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Notes to Accounts of Fedbank Financial Services Ltd.
Mar 31, 2025
3.13 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 recognised 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 recognised 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 recognised because it cannot be measured
reliably.
Contingent assets are not recognised in the financial
statements. However, it is disclosed only when an
inflow of economic benefits is probable.
Contingent liabilities and Contingent assets are
reviewed at each balance sheet date.
3.14 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
significantly 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.
3.15 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 Companyâs 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.
3.16 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.
| 17 | BORROWINGS (OTHER THAN DEBT SECURITIES) (Contd.)
17.2 During the year ended 31st March, 2025, the Company had availed total External Commercial Borrowing (ECBs) of US$ 30
Mn for financing prospective borrower as per the ECB guidelines issued by Reserve Bank of India ("RBI") from time to time.
The borrowing has a maturity of three years. In terms of the RBI guidelines, borrowings have been swapped into rupees
and fully hedged for the entire maturity by way of cross currency swaps. The Company has not borrowed any Foreign
Currency (US$) denominated Term Loan other than rollover of existing foreign currency borrowing facility (March 31 2024,
'' Nil). Such borrowings are currently carried at '' 1 1,250 Lakhs as at 31st March, 2025 (March 31 2024: '' 16,257 Lakhs).
The foreign currency exposure on these borrowings have been economically hedged through forward contracts. (Refer
note 48.03).
| 40 | CAPITAL MANAGEMENT
The Companyâs objectives when managing capital are to
(!) safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and
benefits for other stakeholders, and
(2) maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders.
The Company maintains its capital base to cover the risks inherent in the business and in meeting the capital adequacy
requirements of the Reserve Bank of India (RBI) of India. The adequacy of the companyâs capital is monitored using,
among other measures, the regulations issued by RBI.
The Company has complied in full with all its externally imposed capital requirements over the reported year
The primary objectives of the Companyâs capital management policy are to ensure that the Company complies with
externally imposed capital requirements and maintains strong credit ratings and healthy capital ratios in order to support
its business and to maximise shareholder value. The Company manages its capital structure and makes adjustments to it
according to changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the
capital structure, the Company may adjust the amount of dividend payment to shareholders, return capital to shareholders
or issue capital securities. No changes have been made to the objectives, policies and processes from the previous years.
However, they are under constant review by the Board.
| 41 | FAIR VALUE MEASUREMENT
41.1 Fair value hierarchy
The fair values of the financial assets and liabilities are included at the amount that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
This section explains the judgements and estimates made in determining the fair values of the financial instruments that are
(a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in
the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the
Company has classified its financial instruments into the three levels prescribed under the Indian Accounting standard.
An explanation of each level is given below.
Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. For example, listed equity
instruments that have quoted market price.
Level 2: The fair value of financial instruments that are not traded in an active market (for example, traded bonds, over-the-
counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely
as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable,
the instrument is included in level 2.
Level 3: This level of hierarchy includes financial assets and liabilities measured using inputs that are not based on
observable market data (unobservable inputs). Fair values are determined in whole or in part, using a valuation model
based on assumptions that are neither supported by prices from observable current market transactions in the same
instrument nor are they based on available market data
41.4 Valuation methodologies of financial instruments not measured at fair value
Below are the methodologies and assumptions used to determine fair values for the above financial instruments which
are not recorded and measured at fair value in the Companyâs financial statements. These fair values were calculated for
disclosure purpose only. The below methodologies and assumptions relate only to instruments in the above tables and as
such may differ from the techniques and assumptions explained in the notes.
(i) Short term and other financial assets and liabilities
For financial assets and financial liabilities that have a short-term maturity (less than twelve months) and for other financial
assets and other financial liabilities, the carrying amounts, net of impairment, if any, are a reasonable approximation of
their fair value. Such instruments include cash and cash equivalents, bank balances other than cash and cash equivalents,
trade receivables, other receivables and trade payables.
(ii) Financial assets meaured at amortised cost and fair value through other comprehensive income (FVOCI)
Valuation technique: Fair values of loans are based on discounted cash flows using a discount rate determined considering
the Companyâs incremental lending rate.
Sensitivity: There is an inverse correlation. Higher the discount rate i.e average lending rate for the disbursed loans, lower
the fair value of the assets.
(iii) Debt securities, borrowings and subordinated liabilities
Fair value is estimated by a discounted cash flow model incorporating incremental borrowing rate and the Companyâs
own credit risk. The fair value of the long term borrowings carrying floating-rate of interest is not impacted due to interest
rate changes and will not be significantly different from their carrying amounts. The significant unobservable inputs are
incremental borrowing rate incorporating the counterpartiesâ credit risk.
- Set-up concentration limits & portfolio caps to ensure prudent diversification.
- Account level review of high value accounts & NPAs and provide necessary guidelines.
- Audit Committee of the Board (ACB) oversees the effective implementation of the Lending Policies approved by the
Board.
(ii) Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
Liquidity risk arises because of the possibility that the Company might be unable to meet its payment obligations when
they fall due, as a result of mismatches in the timing of cash flows.
RBI vide Circular No. RBI/2019-20/88 DOR.NBFC (PD) CC. No.102/03.10.001/2019-20 has issued with guidelines on
Liquidity Risk Management (LRM) Framework for NBFCs. It covers various aspects of LRM in NBFCs such as granular
level classification of buckets in structural liquidity statement and tolerance limits thereupon, Liquidity risk management
tools and principles. The Company has integrated the LRM framework into its Asset Liability Management (ALM) Policy to
manage liquidity risk by use of various tools such as Stuctural Liquidity Statement to assess the bucket wise mismatches
between inflows and outflows, stress testing of bucket wise mismatches between inflows and outflows in the short term
buckets (up to 30 days) by discounting inflows under various stress scenarios, Review of Unencumbered Assets available
for future secured borrowing, Review of current & projected (for next 3 months) liquidity position, review of varous financials
ratios under the stock approach of LRM, Liquidity Coverage Ratio (LCR), Review of Liqudity in the Banking System. These
tools are reviewed by the ALCO every month. To mitigate the liquidity risk further, the Company also has a Contingency
Funding Plan which is reviewed by the ALCO at periodic interval.
The Company maintains Liquidity buffers sufficient to meet all its near term obligations. The Liquidity buffers are
maintained by a combination of liquid assets (such as Cash & Cash Equivalent, Liquid Investments in callable FDs and
Overnight/Liquid Mutual Funds) and Undrawn Committed Credit Lines.
(iii) Market Risk
Market Risk is the Risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in
market variables such as Gold prices (relevant to Lending against Gold business of the Company), interest rates, foreign
currency rates. Refer note 44.3 for details.
44.1 Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counter party for financial instrument fails to meet
its contractual obligation, and arises principally from the companyâs placements and balances with other banks, loans to
customers, government securities and other financial assets.
The RMC reviews and approves Loan Product programs on an on-going basis. These product programs outline the
framework of any Credit Financial Product being offered by the Company. Within this framework, credit policies are
incorporated to manage the sourcing of proposals, channels of business acquisition, process of underwriting, information
systems involved, verification, documentation, disbursement procedures, portfolio quality triggers, recovery mechanism,
NPA management etc.
The impact of Macroeconomic, regulatory, competition and other high impact variables and portfolios underwritten within
the credit policy framework are reviewed on an ongoing basis.
Underwriting comprises of record verification through digital and external agencies, credit bureau check, financial analysis,
cash flow assessments, assessing net-worth, leverage and debt service ability etc. through submitted records, personal
discussion with borrowers, market reference etc. Collateral verification through independent legal & valuation agencies is
a critical aspect in case of secured loans. Legal documentation to create proper charge on mortgaged security, under legal
guidance, is another critical aspect.
Whilst ability of a customer to repay a loan can be adequately determined through assessment of financials and cash
flows, defaults with the intention of fraud or misreported information are additional challenges to the Company.
Gold loans are originated basis value of under-lying collateral rather than financial background of the borrower.
The underlying collateral are highly liquid and as a consequence the credit impairment risk is primarily on account of
insufficiency of margin/Loan to Value (LTV) if any. The maximum Loan to Value does not exceed the limit stipulated by
the Reserve Bank of India. As a result, there is only distant possibility of losses due to adequate margin of 25% or more
retained while disbursing loan. Past empirical evidence of realisation/recoveries from the liquidation of collateral have
materialized insignificant Loss Given Default (LGD) rates for the gold loan portfolio.
(a) Impairment Assessment
The Company applies the expected credit loss model for recognising impairment loss. The expected credit loss allowance
is computed taking into account historical credit loss experience and/or external benchmarks on loss rates and further
adjusted for forward looking information.
The expected credit loss is a product of Exposure at Default (EAD), Probability of Default (PD) and Loss Given Default
(LGD). The Company uses an internal model to compute the PD & LGD based on parameters set out in Ind AS. Accordingly,
loans are classified into various stage as follows:
(b) Probability of Default (PD)
The probability of default is the estimation of the likelihood of a loan defaulting over a time horizon. A rebuttable presumption
is that a default event cannot be later than 90 days past due. The probability of default analysis should consider not only
past history but also current economic conditions and forecasts about the future. Incorporating such economic factors is
sometimes done using scientific modelling techniques.
Historical DPD data is utilized to calculate Through the Cycle Probability of Default (TTC PD). PD analysis tracks the
migration behaviour of a static pool of loans active at the end of each month across different buckets- Stage 1, Stage 2
and Stage 3 over the 12 month and lifetime period. Transition matrix method is used wherein the historical defaults are
mapped in monthly intervals for each of cohort months and then the TTC PD is calculated as the weighted average of
default rates with number of loans outstanding as the weights.
Vasicek model is one of the accepted models globally for converting the TTC PD into Point in Time PD (PIT PD). The model
calculates an AC (Asset Correlation) factor and converts the probability using the macro-economic variable selected. The
basic premise of the model is that the higher the TTC probability the lower the correlation with the macro variable and vice
versa. Once the asset correlation is determined, the historical PD is calibrated using the readings of the macro-economic
variable for a number of years up to the balance sheet date and for a number of years after the balance sheet date. This
calibration reflects the relative macro-economic performance in the respective years with reference to the historical mean.
(c) Loss Given Default (LGD)
LGD is defined as the percentage risk of exposure that is not expected to be recovered in the event of default.
LGD is one of the key components of the credit risk parameters based ECL model. In the context of lifetime ECL calculation,
an LGD estimate has to be available for all periods that are part of the lifetime horizon (and not only for the case of a default
within the next 12 months).
Wherever possible, workout LGD model is applied to estimate LGD based on past data. The LGD component of ECL is
independent of deterioration of asset quality, and thus applied uniformly across various stages with the applicable PD for
stage 1, 2 and 3.
44.3 Market Risk
Market Risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in
market variables such as Gold prices (relevant to lending against gold business of the Company), interest rates, Foreign
Currency Rates.
a) Gold Price Fluctuation Risk:- The Risk Management Committee of the Board does a periodic review of the Gold price
movement and trends & its impact on the gold loan margins in present condition as well as under stress scenarios.
b) Interest Rate Risk:- Interest Rate Risk is the risk of change in market interest rates which might adversely affect the
Companyâs profitability.
c) Foreign Currency rate Fluctuation Risk:- The Company is exposed to risk in fluctuation of Foreign Currency Rates as
the Company has borrowings in foreign currency.
44.3.1 Gold Price Fluctuation Risk
Sudden fall in the gold price and fall in the value of the pledged gold ornaments can result in some of the customers to default if
the loan amount and interest exceeds the market value of gold. This risk is in part mitigated by a minimum 25% margin retained
on the value of gold jewellery for the purpose of calculation of the eligible loan amount. Further, the Company appraises the
gold jewellery collateral solely based on the weight of its gold content, excluding weight and value of the stone studded in the
jewellery. In addition, the sentimental value of the gold jewellery to the customers may induce repayment and redemption of the
collateral even if the value of gold ornaments falls below the value of the repayment amount. An occasional decrease in gold
prices will not increase price risk significantly on account of our adequate collateral security margins. However, a sustained
decrease in the market price of gold can additionally cause a decrease in the size of the loan portfolio and interest income.
44.3.2 Interest Rate Risk
The immediate impact of changes in interest rates is on the Companyâs earnings by impacting the Net Interest Income. The
Company has set up an Earnings at Risk limit for monitoring and controlling the Interest Rate Risk which is monitored by the
Asset Liability Management Committee (ALCO) of the Company.
The following table demonstrates the sensitivity to reasonably possible change in interest rates (all other variables being
constant) of the Companyâs Statement of Profit and Loss
44.3.3 Exposure to Currency Risks
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in
foreign currency rates. The Companyâs exposure to the risk of changes in foreign exchange rates relates primarily to the foreign
currency borrowings taken from Banks.
The Company has hedged its foreign currency exposure through appropriate derivative instruments in such a manner that
it has fixed determinate outflows in its functional currency and as such there would be no impact of movement in foreign
currency rates on the Companyâs profit before tax (PBT).
| 46 | ACCOUNTING FOR EMPLOYEE SHARE BASED PAYMENTS
Shareholders of the Company had approved "Fedbank Financial Services Limited Employee Stock Option Plan 2018" ("ESOP
Plan"), the result of which was announced on 13th November, 2018, enabling the Board and/or the "Nomination and Remuneration
Committee" (NRC) to grant such number of equity shares, including options, to eligible employee(s) of the Company each of
which is convertible into one equity share, not exceeding 6% of the aggregate number of paid up equity shares of the Company.
Post Listing, the ESOP 2018 was ratified by the shareholders vide special resolution passed in the EGM on 22nd February, 2024.
Further, Shareholders of the Company had approved a new scheme titled as "Fedbank Financial Services Limited- ESOS, 2024"
("ESOP 2024 Plan"), on 19th September, 2024, enabling the Board and/or the "Nomination and Remuneration Committee" (NRC)
to grant such number of equity shares, including options, to eligible employee(s) of the Company each of which is convertible
into one equity share, not exceeding 3% of the aggregate number of paid up equity shares of the Company.
Such options vest at definitive date, save for specific incidents, prescribed in scheme as framed/approved by NRC. Such
options are exercisable for period following vesting at the discretion of the NRC, subject to maximum of 3 years from the date
of Vesting of Options
The LCR is calculated by dividing the companyâs stock of HQLA by its total net cash outflows over a 30-day stress period. "High
Quality Liquid Assets (HQLA)" means liquid assets that can be readily sold or immediately converted into cash at little or no loss
of value or used as collateral to obtain funds in a range of stress scenarios. Total Net cash outflows is defined as total expected
cash outflows minus total expected cash inflows in the specified stress scenario for the subsequent 30 calendar days. The
main drivers of LCR are adequate HQLAs and lower net cash outflow. Major source of borrowings for the Company are Term
loans/Working capital limits from Banks, Non-Convertible Debentures and Commercial papers and ECBs.
Note: The above ratio is computed in line with RBI Guideline.
| 52 | TRANSFER OF FINANCIAL ASSETS
The Company has transferred a pool of loans arising from financing activities through securitisation transaction. In this
transaction, the Company has provided credit enhancements to the transferee. Because of the existence of credit enhancements
in this transaction, the Company continues to have the obligation to pay to the transferee, limited to the extent of credit
enhancement, even if it does not collect the equivalent amounts from the original asset and continues to retain significantly all
risks and rewards associated with the receivables, and hence, such transfer does not meet the derecognition criteria resulting
into the transfer not being recorded as sale. Consequently, the proceeds received from the transfer has been recorded as
collateralized debt obligation.
1. The Assessing Officer has disagreed with the treatment of certain expenses in connection with the return of income tax
return filed by the Company and accordingly raised a demand of '' 32 Lakhs for AY 2011-12, and short refund has been
received anounting to '' 9 Lakhs and '' 62 for AY 2017-18 and AY 2022-23 respectively. This has been challenged by the
Company before the Commissioner of Income Tax (Appeals) and adequate provision has been made.
2. The GST Officer has disallowed some of the GST input credit taken in GST return for non reconciliation of Input tax credit
with GSTR 2B and incorrect demand raised for Input tax credit already reversed u/r 38 by the Company and accordingly
raised a demand of '' 9 Lakhs, '' 15 Lakhs for FY 2017-18 and '' 6 Lakhs for FY 2020-21 for Delhi, Gujarat and Uttar
Pradesh respectively, this has been challenged by the Company before the Appellate Authority.
| 56 | DISCLOSURE AS REQUIRED UNDER RULE 11 (E) AND RULE 11 (F) OF THE COMPANIES (AUDIT AND AUDITORS)
RULES, 2014
3. The Payment of Bonus Act, 1979 was amended with retrospective effect during financial year 2020-21, the estimated
probable additional cost to the Company on account of this to the extent it pertains to the earlier financial years has
not been considered a liability by placing reliance on Kerala High Court judgement which has stayed this matter and
accordingly this is disclosed as contingent liability amounting '' 23 Lakhs.
4. In Line with industry practice, the Company auctions gold kept as security by borrowers whose loans are in default. Certain
customers of the Company have filed suits in consumer/civil courts for auctioning of their gold ornaments or for obtaining
of stay order against auction of their pledged gold. The management does not expect any material liability from such suits.
5. Future cash outflows in respect of above are determinable only on receipt of judgements/decisions pending with various
forums/authorities. It is not practicable for the Company to estimate the timings of the cashflows, if any, in respect of the
above pending resolution of the respective proceedings. The Company does not expect any reimbursement in respect of
the above contingent liabilities. The Company is of the opinion that above demands are not sustainable and expects to
succeed in its appeals. The management believes that the ultimate outcome of these proceedings will not have a material
adverse effect on the Companyâs financial position and results of operations.
1. No funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources
or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries") with
the understanding, whether recorded in writing or otherwise, that the Intermediary shall lend or invest in a party identified
by or on behalf of the Company (Ultimate Beneficiaries).
2. The Company has not received any fund from any party(s) with the understanding that the Company shall whether, directly
or indirectly lend or invest in other persons or entities identified by or on behalf of the Company ("Ultimate Beneficiaries")
or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
3. There is no dividend declared or paid during the year by the Company.
| 57 [ADDITIONAL REGULATORY INFORMATION PURSUANT TO THE REQUIREMENT OF SCHEDULE III TO THE
COMPANIES ACT 2013
(i) The Company does not have any Benami property, where any proceeding has been initiated or pending against the
Company for holding any Benami property.
(ii) The Company has not revalued its property, plant and equipment (including right-of-use assets) or intangible assets or
both during the current or previous year.
(iii) The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.
(iv) The Company has not advanced or loaned or invested funds to any other person(s) or entity(ies), including foreign entities
(Intermediaries) with the understanding that the Intermediary shall:
(a) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of
the company (Ultimate Beneficiaries) or
(b) provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries
v) The Company has not any such transaction which is not recorded in the books of accounts that has been surrendered or
disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or
any other relevant provisions of the Income Tax Act, 1961
(vi) The Company has borrowings from banks and financial institutions on the basis of security of current assets. The quarterly
returns or statements of current assets filed by the Company with banks and financial institutions are in agreement with
the books of accounts.
(vii) The Company have not been declared wilful defaulter by any bank or financial institution or government or any government
authority.
(viii) The Company has complied with the number of layers prescribed under the Companies Act, 2013, to the extent applicable.
(ix) The Company has not entered into any scheme of arrangement which has an accounting impact on current or previous
financial year.
(x) Disclosure of transactions with the companies struck off under section 248 of Companies Act, 2013 or section 560 of
Companies Act, 1956
| 58 |'' 0 Lakhs indicates values are lower than '' 0.5 Lakhs, where applicable.
| 59 | Previous year numbers have been regrouped/reclassified, wherever considered necessary, to correspond with current
year presentation.
As per our report of even date attached
For KKC & Associates LLP For and on behalf of Board of Directors of Fedbank Financial Services Limited
Chartered Accountants
FRN: 105146W/W-100621
C. V. Ganesh S. Rajaraman
Chief Financial Officer Company Secretary
M.No.F3514
Hasmukh B Dedhia Parvez Mulla Sonal Dave
Partner MD & CEO Independent Director
Membership No. 033494 DIN:08026994 DIN:00017710
Place: Mumbai Place: Mumbai
Date: 29th April, 2025 Date: 29th April, 2025
Mar 31, 2024
3.13 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 recognised 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 pretax 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 recognised 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 recognised because it cannot be measured reliably.
Contingent assets are not recognised in the financial statements. However, it is disclosed only when an inflow of economic benefits is probable.
Contingent liabilities and Contingent assets are reviewed at each balance sheet date.
3.14 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 nonlease 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 straightline 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 significantly 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 sublease as an operating lease.
3.15 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 Companyâs 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.
3.16 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.
3.17 Segment information
The Company is engaged in the business segment of Financing, whose operating results are regularly reviewed by the entityâs 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.
24.1 Nature and purpose of reserves
a) Securities Premium
Securities premium is used to record the premium on issue of shares. The reserve is utilised in accordance with the provisions of the Companies Act, 2013.
b) Employee Stock Option outstanding
The Employee Stock Options outstanding represents amount of reserve created by recognition of compensation cost at grant date fair value on stock options vested but not exercised by employees and unvested stock options in the Statement of Profit and Loss in respect of share options granted to the eligible employees of the Company in pursuance of the Employee Stock Option Plan.
c) Other Comprehensive Income
It represents the fair value gains/(losses) post tax on loans and investments.
d) Special Reserve
Special reserve represents the Reserve fund created under Section 45-IC of the Reserve Bank of India Act, 1934.
e) General Reserve
The reserve is a distributable reserve maintained by the Company out of transfers made from annual profits.
f) Capital Redemption Reserve
Capital Redemption Reserve represents the reserve created for a sum egual to nominal value of the preference share redeemed.
g) Surplus in the statement of profit and loss
Surplus in the Statement of Profit and Loss pertain to the Companyâs undistributed earnings after taxes.
The Companyâs objectives when managing capital are to
(!) safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and
(2) maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders.
The Company maintains its capital base to cover the risks inherent in the business and in meeting the capital adequacy requirements of the Reserve Bank of India (RBI) of India. The adequacy of the companyâs capital is monitored using, among other measures, the regulations issued by RBI.
The Company has complied in full with all its externally imposed capital requirements over the reported year
The primary objectives of the Companyâs capital management policy are to ensure that the Company complies with externally imposed capital requirements and maintains strong credit ratings and healthy capital ratios in order to support its business and to maximise shareholder value. The Company manages its capital structure and makes adjustments to it according to changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes have been made to the objectives, policies and processes from the previous years. However, they are under constant review by the Board.
40 FAIR VALUE MEASUREMENT
40.1 Fair value hierarchy
The fair values of the financial assets and liabilities are included at the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the Indian Accounting standard. An explanation of each level is given below.
Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. For example, listed equity instruments that have quoted market price.
Level 2: The fair value of financial instruments that are not traded in an active market (for example, traded bonds, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
Level 3: This level of hierarchy includes financial assets and liabilities measured using inputs that are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part, using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data
40.4 Valuation methodologies of financial instruments not measured at fair value (Contd.)
(ii) Financial assets meaured at amortised cost and fair value through other comprehensive income (FVOCI)
Valuation technique: Fair values of loans are based on discounted cash flows using a discount rate determined considering the Companyâs incremental lending rate.
Sensitivity: There is an inverse correlation. Higher the discount rate i.e average lending rate for the disbursed loans, lower the fair value of the assets.
(iii) Debt securities, borrowings and subordinated liabilities
Fair value is estimated by a discounted cash flow model incorporating incremental borrowing rate and the Companyâs own credit risk. The fair value of the long term borrowings carrying floating-rate of interest is not impacted due to interest rate changes and will not be significantly different from their carrying amounts. The significant unobservable inputs are incremental borrowing rate incorporating the counterpartiesâ credit risk.
The Company has a Board-approved Risk Management Policy that defines the Risk Management Framework, Risk Monitoring Mechanism and Enterprise level Key Risk Areas. The main objective of this policy is to ensure sustainable and prudent business growth. The Risk Management Framework comprises of Risk Management Committee of Board (RMC), Credit Committee of Board, Asset Liability Management Committee (ALCO) and Credit Risk Management Committee (CRMC). The Risk Management Committee (RMC) reviews the overall asset quality and portfolio composition on a periodic basis. Overseeing liquidity risk position of the Company are also part of terms of reference of this committee. Any product policy programmes are approved by this Committee. The Credit Risk Management Committee oversees the Operational Risks and any Operating Risk level decisions are approved by this committee. The Company has adopted and laid down operating procedures and guidelines to mitigate Credit, Reputation, Operational, Market and Fraud risks in its business lines where the Risk Function works very closely with the Independent Internal Audit Department (Risk Based Internal Audit). The Company continues to invest in people, processes, training and technology so as to strengthen its overall Risk Management Framework.
Types of Risks
The Companyâs risk are generally categorised in the following risk types:
(i) Credit Risk
The RMC & CRMC oversee the following:
- Detailed review of portfolio quality and triggers to ascertain underlying stress levels in portfolio, in light of micro and macro factors
- Approve necessary amendments or new product & policy programmes in light of portfolio behaviour, environmental factors and business opportunities.
- Set-up concentration limits & portfolio caps to ensure prudent diversification.
- Account level review of high value accounts & NPAs and provide necessary guidelines.
- Audit Committee of the Board (ACB) oversees the effective implementation of the Lending Policies approved by the Board.
(ii) Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk arises because of the possibility that the Company might be unable to meet its payment obligations when they fall due, as a result of mismatches in the timing of cash flows.
RBI vide Circular No. RBI/2019-20/88 DOR.NBFC (PD) CC. No.102/03.10.001/2019-20 has issued with guidelines on Liquidity Risk Management (LRM) Framework for NBFCs. It covers various aspects of LRM in NBFCs such as granular level classification of buckets in structural liquidity statement and tolerance limits thereupon, Liquidity risk management tools and principles. The Company has integrated the LRM framework into its Asset Liability Management (ALM) Policy to manage liquidity risk by use of various tools such as Stuctural Liquidity Statement to assess the bucket wise mismatches between inflows and outflows, stress testing of bucket wise mismatches between inflows and outflows in the short term buckets (up to 30 days) by discounting inflows under various stress scenarios, Review of Unencumbered Assets available for future secured borrowing, Review of current & projected (for next 3 months) liquidity position, review of varous financials ratios under the stock approach of LRM, Liquidity Coverage Ratio (LCR), Review of Liqudity in the Banking System. These tools are reviewed by the ALCO every month. To mitigate the liquidity risk further, the Company also has a Contingency Funding Plan which is reviewed by the ALCO at periodic interval.
The Company maintains Liquidity buffers sufficient to meet all its near term obligations. The Liquidity buffers are maintained by a combination of liquid assets (such as Cash & Cash Equivalent, Liquid investments in callable FDs and Overnight/Liquid Mutual Funds) and Undrawn Committed Credit Lines.
(iii) Market Risk
Market Risk is the Risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as Gold prices (relevant to Lending against Gold business of the Company), interest rates, foreign currency rates. Refer note 44.3 for details.
44.1 Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counter party for financial instrument fails to meet its contractual obligation, and arises principally from the companyâs placements and balances with other banks, loans to customers, government securities and other financial assets.
The RMC reviews and approves Loan Product programmes on an on-going basis. These product programmes outline the framework of any Credit Financial Product being offered by the Company. Within this framework, credit policies are incorporated to manage the sourcing of proposals, channels of business acquisition, process of underwriting, information systems involved, verification, documentation, disbursement procedures, portfolio quality triggers, recovery mechanism, NPA management etc.
The impact of Macroeconomic, regulatory, competition and other high impact variables and portfolios underwritten within the credit policy framework are reviewed on an ongoing basis.
Underwriting comprises of record verification through digital and external agencies, credit bureau check, financial analysis, cash flow assessments, assessing net-worth, leverage and debt service ability etc. through submitted records, personal discussion with borrowers, market reference etc. Collateral verification through independent legal & valuation agencies is a critical aspect in case of secured loans. Legal documentation to create proper charge on mortgaged security, under legal guidance, is another critical aspect.
Whilst ability of a customer to repay a loan can be adequately determined through assessment of financials and cash flows, defaults with the intention of fraud or misreported information are additional challenges to the Company.
Gold loans are originated basis value of under-lying collateral rather than financial background of the borrower. The underlying collateral are highly liquid and as a consequence the credit impairment risk is primarily on account of insufficiency of margin/ Loan to Value (LTV) if any. The maximum Loan to Value does not exceed the limit stipulated by the Reserve Bank of India. As a result, there is only distant possibility of losses due to adequate margin of 25% or more retained while disbursing loan. Past empirical evidence of realisation/recoveries from the liquidation of collateral have materialised insignificant Loss Given Default (LGD) rates for the gold loan portfolio.
44.1 Credit Risk (Contd.)
(a) Impairment Assessment
The Company applies the expected credit loss model for recognising impairment loss. The expected credit loss allowance is computed taking into account historical credit loss experience and/or external benchmarks on loss rates and further adjusted for forward looking information.
The expected credit loss is a product of Exposure at Default (EAD), Probability of Default (PD) and Loss Given Default (LGD). The Company uses an internal model to compute the PD & LGD based on parameters set out in Ind AS. Accordingly, loans are classified into various stage as follows:
(b) Probability of Default (PD)
The probability of default is the estimation of the likelihood of a loan defaulting over a time horizon. A rebuttable presumption is that a default event cannot be later than 90 days past due. The probability of default analysis should consider not only past history but also current economic conditions and forecasts about the future. Incorporating such economic factors is sometimes done using scientific modelling techniques.
Historical DPD data is utilised to calculate Through the Cycle Probability of Default (TTC PD). PD analysis tracks the migration behaviour of a static pool of loans active at the end of each month across different buckets- Stage 1, Stage 2 and Stage 3 over the 12 month and lifetime period. Transition matrix method is used wherein the historical defaults are mapped in monthly intervals for each of cohort months and then the TTC PD is calculated as the weighted average of default rates with number of loans outstanding as the weights.
Vasicek model is one of the accepted models globally for converting the TTC PD into Point in Time PD (PIT PD). The model calculates an AC (Asset Correlation) factor and converts the probability using the macro-economic variable selected. The basic premise of the model is that the higher the TTC probability the lower the correlation with the macro variable and vice versa. Once the asset correlation is determined, the historical PD is calibrated using the readings of the macro-economic variable for a number of years up to the balance sheet date and for a number of years after the balance sheet date. This calibration reflects the relative macro-economic performance in the respective years with reference to the historical mean.
(c) Loss Given Default (LGD)
LGD is defined as the percentage risk of exposure that is not expected to be recovered in the event of default.
LGD is one of the key components of the credit risk parameters based ECL model. In the context of lifetime ECL calculation, an LGD estimate has to be available for all periods that are part of the lifetime horizon (and not only for the case of a default within the next 12 months).
Wherever possible, workout LGD model is applied to estimate LGD based on past data. The LGD component of ECL is independent of deterioration of asset quality, and thus applied uniformly across various stages with the applicable PD for stage 1, 2 and 3.
(d) Exposure at Default (EAD)
EAD is one of the key components for ECL computation. 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.
(e) Significant Increase in Credit Risk
The Company continuously monitors all assets subject to ECLs. In order to determine whether an instrument or a portfolio of instruments is subject to 12 month ECL or life time ECL, the Company assesses whether there has been a significant increase in credit risk since initial recognition. In line with Ind AS 109, the Company considers an exposure to have significantly increased in credit risk when the DPD is 30 or more. Besides this quantitave factor, the company also assesses Significant Increase in Credit Risk (SICR) based on qualitative factors e.g. One Time Restructuring (OTR) of loans, LTV threshold/margin for gold loan facilities.
Market Risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as Gold prices (relevant to lending against gold business of the Company), interest rates, Foreign Currency Rates.
a) Gold Price Fluctuation Risk:- The Risk Management Committee of the Board does a periodic review of the Gold price movement and trends & its impact on the gold loan margins in present condition as well as under stress scenarios.
b) Interest Rate Risk:- Interest Rate Risk is the risk of change in market interest rates which might adversely affect the Companyâs profitability.
c) Foreign Currency rate Fluctuation Risk:- The Company is exposed to risk in fluctuation of Foreign Currency Rates as the Company has borrowings in foreign currency.
44.3.1 Gold Price Fluctuation Risk
Sudden fall In the gold price and fall In the value of the pledged gold ornaments can result In some of the customers to default If the loan amount and interest exceeds the market value of gold. This risk is in part mitigated by a minimum 25% margin retained on the value of gold jewellery for the purpose of calculation of the eligible loan amount. Further, the Company appraises the gold jewellery collateral solely based on the weight of its gold content, excluding weight and value of the stone studded in the jewellery. In addition, the sentimental value of the gold jewellery to the customers may induce repayment and redemption of the collateral even if the value of gold ornaments falls below the value of the repayment amount. An occasional decrease in gold prices will not increase price risk significantly on account of our adequate collateral security margins. However, a sustained decrease in the market price of gold can additionally cause a decrease in the size of the loan portfolio and interest income.
44.3.2 Interest Rate Risk
The immediate impact of changes in interest rates is on the Companyâs earnings by impacting the Net Interest Income. The Company has set up an Earnings at Risk limit for monitoring and controlling the Interest Rate Risk which is monitored by the Asset Liability Management Committee (ALCO) of the Company.
46 ACCOUNTING FOR EMPLOYEE SHARE BASED PAYMENTS
Shareholders of the Company had approved "Fedbank Financial Services Limited Employee Stock Option Plan 2018" ("ESOP Plan"), the result of which was announced on 13th November, 2018, enabling the Board and/or the "Nomination and Remuneration Committee" (NRC) to grant such number of equity shares, including options, to eligible employee(s) of the Company each of which is convertible into one equity share, not exceeding 6% of the aggregate number of paid up equity shares of the Company. Post Listing, the ESOP 2018 was ratified by the shareholders vide special resolution passed in the EGM on 22nd February, 2024. Such options vest at definitive date, save for specific incidents, prescribed in scheme as framed/approved by NRC. Such options are exercisable for period following vesting at the discretion of the NRC, subject to maximum of 10 years from the date of Vesting of Options
48 DISCLOSURES AS REQUIRED MASTER DIRECTION - RESERVE BANK OF INDIA (NON-BANKING FINANCIAL COMPANY - SCALE BASED REGULATION) DIRECTIONS, 2023
These disclosures are made pursuant to Master Direction - Reserve Bank of India (Non-Banking Financial Company - Scale Based Regulation) Directions, 2023 (as amended) , to the extent applicable to the Company.
The Reserve Bank of India, vide its circular reference RBI/2019-20/170 DOR (NBFC).CC.PD.No.109/22.10.106/2019-20 dated 13th March, 2020 outlined the regulatory guidance in relation to Ind AS financial statements from FY 2019-20 onwards. This included guidance for computation of ''owned fundsâ , ''net owned fundsâ and ''regulatory capitalâ.
Accordingly, CRAR has been computed in accordance with these requirements read with the requirements of the Master Direction - Reserve Bank of India (Non-Banking Financial Company - Scale Based Regulation) Directions, 2023.
48.01 Foreign Currency
The Company has entered into a foreign currency transaction during the year ended 31st March, 2024. The Company does not have any outstanding unhedged foreign currency exposure as at 31st March, 2024. The exposures are economically hedged.
48.23 Ownership Overseas Assets (for those with joint ventures and subsidiaries abroad)
There are no overseas assets owned by the Company.
48.24 Breach of Covenant
The Company has Non-convertible Debentures listed on the debt segment of BSE. As a debt listed Company, pursuant to Regulation 52 of the Listing Regulations, the Company was required to publish quarterly financial results within 45 days from the completion of the quarter. Due to the IPO process, which culminated with a listing on the NSE/BSE on 30th November, 2023, the submission of the unaudited limited review results for the quarter and half year ended ended 30th September, 2023 got delayed and was submitted after the 45 days period stipulated by the Regulation 52 of the Listing Regulations subsequent to the results being approved by the Board of Directors at its board meeting held on 11th December, 2023.
The delayed filing of the unaudited limited review results for the quarter ended 30th September, 2023 had also led to delay in submission of quarterly financial information to its lenders attracting breach in non-financial covenant. Subsequently the matter stands closed and there is no material impact on the financial statements of the Company as on the reporting date.
48.25 DIVERGENCE IN ASSET CLASSIFICATION AND PROVISIONING - DISCLOSURE PURSUANT TO RESERVE BANK OF INDIA (SCALE BASED REGULATION) RBI/2022-23/26 DOR.ACC.REC.N0.20 /21.04.018 /2022-23 DATED 19th April, 2022.
There are no additional Gross NPAs identified by RBI which exceeds 5 % of the reported Gross NPAs for the year ended 31st March, 2024. (31st March, 2023: Nil)
48.26 Dividend Declared
The Company has not declared any dividend for the year ended 31st March, 2024. (31st March, 2023: Nil)
48.27 Pledged Securities
The Company has not given any loans against pledged securities during the year ended 31st March, 2024. (31st March, 2023: Nil)
48.28 Disclosure pursuant to Reserve Bank of India notification DNBS.CC.PD.No.356/03.10.01/2013-14 dated 16th September, 2013 pertaining to gold loans
51 LCR DISCLOSURE (Contd.)
The LCR is calculated by dividing the Companyâs stock of HQLA by its total net cash outflows over a 30-day stress period. "High Quality Liquid Assets (HQLA)" means liquid assets that can be readily sold or immediately converted into cash at little or no loss of value or used as collateral to obtain funds in a range of stress scenarios. Total Net cash outflows is defined as total expected cash outflows minus total expected cash inflows in the specified stress scenario for the subsequent 30 calendar days. The main drivers of LCR are adequate HQLAs and lower net cash outflow. Major source of borrowings for the Company are Term loans/ Working capital limits from Banks, Non-Convertible Debentures and Commercial papers.
Note: The above ratio is computed in line with RBI Guideline.
52 TRANSFER OF FINANCIAL ASSETS
The Company has transferred a pool of loans arising from financing activities through securitisation transaction. In this transaction, the Company has provided credit enhancements to the transferee. Because of the existence of credit enhancements in this transaction, the Company continues to have the obligation to pay to the transferee, limited to the extent of credit enhancement, even if it does not collect the equivalent amounts from the original asset and continues to retain significantly all risks and rewards associated with the receivables, and hence, such transfer does not meet the derecognition criteria resulting into the transfer not being recorded as sale. Consequently, the proceeds received from the transfer has been recorded as collateralised debt obligation.
53 CONTINGENT LIABILITIES (TO THE EXTENT NOT PROVIDED FOR) (Contd.)
Stamp duty payable on the unattested deed of hypothecation in Mumbai, Maharashtra as per the Article 6(2) of Schedule I of the Maharashtra Stamp Act, 1958 being 0.3% of the amount agreed in the contract, subject to maximum of '' 20,00,000/-(Rupees Twenty Lakhs Only)
4. In Line with industry practice, the Company auctions gold kept as security by borrowers whose loans are in default. Certain customers of the Company have filed suits in consumer/civil courts for auctioning of their gold ornaments or for obtaining of stay order against auction of their pledged gold. The management does not expect any material liability from such suits.
5. Future cash outflows in respect of above are determinable only on receipt of judgements /decisions pending with various forums/authorities. It is not practicable for the Company to estimate the timings of the cashflows, if any, in respect of the above pending resolution of the respective proceedings. The Company does not expect any reimbursement in respect of the above contingent liabilities. The Company is of the opinion that above demands are not sustainable and expects to succeed in its appeals. The management believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Companyâs financial position and results of operations.
56 DISCLOSURE AS REQUIRED UNDER RULE 11(E) AND RULE 11(F) OF THE COMPANIES (AUDIT AND AUDITORS) RULES, 2014
1. No funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries") with the understanding, whether recorded in writing or otherwise, that the Intermediary shall lend or invest in a party identified by or on behalf of the Company (Ultimate Beneficiaries).
2. The Company has not received any fund from any party(s) with the understanding that the Company shall whether, directly or indirectly lend or invest in other persons or entities identified by or on behalf of the Company ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
3. There is no dividend declared or paid during the period by the Company.
57 ADDITIONAL REGULATORY INFORMATION PURSUANT TO THE REQUIREMENT OF SCHEDULE III TO THE COMPANIES ACT 2013
(i) The Company does not have any Benami property, where any proceeding has been initiated or pending against the Company for holding any Benami property.
(ii) The Company has not revalued its property, plant and equipment (including right-of-use assets) or intangible assets or both during the current or previous year.
(iii) The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.
(iv) The Company has not advanced or loaned or invested funds to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding that the Intermediary shall:
(a) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (Ultimate Beneficiaries) or
(b) provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries
v) The Company has not any such transaction which is not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the Income Tax Act, 1961
(vi) The Company has borrowings from banks and financial institutions on the basis of security of current assets. The quarterly returns or statements of current assets filed by the Company with banks and financial institutions are in agreement with the books of accounts.
(vii) The Company have not been declared wilful defaulter by any bank or financial institution or government or any government authority.
(viii) The Company has complied with the number of layers prescribed under the Companies Act, 2013, to the extent applicable.
(ix) The Company has not entered into any scheme of arrangement which has an accounting impact on current or previous financial year.
(x) Disclosure of transactions with the companies struck off under section 248 of Companies Act, 2013 or section 560 of Companies Act, 1956
58 '' 0 Lakhs indicates values are lower than '' 0.5 Lakhs, where applicable
59 Between May-July 2022, the Company experienced an information security incident involving a ransomware and consequent isolation of impacted IT services. In response to this, the Management initiated comprehensive containment efforts to address the incident. Restoration of all impacted applications has been done and business is continuing as usual. The Company appointed an expert to investigate the nature, event and causes of data breach and remediation efforts recommended to enhance safeguards and avoid breaches are in progress of being implemented. The Company believes that data integrity is maintained and not compromised. There has been no litigations and claims relating to this cyber security incident till date.
60 During the previous year, the Company had filed the Draft Red Herring Prospectus dated 18th February, 2022, with SEBI, for the purpose of raising equity capital. However, due to various internal and external considerations the plan to issue equity shares to public was put on hold. Accordingly, the Company had expensed the following in the Statement of Profit and Loss in previous year.
61 The Companyâs equity shares have been listed on National Stock Exchange ("NSE") and on BSE Limited ("BSE") on 30th November, 2023 on account of completion of the Initial Public Offering (""IPO"") consisting of fresh issue of 4,28,81,148 equity shares amounting to '' 60,000 Lakhs and through an offer for sale of 3,51,61,723 equity shares amounting to '' 49,226 Lakhs having equity shares of face value of ''10 each at premium of ''130 per share(including 3,36,087 employee quota equity share allocation at premium of ''120 per share.) Share issue expenses of the Companyâs amounting to '' 2,020.55 Lakhs (net of tax) has been adjusted to securities premium. Refer note 24.2 (a) of the financial statements. Detail of Utilisation of IPO Proceeds is as under:-
As per our report of even date attached
For B S R & Co. LLP For and on behalf of Board of Directors of Fedbank Financial Services Limited
Chartered Accountants FRN: 101248W/W-100022
C. V. Ganesh S. Rajaraman
Chief Financial Officer Company Secretary
M.No.F3514
Ashwin Suvarna Anil Kothuri Balakrishnan Krishnamurthy Gauri Rushabh Shah
Partner MD & CEO Non Executive Chairman Independent Director
Membership No. 109503 DIN:00177945 DIN:00034031 DIN:06625227
Place: Mumbai Place: Mumbai
Date: 29th April, 2024 Date: 29th April, 2024
Mar 31, 2023
17.2 During the year ended March 31,2023, the Company had borrowed Rs. 334.83 crores as Foreign Currency (USD) denominated Term Loan. These borrowings are currently carried at Rs. 295.37 crores as at March 31,2023.
The foreign currency exposure on these borrowings have been economically hedged through forward contracts. (Refer note 48.03)
17.3 There is no borrowing measured at FVTPL or designated as FVTPL.
17.4 No term loan, commercial paper or any other borrowing is guaranteed by promoter or directors of the company.
(b) Rights, preferences and restrictions attached to equity shares
For Equity shares : The Company has only one class of Equity shares having face value of INR 10/- each per share. Each holder of Equity shares is entitled to one vote per share. In the event of liquidation of the Company, the holders of Equity shares will be entitled to receive the remaining assets of the Company, after distribution of all preferential amounts if any. The distribution will be in proportion to the number of shares held.
24.1 Nature and purpose of reserves
a) Securities Premium
Securities premium is used to record the premium on issue of shares. The reserve is utilised in accordance with the provisions of the Companies Act, 2013.
b) Employee Stock Option outstanding
The Employee Stock Options outstanding represents amount of reserve created by recognition of compensation cost at grant date fair value on stock options vested but not exercised by employees and unvested stock options in the Statement of Profit and Loss in respect of share options granted to the eligible employees of the Company in pursuance of the Employee Stock Option Plan.
c) Other Comprehensive Income
It represents the fair value gains/(losses) on loans and investments.
d) Special Reserve
Special reserve represents the Reserve fund created under Section 45-IC of the Reserve Bank of India Act, 1934.
e) Equity component of Compound Financial Instrument
This is equity component of compound financial instruments as per Ind AS 32 Financial Instruments: Presentation (refer to note 23(a) for details).
f) General Reserve
The reserve is a distributable reserve maintained by the Company out of transfers made from annual profits.
g) Impairment Reserve
Impairment Reserve is appropriated from net profit after tax when charge of impairment allowance is lower than the provisioning required under Income Recognition, Asset Classification and Provisioning norms prescribed by Reserve Bank of India (RBI)
h) Capital Redemption Reserve
Capital Redemption Reserve represents the reserve created for a sum equal to nominal value of the preference share redeemed.
i) Surplus in the statement of profit and loss
Surplus in the Statement of Profit and Loss pertain to the Company''s undistributed earnings after taxes.
Defined Benefit Obligation and Compensated Absences
(1) Contribution to Gratuity fund (funded scheme)
The gratuity plan is governed by the Payment of Gratuity Act, 1972. Under the Gratuity Act, an employee who has completed five years of service is entitled to specific benefits. The level of benefits provided depends on the member''s length of service, managerial grade and salary at retirement age. In accordance with Indian Accounting Standard 19, actuarial valuation was done in respect of the aforesaid defined benefit plan of gratuity based on the following assumptions:-
Note -
1. Includes sitting fees paid to independent directors INR 31.10 lakhs and INR 26.30 lakhs for the year ended March 31, 2023 and March 31,2022 respectively.
2. Expenses towards provision for gratuity and leave encashment which are determined on actuarial basis at an overall Company level are not included in the above information.
The Company''s objectives when managing capital are to
(1) safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and
(2) maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders.
The Company maintains its capital base to cover the risks inherent in the business and in meeting the capital adequacy requirements of the Reserve Bank of India (RBI) of India. The adequacy of the company''s capital is monitored using, among other measures, the regulations issued by RBI.
The Company has complied in full with all its externally imposed capital requirements over the reported year
The primary objectives of the Company''s capital management policy are to ensure that the Group complies with externally imposed capital requirements and maintains strong credit ratings and healthy capital ratios in order to support its business and to maximise shareholder value. The Group manages its capital structure and makes adjustments to it according to changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes have been made to the objectives, policies and processes from the previous years. However, they are under constant review by the Board.
40 Fair value measurement40.1 Fair value hierarchy
The fair values of the financial assets and liabilities are included at the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the Indian Accounting standard. An explanation of each level is given below."
Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. For example, listed equity instruments that have quoted market price.
Level 2: The fair value of financial instruments that are not traded in an active market (for example, traded bonds, over-the- counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
Level 3: This level of hierarchy includes financial assets and liabilities measured using inputs that are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part, using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data
40.4 Valuation methodologies of financial instruments not measured at fair value
Below are the methodologies and assumptions used to determine fair values for the above financial instruments which are not recorded and measured at fair value in the Company''s financial statements. These fair values were calculated for disclosure purpose only. The below methodologies and assumptions relate only to instruments in the above tables and as such may differ from the techniques and assumptions explained in the notes.
(i) Short term and other financial assets and liabilities
For financial assets and financial liabilities that have a short-term maturity (less than twelve months) and for other financial assets and other financial liabilities, the carrying amounts, net of impairment, if any, are a reasonable approximation of their fair value. Such instruments include cash and cash equivalents, bank balances other than cash and cash equivalents, trade receivables, other receivables and trade payables.
(ii) Financial assets meaured at amortised cost and fair value through other comprehensive income (FVOCI)
Valuation technique: Fair values of loans are based on discounted cash flows using a discount rate determined considering the Company''s incremental lending rate.
Sensitivity: There is an inverse correlation. Higher the discount rate i.e average lending rate for the disbursed loans, lower the fair value of the assets.
(iii) Debt securities, borrowings and subordinated liabilities
Fair value is estimated by a discounted cash flow model incorporating incremental borrowing rate and the Company''s own credit risk. The fair value of the long term borrowings carrying floating-rate of interest is not impacted due to interest rate changes and will not be significantly different from their carrying amounts. The significant unobservable inputs are incremental borrowing rate incorporating the counterparties'' credit risk.
Segment Composition
Distribution Segment comprises of Sourcing Business of Home Loans, Auto Loans, Personal Loans & SME Loans for Holding Company.
Retail Finance Segment comprises of Gold Loans, Loan Against Property, MSE Loan against property, Business Loans, Personal Loans & Housing Finance.
WholeSale Finance Segment comprises of Construction Finance and Loans to Other NBFCs.
Note:
Unallocated Income comprises of Other Income earned by the business.
Unallocated Expenses comprises of Tax Expense.
The Company has a Board-approved Risk Management Policy that defines the Risk Management Framework, Risk Monitoring Mechanism and Enterprise level Key Risk Areas. The main objective of this policy is to ensure sustainable and prudent business growth. The Risk Management Framework comprises of Risk Management Committee of Board (RMC), Credit Committee of Board, Asset Liability Management Committee (ALCO) and Credit Risk Management Committee (CRMC). The Risk Management Committee (RMC) reviews the overall asset quality and portfolio composition on a periodic basis. Overseeing liquidity risk position of the Company are also part of terms of reference of this committee. Any product policy programs are approved by this Committee. The Credit Risk Management Committee oversees the Operational Risks and any Operating Risk level decisions are approved by this committee. The Company has adopted and laid down operating procedures and guidelines to mitigate Credit, Reputation, Operational, Market and Fraud risks in its business lines where the Risk Function works very closely with the Independent Internal Audit Department (Risk Based Internal Audit). The Company continues to invest in people, processes, training and technology so as to strengthen its overall Risk Management Framework.
Types of Risks
The Company''s risk are generally categorised in the following risk types:
(i) Credit Risk
The RMC & CRMC oversee the following:
- Detailed review of portfolio quality and triggers to ascertain underlying stress levels in portfolio, in light of micro and macro factors
- Approve necessary amendments or new product & policy programs in light of portfolio behaviour, environmental factors and business opportunities.
- Set-up concentration limits & portfolio caps to ensure prudent diversification.
- Account level review of high value accounts & NPAs and provide necessary guidelines.
- Audit Committee of the Board (ACB) oversees the effective implementation of the Lending Policies approved by the Board.
(ii) Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk arises because of the possibility that the Company might be unable to meet its payment obligations when they fall due, as a result of mismatches in the timing of cash flows.
RBI vide Circular No. RBI/2019-20/88 DOR.NBFC (PD) CC. No.102/03.10.001/2019-20 has issued with guidelines on Liquidity Risk Management (LRM) Framework for NBFCs. It covers various aspects of LRM in NBFCs such as granular level classification of buckets in structural liquidity statement and tolerance limits thereupon, Liquidity risk management tools and principles. The Company has integrated the LRM framework into its Asset Liability Management (ALM) Policy to manage liquidity risk by use of various tools such as Stuctural Liquidity Statement to assess the bucket wise mismatches between inflows and outflows, stress testing of bucket wise mismatches between inflows and outflows in the short term buckets (up to 30 days) by discounting inflows under various stress scenarios, Review of Unencumbered Assets available for future secured borrowing, Review of current & projected (for next 3 months) liquidity position, review of varous financials ratios under the stock approach of LRM, Liquidity Coverage Ratio (LCR), Review of Liqudity in the Banking System. These tools are reviewed by the ALCO every month. To mitigate the liquidity risk further, the Company also has a Contingency Funding Plan which is reviewed by the ALCO at periodic interval.
The Company maintains Liquidity buffers sufficient to meet all its near term obligations. The Liquidity buffers are maintained by a combination of liquid assets (such as Cash & Cash Equivalent, Liquid Investments in callable FDs and Overnight/Liquid Mutual Funds) and Undrawn Committed Credit Lines.
(iii) Market Risk
Market Risk is the Risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as Gold prices (relevant to Lending against Gold business of the Company), interest rates, foreign currency rates. Refer note 44.3 for details.
44.1 Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counter party for financial instrument fails to meet its contractual obligation, and arises principally from the company''s placements and balances with other banks, loans to customers, government securities and other financial assets.
The RMC reviews and approves Loan Product programs on an on-going basis. These product programs outline the framework of any Credit Financial Product being offered by the Company. Within this framework, credit policies are incorporated to manage the sourcing of proposals, channels of business acquisition, process of underwriting, information systems involved, verification, documentation, disbursement procedures, portfolio quality triggers, recovery mechanism, NPA management etc.
The impact of Macroeconomic, regulatory, competition and other high impact variables and portfolios underwritten within the credit policy framework are reviewed on an ongoing basis.
Underwriting comprises of record verification through digital and external agencies, credit bureau check, financial analysis, cash flow assessments, assessing net-worth, leverage and debt service ability etc. through submitted records, personal discussion with borrowers, market reference etc. Collateral verification through independent legal & valuation agencies is a critical aspect in case of secured loans. Legal documentation to create proper charge on mortgaged security, under legal guidance, is another critical aspect.
Whilst ability of a customer to repay a loan can be adequately determined through assessment of financials and cash flows, defaults with the intention of fraud or misreported information are additional challenges to the Company.
(a) Impairment Assessment
The Company applies the expected credit loss model for recognising impairment loss. The expected credit loss allowance is computed taking into account historical credit loss experience and/or external benchmarks on loss rates and further adjusted for forward looking information.
The expected credit loss is a product of Exposure at Default (EAD), Probability of Default (PD) and Loss Given Default (LGD). The Company uses an internal model to compute the PD & LGD based on parameters set out in Ind AS. Accordingly, loans are classified into various stage as follows:
(b) Probability of Default
The probability of default is the estimation of the likelihood of a loan defaulting over a time horizon. A rebuttable presumption is that a default event cannot be later than 90 days past due. The probability of default analysis should consider not only past history but also current economic conditions and forecasts about the future. Incorporating such economic factors is sometimes done using scientific modelling techniques.
Historical DPD data is utilized to calculate Through the Cycle Probability of Default (TTC PD). PD analysis tracks the migration behaviour of a static pool of loans active at the end of each month across different buckets- Stage 1, Stage 2 and Stage 3 over the 12 month and lifetime period. Transition matrix method is used wherein the historical defaults are mapped in monthly intervals for each of cohort months and then the TTC PD is calculated as the weighted average of default rates with number of loans outstanding as the weights.
Vasicek model is one of the accepted models globally for converting the TTC PD into Point in Time PD (PIT PD). The model calculates an AC (Asset Correlation) factor and converts the probability using the macro-economic variable selected. The basic premise of the model is that the higher the TTC probability the lower the correlation with the macro variable and vice versa. Once the asset correlation is determined, the historical PD is calibrated using the readings of the macro-economic variable for a number of years up to the balance sheet date and for a number of years after the balance sheet date. This calibration reflects the relative macro-economic performance in the respective years with reference to the historical mean.
(c) Loss Given Default
LGD is defined as the percentage risk of exposure that is not expected to be recovered in the event of default.
LGD is one of the key components of the credit risk parameters based ECL model. In the context of lifetime ECL calculation, an LGD estimate has to be available for all periods that are part of the lifetime horizon (and not only for the case of a default within the next 12 months).
Wherever possible, workout LGD model is applied to estimate LGD based on past data. The LGD component of ECL is independent of deterioration of asset quality, and thus applied uniformly across various stages with the applicable PD for stage 1,2 and 3.
(d) Exposure at Default
EAD is one of the key components for ECL computation. 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.
(e) Significant Increase in Credit Risk
The Company continuously monitors all assets subject to ECLs. In order to determine whether an instrument or a portfolio of instruments is subject to 12 month ECL or life time ECL, the Company assesses whether there has been a significant increase in credit risk since initial recognition. In line with Ind AS 109, the Company considers an exposure to have significantly increased in credit risk when the DPD is 30 or more. Besides this quantitave factor, the company also assesses Significant Increase in Credit Risk (SICR) based on qualitative factors e.g. One Time Restructuring (OTR) of loans, LTV threshold/margin for gold loan facilities.
* Represents assets which are not pledged and Company believes it is restricted from using to secure funding for legal or other.
# Represents assets which are not restricted for use a collateral, but that the Company would not consider readily available to secure funding in normal course of business
$ Represents assets which are given as security cover against the secured bank borrowings and non-convertible debentures.
44.3 Market Risk
Market Risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as Gold prices (relevant to lending against gold business of the Company), interest rates, Foreign Currency Rates.
a) Gold Price Fluctuation Risk :- The Risk Management Committee of the Board does a periodic review of the Gold price movement and trends & its impact on the gold loan margins in present condition as well as under stress scenarios.
b) Interest Rate Risk :- Interest Rate Risk is the risk of change in market interest rates which might adversely affect the Company''s profitability.
c) Foreign Currency rate Fluctuation Risk :- The Company is exposed to risk in fluctuation of Foreign Currency Rates as the Company has borrowings in foreign currency.
44.3.1 Gold Price Fluctuation Risk
Sudden fall in the gold price and fall in the value of the pledged gold ornaments can result in some of the customers to default if the loan amount and interest exceeds the market value of gold. This risk is in part mitigated by a minimum 25% margin retained on the value of gold jewellery for the purpose of calculation of the eligible loan amount. Further, the Company appraises the gold jewellery collateral solely based on the weight of its gold content, excluding weight and value of the stone studded in the jewellery. In addition, the sentimental value of the gold jewellery to the customers may induce repayment and redemption of the collateral even if the value of gold ornaments falls below the value of the repayment amount. An occasional decrease in gold prices will not increase price risk significantly on account of our adequate collateral security margins. However, a sustained decrease in the market price of gold can additionally cause a decrease in the size of the loan portfolio and interest income.
The immediate impact of changes in interest rates is on the Company''s earnings by impacting the Net Interest Income. The Company has set up an Earnings at Risk limit for monitoring and controlling the Interest Rate Risk which is monitored by the Asset Liability Management Committee (ALCO) of the Company.
The following table demonstrates the sensitivity to reasonably possible change in interest rates (all other variables being constant) of the Company''s Statement of Profit and Loss
44.3.3 Exposure to Currency Risks
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes ir foreign currency rates. The Company''s exposure to the risk of changes in foreign exchange rates relates primarily to the foreign currency borrowings taken from Banks.
The Company has hedged its foreign currency exposure through Forwards in such a manner that it has fixed determinate outflows in its functional currency and as such there would be no significant impact of movement in foreign currency rates on the Company''s profit before tax (PBT).
46 Accounting for Employee Share based Payments
Shareholders of the Company had approved "Fedbank Financial Services Limited Employee Stock Option Plan 2018" ("ESOP Plan"), the result of which was announced on November 13, 2018, enabling the Board and/or the "Nomination and Remuneration Committee" (NRC) to grant such number of equity shares, including options, to eligible employee(s) of the Company each of which is convertible into one equity share, not exceeding 6% of the aggregate number of paid up equity shares of the Company.
Such options vest at definitive date, save for specific incidents, prescribed in scheme as framed/approved by NRC. Such options are exercisable for period following vesting at the discretion of the NRC, subject to maximum of 10 years from the date of Vesting of Options
Method used for accounting for shared based payment plan.
The Company uses fair value to account for the compensation cost of stock options to employees of the Company. Movement in options outstanding under the Employee Stock Option Plan for the year ended Mar 31,2023
Fair Valuation Methodology
The fair value of options have been estimated on the dates of each grant using the Modified Black-Scholes model (MBS). The shares of Company are not listed on any stock exchange. Accordingly, the Company had considered the volatility of the Company''s stock price based on historical volatility of similar listed enterprises. The various assumptions considered in the pricing model for the stock options granted by the Company are:
The Company has recorded an employee compensation expense of INR 796 Lakhs in the Statement of Profit and Loss (INR 249 Lakhs during the financial year ended March 31,2022, in the Statement of Profit and Loss). Refer note 32.
The Company carried Employee Stock Option reserve amounting to INR 1,482 Lakhs (INR 727 Lakhs as at March 31,2022) in the Balance Sheet.
The total intrinsic value amounting to INR 114 Lakhs (INR 133 Lakhs as at March 31, 2022) at the end of the year of liabilities for which the counterparty''s right to cash or other assets had vested by the end of the year.
48 Disclosures as required under Master Direction - Non-Banking Financial Company -Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016
These disclosures are made pursuant to Reserve Bank of India Master Direction DNBR. PD.008/03.10.119/2016-17 dated September 01,2016 (as amended), to the extent applicable to the Company.
The Reserve Bank of India, vide its circular reference RBI/2019-20/170 DOR (NBFC).CC.PD.No.109/22.10.106/2019-20 dated 13 March 2020 outlined the regulatory guidance in relation to Ind AS financial statements from financial year 201920 onwards. This included guidance for computation of ''owned funds'' , ''net owned funds'' and ''regulatory capital''.
Accordingly, CRAR has been computed in accordance with these requirements read with the requirements of the Master Direction DNBR. PD. 008/03.10.119/2016-17 dated September 01,2016 (as amended).
c) Qualitative disclosures
The Company uses forward exchange contracts to economically hedge its risks associated with currency risk arising from the foreign currency borrowings. These contracts are stated at fair value at each reporting date.
There is an economic relationship between the hedged item and the hedging instrument as the terms of the Forward contracts match that of the foreign currency borrowings (notional amount, interest payment dates, principal repayment date, etc.). The Company has established a hedge ratio of 1:1 for the hedging relationships as the underlying risk of the Forward contracts are identical to the hedged risk components.
Part B - Details of Direct Assignment
Details of loans transferred / acquired during the year ended March 31, 2023 under the RBI Master Direction RBI/ DOR/2021-22/86 DOR.STR.REC.51/21.04.048/2021-22 on Transfer of Loan Exposures dated September 24, 2021 are given below:
(i) The Company has not transferred any non-performing assets (NPAs).
(ii) The Company has not transferred any Special Mention Account (SMA) and loan in default.
(iv) The Company has not acquired any loans through assignment.
(v) The Company has not acquired any stressed loan.
During the year ended March 31, 2023, the Company has executed thirteen Direct Assignment transaction. The derecognition criteria as per Ind AS 109 has been met in respect of all the direct assignment transactions. The management has evaluated the impact of all the Direct Assignment transactions de-recognised based on the future business plan, which is to hold these assets for collecting contractual cash flows.
48.11 Details of single borrower limit and group borrower limit exceeded by the Company
During the year ended March 31, 2023 and year ended March 31, 2022 , the Company''s credit exposure to single borrower and group borrowers were within the limits prescribed by the RBI.
The Company has not taken any charge over the rights, licences, authorisation etc. against unsecured loan given to borrowers in the year ended March 31,2023 and year ended March 31,2022.
The fraud detected and reported for the year ended March 31,2023 amounted to INR 1,767.05 lakhs. (Year ended March 31,2022: INR 1,051.79 Lakhs)
48.14 Net profit or loss for the year, prior period items and change in accounting policy
There are no prior period items and no changes in accounting policy.
48.20 Amounts due to Investor Education and Protection Fund
There is no amount due to be credited to Investor Education and Protection Fund as at March 31,2023 (March 31,2022 - Nil).
48.21 Off Balance Sheet SPV sponsored - The Company does not have any SPVs sponsored (which are required to be consolidated as per Accounting Norms).
48.22 Penalties imposed by RBI
Penalty of INR Nil was imposed on Fedbank Financial Services Limited as on March 31,2023.(March 31,2022 -INR Nil)
48.23 Ownership Overseas Assets (for those with joint ventures and subsidiaries abroad)
There are no overseas assets owned by the Company.
There are no instances of breach of covenant of loan availed or debt securities issued
(B) Disclosure in term of RBI notification no. RBI/2019-20/170 DOR (NBFQ.CCPD.No.109/22.10.106/2019-20 dated March 13, 2020 relating to classification of gold loan accounts that are past due beyond 90 days but not treated/ classified as impaired (Stage 3) assets by virtue of the following:
¦ Gold loans are originated basis value of under-lying collateral rather than financial background of the borrower.
¦ The underlying collateral are highly liquid and as a consequence the credit impairment risk is primarily on account of insufficiency of margin/Loan to Value (LTV) if any.
¦ At the time of re-pledge/rollover of the gold loan facility, there is no concession granted/offered to the borrower by the Company and process followed is similar to that which would have been followed for any new borrower as there is a fresh-assessment of collateral (including additional margin/collateral brought-in by borrowers) and it is ensured that the collateral value is within the RBI prescribed LTV norms at origination.
¦ Past empirical evidence of realisation/recoveries from the liquidation of collateral i.e. immaterial/insignificant Loss Given Default (LGD) rates for the gold loan portfolio.
52 On 12 November 2021, the Reserve Bank of India (RBI) had issued circular no. RBI/2021-2022/125 DOR.STR. REC.68/21.04.048/2021-22, requiring changes to and clarifying certain aspects of Income Recognition, Asset Classification and Provisioning norms (IRACP norms) pertaining to Advances. The Company has implemented the requirements pertaining to day-end-processing and allied matters as mentioned in the RBI circular dated November 12, 2021.
The RBI has also clarified that this circular does not, in any way, interfere with the extant guidelines on implementation of Ind-AS by NBFCs. Accordingly, the financial results for the year ended 31 March 2023 and previous year ended 31 March 2022 have been prepared in accordance with Indian Accounting Standards (''Ind AS'') notified under the Companies (Indian Accounting Standards) Rules, 2015, as amended, as the Company continues to follow the extant model provisioning norms, as per the Board approved Expected Credit Loss (ECL) policy.
53 Transfer of financial assets
The Company has transferred a pool of loans arising from financing activities through securitisation transaction. In this transaction, the Company has provided credit enhancements to the transferee. Because of the existence of credit enhancements in this transaction, the Company continues to have the obligation to pay to the transferee, limited to the extent of credit enhancement, even if it does not collect the equivalent amounts from the original asset and continues to retain substantially all risks and rewards associated with the receivables, and hence, such transfer does not meet the derecognition criteria resulting into the transfer not being recorded as sale. Consequently, the proceeds received from the transfer has been recorded as collateralized debt obligation.
1. The Assessing Officer has disagreed with the treatment of certain expenses in connection with the return of income tax return filed by the Company and accordingly raised a demand of INR 32.18 lakhs , INR 5.02 lakhs and INR 9.29 lakhs for AY 2011-12 , AY 2013-14 and AY 2017-18 respectively, this has been challenged by the Company before the Commissioner of Income Tax (Appeals).
2. The Payment of Bonus Act, 1979 was amended with retrospective effect during financial year 2020-21, the estimated probable additional cost to the Company on account of this to the extent it pertains to the earlier financial years has not been considered a liability by placing reliance on Kerala High Court judgement which has stayed this matter and accordingly this is disclosed as contingent liability.
3. In Line with industry practice, the Company auctions gold kept as security by borrowers whose loans are in default. Certain customers of the Company have filed suits in consumer/civil courts for auctioning of their gold ornaments or for obtaining of stay order against auction of their pledged gold. The management does not expect any material liability from such suits.
1. Capital Adequacy Ratio has been computed as per relevant RBI Guidelines. (CRAR = [Tier I Capital Tier II capital]/ Total Risk weighted Assets)
2. Liquidity Coverage Ratio has been computed as per relevant RBI Guidelines. (LCR = Total High Quality Liquid Assets/ Total Net Cash Outflows)
57 Disclosure as required under Rule 11(e) and Rule 11(f) of the Companies (Audit and Auditors) Rules, 2014
1. No funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries") with the understanding, whether recorded in writing or otherwise, that the Intermediary shall lend or invest in a party identified by or on behalf of the Company (Ultimate Beneficiaries).
2. The Company has not received any fund from any party(s) with the understanding that the Company shall whether, directly or indirectly lend or invest in other persons or entities identified by or on behalf of the Company ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
3. There is no dividend declared or paid during the year by the Company.
58 INR 0 Lakhs indicates values are lower than INR 0.5 Lakhs, where applicable
59 Between May-July 2022, the Company experienced an information security incident involving a ransomware and consequent isolation of impacted IT services. In response to this, the Management initiated comprehensive containment efforts to address the incident. Restoration of all impacted applications has been done and business is continuing as usual. The Company appointed an expert to investigate the nature, event and causes of data breach and remediation efforts recommended are in progress of being implemented. The Company believes that data integrity is maintained and not compromised. There has been no litigations and claims relating to this cyber security incident till date.
60 During the previous year, the Company had filed the Draft Red Herring Prospectus dated 18 February, 2022, with SEBI, for the purpose of raising equity capital. However, due to various internal and external considerations the plan to issue equity shares to public has been currently put on hold. Accordingly, the Company has expensed the following in the Statement of Profit and Loss.
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