3 | SUMMARY OF MATERIAL ACCOUNTING POLICIES

The financial statements have been prepared using
the material accounting policies and measurement
bases summarized 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 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 and the cost of the item can be measured
reliably. All other repair and maintenance costs are
recognized in statement of profit and loss.

Subsequent measurement (depreciation method,
useful lives and residual value)

Property, plant and equipment are subsequently
measured at cost less accumulated depreciation and
impairment losses. Depreciation on property, plant
and equipment is provided on the written down value
method over the useful life of the assets estimated
by the management. The useful life estimated by the
management is as under:

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.

The residual values, useful lives and method of
depreciation are reviewed at the end of each financial
year.

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 (amortization method,
useful lives and residual value)

Intangible assets are amortized over a period of 3-5
years from the date when the assets are available for
use. The estimated useful life (amortization 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
amortization period is revised to reflect the changed
pattern, if any.

d) Intangible assets under development

Intangible assets under development represents
expenditure incurred in respect of intangible assets
under development and are carried at cost. Cost
includes development cost, borrowing costs and
other direct expenditure necessary to create, produce
and prepare the asset to be capable of operating
in the manner intended by management. These
are recognized as assets when the Company can
demonstrate following recognition requirements:

• The development costs can be measured reliably

• The project is technically and commercially
feasible

• The Company intends to and has sufficient
resources to complete the project

• The Company has the ability to use or sell such
intangible asset

• The asset will generate probable future economic
benefits.

Amortization of the asset begins when development is
complete and the asset is available for use.

e) Revenue recognition
Interest income on loans

The Company recognizes interest income using
Effective Interest Rate (EIR) on all financial assets
subsequently measured at amortized cost or fair value
through other comprehensive income (FVOCI). EIR is
calculated by considering any fees and all incremental
costs that are directly attributable to acquisition of a
financial asset and it represents a rate that exactly
discounts estimated future cash payments/receipts
through the expected life of the financial asset to the
gross carrying amount of a financial asset or to the
amortized cost of a financial liability.

The Company recognizes 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 regarded as 'Stage 3’,
the Company recognizes interest income on the net
amortized cost of financial assets at EIR. If financial
asset is no longer credit-impaired Company reverts to
calculating interest income on a gross basis.

Income from assignment transactions
Income from assignment transactions i.e. present
value of excess interest spread is recognized when the
related loan assets are de-recognized. Interest income
is also recognized on carrying value of remaining
assets over the outstanding period of such assets.
Commission income

Income from business correspondent services is
recognized as and when the services are rendered as
per agreed terms and conditions of the contract.
Dividend income

Dividend income is recognized 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.

f) Borrowing costs

Borrowing costs consists of interest and other cost that
the Company incurred in connection with the borrowing
of funds. Borrowing costs that are directly attributable
to the acquisition, construction or production of a
qualifying asset form part of the cost of that asset.
Borrowing costs are charged to the Statement of Profit
and Loss on the basis of effective interest rate method.

g) Taxation

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 recognized outside
profit or loss is recognized in correlation to the
underlying transaction either in OCI or directly in
other equity. Management periodically evaluates
positions taken in the tax returns with respect

to situations in which applicable tax regulations
are subject to interpretation and establishes
provisions where appropriate.

II. Deferred Tax: Deferred tax is provided using the
Balance Sheet approach on temporary differences
between the tax bases of assets and liabilities
and their carrying amounts for financial reporting
purposes at the reporting date.

Deferred tax liabilities are recognized for all
taxable temporary differences and deferred tax
assets are recognized 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 utilized.
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 utilized. Unrecognized
deferred tax assets, if any, are reassessed at each
reporting date and are recognized 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 realized 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 recognized outside
profit or loss is recognized either in OCI 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.
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.

h) 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. 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 last drawn 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 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

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 the Balance Sheet date is estimated
on 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.

i) 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 fair value less cost of disposal
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 recognized 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 recognized in statement of profit and loss when
the compensation becomes receivable.

j) Impairment of financial assets

The Company is recording the allowance for expected
credit losses for all loans at amortized cost and FVOCI
and other financial assets not held at FVTPL
The ECL allowance is based on the credit losses
expected to arise over the life of the asset (the lifetime
expected credit loss or LTECL), unless there has been
no significant increase in credit risk since origination, in
which case, the allowance is based on the 12 months’
expected credit loss (12mECL). The Company’s policies
for determining if there has been a significant increase
in credit risk.

Loan assets

The Company follows a 'three-stage’ model for
impairment based on changes in credit quality since
initial recognition as summarized below:

• Stage 1 (0-30 days) 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 (31-90 days) 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 (more than 90 days) 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, 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.

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.

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.

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.

k) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand
(including imprest), bank balance and deposits with
original maturity upto 3 months that are readily
convertible into known amount of cash and which are
subject to an insignificant risk of changes in value.
The Company has netted off the balance of bank
overdraft with cash and cash equivalents for cash flow
statement as they are considered an integral part of the
Company’s cash management.

l) Equity investment in subsidiaries

Investments representing equity interest in subsidiaries
are accounted for at Fair Value through Profit and Loss
(FVTPL) in accordance to Ind AS 109 read with Ind AS
27 Separate Financial Statements.