REPORT ON THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS
We have audited the accompanying standalone financial statements of Shriram Transport Finance Company Limited (“the company”), which comprise the Balance Sheet as at March 31, 2021, 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 significant accounting policies and other explanatory information (hereinafter referred to as “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 accounting principles generally accepted in India including the Indian Accounting Standards (“Ind AS”) prescribed under section 133 of the Act, of the state of affairs of the company as at March 31, 2021, its profit (including other comprehensive income), changes in equity and its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with Standards on auditing (SAs) 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 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 is sufficient and appropriate to provide a basis for our opinion on the standalone financial statements. Emphasis of matter
We draw attention to Note 63 to the standalone financial statements which describes the staging of accounts to whom moratorium benefit was extended and uncertainty caused by cOVID-19 pandemic with respect to the company’s
estimates of Impairment of loans to customers. Further, the extent to which the cOVID-19 pandemic will impact the company’s financial performance is dependent on future developments, which are highly uncertain. our opinion is not modified in respect of this matter.
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 of the current year. 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.
Impairment Loss Allowance of loans and advances Impairment loss allowance of loans and advances (“Impairment loss allowance”) is a Key Audit Matter as the company has significant credit risk exposure considering the large loan portfolio across a wide geographical range. The value of loans and advances on the balance sheet is significant and there is a high degree of complexity and judgment involved in estimating individual and collective credit impairment provisions, write-offs against these loans and to additionally determine the potential impact of unprecedented cOVID 19 pandemic on asset quality and provision of the company. The company’s model to calculate expected credit loss (“EcL”) is inherently complex and judgment is applied in determining the correct construction of the three-stage impairment model (“EcL Model”) including the selection and input of forward looking information. EcL provision calculation require the use of large volumes of data. The completeness and reliability of data can significantly impact accuracy of the modelled impairment provisions. The accuracy of data flows and the implementation of related controls are critical for the integrity of the estimated impairment provisions.
Audit procedures included but were not limited to the following:
We have started our audit procedures with understanding of the internal control environment related to Impairment loss allowance. Our procedures over internal controls focused on recognition and measurement of impairment loss allowance. We assessed the design and tested the operating effectiveness of the selected key controls implemented by the company. We also assessed whether the impairment methodology used by the company is in accordance with the assumptions and methodology approved by the Board of Directors of the company which is based on and in compliance with
Ind AS 109 “Financial Instruments”. Particularly we assessed the approach of the company regarding definition of Default, Probability of default, Loss Given default and incorporation of forward-looking information for the calculation of Ed.
For loans and advances which are assessed for impairment on a portfolio basis we performed particularly the following procedures:
• We tested the reliability of key data inputs and related management controls;
• We checked the stage classification as at the balance sheet date as per the definition of default of the company;
• We validated the ECL Model and its calculation by involving our information Technology expert;
• We have checked on sample basis that the stage classification for the borrowers has been given in accordance with the Resolution Framework issued by Reserve Bank ofindia (the ‘RBi’) and the Board approved policy for EcL provisioning and stage classification with respect to such accounts;
• We have verified whether the ECL provision is made in accordance with the Board approved Policy in this regard;
• We have also calculated the ECL provision manually for selected samples;
• We have assessed the assumptions made by the company in making accelerated provision considering forward looking information and based on an event in a particular geographical range;
• We have reviewed the process of the Company to grant moratorium to the borrowers as per the Regulatory Package announced by the RBi. Further, we have relied on the assumption of the management that there will be no significant increase in the credit risk in the cases where moratorium is given and that the staging based on the days past due (DPD) will be considered as per the RBi coVID-19 Regulatory Package. We have tested on samples basis the DPD freeze for cases where moratorium is provided and not provided in accordance with RBi coViD-19 Regulatory Package;
• With respect to additional provision made by the company on account of the impact of coViD-19 pandemic, we broadly reviewed the underlying assumptions and estimates used by the management for the same but as the extent of impact is dependent on future developments which are highly uncertain, we have primarily relied on those assumptions and estimates. These assumptions and estimates are a subject matter of periodic review by the company; and
• We have checked the provision on Loan Assets as per IRAcP norms as required under RBi circular dated March 13, 2020. We have checked the DPD and provision in accordance with the RBi regulations in that regard further considering the Regulatory Packages issued by RBi dated March 27, 2020 and May 23, 2020 and RBi circular dated April 17, 2020.
For loans and advances which are written off during the year under audit, we read and understood the methodology and policy laid down and implemented by the company in this regards along with its compliance on sample basis.
The company’s Board of Directors is responsible for the other information. The other information comprises the information included in the Management Discussion and Analysis, Director’s Report and corporate Governance Report, but does not include the standalone financial statements, consolidated financial statements and our auditor’s report thereon.
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 in the audit, or otherwise appears to be materially misstated. if, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the 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 accounting principles generally accepted in india, including ind AS prescribed under section 133 of the Act, read with the companies (indian Accounting Standards) Rules, 2015, as amended. 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, 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 management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so.
Those Board of Directors are also 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 the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this 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 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 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.
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 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, 2016 (“the order”) issued by the central Government of India in terms of section 143(11) of the Act, we give in “Annexure 1”, 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;
c. The Balance Sheet, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Changes in Equity and the 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 Ind AS prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended;
e. On the basis of the written representations received from the directors as on March 31, 2021, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2021 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 and the operating effectiveness of such controls, refer to our separate report in ‘Annexure 2”;
g. With respect to the other matter to be included in the Auditor’s Report in accordance with the requirements of section 197(16) of the Act:
In our opinion and to the best of our information and according to the explanations given to us, the remuneration paid/ provided by the Company to its directors during the year is in accordance with the provisions of section 197 of the Act;
h. 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, 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 on its financial position in its standalone financial statements - Refer Note 49 on Contingent Liabilities to the standalone financial statements;
(ii) The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts - Refer Note 10 to the standalone financial statements;
(iii) There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.
For Haribhakti & Co. LLP For Pijush Gupta & Co.
Chartered Accountants Chartered Accountants
ICAI Firm Registration No : 103523W/W100048 ICAI Firm Registration No: 309015E
Sumant Sakhardande pijush Kumar Gupta
Membership Number: 034828 Membership Number: 015139
UDIN: 21034828AAAACL9851 UDIN: 21015139AAAAAT4693
Place: Mumbai Place: Gurugram
Date: April 29, 2021 Date: April 29, 2021