Auditor Report of Spandana Sphoorty Financial Ltd.

Mar 31, 2025

We have audited the standalone financial statements of
Spandana Sphoorty Financial Limited (the "Company") which
comprise the standalone balance sheet as at 31 March 2025,
and the standalone statement of profit and loss (including
other comprehensive income), standalone statement
of changes in equity and standalone statement of cash
flows for the year then ended, and notes to the standalone
financial statements, including material accounting policies
and other explanatory information.

In our opinion and to the best of our information and
according to the explanations given to us, the aforesaid
standalone financial statements give the information
required by the Companies Act, 2013 ("Act") in the manner
so required and give a true and fair view in conformity with
the accounting principles generally accepted in India, of the
state of affairs of the Company as at 31 March 2025, and its
loss and other comprehensive income, changes in equity
and its cash flows for the year ended on that date.

Basis for Opinion

We conducted our audit in accordance with the Standards
on Auditing (SAs) specified under Section 143(10) of the Act.
Our responsibilities under those SAs are further described in
the Auditor''s Responsibilities for the Audit of the Standalone
Financial Statements section of our report. We are
independent of the Company in accordance with the Code
of Ethics issued by the Institute of Chartered Accountants of
India together with the ethical requirements that are relevant
to our audit of the standalone financial statements under
the provisions of the Act and the Rules thereunder, and we
have fulfilled our other ethical responsibilities in accordance
with these requirements and the Code of Ethics. We believe
that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion on the
standalone financial statements.

Key Audit Matters

Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
standalone financial statements of the current period. These
matters were addressed in the context of our audit of the
standalone financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate
opinion on these matters.

Impairment loss allowance on loans

Refer to the accounting policies in "Note 3 (j) to the standalone financial statements: Impairment of financial assets".

Note 2 (d) to the standalone financial statements: Material Accounting Policies - use of estimates and judgments", "Note 7
and Note 51 to the standalone financial statements: Loans

The key audit matter

How the matter was addressed in our audit

Impairment loss allowance on loans of '' 540.80 crores as at 31 March 2025 Allowance charged to statement of profit and loss: '' 1,769.66 crores for the year ended 31 March 2025 Under Ind AS 109, Financial Instruments, impairment loss allowance is determined using expected credit loss ("ECL") model. Recognition and measurement of impairment loss allowance on loans involves significant judgement and estimates. The key areas where increased levels of audit focus in the Company''s estimation of impairment loss allowance on loans are: a) Data inputs - The application of ECL model requires several data inputs. This increases the risk of irrelevant data used to create assumptions in the model.

In view of the significance of the matter, we applied the following key audit procedures in this area, among others to obtain sufficient audit evidence: Testing of design and operating effectiveness of controls: Performing end to end process walkthroughs to identify the key systems, applications and controls used in computation of impairment loss allowance on loans. Testing the relevant manual, general IT and application controls over key systems used in the impairment of loss allowance on loans. Key aspects of our testing of the design, implementation and operating effectiveness involves the following: a) Testing the key controls over the completeness and accuracy of the key inputs, data and assumptions into the Ind AS 109 impairment models. b) Testing the key governance controls over evaluation, implementation and model monitoring. c) Testing the key controls over the application of the staging criteria.

The key audit matter	How the matter was addressed in our audit
b) Model estimations - Inherently judgmental models are used to estimate impairment loss allowance on loans which involves determining Probabilities of Default, Loss Given Default, and Exposures at Default. The Probabilities of Default and the Loss Given Default are the key drivers of estimation complexity in ECL model and hence are considered the most significant judgmental aspect of the Company''s modelling approach. c) Economic scenario: Ind AS 109 requires the Company to measure impairment loss allowance on loans in an unbiased forward- looking basis reflecting a range of future economic scenarios. Significant judgement is applied in determining the economic scenarios used and the probability weights applied to them. d) Post model adjustments / additional provision / technical write offs: Adjustments to the model-driven ECL results as additional charge are recorded by the Company to address risks not captured by models for specific exposures and accelerated technical write offs made on prudential basis. Significant judgement is involved in estimating additional charge. The underlying forecasts and assumptions used in the estimates of impairment loss allowance are subject to uncertainties which are often outside the control of the Company. Disclosure The disclosures regarding the Company''s application of Ind AS 109 are key to explaining the key estimates, judgements and inputs used in Impairment loss allowance on loans. Given the size of loan portfolio relative to the balance sheet and the impact of impairment loss allowance on the financial statements we have considered this as a key audit matter.	d) Testing the key controls relating to selection and implementation of key macro-economic variables and the controls over the scenario selection and application of probability weights. e) Testing the key controls operating over the information used in the computation of impairment loss allowance on loans including system access, change management, program development and computer operations. f) Testing management''s controls over authorisation and computation of post model adjustments and additional provision and accelerated technical write off. g) Testing the Company''s controls on compliance with Ind AS 109 disclosures related to impairment loss allowance on loans. Test of details: Key aspects of our testing includes: a) Assessing the Company''s rationale for determination of criteria for significant increase in credit risk. b) Testing of sample over key inputs, data and assumptions impacting ECL model to assess relevance of data, economic forecasts, weights, and model assumptions applied. c) Testing computation of model driven impairment loss allowance on loans through re-performance on a sample basis. d) Assessing adequacy of disclosures included in the financial statements in respect of expected credit losses. e) Assessing the Company''s rationale for determination of criteria for accelerated technical write offs. f) Testing details of post model adjustments/additional provision as well as the accelerated technical write offs recorded. Involvement of specialists We involved financial risk modelling specialists for the following: a) Evaluating the Company''s Ind AS 109 impairment methodologies and assumptions used. b) Evaluating the relevance of inputs used in the model for computation of impairment loss allowance on loans.
Information Technology systems and controls
The key audit matter	How the matter was addressed in our audit
Information Technology (''IT'') systems and controls The Company''s key financial accounting and reporting processes are dependent on the automated controls in information systems. There exists a risk in the IT control environment which could result in the financial accounting and reporting records being misstated. We have identified ''IT systems and controls'' as a key audit matter considering the high level of automation, use of system generated reports in management controls and the complexity of the IT architecture. Further, it impacts on the overall financial reporting process and regulatory expectation on automation.	In view of the significance of the matter, we applied the following key audit procedures in this area, among others to obtain sufficient audit evidence for scoped in applications by involving our IT specialist: a) Evaluating and testing the design, implementation and operating effectiveness of IT applications controls relevant to the accuracy of system computations, and the consistency of data transmission relating to significant accounts. b) Evaluating and testing the design, implementation and operating effectiveness of key General IT Controls. This includes controls on Access management, Change management and Computer Operations. c) Testing the design and operating effectiveness of key controls over user access management. This includes access authentication through password configuration management, granting or modification of user access, creating new users, deactivating user access for exiting users, user access and privileged access examination basis their role and function. d) Testing the design, implementation and operating effectiveness of the IT automated controls which are relevant to the accuracy of system computations impacting balances in significant accounts.

The key audit matter	How the matter was addressed in our audit
	e) Testing the controls over changes to applications including access to configure changes, approvals required to deploy the changes, segregation of environment and segregation of duties in change management. f) Testing the design and operating effectiveness of audit trail (edit log) feature for the in-scope applications i.e. where books of accounts are maintained in an electronic mode using an accounting software. g) Testing the controls over computer operations including controls over backup of data, controls on operating system and database viz. authorized access, password management and changes. For the identified gaps in the internal control system with respect to GITCs, we altered our audit approach and performed additional substantive procedures for relevant account balances in order to obtain additional audit evidence.
Deferred tax assets Refer to the accounting policies in Note 3 (e) to the standalone financial statements: Income taxes and Note 11 to the standalone financial statements: Deferred tax assets (net)
The key audit matter	How the matter was addressed in our audit
Deferred tax assets (net) of '' 437.97 crores as at 31 March 2025 Under Ind AS 12 - Income taxes, the Company is required to reassess recognition of the deferred tax assets at each reporting date. The Company has deferred tax assets in respect of unused tax loss for the current year and other temporary differences. The Company''s deferred tax assets are based on the projected profitability. This is to be determined on the basis of approved business plans and availability of sufficient taxable income to utilize such unused tax losses. We have identified recognition of deferred tax assets as a key audit matter because of the related complexity and subjectivity of the assessment process. The assessment process is based on assumptions affected by expected future market and other relevant conditions.	In view of the significance of the matter, we applied the following key audit procedures in this area, among others to obtain sufficient audit evidence: a) Evaluating the design and testing the operating effectiveness of controls over assessment of deferred tax balances and underlying data. b) Evaluating the approved business plans and the basis for projections of future taxable profits. c) Testing the underlying data and assumptions used in the profitability projections and performing sensitivity analysis. d) Assessing the recoverability of deferred tax assets based on projected profits based on Company''s forecasts and sensitivity analysis and other relevant conditions. e) Evaluating the adequacy of the Company''s disclosures on deferred tax.

Other Information

The Company''s Management and Board of Directors are
responsible for the other information. The other information
comprises the information included in the annual report,
but does not include the financial statements and auditor''s
report thereon. The annual report is expected to be made
available to us after the date of this auditor''s report.

Our opinion on the standalone financial statements does not
cover the other information and we will not express any form
of assurance conclusion thereon.

In connection with our audit of the standalone financial
statements, our responsibility is to read the other information
identified above when it becomes available and, in doing
so, consider whether the other information is materially
inconsistent with the standalone financial statements or
our knowledge obtained in the audit, or otherwise appears
to be materially misstated.

When we read the annual report, if we conclude that there
is a material misstatement therein, we are required to
communicate the matter to those charged with governance
and take necessary actions, as applicable under the relevant
laws and regulations.

Management''s and Board of Directors'' Responsibilities for
the Standalone Financial Statements

The Company''s Management and Board of Directors are
responsible for the matters stated in Section 134(5) of the Act
with respect to the preparation of these standalone financial
statements that give a true and fair view of the state of affairs,
profit/ loss and other comprehensive income, changes in
equity and cash flows of the Company in accordance with the
accounting principles generally accepted in India, including
the Indian Accounting Standards (Ind AS) specified under
Section 133 of the Act. This responsibility also includes
maintenance of adequate accounting records in accordance
with the provisions of the Act for safeguarding of the assets
of the Company and for preventing and detecting frauds and

other irregularities; selection and application of appropriate
accounting policies; making judgments and estimates that
are reasonable and prudent; and design, implementation
and maintenance of adequate internal financial controls,
that were operating effectively for ensuring the accuracy
and completeness of the accounting records, relevant to
the preparation and presentation of the standalone financial
statements that give a true and fair view and are free from
material misstatement, whether due to fraud or error.

In preparing the standalone financial statements, the
Management and Board of Directors are responsible for
assessing the Company''s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting
unless the Board of Directors either intends to liquidate
the Company or to cease operations, or has no realistic
alternative but to do so.

The Board of Directors is also responsible for overseeing the
Company''s financial reporting process.

Auditor''s Responsibilities for the Audit of the Standalone
Financial Statements

Our objectives are to obtain reasonable assurance about
whether the standalone financial statements as a whole
are free from material misstatement, whether due to fraud
or error, and to issue an auditor''s report that includes our
opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance
with SAs will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these standalone
financial statements.

As part of an audit in accordance with SAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:

• Identify and assess the risks of material misstatement
of the standalone financial statements, whether due
to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or
the override of internal control.

• Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances. Under Section 143(3)

(i) of the Act, we are also responsible for expressing
our opinion on whether the company has adequate
internal financial controls with reference to financial
statements in place and the operating effectiveness
of such controls.

• Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by the Management and
Board of Directors.

• Conclude on the appropriateness of the Management
and Board of Directors use of the going concern basis
of accounting in preparation of standalone financial
statements and, based on the audit evidence obtained,
whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the
Company''s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we
are required to draw attention in our auditor''s report
to the related disclosures in the standalone financial
statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor''s
report. However, future events or conditions may cause
the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content
of the standalone financial statements, including the
disclosures, and whether the standalone financial
statements represent the underlying transactions and
events in a manner that achieves fair presentation.

We communicate with those charged with governance
regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including
any significant deficiencies in internal control that we
identify during our audit.

We also provide those charged with governance with a
statement that we have complied with relevant ethical
requirements regarding independence, and to communicate
with them all relationships and other matters that may
reasonably be thought to bear on our independence, and
where applicable, related safeguards.

From the matters communicated with those charged with
governance, we determine those matters that were of
most significance in the audit of the standalone financial
statements of the current period and are therefore the key
audit matters. We describe these matters in our auditor''s
report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances,
we determine that

a matter should not be communicated in our report because
the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such
communication.

Other Matter

a. The standalone financial statements of the Company
for the year ended 31 March 2024 were audited by the
predecessor auditor who had expressed an unmodified
opinion on 29 April 2024.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order,
2020 ("the Order") issued by the Central Government of
India in terms of Section 143(11) of the Act, we give in
the "Annexure A" a statement on the matters specified

in paragraphs 3 and 4 of the Order, to the extent applicable.

2 A. As required by Section 143(3) of the Act, we report
that:

a. We have sought and obtained all the information
and explanations which to the best of our
knowledge and belief were necessary for the
purposes of our audit.

b. In our opinion, proper books of account as required
by law have been kept by the Company so far as
it appears from our examination of those books
except for the matter stated in the paragraph
2B(f) below on reporting under Rule 11(g) of the
Companies (Audit and Auditors) Rules, 2014.

c. The standalone balance sheet, the standalone
statement of profit and loss (including other
comprehensive income), the standalone
statement of changes in equity and the standalone
statement of cash flows dealt with by this Report
are in agreement with the books of account.

d. In our opinion, the aforesaid standalone financial
statements comply with the Ind AS specified
under Section 133 of the Act.

e. The matter described in the Basis for Qualified
Opinion paragraph in "Annexure B" with respect
to adequacy and operating effectiveness of
the internal financial controls with reference
to financial statements of the Company, in our
opinion, may have an adverse effect on the
functioning of the Company.

f. On the basis of the written representations
received from the directors as on 1 April 2025
taken on record by the Board of Directors, none of
the directors is disqualified as on 31 March 2025
from being appointed as a director in terms of
Section 164(2) of the Act.

g. The qualification relating to the maintenance of
accounts and other matters connected therewith
are as stated in the paragraph 2A(b) above on
reporting under section 143(3)(b) of the Act and
paragraph 2B(f) below on reporting under Rule
11(g) of the Companies (Audit and Auditors) Rules,
2014.

h. With respect to the adequacy of the internal
financial controls with reference to financial
statements of the Company and the operating
effectiveness of such controls, refer to our
separate Report in "Annexure B".

B. With respect to the other matters to be included in
the Auditor''s Report in accordance with Rule 11 of
the Companies (Audit and Auditors) Rules, 2014,
in our opinion and to the best of our information
and according to the explanations given to us:

a. The Company has disclosed the impact of pending
litigations as at 31 March 2025 on its financial
position in its standalone financial statements

- Refer Note 35 to the standalone financial
statements.

b. The Company has made provision, as required
under the applicable law or accounting standards,
for material foreseeable losses, if any, on long¬
term contracts including derivative contracts

- Refer Note 53 (m) to the standalone financial
statements.

c. There were no amounts which were required
to be transferred to the Investor Education and
Protection Fund by the Company.

d (i) The management has represented that, to
the best of their knowledge and belief, as
disclosed in the Note 45 to the standalone
financial statements, no funds have been
advanced or loaned or invested (either from
borrowed funds or share premium or any other
sources or kind of funds) by the Company
to or in any other person(s) or entity(ies),
including foreign entities ("Intermediaries"),
with the understanding, whether recorded in
writing or otherwise, that the Intermediary
shall directly or indirectly lend or invest
in other persons or entities identified in
any manner whatsoever by or on behalf of
the Company ("Ultimate Beneficiaries") or
provide any guarantee, security or the like on
behalf of the Ultimate Beneficiaries.

(ii) The management has represented that, to
the best of their knowledge and belief, as
disclosed in the Note 46 to the standalone
financial statements, no funds have been
received by the Company from any person(s)
or entity(ies), including foreign entities
("Funding Parties"), with the understanding,
whether recorded in writing or otherwise,
that the Company shall directly or indirectly,
lend or invest in other persons or entities
identified in any manner whatsoever by or
on behalf of the Funding Parties ("Ultimate
Beneficiaries") or provide any guarantee,
security or the like on behalf of the Ultimate
Beneficiaries.

(iii) Based on the audit procedures that have
been considered reasonable and appropriate
in the circumstances, nothing has come to
our notice that has caused us to believe that
the representations under sub-clause (i) and
(ii) of Rule 11(e), as provided under (i) and (ii)
above, contain any material misstatement.

e. The Company has neither declared nor paid any
dividend during the year.

f. Based on our examination which included test
checks, the Company has used accounting
softwares for maintaining its books of accounts,
which have a feature of recording audit trail (edit
log) facility and the same has operated throughout

the year for all relevant transactions recorded in
the respective softwares except that the feature
of recording of audit trail (edit log) facility was not
enabled at the database level for the accounting
software used for maintaining general ledger for
the period from 1 April 2024 to 13 May 2024, to
log any direct data changes. Further, where audit
trail (edit log) facility was enabled and operated
throughout the year for the respective accounting
softwares, we did not come across any instance
of the audit trail feature being tampered with.

Additionally, the audit trail (edit log) facility in
respect of the previous year has been preserved
by the Company as per the statutory requirements
for record retention, except for the instance
mentioned below:

(a) in case of accounting software used for
maintaining general ledger, the audit trail is
not preserved for the database level; and

(b) in case of accounting software used for
maintaining the books of account relating to
payroll, we are unable to comment whether
the audit trail has been preserved by the
Company.

C. With respect to the matter to be included in
the Auditor''s Report under Section 197(16) of
the Act:

In our opinion and according to the
information and explanations given to us,
the remuneration paid by the Company to
its directors during the current year is in
accordance with the provisions of Section
197 of the Act. The remuneration paid to any
director is not in excess of the limit laid down
under Section 197 of the Act. The Ministry of
Corporate Affairs has not prescribed other
details under Section 197(16) of the Act which
are required to be commented upon by us.

For B S R & Co. LLP

Chartered Accountants
Firm''s Registration No.:101248W/W-100022

Kapil Goenka

Partner

Place: Hyderabad Membership No.: 118189

Date: 30 May 2025 ICAI UDIN:25118189BMLJVQ9189

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Mar 31, 2024

1. We have audited the accompanying standalone financial statements of Spandana Sphoorty Financial Limited (‘the Company''), which comprise the Balance Sheet as at 31 March 2024, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Cash Flow and the 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 2024, 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 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.

Key Audit Matters

4. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements of the current period. 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.

5. We have determined the matters described below to be the key audit matters to be communicated in our report.

Key audit matter	How our audit addressed the key audit matter
(a) Impairment losses and write off on loan portfolio
Refer note 3(d) for significant accounting policies, note 6 for impairment disclosures and note 40.1 for credit risk disclosures. The Company has gross loan assets of 10,640.51 crores outstanding as at 31 March 2024, against which an impairment of ''296.67 crores has been recorded as at reporting date, which is measured in accordance with Ind AS 109, Financial Instruments, using ‘Expected Credit Loss'' (ECL) method. The Company has written off loans of ''86.21 crores during the year ended 31 March 2024. The ECL is measured at 12-month ECL for Stage 1 loan assets and at lifetime ECL for Stage 2 and Stage 3 loan assets in accordance with the accounting policy adopted by the Company. Significant management judgements are involved in measuring ECL with respect to:	Our audit procedures were focused on assessing the appropriateness of management''s judgment and estimates used in the impairment analysis that included, but were not limited to, the following: • Examined the Board Policy approving methodology for computation of ECL that addresses policies and procedures for assessing and measuring credit risk on the lending exposures of the Company in accordance with the requirements of Ind AS 109. • Obtained an understanding of the modelling techniques adopted by the Company including the key inputs and assumptions. Since modelling assumptions and parameters are based on historical data, we assessed whether historical experience was representative of current circumstances and was relevant in view of the recent impairment losses incurred within the portfolios.

Key audit matter	How our audit addressed the key audit matter
• determining the criteria for significant increase in credit risk and default risk i.e. staging of loans • factoring in forward-looking information (including macroeconomic factors on a portfolio level) • techniques used to determine probability of default, loss given default and exposure at default. These parameters are derived from the Company''s internally developed statistical models, historical data, macro-economic factors. Any change in such models or assumptions could have a material impact on the accompanying standalone financial statements. Similarly, the Company is also required to make judgements to identify the loans and advances which are non-recoverable and thereby determined to be written off. Considering the significance of the above matter to the financial statements, degree of estimation uncertainty and significant management judgment involved, this area required significant auditor attention to test such complex accounting estimates, and accordingly, this matter has been identified as a key audit matter for the current year audit.	• Assessed and tested the design and operating effectiveness of the key controls over the completeness and accuracy of the key inputs 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. • Evaluated the appropriateness of the Company''s determination of significant increase in credit risk in accordance with the applicable accounting standard and the basis for classification of exposures into various stages. For a sample of exposures, we also tested the appropriateness of the Company''s categorization across various stages by evaluating management''s assessment of parameters such as probability of default (PD) or loss given default (LGD). • Evaluated the appropriateness of the methodology and policy laid down and implemented by the Company for the loan portfolio written-off during the year and tested its compliance on a sample basis. • 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.
(b) Information Technology Systems and Controls for The Company is highly dependent on its Information Technology ("lT") systems for carrying on its operations which require large volume of transactions to be processed in numerous locations on a daily basis. Among other things, management also uses the information produced by the IT systems for accounting, preparation and presentation of the financial statements. 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 controls implemented by the Company in its IT environment determine the integrity, accuracy, completeness and validity of data that is processed by the applications and is ultimately used for financial reporting. Since our audit strategy focused on audit of key IT systems and controls due to the pervasive impact of such systems and controls on the financial statements, we have determined the same as a key audit matter for current year audit.	he financial reporting process Our key audit procedures with the involvement of our IT specialists included, but were not limited to the following: • Obtained an understanding of the Company''s IT related control environment and conducted risk assessment and identified IT applications, data bases and operating systems that are relevant to our audit. • Tested the design and operating effectiveness of the Company''s IT controls over the IT applications as identified above; • On such in-scope IT systems, we have tested key IT general controls with respect to the following domains: a) Program change management which includes controls on moving program changes to production environment as per defined procedures and relevant segregation of environments. b) User access management which includes user access provisioning, de-provisioning, access review, password management, sensitive access rights and segregation of duties; c) Other areas that were assessed under the IT control environment included user interfaces, configuration and other application controls. • Evaluated the design and tested the operating effectiveness of key automated controls within various business processes. This included testing of configuration and other application layer controls identified during our audit and report logic for system generated reports relevant to the audit mainly for loans, interest income and impairment of loan assets for evaluating completeness and accuracy. • Where deficiencies were identified, tested compensating controls or performed alternative procedures.

Information other than the 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.

Our opinion on the standalone financial statements does not cover the other information and we do 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 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. 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. We have nothing to report in this regard.

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 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 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 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 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 financial statements, including the disclosures, and whether the 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 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) 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 paragraph 17(h)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (as amended);

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 2024 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 2024 and the operating effectiveness of such controls, refer to our separate report in Annexure B wherein we have expressed 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 33(a) to the standalone financial statements, has disclosed the impact of pending litigations on its financial position as at 31 March 2024.;

ii. the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses as at 31 March 2024;

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 2024;

iv.

a. The management has represented that, to the best of its knowledge and belief, as disclosed in note 43 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(s) or entity(ies), 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 44 to the standalone financial statements, no funds have been received by the Company from any person(s) or

entity(ies), 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 2024.

vi. As stated in note 50 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 1 April 2023, has used 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:

Particulars

Details of Exceptions noted

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. Instances of accounting software maintained by a third party where we are unable to comment on the audit trail feature

The audit trail feature was not enabled at the database level for accounting software FIMO to log any direct data changes, used for maintenance of all relevant accounting records by the Company. The accounting software (Adrenalin Max) used for maintenance of books of account of the Company is operated by third party software service provider. In the absence of the ‘Independent Service Auditor''s Assurance Report on the Description of Controls, their Design and Operating Effectiveness'' (‘Type 2 report'' issued in accordance with SAE 3402, Assurance Reports on Controls at a Service Organization), we are unable to comment whether the audit trail feature of the said software was enabled and operated throughout the year for all relevant transactions recorded in the software.

For Walker Chandiok & Co LLP

Chartered Accountants Firm''s Registration No.: 001076N/N500013

Manish Gujral

Partner

Place: Hyderabad Membership No.: 105117

Date: April 29, 2024 UDIN: 24105117BKDANK2787

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Mar 31, 2023

Spandana Sphoorty Financial Limited

Report on the Audit of the Standalone Financial

Statements

Opinion

1. We have audited the accompanying standalone financial statements of Spandana Sphoorty Financial Limited (‘the Company''), which comprise the Balance Sheet as at 31 March 2023, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Cash Flow and the Statement of Changes in Equity for the year then ended, and notes to the standalone financial statements, including a summary of the significant accounting policies 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 2023, 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 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.

Key Audit Matters

4. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements of the current period. 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.

5. We have determined the matters described below to be the key audit matters to be communicated in our report.
Key audit matter	How our audit addressed the key audit matter
(a) Impairment losses on loan portfolio
Refer note 3(e) for significant accounting policies, note 6 for impairment disclosures and note 40.1 for credit risk disclosures. The Company has gross loan assets of '' 76,958.11 million outstanding as at 31 March 2023, against which an impairment of '' 2,155.18 million has been recorded as at reporting date, which is measured in accordance with Ind AS 109, Financial Instruments, using ‘Expected Credit Loss'' (ECL) method. The Company has written off loans of '' 8,260.80 million during the year ended 31 March 2023. The ECL is measured at 12-month ECL for Stage 1 loan assets and at lifetime ECL for Stage 2 and Stage 3 loan assets in accordance with the accounting policy adopted by the Company.	Our audit procedures were focused on assessing the appropriateness of management''s judgment and estimates used in the impairment analysis that included, but were not limited to, the following: • Examined the Board Policy approving methodology for computation of ECL that addresses policies and procedures for assessing and measuring credit risk on the lending exposures of the Company in accordance with the requirements of Ind AS 109. • Obtained an understanding of the modelling techniques adopted by the Company including the key inputs and assumptions. Since modelling assumptions and parameters are based on historical data, we assessed whether historical experience was representative of current circumstances and was relevant in view of the recent impairment losses incurred within the portfolios.

Key audit matter	How our audit addressed the key audit matter
Significant management judgements are involved in measuring ECL with respect to: • determining the criteria for significant increase in credit risk and default risk i.e. staging of loans • factoring in forward-looking information (including macroeconomic factors on a portfolio level) • techniques used to determine probability of default, loss given default and exposure at default. These parameters are derived from the Company''s internally developed statistical models, historical data, macro-economic factors. Any change in such models or assumptions could have a material impact on the accompanying financial statements. Similarly, the Company is also required to make judgements to identify the loans and advances which are non-recoverable and thereby determined to be written off. Considering the significance of the above matter to the financial statements, degree of estimation uncertainty and significant management judgment involved, this area required significant auditor attention to test such complex accounting estimates, and accordingly, this matter has been identified as a key audit matter for the current year audit.	• Assessed and tested the design and operating effectiveness of the key controls over the completeness and accuracy of the key inputs 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. • Evaluated the appropriateness of the Company''s determination of significant increase in credit risk in accordance with the applicable accounting standard and the basis for classification of exposures into various stages. For a sample of exposures, we also tested the appropriateness of the Company''s categorization across various stages by evaluating management''s assessment of parameters such as probability of default (PD) or loss given default (LGD), including the adjustments made to such estimates on account of COVID-19 impact. • Evaluated the appropriateness of the methodology and policy laid down and implemented by the Company for the loan portfolio written-off during the year and tested its compliance on a sample basis. • 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.
(b) Information Technology Systems and Controls for the financial reporting process
The Company is highly dependent on its Information Technology ("IT") systems for carrying on its operations which require large volume of transactions to be processed in numerous locations on a daily basis. Among other things, management also uses the information produced by the IT systems for accounting, preparation and presentation of the financial statements. 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 controls implemented by the Company in its IT environment determine the integrity, accuracy, completeness and validity of data that is processed by the applications and is ultimately used for financial reporting. Since our audit strategy focused on audit of key IT systems and controls due to the pervasive impact of such systems and controls on the financial statements, we have determined the same as a key audit matter for current year audit.	Our key audit procedures with the involvement of our IT specialists included, but were not limited to the following: • Obtained an understanding of the Company''s IT related control environment and conducted risk assessment and identified IT applications, data bases and operating systems that are relevant to our audit. • Tested the design and operating effectiveness of the Company''s IT controls over the IT applications as identified above. • On such in-scope IT systems, we have tested key IT general controls with respect to the following domains: a) Program change management which includes controls on moving program changes to production environment as per defined procedures and relevant segregation of environments. b) User access management which includes user access provisioning, de-provisioning, access review, password management, sensitive access rights and segregation of duties; c) Other areas that were assessed under the IT control environment included user interfaces, configuration and other application controls.

Key audit matter

How our audit addressed the key audit matter

• Evaluated the design and tested the operating effectiveness of key automated controls within various business processes. This included testing of configuration and other application layer controls identified during our audit and report logic for system generated reports relevant to the audit mainly for loans, interest income and impairment of loan assets for evaluating completeness and accuracy. • Where deficiencies were identified, tested compensating controls or performed alternative procedures.

Information other than the 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 Director''s Report but does not include the standalone financial statements and our auditor''s report thereon.

Our opinion on the standalone financial statements does not cover the other information and we do 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 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. 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. We have nothing to report in this regard.

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 financial statements, the Board of Directors are responsible for assessing the Company''s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intend to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

9. Those Board of Directors are 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 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 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 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 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 financial statements, including the disclosures, and whether the 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 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 I 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 I, 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) 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 2023 from being appointed as a director in terms of section 164(2) of the Act;

f) With respect to the adequacy of the internal financial controls with reference to financial statements of the Company as on 31 March 2023 and the operating effectiveness of such controls, refer to our separate Report in Annexure II wherein we have expressed an unmodified opinion; and

g) 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 33(a) to the standalone financial statements, has disclosed the impact of pending litigations on its financial position as at 31 March 2023

ii. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses as at 31 March 2023;

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 2023;

v.

a. The management has represented that, to the best of its knowledge and belief as disclosed in note 43(a) 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(s) or entity(ies), 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 43(b) to the standalone financial statements, no funds have been received by the Company from any person(s) or entity(ies), 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 subclauses (a) and (b) above contain any material misstatement.

v. The Company has not declared or paid any dividend during the year ended 31 March 2023.

vi. Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 requires all companies which use accounting software for maintaining their books of account, to use such an accounting software which has a feature of audit trail, with effect from the financial year beginning on 1 April 2023 and accordingly, reporting under Rule 11(g) of Companies (Audit and Auditors) Rules, 2014 (as amended) is not applicable for the current financial year.

For Walker Chandiok & Co LLP

Chartered Accountants Firm''s Registration No.: 001076N/N500013

Manish Gujral

Partner

Place: Mumbai Membership No.: 105117

Date: 02 May 2023 UDIN: 23105117BGRNLX6617

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Mar 31, 2021

To the Members of Spandana Sphoorty Financial Limited

REPORT ON THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS

Opinion

We have audited the accompanying standalone financial statements of Spandana Sphoorty Financial Limited ("the Company"), which comprise the Balance sheet as at March 31, 2021, the Statement of Profit and Loss, including the statement of Other Comprehensive Income, the Cash Flow Statement and the Statement of Changes in Equity for the year then ended, and notes to the standalone financial statements, including a summary of significant accounting policies and other explanatory information.

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Companies Act, 2013, as amended ("the Act") in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2021, its profit including other comprehensive income, its cash flows and the changes in equity 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), as 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 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 audit opinion on the standalone financial statements.

Emphasis of matter

We draw attention to Note 7.4 to the standalone financial statements, which describes the economic and social disruption, continued to be caused by COVID-19 pandemic, of the Company’s business and financial metrics including the Company’s estimates of impairment of loans to customers, and that such estimates may be affected by the severity and duration of the pandemic. Our opinion is not modified in respect of this matter.

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 financial year ended March 31,2021. 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. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have determined the matters described below to be the key audit matters to be communicated in our report. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the standalone financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the standalone financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying standalone financial statements.

Key audit matters	How our audit addressed the key audit matter
(a) Impairment of financial assets at balance sheet date (expected credit losses)
(as described in notes 7 and 41.1 of the standalone financial statements)
Ind AS 109 requires the Company to provide for impairment	Our audit procedures included but were not limited to:
of its financial assets (designated at amortised cost and		Read and assessed the Company’s accounting policy for
	•
fair value through other comprehensive income) as at the reporting date using the expected credit loss (ECL) approach. ECL involves an estimation of probability-weighted loss on financial instruments over their life, considering reasonable		impairment of financial assets and its compliance with Ind AS 109 and the governance framework approved by the Board of Directors pursuant to Reserve Bank of India guidelines issued on March 13, 2020.
and supportable information about past events, current
conditions, and forecasts of future economic conditions	•	Tested the design and operating effectiveness of the
which could impact the credit quality of the Company’s		controls for staging of loans based on their past-due
financial assets (loan portfolio).		status. Tested samples of performing (stage 1) loans to assess whether any SICR or loss indicators were
In the process, a significant degree of judgement has been		present requiring them to be classified under higher
applied by the management for:		stages as per Ind AS 109. Tested the staging and ECL
• Staging of financial assets (i.e. classification in		considerations applied in respect of top-up loans given
''significant increase in credit risk’ ("SICR") and ''default’		against pre-closure of existing loans.
categories); • Grouping of the loan portfolio under homogenous pools in order to determine probability of default on a collective basis; • Determining effect of less frequent past events on future probability of default;	•	Tested the assumptions used by the Company for grouping and staging of loan portfolio into various categories and default buckets for determining the probability of default (PD) and loss given default (LGD) rates. Tested the input data used for determining the PD and LGD rates and agreed the data with the underlying books of accounts and records.
• Estimation of management overlay, if any, for macro-		Tested the assumptions used by the Company in
economic factors which could impact the credit quality of the loans.	•
		estimation of PD and LGD rates considered for the loan
		portfolio impacted by COVID-19.
Further, in view of the business disruption continued to be caused by COVID-19 pandemic, the Company has reassessed	•	Tested the arithmetical accuracy of computation of ECL
its ECL estimates post expiry of the loan moratoriums		provision performed by the Company in spreadsheets.
(offered pursuant to Reserve Bank of India’s ("RBI") COVID-19	•	Performed inquiries with the management as regards
Regulatory Package) to factor among other things the		applicability of RBI guidelines on restructuring in respect
elevated risk of higher delinquencies and deterioration in		of top-up loans given against existing loan pre-closures.
macro-economic factors. As part of such assessment,	•	Assessed disclosures included in the standalone
the management has also evaluated the staging and ECL		financial statements in respect of ECL, including
estimates for fresh (top-up) loans given to customers against		disclosures made with regards to uncertainties arising
pre-closure of their existing loans in various delinquency buckets.		from COVID-19 and its impact on ECL estimation.
Given the unique nature of the pandemic, the economic impact whereof depends on future developments, including governmental and regulatory measures and the Company’s responses thereto, the actual credit loss can be different than that being estimated.
In view of such high degree of management’s judgement involved in ECL estimation, accentuated by COVID-19 pandemic, it is considered as a key audit matter.

Key audit matters

How our audit addressed the key audit matter

(b) IT systems and controls The financial accounting and reporting systems of the Company are fundamentally reliant on IT systems and controls to process significant transaction volumes. Automated accounting procedures and IT environment controls, which include IT governance, general IT controls over program development and changes, access to programs and data and IT operations, are required to be designed and to operate effectively to ensure accurate financial reporting. Any gaps in the IT control environment could result in a material misstatement of the financial accounting and reporting records. In view of the pervasive nature and complexity of the IT environment, the assessment of the general IT controls and the application controls specific to the accounting and preparation of the financial information is considered to be a key audit matter.

We performed the following procedures for testing IT general controls and for assessing the reliability of electronic data processing, assisted by specialized IT auditors: The aspects covered in the IT General Control audit were (i) User Access Management (ii) Program Change Management (iii) Other related ITGCs - to understand the design and test the operating effectiveness of such controls; Assessed the changes that were made to the key systems during the year including changes that have impact on financial reporting; Tested the periodic review of access rights. We inspected requests of changes to systems for appropriate approval and authorization. Performed tests of controls (including other compensatory controls wherever applicable) on the IT application controls and IT dependent manual controls in the system. Tested the design and operating effectiveness of compensating controls, where deficiencies were identified and, where necessary, extended the scope of our substantive audit procedures.

Other Information

The Company’s Board of Directors is responsible for the other information. The other information comprises the Directors’ Report including the Annexures thereto (but does not include the standalone financial statements and our auditor’s report thereon), which we obtained prior to the date of this auditor’s report, and the Management Discussion and Analysis Report, which is expected to be made available to us after that date.

Our opinion on the standalone financial statements does not cover the other information and we do 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 and, in doing so, consider whether such other information is materially inconsistent with the standalone financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

When we read the Management Discussion and Analysis Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance and to comply with the relevant applicable requirements of the standard on auditing for auditor’s responsibility in relation to other information in documents containing audited financial statements.

Responsibilities of Management and Those Charged with Governance for 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 including other comprehensive income, cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) specified under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended. 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 the design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the standalone financial statements, management 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 management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are also responsible for overseeing the Company’s financial reporting process.

Auditor''s Responsibilities for the Audit of the Standalone Financial Statements

Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.

As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the Company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of 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.

• Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements for the financial year ended March 31, 2021 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

1. As required by the Companies (Auditor’s Report) Order, 2016 ("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 1" a statement on the matters specified in paragraphs 3 and 4 of the Order.

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;

(c) The Balance Sheet, the Statement of Profit and Loss including the Statement of Other Comprehensive Income, the Cash Flow Statement and Statement of Changes in Equity 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 Accounting Standards specified under Section 133 of the Act, read with Companies (Indian Accounting Standards) Rules, 2015, as amended;

(e) On the basis of the written representations received from the directors as on March 31, 2021 taken on record by the Board of Directors, none of the directors is disqualified as on March 31,2021 from being appointed as a director in terms of Section 164 (2) of the Act;

(f) With respect to the adequacy of the internal financial controls with reference to these standalone financial statements and the operating effectiveness of such controls, refer to our separate Report in "Annexure 2" to this report;

(g) In our opinion, the managerial remuneration for the year ended March 31,2021 has been paid / provided by the Company to its directors in accordance with the provisions of section 197 read with Schedule V to the Act;

(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 has disclosed the impact of pending litigations on its financial position in its standalone financial statements - Refer Note 50 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 26 to the standalone financial statements; and

iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.

For !. R. BATLIBOI & CO. LLP

Chartered Accountants ICAI Firm Registration Number: 301003E/E300005

per Viren H. Mehta

Partner

Membership Number: 048749 UDIN: 21048749AAAAIY3513

Mumbai May 22, 2021