3. Material Accounting Policies
a Property, plant and equipment
Recognition and measurement
Property, plant and equipment ('PPE') are stated at acquisition or construction cost less accumulated depreciation and impairment loss. Cost
comprises the purchase price and any attributable cost of bringing the asset to its location and working condition for its intended use, including
relevant borrowing costs.
If significant parts of an item of PPE have different useful lives, then they are accounted for as separate items (major components) of PPE.
The cost of an item of PPE is recognised as an asset if, and only if, it is probable that the economic benefits associated with the item will flow to
the Company in future periods and the cost of the item can be measured reliably.
Expenditure incurred after the PPE have been put into operations, such as repair and maintenance expenses are charged to the Statement of
Profit and Loss during the period in which they are incurred.
Capital work in progress includes cost of assets at sites, construction expenditure and interest on the funds deployed less any impairment loss, if
any.
The estimated useful lives and residual values of the PPE are reviewed at the end of each financial year.
PPE, individually costing less than Rupees five thousand, are fully depreciated in the year of purchase.
Gains or losses arising from the retirement or disposal of PPE are determined as the difference between the net disposal proceeds and the
carrying amount of the asset and recognised as income or expense in the Statement of Profit and Loss.
Subsequent Measurement
Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the
Company.
Depreciation
Depreciation on property, plant and equipment is provided on Straight Line Method using the rates arrived at based on the useful lives as
specified in the Schedule II of the Companies Act, 2013. Depreciation on the Property Plant and Equipment added/disposed off/discarded
during the year is provided from/upto the date when added/disposed off/discarded.
b Other Intangible Assets
Recognition and measurement
Intangible assets, representing softwares are initially recognised at cost and subsequently carried at cost less accumulated amortisation and
accumulated impairment. The cost of assets comprises of purchase price and directly attributable cost of bringing the assets to working condition
for its intended use.
Subsequent Measurement
Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the
company.
Amortisation
The intangible assets are amortised using the straight line method over a period of three years [which is the management’s estimate of its useful
life] from the date when the asset is available for use or license period which ever is lower. Amortisation on the intangible asset disposed off
during the year is provided on pro-rata basis with reference to the date of disposal. The useful lives of intangible assets are reviewed at each
financial year end and adjusted prospectively, if appropriate.
c Impairment of non-financial assets
At the end of each reporting period, the Company reviews the carrying amounts of non-financial assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset,
the Company estimates the recoverable amount of the cash generating unit to which the asset belongs.
d Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefit will flow to the Company and the revenue can be reliably
measured.
Interest and allied Income
Interest income on a financial asset at amortised cost is recognised on a time proportion basis taking into account the amount outstanding and
the effective interest rate (‘EIR’). The EIR is the rate that exactly discounts estimated future cash flows of the financial asset through the
expected life of the financial asset or, where appropriate, a shorter period, to the net carrying amount of the financial instrument. The internal
rate of return on financial asset after netting off the fees received and cost incurred approximates the effective interest rate of return for the
financial asset. The future cash flows are estimated taking into account all the contractual terms of the instrument.
The interest income is calculated by applying the EIR to the gross carrying amount of non-credit impaired financial assets (i.e. at the amortised
cost of the financial asset before adjusting for any expected credit loss allowance). For credit-impaired financial assets the interest income is
calculated by applying the EIR to the amortised cost of the credit-impaired financial assets (i.e. the gross carrying amount less the allowance for
ECLs).
Late payment charges, prepayment charges etc. are recognised on a point-in-time basis, and are recorded when realised since the probability of
collecting is uncertain and these receipts are reported under "Fees and commission income".
Net Gain/ Loss on Fair Value Changes
Any differences between the fair values of the investment in debt oriented mutual funds classified as fair value through the profit or loss, held by
the Company on the balance sheet date is recognised as an unrealised gain/loss in the statement of profit and loss. In cases there is a net gain in
aggregate, the same is recognised in “Net gains or fair value changes” under revenue from operations and if there is a net loss the same is
disclosed “Expenses”, in the statement of profit and loss.
Assignor’s Yield on Direct Assignments
Gains arising out of direct assignment transactions comprise the difference between the interest on the loan portfolio and the applicable rate at
which the direct assignment is entered into with the assignee, also known as the right of excess interest spread (EIS). The future EIS basis the
scheduled cash flows on execution of the transaction, discounted at the applicable rate entered into with the assignee is recorded upfront in the
statement of profit and loss. EIS evaluated and adjusted for ECL and expected prepayment.
Business Correspondent Operations
Income from business correspondent services is recognized as and when the services are rendered as per agreed terms and conditions of the
contract.
e Financial Instruments
A Financial Instrument is any contract that gives rise to a financial asset of an entity and a financial liability or equity instrument of another entity.
(i) Initial recognition and measurement
All financial assets and financial liabilities are initially recognised when the Company becomes a party to the contractual provisions of the
instrument.
A financial asset or financial liability which is not recognised at Fair Value Through Profit and Loss, is initially measured at fair value plus
transaction costs that are directly attributable to its acquisition or issue.
(ii) Subsequent recognition
(A) Financial Assets
On initial recognition, a financial asset is classified and measured at
- Amortised Cost;
- Fair Value Through Other Comprehensive Income (FVOCI); or
- Fair Value Through Profit and Loss (FVTPL)
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.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not recognised as at FVTPL:
- the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in
the investment’s fair value in Other Comprehensive Income (OCI) (designated as FVOCI - equity investment). This election is made on an
investment-by-investment basis.
All financial assets not classified and measured at amortised cost or FVOCI as described above are measured at FVTPL. On initial recognition,
the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI or
at FVTPL, if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Assessment whether contractual cash flows are solely payments of principal and interest (SPPI)
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as
consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of
time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the Company considers the contractual terms of the
instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual
cash flows such that it would not meet this condition. In making this assessment, the Company considers:
- contingent events that would change the amount or timing of cash flows;
- terms that may adjust the contractual coupon rate, including variable interest rate features;
- prepayment and extension features; and
- terms that limit the Company’s claim to cash flows from specified assets.
Business model assessment
The Company determines its business model at the level that best reflects how it manages groups of financial assets to achieve its business
objective. The Company’s business model is not assessed on an instrument by instrument basis, but at a higher level of aggregated portfolios. If
cash flows after initial recognition are realised in a way that is different from the Company’s original expectations, the Company does not change
the classification of the remaining financial assets held in that business model, but incorporates such information when assessing newly originated
financial assets going forward.
(B) Financial liabilities: Classification, subsequent measurement and gains and losses
Financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains
and losses are recognised in the Statement of Profit and Loss. Any gain or loss on derecognition is also recognised as profit or loss respectively.
(iii) Derecognition
Financial Assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights
to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are
transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain
control of the financial asset.
If the Company enters into transactions whereby it transfers assets recognised on its balance sheet, but retains either all or substantially all of the
risks and rewards of the transferred assets, the transferred assets are not derecognised.
Financial Liabilities
The Company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
(iv) Impairment of Financial Assets
The Company assesses at each date of Balance Sheet whether a Financial asset or a group of Financial assets is impaired. Ind AS - 109 requires
expected credit losses to be measured through a loss allowance.
The Expected Credit Loss (ECL) is measured at 12-month ECL for Stage 1 loan assets and at lifetime ECL for Stage 2 and Stage 3 loan assets.
ECL is the product of the Probability of Default, Exposure at Default and Loss Given Default, defined as follows:
Probability of Default (PD): The PD represents the likelihood of a borrower defaulting on its financial obligation, either over the next 12
months (12 months PD), or over the remaining lifetime (Lifetime PD) of the obligation.
Loss Given Default (LGD): LGD represents the Company’s expectation of the extent of loss on a defaulted exposure. LGD varies by type of
counterparty, type and preference of claim and availability of collateral or other credit support.
Exposure at Default (ED): EAD is based on the amounts the Company expects to be owed at the time of default.
Forward-looking economic information (including management overlay) is included in determining the 12-month and lifetime PD, EAD and
LGD. The assumptions underlying the expected credit loss are monitored and reviewed on an ongoing basis.
(v) Offsetting Financial instruments
Financial assets and liabilities are offset and the net amount is reported in the balance sheet where there is a legally enforceable right to offset the
recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally
enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default,
insolvency or bankruptcy of the group or the counterparty.
f Borrowing costs
Borrowing cost attributable to acquisition and construction of qualifying assets are capitalised as a part of the cost of such assets up to the date
when such assets are ready for its intended use. Ancillary costs incurred in connection with the arrangement of borrowings are adjusted with the
proceeds of the borrowings and recognised using the Effective Interest Rate (EIR) method. Other borrowing costs are charged to the Statement
of Profit and Loss in the period in which they are incurred.
g Employee benefits
(i) Short term employee benefits
Short-term employee benefits are expensed in the year in which the related services are provided. A liability is recognised for the amount
expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the
employee and the obligation can be estimated reliably.
(ii) Define Contribution Plan
Employee benefits in the form of Provident Fund are defined as contribution plan and charged as expenses during the period in which the
employees perform the services.
(iii) Define Benefit Plan
For defined benefit retirement, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations
being carried out at the end of each annual reporting period. The present value of the defined benefit obligation is determined by discounting the
estimated future cash outflows using market yields available on government bonds.
The effect of the remeasurement changes (comprising actuarial gains and losses) to the asset ceiling (if applicable) and the return on plan assets
(excluding interest), is reflected in the balance sheet with a charge or credit recognised in other comprehensive income in the period in which
they occur. Remeasurement recognised in other comprehensive income is reflected immediately in other equity and will not be reclassified to the
Statement of Profit & Loss. Past service cost is recognised in the Statement of Profit & Loss in the period of a plan amendment. Net interest is
calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are
categorised as follows:
• service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements);
• net interest expense or income; and
• remeasurement
The Company presents the first two components of defined benefit costs in the Statement of Profit & Loss in the line item employee benefits
expense.
The retirement benefit obligation recognised in the balance sheet represents the actual deficit or surplus in the Company’s defined benefit plans.
Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the
plans or reductions in future contributions to the plans.
(iv) Other employee benefits
The Company has other employment benefit plans i.e. accumulated leave. As per Company's policy, unutilised leaves lapse at each year end.
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