We have audited the standalone financial statements ofSpandana Sphoorty Financial Limited (the "Company") whichcomprise the standalone balance sheet as at 31 March 2025,and the standalone statement of profit and loss (includingother comprehensive income), standalone statementof changes in equity and standalone statement of cashflows for the year then ended, and notes to the standalonefinancial statements, including material accounting policiesand other explanatory information.
In our opinion and to the best of our information andaccording to the explanations given to us, the aforesaidstandalone financial statements give the informationrequired by the Companies Act, 2013 ("Act") in the mannerso required and give a true and fair view in conformity withthe accounting principles generally accepted in India, of thestate of affairs of the Company as at 31 March 2025, and itsloss and other comprehensive income, changes in equityand its cash flows for the year ended on that date.
We conducted our audit in accordance with the Standardson Auditing (SAs) specified under Section 143(10) of the Act.Our responsibilities under those SAs are further described inthe Auditor's Responsibilities for the Audit of the StandaloneFinancial Statements section of our report. We areindependent of the Company in accordance with the Codeof Ethics issued by the Institute of Chartered Accountants ofIndia together with the ethical requirements that are relevantto our audit of the standalone financial statements underthe provisions of the Act and the Rules thereunder, and wehave fulfilled our other ethical responsibilities in accordancewith these requirements and the Code of Ethics. We believethat the audit evidence we have obtained is sufficientand appropriate to provide a basis for our opinion on thestandalone financial statements.
Key audit matters are those matters that, in our professionaljudgment, were of most significance in our audit of thestandalone financial statements of the current period. Thesematters were addressed in the context of our audit of thestandalone financial statements as a whole, and in formingour opinion thereon, and we do not provide a separateopinion on these matters.
Impairment loss allowance on loans
Refer to the accounting policies in "Note 3 (j) to the standalone financial statements: Impairment of financial assets".
Note 2 (d) to the standalone financial statements: Material Accounting Policies - use of estimates and judgments", "Note 7and Note 51 to the standalone financial statements: Loans
The key audit matter
How the matter was addressed in our audit
Impairment loss allowance on loans of ' 540.80crores as at 31 March 2025
Allowance charged to statement of profit and loss:' 1,769.66 crores for the year ended 31 March 2025Under Ind AS 109, Financial Instruments, impairmentloss allowance is determined using expected creditloss ("ECL") model.
Recognition and measurement of impairment lossallowance on loans involves significant judgementand estimates. The key areas where increasedlevels of audit focus in the Company's estimation ofimpairment loss allowance on loans are:a) Data inputs - The application of ECL modelrequires several data inputs. This increases therisk of irrelevant data used to create assumptionsin the model.
In view of the significance of the matter, we applied the following keyaudit procedures in this area, among others to obtain sufficient auditevidence:
Testing of design and operating effectiveness of controls:
Performing end to end process walkthroughs to identify the keysystems, applications and controls used in computation of impairmentloss allowance on loans. Testing the relevant manual, general IT andapplication controls over key systems used in the impairment of lossallowance on loans.
Key aspects of our testing of the design, implementation and operatingeffectiveness involves the following:
a) Testing the key controls over the completeness and accuracyof the key inputs, data and assumptions into the Ind AS 109impairment models.
b) Testing the key governance controls over evaluation,implementation and model monitoring.
c) Testing the key controls over the application of the staging criteria.
b) Model estimations - Inherently judgmentalmodels are used to estimate impairment lossallowance on loans which involves determiningProbabilities of Default, Loss Given Default,and Exposures at Default. The Probabilities ofDefault and the Loss Given Default are the keydrivers of estimation complexity in ECL modeland hence are considered the most significantjudgmental aspect of the Company's modellingapproach.
c) Economic scenario: Ind AS 109 requires theCompany to measure impairment loss allowanceon loans in an unbiased forward- looking basisreflecting a range of future economic scenarios.Significant judgement is applied in determiningthe economic scenarios used and the probabilityweights applied to them.
d) Post model adjustments / additional provision/ technical write offs: Adjustments to themodel-driven ECL results as additional chargeare recorded by the Company to address risksnot captured by models for specific exposuresand accelerated technical write offs madeon prudential basis. Significant judgement isinvolved in estimating additional charge.
The underlying forecasts and assumptions usedin the estimates of impairment loss allowanceare subject to uncertainties which are oftenoutside the control of the Company.
Disclosure
The disclosures regarding the Company'sapplication of Ind AS 109 are key to explainingthe key estimates, judgements and inputs used inImpairment loss allowance on loans.
Given the size of loan portfolio relative to thebalance sheet and the impact of impairment lossallowance on the financial statements we haveconsidered this as a key audit matter.
d) Testing the key controls relating to selection and implementationof key macro-economic variables and the controls over thescenario selection and application of probability weights.
e) Testing the key controls operating over the information used inthe computation of impairment loss allowance on loans includingsystem access, change management, program development andcomputer operations.
f) Testing management's controls over authorisation andcomputation of post model adjustments and additional provisionand accelerated technical write off.
g) Testing the Company's controls on compliance with Ind AS 109disclosures related to impairment loss allowance on loans.
Test of details:
Key aspects of our testing includes:
a) Assessing the Company's rationale for determination of criteriafor significant increase in credit risk.
b) Testing of sample over key inputs, data and assumptionsimpacting ECL model to assess relevance of data, economicforecasts, weights, and model assumptions applied.
c) Testing computation of model driven impairment loss allowanceon loans through re-performance on a sample basis.
d) Assessing adequacy of disclosures included in the financialstatements in respect of expected credit losses.
e) Assessing the Company's rationale for determination of criteriafor accelerated technical write offs.
f) Testing details of post model adjustments/additional provisionas well as the accelerated technical write offs recorded.
Involvement of specialists
We involved financial risk modelling specialists for the following:
a) Evaluating the Company's Ind AS 109 impairment methodologiesand assumptions used.
b) Evaluating the relevance of inputs used in the model forcomputation of impairment loss allowance on loans.
Information Technology systems and controls
Information Technology ('IT') systems and controlsThe Company's key financial accounting andreporting processes are dependent on the automatedcontrols in information systems.
There exists a risk in the IT control environmentwhich could result in the financial accounting andreporting records being misstated.
We have identified 'IT systems and controls' as a keyaudit matter considering the high level of automation,use of system generated reports in managementcontrols and the complexity of the IT architecture.Further, it impacts on the overall financial reportingprocess and regulatory expectation on automation.
In view of the significance of the matter, we applied the following keyaudit procedures in this area, among others to obtain sufficient auditevidence for scoped in applications by involving our IT specialist:
a) Evaluating and testing the design, implementation and operatingeffectiveness of IT applications controls relevant to the accuracyof system computations, and the consistency of data transmissionrelating to significant accounts.
b) Evaluating and testing the design, implementation and operatingeffectiveness of key General IT Controls. This includes controlson Access management, Change management and ComputerOperations.
c) Testing the design and operating effectiveness of key controls overuser access management. This includes access authenticationthrough password configuration management, granting ormodification of user access, creating new users, deactivatinguser access for exiting users, user access and privileged accessexamination basis their role and function.
d) Testing the design, implementation and operating effectivenessof the IT automated controls which are relevant to the accuracy ofsystem computations impacting balances in significant accounts.
e) Testing the controls over changes to applications includingaccess to configure changes, approvals required to deploy thechanges, segregation of environment and segregation of dutiesin change management.
f) Testing the design and operating effectiveness of audit trail(edit log) feature for the in-scope applications i.e. where booksof accounts are maintained in an electronic mode using anaccounting software.
g) Testing the controls over computer operations including controlsover backup of data, controls on operating system and databaseviz. authorized access, password management and changes.
For the identified gaps in the internal control system with respectto GITCs, we altered our audit approach and performed additionalsubstantive procedures for relevant account balances in order toobtain additional audit evidence.
Deferred tax assets
Refer to the accounting policies in Note 3 (e) to the standalone financial statements: Income taxes and Note 11 to thestandalone financial statements: Deferred tax assets (net)
Deferred tax assets (net) of ' 437.97 crores as at 31March 2025
Under Ind AS 12 - Income taxes, the Company isrequired to reassess recognition of the deferred taxassets at each reporting date. The Company hasdeferred tax assets in respect of unused tax loss forthe current year and other temporary differences.The Company's deferred tax assets are based onthe projected profitability. This is to be determinedon the basis of approved business plans andavailability of sufficient taxable income to utilizesuch unused tax losses.
We have identified recognition of deferred taxassets as a key audit matter because of the relatedcomplexity and subjectivity of the assessmentprocess. The assessment process is based onassumptions affected by expected future marketand other relevant conditions.
In view of the significance of the matter, we applied the following key
audit procedures in this area, among others to obtain sufficient audit
evidence:
a) Evaluating the design and testing the operating effectiveness ofcontrols over assessment of deferred tax balances and underlyingdata.
b) Evaluating the approved business plans and the basis forprojections of future taxable profits.
c) Testing the underlying data and assumptions used in theprofitability projections and performing sensitivity analysis.
d) Assessing the recoverability of deferred tax assets based onprojected profits based on Company's forecasts and sensitivityanalysis and other relevant conditions.
e) Evaluating the adequacy of the Company's disclosures on deferredtax.
The Company's Management and Board of Directors areresponsible for the other information. The other informationcomprises the information included in the annual report,but does not include the financial statements and auditor'sreport thereon. The annual report is expected to be madeavailable to us after the date of this auditor's report.
Our opinion on the standalone financial statements does notcover the other information and we will not express any formof assurance 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 orour knowledge obtained in the audit, or otherwise appearsto be materially misstated.
When we read the annual report, if we conclude that thereis a material misstatement therein, we are required tocommunicate the matter to those charged with governanceand take necessary actions, as applicable under the relevantlaws and regulations.
The Company's Management and Board of Directors areresponsible for the matters stated in Section 134(5) of the Actwith respect to the preparation of these standalone financialstatements that give a true and fair view of the state of affairs,profit/ loss and other comprehensive income, changes inequity and cash flows of the Company in accordance with theaccounting principles generally accepted in India, includingthe Indian Accounting Standards (Ind AS) specified underSection 133 of the Act. This responsibility also includesmaintenance of adequate accounting records in accordancewith the provisions of the Act for safeguarding of the assetsof the Company and for preventing and detecting frauds and
other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates thatare reasonable and prudent; and design, implementationand maintenance of adequate internal financial controls,that were operating effectively for ensuring the accuracyand completeness of the accounting records, relevant tothe preparation and presentation of the standalone financialstatements that give a true and fair view and are free frommaterial misstatement, whether due to fraud or error.
In preparing the standalone financial statements, theManagement and Board of Directors are responsible forassessing the Company's ability to continue as a goingconcern, disclosing, as applicable, matters related to goingconcern and using the going concern basis of accountingunless the Board of Directors either intends to liquidatethe Company or to cease operations, or has no realisticalternative but to do so.
The Board of Directors is also responsible for overseeing theCompany's financial reporting process.
Our objectives are to obtain reasonable assurance aboutwhether the standalone financial statements as a wholeare free from material misstatement, whether due to fraudor error, and to issue an auditor's report that includes ouropinion. Reasonable assurance is a high level of assurance,but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when itexists. Misstatements can arise from fraud or error and areconsidered material if, individually or in the aggregate, theycould reasonably be expected to influence the economicdecisions of users taken on the basis of these standalonefinancial statements.
As part of an audit in accordance with SAs, we exerciseprofessional judgment and maintain professional skepticismthroughout the audit. We also:
• Identify and assess the risks of material misstatementof the standalone financial statements, whether dueto fraud or error, design and perform audit proceduresresponsive to those risks, and obtain audit evidencethat is sufficient and appropriate to provide a basisfor our opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than forone resulting from error, as fraud may involve collusion,forgery, intentional omissions, misrepresentations, orthe 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 expressingour opinion on whether the company has adequateinternal financial controls with reference to financialstatements in place and the operating effectivenessof such controls.
• Evaluate the appropriateness of accounting policiesused and the reasonableness of accounting estimatesand related disclosures made by the Management andBoard of Directors.
• Conclude on the appropriateness of the Managementand Board of Directors use of the going concern basisof accounting in preparation of standalone financialstatements and, based on the audit evidence obtained,whether a material uncertainty exists related to eventsor conditions that may cast significant doubt on theCompany's ability to continue as a going concern. Ifwe conclude that a material uncertainty exists, weare required to draw attention in our auditor's reportto the related disclosures in the standalone financialstatements or, if such disclosures are inadequate, tomodify our opinion. Our conclusions are based on theaudit evidence obtained up to the date of our auditor'sreport. However, future events or conditions may causethe Company 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 financialstatements represent the underlying transactions andevents in a manner that achieves fair presentation.
We communicate with those charged with governanceregarding, among other matters, the planned scope andtiming of the audit and significant audit findings, includingany significant deficiencies in internal control that weidentify during our audit.
We also provide those charged with governance with astatement that we have complied with relevant ethicalrequirements regarding independence, and to communicatewith them all relationships and other matters that mayreasonably be thought to bear on our independence, andwhere applicable, related safeguards.
From the matters communicated with those charged withgovernance, we determine those matters that were ofmost significance in the audit of the standalone financialstatements of the current period and are therefore the keyaudit matters. We describe these matters in our auditor'sreport unless law or regulation precludes public disclosureabout the matter or when, in extremely rare circumstances,we determine that
a matter should not be communicated in our report becausethe adverse consequences of doing so would reasonably beexpected to outweigh the public interest benefits of suchcommunication.
Other Matter
a. The standalone financial statements of the Companyfor the year ended 31 March 2024 were audited by thepredecessor auditor who had expressed an unmodifiedopinion on 29 April 2024.
1. As required by the Companies (Auditor's Report) Order,2020 ("the Order") issued by the Central Government ofIndia in terms of Section 143(11) of the Act, we give inthe "Annexure A" a statement on the matters specified
in paragraphs 3 and 4 of the Order, to the extent applicable.
2 A. As required by Section 143(3) of the Act, we reportthat:
a. We have sought and obtained all the informationand explanations which to the best of ourknowledge and belief were necessary for thepurposes of our audit.
b. In our opinion, proper books of account as requiredby law have been kept by the Company so far asit appears from our examination of those booksexcept for the matter stated in the paragraph2B(f) below on reporting under Rule 11(g) of theCompanies (Audit and Auditors) Rules, 2014.
c. The standalone balance sheet, the standalonestatement of profit and loss (including othercomprehensive income), the standalonestatement of changes in equity and the standalonestatement of cash flows dealt with by this Reportare in agreement with the books of account.
d. In our opinion, the aforesaid standalone financialstatements comply with the Ind AS specifiedunder Section 133 of the Act.
e. The matter described in the Basis for QualifiedOpinion paragraph in "Annexure B" with respectto adequacy and operating effectiveness ofthe internal financial controls with referenceto financial statements of the Company, in ouropinion, may have an adverse effect on thefunctioning of the Company.
f. On the basis of the written representationsreceived from the directors as on 1 April 2025taken on record by the Board of Directors, none ofthe directors is disqualified as on 31 March 2025from being appointed as a director in terms ofSection 164(2) of the Act.
g. The qualification relating to the maintenance ofaccounts and other matters connected therewithare as stated in the paragraph 2A(b) above onreporting under section 143(3)(b) of the Act andparagraph 2B(f) below on reporting under Rule11(g) of the Companies (Audit and Auditors) Rules,2014.
h. With respect to the adequacy of the internalfinancial controls with reference to financialstatements of the Company and the operatingeffectiveness of such controls, refer to ourseparate Report in "Annexure B".
B. With respect to the other matters to be included inthe Auditor's Report in accordance with Rule 11 ofthe Companies (Audit and Auditors) Rules, 2014,in our opinion and to the best of our informationand according to the explanations given to us:
a. The Company has disclosed the impact of pendinglitigations as at 31 March 2025 on its financialposition in its standalone financial statements
- Refer Note 35 to the standalone financialstatements.
b. The Company has made provision, as requiredunder the applicable law or accounting standards,for material foreseeable losses, if any, on long¬term contracts including derivative contracts
- Refer Note 53 (m) to the standalone financialstatements.
c. There were no amounts which were requiredto be transferred to the Investor Education andProtection Fund by the Company.
d (i) The management has represented that, tothe best of their knowledge and belief, asdisclosed in the Note 45 to the standalonefinancial statements, no funds have beenadvanced or loaned or invested (either fromborrowed funds or share premium or any othersources or kind of funds) by the Companyto or in any other person(s) or entity(ies),including foreign entities ("Intermediaries"),with the understanding, whether recorded inwriting or otherwise, that the Intermediaryshall directly or indirectly lend or investin other persons or entities identified inany manner whatsoever by or on behalf ofthe Company ("Ultimate Beneficiaries") orprovide any guarantee, security or the like onbehalf of the Ultimate Beneficiaries.
(ii) The management has represented that, tothe best of their knowledge and belief, asdisclosed in the Note 46 to the standalonefinancial statements, no funds have beenreceived 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 directly or indirectly,lend or invest in other persons or entitiesidentified in any manner whatsoever by oron behalf of the Funding Parties ("UltimateBeneficiaries") or provide any guarantee,security or the like on behalf of the UltimateBeneficiaries.
(iii) Based on the audit procedures that havebeen considered reasonable and appropriatein the circumstances, nothing has come toour notice that has caused us to believe thatthe representations under sub-clause (i) and(ii) of Rule 11(e), as provided under (i) and (ii)above, contain any material misstatement.
e. The Company has neither declared nor paid anydividend during the year.
f. Based on our examination which included testchecks, the Company has used accountingsoftwares for maintaining its books of accounts,which have a feature of recording audit trail (editlog) facility and the same has operated throughout
the year for all relevant transactions recorded inthe respective softwares except that the featureof recording of audit trail (edit log) facility was notenabled at the database level for the accountingsoftware used for maintaining general ledger forthe period from 1 April 2024 to 13 May 2024, tolog any direct data changes. Further, where audittrail (edit log) facility was enabled and operatedthroughout the year for the respective accountingsoftwares, we did not come across any instanceof the audit trail feature being tampered with.
Additionally, the audit trail (edit log) facility inrespect of the previous year has been preservedby the Company as per the statutory requirementsfor record retention, except for the instancementioned below:
(a) in case of accounting software used formaintaining general ledger, the audit trail isnot preserved for the database level; and
(b) in case of accounting software used formaintaining the books of account relating topayroll, we are unable to comment whetherthe audit trail has been preserved by theCompany.
C. With respect to the matter to be included inthe Auditor's Report under Section 197(16) ofthe Act:
In our opinion and according to theinformation and explanations given to us,the remuneration paid by the Company toits directors during the current year is inaccordance with the provisions of Section197 of the Act. The remuneration paid to anydirector is not in excess of the limit laid downunder Section 197 of the Act. The Ministry ofCorporate Affairs has not prescribed otherdetails under Section 197(16) of the Act whichare required to be commented upon by us.
For B S R & Co. LLP
Chartered AccountantsFirm's Registration No.:101248W/W-100022
Kapil Goenka
Partner
Place: Hyderabad Membership No.: 118189
Date: 30 May 2025 ICAI UDIN:25118189BMLJVQ9189