THE MEMBERS OF
MUTHOOT CAPITAL SERVICES LIMITED
Report on the Audit of the Standalone Financial Statements
We have audited the accompanying standalone financial statements of Muthoot CapitalServices Limited ("the Company") which comprise the Balance Sheet as at 31stMarch 2020 the Statement of Profit and Loss (including Other Comprehensive Income) theStatement of Changes in Equity and Cash Flow Statement for the year then ended and thenotes to the financial statements including a summary of significant accounting policiesand other explanatory information.
In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements give the information requiredby the Companies Act 2013 ("the Act") in the manner so required and give a trueand fair view in conformity with the accounting principles generally accepted in India ofthe state of affairs of the Company as at 31st March 2020 its profit andtotal comprehensive income changes in equity and its cash flows for the year ended onthat date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Companies Act 2013. Our responsibilities under thoseStandards are further described in the Auditor's Responsibilities for the Audit of theStandalone Financial Statements section of our report. We are independent of the Companyin accordance with the Code of Ethics issued by the Institute of Chartered Accountants ofIndia together with the ethical requirements that are relevant to our audit of thefinancial statements under the provisions of the Act and the Rules thereunder and we havefulfilled our other ethical responsibilities in accordance with these requirements and theCode of Ethics. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion.
Emphasis of Matter
We draw attention to Note No 53 to the standalone financial statements which describesthe impact of the COVID-19 pandemic on the operations and financial position of thecompany including the Company's estimates of the probable increase in impairment lossesand the continuing uncertainties which may require changes in such estimates in thefuture. 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 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.
|Key Audit Matters ||How addressed in Audit |
|Indian Accounting Standards (Ind-AS) as specified under section 133 of the Act read with relevant rules there under have been made mandatorily applicable for specified Non-Banking Financial Companies applicable with effect from 1st April 2019 and consequently these standalone financial statements have been prepared by the management in compliance with Ind AS framework. ||We have evaluated the management's process and tested key controls around the determination of expected credit loss allowances including controls relating to: |
| ||-The identification of events leading to a significant increase in risk and credit impairment events; and |
|As against the provisioning norms earlier prescribed by Reserve Bank of India and adopted by the company in prior years Ind-AS 109 (Financial Instruments) requires the Company to recognize Expected credit loss (ECL) on financial assets which involves application of significant judgement and estimates including use of key assumptions such as probability of default loss given default and exposure at default. ||-The determination of the impaired credit loss allowances and the key assumptions including probability of default and loss given default on forward looking basis having regard to historical experiences. |
| ||We understood and assessed the appropriateness of the impairment methodology developed and used by the management at the entity level including with reference to management overlays to account for the possible impact of the uncertainties associated with the COVID-19 pandemic. |
|The underlying forecasts and assumptions used in the estimates of impairment allowance are subject to uncertainties which are often outside the control of the company. The extent to which COVID-19 pandemic will impact the company's current estimate of impairment loss allowance is dependent on future developments which are highly uncertain at this point. Given the size of the loan portfolio relative to the balance sheet and the impact of impairment allowance on the financial statements we have considered this as a key audit matter. ||This included assessing the appropriateness of key judgements. We tested the accuracy of key data inputs and calculations used in this regard |
| ||We found that these key controls as above were designed implemented and operated effectively and therefore have placed reliance on these key controls for the purposes of our audit on ECL and impairment loss allowances. |
|Ind-AS 109 (Financial Instruments) requires the Company to recognise interest income by applying the effective interest rate (EIR) method. While estimating future cash receipts for the purpose of determining the EIR factors including expected behaviour life cycle of the financial asset probable fluctuation in collateral value which may have an impact on the EIR are to be considered. ||We have evaluated the management's process in estimation of future cash receipts for the purpose of determination of EIR including identification of factors like expected behaviour life cycle of the financial asset and probable fluctuation in collateral value. We tested the accuracy of key data inputs and calculations used in this regard. |
|Completeness in identification accounting and disclosure of related party transactions in accordance with the applicable laws and financial reporting framework. ||We have assessed the systems and processes laid down by the company to appropriately identify account and disclose all material related party transactions in accordance with applicable laws and financial reporting framework. We have designed and performed audit procedures in accordance with the guidelines laid down by ICAI in the Standard on Auditing (SA 550) to identify assess and respond to the risks of material misstatement arising from the entity's failure to appropriately account for or disclose material related party transactions which includes obtaining necessary approvals at appropriate stages of such transactions as mandated by applicable laws and regulations. We have also reviewed the Secretarial Audit report during the course of evaluating the internal control systems in ensuring compliance with applicable laws rules regulations and guidelines. |
|Compliance and disclosure requirements under the applicable Indian Accounting Standards RBI Guidelines and other applicable statutory regulatory and financial reporting framework. ||We have assessed the systems and processes laid down by the company to appropriately ensure compliance and disclosures as per the applicable Indian Accounting Standards RBI Guidelines and other applicable statutory regulatory and financial reporting framework. We have designed and performed audit procedures to assess the completeness and correctness of the details disclosed having regard to the assumptions made by the management in relation to the applicability and extent of disclosure requirements; and have relied on internal records of the company and external confirmations wherever necessary. |
|Key Information technology (IT) systems used in financial reporting process. The company's operational and financial processes are dependent on IT systems due to large volume of transactions that are processed daily. Accordingly our audit was focused on key IT systems and controls due to the pervasive impact on the financial statements ||We obtained an understanding of the Company's IT control environment and key changes during the audit period that may be relevant to the audit. We tested the design implementation and operating effectiveness of the company's General IT controls over the key IT systems which are critical to financial reporting. |
Information Other than the Standalone Financial Statements and Auditor's Report thereon(Other Information)
The Company's Board of Directors is responsible for the other information. The otherinformation comprises the information included in the Corporate Overview Board's ReportManagement Discussion and Analysis Report and Report on Corporate Governance in the AnnualReport of the Company for the financial year 2019-20 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 the financial statements our responsibility is to readthe other Information and in doing so consider whether the other information ismaterially inconsistent with the financial statements or our knowledge obtained in theaudit or otherwise appears to 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.
Responsibilities of Management and Those Charged with Governance for the StandaloneFinancial 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 standalone financial statementsthat give a true and fair view of the financial position financial performance includingother Comprehensive Income changes in equity and cash flows of the Company in accordancewith the accounting principles generally accepted in India including the IndianAccounting Standards specified under section 133 of the Act. This responsibility alsoincludes maintenance of adequate accounting records in accordance with the provisions ofthe Act for safeguarding of the assets of the Company and for preventing and detectingfrauds and other irregularities; selection and application of appropriate accountingpolicies; making judgments and estimates that are reasonable and prudent; and designimplementation 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.
The Board of Directors is also responsible for overseeing the Company's financialreporting process.
Auditor's Responsibilities for the Audit of the Standalone 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 control relevant to the audit in order todesign 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 hasadequate internal financial controls system in place and the operating effectiveness ofsuch controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by 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 standalone financial statementsthat individually 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.
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 sub-section (11) of section 143 ofthe Companies Act 2013 we give in "Annexure A" a statement on the mattersspecified 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 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 Changes in Equity and the Cash Flow Statement dealt with by thisReport are in agreement with the books of account.
(d) In our opinion the aforesaid standalone financial statements comply with theAccounting Standards specified under Section 133 of the Act read with relevant rulesissued thereunder.
(e) On the basis of the written representations received from the directors as on 31stMarch 2020 taken on record by the Board of Directors none of the directors aredisqualified as on 31st March 2020 from being appointed as a director in termsof Section 164 (2) of the Act.
(f) With respect to the adequacy of the internal financial controls over financialstatement reporting of the Company and the operating effectiveness of such controls referto our separate Report in "Annexure B".
(g) With respect to the other matters to be included in the Auditor's Report inaccordance with Section 197(16) of the Act in our opinion and to the best of ourinformation and according to the explanations given to us the remuneration paid/providedby the Company to its directors during the year is in accordance with the provisions ofsection 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 in our opinionand 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 financialposition in its financial statements - Refer Note No. 44 to the financial statements
ii. The Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses.
iii. There has been a delay of 49 days in transferring 7160 equity shares having anaggregate face value of Rs.71600/- (at face value of Rs.10/- each) in respect of whichdividend is unpaid or unclaimed for seven consecutive years. Except for the above therehas been no delay in transferring any amounts required to be transferred to the InvestorEducation and Protection Fund by the Company.
ANNEXURE A' REFERRED TO IN PARAGRAPH 1 UNDER THE HEADING "REPORT ON OTHERLEGAL AND REGULATORY REQUIREMENTS" OF OUR INDEPENDENT AUDITOR'S REPORT OF EVEN DATEON THE STANDALONE FINANCIAL STATEMENTS OF MUTHOOT CAPITAL SERVICES LIMITED FOR THE YEARENDED 31st MARCH 2020:
1. (a) The Company is maintaining proper records showing full particulars includingquantitative details and situation of fixed assets.
(b) We are informed that the Company has a programme for physical verification of fixedassets at reasonable intervals and that no material discrepancies were noticed on suchverification.
(c) The Company does not have any immovable property and hence the reportingrequirements as per clause 3 (1) (c) of the Order are not applicable.
2. Except for the repossessed assets from borrowers stock of stationery and salespromotion items the Company does not have any other inventory. These inventories havebeen physically verified during the year by the management. In our opinion the frequencyof verification is reasonable. In our opinion and according to the information andexplanations given to us no material discrepancies were noticed on such physicalverification.
3. According to the information and explanation given to us the Company has grantedan Unsecured Inter corporate deposit to one Company and unsecured loans to one partnershipfirm and two companies covered in the Register maintained under section 189 of the Act inrespect of which;
(a) The terms and conditions of the grant of such loans/deposits are in our opinionprima facie not prejudicial to the Company's interest.
(b) The schedule of repayment of principal and payment of interest has been stipulatedand repayments or receipts of principal amounts and interest have been regular as perstipulations.
(c) There is no overdue amount remaining outstanding as at the balance sheet date.
4. According to the information and explanations given to us and the records of theCompany examined by us the Company has complied with the provisions of Sections 185 and186 of the Act where applicable in respect of grant of loans and making of investments.The Company has not given any guarantees or provided security for which the provisions ofsection 185 and 186 of the Act are applicable.
5. In our opinion and according to the information and explanations given to us theCompany being a nonbanking financial company registered with the Reserve Bank of Indiathe provisions of section 73 to 76 or any other relevant provision of the Act and theCompanies (Acceptance of Deposits) Rules 2014 as amended with regard to the depositsaccepted are not applicable to the Company. In respect of deposits accepted in ouropinion and according to the information and explanations given to us directives issuedby the Reserve Bank of India to the extent applicable have been complied with. Accordingto the information and explanations given to us by the management no order has beenpassed by Company Law Board or National Company Law Tribunal or Reserve Bank of India orany court or any other Tribunal in respect of the aforesaid deposits.
As stated in Note No 73.1 of the financial statements public deposits amounting to Rs3 59 lakhs (including interest) could not be repaid for the reasons explained therein.
6 To the best of our knowledge and according to the information and explanations givento us the maintenance of cost audit records has not been specified by the CentralGovernment under section 148(1) of the Companies Act 2013 for the business activitiescarried out by the Company. Thus reporting under clause 3(vi) of the order is notapplicable to the Company.
7. (a) As per the information and explanations furnished to us and according to ourexamination of the records of the Company the Company has been generally regular indepositing undisputed statutory dues including Provident Fund Employee's State InsuranceIncome Tax Goods and Service Tax Cess and any other statutory dues as applicable to theCompany to the appropriate authorities during the year. According to the information andexplanation given to us by the management there are no arrears of undisputed statutorydues outstanding as at the last date of the financial year for a period of more than sixmonths from the date on which they became payable.
(b) According to the information and explanations given to us and the records of theCompany examined by us there are no dues of sales tax income tax wealth tax customsduty excise duty service tax goods and service tax and cess that have not beendeposited on account of any dispute.
8. In our opinion and according to the information and explanations given to us and therecords of the Company examined by us the Company has not defaulted in repayment of loansor borrowings to financial institutions banks Governments or dues to debenture holders.
As stated in Note No.73.1 of the financial statements matured debentures amounting toRs 4 lakhs (including interest) outstanding as on 31st March 2020 could not berepaid for the reasons explained therein.
9. According to the information and explanations given to us and the records of theCompany examined by us no moneys were raised by way of initial public offer or furtherpublic offer (including debt instruments) and the term loans availed by the Company havebeen applied for the purpose for which the loans were obtained.
10. (a) As stated in Note No 71 of the Standalone financial statements during the yearthe Company detected a fraud committed by a sub-dealer in connivance with an employee ofthe Company amounting to Rs 1 61 lakhs against which ^ 55 lakhs was recovered andprovision of Rs 1 06 lakhs (net amount) has been made. Except for the above during thecourse of our examination of the books and records of the Company carried out inaccordance with generally accepted auditing practices in India and according to theinformation and explanation given to us there have been no instances of fraud on theCompany by its employees; and
(b) no fraud by the company has been noticed or reported during the year nor have webeen informed of any such case by the management.
11. According to the information and explanations given to us and the records of theCompany examined by us managerial remuneration has been paid or provided in accordancewith the requisite approvals mandated by the provisions of section 197 read with ScheduleV to the Act.
12. The Company is not a Nidhi Company. Accordingly the reporting requirement underclause (xii) of paragraph 3 of the Order is not applicable to the Company.
13. According to the information and explanations given to us and the records of theCompany examined by us the Company has complied with the provisions of Section 177 and188 of the Act where applicable for all transactions with the related parties. Thedetails of related party transactions have been disclosed in Note No 45 of the financialstatements as required by the applicable accounting standards.
14. The Company has not made any preferential allotment of shares or fully or partlyconvertible debentures during the year under review and thus the requirement under section42 of the act is not applicable.
15. According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not entered into any non-cashtransactions with Directors or persons connected with the Directors and hence thereporting requirement under clause (xv) of paragraph 3 of the Order is not applicable.
16. The Company is engaged in the business of Non-Banking Financial Institution and hasobtained the certificate of registration as provided in section 45-IA of the Reserve Bankof India Act 1934.
ANNEXURE B' REFERRED TO IN PARAGRAPH 2(f) UNDER THE HEADING "REPORT ON OTHERLEGAL AND REGULATORY REQUIREMENTS" OF OUR INDEPENDENT AUDITOR'S REPORT OF EVEN DATEON THE STANDALONE FINANCIAL STATEMENTS OF MUTHOOT CAPITAL SERVICES LIMITED FOR THE YEARENDED 31st MARCH 2020.
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 have audited the internal financial control systems with reference to standalonefinancial statements reporting of Muthoot Capital Services Limited ("theCompany") as of 31st March 2020 in conjunction with our audit of thestandalone financial 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 controls with reference to financial statementsreporting criteria established by the Company considering the essential components ofinternal control stated in the Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting issued by the Institute of Chartered Accountants of India (ICAI).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 systems with reference to financial statements reporting based on our audit. Weconducted our audit in accordance with the Guidance Note on Audit of Internal FinancialControls Over Financial Reporting (the "Guidance Note") and the Standards onAuditing issued by ICAI and deemed to be prescribed under section 143(10) of theCompanies Act 2013 to the extent applicable to an audit of internal financial controlsboth applicable to an audit of Internal Financial Controls and both issued by theInstitute of Chartered Accountants of India. Those Standards and the Guidance Note requirethat we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether adequate internal financial controls system withreference to financial statements reporting was established and maintained and if suchcontrols operated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system with reference to financial statements reportingand their operating effectiveness. Our audit of internal financial controls system withreference to financial statements reporting included obtaining an understanding ofinternal financial controls system with reference to financial statements 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 auditor's 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 systemwith reference to financial statements reporting.
Meaning of Internal Financial Controls with reference to Financial Statements reporting
A Company's internal financial controls system with reference to financial statementsreporting is a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles. A Company's internalfinancial controls system with reference to financial statements reporting includes thosepolicies and procedures that (1) pertain to the maintenance of records that in reasonabledetail accurately and fairly reflect the transactions and dispositions of the assets ofthe Company; (2) provide reasonable assurance that transactions are recorded as necessaryto permit preparation of financial statements in accordance with generally acceptedaccounting principles and that receipts and expenditure of the Company are being madeonly in accordance with authorisations of management and directors of the Company; and (3)provide reasonable assurance regarding prevention or timely detection of unauthorisedacquisition use or disposition of the Company's assets that could have a material effecton the financial statements.
Inherent Limitations of Internal Financial Controls with reference to FinancialStatements reporting
Because of the inherent limitations of internal financial controls system withreference to financial statements reporting including the possibility of collusion orimproper management override of controls material misstatements due to error or fraud mayoccur and not be detected. Also projections of any evaluation of the internal financialcontrols system with reference to financial statements reporting to future periods aresubject to the risk that the internal financial controls system with reference tofinancial statements reporting may become inadequate because of changes in conditions orthat the degree of compliance 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 with reference to financial statements reporting and such internal financialcontrols system with reference to financial statements reporting were operatingeffectively as at 31st March 2020 based on the internal control withreference to financial statements reporting criteria established by the Companyconsidering the essential components of internal control stated in the Guidance Note onAudit of Internal Financial Controls Over Financial Reporting issued by the Institute ofChartered Accountants of India.
| ||For Varma & Varma |
| ||Chartered Accountants |
| ||FRN No: 004532S |
| ||Sd/- |
|Place : Kochi ||VIJAY NARAYAN GOVIND |
|Date : 28th May 2020 ||Partner |
|UDIN : 20203094AAAAAO8279 ||M. No. 203094 |