Nature and purpose of reserve
1) Reserve u/s 451C of Reserve Bank India Act 1934
Statutory reserve represents the reserve created as per Section 45IC of the RBI Acl, 1934, pursuant to which a Non-Bank ng Financial Company shall create a reserve fund and transfer therein a sum not less than twenty per cent of its net profit annually as disclosed in the Statement of Profit and Loss account, before any dividend is declared
2) Securities premium
Sectaries premium reserve is used to record the premium on issue of shares The reserve can be ulAised only for limited purposes such as issuance of bonus shares in accordance with the provisions of the Companies AcL2013
3) Retained earnings
Retained earnings comprises of the Company's undistntouted earnings after taxes.
4) Employee stock option reserve
This reserve relates to stock options granted by the Company to employees under various ESOP schemes This reserve is transferred to securities premium account on exercise of vested options.
5) Defined Benefit Plan • Other Comprehensive Income
This represents the cumulative gains and losses ansing on the remeasurement of defined benefit pians in accordance with Ind AS 19 that have been recognized in other comprehensive income
6) Amalgamation Adjustment Reserve
Upon amalgamation of Canopy Finance Ltd (transferor company) with Purple Finance Ltd (Transferee company), the statutory reserves (l.e. reserve under Section 45IC of the Reserve Bank of India Act 1934) of Rs 3,525.90 thousands of the transferor company as on 1 st October. 2022 (l.e. appointed date) were recorded in the books of the transferee company with a corresponding debit to Amalgamat>on Adjustment Account When the identity of the statutory reserves is no longer required to be maintained, both the statutory reserves and the aforesaid account will be reversed
Methods and assumptions used In prepanng sensitivity and their imitations: The liability Mas projected by changing certain assumptions and the total liability post the change in such assumptions have been captured in the table above This sensitivities are based on change r one single assumption, other assumptions being constant In practice, scenario may involve change in several assumptions where the stressed defined benefit obligation may be significantly impacted
The company does not have any leave encashment policy
Note - 37: Segment Information
The company is primarily engaged m the business of financing. All the activities of the company revche around the mam business Further, the company does not have any separate geographic segments other than India
Note - 43B: Fair value hierarchy for assets and liabilities
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions.
The Company categorizes assets and liabilities measured at fair value into one of three levels depending on the ability to observe inputs employed in their measurement which are described as follows:
i) Level 1
Quoted (unadjusted) prices in active markets for identical assets or liabilities. i) Level 2
Other techniques for which all inputs which have a significant effect on the recorded fair values are observable, either directly or indirectly. i) Level 3
Techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
I. Risk management framework:
The Company's overall objective is to manage its businesses, and the associated risks, in a manner that balances serving the interests of all its stakeholders and at the same time minimise potential adverse effects on its financial performance. The Company places emphasis on risk management practices to ensure an appropriate balance between risks and returns.
The Company is exposed to credit risk, market risk and liquidity risk. The Company's board of directors have overall responsibility for the establishment and oversight of the Company's risk management framework. The board of directors have established the Risk Management Committee, which is 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.
A Credit risk
Credit risk is the risk of loss resulting from the failure of a borrower or counter party to honour its financial or contractual obligations. Credit risk arises in the company's direct lending operations, and in its funding and investment activities where counterparties have repayment or other obligations. The Company's exposure to credit risk is influenced mainly by cash and cash equivalents, other bank balances, investments, loan assets, trade receivables and other financial assets.
The company lays down various monitoring process for Macro Economic factor analysis, industry analysis, portfolio analysis and account level analysis to control delinquencies. The company implements robust portfolio monitoring approach and various tools to have a close monitoring of the portfolio.
ECL Methodology
The Company records allowance for expected credit losses for all financial assets other than FVTPL, together with loan commitments. Equity instruments are not subject to impairment.
The ECL allowance is based on the credit losses expected to arise over the life of the asset (the lifetime expected credit loss), unless there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12 months' expected credit loss.
The Company has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument's credit risk has increased significantly since initial recognition. Based on the above process, the Company categorises its loans into Stage 1, Stage 2 and Stage 3, as described below:
Stage 1
All exposures where there has not been a significant increase in credit risk since initial recognition or that has low credit risk at the reporting date and that are not credit impaired upon origination are classified under this stage. The company records allowance based on twelve months ECL.
Stage 2
All exposures where there has been a significant increase in credit risk since initial recognition but are not credit impaired are classified under this stage. The company records allowance for Lifetime ECL.
Stage 3
All exposures assessed as credit impaired when one or more events that have a detrimental impact on the estimated future cash flows of that asset have occurred are classified in this stage. The company records allowance for Lifetime ECL.
ECL Calculations
The Company calculates ECLs based on a probability-weighted scenarios and historical data to measure the expected cash shortfalls. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. ECL consists of three key components:
Probability of default (PD) :
The probability of default ('PD') is the likelihood that an obligor will default on its obligations in the future. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognised and is still in the portfolio
Exposure At Default ("EAD”):
The amount which the obligor will owe to the Company at the time of default is defined as the exposure at default (EAD). Exposure at default (EAD) is the sum of outstanding principal and the interest amount accrued but not received on each loan as at reporting date.
Loss Given Default ("LGD”):
Loss given default estimates the normalised loss which company incurs post customer default. It is computed through recovery observed in delinquent accounts over a period of time. It is based on the difference between contractual cash flows that are due and expected to be received including from the collateral if any.
Given the company's historically limited and relatively small loan portfolio, along with the absence of adequate and qualitative internal data necessary for reliable computation of Probability of Default (PD) across different stages and Loss Given Default (LGD), the company determines its provisioning requirements by computing provisions under both the RBI's IRAC norms and its internal ECL policy. The company adopts the higher of the two provisions to ensure a prudent and compliant approach.
Reconciliation of loss allowance provision - For loans
Refer note 4 for detailled reconciliation of loan movements and loss allowance provision
In addition to the ECL for loans as prescribed above, the Company also holds other financial assets such as balances with Bank, trade receivables and other financial assets. The Company recognizes ECL on such assets based on the historical loss experience measures (e.g. write off rates / provision g rates) adjusted for expected losses in the future keeping in mind the nature of industry and credit ratings of such counter-parties. The amount is currently not expected to have a significant impact and the company will periodically assess the same.
III. Liquidity risk:
Liquidity risk involves the inability of an entity to fund growth in assets, manage unplanned changes in funding sources and to meet obligations when required. Liquidity risk also arises due to the maturity mismatch associated with assets and liabilities. Cost of such liquidity risk would be in terms of either raising fresh liabilities at higher cost or liquidating its assets at a higher discount rate.
The Company manages its liquidity requirement by analysing the maturity pattern of the Company's cash flow of financial assets and financial liabilities. The Company's policy on liquidity risk is to ensure availability of adequate liquid resources with a view to keep maturity mismatches in the Balance Sheet of the Entity within desired levels. The Company also has lines of credit that it can access to meet liquidity needs.
IV. Market risk:
Market risk is the risk of loss from changes in market prices and rates (including interest rates, credit spreads, equity prices, foreign exchange rates, and property rate risk), the correlations among them, and their levels of volatility. The company is predominantly exposed to only interest rate risk & property rate risk and have almost no impact of foreign exchange and commodity prices directly. The company continuously monitors these risks and manages them through appropriate risk limits.
Interest rate risk:
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows of financial instruments. The Company's exposure to changes in interest rates relates to the Company's outstanding floating rate liabilities and assets.
The Company has formulated Purple Finance Employee Stock Option Schemes, 2022 (ESOP Scheme-2022) as approved by the board of directors at its meeting held on 17th September, 2022. The options allotted under the ESOP Scheme 2022 are vested over a period of four years in the ratio of 25%, 25%, 25% and 25% respectively from the end of 12 months from the date of grant. The stock options are granted at an exercise price of Rs. 33 per share ESOP Scheme 2022. The fair value of the share options was estimated at the grant date using Black Scholes pricing model and, taking into account the terms and conditions upon which the share options were granted.
49.2 Title deeds of immovable properties not held in name of the Company
The Company does not own any immovable properties
49.3 Valuation of Property. Plant and Equipment
The company has not revalued its property, plant and equipment (including right-of-use assets) or intangible assets or both during the current or previous year
49.4 Details of Benami property
No proceedings have been initiated or are pending against the Company for holding any 8enami property under the Benami Transactions (Prohibition) Act 1988 (45 of 1988) and the rules made thereunder.
49.5 Borrowing from banks
The Company has borrowed funds from banks and financial institutions on the basis of security of current assets It has filed quarterly returns or statements of current assets with banks and financial institutions and the said returns/statements are in agreement with books of accounts
49.6 Willful defaulter
The Company is not declared as willful defaulter by any bank or financial institution (as defined under the Companies Act, 2013) or consortium thereof or other lender in accordance with the guidelines on willful defaulters issued by the Reserve Bank of India
49.7 Relationship with struck off companies
The company does not have any transaction with companies struck off under section 748 of the Companies Act 2013 or section 560 of Companies Act. 1956, during the previous year.
49.8 Registration of charges or satisfaction with Registrar of Companies
The Company has taken the working capital loan and created the charge on loan portfokos (as 'hypothecated assets') which needs to be registered with Registrar of Companies
49.9 Compliance with number of layers of companies
The Company has not created any layer of Investments as prescribed under clause (87) of section 2 of the Act read with Companies (Restriction on number of Layers) Rules. 2017.
49.10 (MfefiiSCi B'SJKSKXsS) feESte MB?) sfcEB® ssarafetE
The Group, as part of its normal business, grants loans and advances, makes investment These transactions are part of Group's normal notvbanklng finance business, which is conducted ensuring adherence to all regulatory requirements Other than the transactions described above, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of lunds) by the Group to or in any other persons or entities, including foreign entities ('Intermediaries') with the understanding, whether recorded in writing or otherwise, that the Intermediary shall lend or invest in party identified by or on behalf of the Group (Ultimate 8ene Claries). The Group has also not received any fund from any parties (Funding Party) with the understanding that the Group shall whether, directly or indirectly lend or invest in other persons or entities identified by or on behalf of the Funding Party ("Ultimate 8eneficiaries') or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
49.11 Undisclosed income
There is no income surrendered or disclosed as income during the current or previous year m the tax assessments under the Income Tax Act. 1961. that has not been recorded in the books of account
49.12 Corporate Social Responsibility (CSR)
The company is not covered under section 135 of the Companies Act 2013
49.13 Details of crypto currency or virtual currency
The Company has not traded or invested in crypto currency or virtual currency during the current or previous year.
In the opinion of the board, current assets, loans & advances have value on realisation in the ordinary course of business at least equal to the amount at which they are stated in the accounts.
Note - 53: Figures of the previous year have been regrouped, reclassified and recast, wherever necessary to conform to current year's classification
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