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Notes to Accounts of Bajaj Finance Ltd.

Mar 31, 2023

Consequent to the opinion expressed by the ''Expert Advisory Committee'' of the Institute of Chartered Accountants of India on the applicability of clause 22A.1 of the SEBI Guidelines, the balance unexercised equity shares held by the trust at the close of the year have been reduced against the share capital as if the trust is administered by the Company itself. The securities premium related to the unexercised equity shares held by the trust at the close of the year aggregating to C 125.94 crore (As at 31 March 2022 C 283.83 crore) has also been reduced from securities premium account and adjusted against the loan outstanding from the trust.

Dividends declared by the Company do not accrete to unexercised options. Accordingly, any dividend received by the ESOP trust is remitted to the Company and adjusted against the source from which dividend has been paid.

(i) Current year:

Due to delay in commencement of projects as compared to approved timelines, some part of the mandatory obligations for few ongoing projects remained unspent as on 31 March 2023. The unspent amount of C 20.87 crore would be transferred to a designated Unspent Corporate Social Responsibility Account with scheduled commercial bank in line with the requirement prescribed in the Act.

Previous year:

Due to COVID-19 pandemic and the resultant lock-down, some part of the mandatory obligations for few ongoing projects remained unspent as on 31 March 2022, thereby transferred to an Unspent Corporate Social Responsibility Account. The unspent amount of C 60.88 crore was transferred to a designated Unspent Corporate Social Responsibility Account with scheduled commercial bank in line with the requirement prescribed in the Act.

(ii) For the year ended 31 March 2023, the Company has entered into a transaction with Pratham Education Foundation for C 0.30 crore for implementation of its Corporate Social Responsibility. No such transaction was entered with any of its related party in the previous year.

40 Employee benefit plans

Defined benefit plans (A) Gratuity

The Company has a gratuity plan for its employee''s which is governed by the Payment of Gratuity Act, 1972. The gratuity benefit payable to the employees of the Company is greater of the provisions of the Payment of Gratuity Act, 1972 and the Company''s gratuity scheme. Employees who are in continuous service for a period of 5 years are eligible for gratuity. The level of benefits provided depends on the employee''s length of service, managerial grade and salary at retirement age. The gratuity plan is a funded plan and the Company makes contributions to approved gratuity fund.

(D) Provident fund

A defined contribution plan is a post-employment benefit plan under which the Company pays fixed contributions and where there is no legal or constructive obligation to pay further contributions in case of shortfall in the plan asset. During the year, the Company recognised expense of C 64.36 crore (Previous year C 49.20 crore) towards contribution made to provident fund under defined contribution plan.

41 Contingent liabilities and commitments
(a) Contingent liabilities not provided for in respect of	(C in crore) As at 31 March
Particulars	2023	2022
Disputed claims against the Company not acknowledged as debts	63.45	52.87
VAT matters under appeal	4.31	4.29
ESI matters under appeal	5.14	5.14
Guarantees provided on behalf of the Company	2.50	2.50
Service tax/Goods and Service Tax matters under appeal
On interest subsidy [Refer footnote (ii) below]	2,164.00	2,034.72
On additional reversal of credit on investment activity [Refer footnote (iii) below]	573.73	545.47
On penal interest/charges [Refer footnote (iv) below]	265.49	251.37
On reversal of input tax credit on credit note by the customer [Refer footnote (v) below]	30.41	-
On others	14.30	13.73
Income tax matters:
Appeals by the Company	16.09	9.54
Appeals by the Income tax department	0.28	0.28

(i) The Company is of the opinion that the above demands are not tenable and expects to succeed in its appeals/defense.

(ii) The Commissioner, Service Tax Commissionerate Pune, through an order dated 31 March 2017, has confirmed the demand of service tax of C 644.65 crore and penalties of C 198.95 crore from the Company in relation to the interest subsidy the Company received from manufacturers and dealers during the period 1 April 2010 to 30 September 2016. The Commissioner has also demanded payment of interest on the service tax amount confirmed until the date the Company pays the service tax demanded, which as at 31 March 2023 amounted to C 883.95 crore. In accordance with legal advice, the Company filed an appeal on 6 July 2017 with the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai disputing the demands. The Company, in line with the opinion obtained from a senior legal counsel, is of view that the said demands are not tenable.

In addition, the Principal Commissioner, Central GST and Central Excise, Commissionerate Pune -I, through order dated 3 February 2021, has confirmed the demand of service tax of C 217.22 crore and penalty thereon of C 21.72 crore from the Company in relation to the interest subsidy received from manufacturers and dealers during the period 1 October 2016 to 30 June 2017. The Principal Commissioner has also demanded payment of interest on the service tax amount confirmed until the date the Company pays the service tax demanded, which as at 31 March 2023 amounted to C 197.51 crore. In accordance with legal advice, the Company filed an appeal on 14 June 2021 with the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai against the said demand. The Company, in line with the opinion obtained from a senior legal counsel, is of view that the said demands are not tenable.

(iii) The Commissioner, Central Excise and CGST, Pune -I, Commissionerate, through an order dated 15 November 2021, has confirmed the demand of service tax of C 188.37 crore and penalty of C 188.37 crore from the Company alleging short reversal of Cenvat credit with respect to investment activity in accordance with Rule 6(3)(i) Cenvat Credit Rules, 2004 during the period 1 October 2014 to 30 June 2017.

In addition, the Commissioner has demanded payment of interest on the service tax amount confirmed until the date the Company pays the service tax demanded, which as at 31 March 2023 amounted to

C 196.99 crore. In accordance with legal advice, the Company filed an appeal on 17 February 2022 with the CESTAT Mumbai disputing the demands. The Company, in line with the opinion obtained from a legal counsel, is of view that the said demands are not tenable.

(iv) The Commissioner, Central Excise and CGST, Pune -I, Commissionerate, through an order dated 7 September 2018, has confirmed the demand of service tax of C 53.87 crore and penalties of C 53.87 crore from the Company in relation to the penal interest/charges the Company received from the customers during the period 1 July 2012 to 31 March 2016. In addition, the Commissioner has demanded payment of interest on the service tax amount confirmed until the date the Company pays the service tax demanded, which as at 31 March 2023 amounted to C 75.70 crore. In accordance with legal advice, the Company filed an appeal on 26 December 2018 with the Customs, Excise and Service Tax Appellate Tribunal, Mumbai disputing the demands. The Company, in line with the opinion obtained from a legal counsel, is of view that the said demands are not tenable.

In addition, the Principal Commissioner, Central GST and Central Excise, Pune -I Commissionerate, through an order dated 30 December 2019, has confirmed the demand of service tax of C 40.22 crore and penalty thereon of C 4.02 crore on penal interest/charges received by the Company from the customers during the period 1 April 2016 to 30 June 2017. The Principal Commissioner has also demanded payment of interest on the service tax amount demanded, until the date the Company pays the demand, which as at 31 March 2023, amounted to C 37.81 crore. In accordance with legal advice, the Company filed an appeal on 28 August 2020 with the Customs, Excise and Service Tax Appellate Tribunal, Mumbai disputing the demands. On 28 June 2019, the GST authority issued circular clarifying that additional/penal interest received satisfies the definition of interest as per GST law and hence, would be exempted under Sl. No.

27 of notification No. 12/2017-Central Tax (Rate) dated 28th June 2017. Further, vide circular dated 3 August 2022, the GST authority clarified that amount received for cheque dishonor fine/penalty is not a consideration for any service and thus, not liable to GST. The Company, in line with the opinion obtained from a legal counsel and the clarificatory circulars issued by the GST authority, is of view that the said demands are not tenable.

(v) The Assistant Commissioner, West Bengal, through an order dated 06 February 2023, has confirmed the demand of GST of C 11.46 crore and penalty of C 11.46 crore from the Company alleging that input tax credit to the extent of credit notes issued by Company was not reversed by customers for the period 1 July 2017 to 31 March 2020. The Assistant Commissioner has also demanded payment of interest on the GST liability confirmed until the date the Company pays the GST demanded, which as at 31 March 2023 amounted to

C 7.49 crore. In accordance with legal advice, the Company is in the process of filing an appeal before the Deputy Commissioner, West Bengal disputing the demands. The Company, in line with the opinion obtained from a legal counsel, is of view that the said demands are not tenable.

(vi) It is not practicable for the Company to estimate the timings of the cash flows, if any, in respect of the above pending resolution of the respective proceedings.

â¢ Transaction values are excluding taxes and duties.

â¢ Amount in bracket denotes credit balance.

â¢ Transactions where Company act as intermediary and passed through Company''s books of accounts are not in nature of related party transaction and hence are not disclosed.

â¢ Insurance claims received by the Company on insurance cover taken by it on its assets are not in nature of related party transaction, hence not disclosed.

â¢ Name of the related party and nature of the related party relationship where control exists have been disclosed irrespective of whether or not there have been transactions between the related parties. In other cases, disclosure has been made only when there have been transactions with those parties.

â¢ Related parties as defined under clause 9 of the Indian Accounting Standard - 24 ''Related Party Disclosures'' have been identified based on representations made by key management personnel and information available with the Company. All above transactions are in the ordinary course of business and on arms'' length basis. All outstanding balances are to be settled in cash and are unsecured except secured non-convertible debentures issued to related parties which are disclosed appropriately.

â¢ Provisions for gratuity, compensated absences and other long term service benefits are made for the Company as a whole and the amounts pertaining to the key management personnel are not specifically identified and hence are not included above.

â¢ During the year, Bajaj Financial Securities Ltd. (Bfinsec) has charged brokerage and other transaction charges amounting to C 3.51 crore (Previous year C 1.46 crore) related to sale of securities on behalf of the Company''s loan against securities customers. The Company receives net sale value i.e. after deduction of these charges which are ultimately borne by its customers. The Company does not recognise these customer related charges in its Statement of Profit and Loss. Amount receivable from BFinsec as on 31 March 2023 is

C 53.01 crore (Previous year C 12.29 crore) towards such sale transaction on behalf of loan against shares customers has been shown as payable to customers.

â¢ Bajaj Finance Ltd. approved C 2,500 crore term loan facility to Bajaj Housing Finance Ltd.

â¢ Bajaj Finance Ltd. approved C 750 crore flexi term loan facility to Bajaj Financial Securities Ltd.

â¢ As on 31 March 2023, 20 non-corporate related parties held Company''s equity shares amounting to C 0.20 crore (1,017,905 shares of C 2 each) (Previous year 25 parties amounting to C 0.22 crore, 10,85,348 shares of C 2 each). During the year, dividend paid to such related parties amounts to C 2.04 crore (Previous year C 1.03 crore).

â¢ Non-convertible debentures (NCDs) transactions include only issuance from primary market, and outstanding balance is balances of NCDs held by related parties as on reporting date.

â¢ The above disclosures have been made for related parties identified as such only to be in conformity with the Indian Accounting Standard (IND AS) 24.

44 Capital

The Company actively manages its capital base to cover risks inherent to its business and meet the capital adequacy requirement of RBI. The adequacy of the Company''s capital is monitored using, among other measures, the regulations issued by RBI.

(i) Capital management Objective

The Company''s objective is to maintain appropriate levels of capital to support its business strategy taking into account the regulatory, economic and commercial environment. The Company aims to maintain a strong capital base to support the risks inherent to its business and growth strategies. The Company endeavours to maintain a higher capital base than the mandated regulatory capital at all times.

Planning

The Company''s assessment of capital requirement is aligned to the mandatory regulatory capital and its planned growth which forms part of an annual operating plan which is approved by the Board and also a long range strategy. These growth plans are aligned to assessment of risks- which include credit, liquidity and market.

The Company monitors its capital to risk-weighted assets ratio (CRAR) on a monthly basis through its assets liability management committee (ALCO).

The Company endeavours to maintain its CRAR higher than the mandated regulatory norm. Accordingly, increase in capital is planned well in advance to ensure adequate funding for its growth.

The Company''s dividend distribution policy states that subject to profits and other financial parameters as per applicable legal provisions, the Board shall endeavour to maintain a dividend payout in the range of 15% to 25% of profits after tax on standalone financials, to the extent possible.

Further, the Company supports funding needs of its wholly owned subsidiaries, associates and other investee companies by way of capital infusion and loans. Similarly, the Company also makes investment in other companies for operating and strategic reasons. These investments are funded by the Company through its equity share capital and other equity which inter alia includes retained profits.

45 Events after reporting date

There have been no events after the reporting date that require adjustment/disclosure in these financial statements.

46 Fair values

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.

Fair value hierarchy

The Company determines fair values of its financial instruments according to the following hierarchy:

I evel 1 - valuation based on quoted market price: financial instruments with quoted prices for identical instruments in active markets that the Company can access at the measurement date.

I evel 2 - valuation using observable inputs: financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.

I evel 3 - valuation technique with significant unobservable inputs: financial instruments valued using valuation techniques where one or more significant inputs are unobservable.

This note describes the fair value measurement of both financial and non-financial instruments.

Valuation framework

The Company has an internal fair value assessment team which assesses the fair values of assets qualifying for fair valuation.

The Company''s valuation framework includes:

â¢ Benchmarking prices against observable market prices or other independent sources;

â¢ Development and validation of fair valuation models using model logic, inputs, outputs and adjustments.

â¢ Use of fair values as determined by the derivative counter parties.

These valuation models are subject to a process of due diligence and validation before they become operational and are continuously calibrated. These models are reviewed and validated by various units of the Company including risk, treasury and finance. The Company has an established procedure governing valuation which ensures fair values are in compliance with accounting standards.

Valuation methodologies adopted

Fair values of financial assets, other than those which are subsequently measured at amortised cost, have been arrived at as under:

â¢ Fair values of investments held under FVTPL have been determined under level 1 using quoted market prices of the underlying instruments;

â¢ Fair values of investments in unquoted equity instruments designated under FVOCI have been measured under level 3 at fair value based on a discounted cash flow model.

â¢ Fair values of investment in quoted equity and other instruments designated under FVOCI have been determined under level 1 using quoted market prices of the underlying instruments.

â¢ Derivative financial instrument i.e. cross currency interest rate swap (CCIRS) held for the purpose of hedging foreign currency denominated external commercial borrowings are accounted as a cash flow hedge. Fair value of CCIRS has been determined under Level 2 using discounted cash flow method by deriving future forward rates from published zero coupon yield curve. All future cashflows for both the paying and receiving legs in the swap contract are discounted to present value using these forward rates to arrive at the fair value as at reporting date.

The Company has determined that the carrying values of cash and cash equivalents, bank balances, trade receivables, short term loans, floating rate loans, trade payables, short term debts, borrowings, bank overdrafts and other current liabilities are a reasonable approximation of their fair value and hence their carrying values are deemed to be fair values. These are classified as Level 3 fair value hierarchy due to inclusion of unobservable inputs including counterparty credit risk

(a) Liquidity and funding risk

The Company''s ALCO monitors asset liability mismatches to ensure that there are no imbalances or excessive concentrations on either side of the Balance Sheet.

The Company maintains a judicious mix of borrowings from banks, money markets, foreign market, public and other deposits and continues to diversify its sources of borrowings with an emphasis on longer tenor borrowings. This strategy of balancing varied sources of funds and long tenor borrowings along with liquidity buffer framework has helped the Company maintain a healthy asset liability position and interest rate during the financial year 2022-23 (FY2023) - the weighted average cost of borrowing was 7.11 % versus 7.03 % despite highly volatile market conditions and rapid increase in policy rate. The overall borrowings including debt securities, deposits and subordinated liabilities stood at C 161,684.63 crore as of 31 March 2023 (previous year C 123,039.86 crore).

RBI vide circular No. RBI/2019-20/88 DOR.NBFC (PD) CC. No.102/03.10.001/2019-20 has issued guidelines on liquidity risk framework for NBFCs. It covers various aspects of Liquidity risk management such as granular level classification of buckets in structural liquidity statement, tolerance limits thereupon, and liquidity risk management tools and principles. The Company has a Liquidity Risk Management Framework which covers liquidity risk management policy, strategies and practices, liquidity coverage ratio (LCR), stress testing, contingency funding plan, maturity profiling, liquidity risk measurement - stock approach, currency risk, interest rate risk and liquidity risk monitoring framework.

The Company exceeds the regulatory requirement of LCR which mandate maintaining prescribed coverage of expected net cash outflows for a stressed scenario in the form of high quality liquid assets (HQLA). As of 31 March 2023, the Company maintained a LCR of 113%, well in excess of the RBI''s stipulated norm of 70%. LCR requirement will move to 85% from 1 December 2023 and to 100% by December 2024.

The Company has a Board approved Contingency Funding Plan (CFP) to respond quickly to any anticipated or actual stressed market conditions. The primary goal of the Contingency Funding Plan (CFP) is to provide a framework of action plan for contingency funding when the Company experiences a reduction to its liquidity position, either from causes unique to the Company or systemic events limiting its ability to maintain normal operations and service to customers. The CFP defines the framework to assess, measure, monitor, and respond to potential contingency funding needs. CFP also clearly lays down the Specific contingency funding sources, conditions related to the use of these sources and when they would be used. Roles and responsibilities of the Crisis Management Group constituted under the CFP have been identified to facilitate the effective execution of CFP in a contingency event.

Market risk is the risk that the fair value of future cash flow of financial instruments will fluctuate due to changes in the market variables such as interest rates, foreign exchange rates and equity prices.

(i) Interest rate risk

On investment book other than equity

The Company manages the duration of its investment portfolio with an objective to optimise the return with minimal possible fair value change impact. The interest rate risk on the investment portfolio and corresponding fair value change impact is monitored using VaR, PV01 and Modified Duration and other parameters as defined in its investment and market risk policy.

On assets and liabilities

Interest rate sensitivity on fixed and floating rate assets and liabilities with differing maturity profiles is measured by using the duration gap analysis and Market Value of Equity (MVE) and Net Interest Income analysis. The same is monitored monthly by ALCO. Sensitivity of the market value of unquoted equity investments other than those in subsidiaries and associates assuming varied changes in interest rates is presented in note no. 46.

The Company''s quoted equity investments carry a risk of change in prices. To manage its price risk arising from investments in equity securities, the Company periodically monitors the sectors it has invested in, performance of the investee companies and measures mark- to- market gains/(losses).

(iii) Foreign currency risk

The Company is exposed to foreign currency fluctuation risk for its external commercial borrowing (ECB). The Company''s borrowings in foreign currency are governed by RBI guidelines (RBI master direction RBI/ FED/2018-19/67 dated 26 March 2019 and updated from time to time) which requires entities raising ECB for an average maturity of less than 5 years to hedge minimum 70% of the its ECB exposure (Principal & Coupon). As a matter of prudence, the Company has hedged the entire ECB exposure for the full tenure as per Board approved Interest rate risk, Currency risk and Hedging policy.

The Company evaluates the foreign currency exchange rates, tenure of ECB and its fully hedged costs for raising ECB. The Company manages its currency risks by entering into derivatives contracts as hedge positions and the same are being governed through the Board approved ''Interest rate risk, Currency risk and Hedging policy''.

47 Risk management objectives and policies (Contd.)

Hedging policy

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 relationship 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.

Credit risk is the risk of financial loss arising out of customers or counterparties failing to meet their repayment obligations to the Company. The Company has a diversified lending model and focuses on seven broad categories viz: (i) urban lending, (ii) two and three wheeler lending, (iii) SME lending, (iv) rural lending, (v) mortgages, (vi) loan against securities, and (vii) commercial lending. The Company assesses the credit quality of all financial instruments that are subject to credit risk.

Classification of financial assets under various stages

The Company classifies its financial assets in three stages having the following characteristics:

â¢ Stage 1: unimpaired and without significant increase in credit risk since initial recognition on which a 12-month allowance for ECL is recognised;

â¢ Stage 2: a significant increase in credit risk since initial recognition on which a lifetime ECL is recognised; and

â¢ Stage 3: objective evidence of impairment and therefore considered to be in default or otherwise credit impaired on which a lifetime ECL is recognised.

Treatment and classification methodology of different stages of financial assets is detailed in note no. 3.4(i) Computation of impairment on financial instruments

The Company calculates impairment on financial instruments as per ECL approach prescribed under Ind AS 109 ''Financial instrument''. ECL uses three main components: PD (Probability of Default), LGD (loss given default) and EAD (exposure at default) along with an adjustment considering forward macro economic conditions. For further details of computation of ECL please refer to significant accounting policies note no 3.4 (i).

The Company follows simplified ECL approach under Ind AS 109 ''Financial instruments'' for trade receivables, pass through certificates (''PTC'') and other financial assets.

Collateral Valuation

The Company offers loans to customers across various lending verticals as articulated above. These loans includes both unsecured loans and loans secured by collateral. Although collateral is an important risk mitigant of credit risk, the Company''s practice is to lend on the basis of assessment of the customer''s ability to repay than placing primary reliance on collateral. Based on the nature of product and the Company''s assessment of the customer''s credit risk, a loan may be offered with suitable collateral. Depending on its form, collateral can have a significant effect in mitigating the Company''s credit risk.

The Company periodically monitors the market value of collateral and evaluates its exposure and loan to value metrics for high risk customers. The Company exercises its right of repossession across all secured products and primarily in its two wheeler and three wheeler financing business. It also resorts to invoking its right under the SARFAESI Act and other judicial remedies available against its mortgages and commercial lending business. The repossessed assets are either sold through auction or released to delinquent customers in case they come forward to settle their dues. For its loan against securities business, the Company recoups shortfall in value of securities through part recall of loans or additional securities from the customer, or sale of underlying securities. The Company does not record repossessed assets on its Balance Sheet as non-current assets held for sale.

Guarantee cover taken on loans

To secure its eligible pool, the Company takes guarantee cover for its portfolios across B2C, MSME and three-wheeler financing business under Credit Guarantee Fund Scheme for NBFCs (CGS-II) from Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) governed by the SIDBI. As on 31 March 2023, the Company has covered C 3,711 crore of its loan assets under this scheme. This has helped the Company to offset C 171 crore worth of credit losses during the current year with further claims maturing over FY2024 and FY2025.

Further, the Company has also granted loans under RBI''s Emergency Credit Line Guarantee Scheme (ECLGS) to its qualifying customers, as of 31 March 2023 C 447 crore of loans are outstanding under ECLGS.

Analysis of concentration risk

The Company focuses on granulisation of loans portfolios by expanding its geographic reach to reduce geographic concentrations while continually calibrating its product mix across its seven categories of lending mentioned above.

ECL sensitivity analysis to forward economic conditions and management overlay

Allowance for impairment on financial instruments recognised in the financial statements reflect the effect of a range of possible economic outcomes, calculated on a probability-weighted basis, based on the economic scenarios described below. The recognition and measurement of expected credit losses (''ECL'') involves the use of estimation. It is necessary to formulate multiple forward-looking economic forecasts and its impact as an integral part of ECL model.

The ECL model and its input variables are recalibrated periodically using available incremental and recent information. It is possible that internal estimates of PD and LGD rates used in the ECL model may not always capture all the characteristics of the market and the external environment as at the reporting date. To reflect this, qualitative adjustments or overlays are made as temporary adjustments to reflect the emerging risks reasonably.

Methodology

The Company has adopted the use of three scenarios, representative of its view of forecast economic conditions, required to calculate unbiased estimation of forward looking economic adjustment to its ECL. They represent a most likely outcome i.e. central scenario and two less likely outer scenarios referred to as the Upside and Downside scenarios. The Company has assigned a 10% probability to the two outer scenarios, while the Central scenario has been assigned an 80% probability. These weights are deemed appropriate for the unbiased estimation of impact of macro factors on ECL. The key scenario assumptions are used keeping in mind external forecasts and management estimates which ensure that the scenarios are unbiased.

The Company uses multiple economic factors and test their correlations with past loss trends witnessed for building its forward economic guidance (FEG) model. During the current year, the Company evaluated various macro factors GDP growth rates, growth of bank credit, wholesale price index (WPI), consumer price index (CPI), industrial production index, unemployment rate, crude oil prices and policy interest rates.

Based on past correlation trends, CPI (inflation) and unemployment rate reflected acceptable correlation with past loss trends and were considered appropriate by the Management. Unemployment has a direct relation with the income levels and thus the growth of the economy from the expenditure side. Inflation and inflationary expectations affect the disposable income of people. Accordingly, both these macrovariables directly and indirectly impact the economy. These factors were assigned appropriate weights to measure ECL in forecast economic conditions.

For Unemployment, the Company has considered data published by a leading business information (BI) company engaged in monitoring of Indian economic indicators.

In FY2023, Unemployment rate over the quarters has been oscillating around 7.5% versus pre COVID levels of around 7%, indicating normalisation towards its central scenario.

â¢ While formulating the Central Scenario, the Company has considered that the current unemployment rate of 7.69% may move towards an average of 7.4% over the next few years.

â¢ For the downside scenario, the Company believes that the downside risks might have passed, however, the downside peak unemployment rate might reach 8.78%. However, as per mean reversion approach, the downside scenario assumes it to fall from the peak and normalise to around 7.4% within next three years.

â¢ For the upside scenario, the Company acknowledges various surveys and studies indicating improving employment situation as also industrial recovery. Therefore, while forecasting, a positive stance has been adopted with the expectation that the unemployment levels may not drop significantly. The unemployment rate may improve to a best case of 3.4% by the end of June 2024 but may come back to an historical (excluding COVID period) 4-year average of 7.4%.

Consumer Price Index (CPI or inflation) crossed the RBI comfort level of 6% and remained above 6% for first seven months of FY2023. Later again in Jan''23 and Feb''23, it crossed 6%. The inflation as at Mar''23 has moderated to 5.7%, which is within the RBI comfort level. MPC is taking appropriate measures to control inflation through monetary tightening and has projected inflation to reach a level of 5.3% in FY2024.

â¢ The Central Scenario assumed by the Company considers a persistent inflation around 6.2% in Q4 FY2023. We have, however, seen higher levels of inflation in the first half of FY2023 and the Company expects inflation to come down in FY2024, which is in line with the Central bank''s projection. However, keeping a conservative approach, company expects inflation to range between 6.3% to 6.2% during FY2024, suggesting inflation to decline moderately compared to previous year.

â¢ For the downside scenario, the Company considers that the inflation risk may continue due to various uncertainties (SVB crisis, geopolitical conflict, elections the Company), and therefore assumes the inflation to touch a peak of around 9.66% in Q2 FY2024, and subsequently normalise to around 5.94% within next three years.

â¢ For the upside scenario, we believe that there would be certain factors which might come into play viz, base effect, higher food grain production, continuously falling WPI, better supply chain management the Company, and, therefore, inflation may see easing to a level of around 2.2% before averaging back to the average of 5.94%.

Additionally, the ECL model and its input variables are recalibrated periodically using available incremental and recent information. It is possible that internal estimates of PD and LGD rates used in the ECL model may not always capture all the characteristics of the market/external environment as at the date of the financial statements. To reflect this, qualitative adjustments or overlays are made as temporary adjustments to reflect the emerging risks reasonably.

(d) Operational risk

Operational risk is the risk arising from inadequate or failed internal processes, people or systems, or from external events. Operational risk is inherent in the Company''s business activities, as well as in the related support functions. BFL has in place an internal Operational Risk Management (ORM) Framework to manage operational risk in an effective and efficient manner. This framework aims at assessing and measuring the magnitude of risks, its monitoring and mitigation. The key objective is to enable the Company to ascertain an increased likelihood of an operational risk event occurring in a timely manner to take steps to mitigate the same. It starts with identifying and defining KRI''s/KPIs through process analysis and ending with formulation of action plans in response to the observed trends in the identified metrics. This is achieved through determining key process areas, converting them to measurable and quantifiable metrics, setting tolerance thresholds for the same and monitoring and reporting on breaches of the tolerance thresholds in respect of these metrics. Corrective actions are initiated to bring back the breached metrics within their acceptable threshold limits by conducting the root cause analysis to identify the failure of underlying process, people, systems, or external events.

Further, the Company has a comprehensive internal control systems and procedures laid down around various key activities viz. loan acquisition, customer service, IT operations, finance function etc. Internal Audit also conducts a detailed review of all the functions at least once a year which helps to identify process gaps on timely basis. Information Technology and Operations functions have a dedicated compliance and control units who on continuous basis review internal processes. This enables the Management to evaluate key areas of operational risks and the process to adequately mitigate them on an ongoing basis.

The Company has a robust Disaster Recovery (DR) plan and Business Continuity Plan (BCP) to ensure continuity of its operations including services to customers in situations such as natural disasters, technological outage, etc. Robust periodic testing is carried, and results are analysed to address any gaps in the framework. DR and BCP audits are conducted on a periodical basis to provide assurance regarding its effectiveness.

(A) Employee stock option plan of Bajaj Finance Ltd.

The Board of Directors at its meeting held on 14 October 2009, approved an issue of stock options up to a maximum of 5% of the then issued equity capital of the Company aggregating to 1,829,803 equity shares of the face value of C 10 each in a manner provided in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 subject to the approval of the shareholders under section 81(1A) of the Companies Act, 1956. The shareholders of the Company vide their special resolution passed through postal ballot on 15 December 2009 approved the issue of equity shares of the Company under one or more Employee Stock Option Scheme(s). The shareholders, at the Annual General Meeting held on 16 July 2014, approved an additional issue of 677,313 stock options i.e. from 1,829,803 to 2,507,116 options of the face value of C 10 each under the stock options scheme of the Company i.e. Employee Stock Option Plan 2009.

Pursuant to the sub-division of each equity share of face value of C 10 into five equity shares of face value of C 2 on 10 September 2016 and allotment of bonus equity share in the proportion of one equity share of face value of C 2 for every one equity share on 14 September 2016, the aggregate number of equity shares which would be available for future grants under the Employee Stock Option Plan, 2009 were adjusted from 2,507,116 equity shares of face value of C 10 to 25,071,160 equity shares of face value of C 2 each.

Further, vide the Special Resolution passed by the members of the Company through postal ballot on 19 April 2021, the aforesaid limit of options was enhanced by 10,000,000 options. The maximum limit under the scheme now stand revised from 25,071,160 options to 35,071,160 options.

The options issued under the ESOP Scheme vest over a period of not less than 1 year and not later than 5 years from the date of grant with the vesting condition of continuous employment with the Company or the Group except in case of death and retirement where the vesting would happen immediately.

The Nomination and Remuneration Committee of the Company has approved the following grants to select senior level executives of the Company and its subsidiaries in accordance with the Stock Option Scheme. Details of grants given up to the reporting date under the scheme, duly adjusted for sub-division of shares and issue of bonus shares thereon, are given as under:

The Nomination and Remuneration Committee of the holding Company has approved grant of 183,050 stock options at an exercise price of C 1,482.64, adjusted for split and bonus, having a bullet vesting of 5 years to select employees of the Company in accordance with the Stock Option Scheme of the Holding Company. Of the options granted, no option has vested, cancelled or exercised during the year. The weighted average fair value of the option granted is C 689.20.

49 Ultimate beneficiary

No funds (which are material either individually or in the aggregate) have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities (''Intermediaries''), with the understanding, whether recorded in writing or otherwise, that the Intermediaries shall, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (''Ultimate Beneficiaries'') or provide any guarantee, security or the like on behalf of the ultimate beneficiaries.

No funds (which are material either individually or in the aggregate) have been received by the Company from any person(s) or entity(ies), including foreign entities (''Funding Parties''), with the understanding, whether recorded in writing or otherwise, that the Company shall, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the funding party (''Ultimate Beneficiaries'') or provide any guarantee, security or the like on behalf of the ultimate beneficiaries.

51 Disclosure pertaining to stock statement filed with banks or financial institutions

The Company has availed of the facilities (secured borrowings) from the lenders inter alia on the condition that, the Company shall provide or create or arrange to provide or have created, security interest by way of a first pari passu charge of the loans. Security interest is created by charge creation towards security and debenture trustee on behalf of security holders and debenture holders.

For the financial year ended 31 March 2023

The quarterly statements or returns of current assets filed by the Company with banks are in agreement with books of accounts.

(IV) Unhedged foreign currency exposure

The Company''s exposure of unhedged foreign currency risk at the end of the reporting period is C Nil (Previous year C 0.23 crore)

(V) Details of financing of Parent Company products

The Company does not have any financing of Parent Company products during the current and previous year.

(VI) Details of Single Borrower Limit (SGL)/Group Borrower Limit (GBL) exceeded

The Company has not exceeded the prudential exposure limits during the current and previous year.

(VII) Unsecured advances

Gross loans and advances includes unsecured advances C 101,700.31 crore (Previous year C 84,865.08 crore). There are no advances secured against intangible assets.

(G) Details of penalties imposed by RBI and other regulators Current year:

Regional Director (MCA) vide its order dated 20 May 2022, imposed a fine of C 3.39 lakhs on the Company for violation of provisions of section 297 of the erstwhile Companies Act, 1956 (''Previous Act''), for entering into transactions with PN Writer and Siliguri Autoworks without seeking approval of the Board or prior approval of the Central Government. A Compounding application was made by the Company in 2012 and resubmitted in 2020 in this regards. The Compounding hearing was held on 27 April 2022 with Regional Director and a compounding fee was charged to Company which was duly paid.

BSE vide its notice through email dated 22 February 2023, imposed a fine of C 50,000 (excluding GST) for delayed intimation of payment of interest/principal to stock exchanges in relation to Non-Convertible Debentures (4 ISINs). There had been no delay in payment of interest/principal and the said delay had not affected any investor adversely and the Company had remitted the requisite amount to the stock exchange.

Previous year:

FIU-IND vide its Order dated 28 March 2022, imposed penalty of C 3 lakh under PMLA and its Rules, for not having in place an effective internal mechanism to detect, not reporting suspicious transactions reportable as STRs, failure to carry out KYC updation based on periodic risk assessment and to determine ultimate beneficial ownership. The observations were based on the review by FIU-IND during September 2018 for the FY 2016, 2017 and 2018. The Company has since taken necessary corrective actions in this respect. No other penalty has been levied by RBI or any other Regulators.

52 The disclosures as required by the NBFC Master Directions and Disclosures in Financial Statements- Notes to Accounts of NBFCs as issued by RBI (Disclosures are made as per Ind AS financial statements except otherwise stated) (Contd.)

The Liquidity Coverage Ratio (LCR) is one of the key parameters closely monitored by RBI to enable a more resilient financial sector. The objective of the LCR is to promote an environment wherein balance sheet carry a strong liquidity for short term cash flow requirements. To ensure strong liquidity NBFCs are required to maintain adequate pool of unencumbered high-quality liquid assets (HQLA) which can be easily converted into cash to meet their stressed liquidity needs for 30 calendar days. The LCR is expected to improve the ability of financial sector to absorb the shocks arising from financial and/or economic stress, thus reducing the risk of spill over from financial sector to real economy.

The Liquidity Risk Management of the Company is managed by the Asset Liability Committee (ALCO) under the governance of Board approved Liquidity Risk Framework and Asset Liability Management policy. The LCR levels for the balance sheet date is derived by arriving the stressed expected cash inflow and outflow for the next calendar month. To compute stressed cash outflow, all expected and contracted cash outflows are considered by applying a stress of 15%. Similarly, inflows for the Company is arrived at by considering all expected and contracted inflows by applying a haircut of 25%.

Company for purpose of computing outflows, have considered: (1) all the contractual debt repayments,

(2) committed credit facilities contracted with the subsidiaries and customers, and (3) other expected or contracted cash outflows. Inflows comprises of: (1) expected receipt from all performing loans, and (2) liquid investment which are unencumbered and have not been considered as part of HQLA.

For the purpose of HQLA the Company considers: (1) Unencumbered government securities, (2) Cash and Bank balances and (3) Pledged Government securities for purpose of Statutory Liquid Ratio (SLR) with haircut of 20%.

The LCR is computed by dividing the stock of HQLA by its total net cash outflows over one-month stress period. LCR guidelines have become effective from 1 December 2020, requiring NBFCs to maintain minimum LCR of 50%, LCR is gradually required to be increased to 100% by 1 December 2024. NBFCs are required to maintain LCR of 70% as on 31 March 2023.

(U) Overseas assets

The Company does not have any joint ventures and subsidiaries aboard.

(V) Off-balance sheet SPVs sponsored

The Company does not have any off-balance sheet SPVs sponsored.

(W) Participation in currency futures & currency options

The Company has not undertaken any transaction during the current year and previous year for currency futures and currency options.

(X) Net profit or loss for the period, prior period items and changes in accounting policies

There are no prior period items which are impacting Company''s current year profit and loss.

(Y) Revenue recognition

There are no such circumstances in which revenue has been postponed pending the resolution of significant uncertainties.

(Z) Consolidated financial statement (CFS)

The Company has consolidated financial statement of its all the underlying subsidiaries.

(AA) Divergence in asset classification and provisioning

No disclosure on divergence in asset classification and provisioning for NPAs is required with respect to RBI''s supervisory inspection for the year ended 31 March 2022 and for the year ended 31 March 2021 as per the requirement of the circular no. RBI/2022-23/26 DOR.ACC.REC.No.20/21.04.018/2022-23 dated 19 April 2022.

(e) The Company has not acquired any stressed loan during the financial year ended 31 March 2023 and 31 March 2022.

57 Amounts less than C 50,000 have been shown at actuals against respective line items statutorily required to be disclosed.

Mar 31, 2022

The Company has a Board approved policy for entering into derivative transactions. Derivative transactions comprise of currency and interest rate swaps. The Company undertakes such transactions for hedging borrowings. The Asset Liability Management Committee periodically monitors and reviews the risk involved. Refer note no. 48(b) (iii) for foreign currency risk.

(b) Terms/rights/restrictions attached to equity shares

The Company has only one class of equity shares having a par value of ? 2 per share. Each holder of equity shares is entitled to one vote per share. The dividend recommended by the Board of Directors and approved by the shareholders in the Annual General Meeting is paid in Indian Rupees. 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.

Consequent to the opinion expressed by the ''Expert Advisory Committee'' of the Institute of Chartered Accountants of India on the applicability of clause 22A.1 of the SEBI Guidelines, the balance unexercised equity shares held by the trust at the close of the year have been reduced against the share capital as if the trust is administered by the Company itself. The securities premium related to the unexercised equity shares held by the trust at the close of the year aggregating to ? 2,838,311,213 (As at 31 March 2021 ? 869,605,787) has also been reduced from securities premium account and adjusted against the loan outstanding from the trust.

25 Nature and purpose of other equity

(i) Securities premium

Securities premium is used to record the premium on issue of shares. It can be utilised only for limited purposes in accordance with the provisions of the Companies Act, 2013.

(ii) Retained earnings

Retained earnings represents the surplus in Profit and Loss Account and appropriations.

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:

â¢ actuarial gains and losses;

â¢ return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset) ; and

â¢ any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset).

(iii) Reserve fund in terms of section 45-IC(1) of the Reserve Bank of India Act, 1934

Reserve fund is created as per the terms of section 45-IC(1) of the Reserve Bank of India Act, 1934 as a statutory reserve.

(iv) General reserve

Amounts set aside from retained profits as a reserve to be utilised for permissible general purpose as per Law.

(v) Infrastructure reserve created under section 36 (1) (viii) of the Income Tax Act, 1961

Infrastructure reserve is created to avail the deduction as per the provisions of section 36(1) (viii) the Income Tax Act 1961 on profits derived from the business of providing long term finance for development of infrastructure facility in India.

(vi) Other comprehensive income On equity investments

The Company has elected to recognise changes in the fair value of certain investments in equity securities in other comprehensive income. These changes are accumulated in the FVOCI equity investments reserve. The Company transfers amounts from this reserve to retained earnings when the relevant equity securities are derecognised.

On debt investments

The Company recognises changes in the fair value of debt instruments held with a dual business objective of collect and sell in other comprehensive income. These changes are accumulated in the FVOCI debt investments reserve. The Company transfers amounts from this reserve to profit or loss when the debt instrument is sold. Any impairment loss on such instruments is reclassified immediately to the Statement of Profit and Loss.

On cash flow hedge reserve

It represents the cumulative gains/(losses) arising on revaluation of the derivative instruments designated as cash flow hedges through OCI.

(vii) Share options outstanding account

Share options outstanding account is created as required by Ind AS 102 ''Share Based Payments'' on the Employee Stock Option Scheme operated by the Company for employees of the Group.

37 Earnings per share (EPS)

Basic EPS is calculated in accordance with Ind AS 33 ''Earnings per share'' by dividing the profit for the year attributable to equity holders of the Company by the weighted average number of equity shares outstanding during the year.

Diluted EPS is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on conversion of all the dilutive potential equity shares into equity shares of the Company.

38 Segment Information

The Company is engaged primarily in the business of financing and accordingly there are no separate reportable segments as per Ind AS 108 ''Operating Segment''.

39 Transfer of financial assets that are derecognised in their entirety where the Company has continuing involvement

The Company has not transferred any assets that are derecognised in their entirety where the Company continues to have continuing involvement.

41 Employee benefit plans Defined benefit plans (A) Gratuity

(D) Provident fund

A defined contribution plan is a post-employment benefit plan under which the Company pays fixed contributions and where there is no legal or constructive obligation to pay further contributions. During the year, the Company recognised expense of ? 49.20 crore towards contribution made to provident fund under defined contribution plan.

With effect from 1 April 2021, the Company migrated to Employees'' Provident Fund Organisation (EPFO). Till 31 March 2021 the provident fund contribution was made to Bajaj Auto Ltd. Provident Fund Trust. As required by the guidance note issued by the Institute of Actuaries of India, valuation of provident fund liability was obtained from the actuary based on the assumptions listed below. The assumptions used in determining the present value of obligation of interest rate guarantee under deterministic approach are as set out below:

The Indian Parliament has approved the Code on Social Security, 2020 which subsumes the provident fund 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. The Company will evaluate the rules, assess the impact, if any, and account for the same once the rules are notified and become effective.

42 Contingent liabilities and commitments (a) Contingent liabilities not provided for in respect of

Particulars	(? in crore) As at 31 March 2022 2021

Disputed claims against the Company not acknowledged as debts	52.87	51.98
VAT matters under appeal	4.29	4.29
ESI matters under appeal	5.14	5.14
Guarantees provided	2.50	0.25
Service tax/Goods and Service Tax matters under appeal
On interest subsidy [Refer (ii) below]	2,034.72	1,905.44
On additional reversal of credit on investment activity [Refer (iv) below]	545.47	-
On penal interest/ charges [Refer (iii) below]	251.37	237.25
On others	13.73	6.42
Income tax matters
Appeals by the Company	9.54	-
Appeals by the Income tax department	0.28	0.28

(i) The Company is of the opinion that the above demands are not tenable and expects to succeed in its appeals/defense.

(ii) The Commissioner, Service Tax Commissionerate Pune, through an order dated 31 March 2017, has confirmed the demand of service tax of ? 644.65 crore and penalties of ? 198.95 crore from the Company in relation to the interest subsidy received from manufacturers and dealers during the period 1 April 2010 to 30 September 2016. The Commissioner has also demanded payment of interest on the service tax amount confirmed until the date the Company pays the service tax demanded, which as at 31 March 2022 amounted to ? 787.26 crore. In accordance with legal advice, the Company filed an appeal on 6 July 2017 with the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai disputing the demands. The Company, in line with the opinion obtained from a senior legal counsel, is of view that the said demands are not tenable.

In accordance with legal advice, the Company filed an appeal on 14 June 2021 with the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai against the said demand. The Company, in line with the opinion obtained from a senior legal counsel, is of view that the said demands are not tenable.

(iii) The Commissioner, Central Excise and CGST, Commissionerate, Pune-I, through an order dated 7 September 2018, has confirmed the demand of service tax of ? 53.87 crore and penalties of ? 53.87 crore from the Company in relation to the penal interest/ charges the Company received from the customers during the period 1 July 2012 to 31 March 2016. In addition, the Commissioner has demanded payment of interest on the service tax amount confirmed until the date the Company pays the service tax demanded, which as at 31 March 2022 amounted to ? 67.62 crore. In accordance with legal advice, the Company filed an appeal on 26 December 2018 with the Customs, Excise and Service Tax Appellate Tribunal, Mumbai disputing the demands. The Company, in line with the opinion obtained from a legal counsel, is of view that the said demands are not tenable.

In addition, the Principal Commissioner, Central GST and Central Excise, Commissionerate, Pune-I, through an order dated 30 December 2019, has confirmed the demand of service tax of ? 40.22 crore and penalty thereon of ? 4.02 crore on penal interest/ charges received by the Company from the customers during the period 1 April 2016 to 30 June 2017. The Principal Commissioner has also demanded payment of interest on the service tax amount demanded, until the date the Company pays the demand, which as at 31 March 2022, amounted to ? 31.77 crore. In accordance with legal advice, the Company filed an appeal on 28 August 2020 with the Customs, Excise and Service Tax Appellate Tribunal, Mumbai disputing the demands. The Company, in line with the opinion obtained from a legal counsel, is of view that the said demands are not tenable.

(iv) The Commissioner, Central Excise and CGST, Commissionerate, Pune-I, through an order dated 15 November 2021, has confirmed the demand of service tax of ? 188.37 crore and penalty of ? 188.37 crore from the Company alleging short reversal of Cenvat credit with respect to investment activity in accordance with Rule 6(3)(i) Cenvat Credit Rules, 2004 during the period 1 October 2014 to 30 June 2017. In addition, the Commissioner has demanded payment of interest on the service tax amount confirmed until the date the Company pays the service tax demanded, which as at 31 March 2022 amounted to ? 168.73 crore. In accordance with legal advice, the Company filed an appeal on 17 February 2022 with the CESTAT Mumbai disputing the demands. The Company, in line with the opinion obtained from a legal counsel, is of view that the said demands are not tenable.

(v) It is not practicable for the Company to estimate the timings of the cash flows, if any, in respect of the above pending resolution of the respective proceedings.

Notes

â¢ Transaction values are excluding taxes and duties.

â¢ Amount in bracket denotes credit balance.

â¢ Transactions where Company act as intermediary and passed through Company''s books of accounts are not in nature of related party transaction and hence are not disclosed.

â¢ Insurance claims received by the Company on insurance cover taken by it on its assets are not in nature of related party transaction, hence not disclosed.

â¢ During the year, Bajaj Financial Securities Ltd. (Bfinsec) has charged brokerage and other transaction charges amounting to ? 1.46 crore (Previous year ? 1.34 crore) related to sale of securities on behalf of the Company''s loan against securities customers. The Company receives net sale value i.e. after deduction

of these charges which are ultimately borne by its customers. The Company does not recognise these customer related charges in its Statement of Profit and Loss. Amount receivable from BFinsec as on 31 March 2022 is ? 12.29 crore (Previous year ? 3.36 crore) towards such sale transaction on behalf of loan against shares customers has been shown as payable to customers.

â¢ Non-convertible debentures (NCDs) transactions include only issuance from primary market,and outstanding balance is balances of NCDs held by related parties as on reporting date.

45 Capital

(i) Capital management Objective

Planning

The Company monitors its capital to risk-weighted assets ratio (CRAR) on a monthly basis through its Assets Liability Management Committee (ALCO).

The Company endeavours to maintain its CRAR higher than the mandated regulatory norm. Accordingly, increase in capital is planned well in advance to ensure adequate funding for its growth.

Further, the Company supports funding needs of its wholly owned subsidiaries by way of capital infusion and loans. These investments are funded by the Company through its equity share capital and other equity which inter alia includes retained profits.

46 Events after reporting date

There have been no events after the reporting date that require adjustment/disclosure in these financial statements.

47 Fair values

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.

Fair value hierarchy

The Company determines fair values of its financial instruments according to the following hierarchy:

Level 1 - valuation based on quoted market price: financial instruments with quoted prices for identical instruments in active markets that the Company can access at the measurement date.

Level 2 - valuation using observable inputs: financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.

Level 3 - valuation technique with significant unobservable inputs: financial instruments valued using valuation techniques where one or more significant inputs are unobservable.

This note describes the fair value measurement of both financial and non-financial instruments.

Valuation framework

The Company has an internal fair value assessment team which assesses the fair values of assets qualifying for fair valuation.

The Company''s valuation framework includes:

â¢ Benchmarking prices against observable market prices or other independent sources.

â¢ Development and validation of fair valuation models using model logic, inputs, outputs and adjustments.

â¢ Use of fair values as determined by the derivative counter parties.

Valuation methodologies adopted

Fair values of financial assets, other than those which are subsequently measured at amortised cost, have been arrived at as under:

â¢ Fair values of investments held under FVTPL have been determined under level 1 using quoted market prices of the underlying instruments.

â¢ Fair values of investments in unquoted equity instruments designated under FVOCI have been measured under level 3 at fair value based on a discounted cash flow model.

â¢ Fair values of investment in quoted equity and other instruments designated under FVOCI have been determined under level 1 using quoted market prices of the underlying instruments.

â¢ Derivative financial instrument i.e. cross currency interest rate swap (CCIRS) held for the purpose of hedging foreign currency denominated External Commercial Borrowings are accounted as a cash flow hedge. Fair value of CCIRS has been determined under Level 2 using discounted cash flow method by deriving future forward rates from published zero coupon yield curve. All future cashflows for both the paying and receiving legs in the swap contract are discounted to present value using these forward rates to arrive at the fair value as at reporting date.

(a) Liquidity and funding risk

The Company''s ALCO monitors asset liability mismatches to ensure that there are no imbalances or excessive concentrations on either side of the Balance Sheet.

The Company maintains a judicious mix of borrowings from banks, money markets, foreign market, public and other deposits and continues to diversify its sources of borrowings with an emphasis on longer tenor borrowings. This strategy of balancing varied sources of funds and long tenor borrowings along with liquidity buffer framework has helped the Company maintain a healthy asset liability position and interest rate during the financial year 2021-22 (FY2022) - the weighted average cost of borrowing was 7.03 % versus 7.87 % despite highly uncertain market conditions. The overall borrowings including debt securities, deposits and subordinated debts stood at ? 123,040.25 crore as at 31 March 2022.

The Company continuously monitors liquidity in the market; and as a part of its ALM strategy maintains a liquidity buffer through an active investment desk to reduce this risk. The Company endeavours to maintain liquidity buffer of 5% to 8% of its overall borrowings in normal market scenario. The Company continued to maintain significantly higher amount of liquidity buffer to safeguard itself against any significant liquidity risk emanating from economic volatility owing to continued COVID-19 pandemic. The average liquidity buffer for

FY2022 was ? 10,093.30 crore. With easing of economic volatility, the Company has brought down its liquidity buffer in a calibrate manner to ? 8,029.57 crore as at 31 March 2022.

RBI vide circular no. RBI/2019-20/88 DOR.NBFC (PD) CC. No.102/03.10.001/2019-20 has issued guidelines on liquidity risk framework for NBFCs. It covers various aspects of Liquidity risk management such as granular level classification of buckets in structural liquidity statement, tolerance limits thereupon, and liquidity risk management tools and principles. The Company has a policy on Liquidity Risk Management Framework which covers liquidity risk management policy, strategies and practices, liquidity coverage ratio (LCR), stress testing, contingency funding plan, maturity profiling, liquidity risk measurement - stock approach, currency risk, interest rate risk and liquidity risk monitoring framework.

The Company exceeds the regulatory requirement of LCR which mandated maintaining 50% of expected net cash outflows for next 30 days in a stressed scenario in high quality liquid assets (HQLA) by December 2020; which has to be increased to 100% by December 2024 in a phased manner. Currently, the LCR requirement is at 60% for the Company, which and will move to 70% from 1 December 2022. As at 31 March 2022, the Company maintained a LCR of 134.32%, well in excess of the RBI''s stipulated norm of 60%.

The Company focuses on funding the balance sheet through long term liabilities against relatively shorter tenor assets. This practice lends itself to having an inherent ALM advantage due to large EMI inflow emanating from short tenor businesses which puts it in an advantageous position for servicing of its near term obligations.

The table below summarises the maturity profile of the undiscounted contractual cashflow of the Company''s financial liabilities:

(b) Market risk

(i) Interest rate risk

On investment book other than equity

The Company holds shorter duration investment portfolio and thus it has a minimum fair value change impact on its investment portfolio. The interest rate risk on the investment portfolio and corresponding fair value change impact is monitored using VaR and the parameters for monitoring the same are defined in its investment policy.

On assets and liabilities

Interest rate sensitivity on fixed and floating rate assets and liabilities with differing maturity profiles is measured by using the duration gap analysis. The same is monitored monthly by ALCO. Sensitivity of the market value of unquoted equity investments other than those in subsidiaries assuming varied changes in interest rates is presented in note no. 47.

(ii) Price risk

(iii) Foreign currency risk

The Company is exposed to foreign currency fluctuation risk for its external commercial borrowing (ECB). The Company''s borrowings in foreign currency are governed by RBI guidelines (RBI master direction RBI/ FED/2018-19/67 dated 26 March 2019 and updated from time to time) which requires entities raising ECB for an average maturity of less than 5 years to hedge minimum 70% of the its ECB exposure (Principal & Coupon). As a matter of prudence, the Company has hedged the entire ECB exposure for the full tenure as per Board approved interest rate risk, currency risk and hedging policy.

The Company evaluates the foreign currency exchange rates, tenure of ECB and its fully hedged costs. The Company manages its currency risks by entering into derivatives contracts as hedge positions and the same are being governed through the Board approved interest rate risk, currency risk and hedging policy.

Hedging policy

Credit risk is the risk of financial loss arising out of customers or counterparties failing to meet their repayment obligations to the Company. The Company has a diversified lending model and focuses on six broad categories viz: (i) consumer lending, (ii) SME lending, (iii) rural lending, (iv) mortgages, (v) loan against securities, and (vi) commercial lending. The Company assesses the credit quality of all financial instruments that are subject to credit risk.

Classification of financial assets under various stages

The Company classifies its financial assets in three stages having the following characteristics:

â¢ Stage 1: unimpaired and without significant increase in credit risk since initial recognition on which a 12-month allowance for ECL is recognised;

â¢ Stage 2: a significant increase in credit risk since initial recognition on which a lifetime ECL is recognised; and

â¢ Stage 3: objective evidence of impairment, and are therefore considered to be in default or otherwise credit impaired on which a lifetime ECL is recognised.

Unless identified at an earlier stage, all financial assets are deemed to have suffered a significant increase in credit risk when they are 2 day past due (DPD) on the reporting date and are accordingly transferred from stage 1 to stage 2. For stage 1 an ECL allowance is calculated based on a 12-month point in time probability of default (PD). For stage 2 and 3 assets, a life time ECL is calculated based on a lifetime PD.

One time restructuring (OTR) of loan accounts was permitted by RBI vide circulars dated 6 August 2020 ''resolution framework for COVID-19 related stress'' and ''Micro, Small and Medium Enterprises (MSME) sector - Restructuring of Advances'' and circulars dated 5 May 2021 ''Resolution Framework - 2.0: Resolution of COVID-19 related stress of Individuals and Small Businesses'' and ''Resolution Framework 2.0 - Resolution of COVID-19 related stress of Micro, Small and Medium Enterprises (MSMEs)''. The Company has considered OTR as an indicator of significant increase in credit risk and accordingly classified such loans as stage 2. Further, the Company has, on demonstration of regular payment of 12 instalments of principal and/or interest- post renegotiation and subject to no overdues and no other indicators of significant increase in credit risk on the reporting date, reclassified such loans to stage 1.

Computation of impairment on financial instruments

The Company recalibrates components of its ECL model periodically by; (1) using the available incremental and recent information, except where such information do not represent the future outcome, and (2) assessing changes to its statistical techniques for a granular estimation of ECL. The incremental information of the portfolio performance, in both FY2021 and FY2022, was not considered appropriate for recalibration of ECL model. This was due to continued distortion caused by multiple wave of COVID-19 pandemic leading to lockdowns which resulted in very low economic activity, distortion of customers financial position and volitile repayment behaviour, leading to RBI announcing EMI moratorium and OTR. Given the temporary distortion of input variables, the Company has not recalibrated components of its ECL model.

Trade receivables and other financial assets were subjected to simplified ECL approach under Ind AS 109 ''Financial instruments''.

Collateral valuation

The Company offers loans to customers across various lending verticals as articulated above. These loans includes both unsecured loans and loans secured by collateral. Although collateral is an important risk mitigant of credit risk, the Company''s practice is to lend on the basis of assessment of the customer''s ability to repay rather than placing primary reliance on collateral. Based on the nature of product and the Company''s assessment of the customer''s credit risk, a loan may be offered with suitable collateral. Depending on its form, collateral can have a significant financial effect in mitigating the Company''s credit risk.

Security cover taken on loans

To secure its eligible pool, Company takes guarantee cover for its portfolios across B2C, MSME and threewheeler financing business under Credit Guarantee Fund Scheme for NBFCs (CGS-II) from Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) governed by the SIDBI. As on 31 March 2022, the Company has covered ? 5,266 crore of its loan assets under this scheme.

Further, Company has also granted loans under Emergency Credit Line Guarantee Scheme (ECLGS) to its qualifying customers, as of 31 March 2022 ? 692.65 crore of loans are outstanding under ECLGS.

This has helped the Company to offset ? 148 crore worth of credit losses till FY2022 with further claims maturing over FY2023 and FY2024.

Analysis of concentration risk

Measurement uncertainty and sensitivity analysis of ECL estimates

Methodology

The global as well as the Indian economy has passed through a difficult phase in FY2022. The macro numbers have been a reflection of the impact which multiple waves of COVID-19 had on the industry, prices, employment and economy as a whole. The Company has adopted the use of three scenarios, representative of its view of forecast economic conditions, required to calculate unbiased expected loss. They represent a most likely outcome i.e. central scenario and two less likely outer scenarios referred to as the Upside and Downside scenarios. The Company has assigned a 10% probability to the two outer scenarios, while the central scenario has been assigned an 80% probability. These weights are deemed appropriate for the unbiased estimation of impact of macro factors on ECL. The key scenario assumptions are used keeping in mind external forecasts and management estimates which ensure that the scenarios are unbiased.

The Company use multiple economic factors and test their correlations with past loss trends witnessed.

These were GDP growth rates, growth of bank credit, wholesale price index (WPI), consumer price index (CPI), industrial production index, unemployment rate, crude oil prices and policy interest rates. Based on past correlation trends, CPI (inflation) and unemployment rate were the two factors with acceptable correlation with past loss trends which were in line with Management views on the drivers of portfolio trends. These factors were assigned appropriate weights to measure ECL in forecast economic conditions.

During the year, the macro variables have been tested for their resilience in the difficult operating conditions of lockdown, loss of business on account of continued COVID-19 scare and social distancing norms. The first half of the year saw the second COVID-19 wave hitting the country. While the GDP numbers on a Y-o-Y basis might not be a correct indicator due to the COVID-19 base impact of FY21, the Q-o-Q GDP growth registered a decline of 16.9% in Q1 FY22. The Unemployment rate which had touched a peak of 23% in Apr''20, again went up to double digit in second COVID-19 wave and touched a high of 12% in May''21 and remained elevated in Jun''21 as well. For these two months, CPI (inflation) crossed the RBI comfort level of 6%. Later again in Jan''22, it crossed 6%. Even IIP, which due to base effect of FY21, remained positive, in double digits till Aug''21 moved to a marginal growth of just 1% from Nov''21 to Feb''22. While FY21 could be considered as a period of immense stress, the current year too was a period of low recovery.

The central scenario taken by the Company takes into account the stress and the downside risk prevalent during most part of the year, by capturing the macro variables numbers of the most difficult period of COVID-19 pandemic i.e. the second wave.

Amongst the list of macro indicators, unemployment and inflation are the two variables which are very critical from the perspective of individual and corporates financial health. Unemployment has a direct relation with the income levels and thus the growth of the economy from the expenditure side. Inflation and inflationary expectations affect the disposable income of people. Both these macro-variables directly and indirectly impact the disposable income of the people, which eventually drives the economy.

For unemployment, the Company has considered data published by a leading business information (BI) company engaged in monitoring of Indian economic indicators. The Unemployment rate, which after removing the extreme COVID-19 impact of first quarter from FY21 and FY22, shows an increase from 7.2% to 7.44%. In the current scenario, while due to multiple factors including the ongoing Ukraine-Russia standoff and the situation has become uncertain, forecasting these numbers could lead to biased outcomes. It is acknowledged that there is no reliably ascertainable direct impact of these crisis on the Indian economy and accordingly the estimates have been arrived at.

While formulating the central scenario, the Company has considered that the unemployment number may see an increase in the immediate short run and may remain at an average of 7% over the next few years.

The geo-political uncertainty has to be watched closely for evaluating its impact on the macro fundamental in the long run.

For the downside scenario, the Company believes that the downside risks might have passed, however, there are uncertainties creeping in and that may take the current expected levels of 6.7% cross the double digit by the first half of next financial year, which would be the peak unemployment rate. Going forward, however, the ownside scenario assumes it to fall from the peak and normalise to around 7% within next three years.

For the upside scenario, the Company acknowledges various surveys and studies indicating improving employment situation as also industrial recovery. While forecasting, a cautious stance is adopted that the unemployment levels after reaching the peak in June 2022 quarter, though may improve to a best case of 4% by the end of June 2023 but may come back to an historical (excluding COVID period) 4 year average of 7.1%. The unemployment numbers as such captured the impact of potential disruption that multiple waves of COVID-19 may cause in short run.

CPI had started to improve significantly in Q4 FY21 ranging from 4.06% to 5.52%, soared significantly to nearly 6.3% for two succesive months of May and June 2021 owing to the advent of second wave of COVID-19. Post decline of second wave, CPI normalised to 4.5% to 5% corridor between September to November 2021. CPI again went up to upwards of 6% in Q4 FY22 and closed at a high of 6.95% in March 2022. Elevated level of inflation poses significant challenges from credit risk perspective.

While the central scenario assumed by the Company considers the high inflation in Q4 FY22. Considering RBI projections, disruption on the supply side, and possible impact of future COVID-19 waves, the Company expects inflation to range between 5.1% to 6.35% during FY23, suggesting inflation to remain moderately elevated compared to pre-covid long term average.

For the downside scenario, the Company considers that the inflation risk still remains and, therefore, assumes the inflation to see a increase on account of demand-supply imbalances and touch a peak of around 8.88% in Q1 FY23, before easing off to the average of pre-COVID period in the eight year time horizon.

For the upside scenario, we believe that there would be certain factors which might come into play viz, base effect, higher food grain production, better supply chain management and improving trade scenario etc. and, therefore, inflation may see easing to a base of around 3% before averaging back to the pre-COVID levels.

Risk management amidst COVID-19

The country faced the second wave of COVID-19 in the April-June 2022 quarter. It led to higher levels of infections and fatality causing severe toll on life. Fortunately, the curtailment actions by the government were more localised and well calibrated at city and specific zone levels enabling continuity and minimal disruption to economic activity throughout the country. Though this caused a marginal uptick in instalment default rate and compression in debt management efficiencies for a period of three months, the revival was quick and strong. As a result, unlike the first wave, the impact on the portfolio and loan losses was not as severe for the Company. Adequate investment in debt management services in FY2021 has helped in curtailing the impact on the portfolio amidst the second wave as well.

In a calibrated manner throughout the year, the Company continued to relax the underwriting norms it had tightened during the first wave. It has brought back its underwriting norms to pre-covid standards from the second half of the year. The gradual relaxation of underwriting and sharp vigilance on portfolio quality have ensured that risk performance of portfolio remains in line or better than the pre-covid metrics. Further, this agile, calibrated and closely monitored approach to credit risk and timely investment in deepening of debt management services have enabled the Company to weather the pandemic well.

The third wave which started in mid-December 2021 had no significant impact on risk metrics both for new business and the overall portfolio.

The Company carried out multiple risk simulations to assess the potential impact of the second and third wave of the pandemic on portfolio risk and absorbed additional credit costs based on these simulations. The Company saw elevated level of loan losses of ? 4,622.06 crore in FY2022 owing to the disruption caused by the second and third waves. Given the risk of potential future waves of pandemic and other factors which could impact the Company''s risk performance, the Company has created management overlay for macro economics factors and COVID-19 of ? 849 crore as on 31 March 2022 to account for any tail risk which may emerge from the pandemic and other uncertainities.

(d) Operational risk

Operational risk is the risk arising from inadequate or failed internal processes, people or systems, or from external events. The Company manages operational risks through comprehensive internal control systems and procedures laid down around various key activities in the Company viz. loan acquisition, customer service, IT operations, finance function etc.. Internal Audit also conducts a detailed review of all the functions at least once a year, this helps to identify process gaps on timely basis. Further IT and Operations have a dedicated compliance and control units within the function who on continuous basis review internal processes. This enables the Management to evaluate key areas of operational risks and the process to adequately mitigate them on an ongoing basis.

The Company has put in place a robust Disaster Recovery (DR) plan and Business Continuity Plan (BCP) to ensure continuity of operations including services to customers, if any eventuality is to happen such as natural disasters, technological outage etc. Robust periodic testing is carried, and results are analysed to address gaps in the framework, if any. DR and BCP audits are conducted on a periodical basis to provide assurance regarding the effectiveness of the Company''s readiness.

49 Employee stock option plan

The Board of Directors at its meeting held on 14 October 2009, approved an issue of stock options up to a maximum of 5% of the then issued equity capital of the Company aggregating to 1,829,803 equity shares of the face value of ? 10 each in a manner provided in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 subject to the approval of the shareholders under section 81(1A) of the Companies Act, 1956. The shareholders of the Company vide their special resolution passed through postal ballot on 15 December 2009 approved the issue of equity shares of the Company under one or more Employee Stock Option Scheme(s). The shareholders, at the Annual General Meeting held on 16 July 2014, approved an additional issue of 677,313 stock options i.e. from 1,829,803 to 2,507,116 options of the face value of ? 10 each under the stock options scheme of the Company i.e. Employee Stock Option Plan 2009.

Pursuant to the sub-division of each equity share of face value of ? 10 into five equity shares of face value of ? 2 on 10 September 2016 and allotment of bonus equity share in the proportion of one equity share of face value of ? 2 for every one equity share on 14 September 2016, the aggregate number of equity shares which would be available for future grants under the Employee Stock Option Plan, 2009 were adjusted from 2,507,116 equity shares of face value of ? 10 to 25,071,160 equity shares of face value of ? 2 each.

Further, vide the special resolution passed by the members of the Company through postal ballot on 19 April 2021, the aforesaid limit of options was enhanced by 10,000,000 options. The maximum limit under the scheme now stand revised from 25,071,160 options to 35,071,160 options.

The options issued under the ESOP scheme vest on a straight line basis over a period of 4 years with the vesting condition of continuous employment with the Company or the Group except in case of death and retirement where the vesting would happen immediately.

The Nomination and Remuneration Committee of the Company has approved the following grants to select senior level executives of the Company in accordance with the stock option scheme. Under the scheme, sixteen grants have been made as of 31 March 2022, details of which, duly adjusted for sub-division of shares

50 Ultimate beneficiary

No funds (which are material either individually or in the aggregate) have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities (''intermediaries''), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (''ultimate beneficiaries'') or provide any guarantee, security or the like on behalf of the ultimate beneficiaries.

No funds (which are material either individually or in the aggregate) have been received by the Company from any person(s) or entity(ies), including foreign entities (''Funding Parties''), with the understanding, whether recorded in writing or otherwise, that the Company shall, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the funding party (''ultimate beneficiaries'') or provide any guarantee, security or the like on behalf of the ultimate beneficiaries.

52 Disclosure pertaining to stock statement filed with banks or financial institutions

(G) Details of penalties imposed by RBI and other regulators Current year:

Financial Intelligence Unit - India (FIU-Ind) vide its Order dated 28 March 2022, imposed penalty of ? 3 lakh under PMLA and its Rules, for not having in place an effective internal mechanism to detect, not reporting suspicious transactions reportable as STRs, failure to carry out KYC updation based on periodic risk assessment and to determine ultimate beneficial ownership. The observations were based on the review by FIU-IND during September 2018 for the FY 2016, 2017 and 2018. The Company has since taken necessary corrective actions in this respect. No other penalty has been levied by RBI or any other Regulators.

Previous year:

The Reserve Bank of India vide its press release dated 5 January 2021 imposed a monetary penalty of ? 2.50 crore on the Company for deficiencies in compliance with directions issued by RBI on Managing Risks and Code of Conduct in Outsourcing of Financial Services by NBFCs and Fair Practices Code (FPC). The said penalty does not have any material impact on the Company. No other penalty has been levied by RBI or any other Regulators.

53 The disclosures as required by the NBFC Master Directions issued by RBI (Contd.)

(Disclosures are made as per Ind AS financial statements except otherwise stated)

Liquidity Coverage Ratio (LCR) is one of the key parameters closely monitored by RBI to enable a more resilient financial sector. The objective of the LCR is to promote an environment wherein balance sheet carry a strong liquidity for short term cash flow requirements. To ensure strong liquidity NBFCs are required to maintain adequate pool of unencumbered high-quality liquid assets (HQLA) which can be easily converted into cash to meet their stressed liquidity needs for 30 calendar days. The LCR is expected to improve the ability of financial sector to absorb the shocks arising from financial and/or economic stress, thus reducing the risk of spill over from financial sector to real economy.

The Liquidity Risk Management of the Company is managed by the Asset Liability Management Committee (ALCO) under the governance of Board approved Liquidity Risk Framework and Asset Liability Management policy. The LCR levels for the balance sheet date is derived by arriving the stressed expected cash inflow and outflow for the next calendar month. To compute stressed cash outflow, all expected and contracted cash outflows are considered by applying a stress of 15%. Similarly, inflows for the Company is arrived at by considering all expected and contracted inflows by applying a haircut of 25%.

Company for purpose of computing outflows, have considered: (1) all the contractual debt repayments,

For the purpose of HQLA the Company considers: (1) Unencumbered government securities, (2) Cash and Bank balances and (3) Pledged Government Securities for purpose of Statutory Liquid Ratio (SLR) with haircut of 20%.

The LCR is computed by dividing the stock of HQLA by its total net cash outflows over one-month stress period. LCR guidelines have become effective from 1 December 2020, requiring NBFCs to maintain minimum LCR of 50%, LCR is gradually required to be increased to 100% by 1 December 2024. Deposit taking NBFCs are required to maintain LCR of 60% as on 31 March 2022.

(S) Related party transactions

Details of transactions with related parties are disclosed in note no. 44.

(T) Overseas assets

The Company does not have any joint ventures and subsidiaries aboard.

(U) Off-balance sheet SPVs sponsored

The Company does not have any off-balance sheet SPVs sponsored.

(V) Participation in currency futures & currency options

The Company has not undertaken any transaction during the current year and previous year for currency futures and currency options.

(W) Net profit or loss for the period, prior period items and changes in accounting policies

There are no prior period items which are impacting Company''s current year profit and loss.

(X) Revenue recognition

There are no such circumstances in which revenue has been postponed pending the resolution of significant uncertainties.

(Y) Consolidated financial statement (CFS)

The Company has consolidated financial statement of its all the underlying subsidiaries.

59 The financial statement of the Company for the year ended 31 March 2021 were audited by the SRBC & Co LLP. Chartered Accountants, the predecessor auditor who have expressed an unqualified opinion.

60 Amounts less than ? 50,000 have been shown at actuals against respective line items statutorily required to be disclosed.

Mar 31, 2021

# On 7 November 2019, the Company through Qualified Institutions Placement (QIP) allotted 21,794,871 equity shares to the eligible Qualified Institutional Buyers (QIB) at a price of I 3,900 per equity share of I 2 face value (inclusive of premium of I 3,898 per share) aggregating to approximately I 8,500 crore. The issue was made in accordance with the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Funds received in the QIP of equity shares have been utilised for the purpose mentioned in the objects of the issue in the offer document.

On 14 September 2016, the Allotment Committee of the Board of Directors allotted 269,360,950 equity shares of face value of I 2 each as bonus shares in the proportion of one bonus equity share for every one equity share of face value of I 2 held as on the record date, by capitalising an amount of I 538,721,900 from securities premium account. The bonus shares were listed on BSE Limited and National Stock Exchange of India Limited w.e.f. 19 September 2016. Other than this, Company has not allotted any bonus shares in previous five years.

(b) Terms/rights/restrictions attached to equity shares

The Company has only one class of equity shares having a par value of I 2 per share. Each holder of equity shares is entitled to one vote per share. The dividend recommended by the Board of Directors and approved by the shareholders in the Annual General Meeting is paid in Indian Rupees. 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.

Consequent to the opinion expressed by the ''Expert Advisory Committee'' of the Institute of Chartered Accountants of India on the applicability of clause 22A.1 of the SEBI Guidelines, the balance unexercised equity shares held by the trust at the close of the year have been reduced against the share capital as if the trust is administered by the Company itself. The securities premium related to the unexercised equity shares held by the trust at the close of the year aggregating I 869,605,787 (As at 31 March 2020 I 670,428,124) has also been reduced from securities premium account and adjusted against the loan outstanding from the trust.

(i) Securities premium

Securities premium is used to record the premium on issue of shares. It can be utilised only for limited purposes in accordance with the provisions of the Companies Act, 2013.

(ii) Retained earnings

Retained earnings represents the surplus in Profit and Loss Account and appropriations.

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: actuarial gains and losses;

return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset) ; and any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset).

(iii) Reserve fund in terms of section 45-IC(1) of the Reserve Bank of India Act, 1934

Reserve fund is created as per the terms of Section 45 IC(1) of the Reserve Bank of India Act, 1934 as a statutory reserve.

(iv) General reserve

Amounts set aside from retained profits as a reserve to be utilised for permissible general purpose as per Law.

(v) Infrastructure reserve created under section 36(1)(viii) of the Income Tax Act, 1961

Infrastructure reserve is created to avail the deduction as per the provisions of section 36(1)(viii) the Income Tax Act 1961 on profits derived from the business of providing long term finance for development of infrastructure facility in India.

(vi) Other comprehensive income On equity investments

On debt investments

On cash flow hedge reserve

It represents the cumulative gains/(losses) arising on revaluation of the derivative instruments designated as cash flow hedges through OCI.

On loans

The Company recognises changes in the fair value of loans measured under FVOCI in other comprehensive income and impairment loss allowances are recognised in profit or loss.

(vii) Share options outstanding account

Share options outstanding account is created as required by Ind AS 102 ''Share Based Payments'' on the Employee Stock Option Scheme operated by the Company for employees of the group.

37 Earnings per share (EPS)

38 Segment Information

The Company operates in a single reportable segment i.e. financing, since the nature of the loans are exposed to similar risk and return profiles hence they are collectively operating under a single segment. The Company operates in a single geographical segment i.e. domestic.

39 Transfer of financial assets that are derecognised in their entirety where the Company has continuing involvement

The Company has not transferred any assets that are derecognised in their entirety where the Company continues to have continuing involvement.

41 Employee benefit plans Defined benefit plans (A) Gratuity

The gratuity plan is governed by the Payment of Gratuity Act, 1972. Under the Gratuity Act, an employee who has completed five years of service is entitled to specific benefits. The level of benefits provided depends on the member''s length of service, managerial grade and salary at retirement age.

(D) Provident fund

In case of certain employees, the Provident fund contribution is made to Bajaj Auto Ltd. Provident Fund Trust. In terms of the guidance note issued by the Institute of Actuaries of India, the actuary has provided a valuation of provident fund liability based on the assumptions listed below and determined that there is no shortfall as of 31 March 2021. The assumptions used in determining the present value of obligation of interest rate guarantee under deterministic approach

The Indian Parliament has approved the Code on Social Security, 2020 which subsumes the Provident Fund 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. The Company will evaluate the rules, assess the impact, if any, and account for the same once the rules are notified and become effective.

42 Contingent liabilities and commitments
(a) Contingent liabilities not provided for in respect of	(H In Crore) As at 31 March
Particulars	2021	2020

Disputed claims against the Company not acknowledged as debts	51.98	44.18
VAT matters under appeal	4.29	4.39
ESI matters under appeal	5.14	5.14
GST/Service tax matters under appeal
On interest subsidy	1,905.44	1,971.65
On penal interest/charges	237.25	223.15
On others	6.42	6.22
Income tax matters
Appeals by the Company	-	0.32
Appeals by the Income tax department	0.28	0.24
175

(i) The Company is of the opinion that the above demands are not tenable and expects to succeed in its appeals/defense.

(ii) The Commissioner, Service Tax Commissionerate Pune, through an order dated 31 March 2017, has confirmed the demand of service tax of I 644.65 crore and penalties of I 198.95 crore from the Company in relation to the interest subsidy the Company received from manufacturers and dealers during the period 1 April 2010 to 30 September 2016. The Commissioner has also demanded payment of interest on the service tax amount confirmed until the date the Company pays the service tax demanded, which as at 31 March 2021 amounted to I 690.56 crore. In accordance with legal advice, the Company filed an appeal on 6 July 2017 with the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai disputing the demands. The Company, in line with the opinion obtained from a senior legal counsel, is of view that the said demands are not tenable.

I n addition, the Principal Commissioner, Central GST and Central Excise, Commissionerate Pune -I, through order dated 3 February 2021, has confirmed the demand of service tax of I 217.22 crore and penalty thereon of I 21.72 crore from the Company in relation to the interest subsidy received from manufacturers and dealers during the period 1 October 2016 to 30 June 2017. The Principal Commissioner has also demanded payment of interest on the service tax amount confirmed until the date the Company pays the service tax demanded, which as at 31 March 2021 amounted to I 132.34 crore. In accordance with legal advice, the Company is in process to file an appeal with the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai against the said demand. The Company, in line with the opinion obtained from a senior legal counsel, is of view that the said demands are not tenable.

(iii) The Commissioner, Central Excise and CGST, Pune -I, Commissionerate, through an order dated 7 September 2018, has confirmed the demand of service tax of I 53.87 crore and penalties of I 53.87 crore from the Company in relation to the penal interest/charges the Company received from the customers during the period 1 July 2012 to 31 March 2016. In addition, the Commissioner has demanded payment of interest on the service tax amount confirmed until the date the Company pays the service tax demanded, which as at 31 March 2021 amounted to I 59.54 crore. In accordance with legal advice, the Company filed an appeal on 26 December 2018 with the Customs, Excise and Service Tax Appellate Tribunal, Mumbai disputing the demands. The Company, in line with the opinion obtained from a legal counsel, is of view that the said demands are not tenable.

In addition, the Principal Commissioner, Central GST and Central Excise, Pune -I Commissionerate, through an order dated 30 December 2019, has confirmed the demand of service tax of I 40.22 crore and penalty thereon of I 4.02 crore on penal interest/charges received by the Company from the customers during the period 1 April 2016 to 30 June 2017. The Principal Commissioner has also demanded payment of interest on the service tax amount demanded, until the date the Company pays the demand, which as at 31 March 2021, amounted to I 25.74 crore. In accordance with legal advice, the Company filed an appeal on 28 August 2020 with the Customs, Excise and Service Tax Appellate Tribunal, Mumbai disputing the demands. The Company, in line with the opinion obtained from a legal counsel, is of view that the said demands are not tenable.

(iv) It is not practicable for the Company to estimate the timings of the cash flows, if any, in respect of the above pending resolution of the respective proceedings.

(i) Capital management Objective

Planning

The Company''s assessment of capital requirement is aligned to its planned growth which forms part of an annual operating plan which is approved by the Board and also a long range strategy. These growth plans are aligned to assessment of risks - which include credit, liquidity and market.

The Company monitors its capital to risk-weighted assets ratio (CRAR) on a monthly basis through its assets liability management committee (ALCO).

The Company endeavours to maintain its CRAR higher than the mandated regulatory norm. Accordingly, increase in capital is planned well in advance to ensure adequate funding for its growth.

The Company''s dividend distribution policy states that subject to profit and other financial parameter as per applicable legal provision the Board shall endeavour to maintain a dividend payout in the range of 15% to 25% of profits after tax on standalone basis, to the extent possible.

The Company is also the provider of equity capital to its wholly owned subsidiaries and also provides them with non-equity capital where necessary. These investments are funded by the Company through its equity share capital and other equity which inter alia includes retained profits.

There have been no events after the reporting date that require adjustment/disclosure in these financial statements.

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.

Valuation framework

The Company has an internal fair value assessment team which assesses the fair values of assets qualifying for fair valuation.

The Company''s valuation framework includes:

Benchmarking prices against observable market prices or other independent sources;

Development and validation of fair valuation models using model logic, inputs, outputs and adjustments.

Use of fair values as determined by the derivative counter parties.

These valuation models are subject to a process of due diligence and validation before they become operational and are continuously calibrated. These models are subject to approvals by various functions including risk, treasury and finance functions. Finance function is responsible for establishing procedures, governing valuation and ensuring fair values are in compliance with accounting standards.

Valuation methodologies adopted

Fair values of financial assets, other than those which are subsequently measured at amortised cost, have been arrived at as under:

Fair values of investments held for trading under FVTPL have been determined under level 1 (refer note no. 48) using quoted market prices of the underlying instruments;

Fair values of investments in unquoted equity instruments designated under FVOCI have been measured under level 3 (refer note no. 48) at fair value based on a discounted cash flow model.

Fair values of investment in quoted equity and other instruments designated under FVOCI have been determined under level 1 using quoted market prices of the underlying instruments;

Fair value of loans held under a business model that is achieved by both collecting contractual cash flows and partially selling the loans through partial assignment to willing buyers and which contain contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest are designated under FVOCI. The fair value of these loans have been determined under level 3.

Cross currency interest rate swap (CCIRS) held for the purpose of hedging foreign currency denominated External Commercial Borrowings are accounted as a cash flow hedge. CCIRS is being considered under Level 2 for fair valuation which is performed through discounted cash flow method by deriving future forward rates from published zero coupon yield curve. All future cashflows for both the paying and receiving legs in the swap contract are discounted to present value using these forward rates and accordingly arrived at the valuation for a point of time.

The Company has determined that the carrying values of cash and cash equivalents, bank balances, trade receivables, short term loans, floating rate loans, investments in equity instruments designated under FVOCI, trade payables, short term debts, borrowings, bank overdrafts and other current liabilities are a reasonable approximation of their fair value and hence their carrying values are deemed to be fair values.

The Company determines fair values of its financial instruments according to the following hierarchy:

Level 1- valuation based on quoted market price: financial instruments with quoted prices for identical instruments in active markets that the Company can access at the measurement date.

Level 2- valuation using observable inputs: financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.

Level 3- valuation technique with significant unobservable inputs: financial instruments valued using valuation techniques where one or more significant inputs are unobservable.

(a) Liquidity and funding risk

The Company''s ALCO monitors asset liability mismatches to ensure that there are no imbalances or excessive concentrations on either side of the Balance Sheet.

The Company maintains a judicious mix of borrowings from banks, money markets, foreign market, public deposits and other deposits and continues to diversify its sources of borrowings with an emphasis on longer tenor borrowings. This strategy of balancing varied sources of funds and long tenor borrowings along with liquidity buffer framework has helped the Company maintain a healthy asset liability position and interest rate during the financial year 2020-21 (FY2021) - the weighted average cost of borrowing was 7.87% versus 8.40% during the financial year 2019-20 (FY2020) despite highly uncertain market conditions. The overall borrowings including debt securities, deposits and subordinated debts stood at I 99,865.84 crore as of 31 March 2021. As part of strategy to granularise its overall borrowings, the Company has increased contribution of public and other deposits to overall borrowings from 21% in FY2020 to 26% in FY2021.

The Company continuously monitors liquidity in the market; and as a part of its ALM strategy, the Company maintains a liquidity buffer managed by an active investment desk to reduce this risk. In a normal economic scenario liquidity buffer of 5% to 8% is maintained by the Company. During the year, amindst pandemic, the Company maintained significantly higher amount of liquidity buffer to safeguard itself against any significant liquidity risk. The average liquidity buffer for FY2021 was I 15,144.04 crore. The Company maintained a liquidity buffer of I 12,168.89 crore as on 31 March 2021.

49 Risk management objectives and policies (Contd.)

RBI vide Circular No. RBI/2019-20/88 DOR.NBFC (PD) CC. No.102/03.10.001/2019-20 has issued with guidelines on liquidity risk framework for NBFCs. It covers various aspects of Liquidity risk management in NBFCs such as granular level classification of buckets in structural liquidity statement and tolerance limits thereupon, Liquidity risk management tools and principles. The Company has formulated a policy on Liquidity Risk Management Framework which covers Liquidity Risk Management Policy, Strategies and Practices, LCR, stress testing, contingency funding plan, Maturity profiling, Liquidity Risk Measurement - Stock approach, Currency Risk, Interest Rate Risk and Liquidity Risk Monitoring Tools.

RBI has mandated minimum liquidity coverage ratio (LCR) of 50% to be maintained by December 2020, which is to be gradually increased to 100% by December 2024. The Company has LCR of 270% as of 31 March 2021 as against the LCR of 50% mandated by RBI.

The Company focuses on funding the balance sheet through long term liabilities against relatively short tenor assets. This practice lends itself to having an inherent ALM advantage due to large EMI inflow emanating from short tenor businesses which puts it in an advantageous position for servicing of its near term obligations.

(i) Interest rate risk

On investment book

The Company holds short duration investment portfolio and thus it has a minimum fair value change impact on its investment portfolio. The interest rate risk on the investment portfolio and corresponding fair value change impact is monitored using VaR and the parameters for monitoring the same are defined in its investment policy.

On assets and liabilities

Interest rate sensitivity on fixed and floating rate assets and liabilities with differing maturity profiles is measured by using the duration gap analysis. The same is computed monthly and sensitivity of the market value of equity assuming varied changes in interest rates are presented and monitored by ALCO.

(iii) Foreign currency risk

The Company is exposed to foreign currency fluctuation risk for its foreign currency borrowing (FCB). The Company''s borrowings in foreign currency are governed by RBI guidelines (RBI master direction RBI/FED/2018-19/67 dated 26 March 2019 and updated from time to time) which requires entities raising ECB for an average maturity of less than 5 years to hedge minimum 70% of the its ECB exposure (Principal and Coupon). The Company hedges its entire ECB exposure for the full tenure of the ECB as per Board approved Interest Rate risk, Currency risk and Hedging policy.

The Company for its FCB, evaluates the foreign currency exchange rates, tenure of FCB and its fully hedged costs. The Company manages its currency risks by entering into derivatives contracts as hedge positions and the same are being governed through the Board approved Interest rate risk, Currency risk and hedging policy.

Hedging policy

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 relationship 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.

Credit risk is the risk of financial loss arising out of a customer or counterparty failing to meet their repayment obligations to the Company. It has a diversified lending model and focuses on six broad categories viz: (i) consumer lending, (ii) SME lending, (iii) rural lending, (iv) mortgages, (v) loan against securities, and (vi) commercial lending. The Company assesses the credit quality of all financial instruments that are subject to credit risk.

Classification of financial assets under various stages

The Company classifies its financial assets in three stages having the following characteristics:

stage 1: unimpaired and without significant increase in credit risk since initial recognition on which a 12-month allowance for ECL is recognised;

stage 2: a significant increase in credit risk since initial recognition on which a lifetime ECL is recognised; and stage 3: objective evidence of impairment, and are therefore considered to be in default or otherwise credit impaired on which a lifetime ECL is recognised.

Unless identified at an earlier stage, all financial assets are deemed to have suffered a significant increase in credit risk when they are 30 days past due (DPD) or one instalment overdue on the reporting date and are accordingly transferred from stage 1 to stage 2. For stage 1 an ECL allowance is calculated based on a 12-month Point in Time (PIT) probability weighted probability of default (PD). For stage 2 and 3 assets a life time ECL is calculated based on a lifetime PD.

The Company offered One Time Restructing (OTR) on loans in accordance with RBI guidelines on ''Resolution Framework for COVID-19 related stress''. The Company has considered OTR as an early indicator of significant increase in credit risk and accordingly classified such loans as Stage 2.

Computation of impairment on financial instruments

The Company calculates impairment on financial instalments ECL approach prescribed under Ind AS 109 ''Financial instrument''. ECL uses three main components: PD, LGD (loss given default) and EAD (exposure at default) along with an adjustment considering forward macro economic conditions [refer note no.3.4(i) of significant accounting policies for methodology of computation of ECL].

The Company recaliberates components of its ECL model periodically by; (1) using the available incremental and recent information, except where these informations do not represent the future outcome, and (2) assessing changes to its statistical techniques for a granular estimation of ECL. The incremental information of the portfolio performance in FY2021 has not been considered appropriate for recaliberation of ECL model. This was due to the distortion caused by the pandemic induced lockdown resulting in very low economic activity, unforseen distortion of customers financial position and volitile repayment behaviour, leading to RBI announcing EMI moratorium and OTR. Given the temporary distortion of input variables, the Company has not recalibrated components of its ECL model.

Trade receivables and other financial assets were subjected to simplified ECL approach under Ind AS 109 ''Financial instruments''.

Collateral valuation

The nature of products across these broad product categories are either unsecured or secured by collateral. Although collateral is an important risk mitigant of credit risk, the Company''s practice is to lend on the basis of assessment of the customer''s ability to repay rather than placing primary reliance on collateral. Based on the nature of product and the Company''s assessment of the customer''s credit risk, a loan may be offered with suitable collateral. Depending on its form, collateral can have a significant financial effect in mitigating the Company''s credit risk.

The Company continues to grow its granularity of its Loans portfolio by expanding its geographic reach in order to reduce geographic concentrations while continually calibrating its product mix across its six categories of lending mentioned above.

Measurement uncertainty and sensitivity analysis of ECL estimates

Expected credit loss impairment allowances recognised in the financial statements reflect the effect of a range of possible economic outcomes, calculated on a probability-weighted basis, based on the economic scenarios described below. The recognition and measurement of expected credit losses (''ECL'') involves the use of estimation. It is necessary to formulate multiple forward-looking economic forecasts and its impact as an integral part of ECL model.

Methodology

The global as well as the Indian economy has passed through a difficult phase in FY2021. The macro numbers have been a reflection of the impact which COVID-19 had on the industry, prices, employment and economy as a whole. The Company has adopted the use of three scenarios, representative of its view of forecast economic conditions, required to calculate unbiased expected loss. They represent a most likely outcome i.e. central scenario and two less likely outer scenarios referred to as the Upside and Downside scenarios. The Company has assigned a 10% probability to the two outer scenarios, while the Central scenario has been assigned an 80% probability. These weights are deemed appropriate for the unbiased estimation of impact of macro factors on ECL. The key scenario assumptions are used keeping in mind external forecasts and management estimates which ensure that the scenarios are unbiased.

The Company has used multiple economic factors and tested their correlations with past loss trends witnessed. The economic factors tested were GDP growth rates, growth of bank credit, wholesale price index (WPI), consumer price index (CPI), industrial production index, unemployment rate, crude oil prices and policy interest rates. Based on past correlation trends, CPI and unemployment rate were the two factors with acceptable correlation with past loss trends which were in line with Management views on the drivers of portfolio trends. These factors were assigned appropriate weights to measure ECL in forecast economic conditions.

During the year, the macro variables have been tested for their resilience in the difficult operating conditions of lockdown, loss of business on account of COVID-19 scare and social distancing norms. The first half of the year saw the maximum stress on the numbers with GDP growth turning negative to -23.9% unemployment rate touching a peak of 23%, retail inflation touching a high of 7.22% and IIP turning negative to the extent of over 57%. Almost all the macro-economic fundamentals have passed through the period of immense stress during the year. It was only after the first half year, that some of the economic fundamentals started showing signs of recovery.

The Central Scenario taken by the Company takes into account the stress and the downside risk prevalent during most part of the year, by capturing the macro variables numbers of the most difficult period of COVID-19 pandemic.

Amongst the list of macro indicators, unemployment and inflation are the two variables which are very critical from an income and expenditure perspective. Unemployment has a direct relation with the income levels and thus the growth of the economy from the expenditure side, inflation and inflationary expectations affect the disposable income of the people. Both the macro-variables directly and indirectly impact the disposable income of the people, which eventually drives the economy.

For unemployment, the Company has considered data published by a leading business information (BI) company engaged in monitoring of Indian economic indicators. The Unemployment rate, which averaged around 7.6% for FY20 jumped to 18% in the first quarter of FY21 and peaked at over 23% in April 2020. It continued to stay at elevated levels during the first half of the year i.e., April 2020 to September 2020 averaging at 13%. In the second half of FY2021, which can be construed as months of recovery and account for recovery in industrial production etc, the average unemployment rate numbers have moderated to 7.1%, with unemployment rate at 6.5% as of March 2021.

While formulating the Central Scenario, the Company has considered the peak unemployment rate of around 18% in Q1 FY2021 and assumed it to moderate thereafter.

For the downside scenario, while the Company believes that the downside risks might have passed, the rate of improvement may be slower and, therefore factored in a slow recovery rate. Accordingly, starting with a peak of 18% in March 2021 quarter, the downside scenario assumes it to fall from the peak but continue to stay at double-digit levels till March 2022.

For the upside scenario, the Company acknowledges various surveys and studies indicating improving employment situation as also industrial recovery. However, it maintained a caution stance that the unemployment levels after reaching the peak in March 2021 quarter, though may improve to a best case of 4% by the end of March 2022 but may come back to an historical (excluding COVID period) 4 year average of 6.45%. The unemployment numbers as such captured the impact of lockdown, migration of labour and various other restrictions hitting the overall employment environment.

Similarly, CPI which hovered between 3.50% to 5.84% for quarter ending September 2019 and December 2019, went to a high of 6.53% in Q1 FY2021, 6.96% in Q2 FY2021 and 6.38% in Q3 FY2021 respectively. While the Central Scenario assumed by the company considers the signs of easing inflation in Q4 FY2021 owing to improvement on the supply side, but it also acknowledges the COVID-19 impact, which still prevails in the economy. Accordingly, due to multiplicity of factors, Inflation is expected to remain moderately high till the end of this year. The CPI numbers as such reflects the stress impact due to lockdown and disruption in supply chains and increased prices for food and beverages.

For the downside scenario, the company believes that the inflation risk still remains and, therefore, assumes the Retail inflation to marginally see a uptick due to demand-supply imbalances and hit a peak of over 9% by the end of next year, before easing off to the average of pre-COVID period in the three-year time horizon.

For the upside scenario, we believe that there would be certain factors which might come into play viz, base effect, higher food grain production, better supply chain management and improving trade scenario etc, and, therefore, inflation may see easing to a minimum of over 2% before averaging back to the pre-COVID levels.

Risk management amidst COVID-19

The unprecedented health scare caused by COVID-19 which led to a countrywide lockdown in month of March 2020 and continued till May 2020 followed by gradual unlocking from June 2020, had a varying impact on different sectors of the economy. Salaried individuals had to contend with a scenario of reduced income and/or job losses. Corporates, SMEs and MSMEs struggled on account of reduced economic activities and business rhythm that was not efficient due to severe disruption in both demand and supply. All these lead to major cash flow constraints and erosion in the asset value, though temporary in nature. These developments severely tested risk management frameworks across the financial sector.

On 27 March 2020, the RBI, in order to provide relief on debt servicing obligations, permitted financial institutions to offer moratorium to their borrowers on instalments falling due between 1 March 2020 to 31 May 2020 which was further extended to 31 August 2020 vide RBI''s order dated 23 May 2020. With uncertainties caused by COVID-19 pandemic including the pace of easing of the lockdown restrictions, the time needed to restart the economy and attaining some level of normalcy, the credit performance and repayment behaviour of the customers was distorted and was monitored closely. The Company has witnessed significant movement of portfolio from stage 1 to stage 2 and stage 3 post moratorium period which ended on 31 August 2020 and accordingly accounted for higher credit cost in FY2021.

The Company observed elevated default on payment of instalments and collection related constraints which resulted in much higher credit costs in the current year compared to previous year. This was dispite the Company making requisite investment to deepen its collections infrastructure to control its credit costs by enhancing collection efforts, tightening in its risk underwriting policies as well as COVID-19 and macro overlay provision of I 850 crore in FY2020.

During the year, the Company, as a matter of prudence, has written off principal and interest amounts (including capitalised interest) of I 2,497 crore and I 482 crore respectively, of potentially unrecoverable loans, which were under moratorium, by utilising the available expected credit loss provision (including management overlay). The Company has carried a contingency provision of I 672 crore as on 31 March 2021.

Operational risk is the risk arising from inadequate or failed internal processes, people or systems, or from external events. The Company manages operational risks through comprehensive internal control systems and procedures laid down around various key activities in the Company viz. loan acquisition, customer service, IT operations, finance function etc. Internal Audit also conducts a detailed review of all the functions at least once a year, this helps to identify process gaps on timely basis. Further IT and Operations have a dedicated compliance and control units within the function who on continuous basis review internal processes. This enables the Management to evaluate key areas of operational risks and the process to adequately mitigate them on an ongoing basis.

50 Employee stock option plan

The Board of Directors at its meeting held on 14 October 2009, approved an issue of stock options up to a maximum of 5% of the then issued equity capital of the Company aggregating to 1,829,803 equity shares of the face value of I 10 each in a manner provided in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 subject to the approval of the shareholders under Section 81(1 A) of the Companies Act, 1956. The shareholders of the Company vide their special resolution passed through postal ballot on 15 December 2009 approved the issue of equity shares of the Company under one or more Employee Stock Option Scheme(s). The shareholders, at the Annual General Meeting held on 16 July 2014, approved an additional issue of 677,313 stock options i.e. from 1,829,803 to 2,507,116 options of the face value of I 10 each under the stock options scheme of the Company i.e. Employee Stock Option Plan 2009.

Pursuant to the sub-division of each equity share of face value of I 10 into five equity shares of face value of I 2 on 10 September 2016 and allotment of bonus equity share in the proportion of one equity share of face value of I 2 for every one equity share on 14 September 2016, the aggregate number of equity shares which would be available for future grants under the Employee Stock Option Plan, 2009 were adjusted from 2,507,116 equity shares of face value of I 10 to 25,071,160 equity shares of face value of I 2 each.

Further, vide the Special Resolution passed by the members of the Company through postal ballot on 19 April 2021, the Company has approved the increase in the aforesaid limit of options by 10,000,000 options. The maximum limit under the scheme now stand revised from 25,071,160 options (adjusted for sub-division and bonus) to 35,071,160 options.

Vesting period of the options issued under the ESOP Scheme is on a straight line basis over the period of 4 years with the vesting condition of continuous employement with the Company or the Group except in case of death and retirement where the vesting would happen immediately.

(II) Exchange traded interest rate derivatives

The Company has not traded in exchange traded interest rate derivative during the current and previous year.

(III) Disclosures on risk exposure in derivatives(III) Details of financing of Parent Company products

The Company does not have any financing of Parent Company products during the current and previous year.

(IV) Details of Single Borrower Limit (SGL)/Group Borrower Limit (GBL) exceeded

The Company has not exceeded the prudential exposure limits during the current and previous year.

(V) Unsecured advances

Gross loans and advances includes unsecured advances of I 62,883.76 crore (Previous year I 62,076.36 crore) There are no advances secured against intangible assets.

The Liquidity Coverage Ratio (LCR) is one of the key parameters closely monitored by RBI to enable a more resilient financial sector. The objective of the LCR is to promote an environment wherein balance sheet carry a strong liquidity for short term cash flow requirements. To ensure strong liquidity NBFCs are required to maintain adequate pool of unencumbered High-Quality Liquid Assets (HQLA) which can be easily converted into cash to meet their stressed liquidity needs for 30 calendar days. The LCR is expected to improve the ability of financial sector to absorb the shocks arising from financial and/or economic stress, thus reducing the risk of spill over from financial sector to real economy.

To compute stressed cash outflow, all expected and contracted cash outflows are considered by applying a stress of 15%. Similarly, inflows for the Company is arrived at by considering all expected and contracted inflows by applying a haircut of 25%.

Company for purpose of computing outflows, have considered: (1) all the contractual debt repayments, (2) committed credit facilities contracted with the subsidiaries and customers, and (3) other expected or contracted cash outflows. Inflows comprises of: (1) expected receipt from all performing loans, and (2) liquid investment which are unencumbered and have not been considered as part of HQLA.

56 In accordance with the instructions in the RBI circular dated 7 April 2021, all lending institutions shall refund/adjust ''interest on interest'' to all borrowers including those who had availed working capital facilities during the moratorium period, irrespective of whether moratorium had been fully or partially availed, or not availed. Pursuant to these instructions, the Indian Banks Association (IBA) in consultation with other industry participants/bodies published

the methodology for calculation of the amount of such ''interest on interest''. Accordingly, the Company has made a provision of I 2.53 crore.

57 Amounts less than I 50,000 have been shown at actuals against respective line items statutorily required to be disclosed.

Mar 31, 2019

1 Corporate information

Bajaj Finance Ltd. (âthe Companyâ, âBFLâ) is a company limited by shares, incorporated on 25 March 1987 and domiciled in India. The Company is engaged in the business of lending. BFL has a diversified lending portfolio across retail, SME and commercial customers with a significant presence in urban and rural India. It also accepts public and corporate deposits and offers variety of financial services products to its customers. The Company has its registered office at Akurdi, Pune, Maharashtra, India and its principal place of business at 4th floor, Bajaj Finserv corporate office, Viman nagar, Pune, Maharashtra, India. The parent of the Company is Bajaj Finserv Ltd.

The Company is deposit taking non-banking financial company (NBFC) registered with the Reserve Bank of India (RBI) with effect from 5 March 1998, with Registration No. A-13.00243. RBI, vide the circular - âHarmonisation of different categories of NBFCsâ issued on 22 February 2019, with a view to provide NBFCs with greater operational flexibility and harmonisation of different categories of NBFCs into fewer categories based on the principle of regulation by activity, merged the three categories of NBFCs viz. Asset Finance Companies (AFC), Loan Companies (LCs) and Investment Companies (ICs) into a new category called NBFC - Investment and Credit Company (NBFC-ICC). Accordingly, the Company has been reclassified as NBFC-Investment and Credit Company (NBFC-ICC).

The audited financial statements were subject to review and recommendation of Audit Committee and approval of Board of Directors. On 16 May 2019, Board of Directors of the Company approved and recommended the audited financial statements for consideration and adoption by the shareholders in its annual general meeting.

2 Basis of preparation

The financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 as amended from time to time and notified under section 133 of the Companies Act, 2013 (the Act) along with other relevant provisions of the Act and the Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 (âthe NBFC Master Directionsâ) issued by RBI. The financial statements have been prepared on a going concern basis.

The Company uses accrual basis of accounting except in case of significant uncertainties.

For all periods up to and including the year ended 31 March 2018, the Company had prepared its financial statements in accordance with accounting standards notified under Section 133 of the Companies Act 2013, read together with paragrapRs. 7 of the Companies (Accounts) Rules, 2014 and the Companies (Accounting Standards) Amendment Rules, 2016 and the NBFC Master Directions (hereinafter referred as âPrevious GAAPâ). These financial statements for the year ended 31 March 2019 are the first the Company has prepared in accordance with Ind AS. The Company has applied Ind AS 101 âFirst-time Adoption of Indian Accounting Standardsâ, for transition from previous GAAP to Ind AS. An explanation of how transition to Ind AS has affected the previously reported financial position, financial performance and cash flows of the Company is provided in note no. 51.

2.1 Presentation of financial statements

The Company presents its Balance Sheet in order of liquidity.

The Company generally reports financial assets and financial liabilities on a gross basis in the Balance Sheet. They are offset and reported net only when Ind AS specifically permits the same or it has an unconditional legally enforceable right to offset the recognised amounts without being contingent on a future event. Similarly, the Company offsets incomes and expenses and reports the same on a net basis when permitted by Ind AS specifically unless they are material in nature.

Critical accounting estimates and judgments

The preparation of the Companyâs financial statements requires Management to make use of estimates and judgments. In view of the inherent uncertainties and a level of subjectivity involved in measurement of items, it is possible that the outcomes in the subsequent financial years could differ from those on which the Managementâs estimates are based. Accounting estimates and judgments are used in various line items in the financial statements for e.g.:

- Business model assessment [Refer note no. 3.4(i)]

- Fair value of financial instruments [Refer note no. 3.15, 47 and 48]

- Effective Interest Rate (EIR) [Refer note no. 3.1(i)]

- Impairment on financial assets [Refer note no. 3.4(i) 8 and 49]

- Provisions and other contingent liabilities [Refer note no. 3.10 and 41]

- Provision for tax expenses [Refer note no. 3.6(i)]

- Residual value and useful life of property, plant and equipment [Refer note no. 3.7(h)]

3 Standard issued but not yet effective

Ind AS 116 âLeasesâ was notified on 30 March 2019 and it replaces Ind AS 17 âLeasesâ, including appendices thereto.

Ind AS 116 is effective for annual periods beginning on or after 1 April 2019. Ind AS 116 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-Balance Sheet model similar to the accounting for finance leases under Ind AS 17. The standard includes two recognition exemptions for lessees - leases of âlow-valueâ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

The Company has leases in which it acts as a lessee and which needs to be accounted for as per requirements of Ind AS 116. The Company is in the process of determining the accounting impact of Ind AS 116 on its lease contracts wherein it acts as a lessee. The Company does not have any lease contracts wherein it acts as a lessor.

On 14 September 2016, the Allotment Committee of the Board of Directors allotted 269,360,950 equity shares of face value of RS. 2 each as bonus shares in the proportion of one bonus equity share for every one equity share of face value of RS. 2 held as on the record date, by capitalising an amount of RS. 538,721,900 from securities premium account. The bonus shares were listed on Bombay Stock Exchange Ltd. (BSE) and National Stock Exchange of India Ltd. (NSE) w.e.f. 19 September 2016. Other than this, Company has not allotted any bonus shares in previous years.

(a) Terms/rights/restrictions attached to equity shares

(i) The Company has only one class of equity shares having a par value of RS. 2 per share. Each holder of equity shares is entitled to one vote per share. The dividend recommended by the Board of Directors and approved by the shareholders in the Annual General Meeting is paid in Indian Rupees. 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.

(ii) Pursuant to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, 9,250,000 equity shares held by Bajaj Finserv Ltd. are restricted from transfer and pledge up to 11 December 2019.

Consequent to the opinion expressed by the âExpert Advisory Committeeâ of the Institute of Chartered Accountants of India on the applicability of clause 22A.1 of the SEBI Guidelines, the balance unexercised equity shares held by the trust at the close of the year have been reduced against the share capital as if the trust is administered by the Company itself. The securities premium related to the unexercised equity shares held by the trust at the close of the year aggregating RS. 346,849,803 (As at 31 March 2018 RS. 917,873,582) has also been reduced from securities premium account and adjusted against the loan outstanding from the trust.

4 Nature and purpose of other equity

(i) Securities premium

Securities premium is used to record the premium on issue of shares. It can be utilised only for limited purposes in accordance with the provisions of the Companies Act, 2013.

(ii) Retained earnings

Retained earnings represents the surplus in profit and loss account and appropriations.

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:

- actuarial gains and losses;

- return on plan assets, excluding amounts included in net interest on the net defined benefit liability/(asset); and

- any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability/(asset).

(iii) Reserve fund in terms of section 45-IC(1) of the Reserve Bank of India Act, 1934

Reserve fund is created as per the terms of section 45-IC(1) of the Reserve Bank of India Act, 1934 as a statutory reserve.

(iv) General reserve

Amounts set aside from retained profits as a reserve to be utilised for permissible general purpose as per Law.

(v) Infrastructure reserve created under section 36(1)(viii) of the Income Tax Act, 1961

Infrastructure reserve is created to avail the deduction as per the provisions of Section 36(1)(viii) of the Income Tax Act, 1961 on profits derived from the business of providing long term finance for development of infrastructure facility in India.

(vi) Other comprehensive income On equity investments

On debt investments

On loans

The Comapny recognises changes in the fair value of loans measured under FVOCI in other comprehensive income and impairment loss allowances are recognised in profit or loss. The table gives details of movement of fair value changes:

(vii) Share options outstanding account

Share options outstanding account is created as required by Ind AS 102 âShare Based Paymentsâ on the Employee Stock Option Scheme operated by the Company for employees of the Group.

5 Earnings per share (EPS)

Basic EPS is calculated by dividing the profit for the year attributable to equity holders of the Company by the weighted average number of equity shares outstanding during the year.

The following reflects the income and share data used in the basic and diluted EPS computations:

6 Segment Information

7 Transferred financial assets that are derecognised in their entirety but where the Company has continuing involvement

The Company has not transferred any assets that are derecognised in their entirety where the Company continues to have continuing involvement.

8 Employee benefits plan Defined benefit plans (A) Gratuity

The gratuity plan is governed by the Payment of Gratuity Act, 1972. Under the Gratuity Act, an employee who has completed five years of service is entitled to specific benefits. The level of benefits provided depends on the memberâs length of service, managerial grade and salary at retirement age.

(A) Providend fund

In case of certain employees, the Provident fund contribution is made to Bajaj Auto Ltd. Provident Fund Trust. In terms of the guidance note issued by the Institute of Actuaries of India, the actuary has provided a valuation of provident fund liability based on the assumptions listed below and determined that there is no shortfall as of 31 March 2019. The assumptions used in determining the present value of obligation of interest rate guarantee under deterministic approach are as set out below:

Sensitivity analysis for significant assumptions is as shown below

The following table summarises the impact in absolute terms on the reported defined benefit obligation at the end of the reporting period arising on account of an increase or decrease in the difference between the rate earned and the guaranteed rate.

(i) The Company is of the opinion that the above demands are not tenable and expects to succeed in its appeals/defense.

(ii) The Commissioner, Service Tax Commissionerate, Pune, through an order dated 31 March 2017, has confirmed the demand of service tax of RS. 644.65 crore and penalties of RS. 198.95 crore from the Company in relation to the interest subsidy the Company received from manufacturers and dealers during the period 1 April 2010 to 30 September 2016. In addition, the Commissioner has demanded payment of interest on the service tax amount confirmed until the date the Company pays the service tax demanded, which as at 31 March 2019 amounted to RS. 496.89 crore. In accordance with legal advice, the Company filed an appeal on 6 July 2017 with the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai disputing the demands. The Company, in line with the opinion obtained from a senior legal counsel, is of view that the said demands are not tenable.

(iii) The Commissioner, Central Excise and CGST, Pune-I Commissionerate, through an order dated 7 September 2018, has confirmed the demand of service tax of RS. 53.87 crore and penalties of RS. 53.87 crore from the Company in relation to the penal interest/charges the Company received from the customers during the period 1 July 2012 to 31 March 2017. In addition, the Commissioner has demanded payment of interest on the service tax amount confirmed until the date the Company pays the service tax demanded, which as at 31 March 2019 amounted to RS. 43.36 crore. In accordance with legal advice, the Company filed an appeal on 26 December 2018 with the Customs, Excise and Service Tax Appellate Tribunal, Mumbai disputing the demands. The Company, in line with the opinion obtained from a legal counsel, is of view that the said demands are not tenable.

In addition, the Commissioner, Central Excise and CGST, Pune-I Commissionerate, has issued a periodical show cause notice on 30 March 2019 demanding payment of service tax of RS. 40.22 crore and penalty thereon of RS. 40.22 crore on penal interest/charges received by the Company from the customers during the period 1 April 2016 to 30 June 2017. The Commissioner has also demanded payment of interest on the service tax amount demanded, through a show cause notice, until the date the Company pays the demand, which as at 31 March 2019, amounted to RS. 13.65 crore. The Company is in the process of preparation and filing of reply against this periodical show cause notice.

(iv) It is not practicable for the Company to estimate the timings of the cash flows, if any, in respect of the above pending resolution of the respective proceedings.

(v) Hâble Supreme Court has recently, delivered its ruling on the composition of basic wages for the purposes of deduction and contribution to the Employees Provident and Pension funds. The Company, in the interest of its employees, awaits clarity on the complexities revolving around the application of the said order, the ambiguity reflected by the divergent views of legal counsel and the response/ direction from the authorities, including on representations made by an industry association in this regard.

The Companyâs significant leasing arrangements are in respect of operating leases for premises which are renewable on mutual consent at agreed terms. Certain agreements provide for cancellations by either party or certain agreements contains clause for escalation of lease payments. The non-cancellable operating lease agreements are ranging from 36 to 60 months. There are no sub-leases. An amount of RS. 65.24 crore (Previous year RS. 48.32 crore) has been charged as lease payments to the Statement of Profit and Loss.

The total future minimum lease rentals payable at the Balance Sheet date for non-cancellable portion of the leases are as under:

9 Changes in liability

The Company does not have any financing activities which affect the capital and asset structure of the Company without the use of cash and cash equivalents.

10 Capital

The Company actively manages its capital base to cover risks inherent to its business and meet the capital adequacy requirement of RBI. The adequacy of the Companyâs capital is monitored using, among other measures, the regulations issued by RBI.

(i) Capital management Objective

The Companyâs objective is to maintain appropriate levels of capital to support its business strategy taking into account the regulatory, economic and commercial environment. The Company aims to maintain a strong capital base to support the risks inherent to its business and growth strategies. The Company endeavours to maintain a higher capital base than the mandated regulatory capital at all times.

Planning

The Companyâs assessment of capital requirement is aligned to its planned growth which forms part of an annual operating plan which is approved by the Board and also a long range strategy. These growth plans are aligned to assessment of risks- which include credit, liquidity and interest rate.

The Company monitors its capital to risk-weighted assets ratio (CRAR) on a monthly basis through its Assets Liability Management Committee (ALCO).

The Company endeavours to maintain its CRAR higher than the mandated regulatory norm. Accordingly, increase in capital is planned well in advance to ensure adequate funding for its growth.

The Companyâs dividend distribution policy states that subject to profit, the Board shall endeavour to maintain a dividend payout (including dividend distribution tax) of around 15% of profits after tax on standalone financials, to the extent possible.

The Company is also the provider of equity capital to its wholly owned subsidiaries and also provides them with nonequity capital where necessary. These investments are funded by the Company through its equity share capital and other equity which inter alia includes retained profits.

(ii) Regulatory capital

11 Events after reporting date

There have been no events after the reporting date that require adjustment/disclosure in these financial statements.

12 Fair values

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.

Valuation framework

The Company has an internal fair value assessment team which assesses the fair values for assets qualifying for fair valuation. The Companyâs valuation framework includes:

- Benchmarking prices against observable market prices or other independent sources;

- Development and validation of fair valuation models using model logic, inputs, outputs and adjustments.

Valuation methodologies adopted

Fair values of financial assets, other than those which are subsequently measured at amortised cost, have been arrived at as under:

- Fair values of investments held for trading under FVTPL have been determined under level 1 (refer note no. 48) using quoted market prices of the underlying instruments;

- Fair values of strategic investments in equity instruments designated under FVOCI have been measured under level 3 (refer note no. 48) at fair value based on a discounted cash flow model.

- Fair values of other investments under FVOCI have been determined under level 1 using quoted market prices of the underlying instruments;

- Fair value of loans held under a business model that is achieved by both collecting contractual cash flows and partially selling the loans through partial assignment to willing buyers and which contain contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest are measured at FVOCI. The fair value of these loans have been determined under level 3.

The Company has determined that the carrying values of cash and cash equivalents, bank balances, trade receivables, short term loans, floating rate loans, investments in equity instruments designated at FVOCI, trade payables, short term debts, borrowings, bank overdrafts and other current liabilities are a reasonable approximation of their fair value and hence their carrying value are deemed to be fair value.

13 Fair value hierarchy

The Company determines fair values of its financial instruments according to the following hierarchy:

Level 1: valuation based on quoted market price: financial instruments with quoted prices for identical instruments in active markets that the Company can access at the measurement date.

Level 2: valuation based on using observable inputs: financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.

Level 3: valuation technique with significant unobservable inputs: - financial instruments valued using valuation techniques where one or more significant inputs are unobservable. Equity investments designated under FVOCI has been valued using discounted cash flow method.

Liquidity and funding risk

The Companyâs ALCO monitors asset liability mismatches to ensure that there are no imbalances or excessive concentrations on either side of the Balance Sheet.

The Company continuously monitors liquidity in the market; and as a part of its ALCO strategy, the Company maintains a liquidity buffer managed by an active investment desk to reduce this risk.

The Company maintains a judicious mix of borrowings from banks, money markets and public and other deposits. The Company continues to diversify its sources of borrowings with an emphasis on longer tenor borrowings. This strategy of balancing varied sources of funds and long tenor borrowings has helped the Company maintain a healthy asset liability position and contain interest rate movements during the financial year 2018-19 (FY2019) - the weighted average cost of borrowing moved only 15 bps despite volatile market conditions. The Company continues to evaluate new sources of borrowing by way of new routes of funding like rupee denominated External Commercial Borrowings (ECB) -masala bonds and Foreign currency denominated bonds.

The table below summarises the maturity profile of the undiscounted cashflow of the Companyâs financial liabilities:

Market risk

Interest rate risk On investments

During FY2019, the Company recalibrated its investment portfolio to holding shorter duration investments which resulted in minimal fair value change impact on its investment portfolio. The interest rate risk on the investment portfolio and corresponding fair value change impact is monitored using VaR and the parameters for monitoring the same are defined in its investment policy.

On assets and liabilities

Credit risk

Classification of financial assets under various stages

The Company classifies its financial assets in three stages having the following characteristics:

- Stage 1: unimpaired and without significant increase in credit risk since initial recognition on which a 12 month allowance for ECL is recognised;

- Stage 2: a significant increase in credit risk since initial recognition on which a lifetime ECL is recognised;

- Stage 3: objective evidence of impairment, and are therefore considered to be in default or otherwise credit impaired on which a lifetime ECL is recognised.

Unless identified at an earlier stage, all financial assets are deemed to have suffered a significant increase in credit risk when they are 30 days past due (DPD) and are accordingly transferred from stage 1 to stage 2. For stage 1 an ECL allowance is calculated based on a 12 month Point in Time (PIT) probability weighted probability of default (PD). For stage 2 and 3 assets a life time ECL is calculated based on a lifetime PD.

The Company has calculated ECL using three main components: a probability of default (PD), a loss given default (LGD) and the exposure at default (EAD) along with an adjustment considering forward macro economic conditions [for a detailed note for methodology of computation of ECL please refer to significant accounting policies note no 3.4(i) to the financial statements].

Financial instruments other than loans were subjected to simplified ECL approach under Ind AS 109 âFinancial Instrumentsâ and accordingly were not subject to sensitivity of future economic conditions.

Collateral Valuation

The nature of products across these broad categories are either unsecured or secured by collateral. Although collateral is an important risk mitigant of credit risk, the Companyâs practice is to lend on the basis of assessment of the customerâs ability to repay rather than placing primary reliance on collateral. Based on the nature of product and the Companyâs assessment of the customerâs credit risk, a loan may be offered with suitable collateral. Depending on its form, collateral can have a significant financial effect in mitigating the Companyâs credit risk.

The Company periodically monitors the market value of collateral and evaluates its exposure and loan to value metrics for high risk customers. The Company exercises its right of repossession across all secured products but primarily in its two wheeler and three wheeler financing business. It also resorts to invoking its right under the SARFAESI Act and other judicial remedies available against its mortgages and commercial lending business. The repossessed assets are either sold or released to delinquent customers in case they come forward to settle their dues. For its loan against securities business, the Company recoups shortfall in value of securities through part recall of loans or additional securities from the customer, or sale of underlying securities. The Company does not record repossessed assets on its Balance Sheet as non-current assets held for sale.

Analysis of Concentration Risk

The Company continues to grow its product offerings by expanding its geographic reach in order to reduce geographic concentrations while continually calibrating its product mix across its six categories of lending mentioned above.

Measurement uncertainty and sensitivity analysis of ECL estimates

Expected credit loss impairment loss allowances recognised in the financial statements reflect the effect of a range of possible economic outcomes, calculated on a probability-weighted basis, based on the economic scenarios described below. The recognition and measurement of ECL involves the use of estimation. It is necessary to formulate multiple forward-looking economic forecasts and its impact as an integral part of ECL model.

Methodology

The Company has adopted the use of three scenarios, representative of its view of forecast economic conditions, required to calculate unbiased expected loss. They represent a most likely outcome i.e. central scenario and two less likely outer scenarios referred to as the upside and downside scenarios. The Company has assigned a 10% probability to the two outer scenarios, while the central scenario has been assigned an 80% probability. These weights are deemed appropriate for the unbiased estimation of impact of macro factors on ECL. The key scenario assumptions are used keeping in mind external forecasts and Management estimates which ensure that the scenarios are unbiased.

The Company has used multiple economic factors and tested their correlations with past loss trends witnessed. The economic factors tested were GDP growth rates, growth of bank credit, wholesale price index (WPI), consumer price index (CPI), industrial production index, crude oil prices, exchange rate and policy interest rates. Based on past correlation trends, CPI and policy interest rates were the two factors with acceptable correlation with past loss trends which were in line with Management views on the drivers of portfolio trends. These factors were assigned appropriate weights to measure ECL in forecast economic conditions.

14 Employee stock option plan

The Board of Directors at its meeting held on 14 October 2009, approved an issue of stock options up to a maximum of 5% of the then issued equity capital of the Company aggregating to 1,829,803 equity shares of the face value of RS. 10 each in a manner provided in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 subject to the approval of the shareholders under section 81(1A) of the Companies Act, 1956. The shareholders of the Company vide their special resolution passed through postal ballot on 15 December 2009 approved the issue of equity shares of the Company under one or more Employee Stock Option Scheme(s). The shareholders, at the Annual General Meeting held on 16 July 2014, approved an additional issue of 6,77,313 stock options i.e. from 1,829,803 to 2,507,116 options of the face value of RS. 10 each under the stock options scheme of the Company i.e. Employee Stock Option Plan 2009.

Pursuant to the sub-division of each equity share of face value of RS. 10 into five equity shares of face value of RS. 2 on 10 September 2016 and allotment of bonus equity share in the proportion of one equity share of face value of RS. 2 for every one equity share on 14 September 2016, the aggregate number of equity shares which would be available for future grants under the Employee Stock Option Plan, 2009 were adjusted from 2,507,116 equity shares of face value of RS. 10 to 25,071,160 equity shares of face value of RS. 2 each.

The Nomination and Remuneration Committee of the Company has approved the following grants to select senior level executives of the Company in accordance with the Stock Option Scheme. Under the scheme, thirteen grants have been made as of 31 March 2019, details of which, duly adjusted for sub-division of shares and issue of bonus shares thereon, are given as under:

The weighted average market price of equity shares for options exercised during the year is RS. 2,440.04 (previous year RS. 1,533.20). Method used for accounting for share based payment plan

The Company has used the fair value method to account for the compensation cost of stock options to employees. The fair value of options used are estimated on the date of grant using the Black - Scholes Model. The key assumptions used in Black - Scholes Model for calculating fair value as on the date of respective grants are:

For the year ended 31 March 2019, the Company has accounted expense of RS. 74.79 crore as employee benefit expenses (note no. 34) on the aforesaid employee stock option plan (Previous year RS. 45.01 crore). The balance in employee stock option outstanding account is RS. 137.85 crore as of 31 March 2019 (Previous year RS. 82.01 crore).

15 First-time adoption of Ind AS

These are the Companyâs first financial statements prepared in accordance with Ind AS.

The Company has prepared its Ind AS compliant financial statements for year ended on 31 March 2019, the comparative period ended on 31 March 2018 and an opening Ind AS Balance Sheet as at 1 April 2017 (the date of transition), as described in the summary of significant accounting policies. This note explains the principal adjustments made by the Company in restating its previous GAAP financial statements, including the Balance Sheet as at 1 April 2017 and the financial statements as at and for the year ended 31 March 2018.

For periods ended up to the year ended 31 March 2018, the Company had prepared its financial statements in accordance with the accounting standards notified under section 133 of the Companies Act 2013, read together with paragrapRs. 7 of the Companies (Accounts) Rules, 2014 (Previous GAAP).

(A) Mandatory exceptions and optional exemptions availed

Set out below are the applicable Ind AS 101 mandatory exceptions and optional exemptions applied in the transition from previous GAAP to Ind AS, which were considered to be material or significant by the Company.

Mandatory exceptions

The Company has adopted all relevant mandatory exceptions set out in Ind AS 101 which are as below:

(i) Estimates

Ind AS 101 prescribes that an entityâs estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

The Companyâs Ind AS estimates as at the transition date are consistent with the estimates as at the same date made in conformity with previous GAAP.

(ii) Derecognition of financial assets and financial liabilities

As set out in Ind AS 101, the Company has applied the derecognition requirements of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS.

(iii) Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification and measurement of financial assets on the basis of the facts and circumstances that exist at the date of transition to Ind AS.

(iv) Impairment of financial assets

As set out in Ind AS 101, an entity shall apply the impairment requirements of Ind AS 109 retrospectively if it does not entail any undue cost or effort. The Company has assessed impairment of financial assets in conformity with Ind AS 109.

Optional exemptions availed

(i) Share based payments

Ind AS 102 requires recognition of stock options on the basis of fair value at date of grant over the vesting period. Ind AS 101 provides a one time exemption for stock options that vested before the date of transition.

The Company has elected to apply this exemption to employee stock options that vested before the date of transition and accordingly recognised fair value of unvested employee stock options in its opening Balance Sheet.

(ii) Investment in subsidiary

Ind AS 101 provides a one time option to a first-time adopter either to measure its investment in subsidiaries as per previous GAAP carrying value or at fair value on the date of transition.

The Company has elected to measure its investment in subsidiary as per previous GAAP carrying value.

(iii) Leases

Appendix C to Ind AS 17 requires an entity to assess whether a contract or arrangement contains a lease. In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. Ind AS 101 provides an option to make this assessment on the basis of facts and circumstances existing at the date of transition to Ind AS, except where the effect is expected to be material.

The Company has elected to apply this exemption for such contracts/arrangements.

(B) Reconciliations between Ind AS and previous GAAP are given below

Ind AS 101 requires an entity to reconcile equity, total comprehensive income and cash flows for previous periods. The following table represent the reconciliations from previous GAAP to Ind AS.

Notes to first time adoption of Ind AS

(1) Fair valuation of ESOPs

Under previous GAAP, the Company had an accounting policy choice to measure the options issued under ESOP either at fair value or intrinsic value. The Company under previous GAAP measured the ESOP at its intrinsic value. Under Ind AS, the ESOP scheme floated by the Company qualifies as equity settled and is mandatorily required to be measured at the grant date fair value. As per Ind AS 101 - first time adoption of Ind AS, the Company has availed the optional exemption of determining the fair value of options unvested as at 1 April 2017 (the transition date) only. The resulting fair value of aforesaid options has been recognised in retained earnings (net of related deferred taxes) as at the date of transition and subsequently in the Statement of Profit and Loss for the year ended 31 March 2018.

(2) Fair valuation of investments subsequently measured under FVTPL and FVOCI

Under the previous GAAP, investments in Government and trust securities, fixed maturity plans and other mutual funds were classified as long-term investments or current investments based on the intended holding period and readability. Long-term investments were carried at cost less provision for other than temporary decline in the value of such investments. Current investments were carried at lower of cost and fair value. Under Ind AS, these investments are required to be measured at fair value. The resulting fair value changes of these investments have been recognised in retained earnings (net of related deferred taxes) as at the date of transition and subsequently in the Statement of Profit and Loss for the year ended 31 March 2018 or Other Comprehensive Income (OCI) depending upon the subsequent measurement category for the investments.

(3) EIR adjustment of transaction costs/incomes integral to the sourcing of loans/borrowings.

Under previous GAAP, all the transaction costs/incomes integral to sourcing of loans/borrowings were recognised upfront on an accrual basis. Under Ind AS, these transaction costs/incomes related to sourcing of loans/borrowings are amortised using the effective interest rate (EIR) and the unamortised portion is adjusted in retained earnings (net of related deferred taxes) as at the date of transition and subsequently in the Statement of Profit and Loss for the year ended 31 March 2018.

(4) Impairment of financial assets

Under previous GAAP, loan losses and provisions were computed basis RBI guidelines and Management estimations. Under Ind AS, the same is required to be computed as per the impairment principles laid out in Ind AS 109 - âFinancial Instrumentsâ which prescribes the expected credit loss model (ECL model) for the same. Accordingly, the difference between loan losses and provisions as computed under previous GAAP and as computed under Ind AS is adjusted in retained earnings (net of related deferred taxes) as at the date of transition and subsequently in the Statement of Profit and Loss for the year ended 31 March 2018.

(5) Remeasurement of defined benefit plan obligations

Under Ind AS, remeasurements i.e. actuarial gains and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognised in other comprehensive income instead of profit or loss. Under the previous GAAP, these remeasurements were forming part of the Statement of Profit and Loss for the year. There is no impact on the total equity.

(6) Service asset

Under Ind AS 109, an entity on transfer of a financial asset that qualifies for derecognition in its entirety and retains the right to service the financial asset for a fee, shall on the date of derecognition recognise a servicing asset at fair value of fees to be received over the contractual life in excess of its cost of the servicing obligation. The impact of fair value change is recognised in Statement of Profit and Loss. Under previous GAAP such revenues were recognised in Statement of Profit and Loss over servicing period.

Accordingly, the fair value of service asset is adjusted in retained earnings (net of related deferred taxes) as at the date of transition and subsequently in the Statement of Profit and Loss for the year ended 31 March 2018.

(7) Components of other comprehensive income (OCI)

Under Ind AS, following items has been recognised in other comprehensive income in the Statement of Profit and Loss of the Company:

- Re-measurement gains/(losses) on defined benefit plans

- Changes in fair value of FVOCI equity instruments

- Changes in fair value of FVOCI debt securities

All above adjustments, except remeasurement gains/(losses) on defined benefit plans as set out in note (5) above, are recognised in other comprehensive income reserve (net of related deferred taxes) as at the date of transition and for the year ended 31 March 2018 and subsequently in the OCI section in the Statement of Profit and Loss for the year ended 31 March 2018.

Impact of Ind AS adoption on the Statement of Cash Flows for the year ended 31 March 2018

There are no material adjustments on transition to Ind AS in the Statement of Cash Flows for the year ended 31 March 2018.

16 Amounts less than Rs.50,000 have been shown at actuals against respective line items statutorily required to be disclosed.

Mar 31, 2017

Note

* Includes payable to related parties aggregating RS,6.65 crore (Previous year RS,4.18 crore).

"" Includes payable to related parties aggregating RS, 4.37 crore (Previous year RS, 3.03 crore).

@ The Company manages its cash flows judiciously with the objective of maximizing returns of floats available as a result of timing differences between cheques issued against loan commitments and their presentation to bank for honour. As a result, cheques issued but not presented at the Balance Sheet date give rise to temporary overdrafts as per books of accounts only. The Company safeguards against any risks on this account by ensuring availability of undrawn credit lines from banks aggregating RS, 2,102.07 crore at the close of the year.

Includes payable to related parties aggregating RS, 2.71 crore (Previous year RS, 0.91 crore).

There are no amounts that are due and remain unpaid to Investor Education and Protection Fund as at the close of the year.

1. Computation of Earnings Per Share (EPS)

Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to the equity shareholders by the weighted average number of equity shares outstanding during the period. Earnings considered in ascertaining the Company''s earnings per share is the net profit for the period after deducting preference dividends and any attributable tax thereto for the period. The weighted average number of equity shares outstanding during the period and for all periods presented is adjusted for events, such as bonus shares, other than conversion of potential equity shares, that have changed the number of equity shares outstanding, without a corresponding change in resources. For the purpose of calculating the diluted earnings per share, the net profit or loss for the period attributable to the equity shareholders and the weighted average number of shares outstanding during the period is adjusted for the effects of all dilutive potential equity shares.

i) The Company is of the opinion that the above demands are not sustainable and expects to succeed in its appeals/defense.

ii) The Commissioner of Service Tax, during the year, confirmed the demand of service tax on interest subsidy received from manufacturers and dealers, which was previously questioned by show cause notice issued on the Company. Consequently, the Commissioner has demanded service tax amounting of RS, 644.65 crore for the period up to 30 September 2016, interest approximating RS, 303.50 crore (Interest up to 31 March 2017) and penalty of RS, 198.95 crore. The Company has disputed the said demand and in accordance with legal advice, is in the process of filing an appeal refuting the said claim.

The Company in line with the opinion obtained from an Eminent Counsel, is of view that the said demands are not tenable and has accordingly disclosed it as a contingent liability.

iii) It is not practicable for the Company to estimate the timings of the cash flows, if any, in respect of the above pending resolution of the respective proceedings.

2. The Company and its consolidated Group are engaged primarily in the business of financing and accordingly there are no separate reportable segments as per Accounting Standard-17 as prescribed by Companies (Accounting Standards) Rules, 2006, dealing with segment reporting.

3.Liability for long-term employee benefits has been determined by an actuary, appointed for the purpose, in conformity with the principles set out in the Accounting Standard 15 (Revised) as prescribed by Companies (Accounting Standards) Rules, 2006, the details of which are as hereunder:

4. In accordance with the Reserve Bank of India circular no. RBI/2006-07/225 DNBS (PD) C.C. No. 87/03.02.004/2006-07 dated 4 January 2007, the Company has created a floating charge on the statutory liquid assets comprising of investment in Government securities to the extent of RS, 557.38 crore (Previous year RS, 347.11 crore) in favor of trustees representing the public deposit holders of the Company.

5. Disclosures relating to Specified Bank Notes (SBNs) held and transacted during the period from 8 November 2016 to 30 December 2016 as directed vide notification no. G.S.R. 308(E) of Ministry of Corporate Affairs dated 30 March 2017:

Note i. Includes RS,5.04 crore in-transit cash depositions as on 8 November 2016, where the Company had initiated deposition of cash into its bank accounts on or before

8 November 2016 through Cash Management Services (CMS) of banks which were collected by the CMS personnel by 17 November 2016 due to unprecedented work load.

ii. (a)The Company''s collection agencies deposit cash collected from the Company''s customers to the Company''s branches which are in turn along with other direct

collections deposited into the Company''s bank accounts with details of denominations. The said information has been tabulated above. The cash collected by collection agencies on or before 8 November 2016 was submitted to the Company across more than 430 branches between 9 November 2016 and 16 November 2016. The Company has taken due efforts in ensuring that amounts received from collection agencies (more than 6,000 agencies) in SBNs were evidenced by collections made by its agencies on or before 8 November 2016.

(b)The Company provides a facility to its collection agencies to directly deposit collections made by them from the Company''s customers, as also to customers to directly deposit their installments into the Company''s bank accounts.

The Reserve Bank of India vide notification no. RBI/2016-17/112 dated 8 November 2016 specifically restricted acceptance of SBNs by bank in third party accounts unless specific authorization there for accorded by the third party is presented to the bank.

However, the Company had not authorized any of its banks to accept any SBN deposits directly into its bank account by third parties in SBNs except in respect of its two-wheelers and three-wheelers financing business, where due to its penetration into remote markets and corresponding profile of customers, the Company had authorized banks to accept deposit of cash collected by its agents on or before 8 November 2016 directly into the Company''s bank accounts but not beyond 16 November 2016, aggregating to RS, 9.77 crore. Whilst the Company has taken due efforts in ensuring that amounts received from collection agencies in SBNs were evidenced by collections made by its agencies on or before 8 November 2016, the information in this regards has been presented only to the extent of information available and received from the collection agents in absence of any information forthcoming from banks in this regard and hence disclosures are not verifiable by the statutory auditors.

iii. The Company has not authorized any transaction, collections or otherwise, in SBNs post 8 November 2016. All cash collected in accordance with the Company''s policies and procedures are deposited into the bank accounts.

6. (i) Previous year''s figures have been regrouped, wherever necessary, to make them comparable with those of the current period.

(ii) The Consolidated Financial Statements of the Company and its subsidiaries for the year ended 31 March 2017 are attached herewith.

7. Amounts less than RS, 50,000 have been shown at actual against respective line items statutorily required to be disclosed.

Mar 31, 2015

1 General information

The Company is a registered non-banking finance company engaged in the business of providing finance. The Company is registered with the Reserve Bank of India as a Non-Banking Finance Company (NBFC) with effect from 5 March 1998, with Registration No.A-13.00243. The Company primarily deals in the financing of two and three wheelers, consumer durables, small business loans, personal loan cross-sell, mortgage loans and loan against securities etc. The RBI vide its letter dated 7 October 2010, has re-classified the Company as a ''Loan Company'' from ''Asset Finance Company''.

b) Terms/rights attached to equity shares

The Company has only one class of equity shares having a par value of Rs. 10 per share. Each holder of equity shares is entitled to one vote per share. The dividend proposed by the Board of Directors and approved by the shareholders in the Annual General Meeting is paid in Indian Rupees. 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 allotted on conversion of preferential warrants, i.e. 1,310,000 equity shares are restricted from transfer other than inter se promoter group up to 10 December 2015.

c) Shares reserved for issue under Employee Stock Option Plan 2,507,116 (1,829,803) equity shares (i.e. 5% of the paid up equity share capital) have been approved/reserved for issue under Employee Stock Option Plan, 2009 of the Company drawn in accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (SEBI guidelines)), of which 1,890,680 (up to 31 March 2014:- 1,609,080) equity shares have been granted as per the scheme and 791,925 (up to 31 March 2014:- 787,000) thereof have been issued and alloted to ESOP trust, viz. BFL Employee Welfare Trust, up to 31 March 2015. Consequent to the opinion expressed by the ''Expert Advisory Committee'' of the Institute of Chartered Accountants of India on the applicability of clause 22A.1 of the SEBI Guidelines, the balance unexercised equity shares held by the trust at the close of the year amounting to 146,861 (as at 31 March 2014-393,581) have been reduced against the Share Capital of the Company as if the trust is administered by the Company itself. The Securities Premium related to the unexercised equity shares held by the trust as at the close of the year aggregating Rs. 103,110,017 (as at 31 March 2014:- Rs. 290,098,680) has also been reduced from securities premium account and adjusted against the loans outstanding from the trust. See note no. 29 for further details.

3 Computation of Earnings per Share (EPS)

Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to the equity shareholders by the weighted average number of equity shares outstanding during the period. Earnings considered in ascertaining the Company''s earnings per share is the net profit for the period after deducting preference dividends and any attributable tax thereto for the period. The weighted average number of equity shares outstanding during the period and for all periods presented is adjusted for events, such as bonus shares, other than conversion of potential equity shares, that have changed the number of equity shares outstanding, without a corresponding change in resources. For the purpose of calculating the diluted earnings per share, the net profit or loss for the period attributable to the equity shareholders and the weighted average number of shares outstanding during the period is adjusted for the effects of all dilutive potential equity shares.

4 Contingent liability not provided for

(Rs. In Crore) As at 31 March

Particulars 2015 2014

VAT matters under Appeal 6.86 3.43

ESI matters under appeal 5.14 5.14

Service tax matters under appeal 1.19 0.95

Income tax matters:

Appeals by the Company 9.66 15.85

Appeal by the Income Tax department 12.86 22.31

Guarantees given on behalf of the Company 2.24

5 The Company is engaged primarily in the business of financing and accordingly there are no separate reportable segments as per Accounting Standard-17 as prescribed by Companies (Accounting Standards) Rules, 2006, dealing with Segment Reporting.

6 Liability for long-term employee benefits has been determined by an actuary, appointed for the purpose, in conformity with the principles set out in the Accounting Standard 15 (Revised) as prescribed by Companies (Accounting Standards) Rules, 2006, the details of which are as hereunder.

C) Provident fund

In case of certain employees, the Provident Fund contribution is made to Bajaj Auto Limited Provident Fund Trust. In terms of the guidance note issued by the Institute of Actuaries of India, the actuary has provided a valuation of Provident Fund liability based on the assumptions listed below and determined that there is no shortfall as of 31 March 2015. The assumptions used in determining the present value of obligation of interest rate guarantee under deterministic approach are:

7 Employee stock option plan

The Board of Directors at its meeting held on 14 October 2009, approved an issue of Stock Options up to a maximum of 5% of the issued equity capital of the Company aggregating to 1,829,803 equity shares in a manner provided in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 subject to the approval of the shareholders under section 81(1A) of the Companies Act, 1956. The shareholders of the Company vide their special resolution passed through postal ballot on 15 December 2009 approved the issue of Equity Shares of the Company under one or more Employee Stock Option Scheme(s). The shareholders, at the Annual General Meeting held on 16 July 2014, approved an additional issue of 677,313 equity shares under the Stock Options schemes of the Company, i.e., Employee Stock Option Plan 2009.

Method used for accounting for share based payment plan

The Company has elected to use intrinsic value method to account for the compensation cost of stock options to employees of the Company. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the option.

The fair value of options used to compute pro-forma net profit and earnings per share have been estimated on the date of grant using the Black - Scholes Model. The key assumptions used in Black - Scholes Model for calculating fair value as on the date of grant are:

8 The disclosures required by various Reserve Bank of India Regulations, to the extent applicable, pertaining to Non-Banking Financial Companies are set out in Annexure to and forming an integral part of these Financial Statements.

9 On the basis of information available with the Company as regards the registration of its vendors under the Medium, Small and Micro Enterprises Development Act 2006, there are no dues outstanding beyond the prescribed credit period and consequently no interest payable under the said Act.

10 Previous year''s figures have been regrouped, wherever necessary, to make them comparable with those of the current period.

11 Amounts less than Rs. 50,000 have been shown at actual against respective line items statutorily required to be disclosed.

Mar 31, 2014

1. Contingent liability not provided for

(Rs. In Crore) As at 31 March

Particulars 2014 2013

Disputed claims against the Company not acknowledged as debts 6.56 4.57

VAT matter under appeal 3.43 6.05

ESI matter under appeal 5.14 5.14 Service tax matter under appeal 0.95 - Income tax matters:

- Appeals by the Company 15.85 29.59

- Appeals by the income tax department 22.31 5.74

Guarantees given on behalf of the Company - 4.44

2. The Company is engaged primarily in the business of financing and accordingly there are no separate reportable segments as per Accounting Standard-17 as prescribed by Companies (Accounting Standards) Rules, 2006, dealing with Segment Reporting.

3. Employee stock option plan

The Board of Directors at its meeting held on 14 October 2009, approved an issue of Stock Options upto a maximum of 5% of the issued equity capital of the Company aggregating to 18,29,803 equity shares in a manner provided in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 subject to the approval of the shareholders under section 81(1A) of the Companies Act, 1956. The shareholders of the Company vide their special resolution passed through postal ballot on 15 December 2009 approved the issue of equity shares of the Company under one or more Employee Stock Option Scheme(s).

4. The disclosures required in terms of Paragraph 13 of the Non Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 are given in the Annexure forming part of these Financial Statements.

5. On the basis of information available with the Company as regards the registration of its vendors under the Medium, Small and Micro Enterprises Development Act 2006, there are no dues outstanding beyond the prescribed credit period and consequently no interest payable under the said Act.

6. Previous year''s figures have been regrouped, wherever necessary, to make them comparable with those of the current period.

7. Amounts less than Rs. 50,000/- have been shown at actual against respective line items statutorily required to be disclosed.

Mar 31, 2013

1. Contingent liability not provided for

(Rs. In Crore)

2013 2012

Disputed claims against the Company not acknowledged as debts 4.57 3.51

VAT matters under appeal 6.05 3.49

ESI matters under appeal 5.14 5.14

Income tax matters under appeal 35.33 41.51

Guarantees given on behalf of the Company 4.44 -

2. The Company is engaged primarily in the business of financing and accordingly there are no separate reportable segments as per Accounting Standard-17 as prescribed by Companies (Accounting Standards) Rules, 2006, dealing with Segment Reporting.

3. Liability for employee benefits has been determined by an actuary, appointed for the purpose, in conformity with the principles set out in the Accounting Standard 15 (Revised) as prescribed by Companies (Accounting Standards) Rules, 2006, the details of which are as hereunder.

a) Provident fund

In case of certain employees, the provident fund contribution is made to Bajaj Auto Limited Provident Fund Trust.

In terms of the guidance note issued by the Institute of Actuaries of India, the actuary has provided a valuation of provident fund liability based on the assumptions listed below and determined that there is no shortfall as at 31 March 2013. The assumptions used in determining the present value of obligation of the interest rate guarantee under deterministic approach are:

The guidance note on implementing AS 15 "Employee benefits" issued by the Accounting Standards Board of the Institute of Chartered Accountants of India states that provident funds set up by employers that guarantee a specified rate of return and which require interest shortfall to be met by the employer would be defined benefit plans in accordance with the requirements of paragraph 26(b) of AS 15. The current year is the first year in which the actuary has given the disclosures in the actuarial valuation report, in view of the issuance of the guidance note by the Institute of Actuaries of India. Accordingly, the compliance with the disclosure requirements of paragraph 120(n) of AS 15 "Employee benefits" have been done prospectively from this year onwards.

4. Employee stock option plan

The Board of Directors at its meeting held on 14 October 2009, approved an issue of stock options up to a maximum of 5% of the issued equity capital of the Company aggregating to 1,829,803 equity shares in a manner provided in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 subject to the approval of the shareholders under section 81(1A) of the Companies Act, 1956. The shareholders of the Company vide their special resolution passed through postal ballot on 15 December 2009 approved the issue of equity shares of the Company under one or more Employee Stock Option Scheme(s).

5. During the year, the Company transferred assets through direct assignment of cash flows and the underlying securities to two banks. The disclosure as required by the revised Guidelines on Securitisation Transactions issued by RBI on 21 August 2012 is given as under:

6. The disclosures required in terms of paragraph 13 of the Non Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 are given in the annexure forming part of these financial statements.

7. Previous year''s figures have been regrouped, wherever necessary, to make them comparable with those of the current period.

8. Amounts less than Rs. 50,000/- have been shown at actual against respective line items statutorily required to be disclosed.

Mar 31, 2012

Basis of preparation

These financial statements have been prepared in accordance with the generally accepted accounting principles in India under the historical cost convention on accrual basis. These financial statements have been prepared to comply in all material aspects with the accounting standards notified under section 211(3C) [Companies (Accounting Standards) Rules, 2006, as amended] and the other relevant provisions of the Companies Act, 1956 and Reserve Bank of India Regulations in relation to Non Banking Finance Companies to the extent applicable to the company.

All assets and liabilities have been classified as current or non-current as per the criteria set out in the Revised Schedule VI to the Companies Act, 1956.

a. Terms/rights attached to equity shares

The company has only one class of equity shares having a par value of Rs 10 per share. Each holder of equity shares is entitled to one vote per share. The dividend proposed by the board of directors and approved by the shareholders in the annual general meeting is paid in Indian rupees. 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.

b. Shares reserved for issue:

i. Under Employee Stock Option Plan:

1,829,803 equity shares (i.e. 5% of the then paid up equity share capital) have been approved under Employee Stock Option Plan Scheme, 2009 of the company drawn in accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.

ii. For warrant conversion:

6,000,000 preferential warrants convertible into equivalent number of equity shares of Rs 10/- each had been issued to Bajaj Finserv Limited (promoter) by the company on 28 July 2011 from whom 25% of the issue price amounting to Rs 97.65 crore has been received in advance entitling the warrant holder to apply for an equivalent number of equity shares on payment of balance 75% of the issue price within 18 months from the date of allotment of warrants. Bajaj Finserv Limited has exercised its option to convert 4,690,000 warrants against which an equivalent number of equity shares of Rs 10/- each at a premium of Rs 641/- per share ranking pari passu with the existing equity shares of the company have been allotted on 29 March 2012. As of 31 March 2012, the balance 1,310,000 warrants are outstanding and an equivalent number of equity shares are reserved for issue against the same. The balance amount against these outstanding warrants amounts to Rs 21.32 crore.

1. The company is engaged primarily in the business of financing and accordingly there are no separate reportable segments as per Accounting Standard-17 as prescribed by Companies (Accounting Standards) Rules, 2006, dealing with Segment Reporting.

a) Provident fund:

In case of certain employees, the provident fund contribution is made to Bajaj Auto Limited Provident Fund Trust. In terms of the guidance note issued by the Institute of Actuaries of India, the actuary has provided a valuation of provident fund liability based on the assumptions listed below and determined that there is no shortfall as at 31 March 2012.

The assumptions used in determining the present value of obligation of the interest rate guarantee under deterministic approach are:

Remaining term of maturity - 12.05 years Expected guaranteed interest rate - 8.25%

Discount rate for the remaining term of maturity of interest portfolio - 8.55%

2. Employee Stock Option Plan

The board of directors at its meeting held on 14 October 2009 approved an issue of Stock Options up to a maximum of 5% of the issued equity capital of the company aggregating to 1,829,803 equity shares in a manner provided in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 subject to the approval of the shareholders under Section 81(1A) of the Companies Act, 1956. The shareholders of the Company vide their special resolution passed through postal ballot on 15 December, 2009 approved the issue of equity shares of the company under one or more Employee Stock Option Scheme(s).

3. Employee Stock Option Plan (Contd.)

Method used for accounting for share based payment plan

The company has elected to use intrinsic value method to account for the compensation cost of stock options to employees of the company. Intrinsic Value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the option.

4. The disclosures required in terms of paragraph 13 of the Non Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 are given in the Annexure forming part of these financial statements.

5. Till the year ended 31 March 2011, the company was using pre-revised Schedule VI to the Companies Act 1956, for preparation and presentation of its financial statements. During the year ended 31 March 2012, the revised Schedule VI notified under the Companies Act 1956, has become applicable to the company. The company has reclassified previous year figures to conform to this year's classification. The adoption of revised Schedule VI does not impact recognition and measurement principles followed for preparation of financial statements. However, it significantly impacts presentation and disclosures made in the financial statements, particularly presentation of balance sheet.

6. Amounts less than Rs 50,000/- have been shown at actual against respective line items statutorily required to be disclosed.

Mar 31, 2010

1) Warrants issued with debentures to the shareholders in 2006-07 have lapsed on 8 January 2010 with no options of conversion being exercised.

2) Debenture Redemption Reserve has been created in accordance with the Circular No.9/2002 dated 18 April 2002, issued by Department of Company Affairs, Ministry of Law, Justice & Company Affairs, Government of India & Section 117 C of Companies Act. The balance in the reserve on redemption /extinguishment of the debentures has been transferred to the Profit and Loss Account.

3) Deferred Tax Adjustment:

As required by the Accounting Standard 22 "Accounting for Taxes on Income" as prescribed by Companies (Accounting Standards) Rules, 2006, which is mandatory in nature, the company has recognized Deferred Taxes, which result from the timing differences between the Book Profits and Tax Profits, for the year ended 31 March 2010 of Rs.208,022,542 /- as deferred tax credit in the Profit and Loss Account, the details of which are as under:

4) (a) Based on past and current experience keeping in mind the economies of recovery / repossession of financed assets having a low ticket value, the company has assessed the value of underlying securities/assets in respect of certain lines of financing with a more practical approach leading to a provision against non - performing assets /overdue receivables being, made during the year, at an amount higher than that required under prudential norms stipulated by the Reserve Bank of India by Rs. 46,682,475/-.

(b) In respect of lines of business where the management has decided to wind down the portfolio / book due to adverse experiences, the company has determined an amount of expected loss based on experience and circumstances, which amount is higher than that required under the prudential norms stipulated by the Reserve Bank of India by Rs. 226,317,061/-.

(c) As a measure of prudence, for longer tenor loans, the company has proactively chosen to create a general provision for mortgages in the current year estimated at Rs. 25,700,000/- for the year.

5) The company is engaged primarily in the business of financing and accordingly there are no separate reportable segments as per Accounting Standard-17 as prescribed by Companies (Accounting Standards) Rules, 2006, dealing with Segment Reporting.

6) Employee Stock Option Plan:

The Board of Directors at its meeting held on 14 October 2009, approved an issue of Stock Options up to a maximum of 5% of the issued equity capital of the company aggregating to 1,829,803 equity shares in a manner provided in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 subject to the approval of the shareholders under Section 81(1 A) of the Companies Act, 1956. The shareholders of the Company vide their special resolution passed through postal ballot on 15 December 2009 approved the issue of Equity Shares of the Company under one or more Employee Stock Option Scheme(s).

Method used for accounting for share based payment plan:

The Company has elected to use intrinsic value method to account for the compensation cost of stock options to employees of the Company. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the option. The company issued grants on 12 January 2010 at Rs. 358.70 which was the closing price of previous date on the stock exchange with the highest trading volume for the day.

The fair value of options used to compute proforma net profit and earnings per share have been estimated on the date of grant using the Black - Scholes Model.

7) The disclosures required in terms of Paragraph 13 of the Non Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 are given in the Annexure forming part of these Financial Statements.

8) Previous years figures have been regrouped, wherever necessary, to make them comparable with those of the current period.

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