2. Summary of Material Accounting Policies:
a) Statement of compliance:
These financial statements have been prepared
in accordance with Indian Accounting Standards
("Ind AS") prescribed under section 133 of the
Companies Act, 2013 ("the Act") read with Rule 3 of
the Companies (Indian Accounting Standards) Rules,
2015 as amended from time to time and the guidelines
issued by the National Housing Bank ("NHB") and
Reserve Bank of India (RBI) to the extent applicable.
The Balance Sheet, the Statement of Profit and Loss
and the Statement of Changes in Equity are prepared
and presented in the format prescribed in the Division
III of Schedule III to the Act. The Statement of Cash
Flows has been prepared and presented as per the
requirements of Ind AS 7 "Statement of Cash Flows".
The Balance Sheet, the Statement of Profit and Loss,
the Statement of Cash Flows and the Statement of
Changes in Equity are together referred to as 'Financial
Statements'.
b) Basis of measurement:
The financial statements have been prepared on a
historical cost convention and on an accrual basis,
except for the following material items that have been
measured at fair value as required by relevant Ind AS:
i. Certain financial assets and liabilities measured
at fair value (refer accounting policy on financial
instruments);
ii. Defined benefit and other long-term employee
benefits measured at present value of defined
benefit obligation less fair value of plan
assets.
c) Use of estimates and judgement
The preparation of financial statements in conformity
with Ind AS requires management to make judgements,
estimates and assumptions, that affect the application
of accounting policies and the reported amounts of
assets, liabilities, and disclosure of Contingent liabilities
at the end of the reporting period and the reported
amount of revenues and expenses for the years. Actual
results may differ from these estimates.
Estimates and underlying assumptions are reviewed
at each balance sheet date. Revisions to accounting
estimates are recognised in the period in which the
estimate is revised and future periods affected.
The application of accounting policies that require
critical accounting estimates involving complex and
subjective judgements and the use of assumptions in
these financial statements are as below:
1. Business model assessment
2. Fair value of financial instruments
3. Impairment of financial asset
4. Provisions and other contingent liabilities
5. Provision for tax expenses
d) Financial instruments:
Initial recognition and measurement:
Financial instruments are recognised initially at fair
value. Transaction costs that are directly attributable to
the acquisition of the financial asset are recognised in
determining the carrying amount, if it is not classified
as at fair value through profit or loss.
Financial assets, other than loans and advances to
customers are recognised on trade date i.e. the date
that the Company becomes a party to the contractual
provisions of the instrument. Loans and advances to
customers are recognized as and when disbursements
are made to the customers. Loans, borrowings and
payables are recognised after netting of directly
attributable transaction costs. Subsequently, financial
instruments are measured according to the category in
which they are classified.
Subsequent measurement:
For the purpose of subsequent measurement,
financial instruments of the Company are classified
in the following categories: non- derivative financial
assets comprising amortised cost, debt instruments
at fair value through other comprehensive income
(FVTOCI), equity instruments at FVTOCI or fair value
through profit and loss (FVTPL), non-derivative financial
liabilities at amortised cost or FVTPL and derivative
financial instruments (under the category of financial
assets or financial liabilities) at FVTPL.
The classification of financial instruments depends
on the objective of the business model for which it is
held. Management determines the classification of its
financial instruments at initial recognition.
a) Non-derivative financial assets
(i) Financial assets at amortised cost
A financial asset shall be measured at
amortised cost if both of the following
conditions are met:
(a) the financial asset is held within a
business model whose objective is to
hold financial assets in order to collect
contractual cash flows and
(b) the contractual terms of the financial
asset give rise on specified dates to
cash flows that are solely payments
of principal and interest (SPPI) on the
principal amount outstanding.
They are presented as current assets, except
for those maturing later than 12 months
after the reporting date which are presented
as non-current assets. Financial assets
are measured initially at fair value plus
transaction costs and subsequently carried
at amortized cost using the effective interest
rate method, less any impairment loss.
Financial assets at amortised cost are
represented by trade receivables, certain
investments, security deposits, cash and cash
equivalents, employee and other advances
and eligible current and non-current assets.
Cash and cash equivalents are highly liquid
instruments that are readily convertible into
cash and which are subject to an insignificant
risk of changes in value and comprise cash
on hand and in banks and demand deposits
with banks which can be withdrawn at any
time without prior notice or penalty on the
principal.
(ii) Debt instruments at FVTOCI
A debt instrument shall be measured at
fair value through other comprehensive
income if both of the following conditions are
met:
(a) the objective of the business model is
achieved by both collecting contractual
cash flows and selling financial assets
and
(b) the asset's contractual cash flow
represents SPPI
Debt instruments included within FVTOCI
category are measured initially as well as
at each reporting period at fair value plus
transaction costs. Fair value movements
are recognised in other comprehensive
income (OCI). However, the Company
recognises interest income, impairment
losses & reversals and foreign exchange
gain/(loss) in statement of profit and loss.
On de-recognition of the asset, cumulative
gain or loss previously recognised in OCI is
reclassified from equity to profit and loss.
Interest earned is recognised under the
effective interest rate (EIR) model.
(iii) Debt Instruments at FVTPL
A financial asset shall be measured at fair
value through profit or loss unless it is
measured at amortised cost or at fair value
through other comprehensive income.
b) Non-derivative financial liabilities
(i) Financial liabilities at amortised cost
Financial liabilities at amortised cost
represented by borrowings, trade and
other payables are initially recognized at
fair value, and subsequently carried at
amortized cost using the effective interest
rate method.
) Statement of Cash Flows:
For the purposes of the cash flow statement, cash
and cash equivalents include cash on hand, in banks
and demand deposits with banks, net of outstanding
bank overdrafts that are repayable on demand, book
overdraft and are considered part of the Company's
cash management system.
Cash flows are reported using the indirect method
whereby profit or loss is adjusted for the effects of the
transactions of a non-cash nature, any deferrals or
accruals of past or future operating cash receipts or
payments and items of income or expense associated
with investing or financing cash flows.
f) Property, plant and equipment
i) Recognition and measurement: Property,
plant and equ ipment are measured at cost
less accumulated depreciation and impairment
losses, if any. Costs include directly attributable
expenditure incurred up to the date the asset is
ready for its intended use.
Amounts paid towards the acquisition of property,
plant and equipment outstanding as of each
reporting date and the cost of property, plant
and equipment not ready for intended use before
such date are disclosed under capital advances
and capital work- in-progress respectively.
Depreciation is not recorded on capital work-in¬
progress until installation is complete and the
asset is ready for its intended use.
Subsequent expenditure relating to property,
plant and equipment is capitalized only when
it is probable that future economic benefits
associated with these will flow to the Company
and the cost of the item can be measured reliably.
Repairs and maintenance costs are recognized in
the statement of profit and loss when incurred.
The cost and related accumulated depreciation
are eliminated from the financial statements upon
sale or disposition of the asset and the resultant
gains or losses are recognized in the statement of
profit and loss.
ii) Depreciation:
Depreciation on tangible assets is provided on the
Written Down Value method over the estimated
useful life of the assets as prescribed in Schedule
II of the Companies Act, 2013, except in case of
servers, where the useful life is estimated to be
3 years considering its nature, estimated usage,
operating conditions, anticipated technological
changes, manufacturers warranties and
maintenance support.
Depreciation methods, useful life and residual
values are reviewed atleast at each year end.
Changes in expected useful life are treated as
change in accounting estimate.
When parts of an item of property, plant
and equipment have different useful life,
they are accounted for as separate items
(major components) of property, plant and
equipment.
g) Intangible assets:
Intangible assets are stated at cost less accumulated
amortization and impairments. Intangible assets are
amortized over their respective individual estimated
useful lives on a straight-line basis, from the date that
they are available for use. The estimated useful life of
an identifiable intangible asset is based on a number of
factors including the effects of obsolescence, demand,
competition and other economic factors.
The estimated useful lives of intangible assets for the
current and comparative period are as follows:
h) Lease
The Company recognises assets and liabilities for all
leases with a term of more than 12 months, unless
the underlying asset is of low value. The Company is
required to recognise a right-of-use asset representing
its right to use the underlying leased asset and a lease
liability representing its obligation to make lease
payments.
The Company measures right-of-use assets similarly
to other non-financial assets (such as property, plant
and equipment) and lease liabilities similarly to other
financial liabilities. As a consequence, the Company
recognises depreciation on the right-of-use asset and
interest on the lease liability. The depreciation would
usually be on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. The measurement
includes non-cancellable lease payments (including
inflation-linked payments), and also includes payments
to be made in optional periods if the Company is
reasonably certain to exercise an option to extend the
lease, or not to exercise an option to terminate the
lease.
i) Impairment
i) Financial assets
Ind AS 109 establishes a credit risk impairment
model based on expected losses. This model will
apply to loans and debt instruments measured
at amortised cost or at fair value through
shareholders' equity (on a separate line), to
loan commitments and financial guarantees
not recognised at fair value, as well as to lease
receivables. The impairment model under
Ind AS 109 requires accounting for 12-month
expected credit losses (that result from the risk
of default in the next 12 months) on the financial
instruments issued or acquired, as of the date of
initial recognition on the balance sheet. Expected
credit losses at maturity (that result from the risk
of default over the life of the financial instrument)
will be recognised if the credit risk has increased
significantly since initial recognition (Stage 2) or
have become credit impaired (Stage 3). Stage
wise classification will be made in accordance
with the guidelines issued by National Housing
Bank / Reserve Bank of India and accordance with
applicable laws and Indian Accounting Standards.
Under the standard, there is also a rebuttable
presumption that the credit risk on a financial
asset has increased significantly since initial
recognition when contractual payments are more
than 30 days past due. Based on past experience,
the company has developed the ECL model based
on this presumption and uses 30 days past due
as the trigger for confirming a significant increase
in credit risk. The structure of the ECL model
developed by the company is :
The Company assesses periodically and at each
balance sheet date whether there is objective
evidence that a financial asset or group of financial
assets is impaired. Impairment allowances
represent management's best estimate of the
losses incurred within the loan portfolios at the
balance sheet date. They are calculated on a
collective basis for portfolios of loans of a similar
nature and on an individual basis for significant
loans. The calculation of both collective and specific
impairment allowances is inherently judgmental.
Collective impairment allowances are calculated
using models which approximate the impact of
current economic and credit conditions on large
portfolios of loans. The inputs to these models
are based on historical loss experience with
judgement applied to determine the assumptions
(for example the value of collateral) used to
calculate impairment. The amount of provision
for loan losses is calculated by multiplying the
exposure at default (EAD), Probability of Default
(PD) and Loss Given Default (LGD).
EAD: The exposure at default (EAD) represents
the gross carrying amount of the financial assets
subject to the impairment calculation.
PD: is the probability of whether borrowers will
default on their obligations which are calculated
based on historical default rate summary of past
years.
LGD: The loans are secured by adequate property.
The present value of such collateral property is
considered while calculating the Expected Credit
Loss. The Company initiates recovery process of
Non Performing accounts within the statutory
time limit as prescribed under SARFAESI Act,
2002 and other applicable laws and accordingly
the realizable period has been considered for
computing the Realisable Present Value of
Collateral.
Stage 1: 12-months ECL The Company assesses
ECL on exposures where there has not been
a significant increase in credit risk since initial
recognition and that were not credit impaired
upon origination. For these exposures, the
Company recognises as a collective provision the
portion of the lifetime ECL associated with the
probability of default events occurring within the
next 12 months.
Stage 2: Lifetime ECL - not credit impaired: The
Company collectively assesses ECL on exposures
where there has been a significant increase
in credit risk since initial recognition but are
not credit impaired. For these exposures, the
Company recognises as a collective provision, a
lifetime ECL (i.e. reflecting the remaining lifetime
of the financial asset).
Stage 3: Lifetime ECL - credit impaired: The
Company identifies, both collectively and
individually, ECL on those exposures that are
assessed as credit impaired based on whether one
or more events, that have a detrimental impact
on the estimated future cash flows of that asset
have occurred. For exposures that have become
credit impaired, a lifetime ECL is recognised as
a collective or specific provision. The company
assumes that the loan is defaulted if the days past
due exceeds 90 days.
The measurement of impairment losses (ECL)
across all categories of financial assets requires
judgement, in particular, the estimation of the
amount and timing of future cash flows based on
Company's historical experience and collateral
values when determining impairment losses along
with the assessment of a significant increase in
credit risk. These estimates are driven by a number
of factors, changes in which can result in different
levels of allowances. Elements of the ECL models
that are considered accounting judgements and
estimates include:
• Bifurcation of the financial assets into
different portfolios when ECL is assessed on
collective basis.
• Company's criteria for assessing if there has
been a significant increase in credit risk.
• Development of ECL models, including choice
of inputs / assumptions used.
ii) Non-financial assets
The Company assesses at each Balance sheet
date whether there is any objective evidence that
a non-financial asset or a group of non-financial
assets maybe impaired. If any such indication
exists, the Company estimates the amount of
impairment loss.
An impairment loss is calculated as the difference
between an asset's carrying amount and
recoverable amount. Losses are recognised in
the statement of profit and loss and reflected
in an allowance account. When the Company
considers that there are no realistic prospects
of recovery of the asset, the relevant amounts
are written off. If the amount of impairment loss
subsequently decreases and the decrease can be
related objectively to an event occurring after the
impairment was recognised, then the previously
recognised impairment loss is reversed through
the statement of profit and loss.
j) Employee Benefits:
The Company participates in various employee benefit
plans. Post-employment benefits are classified as either
defined contribution plans or defined benefit plans.
Under a defined contribution plan, the Company's only
obligation is to pay a fixed amount with no obligation
to pay further contributions if the fund does not
hold sufficient assets to pay all employee benefits.
The related actuarial and investment risks fall on the
employee. The expenditure for defined contribution
plans is recognized as expense during the period when
the employee provides service. Under a defined benefit
plan, it is the Company's obligation to provide agreed
benefits to the employees. The related actuarial and
investment risks fall on the Company. The present
value of the defined benefit obligations is calculated
using the projected unit credit method.
The Company has the following employee defined
contribution plans:
i) Employee State Insurance
The Company's contribution to state plans namely
Employee's State Insurance Scheme is a defined
contribution plan and contribution paid or payable
is recognised as an expense in the period in which
the employee renders services.
ii) Employee Pension Scheme
The Company's contribution to state plans
namely Employee's Pension Scheme is a defined
contribution plan and contribution paid or payable
is recognised as an expense in the period in which
the employee renders services.
iii) Employee Provident Fund
Liability in respect of contribution to Employee
Provident fund is estimated on the basis of
valuation in a manner similar to gratuity liability
and is recognised in the balance sheet net of the
fair value of the plan assets.
iv) Gratuity
The Company has an obligation towards gratuity,
a defined benefit retirement plan covering eligible
employees. The plan provides for a lump-sum
payment to employees at retirement, death while
in employment or on termination of employment
of an amount equivalent to 15 days of last drawn
salary for every completed year of service.
Vesting occurs upon completion of five years of
service. The Company make annual contributions
to gratuity funds established as trusts and accounts
for the liability for Gratuity benefits payable in the
future based on actuarial valuation.
Actuarial gains or losses are recognized in other
comprehensive income. Further, the statement
of profit and loss does not include an expected
return on plan assets. Instead net interest
recognized in statement of profit and loss is
calculated by applying the discount rate used to
measure the defined benefit obligation to the net
defined benefit liability or asset. The actual return
on the plan assets above or below the discount
rate is recognized as part of re-measurement
of net defined liability or asset through other
comprehensive income.
Re-measurements comprising actuarial gains
or losses and return on plan assets (excluding
amounts included in net interest on the net defined
benefit liability) are not reclassified to statement
of profit and loss in subsequent periods.
v) Compensated absences:
The employees of the Company are entitled
to compensated absences. The employees
can carry forward a portion of the unutilised
accumulating compensated absences and utilise
it in future periods or receive cash at retirement
or termination of employment. The Company
records an obligation for compensated absences
in the period in which the employee renders
the services that increases this entitlement.
The Company measures the expected cost of
compensated absences as the additional amount
that the Company expects to pay as a result of
the unused entitlement that has accumulated at
the end of the reporting period. The Company
recognizes accumulated compensated absences
based on actuarial valuation. Non-accumulating
compensated absences are recognized in the
period in which the absences occur. The Company
recognizes actuarial gains and losses immediately
in the statement of profit and loss.
vi) Leave Travel Concessions:
All confirmed employees are entitled to leave
travel concession once in two years, the liability in
this respect is recognised in the year the related
service is rendered at the undiscounted amount
of the benefit expected to be paid in exchange for
that service.
k) Revenue recognition:
Revenue is measured at fair value of consideration
received or receivable. Revenues are recognised when
collectability of the resulting receivables is reasonably
assured.
i) Interest
Interest income and expense are recognised in
the statement of profit or loss using the effective
interest (EIR) method. The effective interest
method is a method of calculating the amortised
cost of a financial asset or a financial liability and
of allocating the interest income or interest
expense over the relevant period. The effective
interest rate is the rate that exactly discounts
estimated future cash payments or receipts
through the expected life of the financial
instrument or, when appropriate, a shorter period
to the net carrying amount of the financial asset
or financial liability. When calculating the effective
interest rate, the Company estimates cash flows
considering all contractual terms of the financial
instrument but does not consider future credit
losses.
For credit impaired assets overdue interest
is treated to accrue on realization, due to
uncertainty of realization and is accounted for
accordingly.
Fees that are integral part of EIR are recognised as
interest income.
ii) Fees and Commission
Fees and commission income include fees other
than those that are an integral part of EIR. The
company recognises such fee and commission
income in accordance with terms of the relevant
contracts / agreements with the customers.
iii) Insurance Commission
Commission on sale of insurance policies are
recognised on an accrual basis in accordance with
the agreed rates with the Insurer.
iv) Income from Investments
Interest Income on Investments in Government
securities is recognized as it accrues in the
statement of profit and loss, using the effective
interest method and interest on other investments
is recognised on accrual basis.
v) Dividend Income
Dividend income is recognized in the statement
of profit and loss on the date that the Company's
right to receive payment is established.
vi) Other income
Other Income represents income earned from
the activities incidental to the business of the
Company and is recognised when the right to
receive the income is established as per the terms
of the contracts.
l) Finance Expense:
Finance expenses consist of interest expense on loans
and borrowings. Borrowing costs are recognized in the
statement of profit and loss using the effective interest
method.
m) Foreign Currency:
i) Functional and presentation currency
Items included in the financial statements of the
Company are measured using the currency of
the primary economic environment in which the
Company operates (i.e. the "functional currency").
The financial statements are presented in Indian
Rupee, the national currency of India, which is the
functional currency of the Company.
ii) Transactions and Translations
Transactions in foreign currencies are recorded
at the exchange rate prevailing on the date of
transaction. Foreign currency denominated
monetary assets and liabilities are re-measured
into the functional currency at the exchange rate
prevailing on the balance sheet date. Exchange
differences arising on settlement of transactions
are recognised in the statement of profit and
loss.
Foreign currency gains and losses are reported
on a net basis. This includes changes in the fair
value of foreign exchange derivative instruments,
which are accounted at fair value through profit or
loss.
n) Income Tax
Income tax expense comprises current and deferred
taxes. Income tax expense is recognized in the
statement of profit and loss except to the extent it
relates to items directly recognized in equity or in other
comprehensive income in which case is also recognised
outside the statement of profit and loss.
a) Current income tax
Current income tax for the current and prior
periods are measured at the amount expected
to be recovered from or paid to the taxation
authorities based on the taxable income for the
period. The tax rates and tax laws used to compute
the current tax amount are those that are enacted
or substantively enacted by the reporting date and
applicable for the period. The Company offsets
current tax assets and current tax liabilities, where
it has a legally enforceable right to set off the
recognized amounts and where it intends either
to settle on a net basis or to realize the asset and
liability simultaneously.
b) Deferred taxes
Deferred tax is recognized using the balance
sheet approach. Deferred tax assets and liabilities
are recognised for the future tax consequences
of temporary differences between the carrying
values of assets and liabilities and their respective
tax bases, and unutilised business loss and
depreciation carry forwards and tax credits.
Deferred tax asset is recognized to the extent that
it is probable that future taxable income will be
available against which the deductible temporary
differences, unused tax losses, depreciation
carry-forwards and unused tax credits could be
utilized.
The carrying amount of deferred tax assets is
reviewed at each reporting date and reduced
to the extent that it is no longer probable that
sufficient taxable profit will be available to allow
all or part of the deferred income tax asset to be
utilized.
Deferred tax assets and liabilities are measured
at the tax rates that are expected to apply in the
period when the asset is realized or the liability
is settled, based on tax rates (and tax laws) that
have been enacted or substantively enacted at the
reporting date.
o) Earnings per Share (EPS):
Basic earnings per share is computed by dividing net
profit after tax by the weighted average number of
equity shares outstanding during the period.
Diluted EPS is computed by dividing the net profit after
tax by the weighted average number of equity shares
considered for deriving basic EPS and also weighted
average number of equity shares that could have
been issued upon conversion of all dilutive potential
equity shares.
p) Borrowing Costs:
Borrowing costs include interest, commission/
brokerage on deposits and exchange differences arising
from foreign currency borrowings to the extent they
are regarded as adjustment to interest cost. Interest
expenses are accrued on a timely basis, by reference
to the principal outstanding and at the effective
interest rate (EIR) applicable. The effective interest
method is a method of calculating the amortised cost
of a financial liability and allocating interest expenses
over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash
payments (including all fees paid that form an integral
part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected
life of the debt instrument, or, where appropriate, a
shorter period, to the net carrying amount on initial
recognition.
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