We have audited the standalone financial statements of
Spandana Sphoorty Financial Limited (the "Company") which
comprise the standalone balance sheet as at 31 March 2025,
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 then ended, and notes to the standalone
financial statements, including material accounting policies
and other explanatory information.
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 accounting principles generally accepted in India, of the
state of affairs of the Company as at 31 March 2025, and its
loss and other comprehensive income, changes in equity
and its cash flows for the year ended on that date.
Basis for Opinion
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 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
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 period. 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.
Impairment loss allowance on loans
Refer to the accounting policies in "Note 3 (j) to the standalone financial statements: Impairment of financial assets".
Note 2 (d) to the standalone financial statements: Material Accounting Policies - use of estimates and judgments", "Note 7
and Note 51 to the standalone financial statements: Loans
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The key audit matter
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How the matter was addressed in our audit
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Impairment loss allowance on loans of ' 540.80
crores as at 31 March 2025
Allowance charged to statement of profit and loss:
' 1,769.66 crores for the year ended 31 March 2025
Under Ind AS 109, Financial Instruments, impairment
loss allowance is determined using expected credit
loss ("ECL") model.
Recognition and measurement of impairment loss
allowance on loans involves significant judgement
and estimates. The key areas where increased
levels of audit focus in the Company's estimation of
impairment loss allowance on loans are:
a) Data inputs - The application of ECL model
requires several data inputs. This increases the
risk of irrelevant data used to create assumptions
in the model.
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In view of the significance of the matter, we applied the following key
audit procedures in this area, among others to obtain sufficient audit
evidence:
Testing of design and operating effectiveness of controls:
Performing end to end process walkthroughs to identify the key
systems, applications and controls used in computation of impairment
loss allowance on loans. Testing the relevant manual, general IT and
application controls over key systems used in the impairment of loss
allowance on loans.
Key aspects of our testing of the design, implementation and operating
effectiveness involves the following:
a) Testing the key controls over the completeness and accuracy
of the key inputs, data and assumptions into the Ind AS 109
impairment models.
b) Testing the key governance controls over evaluation,
implementation and model monitoring.
c) Testing the key controls over the application of the staging criteria.
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The key audit matter
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How the matter was addressed in our audit
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b) Model estimations - Inherently judgmental
models are used to estimate impairment loss
allowance on loans which involves determining
Probabilities of Default, Loss Given Default,
and Exposures at Default. The Probabilities of
Default and the Loss Given Default are the key
drivers of estimation complexity in ECL model
and hence are considered the most significant
judgmental aspect of the Company's modelling
approach.
c) Economic scenario: Ind AS 109 requires the
Company to measure impairment loss allowance
on loans in an unbiased forward- looking basis
reflecting a range of future economic scenarios.
Significant judgement is applied in determining
the economic scenarios used and the probability
weights applied to them.
d) Post model adjustments / additional provision
/ technical write offs: Adjustments to the
model-driven ECL results as additional charge
are recorded by the Company to address risks
not captured by models for specific exposures
and accelerated technical write offs made
on prudential basis. Significant judgement is
involved in estimating additional charge.
The underlying forecasts and assumptions used
in the estimates of impairment loss allowance
are subject to uncertainties which are often
outside the control of the Company.
Disclosure
The disclosures regarding the Company's
application of Ind AS 109 are key to explaining
the key estimates, judgements and inputs used in
Impairment loss allowance on loans.
Given the size of loan portfolio relative to the
balance sheet and the impact of impairment loss
allowance on the financial statements we have
considered this as a key audit matter.
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d) Testing the key controls relating to selection and implementation
of key macro-economic variables and the controls over the
scenario selection and application of probability weights.
e) Testing the key controls operating over the information used in
the computation of impairment loss allowance on loans including
system access, change management, program development and
computer operations.
f) Testing management's controls over authorisation and
computation of post model adjustments and additional provision
and accelerated technical write off.
g) Testing the Company's controls on compliance with Ind AS 109
disclosures related to impairment loss allowance on loans.
Test of details:
Key aspects of our testing includes:
a) Assessing the Company's rationale for determination of criteria
for significant increase in credit risk.
b) Testing of sample over key inputs, data and assumptions
impacting ECL model to assess relevance of data, economic
forecasts, weights, and model assumptions applied.
c) Testing computation of model driven impairment loss allowance
on loans through re-performance on a sample basis.
d) Assessing adequacy of disclosures included in the financial
statements in respect of expected credit losses.
e) Assessing the Company's rationale for determination of criteria
for accelerated technical write offs.
f) Testing details of post model adjustments/additional provision
as well as the accelerated technical write offs recorded.
Involvement of specialists
We involved financial risk modelling specialists for the following:
a) Evaluating the Company's Ind AS 109 impairment methodologies
and assumptions used.
b) Evaluating the relevance of inputs used in the model for
computation of impairment loss allowance on loans.
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Information Technology systems and controls
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The key audit matter
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How the matter was addressed in our audit
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Information Technology ('IT') systems and controls
The Company's key financial accounting and
reporting processes are dependent on the automated
controls in information systems.
There exists a risk in the IT control environment
which could result in the financial accounting and
reporting records being misstated.
We have identified 'IT systems and controls' as a key
audit matter considering the high level of automation,
use of system generated reports in management
controls and the complexity of the IT architecture.
Further, it impacts on the overall financial reporting
process and regulatory expectation on automation.
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In view of the significance of the matter, we applied the following key
audit procedures in this area, among others to obtain sufficient audit
evidence for scoped in applications by involving our IT specialist:
a) Evaluating and testing the design, implementation and operating
effectiveness of IT applications controls relevant to the accuracy
of system computations, and the consistency of data transmission
relating to significant accounts.
b) Evaluating and testing the design, implementation and operating
effectiveness of key General IT Controls. This includes controls
on Access management, Change management and Computer
Operations.
c) Testing the design and operating effectiveness of key controls over
user access management. This includes access authentication
through password configuration management, granting or
modification of user access, creating new users, deactivating
user access for exiting users, user access and privileged access
examination basis their role and function.
d) Testing the design, implementation and operating effectiveness
of the IT automated controls which are relevant to the accuracy of
system computations impacting balances in significant accounts.
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The key audit matter
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How the matter was addressed in our audit
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e) Testing the controls over changes to applications including
access to configure changes, approvals required to deploy the
changes, segregation of environment and segregation of duties
in change management.
f) Testing the design and operating effectiveness of audit trail
(edit log) feature for the in-scope applications i.e. where books
of accounts are maintained in an electronic mode using an
accounting software.
g) Testing the controls over computer operations including controls
over backup of data, controls on operating system and database
viz. authorized access, password management and changes.
For the identified gaps in the internal control system with respect
to GITCs, we altered our audit approach and performed additional
substantive procedures for relevant account balances in order to
obtain additional audit evidence.
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Deferred tax assets
Refer to the accounting policies in Note 3 (e) to the standalone financial statements: Income taxes and Note 11 to the
standalone financial statements: Deferred tax assets (net)
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The key audit matter
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How the matter was addressed in our audit
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Deferred tax assets (net) of ' 437.97 crores as at 31
March 2025
Under Ind AS 12 - Income taxes, the Company is
required to reassess recognition of the deferred tax
assets at each reporting date. The Company has
deferred tax assets in respect of unused tax loss for
the current year and other temporary differences.
The Company's deferred tax assets are based on
the projected profitability. This is to be determined
on the basis of approved business plans and
availability of sufficient taxable income to utilize
such unused tax losses.
We have identified recognition of deferred tax
assets as a key audit matter because of the related
complexity and subjectivity of the assessment
process. The assessment process is based on
assumptions affected by expected future market
and other relevant conditions.
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In view of the significance of the matter, we applied the following key
audit procedures in this area, among others to obtain sufficient audit
evidence:
a) Evaluating the design and testing the operating effectiveness of
controls over assessment of deferred tax balances and underlying
data.
b) Evaluating the approved business plans and the basis for
projections of future taxable profits.
c) Testing the underlying data and assumptions used in the
profitability projections and performing sensitivity analysis.
d) Assessing the recoverability of deferred tax assets based on
projected profits based on Company's forecasts and sensitivity
analysis and other relevant conditions.
e) Evaluating the adequacy of the Company's disclosures on deferred
tax.
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Other Information
The Company's Management and Board of Directors are
responsible for the other information. The other information
comprises the information included in the annual report,
but does not include the financial statements and 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 standalone 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 standalone 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 standalone financial statements or
our knowledge obtained in the audit, or otherwise appears
to be materially misstated.
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 necessary actions, as applicable under the relevant
laws and regulations.
Management's and Board of Directors' Responsibilities for
the Standalone Financial Statements
The Company's Management and Board of Directors are
responsible for the matters stated in Section 134(5) of the Act
with respect to the preparation of these standalone financial
statements that give a true and fair view of the state of affairs,
profit/ loss and other comprehensive income, changes in
equity and cash flows of the Company in accordance with the
accounting principles generally accepted in India, including
the Indian Accounting Standards (Ind AS) specified under
Section 133 of the Act. 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 standalone financial
statements that give a true and fair view and are free from
material misstatement, whether due to fraud or error.
In preparing the standalone 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 is also responsible for overseeing the
Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Standalone
Financial Statements
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.
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 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.
• 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 the Management and
Board of Directors.
• Conclude on the appropriateness of the Management
and Board of Directors use of the going concern basis
of accounting in preparation of standalone financial
statements 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.
• 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.
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 standalone financial
statements of the current period 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 Matter
a. The standalone financial statements of the Company
for the year ended 31 March 2024 were audited by the
predecessor auditor who had expressed an unmodified
opinion on 29 April 2024.
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 Section 143(11) 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.
2 A. 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
except for the matter stated in the paragraph
2B(f) below on reporting under Rule 11(g) of the
Companies (Audit and Auditors) Rules, 2014.
c. The standalone balance sheet, the standalone
statement of profit and loss (including other
comprehensive income), the standalone
statement of changes in equity and the standalone
statement of cash flows dealt with by this Report
are in agreement with the books of account.
d. In our opinion, the aforesaid standalone financial
statements comply with the Ind AS specified
under Section 133 of the Act.
e. The matter described in the Basis for Qualified
Opinion paragraph in "Annexure B" with respect
to adequacy and operating effectiveness of
the internal financial controls with reference
to financial statements of the Company, in our
opinion, may have an adverse effect on the
functioning of the Company.
f. On the basis of the written representations
received from the directors as on 1 April 2025
taken on record by the Board of Directors, none of
the directors is disqualified as on 31 March 2025
from being appointed as a director in terms of
Section 164(2) of the Act.
g. The qualification relating to the maintenance of
accounts and other matters connected therewith
are as stated in the paragraph 2A(b) above on
reporting under section 143(3)(b) of the Act and
paragraph 2B(f) below on reporting under Rule
11(g) of the Companies (Audit and Auditors) Rules,
2014.
h. 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".
B. 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:
a. The Company has disclosed the impact of pending
litigations as at 31 March 2025 on its financial
position in its standalone financial statements
- Refer Note 35 to the standalone financial
statements.
b. The Company has made provision, as required
under the applicable law or accounting standards,
for material foreseeable losses, if any, on long¬
term contracts including derivative contracts
- Refer Note 53 (m) to the standalone financial
statements.
c. There were no amounts which were required
to be transferred to the Investor Education and
Protection Fund by the Company.
d (i) The management has represented that, to
the best of their knowledge and belief, as
disclosed in the Note 45 to the standalone
financial statements, 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.
(ii) The management has represented that, to
the best of their knowledge and belief, as
disclosed in the Note 46 to the standalone
financial statements, 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 directly or indirectly,
lend or invest in other persons or entities
identified in any manner whatsoever by or
on behalf of the Funding Parties ("Ultimate
Beneficiaries") or provide any guarantee,
security or the like on behalf of the Ultimate
Beneficiaries.
(iii) Based on the audit procedures that have
been considered reasonable and appropriate
in the circumstances, 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 misstatement.
e. The Company has neither declared nor paid any
dividend during the year.
f. Based on our examination which included test
checks, the Company has used accounting
softwares for maintaining its books of accounts,
which have a feature of recording audit trail (edit
log) facility and the same has operated throughout
the year for all relevant transactions recorded in
the respective softwares except that the feature
of recording of audit trail (edit log) facility was not
enabled at the database level for the accounting
software used for maintaining general ledger for
the period from 1 April 2024 to 13 May 2024, to
log any direct data changes. Further, where audit
trail (edit log) facility was enabled and operated
throughout the year for the respective accounting
softwares, we did not come across any instance
of the audit trail feature being tampered with.
Additionally, the audit trail (edit log) facility in
respect of the previous year has been preserved
by the Company as per the statutory requirements
for record retention, except for the instance
mentioned below:
(a) in case of accounting software used for
maintaining general ledger, the audit trail is
not preserved for the database level; and
(b) in case of accounting software used for
maintaining the books of account relating to
payroll, we are unable to comment whether
the audit trail has been preserved by the
Company.
C. With respect to the matter to be included in
the Auditor's Report under Section 197(16) of
the Act:
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. The Ministry of
Corporate Affairs has not prescribed other
details under Section 197(16) of the Act which
are required to be commented upon by us.
For B S R & Co. LLP
Chartered Accountants
Firm's Registration No.:101248W/W-100022
Kapil Goenka
Partner
Place: Hyderabad Membership No.: 118189
Date: 30 May 2025 ICAI UDIN:25118189BMLJVQ9189
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