3.15. Provisions, contingent liabilities and contingent assets
Provisions
Provisions are recognised when the Company has a present obligation
(legal or constructive) as a result of past events, and it is probable that
an outflow of resources embodying economic benefits will be required to
settle the obligation, and a reliable estimate can be made of the amount
of the obligation. When the effect of the time value of money is material,
the Company determines the level of provision by discounting the
expected cash flows at a pre-tax rate reflecting the current rates specific
to the liability. The expense relating to any provision is presented in the
statement of profit and loss net of any reimbursement.
Contingent liability
A possible obligation that arises from past events and the existence of
which will be confirmed only by the occurrence or non-occurrence of
one or more uncertain future events not wholly within the control of the
Company or; present obligation that arises from past events where it is not
probable that an outflow of resources embodying economic benefits will
be required to settle the obligation; or the amount of the obligation cannot
be measured with sufficient reliability are disclosed as contingent liability
and not provided for.
Contingent asset
A contingent asset is a possible asset that arises from past events and
whose existence will be confirmed only by the occurrence or non¬
occurrence of one or more uncertain future events not wholly within the
control of the Company. Contingent assets are neither recognised not
disclosed in the financial statements.
3.16. Leases
All leases are accounted for by recognising a right-of-use asset and a
lease liability except for:
- Leases of low value assets; and
- Leases with a duration of 12 months or less.
At the commencement date of the lease, the Company recognises lease
liabilities measured at the present value of lease payments to be made
over the lease term.The lease payments include fixed payments (including
in-substance fixed payments) less any lease incentives receivable and
amounts expected to be paid under residual value guarantees.
In calculating the present value of lease payments, the Company uses
the incremental borrowing rate at the lease commencement date if the
interest rate implicit in the lease is not readily determinable. After the
commencement date, the amount of lease liabilities is increased to reflect
the accretion of interest and reduced for the lease payments made. In
addition, the carrying amount of lease liabilities is remeasured if there is
a modification, a change in the lease term, a change in the in-substance
fixed lease payments or a change in the assessment to purchase the
underlying asset.
The Company recognises right-of-use assets at the commencement date
of the lease (i.e.the date the underlying asset is available for use). Right-
of-use assets are measured at cost, less any accumulated depreciation
and impairment losses, and adjusted for any remeasurement of lease
liabilities. The cost of right-of-use assets includes the amount of lease
liabilities recognised, initial direct costs incurred, and lease payments
made at or before the commencement date less any lease incentives
received. Unless the Company is reasonably certain to obtain ownership
of the leased asset at the end of the lease term, the recognised right-of-
use assets are depreciated on a straight-line basis over the shorter of its
estimated useful life and the lease term.
The Company determines the lease term as the initial period agreed in
the lease agreement , together with both periods covered by an option
to extend the lease if the Company is reasonably certain to exercise that
option; and periods covered by an option to terminate the lease if the
Company is reasonably certain not to exercise that option. In assessing
whether the Company is reasonably certain to exercise an option to extend
a lease, or not to exercise an option to terminate a lease, it considers all
relevant facts and circumstances that create an economic incentive for
the Company to exercise the option to extend the lease, or not to exercise
the option to terminate the lease. The Company revises the lease term if
there is a change in the initial period agreed in the lease agreement.
3.17. Taxes
i. Current tax
Current tax comprises the expected tax payable or receivable on the
taxable income or loss for the year and any adjustment to the tax payable
or receivable in respect of previous years. The amount of current tax
reflects the best estimate of the tax amount expected to be paid or
received after considering the uncertainty, if any, related to income taxes.
It is measured using tax rates (and tax laws) enacted or substantively
enacted by the reporting date.
Current tax assets and current tax 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.
ii. Deferred tax
Deferred tax is recognised in respect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and the corresponding amounts used for taxation purposes.
Deferred tax is also recognised in respect of carried forward tax losses
and tax credits. Deferred tax is not recognised for temporary differences
arising on the initial recognition of assets or liabilities in a transaction that
is not a business combination and that affects neither accounting nor
taxable profit or loss at the time of the transaction; temporary differences
related to investments in subsidiaries, associates and joint arrangements
to the extent that the Company is able to control the timing of the reversal
of the temporary differences and it is probable that they will not reverse in
the foreseeable future; and taxable temporary differences arising on the
initial recognition of goodwill.
Deferred tax assets are recognised to the extent that it is probable that
taxable profit will be available against which the deductible temporary
differences, and the carry forward of unused tax credits and unused tax
losses can be utilised. Deferred tax assets - unrecognised or recognised,
are reviewed at each reporting date and are recognised/ reduced to the
extent that it is probable/ no longer probable respectively that the related
tax benefit will be realised.
Deferred tax is measured at the tax rates that are expected to apply to the
period when the asset is realised or the liability is settled, based on the
laws that have been enacted or substantively enacted by 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 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 on the same taxable entity, or on
different tax entities, but they intend to settle current tax liabilities and
assets on a net basis or their tax assets and liabilities will be realised
simultaneously.
Indirect taxes
Goods and services tax /value added taxes paid on acquisition of assets
or on incurring expenses
Expenses and assets are recognised net of the goods and services tax/
value added taxes paid, except:
• When the tax incurred on a purchase of assets or services is not
recoverable from the taxation authority, in which case, the tax paid is
recognised as part of the cost of acquisition of the asset or as part of the
expense item, as applicable
• When receivables and payables are stated with the amount of tax
included
The net amount of tax recoverable from, or payable to, the taxation
authority is included as part of receivables or payables in the balance
sheet.
3.18. Borrowing cost
Borrowing costs are interest and other costs incurred in connection
with the borrowings of funds. Borrowing costs directly attributable to
acquisition or construction of an asset which necessarily take a substantial
period of time to get ready for their intended use are capitalized as part
of the cost of the asset. Other borrowings costs are recognized as an
expense in the statement of profit and loss account on an accrual basis
using the effective interest method.
3.19. Cash and cash equivalents
Cash and cash equivalents comprises cash on hand and demand deposits
with banks. Cash equivalents are short-term balances (with an original
maturity of three months or less from the date of acquisition), highly liquid
investments that are readily convertible into known amounts of cash and
which are subject to insignificant risk of changes in value.
3.20. Earnings per share
The Company reports basic and diluted earnings per equity share in
accordance with Ind AS 33, Earnings Per Share. Basic earnings per equity
share is computed by dividing net profit / loss after tax attributable to
the equity share holders for the year by the weighted average number of
equity shares outstanding during the year.
Diluted earnings per equity share is computed and disclosed by dividing
the net profit/ loss after tax attributable to the equity share holders for
the year after giving impact of dilutive potential equity shares for the year
by the weighted average number of equity shares and dilutive potential
equity shares outstanding during the year, except where the results are
anti-dilutive. Potential equity shares are deemed to be dilutive only if
their conversion to equity shares would decrease the net profit per share
from continuing ordinary operations. Potential dilutive equity shares are
deemed to be converted as at the beginning of the period, unless they
have been issued at a later date. The dilutive potential equity shares are
adjusted for the proceeds receivable had the shares been actually issued
at fair value. Dilutive potential equity shares are determined independently
for each period presented.
The number of equity shares and potentially dilutive equity shares
are adjusted for share splits / reverse share splits and bonus shares,
as appropriate. Partly paid equity shares are treated as a fraction of an
equity share to the extent that they are entitled to participate in dividends
relative to a fully paid equity share during the reporting period.
3.21. Cash flow statement
Cash flows are reported using the indirect method, whereby profit before
tax is adjusted for the effects of transactions of a non-cash nature and
any deferrals or accruals of past or future cash receipts or payments.
The cash flows from regular revenue generating, financing and investing
activities of the Company are segregated. Cash flows in foreign currencies
are accounted at the actual rates of exchange prevailing at the dates of
the transactions.
3.22. Derivative financial instruments
A derivative is a financial instrument or other contract with all three of the
following characteristics:
• Its value changes in response to the change in a specified interest rate,
financial instrument price, commodity price, foreign exchange rate,
index of prices or rates, credit rating or credit index, or other variable,
provided that, in the case of a non-financial variable, it is not specific to
a party to the contract (i.e., the 'underlying').
• It requires no initial net investment or an initial net investment that is
smaller than would be required for other types of contracts expected to
have a similar response to changes in market factors.
• It is settled at a future date
The Company enters into derivative financial instruments to manage its
exposure to interest rate risk and foreign exchange rate risk. Derivatives
held include foreign exchange forward contracts, interest rate swaps and
cross currency interest rate swaps.
Derivatives are initially recognised at fair value on the date when a derivative
contract is entered into and are subsequently remeasured to their fair
value at each balance sheet date. The resulting gain/loss is recognised
in the statement of profit and loss immediately unless the derivative is
designated and is effective as a hedging instrument, in which event the
timing of the recognition in the statement of profit and loss depends on
the nature of the hedge relationship. The Company designates certain
derivatives as hedges of highly probable forecast transactions (cash flow
hedges). A derivative with a positive fair value is recognised as a financial
asset whereas a derivative with a negative fair value is recognised as a
financial liability.
3.22.1. Hedge accounting policy
The Company makes use of derivative instruments to manage exposures
to interest rate and foreign currency. In order to manage particular risks,
the Company applies hedge accounting for transactions that meet specific
criteria. At the inception of a hedge relationship, the Company formally
designates and documents the hedge relationship to which the Company
wishes to apply hedge accounting and the risk management objective
and strategy for undertaking the hedge. The documentation includes the
Company's risk management objective and strategy for undertaking hedge,
the hedging / economic relationship, the hedged item or transaction, the
nature of the risk being hedged, hedge ratio and how the Company would
assess the effectiveness of changes in the hedging instrument's fair value
in offsetting the exposure to changes in the hedged item's fair value or
cash flows attributable to the hedged risk. Such hedges are expected to be
highly effective in achieving offsetting changes in fair value or cash flows
and are assessed on an on-going basis to determine that they actually
have been highly effective throughout the financial reporting periods for
which they were designated.
3.22.2. Cash Flow Hedges
A cash flow hedge is a hedge of the exposure to variability in cash flows
that is attributable to a particular risk associated with a recognised asset
or liability (such as all or some future interest payments on variable rate
debt) or a highly probable forecast transaction and could affect profit
and loss. For designated and qualifying cash flow hedges, the effective
portion of the cumulative gain or loss on the hedging instrument is initially
recognised directly in OCI within equity (cash flow hedge reserve).
The ineffective portion of the gain or loss on the hedging instrument is
recognised immediately in Finance Cost in the statement of profit and loss.
When the hedged cash flow affects the statement of profit and loss, the
effective portion of the gain or loss on the hedging instrument is recorded
in the corresponding income or expense line of the statement of profit and
loss. When a hedging instrument expires, is sold, terminated, exercised,
or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss that has been recognised in OCI at that time
remains in OCI and is recognised when the hedged forecast transaction is
ultimately recognised in the statement of profit and loss. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that
was reported in OCI is immediately transferred to the statement of profit
and loss.
The Company's hedging policy only allows for effective hedging
relationships to be considered as hedges as per the relevant Ind-
AS. Hedge effectiveness is determined at the inception of the hedge
relationship, and through periodic prospective effectiveness assessments
to ensure that an economic relationships exists between the hedged item
and hedging instrument. The Company enters into hedge relationships
where the critical terms of the hedging instrument match with the terms
of the hedged item, and so a qualitative and quantitative assessment of
effectiveness is performed.
3.23. New and Amended Standards
There were no new standards introduced during the year ended March 31,
2025 and there were no amendments made to the accounting standards
during the year, which has an impact on the entity.
Terms/rights attached to Equity Shares:
The Company has a single class of equity shares. Each holder is entitled to one vote per equity share. Accordingly all equity shares rank equally with
regard to dividends and share in the Company's residual assets. The equity shares are entitled to receive dividend as declared from time to time subject
to payment of dividend to preference shareholders. Dividends are paid in Indian Rupees. Dividend proposed by the board of directors, if any, is subject
to the approval of the shareholders at the General Meeting, except in the case of interim dividend.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of
all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
Equity Shares reserverd for issue under options
Information relating to Employee Stock Option Schemes including the details of options issued, exercised and lapsed during the financial year and
options outstanding at the end of the reporting period, is set out in note 42.
The Board of Directors at its meeting held on August 17, 2024 and the Shareholders at the Annual General Meeting held on September 13, 2024
approved the issuance of up to 410,000 convertible Share Warrants (convertible into equity shares of the Company in the ratio of 1:1) of INR 1.00 each at
a premium of INR 769.00 aggregating up to INR 3,157.00 lakhs on preferential basis pursuant to the applicable provisions of the Companies Act 2013,
SEBI (Issue of Capital and Disclosure Requirements), Regulations, 2018 and SEBI (Listing Obligations and Disclosure Requirements), 2015.
The share warrants may be exercised in one or more tranches during the period commencing from the date of allotment of the warrants until expiry of
18 (Eighteen) months. The equity shares so allotted pursuant to exercise of share warrants shall rank pari passu with the existing equity shares of the
Company.
The Company has received an in-principle approval from the stock exchanges viz BSE Limited and National Stock Exchange of India Limited on October
18, 2024. Subsequently, upon receipt of 25% of the proceeds during the year, the Company has allotted 410,000 share warrants on October 24,2024.
The Board of Directors of the Company have recommended a final dividend of INR 2.00 per share, (200% on the face value of Re 1/-) for the year ended
March 31, 2025 which is subject to approval of the shareholders.
40. Segment Information
An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including
revenues and expenses that relate to transactions with any of the Company's other components, and for which discrete financial information is available.
Ah operating segments' operating results are reviewed regularly by the Company's Chairman and Managing Director ('CMD') to make decisions about
resources to be allocated to the segments and assess their performance. The CMD is considered to be the Chief Operating Decision Maker ('CODM')
within the purview of Ind AS 108 Operating Segments.
The CDM considers the entire business of the Company on a holistic basis to make operating decisions and thus there are no segregated operating
segments. The Company is primarily engaged in providing loans for business purposes, house renovation / extension purposes and other mortgage
purposes. The CODM of the Company reviews the operating results of the Company as a whole and therefore not more than one reportable segment is
required to be disclosed by the Company as envisaged by Ind AS 108 Operating Segments. Accordingly, amounts appearing in these financial statements
relates to small business loans and loans for house renovations / extensions etc.
The Company does not have any separate geographic segment other than India. As such there are no separate reportable segments as per Ind AS 108
Operating Segments.
41. Employee benefits - post employment benefit plans
A. Defined contribution plans
The Company makes provident fund and employee state insurance scheme contributions which are defined contribution plans, for qualifying employees.
Under the schemes, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. The Company recognised
INR 2,290.08 lakhs (year ended March 31, 2024 - INR 1,779.31 lakhs) for provident fund contributions, and INR 524.13 lakhs (year ended March
31, 2024 - INR 421.75 lakhs) for employee state insurance scheme contributions (refer note 30) in the statement of profit and loss. The contributions
payable to these plans by the Company are at rates specified in the rules of the schemes.
B. Defined benefit plans
Gratuity
The Company operates a defined benefit plan (the Gratuity plan) covering eligible employees. The gratuity plan is governed by the Payment of Gratuity
Act, 1972. Under the act, employee who has completed five years of service is entitled to specific benefit. The level of benefits provided depends on the
member's length of service and salary at retirement age/ resignation date.
The defined benefit plans expose the Company to risks such as Actuarial risk, Investment risk, Liquidity risk, Market risk, Legislative risk. These are
discussed as follows:
Actuarial risk:
It is the risk that benefits will cost more than expected. This can arise due to one of the following reasons:
Adverse salary growth experience: Salary hikes that are higher than the assumed salary escalation will result into an increase in obligation at a rate that
is higher than expected.
Variability in mortality rates: If actual mortality rates are higher than assumed mortality rate assumption then the gratuity benefits will be paid earlier
than expected. Since there is no condition of vesting on the death benefit, the acceleration of cash flow will lead to an actuarial loss or gain depending
on the relative values of the assumed salary growth and discount rate.
Variability in withdrawal rates: If actual withdrawal rates are higher than assumed withdrawal rate assumption then the Gratuity Benefits will be paid
earlier than expected. The impact of this will depend on whether the benefits are vested as at the resignation date.
Investment risk:
For funded plans that rely on insurers for managing the assets, the value of assets certified by the insurer may not be the fair value of instruments
backing the liability. In such cases, the present value of the assets is independent of the future discount rate. This can result in wide fluctuations in the
net liability or the funded status if there are significant changes in the discount rate during the inter-valuation period.
Liquidity risk:
Employees with high salaries and long durations or those higher in hierarchy, accumulate significant level of benefits. If some of such employees resign/
retire from the Company there can be strain on the cash flows.
Market risk:
Market risk is a collective term for risks that are related to the changes and fluctuations of the financial markets. One actuarial assumption that has a
material effect is the discount rate. The discount rate reflects the time value of money. An increase in discount rate leads to decrease in defined benefit
obligation of the plan benefits and vice versa. This assumption depends on the yields on the government bonds and hence the valuation of liability is
exposed to fluctuations in the yields as at the valuation date.
Funding:
The Company has funded their gratuity liability with the Five-Star Business Finance Limited Employees Gratuity Fund. Gratuity provision has been made
based on the actuarial valuation.
42. Share Based Payments
A. Description of schemes
The decision to introduce Five-Star Associate Stock Option Scheme, 2015 (hereinafter called "FIVE-STAR ASOP, 2015") was taken by the Board of
Directors at the meeting held on September 18, 2015 and was approved by the shareholders of the Company at the Extra Ordinary General Meeting
held on April 12, 2016. The total options issuable under the plan are upto 5,63,000 options.
Later, the Board of Directors issued another scheme, named Five-Star Associate Stock Option Scheme, 2018 (hereinafter called "FIVE-STAR ASOP,
2018") at their meeting held on February 28, 2018 and was approved by the shareholders of the Company at the Extra Ordinary General Meeting held
on March 26, 2018. The total options issuable under the plan are upto 5,00,000 options.
Nomination and Remuneration Committee constituted by the Board of Directors of the Company administers the plans. Under these plans, the
participants are granted options which vest as per the schedule provided in the grant letter given to each of the participants. The time period for
exercise of these options is defined in the scheme document.
During the year ended March 31, 2024, the Company has introduced a new employee stock option scheme in the name of Five-Star Associate Stock
Option Scheme, 2023 with quantum of 30,00,000 equity shares. The exercise price per option shall be latest available closing price on recognized
stock exchange having the higher trading volume on the date immediately prior to the date of grant and included in the grant letter. The Company has
granted 25,25,000 options under this scheme during the year ended March 31, 2025.
In addition to the above note, the debt securities and borrowings other than debt securities aggregating to INR 30,220.19 lakhs (INR 48,785.58 as at
March 31, 2024) has been guaranteed by the promoter, Mr. D. Lakshmipathy.
44. Capital
The Company maintains an actively managed capital base to cover risks inherent in the business and is meeting the capital adequacy requirements of
the regulator, Reserve Bank of India (RBI). The adequacy of the Company's capital is monitored using, among other measures, the regulations issued
by RBI.
The Company has complied in full with all its externally imposed capital requirements over the reporting period.
Capital management
The primary capital management objective is to ensure that the Company complies with externally imposed capital requirements and maintains strong
credit ratings and healthy capital ratios in order to support its business and to maximise shareholder value.
The Company manages its capital structure and makes adjustments to it according to changes in economic conditions and the risk characteristics of its
activities. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividend payment to shareholders, return capital
to shareholders or issue capital securities. No changes have been made to the objectives, policies and processes from the previous years with regard to
capital management. However, they are under constant review by the Board.
Tier I capital comprises of shareholders' equity and retained earnings. Tier II Capital comprises of general provision and loss reserves (12 month
expected credit losses). Credit enhancement relating to securitisation transactions have been reduced from Tier I and Tier II capital in accordance with
RBI circular DOR (NBFC).CC.PD.No.109/22.10.106/2019-20 dated March 13, 2020. Tier I and Tier II Capital have been reported based on Financial
Statements of the Company and as prescribed by RBI guidelines. Risk weighted assets represents the weighted sum of Company's credit exposures
based on their risk as prescribed by RBI guidelines.
45. Fair Value Measurement
Fair Value Hierarchy
This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognised and
measured at fair value and (b) measured at amortised cost and for which fair value disclosures are provided in the financial statements. To provide an
indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels
prescribed under the accounting standards.
The Following methodologies and and assumptions were used to estimate the fair values of the financial assets or liabilities
i) The fair value of loans have estimated by discounting expected future cash flows using discount rate equal to the rate near to the reporting date of
the comparable product
ii) The fair value of Debt securities, Borrowings other than Debt securities and subordinated liabilities have estimated by discounting expected future
cash flows discounting rates.
iii) The fair values of Debt Securities and Borrowings other than Debt securities are estimated by discounted cash flow models that incorporate
interest cost estimates considering all significant characteristics of the borrowing. They are classified as Level 3 fair values in the fair value hierarchy
due to the use of unobservable inputs
iv) The fair value of investment in Government securities are derived from rate equal to the rate near to the reporting date of the comparable product.
v) The fair value of Derivatives are determined using inputs that are directly or indirectly observable in market place.
48. Financial risk management objectives and policies
The Company's principal financial liabilities primarily comprise of borrowings from banks, debentures and trade payables. The main purpose of these
financial liabilities is to finance the Company's operations and to support its operations. The Company's financial assets include loans, cash and cash
equivalents that relate directly to its operations.
These activities exposes the Company to a variety of financial risks, as listed below apart from various operating and business risks, and the note below
also explains how the Company manages such risks.
i) Market risk;
ii) Credit risk;
iii) Liquidity risk ; and
iv) Foreign Currency Risk
v) Information Technology Risk
This note explains the sources of risks arising from financial instruments which the entity is exposed to and how the Company manages the risk.
Risk management framework
The Company's board of directors and risk management committee has overall responsibility for the establishment and oversight of the Company's risk
management framework. The board of directors and risk management committee along with the top management are responsible for developing and
monitoring the Company's risk management policies.
The Company's risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and
controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market
conditions and the Company's activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined
and constructive control environment in which all employees understand their roles and obligations.
The Company's risk management committee oversees how management monitors compliance with the Company's risk management policies and
procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company.
Excessive risk concentration
Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have
similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or
other conditions. Concentrations indicate the relative sensitivity of the Company's performance to developments affecting a particular industry or
geographical location.
In order to avoid excessive concentrations of risk, the Company's policies and procedures include specific guidelines to focus on maintaining a diversified
portfolio. Identified concentrations of credit risks are controlled and managed accordingly.
(i) Market risk
Market risk is the risk that changes in market prices - such as foreign exchange rates, interest rates and equity prices which will affect the Companies
income or the value of holdings of financial instruments. The Company does not have exposure to currency risk and security price risk. The objective of
market risk management is to manage and control market risk exposures within acceptable parameters while optimising the return.
Interest rate risk
Interest rate risk primarily arises from borrowings with variable rates. The Company's borrowings are carried at amortised cost. The borrowings with
fixed rates are therefore not subject to interest rate risk as defined in Ind AS 107, since neither the carrying amount nor the future cash flows will
fluctuate because of a change in market interest rates.
(ii) Credit risk
Loans and advances
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and
arises principally from the Company's loans advances and other financial assets. The carrying amount of financial assets represents the maximum credit
exposure. The Company has Credit policy approved by the Board of Directors, and ECL policy approved by Board and Audit Committe which is subject to
annual review. The ECL policy is based on the Ind AS 109 requirements and the regulatory requirements as prescribed by the Reserve Bank of India. The
Company manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and for geographical
concentrations, and by monitoring exposures in relation to such limits.
The Company has established a credit quality review process to provide early identification of possible changes in the creditworthiness of counterparties,
including periodical collateral revisions, as defined in the Credit policy. Counterparty limits are established by the use of a credit risk classification
system, which assigns each counterparty a risk rating. The credit quality review process aims to allow the Company to assess the potential loss as a
result of the risks to which it is exposed and take corrective actions.
The disclosure of maximum exposure to credit risk without taking into account any collateral held or other credit enhancements has not been provided
for financial assets, as their carrying amount best represent the maximum exposure to credit risk. All the loans provided are secured against mortgage
of land and/or building. The fair value of the collateral is determined on the guidelines prescribed in the collateral management policy as approved by
the Board of Directors.
Impairment assessment - Expected credit loss ("ECL"):
An impairment analysis is performed at each reporting date based on the facts and circumstances existing on that date to identify expected losses on
account of time value of money and credit risk. For the purposes of this analysis, the loan receivables are categorised into groups based on days past
due. Each group is then assessed for impairment using the Expected Credit Loss (ECL) model as per the provisions of Ind AS 109 - financial instruments.
The Company's impairment assessment and measurement approach is set out in this report. It should be read in conjunction with the Summary of
significant accounting policies.
ECL on financial assets is an unbiased probability weighted amount based out of possible outcomes after considering risk of credit loss even if probability
is low. ECL is calculated based on the following components:
a. Probability of default ("PD")
b. Loss given default ("LGD")
c. Exposure at default ("EAD")
d. Discount factor ("D")
a. Probability of default:
PD is defined as the probability of whether borrowers will default on their obligations in the future. Historical PD is derived from the internal data which
is calibrated with forward looking macroeconomic factors.
For computation of probability of default ("PD"), Vasicek Model was used to forecast the PD term structure over lifetime of loans. As per given long term
PD and current macroeconomic conditions, conditional PD corresponding to current macroeconomic condition is estimated. The Company has worked
out on PD based on the last six years historical data.
The PDs derived from the model, are the cumulative PDs, stating that the borrower can default in any of the given years, however to compute the loss
for any given year, these cumulative PDs have to be converted to marginal PDs. Marginal PDs is probability that the obligor will default in a given year,
conditional on it having survived till the end of the previous year.
As per Ind AS 109, expected loss has to be calculated as an unbiased and probability-weighted amount for multiple scenarios.
The probability of default was calculated for 3 scenarios: best , worst and base. This weightage has been decided on best practices and expert judgement.
Marginal conditional probability was calculated for all 3 possible scenarios and one conditional PD was arrived as conditional weighted probability.
Staging of loans:
Definition of default and cure
The Company considers a financial instrument defaulted and therefore Stage 3 (credit-impaired) for ECL calculations in all cases when the loan has
remained overdue for a period greater than 90 days.
It is the Company's policy to consider a financial instrument as 'cured' and therefore re-classified out of Stage 3 when the entire principal and interest
overdue across all loan accounts of the customer are received. Such cured loans are classified as Stage 1 or 2 depending upon the days past due after
such cure has taken place.
As per Ind AS 109, Company assesses whether there is a significant increase in credit risk at the reporting date from the initial recognition. The Company
considers the credit risk to be directly proportional to the delinquency status i.e. days past due of the loan under consideration. No further adjustments
are made in the PD.
b. Loss given default
The credit risk assessment is based on a standardised loss given default (LGD) assessment framework that results in a certain LGD rate. These LGD rates
take into account the expected EAD in comparison to the amount expected to be recovered or realised from any collateral held.
The Company segments its retail lending products into smaller homogeneous portfolios, based on key characteristics that are relevant to the estimation
of future cash flows.
Further recent data and forward-looking economic scenarios are used in order to determine the LGD rate for each of the homogeneous portfolios. When
assessing forward-looking information, the expectation is based on multiple scenarios.
Under Ind AS 109, LGD rates are estimated for each of the homogeneous portfolios. The inputs for these LGD rates are estimated and, where possible,
calibrated through back testing against recent recoveries. These are repeated for each economic scenario as appropriate.
c. Exposure at default
The exposure at default (EAD) represents the gross carrying amount of the financial instruments subject to the impairment calculation, addressing both
the client's ability to increase its exposure while approaching default and potential early repayments too.
To calculate the EAD for a Stage 1 loan, the Company assesses the possible default events within 12 months for the calculation of the 12 months ECL.
However, if a Stage 1 loan that is expected to default in the 12 months from the balance sheet date and is also expected to cure and subsequently
default again, then all linked default events are taken into account.
The Company determines EADs by modelling the range of possible exposure outcomes at various points in time, corresponding the multiple scenarios.
The Ind AS 109 PDs are then assigned to each economic scenario based on the outcome of models.
d. Discounting:
As per Ind AS 109, ECL is computed by estimating the timing of the expected credit shortfalls associated with the defaults and discounting them using
effective interest rate.
Significant increase in credit risk
The Company continuously monitors all assets subject to ECLs. In order to determine whether an instrument or a portfolio of instruments is subject to
12 months ECL or Life-time ECL, the Company assesses whether there has been a significant increase in credit risk since initial recognition.The Company
considers the credit risk to be directly proportional to the delinquency status i.e. days past due of the loan under consideration. No further adjustments
are made in the PD.
When estimating ECLs on a collective basis for a group of similar assets the Company applies the same principles for assessing whether there has been
a significant increase in credit risk since initial recognition. (Refer Note-6.1 for analysis of changes in the gross carrying amount and the corresponding
ECL allowances)
Grouping financial assets measured on a collective basis
The Company calculates ECL on a collective basis for all asset classes.
The Company combines these exposure into smaller homogeneous portfolios, based on the characteristics of the loans, as described below:
a) . Geographic location
b) . Ticket size
ECL computation:
Conditional ECL at DPD pool level was computed with the following method:
Conditional ECL for year (yt) = EAD (yt) * conditional PD (yt) * LGD (yt) * discount factor (yt)
The Company measures ECL as the product of PD , LGD and EAD estimates for its Ind AS 109 specified financial assets.
The calculation is based on provision matrix which considers actual historical data adjusted appropriately for the future expectations and probabilities.
Proportion of expected credit loss provided for across the stage is summarised below:
Collateral
The Company holds collateral to mitigate credit risk associated with financial assets that are measured at amortised cost. The main types of collateral
include residential and commercial properties and collateral can have a significant effect in mitigating the Company's credit risk.
Write Off
Financial assets are written off when the Company has no reasonable expectation of recovery or expected recovery in the medium term is not significant
basis experience. Where the amount to be written off is greater than the accumulated loss allowance, the difference is recorded as an expense in the
period of write-off.
Cash and bank balances
The Company held cash and cash equivalents with credit worthy banks and financial institutions as at the reporting dates which has been measured on
the 12-month expected loss basis. The credit worthiness of such banks and financial institutions are evaluated by the management on an ongoing basis
and is considered to be good with low credit risk.
Investments
Investments comprises of mutual funds and government securities in accordance with the investment policy. Government securitites have sovereign
rating and mutual fund investments are made with counterparties with low credit risk. The credit worthiness is of these counterparties are evaluated
on an ongoing basis.
Other Financial Assets
Other financial assets is primarily constituted by security deposits and other receivables. The Company does not expect any losses from non-performance
by these counter-parties.
(iii) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by
delivering cash or another financial asset. The Company is bound to comply with the Asset Liability Management guidelines issued by Reserve Bank of
India. The Company has Asset Liability Management policy approved by the board and has constituted Asset Liability Committee to oversee the liquidity
risk management function of the Company. The Company's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient
liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage
to the Company's reputation.
(iv) Foreign Currency Risk
Foreign Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Foreign currency risk
for the Company arise primarily on account of foreign currency borrowings. The Company manages this foreign currency risk by entering in to cross
currency swaps . When a derivative is entered in to for the purpose of being a hedge, the Company negotiates the terms of those derivatives to match
with the terms of the hedged exposure. The Company's policy is to fully hedge its foreign currency borrowings at the time of drawdown and remain so
till repayment.
The Company holds a derivative financial instrument of Cross currency swap to mitigate risk of changes in exchange rate in foreign currency
The Counterparty for the contracts are banks. Derivatives are fair valued using inputs that are directly or indirectly observable in market place.
(v) Information Technology Risk
Technology risk may arise from potential impact to IT systems and data because of hardware or software failure, human errors, as well as engineered
cyber-attacks. In an era where technology is an imperative to drive efficiency, effectiveness and innovation, it becomes essential for the NBFC to
have well-defined policies and procedures, necessary infrastructure and controls, and periodic audits to guard itself against any looming threats. The
Company has implemented the Master Directions on Technology notified by the Reserve Bank of India and has put in place the necessary policies,
procedures, controls and governance mechanisms to mitigate this risk. In addition, the Company also undergoes an IT audit by an independent firm on
a yearly basis, has periodic vulnerability and penetration tests conducted by a third-party agency to identify and plug any loopholes in its technology
infrastructure, process controls and remediation preparedness. The IT Strategy Committee of the Company (supported by IT Steering Committee and
Information Security Committee) looks into all these aspects to protect the Company's technology and data assets, and ensure adequate preparedness
to manage these risks.
N. Disclosure of penalties imposed by RBI and other regulators
The Company has paid a penalty of INR 1,57,756 imposed by GST Authority, during the year ended March 31, 2025. There were no penalties imposed
on the Company for the year ended March 31, 2024.
O. Details of Single Borrower Limit (SGL)/ Group Borrower Limit (GBL)
The Company has not exceeded the single borrower limit (SGL)/ group borrower limit (GBL) during the year ended March 31, 2025 and March 31, 2024.
P. Overseas assets (for those with joint ventures and subsidiaries abroad)
The Company does not have any joint ventures and subsidiaries abroad during the year ended March 31, 2025 and March 31, 2024 and hence this
disclosure is not applicable.
Q. Details of financing of parent company products
The Company does not have a parent company and hence this disclosure is not applicable.
R. Details of non-performing financial assets purchased/ sold
The Company has not purchased any non-performing assets during the financial year ended March 31, 2025 and March 31, 2024.
S. Details of unsecured advances
The Company has unsecured intercorporate deposits amounting to INR 308.35 lakhs as at March 31, 2025 (March 31, 2024 - INR 20,306.14 lakhs).
The company has not financed any unsecured advances against intangible securities such as rights, licenses, authority etc. as collateral security.
T. Off-Balance Sheet SPVs sponsored
The Company does not have Off-Balance Sheet SPVs sponsored, which are required to be consolidated as per the accounting norms, during the financial
year ended March 31, 2025 and March 31, 2024.
U. Remuneration to non-executive directors
The Company has incurred commission of INR 60.00 Lakhs and sitting fee of INR 39.00 lakhs during the year ended March 31, 2025, (March 31, 2024:
commission - INR 37.50 lakhs, sitting fee - INR 35.60 lakhs)
V. Draw down from reserves
The Company has not made any draw down from reserves during the year ended March 31, 2025 and March 31, 2024.
(vi) Institutional set-up for liquidity risk management
Liquidity risk is defined as the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled
by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Company might be unable to meet its payment
obligations when they fall due as a result of mismatches in the timing of the cash flows under both normal and stress circumstances. Such scenarios
could occur when funding needed for illiquid asset positions is not available to the Company on acceptable terms. To limit this risk, management has
arranged for diversified funding sources and adopted a policy of availing funding in line with the tenor and repayment pattern of its receivables and
monitors future cash flows and liquidity on a daily basis. The Company has developed internal control processes and contingency plans for managing
liquidity risk. This incorporates an assessment of expected cash flows and the availability of unencumbered receivables which could be used to secure
funding by way of assignment if required. The Company also has lines of credit that it can access to meet liquidity needs. These are reviewed by the Asset
Liability Committee (ALCO) on a monthly basis. The ALCO provides strategic direction and guidance on liquidity risk management. A sub-committee of
the ALCO, comprising members from the Treasury and Risk functions, monitor liquidity risks on a monthly basis and decisions are taken on the funding
plan and levels of investible surplus, from the ALM perspective. This sets the boundaries for daily cash flow management.
Definitions:
"Significant counterparty" is defined as a single counterparty or group of connected or affiliated counterparties accounting in aggregate for more than
1% of the total liabilities.
"Significant instrument/product" is defined as a single instrument/product of group of similar instruments/products which in aggregate amount to more
than 1% of the total liabilities.
Public funds includes funds raised either directly or indirectly through public deposits, inter-corporate deposits, bank finance and all funds received from
outside sources such as funds raised by issue of Commercial Papers, debentures etc. but excludes funds raised by issue of instruments compulsorily
convertible into equity shares within a period not exceeding 5 years from the date of issue.
Total assets represents total assets as per the Balance Sheet netted off by intangible assets.
Notes:
1. The average weighted and unweighted amounts are calculated based on simple average of daily observations for the quarters ended June 30, 2024,
September 30, 2024, December 31, 2024 and March 31, 2025. The weightage factor applied to compute weighted average value is constant for aLt
the quarters.
2. Prior to introduction of LCR framework, the company used to maintain a substantial share of its liquidity in form of fixed deposits with banks and
investment in mutual funds. Post the introduction of LCR framework, the Company has consciously worked towards increasing its investment in High
Quality Liquid Assets (HQLA) as per the RBI guidelines.
3. Weighted values have been calculated after the application of respective haircuts (for HQLA) and stress factors on inflow and outflow.
4. RBI has mandated minimum liquidity coverage ratio (LCR) of 60% to be maintained by December 2022, which is to be gradually increased to 100%
by December 2024. The Company has LCR of 354% as of March 31, 2025 as against the LCR of 100% mandated by RBI.
Qualitative information:
1. The Company has implemented the guidelines on Liquidity Risk Management Framework prescribed by the Reserve Bank of India requiring
maintenance of Liquidity Coverage Ratio (LCR), which aim to ensure that an NBFC maintains an adequate level of unencumbered HQLAs that can be
converted into cash to meet its liquidity needs for a 30 calendar day time horizon under a significantly severe liquidity stress scenario.
2. LCR = Stock of High-Quality Liquid Assets (HQLAs)/Totai Net Cash Outflows over the next 30 calendar days.
3. HQLAs comprise of cash on hand, demand deposits with Scheduled Commercial Banks and Unencumbered government securities.
4. Total net cash outflows are arrived after taking into consideration total expected cash outflows minus total expected cash inflows for the subsequent
30 calendar days. As prescribed by RBI, total net cash outflows over the next 30 days = Stressed Outflows - [Min (stressed inflows; 75% of stressed
outflows)]. Total expected cash outflows (stressed outflows) are calculated by multiplying the outstanding balances of various categories or types of
liabilities and off-balance sheet commitments by 115% (15% being the rate at which they are expected to run off further or be drawn down). Total
expected cash inflows (stressed inflows) are calculated by multiplying the outstanding balances of various categories of contractual receivables by
75% (25% being the rate at which they are expected to under-flow).
5. Other cash inflows" include mutual funds and callable fixed deposits maturing within 30 days.
6. The Liquidity Risk Management framework of the Company is governed by its Liquidity Risk Management Policy and Procedures approved by the
Board. The Asset Liability Management Committee (ALCO) oversees the implementation of liquidity risk management strategy of the Company and
ensure adherence to the risk toierance/iimits set by the Board.
7. The Company maintains a funding profile with no undue concentration of funding sources. In order to ensure a diversified borrowing mix, concentration
of borrowing through various sources is monitored. Further, the Company has prudential Limits on investments in different instruments. There is no
currency mismatch in the LCR. The above is periodically monitored by ALCO.
The Company had additionally consummated 2 transactions during the financial year ended March 31, 2021 under the partial credit guarantee scheme
of the Government of India. The above disclosure does not include the details pertaining to these transactions. The amount payable towards such
transactions as at March 2025 aggregates to INR NIL lakhs. (As at March 31, 2024 - INR 454.24 lakhs) and first loss credit enhancement towards such
transactions as at March 31, 2025 is INR NIL lakhs (As at March 31, 2024 - INR 5,870.37 lakhs)
*The period considered is from the date of initiation of the securitisation transactions till the period then ended.
AI. Disclosure pertaining to RBI Master Direction - RBI/DOR/2021-22/86 DOR.STR.REC.51/21.04.048/2021-22 Reserve Bank of India (Transfer of
Loan Exposures) Directions, 2021 dated September 24, 2021
Details of Assignments during the year
Details of Assignments during the year
a) The Company has not transferred any loans during year ended March 31, 2025.
b) The Company has not acquired any loans (not in default) through assignment during the financial year ended March 31, 2025.
c) The Company has neither acquired nor transferred any stressed loans during the year ended March 31, 2025.
The securitised loans disclosed in the above notes (i.e 49-AH) do not qualify for de-recognition under Ind-AS. Nevertheless, the information in the notes
is presented to ensure compliance with the RBI disclosure requirements.
The Company has neither entered into any assignment transaction nor sold financial assets to securitisation / reconstruction company for asset
reconstruction. Hence the related disclosures are not applicable.
AK. In terms of the requirement as per RBI notifications no. RBI/2019-20/170 DOR (NBFC).CC. PD No. 109/22.10.106/2019-20 dated March 13, 2020
on implementation of Indian accounting standards, Non-Banking Financial Companies (NBFCs) are required to create an impairment reserve for any
shortfall in impairment allowances under Ind AS 109 and Income recognition, Asset Classification and Provisioning (IRACP) Norms (including provision
on standard assets). The impairment allowances under Ind AS 109 made by the Company exceeds the total provision required under IRACP (including
standard asset provisioning) and accordingly, no amount is required to be transferred to impairment reserve.
On November 12, 2021, the Reserve Bank of India (RBI) had issued circular no. RBI/2021-2022/125 DOR.STR.REC.68/21.04.048/2021-22, requiring
changes to and clarifying certain aspects of income recognition, asset classification and provisioning norms (IRACP norms) pertaining to advances.
Effective October 1, 2022, the Company implemented the requirements on upgradation of accounts classified as NPA as clarified in RBI circular
on prudential norms on income recognition, asset classification and provisioning pertaining to advances- clarifications dated November 12, 2021,
February 15, 2022, on upgradation of accounts classified as NPA.
50. Other statutory information
(i) . The Company does not have any Benami property, where any proceeding has been initiated or pending against the Group for holding any Benami
property.
(ii) . The Company does not have transactions with companies struck off under Section 248 of the Companies Act, 2013 or section 560 of the Companies
Act, 1956 except for the following:
(iii) . The Company does not have any charges or satisfaction which is yet to be registered with ROC beyond the statutory period,
(iv) . The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.
(v) . The Company borrows funds from various Banks and financial institutions for the purpose of onward lending to end customers as per the terms
of such borrowings. These transactions are part of the Company's normal lending activities, which is conducted after exercising proper due diligence
including adherence to the terms of credit policies and other relevant guidelines.
Other than the nature of transactions described above.
(i) . No funds have been advanced or loans or invested by the Company to or in any other person(s) or entity(ies) ("intermediaries") with the
understanding that the Intermediary shall lend or invest in party identified by or on behalf of the Company ("Ultimate beneficiaries") or provide any
guarantee, security or the like on behalf of the Ultimate Beneficiaries.
(ii) . The Company has not received any fund from any party(s) (Funding Party) with the understanding that the Company shall whether, directly or
indirectly lend or invest in other persons or entities identified by or on behalf of the Company ("Ultimate beneficiaries") or provide any guarantee,
security or the like on behalf of the Ultimate Beneficiaries.
(vi) . The Company does not have any such transaction which is not recorded in the books of accounts that has been surrendered or disclosed as income
during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the Income Tax
Act, 1961
(vii) . The Company is not declared as wilful defaulter by any bank or financial institution or any other lender.
(viii) . The Company is maintaining its book of account in electronic mode and these books of account are accessible at all times and the back-up of books
of account has been kept in servers physically located in India on a daily basis from the applicability date of the Accounts Rules, i.e. August 5, 2022
onwards.
(ix) . The title deeds of all immovable properties, (other than immovable properties where the company is the lessee and the lease agreements are duly
executed in favour of the company) disclosed in the financial statements included in property, plant & equipment and capital work-in-progress are held
in the name of the Company as at balance sheet date.
51. Audit Trail as per MCA Requirement
The Company uses separate accounting software for maintaining its books of account relating to general ledger and loan management.
Both these software applications have the feature of recording audit trail (edit log) facility and the same had been enabled during the year, except for a
brief period between April 1, 2024 to May 23, 2024, when the audit trail for the loan management system (at the database level) was not enabled. The
audit trail feature was also not tampered with during the year.
The Management has also ensured that adequate controls have been implemented during this period to ensure that effective functioning of internal
financial controls with respect to the financial statements. Further, the audit trail that was enabled and operated for the year ended March 31, 2024, has
been preserved by the Company as per the statutory requirements for record retention.
54. The comparative figures for the year ended March 31, 2024 have been audited by the predecessor audit firm, where they have expressed an
unmodified opinion on such financial statement vide their reports dated April 30, 2024.
In terms of our report attached For and on behalf of the Board of Directors of
for Deloitte Haskins & Sells Five-Star Business Finance Limited
Chartered Accountants CIN : L65991TN1984PLC010844
Firm's Registration No: 008072S
G.K. Subramaniam D Lakshmipathy R Anand
Membership No: 109839 Chairman & Managing Director Independent Director
DIN : 01723269 DIN : 00243485
G Srikanth K Rangarajan Vigneshkumar. S. M
Joint Managing Director & Joint Managing Director & Company Secretary
Chief Financial Officer Chief Executive Officer ACS: A44671
DIN: 10636810 DIN: 07289972
Place: Mumbai Place: Chennai
Date: April 29, 2025 Date: April 29, 2025
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