2. Material accounting policies
The financial statements have been prepared using the material accounting policies and measurement bases summarised as below. These policies are applied
consistently for all the periods presented in the financial statements.
a) Property, plant and equipment
Recognition and initial measurement
Property, plant and equipment are stated at their cost of acquisition. The cost comprises purchase price, borrowing cost if capitalization criteria are met
and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebates are deducted in arriving
at the purchase price.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repair and maintenance costs are
recognised in statement of profit or loss as incurred.
Subsequent measurement (depreciation method, useful lives and residual value)
Property, plant and equipment are subsequently stated at cost less accumulated depreciation and impairment losses. Depreciation on property, plant and
equipment is provided on the written-down method over the useful life of the assets as prescribed under Part ‘C’ of Schedule II of the Companies Act, 2013.
Depreciation is calculated on pro rata basis from the date on which the asset is ready for use or till the date the asset is sold or disposed. During Covid
lockdown, the Company allowed its employees to purchase fixed assets to enable them to work from home which shall remain in possession of employees
only. Asset costing up to Rs. 5,000 each are fully depreciated in the year of capitalisation except work from home assets and mobile phones which are
written off after four years and two years respectively from the date of capitalisation.
The residual values, useful lives and method of depreciation are reviewed at the end of each financial year.
De-recognition
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 de-recognition of the asset (calculated as the difference between the net disposal proceeds
and the carrying amount of the asset) is recognized in the statement of profit and loss, when the asset is derecognised.
b) Intangible assets
Recognition and initial measurement
Intangible assets are stated at their cost of acquisition. The cost comprises purchase price including any import duties and other taxes (other than those
subsequently recoverable from taxation authorities), borrowing cost if capitalization criteria are met and directly attributable cost of bringing the asset to
its working condition for the intended use.
Subsequent measurement (amortisation method, useful lives and residual value)
Intangible assets are amortised over their estimated useful life not exceeding five years from the date when the assets are available for use. The estimated
useful life (amortisation period) of the intangible assets is arrived basis the expected pattern of consumption of economic benefits and is reviewed at the
end of each financial year and the amortisation period is revised to reflect the changed pattern, if any.
c) Revenue recognition
Interest and processing fee income on loans
Interest and processing fee income is recorded on accrual basis using the effective interest rate (EIR) method. Interest income on impaired loans are
accounted for to the extent of recovery certainty. Additional interest/overdue interest/penal charges, if any, are recognised only when it is reasonable
certain that the ultimate collection will be made.
Fee & Commission income
Income from business correspondent services is recognised as and when the services are rendered as per agreed terms and conditions of the contract.
Dividend income
Dividend income is recognised at the time when the right to receive is established by the reporting date.
Miscellaneous income
All other income is recognized on an accrual basis, when there is no uncertainty in the ultimate realization/collection.
d) Taxation
Tax expense recognized in Statement of Profit and Loss comprises the sum of deferred tax and current tax except to the extent it recognized in other
comprehensive income or directly in equity.
Current tax comprises the tax payable or receivable on taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of
previous years. Current tax is computed in accordance with relevant tax regulations. The amount of current tax payable or receivable is the best estimate of
the tax amount expected to be paid or received after considering uncertainty related to income taxes, if any. 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).
Current tax assets and liabilities are offset only if there is a legally enforceable right to set off the recognised amounts, and it is intended to realise the asset
and settle the liability on a net basis or simultaneously.
Minimum alternate tax (‘MAT’) credit entitlement is recognised as an asset only when and to the extent there is convincing evidence that normal income
tax will be paid during the specified period. In the year in which MAT credit becomes eligible to be recognised as an asset, the said asset is created by way
of a credit to the Statement of Profit and Loss and shown as MAT credit entitlement. This is reviewed at each balance sheet date and the carrying amount
of MAT credit entitlement is written down to the extent it is not reasonably certain that normal income tax will be paid during the specified period.
Deferred tax is recognised in respect of temporary differences between carrying amount of assets and liabilities for financial reporting purposes and
corresponding amount used for taxation purposes. Deferred tax assets are recognised on unused tax loss, unused tax credits and deductible temporary
differences to the extent it is probable that the future taxable profits will be available against which they can be used. This is assessed based on the
Company’s forecast of future operating results, adjusted for significant non-taxable income and expenses and specific limits on the use of any unused tax
loss. 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. The measurement of deferred tax reflects the tax
consequences that would follow from the manner in which the Company expects, at the reporting date to recover or settle the carrying amount of its assets
and liabilities. Deferred tax assets and liabilities are offset only if there is a legally enforceable right to set off the recognised amounts, and it is intended
to realise the asset and settle the liability on a net basis or simultaneously. Deferred tax relating to items recognised outside statement of profit and loss is
recognised outside statement of profit or loss (either in other comprehensive income or in equity).
e) Employee benefits
Short-term employee benefits
Short-term employee benefits including salaries, short term compensated absences (such as a paid annual leave) where the absences are expected to occur
within twelve months after the end of the period in which the employees render the related service, profit sharing and bonuses payable within twelve
months after the end of the period in which the employees render the related services and non-monetary benefits for current employees are estimated and
measured on an undiscounted basis.
Post-employment benefit plans are classified into defined benefits plans and defined contribution plans as under:
Defined contribution plans
The Company has a defined contribution plans namely provident fund, pension fund and employees state insurance scheme. The contribution made by
the Company in respect of these plans are charged to the Statement of Profit and Loss.
Defined benefit plans
The Company has an obligation towards gratuity, a defined benefit retirement plan covering eligible employees. Where in the employee will receive on
retirement is defined by reference to employee’s length of service and last drawn salary. Under the defined benefit plans, the amount that an employee
will receive on retirement is defined by reference to the employee’s length of service and final salary. The legal obligation for any benefits remains with
the Company, even if plan assets for funding the defined benefit plan have been set aside. The liability recognised in the statement of financial position
for defined benefit plans is the present value of the Defined Benefit Obligation (DBO) at the reporting date less the fair value of plan assets. Management
estimates the DBO annually with the assistance of independent actuaries. Actuarial gains/losses resulting from re-measurements of the liability/asset are
included in other comprehensive income.
Other long-term employee benefits
The Company also provides the benefit of compensated absences to its employees which are in the nature of long-term employee benefit plan. Liability in
respect of compensated absences becoming due and expected to availed after one year from the Balance Sheet date is estimated in the basis of an actuarial
valuation performed by an independent actuary using the projected unit credit method as on the reporting date. Actuarial gains and losses arising from
past experience and changes in actuarial assumptions are charged to Statement of Profit and Loss in the year in which such gains or losses are determined.
f) Impairment of non-financial assets
At each reporting date, the Company assesses whether there is any indication that an asset may be impaired. If any such indication exists, the Company
estimates the recoverable amount of the asset. Recoverable amount is higher of an asset’s net selling price and its value in use. If such recoverable amount
of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced
to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the Statement of Profit and Loss. If at the reporting date
there is an indication that if a previously assessed impairment loss no longer exists, the recoverable amount is reassessed, and the asset is reflected at the
recoverable amount.
Compensation for impairment
Compensation from third parties for items of property, plant and equipment that were impaired, lost or given up are recognised in statement of profit and
loss when the compensation becomes receivable.
g) Impairment of financial assets
Loan assets
The Company follows a ‘three-stage’ model for impairment based on changes in credit quality since initial recognition as summarised below:
• Stage 1 includes loan assets that have not had a significant increase in credit risk since initial recognition or that have low credit risk at the reporting
date.
• Stage 2 includes loan assets that have had a significant increase in credit risk since initial recognition but that do not have objective evidence of
impairment.
• Stage 3 includes loan assets that have objective evidence of impairment at the reporting date.
The Expected Credit Loss (ECL) is measured at 12-month ECL for Stage 1 loan assets and at lifetime ECL for Stage 2 and Stage 3 loan assets. ECL is the
product of the Probability of Default, Exposure at Default and Loss Given Default, defined as follows:
Probability of Default (PD) - The PD represents the likelihood of a borrower defaulting on its financial obligation (as per “Definition of default and
credit-impaired” above), either over the next 12 months (12 months PD), or over the remaining lifetime (Lifetime PD) of the obligation.
Loss Given Default (LGD) - LGD represents the Company’s expectation of the extent of loss on a defaulted exposure. LGD varies by type of counterparty,
type and preference of claim and availability of collateral or other credit support.
Exposure at Default (EAD) - EAD is based on the amounts the Company expects to be owed at the time of default. For a revolving commitment, the
Company includes the current drawn balance plus any further amount that is expected to be drawn up to the current contractual limit by the time of
default, should it occur.
Forward-looking economic information (including management overlay) is included in determining the 12-month and lifetime PD, EAD and LGD. The
assumptions underlying the expected credit loss are monitored and reviewed on an ongoing basis.
Forward-looking economic information (including management overlay) is included in determining the 12-month and lifetime PD, EAD and LGD. The
assumptions underlying the expected credit loss are monitored and reviewed on an ongoing basis.
The Company considers various factors while considering the recoverability of credit impaired advances. These include nature and value of assets, different
resolution channels, interest of potential buyers etc. Considering the typical nature of advances given by the Company, there is significant uncertainty and
variability in timing of resolution of these advances. In reference to RBI’s prudential norms, the Company does not recognize interest income on these
advances on a conservative basis, and the provisioning is considered using current estimate of realization.
Trade receivables
In respect of trade receivables, the Company applies the simplified approach of Ind AS 109, which requires measurement of loss allowance at an amount
equal to lifetime expected credit losses. Lifetime expected credit losses are the expected credit losses that result from all possible default events over the
expected life of trade receivables.
Other financial assets
In respect of its other financial assets, the Company assesses if the credit risk on those financial assets has increased significantly since initial recognition. If
the credit risk has not increased significantly since initial recognition, the Company measures the loss allowance at an amount equal to 12-month expected
credit losses, else at an amount equal to the lifetime expected credit losses.
When making this assessment, the Company uses the change in the risk of a default occurring over the expected life of the financial asset. To make that
assessment, the Company compares the risk of a default occurring on the financial asset as at the balance sheet date with the risk of a default occurring
on the financial asset as at the date of initial recognition and considers reasonable and supportable information, that is available without undue cost or
effort, that is indicative of significant increases in credit risk since initial recognition. The Company assumes that the credit risk on a financial asset has not
increased significantly since initial recognition if the financial asset is determined to have low credit risk at the balance sheet date.
Restructured, rescheduled and modified loans
The Company sometimes makes concessions or modifications to the original terms of loans such as changing the instalment value or changing the tenor
of the loan, as a response to the borrower’s request. The Company considers the modification of the loan only before the loans gets credit impaired. When
the loan has been renegotiated or modified but not derecognised, the Company also reassesses whether there has been a significant increase in credit risk.
The Company also considers whether the assets should be classified as Stage 3. Once an asset has been classified as restructured, it will remain restructured
for a period of year from the date on which it has been restructured.
Write-offs
Financial assets are written off either partially or in their entirety to the extent that there is no realistic prospect of recovery. Any subsequent recoveries are
credited to impairment on financial instrument on statement of profit and loss.
h) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand (including imprest), demand deposits and short-term highly liquid investments with an original maturity
of three months or less that are readily convertible into known amount of cash and which are subject to an insignificant risk of changes in value.
i) Equity investment in associates
Investments representing equity interest in associates are accounted for at cost in accordance with Ind AS 27 Separate Financial Statements.
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