We have audited the accompanying financial statements of Aavas
Financiers Limited (“the Company”), which comprise the Balance
Sheet as at March 31,2025, and the Statement of Profit and Loss
including Other Comprehensive Income, Statement of Changes in
Equity and Statement of Cash Flow for the year then ended, and
notes to the financial statements, including material accounting
policy information and other explanatory information (hereinafter
referred to as the “financial statements”).
In our opinion and to the best of our information and according to
the explanations given to us, the aforesaid financial statements
give the information required by the Companies Act, 2013 (“the
Act’) in the manner so required and give a true and fair view in
conformity with the Indian Accounting Standards prescribed
under section 133 of the Act read with Companies (Indian
Accounting Standards) Rules, 2015, as amended (“Ind AS”),
the RBI Guidelines and other accounting principles generally
accepted in India, of the state of affairs of the Company as at
March 31, 2025, and profit (including other comprehensive
income), changes in equity and its cash flows for the year
ended on that date.
Basis for Opinion
We conducted our audit of the financial statements in
accordance with the Standards on Auditing (“SAs”) specified
under section 143(10) of the Act. Our responsibilities under those
Standards are further described in the Auditor’s Responsibilities
for the Audit of the Financial Statements section of our report.
We are independent of the Company in accordance with the
Code of Ethics issued by the Institute of Chartered Accountants
of India (the “ICAI”) together with the ethical requirements that
are relevant to our audit of the financial statements under the
provisions of the Act and the Rules thereunder, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements and the Code of Ethics. We believe that the
audit evidence obtained by us 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 most significance in our audit of the financial
statements for the year ended March 31, 2025 (current year).
These matters were addressed in the context of our audit of
the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters. We have determined the matters described below to
be the key audit matters to be communicated in our report.
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Key audit matters
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How our audit addressed the key audit matter
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Impairment of loans including Expected Credit Losses (ECL)
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At 31 March 2025, the Company reported total gross loans of ' 1,633,704.07 lakhs (2024: ' 1,408,918.57 lakhs) and ' 10,733.14
Lakhs of expected credit loss provisions (2024: ' 8,481.89 lakhs).
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Refer note 1 for material accounting policies and notes
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Our audit focused on assessing the appropriateness of
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5 and 28 for financial disclosures in the accompanying
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management’s judgment and estimates used in the expected
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financial statements.
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credit losses through the following procedures, but were not
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Ind AS 109 - Financial Instruments (‘Ind AS 109’), requires the
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limited to the following procedures:
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Company to provide for impairment of its financial assets using
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Examined the Board Policy approving methodology for
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the expected credit loss (‘ECL’) approach involving an estimation
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computation of ECL that addresses policies and procedures for
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of probability of loss on such financial assets, considering
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assessing and measuring credit risk on the lending exposures
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reasonable and supportable information about past events,
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of the Company in accordance with the requirements of
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current conditions and forecasts of future economic conditions
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Ind AS 109. Also, obtained the policy on restructuring of
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which could impact the credit quality of the Company’s loan
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loans approved by the Board of Directors pursuant to the RBI
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assets. Expected credit loss cannot be measured precisely but
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circulars/ guidelines in earlier years and ensured classification
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can only be estimated through use of statistics.
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of such Loans is in compliant with the requirements of the RBI
circulars / guidelines;
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Key audit matters
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How our audit addressed the key audit matter
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The estimation of impairment loss allowance on loan assets
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•
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Performed a walkthrough of the impairment loss allowance
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involves significant judgement and estimates and applying
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process, and assessed the design and tested operating
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appropriate measurement principles in case of loss events,
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effectiveness of the key controls over completeness and
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including additional considerations on account of Reserve
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accuracy of the key inputs (including loan book as at March 31,
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Bank of India guidelines in relation to restructuring.
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2025) and assumptions considered for calculation, recording
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The expected credit loss is calculated using the percentage
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and monitoring of the impairment loss recognized;
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of probability of default (PD), loss given default (LGD) and
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•
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Tested the completeness of loans and advances included
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exposure at default (EAD) for each of the stages of loan portfolio.
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in the Expected Credit Loss calculations as of March 31,
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Additional management overlay is estimated considering non
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2025 by reconciling it with the balance as per loan balance
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prediction and long-term future impact. The Expected Credit
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register. We tested the data used in the PD and LGD model
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Loss (“ECL”) is measured at 12-month ECL for Stage 1 loan
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for ECL calculation by reconciling it to the source system.
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assets and at lifetime ECL for Stage 2 and Stage 3 loan assets.
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We tested assets in stage 1,2 and 3 on a sample basis to
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Significant management judgment and assumptions involved
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verify that they were allocated to the appropriate stage;
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in measuring ECL is required with respect to:
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•
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Obtained an understanding of the modelling techniques
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• Segmentation of loan book in buckets
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adopted by the Company including the key inputs
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• Determining the criteria for a significant increase in
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and assumptions;
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credit risk
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•
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Tested the appropriateness of determining Exposure
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• Factoring in future economic assumptions
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at Default (EAD), PD and LGD, on sample basis.
For exposure determined to be individually impaired, we
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• Techniques used to determine probability of default, loss
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tested samples of loans and advances and examined
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given default and exposure at default
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management’s estimate of future cash flows, assessed
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These parameters are derived from the Company’s internally
developed statistical models with the help of management
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their reasonableness and checked the resultant
provision calculations;
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experts and other historical data. Considering the significance
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•
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Performed an overall assessment of the ECL provision
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of the above matter to the financial statements and since the
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levels at each stage, including Management’s assessment
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matter required our significant attention to test the calculation
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and provision on account of the Company’s portfolio, risk
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of expected credit losses, we have identified this as a key audit
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profile, credit risk management practices as well as the
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matter for current year audit.
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macroeconomic environment;
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•
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Ensured compliance with RBI Master Circular on
‘Prudential Norms on Income Recognition, Asset
Classification and Provisioning pertaining to advances’
(‘IRACP’) read with RBI circular on ‘Prudential norms on
Income Recognition, Asset Classification and Provisioning
pertaining to Advances - Clarifications’ dated 12
November 2021, in relation to identification, upgradation
and provisioning of nonperforming assets (NPAs); and
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•
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Assessed the appropriateness and adequacy of the
related presentation and disclosures in the accompanying
financial statements in accordance with the applicable
accounting standards and related RBI circulars / guidelines.
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Key audit matters
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How our audit addressed the key audit matter
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Information Technology (“IT”) Systems and Controls for the financial reporting process
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The Company is highly dependent on its Information Technology
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Our key audit procedures with the involvement of our IT
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(“IT”) systems for carrying on its operations which require large
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specialists included, but were not limited to the following:
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volume of transactions to be processed in numerous locations
on a daily basis. Amongst other things, management also uses
the information produced by the IT systems for accounting and
preparation and presentation of the financial statements.
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• For testing the IT general controls, application controls
and IT dependent manual controls, we involved IT
specialists as part of the audit. The team also assisted in
testing the accuracy of the information produced by the
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The Company’s accounting and financial reporting processes
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Company IT systems.
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are dependent on automated controls enabled by IT systems
which impacts key financial accounting and reporting
items such as loans, interest income, impairment on loans,
computation of daily DPD, assignment of loans amongst
others. The controls implemented by the Company in its IT
environment determine the integrity, accuracy, completeness
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• Obtained a comprehensive understanding of IT
applications landscape implemented at the Company.
It was followed by process understanding, mapping of
applications to the same and understanding financial risks
posed by people-process and technology.
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and validity of data that is processed by the applications and is
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• Key IT audit procedures includes testing design and
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ultimately used for financial reporting.
Our areas of audit focus included user access management,
changes to the IT environment and segregation of duties
Further, we focused on key automated controls relevant for
financial accounting and reporting systems.
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operating effectiveness of key controls operating over
user access management (which includes user access
provisioning, de-provisioning, access review, password
configuration review, segregation of duties and privilege
access), change management (which include change
release in production environment are compliant to the
defined procedures and segregation of environment
is ensured), program development (which include
review of data migration activity), computer operations
(which includes testing of key controls pertaining to,
backup, Batch processing (including interface testing),
incident management and data centre security), System
interface controls. This included testing that requests for
access to systems were appropriately logged, reviewed,
and authorized.
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• In addition to the above, the design and operating
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effectiveness of certain automated controls, that were
considered as key internal system controls over financial
reporting were tested. Using various techniques such
as inquiry, review of documentation / record / reports,
observation, and re-performance. We also tested few
controls using negative testing technique.
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• Tested compensating controls and performed alternate
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procedures, where necessary. In addition, understood
where relevant changes made to the IT landscape during
the audit period.
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Information Other than the Financial Statements and
Auditor’s Report Thereon
The Company’s Board of Directors is responsible for the other
information. The other information comprises the Annual
Report but does not include the financial statements and our
auditor’s report thereon. The Annual Report is expected to be
made available to us after the date of this auditor’s report.
Our opinion on the financial statements does not cover the
other information and we will not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above
when it becomes available and, in doing so, consider whether
the other information is materially inconsistent with the
financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
When we read the Director’s Report, if we conclude that
there is a material misstatement therein, we are required to
communicate the matter to those charged with governance
under SA 720 ‘The Auditor’s responsibilities Relating to
Other Information’.
Responsibilities of Management and Board of Directors
for the Financial Statements
The Company’s Board of Directors is responsible for the matters
stated in section 134(5) of the Act with respect to the preparation
of these financial statements that give a true and fair view of the
financial position, financial performance, changes in equity and
cash flows of the Company in accordance with the accounting
principles generally accepted in India, including the Accounting
Standards specified under section 133 of the Act and the RBI
Guidelines. This responsibility also includes maintenance of
adequate accounting records in accordance with the provisions
of the Act for safeguarding of the assets of the Company and
for preventing and detecting frauds and other irregularities;
selection and application of appropriate accounting policies;
making judgments and estimates that are reasonable and
prudent; and design, implementation and maintenance of
adequate internal financial controls, that were operating
effectively for ensuring the accuracy and completeness
of the accounting records, relevant to the preparation and
presentation of the financial statements that give a true and fair
view and are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the Management and
Board of Directors are responsible for assessing the Company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern
basis of accounting unless the Board of Directors either intends
to liquidate the Company or to cease operations, or has no
realistic alternative but to do so.
The Board of Directors are also responsible for overseeing the
Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial
Statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with SAs
will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
As part of an audit in accordance with SAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:
• Identify and assess the risks of material misstatement of
the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant
to the audit in order to design audit procedures that are
appropriate in the circumstances. Under section 143(3)
(i) of the Act, we are also responsible for expressing our
opinion on whether the company has adequate internal
financial controls with reference to financial statements
in place and the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by management and
Board of Directors.
• Conclude on the appropriateness of management and
Board of Director’s use of the going concern basis of
accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the
Company’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we
are required to draw attention in our auditor’s report to
the related disclosures in the financial statements or, if
such disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence obtained
up to the date of our auditor’s report. However, future
events or conditions may cause the Company to cease to
continue as a going concern.
• Evaluate the overall presentation, structure and content
of the financial statements, including the disclosures, and
whether the financial statements represent the underlying
transactions and events in a manner that achieves
fair presentation.
We communicate with those charged with governance
regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including
any significant deficiencies in internal control that we identify
during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements
regarding independence, and to communicate with them
all relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the financial statements for the
year ended March 31,2025 (current year) and are therefore, the
key audit matters. We describe these matters in our auditor’s
report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our
report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits
of such communication.
Other Matters
The financial statements of the Company for the year ended
March 31,2024, were audited by another auditor whose report
dated April 25, 2024 expressed an unmodified opinion on those
financial statements.
Our opinion is not modified in respect of the above matter.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor’s Report) Order,
2020 (“the Order”), issued by the Central Government of
India in terms of sub-section (11) of section 143 of the
Act, we give in “Annexure A” a statement on the matters
specified in paragraphs 3 and 4 of the Order, to the
extent applicable.
2. As required by Section 143(3) of the Act, we report that:
(a) We have sought and obtained all the information
and explanations which to the best of our
knowledge and belief were necessary for the
purposes of our audit.
(b) In our opinion, proper books of account as required
by law have been kept by the Company so far as it
appears from our examination of those books.
(c) The Balance Sheet, the Statement of Profit and
Loss including other comprehensive income, the
Statement of Changes in Equity and the Statement of
Cash Flow dealt with by this Report are in agreement
with the books of account.
(d) In our opinion, the aforesaid financial statements
comply with the Accounting Standards specified
under Section 133 of the Act.
(e) On the basis of the written representations received
from the directors as on March 31, 2025 taken
on record by the Board of Directors, none of the
directors are disqualified as on March 31,2025 from
being appointed as a director in terms of Section 164
(2) of the Act.
(f) With respect to the adequacy of the internal financial
controls with reference to financial statements of the
Company and the operating effectiveness of such
controls, refer to our separate Report in “Annexure B”.
(g) With respect to the other matters to be included in
the Auditor’s Report in accordance with Rule 11 of
the Companies (Audit and Auditors) Rules, 2014, in
our opinion and to the best of our information and
according to the explanations given to us:
i. The Company has disclosed the impact of
pending litigations on its financial position in its
financial statements - Refer Note 37 and Note
38 (b) to the financial statements;
ii. The Company did not have any long-term
contracts including derivative contracts for
which there were any material foreseeable
losses as at March 31,2025;
iii. There were no amounts which were required
to be transferred to the Investor Education and
Protection Fund by the Company during the
year ended March 31,2025.
iv.
a. The Management has represented that,
to the best of its knowledge and belief,
no funds have been advanced or loaned
or invested (either from borrowed funds
or share premium or any other sources
or kind of funds) by the Company to or in
any other person(s) or entity(ies), including
foreign entities (“Intermediaries”), with
the understanding, whether recorded in
writing or otherwise, that the Intermediary
shall, directly or indirectly lend or invest
in other persons or entities identified in
any manner whatsoever by or on behalf of
the Company (“Ultimate Beneficiaries”)
or provide any guarantee, security
or the like on behalf of the Ultimate
Beneficiaries. Refer Note 49.13(a) to the
financial statements.
b. The Management has represented, that,
to the best of its knowledge and belief, no
funds have been received by the Company
from any person(s) or entity(ies), including
foreign entities (Funding Parties), with
the understanding, whether recorded in
writing or otherwise, as on the date of
this audit report, that the Company shall,
directly or indirectly, lend or invest in other
persons or entities identified in any manner
whatsoever by or on behalf of the Funding
Party (“Ultimate Beneficiaries”) or provide
any guarantee, security or the like on behalf
of the Ultimate Beneficiaries. Refer Note
49.13(b) to the financial statements.
c. Based on the audit procedures performed
that have been considered reasonable
and appropriate in the circumstances,
and according to the information and
explanations provided to us by the
Management in this regard nothing has
come to our notice that has caused us
to believe that the representations under
sub-clause (i) and (ii) of Rule 11(e) as
provided under (i) and (ii) above, contain
any material mis-statement.
v. The Company has not declared or paid any
dividend during the year ended March 31,2025.
vi. Based on our examination which included
test checks, the Company has used certain
accounting softwares for maintaining its books
of account which has a feature of recording audit
trail (edit log) facility and the same has operated
throughout the year for all relevant transactions
recorded in the softwares. Further, during the
course of our audit, we did not come across any
instance of audit trail feature being tampered
with. Additionally, the audit trail of prior year(s)
has been preserved by the Company as per the
statutory requirements for record retention.
3. In our opinion, according to information, explanations
given to us, the remuneration paid by the Company to
its directors is within the limits laid prescribed under
Section 197 read with Schedule V of the Act and the
rules thereunder.
For M S K A & Associates For Borkar & Muzumdar
Chartered Accountants Chartered Accountants
ICAI Firm Registration Number: 105047W ICAI Firm Registration Number: 101569W
Tushar Kurani Brijmohan Agarwal
Partner Partner
Membership Number: 118580 Membership Number: 033254
UDIN: 25118580BMOHVV7641 UDIN: 25033254BMINSH4452
Mumbai Mumbai
April 24, 2025 April 24, 2025
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