1. We have audited the accompanying Financial
Statements of Fedbank Financial Services Limited
('the Company’), which comprise the Balance Sheet
as at 31 March 2025, and the Statement of Profit
And Loss (including Other Comprehensive Income),
Statement of Changes in Equity and Statement of Cash
Flows for the year ended on that date, and notes to the
Financial Statements, including a summary of material
accounting policy information and other explanatory
information ('the Financial Statements’).
2. In our opinion and to the best of our information and
according to the explanations given to us, the aforesaid
Financial Statements give the information required
by the Companies Act, 2013 ('Act’) in the manner so
required and give a true and fair view in conformity
with the Indian Accounting Standards prescribed under
section 133 of the Act read with the Companies (Indian
Accounting Standards) Rules, 2015, as amended, ('Ind
AS’) and other accounting principles generally accepted
in India, of the State of Affairs of the Company as at 31
March 2025, and its Profit and Other Comprehensive
Income, Changes in Equity and its Cash Flows for the
year ended on that date.
BASIS FOR OPINION
3. We conducted our audit in accordance with the
Standards on Auditing ('SAs’) specified under section
143(10) of the Act. Our responsibilities under those SAs
are further described in the Auditor’s Responsibilities
for the Audit of the 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 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 Financial Statements.
KEY AUDIT MATTERS
4. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
Financial Statements of the current year. These matters were addressed in the context of our audit of the Financial
Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
|
Sr.
No
|
Key Audit Matter
|
How the Key Audit Matter was addressed in our audit
|
|
1
|
Provisioning based on Expected Credit Loss model (ECL) under IND AS 109 and testing of Impairment of assets,
more particularly the Loan Book of the Company
|
|
Refer to the accounting policies in 'Note 2.5 to the Financial Statements: Expected Credit Loss’, 'Note 3.2 to the Financial
Statements: Revenue Recognition’ and 'Note 3.6(j) to the Financial Statements: Impairment of Financial Assets and 'Note
44 to the Financial Statements: Risk Management’.
|
| |
Subjective estimates:
Under Ind AS 109, "Financial Instruments",
allowance for loan losses are determined using
expected credit loss ('ECL’) estimation model.
The Company revised its ECL policy. The revised
framework integrates both model-based outcomes
and significant management judgement through
overlays and exceptions, particularly for those
falling under early warning signals. The estimation
of ECL on financial instruments involves significant
judgement and estimates and therefore increased
levels of audit focus in the Company’s estimation of
ECLs, which are as under:
|
Our key audit procedures included:
Review of Policy/procedures & design/controls
> Reviewed the Board-approved ECL policy and
documentation supporting provisioning logic, default
assessment and staging methodology, with particular
focus on judgemental elements introduced.
> Testing key controls relating to selection and
implementation of material macro-economic variables
and the controls over the scenario selection and
application of probability weights. Verified consistency
with Board-approved macro scenarios and overlay
governance.
|
|
Sr.
No
|
Key Audit Matter
|
How the Key Audit Matter was addressed in our audit
|
| |
• Data inputs - The application of ECL model
|
>
|
Assessing the design, implementation and operating
|
| |
requires multiple internal and external data
|
|
effectiveness of key internal financial controls including
|
| |
inputs. This increases the risk of completeness
|
|
monitoring process of overdue loans (including those
|
| |
and accuracy of the data that has been used to
|
|
which became overdue after the reporting date),
|
| |
create assumptions in the model.
|
|
measurement of provision, stage-wise classification
|
| |
• Model estimations - Inherently judgmental
models are used to estimate ECL which
|
|
of loans, identification of NPA accounts, assessing the
reliability of management information.
|
| |
involves determining Probabilities of Default
|
>
|
Understanding management’s approach, interpretation,
|
| |
("PD"), Loss Given Default ("LGD"), and
|
|
systems and controls implemented in relation to
|
| |
Exposures at Default ("EAD"). The PD and
|
|
probability of default and stage-wise bifurcation of
|
| |
the LGD are the key drivers of estimation
|
|
product-wise portfolios for timely ascertainment of
|
| |
complexity in the ECL and as a result are
considered the most significant judgmental
aspect of the Company’s modelling approach.
Management overlays were introduced on
certain asset classes where historical data
|
>
|
stress and early warning signals.
Testing and review of controls over measurement
of provisions and disclosures in the Ind AS Financial
Statements.
|
| |
limitations or forward-looking risk indicators
|
>
|
Involvement of Information system resource to obtain
|
| |
warranted deviation from model outputs.
|
|
comfort over data integrity and process of report
|
| |
• Economic scenarios - Ind AS 109 requires the
Company to measure ECLs on an unbiased
forward-looking basis reflecting a range
|
|
generation through interface of various systems. Walk
through the processes which involve manual work to
ascertain existence of maker-checker controls
|
| |
of future economic indicators. Significant
|
Substantive verification
|
| |
management judgement is applied in
determining the economic scenarios used and
the probability weights applied to them.
|
>
|
Sample testing over key inputs, data and assumptions
impacting ECL calculations to assess the completeness,
accuracy and relevance of data and reasonableness of
|
| |
The effect of these matters is that, as part of our risk
|
|
economic forecasts, weights, and model assumptions
|
| |
assessment, we determined that the impairment
|
|
applied.
|
| |
of loans and advances to customers, involving
estimations and judgements, with a potential range
|
>
|
Model calculations testing through selective re¬
performance.
|
| |
of reasonable outcomes greater than our materiality
for the Ind AS Financial Statements as a whole.
|
>
|
Checking data for assessing reasonableness of
judgements made in respect of calculation methodologies,
segmentation, economic factors, the period of historical
loss rates used and the valuation of recovery assets and
collateral (including collateral in the form of gold.)
|
| |
|
>
|
Assessing disclosures - Assessed whether the
disclosures on key judgements, assumptions and
quantitative data with respect to impairment of loans
(including restructuring related disclosures) in the Ind AS
Financial Statements are appropriate and sufficient as
also aligned to regulatory requirements.
|
|
Sr.
No
|
Key Audit Matter
|
How the Key Audit Matter was addressed in our audit
|
|
2
|
Information Technology
|
| |
IT systems and controls
The Company’s financial reporting processes are
dependent on technology considering significant
number of transactions that are processed
daily across multiple and discrete Information
Technology ('IT’) systems. The Financial accounting
system of the Company is interfaced with several
other IT systems including Loan Management &
Originating systems and several other systemic
workflows.
IT general and application controls are critical
to ensure that changes to applications and
underlying data are made in an appropriate manner.
Adequate controls contribute to mitigating the risk
of potential fraud or errors as a result of changes
to the applications and data. These includes
implementation of preventive and detective controls
across critical applications and infrastructure.
Due to the pervasive nature of role of information
technology systems in financial reporting, in our
preliminary risk assessment, we planned our audit
by assessing the risk of a material misstatement
arising from the technology as significant for the
audit, hence the Key Audit Matter.
|
In course of audit, we, inter alia, reviewed user access
management, change management, segregation of duties,
system reconciliation controls and key financial accounting
and reporting systems. We performed a range of audit
procedures, which included:
> Deployed our internal experts to carry out IT general
Controls testing and identifying gaps, if any.
> Our other processes include:
• Selectively recomputing interest calculations and
maturity dates;
• Performed substantive procedures where control
deficiencies or system limitations were noted, to
compensate for any identified risks.
• Evaluated the automated controls embedded within
key financial applications that impact significant
accounts and disclosures, focusing on the design,
implementation, and operating effectiveness of
these controls.
• Testing of the system generated reports and
accounting entries manually for core financial
reporting matters (i.e. verification around the
computer system)
• Evaluating the design, implementation and operating
effectiveness of the significant accounts-related
IT automated controls which are relevant to the
accuracy of system calculation, and the consistency
of data transmission.
|
OTHER INFORMATION
5. The Company’s Board of Directors are responsible for
the other information. The other information comprises
the information included in the Company’s annual
report but does not include the Financial Statements
and our auditors’ report thereon. The Other Information
is expected to be made available to us after the date of
this auditor’s report.
6. Our opinion on the Financial Statements does not cover
the other information and we do not express any form
of assurance conclusion thereon.
7. In connection with our audit of the Financial Statements,
our responsibility is to read the other information
identified above when it becomes available and, in
doing so, consider whether the other information is
materially inconsistent with the Financial Statements,
or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If, based on the
work we have performed, we conclude that there is a
material misstatement of this other information, we are
required to report that fact.
8. When we read the Annual Report, if we conclude that
there is a material misstatement therein, we are required
to communicate the matter to those charged with
governance and take appropriate action as applicable
under the relevant laws and regulations.
RESPONSIBILITIES OF MANAGEMENT AND THOSE
CHARGED WITH GOVERNANCE FOR THE FINANCIAL
STATEMENTS
9. The Company’s Board of Directors is responsible for the
matters stated in section 134(5) of the Act, with respect
to the preparation of these Financial Statements that
give a true and fair view of the State of Affairs, profit
and Other Comprehensive Income, Changes in Equity
and Cash Flows of the Company in conformity with
the Indian Accounting Standards prescribed under
section 133 of the Act read with the Companies (Indian
Accounting Standards) Rules, 2015, as amended and
other accounting principles generally accepted in
India. This responsibility also includes maintenance of
adequate accounting records in accordance with the
provisions of the Act for safeguarding of the assets of
the Company and for preventing and detecting frauds
and other irregularities; selection of the appropriate
accounting software for ensuring compliance with
applicable laws and regulations including those related
to retention of audit logs; selection and application of
appropriate accounting policies; making judgments
and estimates that are reasonable and prudent; and
design, implementation and maintenance of adequate
internal financial controls, that were operating
effectively for ensuring the accuracy and completeness
of the accounting records, relevant to the preparation
and presentation of the Financial Statements that
give a true and fair view and are free from material
misstatement, whether due to fraud or error.
10. In preparing the 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.
11. The Board of Directors is also responsible for overseeing
the Company’s financial reporting process.
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE
FINANCIAL STATEMENTS
12. Our objectives are to obtain reasonable assurance
about whether the Financial Statements as a whole
are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high
level of assurance but is not a guarantee that an audit
conducted in accordance with SAs will always detect a
material misstatement when it exists. Misstatements
can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic
decisions of users taken on the basis of these Financial
Statements. As part of an audit in accordance with
SAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
12.1 .Identify and assess the risks of material
misstatement of the Financial Statements,
whether due to fraud or error, design and perform
audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the
override of internal control.
12.2.Obtain an understanding of internal control relevant
to the audit in order to design audit procedures
that are appropriate in the circumstances. Under
section 143(3)(i) the Act, we are also responsible
for expressing our opinion on whether the
Company has adequate internal financial controls
with reference to Financial Statements in place
and the operating effectiveness of such controls.
12.3. Evaluate the appropriateness of accounting
policies used and the reasonableness of
accounting estimates and related disclosures
made by the Management.
12.4. Conclude on the appropriateness of the
Management’s use of the going concern basis
of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists
related to events or conditions that may cast
significant doubt on the Company’s ability to
continue as a going concern. If we conclude that
a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related
disclosures in the 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.
12.5. Evaluate the overall presentation, structure and
content of the Financial Statements, including the
disclosures, and whether the Financial Statements
represent the underlying transactions and events
in a manner that achieves fair presentation.
19.2. The Company did not have any long-term
contracts including derivative contracts for which
there were any material foreseeable losses- Refer
Note XX to the Financial Statements.
19.3. There were no amounts which were required
to be transferred to the Investor Education and
Protection Fund by the Company.
19.4. The Management has represented, to best of
their knowledge and belief, that no funds have
been advanced or loaned or invested (either from
borrowed funds or share premium or any other
sources or kind of funds) by the Company to or in
any other person(s) or entity(ies), including foreign
entities ('Intermediaries’), with the understanding,
whether recorded in writing or otherwise, that the
Intermediary shall, whether, directly or indirectly
lend or invest in other persons or entities identified
in any manner whatsoever by or on behalf of the
Company ('Ultimate Beneficiaries’) or provide any
guarantee, security or the like on behalf of the
Ultimate Beneficiaries.
19.5. The Management has represented, to best
of their knowledge and belief, that no funds
have been received by the Company from any
person(s) or entity(ies), including foreign entities
('Funding Parties’), with the understanding,
whether recorded in writing or otherwise, that the
Company shall, whether, directly or indirectly, lend
or invest in other persons or entities identified in
any manner whatsoever by or on behalf of the
Funding Party ('Ultimate Beneficiaries’) or provide
any guarantee, security or the like on behalf of the
Ultimate Beneficiaries.
19.6. Based on such audit procedures, that have been
considered reasonable and appropriate in the
circumstances, performed by us, nothing has
come to our notice that has caused us to believe
that the representation under para 19.4 and 19.5
contain any material misstatement.
13. 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.
14. 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.
15. From the matters communicated with those charged
with governance, we determine those matters that
were of most significance in the audit of the Financial
Statements of the current year and are therefore the
key audit matters. We describe these matters in our
auditor’s report unless law or regulation precludes
public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should
not be communicated in our report because the
adverse consequences of doing so would reasonably
be expected to outweigh the public interest benefits of
such communication.
OTHER MATTERS
16. Attention is drawn to the fact that the audited financial
statements of the Company for the corresponding year
ended 31 March 2024 were audited by predecessor
auditors whose report dated 29 April 2024 expressed
an unmodified opinion on those audited financial
statements. Our opinion is not modified in respect of
these matters.
REPORT ON OTHER LEGAL AND REGULATORY
REQUIREMENTS
17. As required by the Companies (Auditor’s Report) Order,
2020 ('the Order’), issued by the Central Government
of India in terms of sub-section (11) of section 143 of
the Act, we give in the 'Annexure A’ a statement on the
matters specified in paragraphs 3 and 4 of the Order, to
the extent applicable.
18. As required by Section 143(3) of the Act, we report that:
18.1.We have sought and obtained all the information
and explanations which to the best of our
knowledge and belief were necessary for the
purposes of our audit.
18.2.In our opinion, proper books of accounts 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 paragraph
19.8 below on reporting under Rule 11(g) of the
Companies (Audit and Auditors) Rules, 2014 (as
amended).
18.3. The balance sheet, the statement of profit and
loss including Other Comprehensive Income, the
Statement of Changes in Equity and the Cash
Flow Statement dealt with by this Report are in
agreement with the books of account.
18.4. In our opinion, the aforesaid Financial Statements
comply with the Ind AS specified under Section 133
of the Act read with the relevant rules thereunder.
18.5.On the basis of the written representations
received from the directors as on 31 March 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.
18.6. The modification relating to the maintenance of
books of accounts and other matters connected
therewith are as stated in the paragraph 18.2
above on reporting under Section 143(3)(b) and
paragraph 19.8 below on reporting under Rule
11(g) of the Companies (Audit and Auditors)
Rules, 2014.
18.7. 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’.
18.8. 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.
19. 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:
19.1 .The Company has disclosed the impact of pending
litigations as at 31 March 2025 on its financial
position in its Financial Statements - Refer Note
54 to the Financial Statements.
19.7.In our opinion and according to information
and explanation given to us, the Company has
not declared or paid dividend during the year,
accordingly compliance with section 123 of the
Act by the Company is not applicable.
19.8.Based on our examination, the company, has used
accounting software for maintaining its books of
account which has a feature of recording audit trail
(edit log) facility. Further, the audit trail facility has
been operating throughout the year for all relevant
transactions recorded in the accounting software
except for the instances reported below -
1. The Audit trail feature was enabled at
Database level (for changes from backend)
from 10 February 2024, from 16 April 2024
and from 24 May 2024 in case of Core
Accounting Software, Loan Accounting
Software and Gold Loan Accounting Software
respectively.
2. For maintenance of Books of Accounts under
Ind AS (Accounting Framework applicable to
the Company), the feature of maintaining
audit trail (edit log) is not enabled.
Further, where audit trail (edit log) facility was
enabled and operated throughout thereafter, we
did not come across any instance of audit trail
feature being tampered with during the course of
our audit.
For KKC & Associates LLP
Chartered Accountants
(formerly Khimji Kunverji & Co LLP)
Firm Registration Number: 105146W/W100621
Hasmukh B Dedhia
Partner
ICAI Membership No: 033494
UDIN: 25033494BMJKDM2428
Place: Mumbai
Date: 29 April 2025
|
