3.17 Provisions, contingent liabilities and contingent assets
A. 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.
B. 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.
C. 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.
3.18 Taxes
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. Current tax
is the amount of tax payable on the taxable income
for the period as determined in accordance with
the applicable tax rates and the provisions of the
Income Tax Act, 1961.
Current income tax relating to items recognised
outside profit or loss is recognised outside profit
or loss (either in OCI or in equity). Current tax items
are recognised in correlation to the underlying
transaction either in OCI or equity.
B. Deferred tax
Deferred tax is recognised on temporary
differences between the carrying amounts of
assets and liabilities in the standalone financial
statements and the corresponding tax bases used
in the computation of taxable profit.
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
realised, based on tax rates (and tax laws) that
have been enacted or substantively enacted by the
end of the reporting period. The carrying amount of
deferred tax liabilities and assets are reviewed at
the end of each reporting period.
Deferred tax relating to items recognised outside
profit or loss is recognised outside profit or loss
(either in OCI or in equity). Deferred tax items
are recognised in correlation to the underlying
transaction either in OCI or equity.
Deferred tax assets and liabilities are offset if such
items relate to taxes on income levied by the same
governing tax laws and the Company has a legally
enforceable right for such set off.
C. Goods and services tax paid on acquisition of
assets or on incurring expenses
Expenses and assets are recognised net of the
goods and services tax paid, except when the
tax incurred on a purchase of assets or availing
of 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.
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.
3.19 Earnings per share
Basic earnings per share ("EPS") is computed by dividing
the profit after tax (i.e. profit attributable to ordinary
equity holders) by the weighted average number of
equity shares outstanding during the year.
Diluted EPS is computed by dividing the profit after tax
(i.e. profit attributable to ordinary equity holders) as
adjusted for after-tax amount of dividends and interest
recognised in the period in respect of the dilutive
potential ordinary shares and is adjusted for any other
changes in income or expense that would result from
the conversion of the dilutive potential ordinary shares,
by the weighted average number of equity shares
considered for deriving basic earnings per share as
increased by the weighted average number of additional
ordinary shares that would have been outstanding
assuming the conversion of all dilutive potential ordinary
shares.
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. 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, right issue and bonus shares, as
appropriate.
3.20 Dividends on ordinary shares
The Company recognises a liability to make cash or
non-cash distributions to equity holders of the Company
when the distribution is authorised and the distribution
is no longer at the discretion of the Company. As per
the Act, final dividend is authorised when it is approved
by the shareholders and interim dividend is authorised
when the it is approved by the Board of Directors of
the Company. A corresponding amount is recognised
directly in equity.
Non-cash distributions are measured at the fair value
of the assets to be distributed with fair value re¬
measurement recognised directly in equity.
Upon distribution of non-cash assets, any difference
between the carrying amount of the liability and the
carrying amount of the assets distributed is recognised
in the statement of profit and loss.
3.21 Repossessed asset
In the normal course of business whenever default
occurs, the Company may take possession of properties
or other assets in its retail portfolio and generally
disposes such assets through auction, to settle the
outstanding debt. These assets are recognised at fair
value at the time of possession.
3.22 (i) Foreign Currency Transactions
Transactions in foreign currencies are recorded
at the rate of exchange prevailing on the date of
transaction.
Monetary assets and liabilities denominated in
foreign currencies are translated at the functional
currency at rates of exchange on the reporting
date.
Exchange difference on restatement of all other
monetary items is recognised in the Statement of
Profit and Loss.
(ii) Derivatives
A derivative is a financial instrument or
other contract with all three of the following
characteristics:
i) 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').
ii) 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.
iii) It is settled at a future date.
The Company enters into derivative transactions with
various counterparties to hedge its foreign currency
exchange rate risks. Derivative transaction consists
of hedging of foreign exchange transactions, which
includes forward contracts.
Derivatives are recorded at fair value and carried as
assets when their fair value is positive and as liabilities
when their fair value is negative. The notional amount
and fair value of such derivatives are disclosed
separately. Changes in the fair value of derivatives are
recognised in the Statement of Profit and Loss.
4 . standards issued but not yet effective
Ministry of Corporate Affairs ("MCA") notifies new
standards or amendments to the existing standards
under Companies (Indian Accounting Standards) Rules
as issued from time to time. For the year ended 31
March 2025, MCA has not notified any new standards or
amendments to the existing standards applicable to the
Company.
For Cash credit / Overdraft and short term loans
(a) Cash credit / short term loans from banks are secured by hypothecation of movable assets of the Company and goods
covered under hypothecation ("HP") agreements / Loan cum HP agreements and book debts, receivables, loans and
advances and entire portfolio outstanding (except specific portfolio generated from various term loans sanctioned by
various banks/financial institutions on an exclusive basis) and equitable mortgage/negative lien by deposit of title deeds
on some of the Company's immovable properties, as collateral security. The loans are also guaranteed by Mr. Kamlesh
Chimanlal Gandhi, Mrs. Shweta Kamlesh Gandhi. Overdraft loans are secured against fixed deposits placed.
(b) Interest rate range
Interest rate ranges from 7.65 % p.a. to 9.10 % p.a. as at 31 March 2025.
Interest rate ranges from 8.75 % p.a. to 9.40 % p.a. as at 31 March 2024.
The Company has not defaulted in repayment of borrowings and interest.
The Company has availed borrowings from banks or financial institutions on the basis of security of current assets and the
quarterly returns or statements of current assets filed by the Company with banks or financial institutions are in agreement
with the books of accounts of the Company.
The carrying amount of financial assets which is hypothecated against all secured borrowing inclusive of margin requirement
ranging from 1.10 times to 1.25 times is amounting to ' 9,214.20 crores (31 March 2024: ' 7,512.28 crores).
Crores Only) divided into 6,40,00,000 (Six Crores and Forty Lakh) Equity Shares of '10 (Rupees Ten Only) each, 400 (Four
Hundred) - 9.75% Compulsorily Convertible Cumulative Preference Shares of '1,00,000 (Rupees One Lakh Only) each,
2,20,00,000 (Two Crore Twenty Lakh) 0.01% Compulsorily Convertible Cumulative Preference Shares of '10 (Rupees Ten
Only) each and 2,20,00,000 (Two Crore Twenty Lakh) - 13.31% Compulsorily Convertible Cumulative Preference Shares
of '10 (Rupees Ten Only) each was reclassified into ' 112,00,00,000/- (Rupees One Hundred and Twelve Crores Only)
divided into 11,20,00,000 (Eleven Crores and Twenty Lakh) Equity Shares of '10 (Rupees Ten Only) each.
2. During the Previous year, pursuant to the approval of shareholders at the Extra Ordinary General Meeting held on
February 09, 2024, the Authorised share capital of the Company has been increased from ' 112,00,00,000/- (Rupees
One Hundred and Twelve Crores Only) divided into 11,20,00,000 (Eleven Crores and Twenty Lakh) Equity Shares of
' 10 (Rupees Ten Only) each to ' 200,00,00,000/- (Rupees Two Hundred Crores Only) divided into 20,00,00,000 (Twenty
Crores) Equity Shares of '10 (Rupees Ten Only) each.
3. The Company, during the year, has allotted 1,74,67,248 no. of equity shares of face value of ' 10 each, at the issue price of
' 286.25 per Equity Share, i.e., at a premium of ' 276.25 per Equity Share (which includes a discount of ' 15.06 per Equity
Share (4.99% of the floor price, as determined in terms of the SEBI ICDR Regulations) to the floor price), aggregating to
approximately ' 500 Crores, pursuant to Qualified Institutions Placement as on 21 June 2024.
Note: Mr. Mukesh C. Gandhi has passed away on 19 January 2021.
20.3 Details of bonus shares issued during the five years immediately preceding the balance sheet date:
10,93,24,086 equity shares of ' 10 each fully paid-up were allotted as bonus shares by capitalisation of general reserve and
balance from the statement of profit and loss during the year ended 31 March 2024.
20.4 Terms / rights attached to equity shares
The Company has one class of equity shares having a par value of ' 10 per share. Each shareholder is eligible for one vote
per share held. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing
Annual General Meeting, except in case of interim dividend. In the event of liquidation of the Company, the equity shareholders
will be entitled to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to
their shareholding.
21.1 Nature and purpose of reserve
1 Reserve u/s. 45-IC of the Reserve Bank of India Act, 1934 (the "RBI Act, 1934")
Reserve u/s. 45-IC of RBI Act, 1934 is created in accordance with section 45 IC(1) of the RBI Act, 1934. As per Section 45
IC(2) of the RBI Act, 1934, no appropriation of any sum from this reserve fund shall be made by the NBFC except for the
purpose as may be specified by RBI.
2 Securities premium
Securities premium is used to record the premium on issue of shares. The reserve can be utilised only for limited purposes
in accordance with the provisions of section 52 of the Act.
3 Retained earnings
Retained earnings is the accumulated available profit of the Company carried forward from earlier years. These reserve
are free reserves which can be utilised for any purpose as may be required.
The Company recognises change on account of remeasurement of the net defined benefit liability (asset) as part of
retained earnings with separate disclosure, which comprises of:
i) actuarial gains and losses;
ii) return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset); and
iii) any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit
liability (asset).
4 Other comprehensive income
On equity investments
The Company has elected to recognise changes in the fair value of investments in equity securities (other than investment
in subsidiary) in other comprehensive income. These changes are accumulated within the FVOCI equity investments
reserve within equity. The Company transfers amounts from this reserve to retained earnings when the relevant equity
securities are derecognised.
On loans
The Company has elected to recognise changes in the fair value of loans and advances in other comprehensive income.
These changes are accumulated within the FVOCI - loans and advances reserve within equity. The Company transfers
amounts from this reserve to the statement of profit and loss when the loans and advances are sold. Further, impairment
loss allowances on the loans are recognised in OCI.
(d) Nature of CSR activities: Promoting education, eradicating hunger, poverty & malnutrition, promoting health care and
such other activities. For more details, refer annexure of Director's report on CSR.
34 SEGMENT REPORTiNG:
Operating segment are components of the Company whose operating results are regularly reviewed by the Chief Operating
Decision Maker ("CODM") to make decisions about resources to be allocated to the segment and assess its performance and
for which discrete financial information is available.
The Company is engaged primarily on the business of "Financing" only, taking into account the risks and returns, the
organization structure and the internal reporting systems. All the operations of the Company are in India. All non-current
assets of the Company are located in India. Accordingly, there are no separate reportable segments as per Ind AS 108 -
"Operating segments".
Financial guarantee commission income amounts to ' Nil during the year (31 March 2024: less than ' 50,000) on account of
fair valuation of corporate financial guarantee given to bank on behalf of subsidiary.
All transactions with these related parties are priced on an arm's length basis. None of the balances are secured.
Key managerial personnel who are under the employment of the Company are entitled to post employment benefits and other
employee benefits recognised as per Ind AS 19 - Employee Benefits in the financial statements.
The remuneration of key management personnel are determined by the nomination and remuneration committee having
regard to the performance of individuals and market trends.
36 OFFSETTING
Following table represents the recognised financial assets that are offset, or subject to enforceable master netting arrangements
and other similar arrangements but not offset, as at 31 March 2025 and 31 March 2024. The column 'net amount' shows the
impact of the Company's balance sheet if all the set-off rights were exercised.
Note:
31 March 2025: Nil (31 March 2024:' 12.57 crores) represents advances received against loan agreements.
37 EVENTS AFTER THE REPORTING PERIOD
Ind AS 10 'Events after the Reporting Period', requires an entity to evaluate information available after the balance sheet date to
determine if such information constitutes an adjusting event, which would require an adjustment to the financial statements,
or a non-adjusting event, which would only require disclosure. There have been no events after the reporting date that require
disclosure in these financial statements.
38 REVENUE FROM CONTRACTS WITH CUSTOMERS
Set out below is the disaggregation of the Company's revenue from contracts with customers and reconciliation to the
statement of profit and loss:
40 EMPLOYEE BENEFIT PLAN
Disclosure in respect of employee benefits under Ind AS 19 - Employee Benefits are as under:
(a) Defined contribution plan
The Company's contribution to provident fund and employee state insurance scheme are considered as defined
contribution plans. The Company's contribution to provident fund aggregating ' 2.98 crores (31 March 2024: ' 2.17
crores) and employee state insurance scheme aggregating ' 0.10 crores (31 March 2024: ' 0.11 crores) has been
recognised in the statement of profit and loss under the head employee benefits expense.
(b) Defined benefit plan:
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 than 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 than 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.
Legislative risk: Legislative risk is the riskofincrease in the plan liabilities or reduction in the plan assets dueto change in
the legislation/regulation. The government may amend the Payment of Gratuity Act, 1972, thus requiring the companies
to pay higher benefits to the employees. This will directly affect the present value of the defined benefit obligation and
the same will have to be recognized immediately in the year when any such amendment is effective.
ix. Asset liability matching strategies
The Company contributes to the insurance fund based on estimated liability of next financial year end. The projected
liability statements is obtained from the actuarial valuer.
x. Effect of plan on the Company's future cash flows
a) Funding arrangements and funding policy
The Company has purchased an insurance policy to provide for payment of gratuity to the employees. Every year, the
insurance company carries out a funding valuation based on the latest employee data provided by the Company. Any
deficit in the assets arising as a result of such valuation is funded by the Company.
b) Maturity profile of defined benefit obligation
The average outstanding term of the obligations (years) as at 31st March 2025 is 4.02 years.(31st March 2024 :
4.10 years)
The Company has not funded its compensated absences liability and the same continues to remain as unfunded as at March
31,2025.
The liability for compensated absences is ' 0.27 crores (31 March 2024: ' 0.27 crores).
Code on Social Security, 2020
The Indian Parliament has approved the Code on Social Security, 2020 which subsumes the provident fund Act and the gratuity
Act and rules there under. The Ministry of Labour and Employment has also released draft rules thereunder on 13 November
2020 and has invited suggestions from stakeholders which are under active consideration by the Ministry of Labour and
Employment. The Company will evaluate the rules, assess the impact, if any, and account for the same once the rules are
notified and become effective.
41 FiNANCiAL iNSTRUMENT AND FAiR VALUE MEASUREMENT
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal
(or most advantageous) market at the measurement date under current market conditions (i.e. an exit price), regardless of
whether that price is directly observable or estimated using a valuation technique.
In order to show how fair values have been derived, financial instruments are classified based on a hierarchy of valuation
techniques.
This note describes the fair value measurement of both financial and non-financial instruments.
A. Measurement of fair values
i) Financial instruments - fair value
The fair value of financial instruments as referred to in note (B) below have been classified into three categories depending
on the inputs used in the valuation technique. The hierarchy gives the highest priority to quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurement).
The categories used are as follows:
Level 1: Quoted prices (unadjusted) in active markets for financial instruments
Level 2: The fair value of financial instruments that are not traded in active market is determined using valuation technique
which maximizes the use of observable market data and rely as little as possible on entity specific estimates. If all
significant inputs required to fair value on instrument are observable, the instrument is included in level 2; and
Level 3: If one or more of significant input is not based on observable market data, the instrument is included in level 3.
ii) Transfers between levels 1 and 2
There has been no transfer in between level 1 and level 2.
iii) Valuation techniques
Loans
The Company has computed fair value of the loans and advances through OCI considering its business model. These
have been fair valued using the base of the interest rate of loan disbursed in the last month of the year end which is an
unobservable input and therefore these has been considered to be fair valued using level 3 inputs.
Investments measured at FVTPL
Fair values of market linked debentures and mutual funds have been determined under level 1 using quoted market
prices(unadjusted) of the underlying instruments. Fair value of investment in alternate investment funds have been
determined under level 2 using observable input. For fair value of investment in OCPS of subsidiary, the Company has
used incremental borrowing rate and applied discounted cash flow model and accordingly measured under level 3.
B. Accounting classifications and fair values
The carrying amount and fair value of financial instruments including their levels in the fair value hierarchy presented
below:
42 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, 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 reported period. Equity share
capital and other equity are considered for the purpose of Company's capital management.
42.1 Capital management
The primary objectives of the Company's capital management policy are 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. However, they are under constant review by the Board.
Tier 1 capital consists of shareholders' equity and retained earnings excluding unrealised gain but including unrealised loss.
Tier 2 capital consists of ECL on stage 1 and subordinated debt (subject to prescribed discount rates and not exceeding 50%
of Tier 1).
43 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Company's principal financial liabilities comprise borrowings 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 mainly includes
loan and advances, cash and cash equivalents that derive directly from its operations.
The Company is exposed to credit risk, liquidity risk and market risk. The Company's board of directors has an overall
responsibility for the establishment and oversight of the Company's risk management framework. The board of directors
has established the risk management committee, which is responsible for developing and monitoring the Company's risk
management policies. The committee reports regularly to the board of directors on its activities.
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'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.
43.1 Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counter-party to financial instrument fails to meet its
contractual obligations and arises principally from the Company's loans and investments.
The carrying amounts of financial assets represent the maximum credit risk exposure.
(a) Loans and advances
The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer. However,
management also considers the factors that may influence the credit risk of its customer base, including the default risk
associated with the industry.
The Company has established a credit policy under which each new customer is analysed individually for creditworthiness
before sanctioning any loan. The Company's review includes external ratings, if they are available, financial statements,
credit agency information, industry information, the loan-to-value ratio etc.
Analysis of risk concentration
The following table shows the risk concentration of the Company's loans.
Narrative Description of Collateral
Collateral primarily include vehicles purchased by retail loan customers and machinery & property in case of SME
customers. The secured exposure are secured wholly or partly by hypothecation of assets and undertaking to create a
security.
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 loans
are categorised into groups based on days past due. Each group is then assessed for impairment using the ECL model
as per the provisions of Ind AS 109 - financial instruments.
(i) Staging:
As per the provision of Ind AS 109, all financial instruments are allocated to stage 1 on initial recognition. However,
if a significant increase in credit risk is identified at the reporting date compared with the initial recognition, then an
instrument is transferred to stage 2. If there is objective evidence of impairment, then the asset is credit impaired and
transferred to stage 3.
The Company considers a financial instrument defaulted and therefore Stage 3 (credit-impaired) for ECL calculations in
all cases when the borrower becomes due by more than 90 days on its contractual payments.
For financial assets in stage 1, the impairment calculated based on defaults that are possible in next twelve months,
whereas for financial instrument in stage 2 and stage 3 the ECL calculation considers default event for the lifespan of the
instrument.
As per Ind AS 109, the Company assesses whether there is a significant increase in credit risk at the reporting date from
the initial recognition. The Company has staged the assets based on the days past dues criteria and other market factors
which significantly impacts the loan portfolio.
(ii) Grouping:
As per Ind AS 109, Company is required to group the portfolio based on the shared risk characteristics. The Company has
assessed the risk and its impact on the various portfolios and has divided the portfolio into following groups:
a. Two wheeler loans
b. Micro enterprise loans
c. Salaried personal loans
d. Small and medium enterprise loans
e. Commercial vehicle loans
f. Retail asset channel loans
(iii) ECL:
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")
For RAC loan portfolio, the Company has developed internal rating based approach for the purpose of ECL. The credit
rating framework of the Company consists of various parameters based on which RAC loan portfolio is evaluated and
credit rating is assigned accordingly. The credit rating matrix developed by the Company is validated in accordance with
its ECL policy.
The Company has developed its PD matrix based on the external benchmarking of external reports, external ratings and
Basel norms. This PD matrix is calibrated with its historical data and major events on regular time interval in accordance
with its ECL policy.
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 internal data of the Company calibrated with forward looking macroeconomic factors.
For computation of probability of default ("Pd"), Vasicek Single Factor Model was used to forecast the PD term structure
over lifetime of loans. As per Vasicek model, given long term PD and current macroeconomic conditions, conditional PD
corresponding to current macroeconomic condition is estimated. The Company has worked out PD based on the last five
years historical data.
The PDs derived from the Vasicek 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 are 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 Current
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: upside (11%), downside (21%) and base (68%). 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.
Loss given default:
LGD is an estimate of the loss from a transaction given that a default occurs. Under Ind AS 109, lifetime LGD's are defined
as a collection of LGD's estimates applicable to different future periods.
Various approaches are available to compute the LGD. The Company has considered workout LGD approach. The
following steps are performed to calculate the LGD:
1) Analysis of historical credit impaired accounts at cohort level.
2) The computation consists of four components, which are:
a) Outstanding balance (POS)
b) Recovery amount (discounted yearly) by effective interest rate.
c) Expected recovery amount (for incomplete recoveries), discounted to reporting date using effective interest
rate.
d) Collateral (security) amount.
The formula for the computation is as below:
% Recovery rate = (discounted recovery amount security amount discounted estimated recovery) / (total outstanding
balance) % LGD = 1 - recovery rate
For RAC loan portfolio, the LGD has been considered based on Basel-ll Framework for all the level of credit rating portfolio.
Exposure at default:
As per Ind AS 109, EAD is estimation of the extent to which the financial entity may be exposed to counterparty in the
event of default and at the time of counterparty's default. The Company has modelled EAD based on the contractual and
behavioural cash flows till the lifetime of the loans considering the expected assignment of loans.
The Company has considered expected cash flows for all the loans at DPD bucket level for each of the segments, which
was used for computation of ECL. The exposure at default is calculated for each product and for various DPD status
after considering future expected assignment which is not at risk. Moreover, the EAD comprised of principal component,
accrued interest and also the future interest for the outstanding exposure of retail loans. Further, the EAD for stage 3 retail
loans are the outstanding exposures at the time loan is classified as Stage 3 for the first time.
Discounting:
As per Ind AS 109, ECL on retail loans is computed by estimating the timing of the expected credit shortfalls associated
with the defaults and discounting them using effective interest rate.
ECL computation:
Conditional ECL at DPD pool level was computed with the following method:
Conditional retail ECL for year (yt) = EAD (yt) * conditional PD (yt) * LGD (yt) * discount factor (yt)
Conditional RAC ECL for year (yt) = EAD (yt) * conditional PD (yt) * LGD (yt)
For RAC loan portfolio, the Company has calculated ECL based on borrower wise assessment of internal credit rating as
per the framework of the Company, while for retail loan portfolio, the same has been calculated on collective basis.
The calculation is based on provision matrix which considers actual historical data adjusted appropriately for the future
expectations and probabilities. Proportion of ECL provided for across the stages is summarised below:
The loss rates are based on actual credit loss experience over past 5 years. These loss rates are then adjusted
appropriately to reflect differences between current and historical economic conditions and the Company's view of
economic conditions over the expected lives of the loan receivables.
(iv) Management overlay
The Company holds a management and macro-economic overlay of ' 17.60 crores as at 31 March 2025
(31 March 2024: ' 18.79 crores).
(v) Modification of financial assets
The Company has modified the terms of certain loans provided to customers in accordance with RBI notification on MSME
restructuring dated 6 August 2020 and 5 May 2021. Such restructuring benefits are provided to distressed customers
who are impacted by COVID-19 pandemic.
Such restructuring benefits include extended payment term arrangements, moratorium and changes in interest
rates. The risk of default of such assets after modification is assessed at the reporting date and compared with
the risk under the original terms at initial recognition, when the modification is not substantial and so does not
result in derecognition of the original asset (refer note 3.5). The Company monitors the subsequent performance
of modified assets. The gross carrying amount of such assets held as at 31 March 2025 is ' 0.47 crores
(31 March 2024: ' 0.47 crores). Overall provision for expected credit loss against restructured loan exposure amounts to
' 1.40 crores as at 31 March 2025 (31 March 2024: ' 0.13 crores). The Company continues to monitor if there is a
subsequent significant increase in credit risk in relation to such assets.
(b) Cash and cash equivalent and bank deposits
Credit risk on cash and cash equivalent and bank deposits is limited as the Company generally invests in term deposits
with banks which are subject to an insignificant risk of change in value.
43.2 Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting its obligations associated with its financial liabilities.
The Company's approach in managing liquidity is to ensure that it will have sufficient funds to meet its liabilities when due.
The Company is monitoring its liquidity risk by estimating the future inflows and outflows during the start of the year and
planned accordingly the funding requirement. The Company manages its liquidity by unutilised cash credit facility, term loans
and direct assignment of loans.
The composition of the Company's liability mix ensures healthy asset liability maturity pattern and well diverse resource mix.
The total cash credit limit available to the Company is ' 1338.75 Crore spread across 13 banks. The utilization level is
maintained in such a way that ensures sufficient liquidity on hand.
RBI has mandated minimum liquidity coverage ratio (LCR) of 50% to be maintained by December 2021, which is to be gradually
increased to 100% by December 2024. The Company has LCR of 477.76 % as of 31 March 2025 as against the LCR of 50%
mandated by RBI.
The Management expects to continue to maintain around 20% to 25% of assets under management as off book through direct
assignment transactions. It is with door to door maturity and without recourse to the Company. This further strengthens the
liability management.
The table below summarises the maturity profile of the undiscounted cash flow of the Company's financial liabilities:
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