Arohan Annual Report FY 20-21

COVID-19 During the current year, RBI announced various relief measures for the borrowers which were implemented by the Company such as “COVID 19 Regulatory Package- Asset Classification and Provisioning” announced by the RBI on 17 April 2020 and RBI circular on “Asset Classification and Income Recognition following the expiry of Covid-19 regulatory package” dated 07 April 2021 (collectively referred to as ‘the RBI circulars’), and “Resolution Framework for COVID-19 related Stress” (the ‘Resolution Framework’) dated on 6 August 2020, which have been collectively considered by the management in identification, classification and provisioning of loan assets for impairment. Considering the significance of the above matter to the overall financial statements, additional complexities involved in the current year on account of ongoing impact of COVID-19 and extent of management’s estimates and judgements involved, it required significant auditor attention. Accordingly, we have identified this as a key audit matter for current year audit. We also draw attention to Note 61 of the accompanying financial statements, regarding uncertainties involved and on the appropriateness of impairment losses provided on the above mentioned loan assets as on 31 March 2021, as the same is fundamental to the understanding of the users of financial statements. • Evaluated theappropriatenessof theCompany’s determination of significant increase in credit risk in accordance with the applicable accounting standard considering the impact of COVID-19 on account of moratorium and restructuring benefit extended by the Company and the basis for classification of various exposures into various stages. For a sample of exposures, we also tested the appropriateness of the Company’s categorization across various stages. Further, assessed the critical assumptions and input data used in the estimation of expected credit loss models for specific key credit risk parameters, such as the transfer logic between stages, probability of default (PD) or loss given default (LGD); • Ensured that the Company’s approved policy in relation to moratorium and restructuring is in accordance with the RBI requirements. On a test check basis, ensured that the restructuring was approved and implemented in accordance with such policy, and the provisions created on such restructured loan assets were in accordance with the Company’s policy; • Performed an assessment of the adequacy of the credit losses expected within 12 months by reference to credit losses actually incurred on similar portfolios historically; • Obtained written representations from management and those charged with governance on whether they believe significant assumptions used in calculation of expected credit losses are reasonable; Assessed the appropriateness and adequacy of the related presentation and disclosures of Note 40 “Financial risk management” disclosed in the accompanying financial statements in accordance with the applicable accounting standards and related RBI circulars and Resolution Framework. Arohan Financial Services Limited Independent Auditors’ Report of even date to the members of Arohan Financial Services Limited on the financial statements for the year ended 31 March 2021 (cont’d) Key audit matter How our audit addressed the key audit matter Annual Report | 2020-2021 122