(c) MATERIAL ACCOUNTING POLICIES
i) Revenue recognition
The Company derives its revenue primarily from the financing business and ancillary activities. The
Company follows Ind AS 109 - Financial Instruments for revenue recognition for the income on the
financial assets. In case of revenue from other ancillary activities the Company recognised its revenue
based on five step model prescribed in Ind AS 115- Revenue from Contracts with Customers.
• Identify the contract(s) with a customer.
• Identify the performance obligations in the contract.
• Determine the transaction price
• Allocate the transaction price to the performance obligations in the contract
• Recognise revenue when (or as) the entity satisfies a performance obligation.
Interest income on a financial asset at amortised cost is recognised on a time proportion basis taking into
the account the amount outstanding and the effective interest rate (‘EIR’). The EIR is the rate that exactly
discounts estimated future cash flows of the financial assets through the expected life of the financial
asset or, where appropriate, a shorter period, to the net carrying amount of the financial instrument. The
internal rate of return on financial assets after netting off the fees received and cost incurred approximates
the effective interest rate method of return for the financial asset. The future cash flows are estimated
taking into the account all the contractual terms of the instrument.
The interest income is calculated by applying the EIR to the gross carrying amount of non-credit impaired
financial assets (i.e. at the amortised cost of the financial asset before adjusting for any expected credit loss
allowance). For credit impaired financial assets, the interest income is calculated by applying the EIR to
the amortised cost of the credit-impaired financial assets (i.e. the gross carrying amount less the allowance
for ECLS). If the financial asset is no longer credit-impaired, the Company reverts to calculating interest
income on a gross basis.
Additional interest on loan levied on customer for delay in repayment/non-payment of contractual cash
flows is recognized on accrual basis whereas penal interest is recognized on realization basis.
Interest Income on Non- Performing Loans are recognized on realization basis.
If expectations regarding the cash flows on the financial asset are revised for reasons other than credit risk,
the adjustment is recorded as a positive or negative adjustment to the carrying amount of the asset in the
balance sheet with an increase or reduction in interest income. The adjustment is subsequently amortized
through Interest income in the Statement of Profit and Loss.
a) Fees and commission income:
Fee based income are recognized when they become measurable and when it is probable to expect their
ultimate collection. Commission and brokerage income earned for the services rendered are recognized as
and when they are due.
b) Interest income on deposits:
Interest income from deposits is recognized when it is certain that the economic benefits will flow to the
Company and the amount of income can be measured reliably. Interest income is accrued on a time basis,
by reference to the principal outstanding and at the effective interest rate applicable.
c) Other Income:
Office sharing expenses reimbursement is recognized on accrual basis.
ii) Property Plant and Equipment (PPE)
PPE are stated at cost of acquisition (including incidental expenses), less accumulated depreciation and
accumulated impairment loss, if any.
The cost of an item of PPE comprises of its purchase price including import duties and other non¬
refundable purchase taxes or levies, directly attributable cost of bringing the asset to its working condition
for its intended use and the initial estimate of decommissioning, restoration and similar liabilities, if any.
Any trade discount or rebate is deducted in arriving at the purchase price. Cost includes cost of replacing
a part of a plant and equipment if the recognition criteria are met.
PPE is derecognized on disposal or when no future economic benefits are expected from its use. Any
gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the net carrying amount of the asset) is recognized in other income / netted off from any
loss on disposal in the Statement of Profit and Loss in the year the asset is derecognized.
The Company has elected to measure PPE at its Previous GAAP carrying amount and use that Previous
GAAP carrying amount as its deemed cost at the date of transition to Ind AS.
iii) Intangibles Assets
Intangible Assets are stated at cost less accumulated amortization and accumulated impairment loss, if
any.
Intangible Assets comprise of computer software license and/or rights under the license agreement are
measured on initial recognition at cost. Costs comprise of license fees and cost of system integration
services and development.
The carrying amount of an intangible asset is derecognized when no future economic benefits are expected
from its use.
Intangible assets not ready for the intended use on the date of the Balance Sheet are disclosed as “Intangible
Assets under Development”.
iv) Depreciation on Property, Plant and Equipment and Amortisation of intangible Assets
Depreciation on Property, Plant and Equipment is provided on on pro rata basis using the written down
value method based on useful life of the assets as prescribed in Part C of Schedule II to the Companies Act,
2013 in consideration with useful life of the assets as estimated by the management.
Intangible Assets with finite lives are amortized on a written down value method based on the estimated
useful economic life. The amortization expense on intangible assets with finite lives is recognized in the
Statement of Profit and Loss.
The estimated useful lives, residual values and methods of depreciation of Property, Plant & Equipment
are reviewed at the end of each financial year. If any of these expectations differ from previous estimates,
such change is accounted for as a change in an accounting estimate and adjusted prospectively, if any.
v) Impairment of tangible, intangible and right to use assets:
The Company reviews the carrying amounts of its tangible and intangible assets at the end of each
reporting period, to determine whether there is any indication that carrying value of those assets may not
be recoverable through continuing use. If any such indication exists, the recoverable amount of the asset
is estimated in order to determine the extent of the impairment loss (if any).
An impairment loss on such assessment will be recognised wherever the carrying value of an asset exceeds
its recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted to their present value using
a pretax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount
of the asset is reduced to its recoverable amount.
When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the
revised estimate of its recoverable amount such that the increased carrying amount does not exceed the
carrying amount that would have been determined if no impairment loss had been recognized for the
asset in prior years. The reversal of an impairment loss is recognized in the Statement of Profit and Loss.
vi) Financial instruments
Financial assets and financial liabilities are recognized 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 FVTPL) are added to or deducted
from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Where the fair value of financial assets and financial liabilities at initial recognition is different from its
transaction price, the difference between the fair value and transaction price is recognised in the Statement
of Profit and Loss. Transaction costs directly attributable to the acquisition of financial assets or financial
liabilities at FVTPL are recognized immediately in Statement of Profit and Loss.
a) Recognition and Measurement
(i) Financial Assets
All financial assets are recognised initially at fair value when the Company becomes party to the contractual
provisions of the financial asset. In case of financial assets which are not recorded at fair value through
profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial
assets, are adjusted to the fair value on initial recognition.
• Cash and bank balances
Cash and Bank Balances consist of:
Cash and Cash Equivalents - Cash and Cash Equivalents include cash on hand, deposits held at call
with banks and other short-term deposits which are readily convertible into known amounts of cash,
are subject to an insignificant risk of change in value and have maturities of less than three months
from the date of such deposits. These balances with banks are unrestricted for withdrawal and usage.
Other bank balances - Other bank balances include balances and deposits with banks that are
restricted for withdrawal and usage.
Subsequent measurement
• Financial assets carried at amortised cost
A financial asset is subsequently measured at amortised cost if it is held within a business model
whose objective is to hold the asset in order to collect contractual cash flows and the contractual
terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding using the Effective Interest Rate (EIR)
method less impairment, if any and the amortisation of EIR and loss arising from impairment, if any
is recognised in the Statement of Profit and Loss.
• Financial assets at fair value through other comprehensive income
A financial asset is measured at Fair Value through Other Comprehensive Income if both of the
following conditions are met:
• If it is held within a business model whose objective is to hold these assets in order to collect contractual
cash flows and to sell these financial assets, and
• The contractual terms of the financial assets give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
Fair value movements are recognised in the Other Comprehensive Income.
For equity investments, the Company makes an election on an instrument-by-instrument basis to
designate equity investments as measured at FVOCI. These elected investments are measured at fair
value with gains and losses arising from changes in fair value recognized in Other Comprehensive
Income and accumulated in the reserves. The cumulative gain or loss is not reclassified to Statement
of Profit and Loss on disposal of the investments. These investments in equity are not held for trading.
Instead, they are held for strategic purpose. Dividend income received on such equity investments are
recognized in Statement of Profit and Loss.
• Financial assets at Fair Value through Profit or Loss
A financial asset which is not classified as either amortised cost or at Fair Value through Other
Comprehensive Income is carried at fair value through the Statement of Profit and Loss.
(ii) Financial liabilities
All financial liabilities are recognized initially at fair value when the company become party to the
contractual provisions of the financial liability. In case of financial liability which are not recorded at fair
value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the
financial liabilities, are adjusted to the fair value on initial recognition. The company’s financial liabilities
include trade and other payables, loans and borrowings including bank overdrafts.
Classification as debt or equity
Financial liabilities and equity instruments issued by the Company are classified according to the substance
of the contractual arrangements entered into and the definitions of a financial liability and an equity
instrument.
• Equity Instrument
An equity instrument is any contract that evidences a residual interest in the assets of the Company
after deducting all its liabilities. Equity instruments are recorded at the proceeds received, net of
direct issue costs.
Subsequent measurement
• Financial Liability
Financial liabilities other than financial liabilities at Fair Value Through Profit and Loss are subsequently
measured at amortized cost using the effective interest rate method.
b) Derecognition:
The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial
asset expire or it transfers the financial asset and the transfer qualifies for derecognition under Ind AS 109.
A financial liability (or a part of a financial liability) is derecognised from the Company’s balance sheet
when the obligation specified in the contract is discharged or cancelled or expires.
c) Impairment of financial instruments
In accordance with Ind AS 109, the Company uses ‘Expected Credit Loss’ model (ECL), for the financial
assets which are not fair valued through profit or loss. For all financial assets, expected credit losses are
measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit
risk from initial recognition in which case those are measured at lifetime ECL. The amount of expected
credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount
that is required to be recognised is recognised as an impairment gain or loss in Statement of Profit and
Loss.
Overview of the ECL principles:
Expected Credit Loss, at each reporting date, is measured through a loss allowance for a financial asset:
• At an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument
has increased significantly since initial recognition.
• At an amount equal to 12-month expected credit losses, if the credit risk on a financial instrument has
not increased significantly since initial recognition.
Lifetime expected credit losses (LTECLs) means expected credit losses that result from all possible default
events over the expected life of a financial asset.
12-month expected credit losses (12mECLs) means the portion of Lifetime ECL that represent the ECLs that
result from default events on financial assets that are possible within the 12 months after the reporting
date.
The Company records allowance for expected credit losses for all loans, other debt financial assets, together
with loan commitments (in this section all referred to as ‘financial instruments’). The ECL allowance is
based on the credit losses expected to arise over the life of the asset (the lifetime expected credit loss
or LTECL), unless there has been no significant increase in credit risk since origination, in which case,
the allowance is based on the 12 months’ expected credit loss (12mECL). Both LTECLs and 12mECLs are
calculated on either an individual basis or a collective basis, depending on the nature of the underlying
portfolio of financial instruments.
The Company performs an assessment, at the end of each reporting period, of whether a financial assets’
credit risk has increased significantly since initial recognition. When making the assessment, the change
in the risk of a default occurring over the expected life of the financial instrument is used instead of the
change in the amount of expected credit losses.
Based on the above process, the Company has established an internal model to evaluate ECL based on
nature of Financial Assets. Based on the above process, the Company categorizes its loans into Stage 1,
Stage 2 and Stage 3, as described below:
Stage 1:
Stage 1 is comprised of all non-impaired financial assets which have not experienced a significant
increase in credit risk since initial recognition. When loans are first recognized, the Company recognizes
an allowance based on 12mECLs. A 12mECLs provision is made for stage 1 financial assets. In assessing
whether credit risk has increased significantly, the Company compares the risk of a default occurring
on the financial asset as at the reporting date with the risk of a default occurring on the financial asset as
at the date of initial recognition.
Stage 1 loans also include facilities where the credit risk has improved and the loan has been reclassified
from Stage 2.
Stage 2:
Stage 2 is comprised of all non-impaired financial assets which have experienced a significant increase in
credit risk since initial recognition. The Company recognises lifetime ECL for stage 2 financial assets. In
subsequent reporting periods, if the credit risk of the financial instrument improves such that there is no
longer a significant increase in credit risk since initial recognition, then entities shall revert to recognizing
12mECLs provision.
Stage 3:
Financial assets are classified as Stage 3 when there is objective evidence of impairment as a result of one
or more loss events that have occurred after initial recognition with a negative impact on the estimated
future cash flows of a loan or a portfolio of loans.
The key elements of the ECL are summarized below:
Exposure at Default (EAD):
The Exposure at Default is an estimate of the exposure at a future default date (in case of Stage 1 and Stage
2), taking into account, 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. In case of Stage 3 loans EAD represents exposure
when the default occurred.
Probability of Default (PD):
The Probability of Default is an estimate of the likelihood of default over a given time horizon. A default may
only happen at a certain time over the assessed period, if the facility has not been previously derecognized
and is still in the portfolio.
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 realization of any collateral. It is usually expressed as a percentage
of the EAD. Impairment losses and releases are accounted for and disclosed separately from modification
losses or gains that are accounted for as an adjustment of the financial asset’s gross carrying value.
d) Write offs
The gross carrying amount of a financial asset is written off when there is no realistic prospect of further
recovery. This is generally the case when the Company determines that the debtor/ borrower does not
have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to
the write-off. However, financial assets that are written off could still be subject to enforcement activities
under the Company’s recovery procedures, considering legal advice where appropriate. Any recoveries
made are recognized in the Statement of Profit and Loss.
vii) Employee benefits
a) Short-term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognized for
the amount expected to be paid if the Company has a present legal or constructive obligation to pay this
amount because of past service provided by the employee and the obligation can be estimated reliably.
b) Post-Employment Benefits
• Defined contribution plans
A Defined Contribution Plan is plan under which the Company makes contribution to Employee’s
Provident Fund administrated by the Central Government and Employee State Insurance administrated
by Employee State Insurance Corporation. The Company’s contribution is charged to the Statement of
Profit and Loss.
• Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.
The company’s gratuity scheme is a defined benefit plan and in accordance with Payment of Gratuity
Act, 1972. As per the plan, the employee is entitled to 15 days of basic salary for each completed year
of service with a condition of minimum tenure of 5 years subject to a maximum amount of INR
20,00,000.
Gratuity liability is recognised based on actuarial valuation using the projected unit credit method. The
Company is presnetly not maintinaing any fund or making any contribution toward the same.
viii) Finance cost
Finance costs include interest expense computed by applying the effective interest rate on respective
financial instruments measured at Amortized cost. Finance costs are charged to the Statement of Profit
and Loss.
ix) Taxation- Current and Deferred Tax:
Income Tax Expense comprises of Current Tax and Deferred Tax. It is recognized in Statement of Profit and
Loss except to the extent that it relates to an item recognized directly in Equity or in Other Comprehensive
Income.
Current tax:
Current Tax comprises amount of tax payable in respect of the taxable income or loss for the year
determined in accordance with Income Tax Act, 1961 and any adjustment to the tax payable or receivable in
respect of previous years. The Company’s Current Tax is calculated using tax rates that have been enacted
or substantively enacted by the end of the reporting period.
Deferred tax:
Deferred Tax Assets and Liabilities are recognized for the future tax consequences of temporary differences
between the carrying values of assets and liabilities and their respective tax bases. 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 realized, based on tax rates (and tax laws) that have been enacted or substantively
enacted by the end of the reporting period. The measurement of Deferred Tax Liabilities and Assets reflects
the tax consequence that would follow from the manner in which the Company expects, at the end of the
reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred Tax Assets are recognized to the extent that it is probable that future taxable income will be
available against which the deductible temporary difference could be utilized. Such Deferred Tax Assets
and Liabilities are not recognized if the temporary difference arises from the initial recognition of assets
and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. 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.
|