3. SUMMARY OF MATERIAL ACCOUNTING
POLICIES
3.1 Recognition of interest income
A. EIR method
Under Ind AS 109, interest income is recorded
using the effective interest rate method for all
financial instruments measured at amortised cost
and financial instrument measured at FVOCI. The
EIR is the rate that exactly discounts estimated
future cash receipts through the expected life of
the financial instrument or, when appropriate, a
shorter period, to the net carrying amount of the
financial asset.
The EIR (and therefore, the amortised cost of the
asset) is calculated by taking into account any
discount or premium on acquisition, fees and costs
that are an integral part of the EIR. The Company
recognises interest income using a rate of return
that represents the best estimate of a constant
rate of return over the expected life of the financial
instrument.
I f expectations regarding the cash flows on the
financial asset are revised for reasons other than
credit risk, the adjustment is booked 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 amortised through Interest income
in the statement of profit and loss.
B. Interest income
The Company calculates interest income by
applying EIR to the gross carrying amount of
financial assets other than credit impaired assets.
When a financial asset becomes credit impaired
and is, therefore, regarded as stage 3, the Company
calculates interest income on the net basis. If
the financial asset cures and is no longer credit
impaired, the Company reverts to calculating
interest income on a gross basis.
3.2 Financial instrument - initial recognition
A. Date of recognition
All financial assets and financial liabilities are
initially recognised when the Company becomes
a party to the contractual provisions of the
instrument.
B. Initial measurement of financial instruments
The classification of financial instruments at initial
recognition depends on their contractual terms and
the business model for managing the instruments
(Refer note 3.3(A)). Financial instruments are
initially measured at their fair value (as defined
in Note 3.8), transaction costs are added to or
subtracted from this amount, except in the case of
financial assets and financial liabilities recorded at
FVTPL.
C. 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:
i) Amortised cost
ii) FVOCI
iii) FVTPL
3.3 Financial assets and liabilities
A. Financial assets
Business model assessment
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 Company's business model is not assessed on
an instrument-by-instrument basis, but at a higher
level of aggregated portfolios and is based on
observable factors such as:
a) How the performance of the business model
and the financial assets held within that
business model are evaluated and reported to
the Company's key management personnel.
b) The risks that affect the performance of the
business model (and the financial assets held
within that business model) and, in particular,
the way those risks are managed.
c) How managers of the business are
compensated (for example, whether the
compensation is based on the fair value of the
assets managed or on the contractual cash
flows collected).
d) The expected frequency, value and timing
of sales are also important aspects of the
Company's assessment.
The business model assessment is based on
reasonably expected scenarios without taking
'worst case' or 'stress case' scenarios into
account.
SPPI test
As a second step of its classification process,
the Company assesses the contractual terms of
financial asset to identify whether they meet SPPI
test.
| Principal' for the purpose of this test is defined
as the fair value of the financial asset at initial
recognition and may change over the life of
financial asset (for example, if there are repayments
of principal or amortisation of the premium/
discount).
The most significant elements of interest within a
lending arrangement are typically the consideration
for the time value of money and credit risk. To
make the SPPI assessment, the Company applies
judgement and considers relevant factors such as
the period for which the interest rate is set.
In contrast, contractual terms that introduce a
more than de minimis exposure to risks or volatility
in the contractual cash flows that are unrelated to
a basic lending arrangement do not give rise to
contractual cash flows that are solely payments of
principal and interest on the amount outstanding.
In such cases, the financial asset is required to be
measured at FVTPL.
Accordingly, financial assets are measured as
follows:
i) Financial assets carried at amortised cost
A financial asset is 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.
ii) Financial assets measured at FVOCI
A financial asset is measured at FVOCI if it is
held within a business model whose objective
is achieved by both collecting contractual
cash flows and selling financial assets 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.
iii) Financial assets at FVTPL
A financial asset which is not classified in
any of the above categories are measured at
FVTPL.
iv) Equity investment in subsidiaries
The Company has accounted for its equity
investments in subsidiaries at cost.
B. Financial liability
i) Initial recognition and measurement
All financial liabilities are initially recognized
at fair value. Transaction costs that are
directly attributable to the acquisition or issue
of financial liability, which are not at fair value
through profit or loss, are adjusted to the fair
value on initial recognition.
ii) Subsequent measurement
Financial liabilities are carried at amortized
cost using the effective interest method.
3.4 Reclassification of financial assets
The Company does not reclassify its financial assets
subsequent to their initial recognition, apart from the
circumstances in which the Company changes in its
business model for managing those financial assets.
3.5 Derecognition of financial assets and liabilities
A. Derecognition of financial assets due to substantial
modification of terms and conditions
The Company derecognises a financial asset,
such as a loan to a customer, when the terms and
conditions have been renegotiated to the extent
that, substantially, it becomes a new loan, with the
difference recognised as a derecognition gain or
loss, to the extent that an impairment loss has not
already been recorded.
B. Derecognition of financial assets other than due to
substantial modification
i) Financial assets
A financial asset (or, where applicable, a
part of a financial asset or part of a group
of similar financial assets) is derecognised
when the contractual rights to the cash flows
from the financial asset expires or it transfers
the rights to receive the contractual cash
flows in a transaction in which substantially
all of the risks and rewards of ownership of
the financial asset are transferred or in which
the Company neither transfers nor retains
substantially all of the risks and rewards of
ownership and it does not retain control of the
financial asset.
On derecognition of a financial asset 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) is recognised in the
statement of profit and loss.
Accordingly, gain on sale or derecognition
of assigned portfolio are recorded upfront in
the statement of profit and loss as per Ind AS
109.
As per the guidelines of RBI, the Company is
required to retain certain portion of the loan
assigned to parties in its books as Minimum
Retention Requirement ("MRR"). Therefore, it
continue to recognise the portion retained by
it as MRR.
ii) Financial liability
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 is recognised in
the statement of profit and loss.
3.6 impairment of financial assets
A. Overview of ECL principles
In accordance with Ind AS 109, the Company uses
ECL model, for evaluating impairment of financial
assets together with loan commitments other than
those measured at FVTPL.
Expected credit losses are measured through a
loss allowance at an amount equal to:
I.) The 12-months expected credit losses
(expected credit losses that result from those
default events on the financial instrument
that are possible within 12 months after the
reporting date); or
ii.) Lifetime expected credit losses (expected
credit losses that result from all possible
default events over the life of the financial
instrument).
Both LTECLs and 12 months ECLs are calculated
on collective basis for retail loans.
Based on the above, the Company categorises
its loans into Stage 1, Stage 2 and Stage 3, as
described below:
Stage 1: When loans are first recognised, the
Company recognises an allowance based
on 12 months ECL. Stage 1 loans includes
those loans where there is no significant
increase in credit risk observed and also
includes facilities where the credit risk
has been improved and the loan has been
reclassified from stage 2.
Stage 2: When a loan has shown a significant
increase in credit risk since origination,
the Company records an allowance for
the life time ECL.
Stage 3: Loans considered credit impaired are the
loans which are past due for more than
90 days. Borrowers are also classified
under stage 3 bucket under instances like
fraud identification and legal proceeding.
Further, stage 3 loan accounts are
identified at customer level (i.e. a Stage
1 or 2 customer having other loans which
are in Stage 3). The Company records an
allowance for life time ECL.
There is a curing period with Stage 3 loan,
where even If the DPD days are reduced
by 90 days the same will not be upgraded
to Stage 1 until the loan Is 0 DPD.
Loan commitments:
When estimating LTECLs for undrawn loan
commitments, the Company estimates the
expected portion of the loan commitment that will
be drawn down over its expected life. The ECL is
then based on the present value of the expected
shortfalls in cash flows if the loan is drawn down.
B. Calculation of ECLs
For retail loans
The mechanics of ECL calculations are outlined
below and the key elements are, as follows:
pD Probability of Default ("PD") 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 derecognised
and is still in the portfolio.
EAD Exposure at Default ("EAD") Is an estimate of
the exposure at a future default date, taking
into account expected changes in the exposure
after the reporting date, including repayments
of principal and interest, expected drawdowns
on committed facilities and accrued interest.
Further, the EAD for stage 3 retail loan Is the
outstanding exposure at the time loan is
classified as Stage 3 for the first time.
LGD LGD is an estimate of the loss from a
transaction given that a default occurs. Under
Ind AS 109, lifetime LGD's are defined as a
collection of LGD's estimates applicable to
different future periods.
% Recovery rate = (discounted recovery
amount security amount discounted
estimated recovery) / (total outstanding)
% LGD = 1 - recovery rate
For retail asset channel ("RAC") loan portfolio
For RAC loan portfolio, the Company has developed
internal rating based approach for the purpose of
ECL. The credit rating framework of the Company
consists of various parameters based on which
RAC loan portfolio is evaluated and credit rating is
assigned.
The Company has developed its PD matrix based
on the benchmarking of various external reports,
ratings and Basel norms. This PD matrix is
calibrated with its historical data and major events
at a regular time interval in accordance with its ECL
policy.
The LGD has been considered based on Basel-
II Framework for all the level of RAC credit rating
portfolio.
The Company calculates PD, EAD and LGD to
determine impairment loss on the portfolio of
loans and discounted at an approximation to the
EIR. At every reporting date, the above calculated
EADs are reviewed. While at every year end, LGDs
and PDs are reviewed and changes in the forward
looking estimates are analysed.
The mechanics of the ECL method are summarised
below:
Stage 1: The 12 months ECL is calculated as the
portion of LTECLs that represent the
ECLs that result from default events on
a financial instrument that are possible
within the 12 months after the reporting
date. The Company calculates the 12
months ECL allowance based on the
expectation of a default occurring in
the 12 months following the reporting
date. These expected 12-months default
probabilities are applied to a forecast
EAD and multiplied by the expected LGD
and discounted by an approximation to
the original EIR.
Stage 2: When a loan has shown a significant
increase in credit risk since origination,
the Company records an allowance for
the LTECLs. The mechanics are similar to
those explained above, but PDs and LGDs
are estimated over the lifetime of the
instrument. The expected cash shortfalls
are discounted by an approximation to
the original EIR.
Stage 3: For loans considered credit-impaired,
the Company recognises the lifetime
expected credit losses for these loans.
The method is similar to that for stage
2 assets, with the PD set at 100%. Credit
impairment loans are determined at
borrower level.
Loan commitments
When estimating ECL for undrawn loan
commitments, the Company estimates the amount
sanctioned that will be disbursed after the reporting
date. The ECL is then calculated using PD and LGD.
Management overlay is used to adjust the ECL
allowance in circumstances where management
judges that the existing inputs, assumptions and
model techniques do not capture all the risk factors
relevant to the Company's lending portfolios.
Emerging local or global macroeconomic,
micro economic or political events, and natural
disasters that are not incorporated into the current
parameters, risk ratings, or forward looking
information are examples of such circumstances.
The use of management overlay may impact the
amount of ECL recognized.
Significant increase in credit risk
The Company monitors all financial assets,
including loan commitments issued that are subject
to impairment requirements, to assess whether
there has been a significant increase in credit risk
since initial recognition. In assessing whether the
credit risk on a financial instrument has increased
significantly since initial recognition, the Company
compares the risk of a default occurring on the
financial instrument at the reporting date based on
the remaining maturity of the instrument with the
risk of a default occurring that was anticipated for
the remaining maturity at the current reporting date
when the financial instrument was first recognised.
In making this assessment, the Company considers
both quantitative and qualitative information that
is reasonable and supportable, including historical
experience that is available without undue cost or
effort. However, when a financial asset becomes
30 days past due, the Company considers that a
significant increase in credit risk has occurred and
the asset is classified in Stage 2 of the impairment
model, i.e. the loss allowance is measured as the
lifetime ECL. Further, a stage 2 customer having
other loans which are in stage 1 are considered to
have significant increase in credit risk.
Definition of default
The definition of default is used in measuring the
amount of ECL and in the determination of whether
the loss allowance Is based on 12-month or lifetime
ECL.
Financial assets in default represent those that are
at least 90 DPD in respect of principal or interest
and/or where the assets are otherwise considered
to be unlikely to pay, including those that are credit-
impaired.
C. Loans and advances measured at FVOCI
The ECLs for loans and advances 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 statement of profit and loss upon derecognition
of the assets.
D. Forward looking information
I n its ECL models, the Company relies on a broad
range of forward looking macro parameters and
estimated the impact on the default at a given point
of time. For this purpose, the Company has used the
data source of Economist Intelligence Unit.
3.7 Write-offs
The gross carrying amount of a financial asset is written
off when the chances of recoveries are remote. This is
generally the case when the Company determines that
the borrower does not have assets or sources of income
that could generate sufficient cash flows to repay the
amounts subject to the write-off. However, financial
assets that are written off could still be subject to
enforcement activities under the Company's recovery
procedures, taking into account legal advice where
appropriate. Any recoveries made are recognised in
Statement of profit and loss.
3.8 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 has taken 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.
I n 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 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; and
• Level 3 financial instruments: Those that include
one or more unobservable input that Is significant
to the measurement as whole.
3.9 (i) Recognition of other income
Revenue (other than for those items to which Ind
AS 109 - Financial Instruments are applicable)
is measured at fair value of the consideration
received or receivable. Ind AS 115 - Revenue
from contracts with customers outlines a single
comprehensive model of accounting for revenue
arising from contracts with customers.
The Company recognises revenue from contracts
with customers based on a five step model as set
out in Ind AS 115 :
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: I dentify 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
A. Dividend income
Dividend income (including from FVOCI
investments) is recognised when the Company's
right to receive the payment is established, it is
probable that the economic benefits associated
with the dividend will flow to the Company and the
amount of the dividend can be measured reliably.
This is generally when the shareholders approve
the dividend.
B. Rental income
Rental income arising from operating leases is
accounted for on a straight-line basis over the
lease terms and is included in rental income in the
statement of profit and loss, unless the increase is
in line with expected general inflation, in which case
lease income is recognised based on contractual
terms.
C. Other interest income
Other interest income is recognised on a time
proportionate basis.
D. Fees and commission income
Fees and commission income such as stamp and
document charges, guarantee commission, service
income, due diligence & evaluation charges and
portfolio monitoring fees etc. are recognised on
point in time basis.
3.9 (ii) Recognition of other expense
A. Finance cost
Finance costs are the interest and other costs
that the Company incurs in connection with
the borrowing of funds. Interest expenses are
computed based on effective interest rate method.
Finance costs include interest expense computed
by applying the effective interest rate on respective
financial instruments measured at Amortized
cost. Financial instruments include bank term
loans, non-convertible debentures, commercial
papers, subordinated debts, perpetual debts
and exchange differences arising from foreign
currency borrowings to the extent they are
regarded as an adjustment to the interest cost.
Finance costs that are directly attributable to the
acquisition or construction of qualifying assets are
capitalised as part of the cost of such assets. A
qualifying asset is an asset that necessarily takes
a substantial period of time to get ready for its
intended use or sale.
All other finance costs are charged to the statement
of profit and loss for the period for which they are
incurred.
3.10 cash and cash equivalents
Cash comprises cash on hand and demand deposits
with banks. Cash equivalents are short-term balances
(with an original maturity of three months or less from
the date of acquisition), highly liquid investments that
are readily convertible into known amounts of cash and
which are subject to insignificant risk of changes in
value.
3.11 property, plant and equipment
Property, plant and equipment ("PPE") are carried at
cost, less accumulated depreciation and impairment
losses, if any. The cost of PPE comprises its purchase
price net of any trade discounts and rebates, any import
duties and other taxes (other than those subsequently
recoverable from the tax authorities), any directly
attributable expenditure on making the asset ready
for its intended use and other incidental expenses.
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 on PPE after its
purchase is capitalized only if it is probable that the
future economic benefits will flow to the Company and
the cost of the item can be measured reliably.
Depreciation is calculated using the straight line method
to write down the cost of property, plant and equipment
to their residual values over their estimated useful lives
as specified under schedule II of the Act. Land is not
depreciated.
The estimated useful lives are, as follows:
i) Buildings - 60 years
ii) Office equipments - 3 to 10 years
iii) Furniture and fixtures - 10 years
iv) Vehicles - 8 years
Depreciation is provided on a pro-rata basis from the
date on which such asset is ready for its intended use.
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.
PPE 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.
Advances paid towards the acquisition of PPE
outstanding at each balance sheet date are disclosed
separately under other non-financial assets. Capital
work in progress comprises the cost of PPE that are not
ready for its intended use at the reporting date. Capital
work-in-progress is stated at cost, net of impairment
loss, if any.
3.12 intangible assets
The Company's intangible assets include the value of
software. 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.
Intangible assets acquired separately are measured
on initial recognition at cost. Following initial
recognition, intangible assets are carried at cost less
any accumulated amortisation and any accumulated
impairment losses.
Amortisation is calculated to write off the cost of
intangible assets less their estimated residual values
over their estimated useful lives (three years) using the
straight-line method, and is included in depreciation and
amortisation in the statement of profit and loss.
I ntangible assets not ready for the intended use on
the date of Balance Sheet are disclosed as 'Intangible
assets under development'.
3.13 impairment of non financial assets - property, plant and
equipments and intangible assets
The carrying values of assets / cash generating
units at the each balance sheet date are reviewed for
impairment. If any indication of impairment exists, the
recoverable amount of such assets is estimated and
if the carrying amount of these assets exceeds their
recoverable amount, impairment loss is recognised
in the statement of profit and loss as an expense, for
such excess amount. The recoverable amount is the
greater of the net selling price and value in use. Value
in use is arrived at by discounting the future cash flows
to their present value based on an appropriate discount
factor. When there is indication that an impairment loss
recognised for an asset in earlier accounting periods no
longer exists or may have decreased, such reversal of
impairment loss is recognised in the statement of profit
and loss.
3.14 Leases
A contract is, or contains, a lease if the contract conveys
the right to control the use of an identified asset for a
period of time in exchange for consideration.
All leases are accounted for by recognising a right-of-
use asset and a lease liability except for:
- Leases of low value assets; and
- Leases with a duration of 12 months or less
Lease payments associated with short term leases or
low value leases are recognised as an expense on a
straight-line basis over the lease term.
At the commencement date of the lease, the Company
recognises lease liabilities measured at the present
value of lease payments to be made over the lease term.
The lease payments include fixed payments (including
in-substance fixed payments) less any lease incentives
receivable and amounts expected to be paid under
residual value guarantees.
I n calculating the present value of lease payments, the
Company uses the incremental borrowing rate at the
lease commencement date if the interest rate implicit
in the lease is not readily determinable. After the
commencement date, the amount of lease liabilities is
increased to reflect the accretion of interest and reduced
for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the
in-substance fixed lease payments or a change in the
assessment to purchase the underlying asset.
The Company recognises right-of-use assets at the
commencement date of the lease (i.e. the date the
underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated
depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of right-
of-use assets includes the amount of lease liabilities
recognised, initial direct costs incurred, and lease
payments made at or before the commencement date
less any lease incentives received. Unless the Company
is reasonably certain to obtain ownership of the leased
asset at the end of the lease term, the recognised right-
of-use assets are depreciated on a straight-line basis
over the shorter of its estimated useful life and the lease
term.
The Company determines the lease term as the non¬
cancellable period of a lease, together with both periods
covered by an option to extend the lease if the Company
is reasonably certain to exercise that option; and
periods covered by an option to terminate the lease if
the Company is reasonably certain not to exercise that
option. In assessing whether the Company is reasonably
certain to exercise an option to extend a lease, or not
to exercise an option to terminate a lease, it considers
all relevant facts and circumstances that create an
economic incentive for the Company to exercise the
option to extend the lease, or not to exercise the option
to terminate the lease. The Company revises the lease
term if there is a change in the non-cancellable period of
a lease.
3.15 Corporate guarantees
Corporate guarantees are initially recognised in the
standalone financial statements (within "other non¬
financial liabilities") at fair value, being the notional
commission. Subsequently, the liability is measured at
the higher of the amount of loss allowance determined
as per impairment requirements of Ind AS 109 and the
amount recognised less cumulative amortisation.
Any increase in the liability relating to financial
guarantees is recorded in the statement of profit and
loss. The notional commission is recognised in the
statement of profit and loss under the head fees and
commission income on a straight line basis over the life
of the guarantee.
3.16 Retirement and other employee benefits
Defined contribution plans
The Company's contribution to provident fund and
employee state insurance scheme are considered
as defined contribution plans and are charged as an
expense based on the amount of contribution required
to be made and when services are rendered by the
employees.
Defined benefit plans
The Company pays gratuity to the employees whoever
has completed five years of service with the Company at
the time of resignation / retirement. The gratuity is paid
@15 days salary for every completed year of service as
per the Payment of Gratuity Act, 1972.
The gratuity liability amount is contributed by the
Company to the Life insurance corporation of India who
administers the fund of the Company.
The liability in respect of gratuity and other post¬
employment benefits is calculated using the Projected
Unit Credit Method and spread over the period during
which the benefit is expected to be derived from
employees' services.
As per Ind AS 19, the service cost and the net interest
cost are charged to the statement of profit and loss.
Remeasurement of the net defined benefit liability,
which comprise actuarial gains and losses, the return
on plan assets (excluding interest) and the effect of the
asset ceiling (if any, excluding interest), are recognised
in OCI.
Short-term employee benefits
All employee benefits payable wholly within twelve
months of rendering the service are classified as short¬
term employee benefits. Benefits such as salaries,
wages etc. and the expected cost of ex-gratia are
recognised in the period in which the employee renders
the related service. A liability is recognised for the
amount expected to be paid when there is a present
legal or constructive obligation to pay this amount as a
result of past service provided by the employee and the
obligation can be estimated reliably.
The cost of short-term compensated absences is
accounted as under:
(a) i n case of accumulated compensated absences,
when employees render the services that increase
their entitlement of future compensated absences;
and
(b) in case of non-accumulating compensated
absences, when the absences occur.
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