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Notes to Accounts of Fusion Finance Ltd.
Mar 31, 2025
2.15 Provisions
Provisions are recognized when the Company
has a present obligation (legal or constructive) as
a result of past events, and it is probable that an
outflow of resources embodying economic benefits
will be required to settle the obligation, and a
reliable estimate can be made of the amount of
the obligation. When the effect of the time value
of money is material, the Company determines the
level of provision by discounting the expected cash
flows at a pre-tax rate reflecting the current rates
specific to the liability. When discounting is used, the
increase in the provision due to the passage of time
is recognized as a finance cost. The expense relating
to any provision is presented in the Statement of
profit and loss net of any reimbursement.
2.16 Share issue expenses
Incremental costs that are directly attributable to
the issue of an equity instrument (i.e. they would
have been avoided if the instrument had not been
issued) are deducted from equity.
2.17 Taxes
2.17.1 Current tax
Current tax assets and liabilities for the current and
prior years are measured at the amount expected
to be recovered from, or paid to, the taxation
authorities. It is computed using tax rates and
tax laws enacted or substantively enacted at the
reporting date.
Current income tax relating to items recognized
outside profit or loss is recognized outside profit
or loss (either in other comprehensive income
or in equity). Current tax items are recognized in
correlation to the underlying transaction either in
OCI or directly in equity. Management periodically
evaluates positions taken in the tax returns with
respect to situations in which applicable tax
regulations are subject to interpretation and
establishes provisions where appropriate.
Current tax assets and liabilities are offset only if,
the Company:
⢠has a legally enforceable right to set off the
recognized amounts; and
⢠intends either to settle on a net basis, or to realise
the asset and settle the liability simultaneously.
2.17.2 Deferred tax
Deferred tax is provided using the balance sheet
approach on temporary differences between the
tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes at the re¬
porting date.
Deferred tax liabilities are recognized for all taxable
temporary differences, except:
⢠Where the deferred tax liability arises from the
initial recognition of goodwill or of an asset or
liability in a transaction that is not a business
combination and, at the time of the transaction,
affects neither the accounting profit nor taxable
profit or loss.
⢠In respect of taxable temporary differences
associated with investments in subsidiaries,
where the timing of the reversal of the temporary
differences can be controlled and it is probable
that the temporary differences will not reverse in
the foreseeable future.
Deferred tax assets are recognized for all deductible
temporary differences, the carry forward of unused
tax credits and any unused tax losses. Deferred tax
assets are recognized to the extent that it is prob¬
able that taxable profit will be available against
which the deductible temporary differences, and
the carry forward of unused tax credits and unused
tax losses can be utilised Deferred tax assets are re¬
viewed at each reporting date and are reduced to
the extent that it is no longer probable that suffi¬
cient taxable profit will be available to allow all or
part of the deferred tax asset to be utilized.
Unrecognized deferred tax assets are reassessed at
each reporting date and recognized to the extent
that it has become probable that future taxable
profits will allow the deferred tax asset to be recov¬
ered.
Deferred tax assets and liabilities are measured at
the tax rates that are expected to apply in the year
when the asset is realised or the liability is settled,
using tax rates (and tax laws)that have enacted or
substantively enacted at the reporting date
Deferred tax relating to items recognized outside
profit or loss is recognized outside profit or loss (ei¬
ther in other comprehensive income or in equity).
Deferred tax items are recognized in correlation to
the underlying transaction either in OCI or directly
in equity.
Deferred tax assets and liabilities are offset only if:
⢠the entity has a legally enforceable right to
set off current tax assets against current tax
liabilities; and
⢠the deferred tax assets and the deferred tax
liabilities relate to income taxes levied by the
same taxation authority on the same taxable
entity.
2.17.3 Goods and services tax /value added taxes paid on
acquisition of assets or on incurring expenses
Expenses and assets are recognized net of the
goods and services tax/value added taxes paid,
except:
⢠When the tax incurred on a purchase of
assets or services is not recoverable from the
taxation authority, in which case, the tax paid
is recognized as part of the cost of acquisition
of the asset or as part of the expense item, as
applicable
⢠When receivables and payables are stated with
the amount of tax included
The net amount of tax recoverable from, or payable
to, the taxation authority is included as part of
receivables or payables in the Balance sheet.
2.18 Earning per share
The Company reports basic and diluted earnings
per share in accordance with Ind AS33 on Earnings
per share. Basic earnings per share are calculated
by dividing the net profit or loss for the year attrib¬
utable to equity shareholders by the weighted av¬
erage number of equity shares outstanding during
the period. Partly paid equity shares are treated as
a fraction of an equity share to the extent that they
are entitled to participate in dividends relative to a
fully paid equity share during the reporting year.
For the purpose of calculating diluted earnings per
share, the net profit or loss for the year attributable
to equity shareholders and the weighted average
number of shares outstanding during the period
are adjusted for the effects of all dilutive potential
equity shares. Dilutive potential equity shares are
deemed converted as of the beginning of the pe¬
riod, unless they have been issued at a later date.
In computing the dilutive earnings per share, only
potential equity shares that are dilutive and that
either reduces the earnings per share or increases
loss per share are included.
The weighted average number of ordinary shares
outstanding during the period and for all periods
presented shall be adjusted for events, other than
the conversion of potential ordinary shares, that
have changed the number of ordinary shares out¬
standing without a corresponding change in re¬
sources.
2.19 Segment reporting
Operating segments are reported in a manner
consistent with the internal reporting provided to
the Chief Operating Decision Maker.
The MD and CEO of the Company has been
identified as the Chief Operating Decision Maker for
the Company.
2.20 Contingent Liabilities and Contingent Assets
A Contingent Liability a possible obligation that
arises from past events whose existence will be con¬
firmed by the occurrence or non-occurrence
of one or more uncertain future events beyond the
control of the Company or a present obligation that
is not recognized because it is not probable that
an outflow of resources will be required to settle
the obligation. A contingent liability also arises in
extremely rare cases where there is a liability that
cannot be recognized because it cannot be mea¬
sured reliably. The Company does not recognize a
contingent liability but discloses its existence in the
Financial statements.
A contingent asset is a possible asset that arises
from past events and whose existence will be con¬
firmed only by the occurrence or non-occurrence
of one or more uncertain future events not wholly
within the control of the entity. Contingent assets
are disclosed, where an inflow of economic bene¬
fits are probable. The Company shall not recognise
a contingent asset unless the recovery is virtually
certain.
2.21 T reasury Shares
The Company has created an Employee Benefit
Trust (EBT) for providing share-based payment to
its employees. The Company uses EBT as a vehicle
for distributing shares to employees under the em¬
ployee stock option schemes.
Own equity instruments that are reacquired (trea¬
sury shares) are recognized at cost and deducted
from equity. No gain or loss is recognized in profit
or loss on the purchase, sale, issue or cancellation of
the Company''s own equity instruments. Any differ¬
ence between the carrying amount and the consid¬
eration, if reissued, is recognized in capital reserve.
Share options exercised during the reporting peri¬
od are satisfied with treasury shares.
2.22 Critical accounting judgements, estimates and
assumptions
The preparation of financial statements requires the
management to make judgments, estimates and
assumptions that affects the reported amounts of
assets, liabilities, revenue and expenses and the ac¬
companying disclosures, as well as the disclosure
of contingent liabilities, at the end of the reporting
period. Although these estimates are based on the
management''s best knowledge of current events
and actions, uncertainty about these assumptions
and estimates could result in the outcomes requir¬
ing a material adjustment to the carrying amounts
of assets or liabilities affected in future periods
Estimates and underlying assumptions are re¬
viewed on an ongoing basis. Revisions to estimates
are recognized prospectively.
In particular, information about significant areas of
estimation, uncertainty and critical judgments in
applying accounting policies that have the most
significant effect on the amounts recognized in the
financial statements is included in the following
notes:
Business model assessment
Classification and measurement of financial assets
depends on the results of the SPPI and the business
model test. The Company determines the business
model at a level that reflects how groups of financial
assets are managed together to achieve a particular
business objective. This assessment includes judge¬
ment reflecting all relevant evidence including how
the performance of the assets is evaluated and their
performance measured, the risks that affect the per¬
formance of the assets and how these are managed
and how the managers of the assets are compensated.
The Company monitors financial assets measured at
amortized cost or fair value through other comprehen¬
sive income that are derecognized prior to their ma¬
turity to understand the reason for their disposal and
whether the reasons are consistent with the objective
of the business for which the asset was held. Monitor¬
ing is part of the Company''s continuous assessment of
whether the business model for which the remaining
financial assets are held continues to be appropriate
and if it is not appropriate whether there has been a
change in business model and so a prospective change
to the classification of those assets.
Fair value of financial instrument
The fair value of financial instruments is the price that
would be received to sell an asset or paid to transfer
a liability in an orderly transaction in the principal (or
most advantageous) market at the measurement date
under current market conditions (i.e., an exit price) re¬
gardless of whether that price is directly observable or
estimated using another valuation technique. When
the fair values of financial assets and financial liabilities
recorded in the balance sheet cannot be derived from
active markets, they are determined using a variety of
valuation techniques that include the use of valuation
models. The inputs to these models are taken from
observable markets where possible, but where this is
not feasible, estimation is required in establishing fair
values. Judgements and estimates include consider¬
ations of liquidity and model inputs related to items
such as credit risk (both own and counterparty), fund¬
ing value adjustments, correlation and volatility.
Impairment of financial asset
Judgment is required by management in the estima¬
tion of the amount and timing of future cash flows
when determining an impairment allowance for loans
and advances. In estimating these cash flows, the Com¬
pany makes judgments about the borrower''s financial
situation. These estimates are based on assumptions
about a number of factors such as credit quality, level
of arrears etc. and actual results may differ, resulting in
future changes to the impairment allowance.
Provisions other than impairment on loan portfolio
Provisions are held in respect of a range of future obli¬
gations such as employee benefit plans and cash loss
contingencies. Some of the provisions involve signifi¬
cant judgment about the likely outcome of various
events and estimated future cash flows. The measure¬
ment of these provisions involves the exercise of man¬
agement judgments about the ultimate outcomes of
the transactions. Payments that are expected to be in¬
curred after more than one year are discounted at a
rate which reflects both current interest rates and the
risks specific to that provision.
Share Based Payment
Estimating fair value for share-based payment trans¬
actions requires determining of the most appropriate
valuation model, which is dependent on the terms
and conditions of the grant. This estimate also requires
determination of the most appropriate inputs to the
valuation model including the expected life of the
share option, volatility and dividend yield and making
assumptions about them.
Defined employee benefit assets and liabilities
The cost of the defined benefit gratuity plan and the
present value of the gratuity obligation are determined
using actuarial valuations. An actuarial valuation in¬
volves making various assumptions that may differ
from actual developments in the future. These include
the determination of the discount rate, future salary
increases and mortality rates. Due to the complexities
involved in the valuation and its long-term nature, a
defined benefit obligation is highly sensitive to chang¬
es in these assumptions. All assumptions are reviewed
at each reporting date.
Other estimates
⢠Useful lives of depreciable/amortizable assets -
Management reviews its estimate of the useful lives
of depreciable/amortizable asset at each reporting
date, based on expected utility of assets. Uncertain¬
ties in these estimates relate to technical and eco¬
nomic obsolescence that may change the utility of
assets
⢠Recognition of deferred tax assets - The extent to
which deferred tax assets can be recognized is
based on assessment of the probability of the fu¬
ture taxable income against which the deferred tax
assets can be utilized.
2.23 New standards, interpretations, and
amendments:
The Ministry of Corporate Affairs (MCA) notifies new
standards or amendments to the existing standards
under Companies (Indian Accounting Standards)
Rules as issued from time to time. The MCA noti¬
fied the Companies (Indian Accounting Standards)
Amendment Rules, 2025 to amend the Companies
(Indian Accounting Standards) Rules, 2015, as be¬
low:
Ind AS 21, The Effects of Changes in Foreign
Exchange Rates :This amendment is introduced
to provide enhanced guidance on assessing
currency exchangeability and estimating exchange
rates when currencies are non-exchangeable to
align with international accounting standards. The
effective date for adoption of this amendment is
annual periods beginning on or after April 1, 2025.
The Company has evaluated the amendment and
there is no impact on its financial statements.
Further, for the year ended March 31, 2025, MCA
has notified Ind AS - 117 Insurance Contracts and
amendments to Ind AS 116 - Leases, relating to sale
and leaseback transactions, applicable to the Com¬
pany w.e.f. April 1, 2024. The Company has reviewed
the same and based on its evaluation has deter¬
mined that it does not have any significant impact
on the Ind AS financial statements.
Currency Swap:
As at March 31, 2025; the Company has entered into currency swaps to hedge foreign currency risks on External
Commercial Borrowing (ECB) denominated in USD. The Company has a currency swap agreement whereby it has
hedged the risk of changes in foreign exchange rates relating to the cash outflow arising on settlement of its ECB.
Currency and Interest rate swaps
As at March 31, 2024; the Company has entered into currency and interest rate swaps to hedge foreign currency
risks and interest rate risks, respectively, on External Commercial Borrowing (ECB) denominated in EURO as follows:
Currency Swap: The Company has a currency swap agreement whereby it has hedged the risk of changes in foreign
exchange rates relating to the cash outflow arising on settlement of its ECB.
Interest rate Swap: The Company has an interest rate swap agreement whereby the Company receives a variable rate
of interest of 6M EURIBOR 4.30% and pays interest at a fixed rate. The swap is being used to hedge the exposure to
changes in the variable interest rate.
The table below shows the fair values of derivative financial instruments recorded as assets or liabilities together with
their notional amounts.
*a) With reference to the amendment agreement dated December 17, 2019 to the Shareholder''s agreement dated
September 10, 2018, the Company will institute an employee stock option plan, pursuant to which it will grant and
allot 1,352,454 equity shares of the Company to certain identified employees out of which 3,93,150 shares have been
issued to Fusion Employee Benefit Trust till March 31, 2025.
b. Rights, preferences and restrictions attached to equity shares :
The Company has single class of equity shares having par value of 3 10 each (comprising 10,10,23,885 fully paid up
Equity Shares of face value of 3 10 each having paid-up value of 3 10 each). Further, the Company has issued 6,10,58,392
partly paid up Equity Shares of face value of 3 10 each having paid up value of 3 5/- each by the way of Rights issue
on May 02, 2025. The holder of the equity share is entitled to dividend right and voting right in the same proportion
as the capital paid-up on such equity share bears to the total paid up equity share capital of the Company. In the
event of liquidation of the Company, the holders of equity shares will be entitled to receive the residual assets of the
Company, after distribution of all preferential amounts, in proportion to the number of equity shares held by the
shareholders.
b) With reference to the special resolution passed by the shareholders dated March 26,2023, the Company will institute
an employee stock option plan, pursuant to which it will grant and allot 1,000,000 equity shares of the Company to
certain identified employees.
c) Further, with reference to the special resolution passed by the shareholders dated April 23, 2025, the Company will
institute an employee stock option plan, pursuant to which it will grant and allot 5,000,000 equity shares of the
Company to certain identified employees.
f. No share was allotted without payment being received in cash during the year ended March 31, 2025 and year ended
March 31, 2024.
g. Pursuant to the Board of Directors approval dated December 04, 2024 for issue of equity shares by way of Rights Issue
(âRights Issueâ) for an amount of 3 799.86 crore, the Company had filed Letter of Offer on March 29, 2025. The issue
opened for subscription on April 15, 2025 and closed on April 25, 2025. The rights issue was subscribed by 1.5 times.
On May 02, 2025, the Company has allotted partly paid-up 6,10,58,392 Equity Shares by the way of Rights Issue at a
price of 3 131 per Equity Share (including a premium of 3 121 per Equity Share) of which 3 65.50 per Equity Share (3
5.00 face value and 3 60.50 as a premium per Equity Share) was paid by eligible equity shareholders on application
and the balance amount shall be payable in one or more subsequent call(s), with terms and conditions such as the
number of calls and the timing and quantum of each call as may be decided by our Board/ Rights Issue Committee,
from time to time, to be completed on or prior to March 31, 2027, or such other extended timelines.
The partly paid-up shares are listed and being traded on the Stock Exchanges i.e. National Stock exchange (NSE) and
BSE Limited (BSE) w.e.f. May 12, 2025. Accordingly, the total post rights issue paid up capital including treasury shares is 3
1,31,55,30,810, comprising 10,10,23,885 Equity Shares of face value of 310 each (full paid-up) and 6,10,58,392 Equity Shares
of face value of 310 each (35/- paid-up).
Pursuant to above, the earnings per share (basic & diluted) has been adjusted for the Bonus element in respect of Rights
issue for the year ended March 31, 2025 and for the year ended March 31, 2024. (refer Note 37 for EPS).
Nature and purpose of other reserve :
Statutory reserve
The said reserve has been created under section 45-IC of Reserve Bank of India Act, 1934. As per the said section, every
Non-banking financial Company shall create a reserve fund and transfer a sum of not less than 20% of net profit every
year before declaration of dividend.
Securities premium
Securities premium is used to record the premium received on issue of shares. It is utilised in accordance with the
provisions of the Companies Act, 2013.
Treasury Shares
Treasury shares represents shares held by ESOP trust. The Company treats ESOP trust as its extension and shares held by
ESOP trust are treated as treasury shares. Treasury share amount excluding amount adjusted from equity share capital
are recognized under this head. Exercise price received on equity share issued in excess of face value of share capital
against share option exercised are adjusted from treasury shares.
Retained Earnings
Retained earnings are the profits/(loss) that the Company has earned/incurred till date, less any transfers to statutory
reserve, dividends or other distributions paid to shareholders. Retained earnings is a free reserve available to the Company
and eligible for distribution to shareholders, in case where it is having positive balance representing net earnings till date.
186 | Fusion Finance Limited
Employee stock option plan reserve
The said amount is used to recognise the grant date fair value of options issued to employees by the Company.
Remeasurement of defined benefit plan
Remeasurements of defined benefit plans represents the following as per Ind AS 19, Employee Benefits:
(a) actuarial gains and losses on defined benefit obligations
(b) the return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset); and
(c) any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit
liability (asset).
*The Earning per share & weighted average number of equity shares have been adjusted retrospectively for the bonus
element in respect of Rights Issue of the Company allotted after the reporting period but before the signing of financial
statements. The bonus element has been calculated as per Ind AS-33 considering Rights issue as fully paid-up.
38 Segment reporting
The Managing Director(MD) and Chief Executive Officer(CEO) of the Company takes decision in respect of allocation
of resources and assesses the performance basis the report/ information provided by functional heads and are thus
considered to be Chief Operating Decision Maker (CODM).
The Company operates under the principal business segment viz. ''"''micro financing activities in India. The CODM
views and monitors the operating results of its single business segment for the purpose of making decisions about
resource allocation and performance assessment. Accordingly, there are no separate reportable segments in
accordance with the requirements of Ind AS 108 ''Operating segment'' and hence, there are no additional disclosures
to be provided. There are no individual customer contributing more than 10% of Company''s total revenue. There are
no operation outside India and hence there is no external revenue or assets which require disclosure.
ii. Defined benefit plan
Gratuity
The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service
is eligible for gratuity on cessation of employment and it is computed at 15 days salary (last drawn salary) for each
completed year of service as per âThe Payment of Gratuity Act, 1972 as amended from time to time. The scheme is
funded with an insurance Company in the form of a qualifying insurance policy.
The most recent actuarial valuation of plan assets and the present value of the defined benefit obligation for gratuity
was carried out as at March 31, 2025. The present value of the defined benefit obligations and the related current
service cost and past year service cost, was measured using the projected unit credit method.
The following tables summarized the components of net benefit expenses recognized in the statement of profit and
loss and the funded status and amounts recognized in the balance sheet for the gratuity plan.
(g) Description of risk exposures
Valuations are based on certain assumptions, which are dynamic in nature and vary over time. As such the Company
is exposed to various risks as follows -
Interest rate risk : The plan exposes the Company to the risk of fall in interest rate. A fall in interest rate will result
in an increase in the ultimate cost of providing the above benefit and will thus result in an increase in the value of
liability.
Liquidity Risk : This is the risk that the Company is not able to meet the short-term gratuity payouts. This may arise
due to non availability of enough cash / cash equivalent to meet the liabilities or holding of illiquid assets not being
sold in time.
Salary Escalation Risk : The present value of the defined benefit plan is calculated with the assumption of salary
increase rate of plan participants in future. Deviation in the rate of increase of salary in future for plan participants
from the rate of increase in salary used to determine the present value of obligation will have a bearing on the plan''s
liability.
Investment risk : The probability or likelihood of occurrence of losses relative to the expected return on any particular
investment.
Demographic Risk : The Company has used certain mortality and attrition assumptions in valuation of the liability.
The Company is exposed to the risk of actual experience turning out to be worse compared to the assumption.
Regulatory Risk : Gratuity benefit is paid in accordance with the requirements of the Payment of Gratuity Act, 1972 (as
amended from time to time). There is a risk of change in regulations requiring higher gratuity payouts (e.g. Increase in
the maximum limit on gratuity of ^ 20,00,000).
Discount rate : Reduction in discount rate in subsequent valuations can increase the plan''s liability.
Mortality & disability : Actual deaths & disability cases proving lower or higher than assumed in the valuation can
impact the liabilities.
Withdrawals : Actual withdrawals proving higher or lower than assumed withdrawals and change of withdrawal
rates at subsequent valuations can impact plan''s liability.
iii Compensated absences
The Company provides compensated absences benefits to the employees of the Company which can be carried
forward to future periods. Amount recognised in the Statement of profit and loss for compensated absences is as
under-
iv The Code on Social Security, 2020 (''Code'') relating to employee benefits during employment and post-employment
benefits received Presidential assent in September 2020. The Code has been published in the Gazette of India.
However, the date on which the Code will come into effect has not been notified and the final rules/interpretation
have not yet been issued. The Company will assess the impact of the Code when it comes into effect and will record
any related impact in the year the Code becomes effective.
43 Share based compensation
A. Description of share-based payment arrangements
i. Share option programme (equity settled)
The Company has granted stock options to certain employees of the Company under the ''Employee Stock Option
Scheme 2016'' (Scheme 2016) and ''Employee Stock Option Scheme 2023'' (Scheme 2023). The key terms and conditions
related to the grant of the stock options are as follows:
a) The ESOP Scheme 2016 is effective form January 16, 2017 and is administered through a ESOP Trust (Fusion Employees
Benefit Trust). The ESOP Scheme 2023 has been approved by the members by passing special resolution dated 26th
March 2023 and is administrated through a ESOP Trust (Fusion Employees Benefit Trust).
b) The scheme provides that, subject to continued employment with the Company, the employees are granted an
option to acquire equity shares of the Company that may be exercised within a specified period.
c) The Company has formed Fusion ESOP Trust on September 27, 2014 to issue ESOPs to employees of the Company
as per the respective scheme. The Company has given interest and collateral free loan to the ESOP trust, to provide
financial assistance to purchase equity shares of the Company under such schemes. The Trust in turn allots the shares
to employees on exercise of their right against cash consideration.
d) As on March 31, 2025, the ESOP trust have 3,70,180 equity shares, (March 31, 2024: 4,03,880). The ESOP Trust does not
have any transaction other than those mentioned above, hence it is treated as an integral part of the Company and
accordingly gets consolidated with the books of the Company. As at March 31, 2025, the Company has reduced the
shares allotted to ESOP Trust amounting ^ 0.37 crore (March 31, 2024: ^ 0.40 crore) from the share capital and ^ 10.82
crore (March 31, 2024: ^ 11.65 crore) from the share premium. These are shown as treasury shares.
e) The eligible employees shall exercise their option to acquire the shares of the Company within a period of eight years
from the end of vesting period. The plan shall be administered, supervised and implemented by the board.
*Key management personnel are those individuals who have the authority and responsibility for planning and exercising power to
directly or indirectly control the activities of the Company and its employees. The Company considers the members of the Board of
Directors which include independent directors and Executive Committee to be key management personnel for the purposes of Ind
AS 24 Related Party Disclosures.
Note 1: The Designation of Mr. Devesh Sachdev has been changed from âManaging Director & CEOâ to "Managing Directorâ w.e.f. March
17, 2025
Note 2: Mr. Sanjay Garyali was appointed as Chief Executive Officer w.e.f. March 17, 2025
Note 3: Mr. Pankaj Vaish has completed his tenure as Independent Director on September 21, 2024.
Note 4: Mr. Puneet Gupta has been appointed as additional Independent Director w.e.f. October 05, 2024 which has been regularised
w.e.f. October 30, 2024.
Terms and conditions
All transactions with these related parties are priced on an arm''s length basis and at normal commercial terms.
As the provision for gratuity and leave compensation is made for the Company as a whole, the amount pertaining to
the Key Management Personnel is not specifically identified and hence is not included above. The above remuneration
details are in the nature of short term benefits .
C. Valuation framework
The Company measures fair values using the following
fair value hierarchy, which reflects the significance of
the inputs used in making the measurements.
Level 1: Inputs that are quoted market prices
(unadjusted) in active markets for identical assets or
liabilities.
Level 2 : The fair value of financial instruments that
are not traded in active markets is determined using
valuation techniques which maximize the use of
observable market data either directly or indirectly,
such as quoted prices for similar assets and liabilities
in active markets, for substantially the full term of
the financial instrument but do not qualify as Level 1
inputs. If all significant inputs required to fair value an
instrument are observable the instrument is included
in level 2.
Level 3 : If one or more of the significant inputs is not
based in observable market data, the instruments is
included in level 3. That is, Level 3 inputs incorporate
market participants'' assumptions about risk and
the risk premium required by market participants in
order to bear that risk. The Company develops Level 3
inputs based on the best information available in the
circumstances.
Valuation techniques include net present value and
discounted cash flow models. Assumptions and
inputs used in valuation techniques include risk-free
and benchmark interest rates, credit spreads and
other premium used in estimating discount rates and
expected price volatilities and correlations.
The objective of valuation techniques is to arrive at
a fair value measurement that reflects the price that
would be received to sell the asset or paid to transfer
the liability in an orderly transaction between market
participants at the measurement date.
The fair values of loans and receivables are estimated
by discounted cash flow models that incorporate
assumptions for credit risks, probability of default
and loss given default estimates. The Company uses
historical experience and other information used
in its collective impairment models. The credit risk
is applied as a top-side adjustment based on the
collective impairment model incorporating probability
of defaults and loss given defaults. The Company has
considered carrying amount of loans net of impairment
loss allowance is of reasonable approximation of their
fair value.
The fair values of the Company''s fixed rate interest¬
bearing debt securities, borrowings and subordinated
liabilities are determined by applying discount rate
that reflects the issuer''s borrowing rate as at the end of
the reporting period. For variable rate interest-bearing
debt securities, borrowings and subordinated liabilities,
carrying value represent best estimate of their fair value
as these are subject to changes in underlying interest
rate indices as and when the changes happen.
The Company has entered into derivative financial
instruments with counterparty being a financial
institution with investment grade credit ratings.
Currency and Interest rate swaps are valued using
valuation techniques, which employs the use of
market observable inputs. The most frequently applied
valuation techniques include forward pricing and swap
models, using present value calculations. The models
incorporate various inputs including the credit quality
of counterparties, foreign exchange spot and forward
rates, yield curves of the respective currencies, currency
basis spreads between the respective currencies and
interest rate curves. As at March 31, 2025, the mark-to-
market value of derivative liability position is net of a
credit valuation adjustment attributable to derivative
counterparty default risk.
The Company has measured investments based on
market value i.e. NAV as at reporting date.
46 Transfers of financial assets
Assignment transactions:
The Company generally enters into assignment deals,
as a source of finance. As per the terms of deal, the
derecognition criteria as per Ind AS 109 is being met as
substantially all the risks and rewards relating to assets
being transferred to the buyer, hence the assets have
been derecognised. NA
The management evaluates the impact of the
assignment transactions done during the year for its
business model. Based on the future business plan, the
Company''s business model remains to hold the assets
for collecting contractual cash flows.
The table below summarises the carrying amount
of the derecognized financial assets and the gain on
derecognition during the year
47 Financial risk management
Risk is an integral part of the Company''s business and
sound risk management is critical to the success. As a
financial intermediary, the Company is exposed to risks
that are particular to its lending and the environment
within which it operates and primarily includes credit,
liquidity and market risks. The Company has a risk
management policy which covers risks associated with
the financial assets and liabilities. The risk management
policy is approved by the Board of directors.
The Company has identified and implemented
comprehensive policies and procedure to assess,
monitor and manage risk through-out the Company.
The risk management process is continuously
reviewed, improved and adopted in the context of
changing risk scenario and the agility of the risk
management process is monitored and reviewed for
its appropriateness in the changing risk landscape. The
process of continuous evaluation of risks includes stock
of the risk landscape on an event driven basis.
The Company has an elaborate process for risk
management. Major risks identified by the businesses
and functions are systematically addressed through
mitigating actions on a continuing basis.
Risk management framework
The Company''s board of directors has overall
responsibility for the establishment and oversight of the
Company''s risk management framework. The Board
of directors has established the risk management
committee, which is responsible for developing and
monitoring the Company''s risk management policies.
The committee reports regularly to the board of
directors on its activities.
Efficient and timely management of risks involved
in the Company''s activities is critical for the financial
soundness and profitability of the Company. Risk
management involves the identifying, measuring,
monitoring and managing of risks on a regular basis.
The objective of risk management is to increase
shareholders'' value and achieve a return on equity
that is commensurate with the risks assumed. To
achieve this objective, the Company employs leading
risk management practices and recruits skilled and
experienced people.
The Company''s risk management policies are
established to identify and analyse the risks faced
by the Company, to set appropriate risk limits and
controls and to monitor risks and adherence to limits.
Risk management policies and systems are reviewed
regularly to reflect changes in market conditions and
the Company''s activities. The Company, through its
training and management standards and procedures,
aims to maintain a disciplined and constructive control
environment in which all employees understand their
roles and obligations.
The Company''s audit committee oversees how
management monitors compliance with the
Company''s risk management policies and procedures,
and reviews the adequacy of the risk management
framework in relation to the risks faced by the Company.
The audit committee is assisted in its oversight role
by internal audit that undertakes both regular and
ad hoc reviews of risk management controls and
procedures, the results of which are reported to the
audit committee.
A. Credit risk
All derivative activities for risk management purposes
are carried out by specialist teams that have the
appropriate skills, experience and supervision. It is
the Company''s policy that no trading in derivatives
for speculative purposes may be undertaken. Credit
risk arising from derivative financial instruments
is, at any time, limited to those with positive fair
values, as recorded on the balance sheet. As per risk
management policy of the Company, it only deals
with counterparties, which has good credit rating/
worthiness given by external rating agencies or based
on Company''s internal assessment. The Board of
Directors reviews and agrees policies for managing
each of these risks, which are summarised below:
Credit risk is the risk of loss that may occur from
defaults by our borrowers under our loan agreements.
In order to address credit risk, we have stringent credit
assessment policies for client selection. Measures such
as verifying client details and usage of credit bureau
data to get information on past credit behaviour also
supplement the efforts for containing credit risk. We
also follow a systematic methodology in the opening
of new branches, which takes into account factors
such as the demand for credit in the area; income and
market potential; and socio-economic and law and
order risks in the proposed area. Further, our client
due diligence procedures encompass various layers of
checks, designed to assess the quality of the proposed
group and to confirm that they meet our criteria.
The Company is a rural focused NBFC-MFI with a
geographically diversified presence in India and offer
income generation loans under the joint liability group
model, predominantly to women from low-income
households in Rural Areas. Further, as we focus on
providing micro-loans in rural areas, our results of
operations are affected by the performance and the
future growth potential of microfinance in rural India.
Our clients typically have limited sources of income,
savings and credit histories and our loans are typically
provided free of collateral. Such clients generally do not
have a high level of financial resilience, and, as a result,
they can be adversely affected by declining economic
conditions and natural calamities. In addition, we rely
on non-traditional guarantee mechanisms rather than
tangible assets as collateral, which may not be effective
in recovering the value of our loans.
The Company''s exposure to credit risk is influenced
mainly by the individual characteristics of each
customer. However, management also considers the
factors that may influence the credit risk of its customer
base, including the default risk associated with the
industry. A financial asset is ''credit-impaired'' when
one or more events that have a detrimental impact on
the estimated future cash flows of the financial asset
have occurred. Evidence that a financial asset is credit-
impaired includes the following observable data:
⢠significant financial difficulty of the borrower or
issuer;
⢠a breach of contract such as a default or past due
event.
The Company believes that the Micro finance
loans (MFI) have shared risk characteristics (i.e.
homogeneous) across various states in India. Similarly,
the MSME loans are considered to have shared risk
characteristics. Accordingly, the Company believes
that these product categories are the best measure of
credit risk concentration. Refer note 6 for the product
wise loan balances.
(a) Probability of default (PD)
PD describes the probability of a loan to eventually
falling into stage 3. PD percentage is calculated for
entire loan portfolio and is determined by using
available historical observations.
PD for stage 1: is derived as percentage of all loans in
stage 1 moving into stage 3 in 12-months'' time.
PD for stage 2: is derived as percentage of all loans
in stage 2 moving into stage 3 in the maximum
lifetime of the loans under observation. Marginal
PD is used in case cash flows/ repayment schedule
is available, else cumulative PD is used.
PD for stage 3: is derived as 100% considering that
the default occurs as soon as the loan becomes
overdue for 90 days which matches the definition
of stage 3.
Macroeconomic information (such as agriculture,
real GDP, consumer prices, domestic demand,
inflation, etc.) is incorporated as part of the internal
assessment.
In general, it is presumed that credit risk has
significantly increased since initial recognition if the
payments are more than 30 days past due.
(b) Exposure at default (EAD)
EAD is the sum of outstanding principal and the
interest amount accrued but not received on each
loan as at reporting date.
(c) Loss given default (LGD)
The Company determines its recovery rates by
analysing the recovery trends over different periods
of time after a loan is considered credit impaired.
Recovery rate is the total of discounted value of all
the recoveries on the credit impaired loan account
divided by the outstanding of the loan account
after its first default. LGD = 1 - (Recovery rate).
(d) Discounting factor (Df)
The discounting factor is computed using the
effective interest rate (EIR) for the portfolio.
(e) Significant increase in credit risk
The Company continuously monitors all assets
subject to ECL. In order to determine whether an
instrument or a portfolio of instruments is subject
to 12 months ECL or life time ECL, the Company
assesses whether there has been a significant
increase in credit risk since initial recognition.
Regardless of the change in credit grades, if
contractual payments are more than 30 days past
due, the credit risk is deemed to have increased
significantly since initial recognition.
(f) Expected credit loss on Loans
The Company measures the amount of ECL on
a financial instrument in a way that reflects an
unbiased and probability-weighted amount. The
Company considers its historical loss experience
and adjusts the same for current observable data.
The key inputs into the measurement of ECL are
the probability of default, loss given default and
exposure at default. These parameters are derived
from the internal assessment of the historical
data. In addition, the Company uses reasonable
and supportable information on future economic
conditions including macroeconomic factors
such as interest rates, gross domestic product,
inflation and expected direction of the economic
cycle. Since incorporating these forward looking
information increases the judgment as to how
the changes in these macroeconomic factor will
affect ECL, the methodology and assumptions are
reviewed regularly.
The Company has applied a three-stage approach to
measure expected credit losses (ECL) on loans. Assets
migrate through following three stages based on the
changes in credit quality since initial recognition:
i) Stage 1: 12- months ECL: For exposures where
there is no significant increase in credit risk
since initial recognition and that are not credit-
impaired upon origination, the portion of the
lifetime ECL associated with the probability
of default events occurring within the next 12-
months is recognized.
ii) Stage 2: Lifetime ECL, not credit-impaired:
For credit exposures where there has been a
significant increase in credit risk since initial
recognition but are not credit-impaired, a
lifetime ECL is recognized.
iii) Stage 3: Lifetime ECL, credit-impaired: Financial
assets are assessed as credit impaired upon
occurrence of one or more events that have a
detrimental impact on the estimated future
cash flows of that asset. For financial assets that
have become credit-impaired, a lifetime ECL is
recognized and interest revenue is calculated
by applying the effective interest rate to the
amortised cost.
At each reporting date, the Company assesses
whether there has been a significant increase
in credit risk of its financial assets since initial
recognition by comparing the risk of default
occurring over the expected life of the asset. In
determining whether credit risk has increased
significantly since initial recognition, the Company
uses information that is relevant and available
without undue cost or effort. This includes the
Company''s internal assessment and forward¬
looking information to assess deterioration in credit
quality of a financial asset.
Expected credit loss on other financial assets
The Company assesses whether the credit risk
on a financial asset has increased significantly
on collective basis. For the purpose of collective
evaluation of impairment, financial assets are
grouped on the basis of shared credit risk
characteristics, taking into account accounting
instrument type, credit risk ratings, date of initial
recognition, remaining term to maturity, industry,
geographical location of the borrower, collateral
type, and other relevant factors.
The Company monitors changes in credit risk by
tracking published external credit ratings. In order
to determine whether published ratings remain
up to date and to assess whether there has been a
significant increase in credit risk at the reporting date
that has not been reflected in published ratings, the
Company supplements this by reviewing changes
in government bond yields together with available
press and regulatory information about issuers.
48 Liquidity risk
Liquidity risk is the risk that the Company will
encounter difficulty in meeting the obligations
associated with its financial liabilities that are
settled by delivering cash or another financial asset.
The Company''s approach to managing liquidity
is to ensure, that it will have sufficient liquidity to
meet its liabilities when they are due, under both
normal and stressed conditions, without incurring
unacceptable losses or risking damage to the
Company''s reputation.
The maturity schedule for all financial liabilities
and assets are regularly reviewed and monitored.
Company has assets liability management (ALM)
policy and ALM Committee to review and monitor
liquidity risk and ensure the compliance with the
prescribed regulatory requirement. Monitoring
liquidity risk involves categorizing all assets and
liabilities into different maturity profiles and
evaluating them for any mismatches in any
particular maturities, particularly in the short-term.
The ALM Policy prescribes the detailed guidelines
for managing the liquidity risk.
(ii) Price Risk
The Company''s exposure to price risk is not material
and it is primarily on account of investment of
temporary treasury surplus in the highly liquid debt
funds for very short durations. The Company has a
board approved policy of investing its surplus funds in
highly rated debt mutual funds and other instruments
having insignificant price risk, not being equity funds/
risk bearing instruments. As of March 31, 2025, the
company has exposure to mutual fund 3 2.07 Crore
(March 31, 2024 : 3 2.06 Crore).
(iii) Foreign currency risk
The Company is exposed to foreign exchange risk
arising from foreign currency transactions. Foreign
exchange risk arises from recognized assets and
liabilities denominated in a currency that is not the
functional currency of the Company. To mitigate
the Company''s exposure to foreign currency risk,
non-rupee cash flows are monitored and derivative
contracts are entered into in accordance with the
Company''s risk management policies. Currency risk is
the risk that the value of a financial instrument will
fluctuate due to changes in foreign exchange rates.
Foreign currency risk arises majorly on account of
foreign currency borrowings. The Company manages
its foreign currency risk by entering into cross currency
swaps and forward contract. When a derivative is
entered in to for the purpose of being as hedge, the
Company negotiates the terms of those derivatives
to match with the terms of the hedge exposure.
For hedges of forecasted transactions, the derivatives
cover the period of exposure from the point the cash
flows of the transactions are forecasted up to the point
of settlement of the resulting receivable or payable that
is denominated in the foreign currency.
The Company hedges its exposure to fluctuations on the
translation into INR of its foreign currency transactions
by using foreign currency swaps and forwards. At
March 31, 2025, the Company hedged 100% (March
31, 2024: 100%), for entire term of borrowing, of its
expected interest and principle repayments on External
commercial borrowings. This foreign currency risk is
hedged by using foreign currency forward contracts.
(refer note 2.3.2)
âDetails of borrowings denominated in foreign currency
and derivatives (i.e., currency and interest rate swaps)
held for risk management purposes as economic
hedges:â
49 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 interest rates, credit, liquidity etc. The Company is exposed to three type''s of market risks as follows:
(i) Interest rate risk
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. We are subject to interest rate risk, principally because we lend to clients at fixed interest rates
and for periods that may differ from our funding sources, while our borrowings are at both fixed and variable interest
rates for different periods.
We assess and manage our interest rate risk by managing our assets and liabilities. Our Asset Liability Management
Committee evaluates asset liability management, and ensures that all significant mismatches, if any, are being
managed appropriately. The Company has Board approved Asset Liability Management (ALM) policy for managing
interest rate risk and policy for determining the interest rate to be charged on the loan given.
The Company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings.
50 Capital Management Risk
The Company''s objective for capital management is
to maximize shareholder''s value, safeguard business
continuity, meet the regulatory requirement and
support the growth of the Company. The Company
determines the capital requirement based on annual
operating plans and long-term and other strategic
investment plans. The funding requirements are met
through borrowings, retained
Mar 31, 2024
The Company has entered into currency and interest rate swaps to hedge foreign currency risks and interest rate risks, respectively, on external commercial borrowing (ECB) denominated in EURO as follows:-:
Currency Swap: The Company has a currency swap agreement whereby it has hedged the risk of changes in foreign exchange rates relating to the cash outflow arising on settlement of its ECB.
Interest rate Swap: The Company has an interest rate swap agreement whereby the Company receives a variable rate of interest of 6M EURIBOR 4.30% and pays interest at a fixed rate. The swap is being used to hedge the exposure to changes in the variable interest rate.
b. Rights, preferences and restrictions attached to equity shares :
The Company has single class of equity shares having a par value of ? 10 per equity share. Accordingly, all equity shares rank equally with regard to dividends and share in the Company''s residual assets. The equity shares are entitled to receive dividend as declared from time to time. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive the residual assets of the Company, remaining after distribution of all preferential amounts in proportion to the number of equity shares held.
*a) With reference to the amendment agreement dated December 17, 2019 to the Shareholder''s agreement dated September 10, 2018, the Company will institute an employee stock option plan, pursuant to which it will grant and allot 1,352,454 equity shares of the Company to certain identified employees out of which 3,93,150 shares have been issued to Fusion Employee Benefit Trust during the current year.
b) With reference to the special resolution passed by the shareholders dated March 26,2023, the Company will institute an employee stock option plan, pursuant to which it will grant and allot 1,000,000 equity shares of the Company to certain identified employees.
f. No share was allotted without payment being received in cash during the year ended March 31, 2024 and year ended March 31, 2023
g. During the previous year ended March 31, 2023, the Company has completed initial public offer (IPO) of 29,999,813 shares of face value of ?10 each at an issue price ?368 comprising fresh issue of 1,63,04,347 and offer for sale of 1,36,95,466 by selling shareholders. Pursuant to IPO, shares of Company were listed on National Stock exchange (NSE) and BSE Limited (BSE) on November 15, 2022. The Company had received an amount of ?569.37 crore (net off share issue expenses ?30.64 crore) from proceeds of fresh issue of equity shares. The Company had utilised entire proceeds of ?569.37 crore (in addition, the interest of ?4.04 crore earned on fixed deposit made out of IPO proceeds) towards augmenting the capital base of the Company and to fund the growth and expansion of the Company during the previous year.
The share issue expenses of ?30.64 crore (?25.32 crore net of tax) pertain to fresh issue of shares during the previous year ended March 31, 2023 has been charged off to Securities premium as per the Section 52 of Companies Act, 2013. (Refer Note 26)
Nature and purpose of other reserve :
# Treasury shares excludes amount adjusted from equity share capital.
Statutory reserve
The said reserve has been created under section 45-IC of Reserve Bank of India Act, 1934. As per the said section, every Non-banking financial Company shall create a reserve fund and transfer a sum of not less than 20% of net profit every year before declaration of dividend.
Securities premium
Securities premium is used to record the premium received on issue of shares. It is utilised in accordance with the provisions of the Companies Act, 2013.
Treasury Shares
Treasury shares represents shares held by ESOP trust. The Company treats ESOP trust as its extension and shares held by ESOP trust are treated as treasury shares. Treasury share amount excluding amount adjusted from equity share capital are recognized under this head. Exercise price received on equity share issued in excess of face value of share capital against share option exercised are adjusted from treasury shares.
Retained Earnings
Retained earnings are the profits/(loss) that the Company has earned/incurred till date, less any transfers to statutory reserve, dividends or other distributions paid to shareholders. Retained earnings is a free reserve available to the Company and eligible for distribution to shareholders, in case where it is having positive balance representing net earnings till date.
Employee stock option plan reserve
The said amount is used to recognise the grant date fair value of options issued to employees by the Company.
Remeasurement of defined benefit plans
Remeasurements of defined benefit plans represents the following as per Ind AS 19, Employee Benefits:
(a) actuarial gains and losses on defined benefit obligations
(b) the return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset); and
(c) any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset).
38. Segment Reporting
The Managing Director(MD) and Chief Executive Officer(CEO) of the Company takes decision in respect of allocation of resources and assesses the performance basis the report/ information provided by functional heads and are thus considered to be Chief Operating Decision Maker (CODM).
The Company operates under the principal business segment viz. micro financing activities in India. The CODM views and monitors the operating results of its single business segment for the purpose of making decisions about resource allocation and performance assessment. Accordingly, there are no separate reportable segments in accordance with the requirements of Ind AS 108 ''Operating segment'' and hence, there are no additional disclosures to be provided. There are no individual customer contributing more than 10% of Company''s total revenue. There are no operation outside India and hence there is no external revenue or assets which require disclosure.
39. Employee Benefit Plan
The Company operates the following post-employment plans -
i. Defined contribution plan
The Company makes contribution, determined as a specified percentage of employees salaries, in respect of qualified employees towards provident fund and other funds which are defined contribution plans. The Company has no obligation other than this to make the specified contribution. The contribution is charged to the Statement of profit and loss as they accrue.
ii. Defined benefit plan Gratuity
The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service is eligible for gratuity on cessation of employment and it is computed at 15 days salary (last drawn salary) for each completed year of service as per The Payment of Gratuity Act, 1972 as amended from time to time. The scheme is funded with an insurance Company in the form of a qualifying insurance policy.
The most recent actuarial valuation of plan assets and the present value of the defined benefit obligation for gratuity were carried out as at March 31,2024. The present value of the defined benefit obligations and the related current service cost and past year service cost, were measured using the projected unit credit method.
The following tables summarized the components of net benefit expenses recognized in the statement of profit and loss and the funded status and amounts recognized in the balance sheet for the gratuity plan.
(a) Funding
The scheme is fully funded with Kotak Gratuity Group Plan. The funding requirements are based on the gratuity fund''s actuarial measurement framework set out in the funding policies of the plan. Employees do not contribute to the plan.
Expected contribution to gratuity plan for next year as on March 31 2024 is ? 4.60 crore and ? 4.87 crore for March 31,2023.
Salary increases : The present value of the defined benefit plan is calculated with the assumption of salary increase rate of plan participants in future. Deviation in the rate of increase of salary in future for plan participants from the rate of increase in salary used to determine the present value of obligation will have a bearing on the plan''s liability.
Investment risk : The present value of defined benefit plan liability is calculated using a discount rate which is determined by reference to the prevailing market yields of Indian government securities as at the balance sheet date for the estimated term of the obligation.
Demographic Risk: The Company has used certain mortality and attrition assumptions in valuation of the liability. The Company is exposed to the risk of actual experience turning out to be worse compared to the assumption.
Discount rate : Reduction in discount rate in subsequent valuations can increase the plan''s liability.
Mortality & disability : Actual deaths & disability cases proving lower or higher than assumed in the valuation can impact the liabilities.
Withdrawals : Actual withdrawals proving higher or lower than assumed withdrawals and change of withdrawal rates at subsequent valuations can impact plan''s liability.
Expected rate of return on plan assets: This is based on the expectation of the average long term rate of return expected on investments of the fund during the estimated term of the obligations.
As at March 31,2024, the weighted-average duration of the defined benefit obligation was 4 years (March 31,2023 - 4 years).
(g) Description of risk exposures
Valuations are based on certain assumptions, which are dynamic in nature and vary over time. As such the Company is exposed to various risks as follows -
Interest rate risk : The plan exposes the Company to the risk of fall in interest rate. A fall in interest rate will result in an increase in the ultimate cost of providing the above benefit and will thus result in an increase in the value of liablity.
Liquidity Risk: This is the risk that the Company is not able to meet the short-term gratuity payouts. This may arise due to non availabilty of enough cash / cash equivalent to meet the liabilities or holding of illiquid assets not being sold in time.
iv. The Code on Social Security, 2020 (''Code'') relating to employee benefits during employment and post-employment benefits received Presidential assent in September 2020. The Code has been published in the Gazette of India. However, the date on which the Code will come into effect has not been notified and the final rules/interpretation have not yet been issued. The Company will assess the impact of the Code when it comes into effect and will record any related impact in the year the Code becomes effective.
40. Amount Payable to Micro Small and Medium Enterprises
The Ministry of Micro Small and Medium Enterprises has issued an office memorandum dated August 26, 2008 which recommends that the Micro and Small Enterprises should mention in their correspondence with its customers the ''entrepreneurs memorandum number'' as allotted after filling of the memorandum. Accordingly, the disclosure have been mentioned below in respect of the amount payable to such enterprises as at March 31,2024 (refer note 16) based on information received and available with the Company.
41. Maturity Analysis of Assets and Liabilities
The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled. With regard to loans and advances to customers, the Company uses the same basis of expected repayment behaviour as used for estimating the EIR. Issued debt reflect the contractual coupon amortisations.
43 Share based compensation
A. Description of share-based payment arrangements
i. Share option programme (equity settled)
The Company has granted stock options to certain employees of the Company under the ''Employee Stock Option Scheme 2014'' (Scheme 2014) and ''Employee Stock Option Scheme 2016'' (Scheme 2016). The key terms and conditions related to the grant of the stock options are as follows:
a) The ESOP Scheme 2014 was effective from June 30, 2014 and has been winded up on 26th March 2023 with the approval of the members by passing special resolution and the balance equity shares were transferred in the ESOP 2023 scheme. The ESOP Scheme 2016 is effective form January 16, 2017 and is administered through a ESOP Trust (Fusion Employees Benefit Trust). The ESOP Scheme 2023 has been approved by the members by passing special resolution dated 26th March 2023 and is administrated through a ESOP Trust (Fusion Employees Benefit Trust).
b) The scheme provides that, subject to continued employment with the Company, the employees are granted an option to acquire equity shares of the Company that may be exercised within a specified period.
c) The Company has formed Fusion ESOP Trust on September 27, 2014 to issue ESOPs to employees of the Company as per the respective scheme. The Company has given interest and collateral free loan to the ESOP trust, to provide financial assistance to purchase equity shares of the Company under such schemes. The Trust in turn allots the shares to employees on exercise of their right against cash consideration.
d) As on March 31, 2024, the ESOP trust have 4,03,880 equity shares, (March 31, 2023 2,85,266). The ESOP Trust does not have any transaction other than those mentioned above, hence it is treated as an integral part of the Company and accordingly gets consolidated with the books of the Company. As at March 31,2024, the Company has reduced the shares allotted to ESOP Trust amounting ? 0.40 crore (March 31,2023 ? 0.29 crore) from the share capital and ? 11.65 crore (March 31,2023 ? 12.67 crore) from the share premium. These are shown as treasury shares.
e) The eligible employees shall exercise their option to acquire the shares of the Company within a period of eight years from the end of vesting period. The plan shall be administered, supervised and implemented by the board.
*Key management personnel are those individuals who have the authority and responsibility for planning and exercising power to directly or indirectly control the activities of the Company and its employees. The Company considers the members of the Board of Directors which include independent directors and Executive Committee to be key management personnel for the purposes of Ind AS 24 Related Party Disclosures.
Note 1: Mr. Devesh Sachdev has been re-appointed as the Managing Director w.e.f. December 05, 2023 for a period of 5 years Note 2: Mr. Deepak Madaan was designated as the Chief Compliance Officer w.e.f. August 02, 2023
Note 3: Ms. Ratna Dharashree Vishwanathan was re-appointed as an Independent Director w.e.f May 24, 2023 for a second term of three consecutive years
Note 4: Mr. Kenneth Dan Vander Weele, retiring by rotation was reappointed w.e.f. September 29, 2023
Note 5: Creation Investments Fusion & Creation Investments Fusion II are not related parties w.e.f. December 15, 2023
Note 6: Vivriti Capital Private Limited & Vivriti Asset Management Private Limited are not related parties w.e.f. December 15, 2023
Terms and conditions
All transactions with these related parties are priced on an arm''s length basis and at normal commercial terms.
As the provision for gratuity, leave compensation and share based compensation is made for the Company as a whole, the amount pertaining to the Key Management Personnel is not specifically identified and hence is not included above. The above remuneration details are in the nature of short term benefits .
The management assessed that carrying value of financial assets (other than loans) and financial liabilities (other than debt securities, borrowings (other than debt securities) and subordinated liabilities) approximate their fair value largely due to short term maturities of these instruments.
C. Valuation framework
Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 : The fair value of financial instruments that are not traded in active markets is determined using valuation techniques which maximize the use of observable market data either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets, for substantially the full term of the financial instrument but do not qualify as Level 1 inputs. If all significant inputs required to fair value an instrument are observable the instrument is included in level 2.
Level 3 : If one or more of the significant inputs is not based in observable market data, the instruments is included in level 3. That is, Level 3 inputs incorporate market participants'' assumptions about risk and the risk premium required by market participants in order to bear that risk. The Company develops Level 3 inputs based on the best information available in the circumstances.
Valuation techniques include net present value and discounted cash flow models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premium used in estimating discount rates and expected price volatilities and correlations.
The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date.
The fair values of loans and receivables are estimated by discounted cash flow models that incorporate assumptions for credit risks, probability of default and loss given default estimates. The Company uses historical experience and other information used in its collective impairment models. The credit risk is applied as a top-side adjustment based on the collective impairment model incorporating probability of defaults and loss given defaults. The Company has considered carrying amount of loans net of impairment loss allowance is of reasonable approximation of their fair value.
The fair values of the Company''s fixed rate interest-bearing debt securities, borrowings and subordinated liabilities are determined by applying discount rate that reflects the issuer''s borrowing rate as at the end of the reporting period. For variable rate interest-bearing debt securities, borrowings and subordinated liabilities, carrying value represent best estimate of their fair value as these are subject to changes in underlying interest rate indices as and when the changes happen.
The Company has entered into derivative financial instruments with counterparty being a financial institution with investment grade credit ratings. Currency and Interest rate swaps are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies and interest rate curves. As at March 31, 2024, the mark-to-market value of derivative liability position is net of a credit valuation adjustment attributable to derivative counterparty default risk.
The Company has measured investements based on market value i.e. NAV as at reporting date.
46 Transfers of Financial Assets Assignment transactions:
The Company generally enters into assignment deals, as a source of finance. As per the terms of deal, the derecognition criteria as per Ind AS 109 is being met as substantially all the risks and rewards relating to assets being transferred to the buyer , hence the assets have been derecognised.
The management evaluates the impact of the assignment transactions done during the year for its business model. Based on the future business plan, the Company''s business model remains to hold the assets for collecting contractual cash flows.
Since the Company transferred the above financial assets in a transfer that qualified for derecognition in its entirety, therefore the whole of the interest spread (over the expected life of the asset) is recognized at its present value on the date of derecognition itself as interest strip receivable and correspondingly recognised as gain on derecognition of financial asset.
47 Financial risk management
Risk is an integral part of the Company''s business and sound risk management is critical to the success. As a financial intermediary, the Company is exposed to risks that are particular to its lending and the environment within which it operates and primarily includes credit, liquidity and market risks. The Company has a risk management policy which covers risks associated with the financial assets and liabilities. The risk management policy is approved by the Board of directors.
The Company has identified and implemented comprehensive policies and procedure to assess, monitor and manage risk through-out the Company. The risk management process is continuously reviewed, improved and adopted in the context of changing risk scenario and the agility of the risk management process is monitored and reviewed for its appropriateness in the changing risk landscape. The process of continuous evaluation of risks includes stock of the risk landscape on an event driven basis.
The Company has an elaborate process for risk management. Major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis.
Risk management framework
The Company''s board of directors has overall responsibility for the establishment and oversight of the Company''s risk management framework. The Board of directors has established the risk management committee, which is responsible for developing and monitoring the Company''s risk management policies. The committee reports regularly to the board of directors on its activities.
Efficient and timely management of risks involved in the Company''s activities is critical for the financial soundness and profitability of the Company. Risk management involves the identifying, measuring, monitoring and managing of risks on a regular basis. The objective of risk management is to increase shareholders'' value and achieve a return on equity that is commensurate with the risks assumed. To achieve this objective, the Company employs leading risk management practices and recruits skilled and experienced people.
The Company''s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company''s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Company''s audit committee oversees how management monitors compliance with the Company''s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The audit committee is assisted in its oversight role by internal audit that undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the audit committee.
A. Credit risk
All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Company''s policy that no trading in derivatives for speculative purposes may be undertaken. Credit risk arising from derivative financial instruments is, at any time, limited to those with positive fair values, as recorded on the balance sheet. As per risk management policy of the Company, it only deals with counterparties, which has good credit rating/ worthiness given by external rating agencies or based on Company''s internal assessment. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:
Credit risk is the risk of loss that may occur from defaults by our borrowers under our loan agreements. In order to address credit risk, we have stringent credit assessment policies for client selection. Measures such as verifying client details and usage of credit bureau data to get information on past credit behaviour also supplement the efforts for containing credit risk. We also follow a systematic methodology in the opening of new branches, which takes into account factors such as the demand for credit in the area; income and market potential; and socio-economic and law and order risks in the proposed area. Further, our client due diligence procedures encompass various layers of checks, designed to assess the quality of the proposed group and to confirm that they meet our criteria.
The Company is a rural focused NBFC-MFI with a geographically diversified presence in India and offer income generation loans under the joint liability group model, predominantly to women from low-income households in Rural Areas. Further, as we focus on providing micro-loans in rural areas, our results of operations are affected by the performance and the future growth potential of microfinance in rural India. Our clients typically have limited sources of income, savings and credit histories and our loans are typically provided free of collateral. Such clients generally do not have a high level of financial resilience, and, as a result, they can be adversely affected by declining economic conditions and natural calamities. In addition, we rely on non-traditional guarantee mechanisms rather than tangible assets as collateral, which may not be effective in recovering the value of our loans.
The Company''s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk associated with the industry. A financial asset is ''credit-impaired'' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable data:
⢠significant financial difficulty of the borrower or issuer;
⢠a breach of contract such as a default or past due event;
The Company believes that the Micro finance loans (MFI) have shared risk characteristics (i.e. homogeneous) across various states in India. Similarly, the MSME loans are considered to have shared risk characteristics. Accordingly, the Company believes that these product categories are the best measure of credit risk concentration. Refer note 6 for the product wise loan balances.
(a) Probability of default (PD)
PD describes the probability of a loan to eventually falling into stage 3. PD percentage is calculated for entire loan portfolio and is determined by using available historical observations.
PD for stage 1: is derived as percentage of all loans in stage 1 moving into stage 3 in 12-months'' time.
PD for stage 2: is derived as percentage of all loans in stage 2 moving into stage 3 in the maximum lifetime of the loans under observation.
PD for stage 3: is derived as 100% considering that the default occurs as soon as the loan becomes overdue for 90 days which matches the definition of stage 3.
Macroeconomic information (such as regulatory changes, market interest rate or inflation) is incorporated as part of the internal assessment . In general, it is presumed that credit risk has significantly increased since initial recognition if the payments are more than 30 days past due.
(b) Exposure at default (EAD)
EAD is the sum of outstanding principal and the interest amount accrued but not received on each loan as at reporting date.
(c) Loss given default (LGD)
The Company determines its recovery rates by analysing the recovery trends over different periods of time after a loan is considered credit impaired. Recovery rate is the total of discounted value of all the recoveries on the credit impaired loan account divided by the outstanding of the loan account after its first default. LGD = 1 - (Recovery rate).
(d) Significant increase in credit risk
The Company continuously monitors all assets subject to ECL. In order to determine whether an instrument or a portfolio of instruments is subject to 12 months ECL or life time ECL, the Company assesses whether there has been a significant increase in credit risk since initial recognition. Regardless of the change in credit grades, if contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial recognition.
e) Expected credit loss on Loans
The Company measures the amount of ECL on a financial instrument in a way that reflects an unbiased and probability-weighted amount. The Company considers its historical loss experience and adjusts the same for current observable data. The key inputs into the measurement of ECL are the probability of default, loss given default and exposure at default. These parameters are derived from the internal assessment of the historical data. In addition, the Company uses reasonable and supportable information on future economic conditions including macroeconomic factors such as interest rates, gross domestic product, inflation and expected direction of the economic cycle. Since incorporating these forward looking information increases the judgment as to how the changes in these macroeconomic factor will affect ECL, the methodology and assumptions are reviewed regularly.
The Company has applied a three-stage approach to measure expected credit losses (ECL) on loans. Assets migrate through following three stages based on the changes in credit quality since initial recognition:
i) Stage 1: 12- months ECL: For exposures where there is no significant increase in credit risk since initial recognition and that are not credit-impaired upon origination, the portion of the lifetime ECL associated with the probability of default events occurring within the next 12- months is recognized.
ii) Stage 2: Lifetime ECL, not credit-impaired: For credit exposures where there has been a significant increase in credit risk since initial recognition but are not credit-impaired, a lifetime ECL is recognized.
iii) Stage 3: Lifetime ECL, credit-impaired: Financial assets are assessed as credit impaired upon occurrence of one or more events that have a detrimental impact on the estimated future cash flows of that asset. For financial assets that have become credit-impaired, a lifetime ECL is recognized and interest revenue is calculated by applying the effective interest rate to the amortised cost.
At each reporting date, the Company assesses whether there has been a significant increase in credit risk of its financial assets since initial recognition by comparing the risk of default occurring over the expected life of the asset. In determining whether credit risk has increased significantly since initial recognition, the Company uses information that is relevant and available without undue cost or effort. This includes the Company''s internal assessment and forward-looking information to assess deterioration in credit quality of a financial asset.
Expected credit loss on other financial assets
The Company assesses whether the credit risk on a financial asset has increased significantly on collective basis. For the purpose of collective evaluation of impairment, financial assets are grouped on the basis of shared credit risk characteristics, taking into account accounting instrument type, credit risk ratings, date of initial recognition, remaining term to maturity, industry, geographical location of the borrower, collateral type, and other relevant factors.
The Company monitors changes in credit risk by tracking published external credit ratings. In order to determine whether published ratings remain up to date and to assess whether there has been a significant increase in credit risk at the reporting date that has not been reflected in published ratings, the Company supplements this by reviewing changes in government bond yields together with available press and regulatory information about issuers.
48. Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company''s approach to managing liquidity is to ensure, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company''s reputation.
The maturity schedule for all financial liabilities and assets are regularly reviewed and monitored. Company has assets liability management (ALM) policy and ALM Committee to review and monitor liquidity risk and ensure the compliance with the prescribed regulatory requirement. Monitoring liquidity risk involves categorizing all assets and liabilities into different maturity profiles and evaluating them for any mismatches in any particular maturities, particularly in the short-term. The ALM Policy prescribes the detailed guidelines for managing the liquidity risk.
The following are the contractual maturities of financial liabilities at the reporting date. The amount are gross and undiscounted, and include contractual interest payments and exclude the impact of netting agreements.
49. 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 interest rates, credit, liquidity etc. The Company is exposed to three type''s of market risks as follows:
(i) Interest rate risk
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. We are subject to interest rate risk, principally because we lend to clients at fixed interest rates and for periods that may differ from our funding sources, while our borrowings are at both fixed and variable interest rates for different periods.
We assess and manage our interest rate risk by managing our assets and liabilities. Our Assets Liability Management Committee evaluates asset liability management, and ensures that all significant mismatches, if any, are being managed appropriately. The Company has Board approved Asset Liability Management (ALM) policy for managing interest rate risk and policy for determining the interest rate to be charged on the loan given.
The Company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. For this, during period ended March 31,2024, the Company has external commercial borrowings on which the company has entered an interest rate swap agreement whereby the Company receives a variable rate of interest of 6M EURIBOR 4.30% and pays interest at a fixed rate.
The following table demonstrates the sensitivity to a reasonably possible change in the interest rates on the portion of borrowings affected. With all other variables held constant, the profit before tax is affected through the impact on floating rate borrowings, as follows:
|
Finance Cost |
March 31, 2024 |
March 31, 2023 |
|
0.50 % Increase |
24.48 |
18.13 |
|
0.50 % Decrease |
(24.48) |
(18.13) |
(ii) Price Risk
The Company''s exposure to price risk is not material and it is primarily on account of investment of temporary treasury surplus in the highly liquid debt funds for very short durations. The Company has a board approved policy of investing its surplus funds in highly rated debt mutual funds and other instruments having insignificant price risk, not being equity funds/ risk bearing instruments. As of March 31,2024, the company has exposure to mutual fund ? 2.06 Crore (March 31,2023 : Nil).
(iii) Foreign currency risk
The Company is exposed to foreign exchange risk arising from foreign currency transactions. Foreign exchange risk arises from recognized assets and liabilities denominated in a currency that is not the functional currency of the Company. To mitigate the Company''s exposure to foreign currency risk, non-rupee cash flows are monitored and derivative contracts are entered into in accordance with the Company''s risk management policies. Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Foreign currency risk arises majorly on account of foreign currency borrowings. The Company manages its foreign currency risk by entering into cross currency swaps and forward contract. When a derivative is entered in to for the purpose of being as hedge, the Company negotiates the terms of those derivatives to match with the terms of the hedge exposure.
For hedges of forecasted transactions, the derivatives cover the period of exposure from the point the cash flows of the transactions are forecasted up to the point of settlement of the resulting receivable or payable that is denominated in the foreign currency. The Company hedges its exposure to fluctuations on the translation into INR of its foreign currency transactions by using foreign currency swaps and forwards. At March 31, 2024, the Company hedged 100% (March 31, 2023: 100%), for entire term of borrowing, of its expected interest and principle repayments on External commercial borrowings. This foreign currency risk is hedged by using foreign currency forward contracts. (refer note 2.3.2)
50. Capital Management Risk
The Company''s objective for capital management is to maximize shareholder''s value, safeguard business continuity, meet the regulatory requirement and support the growth of the Company. The Company determines the capital requirement based on annual operating plans and long-term and other strategic investment plans. The funding requirements are met through borrowings, retained earnings and operating cash flow generated.
As an NBFC-MFI, the RBI requires us to maintain a minimum capital to risk weighted assets ratio ("CRAR") consisting of Tier I and Tier II capital of 15% of our aggregate risk weighted assets. Further, the total of our Tier II capital cannot exceed 100% of our Tier I capital at any point of time. (refer note 54) The Capital management process of the Company ensures to maintain to healthy CRAR at all the time.
The Company has a board approved policy on resource planning which states that the resource planning of the Company shall be based on the Asset Liability Management (ALM) requirement. The policy of the Company on resource planning will also cover the objectives of the regulatory requirement. The policy prescribes the sources of funds, threshold for mix from various sources, tenure manner of raising the funds etc.
For the purpose of the Company''s capital management, capital includes equity share capital and other equity.Net debt includes terms loans from banks, NBFC and debentures includes interest accrued net of cash and cash equivalents and bank balances other than cash and cash equivalents. The Company monitors capital on the basis of the following gearing ratio.
|
Gearing Ratio: |
||
|
Particulars |
As at |
As at |
|
March 31, 2024 |
March 31, 2023 |
|
|
Net Debt* |
7,084.00 |
5,741.85 |
|
Total equity |
2,848.15 |
2,321.92 |
|
Net debt to equity ratio |
2.49 |
2.47 |
* Net Debt includes debt securities borrowings other than debt securities Subordinated liabilities interest accrued - cash and cash equivalents - bank balances other than cash and cash equivalents.
51. Contingent Liabilities, Commitments and Contingent Assets A. Contingent liabilities
The Company has entered into business correspondence arrangement during the year with the bank. As per the terms of the said agreement, the Company has given first loss default guarantee (FLDG) in the form of fixed deposit amounting to ? 2 Crore as at March 31,2024 (Refer Note 4). The Company has exposure of ? 0.02 Crore towards FLDG as at March 31,2024. The Company does not have any contingent liabiltity as at March 31,2023.
|
B. Commitments |
|
|
ariCUars March 31, 2024 |
As at March 31, 2023 |
|
Capital commitments [Estimated amount of contracts remaining to be executed on capital account not provided for (net of advances) : |
|
|
Tangible - |
0.13 |
|
Intangible - |
- |
|
Total - |
0.13 |
53. Leases
Company as a lessee
The Company has created right of use assets and lease liability on account of building and vehicle taken on lease as per IND AS 116. The terms of the leases ranges from 3 years to 9 years. The Company has branch offices on lease for which ''short term lease'' recognition exemption is applied. Accordingly, lease rentals of ? 23.30 crore for year ended March 31,2024 (? 18.83 crore for the year ended March 31,2023 ) on such short term leases has been directly charged to Statement of profit and loss.
C. Contingent assets
There are no contingent assets as at March 31,2024 and March 31,2023.
D. The Company has reviewed all litigations having an impact on the financial position, where applicable, has adequately provided for where provision are required . As on March 31,2024, the Company does not have any material litigation pending with Income tax authorities, Goods and service authorities and other statutory authorities in the ordinary course of business requiring any provision to be provided in books of accounts.
E. The Company did not have any long term contract including derivative contract for which there were any material foreseeable losses.
(vi). Institutional set-up for liquidity risk management
The Board of Directors has the overall responsibility for establishing the risk management framework for the Company. The Board in turn has established an ALM Committee (ALCO) for evaluating, monitoring and reviewing liquidity and interest rate risks arising in the Company on both sides of the Balance sheet. The Board based on recommendations from the ALCO has prescribed policies and the risk limits for the management of liquidity risk.
ALCO Committee is responsible for managing the risks arising out of Asset Liability mismatches consistent with the regulatory requirements and internal risk tolerances established by the Board. Amongst other responsibilities, ALCO has been empowered to decide the funding mix for the company in light of the future business strategy and prevailing market conditions. ALCO committee is conducted at least once in a quarter and the ALCO minutes are reviewed by the Board from time to time.
*Notes
1. A significant counterparty is defined as a single counterparty or group of connected or affiliated counterparties accounting in aggregate for more than 1% of the NBFC-NDSI''s, NBFC-Ds total liabilities and 10% for other non-deposit taking NBFC.
2. A significant instrument/product is defined as a single instrument/ product of group of similar instruments/products which in aggregate amount to more than 1% of the NBFC-NDSI''s, NBFC-Ds total liabilities and 10% for other non-deposit taking NBFC''s.
3. Total Liabilities has been computed as sum of all liabilities (Balance sheet figure) less equities and reserve/surplus.
4. Public Funds shall include funds raised either directly or indirectly through public deposits, commercial paper, debentures, intercorporate deposits and bank finance but exclude funds raised by issue of instruments compulsory convertible into equity shares with in a period not exceeding 5 years from the date of issue as defined in Regulatory Framework.
5. The amount stated in this disclosure is based on the audited financial statements for the year ended March 31,2024.
*The provision required as per IRACP norms has been calculated on the aggregate loan portfolio after derecognizing the securitised assets (net of MRR) which meets the de-recognition criteria under the previous GAAP.
** The provision given in Stage I & Stage II includes contingent provision on standard assets @ 0.40% as per the requirement of Master Direction - Reserve Bank of India (Non-Banking Finance Company - Scale Based Regulation) Directions, 2023 dated October 19, 2023.
# This also includes additional 10% provision on restructured loans as per the requirement of RBI Circular RBI/2021-22/31 DOR.STR. REC.11/21.04.048/2021 -22 dated May 05, 2021
p. Details of unsecured advances
The Company has not given any unsecured advances against intangible securities such as charge over the rights, licenses, authority, etc. during the year ended March 31,2024 and March 31,2023.
q. Details of non-performing financial assets purchased / sold
The Company has not purchased / sold any non-performing financial assets during the year ended March 31,2024 and March 31,2023.
r. Details of Single Borrower Limit (SGL) / Group Borrower Limit (GBL) exceeded by the NBFC
The Company has not exceeded the prudential exposures limits during the year ended March 31,2024 and March 31,2023.
# Entities falls under the category mentioned above are not related parties w.e.f. December 15, 2023. Therefore transactions till Dec 15, 2023 has been considered.
z. Loans to Directors, Senior Officers and Relatives of Directors
The Company has not given any loan to directors, senior officers & relative of directors.
aa. Breach of Covenant
There was no breach of covenant of loans availed or debt securities issued by the company as on March 31,2024. (March 31,2023 : Nil)
ab. Divergence in Asset Classification and Provisioning
There was no instances of divergence in Assets Classification and Provisioning norms identified by RBI for the year ended March 31, 2024. (March 31,2023 : Nil)
55 (i) Details of resolution plan implemented under the Resolution Framework for COVID-19-related stress as per RBI circular dated August 6, 2020 (Resolution Framework 1.0) are not applicable as the Company has not restructured any loan accounts under resolution framework 1.0.
* Amount paid by the borrower during the year is net of additions in the exposure on account of interest accrual.
56 As per Regulation 54 of the SEBI (Listing Obligation and Disclosure Requirements) Regulations 2015 (''Listing Regulations''), as on March 31, 2024, all Secured Non-convertible debenture of the Company are secured by exclusive first charge by way of hypothecation against the principal amount outstanding and accrued coupon on debenture. Further, the Company has maintained security cover being minimum of 100% of principal outstanding and accrued coupon thereon or as stated in the Information Memorandum of Non-Convertible Debentures at all times. As on March 31,2024, the Company does not have any listed secured Non-Convertible Debenture.
58 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 party identified by or on behalf of the Company (Ultimate Beneficiaries). The Company has not received any fund from any party(s) (Funding Party) 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.
59 The Company is using three accounting software for maintaining its books of account wherein, audit trail feature (edit log facility) as per the requirements of proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014, was available throughout the year ended March 31,2024 in respect of one accounting software for book keeping. In respect of one other accounting software for payroll records, Independent service auditor''s System and Organisation Controls (SOC 1) Type 2 report has not concluded whether or not the audit trail feature operated throughout the year. In third case of accounting software for loan records, the requirements of audit trail has not been covered in Independent service auditor''s System and Organisation Controls (SOC 1) Type 2 report. The Company is in the process of evaluating options for implementing audit trail feature in this accounting software for maintaining its books of account to comply with the prescribed requirements.
Notes to above :
Total risk-weighted assets represents the weighted average of funded and non-funded items after applying the risk weights as assigned by the RBI.
Tier I capital means owned funds as reduced by investment in shares of other NBFCs and in shares, debentures, bonds, outstanding loans and advances, including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group exceeding, in aggregate, 10% of the owned fund.
Tier II capital includes preference share capital, revaluation reserves, general provisions and loss reserves, hybrid debt capital instruments and subordinate debts to the extent the aggregate does not exceed Tier I capital.
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 the total expected cash outflows minus total expected cash inflows for the subsequent 30 calendar days
61 With regard to the new amendments under Division III of Schedule III under Part II - Statement of Profit and Loss - General Instructions for preparation of Statement of Profit and Loss :-
(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 does not have any transactions with companies struck off.
(iii) The Company does not have any charges or satisfaction which is yet to be registered with ROC beyond the statutory period.
(iv) The Company has not traded or invested in Crypto currency or virtual currency during the financial year.
(v) The Company has not any such transactions 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.
62 The figures for the previous year have been regrouped/rearranged wherever necessary to conform to current year presentation. Further, during the current year, the Company has prepared the financial statement in C crores. Therefore, all the previous year figures have been rounded off C in crores.
Mar 31, 2023
The Company is a rural focused NBFC-MFI with a geographically diversified presence in India and offer income generation loans under the joint liability group model, predominantly to women from low-income households in Rural Areas. Further, as we focus on providing micro-loans in rural areas, our results of operations are affected by the performance and the future growth potential of microfinance in rural India. Our clients typically have limited sources of income, savings and credit histories and our loans are typically provided free of collateral. Such clients generally do not have a high level of financial resilience, and, as a result, they can be adversely affected by declining economic conditions and natural calamities. In addition, we rely on non-traditional guarantee mechanisms rather than tangible assets as collateral, which may not be effective in recovering the value of our loans.
The Company''s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk associated with the industry. A financial asset is ''credit-impaired'' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable data:
⢠significant financial difficulty of the borrower or issuer;
⢠a breach of contract such as a default or past due event;
The Company believes that the Micro finance loans (MFI) have shared risk characteristics (i.e. homogeneous) across various states in India. Similarly, the MSME loans are considered to have shared risk characteristics. Accordingly, the Company believes that these product categories are the best measure of credit risk concentration. Refer note 6 for the product wise loan balances.
(a) Probability of default (PD)
PD describes the probability of a loan to eventually falling into stage 3. PD percentage is calculated for entire loan portfolio and is determined by using available historical observations.
PD for stage 1: is derived as percentage of all loans in stage 1 moving into stage 3 in 12-months'' time.
PD for stage 2: is derived as percentage of all loans in stage 2 moving into stage 3 in the maximum lifetime of the loans under observation.
PD for stage 3: is derived as 100% considering that the default occurs as soon as the loan becomes overdue for 90 days which matches the definition of stage 3.
Macroeconomic information (such as regulatory changes, market interest rate or inflation) is incorporated as part of the internal assessment . In general, it is presumed that credit risk has significantly increased since initial recognition if the payments are more than 30 days past due.
(b) Exposure at default (EAD)
EAD is the sum of outstanding principal and the interest amount accrued but not received on each loan as at reporting date.
(c) Loss given default (LGD)
The Company determines its recovery rates by analysing the recovery trends over different periods of time after a loan is considered credit impaired. Recovery rate is the total of discounted value of all the recoveries on the credit impaired loan account divided by the outstanding of the loan account after its first default. LGD = 1 - (Recovery rate).
(d) Significant increase in credit risk
The Company continuously monitors all assets subject to ECL. In order to determine whether an instrument or a portfolio of instruments is subject to 12 months ECL or life time ECL, the Company assesses whether there has been a significant increase in credit risk since initial recognition. Regardless of the change in credit grades, if contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial recognition.
e) Expected credit loss on Loans
The Company measures the amount of ECL on a financial instrument in a way that reflects an unbiased and probability-weighted amount. The Company considers its historical loss experience and adjusts the same for current observable data. The key inputs into the measurement of ECL are the probability of default, loss given default and exposure at default. These parameters are derived from the internal assessment of the historical data. In addition, the Company uses reasonable and supportable information on future economic conditions including macroeconomic factors such as interest rates, gross domestic product, inflation and expected direction of the economic cycle. Since incorporating these forward looking information increases the judgment as to how the changes in these macroeconomic factor will affect ECL, the methodology and assumptions are reviewed regularly.
The Company has applied a three-stage approach to measure expected credit losses (ECL) on loans. Assets migrate through following three stages based on the changes in credit quality since initial recognition:
i) Stage 1: 12- months ECL: For exposures where there is no significant increase in credit risk since initial recognition and that are not credit-impaired upon origination, the portion of the lifetime ECL associated with the probability of default events occurring within the next 12- months is recognized.
ii) Stage 2: Lifetime ECL, not credit-impaired: For credit exposures where there has been a significant increase in credit risk since initial recognition but are not credit-impaired, a lifetime ECL is recognized.
iii) Stage 3: Lifetime ECL, credit-impaired: Financial assets are assessed as credit impaired upon occurrence of one or more events that have a detrimental impact on the estimated future cash flows of that asset. For financial assets that have become credit-impaired, a lifetime ECL is recognized and interest revenue is calculated by applying the effective interest rate to the amortised cost.
At each reporting date, the Company assesses whether there has been a significant increase in credit risk of its financial assets since initial recognition by comparing the risk of default occurring over the expected life of the asset. In determining whether credit risk has increased significantly since initial recognition, the Company uses information that is relevant and available without undue cost or effort. This includes the Company''s internal assessment and forward-looking information to assess deterioration in credit quality of a financial asset.
Expected credit loss on other financial assets
The Company assesses whether the credit risk on a financial asset has increased significantly on collective basis. For the purpose of collective evaluation of impairment, financial assets are grouped on the basis of shared credit risk characteristics, taking into account accounting instrument type, credit risk ratings, date of initial recognition, remaining term to maturity, industry, geographical location of the borrower, collateral type, and other relevant factors.
The Company monitors changes in credit risk by tracking published external credit ratings. In order to determine whether published ratings remain up to date and to assess whether there has been a significant increase in credit risk at the reporting date that has not been reflected in published ratings, the Company supplements this by reviewing changes in government bond yields together with available press and regulatory information about issuers.
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company''s approach to managing liquidity is to ensure, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company''s reputation.
The maturity schedule for all financial liabilities and assets are regularly reviewed and monitored. Company has assets liability management (ALM) policy and ALM Committee to review and monitor liquidity risk and ensure the compliance with the prescribed regulatory requirement. Monitoring liquidity risk involves categorizing all assets and liabilities into different maturity profiles and
evaluating them for any mismatches in any particular maturities, particularly in the short-term. The ALM Policy prescribes the detailed guidelines for managing the liquidity risk.
The following are the contractual maturities of financial liabilities at the reporting date. The amount are gross and undiscounted, and include contractual interest payments and exclude the impact of netting agreements.
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 interest rates, credit, liquidity etc. The Company is exposed to three type''s of market risks as follows:
(i) Interest rate risk
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. We are subject to interest rate risk, principally because we lend to clients at fixed interest rates and for periods that may differ from our funding sources, while our borrowings are at both fixed and variable interest rates for different periods.
We assess and manage our interest rate risk by managing our assets and liabilities. Our Assets Liability Management Committee evaluates asset liability management, and ensures that all significant mismatches, if any, are being managed appropriately. The Company has board approved Asset Liability Management (ALM) policy for managing interest rate risk and policy for determining the interest rate to be charged on the loan given.
The Company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. For this, during period ended March 31,2023, the company has external commercial borrowings on which the company has entered an interest rate swap agreement whereby the company receives a variable rate of interest of 6M EURIBOR 4.30% and pays interest at a fixed rate.
The following table demonstrates the sensitivity to a reasonably possible change in the interest rates on the portion of borrowings affected. With all other variables held constant, the profit before tax is affected through the impact on floating rate borrowings, as follows:
|
Finance Cost |
March 31, 2023 |
March 31, 2022 |
|
0.50 % Increase |
181.26 |
105.54 |
|
0.50 % Decrease |
(181.26) |
(105.54) |
(ii) Price Risk
The Company''s exposure to price risk is not material and it is primarily on account of investment of temporary treasury surplus in the highly liquid debt funds for very short durations. The Company has a board approved policy of investing its surplus funds in highly rated debt mutual funds and other instruments having insignificant price risk, not being equity funds/ risk bearing instruments. As of March 31,2023 and March 31,2022, the company does not have any exposure to mutual funds.
(iii) Foreign currency risk
The Company is exposed to foreign exchange risk arising from foreign currency transactions. Foreign exchange risk arises from recognizedassets and liabilities denominated in a currency that is not the functional currency ofthe Company.To mitigate the Company''s exposure to foreign currency risk, non-rupee cash flows are monitored and derivative contracts are entered into in accordance with the Company''s risk management policies. Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Foreign currency risk arises majorly on account of foreign currency borrowings. The Company manages its foreign currency risk by entering into cross currency swaps and forward contract. When a derivative is entered in to for the purpose of being as hedge, the Company negotiates the terms of those derivatives to match with the terms of the hedge exposure. For hedges of forecasted transactions, the derivatives cover the period of exposure from the point the cash flows of the transactions are forecasted up to the point of settlement of the resulting receivable or payable that is denominated in the foreign currency. The Company hedges its exposure to fluctuations on the translation into INR of its foreign currency transactions by using foreign currency swaps and forwards. At March 31,2023, the Company hedged 100% (March 31,2022: 100%), for entire term of borrowing, of its expected interest and principle repayments on External commercial borrowings. This foreign currency risk is hedged by using foreign currency forward contracts.(refer note 2.3.2)
The Company''s objective for capital management is to maximize shareholder''s value, safeguard business continuity, meet the regulatory requirement and support the growth of the Company. The Company determines the capital requirement based on annual operating plans and long-term and other strategic investment plans. The funding requirements are met through borrowings, retained earnings and operating cash flow generated.
As an NBFC-MFI, the RBI requires us to maintain a minimum capital to risk weighted assets ratio ("CRAR") consisting of Tier I and Tier II capital of 15% of our aggregate risk weighted assets. Further, the total of our Tier II capital cannot exceed 100% of our Tier I capital at any point of time. (refer note 53) The Capital management process of the Company ensures to maintain to healthy CRAR at all the time.
The Company has a board approved policy on resource planning which states that the resource planning of the Company shall be based on the Asset Liability Management (ALM) requirement. The policy of the Company on resource planning will also cover the objectives of the regulatory requirement. The policy prescribes the sources of funds, threshold for mix from various sources, tenure manner of raising the funds etc.
For the purpose of the Company''s capital management, capital includes equity share capital and other equity. Debt includes terms loans from banks, NBFC and debentures net of cash and cash equivalents and bank balances other than cash and cash equivalents. The Company monitors capital on the basis of the following gearing ratio.
50. Contingent Liabilities, commitments and contingent assets
A Contingent liabilities
There are no Contingent liabilities as at March 31,2023 and March 31,2 B Commitments
|
As at March 31, 2023 |
As at March 31, 2022 |
|
|
Capital commitments [Estimated amount of contracts remaining to be executed on capital account not provided for (net of advances) : |
||
|
Tangible |
1.31 |
- |
|
Intangible |
- |
- |
|
Total |
1.31 |
- |
C Contingent assets
There are no contingent assets as at March 31,2023 and March 31,2022.
D The Company has reviewed all litigations having an impact on the financial position, where applicable, has adequately provided for where provision are required . As on March 31,2023, the Company does not have any material litigation pending with Income tax authorities, Goods and service authorities and other statutory authorities in the ordinary course of business requiring any provision to be provided in books of accounts.
E The Company did not have any long term contract including derivative contract for which there were any material foreseeable losses.
52. Leases Company as a lessee
The Company has its office at Gurugram (corporate office) and Naraina (registered office) under lease arrangement. The corporate office lease has been obtained on a non-cancellable lease term of 3 years which is extendable up to 9 years with an escalation clause at a 3 years interval. Further, the extended part of the corporate office has been obtained on a non-cancellable lease term of 3 years which is extendable up to 7 years with an escalation clause at a 3 years interval which is co-terminus with original corporate office lease. The registered office lease has obtained on a non-cancellable lease term of 3 years which is extendable up to 6 years with an escalation clauses at a 3 years interval.The company''s obligations under its leases are secured by the lessor''s title to the leased assets. The company is restricted from assigning and subleasing the leased assets. The Company has branch offices on lease for which ''short term lease'' recognition exemption is applied. Accordingly, lease rentals of C188.28 millions for year ended March 31,2023 (C139.65 millions for the year ended March 31,2022 ) on such short term leases has been directly charged to Statement of profit and loss.
(vi). Institutional set-up for liquidity risk management
The Board of Directors has the overall responsibility for establishing the risk management framework for the Company. The Board in turn has established an ALM Committee (ALCO) for evaluating, monitoring and reviewing liquidity and interest rate risks arising in the Company on both sides of the Balance sheet. The Board based on recommendations from the ALCO has prescribed policies and the risk limits for the management of liquidity risk.
ALCO Committee is responsible for managing the risks arising out of Asset Liability mismatches consistent with the regulatory requirements and internal risk tolerances established by the Board. Amongst other responsibilities, ALCO has been empowered to
decide the funding mix for the company in light of the future business strategy and prevailing market conditions. ALCO committee is
conducted at least once in a quarter and the ALCO minutes are reviewed by the Board from time to time.
*Notes
1. A "significant counterparty" is defined as a single counterparty or group of connected or affiliated counterparties accounting in aggregate for more than 1% of the NBFC-NDSI''s, NBFC-Ds total liabilities and 10% for other non-deposit taking NBFC.
2. A "significant instrument/product" is defined as a single instrument/ product of group of similar instruments/products which in aggregate amount to more than 1% of the nBfC-NDSI''s, NBFC-Ds total liabilities and 10% for other non-deposit taking NBFC''s.
3. Total Liabilities has been computed as sum of all liabilities (Balance sheet figure) less equities and reserve/surplus.
4. "Public Funds" shall include funds raised either directly or indirectly through public deposits, commercial paper, debentures, inter-corporate deposits and bank finance but exclude funds raised by issue of instruments compulsory convertible into equity shares with in a period not exceeding 10 years from the date of issue as defined in Regulatory Framework For Core Investment Companies issued vie Notification No. DNBS (PD) CC.No206/03.10.001/2010-11 dated January 5th, 2011.
5. The amount stated in this disclosure is based on the audited financial statements for the year ended March 31,2023.
*The provision required as per IRACP norms has been calculated on the aggregate loan portfolio after derecognizing the securitised assets (net of MRR) which meets the de-recognition criteria under the previous GAAP.
#This also includes additional 10% provision on restructured loans as per the requirement of RBI circular RBI/2021-22/31 DOR.STR. REC.11/21.04.048/2021-22 dated May 05, 2021
o. Details of penalties imposed by RBI and other regulators
No penalty has been imposed by RBI and other regulators on the Company during the year ended March 31, 2023 and March 31,2022.
p. Details of unsecured advances
The Company has not given any unsecured advances against intangible securities such as charge over the rights, licenses, authority, etc. during the year ended March 31,2023 and March 31,2022.
q. Details of non-performing financial assets purchased / sold
The Company has not purchased / sold any non-performing financial assets during the year ended March 31, 2023 and March 31,2022.
r. Details of Single Borrower Limit (SGL) / Group Borrower Limit (GBL) exceeded by the NBFC:
The Company has not exceeded the prudential exposures limits during the year ended March 31,2023 and March 31,2022.
s. Draw down from reserves
There has been no draw down from reserves for the year ended March 31,2023 and March 31,2022.
t. Derivatives
Currency and interest rate swap
55. As per Regulation 54 of the SEBI (Listing Obligation and Disclosure Requirements) Regulations 2015 (''Listing Regulations''), as on March 31, 2023, all Secured Non-convertible debenture of the Company are secured by exclusive first charge by way of hypothecation against the principal amount outstanding and accrued coupon on debenture. Further, the Company has maintained security cover being minimum of 100% of principal outstanding and accrued coupon thereon or as stated in the Information Memorandum of non-convertible debentures at all times.
57. 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 party identified by or on behalf of the Company (Ultimate Beneficiaries). The Company has not received any fund from any party(s) (Funding Party) 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.
Notes to above :
Total risk-weighted assets represents the weighted average of funded and non-funded items after applying the risk weights as assigned by the RBI.
Tier I capital means owned funds as reduced by investment in shares of other NBFCs and in shares, debentures, bonds, outstanding loans and advances, including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group exceeding, in aggregate, 10% of the owned fund.
Tier II capital includes preference share capital, revaluation reserves, general provisions and loss reserves, hybrid debt capital instruments and subordinate debts to the extent the aggregate does not exceed Tier I capital.
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 the total expected cash outflows minus total expected cash inflows for the subsequent 30 calendar days
59. With regard to the new amendments under "Division III of Schedule III" under "Part II - Statement of Profit and Loss - General Instructions for preparation of Statement of Profit and Loss" :-
(i) The Company do not have any Benami property, where any proceeding has been initiated or pending against the company for holding any Benami property.
(ii) The Company do not have any transactions with companies struck off.
(iii) The Company do not have any charges or satisfaction which is yet to be registered with ROC beyond the statutory period.
(iv) The Company have not traded or invested in Crypto currency or virtual currency during the financial year.
(v) The Company have not any such transactions 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."
60. The figures for the previous year have been regrouped/rearranged wherever necessary to conform to current period presentation.
Mar 31, 2022
The company has entered into currency and interest rate swaps to hedge foreign currency risks and interest rate risks, respectively, on external commercial borrowing (ECB) denominated in EURO as follows:-:
Currency Swap: The Company has a currency swap agreement whereby it has hedged the risk of changes in foreign exchange rates relating to the cash outflow arising on settlement of its ECB.
Interest rate Swap: The company has an interest rate swap agreement whereby the company receives a variable rate of interest of 6M EURIBOR 4.30% and pays interest at a fixed rate. The swap is being used to hedge the exposure to changes in the variable interest rate.
The table below shows the fair values of derivative financial instruments recorded as assets or liabilities together with their notional amounts.
b Rights, preferences and restrictions attached to equity shares :
The Company has single class of equity shares having a par value of H10 per equity share. Accordingly, all equity shares rank equally with regard to dividends and share in the Company''s residual assets. The equity shares are entitled to receive dividend as declared from time to time subject to payment of dividend to preference shareholders. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive the residual assets of the Company, remaining after distribution of all preferential amounts in proportion to the number of equity shares held.
The said reserve has been created under section 45-IC of Reserve Bank of India Act, 1934. As per the said section, every Non-banking financial company shall create a reserve fund and transfer a sum of not less than 20% of net profit every period before declaration of dividend.
Securities premium is used to record the premium received on issue of shares. It is utilised in accordance with the provisions of the Companies Act, 2013.
Treasury shares represents shares held by ESOP trust. The Company treats ESOP trust as its extension and shares held by ESOP trust are treated as treasury shares. Treasury share amount excluding amount adjusted from equity share capital are recognized under this head. Exercise price received on equity share issued in excess of face value of share capital against share option exercised are adjusted from treasury shares.Any difference between the carrying amount and the consideration received on exercise of share options, is transferred to capital reserve.
Retained earnings are the profits/(loss) that the Company has earned/incurred till date, less any transfers to statutory reserve, dividends or other distributions paid to shareholders. Retained earnings is a free reserve available to the Company and eligible for distribution to shareholders, in case where it is having positive balance representing net earnings till date.
Employee stock option plan reserve
The said amount is used to recognise the grant date fair value of options issued to employees by the Company. Remeasurement of defined benefit plans
Remeasurements of defined benefit plans represents the following as per Ind AS 19, Employee Benefits:
(a) actuarial gains and losses on defined benefit oligations
(b) the return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset); and
(c) any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset)
The Managing Director(MD) and Chief Executive Officer(CEO) of the Company takes decision in respect of allocation of resources and assesses the performance basis the report/ information provided by functional heads and are thus considered to be Chief Operating Decision Maker (CODM).
The Company operates under the principal business segment viz."micro financing activities".The CODM views and monitors the operating results of its single business segment for the purpose of making decisions about resource allocation and performance assessment. Accordingly, there are no separate reportable segments in accordance with the requirements of Ind AS 108 ''Operating segment'' and hence, there are no additional disclosures to be provided other than those already provided in the Ind AS statements. Presently, the Company''s operations are predominantly confined in India. There are no individual customer contributing more than 10% of Company''s total revenue. All non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets of the Company are located in India.
The Company operates the following post-employment plans -
The Company makes contribution, determined as a specified percentage of employees salaries, in respect of qualified employees towards provident fund and other funds which are defined contribution plans. The Company has no obligation other than this to make the specified contribution. The contribution is charged to the statement of profit and loss as they accrue.
ii. Defined benefit plan Gratuity
The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service is eligible for gratuity on cessation of employment and it is computed at 15 days salary (last drawn salary) for each completed year of service as per "The Payment of Gratuity Act, 1972 as amended from time to time. The scheme is funded with an insurance Company in the form of a qualifying insurance policy.
The most recent actuarial valuation of plan assets and the present value of the defined benefit obligation for gratuity were carried out as at March 31, 2022. The present value of the defined benefit obligations and the related current service cost and past year service cost, were measured using the projected unit credit method.
The following tables summarized the components of net benefit expenses recognized in the statement of profit and loss and the funded status and amounts recognized in the balance sheet for the gratuity plan.
The scheme is fully funded with Kotak Gratuity Group Plan. The funding requirements are based on the gratuity fund''s actuarial measurement framework set out in the funding policies of the plan. Employees do not contribute to the plan.
Expected contribution to gratuity plan for next year is as on March 31 2022 is H35.74 million and H18.20 million for March 2021.
(g) Description of risk exposuresValuations are based on certain assumptions, which are dynamic in nature and vary over time. As such Company is exposed to various risks as follows -
Salary increases: The present value of the defined benefit plan is calculated with the assumption of salary increase rate of plan participants in future. Deviation in the rate of increase of salary in future for plan participants from the rate of increase in salary used to determine the present value of obligation will have a bearing on the plan''s liability.
Investment risk: The present value of defined benefit plan liability is calculated using a discount rate which is determined by reference to the prevailing market yields of Indian government securities as at the balance sheet date for the estimated term of the obligation.
Discount rate: Reduction in discount rate in subsequent valuations can increase the plan''s liability.
Mortality & disability: Actual deaths & disability cases proving lower or higher than assumed in the valuation can impact the liabilities.
Withdrawals: Actual withdrawals proving higher or lower than assumed withdrawals and change of withdrawal rates at subsequent valuations can impact plan''s liability.
Expected rate of return on plan assets: This is based on the expectation of the average long term rate of return expected on investments of the fund during the estimated term of the obligations.
iv The Code on Social Security, 2020 (''Code'') relating to employee benefits during employment and post-employment benefits received Presidential assent in September 2020. The Code has been published in the Gazette of India. However, the date on which the Code will come into effect has not been notified and the final rules/interpretation have not yet been issued. The Company will assess the impact of the Code when it comes into effect and will record any related impact in the period the Code becomes effective.
39 Amount payable to micro small and medium enterprises
The Ministry of Micro Small and Medium Enterprises has issued an office memorandum dated August 26, 2008 which recommends that the Micro and Small Enterprises should mention in their correspondence with its customers the ''entrepreneurs memorandum number'' as allotted after filling of the memorandum. Accordingly, the disclosure in respect of the amount payable to such enterprises as at March 31, 2022 has been made in the financial statements (refer note 15) based on information received and available with the Company.
A. Description of share-based payment arrangements i. Share option programme (equity settled)
The Company has granted stock options to certain employees of the Company under the ''Employee Stock Option
Scheme 2014'' (Scheme 2014) and ''Employee Stock Option Scheme 2016'' (Scheme 2016). The key terms and
conditions related to the grant of the stock options are as follows:
a) The Scheme 2014 and 2016 are effective from July 31, 2014 and January 16, 2017 respectively and are administered through a ESOP Trust (Fusion Employees Benefit Trust).
b) The scheme provides that, subject to continued employment with the Company, the employees are granted an option to acquire equity shares of the Company that may be exercised within a specified period.
c) The Company has formed Fusion ESOP Trust on September 24, 2014 to issue ESOPs to employees of the Company as per the respective scheme. The Company has given interest and collateral free loan to the ESOP trust, to provide financial assistance to purchase equity shares of the Company under such schemes. The Trust in turn allots the shares to employees on exercise of their right against cash consideration.
d) As on March 31, 2022, the ESOP trust have 15,65,985 equity shares, (March 31,2021 - 17,40,626). The ESOP Trust does not have any transaction other than those mentioned above, hence it is treated as an integral part of the Company and accordingly gets consolidated with the books of the Company. Accordingly, as at March 31,2022, the Company has reduced the shares allotted to ESOP Trust amounting I 15.66 million (March 31,2021 - I 17.41 million) from the share capital and I 126.70 million (March 31, 2021 - I 138.15 million) from the share premium. These are shown as treasury shares.
e) The eligible employees shall exercise their option to acquire the shares of the Company within a period of eight periods from the end of vesting period. The plan shall be administered, supervised and implemented by the board.
The management assessed that carrying value of financial assets (except loan and investments) and financial liabilities (except debt securities, borrowings (other than debt securities) and subordinated liabilities) approximate their fair value largely due to short term maturities of these instruments.
C. Valuation framework
The Managing Director and Chief Executive Officer of the Company takes decision in respect of allocation of resources and assesses the performance basis the report/ information provided by functional heads and are thus considered to be Chief Operating Decision Maker (CODM).
The Company operates under the principal business segment viz. "micro financing activities". The CODM views and monitors the operating results of its single business segment for the purpose of making decisions about resource allocation and performance assessment. Accordingly, there are no separate reportable segments in accordance with the requirements of Ind AS 108 ''Operating segment'' and hence, there are no additional disclosures to be provided other than those already provided in the Ind AS statements. Presently, the Company''s operations are predominantly confined in India. There are no individual customer contributing more than 10% of Company''s total revenue. All noncurrent assets other than financial instruments, deferred tax assets, post-employment benefit assets of the Company are located in India."
Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 : The fair value of financial instruments that are not traded in active markets is determined using valuation techniques which maximize the use of observable market data either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets, for substantially the full term of the financial instrument but do not qualify as Level 1 inputs. If all significant inputs required to fair value an instrument are observable the instrument is included in level 2.
Level 3 : If one or more of the significant inputs is not based in observable market data, the instruments is included in level 3. That is, Level 3 inputs incorporate market participants'' assumptions about risk and the risk premium required by market participants in order to bear that risk. The Company develops Level 3 inputs based on the best information available in the circumstances.
Valuation techniques include net present value and discounted cash flow models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premium used in estimating discount rates and expected price volatilities and correlations.
The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date.
The fair values of loans and receivables are estimated by discounted cash flow models that incorporate assumptions for credit risks, probability of default and loss given default estimates. The Company uses
historical experience and other information used in its collective impairment models. The credit risk is applied as a top-side adjustment based on the collective impairment model incorporating probability of defaults and loss given defaults.
The fair values of the Company''s fixed rate interestbearing debt securities, borrowings and subordinated liabilities are determined by applying discount rate that reflects the issuer''s borrowing rate as at the end of the reporting period. For variable rate interest-bearing debt securities, borrowings and subordinated liabilities, carrying value represent best estimate of their fair value as these are subject to changes in underlying interest rate indices as and when the changes happen.
The Company has entered into derivative financial instruments with counterparty being a financial institution with investment grade credit ratings. Currencty and Interest rate swaps are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward
rates, yield curves of the respective currencies, currency basis spreads between the respective currencies and interest rate curves. As at March 31, 2022, the mark-to-market value of derivative liability position is net of a credit valuation adjustment attributable to derivative counterparty default risk.
There have been no transfer between Level 1, 2 and 3 during the period ended March 31, 2022 and March 31,2021.
45 Transfers of financial assets Assignment transactions:
Company generally enters into assignment deals, as a source of finance. As per the terms of deal, since the derecognition criteria as per Ind AS 109, including transaction of substantially all the risks and rewards relating to assets being transferred to the buyer being met, the assets have been derecognized.
The management evaluates the impact of the assignment transactions done during the year for its business model. Based on the future business plan, the Company''s business model remains to hold the assets for collecting contractual cash flows.
Risk is an integral part of the Company''s business and sound risk management is critical to the success. As a financial intermediary, the Company is exposed to risks that are particular to its lending and the environment within which it operates and primarily includes credit, liquidity and market risks. The Company has a risk management policy which covers risks associated with the financial assets and liabilities. The risk management policy is approved by the board of directors.
The Company has identified and implemented comprehensive policies and procedure to assess, monitor and manage risk through-out Company. The risk management process is continuously reviewed, improved and adopted in the context of changing risk scenario and the agility of the risk management process is monitored and reviewed for its appropriateness in the changing risk landscape. The process of continuous evaluation of risks includes stock of the risk landscape on an event driven basis.
The Company has an elaborate process for risk management. Major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis.
The Company''s board of directors has overall responsibility for the establishment and oversight of the Company''s risk management framework. The board of directors has established the risk management committee, which is responsible for developing and monitoring the Company''s risk management policies. The committee reports regularly to the board of directors on its activities.
Efficient and timely management of risks involved in the Company''s activities is critical for thefinancial soundness and profitability of the Company. Risk management involves the identifying, measuring, monitoring and managing of risks on a regular basis. The objective of risk management is to increase shareholders'' value and achieve a return on equity that is commensurate with the risks assumed. To achieve this objective, the Company employs leading risk management practices and recruits skilled and experienced people.
The Company''s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company''s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Company''s audit committee oversees how management monitors compliance with the Company''s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The audit committee is assisted in its oversight role by internal audit that undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the audit committee.
All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Company''s policy that no trading in derivatives for speculative purposes may be undertaken. Credit risk arising from derivative financial instruments is, at any time, limited to those with positive fair values, as recorded on the balance sheet. As per risk management policy of the company, it only deals with counterparties, which has good credit rating/ worthiness given by external rating agencies or based on company''s internal assessment. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:
Credit risk is the risk of loss that may occur from defaults by our borrowers under our loan agreements. In order to address credit risk, we have stringent credit assessment policies for client selection. Measures such as verifying client details and usage of credit bureau data to get information on past credit behaviour also supplement the efforts for containing credit risk. We also follow a systematic methodology in the opening of new branches, which takes into account factors such as the demand for credit in the area; income and market
potential; and socio-economic and law and order risks in the proposed area. Further, our client due diligence procedures encompass various layers of checks, designed to assess the quality of the proposed group and to confirm that they meet our criteria.
The Company is a rural focused NBFC-MFI with a geographically diversified presence in India and offer income generation loans under the joint liability group model, predominantly to women from low-income households in Rural Areas. Further, as we focus on providing micro-loans in rural areas, our results of operations are affected by the performance and the future growth potential of microfinance in rural India. Our clients typically have limited sources of income, savings and credit histories and our loans are typically provided free of collateral. Such clients generally do not have a high level of financial resilience, and, as a result, they can be adversely affected by declining economic conditions and natural calamities. In addition, we rely on non-traditional guarantee mechanisms rather than tangible assets as collateral, which may not be effective in recovering the value of our loans.
"The Company''s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk associated with the industry. A financial asset is ''credit-impaired'' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable data:
⢠significant financial difficulty of the borrower or issuer;
â¢a breach of contract such as a default or past due event;"
The Company believes that the Micro finance loans (MFI) have shared risk characteristics (i.e. homogeneous) across various states in India. Similarly, the MSME loans are considered to have shared risk characteristics. Accordingly, the Company believes that these product categories are the best measure of credit risk concentration. Refer note 6 for the product wise loan balances.
(a) Probability of default (PD)
PD describes the probability of a loan to eventually falling into stage 3. PD percentage is calculated for entire loan portfolio and is determined by using available historical observations.
PD for stage 1: is derived as percentage of all loans in stage 1 moving into stage 3 in 12-months'' time.
PD for stage 2: is derived as percentage of all loans in stage 2 moving into stage 3 in the maximum lifetime of the loans under observation.
PD for stage 3: is derived as 100% considering that the default occurs as soon as the loan becomes overdue for 90 days which matches the definition of stage 3.
Macroeconomic information (such as regulatory changes, market interest rate or inflation) is incorporated as part of the internal assessment . In general, it is presumed that credit risk has significantly increased since initial recognition if the payments are more than 30 days past due.
(b) Exposure at default (EAD)
EAD is the sum of outstanding principal and the interest amount accrued but not received on each loan as at reporting date.
(c) Loss given default (LGD)
The Company determines its recovery rates by analysing the recovery trends over different periods of time after a loan is considered credit impaired. Recovery rate is the total of discounted value of all the recoveries on the credit impaired loan account divided by the outstanding of the loan account after its first default. LGD = 1 - (Recovery rate).
(d) Significant increase in credit risk
The Company continuously monitors all assets subject to ECL. In order to determine whether an instrument or a portfolio of instruments is subject to 12 months ECL or life time ECL, the Company assesses whether there has been a significant increase in credit risk since initial recognition. Regardless of the change in credit grades, if contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial recognition.
e) Expected credit loss on Loans
The Company measures the amount of ECL on a financial instrument in a way that reflects an unbiased and probability-weighted amount. The Company considers its historical loss experience and adjusts the same for current observable data. The key inputs into the measurement of ECL are the probability of default, loss given default and exposure at default. These parameters are derived from the internal assessment of the historical data. In addition, the Company uses reasonable and supportable information on future economic conditions including macroeconomic factors such as interest rates, gross domestic product, inflation and expected direction of the economic cycle. Since incorporating these forward looking information increases the judgment as to how the changes in these macroeconomic factor will affect ECL, the methodology and assumptions are reviewed regularly.
The Company has applied a three-stage approach to measure expected credit losses (ECL) on loans. Assets migrate through following three stages based on the changes in credit quality since initial recognition:
i) Stage 1: 12- months ECL: For exposures where there is no significant increase in credit risk since initial recognition and that are not credit-impaired upon origination, the portion of the lifetime ECL associated with the probability of default events occurring within the next 12- months is recognized.
ii) Stage 2: Lifetime ECL, not credit-impaired: For credit exposures where there has been a significant increase in credit risk since initial recognition but are not credit-impaired, a lifetime ECL is recognized.
iii) Stage 3: Lifetime ECL, credit-impaired: Financial assets are assessed as credit impaired upon occurrence of one or more events that have a detrimental impact on the estimated future cash flows of that asset. For financial assets that have become credit-impaired, a lifetime ECL is recognized and interest revenue is calculated by applying the effective interest rate to the amortised cost.
At each reporting date, the Company assesses whether there has been a significant increase in credit risk of its financial assets since initial recognition by comparing the risk of default occurring over the expected life of the asset. In determining whether credit risk has increased
significantly since initial recognition, the Company uses information that is relevant and available without undue cost or effort. This includes the Company''s internal assessment and forward-looking information to assess deterioration in credit quality of a financial asset.
Expected credit loss on other financial assets
The Company assesses whether the credit risk on a financial asset has increased significantly on collective basis. For the purpose of collective evaluation of impairment, financial assets are grouped on the basis of shared credit risk characteristics, taking into account accounting instrument type, credit risk ratings, date of initial recognition, remaining term to maturity, industry, geographical location of the borrower, collateral type, and other relevant factors.
The Company monitors changes in credit risk by tracking published external credit ratings. In order to determine whether published ratings remain up to date and to assess whether there has been a significant increase in credit risk at the reporting date that has not been reflected in published ratings, the Company supplements this by reviewing changes in government bond yields together with available press and regulatory information about issuers.
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company''s approach to managing liquidity is to ensure, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company''s reputation.
The maturity schedule for all financial liabilities and assets are regularly reviewed and monitored. Company has assets liability management (ALM) policy and ALM Committee to review and monitor liquidity risk and ensure the compliance with the prescribed regulatory requirement. Monitoring liquidity risk involves categorizing all assets and liabilities into different maturity profiles and evaluating them for any mismatches in any particular maturities, particularly in the short-term. The ALM Policy prescribes the detailed guidelines for managing the liquidity risk.
48 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 interest rates, credit, liquidity etc. The Company is exposed to three type''s of market risks as follows:
(i) Interest rate risk
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. We are subject to interest rate risk, principally because we lend to clients at fixed interest rates and for periods that may differ from our funding sources, while our borrowings are at both fixed and variable interest rates for different periods.
We assess and manage our interest rate risk by managing our assets and liabilities. Our Assets Liability Management Committee evaluates asset liability management, and ensures that all significant mismatches, if any, are being managed appropriately. The Company has board approved Asset Liability Management (ALM) policy for managing interest rate risk and policy for determining the interest rate to be charged on the loan given.
The Company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. For this, during period ended March 31, 2022, the company has external commercial borrowings on which the company has entered an interest rate swap agreement whereby the company receives a variable rate of interest of 6M EURIBOR 4.30% and pays interest at a fixed rate.
The following table demonstrates the sensitivity to a reasonably possible change in the interest rates on the portion of borrowings affected. With all other variables held constant, the profit before tax is affected through the impact on floating rate borrowings, as follows:
|
Finance Cost |
March 31, 2022 |
March 31, 2021 |
|
0.50 % Increase |
105.54 |
68.87 |
|
0.50 % Decrease |
(105.54) |
(68.87) |
(ii) Price Risk
The Company''s exposure to price risk is not material and it is primarily on account of investment of temporary treasury surplus in the highly liquid debt funds for very short durations. The Company has a board approved policy of investing its surplus funds in highly rated debt mutual funds and other instruments having insignificant price risk, not being equity funds/ risk bearing instruments. As of March 31, 2022 and March 31, 2021, the company does not have any exposure to mutual funds.
(iii) Foreign currency risk
The Company is exposed to foreign exchange risk arising from foreign currency transactions. Foreign exchange risk arises from recognized assets and liabilities denominated in a currency that is not the functional currency of the Company. To mitigate the Company''s exposure to foreign currency risk, non-rupee cash flows are monitored and derivative contracts are entered into in accordance with the Company''s risk management policies. Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Foreign currency risk arises majorly on account of foreign currency borrowings. The Company manages its foreign currency risk by entering into cross currency swaps and forward contract. When a derivative is entered in to for the purpose of being as hedge, the Company negotiates the terms of those derivatives to match with the terms of the hedge exposure. For hedges of forecasted transactions, the derivatives cover the period of exposure from the point the cash flows of the transactions are forecasted up to the point of settlement of the resulting receivable or payable that is denominated in the foreign currency.
The Company hedges its exposure to fluctuations on the translation into INR of its foreign currency transactions by holding net borrowings in foreign currencies and by using foreign currency swaps and forwards. At March 31, 2022, the Company hedged 100% (March 31, 2021: Nil), for entire term of borrowing, of its expected interest and principle repayments on External commercial borrowings. This foreign currency risk is hedged by using foreign currency forward contracts.
Details of borrowings denominated in foreign currency and derivatives (i.e., currency and interest rate swaps) held for risk management purposes as economic hedges:
prescribes the sources of funds, threshold for mix from various sources, tenure manner of raising the funds etc.
For the purpose of the Company''s capital management, capital includes equity share capital and other equity. Debt includes terms loans from banks, NBFC and debentures net of cash and cash equivalents and bank balances other than cash and cash equivalents. The Company monitors capital on the basis of the following gearing ratio.
52 Leases
Company as a lessee
Company has its office at Gurugram under lease arrangement.The head office lease has obtained on a non-cancellable lease term of 3 years which is extendable up to 9 years with an escalation clause at a 3 years interval. The company''s obligations under its leases are secured by the lessor''s title to the leased assets. The company is restricted from assigning and subleasing the leased assets.
The Company has branch offices on lease for which ''short term lease'' recognition exemption is applied. Accordingly, lease rentals of I 139.65 millions for year ended March 31, 2022 (I 110.79 millions for the year ended March 31, 2021) on such short term leases has been directly debited to Ind AS statement of profit and loss.
The Company''s objective for capital management is to maximize shareholder''s value, safeguard business continuity, meet the regulatory requirement and support the growth of the Company. The Company determines the capital requirement based on annual operating plans and long-term and other strategic investment plans. The funding requirements are met through borrowings, retained earnings and operating cash flow generated.
As an NBFC-MFI, the RBI requires us to maintain a minimum capital to risk weighted assets ratio ("CRAR") consisting of Tier I and Tier II capital of 15% of our aggregate risk weighted assets. Further, the total of our Tier II capital cannot exceed 100% of our Tier I capital at any point of time. (refer note 54) The Capital management process of the Company ensures to maintain to healthy CRAR at all the time.
The Company has a board approved policy on resource planning which states that the resource planning of the Company shall be based on the Asset Liability Management (ALM) requirement. The policy of the Company on resource planning will also cover the objectives of the regulatory requirement. The policy
A. Contingent liabilities
There are no Contingent liabilities as at March 31, 2022 and March 31, 2021.
B. Commitments
There are no commitments as at March 31, 2022 and March 31,2021.
C. Contingent assets
There are no contingent assets as at March 31, 2022 and March 31,2021.
D. The company has reviewed all litigations having an impact on the financial position, where applicable, has adequately provided for where provision are required . As on March 31, 2022, the Company does not have any material litigation pending with Income tax authorities, Goods and service authorities and other statutory
The effective interest rate for lease liabilities is 10.72% with maturity between September 2020 - November 2029.
53 The uncertain economic environment as result impact of COVID-19 continues to prevail as infection rates continue change on a regular basis. On account of resurgence of Covid-19 pandemic in India during year ended March 31,2022, the Reserve Bank of India introduced Resolution Framework - 2.0: Resolution of Covid-19 related stress of Individuals and Small Businesses vide circular DOR.STR.REC.11/21.04.048/2021-22 dated May 05, 2021 with the objective of alleviating the potential stress to individual borrowers and small businesses. In accordance with the circular, the Company has identified the eligible borrowers and those who agreed with the resolution plan were extended the support under the framework for relief from stress of Covid-19.
For the year ended March 31, 2022, the Company has incorporated estimates, assumptions, and judgements specific to the impact of CoVID-19 pandemic in its assessment of business model, going concern, measurement of impairment loss allowance including relating to the restructuring discussed above. These estimates, including the impairment loss allowance on loan portfolio which stood at I 3603.50 Mn as at March 31, 2022 is subject to uncertainty on account of factors explained above and the actual results may differ.
(vi). Institutional set-up for liquidity risk management
The Board of Directors has the overall responsibility for establishing the risk management framework for the Company. The Board in turn has established an ALM Committee (ALCO) for evaluating, monitoring and reviewing liquidity and interest rate risks arising in the Company on both sides of the Balance sheet. The Board based on recommendations from the ALCO has prescribed policies and the risk limits for the management of liquidity risk.
ALCO Committee is responsible for managing the risks arising out of Asset Liability mismatches consistent with the regulatory requirements and internal risk tolerances established by the Board. Amongst other responsibilities, ALCO has been empowered to decide the funding mix for the company in light of the future business strategy and prevailing market conditions. ALCO committee is conducted at least once in a quarter and the ALCO minutes are reviewed by the Board from time to time.
*Notes
1. A "significant counterparty" is defined as a single counterparty or group of connected or affiliated counterparties accounting in aggregate for more than 1% of the NBFC-NDSI''s, NBFC-Ds total liabilities and 10% for other non-deposit taking NBFC.
2. A "significant instrument/product" is defined as a single instrument/ product of group of similar instruments/products which in aggregate amount to more than 1% of the NBFC-NDSI''s, NBFC-Ds total liabilities and 10% for other non-deposit taking NBFC''s.
3. Total Liabilities has been computed as sum of all liabilities (Balance sheet figure) less equities and reserve/surplus.
4. Public Funds" shall include funds raised either directly or indirectly through public deposits, commercial paper, debentures, inter-corporate deposits and bank finance but exclude funds raised by issue of instruments compulsory convertible into equity shares with in a period not exceeding 10 years from the date of issue as defined in Regulatory Framework For Core Investment Companies issued vie Notification No. DNBS (PD) CC.No206/03.10.001/2010-11 dated January 5th, 2011.
5. The amount stated in this disclosure is based on the audited financial statements for the year ended March 31,2022.
1. Interest income considered for computation of "average interest charged" excludes loan processing fee collected from customers in accordance with para 54(vi) of the RBI Master Directions. As per Ind AS 109, such loan processing fee forms part of interest income in the Ind AS financial statements.
2. Average loan outstanding considered for computation of "average interest charged" is gross of the impairment allowance and unamortized portion of loan processing fee. As per Ind AS 109, such allowance is adjusted from the loan balance in the Ind AS financial statements.
The disclosures as required vide the above Notification dated March 13, 2020 are relevant for year ended March 31,2020 and onwards, hence prior period reporting is not required.
p. Details of penalties imposed by RBI and other regulators
No penalty has been imposed by RBI and other regulators on the Company during the financial year ended March 31, 2022 and March 31, 2021.
q. Details of unsecured advances
The Company has not given any unsecured advances against intangible securities such as charge over the rights, licenses, authority, etc. during the financial year ended March 31,2022 and March 31, 2021.
r. Details of non-performing financial assets purchased / sold
The Company has not purchased / sold any non-performing financial assets during the financial year ended March 31, 2022 and March 31, 2021.
s. Details of Single Borrower Limit (SGL) / Group Borrower Limit (GBL) exceeded by the NBFC:
The Company has not exceeded the prudential exposures limits during the financial year ended March 31, 2022 and March 31, 2021.
t. Draw down from reserves
There has been no draw down from reserves during the year ended March 31, 2022 and March 31, 2021.
56 As per Regulation 54 of the SEBI (Listing Obligation and Disclosure Requirements) Regulations 2015 (''Listing Regulations''), as on March 31, 2022, all Secured Non-convertible debenture of the Company are secured by exclusive first charge by way of hypothecation against the principal amount outstanding and accrued coupon on debenture. Further, the Company has maintained security cover being minimum of 100% of principal outstanding and accrued coupon thereon or as stated in the Information Memorandum of non-convertible debentures at all times
57 Details of loans transferred/acquired during the quarter ended March 31, 2022, under RBI Master Direction on Transfer of Loan Exposures dated September 24, 2021, are given below: erred/acquired through assignment:
58 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 party identified by or on behalf of the Company (Ultimate Beneficiaries). The Company has not received any fund from any party(s) (Funding Party) 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.
60 With regard to the new amendments under "Division III of Schedule III" under "Part II - Statement of Profit and Loss
- General Instructions for preparation of Statement of Profit and Loss :-
(i) The Company do not have any Benami property, where any proceeding has been initiated or pending against the company for holding any Benami property.
(ii) The Company do not have any transactions with companies struck off.
(iii) The Company do not have any charges or satisfaction which is yet to be registered with ROC beyond the statutory period.
(iv) The Company have not traded or invested in Crypto currency or virtual currency during the financial year.
(v) The Company has not been declared willful defaulter by any bank or financial institution or other lender.
(vi) The Company have not any such transactions 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.
61 The figures for the previous year have been regrouped/rearranged wherever necessary to conform to current year
presentation.
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