POONAWALLA FINCORP LIMITED
Report on the Audit of the Standalone Financial Statements
OPINION
1. We have audited the accompanying standalone financial statements of Poonawalla Fincorp Limited (‘the Company’), which comprise the Balance Sheet as at March 31, 2024, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Cash Flow and the Statement of Changes in Equity for the year then ended, and notes to the standalone financial statements, including material accounting policy information and other explanatory information.
2. In our opinion and to the best of our information and according to the explanations given to us, and based on the consideration of the audit report of the PFL Employee Welfare Trust (‘the Welfare Trust) as referred to in paragraph 15 below the aforesaid standalone financial statements give the information required by the Companies Act, 2013 (‘the Act’) in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards (‘Ind AS’) specified under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2024, and its profit (including other comprehensive income), its cash flows and the changes in equity for the year ended on that date.
BASIS FOR OPINION
3. We conducted our audit in accordance with the Standards on Auditing specified under section 143(10) of the Act. Our responsibilities under those standards 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 Company 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 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 together with the audit evidence obtained by the auditors of the Welfare Trust, in terms of their audit report referred to in paragraph 15 of the Other Matters section below is sufficient and appropriate to provide a basis for our opinion.
KEY AUDIT MATTERS
4. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone 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.
5. 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 matter
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How our audit addressed the key audit matter
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Expected credit losses on loan assets
Refer Note 2(h)(VI) of material accounting policies, Note 6 for the details of provision and Note 50(ii) for credit risk disclosures. Also, refer Note 40 for exceptional items.
As at March 31, 2024, the Company has reported gross financial assets (loans) aggregating to T 23,045.38 crores against which provision for expected credit loss of T 998.97 crores has been recorded as at reporting date in accordance with Ind AS 109 - Financial Instruments (‘Ind AS 109’). The Company has written off T 1,194.90 crores during the current year.
The calculation of expected credit loss on loans and writeoffs is complex and requires significant management judgement and the use of different modelling techniques and assumptions which could have a material impact on reported profits.
The Company has applied a three-stage approach based on changes in credit quality to measure expected credit loss on loans which is as follows:
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Our audit focused on assessing the appropriateness of management’s judgment and estimates used in the impairment analysis through procedures that included, but were not limited to, the following:
• Obtained an understanding of the modelling techniques adopted by the Company including the key inputs and assumptions for calculation of expected credit losses;
• Tested the design and operating effectiveness of key controls over completeness and accuracy of the key inputs and assumptions considered for calculations, validation of data and monitoring of impairment loss recognised based on historical and external data. This also included testing performed by IT Specialists to test the data flows from source systems to spreadsheet-based models to test their completeness and accuracy.
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Key audit matter
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How our audit addressed the key audit matter
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• If the loan is not credit-impaired on initial recognition,
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• Tested the modelling assumptions and inputs which
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then it is classified in ‘Stage 1’ and its credit risk is continuously monitored by the Company i.e., the default in repayment is within 1 month.
• If a significant increase in credit risk since initial
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are based on industry experience (new products) as collated by external credit bureau by benchmarking independently such inputs with data of other comparable companies to assess reasonability of such assumptions. While for remaining loan portfolio, since
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recognition is identified, it is moved to ‘Stage 2’ but is
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modelling assumptions and parameters are based on
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not yet deemed to be credit-impaired i.e., the default in
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historical data, assessed whether historical experience
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repayment is within the range of 2 to 3 months.
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was representative of current circumstances and was
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• If the loan is credit-impaired, it is then moved to ‘Stage
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relevant in view of the recent impairment losses incurred
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3’ i.e., the default in repayment is more than 3 months.
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within the portfolios;
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The Expected Credit Loss (“ECL”) is measured at 12-month
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• Considered the Company’s accounting policies for
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ECL for Stage 1 loan assets and at lifetime ECL for Stage 2
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estimation of expected credit loss on loans and assessing
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and Stage 3 loan assets.
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compliance with the policies in terms of Ind AS 109;
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Calculation of ECL involves estimation of probability of
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• Tested the assumptions underlying the impairment
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default (PD) on loan portfolio over their life, loss given
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identification and quantification including the forecast
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default (LGD) and exposure at default for each of the stages
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of future cash flows by corroborating it with the agreed
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of loan portfolio. The management has calculated the PD
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repayment schedules of the borrowers;
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and LGD as follows:
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• Further, challenged the aforesaid assumptions through
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• For new products launched from time to time and
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our understanding of the risk profile of the customers
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where the Company does not have sufficient historical
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of the Company and other publicly available relevant
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data to estimate PD, the Company has engaged
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macro-economic factors used with the models;
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external leading credit bureau and accordingly based
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• We have also examined, on a sample basis, data inputs
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on industry data sourced such information from the
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to the discounted cash flow models, including the latest
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aforesaid credit bureau.
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collateral valuations in supporting the estimation of
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• For the remaining portfolio, the Company has
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future cash flows and present value;
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continued to use their existing internally developed modelling techniques using historical observable data and inputs to estimate PD and LGD.
Significant management judgement and assumptions are involved in measuring ECL which also includes
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• Evaluated the appropriateness of the Company’s determination of significant increase in credit risk in accordance with the applicable accounting standards and the basis for classification of various exposures into various stages. For a sample of exposures, also tested the
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management overlays especially while calculating the PD and LGD and involves the following critical factors which are
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appropriateness of the Company’s categorization across various stages;
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applied to such modelling techniques:
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• Assessed the critical assumptions and input data used
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• Segmentation of loan book
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in the estimation of expected credit loss models for specific key credit risk parameters, such as the transfer
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• Determination of exposure at default
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logic between stages, PD or LGD;
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• Loan staging criteria
• Consideration of probability weighted scenarios and forward looking macro-economic factors
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• Performed an assessment of the adequacy of the credit losses expected within 12 months by reference to credit losses actually incurred on similar portfolios historically;
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• On test check basis, tested the reasonableness of
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• Criteria for a significant increase in credit risk
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estimates of expected realizable values of underlying
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• Past experience and forecast data on customer
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collaterals;
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behavior on repayments
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• Obtained the management’s rational for writing off the
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• Estimation of realizable value of underlying collaterals
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loans during the current year and tested for appropriate management approvals for the same;
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Considering the significance of the above matter to the standalone financial statements, significant level of
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• Obtained written representations from management
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estimates and judgements involved in determination of
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and those charged with governance on whether they
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ECL and write offs, this matter required our significant attention. Therefore, we have identified this as a key audit
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believe significant assumptions used in calculation of expected credit losses are reasonable;
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matter for current year audit.
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• Assessed the appropriateness and adequacy of the related presentation and disclosures of Note 50 “Financial risk management” disclosed in the accompanying standalone financial statements in accordance with the applicable accounting standards and related RBI circulars.
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Key audit matter
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How our audit addressed the key audit matter
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Information Technology system for accounting and financial reporting process:
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Our key audit procedures with the involvement of our IT specialists included, but were not limited to the following:
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The Company is highly dependent on its Information Technology (“IT”) systems for carrying on its operations which require large volume of transactions to be processed in numerous locations.
Further, the Company’s accounting and financial reporting processes are dependent on automated controls enabled by IT systems which impacts key financial accounting and reporting items such as loans, interest income, impairment on loans amongst others.
The Company has put in place IT General Controls and automated IT Controls to ensure the integrity, accuracy, completeness, validity and reliability of the information produced by the Company. Among other things, the management also uses the information produced by the Company’s IT systems for accounting and the preparation and presentation of the standalone financial statements.
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• Obtained an understanding of the Company’s IT systems, IT General Controls and automated IT controls and conducted risk assessment for identified IT applications, data bases and operating systems that are relevant to our audit;
• Obtained an understanding of the changes/ modifications that were made to the identified IT applications during the audit period and tested those changes that had a significant impact on financial reporting including management’s process for monitoring and authorisation of such changes/ modifications
• Evaluated the appropriateness of controls for security governance to protect systems and data from unauthorised use, including logging of security events and procedures to identify vulnerabilities;
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The Company uses loan management system (LMS) for sourcing, processing, recording and management of loan database which is fully integrated with the financial accounting and reporting system. The Company has implemented necessary preventive and detective controls across critical IT applications and infrastructure, which are most relevant from the perspective of financial reporting. Our audit approach relies on the effectiveness of automated controls and controls around interface of different systems.
Our areas of audit focus included user access management, developer access to the production environment and changes to the IT environment.
Further, we focused on key automated controls relevant for financial reporting.
Accordingly, since our audit strategy included focus on key IT systems and controls relevant to our audit due to their pervasive impact on the financial statements, we have determined the use of IT systems for accounting and financial reporting as a key audit matter for current year
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• Tested segregations of duties controls around program maintenance, security administration and key business processes;
• Tested IT General Controls particularly, logical access, change management and aspects of IT operational controls. Tested that request for access to systems were appropriately reviewed and authorized; tested controls around Company’s periodic review of access rights; inspected requests of changes to systems for appropriate approval and authorization;
• Tested related interfaces, configuration and other application layer controls identified during our audit and report logic for system generated reports relevant to the audit mainly for loans, interest income and impairment of loan assets for evaluating completeness and accuracy;
• Tested the design and operating effectiveness of the Company’s IT controls over the IT applications as identified above;
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audit.
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• Where deficiencies were identified, tested compensating controls or performed alternative procedures;
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• Obtained written representations from management and those charged with governance on whether IT general controls and automated IT controls are designed and were operating effectively during the period covered by our audit.
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INFORMATION OTHER THAN THE FINANCIAL STATEMENTS AND AUDITOR'S REPORT THEREON
6. The Company’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 do not express any form of assurance conclusion thereon.
I n 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.
RESPONSIBILITIES OF MANAGEMENT ANDTHOSE CHARGED WITH GOVERNANCE FORTHE STANDALONE FINANCIAL STATEMENTS
7. The accompanying standalone financial statements have been approved by the Company’s Board of Directors. The Company’s 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 including other comprehensive income, changes in equity and cash flows of the Company in accordance with the Ind AS specified under section 133 of the Act and other accounting principles generally accepted in India. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company 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.
8. In preparing the financial statements, the Board of Directors is responsible for assessing the Company’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 Company or to cease operations, or has no realistic alternative but to do so.
9. The Board of Directors is also responsible for overseeing the Company’s financial reporting process.
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS
10. 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 Standards on Auditing 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.
11. As part of an audit in accordance with Standards on Auditing, specified under section 143(10) of the Act we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• 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;
• 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 Company 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 made by management;
• Conclude on the appropriateness of Board of Directors’ 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 Company’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 Company to cease to continue as a going concern;
• 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; and
• Obtain sufficient appropriate audit evidence regarding the financial information/financial statements of the Company and its Welfare Trust or the business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the audit of financial statements of the Company, of which we are the independent auditors. For the Welfare Trust included in the financial statements, which have been audited by other auditor, such auditor remain responsible for the direction, supervision and performance of the audit carried out by them. We remain solely responsible for our audit opinion.
12. 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.
13. 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.
14. 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.
OTHER MATTER
15. We did not audit the financial statements of the Welfare Trust included in the standalone financial statements of the Company whose financial statements reflects total assets of ' 199.33 crores as at March 31, 2024, total revenues of ' 0.01 crores, total net loss after tax of ' 0.86 crores, total comprehensive loss of ' 0.86 crores, and net cash inflows of ' 0.97 crores respectively for the year ended on that date, as considered in the standalone financial statements. These financial statements have been audited by another auditor whose report have been furnished to us by the management. Further, the aforementioned financial statements of this trust have been prepared in conformity with the Accounting Standards specified under section 133 of the Act, read with the Companies (Accounting Standards) Rules, 2021. The Company’s management has converted these financial statements of this trust to the accounting principles enunciated under the Indian Accounting Standards (‘Ind AS’) specified under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 as applicable to the Company. We have audited these conversion adjustments made by the Company’s management. Our opinion on the standalone financial statements, in so far as it relates to the amounts and disclosures included in respect of the Welfare Trust, and our report in terms of sub-section (3) of section 143 of the Act in so far as it relates to the aforesaid Welfare Trust, is based solely on the report of such other auditors and the conversion adjustments prepared by the management of the Company which have been audited by us.
Our opinion above on the standalone financial statements, and our report on other legal and regulatory requirements below, are not modified in respect of the above matter with respect to our reliance on the work done by and the report of the other auditors.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
16. As required by section 197(16) of the Act based on our audit, we report that the Company has paid remuneration to its directors during the year in accordance with the provisions of and limits laid down under section 197 read with Schedule V to the Act.
17. As required by the Companies (Auditor’s Report) Order, 2020 (‘the Order’) issued by the Central Government of India in terms of section 143(11) of the Act we give in the Annexure A, a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
18. Further to our comments in Annexure A, as required by section 143(3) of the Act based on our audit, and on the consideration of the report of the Welfare Trust as referred to in paragraph 15 above, we report, to the extent applicable, 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 purpose of our audit of the accompanying standalone financial statements;
b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books except for the matters stated in paragraph 18(g)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (as amended);
c) The standalone financial statements dealt with by this report are in agreement with the books of account;
d) In our opinion, the aforesaid standalone financial statements comply with Ind AS specified under section 133 of the Act;
e) On the basis of the written representations received from the directors and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2024 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 financial statements of the Company as on March 31, 2024 and the operating effectiveness of such controls, refer to our separate report in Annexure B wherein we have expressed an unmodified opinion; and
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 (as amended), in our opinion and to the best of our information and according to the explanations given to us and based on the consideration of the audit report of the Welfare Trust as referred to in paragraph 15 above:
i. The Company, as detailed in Note 47 to the standalone financial statements, has disclosed the impact of pending litigations on its financial position as at March 31, 2024;
i i. The Company did not have any longterm contracts including derivative contracts for which there were any material foreseeable losses as at March 31, 2024;
iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company during the year ended March 31, 2024;
iv. a. The management has represented
that, to the best of its knowledge and belief, as disclosed in Note 55(f) to the standalone financial statements, no funds have been advanced or loaned or invested (either from borrowed funds or securities premium or any other sources or kind of funds) by the Company to or in any person(s) or entity(ies), including foreign entities (‘the 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 Company (‘the Ultimate Beneficiaries’) or provide any guarantee, security or the like on behalf the Ultimate Beneficiaries;
b. The management has represented that, to the best of its knowledge and belief, as disclosed in Note 55(g) to the standalone financial statements, no funds have been received by the Company from any person(s) or entity(ies), including foreign entities (‘the
Funding Parties’), with the understanding, whether recorded in writing or otherwise, that the Company 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
c. Based on such audit procedures performed as considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the management representations under sub-clauses (a) and (b) above contain any material misstatement.
v. a) The interim dividend declared and paid by the Company during the year ended March 31, 2024 and until the date of this audit report is in compliance with section 123 of the Act.
b) The final dividend paid by the Company during the year ended March 31, 2024 in respect of such dividend declared for the previous year is in accordance with section 123 of the Act to the extent it applies to payment of dividend.
vi. As stated in Note 55(k) to the financial statements and based on our examination which included test checks, except for instances mentioned below, the Company, in respect of financial year commencing on April 1, 2023, has used an accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same have been operated throughout the year for all 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 other than the consequential impact of the exception given below:
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Nature of exception noted
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Details of Exception
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Instances of accounting software for maintaining books of account for which the feature of recording audit trail (edit log) facility was not operated throughout the year for all relevant transactions recorded in the software
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1) The audit trail feature was not enabled at the database level for accounting software Finmechanics from implementation date June 01, 2023 to March 20, 2024 to log any direct data changes, used for maintenance of borrowing records by the Company.
2) The audit trail feature was not enabled at the database level for accounting software CCA to log any direct data changes, used for maintenance of loan records by the Company.
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Instances of accounting software maintained by a third party where we are unable to comment on the audit trail feature
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The accounting software Finnone, used for maintenance of books of account of the Company is operated by a third party software service provider. In absence of the ‘Independent Service Auditor’s Assurance Report on the Description of Controls, their Design and Operating Effectiveness’ (‘Type 2 report’ issued in accordance with SAE 3402, Assurance Reports on Controls at a Service Organisation), we are unable to comment on whether audit trail feature of the said software was enabled at the database level and operated throughout the year for all relevant transactions recorded in the respective software.
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For Walker Chandiok & Co LLP For Kirtane & Pandit LLP
Chartered Accountants Chartered Accountants
Firm’s Registration No.: 001076N/N500013 Firm’s Registration No.:105215W/W100057
Khushroo B. Panthaky Sandeep D. Welling
Partner Partner
Membership No.: 042423 Membership No.: 044576
UDIN: 24042423BKCMMQ1185 UDIN: 24044576BKAUBH2295
Place: Pune Place: Pune
Date: April 29, 2024 Date: April 29, 2024
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