitigations on its financial position in itsStandalone Financial Statements - ReferSchedule 12, Note 4.22 of Schedule 17, Note1.12.5 and Note 3.6 of Schedule 18 to theStandalone 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 - ReferNote 4.7 and Note 4.22 of Schedule 17, Note1.12.5, Note 3.5(ii) and Note 3.8 of Schedule 18to the Standalone Financial Statements; and
iii. There has been no delay in transferring amountsrequired to be transferred to the InvestorEducation and Protection Fund by the Bank-Refer Note 3.10 of Schedule 18 to the StandaloneFinancial Statements during the year endedMarch 31, 2026.
iv. a. The Bank's Management has represented
that, to the best of its knowledge and beliefas disclosed in Note 3.12 of Schedule 18
v. The Bank has declared and paid dividend duringthe year which is in compliance with section 123of the Act and the Banking Regulations.
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 featureof recording audit trail (edit log) facility and thesame has been operated throughout the yearfor all the relevant transactions recorded in thesoftware. Further, during the course of our auditwe did not come across any instance of audit trailfeature being tampered with. Additionally, theaudit trail of prior years has been preserved bythe Bank as per the statutory requirements forrecord retention.
h. With respect to the other matters to be included in theAuditor's Report in accordance with the requirementsof Section 197(16) of the Act, as amended, the Bank is abanking company as defined under Banking Regulations.Accordingly, the requirements prescribed under Section197 of the Act do not apply.
For M S K A & Associates LLP For Suri & Co
(Formerly Known as Chartered Accountants
M S K A & Associates) ICAI Firm Registration
Chartered Accountants Number: 004283S
ICAI Firm RegistrationNumber: 105047W/W101187
Prateek Khandelwal Sanjeev Aditya M
Partner Partner
Membership Number: 139144 Membership Number: 229694
UDIN:26139144HUHIQN7851 UDIN: 26229694MNJVMR7168
Mumbai Mumbai
April 29, 2026 April 29, 2026