Northern Arc Capital Limited
Report on the Audit of the Standalone Financial
Statements
OPINION
1. We have audited the accompanying standalone financial statements of Northern Arc Capital Limited (‘the Company’), which comprise the Standalone Balance Sheet as at 31 March 2026, the Standalone Statement of Profit and Loss (including Other Comprehensive Income), the Standalone Statement of Cash Flow and the Standalone Statement of Changes in Equity for the year then ended, and notes to the standalone financial statements, including material accounting policy information and other explanatory information.
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 (‘the Act’) in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards (‘Ind AS’) specified under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 and other accounting principles generally accepted in India, of the state of affairs of the Company as at 31 March 2026, and its profit (including other comprehensive income), its cash flows and the changes in equity for the year ended on that date.
BASIS FOR OPINION
3. We conducted our audit in accordance with the Standards on Auditing 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 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.
EMPHASIS OF MATTER - INCLUSION OF
DEFAULT LOSS GUARANTEE CREDIT IN
CALCULATION OF EXPECTED CREDIT LOSS
4. We draw attention to Note 83 (A) of the accompanying standalone financial statements, which describes that the Company has included the credit enhancements under the Default Loss Guarantee (DLG) arrangements while determining the Expected Credit Loss (ECL) for the year in accordance with lnd AS 109, Financial lnstrument pursuant to the amendment issued by the RBI in February 2026. Accordingly, the comparative financial statements for the year ended 31 March 2025 for ECL is strictly not comparable as DLG benefit was excluded in ECL computation following RBI’s directions issued to the Company in previous year. Our opinion is not modified in respect of this matter.
KEY AUDIT MATTERS
5. 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.
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Key audit matter
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How our audit addressed the key audit matter
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1) Impairment of loan asset based on Expected Credit Losses (ECL) (Refer note 3 for material accounting policies and note 7 and 36 for financial disclosures in the accompanying standalone financial statements
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As at 31 March 2026, the Company reported gross loans of ' 1,280,391.79 lakhs (31 March 2025: '1,083,753.97 lakhs) against which provision for expected credit loss of ' 31,114.96 lakhs (31 March 2025: ' 26,516.19 lakhs) has been recorded in accordance with Ind AS 109 - Financial Instruments. The Company has written off loans of ' 69,415.51 lakhs during the current year (31 March 2025: ' 60,930.24 lakhs).
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Ind AS 109, Financial Instruments (Ind AS 109) requires the
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Our audit procedures were focused on assessing
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Company to provide for impairment of its loan assets using
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the appropriateness of management’s judgment
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the expected credit loss (‘ECL’) approach. The Company
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and estimates used in the impairment analysis
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has applied a three-stage approach based on changes in
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that included, but were not limited to, the
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credit quality of loan assets which is primarily determined
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following:
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based on number of days past due for each loan asset apart from other factors considered by the management for ascertaining significant increase in credit risk.
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- Examined the Board of Director’s policy approving methodology for computation of
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ECL that addresses policies and procedures
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The ECL is measured at 12-month ECL for Stage 1 loan
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for assessing and measuring credit risk on
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assets and at lifetime ECL for Stage 2 and Stage 3 loan
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the lending exposures of the Company in
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assets in accordance with the accounting policy adopted
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accordance with the requirements of Ind AS
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by the Company.
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109.
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Significant management judgements and assumptions
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- Involved auditor’s specialists and obtained an
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are involved in measuring ECL with respect to:
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understanding of the modelling techniques
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- determining the criteria for significant increase in credit
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adopted by the Company including the key inputs and assumptions. Since modelling assumptions and parameters are based on
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risk and default risk i.e. staging of loan assets;
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- factoring in forward-looking information (including
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historical data, industry benchmarks and
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macroeconomic factors on a portfolio level);
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macro-economic factors, we assessed whether
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- techniques used to determine probability of default, loss given default and exposure at default;
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such historical experience and the industry information was representative of current circumstances and was relevant in view of the
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- the basis of providing for post model adjustments
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recent impairment losses incurred within the
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which is significantly dependent on the performance
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portfolios. Further, assessed reasonableness
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of the portfolio.
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for the macro-economic factors considered
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These parameters are derived from the Company’s
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for the portfolio segments.
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internally developed statistical models, historical data,
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- Assessed and tested the design and operating
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macro-economic factors. Any change in such models
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effectiveness of the key controls over the
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or assumptions could have a material impact on the
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completeness and accuracy of the key inputs
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accompanying standalone financial statements.
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and assumptions considered for calculation, recording and monitoring of the impairment loss recognized. Also, evaluated the controls over the modelling process, validation of data and related approvals.
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- Tested the underlying forecast of future cash
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flows used in impairment workings with the agreed repayment schedules on a test check basis.
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Key audit matter
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How our audit addressed the key audit matter
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Similarly, the Company is also required to makejudgements
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- Evaluated the appropriateness of the
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to identify the loan assets which are non-recoverable and
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Company’s determination of significant
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thereby determined to be written off.
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increase in credit risk in accordance with the
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Further as described in note 83 (A) to the accompanying
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applicable accounting standard and the basis
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standalone financial statements pursuant to Reserve
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for classification of exposures into various
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Bank of India (Non-Banking Financial Companies -
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stages. For a sample of exposures, we also
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Income Recognition, Asset Classification and Provisioning)
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tested the appropriateness of the Company’s
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Amendment Directions, 2026 the Company has considered
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categorization across various stages by
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credit enhancements under Default Loss Guarantee
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evaluating management’s assessment of
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(DLG) arrangements as integral to the contractual terms
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parameters.
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for computation of ECL as per Ind AS 109 which was
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- Evaluated the appropriateness of the
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excluded in ECL computation for the previous year ended
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methodology and policy laid down and
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31 March 2025 following RBI’s instructions. This matter
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implemented by the Company for the loan
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has also been considered as fundamental to the users’
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portfolio written-off during the year and tested
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understanding of the financial statements.
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its compliance on a sample basis.
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Considering the significance of the above matter to the
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- On a sample basis, inspected the co-lending
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standalone financial statements, degree of estimation
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agreements to ensure that the DLG benefit
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uncertainty and significant management judgment
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were integral to the contractual terms of the
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involved, this area required significant auditor attention to
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co-lending arrangements and were part of the
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test such complex accounting estimates, and accordingly,
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DLG adjustment in ECL computation. Further,
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this matter has been identified as a key audit matter for
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we have verified underlying data used by
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the current year audit.
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management in assessing DLG adjustments to Gross ECL.
- Evaluated the management’s judgements and basis of estimates in relation to post-model adjustments and assessed reasonableness of such additional provisions basis our understanding of the loan portfolio of the Company.
- Assessed the appropriateness and adequacy of the related presentation and disclosures in the accompanying standalone financial statements in accordance with the applicable accounting standards and related RBI circulars.
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Key audit matter
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How our audit addressed the key audit matter
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2) Information TechnologypT”) systems and controls for accounting and financial reporting process
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The Company is highly dependent on its IT systems for
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Our key audit procedures with the involvement
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carrying on its operations which require large volume of
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of our IT specialists included, but were not limited
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transactions to be processed on daily basis and use of multiple software applications at central level.
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to, the following:
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The Company uses various loan management system
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- Obtained an understanding of the Company’s
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(LMS) for different loan products for sourcing, processing,
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IT related control environment and conducted
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recording and management of loan database some of
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risk assessment and identified IT applications,
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which are integrated with the financial accounting and
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data bases and operating systems that are
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reporting software. Transfer of data from/to LMS to financial
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relevant to our audit.
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reporting systems are critical for accurate compilation of financial information.
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- Tested the design and operating effectiveness of the Company’s IT controls over the IT
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As a result, there is a high degree of reliance and dependency on such IT systems for the accounting and financial reporting process of the Company which impacts key financial accounting and reporting items such as loans, interest income, computation of daily DPD, impairment
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applications as identified above;
- Tested controls for segregations of duties around program maintenance, security administration and key business processes.
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on loans amongst others.
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- Tested IT General Controls such as, logical
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Appropriate IT general controls and application controls are required to ensure that such IT systems are able to process the data, as required, completely, accurately and consistently for reliable financial reporting.
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access, change management and aspects of IT operational controls. Tested that request for access to systems were appropriately reviewed and authorized; tested controls around Company’s periodic review of access rights;
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The Company has put in place IT General Controls and
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inspected requests of changes to systems for
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automated IT controls to ensure the integrity, accuracy,
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appropriate approval and authorization.
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completeness, validity and reliability of the information produced by the Company which is used for its financial
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- Tested related interfaces, integration, configuration and other application layer
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reporting.
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controls identified during our audit and report
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Among other things, the management also uses the
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logic for system generated reports relevant
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information produced by the Company’s IT systems for
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to the audit mainly for loans, interest income
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accounting and the preparation and presentation of the
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and impairment of loan assets for evaluating
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standalone financial statements.
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completeness and accuracy.
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Since our audit strategy included focus on key IT systems
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- Where deficiencies were identified, tested
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and controls relevant to our audit due to their pervasive
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compensating controls or performed
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impact on the standalone financial statements, we have determined the use of IT systems for accounting and financial reporting as a key audit matter for current year audit.
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alternative procedures.
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Key audit matter
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How our audit addressed the key audit matter
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3) Classification and measurement of Loans - Business model assessment and Fair valuation of loans held at
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fair value through other comprehensive income (“FVTOCI”) -
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- (Refer note 3 for material accounting policies and
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note 7 and 36 for financial disclosures in the accompanying standalone financial statements.
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As at 31 March 2026, the Company has loans amounting to ' 385,613.25 lakhs (31 March 2025: ' 217,633.08 lakhs) that are carried and measured at FVTOCI in accordance with Ind AS 109.
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Financial assets, i.e. loan assets have been classified and
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Our audit procedures in relation to the business
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measured as per Ind AS 109, Financial Instruments.
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model and loans measured at FVTOCI included,
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The assessment as to how an asset should be classified
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but were not limited, to the following:
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is made on the basis of both the entity’s business model
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- Obtained an understanding of the Business
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for managing the financial asset and the contractual cash
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Model Policy Note approved by the Board
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flow characteristics of the financial asset.
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of Directors of the Company, and evaluated
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The management has assessed its business model on the basis of its approved credit policies, business plan and history of sale of loan assets wherein certain loans have
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whether the identified loans satisfy the conditions of Ind AS 109 for measurement at amortized cost or FVTOCI.
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been held to collect contractual cash flows (solely payments
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- Tested the sale of loan assets made during the
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of principal and interest on the amount outstanding) and
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year and compared with the management’s
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certain loans are held to collect contractual cash flows and
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plan and intent, to validate the management’s
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also for sale, and consequently, loans have been classified
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conclusion for classification and measurement
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and measured at ‘amortized cost’ and ‘Fair value through
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of loans.
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Other Comprehensive Income’ (FVTOCI) respectively in accordance with principles of Ind AS 109.
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- Assessed the design and tested the operating effectiveness of internal controls
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In measuring the fair value of loans, valuation methods
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over classification of loans on the basis of
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are used based on inputs that are not directly observable
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management’s intent and managements’
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from market information and certain other unobservable
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key internal controls over inputs used in the
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inputs. The management has an internal team for arriving
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valuation model.
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at the fair value of aforesaid loans. Such fair value is derived using discounted cash flow models wherein the key assumptions include discount rate, adjustment for credit risk including default risk.
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- Involved auditor’s specialists and assessed whether the fair valuation methodology adopted by the management is appropriate and tested the reasonableness of the
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Given the subjectivity and degree of complexity involved
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underlying assumptions used such as discount
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in ascertaining the business model and the fair valuation
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rates, future cash flows, etc to estimate the fair
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of the aforesaid loans, relative significance of these loans
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value of the such loans. Also, on test check
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to the standalone financial statements and the nature and
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basis tested the completeness of source data
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extent of audit procedures involved, we determined this to
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and arithmetical accuracy of the management
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be a key audit matter.
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working.
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- Assessed the appropriateness and adequacy
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of the related presentation and disclosures in the accompanying standalone financial statements in accordance with the applicable accounting standards.
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INFORMATION OTHER THAN THE STANDALONE FINANCIAL STATEMENTS AND AUDITOR’S REPORT THEREON
6. The Company’s 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 standalone 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 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.
RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE STANDALONE FINANCIAL STATEMENTS
7. The accompanying standalone financial statements have been approved by the Company’s Board of Directors. The Company’s Board of Directors are responsible for the matters stated in section 134(5) of the Act with respect to the preparation and presentation of these standalone financial statements 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 in accordance with the Ind AS specified under section 133 of the Act 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 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.
8. 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.
9. 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
10. 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 Standards on Auditing 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.
11. As part of an audit in accordance with Standards on Auditing, specified under section 143(10) of the Act 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 management;
? Conclude on the appropriateness of Board of Directors’ 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; and
? 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.
12. 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.
13. 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.
14. 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.
REPORT ON OTHER LEGAL AND REGULATORY
REQUIREMENTS
15. As required by section 197(16) of the Act, based on our audit, we report that the Company has paid remuneration to its directors during the year in accordance with the provisions of and limits laid down under section 197 read with Schedule V to the Act.
16. 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.
17. Further to our comments in Annexure A, as required by section 143(3) of the Act based on our audit, we report, to the extent applicable, 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 purpose of our audit of the accompanying standalone financial statements;
b) Except for the matters stated in paragraph 17(h)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (as amended), 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 standalone financial statements dealt with by this report are in agreement with the books of account;
d) In our opinion, the aforesaid standalone financial statements comply with Ind AS specified under section 133 of the Act;
e) On the basis of the written representations received from the directors and taken on record by the Board of Directors, none of the directors is disqualified as on 31 March 2026 from being appointed as a director in terms of section 164(2) of the Act;
f) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in paragraph 17(b) above on reporting under section 143(3) (b) of the Act and paragraph 17(h)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (as amended);
g) With respect to the adequacy of the internal financial controls with reference to financial statements of the Company as on 31 March 2026 and the operating effectiveness of such controls, refer to our separate report in Annexure B wherein we have expressed an unmodified opinion; and
h) 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:
i. The Company, as detailed in note 38 to the standalone financial statements, has disclosed the impact of pending litigations on its financial position as at 31 March 2026;
ii. The Company, as detailed in note 12 to the standalone financial statements, has made provision as at 31 March 2026, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts;
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 31 March 2026;
iv. a. The management has represented
that, to the best of its knowledge and belief, as disclosed in note 86 B (vi) to the standalone financial statements, no funds have been advanced or loaned or invested (either from borrowed funds or securities premium or any other sources or kind of funds) by the Company to or in any person or entity, including foreign entities (‘the 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 (‘the Ultimate Beneficiaries’) or provide any guarantee, security or the like on behalf the Ultimate Beneficiaries;
b. The management has represented that, to the best of its knowledge and belief, as disclosed in note 86 B (vi) to the standalone financial statements, no funds have been received by the Company from any person or entity, including foreign entities (‘the 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; and
c. Based on such audit procedures performed as considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the management representations under sub-clauses (a) and (b) above contain any material misstatement.
v. The Company has not declared or paid any dividend during the year ended 31 March 2026;
vi. As stated in note 85 to the standalone financial statements and based on our examination which included test checks, except for instances mentioned below,
the Company, in respect of financial year commencing on 01 April 2025, has used an accounting software for maintaining its books of account which have a feature of recording audit trail (edit log) facility and the same have been 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 other than the consequential impact of the exceptions given below. Furthermore, except for instances mentioned below, the audit trail has been preserved by the Company as per the statutory requirements for record retention.
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Nature of exception noted
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Details of Exception
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Instances of accounting software for maintaining books of account for which the feature of recording audit trail (edit log) facility was not operated throughout the year for all relevant transactions recorded in the software
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The audit trail (edit logs) was enabled at the database level for one of the loan management software to log any direct data changes, used for maintenance of loan records by the Company effective from 02 March 2026.
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Instances of accounting software maintained by a third party where we are unable to comment on the audit trail feature at database level
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The loan management software for one of the loan product are used for maintenance of loan records is operated by a third-party software service provider. In the absence of any information on existence of audit trail (edit logs) for any direct changes made at the database level in the ‘Independent Service Auditor’s Assurance Report on the Description of Controls (‘Type 2 report’ issued in accordance with attestation standards established by the American Institute of Certified Public Accountants), we are unable to comment on whether audit trail feature with respect to the database of the said software was enabled and operated throughout the year.
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For Walker Chandiok & Co LLP
Chartered Accountants Firm’s Registration No.: 001076N/N500013
Murad D. Daruwalla
Partner
Membership No.: 043334 UDIN: 26043334YLVHDL1259
Place: Mumbai Date: 08 May 2026
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