POONAWALLA FINCORP LIMITED
Report on the Audit of the Standalone Financial Statements
OPINION
We have audited the accompanying standalone financial statements of Poonawalla Fincorp Limited
("the Company”),which comprise the Balance Sheet as at March 31, 2025, the Statement of Profit and Loss (including Other Comprehensive Income), Statement of Changes in Equity and Statement of Cash Flows for the year then ended, and notes to the standalone financial statements, including material accounting policy information and other explanatory information (hereinafter referred to as the "standalone financial statements”).
In our opinion and to the best of our information and according to the explanations given to us and based on the consideration of report of other auditor on the separate financial statements of PFL Employee Welfare Trust (‘the Welfare Trust’), 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 prescribed under section 133 of the Act read with 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 March 31, 2025, its loss (including other comprehensive income), changes in equity and its cash flows for the year ended on that date.
BASIS FOR OPINION
We conducted our audit of the standalone financial statements in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Act. Our responsibilities under those Standards are further described in the ‘Auditor’s Responsibilities for the Audit of the 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 obtained by us and on consideration of the audit report of other auditor referred to in the "Other Matters” section below, is sufficient and appropriate to provide a basis for our opinion.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements for the year ended March 31, 2025. 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. We have determined the matters described below to be the key audit matters to be communicated in our report.
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Key audit matters
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How our audit addressed the key audit matter
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Allowance on Expected credit losses (ECL) on loan assets
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Our audit procedures in respect of this matter included the
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Indian Accounting Standard 109 - Financial Instruments
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following, but not limited to:
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(‘Ind AS 109’) requires the Company to provide for
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• Examined policies approved by the Board of Directors
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impairment of its financial assets using the expected credit
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for computation of ECL that addresses procedures
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loss (‘ECL’) approach involving an estimation of probability
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and controls for assessing and measuring credit risk
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of loss on such financial assets, considering reasonable
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on all lending exposures commensurate with the size,
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and supportable information about past events, current
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complexity and risk profile specific to the Company.
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conditions and forecasts of future economic conditions which could impact the credit quality of the Company’s financial assets. The estimation of impairment loss allowance on loan assets involves significant judgement and estimates, which are subject to uncertainty, and involves applying appropriate measurement principles in case of loss events.
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• Tested the design and operating effectiveness of key controls over completeness and accuracy of the key inputs and assumptions considered for calculations, validation of data and monitoring of impairment loss recognised based on historical and external data.
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As at March 31, 2025, the Company has reported gross financial assets (loans) aggregating to H 33,637.37 crores against which provision for expected credit loss of H 942.41 crores has been recorded as at reporting date in accordance with Ind AS 109 - Financial Instruments (‘Ind AS 109’). The Company has written off (net of recoveries) H 1,279.90 crores during the current year.
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• Tested the modelling assumptions and inputs which are based on industry experience (new products) as collated by external credit bureau in line with the Company’s ECL policy. While for remaining loan portfolio, since modelling assumptions and parameters are based on historical data, assessed whether historical experience was representative of current circumstances and was
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Key audit matters
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How our audit addressed the key audit matter
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The Expected Credit Loss (ECL) is calculated using the
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relevant in view of the recent impairment losses incurred
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percentage of probability of default (PD), loss given default
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within the portfolios.
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(LGD) and exposure at default (EAD) for each of the stages of loan portfolio. Significant management judgment and assumptions involved in measuring ECL is required with
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• Verified the completeness of loans included in the ECL calculations as of March 31, 2025.
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respect to:
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• Selected samples and verified appropriateness of
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• Segmentation of loan book in buckets based on common risk characteristics;
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classification of loan assets in stage 1, 2 and 3 in accordance with the policy approved by the Board of Directors.
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• Staging of loans and in particular determining the criteria, which includes qualitative factors for identifying a significant increase in credit risk (i.e. Stage 2) and credit-impaired (i.e. Stage - 3);
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• Selected samples of exposure and verified the appropriateness of determining EAD, PD and LGD. Further, also checked the appropriateness of information used in the estimation of PD and LGD for the different
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• factoring in future macro-economic and industry specific
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stages depending on the nature of the portfolio.
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estimates and forecasts;
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• Evaluated the appropriateness of the Company’s
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• past experience and forecast data on customer behaviour
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determination of significant increase in credit risk in
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on repayments;
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accordance with the applicable Ind AS and the basis for
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• varied statistical modelling techniques to determine probability of default, loss given default and exposure at default basis, the default history of loans, subsequent
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classification of various exposures into various stages. For a sample of exposures, also tested the appropriateness of the Company’s categorization across various stages;
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recoveries made and other relevant factors using
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• Obtained the management’s rational for writing off the
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probability-weighted scenarios.
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loans during the current year and tested for appropriate
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The Expected Credit Loss (‘ECL’) is measured at 12- month ECL for Stage 1 loan assets and at lifetime ECL for Stage 2
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management approvals in line with approved write off policy.
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and Stage 3 loan assets.
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• Assessed the appropriateness and adequacy of the
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The management has calculated the PD and LGD as follows:
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related presentation and disclosures of Note 50 "Financial risk management” disclosed in the accompanying
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• For new products launched from time to time and where
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standalone financial statements in accordance with the
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the Company does not have sufficient historical data to
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applicable accounting standards and related Reserve
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estimate PD, the Company has engaged external leading credit bureau and accordingly PD rates have been considered based on industry data sourced from the aforesaid credit bureau.
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Bank of India (‘RBI’) circulars.
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• For the remaining portfolio, the Company continues to use their existing internally developed modelling techniques using historical observable data and inputs to estimate PD and LGD.
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Refer note 2(h) of material accounting policies, Note 7 for the details of provision and Note 50 (ii)for credit risk disclosures.
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Considering the significance of the above matter to the standalone financial statements, significant level of estimates and judgements involved in determination of ECL and write offs, this matter required our significant attention. Accordingly, we have determined Provision for Expected Credit Losses (ECL) on Loans as Key Audit Matter.
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Information Technology (“IT”) Systems and Controls for
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Our audit procedures in respect of this matter included the
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accounting and financial reporting process:
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following, but not limited to:
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The Company is dependent on its information technology
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• Involved IT specialists as part of the audit for the purpose
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(‘IT’) systems due to the significant number of transactions
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of testing the IT general controls and application controls
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that are processed daily across such multiple and discrete IT
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to determine the accuracy of the information produced
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systems. Also, IT application controls are critical to ensure that
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by the Company’s IT systems.
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changes to applications and underlying data are made in an appropriate manner and under controlled environment.
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• Obtained an understanding of the Company’s IT applications, databases and operating systems relevant
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Appropriate controls contribute to mitigating the risk
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to financial reporting and the control environment,
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of potential fraud or errors as a result of changes to
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including an understanding of the process, mapping of
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applications and data. On account of the pervasive use of
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applications and understanding financial risks posed by
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IT systems across varied different phases of business, the testing with respect to general computer controls of the IT systems used in financial reporting was identified to be a key audit matter.
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people process and technology.
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Key audit matters
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How our audit addressed the key audit matter
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The Company has a complex IT architecture to support its day-to-day business operations. High volume of transactions is processed and recorded on single or multiple applications. The reliability and security of IT systems plays a key role in the business operations of the Company. Since large volume of transactions are processed daily, IT controls are required to ensure that applications process data as expected and that changes are made in an appropriate manner.
Further, the Company’s accounting and financial reporting processes are dependent on automated controls enabled by IT systems which impacts key financial accounting and reporting items such as loans, interest income, impairment on loans amongst others.
The Company’s key financial accounting and reporting processes are highly dependent on information systems including automated controls in systems, such that there exists a risk that gaps in the IT control environment could result in the financial accounting and reporting records being materially misstated. The Company uses several systems for its overall financial reporting. In addition to it, large transaction volumes and the increasing challenges to protect the integrity of the Company’s systems and data, we have identified ‘IT systems and automated controls’ as key audit matter because of the high-level automation, significant number of systems being used by the management and the complexity of the IT architecture and its impact on the financial reporting system.
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• Tested IT General Controls particularly, logical 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; inspected; requests of changes to systems for appropriate approval and authorization
• Performed procedures for a selected group of key controls over financial and reporting system to determine that these controls remained unchanged during the year or were changed following the standard change management process.
• Tested key automated and manual business cycle controls including testing of alternate procedures to assess whether there were any unaddressed IT risks that would materially impact the standalone financial statements.
• Tested the design and operating effectiveness of the Company’s IT controls over the IT applications as identified above.
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INFORMATION OTHER THAN THE STANDALONE FINANCIAL STATEMENTS AND AUDITOR'S REPORT THEREON
The Company’s Board of Directors is 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 under SA 720 ‘The Auditor’s responsibilities relating to Other Information’.
RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE/ BOARD OF TRUSTEES FOR THE STANDALONE FINANCIAL STATEMENTS
The Company’s Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under section 133 of the Act. The Board of Directors of the Company and the Board of Trustees of the Welfare Trust are also responsible maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and the Welfare Trust 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 statement 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 of the Company and Trustees of the Welfare Trust are responsible for assessing the Company’s/ Welfare Trust’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/ Trustees of the Welfare Trust either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The respective Board of Directors/Trustees of the Welfare Trust are also responsible for overseeing the Company’s/Welfare Trust’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.
We give in ‘‘Annexure A” a detailed description of Auditor’s responsibilities for Audit of the Standalone Financial Statements.
OTHER MATTERS:
(a) We did not audit the financial statements of the Welfare Trust included in the standalone financial statements of the Company whose financial statements reflects total assets of H 184.56 crores as at March 31, 2025, total revenue of H 0.59 crores, net loss after tax of H 77.55 crores, and net cashflows of H 2.32 crores respectively for the year ended on that date, as considered in the standalone financial statements. These financial statements have been audited by other auditor whose report has been furnished to us by the management. These financial statements have been prepared in accordance with the Accounting Standards specified under section 133 of the Act, read with the Companies (Accounting Standards) Rules, 2021. The Company’s management has converted these financial statements to accounting principles under Ind AS as applicable to the Company. We have audited these conversion adjustments
made by the Company’s management and our opinion on the standalone financial statements, in so far as it relates to the amounts and disclosure included in respect of the Welfare Trust, and our report in terms of sub-section (3) of Section 143 of the Act, in so far as it relates to the aforesaid Welfare Trust, is based solely on the report of the other auditor and conversion adjustments prepared by the management of the Company and audited by us.
Our opinion is not modified in respect of the above matter with respect to our reliance on the work done by and the report of the other auditor.
(b) The standalone financial statements of the Company for the year ended March 31, 2024 was audited by Walker Chandiok & Co LLP, one of the previous joint auditors of the Company, whose report dated 29 April 2024 expressed an unmodified opinion on those standalone financial statements.
Our opinion is not modified in respect of the above matter.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
1. As required by the Companies (Auditor’s Report) Order, 2020 ("the Order”), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in "Annexure B”, a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
2. As required by Section 143(3) of the Act, we report that:
(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;
(b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books except for the matters stated in the paragraph 2(h)(vi) below on reporting under Rule 11(g);
(c) The Balance Sheet, the Statement of Profit and Loss (including other comprehensive income), the Statement of Changes in Equity and the Statement of Cash 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
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. Additionally, the audit trail of prior year has been preserved by the Company as per the statutory requirements for record retention except for one accounting software wherein the audit
For Kirtane & Pandit LLP
Chartered Accountants
Firm Registration No: 105215W/W100057
Sandeep D. Welling
Partner
Membership No.: 044576
UDIN: 25044576BMKQXF8783
Place: Mumbai
Date: April 25, 2025
Accounting Standards specified under Section 133 of the Act;
(e) On the basis of the written representations received from the directors as on March 31, 2025 taken on record by the Board of Directors, none of the directors are disqualified as on March 31, 2025 from being appointed as a director in terms of Section 164 (2) of the Act;
(f) The reservation relating to the maintenance of accounts and other matters connected therewith are as stated in paragraph 2(b) above on reporting under Section 143(3) (b) and paragraph 2h(vi) below on reporting under Rule 11(g);
(g) 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 C”; 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, in our opinion and to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financial position in its standalone financial statements - Refer Note 48 to the standalone financial statements;
ii. 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 48 to the standalone financial statements;
iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.
iv. a. The Management has represented
that, to the best of its knowledge and belief, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by
the Company to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company ("Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
b. The Management has represented, that, to the best of its knowledge and belief, no funds have been received by the Company from any person(s) or entity(ies), including foreign entities (Funding Parties), with the understanding, whether recorded in writing or otherwise, as on the date of this audit report, that the Company shall, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
c. Based on the audit procedures performed that have been considered reasonable and appropriate in the circumstances, and according to the information and explanations provided to us by the Management in this regard nothing has come to our notice that has caused us to believe that the representations under sub-clause
(i) and (ii) of Rule 11(e) as provided under (1) and (2) above, contain any material mis-statement.
v. The Company has neither declared nor paid any dividend during the year.
vi. Based on our examination, which included test checks, the Company has used an accounting software for maintaining its books of account (managed and maintained by a third-party software service provider) which has a feature of recording audit trail (edit log) facility and the same has operated
trail logs have been preserved effective June 26, 2024. Refer Note 55 (j) for audit trail disclosure in the standalone financial statements.
3. In our opinion, according to information, explanations given to us, the remuneration paid by the Company to its directors is within the limits laid prescribed under Section 197 read with Schedule V of the Act and the rules thereunder.
For M S K A & Associates
Chartered Accountants
Firm Registration No. 105047W
Vikram Dhanania
Partner
Membership No.: 060568
UDIN: 25060568BMJJQG1477
Place: Mumbai
Date: April 25, 2025
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