6. Material Accounting Policies

The Company consistently applies the following accounting
policies to all periods presented in these financial statements.

a) Revenue Recognition

i. Interest income from financial assets is recognised
on accrual basis using Effective Interest Rate (‘EIR’)
method. The EIR is the rate that exactly discounts
the estimated future cash receipts through the
expected life of the financial instrument or a shorter
period, where appropriate to the net carrying amount
of the financial asset. The EIR is computed basis the
expected cash flows by considering all the
contractual terms of the financial instrument. The
calculation includes all fees, transaction costs, and
all other premiums or discounts paid or received
between parties to the contract that are an integral
part of the effective interest rate.

The interest revenue continues to be recognised at
the original EIR applied on gross carrying amount
for financial assets (when the asset is not credit
impaired).

For financial assets that were credit impaired on
initial recognition, interest income is calculated by
applying the credit-adjusted effective interest rate to
the amortised cost of the financial asset. The increase
in gross carrying amount of Stage 3 assets shall be
written off to the extent of Stage 3 interest income
where there is no reasonable expectation of recovery.

ii. Penal interest and other overdue charges which are
not included in effective interest rate is recognised
on realisation, due to uncertainty of realisation and
is accounted for accordingly.

iii. Amount received from borrowers against loans and
advances are appropriated due date-wise towards
other debits, interest overdue and principal overdue,
in that order, across the due dates, except in the case
of one time or negotiated settlements, where the
appropriation is done as per the terms of the
settlement.

iv. Premium on pre-payment of loans/ reduction in
interest rates is recognised as income on receipt basis.

v. Dividends declared by the respective Companies till
the close of the accounting period are accounted for
as income when the right to receive the dividend is
established.

vi. LC Commission is recognised over time as the
services are rendered as per the terms of the contract.

vii. The dividend unclaimed on account of shares sold
and outstanding in the books are recognised as
income after the end of three years, the limitation
period.

b. Financial instruments

I. Initial recognition and measurement

Financial assets and financial liabilities are
recognised when the Company becomes a party to
the contractual provisions of the instruments.

Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of
financial assets and financial liabilities (other than
financial assets and financial liabilities at fair value
through profit or loss) are added to or deducted from
the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition.
However, trade receivables that do not contain a
significant financing component are measured at
transaction price.

II. Classifications and subsequent measurement
Financial assets

On initial recognition, a financial asset is classified
as subsequently measured at either amortised cost
or fair value through other comprehensive income
(‘FVTOCI’) or FVTPL, depending on the contractual
cash flow characteristics of the financial assets and
the Company’s business model for managing the
financial assets.

Business Model Assessment

The Company makes an objective assessment of the
business model in which an asset is held at a portfolio
level, because this best reflects the way the business
is managed and information is provided to
management. The information considered includes:

• 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 frequency, volume and timing of sales in
prior periods, the reasons for such sales and its
expectations about future sales activity.
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 realized;

The risks that affect the performance of the business
model (and the financial assets held within that
business model) and how those risks are managed.

Financial assets are not reclassified subsequent to
their initial recognition, except if and in the period
the Company changes its business model for
managing financial assets.

Financial assets at Amortised Cost

A financial asset is measured at amortised cost only
if both of the following conditions are met:

• It 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
represent contractual cash flows that are solely
payments of principal and interest

Subsequently, these are measured at amortised cost
using the effective interest rate (EIR) method less any
impairment losses.

Financial assets at Fair Value through Other
Comprehensive Income(‘FVTOCI’)

A financial asset is measured at FVTOCI only if both
of the following conditions are met:

• It is held withing a business model whose
objective is achieved by both collecting
contractual cash flows and selling financial
assets.

• The contractual terms of the financial asset
represent contractual cash flows that are solely
payments of principal and interest.

Subsequently, these are measured at fair value and
changes therein, are recognised in other
comprehensive income. Impairment losses on said
financial assets are recognised in other
comprehensive income and do not reduce the
carrying amount of the financial asset in the balance
sheet.

Financial assets at Fair Value through Profit and Loss
(FVTPL)

Any financial instrument, which does not meet the
criteria for categorisation as at amortised cost or as
FVOCI, is classified as at FVTPL.

Subsequently, these are measured at fair value and
changes therein, are recognised in profit and loss
account.

Investment in equity instruments

All equity investments in scope of Ind AS 109 (i.e.
other than equity investments in subsidiaries /
associates / joint ventures) are measured at FVTPL.

Subsequently, these are measured at fair value and
changes therein, are recognised in profit and loss
account. However, on initial recognition of an equity
instrument that is not held for trading, the Company
may irrevocably elect to present subsequent changes
in fair value in OCI. This election is made on an
investment-by-investment basis.

Derivative instruments

All derivative instruments are measured as FVTPL.

Financial liabilities and equity instruments

Debt and equity instruments issued by the Company
are classified as either financial liabilities or as equity
in accordance with the substance of the contractual
arrangements and the definitions of a financial
liability and an equity instrument.

Financial liabilities are classified, at initial
recognition, as financial liabilities at fair value
through profit or loss or amortised cost, as
appropriate and is accordingly accounted for.

An equity instrument is any contract that evidences
a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments
issued by the Company is recognised at the proceeds
received, net of directly attributable transaction costs.

III. Measurement Basis
Amortised cost

Amortised cost is the amount at which the financial
asset or financial liability is measured at initial
recognition minus the principal repayments, plus or
minus the cumulative amortisation using the EIR
method of discount or premium on acquisition and
fees or costs that are an integral part of the EIR and,
for financial assets, adjusted for any loss allowance.

Fair Valuation

Fair value is the price 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 in the principal or, in its absence,
the most advantageous market to which the Company
has access at that date. The fair value of a liability
reflects it non-performance risk.

When one is available, the Company measures the
fair value of an instrument using the quoted price in
an active market for that instrument. A market is
regarded as active if transactions for the asset or
liability take place with sufficient frequency and
volume to provide pricing information on an ongoing
basis.

If there is no quoted price in an active market, then
the Company uses valuation techniques that
maximise the use of relevant observable inputs and
minimise the use of unobservable inputs. The
valuation technique incorporates all of the factors
that market participants would take into account in
pricing a transaction.

IV. De-recognition/Modification of financial assets and
financial liabilities

Derecognition of financial assets and financial
liabilities

Financial assets

A financial asset (or, where applicable, a part of a
financial asset or part of a group of similar financial
assets) is primarily de-recognised (i.e. removed from
the Company’s balance sheet) when:

• The rights to receive cash flows from the asset
have expired, or fully recovered or

• The Company has transferred its rights to
receive cash flows from the asset or has assumed
an obligation to pay the received cash flows in
full without material delay to a third party under
a ‘pass-through’ arrangement; and either (a) the
Company has transferred substantially all the
risks and rewards of the asset, or (b) the
Company has neither transferred nor retained
substantially all the risks and rewards of the
asset, but has transferred control of the asset.

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 recognize the transferred asset
to the extent of the Company’s continuing
involvement. The Company also recognise a liability
for the consideration received attributable to the
Company’s continuing involvement on the asset
transferred. The transferred asset and the associated
liability are measured on a basis that reflects the
rights and obligations that the Company has retained.

On de-recognition of a financial asset, the difference
between the carrying amount of the asset (or the
carrying amount allocated to the portion of the asset
de-recognised) and the sum of (i) the consideration
received (including any new asset obtained less any
new liability assumed) and (ii) any cumulative gain
or loss that had been recognised in OCI is recognised
in profit or loss.

Financial liabilities

The Company de-recognises a financial liability
when its contractual obligations are discharged or
cancelled, or expired.

V. Offsetting of financial instruments

Financial assets and financial liabilities are offset and
the net amount is reported in the balance sheet when
the Company has a legally enforceable right to offset
the recognised amounts and there is an intention to
settle on a net basis, or realize the asset and settle
the liability simultaneously.

VI. Impairment of Financial Assets

The Company recognises impairment allowances for
ECL on all the financial assets that are not measured
at FVTPL:

- financial assets that axe debt instruments

- lease receivables

- financial guarantee contracts issued

- loan commitment issued

No impairment loss is recognised on equity
investments

ECL are probability weighted estimate of credit
losses. They are measured as follows:

- financial assets that are not credit impaired - as
the present value of all cash shortfalls that are
possible within 12 months after the reporting
date.

- financial assets with significant increase in
credit risk but not credit impaired - as the
present value of all cash shortfalls that result
from all possible default events over the
expected life of the financial asset.

- financial assets that are credit impaired - as the
difference between the gross carrying amount
and the present value of estimated cash flows

- undrawn loan commitments - as the present
value of the difference between the contractual
cash flows that are due to the Company if the
commitment is drawn down and the cash flows
that the Company expects to receive

With respect to trade receivables and other financial
assets, the Company measures the loss allowance at
an amount equal to lifetime expected credit losses.

Loss allowances for financial assets measured at
amortised cost are deducted from the gross carrying
amount of the assets. For financial assets at FVTOCI,
the loss allowance is recognised in OCI.

Write-off

Financial assets are written off (either partially or in
full) when there is no reasonable expectation of
recovering a financial asset in its entirety or a portion
thereof. This is generally the case when the Company
determines that the borrower does not have assets
or sources of income that could generate sufficient
cash flows to repay the amounts subject to the write¬
off. This assessment is carried out at the individual
asset level and is charged to statement of profit or
loss.

However, financial assets that are written off could
still be subject to enforcement activities under the
Company’s recovery procedures, taking into account
legal advice where appropriate. Any recoveries made
are recognised in profit or loss as an adjustment to
impairment on financial assets.

c. Investment in subsidiaries, associates and joint ventures

The Company accounts for its investments in subsidiaries,
associates and joint ventures at cost less accumulated
impairment, if any.

d. Leases

Leases are classified as finance leases whenever the terms
of the lease transfer substantially all the risks and rewards
of ownership to the lessee. All other leases are classified
as operating leases.

I. The Company as lessor

Amounts due from lessees under finance leases are
recognised as receivables at the amount of the
Company’s net investment in the leases. Finance
lease income is allocated to accounting periods so as
to reflect a constant periodic rate of return on the
Company’s net investment outstanding in respect of
the leases.

Rental income from operating leases is generally
recognised on a straight-line basis over the term of
the relevant lease. Where the rentals are structured
solely to increase in line with expected general
inflation to compensate for the Company’s expected
inflationary cost increases, such increases are
recognised in the year in which such benefits accrue.

II. The Company as lessee

Rental expense from operating leases is generally
recognised on a straight-line basis over the term of
the relevant lease. Where the rentals are structured
solely to increase in line with expected general
inflation to compensate for the lessor’s expected
inflationary cost increases, such increases are
recognised in the year in which such cost incurred.
Contingent rentals arising under operating leases are
recognised as an expense in the period in which they
are incurred.

e. Employee benefits

i. Short term employee benefits

Short term employee benefits are expensed as the
related service is provided. A liability is recognised
for the amount expected to be paid if the Company
has a present legal or constructive obligation to pay
this amount as a result of past service provided by
the employee and the obligation can be estimated
reliably.

ii. Post employment benefits

a. Defined contribution plans
Pension

Prior to 1 April 2008, the employees were
governed by the provisions of the pension
scheme in operation at the time of their
retirement and are accordingly entitled to DA
relief and family pension as and when due. The
contribution made on account of same is
charged to revenue as and when due. The
Company switched to defined contribution
scheme in August 2008 for employees existing
on 1 April 2008 and opting for the same. The
administration of Pension Fund in respect of the
employees has been entrusted by Trustees to Life

Insurance Corporation of India (LIC) by entering
into a Group Superannuation Cash
Accumulation Scheme.

b. Defined benefit plans
Provident Fund

The Company pays fixed contribution to
Provident Fund at predetermined rates and
invests the funds in permitted securities. The
contributions to the fund for the year are
recognized as expense and are charged to the
profit or loss. The obligation of the Company is
to make such fixed contributions and to ensure
a minimum rate of return to the members as
specified by the Government of India (GoI).

Gratuity

The Company has a defined benefit employee
scheme in the form of Gratuity. The Trustees of
the scheme have entrusted the administration
of related fund to LIC. Expense for the year is
determined on the basis of actuarial valuation
of the Company’s year-end obligation in this
regard and the value of year end assets of the
scheme. Contribution is deposited with LIC
based on intimation received by the Company.

Medical facility

The Company has a post-retirement medical
benefit scheme for employees and their
dependants subject to certain limits for
hospitalization and normal medical treatment.

The Company’s net obligation in respect of
defined benefit plans is calculated separately
for each plan by estimating the amount of future
benefit that employees have earned in return
for their service in the current costs and the fair
value of any plan assets, if any is deducted.

The present value of the obligation under such
defined benefit plan is determined based on
actuarial valuation using the Projected Accrued
Benefit Method (same as Projected Unit Credit
Method), which recognises each period of
service as giving rise to additional unit of
employee benefit entitlement and measures
each unit separately to build up the final
obligation.

iii. Other long term employee benefits

Benefits under the Company’s leave encashmenand
and leave fare concession constitute other long term
employee benefits. The Company’s net obligation in
respect of leave encashment is the amount of future
benefit that employees have present value, and the
fair value of any related assets is deducted. The
calculation is performed using the projected unit
credit method. Any actuarial gains or losses are
recognized in profit or loss in the period in which
they arise. Provision for Leave fare concession is
being made on actuarial valuation basis.

f. Income Taxes

I. Current tax

Current tax is measured at the amount expected to
be paid in respect of taxable income for the year in
accordance with the Income Tax Act, 1961. Current
tax comprises the tax payable on the taxable income
or loss for the year and any adjustment to the tax
payable in respect of previous years. It is measured
using tax rates enacted or substantively enacted at
the reporting date. Minimum alternative tax (‘MAT’)
under the provisions of the Income Tax Act, 1961 is
recognised as current tax in the statement of profit
and loss.

Current tax assets and liabilities are offset only if,
the Company:

a) has a legally enforceable right to set off the
recognised amounts; and

b) intends either to settle on a net basis, or to realize
the asset and settle the liability simultaneously.

II. Deferred tax

Deferred tax is recognised in respect of temporary
differences between the carrying amounts of assets
and liabilities for financial reporting purposes and
the amounts used for taxation purposes. Deferred tax
assets are reviewed at each reporting date and based
on management’s judgement, are reduced to the
extent that it is no longer probable that the related
tax benefit will be realised; such reductions are
reversed when the probability of future taxable
profits improves.

Unrecognized deferred tax assets are reassessed at
each reporting date and recognised to the extent that
it has become probable that future taxable profits
will be available against which they can be used.
Deferred tax is measured at the tax rates that are
expected to be applied to temporary differences when
they reverse, using tax rates 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
the Company:

a) has a legally enforceable right to set off current
tax assets against current tax liabilities; and

b) the deferred tax assets and the deferred tax
liabilities relate to income taxes levied by the
same taxation authority.

The credit available under the Act in respect of MAT
paid is recognised as an asset only when and to the
extent there is convincing evidence that the Company
will pay normal income tax during the period for
which the MAT credit can be carried forward for set¬
off against the normal tax liability. MAT credit
recognised as an asset is reviewed at each balance

sheet date and written down to the extent the
aforesaid convincing evidence no longer exists.

g. Property, plant and equipment and Investment property
Recognition and measurement

Property, plant and equipment held for use or for
administrative purposes, are stated in the balance sheet
at cost less accumulated depreciation and accumulated
impairment losses. The cost includes non-refundable
taxes, duties, freight and other incidental expenses related
to the acquisition and installation of the respective assets.
Assets having individual value of less than ' 5,000/- are
charged to statement of Profit and Loss in the year of
purchase.

Investment Property consists of building let out to earn
rentals. The Company follows cost model for
measurement of investment property.

Depreciation

Depreciation is provided using the straight-line method
over the useful life as prescribed under Schedule II to the
Companies Act, 2013. Depreciation is calculated on pro¬
rata basis, including the month of addition and excluding
the month of sale/disposal. Leasehold improvements are
amortised over the underlying lease term on a straight¬
line basis. Residual value in respect of Buildings and
Vehicles is considered as 5% of the cost and in case of
other assets ‘ ‘Nil’.

The estimated useful lives, residual values and
depreciation method are reviewed at the end of each
reporting period, with the effect of any changes in estimate
accounted for on a prospective basis.

De-recognition

An item of property, plant and equipment or investment
property is de-recognized upon disposal or when no future
economic benefits are expected to arise from the continued
use of the asset. Any gain or loss arising on the disposal
or retirement of an item of property, plant and equipment
or investment property is determined as the difference
between the sales proceeds and the carrying amount of
the asset and is recognised in profit or loss.

h. Intangible assets
Recognition and measurement

Intangible assets are recognized at cost of acquisition
which includes all expenditure that can be directly
attributed or allocated on a reasonable and consistent
basis, to create, produce or making the asset ready for its
intended use.

Amortisation

Amortisation is recognised on a straight-line basis over
their estimated useful lives. The estimated useful life and
amortisation method are reviewed at the end of each
reporting period, with the effect of any changes in estimate
being accounted for on a prospective basis. The intangible
assets shown in the Balance Sheet include computer
software having perpetual license and are amortized on

Straight Line Method over the period of six years from
the date of capitalization.

De-recognition

An intangible asset is de-recognized on disposal, or when
no future economic benefits are expected from use or
disposal. Gains or losses arising from de-recognition of
an intangible asset, measured as the difference between
the net disposal proceeds and the carrying amount of the
asset, is recognised in profit or loss when the asset is de¬
recognized.

i. Impairment of non-financial assets

At each reporting date, the Company reviews the carrying
amount of its non financial assets (other than assets held
for sale and deferred tax assets) to determine whether
there is any indication of impairment. If any such
indication exists, then the asset’s recoverable amount is
estimated.

For impairment testing, assets are grouped together into
the smallest group of assets that generates cash inflows
from continuing use that is largely independent of the
cash inflows of other assets or CGUs.

The ‘recoverable amount’ of an asset or CGU is the greater
of its value in use and its fair value less costs to sell. ‘Value
in use’ is based on the estimated future cash flows,
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 or CGU.

Impairment losses are recognised in profit and loss. An
impairment loss is reversed only to the extent that the
asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had
been recognised.

j. Foreign currency transactions

The expenses and income in foreign exchange
transactions are accounted for at the rates prevailing on
the date of transactions/ at the forward rate, if booked, for
such transaction. Assets and liabilities held in foreign
currencies and accrued income and expenditure in foreign
currencies are translated into Indian Rupees at the rates
advised by Foreign Exchange Dealers Association of India
(FEDAI) prevailing towards the close of the accounting
period. Gains/ losses, if any, on valuation of various assets
and liabilities are taken to Statement of Profit & Loss.