2. MATERIAL ACCOUNTING POLICIES
i) Basis of preparation
The financial statements ("financial statements") have been prepared in accordance with Indian Accounting Standards
(Ind AS) and the provisions of the Companies Act, 2013 ('the Act'). The Ind AS are prescribed under Section 133 of the
Act read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and relevant amendment rules issued
thereafter.
The financial statements have been prepared on the historical cost basis except for certain financial instruments and
plan assets of defined benefit plans, which are measured at fair value and prudential norms for Income Recognition,
assets classification and provisioning for Non-performing assets as well as contingency provision for Standard assets as
prescribed by The Reserve Bank of India (RBI) for NBFCs.
Any applicable guidance/ clarifications/ directions issued by RBI or other regulators are implemented as and when they
are issued/ applicable.
Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted
or a revision to the existing accounting standard requires a change in the accounting policy hitherto in use.
Company's financial statements are presented in Indian Rupees (INR), which is also its functional currency. All amounts
disclosed in the financial statements and notes have been rounded off to the nearest Lakhs as per the requirement of
Division III, Schedule III, unless otherwise stated.
ii) Basis of accounting
The financial statements have been prepared on the historical cost basis except for certain financial instruments that are
measured at fair values at the end of each reporting period.
All assets and liabilities have been classified as current or non-current as per the Company's normal operating cycle and
other criteria set out in the Schedule III to the Companies Act, 2013. Based on the nature of products and the time between
the acquisition of assets for processing and their realisation in cash and cash equivalents, the Company has ascertained
its operating cycle as 12 months for the purpose of current and non current classification of assets and liabilities.
The preparation of the financial statements in conformity with Ind AS requires the management to make estimates and
assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and the reported
income and expenses during the year. The management believes that the estimates used in preparation of the financial
statements are prudent and reasonable. Future results could differ due to these estimates and the differences between
the actual results and the estimates are recognised in the periods in which the results are known / materialise.
iii) Financial instruments
Financial assets and financial liabilities are recognised 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
fair value through profit or loss) 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 fair value through profit or loss are recognised immediately in profit or loss.
Financial assets
Classification
Financial assets that meet the following conditions are subsequently measured at amortised cost:
• the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows;
and
• the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Financial assets that meet the following conditions are subsequently measured at fair value through other
comprehensive income (FVTOCI):
• the financial asset is held within a business model whose objective is achieved by both collecting contractual cash
flows and selling the financial assets; and
• 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.
By default, all other financial assets are subsequently measured at fair value through profit and loss (FVTPL).
Debtjnstruments
Subsequent measurement of debt instruments depends on the Company's business model for managing the asset and
the cash flow characteristics of the asset. There are three measurement categories into which the Company classifies its
debt instruments:
Amortised.cost
Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal
and interest are measured at amortised cost. A gain or loss on a debt investment that is subsequently measured at
amortised cost and is not part of a hedging relationship is recognised in profit or loss when the asset is derecognised or
impaired. Interest income from these financial assets is included in finance income using the effective interest rate method.
Effective_interest_rate_method
Income is recognised on an effective interest rate basis for financial assets other than those financial assets classified as
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 amortised through Interest income in the statement of
profit and loss.
The Company calculates interest income by applying the EIR to the gross carrying amount of financial assets other than
credit-impaired assets.
Financial_assets_at_fairyalue_through_profit_or loss_(FVTPL)
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising
on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend
or interest earned on the financial asset. Dividend on financial assets at FVTPL is recognised when the Company's right
to receive the dividends is established, it is probable that the economic benefits associated with the dividend will flow to
the entity, the dividend does not represent a recovery of part of cost of the investment and the amount of dividend can be
measured reliably.
Changes in the fair value of financial assets at FVTPL are recognised in the statement of profit and loss.
Impairment_of financial.assets
Lending:
The Company applies the expected credit loss model for recognising impairment loss on financial assets measured at
amortised cost, loan commitments, trade receivables and other contractual rights to receive cash or other financial asset.
The expected credit loss is a product of exposure at default, probability of default and loss given default. The Company
has devised an internal model to evaluate the probability of default and loss given default based on the parameters set out
in Ind AS 109. The Company has a dedicated Asset Monitoring team which evaluates asset performance on a continued
basis to flag of early warning signals. Probability of default have been adjusted with forward looking inputs from anticipated
change in future macro-economic conditions to comply with Ind AS 109. The forward looking macro-economic conditions
based adjustment is driven through a multi linear regression model which forecasts systemic gross non-performing assets
under baseline future economic scenarios. Accordingly, the financial instruments are classified into Stage 1 - Standard
Assets with zero to thirty days past due (DPD), Stage 2 - Significant Credit Deterioration or overdue between 31 to 90
days and Stage 3 - Default Assets with overdue for more than 90 days. The Company also takes into account the below
qualitative parameters in determining the increase in credit risk for the financial assets:
1) Significant negative deviation in the business plan of the borrower
2) Internal rating downgrade for the borrower or the project
3) Current and expected financial performance of the borrower
4) Need for refinance of loan due to change in cash flow of the project
5) Significant decrease in the value of collateral
6) Change in market conditions and industry trends
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether
there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly,
12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is
used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase
in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12-month
ECL.
Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial
instrument. The 12-month ECL is a portion of the lifetime ECL which results from default events that are possible within 12
months after the reporting date.
Default Assets wherein the management does not expect any realistic prospect of recovery are written off to the Statement
of Profit and Loss.
Derecognition_of_financial_assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when
it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.
On derecognition of financial assets in entirety, the difference between the asset's carrying amount and the sum of the
consideration received and receivable, is recognised in the statement of profit and loss.
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.
Equityjnstrument
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 are recognised at the proceeds received, net of direct issue costs.
Financialjiabilities
All financial liabilities are subsequently measured at amortised cost using the effective interest rate method or at FVTPL.
Financial liabilities are classified as at FVTPL when the financial liability is either contingent consideration recognised by
the Company as an acquirer in a business combination to which Ind AS 103 applies or is held for trading or it is designated
as at FVTPL.
Financial liabilities that are not held-for-trading and are not designated as at FVTPL are measured at amortised cost at
the end of subsequent accounting periods. The carrying amounts of financial liabilities that are subsequently measured at
amortised cost are determined based on the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash
payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction
costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter
period, to the amortised cost of a financial liability.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period. Where there is a breach of a material provision of a long-term loan
arrangement on or before the end of the reporting period with the effect that the liability becomes payable on demand on
the reporting date, the Company does not classify the liability as current, if the lender agreed, after the reporting period
and before the approval of the financial statements for issue, not to demand payment as a consequence of the breach.
Derecognition_of_financialjiabilities
The Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled
or have expired. An exchange between the Company and the lender of debt instruments with substantially different terms
is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
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