C. Summary of material accounting policies information
I. Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity.
Financial assets
Classification
The Company classifies its financial assets in the following measurement categories:
Those to be measured subsequently at fair value (either through other comprehensive income (FVTOCI), or through
profit or loss (FVTPL) and those to be measured subsequently at amortised cost.
The classification is done depending upon the Company’s business model for managing the financial assets and the
contractual terms of the cash flows.
For assets classified as ’measured at fair value’, gains and losses will either be recorded in profit or loss or other
comprehensive income, as elected. For assets classified as ’measured at amortised cost’, this will depend on the
business model and contractual terms of the cash flows.
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:
• How the performance of the business model and the financial assets held within that business model are
evaluated and reported to the entity’s key management personnel
• 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
• The expected frequency, value and timing of sales are also important aspects of the Company’s assessment
However, this assessment is performed on the basis of scenarios that the Company reasonably expects to occur and
not so-called ‘worst case’ or ‘stress case’ scenarios
The Company considers sale of Investment (Government Security - SDL) measured at amortised cost portfolio as
consistent with a business model whose objective is to hold financial assets in order to collect contractual cash flows
if these sales are:
i. In case of liquidity crisis faced by the company which can hit the funding operations. Company may liquidate
the amortised cost portfolio if the funding cost exceeds MIBOR plus 50 bps for three successive working
days. The decision to sell under such circumstances shall be taken by the Investment Committee.
ii. Catastrophic scenarios, which could be termed as one off situations (GFC, COVID crisis etc) wherein
portfolio liquidation needs to be carried out. However, sale under such scenarios shall only be undertaken
post approval from the Risk Management Committee.
The sale window shall however remain open for 30 days from trigger of the stress event.
The Solely Payments of Principal and Interest (SPPI) test
As a second step of its classification process the Company assesses the contractual terms of financial assets to
identify whether they meet the SPPI test.
For the purpose of SPPI test, principal is the fair value of the financial asset at initial recognition. That principal
amount may change over the life of the financial asset (e.g. if there are repayments of principal). Interest consists of
consideration for the time value of money, for the credit risk associated with the principal amount outstanding during
a particular period of time and for other basic lending risks and costs, as well as a profit margin.
Contractual terms that introduce exposure to risks or volatility in the contractual cash flows that are unrelated to a
basic lending arrangement, such as exposure to changes in equity prices or commodity prices, do not give rise to
contractual cash flows that are SPPI, such financial assets are either classified as fair value through profit and loss
account or fair value through other comprehensive income.
Initial recognition and measurement
All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value
through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or
sales of financial assets that require delivery of assets within a time frame established by regulation or convention in
the market place (regular way trades) are recognised on the settlement date.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in three categories:
• Debt instruments at amortised cost
• Debt instruments at fair value through other comprehensive income (FVTOCI)
• Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
i. Debt instruments at Amortised cost.
A ‘debt instrument’ is measured at the amortised cost if both the following conditions are met.
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash
flows, and
b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal
and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the effective
interest rate (EIR) method.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs
that are an integral part of the EIR.
ii. Debt instruments at FVTOCi
A ‘debt instrument’ is classified as at the FVTOCI if both of the following criteria are met.
a) The objective of the business model is achieved both by collecting contractual cash flows and selling the
financial assets, and
b) The asset’s contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date
at fair value. Fair value movements are recognized in the other comprehensive income (OCI).
iii. Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
Debt instrument at FVTPL: FVTPL is a residual category for debt instruments. Any debt instrument, which
does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL. Debt
instruments included within the FVTPL category are measured at fair value with all changes recognized in the
PandL.
Equity investments: All equity investments in scope of Ind AS 109 are measured at fair value. Equity
instruments which are held for trading are classified as at FVTPL. All other equity instruments are classified as
per provisions of relevant Ind AS.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized
in the P and L.
Derivative financial instruments: The Company uses derivative financial instruments, such as Future
contracts, Options, Interest rate Future contracts for trading purpose and interest rate swaps for trading as well
as to hedge its interest rate risks. Such derivative financial instruments are initially recognised at fair value on
the date on which a derivative contract is entered into and are subsequently re-measured at fair value and the
resulting gain or loss is recognized in statement of Profit and Loss. Derivatives are carried as financial assets
when the fair value is positive and as financial liabilities when the fair value is negative.
Impairment of financial assets
In accordance with Ind AS 109, the company applies expected credit loss (ECL) model for measurement and
recognition of impairment loss on the following financial assets and credit risk exposure:
Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt securities and
deposits.
For recognition of impairment loss on financial assets and risk exposure, the company determines that whether there
has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly,
12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL
is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant
increase in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based
on 12-month ECL.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the
statement of profit and loss (PandL).
Financial liabilities
Initial recognition and measurement
A financial liability is initially measured at fair value plus, for an item not at fair value through profit and loss (FVTPL),
transaction costs that are directly attributable to its acquisition or issue.
Subsequent measurement
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at
FVTPL, if it is classified as held for trading, or it is a derivative or it is designated as such on initial recognition.
Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense,
are recognised in statement of profit and loss. Other financial liabilities are subsequently measured at amortised
cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in
statement of profit and loss.
Reclassification of financial instruments
The company did not reclassify any of its financial assets or liabilities subsequent to its initial recognition during the
FY 2024-25 and FY 2023-24.
Derecognition of Financial instruments
A financial asset is derecognised only when Company has transferred the rights to receive cash flows from the financial
asset. Where the entity has transferred an asset, the Company evaluates whether it has transferred substantially all
risks and rewards of ownership of the financial asset. In such cases, the financial asset is derecognised.
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a
currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to
realise the assets and settle the liabilities simultaneously.
II. Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand, short-term deposits and other
highly liquid investments, with an original maturity of three months or less and are readily convertible into known
amounts of cash, which are subject to an insignificant risk of changes in value.
For the purpose of the Financial Statements, cash and cash equivalents consist of cash and short-term deposits, as
defined above, net of outstanding bank overdrafts as they are considered an integral part of the Company’s cash
management.
III. Revenue recognition
i. Interest income, for all debt instruments measured either at amortised cost (Short term lending, Fixed
deposits and Government securities) or at fair value through other comprehensive income, is recorded using
the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments
or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the
gross carrying amount of the financial asset or to the amortised cost of a financial liability. The calculation
takes into account all contractual terms of the financial instrument (for example, prepayment options) and
includes any fees or incremental costs that are incrementally directly attributable to the instrument and are
an integral part of the EIR, but not future credit losses.
ii. Changes in fair value of securities classified at fair value through profit and loss (FVTPL) (Certificates of
Deposit, Commercial Papers, Bills Re-discounted, Treasury Bills (including Cash Management Bills), Zero
Coupon Bonds, Government dated securities (including State Development Loan), Corporate bonds and
debentures, Equity sharesand Mutual funds) shall be taken to Profit and Loss.
iii. The difference between the acquisition cost and maturity value of Certificates of Deposit, Commercial
Papers, Bills Re-discounted, Treasury Bills (including Cash Management Bills) and Zero Coupon Bonds is
apportioned on time basis. The above is recognised as accrued income.
iv. Interest income on Government Dated Securities and Corporate Bonds and Debentures is recognised at its
coupon rate and that of Floating Rate Bonds is recognised on the yield of instruments to which these are
linked
v. Dividend income is recognized when the Company’s right to receive payment is established by the reporting
date.
vi. Underwriting fees: Underwriting fee earned on the government securities is credited in the statement of
profit and loss account.
vii. Commission and other fees: Commission and other fees will be recognized as and when the performance
obligation is satisfied as per IND AS 115.
viii. Other income received through rent, interest on staff loans, house rent recovery and Misc. Income are
accounted for on accrual basis.
IV. Accounting of Expenses
Interest expense is measured and recognised on Effective Interest Rate (EIR) method. Other expenses are accounted
for on accrual basis as and when it gets accrued.
V. Accounting for Repo Transactions
Sales / Purchases of Treasury Bills (including Cash Management Bills) and Government Dated Securities, as
disclosed in Statement of Profit and Loss do not include Repo/Reverse Repo transactions in accordance with RBI
guidelines No. RBI/2009-2010/356/IDMD/4135/11.08.43/2009-10 dated March 23, 2010.
In conformity with RBI guidelines, securities sold under Repo transactions are not excluded from the portfolio and
the securities purchased under Reverse Repo are not included in the portfolio. Contra heads are used to reflect the
transfer of securities.
Repo seller continues to accrue coupon/ discount on securities, as the case may be, even during the repo period
while the repo buyer shall not accrue the same.
VI. Fair value measurement
On initial recognition, all the financial instruments are measured at 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. The fair value measurement is based on the presumption that
the transaction to sell the asset or transfer the liability takes place either:
i. In the principal market for the asset or liability, or
ii. In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant that
would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data
are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of
unobservable inputs.
In order to show how fair values have been derived, financial instruments are classified based on a hierarchy of
valuation techniques, as summarised below:
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 prices for similar assets or liabilities in active markets, quoted prices for identical instruments in inactive
markets and observable inputs other than quoted prices such as interest rates and yield curves, implied volatilities,
and credit spreads. In addition, adjustments may be required for the condition or location of the asset or the extent
to which it relates to items that are comparable to the valued instrument. However, if such adjustments are based
on unobservable inputs which are significant to the entire measurement, the Company will classify the instruments
as Level 3.
Level 3 financial instruments - Those that include one or more unobservable input that is significant to the measurement
as whole.
The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during
which the change has occurred.
The Company has used the following methods for deriving the fair values:
i. Fair Value of Government dated Securities, Treasury Bills (including Cash Management Bills), State
development loans, Interest Rate Swaps, Certificates of Deposit and PSU/Corporate bonds and debentures,
is determined by the prices or yield, as applicable, declared by Fixed Income Money Market and Derivatives
Association of India (FIMMDA)/Financial Benchmark India Private Limited (FBIL) on last working day of the
Financial Year.
ii. In case of Commercial Papers, company shall use market observable spread over T Bill curve and based
on that new benchmark (T-Bill constant spread across the curve) company shall interpolate and calculate
CP prices corresponding to the residual maturities.
iii. Fair value of Equity Shares is determined by the closing rates provided by the stock exchanges on last
working day of the Financial Year.
iv. In case of units of Mutual Fund, valuation is done on the basis of closing NAV declared by the Mutual Fund.
v. In case of Future and Options contracts (i.e IRF, Equity futures and Nifty futures) valuation is done as per
the closing prices provided by Stock Holding Corporation of India Limited (SHCIL).
VII. Taxes
Tax expense comprises current and deferred tax.
Current income tax
Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the
Income Tax Act, 1961
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted, at the reporting date.
Current income tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in
other comprehensive income or in equity).
Deferred tax
Deferred tax is provided using the liability method 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.
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits
and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit
will be available against which the deductible temporary differences, and the carry forward of unused tax credits and
unused tax losses 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 are re-assessed 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 outside profit or loss (either in other
comprehensive income or in equity).
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.
Uncertain Tax Position
Further, the company periodically evaluates positions taken in the tax returns with respect to situations in which
applicable tax regulations are subject to interpretation. The company considers whether it is probable that a taxation
authority will accept an uncertain tax treatment. If the company concludes, it is probable that the taxation authority will
accept an uncertain tax treatment, it determines the taxable profit (tax loss), tax bases, unused tax losses, unused
tax credits or tax rates consistently with the tax treatment used or planned to be used and its income tax filings.
If the company concludes, it is not probable that the taxation authority will accept an uncertain tax treatment, the
company reflects the effect of uncertainty in determining the related taxable profit (tax loss), tax bases, unused
tax losses, unused tax credits or tax rates. The company reflects the effect of uncertain tax positions in the overall
measurement of tax expense and or based on the most likely amount or the expected value arrived at by the
company, which provides a better prediction of the resolution of uncertainty.
Significant judgements are involved in determining the provision for income taxes, including amount expected to
be paid/recovered for uncertain tax positions. Uncertain tax positions are monitored and updated as and when
new information becomes available, typically upon examination or action by taxing authorities or through statute,
expiration and judicial precedent.
VIII. Exceptional Items
Exceptional items include income or expense that are considered to be part of ordinary activities, however are of
such significance and nature that separate disclosure enables the user of the financial statements to understand
the impact in a more meaningful manner. Exceptional items are identified by virtue of their size, nature or incidence.
IX. Earnings per share
Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity
shareholders by the weighted average number of equity shares outstanding during the period.
For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity
shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects
of all dilutive potential equity shares.
X. Event of Default
As per the Companies (Indian Accounting Standards) Rules 2015, as amended from time to time, NBFCs have
to comply with IND AS 109 for preparation of financial statements from FY 2018-19 onwards. Amongst its various
requirements, it requires entities to define default in a manner consistent with internal risk management policies (IND
AS does not explicitly define default). Complying with the requirements of the IND AS 109, the Company has defined
default and the accounting treatment of the default asset in the following manner:
1. Definition of Event of Default
Any asset/issuer shall be termed as default if there is any instance of non-receipt of interest and/or principal obligation
by an issuer towards any securities/issuance/s in Company’s books.
2. Accounting Treatment
Company proposes the following accounting adjustments to be adopted with respect to the securities/issuances that
fall under the definition of default.
Accounting Treatment
The number of such defaults and the total amount outstanding and the overdue amounts shall be disclosed in the
notes to the financial statements.
In case of recovery of the default asset, if the amount is received before the date of balance sheet signing, the same
will be accounted for in the said balance sheet as per the provisions of Ind AS-10 ‘Events after the Reporting period’.
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