2 Material accounting Policies
2.1 Basis of Preparation of financial statements
A) Statement of Compliance
These financial statements have been prepared in
accordance with the Indian Accounting Standards
('Ind AS') notified under Section 133 of the Companies
Act, 2013 ('the Act') read with Companies (Indian
Accounting Standards) Rules, 2015 as amended from
time to time and In addition, the guidance notes/
announcements issued by the Institute of Chartered
Accountants of India (ICAI) are also applied along
with compliance with other statutory promulgations
which require a different treatment. Any directions
issued by the RBI or other regulators are implemented
as and when they become applicable.
The Company has complied with the disclosures
as required by the Master Direction - Reserve
Bank of India (Non-Banking Financial Company -
Scale Based Regulation) Directions, 2023 issued
by the Reserve Bank of India (RBI) vide their
Notification No. RBI/DoR/2023-24/106 DoR.FIN.REC.
No.45/03.10.119/2023-24 dated October 19, 2023.
To provide more reliable and relevant information about
the effect of certain items in the Balance Sheet and
Statement of Profit and Loss, the Company has changed
the classification of certain items. Previous year figures
have been re-grouped or reclassified, to confirm to such
current year's grouping / classifications. There is no
impact on Equity or Net Loss due to these regrouping /
reclassifications.
The accounting policies are applied consistently to all the
periods presented in the financial statements.
A summary of the material accounting policy information
and other explanatory information is in accordance with
the Companies (Indian Accounting Standards) Rules, 2015
(as amended) as specified under Section 133 of the Act
including applicable Indian Accounting Standards (Ind AS)
and accounting principles generally accepted in India.
B) Functional and presentation currency
The Company's presentation and functional currency
is Indian Rupees. All figures appearing in the financial
statements are in Indian rupees in lakh rounded off to
two decimal places as permitted by Schedule III to the
Act. Per share data are presented in Indian Rupee to two
decimal places.
C) Basis of preparation, presentation and disclosure of
financial statements
The financial statements have been prepared on
the historical cost basis except for certain financial
instruments that are measured at fair values at the end
of each reporting period, as explained in the accounting
policies. Historical cost is generally based on the fair value
of the consideration given in exchange for goods and
services. Further, Assets and liabilities are classified as per
the normal operating cycle (determined at 12 months)
and other criteria set out in Schedule III of the Act as
applicable to NBFCs.
D) Fair value measurement
Fair value is the price that would be received on sale of an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date in
the principal or, in its absence, the most advantageous
market to which the Company has access at that date.
The best estimate of the fair value of a financial instrument
on initial recognition is normally the transaction price.
If the Company determines that the fair value on initial
recognition differs from the transaction price and the fair
value is evidenced neither by a quoted price in an active
market for an identical asset or liability nor based on a
valuation technique that uses only data from observable
markets, then the financial instrument is initially measured
at fair value, adjusted to defer the difference between the
fair value on initial recognition and the transaction price.
Subsequently that difference is recognized in Statement of
Profit and Loss on an appropriate basis over the life of the
instrument but not later than when the valuation is wholly
supported by observable market data or the transaction is
closed out.
All assets and liabilities for which fair value is measured
or disclosed in the financial statements are categorized
within the fair value hierarchy, described as follows, based
on the lowest level input that is significant to the fair value
measurement as a whole:
• Level 1 - Valuation using quoted market price in
active markets: The fair value for financial instruments
traded in active markets at the reporting date is based
on their quoted market price, without any deduction
for transaction costs. A market is regarded as active,
if transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing
information on an ongoing basis.
• Level 2 - Valuation using observable inputs: If there
is no quoted price in an active market, then the
Company uses valuation techniques that maximize
the use of relevant observable inputs and minimize
the use of unobservable inputs. The chosen valuation
technique incorporates most of the factors that
market participants would take into account in
pricing a transaction.
• Level 3 - Valuation with significant unobservable
inputs: The valuation techniques are used only when
fair value cannot be determined by using observable
inputs. The Company regularly reviews significant
unobservable inputs and valuation adjustments.
Level 3 assets are typically very illiquid, and fair values
can only be calculated using estimates.
The Company uses valuation techniques that are
appropriate in the circumstances and for which
sufficient data are available to measure fair value,
maximizing the use of relevant observable inputs
and minimizing the use of unobservable inputs.
E) Use of judgment and Estimates
The preparation of the financial statements requires
the management to make judgments, estimates and
assumptions in the application of accounting policies
that affects the reported amount of assets, liabilities and
the accompanying disclosures along with contingent
liabilities as at the date of financial statements and revenue
and expenses for the reporting period. Although these
estimates are based on the management's best knowledge
of current events and actions, uncertainty about these
assumptions and estimates could result in outcomes
different from the estimates. Difference between actual
results and estimates are recognized in the year in which
the results are known or materialized, i.e., prospectively.
Estimates and judgements are continually evaluated
and are based on historical experience and other factors,
including expectations of future events that are believed
to be reasonable under the circumstances. The key
areas involving estimation uncertainty, higher degree of
judgement or complexity, or areas where assumptions are
significant to the financial statements include:
i) Impairment of financial assets
ii) Estimation of fair value measurement of financial
assets and liabilities
iii) Effective interest rate
iv) Business model assessment
v) Provisions and Contingencies
vi) Useful life and expected residual value of assets
vii) Tax position for current tax and recognition of
deferred tax assets/liabilities
viii) Measurement of Defined Benefit Obligations and
actuarial assumptions
ix) Classification of lease and related discount rate
2.2 Financial Instruments
a) Recognition and initial measurement -
Financial assets and financial liabilities are recognized
when the company becomes a party to the contractual
provision of the instruments.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets
and financial liabilities (other than financial assets and
financial liabilities at Fair Value through profit and loss
(FVTPL)) are added to or deducted from the fair value of
the financial assets or financial liabilities, as appropriate, on
initial recognition. Transaction cost directly attributable to
the acquisition of financial assets or financial liabilities at
Fair Value through profit and loss (FVTPL) are recognized
immediately in Statement of Profit and Loss.
A financial asset and a financial liability are offset and
presented on net basis in the balance sheet when
there is a current legally enforceable right to set-off
the recognized amounts and it is intended to either
settle on net basis or to realize the asset and settle
the liability simultaneously.
b) Classification and Subsequent measurement of
financial assets -
On initial recognition, a financial asset is classified as
measured at
- Amortized cost
- Fair Value through other comprehensive income
(FVTOCI) - debt instruments
- Fair Value through other comprehensive income
(FVTOCI) - equity instruments
- Fair Value through profit and loss (FVTPL)
Amortized cost - The Company's business model is not
assessed on an instrument-by-instrument basis, but at a
higher level of aggregated portfolios being the level at
which they are managed. The financial asset is held with
the objective to hold financial asset in order to collect
contractual cash flows as per the contractual terms that
give rise on specified dates to cash flows that are solely
payment of principal and interest (SPPI) on the principal
amount outstanding. Accordingly, the Company measures
Bank balances, Loans, Trade receivables and other financial
instruments at amortized cost.
Fair Value through other comprehensive income -
debt instruments - The Company measures its debt
instruments at FVTOCI when the instrument is held within
a business model, the objective of which is achieved by
both collecting contractual cash flows and selling financial
assets; and the contractual terms of the financial asset
meet the SPPI test.
Fair Value through other comprehensive income
- equity instruments - The Company subsequently
measures all equity investments at fair value through profit
or loss, unless the Company's management has elected
to classify irrevocably some of its equity instruments at
FVTOCI, when such instruments meet the definition of
Equity under Ind AS 32 Financial Instruments and are not
held for trading.
Financial assets are not reclassified subsequent to their
initial recognition, except if and in the period the Company
changes its business model for managing financial assets.
All financial assets not classified as measured at amortized
cost or FVTOCI are measured at FVTPL. This includes all
derivative financial assets.
Subsequent measurement of financial assets
Financial assets at amortized cost are subsequently
measured at amortized cost using effective interest
method. The amortized cost is reduced by impairment
losses. Interest income, foreign exchange gains and losses
and impairment are recognized in Statement of Profit and
Loss. Any gain or loss on derecognition is recognized in
Statement of Profit and Loss.
Debt investment at FVTOCI is subsequently measured at
fair value. Interest income under effective interest method,
foreign exchange gains and losses and impairment are
recognized in Statement of profit and loss. Other net
gains and losses are recognized in OCI. On derecognition,
gains and losses accumulated in OCI are reclassified to
Statement of Profit and Loss.
For equity investments, the Company makes selection on
an instrument-by-instrument basis to designate equity
investments as measured at FVTOCI. These selected
investments are measured at fair value with gains and
losses arising from changes in fair value recognized in
other comprehensive income and accumulated in the
reserves. The cumulative gain or loss is not reclassified
to Statement of profit and loss on disposal of the
investments. These investments in equity are not held
for trading. Instead, they are held for strategic purpose.
Dividend income received on such equity investments are
recognized in Statement of Profit and Loss.
Equity investments that are not designated as measured
at FVTOCI are designated as measured at FVTPL and
subsequent changes in fair value are recognized in
Statement of Profit and Loss.
Financial assets at FVTPL are subsequently measured at
fair value. Net gains and losses, including any interest
or dividend income, are recognized in Statement of
Profit and Loss.
c) Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial
asset or part of a company of similar financial assets) is
primarily derecognized when:
• The rights to receive cash flows from the asset have
expired, or
• The company has transferred its rights to receive cash
flows from the asset or has assumed an obligation to
pay the received cash flows in full without material
delay to a third party under a 'pass-through'
arrangement, and
• Either (a) the Company has transferred substantially
all the risks and rewards of the asset, or (b) the
Company has neither transferred nor retained
substantially all the risks and rewards of the asset,
but has transferred control of the asset.
The transferred asset and the associated liability are
measured on a basis that reflects the rights and obligations
that the Company has retained.
d) Financial guarantee contracts
A financial guarantee contract is a contract that requires
the issuer to make specified payments to reimburse the
holder for a loss it incurs because a specified debtor fails
to make payments when due in accordance with the terms
of a debt instrument.
Financial guarantee contracts issued by the Company are
initially measured at their fair values and, if not designated
as at FVTPL, are subsequently measured at the higher of:
• the amount of loss allowance determined in
accordance with impairment requirements of Ind
AS 109; and
• the amount initially recognized less, when
appropriate, the cumulative amount of income
recognized in accordance with the principles of
Ind AS 115.
e) Offsetting
Financial assets and financial liabilities are offset and the
net amount presented in the Balance Sheet when, and only
when, the Company currently has a legally enforceable
right to set off the amounts and it intends either to settle
them on a net basis or to realize the asset and settle the
liability simultaneously.
f) Impairment of financial instruments
The Company uses 'Expected Credit Loss' (ECL) model,
for evaluating impairment of financial assets measured at
amortized cost or FVTOCI, except for investments in equity
instruments. Company follows a 'three-stage' model for
impairment based on changes in credit quality since initial
recognition.
Stage 1 (Performing Assets) - includes financial assets that
have not had a significant increase in credit risk since initial
recognition or that have low credit risk at the reporting date.
For these assets, 12-month ECL is recognized and interest
income is calculated on the gross carrying amount of the assets
(that is, without deduction for credit allowance). 12-month ECL
are the portion of ECL that results from default events on a
financial instrument that are possible within 12 months after the
reporting date, if the credit risk has not significantly increased
since initial recognition.
Stage 2 (Underperforming Assets with significant increase
in credit risk since initial recognition) - includes financial
instruments that have had a significant increase in credit risk
since initial recognition (unless they have low credit risk at the
reporting date) but that do not have objective evidence of
impairment. For these assets, lifetime ECL are recognized, but
interest income is calculated on the gross carrying amount of
the assets. Lifetime ECL are the expected credit losses that result
from all possible default events over the expected life of the
instrument.
Stage 3 (Non-performing or Credit-impaired assets) -
includes financial assets that have objective evidence of
impairment at the reporting date. For these assets, lifetime ECL
is recognized.
Measurement of Expected Credit Loss
Expected Credit Losses (ECL) on financial assets is an unbiased
probability weighted amount based out of possible outcomes
after considering risk of credit loss even if probability is low
and incorporate all available information which is relevant
to the assessment including information about past events,
current conditions and reasonable and supportable forecasts
of future events and economic conditions at the reporting date.
Measurement of expected credit losses are based on 3 main
parameters.
• Probability of default (PD): It is defined as the probability
of whether borrowers will default on their obligations in
future. Since the company don't have any history of past
losses therefore it was not adequate enough to create
our own internal model through which actual defaults for
each grade could be estimated. Hence, the default study
published by one of the recognized rating agency is used
for estimating the PDs for each range grade.
• Loss given default (LGD): It is the magnitude of the likely
loss, if there is a default. The LGD represents expected
losses on the EAD given the event of default, taking into
account, among other attributes, the mitigating effect of
collateral value.
• Exposure at default (EAD): EAD represents the
expected balance at default, taking into account the
repayment of principal and interest from the Balance
Sheet date to the date of default together with any
expected drawdowns of committed facilities.
g) Write offs - The gross carrying amount of a financial asset
is written-off (either partially or in full) to the extent that
there is no reasonable expectation of recovering the asset
in its entirety or a portion thereof. This is generally the
case when the Company determines that the borrower
does not have assets or sources of income that could
generate sufficient cash flows to repay the amounts
subject to the write-off and when there is no reasonable
expectation of recovery from the collaterals held.
However, financial assets that are written-off could still be
subject to enforcement activities in order to comply with
the Company's procedures for recovery of amounts due.
h) Presentation of allowance for ECL in the Balance Sheet -
Loss allowances for ECL are presented in the statement of
financial position as follows:
• For financial assets measured at amortized cost;
as a deduction from the gross carrying amount of
the assets;
• For debt instruments measured at FVTOCI; loss
allowance is recognized separately in Balance Sheet
and the carrying amount is at fair value.
i) Financial liabilities and equity instruments:
Debt and equity instruments issued by the Company
are classified as either financial liabilities or as equity
in accordance with the substance of the contractual
arrangements and the definitions of a financial liability
and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a
residual interest in the assets of an entity after deducting
all of its liabilities. Equity Instruments issued by the Group
are recognized at the proceeds received , net of direct
issues costs.
Financial liabilities
Financial liabilities are classified as measured at amortized
cost or FVTPL. A financial liability is classified as FVTPL
if it is classified as held-for-trading or it is a derivative
(that does not meet hedge accounting requirements)
or it is designated as such on initial recognition.
Other financial liabilities are subsequently measured
at amortized cost using the effective interest method.
Interest expense and foreign exchange gains and losses
are recognized in Statement of Profit or Loss. Any gain or
loss on derecognition is also recognized in Statement of
Profit or Loss.
The Company de-recognizes financial liabilities when, and
only when, the Company's obligations are discharged,
cancelled or have expired. An exchange between with
a lender of debt instruments with substantially different
terms is accounted for as an extinguishment of the original
financial liability and the recognition of a new financial
liability. Similarly, a substantial modification of the terms
of an existing financial liability (whether or not attributable
to the financial difficulty of the debtor) is accounted for
as an extinguishment of the original financial liability and
the recognition of a new financial liability. The difference
between the carrying amount of the financial liability
derecognized and the consideration paid and payable is
recognized in profit or loss.
j) Foreign currency risk
The company entered into foreign currency transactions
in the Foreign currency business. The currency risk arising
out of foreign currency transactions in the foreign currency
business is monitored by a central dealing room, which
then hedges the positions transactions entered into at
individual locations across the country, through deals
in the interbank market, or through forward contracts,
thereby ensuring that they are minimal open positions.
2.3 Cash and Cash equivalents
Cash and cash equivalents consist of cash in hand, bank
balances, foreign currencies and notes, demand deposits
with banks and other short-term deposits which are readily
convertible into known amounts of cash, are subject to
an insignificant risk of change in value and have original
maturities of less than or equal to three months.
Other bank balances include balances and deposits with
banks that are restricted for withdrawal and usage.
For the purpose of the statement of cash flows, cash and
cash equivalents consist of cash and short-term deposits.
2.4 Statement of Cash Flow
Statement of Cash Flows is prepared segregating the cash
flows into operating, investing and financing activities.
Cash flow from operating activities is reported using
indirect method adjusting the net profit for the effects of:
i. changes during the period in inventories and
operating receivables and payables transactions of
a non-cash nature;
ii. non-cash items such as depreciation, provisions,
deferred taxes, unrealized foreign currency gains
and losses, and undistributed profits of associates
and joint ventures; and
iii. all other items for which the cash effects are investing
or financing cash flows.
Cash and cash equivalents (including bank balances)
shown in the Statement of Cash Flows exclude items
which are not available for general use as on the date of
Balance Sheet.
2.5 Property, plant and equipment
a) Recognition and Measurement
Tangible property plant and equipment are stated at
cost less accumulated depreciation and impairment,
if any. The cost of property, plant and equipment
comprise purchase price and other non-refundable
taxes or levies and any directly attributable cost of
bringing the asset to its working condition for its
intended use.
Advances paid towards the acquisition of property,
plant and equipment outstanding at each Balance
Sheet date is classified as capital advances under
other non-financial assets and the cost of assets
not put to use before such date are disclosed under
'Capital work-in-progress'.
The residual values and useful lives and method of
depreciation of PPE are reviewed at each financial
year end and adjusted prospectively.
b) Subsequent expenditure
Subsequent expenditure is capitalized only if it
is probable that the future economic benefits
associated with the expenditure will flow to the
Company. Expenditure incurred after the PPE
have been put into operations, such as repairs and
maintenance expenses are charged to the Statement
of Profit and Loss during the period in which they
are incurred.
c) Depreciation, estimated useful lives and
residual value
Depreciation is calculated using the straight-line
method to write down the cost of property and
equipment to their residual values over their
estimated useful lives as prescribed in Part C of
Schedule II to the Companies Act 2013. The estimated
Depreciation is provided on a pro-rata basis i.e.
from the month in which asset is ready for use.
Individual assets costing less than or equals to INR
5,000 are depreciated in full, in the year of purchase.
Depreciation on assets sold during the year is
recognized on a pro-rata basis in the Statement of
Profit and Loss up to the date prior to the date by
which the assets have been disposed off.
Changes in the expected useful life are accounted for
by changing the depreciation period or methodology,
as appropriate, and treated as changes in accounting
estimates.
d) De-recognition
Property, plant and equipment are de-recognised
on disposal or when no future economic benefits
are expected from its use. Any gain or loss arising
on de-recognition of the asset is recognised in other
income/expense in the statement of profit and loss
(including other comprehensive income) in the year
the asset is de-recognised.
6 Intangible assets
Intangible assets are recognized when it is probable that
the future economic benefits that are attributable to the
asset will flow to the enterprise and the cost of the asset
can be measured reliably. Intangible assets are stated at
original cost net of tax/ duty credits availed, if any , less
accumulated amortization and cumulative impairment.
Direct expenses and administrative and other general
overhead expenses that are specifically attributable
to acquisition of intangible assets are allocated and
capitalized as a part of the cost of intangible assets.
The useful life of these intangible assets is estimated at 3
years with zero residual value.
Any expenses on such software for support and
maintenance payable annually are charged to the
Statement of Profit and Loss.
2.7 Impairment of non-financial assets
The carrying values of assets at each Balance Sheet date are
reviewed for impairment, if any indication of impairment
exists. If the carrying amount of the assets exceeds the
estimated recoverable amount, impairment is recognized
for such excess amount in Statement of Profit and Loss.
Recoverable amount is the greater of the net selling
price and value in use. If at the reporting date, there is an
indication that a previously assessed impairment loss no
longer exists, the recoverable amount is reassessed and
the impairment losses previously recognized are reversed
such that the asset is recognized at its recoverable amount
but not exceeding written down value which would have
been reported if the impairment losses had not been
recognized initially.
2.8 Investment in subsidiaries
Subsidiaries are entities over which the company has
control. The Company controls an entity when the
company is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability
to affect those returns through its power to direct the
relevant activities of the entity.
Investment in subsidiaries are measured at cost less
accumulated impairment, if any.
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