Dewan Housing Finance Corporation Ltd Auditors Report.

To The Members of

Dewan Housing Finance Corporation Limited

Report on the Audit of Consolidated Ind AS Financial Statements

DISCLAIMER OF OPINION

We were engaged to audit the accompanying Consolidated Ind AS financial statements of Dewan Housing Finance Corporation Limited ("the Parent" or "the Company") and its subsidiaries (the Parent and its subsidiaries together referred to as "the Group") which includes the Groups share of profit / loss in its associates and joint ventures, which comprise the Consolidated Balance Sheet as at March 31, 2019, and the Consolidated Statement of Profit and Loss (including Other Comprehensive Income), the Consolidated Statement of Cash Flows and the Consolidated Statement of Changes in Equity for the year then ended, and a summary of significant accounting policies and other explanatory information.

We do not express an opinion on the accompanying Consolidated Ind AS financial statements of the Group. Because of the significance of the matter described in the Basis for Disclaimer of Opinion section of our report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these Consolidated Ind AS financial statements.

BASIS FOR DISCLAIMER OF OPINION

1. We refer to note 51 of the Consolidated Ind AS financial statements with regards to the Unsecured Inter-corporate Deposits (ICD) outstanding as at March 31, 2019 aggregating 5,65,269 lakh. As stated in the note, there are significant deficiencies in the grant and rollover of ICD, inter-alia, non-availability of evaluation of credit worthiness of the borrowers, commercial rationale forming basis of granting of the ICD. The note also states that the Company is working towards remediating these deficiencies and that no adjustment is required to the carrying value thereof. We have not been provided sufficient appropriate audit evidence to support the managements assessment and hence are unable to evaluate on the recoverability of the ICD and the consequential effect on Consolidated Ind AS financial statements. Also refer our comments in paragraph 1.a of ‘Report on Other Legal and Regulatory Requirements section below.

2. We refer to note 50 of the Consolidated Ind AS financial statements that states the allegations of fraud that were made by the newsportal Cobrapost.com (the Allegations), inter alia, alleging diversion of funds. As stated in the note, the Audit Committee appointed an independent firm of Chartered Accountants to investigate the Allegations and report to them. We provided to the Audit Committee our suggestions on the scope and coverage as well as additional areas that needed to be covered to ensure comprehensiveness of the coverage of the investigation and our observations on the findings by Independent firm of Chartered Accountants in the report. These have not been taken into consideration in the final report of the independent firm of Chartered Accountants. As stated in the note, the Management is in the process of determining the actions to address our comments and has stated that adjustments, if any, to the carrying values of the loans advanced will be made upon conclusion of these actions. The report of the independent firm of Chartered Accountants has not been adopted or approved by the Audit Committee. Further, we understand that various regulatory authorities / lenders are currently carrying out their own investigation and they may make a determination on whether any fraud or any other non-compliance/ illegalities have occurred in relation to the Allegations.

We are therefore unable to determine if these allegations would have an impact on these Consolidated Ind AS financial statements including whether any adjustments to the carrying value of loans granted, any restatement of prior years financial statements, related parties and other disclosures and compliances are required. Also refer our comments in paragraph 1.a of ‘Report on Other Legal and Regulatory Requirements section below.

3. In respect of certain loans and Pass-through Certificates (PTC) aggregating 32,45,240 lakh and 25,700 lakh, respectively, granted or invested by the Company during the year and in earlier years and outstanding as at March 31, 2019: a. As stated in note 53 of the Consolidated Ind AS financial statements, multiple accounting entries were initially recorded in certain customer accounts for receipts despite the cheques or negotiable instrument not been deposited in the bank(s) and these have been subsequently reversed. The gross value of such loans aggregate 16,48,717 lakh (includes certain loans aggregating 13,11,283 lakh which are also included in paragraph 3.b). Also refer our comments in paragraph 1.b of ‘Report on Other Legal and Regulatory Requirements section below. b. We have not been provided sufficient information and explanations to our enquiries in relation to credit, legal and technical evaluation and evidence for end use monitoring as stated in the loan agreement and specified by the Finance Committee, wherever applicable, in respect of project loans and mortgage loans aggregating 24,07,772 lakh (Includes loans aggregating 13,11,283 lakh also included in paragraph 3.b). Also refer our comments in paragraph 1.a of ‘Report on Other Legal and Regulatory Requirements section below. c. As stated in note 55, the management has elected to measure loans aggregating 31,62,815 lakh (includes certain loans aggregating 26,62,781 lakh which are also included in paragraph 3.a and 3.b) and Pass-through

Certificates (PTC) aggregating 25,700 lakh at Fair Value Through Profit or Loss (FVTPL) based on internal valuations which involve managements judgement and assumptions. We have not been provided sufficient appropriate audit evidence and all of the necessary information and explanations in respect of the fair values changes of 3,25,345 lakh (gross of reversal of provision) and 6,800 lakh so recognized in the Statement of Profit and Loss on these loans and PTC, respectively.

In view of the foregoing, we have been unable to obtain sufficient appropriate audit evidence to support the values of the loans and PTC and we are unable to determine if these matters would have an impact on these Consolidated Ind AS Financial Statements including whether any adjustments to the carrying value of the loans and PTC, restatement of prior years financial statements, related parties and other disclosures and compliances are required.

4. We refer to note 57 of the Consolidated Ind AS Financial Statements regarding the observations made by National Housing Bank (NHB) in its inspection for the year ended March 31, 2018 as per the provisions of the National Housing Bank Act, 1987. Pending management evaluation and response to the observations of the NHB, we are unable to determine if these observations would have an impact on these Consolidated Ind AS Financial Statements including whether any adjustments to the carrying value of the loans granted, any restatement of prior years financial statements, related parties and other disclosures and compliances are required.

5. We refer to note 56 of the financial statements. As stated in the note, during the course of the audit, deficiencies have been identified in the historical data used for the purpose of calculating provisioning based on the Expected credit loss (ECL) model in respect of loans carried at amortized cost. We are unable to comment on the assumptions made in the ECL model and consequently to determine if this matter would have an impact on these Consolidated Ind AS Financial Statements including the adequacy of the ECL provision.

6. As stated in note 58, the Company has recognized net deferred tax asset of 44,281 lakh as at March 31, 2019. The Company is required to perform an assessment as required by Ind AS 12 – ‘Income Taxes which requires the Company to determine the probability of future taxable income to utilize the deferred tax asset. However, we have not been provided sufficient appropriate evidence to validate the Companys assessment about the carrying value of the deferred tax asset and consequential adjustments required, if any, to these Consolidated Ind AS financial statements.

7. As stated in note 59, the Company has incurred expenditure aggregating 10,401 lakh for development of customised software for its operations and recording of transactions which has been carried as intangible asset under development as at March 31, 2019. The Company has not performed an impairment assessment as required by Ind AS 36 – ‘Impairment of Assets which requires the Company to determine whether the economic benefit in respect of this intangible asset shall be available to the

Company in subsequent periods taking into consideration the uncertainty in respect of its plan to monetize its assets, secure funding from the bankers / investors, restructure its liabilities and recommence its operations. In view of foregoing, we have not been provided sufficient appropriate evidence about the carrying value of the intangible asset under development and adjustments required, if any, to these Consolidated Ind AS financial statements.

8. In view of the possible effects of the matters described in paragraphs 1 to 7 above, we are unable to comment on the Companys compliance of the covenants in respect of all borrowings and consequential implications including disclosures, if any, to these Consolidated Ind AS financial statements.

9. Also refer our comments under ‘Material uncertainty related to Going Concern below.

MATERIAL UNCERTAINTY RELATED TO GOING CONCERN

We refer to note 54 of the Consolidated Ind AS financial statements, the Company has incurred loss aggregating 1,03,605 lakh during the year and has net current liabilities of 75,475 lakh as at March 31, 2019. Further, the Companys credit rating has been reduced to ‘default grade subsequent to the year-end which may substantially impair its ability to raise or generate funds to repay its obligations. The matters described in the Basis for Disclaimer of Opinion section above and para 1 of Report on Other Legal and Regulatory Requirements section below may also have an impact on the Companys ability to continue as a going concern. All these developments raise a significant doubt on the ability of the Company to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities including potential liabilities in the normal course of business. The Company is in the process of monetizing its assets and has submitted a draft resolution plan to the consortium of bankers for restructuring its borrowings and also there have been discussions for stake sale by the promoters to a strategic partner with further equity infusion. The ability of the Company to continue as a going concern inter alia is dependent upon its ability to monetize its assets, secure funding from the bankers or investors, restructure its liabilities and recommence its operations, which are not wholly within control of the Company.

The Management has prepared these Consolidated Ind AS financial statements using going concern basis of accounting based on their assessment of the successful outcome of above referred actions and accordingly no adjustments have been made to the carrying value of the assets and liabilities and their presentation and classification in the Balance Sheet.

RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED IND AS FINANCIAL STATEMENTS

The Parents Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these Consolidated Ind AS Financial Statements that give a true and fair view of the consolidated financial position, consolidated financial performance including other comprehensive income, consolidated cash flows and consolidated changes in equity

the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and joint ventures, and our report in terms of subsection (3) of Section 143 of the Act, in so far as it relates to the aforesaid subsidiaries and joint ventures is based solely on the reports of the other auditors.

REPORTING ON COMPARATIVES IN CASE OF FIRST IND AS FINANCIAL STATEMENTS

The comparative financial information of the Group for the year ended March 31 2018 and the transition date opening balance sheet as at April 1, 2017 included in these Consolidated Ind AS financial statements, are based on the statutory financial statements prepared in accordance with the Companies (Accounting Standards) Rules, 2006 audited by one of the joint auditors whose report for the year ended March 31, 2018 and March 31, 2017 dated April 30, 2018 and May 3, 2017 respectively expressed an unmodified opinion on those Consolidated financial statements, and have been restated to comply with Ind AS. We were engaged to jointly audit the adjustments made to the previously issued said financial information prepared in accordance with the Companies (Accounting Standards) Rules, 2006 to comply with Ind AS. In view of the matters reported in paragraphs 2, 3, 4 and 5 of the ‘Basis for Disclaimer of Opinion section above, we are unable to comment whether any further Ind AS adjustments are required to the balances in respect of the years ended March 31, 2018 and 2017.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

1. As required by Section 143(1), we report that:

a. We are unable to comment whether the loans referred in paragraph 3.b in the Basis for Disclaimer of Opinion section above have been properly secured and hence these loans may have been granted in a manner that is prejudicial to the interest of the Company or its members, for the reasons stated therein. Further, in respect to loans referred to in paragraphs 1, 2 and 3.b in the Basis for Disclaimer of Opinion section above, we are unable to comment whether the terms on which these have been made are prejudicial to the interest of the Company or its members, for the reasons stated therein.

b. We refer to the matter described in paragraph 3.a in the Basis for Disclaimer of Opinion section above, regarding multiple accounting entries which were initially recorded in certain customer accounts for receipts despite the cheques or negotiable instruments not been deposited in the bank(s) and subsequently reversed, which initial recording are represented merely by book entries and in our opinion may be prejudicial to the interest of the Company.

2. As required by Section 143(3) of the Act, based on our audit and on the consideration of the reports of the other auditors on the separate financial statements of the subsidiaries and joint ventures referred to in the Other Matters section above, we report, to the extent applicable, that:

a) As described in the Basis for Disclaimer of Opinion section above, we have sought but were unable to obtain all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

b) Due to the possible effects of the matter described in the Basis for Disclaimer of Opinion section above, we are unable to state whether 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 and the reports of the other auditors.

c) The Consolidated Balance Sheet, the Consolidated Statement of Profit and Loss including Other Comprehensive Income, the Consolidated Cash Flow Statement and Consolidated Statement of Changes in Shareholders Equity dealt with by this Report are in agreement with the relevant books of account for the purpose of preparation of the consolidated financial statements.

d) Due to the possible effects of the matter described in the Basis for Disclaimer of Opinion section above, we are unable to state whether, the aforesaid Consolidated Ind AS financial statements comply with the Indian Accounting Standards prescribed under section 133 of the Act.

e) The matter described in the Basis for Disclaimer of Opinion section above and in the Material uncertainty related to Going Concern section above, in our opinion, may have an adverse effect on the functioning of the Group.

f) On the basis of the written representations received from the directors of the Parent, taken on record by the Board of Directors of the Company, and the reports of the statutory auditors of its subsidiary companies, associate companies and joint venture companies incorporated in India, none of the directors of the Group companies, its associate companies and joint venture companies incorporated in India is disqualified as on March 31, 2019 from being appointed as a director in terms of Section 164 (2) of the Act.

g) The reservation relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Disclaimer of Opinion section above.

h) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure A" which is based on the auditors reports of the Parent, subsidiary companies, associate companies and joint venture companies incorporated in India. Our report expresses adverse opinion on the Groups internal financial controls over financial reporting for the reasons stated therein.

i) With respect to the other matters to be included in the Auditors Report in accordance with the requirements of section 197(16) of the Act, as amended, the remuneration paid by the Parent to its directors during the year is in accordance with the provisions of section 197 of the Act.

j) Other than the possible effects of the matter described in the Basis for Disclaimer of Opinion paragraph above, with respect to the other matters to be included in the Auditors 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 Group has disclosed the impact of pending litigations on its financial position in its Consolidated Ind AS financial statements;

ii. The Group 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;

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Parent and its subsidiary companies, associate companies and joint venture companies incorporated in India except that there has been a delay ranging from 1 to 16 days in transferring unclaimed public deposits aggregating 7 lakh.

For CHATURVEDI & SHAH LLP
Chartered Accountants
(Firms Registration No. 101720W/W-100355)
Jignesh Mehta
Partner
Membership No. 102749
UDIN - 19102749AAABPU2017
For DELOITTE HASKINS & SELLS LLP
Chartered Accountants
(Firms Registration No. 117366W/W- 100018)
Abhijit A. Damle
Partner
Membership No. 102912
UDIN - 19102912AAAABS8038
Mumbai, dated: July 22, 2019