TO THE MEMBERS OF GRUH FINANCE LIMITED
Report on the Audit of the Financial Statements
We have audited the accompanying financial statements of GRUH Finance Limited (the"Company") which comprise the Balance Sheet as at March 31 2019 and theStatement of Profit and Loss (including Other Comprehensive Income) the Statement of CashFlows and the Statement of Changes in Equity for the year then ended and a summary ofsignificant accounting policies and other explanatory information. In our opinion and tothe best of our information and according to the explanations given to us the aforesaidfinancial 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 conformitywith the Indian Accounting Standards prescribed under section 133 of the Act read with theCompanies (Indian Accounting Standards) Rules 2015 as amended ("Ind AS") andother accounting principles generally accepted in India of the state of affairs of theCompany as at March 31 2019 and its profit total comprehensive income its cash flowsand the changes in equityfor the year ended on that date.
Basis for Opinion
We conducted our audit of the financial statements in accordance with the Standards onAuditing specified under section 143(10) of the Act (SAs). Our responsibilities underthose Standards are further described in the Auditor's Responsibility for the Audit of theFinancial Statements section of our report. We are independent of the Company inaccordance with the Code of Ethics issued by the Institute of Chartered Accountants ofIndia (ICAI) together with the ethical requirements that are relevant to our audit of thefinancial statements under the provisions of the Act and the Rules made thereunder and wehave fulfilled our other ethical responsibilities in accordance with these requirementsand the ICAI's Code of Ethics. We believe that the audit evidence obtained by us issufficient and appropriate to provide a basis for our audit opinion on the financialstatements.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the financial statements of the current period. These matterswere addressed in the context of our audit of the financial statements as a whole and informing our opinion thereon and we do not provide a separate opinion on these matters. Wehave determined the matters described below to be the key audit matters to be communicatedin our report.
A. Impairment of loans measured at amortized cost (refer notes 188.8.131.52.5 and 7 to thefinancial statements) Key Audit Matter Description
As at the year end the Company has financial assets in form of loans granted tocustomers Rs. 17288.28 crore net of provision for expected credit loss of Rs. 119.58crore. Management estimates impairment provision using collective model based approach forthe loan exposure other than those subject to specific provision. We have reported this asa key audit matter because measurement of loan impairment involves application ofsignificant judgement by the management. The most significant judgements are :
Timely identification of the impaired loans
Key assumptions in respect of determination of probability of defaults and loss givendefaults including consideration of collateral values.
How the Key Audit Matter Was Addressed in the Audit The audit procedures performed byus included the following :
Tested the design and effectiveness of internal controls implemented by the managementfor following : o Identification of credit deterioration and consequently impaired loans oValidation of the critical components viz. Exposure at Default (EAD) Probability ofDefault (PD) and Loss given default (LGD) used for the impairment provision o Management'sjudgement applied for the key assumptions used for the purpose of determination ofimpairment provision o Completeness and accuracy of the data inputs used
Tested the completeness and accuracy of data from underlying systems used in the modelincluding the bucketing of loans into delinquency bands. We critically assessed and testedthe key underlying assumptions and significant judgements used by management.
For loans identified by management as potentially impaired examined on a sample basischecked the calculation of the impairment critically assessed the underlying assumptionsand corroborated these to supporting evidence.
Examined a sample of loans which had not been identified by management as potentiallyimpaired (Stage 1 and 2 assets) and formed their own judgement as to whether that wasappropriate through examining information such as the counterparty's payment history.
Involved specialists for evaluation of the methodology and approach applied by themanagement.
B. Application of new Accounting Standards (refer note 4 to the financial statements)Key Audit Matter Description
The Company has adopted Indian Accounting Standards (Ind AS) with effect from April 12018 in terms of the Companies (Indian Accounting Standards) (Amendment) Rules 2016. Thetransition date balance sheet as on April 1 2017 and the comparative financial statementsfor the year ended March 31 2018 included in these Ind AS financial statements is basedon the statutory financial statements prepared in accordance with the Companies(Accounting Standard) Rules 2006 and have been restated to comply with Ind AS. Theapplication of mandatory and optional transitional adjustment involves significant levelof judgment by the management and there is a significant increase in the disclosurerequirements under Ind AS. Hence this has been identified as a key audit matter.
How the Key Audit Matter Was Addressed in the Audit
Obtained an understanding of the management's process and tested internal controls inrespect of identification and application of the differences between the existingaccounting policies and the requirements under Ind AS.
Evaluated the completeness of the adjustments identified by the management in terms ofrequirements of Ind AS.
Verified the basis and calculations of the material adjustments viz. fair valuation ofemployee stock options application of expected credit loss model and application ofeffective interest rate method.
Information Other than the Financial Statements and Auditor's Report Thereon
The Company's Board of Directors is responsible for the other information. The otherinformation comprises the information included in the Management Discussion and AnalysisBoard's report including the Annexures to Board's Report Business Responsibility ReportCorporate Governance and Shareholder's Information but does not include the financialstatements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and we donot express any form of assurance conclusion thereon. In connection with our audit of thefinancial statements our responsibility is to read the other information and in doingso consider whether the other information is materially inconsistent with the financialstatements or our knowledge obtained during the course of our audit or otherwise appearsto be materially misstated.
If based on the work we have performed we conclude that there is a materialmisstatement of this other information we are required to report that fact. We havenothing to report in this regard.
Management's Responsibility for the Financial Statements
The Company's Board of Directors is responsible for the matters stated in section134(5) of the Act with respect to the preparation of these financial statements that givea true and fair view of the financial position financial performance including othercomprehensive income cash flows and changes in equity of the Company in accordance withthe Ind AS and other accounting principles generally accepted in India. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding the assets of the Company and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; anddesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the financial statement that givea true and fair view and are free from material misstatement whether due to fraud orerror.
In preparing the financial statements management is responsible for assessing theCompany's ability to continue as a going concern disclosing as applicable mattersrelated to going concern and using the going concern basis of accounting unless managementeither intends to liquidate the Company or to cease operations or has no realisticalternative but to do so.
Those Board of Directors are also responsible for overseeing the Company's financialreporting process. Auditor's Responsibility for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement whether due to fraud or errorand to issue an auditor's report that includes our opinion. Reasonable assurance is a highlevel of assurance but is not a guarantee that an audit conducted in accordance with SAswill always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if individually or in the aggregate theycould reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also :
Identify and assess the risks of material misstatement of the financialstatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control.
Obtain an understanding of internal financial control relevant to the audit inorder to design audit procedures that are appro priate in the circumstances. Under section143(3)(i) of the Act we are also responsible for expressing our opinion on whether theCompany has adequate internal financial controls system in place and the operatingeffectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by the management.
Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe 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'sreport. However future events or conditions may cause the Company to cease to continue asa going concern.
Evaluate the overall presentation structure and content of the financialstatements including the disclosures and whether the financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of misstatements in the financial statements thatindividually or in aggregate makes it probable that the economic decisions of areasonably knowledgeable user of the financial statements may be influenced. We considerquantitative materiality and qualitative factors in (i) planning the scope of our auditwork and in evaluating the results of our work; and (ii) to evaluate the effect of anyidentified misstatements in the financial statements.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the financial statements of thecurrent period and are therefore the key audit matters. We describe these matters in ourauditor's report unless law or regulation precludes public disclosure about the matter orwhen in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
The comparative financial information of the Company for the year ended March 31 2018and the related transition date opening balance sheet as at April 1 2017 included inthese financial statements have been prepared after adjusting the previously issuedfinancial statements prepared in accordance with the Companies (Accounting Standards)Rules 2006 to comply with Ind AS. The previously issued financial statements were auditedby the predecessor auditor whose report for the year ended March 31 2017 dated April 172017 expressed an unmodified opinionon those financial statements. Adjustments made to thepreviously issued financial statements to comply with Ind AS have been audited by us.
Our opinion on the financial statements is not modified in respect of the above matteron the comparative financial information. Report on Other Legal and RegulatoryRequirements
1. As required by Section 143(3) of the Act based on our audit we report that :
a) We have sought and obtained all the information and explanations which to the bestof 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 theCompany so far as it appears from our examination of those books
c) The Balance Sheet the Statement of Profit and Loss including Other ComprehensiveIncome the Statement of Cash Flows and Statement of Changes in Equity dealt with by thisReport are in agreement with the books of account.
d) In our opinion the aforesaid financial statements comply with the Ind AS specifiedunder Section 133 of the Act.
e) On the basis of the written representations received from the directors taken onrecord by the Board of Directors none of the directors is disqualified as on March312019 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 over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate Report in "Annexure A". Our report expresses an unmodified opinion onthe adequacy and operating effectiveness of the Company's internal financial controls overfinancial reporting.
g) With respect to the other matters to be included in the Auditor's Report inaccordance with the requirements of section 197(16) of the Act as amended In our opinionand to the best of our information and according to the explanations given to us theremuneration paid by the Company to its directors during the year is in accordance withthe provisions of section 197 of the Act.
h) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 as amended inour opinion and to the best of our information and according to the explanations given tous :
i. The Company has disclosed the impact of pending litigations on its financialposition as at the year-end in its financial statements;
ii. The Company did not have any long-term contracts including derivative contracts asat the year-end for which there were any material foreseeable losses.
iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company.
2. As required by the Companies (Auditor's Report) Order 2016 (the "Order")issued by the Central Government in terms of Section 143(11) of the Act we give in"Annexure B" a statement on the matters specified in paragraphs 3 and 4 of theOrder.
ANNEXURE "A" TO THE INDEPENDENT AUDITORS' REPORT
(Referred to in paragraph 1(f) under Report on Other Legal and RegulatoryRequirements' section of our report of even date)
Report on the Internal Financial Controls Over Financial Reporting under Clause (i) ofSub-section 3 of Section 143 of the Companies Act 2013 ("the Act") We haveaudited the internal financial controls over financial reporting of GRUH Finance Limited(the "Company") as at March 31 2019 in conjunction with our audit of the Ind ASfinancial statements of the Company for the year ended on that date.
Management's Responsibility for Internal Financial Controls
The Company's management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls Over Financial Reportingissued by the Institute of Chartered Accountants of India (the "Guidance Note").These responsibilities include the design implementation and maintenance of adequateinternal financial controls that were operating effectively for ensuring the orderly andefficient conduct of its business including adherence to company's policies thesafeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information as required under the Companies Act 2013.
Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting of the Company based on our audit. We conducted ouraudit in accordance with the Guidance Note and the Standards on Auditing prescribed underSection 143(10) of the Act to the extent applicable to an audit of internal financialcontrols. Those Standards and the Guidance Note require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetheradequate internal financial controls over financial reporting was established andmaintained and if such controls operated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditors' judgement including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls systemover financial reporting.
Meaning of Internal Financial Controls Over Financial Reporting
A company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of the financial statements for external purposes in accordance with generallyaccepted accounting principles. A company's internal financial control over financialreporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures of the company are being made only in accordance with authorisations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of thecompany's assets that could have a material effect on the financial statements. InherentLimitations of Internal Financial Controls Over Financial Reporting Because of theinherent limitations of internal financial controls over financial reporting includingthe possibility of collusion or improper management override of controls materialmisstatements due to error or fraud may occur and not be detected. Also projections ofany evaluation of the internal financial controls over financial reporting to futureperiods are subject to the risk that the internal financial control over financialreporting may become inadequate because of changes in conditions or that the degree ofcompliance with the policies or procedures may deteriorate.
In our opinion to the best of our information and according to the explanations givento us the Company has in all material respects an adequate internal financial controlssystem over financial reporting and such internal financial controls over financialreporting were operating effectively as at March 31 2019 based on the criteria forinternal financial control over financial reporting established by the Company consideringthe essential components of internal control stated in the Guidance Note.
ANNEXURE "B" TO THE INDEPENDENT AUDITOR'S REPORT
(Referred to in paragraph 2 under Report on Other Legal and RegulatoryRequirements' section of our report of even date) (i) In respect of its fixed assets :
(a) The Company has maintained proper records showing full particulars includingquantitative details and situationof fixed assets. (b) Some of the fixed assets werephysically verified during the year by the Management in accordance with a programme ofverification which in our opinion provides for physical verification of all the fixedassets at reasonable intervals. According to the information and explanations given to usno material discrepancies were noticed on such verification.
(c) According to the information and explanations given to us and the records examinedby us and based on the examination of the registered sale deed / transfer deed /conveyance deed provided to us we report that the title deeds comprising all theimmovable properties of land and buildings are held in the name of the Company as at thebalance sheet date. Immovable property of land whose title deed has been pledged assecurity for non-convertible debentures is held in the name of the Company based on theconfirmation directly received by us from Debenture Trustees.
(ii) The Company does not have any inventory and hence reporting under clause (ii) ofthe CARO 2016 is not applicable.
(iii) The Company has not granted any loans secured or unsecured to companies firmsLimited Liability Partnerships or other parties covered in the register maintained undersection 189 of the Companies Act 2013.
(iv) In our opinion and according to the information and explanations given to us theCompany has complied with the provisions of Sections 185 and 186 of the Companies Act2013 in respect of grant of loans making investments and providing guarantees andsecurities as applicable.
(v) As per the Ministry of Corporate Affairs notification dated March 31 2014 theprovisions of Sections 73 to 76 or any other relevant provisions of the Companies Act2013 and the Companies (Acceptance of Deposits) Rules 2014 as amended with regard tothe deposits accepted are not applicable to the Company.
(vi) To the best of our knowledge and according to the information and explanationsgiven to us the Central Government has not prescribed the maintenance of cost recordsunder section 148(1) of the Companies Act 2013 in respect of the services rendered bythe Company. (vii) According to the information and explanations given to us in respectof statutory dues : (a) The Company has been regular in depositing undisputed statutorydues including Provident Fund Employees' State Insurance Income-tax Goods and ServiceTax Customs Duty cess and other material statutory dues applicable to it to theappropriate authorities.
(b) There were no undisputed amounts payable in respect of Provident Fund Employees'State Insurance Income-tax Goods and Service Tax cess and other material statutory duesin arrears as at March 31 2019 for a period of more than six months from the date theybecame payable.
(c) Details of dues of Income-tax Sales Tax Goods and Service Tax Service TaxCustoms Duty Excise Duty and Value Added Tax which have not been deposited as on March31 2019 on account of disputes are given below :
|Name of Statute ||Nature of Dues ||Forum where Dispute is Pending ||Period to which the Amount relates ||Amount Involved (Rs. in crore) ||Amount Unpaid (Rs. in crore) |
|Income Tax Act 1961 ||Tax and Interest ||CIT (Appeals) ||2016-17 ||2.28 ||2.28 |
(viii) In our opinion and according to the information and explanations given to usthe Company has not defaulted in the repayment of loans or borrowings to financialinstitutions banks and dues to debenture holders. The Company has not taken loans orborrowings from government.
(ix) In our opinion and according to the information and explanations given to usmoney raised by way of term loans have been applied by the Company during the year for thepurposes for which they were raised other than temporary deployment pending application ofproceeds. The Company has not raised moneys by way of initial public offer or furtherpublic offer (including debt instruments) during the year.
(x) To the best of our knowledge and according to the information and explanationsgiven to us no fraud by the Company and no material fraud on the Company by its officersor employees has been noticed or reported during the year.
(xi) In our opinion and according to the information and explanations given to us theCompany has paid / provided managerial remuneration in accordance with the requisiteapprovals mandated by the provisions of section 197 read with Schedule V to the CompaniesAct 2013.
(xii) The Company is not a Nidhi Company and hence reporting under clause (xii) of theCARO 2016 Order is not applicable.
(xiii) In our opinion and according to the information and explanations given to us theCompany is in compliance with Section 177 and 188 of the Companies Act 2013 whereapplicable for all transactions with the related parties and the details of related partytransactions have been disclosed in the financial statements etc. as required by theapplicable accounting standards.
(xiv) During the year the Company has not made any preferential allotment or privateplacement of shares or fully or partly convertible debentures and hence reporting underclause (xiv) of CARO 2016 is not applicable to the Company.
(xv) In our opinion and according to the information and explanations given to usduring the year the Company has not entered into any non-cash transactions with itsdirectors or directors of its holding company or persons connected with them and henceprovisions of section 192 of the Companies Act 2013 are not applicable.
(xvi) The Company is not required to be registered under section 45-IA of the ReserveBank of India Act 1934.
| ||For DELOITTE HASKINS & SELLS LLP |
| ||Chartered Accountants |
| ||Firm Registration No. 117366W/W-100018 |
| ||Gaurav J. Shah |
|Mumbai ||Partner |
|April 30 2019 ||Membership No. 35701 |