5 Material accounting policies (Also refer note 2
above)5.1 Investments in subsidiary
Equity investment in subsidiary is recognised at cost as
permissible under Ind AS 27 'Separate Financial Statements
and not adjusted to fair value at the end of each reporting
period. Cost represents amount paid for acquisition of the
said investments (net of impairment).
I mpairment of investments in subsidiaries: The Company
reviews its carrying value of investments carried at cost
(net of impairment, if any) annually, or more frequently
when there is indication for impairment. If the recoverable
amount is less than its carrying amount, the impairment
loss is accounted for in the statement of profit and loss”
5.1A Recognition of Securitised assets and direct
assignment transactions:
Pursuant to the regulatory guidance on Ind AS
issued by RBI dated 13th March, 2020 to promote
consistent Ind AS implementation among NBFCs,
the Company has changed its policy on accounting
for securitised assets and direct assignment
transactions. The securitised assets which were
hitherto, de-recognized in the books based on
'True Sale Criteria' prescribed by RBI, will be now
re-recognised in the books along with interest
income using effective interest rate as the company
has not transferred substantially all the risks and
rewards in accordance with the provisions of Indian
Accounting Standard 109 (Ind AS 109), 'Financial
Instruments' . Proceeds received from securitisation
will be recognised as Borrowings (other than debt
securities) and Interest thereon will be recognised as
Finance cost.
In respect of Direct Assignment transactions, assets
continue to be derecognized in the books as it
fulfils "True Sale Criteria” prescribed by RBI and has
transferred substantially all the risks and rewards in
accordance with the provisions of Indian Accounting
Standard No.109 (Ind AS 109), 'Financial Instruments'
and the gain on sale of assets arising from such direct
assignment transactions, will be recognised at fair
value of interest strip.
5.2 Financial instruments
Financial assets and financial liabilities are recognised
when the Company becomes a party to the contractual
provisions of the financial instruments.
On initial recognition, financial assets and financial liabilities
are recognised at fair value plus/ minus transaction cost
that is attributable to the acquisition or issue of financial
assets and financial liabilities. In case of financial assets
and financial liabilities which are recognised at fair value
through profit and loss (FVTPL), its transaction costs are
recognised in Statement of Profit and Loss.
(A) Financial Assets
(i) Classification of financial instruments
The Company classifies its financial assets into
the following measurement categories:
1. Financial assets to be measured at
amortised cost
2. Financialassets to be measured at fairvalue
through other comprehensive income
3. Financial assets to be measured at fair
value through profit or loss account
The classification depends on the contractual
terms of the financial assets' cash flows and
the Company's business model for managing
financial assets.
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 business model is assessed on
the basis of aggregated portfolios based on
observable factors. These factors include:
• Reports reviewed by the entity's
key management personnel on the
performance of the financial assets
• The risks impacting the performance of the
business model (and the financial assets
held within that business model) and its
management thereof
• The compensation of the managing teams
(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 trades.
The business model assessment is based
on reasonably expected scenarios without
taking 'worst case' or 'stress case' scenarios
into account.
The Company also assesses the contractual
terms of financial assets on the basis of its
contractual cash flow characteristics that are
solely for the payments of principal and interest
on the principal amount outstanding. 'Principal' is
defined as the fair value of the financial asset at
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).
The classification depends on the contractual
terms of the financial assets' cash flows and
the Company's business model for managing
financial assets. 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 business
model is assessed on the basis of aggregated
portfolios based on observable factors.
These factors include:
1. Reports reviewed by the entity's
key management personnel on the
performance of the financial assets
2. The risks impacting the performance of the
business model (and the financial assets
held within that business model) and its
management thereof
3. The compensation of the managing teams
(for example, whether the compensation
is based on the fair value of the assets
managed or on the contractual cash flows
collected)
4. The expected frequency, value and timing
of trades.
The business model assessment is based
on reasonably expected scenarios without
taking 'worst case' or 'stress case' scenarios
into account.
The Company also assesses the contractual
terms of financial assets on the basis of its
contractual cash flow characteristics that are
solely for the payments of principal and interest
on the principal amount outstanding.
' Principal' s defined as the fair value of the
financial asset at 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).
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 Company classifies its financial liabilities
at amortised costs unless it has designated
liabilities at fair value through the profit and loss
account or is required to measure liabilities at fair
value through profit or loss such as derivative
liabilities.
(ii) Financial assets measured at amortised cost
These Financial assets comprise bank balances,
Loans, investments in debt securities and other
financial assets.
Financial assets that meet the following
conditions are subsequently measured at
amortised cost using Effective Interest Rate
method (EIR):
1. FinancialAssets with contractual terms that
give rise to cash flows on specified dates,
and represent solely payments of principal
and interest (SPPI) on the principal amount
outstanding; and
2. The assets are held within a business
model whose objective is achieved by
holding to collect contractual cash flows
are measured at amortised cost.
These financial assets are initially recognised at
fair value plus directly attributable transaction
costs and subsequently measured at amortised
cost. Transaction costs are incremental costs
that are directly attributable to the acquisition,
issue or disposal of a financial asset or a financial
liability.
Effective Interest Rate (EIR) method -
The effective interest rate method is a method
of calculating the amortised cost of financial
asset and of allocating interest income over
the expected life. The Company while applying
EIR method, generally amortises any fees,
transaction costs and other premiums or
discount that are integral part of the effective
interest rate of a financial instrument.
Income is recognised in the Statement of Profit
and Loss on an effective interest rate basis
for financial assets other than those classified
as at FVTPL.
EIR is determined at the initial recognition of the
financial asset. EIR is subsequently updated at
every reset, in accordance with the terms of the
respective contract.
Once the terms of financial assets are
renegotiated, other than market driven interest
rate movement, any gain / loss measured
using the previous EIR as calculated before the
modification, is recognised in the Statement
of Profit and Loss in period during which such
renegotiations occur.
(iii) Financial assets measured at fair value
through other comprehensive income
A financial asset is measured at FVTOCI if both
the following conditions are met:
• The objective of the business model is
achieved both by collecting contractual
cash flows and selling the financial
asset; and
• The contractual terms of the assetgive rise
on specified dates to cash flows that are
Solely Payments of Principal and Interest
(SPPI) on the principal amount outstanding.
All fair value changes are recognised in Other
Comprehensive Income (OCI) and accumulated
in Reserve.
Debt instruments
Investments in debt instruments are measured at
fair value through other comprehensive income
where they have:
a) contractual terms that give rise to cash
flows on specified dates, that represent
solely payments of principal and interest
on the principal amount outstanding; and
b) are held within a business model whose
objective is achieved by both collecting
contractual cash flows and selling
financial assets.
These debt instruments are initially recognised
at fair value plus directly attributable transaction
costs and subsequently measured at fair value.
Gains and losses arising from changes in fair
value are included in other comprehensive
income (a separate component of equity).
Impairment losses or reversals, interest revenue
and foreign exchange gains and losses are
recognised in profit and loss. Upon disposal, the
cumulative gain or loss previously recognised in
other comprehensive income is reclassified from
equity to the statement of profit and loss. As at
the reporting date the Company does not have
any financial instruments measured at fair value
through other comprehensive income. ”
Equity instruments
Investment in equity instruments are generally
accounted for as at fair value through the profit
and loss account unless an irrevocable election
has been made by management to account
for at fair value through other comprehensive
income Such classification is determined on an
instrument-by-instrument basis.
(iv) Financial Assets measured at Fair Value
Through Profit or Loss (FVTPL)
A financial asset is measured at FVTPL unless it
is measured at amortised cost or FVTOCI, with all
changes in fair value recognised in Statement of
Profit and Loss.
Items at fair value through profit or loss comprise:
• Investments (including equity shares) held
for trading;
• Items specifically designated as fair
value through profit or loss on initial
recognition; and
• debt instruments with contractual terms
that do not represent solely payments of
principal and interest.
Financial instruments held at fair value through
profit or loss are initially recognised at fair
value, with transaction costs recognised in
the statement of profit and loss as incurred.
Subsequently, they are measured at fair value
and any gains or losses are recognised in the
statement of profit and loss as they arise.
Financial instruments held for trading
A financial instrument is classified as held for
trading if it is acquired or incurred principally
for selling or repurchasing in the near term, or
forms part of a portfolio of financial instruments
that are managed together and for which there
is evidence of short-term profit taking, or it is a
derivative not designated in a qualifying hedge
relationship.
Trading derivatives and trading securities are
classified as held for trading and recognised at
fair value. "
(v) Derivatives
The Company enters into derivative transactions
with various counterparties like interest rate and
currency swaps and forwards. The Company
undertakes derivative transactions to mitigate
the risk of changes in exchange rates and
interest rate on foreign currency exposures.
The counterparty for these contracts are
generally banks.
Under hedge accounting, an entity can designate
derivative contracts either as cash flow hedge
or fair value hedge. The Company designates
certain derivative contracts as cash flow hedges.
To qualify for hedge accounting, the hedging
relationship must meet all of the following
requirements:
• There is an economic relationship
between the hedged item and the hedging
instrument.
• The effect of credit risk does not dominate
the value changes that result from that
economic relationship.
• The hedge ratio of the hedging relationship
is the same as that resulting from the
quantity of the hedged item that the
Company actually hedges and the
quantity of the hedging instrument that
the Company actually uses to hedge that
quantity of hedged item.
a) FinancialAssets or Liabilities at Fair
Value through Profit and Loss
This category includes derivative
financial assets/ liabilities which are
not designated as hedges.
Although the Company believes
that these derivative instruments
constitute hedges from an economic
perspective, they may not qualify for
hedge accounting under Ind AS 109,
Financial Instruments. Any derivatives
that is either not designated as a hedge,
or is designated but is ineffective as
per Ind AS 109, is categorised as a
financial asset or Liability, at fair value
through profit and loss.
Derivatives not designated as
hedges are recognised initially at fair
value and attributable transaction
costs are recognised in net profit
in the Statement of Profit and Loss
when incurred. Subsequent to initial
recognition, these derivatives are
measured at fair value through profit
and loss and the resulting exchange
gain or loss are included in the other
income/ expenses.
b) Cash flow Hedge:
The Company designates certain
foreign exchange forwards and swaps
contracts as cash flow hedges to
mitigate the risk of foreign exchange
exposure on certain balance sheet
liabilities.
When a derivative is designated as
a cash flow hedge instrument, the
effective portion of changes in the
fair value of derivative instruments is
recognised in other comprehensive
income and accumulated in the cash
flow hedge reserve.
Any ineffective portion of changes
in the fair value of the derivatives is
recognised immediately in the net
profit in the Statement of Profit and
Loss. If the hedging instrument no
longer meets the criteria for hedge
accounting, then hedge accounting
is discontinued prospectively.
If the hedging instrument expires
or is sold, terminated or exercised,
the cumulative gain or loss on the
hedging instrument recognised in
the cash flow hedge reserve till
the period the hedge was effective
remains in cash flow hedge reserve
till the period the transaction
occurs. The cumulative gain or loss
previously recognised in the cash
flow hedge reserve is transferred
to the net profit in the Statement of
Profit and Loss upon the occurrence
of the related transaction. ”
(vi) Debt securities and other borrowed funds
After initial measurement, debt issued and other
borrowed funds are subsequently measured at
amortised cost. Amortised cost is calculated by
taking into account any discount or premium on
issue funds, and transaction costs that are an
integral part of the Effective Interest Rate (EIR).
(vii) Recognition and derecognition of financial
assets and liabilities
A financial asset or financial liability is recognised
in the balance sheet when the Company
becomes a party to the contractual provisions of
the instrument, which is generally on trade date.
Loans and receivables are recognised when
cash is advanced (or settled) to the borrowers.
Financial assets at fair value through profit or
loss are recognised initially at fair value. All other
financial assets are recognised initially at fair
value plus directly attributable transaction costs.
The Company derecognises a financial asset
when the contractual cash flows from the
asset expire or it transfers its rights to receive
contractual cash flows on the financial asset
in a transaction in which substantially all the
risks and rewards of ownership are transferred.
Any interest in transferred financial assets that is
created or retained by the Company is recognised
as a separate asset or liability. A financial liability
is derecognised from the balance sheet when
the Company has discharged its obligation or
the contract is cancelled or expires.
(viii) Impairment of financial assets
Subsequent to initial recognition, the Company
recognises expected credit loss (ECL) on
financial assets measured at amortised cost
as required under Ind AS 109 'Financial
Instruments'. The Company presents the ECL
charge or reversal (where the net amount is a
negative balance for a particular period) in the
Statement of Profit and Loss as "Impairment
on financial instruments” and as a cumulative
deduction from gross carrying amount in the
Balance Sheet, wherever applicable.
The Company recognises loss allowances
(provisions) for expected credit losses on
its financial assets (including undisbursed
sanctioned amounts) that are measured
at amortised costs or at fair value through
other comprehensive income account.
Equity instruments are not subject to impairment.
The Company applies a three-stage approach to
measuring expected credit losses (ECLs) for the
following categories of financial assets that are
not measured at fair value through profit or loss:
• debt instruments measured at amortised
cost and fair value through other
comprehensive income;
• loan commitments.
• No ECLis recognised on equity investments.
Financial assets migrate through the following
three stages based on the change in credit risk
since initial recognition:
Stage 1: 12-months ECL
For exposures where there has not been a
significant increase in credit risk since initial
recognition and that are not credit impaired
upon origination, the portion of the lifetime
ECL associated with the probability of default
events occurring within the next 12 months is
recognised.
Stage 2: Lifetime ECL - not credit impaired
For exposures where there has been a significant
increase in credit risk since initial recognition
but are not credit impaired, a lifetime ECL (i.e.
reflecting the remaining lifetime of the financial
asset) is recognised.
Stage 3: Lifetime ECL - credit impaired
Exposures are assessed as credit impaired when
one or more events that have a detrimental
impact on the estimated future cash flows of
that asset have occurred. 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.
Estimation of Expected Credit Loss-
The mechanics of the ECL calculations are
outlined below and the key elements are
as follows:
Probability of Default (PD) - The Probability
of Default is an estimate of the likelihood of
default over a given time horizon. The Company
uses historical information where available to
determine PD. Considering the different products
and schemes, the Company has bifurcated its
loan portfolio into various pools. For certain
pools where historical information is available,
the PD is calculated considering fresh slippage
of past years. For those pools where historical
information is not available, the PD/ default
rates as stated by external reporting agencies
is considered.
Exposure at Default (EAD) - The Exposure at
Default is an estimate of the exposure at a future
default date, considering expected changes in
the exposure after the reporting date, including
repayments of principal and interest, whether
scheduled by contract or otherwise, expected
drawdowns on committed facilities, and accrued
interest from missed payments.
Loss Given Default (LGD) - The Loss Given
Default is an estimate of the loss arising in the
case where a default occurs at a given time. It is
based on the difference between the contractual
cash flows due and those that the lender would
expect to receive, including from the realisation
of any collateral.
Forward looking information - While estimating
the expected credit losses, the Company reviews
macro-economic developments occurring in the
economy and market it operates. On a periodic
basis, the Company analyses if there is any
relationship between key economic trends like
GDP, unemployment rates, benchmark rates set
by the Reserve Bank of India, inflation etc. with the
estimate of PD, LGD determined by the Company
based on its internal data. While the internal
estimates of PD, LGD rates by the Company may
not be always reflective of such relationships,
temporary overlays, if any, are embedded in the
methodology to reflect such macro-economic
trends reasonably. To mitigate its credit risks
on financial assets, the Company seeks to use
collateral, where possible. The collateral comes
in various forms, such as cash, securities, letters
of credit/guarantees, vehicles, etc. However, the
fair value of collateral affects the calculation of
ECL. The collateral is majorly the property for
which the loan is given. The fair value of the
same is based on data provided by third party
or management judgements.
ECL has been calculated in accordance with ECL
policy of the company.
Determining the stage for impairment
At each reporting date, the Company assesses
whether there has been a significant increase in
credit risk for exposures since initial recognition
by comparing the risk of default occurring over
the expected life between the reporting date
and the date of initial recognition. The Company
considers reasonable and supportable
information that is relevant and available without
undue cost or effort for this purpose.
This includes quantitative and qualitative
information and also, forward-looking analysis.
An exposure will migrate through the ECL stages
as asset quality deteriorates. If, in a subsequent
period, asset quality improves and also
reverses any previously assessed significant
increase in credit risk since origination, then the
loss allowances reverts from lifetime ECL to
12-months ECL. ”
The loss allowances for these financial assets is
based on a 12-months ECL.
When an asset is uncollectible, it is written off
against the related allowance. Such assets are
written off after all the necessary procedures
have been completed and the amount of the loss
has been determined. Subsequent recoveries
of amounts previously written off reduce the
amount of the allowances in the profit and loss
statement.
The Company assesses whether the credit risk
on an exposure has increased significantly on an
individual or collective basis. For the purposes of
a collective evaluation of impairment, financial
instruments are grouped on the basis of shared
credit risk characteristics, taking into account
instrument type, credit risk ratings, date of
initial recognition, remaining term to maturity,
industry, geographical location of the borrower
and other relevant factors.
Measurement of ECLs
ECLs are derived from unbiased and
probability-weighted estimates of expected loss,
and are measured as follows:
• Financial assets that are not credit-impaired at
the reporting date: as the present value of all cash
shortfalls over the expected life of the financial
asset discounted by the effective interest rate.
The cash shortfall is the difference between the
cash flows due to the Company in accordance
with the contract and the cash flows that the
Company expects to receive. The Company has
grouped its various financial assets in to pools
containing loans bearing homogeneous risks
characteristics. The probability of default for
the pools are computed based on the historical
trends, adjusted for any forward looking factors.
Similarly the Company computes the Loss Given
Default based on the recovery rates.
• Financial assets that are credit-impaired
at the reporting date: as the difference
between the gross carrying amount and
the present value of estimated future
cash flows discounted by the effective
interest rate.
• 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.
• Financial guarantee contracts: as the
expected payments to reimburse the
holder less any amounts that the Company
expects to recover.
ECL on Debt instruments measured at fair value
through OCI
The ECLs for debt instruments measured at
FVOCI do not reduce the carrying amount of
these financial assets in the balance sheet,
which remains at fair value. Instead, an amount
equal to the allowance that would arise if the
assets were measured at amortised cost is
recognised in OCI as an accumulated impairment
amount, with a corresponding charge to profit
or Loss. The accumulated Loss recognised in
OCI is recycled to the profit and Loss upon
derecognition of the assets. As at the reporting
date the Company does not have any debt
instruments measured at fair value through OCI.
ECL on Investment in Government securities
The Company has invested in Government
of India loans. Investment in Government
securities are classified under stage 1. No ECL
has been appLied on these investments as there
is no history of delay in servicing of interest/
repayments. The Company does not expect any
deLay in interest/redemption servicing in future.
ECL on Loans secured by the Company's fixed
deposit
No ECL has been applied on loans given against
the Company's fixed deposit as they are fully
secured by the Company's fixed deposits.
ECL on Fixed Deposits with Banks
No ECL is applied on fixed deposit held
with banks as there is no history of default.
However, in case of any downgrade in the credit
rating of the banks where fixed deposit is held,
the Company would provide for ECL computed
in an appropriate methodology.
Undrawn Loan commitments
When estimating ECL for undrawn loan
commitments, a credit conversion factor of 100%
is applied for expected drawdown. The Company
discloses ECL allowance on undrawn loan
commitments under the head 'Provisions' under
non-financial liabilities.
CoUateralValuation
To mitigate its credit risks on financial assets, the
Company seeks to use collateral, where possible.
The collateral comes in various forms, such as
movable and immovable assets, guarantees, ,
etc. However, the fair value of collateral affects
the calculation of ECLs. To the extent possible,
the Company uses active market data for valuing
financial assets held as collateral. Other financial
assets which do not have readily determinable
market values are valued using models.
Non-financial collateral, such as vehicles, is
valued based on data provided by third parties
or management judgements.
Collateral repossessed
In its normal course of business whenever default
occurs, the Company may take possession of
properties or other assets in its retail portfolio
and generally disposes such assets through
auction, to settle outstanding debt. Any surplus
funds are returned to the customers/obligors.
As a result of this practice, assets under legal
repossession processes are not recorded on the
balance sheet.
Restructured loans
The Company is permitted to restructure
customer accounts. Restructuring would
normally involve modification of terms of the
advances/ securities, which would generally
include, among others, alteration of payment
period/ payable amount/ the amount of
installments/ rate of interest/ sanction of
additional credit facility/ release of additional
funds for a customer account. The Company
considers the modification of the loan only
before the loans gets credit impaired. In case
of restructuring, the accounts classified as
'standard' shall be immediately downgraded
as non-performing assets/ Stage 3 unless
and other wise explicitly stated in the Circulars
and Directions issued by Reserve Bank of
India from time to time. Once an asset has
been classified as restructured, it will remain
restructured for a period of one year from
the date on which it has been restructured
until the customer account demonstrates
satisfactory performance during the specified
period. For upgradation of accounts classified
as Non-Performing Assets due to restructuring,
the instructions as specified for such cases as
per the said RBI guidelines shall continue to
be applicable. Loan accounts which have been
restructured or modified in accordance with RBI
Notifications - RBI/2020-21/16 DOR. No.BP.
BC/3/21.04.048/2020-21 dated 06 August,
2020- Resolution Framework for COVID-19
related Stress and RBI/2021-22/31/DOR.STR.
REC. 11/21.04.048/2021-22 dated 05 May,
2021- Resolution Framework - 2.0: Resolution
of Covid-19 related stress of Individuals and
Small Businesses and RBI/2020-21/17 DOR.
No.BP.BC/4/21.04.048/2020-21- dated 06
August, 2020 - Micro, Small and Medium
Enterprises (MSME) sector.
(ix) Write-offs
The Company reduces the gross carrying
amount of a financial asset when the Company
has no reasonable expectations 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
suficient cash flows to repay the amounts
subjected to write-offs. Any subsequent
recoveries against such loans are credited to
the statement of proit and loss.
(x) Determination of fair value
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, regardless of whether
that price is directly observable or estimated
using another valuation technique. In estimating
the fair value of an asset or a liability, the company
takes into account the characteristics of the
asset or liability if market participants would take
those characteristics into account when pricing
the asset or liability at the measurement date.
The Financial assets and liabilities are presented
in ascending order of their liquidity. Fair value
for measurement and/or disclosure purposes
in these financial statements is determined on
such a basis, except for share-based payment
transactions that are within the scope of Ind
AS 102, leasing transactions that are within
the scope of Ind AS 17, and measurements that
have some similarities to fair value but are not
fair value, such as value in use in Ind AS 36.
In addition, for financial reporting purposes, fair
value measurements are categorised into Level
1, 2, or 3 based on the degree to which the inputs
to the fair value measurements are observable
and the significance of the inputs to the fair value
measurement in its entirety, which are described
as follows:
• Level 1 inputs are quoted prices
(unadjusted) in active markets for identical
assets or liabilities that the entity can
access at the measurement date;
• Level 2 inputs are inputs, other than quoted
prices included within Level 1, that are
observable for the asset or liability ,either
directly or indirectly; and
• Level 3 inputs are unobservable inputs for
the asset or liability.
Fair values are determined in whole or in part
using a valuation model based on assumptions
that are neither supported by prices from
observable current market transactions in the
same instrument nor are they based on available
market data.
The Company recognises transfers between
levels of the fair value hierarchy at the end of
the reporting period during which the change
has occurred. No such instances of transfers
between levels of the fair value hierarchy were
recorded during the reporting period.
Difference between transaction price and fair
value at initial recognition
The best evidence of the fair value of a financial
instrument at initial recognition is the transaction
price (i.e. the fair value of the consideration
given or received) unless the fair value of that
instrument is evidenced by comparison with
other observable current market transactions in
the same instrument (i.e. without modification or
repackaging) or based on a valuation technique
whose variables include only data from
observable markets. When such evidence exists,
the Company recognises the difference between
the transaction price and the fair value in profit
or loss on initial recognition (i.e. on day one).
When the transaction price of the instrument
differs from the fair value at origination and the
fair value is based on a valuation technique using
only inputs observable in market transactions,
the Company recognises the difference between
the transaction price and fair value in net gain
on fair value changes. In those cases where
fair value is based on models for which some
of the inputs are not observable, the difference
between the transaction price and the fair value
is deferred and is only recognised in profit or
loss when the inputs become observable, or
when the instrument is derecognised.
5.3 Revenue from operations
(i) Interest Income
Interest income is recognised by applying the
Effective Interest Rate (EIR) to the gross carrying
amount of financial assets measured through
amortised cost method other than credit impaired
assets. Interest income on credit impaired assets is
recognised by applying the effective interest rate to
the net amortised cost (net of ECL provision) of the
financial asset. Interest on delayed payments by
customers are treated to accrue only on realisation,
due to uncertainty of realisation and are accounted
accordingly.
Excess Interest spread on direct assignment of loan
receivables is recognised upfront. On derecognition
of the loan receivables in its entirety, the difference
between the carrying amount (measured at the date
of derecognition) and the consideration received
(including any new asset obtained less any new
liability assumed) shall be recognised upfront in the
Statement of Profit and Loss.
Penal charges are not accrued on Non-Gold portfolio,
however, accrual of penal charges is being done in
case of Gold Loan portfolio
The EIR in case of a financial asset is computed
a. As the rate that exactly discounts estimated
future cash receipts through the expected life of
the financial asset to the gross carrying amount
of a financial asset.
b. By considering all the contractual terms of the
financial instrument in estimating the cash flows
c. Including all fees received between parties to the
contract that are an integral part of the effective
interest rate, transaction costs, and all other
premiums or discounts.
Any subsequent changes in the estimation of the
future cash flows is recognised in interest income with
the corresponding adjustment to the carrying amount
of the assets.
(ii) Dividend Income
Dividend income is recognised
a. When the right to receive the payment is
established,
b. it is probable that the economic benefits
associated with the dividend will flow to the
entity and
c. the amount of the dividend can be
measured reliably.
(iii) Fees & Commission Income
Fees and commissions other than those which
forms part of EIR are recognised when the Company
satisfies the performance obligation, at fair value of
the consideration received or receivable based on a
five-step model as set out below:
Step 1: Identify contract(s) with a customer: A
contract is defined as an agreement between two
or more parties that creates enforceable rights and
obligations and sets out the criteria for every contract
that must be met.
Step 2: Identify performance obligations in the
contract: A performance obligation is a promise in a
contract with a customer to transfer a good or service
to the customer.
Step 3: Determine the transaction price: The
transaction price is the amount of consideration
to which the Company expects to be entitled in
exchange for transferring promised goods or services
to a customer, excluding amounts collected on behalf
of third parties.
Step 4: Allocate the transaction price to the
performance obligations in the contract: For a contract
that has more than one performance obligation, the
Company allocates the transaction price to each
performance obligation in an amount that depicts
the amount of consideration to which the Company
expects to be entitled in exchange for satisfying each
performance obligation.
Step 5: Recognise revenue when (or as) the Company
satisfies a performance obligation.
Processing fee which is not form part of effective
interest rate has been recognised as and when it
is accrue.
(iv) Net gain/(loss) on Fair value changes
Any differences between the fair values of financial
assets classified as fair value through the profit or
loss, held by the Company on the balance sheet date
is recognised as an unrealised gain / loss. In cases
there is a net gain in the aggregate, the same is
recognised in "Net gains on fair value changes” under
Revenue from operations and if there is a net loss the
same is disclosed under "Expenses” in the statement
of Profit and Loss.
Similarly, any realised gain or Loss on sale of
financial instruments measured at FVTPL and debt
instruments measured at FVOCI is recognised in net
gain / loss on fair value changes. As at the reporting
date the Company does not have any financial
instruments measured at FVTPL and debt instruments
measured at FVOCI.
However, net gain / loss on derecognition of financial
instruments classified as amortised cost is presented
separately under the respective head in the Statement
of Profit and Loss.
(v) Recoveries from Financial Assets written off
The Company recognises income on recoveries of
financial assets written off on realisation basis.
5.4 Expenses
(i) Finance costs
Finance costs represents Interest expense recognised
by applying the Effective Interest Rate (EIR) to the
gross carrying amount of financial liabilities other
than financial liabilities classified as FVTPL.
The EIR in case of a financial liability is computed
a. As the rate that exactly discounts estimated
future cash payments through the expected
life of the financial liability to the gross carrying
amount of the amortised cost of a financial
liability.
b. By considering all the contractual terms of the
financial instrument in estimating the cash flows
c. Including all fees paid between parties to the
contract that are an integral part of the effective
interest rate, transaction costs, and all other
premiums or discounts.
Any subsequent changes in the estimation of the
future cash flows is recognised in interest income with
the corresponding adjustment to the carrying amount
of the assets.
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 advisers and other
expenses such as external legal costs, Rating Fee etc.,
provided these are incremental costs that are directly
related to the issue of a financial liability.
(ii) Retirement and other employee benefits
Short term employee benefit
All employee benefits payable wholly within twelve
months of rendering the service are classified as
short-term employee benefits. These benefits include
short term compensated absences such as paid
annual leave. The undiscounted amount of short-term
employee benefits expected to be paid in exchange
for the services rendered by employees is recognised
as an expense during the period. Benefits such as
salaries and wages, etc. and the expected cost of the
bonus/ex-gratia are recognised in the period in which
the employee renders the related service.
Post-employment employee benefits
a) Defined contribution schemes
All the employees of the Company are entitled
to receive benefits under the Provident Fund and
Employees State Insurance scheme, defined
contribution plans in which both the employee
and the Company contribute monthly at a
stipulated rate. The Company has no liability for
future benefits other than its annual contribution
and recognises such contributions as an expense
in the period in which 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 recognised 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 recognised as an asset to
the extent that the pre-payment will lead to,
for example, a reduction in future payment or a
cash refund.
b) Defined Benefit schemes
The Company provides for the gratuity, a defined
benefit retirement plan covering all employees.
The plan provides for lump sum payments to
employees upon death while in employment or
on separation from employment after serving
for the stipulated years mentioned under 'The
Payment of Gratuity Act, 1972'. The present
value of the obligation under such defined
benefit plan is determined based on actuarial
valuation, carried out by an independent actuary
at each Balance Sheet date, using the Projected
Unit Credit Method, which recognizes each
period of service as giving rise to an additional
unit of employee benefit entitlement and
measures each unit separately to build up the
final obligation.
The obligation is measured at the present value
of the estimated future cash flows. The discount
rates used for determining the present value of
the obligation under defined benefit plan are
based on the market yields on Government
Securities as at the Balance Sheet date.
Net interest recognized in profit or loss is
calculated by applying the discount rate used to
measure the defined benefit obligation to the net
defined benefit liability or asset. The actual return
on the plan assets above or below the discount
rate is recognized as part of re-measurement
of net defined liability or asset through other
comprehensive income. An actuarial valuation
involves making various assumptions that may
differ from actual developments in the future.
These include the determination of the discount
rate, attrition rate, future salary increases and
mortality rates. Due to the complexities involved
in the valuation and its long-term nature, these
liabilities are highly sensitive to changes
in these assumptions. All assumptions are
reviewed annually.
The Company fully contributes all ascertained
liabilities to LIC without routing it through Trust
bank account. Trustees administer contributions
made to the trust and contributions are invested
in a scheme of insurance with the IRDA approved
Insurance Company"
Re-measurement, comprising of actuarial
gains and losses and the return on plan
assets (excluding amounts included in net
interest on the net defined benefit liability), are
recognized immediately in the balance sheet
with a corresponding debit or credit to retained
earnings through OCI in the period in which they
occur. Re-measurements are not reclassified to
profit and loss in subsequent periods.
Other Long-term employee benefits
Company's liabilities towards compensated
absences to employees are accrued on the
basis of valuations, as at the Balance Sheet date,
carried out by an independent actuary using
Projected Unit Credit Method. Actuarial gains and
losses comprise experience adjustments and the
effects of changes in actuarial assumptions and
are recognised immediately in the Statement
of Profit and Loss.The Company presents the
Provision for compensated absences under
provisions in the Balance Sheet.
The Company has formulated Employee Stock
Option Schemes (ESOS) in accordance with
the SEBI (Employee Stock Option Scheme and
Employee Stock Purchase Scheme) Guidelines,
1999. The grant date fair value of equity
settled share based payment awards granted
to employees is recognised as an employee
expense, with a corresponding increase in
equity, over the period that the employees
unconditionally become entitled to the awards.
The amount recognised in employee benefits
expenses/investment in subsidiary together
with a corresponding increase in employee stock
option outstanding account in other equity is
based on the estimate of the number of awards
for which the related service and non-market
vesting conditions are expected to be met, such
that the amount ultimately recognised as an
expense is based on the number of awards that
do meet the related service and non-market
vesting conditions at the vesting date.
(iii) Other income and expenses
All Other income and expense are recognized in the
period they occur.
(iv) Impairment of non-financial assets
The carrying amount of assets is reviewed at each
balance sheet date if there is any indication of
impairment based on internal/external factors.
An impairment loss is recognized wherever the
carrying amount of an asset exceeds its recoverable
amount. The recoverable amount is the greater
of the assets, net selling price and value in use.
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 risks
specific to the asset.
In determining net selling price, recent market
transactions are taken into account, if available. If no
such transactions can be identfied, an appropriate
valuation model is used. After impairment, depreciation
is provided on the revised carrying amount of the
asset over its remaining useful life.
(v) Taxes
Current Tax
Current tax assets and Liabilities for the current and
prior years 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, by the reporting date in the countries where
the Company operates and generates taxable income.
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.
Deferred tax
Deferred tax assets and liabilities are recognised for
temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts.
Deferred income tax is determined using tax rates
(and laws) that have been enacted or substantively
enacted by the reporting date and are expected to
apply when the related deferred income tax asset is
realised or the deferred income tax liability is settled.
Deferred tax assets are only recognised for temporary
differences, unused tax losses and unused tax credits
if it is probable that future taxable amounts will arise
to utilise those temporary differences and losses.
Deferred tax assets are reviewed at each reporting
date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
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.
Goods and services tax /value added taxes paid on
acquisition of assets or on incurring expenses
Expenses and assets are recognised net of the goods
and services tax/ value added taxes paid, except:
i. When the tax incurred on a purchase of
assets or services is not recoverable from the
taxation authority, in which case, the tax paid
is recognised as part of the cost of acquisition
of the asset or as part of the expense item, as
applicable.
ii. When receivables and payables are stated with
the amount of tax included.
The net amount of tax recoverable from, or payable to,
the taxation authority is included as part of receivables
or payables in the balance sheet.
5.5 Foreign currency translation
(i) Functional and presentational currency
The standalone financial statements are presented in
Indian Rupees which is also functional currency of the
Company and the currency of the primary economic
environment in which the Company operates.
(ii) Transactions and balances
Initial recognition:
Foreign currency transactions are translated into
the functional currency using the exchange rates
prevailing at the dates of the transactions.
Conversion:
Monetary assets and UabiUties denominated in foreign
currency, which are outstanding as at the reporting
date, are translated at the reporting date at the closing
exchange rate and the resultant exchange differences
are recognised in the Statement of Profit and Loss.
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.
5.6 Cash and cash equivalents
Cash and cash equivalents comprise the net amount of
short-term, highly liquid investments that are readily
convertible to known amounts of cash (short-term deposits
with an original maturity of three months or less) and are
subject to an insignificant risk of change in value, cheques
on hand and balances with banks. They are held for the
purposes of meeting short-term cash commitments (rather
than for investment or other purposes).
For the purpose of the statement of cash flows, cash and
cash equivalents consist of cash and short- term deposits,
as defined above.
5.7 Property, Plant and equipment (PPE)
Property, plant and equipment (PPE) are measured at
historical cost of acquisition less accumulated depreciation
and accumulated impairment, (if any). The total cost of
assets comprises its purchase price, freight, duties, taxes
and any other 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 amortisation period or
methodology, as appropriate, and treated as changes in
accounting estimates.
Subsequent expenditure related to an item of tangible
asset are added to its gross value only if it increases the
future benefits of the existing asset, beyond its previously
assessed standards of performance and cost can be
measured reliably. Other repairs and maintenance costs
are expensed off as and when incurred.
Depreciation is calculated using the Straight Line Method
(SLM) to write down the cost of property and equipment
to their residual values over their estimated useful lives as
specified in Schedule II of the Companies Act, 2013 except
for Leasehold improvements which are amortised on a
straight-line basis over the period of lease or estimated
period of useful life of such improvement, subject to a
maximum period of 60 months. Leasehold improvements
include all expenditure incurred on the leasehold premises
that have future economic benefits. Land is not depreciated.
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 derecognised 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 recognised in other income / expense in the statement
of profit and loss in the year the asset is derecognised.
The date of disposal of an item of property, plant and
equipment is the date the recipient obtains control of that
item in accordance with the requirements for determining
when a performance obligation is satisfied in Ind AS 115.
5.8 Capital Work In Progress
PPE not ready for the intended use on the date of the
Balance Sheet are disclosed as "capital work-in-progress”
and carried at cost, comprising direct cost, related incidental
expenses and attributable interest.
5.9 Intangible assets
An intangible asset is recognised 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.
I ntangible assets acquired separately are measured on
initial recognition at cost. The cost of an intangible asset
comprises its purchase price and any directly attributable
expenditure on making the asset ready for its intended use
and net of any trade discounts and rebates. Following initial
recognition, intangible assets are carried at cost less
any accumulated amortisation and any accumulated
impairment losses.
The useful lives of intangible assets are assessed to
be either finite or indefinite. Intangible assets with
finite lives are amortised 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 each financial year-end. Changes in the expected
useful life, or the expected pattern of consumption of future
economic benefits embodied in the asset, are accounted
for by changing the amortisation period or methodology,
as appropriate, which are then treated as changes in
accounting estimates. The amortisation expense on
intangible assets with finite lives is presented as a separate
line item in the statement of profit and loss. Amortisation on
assets acquired/sold during the year is recognised on a
pro-rata basis to the Statement of Profit and Loss from /
upto the date of acquisition/sale.
Amortisation is calculated using the straight-tine method
to write down the cost of intangible assets to their residual
values over their estimated useful lives. Intangible assets
comprising of software are amortised on a straight-line
basis over a period of 6 years, unless it has a shorter
useful life.
The Company's intangible assets consist of computer
software with definite life.
Gains or losses from derecognition of intangible assets
are measured as the difference between the net disposal
proceeds and the carrying amount of the asset are
recognised in the Statement of Profit and Loss when the
asset is derecognised.
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