3. Material Accounting Policies
The material accounting policies applied in preparation of the
standalone financial statements are as given below:
3.1 Basis of Preparation and Measurement
The standalone financial statements have been prepared on going
concern basis following accrual system of accounting on historical
cost basis except for certain financial assets and financial liabilities
which are measured at fair values as explained in relevant accounting
policies. These policies have been applied consistently for all the
periods presented in the standalone financial statements.
Functional and presentation currency
The standalone financial statements are presented in Indian Rupee
('INR') which is also the functional currency of the Company.
3.2 Income recognition
Interest income
For financial assets measured at amortized cost, interest income is
recorded using the effective interest rate (EIR), i.e. the rate that exactly
discounts estimated future cash receipts through the expected life of
the financial asset to the net carrying amount of the financial assets.
Interest on financial assets subsequently measured at fair value
through profit and loss is recognized on an accrual basis in accordance
with the terms of the respective contract and is disclosed separately
under the head interest income.
Unless otherwise specified, the recoveries from the borrowers are
appropriated in the order of (i) costs and expenses of REC (ii) delayed
and penal interest including interest tax, if any (iii) overdue interest
including interest tax, if any and (iv) repayment of principal; the oldest
being adjusted first, except for credit impaired loans and recalled
loans, where principal amount is appropriated only after the complete
recovery of other costs, expenses, delayed and penal interest and
overdue interest including interest tax, if any. The recoveries under
One Time Settlement (OTS)/ Insolvency and Bankruptcy Code (IBC)
proceedings are appropriated first towards the principal outstanding
and remaining recovery thereafter, towards interest and other
charges, if any.
As a matter of prudence, income on credit impaired loan assets is
recognised as and when received or on accrual basis when expected
realisation is higher than the loan amount outstanding.
Rebate on account of timely payment of interest by borrowers is
recognized on receipt of entire interest amount due in time, in
accordance with the terms of the respective contract and is netted
against the corresponding interest income.
Income from Government schemes
Income of agency fee on Government schemes is recognized on the
basis of the services rendered and amount of fee sanctioned by the
Ministry of Power.
Dividend income
Income from dividend on shares of corporate bodies and units of
mutual funds/Invits is taken into account on accrual basis when right
to receive payment is established.
Provided that in case of final dividend, the right to receive payment
shall be considered as established only upon approval of the dividend
by the shareholders in the Annual General Meeting.
Dividend on financial assets subsequently measured at fair value
through profit and loss is recognised separately under the head
'Dividend Income'.
Rental Income on Investment Property
Rental income from investment property is recognised on a straight¬
line basis over the term of the lease.
Other services
Fees/ charges on loan assets, other than those considered an
adjustment to EIR, are accounted for on accrual basis. Pre-payment
premium is accounted for by the Company in the year of receipt.
3.3 Borrowing costs
Borrowing costs consist of interest and other costs that the Company
incurred in connection with the borrowing of funds. Borrowing costs
that are directly attributable to the acquisition and/ or construction
of a qualifying asset, till the time such qualifying asset becomes ready
for its intended use, are capitalized. A qualifying asset is one that
necessarily takes a substantial period to get ready for its intended use.
All other borrowing costs are charged to the Statement of Profit and
Loss on an accrual basis as per the effective interest rate method.
3.4 Earnings per share
Basic earnings per share is calculated by dividing the net profit or
loss for the year attributable to equity shareholders (after deducting
attributable taxes) by the weighted average number of equity shares
outstanding during the period.
To calculate diluted earnings per share, the net profit or loss for the
year 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.
3.5 Foreign Currency Translation
Foreign currency transactions and balances
Foreign currency transactions are translated into the functional
currency of the Company using the exchange rates prevailing on the
date of the transaction.
Foreign exchange gains and losses resulting from the settlement
of such transactions and the re-measurement of monetary items
denominated in foreign currency at period-end exchange rates
are recognized in the Statement of Profit or Loss. However, for the
long-term monetary items recognized in the standalone financial
statements before 1st April 2018, such gains and losses are accumulated
in a "Foreign Currency Monetary Item Translation Difference Account”
and amortized over the balance period of such long term monetary
item, by recognition as income or expense in each of such periods.
Non-monetary items are not retranslated at period-end and are
measured at historical cost (translated using the exchange rates at
the transaction date).
3.6 Property, Plant and Equipment (PPE)
Recognition and initial measurement
Land
Land held for use is initially recognized at cost. For land, as no finite
useful life can be determined, related carrying amounts are not
amortized.
Land also includes land treated as a Right of Use asset under lease
agreement earlier classified as finance lease and is amortized over the
lease term.
Other Tangible assets
PPE other than land is initially recognized at acquisition cost or
construction cost, including any costs directly attributable to bringing
the assets to the location and condition necessary for it to be capable
of operating in the manner intended by the Company's management.
Subsequent costs are included in the asset's carrying amount or
recognized as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the
Company beyond one year. Maintenance or servicing costs of PPE are
recognized in the Statement of Profit and Loss as incurred.
Subsequent measurement (depreciation method, useful lives, residual
value, and impairment)
PPE are subsequently measured at cost less accumulated depreciation
and impairment losses. Depreciation on PPE is provided on the
straight-line method over the useful life of the assets as prescribed
under Part 'C' of Schedule II of the Companies Act, 2013.
Depreciation on assets purchased/sold during the year is charged for
the full month if the asset is in use for more than 15 days. Depreciation
on assets purchased during the year up to Rs. 5,000/- is provided @
100%.
The residual values, useful lives, and method of depreciation are
reviewed at the end of each financial year. PPE other than land is
tested for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
De-recognition
An item of PPE and any significant part initially recognized is
derecognized upon disposal or when no future economic benefits
are expected from its use or disposal. Any gain or loss arising on de¬
recognition of an item of PPE is determined as the difference between
the net disposal proceeds and the carrying amount of the asset and is
recognized in the Statement of Profit and Loss.
Capital Work-in-Progress
The cost of PPE under construction at the reporting date is
disclosed as 'Capital work-in-progress' 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. Advances paid for the acquisition/ construction
of PPE which are outstanding at the balance sheet date are classified
under 'Capital Advances'
3.7 Investment property
Recognition and measurement
Investment property are properties held to earn rentals and/or for
capital appreciation.
Investment properties are measured initially at cost, including
transaction costs. Subsequent to initial recognition, investment
properties are measured at cost less accumulated depreciation and
accumulated impairment loss, if any. The depreciation is charged on
straight-line method over the useful life of the assets as prescribed
under Part 'C' of Schedule II of the Companies Act, 2013.
Derecognition
Investment properties are derecognised either when they have
been disposed of or when they are permanently withdrawn from
use and no future economic benefit is expected from their disposal.
The difference between the net disposal proceeds and the carrying
amount of the asset is recognised in profit or loss in the period of
derecognition.
Reclassification to/from investment property
Transfers are made to (or from) investment property only when
there is a change in use. Transfers between investment property and
owner-occupied property do not change the carrying amount of the
property transferred and they do not change the cost of that property
for measurement or disclosure purposes.
Fair value disclosure
The fair value of investment property is disclosed in the notes. Fair
value is determined by an independent valuer who holds a recognised
and relevant professional qualification and has recent experience in
the relevant location and category of the investment property being
valued.
3.8 Intangible assets
Recognition and initial measurement
Intangible assets are initially measured at cost. Such assets are
recognized where it is probable that the future economic benefits
attributable to the assets will flow to the company.
Subsequent measurement (amortization method, useful lives and
residual value)
All intangible assets with finite useful life are amortized on a straight
line basis over the estimated useful lives, and a possible impairment
is assessed if there is an indication that the intangible asset may be
impaired. Residual values and useful lives for all intangible assets are
reviewed at each reporting date. Changes, if any, are accounted for as
changes in accounting estimates. Management estimates the useful
life of intangible assets to be five years.
Intangible Assets under Development
Expenditure incurred which are eligible for capitalization under
intangible assets is carried as 'Intangible assets under development'
till they are ready for their intended use. Advances paid for the
acquisition/ development of intangible assets which are outstanding
at the balance sheet date are classified under 'Capital Advances'.
Derecognition of Intangible Assets
An intangible asset is derecognized on disposal, or when no future
economic benefits are expected from use or disposal. Gains or losses
arising from derecognition of an intangible asset, measured as the
difference between the net disposal proceeds and the carrying
amount of the asset are recognized in the Statement of Profit and Loss
when the asset is derecognized.
3.9 Lease accounting:
Right-of-use asset and related lease liability in connection with all
former operating leases are recognised except for those identified as
short-term or low-value lease.
An assessment at contract inception is made whether a contract is, or
contains, a lease. A lease is defined as 'a contract, or part of a contract,
that conveys the right to use an asset (the underlying asset) for a
period of time in exchange for consideration'.
To apply this definition, the contract is assessed for three key
evaluations which are whether:
- the contract contains an identified asset, which is either
explicitly identified in the contract or implicitly specified by
being identified at the time the asset is made available
- right to obtain substantially all of the economic benefits
from use of the identified asset throughout the period of use,
considering its rights within the defined scope of the contract
- right to direct the use of the identified asset throughout the
period of use and right to direct 'how and for what purpose' the
asset is used throughout the period of use.
At lease commencement date, a right-of-use asset and a lease liability
is recognized on the balance sheet. The right-of-use asset is measured
at cost, which is made up of the initial measurement of the lease
liability, any initial direct costs incurred, an estimate of any costs to
dismantle and remove the asset at the end of the lease, and any lease
payments made in advance of the lease commencement date (net of
any incentives received).
The right-of-use assets are depreciated on a straight-line basis from
the lease commencement date to the earlier of the end of the useful
life of the right-of-use asset or the end of the lease term. The right-of-
use asset is also assessed for impairment when such indicators exist.
At the commencement date, the lease liability is measured at the
present value of the lease payments unpaid at that date, discounted
using the interest rate implicit in the lease if that rate is readily
available or the Company's incremental borrowing rate.
Lease payments included in the measurement of the lease liability are
made up of fixed payments (including in substance fixed), variable
payments based on an index or rate, amounts expected to be payable
under a residual value guarantee and payments arising from options
reasonably certain to be exercised.
Subsequent to initial measurement, the liability will be reduced for
payments made and increased for interest. It is remeasured to reflect
any reassessment or modification, or if there are changes in in¬
substance fixed payments.
When the lease liability is remeasured, the corresponding adjustment
is reflected in the right-of-use asset, or profit and loss if the right-of-
use asset is already reduced to zero.
3.10 Assets held for sale
Assets are classified as Held for Sale if their carrying amount will be
recovered principally through a sale transaction rather than through
continuing use and the sale is highly probable. A sale is considered as
highly probable when such assets have been decided to be sold by the
Company; are available for immediate sale in their present condition;
are being actively marketed for sale at a price and the sale has been
agreed or is expected to be concluded within one year of the date of
classification. Such assets are measured at lower of carrying amount
or fair value less selling costs.
Assets held for sale are presented separately from other assets in the
Balance Sheet and are not depreciated or amortised while they are
classified as held for sale.
3.11 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.
Initial recognition and measurement
Financial assets and financial liabilities are recognized when the
Company becomes a party to the contractual provisions of the
financial instrument and are measured initially at fair value adjusted
by transactions costs, except for those carried at fair value through
profit or loss which are measured initially at fair value. Subsequent
measurement of financial assets and financial liabilities is described
below.
Classification and subsequent measurement of financial assets
For the purpose of subsequent measurement, financial assets are
classified into the following categories upon initial recognition:
Amortized cost
Ý Financial assets at fair value through profit or loss (FVTPL)
Ý Financial assets at fair value through other comprehensive income
(FVOCI)
Ý Investments in equity shares of subsidiaries and joint ventures
(carried at cost in accordance with Ind AS 27)
All financial assets except for those at FVTPL or at FVOCI are subject
to review for impairment at least at each reporting date to identify
whether there is any objective evidence that a financial asset or a
group of financial assets is impaired. Different criteria to determine
impairment are applied to each category of financial assets, which are
described below.
Amortized cost
A financial asset is measured at amortized cost using Effective Interest
Rate (EIR) if both of the following conditions are met:
a) the financial asset is held within a business model whose
objective is to hold financial assets to collect contractual cash
flows; and
b) the contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
Impairment allowance (expected credit loss) is recognized on financial
assets carried at amortized cost.
Modification of cash flows
When the contractual cash flows of a financial asset are renegotiated
or otherwise modified, and the renegotiation or modification does
not result in derecognition of that financial asset, the Company
recalculates the gross carrying amount of the financial asset and
recognizes a modification gain or loss in profit or loss. The gross
carrying amount of the financial asset shall be recalculated as the
present value of the renegotiated or modified contractual cash flows
that are discounted at the financial asset's original effective interest
rate. Any costs or fees incurred adjust the carrying amount of the
modified financial asset and are amortized over the remaining term
of the modified financial asset.
Financial assets at FVTPL
Financial assets at FVTPL include financial assets that either do
not meet the criteria for amortized cost classification or are equity
instruments held for trading or that meet certain conditions and are
designated at FVTPL upon initial recognition. All derivative financial
instruments also fall into this category, except for those designated
and effective as hedging instruments, for which the hedge accounting
requirements may apply. Assets in this category are measured at fair
value with gains or losses recognized in profit or loss. The fair values of
financial assets in this category are determined by reference to active
market transactions or using a valuation technique where no active
market exists.
Embedded derivatives
An embedded derivative is a component of a hybrid instrument that
also includes a non-derivative host contract with the effect that some
of the cash flows of the combined instrument vary in a way similar to a
stand-alone derivative. An embedded derivative causes some or all of
the cash flows that otherwise would be required by the contract to be
modified according to a specified interest rate, foreign exchange rate,
or other variable, provided that, in the case of a non-financial variable,
it is not specific to a party to the contract.
Derivatives embedded in all host contracts are accounted for as
separate derivatives and recorded at fair value if their economic
characteristics and risks are not closely related to those of the host
contracts or if the embedded derivative feature leverages the
exposure and the host contracts are not held for trading or designated
at fair value though profit or loss. These embedded derivatives are
measured at fair value with changes in fair value recognised in profit
or loss, unless designated as effective hedging instruments.
Financial assets at FVOCI
FVOCI financial assets comprise of equity instruments measured
at fair value. An equity investment classified as FVOCI is initially
measured at fair value plus transaction costs. Gains and losses are
recognized in Other Comprehensive Income (OCI) and reported
within the FVOCI reserve within equity, except for dividend income,
which is recognized in profit or loss. There is no recycling of such
gains and losses from OCI to Statement of Profit & Loss, even on the
derecognition of the investment. However, the Company may transfer
the same within equity.
De-recognition of financial assets
De-recognition of financial assets due to a substantial
modification of terms and conditions
The Company derecognizes a financial asset, such as a loan to a
customer, when the terms and conditions have been renegotiated
to the extent that, substantially, it becomes a new loan, with the
difference recognized as a derecognition gain or loss, to the extent
that an impairment loss has not already been recorded.
De-recognition of financial assets other than due to substantial
modification
Financial assets (or where applicable, a part of financial asset or part
of a group of similar financial assets) are derecognized (i.e. removed
from the Company's balance sheet) when the contractual rights to
receive the cash flows from the financial asset have expired, or when
the financial asset and substantially all the risks and rewards are
transferred. The Company also derecognizes the financial asset if it
has both transferred the financial asset and the transfer qualifies for
derecognition.
Classification and subsequent measurement of financial liabilities
Financial liabilities are measured subsequently at amortized cost
using the effective interest method, except for financial liabilities
held for trading or designated at FVTPL, that are carried subsequently
at fair value with gains or losses recognized in profit or loss. All host
contracts which are in nature of a financial liability and separated
from embedded derivative are measured at amortised cost using the
effective interest method.
Derecognition of financial liabilities
A financial liability is derecognized when the obligation under
the liability is discharged or canceled or expires. When an existing
financial liability is replaced by another from the same lender on
substantially different terms or the terms of an existing liability are
substantially modified, such an exchange or modification is treated
as the derecognition of the original liability and the recognition of
a new liability. The difference in the respective carrying amounts is
recognized in the statement of profit or loss.
Hedge accounting
To qualify for hedge accounting, the hedging relationship must meet
all of the following requirements:
- there is an economic relationship between the hedged item
and the hedging instrument
- the effect of credit risk does not dominate the value changes
that result from that economic relationship
- the hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that the
Company actually hedges and the quantity of the hedging
instrument that the Company actually uses to hedge that
quantity of hedged item.
All derivative financial instruments designated under hedge
accounting are recognised initially at fair value and reported
subsequently at fair value at each reporting date. To the extent that the
hedge is effective, changes in the fair value of derivatives designated
as hedging instruments in cash flow hedges are recognised in other
comprehensive income and included within the cash flow hedge
reserve in equity. Any ineffectiveness in the hedge relationship is
recognised immediately in profit or loss.
At the time the hedged item affects profit or loss, any gain or loss
previously recognised in other comprehensive income is reclassified
from equity to profit or loss and presented as a reclassification
adjustment within other comprehensive income.
At the inception of each hedging relationship, the Company formally
designates and documents the hedge relationship, in accordance
with the Company's risk management objective and strategies. The
documentation includes identification of the hedged item, hedging
instrument, the nature of risk(s) being hedged, the hedge ratio and
how the hedging relationship meets the hedging effectiveness
requirements.
Fair Value Hedges
In line with the recognition of change in the fair value of the hedging
instruments in the Statement of Profit & Loss, the change in the fair
value of the hedged item attributable to the risk hedged is recognised
in the Statement of Profit and Loss. Such changes are made to the
carrying amount of the hedged item and are adjusted in Effective
Interest Rate in the period when the hedging instrument ceases to
exit. If the hedged item is derecognised, the unamortised fair value is
recognised immediately in Statement of Profit and Loss.
3.12 Impairment of financial assets
Loan Assets and commitments under Letter of Comfort (LoC) & Letter
of Undertaking (LoU) and Investments
The Company follows a 'three-stage' model for impairment in the
form of Expected Credit Loss (ECL) 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 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 the
borrower defaulting on its obligation either over next 12 months or
over the remaining lifetime of the instrument.
Loss Given Default (LGD) - LGD represents the Company's
expectation of loss given that a default occurs. LGD is expressed
in percentage and it shows the proportion of the amount that will
actually be lost post recoveries in case of a default.
Exposure at Default (EAD) - EAD represents the amounts, including
the principal outstanding (along with Credit Conversation Factor
(CCF) applied undrawn portion thereof), interest accrued, interest
overdue on financial asset and outstanding Letters of Comfort/Letter
of Undertaking that the Company expects to be owed at the time of
default.
Forward-looking economic information 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 measures impairment on commitments under LoC/
LoU and investments qualifying for subsequent measurement at
amortised cost or Fair Value through OCI on similar basis as in case of
Loan assets.
Financial assets other than Loans and Investments
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.
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. The Company also 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.
Write-offs
Financial assets are written off either partially or in their entirety only
when the Company has stopped pursuing the recovery or as directed
by the order of the Judicial Authority.
A write-off constitutes a derecognition event. The Company may
apply enforcement activities to financial assets written off/ may
assign / sell loan exposure to ARC / Bank / a financial institution for a
negotiated consideration.
Recoveries resulting from the Company's enforcement activities are
recorded in statement of profit and loss.
3.13 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits, together with other short-term, highly liquid investments
(original maturity less than three months) that are readily convertible
into known amounts of cash and which are subject to an insignificant
risk of changes in value.
3.14 Dividend and Other Payments to holders of Instruments
classified as Equity
Proposed dividends and interim dividends payable to the shareholders
are recognized as changes in equity in the period in which they are
approved by the shareholders and the Board of Directors respectively.
Liability for the payments to the holders of instruments classified
as equity are recognized in the period when such payments are
authorized for payment by the Company.
3.15 Material prior period errors
Material prior period errors are corrected retrospectively by restating
the comparative amounts for the prior periods presented in which
the error occurred. If the error occurred before the earliest period
presented, the opening balances of assets, liabilities and equity for
the earliest period presented, are restated.
3.16 Prepaid Expenses
A prepaid expense up to Rs. 1,00,000/- is recognized as expense upon
initial recognition.
3.17 Taxation
Tax expense recognized in profit or loss comprises the sum of deferred
tax and current tax. It is recognized in Statement of Profit and Loss,
except when it relates to an item that is recognised in OCI or directly
in equity, in which case, the tax is also recognised in OCI or directly in
equity.
Current tax is determined as the tax payable in respect of taxable
income for the year, using tax rates enacted or substantively enacted
and as applicable at the reporting date, and any adjustments to tax
payable in respect of previous years.
Deferred tax is recognized on temporary differences between the
carrying amounts of assets and liabilities in the standalone financial
statements and the corresponding tax bases used in the computation
of taxable income. Deferred tax on temporary differences associated
with investments in subsidiaries and joint ventures is not provided
if reversal of these temporary differences can be controlled by
the Company and it is probable that reversal will not occur in the
foreseeable future.
Deferred tax assets and liabilities are calculated, without discounting,
at tax rates that are expected to apply to their respective period of
realization, provided those rates are enacted or substantively enacted
by the end of the reporting period. Deferred tax assets and liabilities
are offset if there is a legally enforceable right to offset current tax
liabilities and assets, and they relate to income taxes levied by the
same tax authority.
Deferred tax liability is recognized for all taxable temporary differences.
A deferred tax asset is recognized for all deductible temporary
differences to the extent that it is probable that future taxable profits
will be available against which the deductible temporary difference
can be utilized. Deferred tax assets are reviewed at each reporting
date and are reduced to the extent that it is no longer probable that
the related tax benefit will be realized.
Changes in deferred tax assets or liabilities are recognized as a
component of tax income or expense in profit or loss, except where
they relate to items that are recognized in other comprehensive
income or directly in equity, in which case the related deferred
tax is also recognized in other comprehensive income or equity,
respectively.
3.18 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 plan
A defined contribution plan is a plan under which the Company
pays fixed contributions in respect of the employees into a separate
fund. The Company has no legal or constructive obligations to pay
further contributions after its payment of the fixed contribution. The
contributions made by the Company towards defined contribution
plans are charged to the profit or loss in the period to which the
contributions relate.
Defined benefit plan
The Company has an obligation towards gratuity, Post Retirement
Medical Facility (PRMF), Provident Fund (PF) and Other Defined
Retirement Benefit (ODRB) which are being considered as defined
benefit plans covering eligible employees. 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, final salary,
and other defined parameters. 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 Company's obligation towards defined benefit plans is
determined using the projected unit credit method, with actuarial
valuations being carried out at the end of each annual reporting
period. The liability recognized 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:
Liability in respect of compensated absences becoming due or
expected to be availed more than one-year after the balance sheet
date is estimated on the basis of actuarial valuation performed by an
independent actuary using the projected unit credit method.
Actuarial gains and losses arising from past experience and changes
in actuarial assumptions are charged to statement of profit and loss in
the period in which such gains or losses are determined.
Loan to employees at concessional rate
Loans given to employees at concessional rate are initially recognized
at fair value and subsequently measured at amortised cost. The
difference between the initial fair value of such loans and transaction
value is recognised as deferred employee benefits, which is amortised
on a straight-line basis over the expected remaining period of the
Loan. In case of change in expected remaining period of the Loan,
the unamortised deferred employee benefits on the date of change
is amortised over the updated expected remaining period of the loan
on a prospective basis.
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