2. Material Accounting Policies
The financial statements have been prepared using the significant accounting policies and
measurement bases summarized as below. These policies are applied consistently for all the periods
presented in the financial statements, except where the Company has applied certain accounting
policies and exemptions upon transition to Ind AS.
a) Revenue recognition
Interest income, including processing fees, documentation charges and similar income that are
integral to the effective interest rate (EIR) of a financial asset, is recognised on an accrual basis
using the EIR method as prescribed under Ind AS 109 - Financial Instruments.
The EIR is the rate that exactly discounts estimated future cash receipts through the expected life
of the financial asset to its gross carrying amount.
Penal Interest/ Overdue Charges: Any additional interest, penal charges or overdue interest is
recognised only when there is reasonable certainty of ultimate collection.
Income on Non-Performing Assets (NPAs): In line with the prudential norms prescribed by the
Reserve Bank of India (RBI) for NBFCs, interest income on NPAs is recognised only when
received, and not on an accrual basis.
Other income
Other income, such as service fees, cheque bounce charges, legal charges recovered, etc., is
recognised when it is probable that the economic benefits associated with the transaction will flow
to the Company; and the amount of income can be measured reliably .Such income is accounted
for on an accrual basis, provided there is no significant uncertainty regarding its realization..
b) Leasing
The Company as a Lessee
The Company assesses at contract inception whether a contract is, or contains, a lease. A contract
is classified as a lease if it conveys the right to control the use of an identified asset for a period of
time in exchange for consideration.
For all lease arrangements (except for short-term leases and low-value assets), the Company
recognises a right-of-use (ROU) asset and a corresponding lease liability at the commencement
date of the lease.
i. Recognition of Lease Liability
The lease liability is initially measured at the present value of the future lease payments,
discounted using the interest rate implicit in the lease. If that rate cannot be readily
determined, the Company uses its incremental borrowing rate.
Lease payments include:
• Fixed payments (including in-substance fixed payments),
• Variable lease payments that depend on an index or rate,
• Amounts expected to be paid under residual value guarantees,
• The exercise price of a purchase option if the Company is reasonably certain to
exercise that option, and
• Payments of penalties for terminating the lease if the lease term reflects the lessee
exercising that option.
ii. Recognition of Right-of-Use (ROU) Asset
The ROU asset is initially measured at cost, comprising:
• The amount of the initial lease liability,
• Any lease payments made at or before the commencement date less any lease
incentives received,
• Any initial direct costs incurred, and
• An estimate of restoration obligations, if applicable.
The ROU asset is subsequently depreciated on a straight-line basis over the shorter of
the lease term and the useful life of the underlying asset. The asset is also adjusted for
any remeasurement of the lease liability.
iii. Short-Term Leases and Leases of Low-Value Assets
The Company has elected not to recognize ROU assets and lease liabilities for:
• Short-term leases (lease term of 12 months or less), and
• Leases of low-value assets.
Lease payments for such leases are recognised as an expense on a straight-line basis over
the lease term.
c) Foreign currencies
Functional and presentation currency
Items included in the financial statement of the Company are measured using the currency of the
primary economic environment in which the entity operates ('the functional currency'). The
financial statements have been prepared and presented in Indian Rupees (INR), which is the
Company's functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency, by applying the
exchange rates on the foreign currency amounts at the date of the transaction. Foreign currency
monetary items outstanding at the balance sheet date are converted to functional currency using
the closing rate. Non-monetary items denominated in a foreign currency which are carried at
historical cost are reported using the exchange rate at the date of the transaction.
Recognition of Exchange Differences
• Exchange differences arising on settlement of monetary items or on translation at the
reporting date are recognised as income or expense in the Statement of Profit and Loss in
the period in which they arise.
• Exchange differences relating to non-monetary items measured at fair value are included
in the statement of profit and loss or other comprehensive income, depending on where
the underlying gain or loss is recognised.
d) Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a
qualifying asset—an asset that necessarily takes a substantial period of time to get ready for its
intended use or sale — are capitalised as part of the cost of that asset. Capitalisation of borrowing
costs commences when the activities necessary to prepare the asset for its intended use or sale
are in progress and expenditure and borrowing costs are being incurred.
Capitalisation of borrowing costs ceases when substantially all the activities necessary to
prepare the qualifying asset for its intended use or sale are complete.
All other borrowing costs are recognised as an expense in the Statement of Profit and Loss in the
period in which they are incurred.
e) Employee benefits
Short-term employee benefits
Short-term employee benefits including salaries, short term compensated absences (such as a
paid annual leave) where the absences are expected to occur within twelve months after the end
of the period in which the employees render the related service, profit sharing and bonuses
payable within twelve months after the end of the period in which the employees render the
related services and non-monetary benefits for current employees are estimated and measured
on an undiscounted basis.
Other long-term employee benefits obligations
Liabilities for leave encashment and compensated absences which are not expected to be settled
wholly within the operating cycle after the end of the period in which the employees render the
related service are measured at the present value of the estimated future cash outflows which is
expected to be paid using the projected unit credit method. The benefits are discounted using
the market yields at the end of the reporting period on Government bonds that have terms
approximating to the terms of the related obligation. Re-measurements as a result of experience
adjustments and changes in actuarial assumptions are recognised in Other Comprehensive
Income.
Post-employment benefit plans are classified into defined contribution plans and defined benefits
plans as under:
Defined contribution plans
The Company has a defined contribution plans namely provident fund, pension fund and
employees state insurance scheme. The contribution made by the Company in respect of these
plans are charged to the Statement of Profit and Loss.
Defined benefit plans and Other long-term employee benefits
The Company does not have any defined benefit plan in terms of gratuity, as the Payment of
Gratuity Act, 1972 is not applicable to it, and no such benefit is offered under employment contracts
or company policy. Accordingly, no provision for gratuity has been made in the financial
statements.
The Company accounts for leave encashment on cash basis at the time of actual payment to
employees. Since there is no formal leave encashment policy granting a vested or accumulating
benefit, no provision has been made in this regard as at the balance sheet date.
Consequently, no actuarial valuation has been carried out under Ind AS 19 - Employee Benefits.
Consequently, the impact of potential long-term employee benefit obligations has not been
recognized in the financial statements. The management believes the impact is not material;
however, the same is subject to audit qualification.
f) Taxation
Tax expense recognized in Statement of Profit and Loss comprises the sum of deferred tax and
current tax except to the extent it recognized in other comprehensive income or directly in
equity.
Current tax comprises the tax payable or receivable on taxable income or loss for the year and
any adjustment to the tax payable or receivable in respect of previous years. Current tax is
computed in accordance with relevant tax regulations. The amount of current tax payable or
receivable is the best estimate of the tax amount expected to be paid or received after
considering uncertainty related to income taxes, if any. Current income tax relating to items
recognised outside profit or loss is recognised outside profit or loss (either in other
comprehensive income or in equity).
Current tax assets and liabilities are offset only if there is a legally enforceable right to set off the
recognised amounts, and it is intended to realise the asset and settle the liability on a net basis or
simultaneously.
Minimum alternate tax ('MAT') credit entitlement is recognised as an asset only when and to
the extent there is convincing evidence that normal income tax will be paid during the specified
period. In the year in which MAT credit becomes eligible to be recognised as an asset, the said
asset is created by way of a credit to the Statement of Profit and Loss and shown as MAT credit
entitlement. This is reviewed at each balance sheet date and the carrying amount of MAT credit
entitlement is written down to the extent it is not reasonably certain that normal income tax will
be paid during the specified period.
Deferred tax is recognised in respect of temporary differences between carrying amount of assets
and liabilities for financial reporting purposes and corresponding amount used for taxation
purposes. Deferred tax assets are recognised on unused tax loss, unused tax credits and
deductible temporary differences to the extent it is probable that the future taxable profits will
be available against which they can be used. This is assessed based on the Company's forecast of
future operating results, adjusted for significant non-taxable income and expenses and specific
limits on the use of any unused tax loss. Unrecognised deferred tax assets are re-assessed at each
reporting date and are recognised to the extent that it has become probable that future taxable
profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that
have been enacted or substantively enacted at the reporting date. The measurement of deferred
tax reflects the tax consequences that would follow from the manner in which the Company
expects, at the reporting date to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if there is a legally enforceable right to set off the
recognised amounts, and it is intended to realise the asset and settle the liability on a net basis or
simultaneously. Deferred tax relating to items recognised outside statement of profit and loss is
recognised outside statement of profit or loss (either in other comprehensive income or in equity).
Current and deferred tax for the year
Current and deferred tax are recognised in profit or loss, except when they relate to items that
are recognised in other comprehensive income or directly in equity, in which case, the current
and deferred tax are also recognised in other comprehensive income or directly in equity
respectively _______
g) Property, plant and equipment
Recognition and initial measurement
Property, plant and equipment are stated at their cost of acquisition. The cost comprises
purchase price, borrowing cost if capitalization criteria are met and directly attributable cost of
bringing the asset to its working condition for the intended use. Any trade discount and rebates
are deducted in arriving at the purchase price. 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 Company. All other repair and
maintenance costs are recognised in statement of profit or loss as incurred.
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 Company and the cost of the item can be measured reliably. All other repair
and maintenance costs are recognised in statement of profit or loss as incurred.
Subsequent measurement (depreciation method, useful lives and residual value) Property, plant
and equipment are subsequently measured at cost less accumulated depreciation and
impairment losses. Depreciation on property, plant and equipment is provided on the written-
down method over the useful life of the assets as prescribed under Part 'C' of Schedule II of the
Companies Act, 2013.
Depreciation is calculated on pro rata basis from the date on which the asset is ready for use or till
the date the asset is sold or disposed. Asset costing less than Rs. 5,000 each are fully depreciated
in the year of capitalization •
The residual values, useful lives and method of depreciation are reviewed at the end of each
financial year.
De-recognition
An item of property, plant and equipment and any significant part initially recognised is
derecognised upon disposal or when no future economic benefits are expected from its use or
disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the asset) is recognized in the
statement of profit and loss, when the asset is derecognized.
h) Intangible assets
Recognition and initial measurement
Intangible assets are stated at their cost of acquisition. The cost comprises purchase price
including any import duties and other taxes (other than those subsequently recoverable from
taxation authorities), borrowing cost if capitalization criteria are met and directly attributable
cost of bringing the asset to its working condition for the intended use.
Subsequent measurement (amortisation method, useful lives and residual value)
Intangible assets are amortised over a period of 3 years from the date when the assets are
available for use. The estimated useful life (amortisation period) of the intangible assets is
arrived basis the expected pattern of consumption of economic benefits and is reviewed at the
end of each financial year and the amortisation period is revised to reflect the changed pattern,
if any.
i) Impairment of tangible and intangible assets
The Company assesses at each reporting date whether there is any indication that a tangible or
intangible asset may be impaired. If any such indication exists, the Company estimates the
recoverable amount of the asset. The recoverable amount is the higher of:
• Fair value less costs of disposal (net selling price), and
• Value in use (present value of estimated future cash flows expected to be derived from
the asset).
If the recoverable amount of the asset (or the cash-generating unit to which the asset belongs) is
less than its carrying amount, the carrying amount is reduced to the recoverable amount. The
difference is recognised as an impairment loss in the Statement of Profit and Loss.
Where an impairment loss subsequently reverses due to a change in the estimates used to
determine the recoverable amount, the carrying amount of the asset is increased to the revised
estimate of its recoverable amount. However, this reversal is limited to the carrying amount that
would have been determined had no impairment loss been recognised previously. Reversal of
impairment loss is recognised in the Statement of Profit and Loss.
j) 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.
i. Initial Recognition
The Company recognises financial instruments when it becomes a party to the contractual
provisions of the instrument.
• Financial assets and liabilities, except for loans, debt securities, deposits, and
borrowings, are initially recognised on the trade date —i.e., the date on which the
Company becomes a party to the contractual provisions of the instrument.
• Loans are recognised when funds are disbursed to the customers.
• Debt securities issued, deposits, and borrowings are recognised when the funds are
received by the Company.
ii. Initial Measurement
All financial instruments are initially measured at fair value.
• For financial assets and liabilities not measured at Fair Value Through Profit or Loss
(FVTPL), transaction costs that are directly attributable to the acquisition or issue of the
financial asset or liability are added to or deducted from the fair value at initial
recognition.
• For instruments measured at FVTPL, transaction costs are expensed in the Statement of
Profit and Loss.
iii. Classification and Subsequent Measurement
Financial Assets are classified and measured based on:
• The Company's business model for managing the financial asset, and
• The asset7s contractual cash flow characteristics.
Accordingly, financial assets are classified into the following categories:
1. Amortised Cost - if held within a business model whose objective is to hold assets to
collect contractual cash flows and the contractual terms give rise to cash flows that are
solely payments of principal and interest (SPPI).
2. Fair Value Through Other Comprehensive Income (FVOCI) - if held within a business
model whose objective is both to collect contractual cash flows and to sell financial
assets.
3. Fair Value Through Profit or Loss (FVTPL) - all other financial assets that do not meet
the criteria for amortised cost or FVOCI.
Financial Liabilities are classified as:
• Measured at amortised cost, or
• Measured at FVTPL when the fair value option is exercised (i.e., when doing so results in
more relevant information).
Loan commitments and financial guarantees that are not designated as FVTPL are measured in
accordance with the principles prescribed under Ind AS 109 and Ind AS 37 - Provisions,
Contingent Liabilities and Contingent Assets.
k) Non-derivative financial assets and Financial Liabilities
1) Classification and Measurement at Amortised Cost
The Company classifies the following non-derivative financial assets under the amortised
cost category, provided specific conditions are satisfied:
• Bank balances,
• Loans,
• Trade receivables, and
• Other financial investments.
2) Conditions for Classification at Amortised Cost
A financial asset is measured at amortised cost only if both of the following criteria are met:
1. Business Model Test:
The asset is held within a business model whose objective is to hold assets in order to collect
contractual cash flows.
2. Contractual Cash Flow Characteristics Test (SPPI Test):
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.
If either of the above conditions is not met, the financial asset is classified and measured at
FVOCI or FVTPL, as applicable.
3) Subsequent Measurement
After initial recognition, financial assets measured at amortised cost are subsequently carried at
amortised cost using the Effective Interest Rate (EIR) method. The EIR amortisation is included in
interest income in the Statement of Profit and Loss.
4) Financial Liabilities
Financial liabilities are measured at amortised cost, except in the following cases:
• If they are held for trading or designated at FVTPL, they are measured at fair value.
• Transaction costs that are directly attributable to the issue of financial liabilities are deducted
from the fair value of the financial liability on initial recognition and are subsequently
amortised over the term of the liability using the EIR method.
The details of these conditions are outlined below.
Business model assessment
The Company determines its business model at a level that best reflects how groups of financial
assets are managed together to achieve a particular business objective.
This assessment is not performed on an instrument-by-instrument basis, but at a portfolio
level or higher aggregation level, and is based on observable factors, including:
• The manner in which the performance of the financial assets and the business model is
evaluated and reported to the Company's Key Management Personnel;
• The nature of risks that impact the performance of the business model and the financial
assets held within it, and how these risks are managed;
• The basis of management compensation, such as whether it is linked to the fair value of the
assets managed or the contractual cash flows collected;
• The expected frequency, value, and timing of sales within the portfolio.
The Company's business model is assessed based on reasonable and supportable information
available at the date of the assessment, without taking into account worst-case or stress-case
scenarios.
Solely Payments of Principal and Interest (SPPI) Test:
As a second step of its classification process for financial assets, the Company performs the SPPI
test to evaluate whether the contractual cash flows are solely payments of principal and interest
on the principal amount outstanding.
• Principal is defined as the fair value of the financial asset at initial recognition, which may
vary over time due to repayments or amortisation.
• Interest typically represents compensation for the time value of money, credit risk, other
basic lending risks, and a profit margin.
To determine whether the cash flows meet the SPPI criteria, the Company applies judgement
and evaluates:
• Whether the terms of the financial asset are consistent with a basic lending arrangement;
• The currency in which the instrument is denominated;
• The interest rate reset frequency and its consistency with market rates;
• Whether any features like leverage, conversion, or linked returns to equity indices or
commodities are embedded, which may disqualify the asset from SPPI classification.
Only financial assets meeting both the business model and SPPI criteria are classified and
measured at amortised cost or FVOCI, as applicable. Otherwise, they are classified at FVTPL.
ii) Financial assets or financial liabilities held for trading
The Company classifies certain financial assets and financial liabilities as held for trading if they
are:
• Acquired or incurred principally for the purpose of selling or repurchasing in the near
term;
• Part of a portfolio of identified financial instruments that are managed together and for
which there is evidence of a recent actual pattern of short-term profit-taking.
Such instruments are classified under the Fair Value Through Profit or Loss (FVTPL) category
in accordance with Ind AS 109 - Financial Instruments.
• Measurement: These financial instruments are initially recognized at fair value, and
subsequently measured at fair value at each reporting date.
• Recognition of Changes: All changes in fair value are recognized under "Net gain on fair
value changes" in the Statement of Profit and Loss.
• Income Recognition:
o Interest income (for debt instruments) and dividend income (for equity
instruments), where applicable, are recognized under "Net gain on fair value
changes" as per the contractual terms or when the right to receive such income is
established.
This classification ensures that the financial reporting reflects the Company's active trading
intent and risk management strategy.
iii) Equity Instruments
All investments in equity instruments classified under financial assets are initially measured at
fair value in accordance with Ind AS 109 - Financial Instruments.
• The Company, upon initial recognition, makes an irrevocable election to classify each
equity investment either at Fair Value Through Other Comprehensive Income (FVTOCI)
or Fair Value Through Profit or Loss (FVTPL).
• This election is made on an instrument-by-instrument basis, considering the Company's
investment strategy and intent.
Valuation of Unquoted Equity Instruments
In the absence of an active market or quoted prices, the fair value of unquoted equity
instruments is determined using the Book Value Method, based on the latest available audited
financial statements of the investee company, unless a more appropriate valuation technique is
available.
Recognition of Fair Value Changes and Income
• For equity instruments measured at FVTPL, all fair value changes, including gains and
losses, are recognised in the Statement of Profit and Loss under "Other Income."
• For equity instruments designated at FVTOCI, fair value changes (excluding dividends)
are recognised in Other Comprehensive Income (OCI). These amounts are not reclassified
to the Statement of Profit and Loss upon disposal of the investment.
• Dividend income from equity investments, whether measured at FVTOCI or FVTPL, is
recognised in the Statement of Profit and Loss under "Other Income", when the right to
receive payment is established and it is probable that the economic benefits will flow to the
Company.
iv) Financial assets and financial liabilities at fair value through profit or loss
Financial assets and financial liabilities classified under this category include:
• Instruments that are not held for trading, but are either:
o Mandatorily required to be measured at fair value under Ind AS 109, or
o Designated at FVTPL upon initial recognition by the Company in accordance
with the criteria laid down under Ind AS 109.
These instruments are subsequently measured at fair value, and any changes in fair value are
recognised in the Statement of Profit and Loss, except for changes in the fair value of financial
liabilities designated at FVTPL due to changes in the Company's own credit risk.
• Such own credit risk-related changes are recognised in Other Comprehensive Income
(OCI) under the Own Credit Reserve and are not subsequently reclassified to the profit or
loss.
Interest Recognition
• Interest income or expense on financial instruments designated at FVTPL is accrued using
the Effective Interest Rate (EIR) method, which incorporates any discount/premium and
qualifying transaction costs as part of the instrument.
• For financial assets that are mandatorily measured at FVTPL, interest is recognised at the
contractual interest rate.
Reclassification of financial assets and liabilities
The Company does not reclassify its financial assets after initial recognition, except in rare
circumstances where there is a demonstrable change in the business model for managing those
assets. Such changes are expected to be infrequent and significant, and must be determined by
the Company's senior management as a result of an external or internal change that is
significant to the Company's operations.
• Reclassification is applied prospectively from the reclassification date. Previously
recognised gains, losses, or interest are not restated.
• Examples of such exceptional circumstances include acquisition, disposal, or termination of
a business line.
The Company does not reclassify financial liabilities after initial recognition. Classification of
financial liabilities is determined at the time of initial recognition and remains unchanged
thereafter.
Derecognition of financial assets and liabilities
Derecognition of financial assets due to substantial modification of terms and conditions
The Company derecognises a financial asset—such as a loan—when its original contractual
terms have been renegotiated or modified to such an extent that the asset is deemed, in
substance, to be a new financial instrument. In such cases, the original financial asset is
derecognised and a new financial asset is recognised. The resulting difference between the
carrying amount of the original asset and the fair value of the new asset is recognised in the
Statement of Profit and Loss as a derecognition gain or loss, net of any previously recognised
impairment allowance.
The newly recognised financial asset is classified as Stage 1 for the purposes of Expected Credit
Loss (ECL) measurement under Ind AS 109, unless there is objective evidence that it is credit-
impaired at the time of initial recognition.
In assessing whether a modification is substantial enough to warrant derecognition, the
Company considers, among others, the following factors:
• A change in the counterparty to the financial asset;
Ý Whether the revised cash flows fail the "Solely Payments of Principal and Interest" (SPPI)
test;
• Whether the terms have been altered such that the present value of the modified cash flows,
discounted at the original effective interest rate (EIR), differs substantially from the original
financial asset (generally, a difference of 10% or more is considered substantial).
If the revised cash flows are not substantially different, the modification does not result in
derecognition. Instead, the Company recalculates the gross carrying amount of the asset and
recognises a modification gain or loss in the Statement of Profit and Loss, to the extent that no
impairment loss has already been recognised.
Derecognition of financial assets other than due to substantial modification
Financial assets
A financial asset is derecognised when the contractual rights to receive cash flows from the asset
have expired, or when the asset is transferred and the transfer qualifies for derecognition in
accordance with Ind AS 109.
A transfer qualifies for derecognition only if:
• The Company has transferred substantially all the risks and rewards of ownership of the
financial asset; or
• The Company has neither transferred nor retained substantially all the risks and rewards
of the asset, but has transferred control of the asset.
Transfer of control is deemed to have occurred only if the transferee has the practical ability to
sell the asset in its entirety to an unrelated third party, unilaterally and without the need to
impose additional restrictions on the transfer.
If the Company:
• Retains control of the asset, but has not transferred substantially all risks and rewards, the
asset continues to be recognised to the extent of continuing involvement.
• In such cases, the Company also recognises an associated liability, which together reflect the
rights and obligations retained. These are measured to reflect the extent of the Company's
continuing involvement.
Continuing involvement, such as through a financial guarantee, is measured at the lower of:
• The original carrying amount of the asset; and
• The maximum amount the Company may be required to repay under the guarantee or
obligation.
In instances where only a part of a financial asset is transferred and the transfer qualifies for
derecognition, the Company derecognises the proportionate carrying amount of the asset. The
difference between the consideration received and the carrying value of the portion
derecognised is recognised as gain or loss in the Statement of Profit and Loss under the
amortised cost category.
Financial liabilities
A financial liability is derecognised when, and only when, the obligation specified in the
contract is discharged, cancelled, or expires.
Where an existing financial liability is replaced by another financial liability from the same
lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is accounted for as a derecognition of the original
liability and the recognition of a new financial liability.
The assessment of whether terms are substantially different is based on qualitative and
quantitative factors, including whether the net present value of the cash flows under the new
terms differs by at least 10% from the net present value of the remaining cash flows of the
original liability, discounted at the original effective interest rate.
The difference between the carrying amount of the original financial liability and the
consideration paid (including any non-cash assets transferred or liabilities assumed) is
recognised in the Statement of Profit and Loss as a gain or loss on derecognition.
1) Impairment of financial assets
Loan assets
The Company applies a three-stage model for measuring impairment on financial assets as per
Ind AS 109, based on the changes in credit risk since initial recognition:
• Stage V. Includes financial assets that have not experienced a significant increase in credit risk
(SICR) since initial recognition or that are considered to have low credit risk at the reporting
date. Assets in Stage 1 attract a 12-month Expected Credit Loss (ECL) provision.
• Stage 2: Comprises assets that have experienced a significant increase in credit risk since
initial recognition but do not have objective evidence of credit impairment. These attract a
lifetime ECL provision.
• Stage 3: Covers assets that are credit-impaired, i.e., those with objective evidence of
impairment as at the reporting date. A lifetime ECL is also recognised for these assets.
Measurement of Expected Credit Loss (ECL)
ECL is determined using the following components:
• Probability of Default (PD): Likelihood of a borrower defaulting over a 12-month horizon
(Stage 1) or over the remaining lifetime of the financial asset (Stages 2 & 3).
• Loss Given Default (LGD): Represents the estimated loss in the event of default, considering
factors such as counterparty type, seniority of claim, and value of collateral or other credit
enhancements.
• Exposure at Default (EAD): Reflects the expected outstanding amount at the time of default.
In case of revolving facilities, the EAD includes both the drawn amount and an estimate of
future drawdowns up to the default date.
Forward-Looking Information
The Company incorporates forward-looking macroeconomic information into its ECL models,
including management overlays when necessary. The underlying assumptions and parameters
for PD, LGD, and EAD are reviewed periodically and adjusted based on internal and external
developments.
Credit-Impaired Assets and Interest Recognition
For Stage 3 (credit-impaired) loans, the Company evaluates recoverability based on several
factors such as:
• Type and value of available collateral
• Feasibility of resolution strategies
• Prospective buyers or restructuring arrangements
Given the inherent uncertainty and variability in timing of recoveries, especially in secured
lending typical to NBFCs, the Company adopts a conservative approach by suspending
recognition of interest income on such assets.
In line with RBI's prudential norms, provisions are made based on the best estimates of realisable
value of collateral, supported by current valuation reports.
Trade receivables
In accordance with the simplified approach prescribed under Ind AS 109 - Financial
Instruments, the Company measures the loss allowance for trade receivables at an amount equal
to lifetime expected credit losses (ECL).
Lifetime ECL represents the expected credit losses that result from all possible default events
over the expected life of the receivable, without the need to assess whether a significant increase
in credit risk has occurred.
The Company's ECL model for trade receivables is developed based on:
• Historical default rates,
• Adjusted for current conditions, and
• Forward-looking estimates where applicable.
This approach ensures timely recognition of credit losses, reflecting the Company's assessment of
credit risk associated with its receivables portfolio.
Other financial assets
In respect of its other financial assets, the Company assesses if the credit risk on those financial
assets has increased significantly since initial recognition. If the credit risk has not increased
significantly since initial recognition, the Company measures the loss allowance at an amount
equal to 12-month expected credit losses, else at an amount equal to the lifetime expected credit
losses.
When making this assessment, the Company uses the change in the risk of a default occurring
over the expected life of the financial asset. To make that assessment, the Company compares
the risk of a default occurring on the financial asset as at the balance sheet date with the risk of a
default occurring on the financial asset as at the date of initial recognition and considers
reasonable and supportable information, that is available without undue cost or effort, that is
indicative of significant increases in credit risk since initial recognition. The Company assumes
that the credit risk on a financial asset has not increased significantly since initial recognition if
the financial asset is determined to have low credit risk at the balance sheet date.
Write-offs
Financial assets are written off, either partially or in full, when there is no reasonable
expectation of recovery. This is generally the case when the Company concludes 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.
Such write-offs are recognised in the Statement of Profit and Loss under impairment losses on
financial instruments. Any subsequent recoveries of amounts previously written off are credited
to the same head in the period in which the recovery is made.
Write-offs do not prejudice the Company's continuing enforcement activity, including legal
recourse, for recovery of amounts due.
m) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is presented in the balance
sheet only when the Company:
• Currently has a legally enforceable right to offset the recognised amounts; and
• Intends either to settle on a net basis or to realise the asset and settle the liability
simultaneously.
The legally enforceable right must not be contingent on a future event and must be enforceable in
the normal course of business, in the event of default, and in the event of insolvency or bankruptcy
of the Company and all counterparties.
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