2. Material accounting policies
2.1 Recognition of income and expense
The Company earns revenue primarily from giving
loans. Revenue is recognized to the extent that it is
probable that the economic benefits will flow to the
Company and the revenue can be reliably measured.
The following specific recognition criteria must also be
met before revenue is recognized:
2.1.1 Interest income
Interest revenue is recognized using the Effective
Interest Rate method (EIR). The EIR method calculates
the amortized cost of a financial instrument and
allocates the interest income or interest expense
over the relevant period.
The Company calculates interest income by applying
the EIR to the gross carrying amount of financial
assets other than the credit impaired assets.
When a financial asset becomes credit impaired
and is, therefore, regarded as 'Stage 3', the Company
calculates the interest income by applying the
effective interest rate to the net amortized cost of
the financial asset. If the financial assets cures and
is no longer credit-impaired, the Company reverts to
calculating interest income at gross basis.
2.1.1.1 The effective interest rate method
Under Ind AS 109 interest income is recorded
using the effective interest rate (EIR) method for all
financial instruments measured at amortized cost,
debt instrument measured at FVTOCI and debt
instruments designated at FVTPL. The EIR is the rate
that exactly discounts estimated future cash receipts
through the expected life of the financial instrument
or, when appropriate, a shorter period, to the net
carrying amount of the financial assets.
The EIR (and therefore, the amortized cost of the
asset) is calculated by considering any discount or
premium on acquisition, fees and transaction costs
that are an integral part of the EIR. The Company
recognises interest income using a rate of return
that represents the best estimate of a constant rate
of return over the expected life of the loan. Hence,
it recognises the effect of potentially different
interest rates charged at various stages, and other
characteristics of the product life cycle (including
prepayments, penalty interest and charges).
If expectations regarding the cash flows on the
financial asset are revised for reasons other than
credit risk. The adjustment is booked as a positive
or negative adjustment to the carrying amount of
the asset in the balance sheet with an increase or
reduction in interest income. The adjustment is
subsequently amortized through Interest income in
the Statement of profit and loss.
2.1.2 Dividend income
Dividend income is recognized when the Company's
right to receive the dividend is established, it is
probable that the economic benefits associated
with the dividend will flow to the entity and the
amount of the dividend can be measured reliably.
This is generally when the shareholders approve the
dividend.
2.1.3 Net gain on derecognition of financial
instruments under amortized cost category
Where derecognition criteria as per Ind AS 109,
including transaction of substantially all the risks and
rewards relating to assets being transferred to the
buyer being met, the assets have been derecognized.
Income from assignment transactions i.e. present
value of excess interest spread is recognized. Refer
Note 2.5 for policy on derecognition of financial
assets and liability.
2.1.4 Net Gain/Loss on fair value changes
The Company recognizes the fair value on investment
in mutual funds measured at FVTPL in the Statement
of profit and loss in accordance with Ind AS 109.
2.1.5 Interest Expense
Interest expense includes issue costs that are initially
recognized as part of the carrying value of the
financial liability and amortized over the expected
life using the effective interest method. These include
fees and commissions payable to arrangers and
other expenses such as external legal costs, provided
these are incremental costs that are directly related
to the issue of a financial liability.
2.1.6 Revenue from Contracts with Customers
The Company recognizes revenue from contracts
with customers (other than financial assets to which
Ind AS 109 'Financial Instruments' is applicable)
based on a comprehensive assessment model as
set out in Ind AS 115 'Revenue from Contracts with
Customers'. The Company identifies contract(s) with
a customer and its performance obligations under
the contract, determines the transaction price and
its allocation to the performance obligations in the
contract and recognizes revenue only on satisfactory
completion of performance obligations.
a) Facilitation fees income is earned on distribution
of services and products of other entities under
distribution arrangements. The income
so earned is recognised on completion of
successful distribution on behalf of other entities
subject to there being no significant uncertainty
of its recovery.
b) The Company recognizes revenue from market
support services upon satisfaction of performance
obligation by rendering of services underlying the
contract with third party customers.
2.2 Financial Instruments- initial recognition
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. Financial assets and financial liabilities are
recognized when the entity becomes a party to the
contractual provisions of the instrument.
2.2.1 Date of recognition
Financial assets and liabilities, with an exception
of loans, debt securities, deposits and borrowings
are initially recognized on the trade date, i.e., the
date that the Company becomes a party to the
contractual provisions of the instrument. Loans
are recognized when funds are disbursed to the
customer's accounts. The Company recognises
debt securities, deposits and borrowings when
funds reach the Company's accounts.
2.2.2 Initial measurement of financial instruments
The classification of financial instruments at initial
recognition depends on their contractual terms and
the business model for managing the instruments.
Financial instruments are initially measured at their
fair value, except in the case of financial assets and
financial liabilities recorded at Fair value through
profit or loss (FVTPL), transaction costs are added to,
subtracted from, this amount. Trade receivables are
measured at the transaction price.
2.2.3 Measurement categories of financial
assets and liabilities
The Company classifies all of its financial assets
based on the business model for managing the
assets and the asset's contractual terms, measured
at either:
a) Amortized cost, as explained in Note 2.3.1
b) FVTPL as explained in Notes 2.3.4
c) FVTOCI
The Company classifies and measures its trading
portfolio at FVTPL. The Company may designate
financial instruments at FVTPL, if so doing
eliminates or significantly reduces measurement or
recognition inconsistencies.
Financial liabilities, are measured at FVTPL when
they are derivative instruments or the fair value
designation is applied, as explained in Note 2.3.4
2.3 Financial assets and liabilities
2.3.1 Loans, trade receivables, financial investments
and other financial assets at amortized cost
The Company measures loans, trade receivables and
other financial investments and assets at amortized
cost if both of the following conditions are met:
• The financial asset is held within a business
model whose objective is to hold assets in order
to collect contractual cash flows.
• 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.
The details of these conditions are outlined below.
2.3.1.1 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 information considered includes:
The Company's business model is not assessed on
an instrument-by-instrument basis, but at a higher
level of aggregated portfolios and is based on
observable factors such as:
• How the performance of the business model and
the financial assets held within that business
model are evaluated and reported to the entity's
key management personnel.
• The risks that affect the performance of the
business model (and the financial assets held
within that business model) and, in particular,
the way those risks are managed.
• How managers of the business are compensated
(for example, whether the compensation is
based on the fair value of the assets managed or
on the contractual cash flows collected).
• The expected frequency, value and timing
of sales are also important aspects of the
Company's assessment. However, information
about sales activity is not considered in isolation,
but as part of an overall assessment of how the
Company's stated objective for managing the
financial assets is achieved and how cash flows
are realised.
• The stated policies and objectives for the
portfolio and the operation of those policies in
practice. In particular, whether management's
strategy focuses on earning contractual interest
revenue, maintaining a particular interest rate
profile, matching the duration of the financial
assets to the duration of the liabilities that are
funding those assets or realising cash flows
through the sale of the assets;
The business model assessment is based on
reasonably expected scenarios without taking
'worst case' or 'stress case' scenarios into account.
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 while assessing newly originated or
newly purchased financial assets going forward.
2.3.1.2 The SPPI test
As a second step of its classification process the
Company assesses the contractual terms of financial
assets to identify whether they meet the solely
payments of principal and interest (the 'SPPI test').
For the purposes of this test, 'principal' is defined
as the fair value of the financial asset on initial
recognition and may change over the life of the
financial asset (for example, if there are repayments
of principal or amortisation of the premium/
discount).
'Interest' within a lending arrangement are typically
the 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 profit margin. To make the SPPI assessment,
the Company applies judgement and considers
relevant factors such as the currency in which the
financial asset is denominated, and the period for
which the interest rate is set.
Where the business model is to hold assets to
collect contractual cash flows (i.e. measured at
amortized cost) or to collect contractual cash
flows and sell (i.e. measured at fair value through
other comprehensive income), the Company
assesses whether the financial instruments'
cash flows represent SPPI. In making this
assessment, the Company considers whether the
contractual cash flows are consistent with a basic
lending arrangement i.e. interest includes only
consideration for the time value of money, credit
risk, other basic lending risks and a profit margin
that is consistent with a basic lending arrangement.
Where the contractual terms introduce exposure to
risk or volatility that are inconsistent with a basic
lending arrangement, the related financial asset is
classified and measured at fair value through profit
or loss. The amortized cost, as mentioned above, is
computed using the effective interest rate method.
After initial measurement, such financial assets are
subsequently measured at amortized cost using
the EIR method. Amortized cost is calculated by
taking into account any discount or premium on
acquisition and fees or costs that are an integral
part of the EIR. The EIR amortisation is included
in interest income in the profit or loss. The losses
arising from ECL impairment are recognized in the
profit or loss.
2.3.2 Derivative financial instruments at fair value
through profit or loss
A derivative is a financial instrument or other contract
with all three of the following characteristics:
• Its value changes in response to the change in
a specified interest rate, financial instrument
price, commodity price, foreign exchange rate,
index of prices or rates, credit rating or credit
index, or other variable, provided that, in the
case of a non-financial variable, it is not specific
to a party to the contract (i.e., the 'underlying').
• It requires no initial net investment or an initial
net investment that is smaller than would be
required for other types of contracts expected
to have a similar response to changes in market
factors.
• It is settled at a future date.
Initial recognition and subsequent measurement
The Company uses derivative financial instruments,
such as currency and interest rate swaps, to hedge
its foreign currency risks and interest rate risks,
respectively. Derivative financial instruments are
initially recognized at fair value on the date on
which a derivative contract is entered into and are
subsequently re-measured at fair value. Derivatives
are carried as financial assets when the fair value
is positive and as financial liabilities when the fair
value is negative. Any gains or losses arising from
changes in the fair value of derivatives are taken
directly to profit or loss except for the effective
portion of cash flow hedges, which is recognised
in OCI and later reclassified to profit or loss when
the hedge item affects profit or loss or treated as
basis adjustment if a hedged forecast transaction
subsequently results in the recognition of a non¬
financial asset or non-financial liability.
Changes in the fair value of currency and interest
rate swaps entered to hedge foreign currency risks
and interest rate risks, respectively, on external
commercial borrowing are included in Net loss /
(gain) on fair value of derivative contracts measured
at fair value through profit or loss under finance
cost. Changes in the fair value of other derivatives
are included in net gain/(loss) on fair value changes
unless hedge accounting is applied.
The notional amount and fair value of such
derivatives are disclosed separately in Note 15. The
Company does not apply hedge accounting.
:.3.3 Debt securities and other borrowed funds
After initial measurement, debt issued and other
borrowed funds are subsequently measured at
amortized cost. Amortized cost is calculated by
taking into account any discount or premium on
funds issued, and costs that are an integral part of
the EIR. A compound financial instrument which
contains both a liability and an equity component
is separated at the issue date
For the accounting treatment of financial
instruments with equity conversion rights and call
options, the Company first establishes whether
the instrument is a compound instrument and
classifies such instrument's components separately
as financial liabilities or equity instruments in
accordance with Ind AS 32. Classification of the
liability and equity components of a convertible
instrument is not revised as a result of a change
in the likelihood that a conversion option will
be exercised, even when exercising the option
may appear to have become economically
advantageous to some holders. When allocating
the initial carrying amount of a compound financial
instrument to the equity and liability components,
the equity component is assigned as the residual
amount after deducting from the entire fair value of
the instrument, the amount separately determined
for the liability component. Once the Company has
determined the split between equity and liability, it
further evaluates whether the liability component
has embedded derivatives that must be accounted
for separately.
2.3.4 Financial assets and financial liabilities at fair
value through profit or loss
Financial assets and financial liabilities in this
category are those that are not held for trading
and have been either designated by management
upon initial recognition or are mandatorily required
to be measured at fair value under Ind AS 109.
Management only designates an instrument at
FVTPL upon initial recognition when one of the
following criteria are met. Such designation is
determined on an instrument-by-instrument basis:
• The designation eliminates, or significantly
reduces, the inconsistent treatment that would
otherwise arise from measuring the assets or
liabilities or recognising gains or losses on them
on a different basis
Or
• The liabilities are part of a group of financial
liabilities, which are managed, and their
performance evaluated on a fair value basis,
in accordance with a documented risk
management or investment strategy
Or
• The liabilities containing one or more embedded
derivatives, unless they do not significantly
modify the cash flows that would otherwise be
required by the contract, or it is clear with little
or no analysis when a similar instrument is first
considered that separation of the embedded
derivative(s) is prohibited.
2.4 Reclassification of financial asset and liabilities
Financial assets are not reclassified subsequent to
their initial recognition, apart from the exceptional
circumstances in which the Company acquires,
disposes of, or terminates a business line. Financial
liabilities are never reclassified. The Company did
not reclassify any of its financial assets or liabilities
in current and previous financial year.
2.5 Derecognition of financial assets and liabilities
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 the
control of the asset.
When the Company has transferred its rights to
receive cash flows from an asset or has entered into
a pass-through arrangement, it evaluates if and to
what extent it has retained the risks and rewards
of ownership. When it has neither transferred nor
retained substantially all of the risks and rewards of
the asset, nor transferred control of the asset, the
Company continues to recognise the transferred
asset to the extent of the Company's continuing
involvement. In that case, the Company also
recognises an associated liability. The transferred
asset and the associated liability are measured on
a basis that reflects the rights and obligations that
the Company has retained.
Continuing involvement that takes the form of a
guarantee over the transferred asset is measured
at the lower of the original carrying amount of the
asset and the maximum amount of consideration
that the Company could be required to repay.
A financial liability is derecognized when the
obligation under the liability is discharged or
cancelled or expires. When an existing financial
liability is replaced by another from the same
lender on substantially different terms, or the terms
of an existing liability are substantially modified,
such an exchange or modification is treated as
the derecognition of the original liability and the
recognition of a new liability. The difference in the
respective carrying amounts is recognized in the
Statement of profit and loss.
2.6 Offsetting of financial instruments
Financial assets and financial liabilities are offset
and the net amount is reported in the balance
sheet when there is a legally enforceable right to
offset the recognized amounts and there is an
intention to settle on a net basis, or realise the asset
and settle the liability simultaneously ('the offset
criteria').
2.7 Impairment of Financial Assets
2.7.1 Overview of principles for measuring expected
credit loss ('ECL') on financial assets.
The Company records allowance for expected
credit losses for all loans, other debt financial assets
not held at FVTPL, in this section all referred to as
'financial instruments'. Equity instruments are not
subject to impairment under Ind AS 109.
The ECL allowance is based on the credit losses
expected to arise over the life of the asset (the
lifetime expected credit loss or LTECL), unless there
has been no significant increase in credit risk since
origination, in which case, the allowance is based
on the 12 months' expected credit loss (12mECL).
The Company's policies for determining if there has
been a significant increase in credit risk are set out
in Note 47 (e).
The 12mECL is the portion of LTECLs that represent
the ECLs that result from default events on a
financial instrument that are possible within the 12
months after the reporting date.
Both LTECLs and 12mECLs are calculated on either
an individual basis or a collective basis, depending
on the nature of the underlying portfolio of financial
instruments.
Based on the above process, the Company
categorizes its loans into Stage 1, Stage 2, Stage 3 as
described below:
Stage 1
When loans are first recognised, the Company
recognises an allowance based on 12mECLs. Stage
1 loans also include facilities where the credit risk
has improved, and the loan has been reclassified
from Stage 2. The Company has assessed that all
standard exposures (i.e. exposures with no overdues)
and exposure up to 30 days overdues fall under this
category.
Stage 2
When loan that have had a significant increase in
credit risk since initial recognition are classified
under this stage. Based on empirical evidence,
significant increase in credit risk is witnessed
after the overdues on an exposure exceed for a
period more than 30 days and less than 90 days.
Accordingly, the Company classifies all exposures
with overdues exceeding 30 days and less than 90
days at each reporting date under this Stage. The
Company records an allowance for the LTECLs
Stage 3
Loans considered credit-impaired. The Company
records an allowance for the LTECLs. All exposures
having overdue balances for a period exceeding 90
days are considered to be defaults and are classified
under this stage.
For financial assets for which the Company has no
reasonable expectations of recovering either the
entire outstanding amount, or a proportion thereof,
the gross carrying amount of the financial asset is
reduced. This is considered a (partial) derecognition
of the financial asset.
2.7.2 Methodology for calculating ECL
The Company calculates ECL based on a probability
weighted outcome of factors indicated below to
measure the expected cash shortfalls. The Company
does not discount such shortfalls considering
relatively shorter tenure of loan contracts. A cash
shortfall is the difference between the cash flows
that are due to an entity in accordance with the
contract and the cash flows that the entity expects
to receive
Key factors applied to determine ECL are outlined
as follows:
Probability of default (PD)- The probability of
default is an estimate of the likelihood of default
over a given time horizon. A default may only
happen at a certain time over the assessed period,
if the facility has not been previously derecognized
and is still in the portfolio.
Exposure at default (EAD) - Exposure at default
(EAD) is the sum of outstanding principal and the
interest amount accrued but not received on each
loan as at reporting date.
Loss given default (LGD) - It is an estimate of the loss
arising when the event of default occurs. It is based
on the difference between the contractual cash
flows due and those that the lender would expect
to receive. It is usually expressed as a percentage of
the EAD.
Impairment losses and releases are accounted for
and disclosed separately from modification losses
or gains that are accounted for as an adjustment of
the financial asset's gross carrying value
The mechanics of the ECL method are summarised
below:
Stage 1:
The 12mECL is calculated as the portion of LTECLs
that represent the ECLs that result from default
events on a financial instrument that are possible
within the 12 months after the reporting date.
The Company calculates the 12mECL allowance
based on the expectation of a default occurring
in the 12 months following the reporting date.
These expected 12-month default probabilities are
applied to a EAD and multiplied by the expected
LGD and discounting factor. The discounting factor
is computed using the effective interest rate (EIR) of
the portfolio.
Stage 2:
When a loan has shown a significant increase in cred¬
it risk since origination, the Company records an al¬
lowance for the LTECLs. The mechanics are similar to
those explained above, including the use of multiple
scenarios, but Marginal PDs and LGDs are estimated
over the lifetime of the instrument. The marginal PD is
used in case cash flows/ repayment schedule is avail¬
able, else cumulative PD is used.
Stage 3:
For loans considered credit-impaired, the Compa¬
ny recognises the lifetime expected credit losses for
these loans. The method is similar to that for Stage
2 assets, with the PD set at 100%.
2.7.3 Forward looking information
While estimating the expected credit loss, the
Company reviews macro-economic developments
occurring in the economy and market it operates
in. On a periodic basis, the Company analyses if
there is any relationship between key economic
trends like Real GDP, agriculture, consumer prices,
domestic demand, etc. set by Reserve Bank of
India, with the estimate of PD, LGD determined
by the Company based in its internal data. While
the internal estimates of PD, LGD rates by the
Company may not be always reflective of such
relationships, temporary overlays are embedded in
the methodology to reflect such macro-economic
trends reasonably.
2.7.4 Write-offs
Loans are written off in their entirety only when
the Company has stopped perusing the recovery.
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 write¬
offs. If the amount to be written off is greater than
the accumulated loss allowance, the difference is
first treated as an addition to the allowance that
is then applied against the gross carrying amount.
Any subsequent recoveries against such loan are
credited to the Statement of profit and loss.
2.7.5 Impairment of non-financial assets
The Company assesses, at each reporting date,
whether there is an indication that an asset may be
impaired. If any indication exists, or when annual
impairment testing for an asset is required, the
Company estimates the asset's recoverable amount.
An asset's recoverable amount is the higher of an
asset's fair value less costs of disposal and its value
in use. Recoverable amount is determined for an
individual asset, unless the asset does not generate
cash inflows that are largely independent of those
from other assets or groups of assets. When the
carrying amount of an asset exceeds its recoverable
amount, the asset is considered impaired and is
written down to its recoverable amount.
In assessing value in use, the estimated future cash
flows are discounted to their present value using a
pre-tax discount rate that reflects current market
assessments of the time value of money and the
risks specific to the asset. In determining fair value
less costs of disposal, recent market transactions
are taken into account. If no such transactions can
be identified, an appropriate valuation model is used.
2.8 Fair value measurement
The Company measures financial instruments, such
as, derivatives at fair value at each balance sheet
date.
Fair value is the price at the measurement date that
would be received to sell an asset or paid to transfer
a liability, in an orderly transaction between market
participants at the measurement date. The fair
value measurement is based on the presumption
that the transaction to sell the asset or transfer the
liability takes place either:
• In the principal market for the asset or liability,
or
• In the absence of a principal market, in the most
advantageous market for the asset or liability
The principal or the most advantageous market
must be accessible by the Company.
The fair value of an asset or a liability is measured
using the assumptions that market participants
would use when pricing the asset or liability,
assuming that market participants act in their
economic best interest.
A fair value measurement of a non-financial asset
takes into account a market participant's ability to
generate economic benefits by using the asset in
its highest and best use or by selling it to another
market participant that would use the asset in its
highest and best use.
Accordingly, the Company uses valuation techniques
that are appropriate in the circumstances and for
which sufficient data is available to measure fair
value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable
inputs.
In order to show how fair values have been derived,
financial instruments are classified based on a
hierarchy of valuation techniques, as summarised
below:
• Level 1 financial instruments - Those where
the inputs used in the valuation are unadjusted
quoted prices from active markets for identical
assets or liabilities that the Company has
access to at the measurement date. The
Company considers markets as active only
if there are sufficient trading activities with
regards to the volume and liquidity of the
identical assets or liabilities and when there are
binding and exercisable price quotes available
on the balance sheet date.
• Level 2 financial instruments - Those where
the inputs that are used for valuation and are
significant, are derived from directly or indirectly
observable market data available over the
entire period of the instrument's life. Such
Inputs include quoted prices for similar assets
or liabilities in active markets, quoted prices for
identical instruments in inactive markets and
observable inputs other than quoted prices
such as interest rates and yield curves, implied
volatilities, and credit spreads. In addition,
adjustments may be required for the condition
or location of the asset or the extent to which
it relates to items that are comparable to the
valued instrument. However, if such adjustments
are based on unobservable inputs which are
significant to the entire measurement, the
Company will classify the instruments as Level 3.
• Level 3 financial instruments - Includes one
or more unobservable input where there is
little market activity for the asset/liability at the
measurement date that is significant to the
measurement as a whole.
For assets and liabilities that are recognized in
the Financial statements on a recurring basis,
the Company determines whether transfers have
occurred between levels in the hierarchy by re¬
assessing categorisation (based on the lowest level
input that is significant to the fair value measurement
as a whole) at the end of each reporting period.
The Company evaluates the levels at each reporting
period on an instrument-by-instrument basis and
reclassifies instruments when necessary based on
the facts at the end of the reporting period.
2.9 Foreign Currency transactions
2.9.1 Functional and presentation currency
The Financial statements are presented in Indian
Rupees (INR), which are the functional currency
of the Company and the currency of the primary
economic environment in which the Company
operates.
2.9.2 Transaction and balance
Transactions in foreign currencies are initially
recorded in the functional currency at the spot rate
of exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated
in foreign currencies are retranslated into the
functional currency at the spot rate of exchange at
the reporting date.
All exchange differences arising from foreign
currency borrowings to the extent not capitalized
are regarded as a cost of borrowing and presented
under Finance cost.
Non-monetary items that are measured at historical
cost in a foreign currency are translated using the
spot exchange rates as at the date of recognition.
2.10 Leasing
The Company assesses at contract inception
whether a contract is, or contains, a lease. That is, if
the contract conveys the right to control the use of
an identified asset for a period of time in exchange
for consideration.
Where the Company is lessee
The Company applies a single recognition and
measurement approach for all leases, except for
short-term leases and leases of low-value assets. The
Company recognises lease liabilities to make lease
payments and right-of-use assets representing the
right to use the underlying assets.
• Right-of-use assets
The Company recognises right-of-use assets at
the commencement date of the lease (i.e., the
date the underlying asset is available for use).
Right-of-use assets are measured at cost, less any
accumulated depreciation and accumulated
impairment losses, and adjusted for any
remeasurement of lease liabilities. The cost of
right-of-use assets includes the amount of lease
liabilities recognised, initial direct costs incurred,
and lease payments made at or before the
commencement date less any lease incentives
received. Right-of-use assets are depreciated on
a straight-line basis over the shorter of the lease
term and the estimated useful lives of the assets.
If ownership of the leased asset transfers to the
Company at the end of the lease term or the
cost reflects the exercise of a purchase option,
depreciation is calculated using the estimated
useful life of the asset.
The right-of-use assets are also subject to
impairment. Refer to the accounting policies in
note 2.7.5 Impairment of non-financial assets.
• Lease Liabilities
At the commencement date of the lease, the
Company recognises lease liabilities measured
at the present value of lease payments to be
made over the lease term. The lease payments
include fixed payments (including in substance
fixed payments) less any lease incentives
receivable, variable lease payments that depend
on an index or a rate, and amounts expected to
be paid under residual value guarantees. The
lease payments also include the exercise price
of a purchase option reasonably certain to be
exercised by the Company and payments of
penalties for terminating the lease, if the lease
term reflects the Company exercising the option
to terminate.
In calculating the present value of lease
payments, the Company uses its incremental
borrowing rate at the lease commencement
date because the interest rate implicit in the
lease is not readily determinable. After the
commencement date, the amount of lease
liabilities is increased to reflect the accretion
of interest and reduced for the lease payments
made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification,
a change in the lease term, a change in
the lease payments (e.g., changes to future
payments resulting from a change in rate used
to determine such lease payments) or a change
in the assessment of an option to purchase the
underlying asset.
Short term lease
The Company applies the short-term lease
recognition exemption to its short-term leases (i.e.,
those leases that have a lease term of 12 months
or less from the commencement date and do not
contain a purchase option). Lease payments on
short-term leases are recognized as and when due.
M1 Cash and Cash equivalents
Cash and cash equivalent in the balance sheet
comprise cash at banks and on hand and short-
term deposits with an original maturity of three
months or less, which are subject to an insignificant
risk of changes in value.
For the purpose of the Statement of cash flows, cash
and cash equivalents consist of cash and short-term
deposits, as defined above, net of outstanding bank
overdrafts as they are considered an integral part of
the Company's cash management.
2.12 Property, Plant and Equipment (PPE)
Property, plant and equipment isstated at cost,
less accumulated depreciation and accumulated
impairment in value if any. Cost comprises the
purchase price and any attributable cost of
bringing the asset to its working condition for its
intended use. Changes in the expected useful life
are accounted for by changing the amortisation
period or methodology, as appropriate, and treated
as changes in accounting estimates.
If significant parts of an item of Property, plant
and equipment have different useful lives, then
they are accounted for as a separate items (major
components) of Property, plant and equipment.
Leasehold improvements are amortized on straight
line basis over the lease term or the estimated
useful life of the assets, whichever is lower.
The residual values, useful lives and methods of
depreciation of property, plant and equipment are
reviewed at each financial year end and adjusted
prospectively, if appropriate
Property, plant and equipment is derecognized
on disposal or when no future economic benefits
are expected from its use. Any gain or loss arising
on derecognition of the asset (calculated as the
difference between the net disposal proceeds and
the carrying amount of the asset) is recognized in
other income / expense in the Statement of profit
and loss in the year the asset is derecognised.
Depreciation on Property, plant and equipment
(except freehold land) provided on written down
value method at the rate arrived based on useful
life of the assets, prescribed under schedule II of
the Act, which also represents the estimate of the
useful life of the assets by the management.
Depreciation on assets sold during the year is
charged to the Statement of profit and loss up to
the date of sale.
The Company has used the following useful lives
to provide depreciation on its Property, plant and
equipment.
2.13 Intangible assets and Intangible Asset under
Development
2.13.1 Intangible assets
The Company's intangible assets mainly include the
Computer Software. An intangible asset is recognized
only when its cost can be measured reliably, and it is
probable that the expected future economic benefits
that are attributable to it will flow to the Company.
Intangible assets acquired separately are measured on
initial recognition at cost.
The Company assesses at each Balance Sheet date
whether there is any indication that an intangible
asset may be impaired.
The useful lives of intangible assets are assessed to
be either finite or indefinite. Intangible assets with
finite lives are amortized over the useful economic
life. The amortisation period and the amortisation
method for an intangible asset with a finite useful
life are reviewed at least at the end of each reporting
period.
Amortisation is calculated using the straight-line
method to write down the cost of intangible assets
to their residual values over their estimated useful
lives, as follows:
Computer software - 3-5 years
Changes in the expected useful life or the expected
pattern of consumption of future economic benefits
embodied in the asset are considered to modify the
amortisation period or method, as appropriate, and
are treated as changes in accounting estimates.
An intangible asset is derecognized upon disposal
(i.e., at the date the recipient obtains control) or when
no future economic benefits are expected from its
use. Any gain or loss arising upon derecognition of
the asset (calculated as the difference between the
net disposal proceeds and the carrying amount of
the asset) is included in the Statement of profit and
loss. when the asset is derecognized.
2.13.2 Intangible Asset under Development
Intangible Assets under development comprises
of assets which are not yet ready for their intended
use and includes all direct expenses and directly
attributable indirect expenses incurred for
developing of assets.
Cost of developmental work which is completed,
wherever eligible, is recognised as an Intangible Asset.
Cost of developmental work under progress,
wherever eligible, is classified as “Intangible Assets
under Development”.
Intangible Asset under development includes
expenditure incurred by the Company towards
payment to external agencies for developmental
project(s) and expenditure incurred by the Company
towards material cost, employee cost and other
direct expenditure pertaining to identified project.
Development costs that are directly attributable to
the design and testing of identifiable products and
solutions are recognised as intangible assets when
the following criteria are met:
• Management intends to and it is technically
feasible to complete the project so that it will be
available for use
• It can be demonstrated how the intangible
asset will generate probable future economic
benefits
• Adequate technical, financial and other
resources to complete the development and to
use or sell the asset are available, and
• The expenditure attributable during its
development can be reliably measured.
Cost of an internally generated asset comprises
all expenditure that can be directly attributed, or
allocated on a reasonable and consistent basis, to
create, produce and make the asset ready for its
intended use.
Subsequent costs are included in the asset's
carrying amount or recognised as a separate asset,
as appropriate, only when it is probable that future
economic benefits associated with the item will
flow to the entity and the cost can be measured
reliably.
2.14 Retirement and other Employee benefits
2.14.1 Short term employee benefits
Short-term employee benefits are expensed as the
related service is provided. A liability is recognized
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.
2.14.2 Share-based payment arrangements
The Company has formulated an Employees Stock
Option Schemes to be administered through a Trust.
The scheme provides that subject to continued
employment with the Company, the employees
are granted an option to acquire equity shares of
the Company that may be exercised within the
specified period.
The cost of equity-settled transactions is determined
by the fair value at the date when the grant is made
using an appropriate valuation model. Further
details are given in Note 43.
That cost is recognized in employee benefits
expense over the period in which service conditions
are fulfilled, together with a corresponding increase
in employee stock option plan reserve in other
equity. The cumulative expense is recognized
for equity-settled transactions at each reporting
date until the vesting date reflects the extent to
which the vesting period has expired. The expense
or credit in the Statement of profit and loss for a
period represents the movement in cumulative
expense recognized as at the beginning and end of
that period and is recognized in employee benefits
expense.
Service conditions are not taken into account
when determining the grant date fair value of
awards, but the likelihood of the conditions being
met is assessed as part of the Company's best
estimate of the number of equity instruments that
will ultimately vest. No expense is recognized for
awards that do not ultimately vest because service
conditions have not been met.
The dilutive effect of outstanding options is reflected
as additional share dilution in the computation of
diluted earnings per share.
2.14.3 Defined contribution plans
Obligations for contributions to defined
contribution plans are expensed as the related
service is provided. Post-employment benefits in
the form of provident fund and other funds are
defined contribution scheme.
The Company has no obligation, other than
the contribution payable to the provident fund
and pension scheme. The Company recognises
contribution payable to scheme as an expense,
when an employee renders the related service. If
the contribution payable to the scheme for service
received before the balance sheet date exceeds the
contribution already paid, the deficit payable to the
scheme is recognized as a liability after deducting
the contribution already paid. If the contribution
already paid exceeds the contribution due for
services received before the balance sheet date,
then excess is recognized as an asset to the extent
that the pre-payment will lead to, for example, a
reduction in future payment or a cash refund.
2.14.4 Defined benefit plans
The Company has defined benefit gratuity plan.
The Company's net obligation in respect of gratuity
is calculated by estimating the amount of future
benefit that employees have earned in the current
and prior periods, discounting that amount and
deducting the fair value of any plan assets.
The calculation of defined benefit obligations is
performed annually by a qualified actuary using the
projected unit credit method. When the calculation
results in a potential asset for the Company, the
recognized asset is limited to the present value
of economic benefits available in the form of any
future refunds from the plan or reductions in future
contributions to the plan. To calculate the present
value of economic benefits, consideration is given
to any applicable minimum funding requirements.
Remeasurement of the net defined benefit liability/
asset, which comprise actuarial gains and losses, the
return on plan assets (excluding interest) and the
effect of the asset ceiling (if any, excluding interest),
are recognized immediately in the balance sheet
with a corresponding debit or credit to OCI ( other
Comprehensive Income) in the period in which
they occur. Net interest expense (income) on the
net defined liability
(assets) is computed by applying the discount rate,
used to measure the net defined liability (asset),
to the net defined liability (asset) at the start of
the financial year after taking into account any
changes as a result of contribution and benefit
payments during the year. Net interest expense
and other expenses related to defined benefit plans
are recognized in profit or loss. Remeasurements
are not reclassified to profit or loss in subsequent
periods.
When the benefits of a plan are changed or when
a plan is curtailed, the resulting change in benefit
that relates to past service or the gain or loss on
curtailment is recognized immediately in profit or
loss. The Company recognises gains and losses on
the settlement of a defined benefit plan when the
settlement occurs.
2.14.5 Other long-term employee benefits
Compensated absences are a long-term employee
benefit and are accrued based on an actuarial
valuation done as per projected unit credit method
as at the Balance Sheet date, carried out by an
independent actuary.
Actuarial gains and losses arising during the year
are immediately recognized in the Statement of
profit and loss.
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