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REC Ltd.

BSE: 532955 Sector: Financials
NSE: RECLTD ISIN Code: INE020B01018
BSE 00:00 | 18 Sep 108.00 -0.60
(-0.55%)
OPEN

109.00

HIGH

109.30

LOW

107.00

NSE 00:00 | 18 Sep 108.00 -0.65
(-0.60%)
OPEN

109.15

HIGH

109.25

LOW

106.95

OPEN 109.00
PREVIOUS CLOSE 108.60
VOLUME 114300
52-Week high 157.25
52-Week low 79.00
P/E 4.08
Mkt Cap.(Rs cr) 21,329
Buy Price 107.60
Buy Qty 3616.00
Sell Price 108.00
Sell Qty 205.00
OPEN 109.00
CLOSE 108.60
VOLUME 114300
52-Week high 157.25
52-Week low 79.00
P/E 4.08
Mkt Cap.(Rs cr) 21,329
Buy Price 107.60
Buy Qty 3616.00
Sell Price 108.00
Sell Qty 205.00

REC Ltd. (RECLTD) - Auditors Report

Company auditors report

To the Members of REC Limited (Formerly Rural Electrification Corporation Limited)

Report on the Audit of Standalone Ind AS Financial Statements

Opinion

We have audited the standalone Ind AS financial statements of REC Limited (FormerlyRural Electrification Corporation Limited) ("the Company") which comprise thebalance sheet as at 31st March 2019 and the statement of profit and loss (includingother comprehensive income) and the statement of change in equity and the statement ofcash flows for the year then ended and notes to the standalone Ind AS financial statementsincluding a summary of significant accounting policies and other explanatory information.

In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone Ind AS financial statements give the informationrequired by the Companies Act 2013 ("the Act")in the manner so required andgive a true & fair view in conformity with the Indian Accounting Standards prescribedunder section 133 of the Act read with the Companies (Indian Accounting Standards) Rules2015 as amended ("Ind AS") and other accounting principles generally acceptedin India of the state of the affairs of the Company as at 31st March 2019 andprofit (including other comprehensive income) and changes in equity and its cash flow forthe year ended on that date.

Basis for Opinion

We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Act. Our responsibilities under those Standards are furtherdescribed in the Auditor's Responsibilities for the Audit of the Standalone Ind ASFinancial 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 together with the ethical requirements that are relevant to our audit of thestandalone Ind AS financial statements under the provisions of the Act and the Rulesthereunder and we have fulfilled our other ethical responsibilities in accordance withthese requirements and the Code of Ethics. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the standalone Ind AS financial statements of the currentperiod. These matters were addressed in the context of our audit of the standalone Ind ASfinancial statements as a whole and in forming our opinion thereon and we do not providea separate opinion on these matters. We have determined the following matters describedbelow to be the key audit matters to be communicated in our report:

Key Audit Matter Auditor's Response
1. Impairment of Loan Assets - Expected Credit Loss Our Audit Procedure:
(Refer Note No. 44.1.3 to the Standalone Ind AS Financial Statements read with accounting policy No. 3.11) We have obtained an understanding of the guidelines as specified in Ind AS 109 "Financial Instruments" various regulatory updates and the Company's internal instructions and procedures in respect of the expected credit loss on and adopted the following audit procedures:
The Company follows a ‘three-stage' model for impairment based on changes in credit quality since initial recognition as summarized below: Evaluation and testing of the key internal control mechanisms with respect to the loan assets monitoring assessment of the loan impairment including testing of relevant data quality and review of the real data entered
• Stage 1 includes loan assets that have not had a significant increase in credit risk since initial recognition or that have low credit risk at the reporting date. Verification/ review of the documentations operations/ performance and monitoring of the loan asset accounts on test check basis of the large and stressed loan assets to ascertain any overdue unsatisfactory conduct or weakness in any loan asset account.
• Stage 2 includes loan assets that have had a significant increase in credit risk since initial recognition but that do not have objective evidence of impairment. Review of the reports of the internal audit and any other audit / inspection mechanisms to ascertain the loan assets having any adverse indication / comments and review of the control mechanisms of the Company to ensure the proper classification of such loan assets and expected credit loss thereof.
• Stage 3 includes loan assets that have objective evidence of impairment at the reporting date.
The Expected Credit Loss (ECL) is measured at 12-month ECL for Stage 1 loan assets and lifetime ECL for Stage 2 and Stage 3 loan assets. ECL is the product of the Probability of Default Exposure at Default and Loss Given Default defined as follows:
Probability of Default (PD) - The PD represents the likelihood of a borrower defaulting on its financial obligation either over the next 12 months (12 months PD) or over the remaining lifetime (Lifetime PD) of the obligation.
Loss Given Default (LGD) - LGD represents the Company's expectation of the extent of loss on a defaulted exposure. LGD varies by type of counterparty type and preference of claim and availability of collateral or other credit support.
Further where REC and PFC(Holding company) are in Consortium for Stage III Loan accounts LGD is taken on the following basis:
• In cases where either REC or PFC is a lead lender LGD % calculated by the lead lender is adopted.
• In cases where neither REC nor PFC is lead lender higher of the LGD % worked out by REC and PFC is adopted.
Exposure at Default (EAD) - EAD is based on the amount of outstanding exposure as on the assessment date on which ECL is computed including undisbursed amounts in respect of Letters of Comfort.
Key assumptions used in measurement of ECL
• The Company considers the date of initial recognition as the base date from which significant increase in credit risk is determined.
• Cost Overrun and time delay in commissioning is considered for computing credit rating for under construction projects
• Turnover Cap and Parent support is considered for assigning final ratings
• Since the Company has a right to cancel any sanctioned but undrawn limits to any of its borrowers EAD is assumed to be outstanding balance as on the reporting date.
The assumptions underlying the expected credit loss are monitored and reviewed on an ongoing basis.
In the event of any improper application of assumptions mentioned as above the carrying value of loan assets could be materially misstated either individually or collectively and in view of the significance of the amount of loan assets in the standalone Ind AS Financial Statements i.e. 90.84% of total assets the impairment of loan assets thereon has been considered as Key Audit Matter in our audit.
2. Fair valuation of Derivative Financial Instruments Our Audit Procedure:
(Refer Note No. 7 to the standalone Ind AS Financial Statements read with accounting policy No. 3.10) Assessing the design implementation and operating effectiveness of management's key internal controls over classification valuation and valuation models of derivative instruments.
REC Limited being NBFC-IFC has primary business of lending funds to power sector. For the same REC raises the funds through the mix of various instruments such as Institutional Bonds Capital Gain Exemption Bonds Term Loans Commercial Paper Foreign Currency Term Loans/Bonds FCNR(B) ODA Loans etc depending upon various maturities based on the annual market borrowing programme approved by Board of Directors of REC. Obtained details of various financial derivative contracts as outstanding/ pending for settlement as on March 312019 from management.
Further in respect of foreign currency borrowings REC is exposed to foreign exchange risk and interest rate risk arising from foreign currency transactions primarily with respect to the US Dollar EURO and JPY. We involved our team to review the management's underlying assumptions in estimating the fair valuation arrived at for those financial derivative contracts and the possible outcome of the underlying contracts accruing any profit or loss to the company. Our team also considered general market practices and other underlying assumptions in arriving at such fair valuation of the financial derivative contracts as outstanding/ pending for settlement as on March 312019.
To mitigate the Company's exposure to foreign currency risk and interest rate risk non-INR cash flows are monitored and derivative contracts are entered into in accordance with the Company's board approved risk management policies and RBI guidelines. We also obtained counterparty confirmation (which in this case were mostly banks with whom such financial derivative contracts have been entered into and independently compared the valuation so arrived at by the contracting banks
The derivatives are accounted for on fair value (mark to market) in the books of account as prescribed by Ind AS. Additionally we considered the effect of such fair valuation (marked to market) being charged to the Statement of Profit and Loss of the company in the near future.
 

We identified assessing the fair value of derivatives as a key audit matter because of the degree of complexity involved in valuing certain derivative instruments.

Assessing whether the financial statement disclosures appropriately reflect the Company's exposure to derivatives valuation risks with reference to the requirements of the prevailing accounting standards and Reserve Bank of India Guidelines.

Information Other than the Standalone Ind AS Financial Statements and Auditor's Reportthereon

The Company's Board of Directors is responsible for the other information. The otherinformation comprises the information included in Board's Report and annexures to BoardReport but does not include the standalone Ind AS financial statements and our auditor'sreport thereon. The Board's Report and annexures to Board's Report is expected to be madeavailable to us after the date of this auditor's report.

Our opinion on the standalone Ind AS financial statements does not cover the otherinformation and we will not express any form of assurance conclusion thereon.

In connection with our audit of the standalone Ind AS financial statements ourresponsibility is to read the other information identified above when it becomes availableand in doing so consider whether the other information is materially inconsistent withthe standalone Ind AS financial statements or our knowledge obtained in the audit orotherwise appears to be materially misstated.

When we read the Board's Report and annexures to the Board's Report if we concludethat there is a material misstatement therein we are required to communicate the matterto those charged with governance.

Management's Responsibility for the Standalone Ind AS 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 standalone Ind AS financialstatements 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 inaccordance the Indian Accounting Standards prescribed under section 133 of the Act readwith the Companies (Indian Accounting Standards) Rules 2015 as amended ("IndAS") and other accounting principles generally accepted in India. This responsibilityalso includes maintenance of adequate accounting records in accordance with the provisionsof the 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 standalone Ind AS financialstatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.

In preparing the standalone Ind AS financial statements management is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so.

The Board of Directors are responsible for overseeing the Company's financial reportingprocess.

Auditor's Responsibilities for the Audit of the Standalone Ind AS Financial Statements

Our objectives are to obtain reasonable assurance about whether the standalone Ind ASfinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these standalone Ind AS 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 standalone Ind ASfinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.

• Obtain an understanding of internal financial controls relevant to the audit inorder to design audit procedure that are appropriate 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 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 standalone Ind AS financial statements or if such disclosures are inadequate tomodify our opinion. Our conclusions are based on the audit evidence obtained up to thedate of our auditor's report. However future events or conditions may cause the Companyto cease to continue as a going concern.

• Evaluate the overall presentation structure and content of the standalone IndAS financial statements including the disclosures and whether the standalone Ind ASfinancial statements represent the underlying transactions and events in a manner thatachieves fair presentation.

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 standalone Ind AS financialstatements of the current period and are therefore the key audit matters. We describethese matters in our auditor's report unless law or regulation precludes public disclosureabout the matter or when in extremely rare circumstances we determine that a mattershould not be communicated in our report because the adverse consequences of doing sowould reasonably be expected to outweigh the public interest benefits of suchcommunication.

Report on Other Legal and Regulatory Requirements

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 Act we give in the Annexure-A a statement on the matters specified in paragraph 3and 4 of the Order to the extent applicable.

We are enclosing our report in terms of Section 143(5) of the Act on the basis of suchchecks of the books and records of the Company as we have considered appropriate andaccording to the information and explanation given to us in Annexure-B on the directionissued by Comptroller and Auditor General of India.

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 Ind AS financial statements comply with theAccounting Standards specified under Section 133 of the Act read with relevant rules.

e) Vide Notification No. G.S.R. 463(E) dated 5 June 2015 issued by Ministry ofCorporate Affairs Government Companies have been exempted from applicability of theprovisions of Section 164(2) of the Companies Act 2013.

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-C";

g) 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 standalone Ind AS financial statements - Refer Note 39.1 to the standaloneInd AS financial statements;

(ii) The Company does not have any long term contracts including derivative contractsfor which there are 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.

For G.S.Mathur & Co. For A.R. & Co.
Chartered Accountants Chartered Accountants
Firm Regn No. 008744N Firm Regn. No. 002744C
S.C. Choudhary Anil Gaur
Partner Partner
M. No. 082023 M. No.017546
Place : New Delhi
Date : 24 May 2019

Referred to in Paragraph under 'Report on Other Legal and Regulatory Requirements'section of our report of even date on the accounts of REC Limited (formerly RuralElectrification Corporation Limited) for the Year ended on 31st March 2019

(i) (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets (Property Plant and equipment) .

(b) According to the information and explanations given to us the Company has thepolicy of verifying the fixed assets (Property Plant and equipment) in a phased manner.Discrepancies arising from such physical verification have been suitably accounted for inthe books of accounts. In our opinion the periodicity of physical verification isreasonable having regard to the size of the Company and the nature of its assets.

(c) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the title deeds of immovable properties areheld in the name of the Company except for the following:

(Rs in Crores)

Particulars No. of cases Gross Block Net Block Remarks
Freehold Land 1 68.31 68.31 Conveyance Deed by Haryana Urban Development Authority is yet to be executed.
Building 1 4.59 2.20 Conveyance Deed by Standing Committee of Public Enterprises is yet to be executed.

(ii) The Company being Non-Banking Financial Company (NBFC) does not has anyinventory; as such this clause is not applicable.

(iii) According to the information and explanations given to us the Company has notgranted any loans secured or unsecured to any Companies firms or other parties coveredin register maintained under section 189 of the Companies Act 2013. Accordingly clause3(iii)(a) (b) and (c) of the Order are not applicable.

(iv) In our opinion and according to information & explanations given to us withrespect to the provisions of Section 185 of the Act the Company has not granted any loanor guarantee in accordance with Section 185.

Further in our opinion and according to information & explanations given to usthe Company being a Non-Banking Financial Company (NBFC) is exempt from the provisionsof Section 186 of the Act and the relevant rules in respect of loans and guarantees. Inrespect of the investments the Company has complied with the provisions of section 186(1) of the Act.

(v) According to the information and explanations given to us the Company has notaccepted any deposits from public to which the provisions of Sections 73 to 76 or anyother relevant provisions of the Companies Act 2013 and the Rules framed thereunder.

(vi) To the best of our knowledge and as explained the Central Government has notprescribed the maintenance of cost records for the services of the Company under Companies(Cost Records and Audit) Rules 2014 prescribed by the Central Government under Section148 of the Companies Act 2013. Accordingly this clause of the order is not applicable tothe Company.

(vii) (a) The Company is generally regular in depositing undisputed statutory duesincluding provident fund employees' state insurance income-tax goods & service taxcess and any other statutory dues to the appropriate authorities. There were no undisputedstatutory dues in arrears as at 31stMarch 2019 for a period of more than sixmonths from the date they became payable.

(b) According to the information and explanations given to us the disputed statutorydues aggregating to Rs.19.07 crores have not been deposited on account of matters pendingbefore appropriate authorities as detailed below:

(Rs in Crores)

Name of Statute

Nature of Dues

Amount Disputed Amount paid/ refund adjusted Net Amount Unpaid Period to which the amount relates Forum where dispute is pending
Income Tax Act 1961 Fringe Benefit Tax 0.48 0.48 AY 2008-09 Commissioner of Income Tax (Appeals) Delhi
Income Tax Act 1961 Income Tax and Interest 84.70 84.70 AY-2006-07 AY-2009-10 AY-2011-12 AY-2012-13 AY 2013-14 AY 2014-15 AY 2015-16 AY-2016-17 Commissioner of Income Tax (Appeals) Delhi
Income Tax Act 1961 Income Tax and Interest 12.19 4.11 8.09* AY 2008-09 AY 2012-13 Income Tax Appellate Tribunal Delhi
Income Tax Act 1961 Income Tax and Interest 2.01 0.67 1.33* AY 2006-07 AY 2009-10 Delhi High Court
Income Tax Act 1961 Income Tax and Interest 17.06 8.31 8.75* AY 1999-00 AY 2003-04 AY 2004-05 Supreme Court
Income Tax Act 1961 Tax Deducted at Source 0.06 ' 0.06 FY 2007-08 to 2018-19 CPC TDS
Chapter V of Finance Act 1994 Service Tax Penal Interest u/s 73(4A) 0.36 0.36 FY 2008-09 to FY 2011-12 CESTAT Delhi
Total 116.86 97.79 19.07

* ' 18.17 crore though received by the Company as refund due to appeal effects offavorable decisions of various appellate forums is however

being considered as unpaid on account of further appeals made by the Income TaxDepartment to higher authorities.

(viii) According to the information and explanations given to us and on the basis ofour examination of the records of the Company the Company has not defaulted in repaymentof loans or borrowing to a financial institution bank government or dues to debentureholders as at the Balance Sheet date.

(ix) The Company did not raise any money by way of initial public offer or furtherpublic offer. Money raised by the Company by way of debt instruments and term loans duringthe year were applied for the purposes for which it was raised.

(x) During the course of our examination of the books and records of the Companycarried out in accordance with the generally accepted auditing practices in India andaccording to the information and explanations given to us we have neither come across anyinstance of any material fraud by the Company or on the Company by its officers oremployees noticed or reported during the year nor have we been informed of any such caseby the Management.

(xi) According to the information and explanations given to us Central Government hasexempted the Government Companies from the provisions of Section 197. Accordingly thisclause of the Order is not applicable to the Company.

(xii) According to the information and explanations given to us the Company is not aNidhi Company. Accordingly this clause of the Order is not applicable to the Company.

(xiii) According to the information and explanations given to us and on the basis ofour examination of the records of the Company transactions with the related parties arein compliance with section 177 and 188 of the Act where applicable and the necessarydisclosures have been made in the standalone Ind AS financial statements etc. as requiredby the applicable accounting standards.

(xiv) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the Company has not made any preferentialallotment or private placement of shares or fully or partly convertible debentures duringthe year.

(xv) 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 non-cashtransactions with directors or persons connected with them. Accordingly this clause ofthe Order is not applicable.

(xvi) According to the information and explanations given to us and based on ourexamination of the records of the Company the Company being a NBFC is required to beregistered under section 45-IA of the Reserve Bank of India Act 1934. Consequent uponchange of name of the Company from Rural Electrification Corporation Limited to RECLimited RBI has issued fresh certificate of registration bearing no. 14.000011 dated 28thNovember 2018 with the name of REC Limited.

For G.S. Mathur& Co. For A.R. & Co.
Chartered Accountants Chartered Accountants
Firm Regn No. 008744N Firm Regn. No. 002744C
S.C. Choudhary Anil Gaur
Partner Partner
M. No. 082023 M. No. 017546
Place : New Delhi
Date : 24 May 2019

ANNEXURE-B TO THE INDEPENDENT AUDITOR'S REPORT

Referred to in Paragraph under 'Report on Other Legal and Regulatory Requirements'Section of Our Report of Even Date on the Accounts of REC Limited (formerly RuralElectrification Corporation Limited) for the Year ended on 31st March 2019

Directions Action Taken Impact on Standalone Ind As Financial Statements
A. Directions
1. Whether the Company has system in place to process all the accounting transactions through IT system? If yes the implications of processing of accounting transactions outside IT system on the integrity of the accounts along with the financial implications if any may be stated. The Company has upgraded to ERP R12 version during the current year. All the accounting including at Regional and State offices is done through the centralized ERP system. No impact on the standalone Ind AS Financial Statements
2. Whether there is any restructuring of an existing loan or cases of waiver/write off of debts /loans/interest etc. made by a lender to the Company due to the Company's inability to repay the loan? If yes the financial impact may be stated. There has been no such case and the company has been servicing its debt and borrowings obligations. No impact on the standalone Ind AS Financial Statements
3. Whether funds received/receivable for specific schemes from central/ state agencies were properly accounted for/ utilized as per its term and conditions? List the cases of deviation. The Company has not received any funds for specific schemes from central/ state agencies for utilisation. No impact on the standalone Ind AS Financial Statements

 

For G.S. Mathur& Co. For A.R.& Co.
Chartered Accountants Chartered Accountants
Firm Regn No. 008744N Firm Regn. No. 002744C
S.C. Choudhary Anil Gaur
Partner Partner
M. No.082023 M. No. 017546
Place : New Delhi Date : 24 May 2019

ANNEXURE-C TO THE INDEPENDENT AUDITOR'S REPORT

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 ("the Act")

We have audited the internal financial controls over financial reporting of REC Limited(formerly known as Rural Electrification Corporation Limited) the Company as of 31 March2019 in conjunction with our audit of the standalone Ind AS financial statements of theCompany 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 (‘ICAI'). Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to Company's policies the safeguarding ofits assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Act.

Auditors' Responsibility

Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note on Audit of Internal Financial Controls over Financial Reporting(the "Guidance Note") and the Standards on Auditing issued by ICAI and deemedto be prescribed under section 143(10) of the Act to the extent applicable to an audit ofinternal financial controls both applicable to an audit of Internal Financial Controland both issued by the Institute of Chartered Accountants of India. Those Standards andthe Guidance Note require that we comply with ethical requirements and plan and performthe audit to obtain reasonable assurance about whether adequate internal financialcontrols over financial reporting was established and maintained and if such controlsoperated 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 auditor's judgment including the assessment of the risks ofmaterial misstatement of the standalone Ind AS financial statements whether due to fraudor 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 standalone Ind AS financial statements for external purposes in accordancewith generally accepted accounting principles. A Company's internal financial control overfinancial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the Company;

(2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of standalone Ind AS financial statements in accordance with generallyaccepted accounting principles and that receipts and expenditures of the Company arebeing made only in accordance with authorizations of management and directors of theCompany; and

(3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition use or disposition of the Company's assets that could have amaterial effect on the standalone Ind AS financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion the Company has in all material aspects an adequate internalfinancial controls system except (i) strengthening of procedures for monitoring ofutilization of funds disbursed to the borrowers (ii) rotation of duties amongst some ofthe staff as per HR Policy to be implemented over financial reporting and such internalfinancial controls over financial reporting were operating effectively as of 31 March2019 based on the internal control overfinancialreporting criteria established by theCompany considering the essential components of internal control stated in the GuidanceNote on Audit of Internal Financial Controls over Financial Reporting issued by theInstitute of Chartered Accountants of India.

We have considered the areas of improvement identified which needs furtherstrengthening as reported above in determining the nature timing and extent of audittests applied in our audit of the 31 March 2019 standalone Ind AS financial statements ofthe Company. However these areas of improvement do not affect our opinion on thestandalone Ind AS financial statements of the Company.

For G.S. Mathur& Co. For A.R.& Co.
Chartered Accountants Chartered Accountants
Firm Regn No. 008744N Firm Regn. No. 002744C
S.C. Choudhary Anil Gaur
Partner Partner
M. No. 082023 M. No. 017546
Place : New Delhi
Date : 24 May 2019