Corporate information
Morgan Ventures Limited is a Public Limited company incorporated under the provisions of Companies Act, 2013
(erstwhile Companies Act, 1956). The Company is a Non - Banking Financial Company registered with Reserve Bank
of India. Equity Shares of the Company is listed at Bombay Stock Exchange.
Basis of preparation
The financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the
Companies (Indian Accounting Standards) Rules, 2015 as amended from time to time and notified under section 133
of the Companies Act, 2013 (the Act) along with other relevant provisions of the Act and the Master Direction ('the NBFC
Master Directions') issued by RBI. The financial statements have been prepared on a going concern basis. The
Company uses accrual basis of accounting except in case of significant uncertainties.
The financial statements are presented in INR and all values are rounded to the nearest thousand (INR 000), except
when otherwise indicated.
Presentation of financial statements
The Company presents its Balance Sheet in order of liquidity.
The Company generally reports financial assets and financial liabilities on a gross basis in the Balance Sheet. They are
offset and reported net only when Ind AS specifically permits the same or it has an unconditional legally enforceable
right to offset the recognised amounts without being contingent on a future event. Similarly, the Company offsets
incomes and expenses and reports the same on a net basis when permitted by Ind AS specifically unless they are
material in nature.
Critical accounting estimates and judgments
The preparation of the Company's financial statements requires Management to make use of estimates and judgments.
In view of the inherent uncertainties and a level of subjectivity involved in measurement of items, it is possible that the
outcomes in the subsequent financial years could differ from those on which the Management's estimates are based.
Accounting estimates and judgments are used in various line items in the financial statements for e.g.:
- Business model assessment
- Fair value of financial instruments
- Effective Interest Rate (EIR)
- Impairment on financial assets
- Provisions and other contingent liabilities
- Provision for tax expenses
- Residual value and useful life of property, pant and equipment
Material accounting policies.
This note provides a list of the material accounting policies adopted in the preparation of these financial statements.
These policies have been consistently applied to all the years presented, unless otherwise stated.
Interest income
The Company recognises interest income using Effective Interest Rate (EIR) on all financial assets subsequently
measured at amortised cost or fair value through other comprehensive income (FVOCI). EIR is calculated by considering
all costs and incomes attributable to acquisition of a financial asset or assumption of a financial liability and it represents
a rate that exactly discounts estimated future cash payments/receipts through the expected life of the financial
asset/financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability.
The Company recognises interest income by applying the EIR to the gross carrying amount of financial assets other
than credit-impaired assets. In case of credit-impaired financial assets [as set out in note no. 2.2.4] regarded as 'stage
3', the Company recognises interest income on the amortised cost net of impairment loss of the financial asset at EIR.
If the financial asset is no longer credit-impaired, the Company reverts to calculating interest income on a gross basis.
Interest on financial assets subsequently measured at fair value through profit or loss (FVTPL) is recognised at the
contractual rate of interest.
Dividend income
Dividend income on equity shares is recognised when the Company's right to receive the payment is established, which
is generally when shareholders approve the dividend.
Other revenue from operations
The Company recognises revenue from contracts with customers (other than financial assets to which Ind AS 109
'Financial Instruments' is applicable) based on a comprehensive assessment model as set out in Ind AS 115 'Revenue
from contracts with customers'. The Company identifies contract(s) with a customer and its performance obligations
under the contract, determines the transaction price and its allocation to the performance obligations in the contract and
recognises revenue only on satisfactory completion of performance obligations. Revenue is measured at fair value of
the consideration received or receivable.
Net gain on fair value changes
Financial assets are subsequently measured at fair value through profit or loss (FVTPL) or fair value through other
comprehensive income (FVOCI), as applicable. The Company recognises gains/losses on fair value change of financial
assets measured as FVTPL and realised gains/losses on derecognition of financial asset measured at FVTPL and
FVOCI.
Sale of services
The Company, on de-recognition of financial assets where a right to service the derecognised financial assets for a fee
is retained, recognises the fair value of future service fee income over service obligations cost on net basis as service
fee income in the statement of profit or loss and, correspondingly creates a service asset in Balance Sheet. Any
subsequent increase in the fair value of service assets is recognised as service income and any decrease is recognised
as an expense in the period in which it occurs. The embedded interest component in the service asset is recognised as
interest income in line with Ind AS 109 'Financial instruments'.
Other revenues on sale of services are recognised as per Ind AS 115 'Revenue From Contracts with Customers' as
articulated above in 'other revenue from operations'.
Taxes
Incomes are recognised net of the Goods and Services Tax/Service Tax, wherever applicable.
Expenditures
Finance costs
Borrowing costs on financial liabilities are recognised using the EIR [refer note no. 2.2.1].
Fees and commission expenses
Fees and commission expenses which are not directly linked to the sourcing of financial assets, such as
commission/incentive incurred on value added services and products distribution, recovery charges and fees payable
for management of portfolio etc., are recognised in the Statement of Profit and Loss on an accrual basis.
Taxes
Expenses are recognised net of the Goods and Services Tax, except where credit for the input tax is not statutorily
permitted.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, other short term, highly liquid investments with original maturities of
three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk
of changes in value.
Financial instruments
A financial instrument is defined as any contract that gives rise to a financial asset of one entity and a financial liability
or equity instrument of another entity. Trade receivables and payables, loan receivables, investments in securities and
subsidiaries, debt securities and other borrowings, preferential and equity capital etc. are some examples of financial
instruments.
All the financial instruments are recognised on the date when the Company becomes party to the contractual provisions
of the financial instruments. For tradable securities, the Company recognises the financial instruments on settlement
date.
(i) Financial assets
Financial assets include cash, or an equity instrument of another entity, or a contractual right to receive cash or another
financial asset from another entity. Few examples of financial assets are loan receivables, investment in equity and debt
instruments, trade receivables and cash and cash equivalents.
Initial measurement
All financial assets are recognised initially at fair value including transaction costs that are attributable to the acquisition
of financial assets except in the case of financial assets recorded at FVTPL where the transaction costs are charged to
profit or loss.
Subsequent measurement
For the purpose of subsequent measurement, financial assets are classified into three categories:
(a) Debt instruments at amortised cost
The Company measures its financial assets at amortised cost if both the following conditions are met:
• The asset is held within a business model of collecting contractual cash flows; and
• Contractual terms of the asset give rise on specified dates to cash flows that are Sole Payments of Principal and Interest
(SPPI) on the principal amount outstanding.
To make the SPPI assessment, the Company applies judgment and considers relevant factors such as the nature of
portfolio and the period for which the interest rate is set.
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. If cash flows after initial recognition are realised in a way that is different
from the Company's original expectations, the Company does not change the classification of the remaining financial
assets held in that business model, but incorporates such information when assessing newly originated financial assets
going forward.
The business model of the Company for assets subsequently measured at amortised cost category is to hold and collect
contractual cash flows. However, considering the economic viability of carrying the delinquent portfolios in the books of
the Company, it may sell these portfolios to banks and/or asset reconstruction companies.
After initial measurement, such financial assets are subsequently measured at amortised cost on effective interest rate
(EIR). For further details, refer note no. 2.1.1. The expected credit loss (ECL) calculation for debt instruments at
amortised cost is explained in subsequent notes in this section.
(b) Debt instruments at FVTPL
The Company classifies financial assets which are held for trading under FVTPL category. Held for trading assets are
recorded and measured in the Balance Sheet at fair value. Interest and dividend incomes are recorded in interest income
and dividend income, respectively according to the terms of the contract, or when the right to receive the same has
been established. Gain and losses on changes in fair value of debt instruments are recognised on net basis through
profit or loss. The Company's investments into mutual funds, debentures (trading portfolio) and certificate of deposits
for trading and short term cash flow management have been classified under this category.
(c) Equity instruments at FVTPL
All equity investments in scope of Ind AS 109 'Financial Instruments' are measured at fair value through profit or loss.
Derecognition of Financial Assets
The Company derecognises a financial asset (or, where applicable, a part of a financial asset) when:
• The right to receive cash flows from the asset have expired; or
• The Company has transferred its right to receive cash flows from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third party under an assignment arrangement and the Company
has transferred substantially all the risks and rewards of the asset. Once the asset is derecognised, the Company does
not have any continuing involvement in the same.
The Company transfers its financial assets through the partial assignment route and accordingly derecognises the
transferred portion as it neither has any continuing involvement in the same nor does it retain any control. If the Company
retains the right to service the financial asset for a fee, it recognises either a servicing asset or a servicing liability for
that servicing contract. A service liability in respect of a service is recognised at fair value if the fee to be received is not
expected to compensate the Company adequately for performing the service. If the fees to be received is expected to
be more than adequate compensation for the servicing, a service asset is recognised for the servicing right at an amount
determined on the basis of an allocation of the carrying amount of the larger 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 profit or
loss.
Impairment of financial assets
ECL are recognised for financial assets held under amortised cost, debt instruments measured at FVOCI, and certain
loan commitments.
Financial assets where no significant increase in credit risk has been observed are considered to be in 'stage 1 ’ and for
which a 12 month ECL is recognised. Financial assets that are considered to have significant increase in credit risk are
considered to be in 'stage 2’ and those which are in default or for which there is an objective evidence of impairment
are considered to be in 'stage 3’. Lifetime ECL is recognised for stage 2 and stage 3 financial assets.
At initial recognition, allowance (or provision in the case of loan commitments) is required for ECL towards default events
that are possible in the next 12 months, or less, where the remaining life is less than 12 months.
In the event of a significant increase in credit risk, allowance (or provision) is required for ECL towards all possible
default events over the expected life of the financial instrument ('lifetime ECL’).
Financial assets (and the related impairment loss allowances) are written off in full, when there is no realistic prospect
of recovery.
Treatment of the different stages of financial assets and the methodology of determination of ECL
(a) Credit impaired (stage 3)
The Company recognises a financial asset to be credit impaired and in stage 3 by considering relevant objective
evidence, primarily whether:
• Contractual payments of either principal or interest are past due for more than 90 days;
• The loan is otherwise considered to be in default.
Restructured loans, where repayment terms are renegotiated as compared to the original contracted terms due to
significant credit distress of the borrower, are classified as credit impaired. Such loans continue to be in stage 3 until
they exhibit regular payment of renegotiated principal and interest over a minimum observation period, typically 12
months- post renegotiation, and there are no other indicators of impairment. Having satisfied the conditions of timely
payment over the observation period these loans could be transferred to stage 1 or 2 and a fresh assessment of the
risk of default be done for such loans. Interest income is recognised by applying the EIR to the net amortised cost
amount i.e. gross carrying amount less ECL allowance.
Interest income is recognised by applying the EIR to the net amortised cost amount i.e. gross carrying amount less ECL
allowance.
(b) Significant increase in credit risk (stage 2)
An assessment of whether credit risk has increased significantly since initial recognition is performed at each reporting
period by considering the change in the risk of default of the loan exposure. However, unless identified at an earlier
stage, 30 days past due is considered as an indication of financial assets to have suffered a significant increase in credit
risk. Based on other indications such as borrower’s frequently delaying payments beyond due dates though not 30 days
past due are included in stage 2 for mortgage loans. The measurement of risk of defaults under stage 2 is computed on
homogenous portfolios, generally by nature of loans, tenors, underlying collateral, geographies and borrower profiles.
The default risk is assessed using Pd (probability of default) derived from past behavioral trends of default across the
identified homogenous portfolios. These past trends factor in the past customer behavioral trends, credit transition
probabilities and macroeconomic conditions. The assessed PDs are then aligned considering future economic
conditions that are determined to have a bearing on ECL.
(c) Without significant increase in credit risk since initial recognition (stage 1)
ECL resulting from default events that are possible in the next 12 months are recognised for financial instruments in
stage 1. The Company has ascertained default possibilities on past behavioral trends witnessed for each homogenous
portfolio using application/ behavioral score cards and other performance indicators, determined statistically.
(d) Measurement of ECL
(e) The assessment of credit risk and estimation of ECL are unbiased and probability weighted. It incorporates all
information that is relevant including information about past events, current conditions and reasonable forecasts of future
events and economic conditions at the reporting date. In addition, the estimation of ECL takes into account the time
value of money. Forward looking economic scenarios determined with reference to external forecasts of economic
parameters that have demonstrated a linkage to the performance of our portfolios over a period of time have been
applied to determine impact of macro economic factors. The Company has calculated ECL using three main
components: a probability of default (PD), a loss given default (LGD) and the exposure at default (EAD). ECL is
calculated by multiplying the PD, LGD and EAD and adjusted for time value of money using a rate which is a reasonable
approximation of EIR.
• Determination of PD is covered above for each stages of ECL.
• EAD represents the expected balance at default, taking into account the repayment of principal and interest from the
Balance Sheet date to the date of default together with any expected drawdowns of committed facilities.
• LGD represents expected losses on the EAD given the event of default, taking into account, among other attributes, the
mitigating effect of collateral value at the time it is expected to be realised and the time value of money.
(ii) Financial liabilities
Financial liabilities include liabilities that represent a contractual obligation to deliver cash or another financial assets to
another entity, or a contract that may or will be settled in the entities own equity instruments. Few examples of financial
liabilities are trade payables, debt securities and other borrowings and subordinated debts.
Initial measurement
All financial liabilities are recognised initially at fair value and, in the case of borrowings and payables, net of directly
attributable transaction costs. The Company's financial liabilities include trade payables, other payables, debt securities
and other borrowings.
Subsequent measurement
After initial recognition, all financial liabilities are subsequently measured at amortised cost using the EIR [Refer note
no. 2.1.1]. Any gains or losses arising on derecognition of liabilities are recognised in the Statement of Profit and Loss.
Derecognition
The Company derecognises a financial liability when the obligation under the liability is discharged, cancelled or expired
(iii) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the Balance Sheet only if there is
an enforceable legal right to offset the recognised amounts with an intention to settle on a net basis or to realise the
assets and settle the liabilities simultaneously.
2.2.5 Taxes
(i) Current tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation
authorities, in accordance with the Income Tax Act, 1961 and the Income Computation and Disclosure Standards (ICDS)
prescribed therein. The tax rates and tax laws used to compute the amount are those that are enacted or substantively
enacted, at the reporting date.
Current tax relating to items recognised outside profit or loss is recognised in correlation to the underlying transaction
either in OCI or directly in other equity. Management periodically evaluates positions taken in the tax returns with respect
to situations in which applicable tax regulations are subject to interpretation and establishes provisions where
appropriate.
(ii) Deferred tax
Deferred tax is provided using the Balance Sheet approach on temporary differences between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for
deductible temporary differences to the extent that it is probable that taxable profits will be available against which the
deductible temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.
Unrecognised deferred tax assets, if any, are reassessed at each reporting date and are recognised to the extent that
it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset
is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted
at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised either in OCI or in other equity.
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Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets
against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
2.2.6. Inventories
Items of inventories are measured at lower of cost and net realizable value after providing for obsolescence, wherever
considered necessary. Cost of inventories comprises of cost of purchase, cost of conversion and other costs including
manufacturing overheads incurred in bringing them to their respective present location and condition. Cost of raw
material, stores and spares, packing materials, trading and other products are determined on FIFO basis.
2.2.7. Property, plant and equipment
Property, plant and equipment are carried at historical cost of acquisition less accumulated depreciation and impairment
losses, consistent with the criteria specified in Ind AS 16 'Property, Plant and Equipment'.
Depreciation on property, plant and equipment
(i) Depreciation is provided on a pro-rata basis for all tangible assets on straight line method over the useful life of assets,
except on land.
(ii) Useful lives of assets are determined as prescribed in Schedule II to the Companies Act, 2013.
(iii) Depreciation on addition to assets and assets sold during the year is being provided for on a pro rata basis with reference
to the month in which such asset is added or sold as the case may be.
(iv) An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or
when no future economic benefits are expected from its use or disposal. 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
included under other income in the Statement of Profit and Loss when the asset is derecognised.
(v) 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.
2.2.8. Impairment of non-financial assets
An assessment is done at each Balance Sheet date to ascertain whether there is any indication that an asset may be
impaired. If any such indication exists, an estimate of the recoverable amount of asset is determined. If the carrying
value of relevant asset is higher than the recoverable amount, the carrying value is written down accordingly.
2.2.9. Leases
The Company's lease asset consists of leases for land. The Company assesses whether a contract contains a
lease, at inception of a contract.
At the date of commencement of the lease, the Company recognises a right-to-use asset and a corresponding lease
liability for all lease arrangements in which it is a lessee, except for leases with a term of twelve months or less (short¬
term leases) and low value leases. For these short term and low value leases, the Company recognises the lease
payments as an operating expense on a straight-line basis over the term of the lease.
The right-to-use asset is initially recognised at cost which comprises of the initial amount of lease liability adjusted for
lease payments made or prior to commencement date plus any direct cost i.e. lease incentives. They are subsequently
measured at cost less accumulated depreciation and impairment loss if any.
Certain lease arrangements include the options to extend or terminate the lease before the end of the lease term. ROU
assets and lease liabilities includes these options when it is reasonably certain that they will be exercised.
Right-to-Use assets are depreciated from the commencement date on a straight-line basis over the shorter of the lease
term. Right to use assets are evaluated for recoverability whenever events or changes in the circumstances indicate
that their carrying amounts may not be recoverable.
The lease liability is initially measured at amortised cost at the present value of the future lease payments. The lease
payments are discounted using the incremental borrowing rates in the country of domicile of the leases. The Company
has used single discount rate to a portfolio of leases with similar characteristics. Lease liabilities are remeasured with
a corresponding adjustment to the related right to use asset if the Company changes its assessment as to whether it
will exercise an extension or a termination option.
The Company has opted to present the Right to use as a part of the block of asset to which the lease pertains to and
consequently, the Right to use asset has been presented as a part of property, plant and equipment under Leasehold
land, whereas the lease liability is presented under Other Financial Liabilities in the Balance Sheet.
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