Accounting Policies of Fedbank Financial Services Ltd. Company

Mar 31, 2025

3. | SUMMARY OF MATERIAL ACCOUNT!NG POLICY
INFORMATION

This note provides a list of the material accounting
policy information adopted in the preparation of these
financial statements.

3.1 Measurement of fair values

Fair values are categorised into different levels in a
fair value hierarchy based on the inputs used in the
valuation techniques as follows:

- Level 1: Quoted prices (unadjusted) in active
markets for identical assets and liabilities.

- Level 2: Inputs other than quoted prices included
in Level 1 that are observable for the asset or
liability, either directly or indirectly.

- Level 3: inputs for the asset or liability that are not
based on observable market data (unobservable
inputs).

The management regularly reviews significant
unobservable inputs and valuation adjustments.

When measuring the fair value of an asset or a liability,
the Company uses observable market data as far as
possible. If the inputs used to measure the fair value
of an asset or a liability fall into different levels of the
fair value hierarchy, then the fair value measurement
is categorised in its entirety in the same level of the
fair value hierarchy as the lowest level input that is
significant to the entire measurement.

The Company recognises transfers between levels
of the fair value hierarchy at the end of the reporting
period during which the changes have occurred.

3.2 Revenue Recognition
Interest income

Interest income is recognised in Statement of Profit
and Loss using the effective interest rate (EIR) method
for all financial instruments which are measured
either at amortised cost or at fair value through other
comprehensive income. The EIR is the rate that exactly
discounts estimated future cash receipts or payments
through the expected life of the financial instrument or,
when appropriate, a shorter period.

The EIR is calculated by taking into account any discount
or premium on acquisition, fees and transaction costs
that are an integral part of the contract. Transaction
costs include incremental costs that are directly
attributable to the acquisition of financial asset.

If expectations regarding the cash flows on the financial
asset are revised for reasons other than credit risk,
the adjustment is accounted as a positive or negative
adjustment to the carrying amount of the asset in the
balance sheet with an increase or reduction in interest
income. The adjustment is subsequently amortised
through interest income in the Statement of Profit and
Loss.

The Company calculates interest income by applying
the EIR to the gross carrying amount of financial assets
other than credit-impaired assets. When a financial
asset becomes credit-impaired and is therefore
regarded as ''Stage 3’, the Company calculates interest
income by applying the EIR to the net amortised cost
of the financial asset. If the financial asset cures and
is no longer credit- impaired, the Company reverts to
calculating interest income on a gross basis.

Interest income on all trading assets and financial
assets, if any, required to be measured at FVTPL is
recognised using the contractual interest rate as net
gain on fair value changes.

Income from co-lending

The Company enters into co-lending arrangements
with other banks in accordance with RBI circular FIDD.
CO.Plan.BC.No.8/04.09.01/2020-21 dated November
05, 2020 . The portion of the loan attributable to the
Company as per agreement, is recognised as Loans
and Advances and interest spread on such transaction
is recognised over the contracted term of the loan.

Fee, commission and distribution income

The Company recognises revenue from contracts with
customers (other than financial assets to which Ind
AS 109 ''Financial Instruments’ is applicable) based
on a assessment model as set out in Ind AS 115
''Revenue from contracts with customers. Revenue
from contract with customer for rendering services
is recognised at a point in time when performance
obligation is satisfied.

Fees and commission income are measured at an
amount that reflects the fair value of the consideration
received or receivable, to which an entity expects to be
entitled in exchange for transferring goods or services
to customer, excluding amounts collected on behalf of
third parties.

Distribution income is earned by selling of services
and products of other entities under distribution
arrangements. The income so earned is recognised on
successful sales on behalf of other entities subject to
there being no significant uncertainty of its recovery.

Dividend and interest income on investments:

Dividends are recognised in Statement of Profit
and Loss only when the right to receive payment is
established, it is probable that the economic benefits
associated with the dividend will flow to the Company
and the amount of the dividend can be measured
reliably.

Interest income from investments is recognised when
it is certain that the economic benefits will flow to the
Company and the amount of income can be measured
reliably. Interest income is accrued on a time basis,
by reference to the principal outstanding and at the
effective interest rate applicable.

Net gain on fair value changes

The Company recognises gains on fair value change of
financial assets measured at FVTPL and realised gains
on derecognition of financial asset measured at FVTPL
and FVOCI on net basis.

However, net gain/loss on derecognition of financial
instruments classified as amortised cost is presented
separately under the respective head in the Statement
of Profit and Loss.

Income from direct assignment

Gains arising out of direct assignment transactions
comprise of the difference between the interest on
the loan portfolio and the applicable rate at which the
direct assignment is entered into with the assignee,
also known as the right of excess interest spread (EIS).
The future EIS basis the scheduled behavioral cash
flows on execution of the transaction, discounted at
the applicable rate entered into with the assignee is
recorded upfront in the Statement of Profit and Loss.
EIS is evaluated and adjusted for ECL and expected
prepayment.

Other income and expenses

All other income and expense are recognised in the
period in which they occur.

3.3 Property plant and equipments

The cost of an item of property, plant and equipment
shall be recognised as an asset if, and only if: (a) it is
probable that future economic benefits associated with
the item will flow to the entity; and (b) the cost of the
item can be measured reliably.

Property, plant and equipment ("PPE") are stated at
cost less accumulated depreciation and accumulated
impairment losses, if any. Cost of an item of property,
plant and equipment comprises its purchase price,
including import duties and non-refundable purchase
taxes after deducting trade discount and rebates, any
directly attributable cost incidental to acquisition and
installation, up to the point the asset is ready for its
intended use.

Advances paid towards the acquisition of PPE
outstanding at each reporting date are shown under

other non-financial asset. Assets acquired but not
ready for intended use or assets under construction at
the reporting date are classified under capital work in
progress.

Subsequent expenditure related to the asset are added
to its carrying amount or recognised as a separate asset
only if the future benefits of the existing asset, beyond
its previously assessed standards of performance
and cost can be measured reliably. Other repairs and
maintenance costs are expensed off as and when
incurred.

Depreciation

Depreciation on property, plant and equipment is
provided on straight-line method in case of Computer
Equipment & Server and on Written Down Value (WDV)
method in case of Office Equipment, Furniture & fixtures
& Vehicles. Depreciation is charged over the useful
lives of assets as prescribed under Schedule II of the
Companies Act 2013.

The estimated useful lives used for computation of
depreciation are as follows:

Leasehold improvements are amortised over the period
of the lease.

The residual values, useful lives and methods of
depreciation of property, plant and equipment are
reviewed at each financial year end and adjusted
prospectively, if appropriate. Changes in the expected
useful life are accounted for by changing the
amortisation period or methodology, as appropriate,
and treated as changes in accounting estimates.

PPE is derecognised on disposal or when no future
economic benefits are expected from it use. Any gain
or loss arising on derecognition of the asset (calculated
as the difference between the net disposal proceeds
and the net carrying amount of the asset) is recognised
in other income/netted off from any loss on disposal
in the Statement of Profit and Loss in the period the
asset is derecognised. Assets held for sale or disposals
are stated at the lower of their net book value and net
realisable value.

3.4 Intangible Assets

An intangible asset is recognised only when its cost
can be measured reliably and it is probable that the
expected future economic benefits that are attributable
to it will flow to the Company.

Intangible assets acquired separately are measured
on initial recognition at cost. The cost of an intangible
asset comprises its purchase price and any directly
attributable expenditure on making the asset ready for
its intended use and net of any trade discounts and
rebates. Following initial recognition, intangible assets
are carried at cost less accumulated amortisation and
accumulated impairment losses, if any.

Subsequent expenditure related to the asset is added to
its carrying amount or recognised as a separate asset
only if it increases the future benefits of the existing
asset, beyond its previously assessed standards of
performance and cost can be measured reliably.

Intangible assets comprise of software which is
amortised using the straight-line method over a period
of three years commencing from the date on which
such asset is first recognised.

Gains or losses from derecognition of intangible
assets are measured as the difference between the
net disposal proceeds and the carrying amount of the
asset are recognised in the Statement of Profit and
Loss when the asset is derecognised.

3.5 Foreign exchange transactions & translations

a) Initial recognition

Transactions in foreign currencies are recognised
at the prevailing exchange rates between the
reporting currency and a foreign currency on the
transaction date.

b) Conversion

Transactions in foreign currencies are translated
into the functional currency using the exchange
rates at the dates of the transactions. Foreign
exchange gains and losses resulting from the
settlement of such transactions and from the
translation of monetary assets and liabilities
denominated in foreign currencies at period
end exchange rates are generally recognised in
Statement of Profit and Loss.

Foreign exchange differences regarded as an
adjustment to borrowing costs are presented in
the Statement of Profit and Loss, within finance
costs. All other foreign exchange gains and losses

are presented in the Statement of Profit and Loss
on a net basis.

Non-monetary items that are measured at fair
value in a foreign currency are translated using the
exchange rates at the date when the fair value was
determined. Translation differences on assets and
liabilities carried at fair value are reported as part
of the fair value gain or loss. Thus, translation
differences on non-monetary assets and liabilities
such as equity instruments held at fair value
through profit or loss are recognised in profit
or loss as part of the fair value gain or loss and
translation differences on non-monetary assets
such as equity investments classified as FVOCI
are recognised in other comprehensive income.

Non-monetary items that are measured at
historical cost in foreign currency are not
retranslated at reporting date.

3.6 Financial instruments

a) Initial recognition and measurement:

Financial assets and liabilities are recognised
when the Company becomes a party to the
contractual provisions of the instrument. The
Company follows trade date method of accounting
for purchase and sale of investments. Financial
assets and liabilities are initially measured at
fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial
assets and financial liabilities (other than financial
assets and financial liabilities at fair value through
profit or loss) are added to or deducted from
the fair value measured on initial recognition of
financial assets or financial liabilities. Transaction
costs directly attributable to the acquisition of
financial assets or financial liabilities at FVTPL are
recognised immediately in Statement of Profit and
Loss.

b) Initial classification and subsequent
measurement of financial assets:

The Company classifies its financial assets
into various measurement categories. The
classification depends on the contractual terms
of the financial assets’ cash flows and Company’s
business model for managing financial assets. On
initial recognition, a financial asset is classified as
measured at:

- Amortised cost;

- Fair Value through Other Comprehensive
Income (FVOCI) - debt instruments;

- FVOCI - equity instruments;

- Fair Value Through Profit and Loss (FVTPL)
Amortised cost

The Company’s business model is not assessed
on an instrument-by-instrument basis, but at a
higher level of aggregated portfolios being the
level at which they are managed. These financial
assets comprise bank balances, loans, trade
receivables and other financial instruments.

Debt instruments measured at amortised cost
where they have:

a) contractual terms that give rise to cash flows
on specified dates, that represent solely
payment of principal and interest (SPPI) on
the principal amount outstanding; and

b) are held within a business model whose
objective is achieved by holding to collect
contractual cash flows.

These financial assets are subsequently measured
at amortised cost using effective interest method.
The amortised cost is reduced by impairment
losses. Interest income, foreign exchange
gains and losses and impairment provision are
recognised in Statement of Profit and Loss. Any
gain and loss on derecognition are recognised in
Statement of Profit and Loss.

FVOCI - debt instruments

The Company measures its debt instruments
at FVOCI when the instrument is held within a
business model, the objective of which is achieved
by both collecting contractual cash flows and
selling financial assets; and the contractual terms
of the financial asset meet the SPPI test.F

Debt investment at FVOCI are subsequently
measured at fair value. Interest income under
effective interest method, foreign exchange
gains and losses and impairment provision are
recognised in Statement of Profit and Loss. Other
net gains and losses are recognised in other
comprehensive income (OCI). On derecognition,
gains and losses accumulated in OCI are
reclassified to Statement of Profit and Loss.

FVOCI - equity instruments

For equity investments, the Company makes an
election on an instrument-by-instrument basis
to designate equity investments as measured at
FVOCI.

These elected investments are measured at fair
value with gains and losses arising from changes
in fair value recognised in other comprehensive
income and accumulated in the reserves. The
cumulative gain or loss is not reclassified to
Statement of Profit and Loss on disposal of the
investments. These investments in equity are not
held for trading. Instead, they are held for strategic
purpose. Dividend income received on such equity
investments are recognised in Statement of Profit
and Loss.

FVTPL

A financial asset which is not classified in any of
the above categories are measured at FVTPL. This
includes all derivative financial assets.

Equity investments that are not designated as
measured at FVOCI are designated as measured
at FVTPL and subsequent changes in fair value
are recognised in Statement of Profit and Loss.

Financial assets at FVTPL are subsequently
measured at fair value. Net gains and losses,
including any interest or dividend income, are
recognised in Statement of Profit and Loss.

c) Initial classification and subsequent
measurement of financial liabilities and equity
instruments:

Classification as debt or equity

Debt and equity instruments issued by the
Company are classified as either financial liabilities
or as equity in accordance with the substance of
the contractual arrangements and the definitions
of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that
evidences a residual interest in the assets of an
entity after deducting all of its liabilities. Equity
instruments issued by Company are recognised
at the proceeds received. Transaction costs of an
equity transaction are recognised as a deduction
from equity.

Financial liabilities

Financial liabilities are classified as measured
at amortised cost or FVTPL. A financial liability
is classified as at FVTPL if it is classified as
held-for trading or it is a derivative or it is
designated as such on initial recognition. Other
financial liabilities are subsequently measured
at amortised cost using the effective interest

method. Interest expense and foreign exchange
gains and losses are recognised in Statement of
Profit and Loss. Any gain or loss on derecognition
is also recognised in Statement of Profit and
Loss.

d) Reclassification of financial assets and liabilities:

Financial assets are not reclassified subsequent
to their initial recognition, except if and in the
period the Company changes its business model
for managing financial assets. Financial liabilities
are never reclassified.

e) Derecognition of financial assets and liabilities:
Financial assets

The Company derecognises a financial asset
when the contractual rights to the cash flows
from the financial asset expire, or it transfers the
rights to receive the contractual cash flows in a
transaction in which significantly all of the risks
and rewards of ownership of the financial asset
are transferred or in which the Company neither
transfers nor retains significantly all of the risks
and rewards of ownership and does not retain
control of the financial asset.

If the Company enters into transactions whereby
it transfers assets recognised on its balance
sheet, but retains either all or significantly all of
the risks and rewards of the transferred assets,
the transferred assets are not derecognised.

Financial liabilities

A financial liability is derecognised when the
obligation in respect of the liability is discharged,
cancelled or expires. Where an existing financial
liability is replaced by another from the same
lender on significantly different terms, or the terms
of an existing liability are significantly modified,
such an exchange or modification is treated as
de-recognition of the original liability and the
recognition of a new liability. The difference
between the carrying value of the financial liability
and the consideration paid is recognised in
Statement of Profit and Loss.

f) Write-offs

The gross carrying amount of a financial asset is
written off when the Company has no reasonable
expectations of recovering a financial asset in
its entirety or a portion thereof. This is generally
the case when the Company determines that
the borrower does not have assets or sources
of income that could generate sufficient cash

flows to repay the amounts subjected to write¬
offs. However, financial assets that are written
off could still be subject to enforcement activities
under the Company’s recovery procedures, taking
into account legal advice where appropriate. Any
subsequent recoveries made are recognised in
Statement of Profit and Loss.

g) Offsetting:

Financial assets and financial liabilities are offset
and the net amount presented in the balance sheet
when, and only when, the Company currently has
a legally enforceable right to set off the amounts
and it intends either to settle them on a net basis
or to realise the asset and settle the liability
simultaneously. The legally enforceable right is
not contingent on future events and enforceable
in the normal course of business and in the event
of default, insolvency or bankruptcy of the group
or the counterparty.

h) Derivatives and hedging activity:

The Company uses derivative contracts like cross
currency interest rate swaps, forward contracts,
options contracts, to hedge its risk associated
with foreign currency and interest rate fluctuation
relating to foreign currency floating rate
borrowings. Derivatives are initially recognised
at fair value on the date a derivative contract is
entered into and are subsequently re-measured
to their fair value at the end of each reporting
period. The resulting gain/loss is recognised in
the Statement of Profit and Loss immediately
unless the derivative is designated and is effective
as a hedging instrument, in which event the timing
of the recognition in the Statement of Profit and
Loss depends on nature and type of the hedge
relationship designated.

Cash flow hedges that qualify for hedge
accounting

The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash
flow hedges is recognised in cash flow hedging
reserve within equity. The gain or loss relating to
the ineffective portion is recognised immediately
in profit or loss, within other gains/(losses).

Amounts previously recognised in other
comprehensive income and accumulated in equity
relating to effective portion as described above
are reclassified to profit or loss in the periods
when the hedged item affects profit or loss, in
the same line as the recognised hedged item.

However, when the hedged forecast transaction
results in the recognition of a nonfinancial
asset or a non-financial liability, such gains and
losses are transferred from equity (but not as a
reclassification adjustment) and are included in
the initial measurement of the cost of the non¬
financial asset or nonfinancial liability.

Hedge accounting is discontinued when the
hedging instrument expires or is sold, terminated,
or exercised, or when it no longer qualifies for
hedge accounting. Any gain or loss recognised in
other comprehensive income and accumulated
in equity at that time remains in equity and is
recognised when the forecast transaction is
ultimately recognised in profit or loss. When a
forecast transaction is no longer expected to
occur, the gain or loss accumulated in equity is
reclassified immediately in profit or loss.

Fair value hedges that qualify for hedge
accounting

Changes in fair value of the designated portion of
derivatives that qualify as fair value hedges are
recognised in profit or loss immediately, together
with any changes in the fair value of the hedged
asset or liability that are attributable to the hedged
risk.

The change in the fair value of the designated
portion of hedging instrument and the change in
the hedged item attributable to the hedged risk are
recognised in profit or loss in the line item relating
to the hedged item.

Hedge accounting is discontinued when the
hedging instrument expires or is sold, terminated,
or exercised, or when it no longer qualifies for
hedge accounting. The fair value adjustment to
the carrying amount of the hedged item arising
from the hedged risk is amortised to profit or loss
from that date.

i) Restructured, rescheduled and modified loans

Restructured loans (other than OTR) where
repayment terms are renegotiated as compared
to the original contracted terms due to significant
credit distress of the borrower are classified as
credit impaired. Such loans continue to be in stage
3 until they exhibit regular payment of renegotiated
principal and interest over a minimum observation
of period, typically 12 months- post renegotiation,
and there are no other indicators of impairment.

Having satisfied the conditions of timely payment
over the observation period, these loans could be
transferred to stage 1 or 2 and a fresh assessment
of the risk of default be done for such loans.

Rollovers/repledges in case of gold loans are
not considered as restructured provided no
concession are allowed and the LTV is maintained
at less than or equal to prescribed regulatory
guidelines.

For loans restructured under the RBI Resolution
Framework (OTR), the Company, basis credit
assessment, the terms of restructuring, repayment
behavior of borrowers and other qualitative
factors, has considered all loans restructured as
an early indicator of significant increase in credit
risk and accordingly classified such loans as
Stage 2.

j) Impairment of financial assets

Overview of the Expected Credit Loss (ECL)
allowance principles:

The Company applies expected credit loss (ECL)
model for measurement and recognition of
impairment loss on loans measured at amortised
cost and FVOCI and other debt financial assets
not held at FVTPL.

For recognition of impairment loss on other
financial assets and risk exposure, the Company
determines that whether there has been a
significant increase in the credit risk since initial
recognition. If credit risk has not increased
significantly, 12 months ECL is calculated to
provide for impairment loss. However, if credit risk
has increased significantly, lifetime ECL is used.
If, in a subsequent period, credit quality of the
instrument improves such that there is no longer
a significant increase in credit risk since initial
recognition, the Company reverts to recognising
impairment loss allowance based on 12 months
ECL.

The Company performs an assessment, at the
end of each reporting period, of whether a financial
assets credit risk has increased significantly since
initial recognition. When determining whether
credit risk of a financial asset has increased
significantly since initial recognition and when
estimating expected credit losses, the Company
considers reasonable and supportable information
that is relevant and available without undue cost

or effort. This includes both quantitative and
qualitative information and analysis, including
on historical experience and forward-looking
information.

Estimation of Expected Credit Loss (ECL):

The Company calculates ECLs based on a
probability-weighted scenarios and historical data
to measure the expected cash shortfalls. A cash
shortfall is the difference between the cash flows
that are due to an entity in accordance with the
contract and the cash flows that the entity expects
to receive.

The mechanics of the ECL calculations are outlined
below and the key elements are, as follows:

Probability of default (PD): The Probability of
Default is an estimate of the likelihood of default
over a given time horizon. The Company uses
historical information where available to determine
PD.

Exposure at default (EAD): The Exposure at
Default is an estimate of the exposure at a default
date taking into account the repayment of principal
and interest until the reporting date.

Loss Given default (LGD): The Loss Given Default
is an estimate of the loss arising in the case where
a default occurs at a given time. It is based on the
difference between the contractual cash flows due
and those that the lender would expect to receive,
including from the realisation of any collateral.

Forward looking information: While estimating
the expected credit losses, the Company reviews
macro-economic developments occurring in
the economy and market it operates in. On a
periodic basis, the Company analyses if there is
any relationship between key economic trends like
GDP inflation etc. with the estimate of PD, LGD
determined by the Company based on its internal
data. While the internal estimates of PD, LGD rates
by the Company may not be always reflective of
such relationships, temporary overlays, if any,
are embedded in the methodology to reflect such
macro-economic trends reasonably.

Based on the above process, the Company
categorises its loans into three stages as
described below:

Stage 1: When loans are first recognised, the
Company recognises an allowance based on 12
months ECL. The 12-month ECL is a portion of

the lifetime ECL which results from default events
that are possible within 12 months after the
reporting date. These expected 12-month default
probabilities are applied to an EAD and multiplied
by the expected LGD. Stage 1 loans also include
facilities where the credit risk has improved and
the loan has been reclassified from Stage 2 or
Stage 3.

Stage 2: When a loan has shown a significant
increase in credit risk since origination, the
Company records an allowance for the life time
ECL. The mechanics are similar to those explained
above, but PDs and LGDs are estimated over the
lifetime of the instrument.

Stage 3: Financial assets are classified as stage
3 when there is objective evidence of impairment
as result of one or more loss events that have
occurred after the initial recognition. The Company
records an allowance for the life time ECL. The
method is similar to that for Stage 2 assets, with
the PD set at 100%.

For gold loans, when a loan remains overdue for
90 days or more and does not fulfil the conditions
for minimum collateral cover, such loans are
classified as Stage 3.

The Company has considered additional ECL
provision by applying management overlays to
model derived PDs and LGDs for certain pool of
loans where it believes that there is a need for
further adjustments given the uncertainty on
forward looking risks.

k) Financial guarantee contracts

A financial guarantee contract is a contract that
requires the issuer to make specified payments to
reimburse the holder for a loss it incurs because a
specified debtor fails to make payments when due
in accordance with the terms of a debt instrument.

Financial guarantee contracts issued by a
Company are initially measured at their fair
values and, if not designated as at FVTPL, are
subsequently measured at the higher of:

- the amount of loss allowance determined in
accordance with impairment requirements
of Ind AS 109 - Financial Instruments; and

- the amount initially recognised less, when
appropriate, the cumulative amount of
income recognised in accordance with the
principles of Ind AS 115 - Revenue from
contracts with customers.

3.7 Impairment of assets other than financial assets

The Company reviews the carrying amounts of its
tangible and intangible assets at the end of each
reporting period, to determine whether there is any
indication that those assets have impaired. If any
such indication exists, the recoverable amount of the
asset is estimated in order to determine the extent
of the impairment loss (if any). Recoverable amount
is determined for an individual asset, unless the
asset does not generate cash flows that are largely
independent of those from other assets or group of
assets.

Recoverable amount is the higher of fair value less
costs to sell and value in use. In assessing value in use,
the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects
current market assessments of the time value of
money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash
generating unit) is estimated to be less than its carrying
amount, the carrying amount of the asset (or cash¬
generating unit) is reduced to its recoverable amount.

When an impairment loss subsequently reverses, the
carrying amount of the asset (or a cash generating unit)
is increased to the revised estimate of its recoverable
amount such that the increased carrying amount does
not exceed the carrying amount that would have been
determined if no impairment loss had been recognised
for the asset (or cash-generating unit) in prior years.
The reversal of an impairment loss is recognised in
Statement of Profit and Loss.

3.8 Employee benefits

a) Short-term employee benefits

All short-term employee benefits are accounted
on undiscounted basis during the accounting
period based on services rendered by employees
and recognised as expenses in the Statement of
Profit and Loss. A liability is recognised for the
amount expected to be paid if the Company has
a present legal or constructive obligation to pay
this amount as a result of past service provided by
the employee and the obligation can be estimated
reliably.

b) Defined contribution plan (provident fund and
ESIC)

Retirement benefits in the form of provident fund
and superannuation are defined contribution

schemes. The Company has no obligation, other
than the contribution payable to the respective
funds. The Company recognises contribution
payable to the respective funds as expenditure,
when an employee renders the related service.

c) Defined benefit plan (Gratuity)

Payment of gratuity to employees is covered by
the defined benefit scheme and the Company
makes contribution under the said scheme.

The Company’s liability towards gratuity scheme
is determined by independent actuaries, using the
projected unit credit method. The present value
of the defined benefit obligation is determined by
discounting the estimated future cash outflows
by reference to market yields at the end of the
reporting period on government bonds that have
terms approximating to the terms of the related
obligation. Past services are recognised at the
earlier of the plan amendment/curtailment
and recognition of related restructuring costs/
termination benefits.

The net interest cost is calculated by applying the
discount rate to the net balance of the defined
benefit obligation and the fair value of plan assets.
This cost is included in employee benefit expense
in the Statement of Profit and Loss.

Remeasurement gains/losses - Remeasurement
of defined benefit plans, comprising of actuarial
gains/losses, return on plan assets excluding
interest income are recognised immediately
in the balance sheet with corresponding debit
or credit to Other Comprehensive Income
(OCI). Remeasurements are not reclassified to
Statement of Profit and Loss in the subsequent
period.

d) Compensated Absences

The Company has a scheme for compensated
absences for employees, the liability of which
is determined on the basis of an independent
actuarial valuation carried out at the end of the
period, using the projected unit credit method.
Actuarial gains and losses are recognised in full in
the Statement of Profit and Loss for the period in
which they occur.

3.9 Share-based payments

Equity-settled share-based payments to employees

are recognised as an expense at the fair value of

equity stock options at the grant date. The fair value

determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line
basis over the graded vesting period, based on the
Company’s estimate of equity instruments that will
eventually vest, with a corresponding adjustment in
equity.

3.10 Finance costs

Finance costs include interest expense computed
by applying the effective interest rate on respective
financial instruments measured at amortised cost.
Financial instruments include subordinated debts, term
loans and working capital loans from Banks, Financial
Institutions and NBFCs and Commercial Papers.
Finance costs are charged to the Statement of Profit
and Loss.

3.11 Income taxes

Income tax expense comprises of current tax and
deferred tax. It is recognised in Statement of Profit
and Loss except to the extent that it relates to an item
recognised directly in equity or in other comprehensive
income.

a) Current tax:

Current tax comprises amount of tax payable
in respect of the taxable income or loss for the
period determined in accordance with Income Tax
Act, 1961 and any adjustment to the tax payable
or receivable in respect of previous years. The
amount of current tax payable or receivable is the
best estimate of the tax amount expected to be
paid or received that reflects uncertainty related
to income taxes, if any. The Company’s current
tax is calculated using tax rates that have been
enacted or substantively enacted by the end of the
reporting period. Current tax assets and liabilities
are offset only if there is a legally enforceable
right to set off the recognised amounts, and it is
intended to realise the asset and settle the liability
on a net basis or simultaneously

Current tax is recognised in statement of profit
or loss, except when they relate to items that
are recognised in other comprehensive income
or directly in equity, in which case, the current
tax is also recognised in other comprehensive
income or directly in equity respectively. The
management periodically evaluates positions
taken in the tax returns with respect to situations
in which applicable tax regulations are subject to
interpretation and establishes provisions where
appropriate.

b) Deferred tax:

Deferred is not recognised if it arises from
temporary differences on the initial recognition
of an asset or liability in a transaction that is
not a business combination, and at the time of
transaction, it affects neither accounting profit
nor taxable profit and does not give rise to equal
taxable and deductible temporary differences.

Deferred tax assets and liabilities are recognised
for the future tax consequences of temporary
differences between the carrying values of assets
and liabilities and their respective tax bases.
Deferred tax liabilities and assets are measured
at the tax rates that are expected to apply in the
period in which the liability is settled or the asset
realised, based on tax rates (and tax laws) that
have been enacted or substantively enacted by the
end of the reporting period. The measurement of
deferred tax liabilities and assets reflects the tax
consequence that would follow from the manner
in which the Company expects, at the end of the
reporting period, to recover or settle the carrying
amount of its assets and liabilities.

Deferred tax assets are recognised to the extent
that it is probable that future taxable income
will be available against which the deductible
temporary difference could be utilised. Such
deferred tax assets and liabilities are not
recognised if the temporary difference arises from
the initial recognition of assets and liabilities in a
transaction that affects neither the taxable profit
nor the accounting profit. The carrying amount of
deferred tax assets is reviewed at the end of each
reporting period and reduced to the extent that it
is no longer probable that sufficient taxable profits
will be available to allow all or part of the asset to
be recovered.

Deferred tax assets and liabilities are offset if there
i: a legally enforceable right to offset current tax.
Liabilities and assets, and they relate to income
taxes levied by the income tax authority on the
same taxable entity, or on different tax entities,
but they intend to settle current tax liabilities
and assets on a net basis or their tax assets and
liabilities will be realised simultaneously.

3.12 Cash and cash equivalents

Cash and cash equivalents in the balance sheet
comprise cash on hand, cheques and drafts on hand,
balances with banks in current accounts, short term
deposits with an original maturity of three months or

less, which are subject to an insignificant risk of change
in value.

---

Mar 31, 2024

3. SUMMARY OF MATERIAL ACCOUNTING POLICY INFORMATION

This note provides a list of the material accounting policy information adopted in the preparation of these financial statements.

3.1 Measurement of fair values

Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

- Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities

- Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly

- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The management regularly reviews significant unobservable inputs and valuation adjustments.

When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the changes have occurred.

3.2 Revenue Recognition Interest income

Interest income is recognised in Statement of Profit and Loss using the effective interest rate (EIR) method for all financial instruments which are measured either at amortised cost or at fair value through other comprehensive income. The EIR is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument or, when appropriate, a shorter period.

The EIR is calculated by taking into account any discount or premium on acquisition, fees and transaction costs that are an integral part of the contract. Transaction costs include incremental costs that are directly attributable to the acquisition of financial asset.

If expectations regarding the cash flows on the financial asset are revised for reasons other than credit risk, the adjustment is accounted as a positive or negative adjustment to the carrying amount of the asset in the balance sheet with an increase or reduction in interest income. The adjustment is subsequently amortised through interest income in the Statement of Profit and Loss.

The Company calculates interest income by applying the EIR to the gross carrying amount of financial assets other than credit-impaired assets. When a financial asset becomes credit-impaired and is therefore regarded as ''Stage 3’, the Company calculates interest income by applying the EIR to the net amortised cost of the financial asset. If the financial asset cures and is no longer credit- impaired, the Company reverts to calculating interest income on a gross basis.

Interest income on all trading assets and financial assets, if any, required to be measured at FVTPL is recognised using the contractual interest rate as net gain on fair value changes.

Income from co-lending

The Company enters into co-lending arrangements with other banks in accordance with RBI circular FIDD.CO.Plan.BC.No.8/04.09.01/2020-21 dated 05^th November, 2020 . The portion of the loan attributable to the Company as per agreement, is recognised as Loans and Advances and interest spread on such transaction is recognised over the contracted term of the loan.

Fee, commission and distribution income

The Company recognises revenue from contracts with customers (other than financial assets to which Ind AS 109 ''Financial Instruments’ is applicable) based on a assessment model as set out in Ind AS 115 ''Revenue from contracts with customers. Revenue from contract with customer for rendering services is recognised at a point in time when performance obligation is satisfied.

Fees and commission income are measured at an amount that reflects the fair value of the consideration received or receivable, to which an entity expects to be entitled in exchange for transferring goods or services to customer, excluding amounts collected on behalf of third parties.

Distribution income is earned by selling of services and products of other entities under distribution arrangements. The income so earned is recognised on successful sales on behalf of other entities subject to there being no significant uncertainty of its recovery.

Dividend and interest income on investments:

Dividends are recognised in Statement of Profit and Loss only when the right to receive payment is established, it is probable that the economic benefits associated with the dividend will flow to the Company and the amount of the dividend can be measured reliably.

Interest income from investments is recognised when it is certain that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

Net gain on fair value changes

The Company recognises gains on fair value change of financial assets measured at FVTPL and realised gains on derecognition of financial asset measured at FVTPL and FVOCI on net basis.

However, net gain / loss on derecognition of financial instruments classified as amortised cost is presented separately under the respective head in the Statement of Profit and Loss.

Income from direct assignment

Gains arising out of direct assignment transactions comprise of the difference between the interest on the loan portfolio and the applicable rate at which the direct assignment is entered into with the assignee, also known as the right of excess interest spread (EIS). The future EIS basis the scheduled behavioral cash flows on execution of the transaction, discounted at the applicable rate entered into with the assignee is recorded upfront in the Statement of Profit and Loss. EIS is evaluated and adjusted for ECL and expected prepayment.

Other income and expenses

All other income and expense are recognised in the period in which they occur.

3.3 Property plant and equipments

The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if: (a) it is probable that future economic benefits associated with the item will flow to the entity; and (b) the cost of the item can be measured reliably.

Property, plant and equipment ("PPE") are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Cost of an item of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes after deducting trade discount and rebates, any directly attributable cost incidental to acquisition and installation, up to the point the asset is ready for its intended use.

Advances paid towards the acquisition of PPE outstanding at each reporting date are shown under

other non-financial asset. Assets acquired but not ready for intended use or assets under construction at the reporting date are classified under capital work in progress.

Subsequent expenditure related to the asset are added to its carrying amount or recognised as a separate asset only if the future benefits of the existing asset, beyond its previously assessed standards of performance and cost can be measured reliably. Other repairs and maintenance costs are expensed off as and when incurred.

Depreciation

Depreciation on property, plant and equipment is provided on straight-line method in case of Computer Equipment & Server and on Written Down Value (WDV) method in case of Office Equipment, Furniture & fixtures & Vehicles. Depreciation is charged over the useful lives of assets as prescribed under Schedule II of the Companies Act 2013.

The estimated useful lives used for computation of depreciation are as follows:

Leasehold improvements are amortised over the period of the lease.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. Changes in the expected useful life are accounted for by changing the amortisation period or methodology, as appropriate, and treated as changes in accounting estimates.

PPE is derecognised on disposal or when no future economic benefits are expected from it use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the net carrying amount of the asset) is recognised in other income / netted off from any loss on disposal in the Statement of Profit and Loss in the period the asset is derecognised. Assets held for sale or disposals are stated at the lower of their net book value and net realisable value.

3.4 Intangible Assets

An intangible asset is recognised only when its cost can be measured reliably and It Is probable that the expected future economic benefits that are attributable to it will flow to the Company.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of an intangible asset comprises its purchase price and any directly attributable expenditure on making the asset ready for its intended use and net of any trade discounts and rebates. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses, if any.

Subsequent expenditure related to the asset is added to its carrying amount or recognised as a separate asset only if it increases the future benefits of the existing asset, beyond its previously assessed standards of performance and cost can be measured reliably.

Intangible assets comprise of software which is amortised using the straight-line method over a period of three years commencing from the date on which such asset is first recognised.

Gains or losses from derecognition of intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset are recognised in the Statement of Profit and Loss when the asset is derecognised.

3.5 Foreign exchange transactions & translations

a) Initial recognition

Transactions in foreign currencies are recognised at the prevailing exchange rates between the reporting currency and a foreign currency on the transaction date.

b) Conversion

Transactions in foreign currencies are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at period end exchange rates are generally recognised in Statement of Profit and Loss.

Foreign exchange differences regarded as an adjustment to borrowing costs are presented in the Statement of Profit and Loss, within finance costs. All other foreign exchange gains and losses

are presented in the Statement of Profit and Loss on a net basis.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Thus, translation differences on non-monetary assets and liabilities such as equity instruments held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equity investments classified as FVOCI are recognised in other comprehensive income.

Non-monetary items that are measured at historical cost in foreign currency are not retranslated at reporting date.

3.6 Financial instruments

a) Initial recognition and measurement:

Financial assets and liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument. The Company follows trade date method of accounting for purchase and sale of investments. Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value measured on initial recognition of financial assets or financial liabilities. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognised immediately in Statement of Profit and Loss.

b) Initial classification and subsequent measurement of financial assets:

The Company classifies its financial assets into various measurement categories. The classification depends on the contractual terms of the financial assets’ cash flows and Company’s business model for managing financial assets. On initial recognition, a financial asset is classified as measured at:

- Amortised cost;

- Fair Value through Other Comprehensive Income (FVOCI) - debt instruments;

- FVOCI - equity instruments;

- Fair Value Through Profit and Loss (FVTPL) Amortised cost

The Company’s business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated portfolios being the level at which they are managed. These financial assets comprise bank balances, loans, trade receivables and other financial instruments.

Debt instruments measured at amortised cost where they have:

a) contractual terms that give rise to cash flows on specified dates, that represent solely payment of principal and interest (SPPI) on the principal amount outstanding; and

b) are held within a business model whose objective is achieved by holding to collect contractual cash flows.

These financial assets are subsequently measured at amortised cost using effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment provision are recognised in Statement of Profit and Loss. Any gain and loss on derecognition are recognised in Statement of Profit and Loss.

FVOCI - debt instruments

The Company measures its debt instruments at FVOCI when the instrument is held within a business model, the objective of which is achieved by both collecting contractual cash flows and selling financial assets; and the contractual terms of the financial asset meet the SPPI test.

Debt investment at FVOCI are subsequently measured at fair value. Interest income under effective interest method, foreign exchange gains and losses and impairment provision are recognised in Statement of Profit and Loss. Other net gains and losses are recognised in other comprehensive income (OCI). On derecognition, gains and losses accumulated in OCI are reclassified to Statement of Profit and Loss.

FVOCI - equity instruments

For equity investments, the Company makes an election on an instrument-by-instrument basis to designate equity investments as measured at FVOCI.

These elected investments are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the reserves. The cumulative gain or loss is not reclassified to Statement of Profit and Loss on disposal of the investments. These investments in equity are not held for trading. Instead, they are held for strategic purpose. Dividend income received on such equity investments are recognised in Statement of Profit and Loss.

FVTPL

A financial asset which is not classified in any of the above categories are measured at FVTPL. This includes all derivative financial assets.

Equity investments that are not designated as measured at FVOCI are designated as measured at FVTPL and subsequent changes in fair value are recognised in Statement of Profit and Loss.

Financial assets at FVTPL are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in Statement of Profit and Loss.

c) Initial classification and subsequent measurement of financial liabilities and equity instruments:

Classification as debt or equity

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by Company are recognised at the proceeds received. Transaction costs of an equity transaction are recognised as a deduction from equity.

Financial liabilities

Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for trading or it is a derivative or it is designated as such on initial recognition. Other financial liabilities are subsequently measured at amortised cost using

the effective interest method. Interest expense and foreign exchange gains and losses are recognised in Statement of Profit and Loss. Any gain or loss on derecognition is also recognised in Statement of Profit and Loss.

d) Reclassification of financial assets and liabilities:

Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its business model for managing financial assets. Financial liabilities are never reclassified.

e) Derecognition of financial assets and liabilities: Financial assets

The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which significantly all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains significantly all of the risks and rewards of ownership and does not retain control of the financial asset.

If the Company enters into transactions whereby it transfers assets recognised on its balance sheet, but retains either all or significantly all of the risks and rewards of the transferred assets, the transferred assets are not derecognised.

Financial liabilities

A financial liability is derecognised when the obligation in respect of the liability is discharged, cancelled or expires. Where an existing financial liability is replaced by another from the same lender on significantly different terms, or the terms of an existing liability are significantly modified, such an exchange or modification is treated as de-recognition of the original liability and the recognition of a new liability. The difference between the carrying value of the financial liability and the consideration paid is recognised in Statement of Profit and Loss.

f) Write-offs

The gross carrying amount of a financial asset is written off when the Company has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. This is generally the case when the Company determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subjected to writeoffs. However, financial assets that are written off could still be subject to enforcement activities under the Company’s recovery procedures, taking into account legal advice where appropriate. Any subseguent recoveries made are recognised in Statement of Profit and Loss.

g) Offsetting:

Financial assets and financial liabilities are offset and the net amount presented in the balance sheet when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. The legally enforceable right is not contingent on future events and enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the group or the counterparty.

h) Derivatives and hedging activity:

The Company uses derivative contracts like cross currency interest rate swaps, forward contracts, options contracts, to hedge its risk associated with foreign currency and interest rate fluctuation relating to foreign currency floating rate borrowings. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period. The resulting gain/loss is recognised in the Statement of Profit and Loss immediately unless the derivative is designated and is effective as a hedging instrument, in which event the timing of the recognition in the Statement of Profit and Loss depends on nature and type of the hedge relationship designated.

Cash flow hedges that qualify for hedge accounting

The effective portion of changes in the fair value of derivatives that are designated and gualify as cash flow hedges is recognised in cash flow hedging reserve within equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, within other gains/(losses).

Amounts previously recognised in other comprehensive income and accumulated in eguity relating to effective portion as described above are reclassified to profit or loss in the periods

when the hedged item affects profit or loss, in the same line as the recognised hedged item. However, when the hedged forecast transaction results in the recognition of a nonfinancial asset or a non-financial liability, such gains and losses are transferred from equity (but not as a reclassification adjustment) and are included in the initial measurement of the cost of the nonfinancial asset or nonfinancial liability.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income and accumulated in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is reclassified immediately in profit or loss.

Fair value hedges that qualify for hedge accounting

Changes in fair value of the designated portion of derivatives that qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

The change in the fair value of the designated portion of hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in profit or loss in the line item relating to the hedged item.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to profit or loss from that date.

i) Restructured, rescheduled and modified loans

Restructured loans (other than OTR) where repayment terms are renegotiated as compared to the original contracted terms due to significant credit distress of the borrower are classified as credit impaired. Such loans continue to be in stage 3 until they exhibit regular payment of renegotiated principal and interest over a minimum observation of period, typically 12 months- post renegotiation,

and there are no other indicators of impairment. Having satisfied the conditions of timely payment over the observation period, these loans could be transferred to stage 1 or 2 and a fresh assessment of the risk of default be done for such loans.

Rollovers/repledges in case of gold loans are not considered as restructured provided no concession are allowed and the LTV is maintained at less than or equal to prescribed regulatory guidelines.

For loans restructured under the RBI Resolution Framework (OTR), the Company, basis credit assessment, the terms of restructuring, repayment behavior of borrowers and other qualitative factors, has considered all loans restructured as an early indicator of significant increase in credit risk and accordingly classified such loans as Stage 2.

j) Impairment of financial assets

Overview of the Expected Credit Loss (ECL) allowance principles:

The Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on loans measured at amortised cost and FVOCI and other debt financial assets not held at FVTPL.

For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12 months ECL is calculated to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, the Company reverts to recognising impairment loss allowance based on 12 months ECL.

The Company performs an assessment, at the end of each reporting period, of whether a financial assets credit risk has increased significantly since initial recognition. When determining whether credit risk of a financial asset has increased significantly since initial recognition and when estimating expected credit losses, the Company considers reasonable and supportable information that is relevant and available without undue cost

or effort. This includes both quantitative and qualitative information and analysis, including on historical experience and forward-looking information.

Estimation of Expected Credit Loss (ECL):

The Company calculates ECLs based on a probability-weighted scenarios and historical data to measure the expected cash shortfalls. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive.

The mechanics of the ECL calculations are outlined below and the key elements are, as follows:

Probability of default (PD): The Probability of Default is an estimate of the likelihood of default over a given time horizon. The Company uses historical information where available to determine PD.

Exposure at default (EAD): The Exposure at Default is an estimate of the exposure at a default date taking into account the repayment of principal and interest until the reporting date.

Loss Given default (LGD): The Loss Given Default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realisation of any collateral.

Forward looking information: While estimating the expected credit losses, the Company reviews macro-economic developments occurring in the economy and market it operates in. On a periodic basis, the Company analyses if there is any relationship between key economic trends like GDP inflation etc. with the estimate of PD, LGD determined by the Company based on its internal data. While the internal estimates of PD, LGD rates by the Company may not be always reflective of such relationships, temporary overlays, if any, are embedded in the methodology to reflect such macro-economic trends reasonably.

Based on the above process, the Company categorises its loans into three stages as described below:

Stage 1: When loans are first recognised, the Company recognises an allowance based on 12 months ECL. The 12-month ECL is a portion of

the lifetime ECL which results from default events that are possible within 12 months after the reporting date. These expected 12-month default probabilities are applied to an EAD and multiplied by the expected LGD. Stage 1 loans also include facilities where the credit risk has improved and the loan has been reclassified from Stage 2 or Stage 3.

Stage 2: When a loan has shown a significant increase in credit risk since origination, the Company records an allowance for the life time ECL. The mechanics are similar to those explained above, but PDs and LGDs are estimated over the lifetime of the instrument.

Stage 3: Financial assets are classified as stage 3 when there is objective evidence of impairment as result of one or more loss events that have occurred after the initial recognition. The Company records an allowance for the life time ECL. The method is similar to that for Stage 2 assets, with the PD set at 100%.

For gold loans, when a loan remains overdue for 90 days or more and does not fulfil the conditions for minimum collateral cover, such loans are classified as Stage 3.

The Company has considered additional ECL provision by applying management overlays to model derived PDs and LGDs for certain pool of loans where it believes that there is a need for further adjustments given the uncertainty on forward looking risks.

k) Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument.

Financial guarantee contracts issued by a Company are initially measured at their fair values and, if not designated as at FVTPL, are subsequently measured at the higher of:

- the amount of loss allowance determined in accordance with impairment requirements of Ind AS 109 - Financial Instruments; and

- the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of Ind AS 115 - Revenue from contracts with customers.

3.7 Impairment of assets other than financial assets

The Company reviews the carrying amounts of its tangible and intangible assets at the end of each reporting period, to determine whether there is any indication that those assets have impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Recoverable amount is determined for an individual asset, unless the asset does not generate cash flows that are largely independent of those from other assets or group of assets.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cashgenerating unit) is reduced to its recoverable amount.

When an impairment loss subseguently reverses, the carrying amount of the asset (or a cash generating unit) is increased to the revised estimate of its recoverable amount such that the increased carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognised for the asset (or cash-generating unit) in prior years. The reversal of an impairment loss is recognised in Statement of Profit and Loss.

3.8 Employee benefits

a) Short-term employee benefits

All short-term employee benefits are accounted on undiscounted basis during the accounting period based on services rendered by employees and recognised as expenses in the Statement of Profit and Loss. A liability is recognised for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

b) Defined contribution plan (provident fund and ESIC)

Retirement benefits in the form of provident fund and superannuation are defined contribution

schemes. The Company has no obligation, other than the contribution payable to the respective funds. The Company recognises contribution payable to the respective funds as expenditure, when an employee renders the related service.

c) Defined benefit plan (Gratuity)

Payment of gratuity to employees is covered by the defined benefit scheme and the Company makes contribution under the said scheme.

The Company’s liability towards gratuity scheme is determined by independent actuaries, using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows by reference to market yields at the end of the reporting period on government bonds that have terms approximating to the terms of the related obligation. Past services are recognised at the earlier of the plan amendment / curtailment and recognition of related restructuring costs/ termination benefits.

The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the Statement of Profit and Loss.

Remeasurement gains/losses - Remeasurement of defined benefit plans, comprising of actuarial gains / losses, return on plan assets excluding interest income are recognised immediately in the balance sheet with corresponding debit or credit to Other Comprehensive Income (OCI). Remeasurements are not reclassified to Statement of Profit and Loss in the subsequent period.

d) Compensated Absences

The Company has a scheme for compensated absences for employees, the liability of which is determined on the basis of an independent actuarial valuation carried out at the end of the period, using the projected unit credit method. Actuarial gains and losses are recognised in full in the Statement of Profit and Loss for the period in which they occur.

3.9 Share-based payments

Equity-settled share-based payments to employees

are recognised as an expense at the fair value of

equity stock options at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the graded vesting period, based on the Company’s estimate of equity instruments that will eventually vest, with a corresponding adjustment in equity.

3.10 Finance costs

Finance costs include interest expense computed by applying the effective interest rate on respective financial instruments measured at amortised cost. Financial instruments include subordinated debts, term loans and working capital loans from Banks, Financial Institutions and NBFCs and Commercial Papers. Finance costs are charged to the Statement of Profit and Loss.

3.11 Income taxes

Income tax expense comprises of current tax and deferred tax. It is recognised in Statement of Profit and Loss except to the extent that it relates to an item recognised directly in equity or in other comprehensive income.

a) Current tax:

Current tax comprises amount of tax payable in respect of the taxable income or loss for the period determined in accordance with Income Tax Act, 1961 and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. The Company’s current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Current tax assets and liabilities are offset only if there is a legally enforceable right to set off the recognised amounts, and it is intended to realise the asset and settle the liability on a net basis or simultaneously

Current tax is recognised in statement of profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current tax is also recognised in other comprehensive income or directly in equity respectively. The management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

b) Deferred tax:

Deferred is not recognised if it arises from temporary differences on the initial recognition of an asset or liability in a transaction that is not a business combination, and at the time of transaction, it affects neither accounting profit nor taxable profit and does not give rise to equal taxable and deductible temporary differences.

Deferred tax assets and liabilities are recognised for the future tax consequences of temporary differences between the carrying values of assets and liabilities and their respective tax bases. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequence that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets are recognised to the extent that it is probable that future taxable income will be available against which the deductible temporary difference could be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are offset if there i: a legally enforceable right to offset current tax. Liabilities and assets , and they relate to income taxes levied by the income tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

3.12 Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash on hand, cheques and drafts on hand, balances with banks in current accounts, short term deposits with an original maturity of three months or

less, which are subject to an insignificant risk of change in value.

---

Mar 31, 2023

1. Corporate information

Fedbank Financial Services Limited (''the Company'') is a Public Limited Company incorporated on 17 April, 1995 in India and is a subsidiary of The Federal Bank Limited. Its registered office is located in Mumbai. The Company is in the business of lending and has a diversified lending portfolio consisting of Gold Loans, Loan against Property, Home Loans, SME Loans and Wholesale Finance. The Company also extends Micro Loans through tie ups with sourcing and servicing agents. The Company is registered with the Reserve Bank of India as a Non-Banking Finance Company (NBFC) vide Registration N- 16.00187 and is presently categorized as a Systemically Important Non-Deposit taking Non-Banking Financial Company (NBFC-ND-SI) in accordance with the guidelines of Reserve Bank of India.

2. Basis of preparation and presentation of Financial Statements

2.1 Basis of preparation of Financial Statements

The financial statements of the Company have been prepared in accordance with Indian Accounting Standard (''Ind AS'') prescribed under section 133 of the Companies Act, 2013 (the ''Act''), read with relevant rules issued thereunder and the other accounting principles generally accepted in India. Any application guidance/ clarifications/ directions issued by the Reserve Bank of India or other regulators are implemented as and when they are issued/ applicable.

The preparation of financial statements requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosed amount of contingent liabilities. Areas involving a higher degree of judgement or complexity, or areas where assumptions are significant to the Company are discussed in Note 3 - Significant accounting judgements, estimates and assumptions.

The financial statements have been approved by the Board of Directors on May 26, 2023.

2.2 Presentation of Financial Statements

The financial statements of the Company are presented as per Schedule III (Division III) of the Companies Act, 2013 applicable to NBFCs, as notified by the Ministry of Corporate Affairs (MCA). The Statement of Cash Flows has been presented using indirect method as per the requirements of Ind AS 7 Statement of Cash Flows.

2.3 Functional and presentation currency

These financial statements are presented in Indian Rupees (Tor INR or Rs.) which is also the Company''s functional currency. All amounts are rounded-off to the nearest millions, unless otherwise indicated.

2.4 Basis of measurement

These financial statements have been prepared under the historical cost convention and on an accrual basis, except for certain financial instruments which are measured at fair values as required by relevant Ind AS basis.

3. Critical accounting estimates and judgments

The preparation of the financial statements requires management to make use of estimates and judgements. 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 period could differ from those on which the Management''s estimates are based. Accounting estimates and judgements that are used for various line items in the financial statements are as follows:

Effective Interest Rate (EIR) Method:

The Company recognizes interest income /expense using a rate of return that represents the best estimate of a constant rate of return over the expected life of the loans given / taken. This estimation, by nature, requires an element of judgement regarding the expected behaviour and life-cycle of the instruments, as well as expected changes to other fee income/expense that are integral parts of the instrument.

Contingencies:

Provisions and liabilities are recognized in the period when it becomes probable that there will be a future outflow of funds resulting from past operations or events and the amount of cash outflow can be reliably estimated. The timing of recognition and quantification of the liability requires the application of judgement to existing facts and circumstances, which can be subject to change. The carrying amounts of provisions and liabilities are reviewed regularly and revised to take account of changing facts and circumstances.

Useful lives of property, plant and equipment and Intangible assets:

Management reviews the estimated useful lives and residual values of the assets annually in order to determine the amount of depreciation to be recorded during any reporting period. The useful lives and residual values as per schedule II of the Companies Act, 2013 or are based on the Company''s historical experience with similar assets and taking into account anticipated technological changes, whichever is more appropriate.

Defined employee benefit obligation:

The cost of post-employment benefits is determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rates, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed annually.

Fair value measurement

When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be derived from active markets, they are determined using a variety of valuation technique that include the use of valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

Business model assessment

Classification and measurement of financial assets depends on the results of the solely payment of principal and interest (SPPI) and the business model test. The Company determines the business model at a level that reflects how groups of financial assets are managed together to achieve a particular business objective. This assessment includes judgment reflecting all relevant evidence including how the performance of the assets is evaluated and their performance measured, the risks that affect the performance of the assets and how these are managed and how the managers of the assets are compensated. The Company monitors financial assets measured at amortized cost or fair value through other comprehensive income that are derecognized prior to their maturity to understand the reason for their disposal and whether the reasons are consistent with the objective of the business for which the asset was held. Monitoring is part of the Company''s continuous assessment of whether the business model for which the remaining financial assets are held continues to be appropriate and if it is not appropriate whether there has been a change in business model and so a prospective change to the classification of those assets.

Income taxes

Significant judgments are involved in determining the provision for income taxes including judgment on whether tax positions are probable of being sustained in tax assessments. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable profits during the periods in which those temporary differences and tax loss carry forwards become deductible. The Company considers the expected reversal of deferred tax liabilities and projected future taxable income in making this assessment.

Expected credit losses on financial assets

The impairment provisions of financial assets and contract assets are based on assumptions about risk of default, expected recovery through liquidations of collateral, and expected timing of collection. The Company uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on the Company''s past history of collections, customer''s creditworthiness, existing market conditions as well as forward looking estimates at the end of each reporting period.

Leases

Ind AS 116 defines a lease term as the non-cancellable period for which the lessee has the right to use an underlying asset including optional periods, when an entity is reasonably certain to exercise an option to extend (or not to terminate) a lease. The Company considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option when determining the lease term. The option to extend the lease term are included in the lease term, if it is reasonably certain that the lessee will exercise the option. The Company reassesses the option when significant events or changes in circumstances occur that are within the control of the lessee.

4. Summary of significant accounting policies

This note provides a list of the significant accounting policies adopted in the preparation of these financial statements.

4.1 Measurement of fair values

Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

- Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities.

- Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.

- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The management regularly reviews significant unobservable inputs and valuation adjustments.

When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the changes have occurred.

4.2 Revenue Recognition

Interest income

Interest income is recognized in Statement of Profit and Loss using the effective interest rate (EIR) method for all financial instruments which are measured either at amortised cost or at fair value through other comprehensive income. The EIR is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument or, when appropriate, a shorter period.

The EIR is calculated by taking into account any discount or premium on acquisition, fees and transaction costs that are an integral part of the contract. Transaction costs include incremental costs that are directly attributable to the acquisition of financial asset.

If expectations regarding the cash flows on the financial asset are revised for reasons other than credit risk, the adjustment is accounted as a positive or negative adjustment to the carrying amount of the asset in the balance sheet with an increase or reduction in interest income. The adjustment is subsequently amortised through interest income in the Statement of Profit and Loss.

The Company calculates interest income by applying the EIR to the gross carrying amount of financial assets other than credit-impaired assets. When a financial asset becomes credit-impaired and is therefore regarded as ''Stage 3'', the Company calculates interest income by applying the EIR to the net amortised cost of the financial asset. If the financial asset cures and is no longer credit- impaired, the Company reverts to calculating interest income on a gross basis.

Interest income on all trading assets and financial assets, if any, required to be measured at FVTPL is recognized using the contractual interest rate as net gain on fair value changes.

Fee, commission and distribution income

The Company recognizes revenue from contracts with customers (other than financial assets to which Ind AS 109 ''Financial Instruments'' is applicable) based on a assessment model as set out in Ind AS 115 ''Revenue from contracts with customers. Revenue from contract with customer for rendering services is recognized at a point in time when performance obligation is satisfied.

Fees and commission income are measured at an amount that reflects the fair value of the consideration received or receivable, to which an entity expects to be entitled in exchange for transferring goods or services to customer, excluding amounts collected on behalf of third parties.

Distribution income is earned by selling of services and products of other entities under distribution arrangements. The income so earned is recognized on successful sales on behalf of other entities subject to there being no significant uncertainty of its recovery.

Dividend and interest income on investments:

Dividends are recognized in Statement of Profit and Loss only when the right to receive payment is established, it is probable that the economic benefits associated with the dividend will flow to the Company and the amount of the dividend can be measured reliably.

Interest income from investments is recognized when it is certain that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

Net gain on fair value changes

The Company recognises gains on fair value change of financial assets measured at FVTPL and realised gains on derecognition of financial asset measured at FVTPL and FVOCI on net basis.

However, net gain / loss on derecognition of financial instruments classified as amortised cost is presented separately under the respective head in the Statement of Profit and Loss.

Income from direct assignment

Gains arising out of direct assignment transactions comprise of the difference between the interest on the loan portfolio and the applicable rate at which the direct assignment is entered into with the assignee, also known as the right of excess interest spread (EIS). The future EIS basis the scheduled behavioral cash flows on execution of the transaction, discounted at the applicable rate entered into with the assignee is recorded upfront in the Statement of Profit and Loss. EIS is evaluated and adjusted for ECL and expected prepayment.

Other income and expenses

All other income and expense are recognized in the period in which they occur.

4.3 Property plant and equipments

Property, plant and equipment ("PPE") are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Cost of an item of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes after deducting trade discount and rebates, any directly attributable cost incidental to acquisition and installation, up to the point the asset is ready for its intended use.

Advances paid towards the acquisition of PPE outstanding at each reporting date are shown under other nonfinancial asset. Assets acquired but not ready for intended use or assets under construction at the reporting date are classified under capital work in progress.

Subsequent expenditure related to the asset are added to its carrying amount or recognized as a separate asset only if the future benefits of the existing asset, beyond its previously assessed standards of performance and cost can be measured reliably. Other repairs and maintenance costs are expensed off as and when incurred.

Depreciation

Depreciation on property, plant and equipment is provided on straight-line method in case of Computer Equipment & Server and on Written Down Value (WDV) method in case of Office Equipment, Furniture & fixtures & Vehicles. Depreciation is charged over the useful lives of assets as prescribed under Schedule II of the Companies Act 2013.

The estimated useful lives used for computation of depreciation are as follows:

	Useful Life (in years)
Computer equipment	3
Server	6
Office equipment	5
Furniture and fixtures	10
Vehicles	8

Leasehold improvements are amortized over the period of the lease.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. Changes in the expected useful life are accounted for by changing the amortization period or methodology, as appropriate, and treated as changes in accounting estimates.

PPE is derecognized on disposal or when no future economic benefits are expected from it use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the net

carrying amount of the asset) is recognized in other income / netted off from any loss on disposal in the Statement of Profit and Loss in the period the asset is derecognized. Assets held for sale or disposals are stated at the lower of their net book value and net realisable value.

4.4 Intangible Assets

An intangible asset is recognized only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Company.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of an intangible asset comprises its purchase price and any directly attributable expenditure on making the asset ready for its intended use and net of any trade discounts and rebates. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any.

Subsequent expenditure related to the asset is added to its carrying amount or recognised as a separate asset only if it increases the future benefits of the existing asset, beyond its previously assessed standards of performance and cost can be measured reliably.

Intangible assets comprise of software which is amortized using the straight-line method over a period of three years commencing from the date on which such asset is first recognized.

Gains or losses from derecognition of intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset are recognised in the Statement of Profit and Loss when the asset is derecognised.

4.5 Foreign exchange transactions & translations

a) Initial recognition

Transactions in foreign currencies are recognised at the prevailing exchange rates between the reporting currency and a foreign currency on the transaction date.

b) Conversion

Transactions in foreign currencies are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at period end exchange rates are generally recognised in Statement of Profit and Loss.

Foreign exchange differences regarded as an adjustment to borrowing costs are presented in the Statement of Profit and Loss, within finance costs. All other foreign exchange gains and losses are presented in the Statement of Profit and Loss on a net basis.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Thus, translation differences on non-monetary assets and liabilities such as equity instruments held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equity investments classified as FVOCI are recognised in other comprehensive income.

Non-monetary items that are measured at historical cost in foreign currency are not retranslated at reporting date.

4.6 Financial instruments

a) Initial recognition and measurement:

Financial assets and liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument. The Company follows trade date method of accounting for purchase and sale of investments. Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value measured on initial recognition of financial assets or financial liabilities. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognised immediately in Statement of Profit and Loss.

b) Initial classification and subsequent measurement of financial assets:

The Company classifies its financial assets into various measurement categories. The classification depends on the contractual terms of the financial assets'' cash flows and Company''s business model for managing financial assets. On initial recognition, a financial asset is classified as measured at:

- Amortised cost;

- Fair Value through Other Comprehensive Income (FVOCI) - debt instruments;

- FVOCI - equity instruments;

- Fair Value Through Profit and Loss (FVTPL)

Amortised cost

The Company''s business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated portfolios being the level at which they are managed. These financial assets comprise bank balances, loans, trade receivables and other financial instruments.

Debt instruments measured at amortized cost where they have:

a) contractual terms that give rise to cash flows on specified dates, that represent solely payment of principal and interest (SPPI) on the principal amount outstanding; and

b) are held within a business model whose objective is achieved by holding to collect contractual cash flows.

These financial assets are subsequently measured at amortized cost using effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment provision are recognized in Statement of Profit and Loss. Any gain and loss on derecognition are recognized in Statement of Profit and Loss.

FVOCI - debt instruments

The Company measures its debt instruments at FVOCI when the instrument is held within a business model, the objective of which is achieved by both collecting contractual cash flows and selling financial assets; and the contractual terms of the financial asset meet the SPPI test.F

Debt investment at FVOCI are subsequently measured at fair value. Interest income under effective interest method, foreign exchange gains and losses and impairment provision are recognized in Statement of Profit and Loss. Other net gains and losses are recognized in other comprehensive income (OCI). On derecognition, gains and losses accumulated in OCI are reclassified to Statement of Profit and Loss.

FVOCI - equity instruments

For equity investments, the Company makes an election on an instrument-by-instrument basis to designate equity investments as measured at FVOCI.

These elected investments are measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in the reserves. The cumulative gain or loss is not reclassified to Statement of Profit and Loss on disposal of the investments. These investments in equity are not held for trading. Instead, they are held for strategic purpose. Dividend income received on such equity investments are recognized in Statement of Profit and Loss.

FVTPL

A financial asset which is not classified in any of the above categories are measured at FVTPL. This includes all derivative financial assets.

Equity investments that are not designated as measured at FVOCI are designated as measured at FVTPL and subsequent changes in fair value are recognized in Statement of Profit and Loss.

Financial assets at FVTPL are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in Statement of Profit and Loss.

c) Initial classification and subsequent measurement of financial liabilities and equity instruments: Classification as debt or equity

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by Company are recognized at the proceeds received. Transaction costs of an equity transaction are recognised as a deduction from equity.

Financial liabilities

Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for trading or it is a derivative or it is designated as such on initial recognition. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in Statement of Profit and Loss. Any gain or loss on derecognition is also recognised in Statement of Profit and Loss.

d) Reclassification of financial assets and liabilities:

Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its business model for managing financial assets. Financial liabilities are never reclassified.

e) Derecognition of financial assets and liabilities:

Financial assets

The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control of the financial asset.

If the Company enters into transactions whereby it transfers assets recognised on its balance sheet, but retains either all or substantially all of the risks and rewards of the transferred assets, the transferred assets are not derecognised.

Financial liabilities

A financial liability is derecognised when the obligation in respect of the liability is discharged, cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the financial liability and the consideration paid is recognised in Statement of Profit and Loss.

f) Write-offs

The gross carrying amount of a financial asset is written off when the Company has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. This is generally the case when the Company determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subjected to write-offs. However, financial assets that are written off could still be subject to enforcement activities under the Company''s recovery procedures, taking into account legal advice where appropriate. Any subsequent recoveries made are recognized in Statement of Profit and Loss.

g) Offsetting:

Financial assets and financial liabilities are offset and the net amount presented in the balance sheet when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. The legally enforceable right is not contingent on future events and enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the group or the counterparty.

h) Derivatives and hedging activity:

The Company uses derivative contracts like cross currency interest rate swaps, forward contracts, options contracts, to hedge its risk associated with foreign currency and interest rate fluctuation relating to foreign currency floating rate borrowings. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period. The resulting gain/loss is recognized in the Statement of Profit and Loss immediately unless the derivative is designated and is effective as a hedging instrument, in which event the timing of the recognition in the Statement of Profit and Loss depends on nature and type of the hedge relationship designated.

Cash flow hedges that qualify for hedge accounting

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in cash flow hedging reserve within equity. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss, within other gains/(losses).

Amounts previously recognized in other comprehensive income and accumulated in equity relating to effective portion as described above are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognized hedged item. However, when the hedged forecast transaction results in the recognition of a nonfinancial asset or a non-financial liability, such gains and losses are transferred from equity (but not as a reclassification adjustment) and are included in the initial measurement of the cost of the non-financial asset or nonfinancial liability.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income and accumulated in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognized in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is reclassified immediately in profit or loss.

Fair value hedges that qualify for hedge accounting

Changes in fair value of the designated portion of derivatives that qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

The change in the fair value of the designated portion of hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in profit or loss in the line item relating to the hedged item.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to profit or loss from that date.

i) Restructured, rescheduled and modified loans

Restructured loans (other than OTR) where repayment terms are renegotiated as compared to the original contracted terms due to significant credit distress of the borrower are classified as credit impaired. Such loans continue to be in stage 3 until they exhibit regular payment of renegotiated principal and interest over a minimum observation of period, typically 12 months- post renegotiation, and there are no other indicators of impairment. Having satisfied the conditions of timely payment over the observation period, these loans could be transferred to stage 1 or 2 and a fresh assessment of the risk of default be done for such loans.

Rollovers/repledges in case of gold loans are not considered as restructured provided no concession are allowed and the LTV is maintained at less than or equal to prescribed regulatory guidelines.

For loans restructured under the RBI Resolution Framework (OTR), the Company, basis credit assessment, the terms of restructuring, repayment behavior of borrowers and other qualitative factors, has considered all loans restructured as an early indicator of significant increase in credit risk and accordingly classified such loans as Stage 2.

j) Impairment of financial assets

Overview of the Expected Credit Loss (ECL) allowance principles:

The Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on loans measured at amortised cost and FVOCI and other debt financial assets not held at FVTPL.

For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12 months ECL is calculated to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, the Company reverts to recognizing impairment loss allowance based on 12 months ECL.

The Company performs an assessment, at the end of each reporting period, of whether a financial assets credit risk has increased significantly since initial recognition. When determining whether credit risk of a financial asset has increased significantly since initial recognition and when estimating expected credit losses, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, including on historical experience and forward-looking information.

Estimation of Expected Credit Loss (ECL):

The Company calculates ECLs based on a probability-weighted scenarios and historical data to measure the expected cash shortfalls. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive.

The mechanics of the ECL calculations are outlined below and the key elements are, as follows:

Probability of default (PD): The Probability of Default is an estimate of the likelihood of default over a given time horizon. The Company uses historical information where available to determine PD.

Exposure at default (EAD): The Exposure at Default is an estimate of the exposure at a default date taking into account the repayment of principal and interest until the reporting date.

Loss Given default (LGD): The Loss Given Default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realisation of any collateral.

Forward looking information: While estimating the expected credit losses, the Company reviews macro-economic developments occurring in the economy and market it operates in. On a periodic basis, the Company analyses if there is any relationship between key economic trends like GDP, inflation etc. with the estimate of PD, LGD determined by the Company based on its internal data. While the internal estimates of PD, LGD rates by the Company may not be always reflective of such relationships, temporary overlays, if any, are embedded in the methodology to reflect such macro-economic trends reasonably.

Based on the above process, the Company categorizes its loans into three stages as described below:

Stage 1: When loans are first recognised, the Company recognises an allowance based on 12 months ECL. The 12-month ECL is a portion of the lifetime ECL which results from default events that are possible within 12 months after the reporting date. These expected 12-month default probabilities are applied to an EAD and multiplied by the expected LGD. Stage 1 loans also include facilities where the credit risk has improved and the loan has been reclassified from Stage 2 or Stage 3.

Stage 2: When a loan has shown a significant increase in credit risk since origination, the Company records an allowance for the life time ECL. The mechanics are similar to those explained above, but PDs and LGDs are estimated over the lifetime of the instrument.

Stage 3: Financial assets are classified as stage 3 when there is objective evidence of impairment as result of one or more loss events that have occurred after the initial recognition. The Company records an allowance for the life time ECL. The method is similar to that for Stage 2 assets, with the PD set at 100%.

For gold loans, when a loan remains overdue for 90 days or more and does not fulfil the conditions for minimum collateral cover, such loans are classified as Stage 3.

The Company has considered additional ECL provision by applying management overlays to model derived PDs and LGDs for certain pool of loans where it believes that there is a need for further adjustments given the uncertainty on forward looking risks.

k) Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument.

Financial guarantee contracts issued by a Company are initially measured at their fair values and, if not designated as at FVTPL, are subsequently measured at the higher of:

- the amount of loss allowance determined in accordance with impairment requirements of Ind AS 109 - Financial Instruments; and

- the amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with the principles of Ind AS 115 - Revenue from contracts with customers.

4.7 Impairment of assets other than financial assets

The Company reviews the carrying amounts of its tangible and intangible assets at the end of each reporting period, to determine whether there is any indication that those assets have impaired. If any such indication exists, the

recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Recoverable amount is determined for an individual asset, unless the asset does not generate cash flows that are largely independent of those from other assets or group of assets.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount.

When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash generating unit) is increased to the revised estimate of its recoverable amount such that the increased carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognised for the

asset (or cash-generating unit) in prior years. The reversal of an impairment loss is recognised in Statement of Profit and Loss.

4.8 Employee benefits

a) Short-term employee benefits

All short-term employee benefits are accounted on undiscounted basis during the accounting period based on services rendered by employees and recognized as expenses in the Statement of Profit and Loss. A liability is recognised for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

b) Defined contribution plan (provident fund and ESIC)

Retirement benefits in the form of provident fund and superannuation are defined contribution schemes. The Company has no obligation, other than the contribution payable to the respective funds. The Company recognizes contribution payable to the respective funds as expenditure, when an employee renders the related service.

c) Defined benefit plan (Gratuity)

Payment of gratuity to employees is covered by the defined benefit scheme and the Company makes contribution under the said scheme.

The Company''s liability towards gratuity scheme is determined by independent actuaries, using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows by reference to market yields at the end of the reporting period on government bonds that have terms approximating to the terms of the related obligation. Past services are recognised at the earlier of the plan amendment / curtailment and recognition of related restructuring costs/termination benefits.

The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the Statement of Profit and Loss.

Remeasurement gains/losses - Remeasurement of defined benefit plans, comprising of actuarial gains / losses, return on plan assets excluding interest income are recognised immediately in the balance sheet with corresponding debit or credit to Other Comprehensive Income (OCI). Remeasurements are not reclassified to Statement of Profit and Loss in the subsequent period.

d) Compensated Absences

The Company has a scheme for compensated absences for employees, the liability of which is determined on the basis of an independent actuarial valuation carried out at the end of the period, using the projected unit credit method. Actuarial gains and losses are recognized in full in the Statement of Profit and Loss for the period in which they occur.

4.9 Share-based payments

Equity-settled share-based payments to employees are recognized as an expense at the fair value of equity stock options at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the graded vesting period, based on the Company''s estimate of equity instruments that will eventually vest, with a corresponding adjustment in equity.

4.10 Finance costs

Finance costs include interest expense computed by applying the effective interest rate on respective financial instruments measured at amortized cost. Financial instruments include subordinated debts, term loans and working capital loans from Banks, Financial Institutions and NBFCs and Commercial Papers. Finance costs are charged to the Statement of Profit and Loss.

4.11 Income taxes

Income tax expense comprises of current tax and deferred tax. It is recognized in Statement of Profit and Loss except to the extent that it relates to an item recognized directly in equity or in other comprehensive income.

a) Current tax:

Current tax comprises amount of tax payable in respect of the taxable income or loss for the period determined in accordance with Income Tax Act, 1961 and any adjustment to the tax payable or receivable in respect of previous years. The Company''s current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Current tax assets and liabilities are offset only if there is a legally enforceable right to set off the recognised amounts, and it is intended to realise the asset and settle the liability on a net basis or simultaneously

Current tax is recognised in statement of profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current tax is also recognised in other comprehensive income or directly in equity respectively. The management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

b) Deferred tax:

Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying values of assets and liabilities and their respective tax bases. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequence that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available against which the deductible temporary difference could be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial recognition of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are offset if there i: a legally enforceable right to offset current tax. Liabilities and assets , and they relate to income taxes levied by the income tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

4.12 Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash on hand, cheques and drafts on hand, balances with banks in current accounts, short term deposits with an original maturity of three months or less, which are subject to an insignificant risk of change in value.

4.13 Provisions, contingent liabilities and contingent assets

A provision is recognised when the Company has a present obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are reviewed at each balance sheet date and are adjusted to reflect the current best estimate.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects

current market assessments of the time value of money and the risks specific to the liability. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

Contingent liabilities are disclosed in respect of possible obligations that arise from past events, whose existence would be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation.. Contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably.

Contingent assets are not recognized in the financial statements. However, it is disclosed only when an inflow of economic benefits is probable.

4.14 Leases

Contracts/arrangements, or part of a contract/arrangement meeting the definition of "lease" and falling within the scope of Ind AS 116 "Leases" to follow accounting policies mentioned below

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company as a lessee

The Company accounts for each lease component within the contract as a lease separately from non-lease components of the contract and allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

The Company recognises right-of-use asset representing its right to use the underlying asset for the lease term at the lease commencement date. The cost of the right-of-use asset measured at inception shall comprise of the amount of the initial measurement of the lease liability adjusted for any lease payments made at or before the commencement date less any lease incentives received, plus any initial direct costs incurred. The right-of-use assets is subsequently measured at cost less any accumulated depreciation, accumulated impairment losses, if any and adjusted for any remeasurement of the lease liability. The right-of-use assets is depreciated using the straight-line method from the commencement date over the shorter of lease term or useful life of right-of-use asset. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment. Right-of-use assets are tested for impairment whenever there is any indication that their carrying amounts may not be recoverable. Impairment loss, if any, is recognised in the Statement of Profit and Loss.

The Company measures the lease liability at the present value of the lease payments that are not paid at the commencement date of the lease. The lease payments are discounted using incremental borrowing rate (because the implicit rate in the lease contracts is not available). The lease payments shall include fixed payments, variable lease payments, residual value guarantees, exercise price of a purchase option where the Company is reasonably certain to exercise that option and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.

The lease liability is subsequently remeasured by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made and remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.

The Company has elected not to apply the requirements of Ind AS 116 to short-term leases of all assets that have a lease term of 12 months or less, and leases for which the underlying asset is of low value. The lease payments associated with these leases are recognised as an expense on a straight-line basis over the lease term.

The Company as a lessor

Leases where the Company does not transfer substantially all of the risk and benefits of ownership of the asset are classified as operating leases. Rental income arising from operating leases is accounted for on a straight-line basis over the lease terms and is included in rental income in the Statement of Profit and Loss, unless the increase is in line with expected general inflation, in which case lease income is recognised based on contractual terms. When the Company is an intermediate lessor it accounts, for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Company applies the exemption described above, then it classifies the sub-lease as an operating lease.

4.15 Earnings per share

Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to 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, sub-division of shares etc. that have changed the number of equities shares outstanding, without a corresponding change in resources.

For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders is divided by the weighted average number of equity shares outstanding during the period, considered for deriving basic earnings per share and weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares.

4.16 Cash flow statement

Cash flows are reported using the indirect method, whereby profit before tax is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from regular revenue generating, investing and financing activities of the Company are segregated.

4.17 Segment information

The Company is engaged in the business segment of Financing, whose operating results are regularly reviewed by the entity''s chief operating decision maker to make decisions about resources to be allocated and to assess its performance, and for which discrete financial information is available. Operating segments of the Company are reported in a manner consistent with the internal reporting provided to the chief operating decision maker and accordingly the Company has classified its operations into three segments - Distribution (retail loan/insurance products), Retail Finance and Whole sale Finance. For presentation of segment information, directly attributable income and assets are allocated as such and the other income, expenses and other assets and liabilities are apportioned on appropriate basis.