Material Accounting Policies
(i) Foreign Currency Transactions
Foreign currency transactions are recorded on initial
recognition in reporting currency, using the exchange
rate at the date of transaction. At each Balance sheet
date, foreign currency monetary items are reported using
the closing rate.
The exchange differences arising on settlement of
monetary items are recognised as income or expenses in
the year in which they arise.
(ii) Financial Instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or
equity instrument of another entity.
A financial assets or a liability is recognised when the
Company becomes a Party to the contractual provision
of the instrument.
(A) Financial assets
Financial assets include cash, or an equity instrument of
another entity, or a contractual right to receive cash or
another financial asset from another entity. Few
examples of financial assets are loan receivables,
investment in equity instruments, trade receivables and
cash and cash equivalents etc.
Initial Measurement
All financial assets are recognised initially at fair value
including transaction costs that are attributable to the
acquisition of financial assets except in the case of
financial assets recorded at FVTPL where the
transaction costs are charged to profit or loss. However,
trade receivables that do not contain a significant
financing component are measured at transaction price.
Subsequent measurement
(i) Classification and Measurement of Financial assets
(other than Equity instruments)
For the purpose of subsequent measurement, financial
assets (other than equity instruments) are classified into
three categories:
(a) Financial Assets at amortised cost
(b) Financial Assets at FVOCI
(c) Financial Assets at FVTPL
(a) Financial Assets at amortised cost
The Company measures its financial assets at amortised
cost if both the following conditions are met:
• The asset is held within a business model of collecting
contractual cash flows; and
• Contractual terms of the asset give rise on specified
dates to cash flows that are Sole Payments of Principal
and Interest (SPPI) on the principal amount outstanding.
To make the SPPI assessment, the Company applies
judgment and considers relevant factors such as the
nature of portfolio and the period for which the interest
rate is set.
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.
The business model of the Company for assets
subsequently measured at amortised cost category is to
hold and collect contractual cash flows. However,
considering the economic viability of carrying the
delinquent portfolios in the books of the Company, it may
sell these portfolios to banks and/or asset
reconstruction companies.
After initial measurement, such financial assets are
subsequently measured at amortised cost on effective
interest rate (EIR).
(b) Financial Assets at FVOCI
The Company subsequently classifies its financial
assets as FVOCI, only if both of the following criteria are
met:
• The objective of the business model is achieved both by
collecting contractual cash flows and selling the
financial assets; and
• Contractual terms of the asset give rise on specified
dates to cash flows that are Solely Payments of Principal
and Interest (SPPI) on the principal amount outstanding.
Financial Assets included within the FVOCI category are
measured at each reporting date at fair value with such
changes being recognised in other comprehensive
income (OCI). The interest income on these assets is
recognised in profit or loss.
On de-recognition of the asset, cumulative gain or loss
previously recognised in OCI is reclassified to profit or
loss.
(c) Financial Assets at FVTPL
The Company classifies financial assets which are held
for trading under FVTPL category. Held for trading
assets are recorded and measured in the Balance Sheet
at fair value. Interest and dividend incomes are recorded
in interest income and dividend income, respectively
according to the terms of the contract, or when the right
to receive the same has been established. Gain and
losses on changes in fair value of financial assets are
recognised on net basis through profit or loss.
(ii) Classification and Measurement of Equity instruments
All equity investments other than in subsidiaries are
measured at fair value. Equity instruments which are
held for trading are classified as at FVTPL. For all other
equity instruments, the Company at initial recognition
makes an irrevocable election to classify it as either
FVTOCI or FVTPL. The Company makes such election on
an instrument by instrument basis. An equity investment
classified as FVTOCI is initially measured at fair value
plus transaction costs. Subsequently, it is measured at
fair value and, all fair value changes are recognised in
Other Comprehensive Income (OCI) and accumulated in
Reserve. There is no recycling of the amounts from OCI
to Statement of Profit and Loss, even on sale of
investment. However, the Company transfers the same
within equity.
(iii) De-recognition of Financial Assets
The Company derecognises a financial asset (or, where
applicable, a part of a financial asset) when:
• The right to receive cash flows from the asset have
expired; or
• The Company has transferred its right 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 an assignment arrangement and the
Company has transferred substantially all the risks and
rewards of the asset. Once the asset is derecognised, the
Company does not have any continuing involvement in
the same.
The Company transfers its financial assets through the
partial assignment route and accordingly derecognises
the transferred portion as it neither has any continuing
involvement in the same nor does it retain any control. If
the Company retains the right to service the financial
asset for a fee, it recognises either a servicing asset or a
servicing liability for that servicing contract. A service
liability in respect of a service is recognised at fair value
if the fee to be received is not expected to compensate
the Company adequately for performing the service. If
the fees to be received is expected to be more than
adequate compensation for the servicing, a service
asset is recognised for
the servicing right at an amount determined on the basis
of an allocation of the carrying amount of the larger
financial asset.
On de-recognition of a financial asset in its entirety, the
difference between:
• the carrying amount (measured at the date of de¬
recognition) and
• the consideration received (including any new asset
obtained less any new liability assumed) is recognised in
profit or loss.
(iv) Impairment of financial assets
Expected Credit Loss (ECL) are recognised for financial
assets held under amortised cost, measured at FVOCI, and
certain loan commitments.
Financial assets where no significant increase in credit risk
has been observed are considered to be in ‘stage 1' and for
which a 12-month ECL is recognised. Financial assets that
are considered to have significant increase in credit risk are
considered to be in ‘stage 2' and those which are in default or
for which there is an objective evidence of impairment are
considered to be in ‘stage 3'. Lifetime ECL is recognised for
stage 2 and stage 3 financial assets.
At initial recognition, allowance (or provision in the case of
loan commitments) is required for ECL towards default
events that are possible in the next 12 months, or less, where
the remaining life is less than 12 months.
In the event of a significant increase in credit risk, allowance
(or provision) is required for ECL towards all possible default
events over the expected life of the financial instrument
(‘lifetime ECL').
Financial assets (and the related impairment loss
allowances) are written off in full, when there is no realistic
prospect of recovery.
Treatment of the different stages of financial assets and the
methodology of determination of ECL
(a) Credit impaired (stage 3)
The Company recognises a financial asset to be credit
impaired and in stage 3 by considering relevant objective
evidence, primarily whether:
• Contractual payments of either principal or interest are past
due for more than 180 days;
• The loan is otherwise considered to be in default.
Restructured loans, where repayment terms are renegotiated
as compared to the original contracted terms due to
significant credit distress of the borrower, are classified as
credit impaired. Such loans continue to be in stage 3 until they
exhibit regular payment of renegotiated principal and interest
over a minimum observation period, typically 12 months -
post renegotiation, and there are no other indicators of
impairment. Having satisfied the conditions of timely
payment over the observation period these loans could be
transferred to stage 1 or 2 and a fresh assessment of the risk
of default be done for such loans.
Interest income is recognised by applying the EIR to the net
amortised cost amount i.e. gross carrying amount less ECL
allowance.
(b) Significant increase in credit risk (stage 2)
An assessment of whether credit risk has increased
significantly since initial recognition is performed at each
reporting period by considering the change in the risk of
default of the loan exposure. However, unless identified
at an earlier stage, 90 days past due is considered as an
indication of financial assets to have suffered a
significant increase in credit risk.
The measurement of risk of defaults under stage 2 is
computed on homogenous portfolios, generally by nature
of loans, tenors, underlying collateral, geographies and
borrower profiles. The default risk is assessed using PD
(probability of default) derived from past behavioural
trends of default across the identified homogenous
portfolios. These past trends factor in the past customer
behavioural trends, credit transition probabilities and
macroeconomic conditions. The assessed PDs are then
aligned considering future economic conditions that are
determined to have a bearing on ECL.
(c) Without significant increase in credit risk since initial
recognition (stage 1)
ECL resulting from default events that are possible in the
next 12 months are recognised for financial instruments
in stage 1. The Company has ascertained default
possibilities on past behavioural trends witnessed for
e a c h h o m o g e n o u s p o r t f o l i o u s i n g
application/behavioural score cards and other
performance indicators, determined statistically.
(d) Measurement of ECL
The assessment of credit risk and estimation of ECL are
unbiased and probability weighted. It incorporates all
information that is relevant including information about
past events, current conditions and reasonable forecasts
of future events and economic conditions at the reporting
date. In addition, the estimation of ECL takes into account
the time value of money. Forward looking economic
scenarios determined with reference to external
forecasts of economic parameters that have
demonstrated a linkage to the performance of our
portfolios over a period of time have been applied to
determine impact of macro-economic factors.
The Company has calculated ECL using three main
components: a probability of default (PD), a loss given
default (LGD) and the exposure at default (EAD). ECL is
calculated by multiplying the PD, LGD and EAD and
adjusted for time value of money using a rate which is a
reasonable approximation of EIR.
• Determination of PD is covered above for each stage of
ECL.
• 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.
• LGD represents expected losses on the EAD given the
event of default, taking into account, among other
attributes, the mitigating effect of collateral value at the
time it is expected to be realised and the time value of
money.
(B) Financial liabilities
Financial liabilities include liabilities that represent a
contractual obligation to deliver cash or another financial
assets to another entity, or a contract that may or will be
settled in the entities own equity instruments. Few examples
of financial liabilities are trade payables, borrowings etc.
Initial measurement
All financial liabilities are recognised initially at fair value and,
in the case of borrowings and payables, net of directly
attributable transaction costs. The Company's financial
liabilities include trade payables, borrowings and other
payables.
Subsequent measurement
After initial recognition, all financial liabilities are
subsequently measured at amortised cost using the EIR. Any
gains or losses arising on derecognition of liabilities are
recognised in the Statement of Profit and Loss.
Derecognition
The Company derecognises a financial liability when the
obligation under the liability is discharged, cancelled or
expired.
(C) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net
amount is reported in the Balance Sheet only if there is an
enforceable legal right to offset the recognised amounts with
an intention to settle on a net basis or to realise the assets
and settle the liabilities simultaneously.
(iii) Property, Plant and Equipment
(A) Recognition and measurement
(a) The cost of property, plant and equipment comprises its
purchase price net of any trade discounts and rebates, any
import duties and other taxes (other than those subsequently
recoverable from the tax authorities), any directly attributable
expenditure on making the asset ready for its intended use,
including relevant borrowing costs for qualifying assets and
any expected costs of decommissioning. Expenditure
incurred after the property, plant and equipment have been
put into operation, such as repairs and maintenance, are
charged to Statement of Profit and Loss in the period in which
the costs are incurred..
(b) An item of property, plant and equipment is derecognised
upon disposal. Any gain or loss arising on the disposals
determined as the difference between the sale proceeds and
the carrying amount of the asset and is recognised in
Statement of Profit and Loss.
(c) Assets in the course of construction are capitalised in the
assets under capital work in progress account (CWIP). At the
point when an asset is operating at management's intended
use, the cost of construction is transferred to the appropriate
category of property, plant and equipment and depreciation
commences.
(d) Property, plant and equipment except freehold land held for
use in the supply or administrative purposes, are stated in the
balance sheet at cost less accumulated depreciation and
accumulated impairment losses, if any. Freehold land is
stated at historical cost.
(B) Depreciation/ Amortisation
The Assets' residual values, useful lives and method of
depreciation are reviewed at each financial year end and
adjusted prospectively, if appropriate. Depreciation on Plant,
Property and equipment (other than freehold land) has been
provided using straight line method over the useful life of
assets. Useful life is the period over which an asset is
expected to be used by an enterprise. The estimated total
useful life of the assets are as follows-
(iv) Investment properties
Property that is held for long-term rental yields or for capital
appreciation or both, and that is not occupied by the group, is
classified as investment property. Investment property is
measured initially at its cost, including related transaction costs
and where applicable borrowing costs. Subsequent expenditure is
capitalised to the asset's carrying amount only when it is probable
that future economic benefits associated with the expenditure will
flow to the group and the cost of the item can be measured reliably.
All other repairs and maintenance costs are expensed when
incurred. Freehold land is stated at historical cost and Leasehold
land is stated at historical cost less amortisation. Leasehold land
is amortised over the period of lease as per lease agreement.
Though the Company measures investment property using cost
based measurement, the fair value of investment property is
disclosed in the notes. Fair values are determined based on annual
evaluation performed by an external independent valuer/Internal
assessment.
Depreciation on investment property, is provided on a pro-rata
basis on straight line method, over the useful life of the property
estimated by the management, in the manner prescribed in
Schedule of the Companies Act, 2013. The property's residual
values, useful lives and method of depreciation are reviewed at the
end of each reporting period and necessary adjustments are made
accordingly, wherever required.
Investment property is derecognized when either it has been
disposed off or when the investment property is permanently
withdrawn from use and no future economic benefit is expected
from its disposal. Any gain or loss arising on de-recognition of the
investment property is included in the Statement of Profit and
Loss.
(v) Intangible Assets
Identifiable intangible assets are recognised a) when the Company
controls the asset, b) it is probable that future economic benefits
attributed to the asset will flow to the Company and c) the cost of
the asset can be reliably measured.
Computer softwares are capitalised at the amounts paid to acquire
the respective license for use which comprises purchase
price, installation cost borrowing cost if capitalization criteria
are met and directly attributable cost of bringing the asset to
its working condition for the intended use less any discount
and rebates and these intangible assets are amortised over
the period of license, generally not exceeding six years on
straight line basis. The assets useful lives are reviewed at
each financial year end. Software is amortised over an
estimated useful life of 3 years.
(vi) Investment in Subsdiaries and Associates
Investments in equity instruments of subsidiaries and equity
instruments / units of associates are carried at cost, less
accumulated impairment losses, if any. Where an indication
of impairment exists, the carrying amount of the investment is
assessed and written down immediately to its recoverable
amount. On disposal of investments in subsidiaries and
associates, the difference between net disposal proceeds and
the carrying amounts are recognized in the Statement of
Profit and Loss.
(vii) Borrowing Costs
Borrowing costs that are directly attributable to the
acquisition or construction of a qualifying asset (including
real estate projects) are considered as part of the cost of the
asset / project.
A qualifying asset is one that necessarily takes substantial
period of time to get ready for its intended use or sale. All other
borrowing costs are charged to the statement of profit and
loss in the year in which incurred.
(viii) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, other short
term, highly liquid investments with original maturities of
three months or less that are readily convertible to known
amounts of cash and which are subject to an insignificant risk
of changes in value.
(ix) Impairment of non-financial assets
At each Balance Sheet date, the carrying amount of assets is
tested for impairment so as to determine the provision for
impairment loss required, if any, or the reversal required of
impairment loss recognized in previous periods, if any.
An impairment loss is recognized whenever the carrying
amount of an asset or its cash generating units exceed its
recoverable amount.
Recoverable amount is determined:
- In the case of an individual asset, at higher of the net selling
price or value in use.
- In the case of cash generating unit, at higher of the cash
generating unit's net selling price or value in use.
(x) Employee Benefits
The Company participates in various employee benefit plans.
These benefit plans 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.
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.
In case of defined benefit plan, all actuarial gains or losses are
immediately recognized in other comprehensive income, net
of taxes and permanently excluded from profit and loss.
Further, the profit or loss will no longer include an expected
return on plan assets. The actual return on 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, net of taxes.
The Company does not provide carry forward & encashment
of leaves.
(a) Short term employee benefits
All employee benefits payable / available within twelve
months of rendering the service are classified as short-term
employee benefits. Benefits such as salaries, wages and
bonus etc., are recognized in the same period in which the
employee renders the related service.
(b) Defined Contribution plan
Company's contributions paid/ payable during the year to
Provident Fund, Employee state insurance are recognized in
the Statement of Profit and Loss.
The Company is depositing P.F. & ESI contribution only for
eligible employees within statutory limits. The employees
whose income is above the statutory limits have opted not to
subscribe and accordingly, the Company is not required to
make the contribution
(c) Defined Benefit Plan
Retirement benefits in the form of Gratuity are considered as
defined benefit obligations and are provided for on the basis
of an actuarial valuation, using the projected unit credit
method, as at the date of the Balance Sheet. Actuarial Gains
and losses arising from experience adjustments and changes
in actuarial assumptions are recognized immediately in the
balance sheet with a corresponding debit or credit to retained
earnings through other comprehensive income (OCI) in the
period in which they occur. Re-measurements are not
reclassified to profit or loss in subsequent periods. All other
expenses related to defined benefit plans are recognized in
Statement of Profit and Loss as employee benefit expenses.
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