2.2. Summary of significant accounting policies

This note provides a list of the significant accounting policies adopted in the
preparation of these financial statements. These policies have been consistently
applied to all the years presented, unless otherwise stated.

(I) Income:-

(a) Interest income

The Company recognises interest income using effective interest rate (EIR) on
all financial assets subsequently measured under 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 calculates 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, 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.

Delayed payment interest (penal interest) levied on customers for delay in
repayments/non -payment of contractual cash flows is recognised on realisation.

Interest on financial assets subsequently measured at fair value through profit
or loss (FVTPL) is recognised at the contractual rate of interest.

(b) 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.

(c) 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 the fair value of the consideration received
or receivable.

1. Fees and commission income

The Company recognises service and administration charges towards
rendering of additional services to its loan customers on satisfactory
completion of service delivery. Bounce charges levied on customers for
non-payment of instalment on the contractual date is recognised on
realisation.

Fees on value added services and products are recognised on rendering
of services and products to the customer.

Distribution income is earned by distribution of services and products of
other entities under distribution arrangements. The income so earned is
recognised on successful distribution on behalf of other entities subject
to there being no significant uncertainty of its recovery.

Foreclosure charges are collected from loan customers for early
payment/closure of loan and are recognised on realisation.

2. Net gain on fair value changes

The Company designates certain financial assets for subsequent
measurement at fair value through profit or loss (FVTPL) or fair value
through other comprehensive income (FVOCI). The Company
recognises gains on fair value change of financial assets measured at
FVTPL and realised gains on derecognition of financial asset measured
at FVTPL and FVOCI on net basis.

3. Sale of service

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 and 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’.

4. Other operating income

The Company recognises income on recoveries of financial assets
written off on realisation or when the right to receive the same without
any uncertainties of recovery is established.

(d) Taxes

Incomes are recognised net of the goods and services tax, wherever applicable.
Company not having GST no because company is NBFC and only having
interest Income.

(II) Expenditures:-

(a) Finance costs

Company not having any Borrowing costs on financial liabilities.

Fees and commission expense

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.

(b) Other expenses

Expenses are recognised on accrual basis net of the goods and services tax,
except where credit for the input tax is not statutorily permitted.

(III) Cash and cash equivalents

Cash and cash equivalents include cash on hand and 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.

(IV) 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.

(a) 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. Generally, the transaction price is treated as fair value unless
proved to the contrary.

Subsequent measurement

For the purpose of subsequent measurement, financial assets are classified into
four categories as per the Company’s Board approved policy:

(i) Debt instruments at amortised cost

(ii) Debt instruments at FVOCI

(iii) Debt instruments at FVTPL

(iv) Equity instruments designated under FVOCI

(i) 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 on the books of the Company, it may enter into immaterial
and/or infrequent transactions to sell these portfolios to banks and/or
asset reconstruction companies without affecting the business model of
the Company.

After initial measurement, such financial assets are subsequently
measured at amortised cost on effective interest rate (EIR). For further
details, refer note no. 2.2(I)(a). The expected credit loss (ECL)
calculation for debt instruments at amortised cost is explained in
subsequent notes in this section.

(ii) Debt instruments at FVOCI

The Company subsequently classifies its financial assets as FVOCI,
only if both of the following criteria are met:

? the objective of the business model is achieved both by collecting
contractual cash flows and selling the financial assets; and

? 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.

Debt instruments included within the FVOCI category are measured at
each reporting date at fair value with such changes being recognised in
other comprehensive income (OCI). The interest income on these assets
is recognised in profit or loss. The ECL calculation for debt instruments
at FVOCI is explained in subsequent notes in this section.

Debt instruments such as long-term investments in Government
securities to meet regulatory liquid asset requirement of the Company’s
deposit program are classified as FVOCI.

On derecognition of the asset, cumulative gain or loss previously
recognised in OCI is reclassified from other comprehensive income to
profit or loss.

(iii) 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 Statement of Profit and Loss, 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, Government securities
(trading portfolio) and certificate of deposits for trading and short-term
cash flow management have been classified under this category.

(iv) Equity investments designated under FVOCI

All equity investments in scope of Ind AS 109 ‘Financial instruments’
are measured at fair value. The Company has strategic investments in
equity for which it has elected to present subsequent changes in the fair
value in other comprehensive income. The classification is made on
initial recognition and is irrevocable.

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 has 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.

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.

Financial assets subsequently measured at amortised cost are generally
held for collection of contractual cashflow. The Company on looking at
economic viability of certain portfolios measured at amortised cost may
enter into immaterial and/or infrequent transaction of sale of portfolio
which doesn’t affect the business model of the Company.

Reclassification of financial assets

The Company changes classification of its financial assets only on
account of changes in its business model for managing those financial
assets. Such reclassifications are given prospective impact as per the
principles laid down in Ind AS 109 ‘Financial Instruments.’

Impairment of financial assets

ECL are recognised for financial assets held under amortised cost, debt
instruments measured at FVOCI, and certain loan commitments as per
the Board approved policy.

Financial assets where no significant increase in credit risk has been
observed are considered to be in ‘stage 1’ for which a 12 months 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 objective evidence of impairment are
considered to be in ‘stage 3’. Life time 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 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 of 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 effective interest rate 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 behavioural
trends of default across the identified homogenous portfolios. These past
trends factor in the past customer behavioural 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 behavioural trends witnessed for
each homogenous portfolio using application/behavioural score cards
and other performance indicators, determined statistically.

(d) Measurement of ECL

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 stage 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.

The Company recaliberates above components of its ECL model on a
periodical basis by using the available incremental and recent
information as well as assessing changes to its statistical techniques for
a granular estimation of ECL.

(b) Financial liabilities

Financial liabilities include liabilities that represent a contractual obligation to
deliver cash or another financial asset to another entity, or a contract that may
or will be settled in the entity’s 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 method [Refer note no 2.2(I)(a)]. 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.

(c) 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.

(V) Investment in subsidiaries

Investment in subsidiaries is recognised at cost and are not adjusted to fair value
at the end of each reporting period as allowed by Ind AS 27 ‘Separate financial
statement’. Cost of investment represents amount paid for acquisition of the said
investment and a proportionate recognition of the fair value of shares granted to
employees of subsidiary under a group share based payment arrangement.

The Company assesses at the end of each reporting period, if there are any
indications that the said investment may be impaired. If so, the Company
estimates the recoverable value/amount of the investment and provides for
impairment, if any i.e. the deficit in the recoverable value over cost.

The company has not any subsidiary in the current reporting period.

(VI) 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 recognised 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 other comprehensive income or in other 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.

(VII) 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

1. Depreciation is provided on a pro rata basis for all tangible assets on
written-down methods over the useful life of assets.

2. Useful lives of assets are determined by the Management by an internal
technical assessment except where such assessment suggests a life
significantly different from those prescribed by Schedule II - Part C of
the Companies Act, 2013 where the useful life is as assessed and
certified by a technical expert.

3. 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.

4. Assets having unit value up to Rs. 5,000 is depreciated fully in the
financial year of purchase of asset.

5. 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.

6. Currently company have only salvage value of tangible assets and
management has decided not to charge depreciation on these assets
hence the salvage value of tangible assets shown on the face of the
balance sheets.

7. 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.

(VIII) Intangible assets and amortisation thereof

Intangible assets, representing software’s are initially recognised at cost and
subsequently carried at cost less accumulated amortisation and accumulated
impairment. The company has computer software and it depreciated as per
written down methods. Currently company has salvage value of these assets
hence management is decided not to charge depreciation on these assets and
salvage value of the assets are shown on the face of the Balance sheet.

(IX) 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.