3 Material Accounting Policies

a) Property, plant & equipment

i) Property, plant and equipment

All items of property, plant and equipment are measured at cost less accumulated depreciation and impairment
loss if any. The cost comprises the purchase price and incidental expenses directly attributable to bringing the
asset to the location and condition necessary for it to be capable of operating in the manner intended by the
management.

Changes in the expected useful life are accounted for by changing the amortization period or methodology, as
appropriate, and treated as changes in accounting estimates.

Subsequent costs are included in the asset’s carrying amount or recognized 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. The carrying amount of any component accounted for as
a separate asset is derecognized when replaced. All other repairs and maintenance are recognized in profit or
loss during the reporting period, as and when they are incurred.

b) Depreciation and Amortization

As per the requirement of Schedule II of the Companies Act, 2013, the Company has evaluated the useful lives
of the respective fixed assets which are as per the provisions of Part C of the Schedule II for calculating the
depreciation. The estimated useful lives of the fixed assets are as follows:

Furniture and fixtures 10 years

Computer and data processing equipment 3 years

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.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. The carrying amount of those components which have been
separately recognised as assets is derecognised at the time of replacement thereof. Any gain or loss arising on the
disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognised in profit or loss.

c) Financial assets and liabilities

i) Amortised cost and effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of
allocating interest income over the relevant period.

For the financial instrument other than purchased or originated credit-impaired financial assets, the effective
interest rate is the rate that exactly discounts estimated future cash flows (including all fees and points paid
or received that form an integral part of the effective interest rate, transaction costs and other premiums
or discounts) excluding expected credit losses, through the expected life of the debt instrument, or, where
appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition.

The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition
minus the principal repayments, plus the cumulative amortisation using the effective interest method of any
difference between that initial amount and the maturity amount, adjusted for any loss allowance. On the other
hand, the gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting
for any loss allowance.

ii) Financial assets held for trading

The Company classifies financial assets as held for trading when they have been purchased or issued primarily
for short-term profit making through trading activities or form part of a portfolio of financial instruments
that are managed together, for which there is evidence of a recent pattern of short-term profit taking. Held-
for-trading assets are recorded and measured in the balance sheet at fair value. Changes in fair value are
recognised in net gain on fair value changes.

iii) Investment in Equity instruments

The Company subsequently measures all equity investments at FVTPL, unless the Company’s management
has elected to classify irrevocably some of its strategic equity investments to be measured at FVOCI, when
such instruments meet the definition of Equity under Ind AS 32 Financial Instruments: Presentation are not
held for trading. Such classification is determined on an instrument-by-instrument basis.

iv) Financial Liabilities

All the financial liabilities are measured at amortised cost except loan commitments, financial guarantees.

v) Financial liabilities and equity instruments

Financial 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.

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 are recognised at the proceeds received, net of
direct issue costs.

vi) Reclassification of financial assets and financial liabilities

The Company does not reclassify its financial assets subsequent to their initial recognition, apart from the
exceptional circumstances in which the Company acquires, disposes of, or terminates a business line. The
company didn’t reclassify any of its financial assets or liabilities in current period and previous period.

d) Derecognition of financial assets and liabilities

i) Derecognition of financial asset

A financial asset (or, where applicable a part of a financial asset or a part of a group of similar financial assets)
is derecognised when the rights to receive cash flows from the financial asset have expired. The Company
also derecognises the financial asset if it has both transferred the financial asset and the transfer qualifies for
derecognition.

The Company has transferred the financial asset if and only if; either

- The Company has transferred the rights to receive cash flows from the financial asset or

- It retains the contractual rights to receive the cash flows of the financial asset but assumed a contractual
obligation to pay the cash flows in full without material delay to third party under ‘pass through’ arrangement.

A transfer only qualifies for derecognition if either:

- The Company has transferred substantially all the risks and rewards of the 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.

The Company considers control to be transferred if and only if, the transferee has the practical ability to sell
the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without
imposing additional restrictions on the transfer.

ii) Derecognition of financial liabilities

A Financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.
Where 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 a derecognition of the original liability and the recognition of’ a new liability. The difference between
the carrying value of the original financial liability and the consideration paid, including modified contractual
cash flow recognised as new financial liability, is recognised in the statement of profit and loss.

e) Impairment of financial assets

The Company records allowance for expected credit losses for financial assets carried at amortised cost and all 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.

ECL is a probability-weighted estimate of credit losses. A credit loss 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 discounted
at the original effective interest rate. Because ECL consider the amount and timing of payments, a credit loss arises
even if the entity expects to be paid in full but later than when contractually due.

Simplified Approach

The Company follows ‘simplified approach’ for recognition of impairment loss allowance on loan granted. The
application of simplified approach does not require the Company to track changes in credit risk. Rather, it recognizes
impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition. The
Company uses a provision matrix to determine impairment loss allowance. However, if receivables contain a
significant financing component, the Company chooses as its accounting policy to measure the loss allowance by
applying general approach to measure ECL.

General Approach

The Company records allowance for expected credit losses for all loans, other financial assets not held at fair
value through profit or loss (FVTPL), together with financial guarantee contracts, 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), 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.

Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a
financial instrument. The 12-month ECL is the portion of Lifetime ECL that represent the ECLs that result from
default events on a financial instrument that are possible within the 12 months afer the reporting date.

The Company has established a policy to perform an assessment, at the end of each reporting period, of whether a
fnancial instrument’s credit risk has increased significantly since initial recognition, by considering the change in
the risk of default occurring over the remaining life of the financial instrument. The Company does the assessment
of significant increase in credit risk at a borrower level. If a borrower has various facilities having different past due
status, then the highest days past due (DPD) is considered to be applicable for all the facilities of that borrower.

Based on the above, the Company categorises its loans into Stage 1, Stage 2 and Stage 3 as described below:
Stage 1

All exposures where there has not been a significant increase in credit risk since initial recognition or that has low
credit risk at the reporting date and that are not credit impaired upon origination are classified under this stage. The
Company classifies all standard advances and advances upto 30 days default under this category. Stage 1 loans also
include facilities where the credit risk has improved and the loan has been reclassified from Stage 2 or Stage 3.

Stage 2

All exposures where there has been a significant increase in credit risk since initial recognition but are not credit
impaired are classified under this stage. 30 Days Past Due is considered as significant increase in credit risk.

Stage 3

All exposures assessed as credit impaired when one or more events that have a detrimental impact on the estimated
future cash fows of that asset have occurred are classified in this stage. For exposures that have become credit
impaired, a lifetime ECL is recognised and interest revenue is calculated by applying the effective interest rate
to the amortised cost (net of provision) rather than the gross carrying amount. 90 Days Past Due is considered as
default for classifying a financial instrument as credit impaired. If an event (for e.g. any natural calamity) warrants
a provision higher than as mandated under ECL methodology, the Company may classify the financial asset in
Stage 3 accordingly.

Upgradation of accounts classified as Stage 3/Non-performing assets (NPA) - The Company upgrades loan
accounts classified as Stage 3/ NPA to ‘standard’ asset category only if the entire arrears of interest, principal and
other amount are paid by the borrower and there is no change in the accounting policy followed by the Company
in this regard.

f) Fair Value measurement

The Company measures financial instruments at fair value at each balance sheet date using various valuation
techniques. 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.

The Company’s accounting policies require, measurement of certain financial / non-financial assets and liabilities
at fair values (either on a recurring or non-recurring basis). Also, the fair values of financial instruments measured
at amortized cost are required to be disclosed in the said financial statements.

The Company is required to classify the fair valuation method of the financial / non-financial assets and liabilities,
either measured or disclosed at fair value in the financial statements, using a three level fair-value-hierarchy (which
reflects the significance of inputs used in the measurement). 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.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized
within the fair value hierarchy described as follows:

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 Group will classify the instruments as
Level 3.

Level 3 financial instruments:

Those that include one or more unobservable input that is significant to the measurement as whole.

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines
whether transfers have occurred between levels in the hierarchy by re-assessing categorization (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 periodically reviews its valuation techniques including the adopted methodologies and model
calibrations. Therefore, the Company applies various techniques to estimate the credit risk associated with its
financial instruments measured at fair value, which include a portfolio-based approach that estimates the expected
net exposure per counterparty over the full lifetime of the individual assets, in order to reflect the credit risk of the
individual counterparties for non-collateralised financial instruments.

The Company evaluates the levelling 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.

g) 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 measurement of financial instruments

Financial assets and financial liability are initially measured at fair value. Transaction cost that are directly
attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets
and financial liabilities recorded at fair value through profit & loss (FVTPL)), are added to or subtracted
from the fair value of financial assets or financial liabilities, as appropriate, on initial recognition. Transaction
cost directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized
immediately in profit or loss.

ii) Classification & 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:

Financial assets at amortised cost (AC)

A financial asset is measured at amortised cost if it is held within a business model whose objective is to
hold assets for collecting contractual cash flows and contractual terms of the financial asset give rise on
specified dates to cash flows that are solely for the payments of principal and interest on the principal amount
outstanding. The changes in carrying value of financial assets is recognised in profit and loss account.

Financial assets at fair value through other comprehensive income (FVTOCI)

A financial asset is measured at FVTOCI if it is held within business model whose objective is achieved by
both collecting contractual cash flows and selling financial assets and the contractual terms of the financial
assets that give rise to cash flows on specified dates, that represent solely payments of principal and interest
on the principal amount outstanding. The changes in fair value of financial assets is recognised in Other
Comprehensive Income.

Financial Assets at fair value through profit & loss (FVTPL)

A financial asset which is not classified in any of above categories are measured at FVTPL. The Company
measures all financial assets classified as FVTPL at fair value at each reporting date. The changes in fair value
of financial assets is recognised in Profit and loss account.

h) Taxes

i) Current income tax

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted, at the reporting date.

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 items are recognised in correlation to the
underlying transaction either in OCI or directly in equity. Management periodically evaluates positions taken
in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and
establishes provisions where appropriate.

ii) Deferred tax

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred
tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally
recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be
available against which those deductible temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the
extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset
to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in
which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.

Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets
and liabilities and they relate to income taxes levied by the same tax authority on the same taxable entity, or on
different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets
and liabilities are realised simultaneously.

iii) 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.