Notes to Accounts of Muthoot Microfin Ltd.

Mar 31, 2025

ix. Provisions, contingent assets and contingent liabilities

Provisions are recognized only when there is a
present obligation, as a result of past events, and
when a reliable estimate of the amount of obligation
can be made at the reporting date. These estimates
are reviewed at each reporting date and adjusted
to reflect the current best estimates. Provisions are
discounted to their present values, where the time
value of money is material.

Contingent liability is disclosed for:

a) Possible obligations which will be confirmed
only by future events not wholly within the
control of the Company or

b) Present obligations arising from past events
where it is not probable that an outflow of
resources will be required to settle the obligation
or a reliable estimate of the amount of the
obligation cannot be made.

x. Leases
Company as a lessee

A contract is, or contains, a lease if the contract
conveys the right to control the use of an identified
asset for a period of time, the lease term, in exchange
for consideration. The Company assesses whether a
contract is, or contains, a lease on inception.

The lease term is either the non-cancellable period
of the lease and any additional periods when there
is an enforceable option to extend the lease and it
is reasonably certain that the Company will extend
the term, or a lease period in which it is reasonably

certain that the Company will not exercise a right to
terminate. The lease term is reassessed if there is a
significant change in circumstances.

The Company recognizes a right-of-use asset and a
lease liability at the lease commencement date. The
right-of-use asset is initially measured at cost, which
comprises the initial amount of the lease liability
adjusted for any lease payments made at or before
the commencement date, plus any initial direct
costs incurred.

Right-of-use assets are depreciated from the
commencement date on a straight-line basis over
the shorter of the lease term and useful life of the
underlying asset.

The lease liability is initially measured at the
present value of the total lease payments due on
the commencement date, discounted using either
the interest rate implicit in the lease, if readily
determinable, or more usually, an estimate of the
Company’s incremental borrowing rate.

Lease payments included in the measurement of the
lease liability comprise the following:

a) fixed payments, including payments which are
substantively fixed;

b) variable lease payments that depend on a
rate, initially measured using the rate as at
the commencement.

The lease liability is measured at amortised cost using
the effective interest method. It is remeasured when
there is a change in future lease payments arising
from a change in a rate, if the Company changes its
assessment of whether it will exercise a purchase,
extension or termination option or if there is a revised in¬
substance fixed lease payment. When the lease liability
is remeasured in this way, a corresponding adjustment
is made to the carrying amount of the right-of-use asset
or is recorded in profit or loss if the carrying amount of
the right-of-use asset has been reduced to zero.

Short-term leases and leases of low-value assets

As permitted by Ind AS 116, the Company does not
recognize right-of-use assets and lease liabilities
for leases of low-value assets and short-term
leases. Payments associated with these leases are
recognized as an expense on a straight-line basis
over the lease term.

xi. Financial instruments

A Financial instrument is any contract that gives
rise to a financial asset of one entity and a financial
liability or equity instrument of another entity.

Initial recognition and measurement

Financial assets and financial liabilities are
recognised when the Company becomes a party to
the contractual provisions of the financial instrument
and are measured initially at fair value adjusted
for transaction costs. Subsequent measurement
of financial assets and financial liabilities is
described below.

Derivative financial instruments

Derivative financial instruments

The Company enters into derivative financial
instruments to manage its exposure to interest
rate and foreign exchange rate risks through cross
currency interest rate swaps.

Derivatives are initially recognised at fair value at the
date the derivative contracts are entered into and are
subsequently remeasured to their fair value at the end
of each reporting period. The resulting gain or loss
is recognised in profit or loss immediately unless the
derivative is designated and effective as a hedging
instrument, in which event the timing of the recognition
in profit or loss depends on the nature of the hedging
relationship and the nature of the hedged item.

Hedge accounting

The Company designates certain hedging
instruments, which include derivatives in respect of
foreign currency risk, as cash flow hedge.

At the inception of the hedge relationship, the
entity documents the relationship between the
hedging instrument and the hedged item, along
with its risk management objectives and its strategy
for undertaking various hedge transactions.
Furthermore, at the inception of the hedge and on
an ongoing basis, the Company documents whether
the hedging instrument is highly effective in offsetting
changes in fair values or cash flows of the hedged
item attributable to the hedged risk.

Cash flow hedges

The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash
flow hedges is recognised in other comprehensive

income and accumulated under the heading of cash
flow hedge reserve. The gain or loss relating to the
ineffective portion is recognised immediately in
“statement of profit and loss”.

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

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

Non-derivative financial assets

Subsequent measurement

i. Financial assets carried at amortised cost -

a financial asset is measured at the amortised
cost if both the following conditions are met:

a) The asset is held within a business model
whose objective is to hold assets for
collecting contractual cash flows, and

b) Contractual terms of the asset give rise on
specified dates to cash flows that are solely
payments of principal and interest (SPPI)
on the principal amount outstanding.

After initial measurement, such financial assets
are subsequently measured at amortised cost
using the effective interest rate (EIR) method.
Amortised cost is calculated by taking into
account any discount or premium on acquisition
and fees or costs that are an integral part of the

EIR. The EIR amortisation is included in interest
income in the Statement of Profit and Loss.

ii. Financial assets carried at fair value through
other comprehensive income - a financial
asset is measured at fair value, with changes in
fair value being carried to other comprehensive
income, if both the following conditions are met:

a) the financial asset is held within a business
model whose objective is achieved by
both collecting contractual cash flows and
selling financial assets, and

b) Contractual terms of the asset give rise on
specified dates to cash flows that are solely
payments of principal and interest (SPPI)
on the principal amount outstanding.

De-recognition of financial assets

Financial assets (or where applicable, a part of
financial asset or part of a group of similar financial
assets) are derecognised (i.e. removed from the
Company’s balance sheet) when the contractual
rights to receive the cash flows from the financial
asset have expired, or when the financial asset and
substantially all the risks and rewards are transferred.
Further, if the Company has not retained control, it
shall also derecognise the financial asset and
recognise separately as assets or liabilities any rights
and obligations created or retained in the transfer.

Non-derivative financial liabilities

Other financial liabilities - Subsequent measurement

Subsequent to initial recognition, all non-derivative
financial liabilities, except compulsorily convertible
preference shares, are measured at amortised cost
using the effective interest method.

De-recognition of financial liabilities

A financial liability is de-recognised when the
obligation under the liability is discharged or
cancelled or expired. When an existing financial
liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange
or modification is treated as the de-recognition of the
original liability and the recognition of a new liability.
The difference in the respective carrying amounts is
recognised in the Statement of Profit and Loss.

First loss default guarantee

First loss default guarantee contracts are contracts
that require the Company to make specified payments
to reimburse the bank and financial institution for
a loss it incurs because a specified debtor fails to
make payments when due, in accordance with the
terms of a debt instrument. Such financial guarantees
are given to banks and financial institutions, for whom
the Company acts as ‘Business Correspondent’ or
avails any facilities like Term Loans, Securitization
transactions etc. Any amounts forfeited by the banks
or financial institutions on account of any payment
failure will be adjusted in the books accordingly.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and
the net amount is reported in the balance sheet if
there is a currently enforceable legal right to offset
the recognised amounts and there is an intention to
settle on a net basis, to realise the assets and settle
the liabilities simultaneously.

xii. Earnings per share

The Company reports basic and diluted earnings
per share in accordance with Ind AS 33 on Earnings
per share. Basic earnings per share is calculated
by dividing the net profit or loss for the period
attributable to equity shareholders (after deducting
attributable taxes) by the weighted average number
of equity shares outstanding during the period.
The weighted average number of equity shares
outstanding during the period is adjusted for events
including a bonus issue.

For the purpose of calculating diluted earnings per
share, the net profit or loss for the period 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 including the treasury shares held by the
Company to satisfy the exercise of the share options
by the employees. Dilutive potential equity shares
are deemed converted as of the beginning of the
period, 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.

xiii. Foreign currency

Functional and presentation currency

Items included in the financial statement of the
Company are measured using the currency of the

primary economic environment in which the entity
operates (‘the functional currency’).

Transactions and balances

Foreign currency transactions are translated into
the functional currency, by applying the exchange
rates on the foreign currency amounts at the date
of the transaction. Foreign currency monetary items
outstanding at the balance sheet date are converted
to functional currency using the closing rate. Non¬
monetary items denominated in a foreign currency
which are carried at historical cost are reported using
the exchange rate at the date of the transaction.

Exchange differences arising on monetary items on
settlement, or restatement as at reporting date, at
rates different from those at which they were initially
recorded, are recognized in the Statement of Profit
and Loss in the year in which they arise.

xiv. Significant management judgement in applying
accounting policies and estimation uncertainty

The preparation of the Company’s financial statements
requires management to make judgements, estimates
and assumptions that affect the reported amounts of
revenues, expenses, assets and liabilities, and the related
disclosures. Actual results may differ from these estimates.

Significant management judgements

Recognition of deferred tax assets - The extent
to which deferred tax assets can be recognized is
based on an assessment of the probability of the
future taxable income against which the deferred tax
assets can be utilized.

Business model assessment - 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 judgement reflecting all relevant
evidence including how the performance of the assets
is evaluated and their performance measured, the
risks that affect the performance of the assets and
how these are managed and how the managers of
the assets are compensated. The Company monitors
financial assets that are derecognised prior to their
maturity to understand the reason for their disposal and
whether the reasons are consistent with the objective of
the business for which the asset was held. Monitoring
is part of the Company''s continuous assessment of
whether the business model for which the remaining
financial assets are held continues to be appropriate
and if it is not appropriate whether there has been

a change in business model and so a prospective
change to the classification of those assets.

Evaluation of indicators for impairment of assets - The

evaluation of applicability of indicators of impairment
of assets requires assessment of several external and
internal factors which could result in deterioration of
recoverable amount of the assets.

Classification of leases - The Company enters
into leasing arrangements for various assets. The
classification of the leasing arrangement as a finance
lease or operating lease is based on an assessment
of several factors, including, but not limited to, transfer
of ownership of leased asset at end of lease term,
lessee’s option to purchase and estimated certainty of
exercise of such option, proportion of lease term to the
asset’s economic life, proportion of present value of
minimum lease payments to fair value of leased asset
and extent of specialized nature of the leased asset.

Expected credit loss (‘ECL’) - The measurement of
expected credit loss allowance for financial assets
requires use of complex models and significant
assumptions about future economic conditions
and credit behaviour (e.g. likelihood of customers
defaulting and resulting losses). The Company
makes significant judgements with regard to the
following while assessing expected credit loss:

a) Determining criteria for significant increase
in credit risk;

b) Establishing the number and relative weightings
of forward-looking scenarios for each type of
product/market and the associated ECL; and

c) Establishing groups of similar financial assets
for the purposes of measuring ECL.

Provisions - At each balance sheet date basis the
management judgment, changes in facts and legal
aspects, the Company assesses the requirement
of provisions against the outstanding contingent
liabilities. However, the actual future outcome may be
different from this judgement.

Significant estimates

Useful lives of depreciable/amortisable assets -

Management reviews its estimate of the useful lives of
depreciable/amortisable assets at each reporting date,
based on the expected utility of the assets. Uncertainties
in these estimates relate to technical and economic
obsolescence that may change the utility of assets.

Defined benefit obligation (DBO) - Management’s
estimate of the DBO is based on a number of
underlying assumptions such as standard rates of
inflation, mortality, discount rate and anticipation of
future salary increases. Variation in these assumptions
may significantly impact the DBO amount and the
annual defined benefit expenses.

Fair value measurements - Management applies
valuation techniques to determine the fair value of
financial instruments (where active market quotes are
not available). This involves developing estimates and
assumptions consistent with how market participants
would price the instrument.

xv. Implementation of Indian Accounting Standards by RBI

The RBI issued Circular DOR (NBFC).CC.PD.
No.109/22.10.106/2019-20 dt. March 13,2020,
which require Non-Banking Financial Companies
(NBFCs) covered by Rule 4 of the Companies (Indian
Accounting Standards) Rules, 2015 to comply with
the respective circular while preparing the financial
statements from financial year 2019-20 onwards.

xvi. Recent Accounting Pronouncements

Ministry of Corporate Affairs (‘MCA’) notifies new
standard or amendments to the existing standards
under Companies (Indian Accounting Standards)
Rules as issued from time to time. 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 Company w.e.f. April 1, 2024. The
Company has reviewed the new pronouncements and
based on its evaluation has determined that it does not
have any significant impact in its financial statements.

(i) All loans given to employees are without any security of assets or guarantee.

(ii) Refer note 42 for loans pledged as security.

(iii) Refer note 45 for expected credit loss related disclosures on loan assets.

(iv) The Company has not granted any loans or advances in the nature of loans, to promoters, Directors, KMPs and related
parties (as defined under the Companies Act, 2013), either severally or jointly with any other person, that are either
repayable on demand or without specifying any terms or period of repayment during the year.

(v) Refer Note 55 (xxiii) for Loans where fraud has been committed and reported for the year.

(vi) The Company has securitised certain term loans and managed servicing of such loan accounts. The carrying value of
these assets have not been de-recognised in the books. Refer Note 49 for securitised term loans not derecognised in
their entirety.

(vii) Secured Loans granted by the Company are secured or partly secured by one or a combination of equitable mortgage of
property, Hypothecation of assets including Gold.

(viii) The above loan excludes microfinance loans assigned to a third party on direct assignment in accordance with
RBI Guidelines which qualify for derecognisation as per Ind AS 109. The amounts given are of minimum retention
retained in the books.

(i) The Company has a Board approved policy for entering into derivative transactions. Derivative transactions comprise of
currency and interest rate swaps. The Company undertakes such transactions for hedging of foreign currency borrowings. The
Asset Liability Management Committee periodically monitors and reviews the risk involved.

(ii) The Company borrows in Foreign currency for its External Commercial Borrowing(“ECB”) programme. These borrowings are
governed by RBI guidelines which requires entities raising ECB for an average maturity of less than 5 years to hedge minimum
70% of the ECB exposure (principal and coupon). The Company hedges its entire ECB exposure for the full tenure of the
ECB. For its ECB, the Company evaluates the foreign currency exchange rates, tenure of ECB and its fully hedged costs and
manages its currency risks by entering derivative contracts as hedge positions.

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

18. Borrowings (other than debt securities) (Contd..)

(i) Borrowings under securitisation arrangements represents securities issued by the special purpose vehicles (''SPVs'') to the investors
pursuant to the securitisation arrangement. Since such arrangements do not fulfil the derecognition criteria under Ind AS 109, the Company
has recognised the associated liabilities with corresponding loans. Refer Note 49 for securitised term loans not derecognised in their entirety.

(ii) The Company holds derivative instrument i.e. Interest rate cross currency swap to mitigate the risk of change in interest rates
and exchange rates on foreign currency exposure. The tenure of ECBs and derivative Instruments are same and hence are
treated as perfectly hedged.

Treasury shares

Treasury shares represents Company''s own equity shares held by MML Employee Welfare Trust for implementing Employee Stock
Option Plan of the Company. The Company treats ESOP trust as its extension and the Treasury shares are presented as a deduction
from total equity.

(i) Rights, preferences and restrictions attached to equity shares:

The Company has equity shares having a par value of H 10 per share. Each holder of equity shares is entitled to one vote per
share. The company declares and pays dividend in Indian Rupees. The dividend proposed by the Board of Directors in any
financial year is subject to the approval of the shareholders in the ensuing annual general meeting, except interim dividend.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the
company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held
by the shareholders.

Nature and purpose of reserves
Securities premium reserve

Securities premium reserve is used to record the premium on issue of shares. The reserve can be utilised only for limited purposes
such as issuance of bonus shares in accordance with the provisions of the Companies Act, 2013.

Reserve fund u/s 45-IC of RBI Act 1934

The Company creates a reserve fund in accordance with the provisions of section 45-IC of the Reserve Bank of India Act, 1934 and
transfers therein an amount equal to/more than twenty per cent of its net profit of the year, before declaration of dividend. Accordingly,
during the year ended March 31,2025, the Company has transferred an amount of INR Nil (March 31, 2024: INR 899.17 million).

Employee stock options outstanding

The account is used to recognise the grant date value of options issued to employees under Employee stock option plan and
adjusted as and when such options are exercised or otherwise expire.

Loan assets through other comprehensive income

The Company recognises changes in the fair value of loan assets held with business objective of collect and sell in other
comprehensive income. These changes are accumulated within the FVOCI debt investments reserve within equity. The Company
transfers amounts from this reserve to the statement of profit and loss when the loan assets are sold. Any impairment loss on such
loans are reclassified immediately to the statement of profit and loss.

Retained earnings

All the profits or losses made by the Company are transferred to retained earnings from statement of profit and loss.

General reserve

Represents the profits or losses made by the employee welfare trust on account of issue or sale of treasury stock.

Effective portion of Cashflow hedge

The amount refers to changes in the fair value of derivative financial Contracts which are designated as effective Cash flow Hedge.

Notes to actuarial assumptions:

(a) Encashment of compensated absence is payable to the employees on death or resignation or on retirement at the
attainment of superannuation age, and it is not applicable on termination and unserved notice period of an employee.

(b) These assumptions were developed by management with the assistance of independent actuarial appraisers.
Discount factors are determined close to each year-end by reference to government bonds and that have terms
to maturity approximating to the terms of the related obligation. Other assumptions are based on management’s
historical experience.

(c) The discount rate is based on the prevailing market yield of Government of India bonds as at the balance sheet date
for the estimated terms of obligations.

B Fair values hierarchy

The fair value of financial instruments as referred to in note ''A'' above has been classified into three categories depending on the
inputs used in the valuation technique. The hierarchy gives the highest priority to quoted prices in active markets for identical
assets or liabilities [Level 1 measurements] and lowest priority to unobservable inputs [Level 3 measurements].

The categories used are as follows:

Level 1: Quoted prices (unadjusted) for identical instruments in an active market;

Level 2: Directly (i.e. as prices) or indirectly (i.e. derived from prices) observable market inputs, other than Level 1 inputs; and
Level 3: Inputs which are not based on observable market data (unobservable inputs).

B.1 Valuation framework

Loan assets carried at fair value through other comprehensive income are categorized in Level 3 of the fair value hierarchy.

The Company''s fair value methodology and the governance over its models includes a number of controls and other
procedures to ensure the quality and adequacy of the fair valuation. In order to arrive at the fair value of the above
instruments, the Company obtains independent valuations. The valuation techniques and specific considerations for level
3 inputs are explained in detail below. The objective of the valuation techniques is to arrive at a fair value that reflects the
price that would be received to sell the asset or paid to transfer the liability in the market at any given measurement date.

The fair valuation of the financial instruments and its ongoing measurement for financial reporting purposes is ultimately
the responsibility of the finance team which reports to the Chief Financial Officer. The team ensures that final reported fair
value figures are in compliance with Ind AS and will propose adjustments wherever required. When relying on third-party
sources, the team is also responsible for understanding the valuation methodologies and sources of inputs and verifying
their suitability for Ind AS reporting requirements.

B.3 Valuation techniques

B.3A Loan assets carried at fair value through other comprehensive income

Loan receivables valuation is carried out for two portfolios segregated on the basis of repayment frequency - monthly and
weekly. The valuation of each portfolio is done by discounting the aggregate expected future cash flows with risk-adjusted
discounting rate for the remaining portfolio tenor. The discounting factor is applied assuming the cashflows will be evenly
received in a month. The overdue cashflows upto 30days are considered in the sixth month and 31-90 days are considered in
12th month. For Stage 3 loans, the outstanding principal after applying LGD is considered in the 12th month cashflow.

Following inputs have been used to calculate the fair value of loans receivables:

(i) Future cash flows: Include principal receivable, interest receivable and tenor information based on the repayment
schedule agreed with the borrowers.

(ii) Risk-adjusted discount rate: This rate has been arrived using the cost of funds approach.

44. Financial instruments and Fair value disclosures (Contd..)

B.3B Investment in Security Receipts carried at fair value through other comprehensive income

For investment in Security Receipts, the Company has considered the Net Asset Value declared by the Trust.

B.3C Investment in equity instruments carried at fair value through other comprehensive income

For investment in equity instruments, the Company has assessed the fair value on the basis of using a market comparable

book value multiple.

B.3D Investment in government securities carried at fair value through other comprehensive income

For investment in government securities, the Company has assessed the fair value on the basis of the closing price

published by FBIL and are classified as level 1.

B.4 Fair value of instruments measured at amortised cost

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged

in a current transaction between willing parties, other than in a forced or liquidation sale.

(i) The management assessed that fair values of the following financial instruments to be approximate their respective
carrying amounts, largely due to the short-term maturities of these instruments - Cash and cash equivalents, Bank
balances other than cash and cash equivalents, Trade receivables and Other receivables, Trade payables and Other
payables, Other financial assets and liabilities.

(ii) Majority of the Company''s borrowings are at a variable rate interest and hence their carrying values represent best
estimate of their fair value as these are subject to changes in underlying interest rate indices.

(iii) The management assessed that fair values arrived by using the prevailing interest rates at the end of the reporting
periods to be approximate their respective carrying amounts in case of the following financial instruments-Loans,
Lease liabilities and Debt securities.

45. Financial risk management (Contd..)

A Credit risk

Credit risk is the risk that a counterparty fails to discharge its obligation to the Company. The Company''s exposure to credit
risk is influenced mainly by cash and cash equivalents, other bank balances, other receivables, loan assets, investments and
other financial assets. The Company continuously monitors defaults of customers and other counterparties and incorporates
this information into its credit risk controls.

A.1 Credit risk management

The Company assesses and manages credit risk based on internal credit rating system. Internal credit rating is performed
for each class of financial instruments with different characteristics. The Company assigns the following credit ratings to
each class of financial assets based on the assumptions, inputs and factors specific to the class of financial assets.

(i) Low credit risk

(ii) Moderate credit risk

(iii) High credit risk

The Company provides for expected credit loss based on the following:

Based on business environment in which the Company operates, a default on a financial asset is considered when the
counter party fails to make payments within the agreed time period as per contract. Loss rates reflecting defaults are
based on actual credit loss experience and considering differences between current and historical economic conditions.

Assets are written off when there is no reasonable expectation of recovery, such as a borrower become non contactable
or in financial distress or a litigation decided against the Company. The Company continues to engage with parties
whose balances are written off and attempts to enforce repayment. Recoveries made subsequently are recognized in the
statement of profit and loss.

45. Financial risk management (Contd..)

A.3 Management of credit risk for financial assets other than loans
Cash and cash equivalents and bank deposits

Credit risk related to cash and cash equivalents and bank deposits is considered to be very low as the Company only
deals with high rated banks. The risk is also managed by diversifying bank deposits and accounts in different banks
across the country.

Other receivables

The Company faces very less credit risk under this category as most of the transactions are entered with highly rated
organisations and credit risk relating to these are managed by monitoring recoverability of such amounts continuously.

Other financial assets measured at amortised cost

Other financial assets measured at amortised cost includes advances to employees and security deposits. Credit risk
related to these financial assets is managed by monitoring the recoverability of such amounts continuously.

A.5 Management of credit risk for loans

Credit risk on loans is the single largest risk of the Company''s business, and therefore the Company has developed
several processes and controls to manage it. The Company is engaged in the business of providing unsecured
micro finance facilities to women having limited source of income, savings and credit histories repayable in weekly or
monthly instalments.

The Company duly complies with the RBI guidelines (''Non-Banking Financial Company-Micro Finance Institutions’ (NBFC-
MFIs - Directions) with regards to disbursement of loans namely:

- Microfinance loans are given to an individual having annual household income up to INR 3,00,000

- Maximum FOIR (Fixed Obligation to Income Ratio) should be 50%

The credit risk on loans can be further bifurcated into the following elements:

(i) Credit default risk

(ii) Concentration risk

45. Financial risk management (Contd..)

(i) Management of credit default risk:

Credit default risk is the risk of loss arising from a debtor being unlikely to pay the loan obligations in full or
the debtor is more than 90 days past due on any material credit obligation. The Company majorly manages
this risk by following ""joint liability mechanism"" wherein the loans are disbursed to borrowers who form a part
of an informal joint liability group (“JLG”), generally comprising of eight to forty five members. Each member
of the JLG provide a joint and several guarantees for all the loans obtained by each member of the group.
In addition to this, there is set criteria followed by the Company to process the loan applications. Loans are generally
disbursed to the identified target segments which include economically active women having regular cash flow
engaged in the business such as small shops, vegetable vendors, animal husbandry business, tailoring business and
other self-managed business. Out of the people identified out of target segments, loans are only disbursed to those
people who meet the set criterion - both financial and non-financial as defined in the credit policy of the Company.
Some of the criteria include - annual income, repayment capacity, multiple borrowings, age, group composition,
health conditions, and economic activity etc. Some of the segments identified as non-target segments are not eligible
for a loan. Such segments include - wine shop owners, political leaders, police & lawyers, individuals engaged in
the business of running finance & chit funds and their immediate family member or people with criminal records etc.

(ii) Management of concentration risk:

Concentration risk is the risk associated with any single exposure or group of exposures with the potential to produce
large enough losses to threaten Company''s core operations. It may arise in the form of single name concentration or
industry concentration. In order to avoid excessive concentrations of risk, the Company’s policies and procedures
include specific guidelines to focus on maintaining a diversified portfolio. Identified concentration risks are controlled
and managed accordingly.

A.5.1 Credit risk measurement - Expected credit loss measurement

Ind AS 109 outlines a “three stage” model for impairment based on changes in credit quality since initial recognition as

summarised below:

- A financial instrument that is not credit impaired on initial recognition and whose credit risk has not increased
significantly since initial recognition is classified as “Stage 1”.

- If a significant increase in credit risk since initial recognition is identified, the financial instrument is moved to “Stage 2”
but is not yet deemed to be credit impaired.

- If a financial instrument is credit impaired, it is moved to “Stage 3”.

ECL for depending on the stage of financial instrument:

- Financial instrument in Stage 1 have their ECL measured at an amount equal to expected credit loss that results from
default events possible within the next 12 months.

- Instruments in Stage 2 or Stage 3 criteria have their ECL measured on lifetime basis.

A.5.2 Criteria for significant increase in credit risk

The Company considers a financial instrument to have experienced a significant increase in credit risk when one or more

of the following quantitative or qualitative criteria are met.

(i) Quantitative criteria

The remaining lifetime probability of default at the reporting date has increased, compared to the residual lifetime
probability of default expected at the reporting date when the exposure was first recognized. The Company considers
loan assets as Stage 2 when the default in repayment is within the range of 30 to 90 days.

If other qualitative aspects indicate that there could be a delay/default in the repayment of the loans, the Company
assumes that there is significant increase in risk and loan is moved to stage 2.

The Company considers the date of initial recognition as the base date from which significant increase in credit
risk is determined.

A.5.3 Criteria for default and credit-impaired assets

The Company defines a financial instrument as in default, which is fully aligned with the definition of credit-impaired, when
it meets the following criteria:

(i) Quantitative criteria

The Company considers loan assets as Stage 3 when the default in repayment has moved beyond 90 days.

(ii) Qualitative criteria

The Company considers factors that indicate unlikeliness of the borrower to repay the loan which include instances
like the significant financial difficulty of the borrower, borrower deceased or breach of any financial covenants by
the borrower etc

A.5.4 Measuring ECL - explanation of inputs, assumptions and estimation techniques

Expected credit losses are the discounted product of the probability of default (PD), exposure at default (EAD) and loss
given default (LGD), defined as follows:

- PD represents the likelihood of the borrower defaulting on its obligation either over next 12 months or over the
remaining lifetime of the instrument.

- EAD is based on the amounts that the Company expects to be owed at the time of default over the next 12 months
or remaining lifetime of the instrument.

- LGD represents the Company’s expectation of loss given that a default occurs. LGD is expressed in percentage and
remains unaffected from the fact that whether the financial instrument is a Stage 1 asset, or Stage 2 or even Stage 3.
However, it varies by type of borrower, availability of security or other credit support.

Probability of default (PD) computation model

The Probability of Default is an estimate of the likelihood of default over a given time horizon. A default may only happen
at a certain time over the assessed period, if the facility has not been previously derecognised and is still in the portfolio.

Loss given default (LGD) computation model

The loss rate is the likely loss intensity in case a borrower defaults. It provides an estimation of the exposure that cannot
be recovered in the event of a default and thereby captures the severity of the loss. The loss rate is computed by factoring
the main drivers for losses (e.g. joint group liability mechanism, historical recoveries trends etc.) and arriving at the
replacement cost.

A.6.1 Credit enhancements

The assessment of significant increase in risk and the calculation of ECL both incorporate forward-looking information.

The Company has evaluated that the analysis of forward-looking information reveal that the scenario applicable to the

Company is “Base Case Scenario” which assumes that the Macroeconomic conditions are normal and is similar to

previous periods. In this case normal credit rating and corresponding PD & LGD is considered for ECL computation.

A.7 Loss allowance

The loss allowance recognized in the period is impacted by a variety of factors, as described below:

- Transfers between Stage 1 and Stages 2 or 3 due to financial instruments experiencing significant increases (or
decreases) of credit risk or becoming credit-impaired in the period, and the consequent “step up” (or “step down”)
between 12-month and Lifetime ECL.

- Additional allowances for new financial instruments recognized during the period, as well as releases for financial
instruments de-recognized in the period

- Impact on the measurement of ECL due to changes in PDs, EADs and LGDs in the period, arising from regular
refreshing of inputs to models

- Financial assets derecognised during the period and write-offs of allowances related to assets that were written off
during the period

The microfinance sector in India faced many challenges during the financial year 2024-25. The overall market conditions
are improving but has impacted the portfolio quality and performance. Following are the major factors contributed
to the impacts.

Industry level challenges:

We have witnessed a rapid industry growth post-pandemic recovery has led to over-heating in the segment. Increased
competition among MFIs for market share, causing stress on lending practices and risk management. This has resulted
in increased leverage among the Microfinance lenders in terms of portfolio outstanding and number of lenders. Isolated
political movements and local unrest have disrupted normal economic activities in certain regions. We have seen revival of
Karza Mukti related activities which led to prolonged nancial instability in affected areas. Centre and borrower disciplines
is taking time to fall in place; leading to higher time consumption for Regular collections. MFIs are focusing on collections
to reduce delinquency rates, further limiting new loan disbursements. This has impacted the credit availability among the
borrowers, which disrupted the customer cash flows and face challenges in maintaining repayments. Self-Regulatory
Organizations (SROs) have implemented guardrails to control the delinquency situation and aggressive lending practices
in sector. This has brought in necessary discipline in the sector.

Karnataka Crisis:

The micronance sector in Karnataka has been affected by The Karnataka Micro Loan and Small Loan (Prevention of
Coercive Actions) Ordinance, 2025, an initiative by the state government. The act is to prevent un-registered money
lenders in the state and against coercive collection practices. The act is expected to help the MFI Industry and registered
regulated entities on a long-term basis but had made disruptions in the short term. This has contributed to uctuations in
portfolio performance; though the same peaked in February 2025, the same is currently getting resolved gradually with
improved portfolio performance in March 2025.

A.7.2 In respect of loans granted by the Company -

i) The schedule of repayment of principal and payment of interest has been duly stipulated and the repayments of
principal amounts and receipts of interest have generally been regular as per repayment schedules except for
433,296 cases having loan outstanding balance at year end aggregating to H 9,355.05 Million wherein the repayments
of principal and interest are not regular; and

ii) The total amount overdue for more than 90 days as at the balance sheet date are H 942.90 Million (Principal amount
H 744.42 Million and Interest amount H 198.48 Million) for 238,391 cases. Necessary steps are being taken by the
Company for recovery thereof.

A.9 Write off policy

The Company writes off financial assets, in whole or in part, when it has exhausted all practical recovery efforts and has
concluded there is no reasonable expectation of recovery.

Indicators that there is no reasonable expectation of recovery include:

- Ceasing enforcement activity

- Where the Company''s recovery method is foreclosing and there is no reasonable expectation of recovery in full.

- Specific identification by Management

The Company may write off financial assets that are still subject to enforcement activity. The outstanding contractual
amounts of such assets written off during the year ended March 31, 2025 was INR 3,320.42 million (March 31, 2024:
INR 1,319.20 million). The Company still seeks to recover amounts it is legally owed in full, but which have been partially
written off due to no reasonable expectation of full recovery.

B 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 as far
as possible, that it will have sufficient liquidity to meet its liabilities when they are due. Management monitors rolling forecasts
of the Company''s liquidity position and cash and cash equivalents on the basis of expected cash flows. The Company takes
into account the liquidity of the market in which the entity operates.

C.2 Assets

The Company’s fixed deposits are carried at amortised cost and are fixed rate deposits. The Company''s loan assets are
at fixed interest rate. They are therefore not subject to interest rate risk as defined in Ind AS 107, since neither the carrying
amount nor the future cash flows will fluctuate because of a change in market interest rates.

C.3 Foreign Exchange Rate Risk

In the normal course of its business, the Company does not deal in foreign exchange in a significant way. Any foreign
exchange exposure on account of foreign exchange borrowings is fully hedged to safeguard against exchange rate risk.
The Company’s treasury risk management policy covers the framework for managing currency risk including hedging. The
Company determines hedge effectiveness for hedging instrument at the inception of the hedge relationship and through
periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item
and hedging instrument. The Company enters into hedge relationships where the critical terms of the hedging instrument
match with the terms of the hedged item, and so a qualitative and quantitative assessment of effectiveness is performed.

Exposure to currency risks

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes
in foreign currency rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primary to the
foreign currency borrowings taken from banks and External Commercial Borrowings (ECB).

In order to minimise any adverse effects on the financial performance of the Company, derivative financial instruments,
such as cross currency interest rate swaps and forwards contracts are entered to hedge certain foreign currency risk
exposures and variable interest rate exposures, the Company’s central treasury department identifies, evaluates and
hedges financial risks in close co- operation with the Company’s operating units.

The Company follows a conservative policy of hedging its foreign currency exposure through Forwards and / or Cross
Currency Interest Rate Swaps in such a manner that it has fixed determinate outflows in its functional currency and as
such there would be no significant impact of movement in foreign currency rates on the Company''s profit before tax
(PBT) and equity.

45. Financial risk management (Contd..)

Since the Company has entered into derivative transaction to hedge this borrowing, the Company is not exposed to any currency
risk on this borrowing.

C.4 Hedging activities and derivatives

Derivatives designated as hedging instruments

The foreign currency and interest rate risk on borrowings have been actively hedged through cross currency
interest rate swaps.

The Company is exposed to interest rate risk arising from its foreign currency borrowings amounting to USD 154.67 Million
(March 31, 2024 USD 60 Million ). Interest on the borrowing is payable at a floating rate linked to SOFR. The Company
hedged the interest rate risk arising from the debt with a ‘receive floating pay fixed’ cross currency interest rate swap.

The Company uses Cross Currency Interest Rate Swaps (IRS) Contracts (Floating to Fixed) to hedge its risks associated
with interest rate and currency fluctuations arising from external commercial borrowings. The Company designates such
contracts in a cash flow hedging relationship by applying the hedge accounting principles as per IND AS. These contracts
are stated at fair value at each reporting date.

The Company uses Critical Terms Matching to determine Hedge effectiveness. If the hedge is ineffective, then the
movement in the Fair Value is charged to the Statement of Profit and Loss. If the hedge is effective, the movement in the
Fair Value of the underlying and the derivative instrument is transferred to “Other Comprehensive Income” in Other Equity.

There is an economic relationship between the hedged item and the hedging instrument as the critical terms of the Cross
Currency Interest Rate Swaps match that of the foreign currency borrowings (notional amount, interest payment dates,
principal repayment date etc.). The Company has established a hedge ratio of 1:1 for the hedging relationships as the
underlying risk of the Cross currency interest rate swaps are identical to the hedged risk components.

For the year ended 31 March 2025, the Company has reassessed the accounting treatment and has applied cash flow
hedge accounting, with the effective portion of changes in fair value of the derivative instruments recognised in Other
Comprehensive Income (OCI) under the hedge reserve.

Based on a materiality assessment, the Company did not apply hedge accounting in the financial statements for the year
ended March 31, 2024, and March 31, 2023, even though the hedge relationship met the eligibility criteria under Ind AS
109. However, the Company had prepared the required hedge documentation, including identification of hedged items,
hedging instruments, risk management strategy, and method of assessing hedge effectiveness, at the inception of the
hedge relationship. Accordingly, the comparative figures for the previous financial year have not been restated. Resultant
impact of cash flow hedge accounting in Other Comprehensive Income (OCI) under the hedge reserve is Rs.19.83
millions for the previous year ended March 31,2024.

D Operational Risk

Operational risk is the risk arising from inadequate or failed internal processes, people or systems, or from external events.
The Company manages operational risks through comprehensive internal control systems and procedures laid down
around various key activities in the Company viz. loan acquisition, customer service, IT operations, finance function etc.
This enables the Management to evaluate key areas of operation risks and the process to adequately mitigate them on
an ongoing basis.<

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Mar 31, 2024

(i) There are no repatriation restrictions with respect to cash and cash equivalents as at the end of the reporting period and prior years.

(ii) Short-term deposits are made for varying periods of between seven days and three months, depending on the immediate cash requirements of the company, and to earn interest at the respective short-term deposit rates.

(iii) The company has not taken bank overdraft, therefore the cash and cash equivalents for cash flow statement is same as for cash and cash equivalents.

(i) There are no repatriation restrictions with respect to bank balances other than cash and cash equivalents as at the end of the reporting period and prior years.

(ii) The Company earns a fixed rate of interest on these term deposits.

(iii) Term deposits amounting to INR 5,957.35 millions (March 31, 2023: INR 3,908.44 millions ) are held as pledged against borrowings and other commitments.

(i) Rights, preferences and restrictions attached to equity shares:

The company has equity shares having a par value of H10 per share. Each holder of equity shares is entitled to one vote per share. The company declares and pays dividend in Indian Rupees. The dividend proposed by the Board of Directors in any financial year is subject to the approval of the shareholders in the ensuing annual general meeting, except interim dividend. In the event of liquidation of the company, the holders of equity shares will be entitled to receive remaining assets of the company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

Nature and purpose of reserves

Securities premium reserve

Securities premium reserve is used to record the premium on issue of shares. The reserve can be utilised only for limited purposes such as issuance of bonus shares in accordance with the provisions of the Companies Act, 2013.

Reserve fund u/s 45-IC of RBI Act 1934

The company creates a reserve fund in accordance with the provisions of section 45-IC of the Reserve Bank of India Act, 1934 and transfers therein an amount equal to/more than twenty per cent of its net profit of the year, before declaration of dividend. Accordingly, during the period, the Company has transferred an amount of INR 899.17 million (March 31,2023: INR 327.78 million).

Employee stock options outstanding

The account is used to recognise the grant date value of options issued to employees under Employee stock option plan and adjusted as and when such options are exercised or otherwise expire.

Loan assets through other comprehensive income

The Company recognises changes in the fair value of loan assets held with business objective of collect and sell in other comprehensive income. These changes are accumulated within the FVOCI debt investments reserve within equity. The company transfers amounts from this reserve to the statement of profit and loss when the loan assets are sold. Any impairment loss on such loans are reclassified immediately to the statement of profit and loss.

(a) Gratuity is payable to the employees on death or resignation or on retirement at the attainment of superannuation age.

(b) These assumptions were developed by management with the assistance of independent actuarial appraisers. Discount factors are determined close to each year-end by reference to government bonds and that have terms to maturity approximating to the terms of the related obligation. Other assumptions are based on management’s historical experience.

(c) The discount rate is based on the prevailing market yield of Government of India bonds as at the balance sheet date for the estimated terms of obligations.

(d) The estimates of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors.

The above sensitivity analysis is based on a change an assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied which was applied while calculating the defined benefit obligation liability recognised in the balance sheet.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to previous year.

B. Compensated absence

(i) The Company provides encashment of compensated absence based on the approved Company policy. Employees whose service is permanent will be eligible for privilege of compensated absence on calendar year basis, and it is mandatory that a minimum of 5 leaves need to be taken in an year.

(a) Encashment of compensated absence is payable to the employees on death or resignation or on retirement at the attainment of superannuation age, and it is not applicable on termination and unserved notice period of an employee.

(b) These assumptions were developed by management with the assistance of independent actuarial appraisers. Discount factors are determined close to each year-end by reference to government bonds and that have terms to maturity approximating to the terms of the related obligation. Other assumptions are based on management’s historical experience.

(c) The discount rate is based on the prevailing market yield of Government of India bonds as at the balance sheet date for the estimated terms of obligations.

(d) The estimates of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors.

The above sensitivity analysis is based on a change an assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied which was applied while calculating the defined benefit obligation liability recognised in the balance sheet.

39 Contingent liabilities and commitments

Credit enhancements provided by the Company towards securitisation transactions aggregate to INR 5,498.00 million (March 31, 2023: INR 3,381.96 million).

B Fair values hierarchy

The fair value of financial instruments as referred to in note ''A'' above has been classified into three categories depending on the inputs used in the valuation technique. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities [Level 1 measurements] and lowest priority to unobservable inputs [Level 3 measurements].

The categories used are as follows:

Level 1: Quoted prices (unadjusted) for identical instruments in an active market;

Level 2: Directly (i.e. as prices) or indirectly (i.e. derived from prices) observable market inputs, other than Level 1 inputs; and Level 3: Inputs which are not based on observable market data (unobservable inputs).

B.1 Valuation framework

Loan assets carried at fair value through other comprehensive income are categorized in Level 3 of the fair value hierarchy.

The Company''s fair value methodology and the governance over its models includes a number of controls and other procedures to ensure the quality and adequacy of the fair valuation. In order to arrive at the fair value of the above instruments, the Company obtains independent valuations. The valuation techniques and specific considerations for level 3 inputs are explained in detail below. The objective of the valuation techniques is to arrive at a fair value that reflects the price that would be received to sell the asset or paid to transfer the liability in the market at any given measurement date.

The fair valuation of the financial instruments and its ongoing measurement for financial reporting purposes is ultimately the responsibility of the finance team which reports to the Chief Financial Officer. The team ensures that final reported fair value figures are in compliance with Ind AS and will propose adjustments wherever required. When relying on third-party sources, the team is also responsible for understanding the valuation methodologies and sources of inputs and verifying their suitability for Ind AS reporting requirements.

B.3 Valuation techniques

B.3A Loan assets carried at fair value through other comprehensive income

Loan receivables valuation is carried out for two portfolios segregated on the basis of repayment frequency - monthly and weekly. The valuation of each portfolio is done by discounting the aggregate future cash flows with risk-adjusted discounting rate for the remaining portfolio tenor.

Following inputs have been used to calculate the fair value of loans receivables:

(i) Future cash flows: Include principal receivable, interest receivable and tenor information based on the repayment schedule agreed with the borrowers.

(ii) Risk-adjusted discount rate: This rate has been arrived using the cost of funds approach.

B.4 Fair value of instruments measured at amortised cost

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

(i) The management assessed that fair values of the following financial instruments to be approximate their respective carrying amounts, largely due to the short-term maturities of these instruments:

Cash and cash equivalents

Bank balances other than cash and cash equivalents Other receivables Other payables

Other financial assets and liabilities

(ii) Majority of the Company''s borrowings are at a variable rate interest and hence their carrying values represent best estimate of their fair value as these are subject to changes in underlying interest rate indices.

(iii) The management assessed that fair values arrived by using the prevailing interest rates at the end of the reporting periods to be approximate their respective carrying amounts in case of the following financial instruments-

Loans

Lease liabilities Debt securities

Q i i I''-v/''-v rri i I i o T''x i I i i

Credit risk is the risk that a counterparty fails to discharge its obligation to the Company. The Company''s exposure to credit risk is influenced mainly by cash and cash equivalents, other bank balances, other receivables, loan assets, investments and other financial assets. The Company continuously monitors defaults of customers and other counterparties and incorporates this information into its credit risk controls.

A.1 Credit risk management

The Company assesses and manages credit risk based on internal credit rating system. Internal credit rating is performed for each class of financial instruments with different characteristics. The Company assigns the following credit ratings to each class of financial assets based on the assumptions, inputs and factors specific to the class of financial assets:

(i) Low credit risk

(ii) Moderate credit risk

(iii) High credit risk

Based on business environment in which the Company operates, a default on a financial asset is considered when the counter party fails to make payments within the agreed time period as per contract. Loss rates reflecting defaults are based on actual credit loss experience and considering differences between current and historical economic conditions.

Assets are written off when there is no reasonable expectation of recovery, such as a borrower become non contactable or in financial distress or a litigation decided against the Company. The Company continues to engage with parties whose balances are written off and attempts to enforce repayment. Recoveries made subsequently are recognized in the statement of profit and loss.

A.3 Management of credit risk for financial assets other than loans

Cash and cash equivalents and bank deposits

Credit risk related to cash and cash equivalents and bank deposits is considered to be very low as the Company only deals with high rated banks. The risk is also managed by diversifying bank deposits and accounts in different banks across the country.

Other receivables

The Company faces very less credit risk under this category as most of the transactions are entered with highly rated organisations and credit risk relating to these are managed by monitoring recoverability of such amounts continuously.

Other financial assets measured at amortised cost

Other financial assets measured at amortised cost includes advances to employees and security deposits. Credit risk related to these financial assets is managed by monitoring the recoverability of such amounts continuously.

A.5 Management of credit risk for loans

Credit risk on loans is the single largest risk of the Company''s business, and therefore the Company has developed several processes and controls to manage it. The Company is engaged in the business of providing unsecured micro finance facilities to women having limited source of income, savings and credit histories repayable in weekly or monthly instalments.

The Company duly complies with the RBI guidelines (''Non-Banking Financial Company-Micro Finance Institutions’ (NBFC-MFIs - Directions) with regards to disbursement of loans namely:

- Microfinance loans are given to an individual having annual household income up to INR 3,00,000

- Maximum FOIR (Fixed Obligation to Income Ratio) should be 50%

The credit risk on loans can be further bifurcated into the following elements:

(i) Credit default risk

(ii) Concentration risk

(i) Management of credit default risk:

Credit default risk is the risk of loss arising from a debtor being unlikely to pay the loan obligations in full or the debtor is more than 90 days past due on any material credit obligation. The Company majorly manages this risk by following ""joint liability mechanism"" wherein the loans are disbursed to borrowers who form a part of an informal joint liability group (“JLG”), generally comprising of eight to forty five members. Each member of the JLG provide a joint and several guarantees for all the loans obtained by each member of the group.

In addition to this, there is set criteria followed by the Company to process the loan applications. Loans are generally disbursed to the identified target segments which include economically active women having regular cash flow engaged in the business such as small shops, vegetable vendors, animal husbandry business, tailoring business and other self-managed business. Out of the people identified out of target segments, loans are only disbursed to those people who meet the set criterion - both financial and non-financial as defined in the credit policy of the Company. Some of the criteria include - annual income, repayment capacity, multiple borrowings, age, group composition, health conditions, and economic activity etc. Some of the segments identified as non-target segments are not eligible for a loan. Such segments include - wine shop owners, political leaders, police & lawyers, individuals engaged in the business of running finance & chit funds and their immediate family member or people with criminal records etc.

(ii) Management of concentration risk:

Concentration risk is the risk associated with any single exposure or group of exposures with the potential to produce large enough losses to threaten Company’s core operations. It may arise in the form of single name concentration or industry concentration. In order to avoid excessive concentrations of risk, the Company’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentration risks are controlled and managed accordingly.

A.5.1 Credit risk measurement - Expected credit loss measurement

Ind AS 109 outlines a “three stage” model for impairment based on changes in credit quality since initial recognition as summarised below:

- A financial instrument that is not credit impaired on initial recognition and whose credit risk has not increased significantly since initial recognition is classified as “Stage 1”.

- If a significant increase in credit risk since initial recognition is identified, the financial instrument is moved to “Stage 2” but is not yet deemed to be credit impaired.

- If a financial instrument is credit impaired, it is moved to “Stage 3”.

ECL for depending on the stage of financial instrument:

- Financial instrument in Stage 1 have their ECL measured at an amount equal to expected credit loss that results from default events possible within the next 12 months.

- Instruments in Stage 2 or Stage 3 criteria have their ECL measured on lifetime basis.

A.5.2 Criteria for significant increase in credit risk

The Company considers a financial instrument to have experienced a significant increase in credit risk when one or more of the following quantitative or qualitative criteria are met.

(i) Quantitative criteria

The remaining lifetime probability of default at the reporting date has increased, compared to the residual lifetime probability of default expected at the reporting date when the exposure was first recognized. The Company considers loan assets as Stage 2 when the default in repayment is within the range of 30 to 90 days.

(ii) Qualitative criteria

If other qualitative aspects indicate that there could be a delay/default in the repayment of the loans, the Company assumes that there is significant increase in risk and loan is moved to stage 2.

The Company considers the date of initial recognition as the base date from which significant increase in credit risk is determined.

A.5.3 Criteria for default and credit-impaired assets

The Company defines a financial instrument as in default, which is fully aligned with the definition of credit-impaired, when it meets the following criteria:

(i) Quantitative criteria

The Company considers loan assets as Stage 3 when the default in repayment has moved beyond 90 days.

(ii) Qualitative criteria

The Company considers factors that indicate unlikeliness of the borrower to repay the loan which include instances like the significant financial difficulty of the borrower, borrower deceased or breach of any financial covenants by the borrower etc

A.5.4 Measuring ECL - explanation of inputs, assumptions and estimation techniques

Expected credit losses are the discounted product of the probability of default (PD), exposure at default (EAD) and loss given default (LGD), defined as follows:

- PD represents the likelihood of the borrower defaulting on its obligation either over next 12 months or over the remaining lifetime of the instrument.

- EAD is based on the amounts that the Company expects to be owed at the time of default over the next 12 months or remaining lifetime of the instrument.

- LGD represents the Company’s expectation of loss given that a default occurs. LGD is expressed in percentage and remains unaffected from the fact that whether the financial instrument is a Stage 1 asset, or Stage 2 or even Stage 3. However, it varies by type of borrower, availability of security or other credit support.

Probability of default (PD) computation model

The Probability of Default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognised and is still in the portfolio.

Loss given default (LGD) computation model

The loss rate is the likely loss intensity in case a borrower defaults. It provides an estimation of the exposure that cannot be recovered in the event of a default and thereby captures the severity of the loss. The loss rate is computed by factoring the main drivers for losses (e.g. joint group liability mechanism, historical recoveries trends etc.) and arriving at the replacement cost.

The assessment of significant increase in risk and the calculation of ECL both incorporate forward-looking information.

The Company has evaluated that the analysis of forward-looking information reveal that the scenario applicable to the

Company is "Base Case Scenario" which assumes that the that Macroeconomic conditions are normal and is similar to

previous periods. In this case normal credit rating and corresponding PD & LGD is considered for ECL computation.

A.7 Loss allowance

The loss allowance recognized in the period is impacted by a variety of factors, as described below:

- Transfers between Stage 1 and Stages 2 or 3 due to financial instruments experiencing significant increases (or decreases) of credit risk or becoming credit-impaired in the period, and the consequent “step up” (or “step down”) between 12-month and Lifetime ECL.

- Additional allowances for new financial instruments recognized during the period, as well as releases for financial instruments de-recognized in the period

- Impact on the measurement of ECL due to changes in PDs, EADs and LGDs in the period, arising from regular refreshing of inputs to models

- Financial assets derecognised during the period and write-offs of allowances related to assets that were written off during the period

A. 9 Write off policy

The Company writes off financial assets, in whole or in part, when it has exhausted all practical recovery efforts and has concluded there is no reasonable expectation of recovery.

Indicators that there is no reasonable expectation of recovery include:

- Ceasing enforcement activity

- Where the Company''s recovery method is foreclosing and there is no reasonable expectation of recovery in full.

- Specific identification by Management

The Company may write off financial assets that are still subject to enforcement activity. The outstanding contractual amounts of such assets written off during the year ended March 31, 2024 was INR 1,319.20 million (March 31, 2023: INR 1,402.81 million). The Company still seeks to recover amounts it is legally owed in full, but which have been partially written off due to no reasonable expectation of full recovery.

B 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 as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due. Management monitors rolling forecasts of the Company''s liquidity position and cash and cash equivalents on the basis of expected cash flows. The Company takes into account the liquidity of the market in which the entity operates.

B. 1 Maturities of financial liabilities

The tables below analyse the Company financial liabilities into relevant maturity groupings based on their contractual maturities.

C Market risk - Interest rate risk C.1 Liabilities

The Company’s policy is to minimize interest rate cash flow risk exposures on long-term financing. At March 31,2023, the Company is exposed to changes in market interest rates through borrowings at variable interest rates.

C.2 Assets

The Company’s fixed deposits are carried at amortised cost and are fixed rate deposits. The Company''s loan assets are at fixed interest rate. They are therefore not subject to interest rate risk as defined in Ind AS 107, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.

42 Capital management

The Company’s capital management objectives are

- to ensure the Company’s ability to continue as a going concern

- to provide an adequate return to shareholders

Management assesses the Company’s capital requirements in order to maintain an efficient overall financing structure while avoiding excessive leverage. This takes into account the subordination levels of the Company’s various classes of debt. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure the Company may issue new shares, or sell assets to reduce debt.

43 Share based payments

The Company has implemented Employee Stock Option Plan under Muthoot Microfin Employee Stock Option Plan 2016 ("ESOP 2016") and Muthoot Microfin Limited Employee Stock Option Plan 2022 ("ESOP 2022"). The objective is to reward employees for their association with the Company, their performance as well as to attract, retain and motivate employees to contribute to the growth and profitability of the Company.

44 Operating segments

The company is primarily engaged in business of micro finance and the business activity falls within one operating segment, as this is how the chief operating decision maker of the Company looks at the operations. All activities of the Company revolve around the main business. Hence the disclosure requirement of Indian Accounting Standard 108 of “Segment Reporting” is not considered applicable.

45 Transfer of financial assets

Transferred financial assets that are derecognised in their entirety

During the year ended March 31, 2024, the Company has sold some loans and advances measured at fair value through other comprehensive income as per assignment deals, as a source of finance. As per the terms of these deals, since substantial risks and rewards related to these assets were transferred to the buyer, the assets have been derecognised from the Company’s balance sheet.

The Company has assessed the business model under Ind AS 109 "Financial Instruments" and consequently the financial assets are measured at fair value through other comprehensive income.

The gross carrying value of the loan assets derecognised during the year ended March 31,2024 amounts to INR 27,133.93 millions (March 31, 2023: INR 18,322.48 millions) and the gain from derecognition during the year ended March 31, 2024 amounts to INR 2,231.66 millions (March 31,2023: INR 1,363.16 millions)

Transferred financial assets that are not derecognised in their entirety

In the course of its micro finance or lending activity, the company makes transfers of financial assets, where legal rights to the cash flows from the asset are passed to the counterparty and where the company retains the rights to the cash flows but assumes a responsibility to transfer them to the counterparty.

Other receivables are non-interest bearing and are generally on terms of 30 to 90 days. During the year ended March 31, 2024 an amount of Nil (March 31, 2023: Nil) was recognised as provision for expected credit losses on other receivable.

Revenue recognition for contract with customers - Commission income:

The Contract with customers through which the Company earns a commission income includes the following promises:

(i) Sourcing of loans

(ii) Servicing of loans

Both these promises are separable from each other and do not involve significant integration. Therefore, these promises constitute

separate performance obligations.

No allocation of the consideration between both the promises was required as the management believes that the contracted price

are close to the standalone fair value of these services.

Revenue recognition for both the promises:

(i) Sourcing of loans: The consideration for this service is arrived based on an agreed percentage/fee on the loans disbursed during the year. Revenue for sourcing of loans shall be recognized as and when the loans are disbursed. The revenue therefore, for this service, shall be recognized based on the disbursements actually made during each year.

(ii) Servicing of loans: The consideration for this service is arrived based on an agreed percentage on the actual collections during the year. The Company receives servicing commission only on actual collections. Revenue for servicing of loans shall be recognized over a period of time, as the customer benefits from the services as and when it is delivered by the Company. However, since the Company has a right to consideration from a customer in an amount that corresponds directly with the value of service provided to date, applying the practical expedient available under the standard, the Company shall recognise revenue for the amount to which it has a right to invoice.

49 Additional Regulatory information as per amendments in Schedule III of Companies Act, 2013 (MCA notification dated March 24, 2021)

(i) The Company doesn''t have any immovable property whose title deeds are not held in the name of the Company.

(ii) Investments made by the Company is carried at amortized cost in the financials.

(iii) The Company has not revalued its Property, Plant and Equipment (including Right-of-Use Assets) during the year or previous year.

(iv) The Company has not revalued its intangible assets during the year or previous year.

(v) The Company has not given any loans or advances in the nature of loans to promoters, directors, KMPs and the related parties (as defined under Companies Act, 2013), either severally or jointly with any other person, that are a) repayable on demand; or b) without specifying any terms or year of repayment.

(vi) Capital Work in Progress & Intangible Assets under Development are nil for current year and Previous year.

(vii) The company doen''t hold any benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and rules made thereunder and no proceedings have been initiated or pending against the company for the same.

(viii) The Company has not made any default in repayment of its financial obligations and is not declared wilful defaulter by any bank or financial Institution or other lender.

(ix) The company has reviewed transactions to identify if there are any transactions with companies struck off under section 248 of the Companies Act, 2013 or section 560 of Companies Act, 1956. To the extent information is available on struck off companies, there are no transaction with struck off companies.

(x) There is no charges or satisfaction to be registered with ROC beyond the statutory period.

(xi) The Company has complied with the number of layers prescribed under clause (87) of section 2 of the Act read with the Companies (Restriction on number of Layers) Rules, 2017.

(xii) Company has not traded/invested in crypto currency or virtual currency during the current year and previous year.

(xiii) The Company has not advanced or loaned or invested funds (either borrowed funds or share premium or any other sources or kind of funds) to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding (whether recorded in writing or otherwise) that the Intermediary shall

(a) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (Ultimate Beneficiaries) or

(b) provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries.

(xiv) The Company has not received any fund from any person(s) or entity(ies), including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the company shall

(a) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or

(b) provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

(xv) Liquidity Coverage Ratio:-

The Company follows the criteria laid down by RBI for calculation of High Quality Liquid Assets (HQLA), gross outflows and inflows within the next 30-day period. HQLA predominantly comprises cash and balance with other banks in current account. All significant outflows and inflows determined in accordance with RBI guidelines are included in the prescribed LCR computation template.

50 The Company have accounting software to manage its books of account, incorporating an audit trail (edit log) feature. This feature is consistently utilized throughout the year for all transactions recorded in the software, and backup is taken periodically of these transactions. Additionally, measures are in place to establish necessary controls aimed at preventing or identifying any tampering with the audit trail feature.

(ii) Investments

The Investment of the company as on March 31, 2024 : INR 467.09 million (March 31, 2023: INR 633.59 Million). (Refer Note -6)

(iii) Derivatives

The Company has no transactions / exposure in derivatives in the current and previous years.

The Company has no unhedged foreign currency exposure as on March 31, 2024 (March 31, 2023: Nil).

(vii) Details of non-performing financial assets purchased/sold

The Company has not purchased /sold non-performing financial assets in the current and previous year, except the sale of non performing assets to Asset Reconstruction Company as mentioned in Note 50 (A)(v).

(viii) Exposures:-

The Company has no exposure to the real estate sector and capital market directly or indirectly in the current and previous year.

There is no intra group exposure in the current and previous year.

(ix) Details of financing of parent company products

The Company does not finance the products of the parent / holding company.

(x) Unsecured advances

The Company has not given any Loans and advances against intangible securities during the current and previous year

(xi) Registration obtained from other financial sector regulators:-

The Company is not registered with any other financial sector regulators.

(xii) Disclosure of Penalties imposed by RBI & other regulators:-

No penalty has been imposed by RBI or any other lending institutions in connection with any lending arrangements during current and previous year.

(xiii) Draw down from reserves:-

There has been no draw down from reserve during the period ended March 31,2024 (31 March 2023: Nil).

(xiv) Divergence in Asset classification and provisioning:-

There is no Divergence assessed by Reserve Bank of India.

(e) Institutional set-up for liquidity risk management

The Board has the overall responsibility for management of liquidity risk. The Company has a risk management committee responsible for evaluating the overall risks faced by the Company including liquidity risk. The asset liability management committee is also responsible for ensuring adherence to the risk tolerance and implementing the liquidity risk management strategy.

(xxviii) Breach of Covenant:-

There was no breach of covenants of loans availed or debt securities issued by the Company during the year ended March 31, 2024.

During preceding year ended March 31,2023, there was a delay of two days for the interest payment of Rs.64.86 million towards ISIN- INE046W07180. As that payment was made within the curing period, it has not been considered as default as per terms of the respective agreement. Also, there were three cases of non-compliance of key performance indicators as required by the lenders and the company has got the waiver confirmation from them.

(xxix) Details of Single Borrower Limit (SGL) / Group Borrower Limit (GBL) exceeded by the NBFC

The Company did not exceed the limits prescribed for single and group borrower during the current and previous year.

(xxx) Overseas assets

The Company did not have any joint ventures and subsidiaries abroad.

(xxxi) Off-balance sheet SPVs sponsored

There are no off-balance sheet SPVs sponsored which are required to be consolidated as per accounting norms as at end of current and previous year.

53 Previous year''s figures have been regrouped and reclassified, wherever necessary to conform to current year''s presentation / classification.

---

Mar 31, 2023

(i) There are no repatriation restrictions with respect to cash and cash equivalents as at the end of the reporting year and prior years.

(ii) Short-term deposits are made for varying periods of between seven days and three months, depending on the immediate cash requirements of the company, and to earn interest at the respective short-term deposit rates.

(iii) The company has not taken bank overdraft, therefore the cash and cash equivalents for cash flow statement is same as for cash and cash equivalents.

(i) There are no repatriation restrictions with respect to bank balances other than cash and cash equivalents as at the end of the reporting year and prior years.

(ii) The Company earns a fixed rate of interest on these term deposits.

(iii) Term deposits amounting to INR 3,908.44 millions (March 31,2022: INR 2,911.19 millions ) are held as pledged against borrowings and other commitments.

The company has equity shares having a par value of 3 10 per share. Each holder of equity shares is entitled to one vote per share. The company declares and pays dividend in Indian Rupees. The dividend proposed by the Board of Directors in any financial year is subject to the approval of the shareholders in the ensuing annual general meeting, except interim dividend. In the event of liquidation of the company, the holders of equity shares will be entitled to receive remaining assets of the company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders. The equity shares shall be transferable subject to the provisions contained in the articles of association and in the agreements entered / to be entered into with the investors / shareholders from time to time.

The company has issued Compulsorily Convertible Preference Shares (CCPS) having a par value of 3 10 per share. Each holder of CCPS is entitled to one vote per Equity Share on an As Converted Basis (with the Share Capital being calculated on an As Converted Basis). The holders of the CCPS shall be entitled to receive on their respective CCPS, a cumulative dividend at the rate of 0.001% (zero point zero zero one per-cent) of the face value of each CCPS per annum. The Company shall convert all the CCPS into Equity Shares if at any time the Company proposes to undertake a Qualified IPO.

Note: The Company has issued 26,66,647 equity shares and 41,98,527 Compulsory Convertible Preference Shares (CCPS) (Both fully Paid up) during the Financial Year 2022-23.

(vii) The Company has neither issued any bonus shares nor has there been any buy-back of shares in the current year and five years immediately preceding the balance sheet date.

(ix) Refer note 43 for disclosures related to capital management of the company.

Nature and purpose of reserves Securities premium reserve

Securities premium reserve is used to record the premium on issue of shares. The reserve can be utilised only for limited purposes such as issuance of bonus shares in accordance with the provisions of the Companies Act, 2013.

Reserve fund u/s 45-IC of RBI Act 1934

The company creates a reserve fund in accordance with the provisions of section 45-IC of the Reserve Bank of India Act, 1934 and transfers therein an amount of equal to/more than twenty per cent of its net profit of the year, before declaration of dividend. Accordingly, during the year, the Company has transferred an amount of INR 327.78 million (March 31,2022: INR 94.80 million).

Employee stock options outstanding

The account is used to recognise the grant date value of options issued to employees under Employee stock option plan and adjusted as and when such options are exercised or otherwise expire.

Loan assets through other comprehensive income

The Company recognises changes in the fair value of loan assets held with business objective of collect and sell in other comprehensive income. These changes are accumulated within the FVOCI debt investments reserve within equity. The company transfers amounts from this reserve to the statement of profit and loss when the loan assets are sold. Any impairment loss on such loans are reclassified immediately to the statement of profit and loss.

Retained earnings

All the profits or losses made by the company are transferred to retained earnings from statement of profit and loss. Treasury shares

Treasury shares represents company''s own equity shares held by employee welfare trust.

General reserve

Represents the profits or losses made by the employee welfare trust on account of issue or sale of treasury stock.

A. Gratuity

(i) The Company provides for gratuity for employees in India as per the Payment of Gratuity Act, 1972. Employees who are in continuous service for a period of 5 years are eligible for gratuity. The amount of gratuity payable on retirement/termination is the employee''s last drawn basic salary per month computed proportionately for 15 days multiplied by the number of years of service.

(a) Gratuity is payable to the employees on death or resignation or on retirement at the attainment of superannuation age.

(b) These assumptions were developed by management with the assistance of independent actuarial appraisers. Discount factors are determined close to each year-end by reference to government bonds and that have terms to maturity approximating to the terms of the related obligation. Other assumptions are based on management''s historical experience.

(c) The discount rate is based on the prevailing market yield of Government of India bonds as at the balance sheet date for the estimated terms of obligations.

(d) The estimates of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors.

The above sensitivity analysis is based on a change an assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied which was applied while calculating the defined benefit obligation liability recognised in the balance sheet.

B. Compensated absence

(i) The Company provides encashment of compensated absence based on the approved Company policy. Employees whose service is permanent will be eligible for privilege of compensated absence on calendar year basis, and it is mandatory that a minimum of 5 leaves need to be taken in an year.

(a) Encashment of compensated absence is payable to the employees on death or resignation or on retirement at the attainment of superannuation age, and it is not applicable on termination and unserved notice period of an employee.

(b) These assumptions were developed by management with the assistance of independent actuarial appraisers. Discount factors are determined close to each year-end by reference to government bonds and that have terms to maturity approximating to the terms of the related obligation. Other assumptions are based on management''s historical experience.

(c) The discount rate is based on the prevailing market yield of Government of India bonds as at the balance sheet date for the estimated terms of obligations.

(d) The estimates of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors.

The above sensitivity analysis is based on a change in assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied which was applied while calculating the defined benefit obligation liability recognised in the balance sheet.

40 Contingent liabilities and commitments

Credit enhancements provided by the Company towards securitisation transactions aggregate to INR 3,381.96 million (March 31,2022: INR 2,025.34 million).

The fair value of financial instruments as referred to in note ''A'' above has been classified into three categories depending on the inputs used in the valuation technique. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities [Level 1 measurements] and lowest priority to unobservable inputs [Level 3 measurements].

The categories used are as follows:

Level 1: Quoted prices (unadjusted) for identical instruments in an active market;

Level 2: Directly (i.e. as prices) or indirectly (i.e. derived from prices) observable market inputs, other than Level 1 inputs; and

Level 3: Inputs which are not based on observable market data (unobservable inputs).

B.1 Valuation framework

Loan assets carried at fair value through other comprehensive income are categorized in Level 3 of the fair value hierarchy.

The Company''s fair value methodology and the governance over its models includes a number of controls and other procedures to ensure the quality and adequacy of the fair valuation. In order to arrive at the fair value of the above instruments, the Company obtains independent valuations. The valuation techniques and specific considerations for level 3 inputs are explained in detail below. The objective of the valuation techniques is to arrive at a fair value that reflects the price that would be received to sell the asset or paid to transfer the liability in the market at any given measurement date.

The fair valuation of the financial instruments and its ongoing measurement for financial reporting purposes is ultimately the responsibility of the finance team which reports to the Chief Financial Officer. The team ensures that

final reported fair value figures are in compliance with Ind AS and will propose adjustments wherever required. When relying on third-party sources, the team is also responsible for understanding the valuation methodologies and sources of inputs and verifying their suitability for Ind AS reporting requirements.

B.3 Valuation techniques

B.3A Loan assets carried at fair value through other comprehensive income

Loan receivables valuation is carried out for two portfolios segregated on the basis of repayment frequency - monthly and weekly. The valuation of each portfolio is done by discounting the aggregate future cash flows with risk-adjusted discounting rate for the remaining portfolio tenor.

Following inputs have been used to calculate the fair value of loans receivables:

(i) Future cash flows: Include principal receivable, interest receivable and tenor information based on the repayment schedule agreed with the borrowers.

(ii) Risk-adjusted discount rate:

This rate has been arrived using the cost of funds approach.

The following inputs have been used:

(i) Cost of funds

(ii) Credit spread of borrowers

(iii) Servicing cost of a financial asset

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

(i) The management assessed that fair values of the following financial instruments to be approximate their respective carrying amounts, largely due to the short-term maturities of these instruments:

Cash and cash equivalents

Bank balances other than cash and cash equivalents Other receivables Other payables

Other financial assets and liabilities

(ii) Majority of the Company''s borrowings are at a variable rate interest and hence their carrying values represent best estimate of their fair value as these are subject to changes in underlying interest rate indices.

(iii) The management assessed that fair values arrived by using the prevailing interest rates at the end of the reporting periods to be approximate their respective carrying amounts in case of the following financial instruments-

Loans

Lease liabilities Debt securities Subordinated liabilities

42 Financial risk management

Introduction and risk profile

The Company has operations in India. The Company''s activities expose it to market risk, liquidity risk and credit risk. The Company''s board of directors has overall responsibility for the establishment and oversight of the Company risk management framework. This note explains the sources of risk which the entity is exposed to and how the entity manages the risk and the related impact in the financial statements.

A Credit risk

Credit risk is the risk that a counterparty fails to discharge its obligation to the Company. The Company''s exposure to credit risk is influenced mainly by cash and cash equivalents, other bank balances, other receivables, loan assets, investments and other financial assets. The Company continuously monitors defaults of customers and other counterparties and incorporates this information into its credit risk controls.

A.1 Credit risk management

The Company assesses and manages credit risk based on internal credit rating system. Internal credit rating is performed for each class of financial instruments with different characteristics. The Company assigns the following credit ratings to each class of financial assets based on the assumptions, inputs and factors specific to the class of financial assets:

(i) Low credit risk

(ii) Moderate credit risk

(iii) High credit risk

Based on business environment in which the Company operates, a default on a financial asset is considered when the counter party fails to make payments within the agreed time period as per contract. Loss rates reflecting defaults are based on actual credit loss experience and considering differences between current and historical economic conditions.

Assets are written off when there is no reasonable expectation of recovery, such as a borrower become non contactable or in financial distress or a litigation decided against the Company. The Company continues to engage with parties whose balances are written off and attempts to enforce repayment. Recoveries made subsequently are recognized in the statement of profit and loss.

A.3 Management of credit risk for financial assets other than loans Cash and cash equivalents and bank deposits

Credit risk related to cash and cash equivalents and bank deposits is considered to be very low as the Company only deals with high rated banks. The risk is also managed by diversifying bank deposits and accounts in different banks across the country.

Other receivables

The Company faces very less credit risk under this category as most of the transactions are entered with highly rated organisations and credit risk relating to these are managed by monitoring recoverability of such amounts continuously.

Other financial assets measured at amortised cost

Other financial assets measured at amortised cost includes advances to employees and security deposits. Credit risk related to these financial assets is managed by monitoring the recoverability of such amounts continuously.

A.5 Management of credit risk for loans

Credit risk on loans is the single largest risk of the Company''s business, and therefore the Company has developed several processes and controls to manage it. The Company is engaged in the business of providing unsecured micro finance facilities to women having limited source of income, savings and credit histories repayable in weekly or monthly installments.

The Company duly complies with the RBI guidelines (''Non-Banking Financial Company-Micro Finance Institutions'' (NBFC-MFIs - Directions) with regards to disbursement of loans namely:

- Microfinance loans are given to an individual having annual household income up to INR 3,00,000

- Maximum FOIR (Fixed Obligation to Income Ratio) should be 50%

The credit risk on loans can be further bifurcated into the following elements:

(i) Credit default risk

(ii) Concentration risk

(i) Management of credit default risk:

Credit default risk is the risk of loss arising from a debtor being unlikely to pay the loan obligations in full or the debtor is more than 90 days past due on any material credit obligation. The Company majorly manages this risk by following ""joint liability mechanism"" wherein the loans are disbursed to borrowers who form a part of an informal joint liability group (“JLG”), generally comprising of eight to fourty five members. Each member of the JLG provide a joint and several guarantees for all the loans obtained by each member of the group.

In addition to this, there is set critieria followed by the Company to process the loan applications. Loans are generally disbursed to the identified target segments which include economically active women having regular cash flow engaged in the business such as small shops, vegetable vendors, animal husbandry business, tailoring business and other self-managed business. Out of the people identified out of target segments, loans are only disbursed to those people who meet the set criterion - both finanical and non-financial as defined in the credit policy of the Company. Some of the criteria include - annual income, repayment capacity, multiple borrowings, age, group composition, health conditions, and economic activity etc. Some of the segments identified as nontarget segments are not eligible for a loan. Such segments include - wine shop owners, political leaders, police & lawyers, individuals engaged in the business of running finance & chit funds and their immediate family member or people with criminal records etc.

(ii) Management of concentration risk:

Concentration risk is the risk associated with any single exposure or group of exposures with the potential to produce large enough losses to threaten Company''s core operations. It may arise in the form of single name

concentration or industry concentration. In order to avoid excessive concentrations of risk, the Company''s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentration risks are controlled and managed accordingly.

A.5.1 Credit risk measurement - Expected credit loss measurement

Ind AS 109 outlines a ""three stage"" model for impairment based on changes in credit quality since initial recognition as summarised below:

- A financial instrument that is not credit impaired on initial recognition and whose credit risk has not increased significantly since initial recognition is classified as ""Stage 1""

- If a significant increase in credit risk since initial recognition is identified, the financial instrument is moved to ""Stage 2"" but is not yet deemed to be credit impaired.

- If a financial instrument is credit impaired, it is moved to ""Stage 3""

ECL for depending on the stage of financial instrument:

- Financial instrument in Stage 1 have their ECL measured at an amount equal to expected credit loss that results from default events possible within the next 12 months.

- Instruments in Stage 2 or Stage 3 criteria have their ECL measured on lifetime basis.

A.5.2 Criteria for significant increase in credit risk

The Company considers a financial instrument to have experienced a significant increase in credit risk when one or more of the following quantitative or qualitative criteria are met.

(i) Quantitative criteria

The remaining lifetime probability of default at the reporting date has increased, compared to the residual lifetime probability of default expected at the reporting date when the exposure was first recognized. The Company considers loan assets as Stage 2 when the default in repayment is within the range of 30 to 90 days.

(ii) Qualitative criteria

If other qualitative aspects indicate that there could be a delay/default in the repayment of the loans, the Company assumes that there is significant increase in risk and loan is moved to stage 2.

The Company considers the date of initial recognition as the base date from which significant increase in credit risk is determined.

A.5.3 Criteria for default and credit-impaired assets

The Company defines a financial instrument as in default, which is fully aligned with the definition of credit-impaired, when it meets the following criteria:

(i) Quantitative criteria

The Company considers loan assets as Stage 3 when the default in repayment has moved beyond 90 days.

(ii) Qualitative criteria

The Company considers factors that indicate unlikeliness of the borrower to repay the loan which include instances like the signficant financial difficulty of the borrower or breach of any financial covenants by the borrower etc

A.5.4 Measuring ECL - explanation of inputs, assumptions and estimation techniques

Expected credit losses are the discounted product of the probability of default (PD), exposure at default (EAD) and loss given default (LGD), defined as follows:

- PD represents the likelihood of the borrower defaulting on its obligation either over next 12 months or over the remaining lifetime of the instrument.

- EAD is based on the amounts that the Company expects to be owed at the time of default over the next 12 months or remaining lifetime of the instrument.

- LGD represents the Company''s expectation of loss given that a default occurs. LGD is expressed in percentage and remains unaffected from the fact that whether the financial instrument is a Stage 1 asset, or Stage 2 or even Stage 3. However, it varies by type of borrower, availability of security or other credit support.

Probability of default (PD) computation model

The Probability of Default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognised and is still in the portfolio.

Loss given default (LGD) computation model

The loss rate is the likely loss intensity in case a borrower defaults. It provides an estimation of the exposure that cannot be recovered in the event of a default and thereby captures the severity of the loss. The loss rate is computed by factoring the main drivers for losses (e.g. joint group liability mechanism, historical recoveries trends etc.) and arriving at the replacement cost.

A.6.1 Credit enhancements

The assessment of significant increase in risk and the calculation of ECL both incorporate forward-looking information.

The Company has evaluated that the analysis of forward-looking information reveal that the scenario applicable to the

Company is "Base Case Scenario" which assumes that the that Macroeconomic conditions are normal and is similar to

previous periods. In this case normal credit rating and corresponding PD & LGD is considered for ECL computation.

A.7 Loss allowance

The loss allowance recognized in the period is impacted by a variety of factors, as described below:

- Transfers between Stage 1 and Stages 2 or 3 due to financial instruments experiencing significant increases (or decreases) of credit risk or becoming credit-impaired in the period, and the consequent “step up” (or step down”) between 12-month and Lifetime ECL.

- Additional allowances for new financial instruments recognized during the period, as well as releases for financial instruments de-recognized in the period

- Impact on the measurement of ECL due to changes in PDs, EADs and LGDs in the period, arising from regular refreshing of inputs to models

- Financial assets derecognised during the period and write-offs of allowances related to assets that were written off during the period

The following table further explains changes in the gross carrying amount of the Loan portfolio to help explain their significance to the changes in the loss allowance for the same portfolio as discussed above:

A. 9 Write off policy

The Company writes off financial assets, in whole or in part, when it has exhausted all practical recovery efforts and has concluded there is no reasonable expectation of recovery.

Indicators that there is no reasonable expectation of recovery include:

- Ceasing enforcement activity

- Where the Company''s recovery method is foreclosing and there is no reasonable expectation of recovery in full.

- Specific identification by Management

The Company may write off financial assets that are still subject to enforcement activity. The outstanding contractual amounts of such assets written off during the year ended March 31, 2023 was INR 1,402.81 million (March 31,2022: INR 737.80 million). The Company still seeks to recover amounts it is legally owed in full, but which have been partially written off due to no reasonable expectation of full recovery.

B 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 as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due. Management monitors rolling forecasts of the Company''s liquidity position and cash and cash equivalents on the basis of expected cash flows. The Company takes into account the liquidity of the market in which the entity operates.

B. 1 Maturities of financial liabilities

The tables below analyse the Company financial liabilities into relevant maturity groupings based on their contractual maturities.

The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

C Market risk - Interest rate risk

C.1 Liabilities

The Company''s policy is to minimize interest rate cash flow risk exposures on long-term financing. At March 31,2023, the Company is exposed to changes in market interest rates through borrowings at variable interest rates.

C.1.2 Assets

The Company''s fixed deposits are carried at amortised cost and are fixed rate deposits. The Company''s loan assets are at fixed interest rate. They are therefore not subject to interest rate risk as defined in Ind AS 107, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.

43 Capital management

The Company''s capital management objectives are

- to ensure the Company''s ability to continue as a going concern

- to provide an adequate return to shareholders

Management assesses the Company''s capital requirements in order to maintain an efficient overall financing structure while avoiding excessive leverage. This takes into account the subordination levels of the Company''s various classes of debt. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure the Company may issue new shares, or sell assets to reduce debt.

44 Share based payments

The Company has implemented Employee Stock Option Plan under Muthoot Microfin Employee Stock Option Plan 2016 ("ESOP 2016") and Muthoot Microfin Limited Employee Stock Option Plan 2022 ("ESOP 2022"). The objective

is to reward employees for their association with the Company, their performance as well as to attract, retain and motivate employees to contribute to the growth and profitability of the Company.

The Company has INR 312.11 millions (March 31,2022: INR 39.95 millions ) recoverable from Muthoot Welfare Trust pursuant to ESOP schemes.

The fair value of the options was estimated on the date of grant using the Black-Scholes model with the following significant assumptions:

45 Operating segments

The company is primarily engaged in business of micro finance and the business activity falls within one operating segment, as this is how the chief operating decision maker of the Company looks at the operations. All activities of the Company revolve around the main business. Hence the disclosure requirement of Indian Accounting Standard 108 of "Segment Reporting” is not considered applicable.

46 Transfer of financial assets

Transferred financial assets that are derecognised in their entirety

During the year ended March 31,2023, the Company has sold some loans and advances measured at at fair value through other comprehensive income as per assignment deals, as a source of finance. As per the terms of these deals, since substantial risks and rewards related to these assets were transferred to the buyer, the assets have been derecognised from the Company''s balance sheet.

The Company has assessed the business model under Ind AS 109 ""Financial Instruments"" and consequently the financial assets are measured at fair value through other comprehensive income.

The gross carrying value of the loan assets derecognised during the year ended March 31, 2023 amounts to INR 18,322.48 millions (March 31,2022: INR 16,391.08 millions) and the gain from derecognition during the year ended March 31,2023 amounts to INR 1,363.16 millions (March 31,2022: INR 1,130.79 millions)

Transferred financial assets that are not derecognised in their entirety

In the course of its micro finance or lending activity, the company makes transfers of financial assets, where legal rights to the cash flows from the asset are passed to the counterparty and where the company retains the rights to the cash flows but assumes a responsibility to transfer them to the counterparty.

47 Revenue from contracts with customers

Set out below is the disaggregation of the Company''s revenue from contracts with customers and reconciliation to profit and loss account:

Other receivables are non-interest bearing and are generally on terms of 30 to 90 days. During the year ended March 31, 2023 an amount of Nil (March 31, 2022: Nil) was recognised as provision for expected credit losses on other receivable.

Revenue recognition for contract with customers - Commission income:

The Contract with customers through which the Company earns a commission income includes the following promises:

(i) Sourcing of loans

(ii) Servicing of loans

Both these promises are separable from each other and do not involve significant integration. Therefore, these promises constitute separate performance obligations.

No allocation of the consideration between both the promises was required as the management believes that the contracted price are close to the standalone fair value of these services.

Revenue recognition for both the promises:

(i) Sourcing of loans : The consideration for this service is arrived based on an agreed percentage/fee on the loans disbursed during the year. Revenue for sourcing of loans shall be recognized as and when the loans are disbursed. The revenue therefore, for this service, shall be recognized based on the disbursements actually made during each year.

(ii) Servicing of loans: The consideration for this service is arrived based on an agreed percentage on the actual collections during the year. The Company receives servicing commission only on actual collections. Revenue for servicing of loans shall be recognized over a period of time, as the customer benefits from the services as and when it is delivered by the Company. However, since the Company has a right to consideration from a customer in an amount that corresponds directly with the value of service provided to date, applying the practical expedient available under the standard, the Company shall recognise revenue for the amount to which it has a right to invoice.

50 Additional Regulatory information as per amendments in Schedule III of Companies Act, 2013 (MCA notification dated March 24, 2021)

(i) The Company doen''t have any immovable property whose title deeds are not held in the name of the Company.

(ii) Investments made by the Company is carried at amortized cost in the financials.

(iii) The Company has not revalued its Property, Plant and Equipment (including Right-of-Use Assets) during the FY 2022-23.

(iv) The Company has not revalued its intangible assets during the FY 2022-23.

(v) The Company has not given any loans or advances in the nature of loans to promoters, directors, KMPs and the related parties (as defined under Companies Act, 2013), either severally or jointly with any other person, that are a) repayable on demand; or b) without specifying any terms or period of repayment.

(vi) Capital Work in Progress & Intangible Assets under Development are nil for current year & Previous year.

(vii) The company doen''t hold any benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and rules made thereunder and no proceedings have been initiated or pending against the company for the same.

(viii) The Company has not made any default in repayment of its financial obligations and is not declared wilful defaulter by any bank or financial Institution or other lender.

(ix) The company doen''t have any transactions with companies struck off under section 248 of the Companies Act, 2013 or section 560 of Companies Act, 1956.

(x) There is no charges or satisfaction to be registered with ROC beyond the statutory period.

(xi) The Company has complied with the number of layers prescribed under clause (87) of section 2 of the Act read with the Companies (Restriction on number of Layers) Rules, 2017.

(xii) Company has not traded/invested in crypto currency or virtual currency for the current financial year and previous year.

(xiii) The Company has not advanced or loaned or invested funds (either borrowed funds or share premium or any other sources or kind of funds) to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding (whether recorded in writing or otherwise) that the Intermediary shall

(a) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (Ultimate Beneficiaries) or

(b) provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries.

(xiv) The Company has not received any fund from any person(s) or entity(ies), including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the company shall

(a) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or

(b) provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

(ii) Investments

The Investment of the company as on March, 31 2023 : INR 633.59 million (March31, 2022: INR 0.45 Million). (Refer Note -6)

(iii) Derivatives

The Company has no transactions / exposure in derivatives in the current and previous years.

The Company has no unhedged foreign currency exposure as on March, 31 2023 (March 31,2022: Nil).

The Company has not purchased /sold non-performing financial assets in the current and previous year. The non performing assets sold to Asset Reconstruction Company is mentioned in Note 50 (A)(v)

(v''ii) Exposures:-

The Company has no exposure to the real estate sector and capital market directly or indirectly in the current and previous year.

There is no intra group exposure in the current and previous year

(ix) Details of financing of parent company products

The Company does not finance the products of the parent / holding company.

(x) Unsecured advances

Refer note 12 for details of unsecured advances.

The Company is not registered with any other financial sector regulators.

(x''i) Disclosure of Penalties imposed by RBI & other regulators:-

No penalty has been imposed by RBI or any other lending institutions in connection with any lending arrangements during current and previous year.

(xiii) Draw down from reserves:-

There has been no draw down from reserve during the year ended 31 March 2023 (31 March 2022: Nil)

(xiv) Asset Liability Management Maturity pattern of certain items of assets and liabilities:-

* Asset Liability Management pattern is disclosed in accordance with "Master Direction- Non Banking Financial Company- Non systematically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016" issued by Reserve Bank of India. The Company is to disclose expected fund inflows and outflows and hence fair valuation / amortisation adjustments made on account of adoption of Ind AS are not considered here.

(e) Institutional set-up for liquidity risk management

The Board has the overall responsibility for management of liquidity risk. The Company has a risk management committee responsible for evaluating the overall risks faced by the Company including liquidity risk. The asset liability management committee is also responsible for ensuring adherence to the risk tolerance and implementing the liquidity risk management strategy.

(xxvii) Breach of Covenant:-

Interest payment of Rs.64.86 million towards ISIN- INE046W07180 which was due on December 5, 2022 was paid on December 7, 2022. As the payment was made within the curing period, it has not been considered as default as per terms of respective agreement. The delay was a one-off event due to an inadvertent operational error. The Company had comfortable liquidity position with unencumbered cash and bank balance of Rs.2,131.73 Million and undrawn sanction in hand of Rs.9,320 Million as on December 5, 2022.

The Company has entered into financing arrangements with various non-banking financial institutions (Refer note 38) where the Company need to comply with various key performance indicators. The Company is not in compliance with KPI with three institutions, where the Company has submitted necessary waiver letters. The company has received one confirmation for waiver letter and awaiting two other responses. The Company will not have any adverse impact on the liquidity position even if the waiver request is rejected by the lenders.

(xxviii) Details of Single Borrower Limit (SGL) / Group Borrower Limit (GBL) exceeded by the NBFC

The Company did not exceed the limits prescribed for single and group borrower during the current and previous year.

(xxix) Overseas assets

The Company did not have any joint ventures and subsidiaries abroad.

(xxx) Off-balance sheet SPVs sponsored

There are no off-balance sheet SPVs sponsored which are required to be consolidated as per accounting norms as at end of current and previous year.

53 Previous year''s figures have been regrouped and reclassified, wherever necessary to conform to current year''s presentation / classification.