Shriram Finance Limited (formerly known as Shriram Transport Finance Company Limited)
REPORT ON THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS
Opinion
1. We have audited the accompanying Standalone Financial Statements of Shriram Finance Limited (formerly known as Shriram Transport Finance Company Limited) (‘the Company’), which comprise the Standalone Balance Sheet as at 31 March 2024, and the Standalone Statement of Profit And Loss (including Other Comprehensive Income), Standalone Statement of Changes in Equity and Standalone Statement of Cash Flows for the year ended on that date, and notes to the Standalone Financial Statements, including a summary of material accounting policies information and other explanatory information (‘the Standalone Financial Statements’).
2. In our opinion and to the best of our information and according to the explanations given to us, the aforesaid Standalone Financial Statements give the information required by the Companies Act, 2013 (‘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 the Companies (Indian Accounting Standards) Rules, 2015, as amended, (‘Ind AS’) and other accounting principles generally accepted in India, of the State of Affairs of the Company as at 31 March 2024, and its Profit and Other Comprehensive Income/loss, Changes in Equity and its Cash Flows for the year ended on that date.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditing (‘SAs’) specified under section
143(10) of the Act. Our responsibilities under those SAs are further described in the Auditor’s Responsibilities for the Audit of the Standalone 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 (‘ICAI’) together with the ethical requirements that are relevant to our audit of the Standalone 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 we have obtained is sufficient and appropriate to provide a basis for our opinion on the Standalone Financial Statements.
Key Audit Matters
4. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Standalone Financial Statements of the current year. These matters were addressed in the context of our audit of the Standalone Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
5. We have determined the matters described below to be the key audit matters to be communicated in our report. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the Standalone Financial Statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the Standalone Financial Statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying Standalone Financial statement.
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Key Audit Matter
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How the matter was addressed in our audit
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Impairment Loss Allowance of loans and advances
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Audit Procedures included but were not limited to the following:
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(Reference to Note 12 read wit Policies Note 6.1(ix).
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i Material Accounting (in INR Crores)
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We have started our audit procedures with understanding of the internal control environment related to Impairment loss allowance. Our procedures over internal controls focused on recognition and measurement of impairment loss allowance. We assessed the design and tested the operating effectiveness of the selected key controls implemented by
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Gross Advances Provisions Net Advances
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221,667.66
13,738.25
207,929.41
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the Company.
We also assessed whether the impairment methodology used by the Company is in accordance with the assumptions and methodology approved by the Board of Directors
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Significant estimates and judgment involved Key Audit Matter
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of the Company which is based on and in compliance with Ind AS 109 “Financial Instruments”.
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Reserve Bank of India has issued Master circular
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Accordingly, we assessed the approach of the Company regarding definition of Default,
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and other clarifications on Income Recognition and
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Probability of Default (PD), Loss Given Default (LGD) and incorporation of forward-
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Asset Classification and Provisioning pertaining to
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looking information for the calculation of ECL. For loans and advances which are assessed
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Advances (“IRAC”). These guidelines prescribe the prudential norms for identifying and classifying of advances as Stage 3 / NPAs.
The Company has applied significant judgement to
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for impairment on a portfolio basis, we performed particularly the following procedures:
• We read the Company’s policies for identification, classification and assessing compliance for Stage 3 / NPAs customers in line with the IRAC norms;
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determine the identification
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and classification of
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• We understood the design, reliability and operating effectiveness of key data inputs
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such assets as Stage 3 / NPAs by applying quantitative
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and related management controls;
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as well as qualitative factors. The risk of identification
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• We performed substantial audit procedure relating to identification and classification
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of such assets as Stage 3 / NPAs is affected by factors like stress and liquidity concerns of such assets.
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of Stage 3 / NPAs by the company.
• We tested the identification / grouping of the loan accounts mapped with the
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Impairment loss allowance of loans and advances (“Impairment loss allowance”) is a Key Audit
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customer code as identified by the management;
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Matter as the Company has
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significant credit risk
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• We performed analytical procedures to identify possible cases of evergreening of
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exposure considering the large loan portfolio across
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loans and tested these on sample basis.
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a wide geographical range. The value of loans and
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• We checked the stage classification as at the balance sheet date as per the definition
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advances on the balance sheet is significant and
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of Default of the Company and Reserve Bank of India circulars issued from time to
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there is a high degree of complexity and judgment involved in estimating individual and collective
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time;
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credit impairment provisions, write-offs against
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• We validated the ECL Model and its calculation by involving our Information
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these loans and to additionally determine the
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Technology Expert;
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asset quality and provision of the Company. The
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• We have checked on sample basis that the stage classification for the borrowers has
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Company’s model to calculate Expected Credit
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been given in accordance with the Resolution Framework issued by Reserve Bank
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Loss (“ECL”) is inherently complex and judgment is
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of India (the ‘RBI’) and the Board approved policy for ECL provisioning and stage
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applied in determining the correct construction of the three-stage impairment model (“ECL Model”)
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classification with respect to such accounts;
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including the selection and input of forward-looking
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• We have verified whether the ECL provision is made in accordance with the Board
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information. ECL provision
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calculation require
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Approved Policy in this regard;
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the use of large volumes of data. The completeness and reliability of data can significantly impact
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• We have also calculated the ECL provision manually for selected samples;
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accuracy of the modelled impairment provisions.
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• We have assessed the assumptions made by the Company in making accelerated
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The accuracy of data flows and the implementation
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provision considering forward looking information.
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of related controls are critical for the integrity of the
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For loans and advances which are written off during the year under audit, we read and
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estimated impairment provisions.
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understood the methodology and policy laid down and implemented by the Company in this regards along with its compliance on sample basis.
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Other Information
6. The Company’s Board of Directors are responsible for the other information. The other information comprises the information included in the Company’s annual report but does not include the Standalone Financial Statements and our auditors’ report thereon.
7. Our opinion on the Standalone Financial Statements does not cover the other information and we do not express any form of assurance conclusion thereon.
8. In connection with our audit of the Standalone Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Standalone Financial Statements, or our knowledge obtained in the audit or otherwise appears to be materially misstated.
9. When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required
to communicate the matter to those charged with governance and take appropriate action as applicable under the relevant laws and regulations.
Responsibilities of Management and Those Charged with
Governance for the Standalone Financial Statements
10. The Company’s Board of Directors is responsible for the matters stated in section 134(5) ofthe Act, with respect to the preparation of these Standalone Financial Statements that give a true and fair view of the State of Affairs, profit and Other Comprehensive Income/loss, Changes in Equity and Cash Flows of the Company in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended and other accounting principles generally accepted in India. 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 of the appropriate accounting software for ensuring compliance with applicable laws and regulations including those related to retention of audit logs; 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 Standalone Financial Statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
11. In preparing the Standalone Financial Statements, the Board of Directors is 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.
12. The Board of Directors is also responsible for overseeing the Company’s financial reporting process.
Auditor’s responsibilities for the audit of the Standalone
Financial Statements
13. Our objectives are to obtain reasonable assurance about whether the Standalone 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 Standalone Financial Statements.
14. As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
14.1.Identify and assess the risks of material misstatement of the Standalone 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.
14.2. 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) the Act, we are also responsible for expressing our opinion on whether the Company has adequate internal financial controls with reference to Standalone Financial Statements in place and the operating effectiveness of such controls.
14.3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management.
14.4. Conclude on the appropriateness of the Management’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 Standalone 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.
14.5. Evaluate the overall presentation, structure and content of the Standalone Financial Statements, including the disclosures, and whether the Standalone Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation.
15. 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.
16. 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.
17. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Standalone Financial Statements of the 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.
Report on Other Legal and Regulatory Requirements
18. 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 the ‘Annexure A’ a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
19. As required by Section 143(3) of the Act, we report that:
19.1. 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.
19.2. 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.
19.3. The standalone balance sheet, the standalone statement of profit and loss including Other Comprehensive Income, the Statement of Changes in Equity and the Standalone Cash Flow Statement dealt with by this Report are in agreement with the books of account.
19.4.In our opinion, the aforesaid Standalone Financial Statements comply with the Ind AS specified under Section 133 of the Act read with the relevant rules thereunder.
19.5. On the basis of the written representations received from the directors as on 31 March 2024 taken on record by the Board of Directors, none of the directors is disqualified as on 31 March 2024 from being appointed as a director in terms of Section 164(2) of the Act.
19.6. With respect to the adequacy of the internal financial controls with reference to Standalone Financial Statements of the Company and the operating effectiveness of such controls, refer to our separate Report in ‘Annexure B’.
19.7. In our opinion and according to the information and explanations given to us, the remuneration paid by the Company to its directors during the current year is in accordance with the provisions of Section 197 of the Act. The remuneration paid to any director is not in excess of the limit laid down under Section 197 of the Act.
20. 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 (as amended), in our opinion and to the best of our information and according to the explanations given to us:
20.1. The Company has disclosed the impact of pending litigations as at 31 March 2024 on its financial position in its Standalone Financial Statements - Refer Note 48 to the Standalone Financial Statements;
20.2. The Company has made provision, as required under the applicable law or Ind AS, for material foreseeable losses, if any, on long-term contracts including derivative contracts - Refer Note 10 to the Standalone Financial Statements;
20.3. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.
20.4. The Management has represented, to best of their knowledge and belief, that 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, whether, 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.
20.5. The Management has represented, to best of their knowledge and belief, that 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, that the Company shall, whether, 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.
20.6. Based on such audit procedures, that have been considered reasonable and appropriate in the circumstances, performed by us, nothing has come to our notice that has caused us to believe that the representation under para 20.4 and 20.5 contain any material misstatement.
20.7. In our opinion and according to the information and explanations given to us,
a) The interim dividend declared and paid by the Company during the year and until the date of this report is in compliance with Section 123 of the Act.
b) As stated in Note 29 to the standalone financial statements, the Board of Directors of the Company has proposed final dividend for the year which is subject to the approval of the members at the ensuing Annual General Meeting. The dividend declared is in accordance with Section 123 of the Act to the extent it applies to declaration of dividend.
20.8. Based on our examination which included test checks, the company has used an accounting software 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 software. Further, during the course of our audit we did not come across any instance of audit trail feature being tampered with. As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable from 1 April 2023, reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 on preservation of audit trail as per the statutory requirements for record retention is not applicable for the financial year ended 31 March 2024.
For Sundaram & Srinivasan For KKC & Associates LLP
Chartered Accountants Chartered Accountants
(formerly Khimji Kunverji & Co LLP)
Firm Registration Number - 004207S Firm Registration Number: 105146W/W100621
P Menakshi Sundaram Devang Doshi
Partner Partner
ICAI Membership Number: 217914 ICAI Membership Number: 140056
UDIN: 24217914BKBOSW7699 UDIN: 24140056BKFFOT4366
Place: Mumbai Place: Mumbai
Date: 26 April 2024 Date: 26 April 2024
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