2. SUMMARY OF MATERIAL ACCOUNTING POLICIES
2.1 Statement of compliance and basis for preparation and
presentation of financial statements
These standalone or separate financial statements of the Company
have been prepared in accordance with the Indian Accounting
Standards as per the Companies (Indian Accounting Standards) Rules
2015 as amended and notified under Section133 of the Companies
Act, 2013 (“the Act”), in conformity with the accounting principles
generally accepted in India and other relevant provisions of the Act.
Any application guidance/clarifications/ directions issued by RBI or
other regulators are implemented as and when they are issued/
applicable.
2.2 Functional and presentation currency
These financial statements are presented in Indian Rupees (‘INR’ or ‘Rs.’)
which is also the Company’s functional currency. All amounts are
rounded-off to the nearest lakhs, unless otherwise indicated.
2.3 Basis of measurement
The financial statements have been prepared on a historical cost
convention and on an accrual basis, except for certain financial
instruments which are measured at fair values as required by relevant
Ind AS.
2.4 Measurement of fair values
A number of Company’s accounting policies and disclosures require the
measurement of fair values, for both financial and non-financial assets
and liabilities. The Company has established policies and procedures
with respect to the measurement of fair values. Fair values are
categorized into different levels in a fair value hierarchy based on the
inputs used in the valuation techniques as follows:
- Level 1: Quoted prices (unadjusted) in active markets for identical
assets and liabilities.
- Level 2: inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly.
- Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
2.5 Use of estimates and judgments and Estimation uncertainty
In preparing these financial statements, management has made
judgments, estimates and assumptions that affect the application of the
Company’s accounting policies and the reported amounts of assets,
liabilities, income, expenses and the disclosures of contingent assets and
liabilities. Actual results may differ from these estimates. Estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to
estimates are recognized prospectively.
The key assumptions concerning the future and other key sources of
estimation uncertainty at the reporting date, that have a significant risk
of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are described below.
The Company based its assumptions and estimates on parameters
available when the financial statements were issued. Existing
circumstances and assumptions about future developments, however,
may change due to market changes or circumstances arising that are
beyond the control of the Company. Such changes are reflected in the
assumptions when they occur.
Following are areas that involved a higher degree of estimate and
judgment or complexity in determining the carrying amount of some
assets and liabilities:
Effective Interest Rate (EIR) Method
The Company recognizes interest income / expense using a rate of
returns that represents the best estimate of a constant rate of return
over the expected life of the loans given / taken.
This estimation, by nature, requires an element of judgment regarding
the expected behavior and life-cycle of the instruments, as well as
expected changes to other fee income/expense that are integral parts
of the instrument.
Impairment of Financial Assets
The measurement of impairment losses on loan assets and commitments
requires judgment, in estimating the amount and timing of future cash
flows and recoverability of collateral values while determining the
impairment losses and assessing a significant increase in credit risk.
Provisions and other contingent liabilities
The reliable measure of the estimates and judgments pertaining to
litigations and the regulatory proceedings in the ordinary course of the
Company’s business are disclosed as contingent liabilities if any.
Estimates and judgments are continually evaluated and are based on
historical experience and other factors, including expectations of future
events that may have a financial impact on the Company and that are
believed to be reasonable under the circumstances.
2.6 Revenue recognition:
a) Recognition of interest income on loans
Interest income is recognized in Statement of profit and loss using the
effective interest method for all financial instruments measured at
amortized cost, debt instruments measured at FVOCI and debt
instruments designated at FVTPL.
The ‘effective interest rate’ is the rate that exactly discounts estimated
future cash payments or receipts through the expected life of the
financial instrument. The calculation of the effective interest rate
includes transaction costs and fees that are an integral part of the
contract. Transaction costs include incremental costs that are directly
attributable to the acquisition of financial asset.
If expectations regarding the cash flows on the financial asset are
revised for reasons other than credit risk, the adjustment is recorded as
a positive or negative adjustment to the carrying amount of the asset in
the balance sheet with an increase or reduction in interest income. The
adjustment is subsequently amortized through Interest income in the
Statement of profit and loss.
When a financial asset becomes credit-impaired, the Company
calculates interest income by applying the effective interest rate to the
net amortized cost of the financial asset. If the financial asset cures and
is no longer credit impaired, the Company reverts to calculating interest
income on a gross basis. Additional interest and interest on trade
advances are recognized when they become measurable and when it
is not unreasonable to expect their ultimate collection.
b) Net gain on fair value changes
Any differences between the fair values of the financial assets classified
as fair value through the profit or loss, held by the Company on the
balance sheet date is recognised as an unrealised gain/loss in the
statement of profit and loss. In cases there is a net gain in aggregate,
the same is recognised in “Net gains or fair value changes” under
revenue from operations and if there is a net loss the same is disclosed
“Expenses”, in the statement of profit and loss.
c) Fee and commission income:
Fee based income if any are recognized when they become
measurable and when it is probable to expect their ultimate collection.
Commission and brokerage income earned if any for the services
rendered are recognized as and when they are due.
d) Dividend and interest income on investments:
- Dividends are recognized in Statement of profit and loss only when
the right to receive payment is established, it is probable that the
economic benefits associated with the dividend will flow to the
Company and the amount of the dividend can be measured reliably.
- Interest income from investments if any is recognized when it is certain
that the economic benefits will flow to the Company and the amount of
income can be measured reliably. Interest income is accrued on a time
basis, by reference to the principal outstanding and at the effective
interest rate applicable.
2.7 Property, Plant and Equipment’s (PPE)
PPE are stated at cost of acquisition (including incidental expenses), less
accumulated depreciation and accumulated impairment loss, if any.
Assets held for sale or disposals are stated at the lower of their net
book value and net realizable value.
Depreciation on PPE is provided on written down basis in accordance
with the useful lives specified in Schedule II to the Companies Act, 201 3
on a pro-rata basis.
The estimated useful lives used for computation of depreciation are as
follows:
Assets costing less than Rs.5000/- are fully depreciated in the period
of purchase.
PPE is derecognized on disposal or when no future economic benefits
are expected from its use. Any gain or loss arising on DE recognition of
the asset (calculated as the difference between the net disposal
proceeds and the net carrying amount of the asset) is recognized in
other income / netted off from any loss on disposal in the Statement of
profit and loss in the year the asset is derecognized.
2.8 Investments in subsidiaries and associates:
There is no subsidiary or any associate company as on March 31,2024.
2.9 Foreign exchange transactions and translations:
There are no Foreign Exchange transactions during the year
2.10 Financial instruments:
a) Recognition and initial measurement -
Financial assets and financial liabilities are recognized when the
Company becomes a party to the contractual provisions of the
instruments. Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly attributable
to the acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities at FVTPL) are added
to or deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction costs
directly attributable to the acquisition of financial assets or financial
liabilities at FVTPL are recognized immediately in Statement of profit
and loss.
b) Classification and Subsequent measurement of financial assets-
On initial recognition, a financial asset is classified as measured at
- Amortized cost;
- FVOCI - debt instruments — N.A.
- FVOCI - equity instruments;
- FVTPL
Amortized cost —
The Company’s business model is not assessed on an instrument-by¬
instrument basis, but at a higher level of aggregated portfolios being
the level at which they are managed. The financial asset is held with
the objective to hold financial asset in order to collect contractual cash
flows as per the contractual terms that give rise on specified dates to
cash flows that are solely payment of principal and interest (SPPI) on
the principal amount outstanding. Accordingly, the Company measures
Bank balances, Loans, Trade receivables and other financial instruments
at amortized cost.
The Company subsequently measures all equity investments at fair
value through profit or loss, unless the Company’s management has
elected to classify irrevocably some of its equity instruments at FVOCI,
when such instruments meet the definition of Equity under Ind AS 32
Financial Instruments and are not held for trading.
Financial assets are not reclassified subsequent to their initial
recognition, except if and in the period the Company changes its
business model for managing financial assets. All financial assets not
classified as measured at amortized cost or FVOCI are measured at
FVTPL. This includes all derivative financial assets.
Subsequent measurement of financial assets
Financial assets at amortized cost are subsequently measured at
amortized cost using effective interest method. The amortized cost is
reduced by impairment losses. Interest income, and impairment are
recognized in Statement of profit and loss. Any gain and loss on De¬
recognition is recognized in Statement of profit and loss. Other net
gains and losses are recognized in OCI. On De-recognition, gains and
losses accumulated in OCI are reclassified to Statement of profit and
loss.
For equity investments, the Company makes an election on an
instrument-by-instrument basis to designate equity investments as
measured at FVOCI. These elected investments are measured at fair
value with gains and losses changes in fair value recognized in other
comprehensive income and accumulated in there serves. The cumulative
gain or loss is not reclassified to Statement of profit and loss on disposal
of the investments. These investments in equity are held for trading. But
not held for strategic purpose. Dividend income received on such equity
investments are recognized in Statement of profit and loss.
Equity investments that are not designated as measured at FVOCI are
designated as measured at FVTPL and subsequent changes in fair value
are recognized in Statement of profit and loss.
Financial assets at FVTPL are subsequently measured at fair value. Net
gains and losses, including any interest or dividend income, in Statement
of profit and loss.
c) Financial liabilities and equity instruments:
Classification as debt or equity —
Debt and equity instruments issued by the Company are classified as
either financial liabilities or as equity in accordance with the substance
of the contractual arrangements and the definitions of a financial
liability and an equity instrument.
Equ ity instruments —
An equity instrument is any contract that evidences a residual interest in
the assets of an entity after deducting all of its liabilities. Equity
instruments issued by Company are recognized at the proceeds
received. Transaction costs of an Equity transactions are recognized as
a deduction from equity.
Financial liabilities —
Financial liabilities are classified as measured at amortized cost or
FVTPL. A financial liability is classified as at FVTPL if it is classified as
held-for trading or it is a derivative or it is designated as such on initial
recognition. Other financial liabilities are subsequently measured at
amortized cost using the effective interest method. Interest expenses
are recognized in Statement of profit and loss. Any gain or loss on DE
recognition is also recognized in Statement of profit and loss.
d) Financial guarantee contracts:
A financial guarantee contract is a contract that requires the issuer to
make specified payments to reimburse the holder for a loss it incurs
because a specified debtor fails to make payments when due in
accordance with the terms of a debt instrument.
Financial guarantee contracts issued by a Company are initially
measured at their fair values and, if not designated as at FVTPL, are
subsequently measured at the higher of:
- The amount of loss allowance determined in accordance with
impairment requirements of Ind AS 109 - Financial Instruments; and
- the amount initially recognized less, when appropriate, the cumulative
amount of income recognized in accordance with the principles of Ind
AS 18 - Revenue.
e) Derecognition
Financial assets
The Company derecognizes a financial asset when the contractual rights
to the cash flows from the financial asset expire, or it transfers the rights
to receive the contractual cash flows in a transaction in which
substantially all of the risks and rewards of ownership of the financial
asset are transferred or in which the Company neither transfers nor
retains substantially all of the risks and rewards of ownership and does
not retain control of the financial asset.
If the Company enters into transactions whereby it transfers assets
recognized on its balance sheet, but retains either all or substantially
all of the risks and rewards of the transferred assets, the transferred
assets are not derecognized.
Financial liabilities
A financial liability is derecognized when the obligation in respect of
the liability is discharged, cancelled or expires. The difference between
the carrying value of the financial liability and the
consideration paid is recognized in Statement of profit and loss.
f) Offsetting
Financial assets and financial liabilities are offset and the net amount
presented in the balance sheet when, and only when, the Company
currently has a legally enforceable right to set off the amounts and it
intends either to settle them on a net basis or to realize the asset and
settle the liability simultaneously.
g) Derivative financial instruments
The Company enters into derivative financial instruments, primarily
forward contracts of equity, Derivatives are initially recognized at fair
value at the date the contracts are entered into and are subsequently
premeasured to their fair value at the end of each reporting period.
The resulting gain/loss is recognized in Statement of profit and loss.
i) Impairment of financial instruments
Equity instruments are not subject to impairment under Ind AS 109.
The Company recognizes lifetime expected credit losses (ECL) when
there has been a significant increase in credit risk since initial
recognition and when the financial instrument is credit impaired.
The expected credit losses on these financial assets are estimated using
a provision matrix based on the Company’s historical credit loss
experience, adjusted for factors that are specific to the debtors,
general economic conditions and an assessment of both the current as
well as the forecast direction of conditions at the reporting date,
including time value of money where appropriate. Lifetime ECL
represents the expected credit losses that will result from all possible
default events over the expected life of a financial instrument.
Loss allowances for financial assets measured at amortized cost are
deducted from the gross carrying amount of the assets. For debt
securities at FVOCI, the loss allowance is recognized in OCI and
carrying amount of the financial asset is not reduced in the balance
sheet.
j) Collateral repossessed
Based on operational requirements, the Company’s policy is to
determine whether a repossessed asset can be best used for its internal
operations or should be sold. Assets determined to be useful for the
internal operations are transferred to their relevant asset category for
capitalization at their fair market value.
In the normal course of business, the Company does not physically
repossess assets/properties in its loan portfolio, but also engages
external agents to repossess and recover funds, generally by selling at
auction, to settle outstanding debt. Any surplus funds are returned to
the customers/obligors. As a result of this practice, the assets/
properties under legal repossession processes are not separately
recorded on the balance sheet.
k) Write offs
The gross carrying amount of a financial asset is written off when there
is no realistic prospect of further recovery. This is generally the case
when the Company determines that the debtor/borrower does not have
assets or sources of income that could generate sufficient cash flows to
repay the amounts subject to the write-off. However, financial assets
that are written off could still be subject to enforcement activities under
the Company’s recovery procedures, taking into account legal advice
where appropriate. Any recoveries made are recognized in Statement
of profit and loss.
2.11 Employee benefits:
a) Short-term employee benefits
Short-term employee benefits are expensed as the related service is
provided. A liability is recognized for the amount expected to be paid
if the Company has a present legal or constructive obligation to pay
this amount as a result of past service provided by the employee and
the obligation can be estimated reliably.
b) Contribution to provident fund, ESI and Gratuity
The company is yet to get covered under the scheme as to PF and ESI.
The gratuity liability is determined on actual basis.
2.12 Finance costs:
Finance costs include interest expense computed by applying the
effective interest rate on respective financial instruments measured at
Amortized cost. Finance costs are charged to the Statement of profit
and loss.
2.13 Taxation - Current and deferred tax:
Income tax expense comprises of current tax and deferred tax. It is
recognized in Statement of profit and loss except to the extent that it
relates to an item recognized directly in equity or in other
comprehensive income.
a) Current tax:
Current tax comprises amount of tax payable in respect of the taxable
income or loss for the year determined in accordance with Income Tax
Act, 1961 and any adjustment to the tax payable or receivable in
respect of previous years. The Company’s current tax is calculated using
tax rates that have been enacted or substantively enacted by the end
of the reporting period.
b) Deferred tax:
Deferred tax assets and liabilities are recognized for the future tax
consequences of temporary differences between the carrying values of
assets and liabilities and their respective tax bases. Deferred tax
liabilities and assets are measured at the tax rates that are expected
to apply in the period in which the liability is settled or the asset
realized, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflect the tax
consequence that would follow from the manner in which the Company
expects, at the end of the reporting period, to recover or settle the
carrying amount of its assets and liabilities.
Deferred tax assets are recognized to the extent that it is probable
that future taxable income will be available against which the
deductible temporary difference could be utilized. Such deferred tax
assets and liabilities are not recognized if the temporary difference
arises from the initial recognition of assets and liabilities in a transaction
that affects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at the end of
each reporting period and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all
or part of the asset to be recovered.
2.14 Impairment of assets other than financial assets:
The Company reviews the carrying amounts of its tangible and
intangible assets at the end of each reporting period, to determine
whether there is any indication that those assets have impaired. If any
such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any).
Recoverable amount is determined for an individual asset, unless the
asset does not generate cash flows that are largely independent of
those from other assets or group of assets.
Recoverable amount is the higher of fair value less costs to sell and
value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pretax discount rate that
reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows
have not been adjusted. If the recoverable amount of an asset (or cash
generating unit) is estimated to be less than its carrying amount, the
carrying amount of the asset (or cash-generating unit) is reduced to its
recoverable amount.
When an impairment loss subsequently reverses, the carrying amount
of the asset (or a cash generating unit) is increased to the revised
estimate of its recoverable amount such that the increased carrying
amount does not exceed the carrying amount that would have been
determined if no impairment loss had been recognized for the asset (or
cash-generating unit) in prior years. The reversal of an impairment loss
is recognized in Statement of profit and loss.
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