SBFC Finance Limited (Erstwhile SBFC Finance Private Limited)
Report on the Audit of the Standalone Financial Statements
Opinion
We have audited the accompanying Standalone Financial Statements of SBFC Finance Limited (Erstwhile SBFC Finance Private Limited) (“the Company”), which comprise the balance sheet as at 31 March 2024, the statement of profit and loss including other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended and notes to the standalone financial statements, including a summary of the material accounting policies and other explanatory information (hereinafter referred to as “the standalone financial statements”).
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Companies Act, 2013 (“the Act”) in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under Section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended, (“Ind AS”) and other accounting principles generally accepted in India, of the state of affairs of the Company as at 31 March 2024, the profit and total comprehensive income, changes in equity and its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit of the standalone 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 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 standalone financial statements under the provisions of the Act and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAI’s Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone 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 standalone financial statements for the financial year ended 31 March 2024. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report.
How our audit addressed the key audit matter
1. Impairment of Loans based on expected credit
Principal audit procedure performed:
loss model (ECL):
As at 31 March 2024, the carrying value of loan assets carried at amortised cost, aggregated ' 58,364.91 million (net of allowance for expected credit loss '1,104.15 million) constituting approximately 82.64% of the Company’s total assets has been recorded as at reporting date in accordance with Ind AS 109 - Financial Instruments (‘Ind AS 109’).
• We examined Board Policy approving methodologies for computation of ECL that address policies, procedures and controls for assessing and measuring credit risk on all lending exposures, commensurate with the size, complexity and risk profile specific to the Company. The parameters and assumptions used and their rationale and basis are clearly documented.
Significant management judgement is used in classifying these loan assets, applying appropriate measurement
• We evaluated the design and operating effectiveness of
principles, use of different modelling techniques and
controls across the processes relevant to ECL, including the
assumptions which could have a material impact on reported
judgements and estimates.
profits. ECL on such loan assets carried at amortised cost is a critical estimate involving greater level of management
• These controls, among others, included controls over the
judgement. As part of our risk assessment, we determined
allocation of assets into stages including management’s
that the ECL on such loan assets has a high degree of
monitoring of stage effectiveness, model monitoring including
estimation uncertainty, with a potential range of reasonable
the need for post model adjustments, model validation, credit
outcomes for the standalone financial statements.
monitoring, multiple economic scenarios, individual provisions
The elements of estimating ECL which involved increased
and recording of journal entries and disclosures.
level of audit focus in measuring ECL especially while
• We tested the completeness of loans and advances included
calculating the PD and LGD and which also includes
in the Expected Credit Loss calculations as of 31 March 2024
management overlays involves the following critical factors which are applied to such modelling techniques:
by reconciling it with the balances as per loan balance register.
• Segmentation of portfolios into homogenous risk pools
• Qualitative and quantitative factors used in staging the loan assets carried at amortised cost using criteria in accordance with Ind AS 109,
• Basis used for estimating of probability of defaults (PD) at product level with past trends,
• Basis used for estimating loss given defaults (LGD) based on the value of collaterals at product level with past trends,
• Estimation of exposure at defaults (EAD),
• Consideration of probability weighted scenarios and
• We tested assets in stage 1, 2 and 3 on sample basis to verify that they were allocated to the appropriate stage. For samples of exposure, we tested the appropriateness of determining EAD, PD and LGD and performed test of details over calculation of impairment allowance for assessing completeness and accuracy of data.
• For exposure determined to be individually impaired, we tested samples of loans and advances and examined management’s estimate of future cash flows, assessed their reasonableness and checked the resultant provision calculations.
• We read the Company’s policies for identification, classification and assessing compliance for Stage 3 / NPAs customers in line with the norms. We performed substantial audit procedure relating to identification and classification of Stage 3 / NPAs by the Company.
forward-looking factors, micro and macro-economic
scenarios in estimating the expected credit losses.
• Criteria for a significant increase in credit risk
• We have checked on sample basis that the stage classification for the borrowers has been given in accordance with the
• Use of judgement for identification and classification of
Resolution Framework issued by Reserve Bank of India (the
loans as Stage 3 / NPAs applying quantitative as well
‘RBI’) and the Board approved policy for ECL provisioning
as qualitative factors. The risk of identification of such
and stage classification with respect to such accounts.
assets as Stage 3 / NPAs is affected by factors like
• Assessed the criteria for staging of loans based on their past
stress and liquidity concerns of such assets.
due status as per the requirements of Ind AS 109. Tested a
Further, the management has adopted a methodology
sample of performing loans to assess whether any significant
which in addition to the model adopted as above is further
increase in credit risk or loss indicators were present requiring
analyzed on case-to-case basis and wherever impairment
them to be classified under higher stages.
impact needs to be changed the same is considered in the financial statements.
• We assessed the adequacy and appropriateness of disclosures in compliance with the Ind AS 107 in relation to
The disclosures made in standalone financial statements
ECL especially in relation to judgements used in estimation
for ECL especially in relation to judgements and estimates
of ECL provision.
made by the Management in determination of the ECL. Refer note 48.1.1 to the standalone financial statements.
• We have Involved internal experts for testing of the ECL model and computation, including factors that affect the PD, LGD and EAD considering various forward looking, micro and macro-economic factors.
Information Other than the Standalone Financial Statements and Auditor’s Report Thereon
The Company’s management and Board of Directors are responsible for the preparation of the other information. The other information comprises the information included in the Board’s Report including Annexures to Board’s Report and Shareholder’s Information/ Management Analysis and Discussion but does not include the standalone financial statements and our auditor’s report thereon. The Reports are expected to be made available to us after the date of this auditors’ 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.
In connection with our audit of the standalone financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated.
When we read the Other Information, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance as required under SA 720 (Revised) ‘The Auditor’s responsibilities Relating to Other Information’.
Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements
The Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Act, with respect to the preparation 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 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 standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial statements, the management 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 management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Board of Directors are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the standalone financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal financial controls 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 system with reference to the standalone 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 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 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 standalone financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of misstatements in the standalone financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the standalone 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 standalone 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 control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements of the current financial year 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 the Companies (Auditor’s Report) Order, 2020 (“the Order”) issued by the Central Government of India in terms of sub-section (11) of Section 143 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.
2. As required by Section 143(3) of the Act, we report that:
a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;
b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books except for the matters stated in the paragraph i (vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014;
c) The Balance sheet, the Statement of Profit and Loss (including Other Comprehensive Income), Statement of Changes in Equity, and Statement of Cash Flows dealt with by this Report are in agreement with the books of account;
d) In our opinion, the aforesaid standalone financial statements comply with the Indian Accounting Standards specified under Section 133 of the Act, read with the Companies (Indian Accounting Standards) Rules, 2015 as amended.
e) On the basis of written representations received from the directors as on 31 March 2024 taken on record by the Board of Directors, none of the directors is disqualified as on 31 March 2024, from being appointed as a director in terms of Section 164(2) of the Act;
f) The modifications relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph 2(b) above on reporting under Section 143(3)(b)
of the Act and paragraph i (vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.
g) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in “Annexure B”; Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company’s internal financial control over financial reporting.
h) With respect to the other matters to be included in the Auditor’s Report in accordance with the requirements of section 197 (16) of the Act, as amended, in our opinion and to the best of our information and according to the explanations given to us, the remuneration paid by the Company to its directors, including sitting fees paid to directors, during the year is in excess of the limits prescribed under Section 197 of the Act, in respect of which approvals from the shareholders have been obtained as prescribed,
i) 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 Company has disclosed the impact of pending litigations as at 31 March 2024 on its financial position in its standalone financial statements (Refer Note 47 to the standalone financial statements);
(ii) The Company 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 Company.
(iv) (a) The management has represented to us that, to
the best of its knowledge and belief, as disclosed in the notes to the accounts, no funds (which are material either individually or in the aggregate) have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company 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, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (“Ultimate Beneficiaries”) or provide any
guarantee, security or the like on behalf of the Ultimate Beneficiaries.
(b) The management has also represented to us, that, to the best of its knowledge and belief, as disclosed in the notes to the accounts, no funds (which are material either individually or in the aggregate) have been received by the Company from any person(s) or entity(ies), including foreign entities (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the Company shall, whether, directly or indirectly, lend to 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 such audit procedures that were 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 Company has not declared or paid any dividend during the year and has not proposed a final dividend for the year.
(vi) Based on our examination, which included test checks, the Company has used accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year except in respect of software which is used for maintenance of accounting and financial records (Oracle) wherein the features of recording audit trail (edit log) facility was not enabled at the data base level to log any direct data changes and at application layer for the period from April 1, 2023 to June 30, 2023. Further, for the audit periods where audit trail (edit log) facility was enabled and operated throughout the year, we did not come across any instance of the audit trail feature being tampered with.
Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable from April 1,2023, reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 on preservation of audit trail as per the statutory requirements for record retention is not applicable for the financial year ended March 31,2024
For Suresh Surana & Associates LLP
Chartered Accountants
Firm's Reg. No.: 121750W / W-100010
Ramesh Gupta Partner
Membership No. 102306 UDIN: 24102306BKCFZW1697
Place: Mumbai Date : April 27, 2024