Accounting Policies of Poonawalla Fincorp Ltd. Company

a) Statement of compliance and basis of
preparation

The standalone financial statements for the year
ended 31 March, 2026 have been prepared by the
Company in accordance with Indian Accounting
Standards ("Ind AS”) notified by the Ministry of
Corporate Affairs, Government of India under the
Companies (Indian Accounting Standards) Rules,
2015 (as amended) notified under Section 133
of the Companies Act, 2013, (the ''Act'') and other
relevant provisions of the Act.

Further, the Company has complied with all
the directions related to Implementation of
Indian Accounting Standards prescribed for
Non-Banking Financial Companies (NBFCs)
in accordance with guidance/clarifications/
directions issued by RBI or other regulators are
implemented as and when they are issued/
applicable.

The standalone financial statements are prepared
and presented in the format prescribed in the
Division III of Schedule III of the Act.

A summary of the material accounting policy
information and other explanatory information
is in accordance with the Companies (Indian
Accounting Standards) Rules, 2015 (as
amended) as specified under Section 133 of the
Act including applicable Ind AS and accounting
principles generally accepted in India. The
Company consistently applies the following
accounting policies to all periods presented in
these standalone financial statements, unless
otherwise stated.

The Company has prepared the standalone
financial statements on the basis that it will
continue to operate as a going concern. The
Management is satisfied that the company
shall be able to continue its business for the
foreseeable future and no material uncertainty
exists that may cast significant doubt on the
going concern assumption. In making this
assessment, the Management has considered a
wide range of information relating to present and
future conditions, including future projections of
profitability, cash flows and capital resources

These standalone financial statements have been
approved by the Company''s Board of Directors
and authorized for issue on 05 May, 2026.

b) Functional and Presentation currency

These standalone financial statements are
presented in Indian Rupees (INR), which is the
Company''s functional currency. All amounts have
been denominated in crores and rounded off to
the nearest two decimal, except when otherwise
indicated. Amounts less than I 50,000/- are
presented as I 0.00 crores in the standalone
financial statements.

c) Historical cost convention

The standalone financial statements have been
prepared on a historical cost basis, except for the
following material items:

• Certain financial assets at Fair value through
other comprehensive income (FVTOCI).

• Financial instruments at Fair value through
profit and loss (FVTPL) that is measured at
fair value

• Net defined benefit (asset)/liability - fair value
of plan assets less present value of defined
benefit obligation

d) Measurement of fair values

A number of Company''s accounting policies
and disclosures require the measurement
of fair values, for both, financial and non¬
financial assets and liabilities. The Company has
established policies and procedures with respect
to the measurement of fair values. Fair values
are categorized into different levels in a fair
value hierarchy based on the inputs used in the
valuation techniques as follows:

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

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

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

e) Significant areas of estimation uncertainty,
critical judgements and assumptions in
applying accounting policies

In preparing these standalone financial
statements, management has made
judgements, estimates and assumptions that
affect the application of accounting policies and
the reported amounts of assets and liabilities
(including contingent liabilities and assets) as on
the date of the standalone financial statements
and the reported income and expenses for the
reporting period. Management believes that
the estimates used in the preparation of the
standalone financial statements are prudent
and reasonable. Actual results may differ from
these estimates.

Estimates and underlying assumptions
are reviewed on an ongoing basis.
Revisions to accounting estimates are
recognized prospectively.

Key sources of estimation of uncertainty at the
date of standalone financial statements, which
may cause a material adjustment to the carrying
amount of assets and liabilities within the next
financial year are included in the following notes:

- Note 49 - impairment of financial instruments:
determining inputs into the Expected Credit
Loss (ECL) model, including incorporation of
forward-looking information and assumptions
used in estimating recoverable cash flows

- Note 48 - determination of the fair value
of financial instruments with significant
unobservable inputs

- Note 41 - measurement of defined benefit
obligations: key actuarial assumptions

- Note 11 - recognition of deferred tax assets:
availability of future taxable profit against
which carry-forward tax losses can be used

Judgements:

Information about judgements made in applying
policies that have the most significant effects on
the amount recognized in the standalone financial
statements is included in the following note:

Classification of financial assets:

Assessment of the business model within which
the assets are held for sale, held for sale and
maturity, and held for maturity.

f) Revenue recognition

I) Interest income from financial assets (assets
on finance) is recognized on accrual basis
using Effective Interest Rate (‘EIR'') method.
EIR is applied on future principal of amortized
cost of assets on finance. Interest income on
stage 3 assets is recognized on net basis, i.e.,
on non-credit impaired portion.

II) The EIR is the rate that discounts the
estimated future cash flows through the
expected life of the financial instrument to
the gross carrying amount of the financial
asset. The interest income is recognized
on EIR method on a time proportion
basis applied on the carrying amount for
financial assets including credit impaired
financial assets.

III) The calculation of the effective interest rate
includes transaction costs and fees paid
or received that are an integral part of the
effective interest rate. Transaction costs
include incremental costs that are directly
attributable to the acquisition or issue of a
financial asset or financial liability.

IV) The ‘Amortized cost'' of a financial asset is
the amount at which the financial asset is
measured on initial recognition minus the
principal repayments, plus or minus the
cumulative amortization using the effective
interest method of any difference between
that initial amount and the maturity
amount adjusted for any expected credit
loss allowance.

V) Income from direct assignment (sale)
transactions represents the present value
of excess interest spread receivables on de¬
recognized assets computed by discounting
net cash flows from such assigned pools on
the date of transactions (net off servicing
liability initially recognised)

VI) Penal and other charges are treated to
accrue on realization, due to uncertainty of
realization and is accounted for accordingly.

VII) For revenue recognition from leasing
transactions of the Company, refer Note 42
on Leases.

VIII) Income from collection and support services
is recognized over time as the services are
rendered as per the terms of the contract.

IX) Fair value changes from financial instrument
measured at FVTPL are recognized in
revenue from operations basis their fair
valuation and provision.

X) Dividend is recognized when the right to
receive the dividend is established.

XI) The Company recognises revenue from
contracts with customers (other than
financial assets to which Ind AS 109
''Financial instruments'' is applicable)
based on a comprehensive assessment
model as set out in Ind AS 115 ''Revenue
from contracts with customers''. Revenue
is measured at the transaction price
allocated to the performance obligation in
accordance with Ind AS 115. The Company
identifies contract(s) with a customer
and its performance obligations under
the contract, determines the transaction
price and its allocation to the performance
obligations in the contract and recognises
revenue only on satisfactory completion of
performance obligations.

Other income

All other items of income are accounted for on
accrual basis.

g) Finance Costs

Finance costs include interest expense
computed by applying the effective interest rate
on respective financial instruments measured at
Amortized cost. Financial instruments include
bank term loans, non-convertible debentures,
commercial papers, subordinated debts,

perpetual debts and exchange differences
arising from foreign currency borrowings to the
extent they are regarded as an adjustment to the
interest cost. Interest expense on lease liabilities
is computed by applying the notional borrowing
rate and has been included under finance costs.
It also includes discounting charges paid for
securitization transactions entered under ‘pass¬
through'' arrangement.

h) Financial instruments

I) Initial recognition and measurement

Financial assets and financial liabilities are

recognized when the Company becomes a party
to the contractual provisions of the instruments.

Financial assets and financial liabilities are

initially measured at fair value. Transaction costs
and revenue that are directly attributable to
the acquisition or issue of financial assets and
financial liabilities (other than financial assets
and financial liabilities at fair value through profit
and loss) are added to or deducted from the fair
value of the financial assets or financial liabilities,
as appropriate, on initial recognition.

Transaction costs and revenues of financial
assets or financial liabilities carried at fair value
through the profit or loss account are recognized
immediately in the statement of profit and loss.
Trade Receivables are measured at transaction
price. Trade receivables and debt securities issued
are initially recognized when they are originated.

II) Classifications
Financial assets

On initial recognition, depending on the
Company''s business model for managing the
financial assets and its contractual cash flow
characteristics, a financial asset is classified as
measured at;

- Amortized cost;

- fair value through other comprehensive
income (FVTOCI); or

- fair value through profit and loss (FVTPL).

Financial assets are not reclassified subsequent
to their initial recognition, except if and in the
period the Company changes its business model
for managing financial assets.

The classification depends on the entity''s
business model for managing the financial assets
and the contractual terms of the cash flows.

Business model assessment

The Company makes an assessment of the
objective of the business model in which a
financial asset is held at a portfolio level because
this best reflects the way the business is managed
and information is provided to management.

At initial recognition of a financial asset, the
Company determines whether newly recognized
financial assets are part of an existing business
model or whether they reflect a new business
model. The frequency, volume and timing of
sales of financial asset in prior periods, the reason
for such sales and expectations about future
sales activity are important determining factors
of the business model. The Company reassess
its business models each reporting period to
determine whether the business models have
changed since the preceding period.

Financial instruments at Amortized Cost

A financial asset is measured at amortized cost
only if both of the following conditions are met:

• It is held within a business model whose
objective is to hold assets in order to collect
contractual cash flows.

• The contractual terms of the financial asset
represent contractual cash flows that are solely
payments of principal and interest.

Financial assets at Fair Value through Other
Comprehensive Income (‘FVTOCI'')

A financial asset is measured at FVTOCI only if
both of the following conditions are met:

• It is held within a business model whose
objective is achieved by both collecting
contractual cash flows and selling
financial assets.

• The contractual terms of the financial asset
represent contractual cash flows that are solely
payments of principal and interest.

Financial assets at Fair Value through Profit
and Loss (FVTPL)

Any financial instrument, which does not meet
the criteria for categorization as at amortized cost
or as FVOCI, is classified as at FVTPL.

Re-classification from Amortized Cost to FVOCI

If there are multiple sale transaction of portfolios
exceeding the prescribed threshold except as
allowed under Ind AS 109 i.e. for stress case
scenarios, and the management estimates that
the Company may continue to sell down the loan
assets for the purpose of meeting other business
objectives then such part of the loan assets (if
specifically identified) shall be re-classified to
FVOCI from Amortized Cost category.

Re-classification from FVOCI to Amortized Cost

If considerable time period has elapsed since
the past sale transaction and the management
estimates that there is a very limited probability
of selling down the portfolio in future, other than
stressed portfolio or other exceptions as allowed
under Ind AS 109, then such portfolio can be re¬
classified from FVOCI to Amortized Cost category.

Equity Investments

All equity investments other than equity
investments in subsidiaries/associates/joint
ventures are measured at FVTPL. These include
all equity investments in scope of Ind AS 109.
The Company accounts for its investments in
subsidiaries, associates and joint ventures at cost
less accumulated impairment, if any.

Financial liabilities and equity instruments

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

Financial liabilities are classified, at initial
recognition, as financial liabilities at amortized
cost or fair value through profit or loss,
as appropriate.

Equity instruments

An equity instrument is any contract that
evidences a residual interest in the assets of
an entity after deducting all of its liabilities.
Equity instruments issued by the Company
is recognized at the proceeds received, net of
directly attributable transaction costs.

III) Subsequent measurement
Amortized cost

Amortized cost is the amount at which the
financial asset or financial liability is measured
at initial recognition minus the principal
repayments, plus or minus the cumulative
amortization using the EIR method of discount
or premium on acquisition and fees or costs that
are an integral part of the EIR and, for financial
assets, adjusted for any loss allowance.

FVTPL

These assets are subsequently measured at
fair value. Net gains and losses, including any
interest or dividend income, are recognized in
the statement of profit and loss. The transaction
costs and fees are also recorded related to these
instruments in the statement of profit and loss.

FVTOCI

Financial assets that are held within a business
model whose objective is achieved by both,
selling financial assets and collecting contractual
cash flows that are solely payments of principal
and interest, are subsequently measured at fair
value through other comprehensive income. Fair
value movements are recognized in the other
comprehensive income (OCI). Interest income
measured using the EIR method and impairment
losses, if any are recognized in the statement of
profit and loss. On derecognition, cumulative
gain or loss (if any) previously recognized in OCI
is reclassified from the equity to ‘other income'' in
the statement of profit and loss.

IV) De-recognition of financial assets and financial
liabilities

Financial assets

A financial asset (or, where applicable, a part of a
financial asset or part of a group of similar financial
assets) is primarily de-recognized (i.e. removed
from the Company''s balance sheet) when:

• The rights to receive cash flows from the asset
have expired, or

• The Company has transferred its rights to
receive cash flows from the asset or has
assumed an obligation to pay the received
cash flows in full without material delay
to a third party under a ‘pass-through''
arrangement; and either (a) the Company
has transferred substantially all the risks and
rewards of the asset, or (b) the Company has
neither transferred nor retained substantially
all the risks and rewards of the asset, but has
transferred control of the asset

When the Company has transferred its rights to
receive cash flows from an asset or has entered
into a pass-through arrangement, it evaluates
if and to what extent it has retained the risks
and rewards of ownership. When it has neither
transferred nor retained substantially all of the
risks and rewards of the asset, nor transferred
control of the asset, the Company continues to

recognize the transferred asset to the extent
of the Company''s continuing involvement. The
Company continues to recognize the assets on
finance on books which has been securitized
under pass through arrangement and does not
meet the de-recognition criteria.

On de-recognition of a financial asset, the
difference between the carrying amount of the
asset (or the carrying amount allocated to the
portion of the asset de-recognized) and the sum
of the consideration received (including the value
of any new asset obtained less any new liability
assumed) is transferred to statement of profit
or loss.

Financial liabilities

The Company de-recognizes a financial liability
when its contractual obligations are discharged,
cancelled or expired. The difference between
the carrying amount of the financial liability
derecognized and the consideration paid and
payable is recognized in profit or loss.

Securitization and Assignment

In case of transfer of loans through securitization
and direct assignment transactions, the
transferred loans are de-recognized and
gains/losses are accounted for, only if the
Company transfers substantially all risks and
rewards specified in the underlying assigned
loan contract.

In accordance with the Ind AS 109, on de¬
recognition of a financial asset under assigned
transactions, the difference between the carrying
amount and the consideration received are
recognized in the statement of profit and loss.

Upon derecognition of financial assets in a
securitization transaction, where the Company
retains the servicing obligation and the servicing
fee is not expected to provide adequate
compensation, a servicing liability is recognized
at fair value in accordance with Ind AS 109.

Subsequent to initial recognition, the servicing
liability is measured in accordance with the
requirements applicable to financial liabilities
under Ind AS 109, and changes in estimates are
recognised in profit or loss.

Equity

Equity instruments issued by the Company are
recognized at the proceeds received, net of direct
issue costs.

V) Offsetting of financial instruments

Financial assets and financial liabilities are offset and
the net amount is reported in the balance sheet when
the Company has a legally enforceable right to offset
the recognized amounts and there is an intention to
settle on a net basis, or realize the asset and settle the
liability simultaneously.

VI) Impairment of Financial Assets

The Company recognizes loss allowances for
Expected Credit Loss (ECL) on all the financial
assets that are not measured at FVTPL:

ECL are probability weighted estimate of future
credit losses based on the staging of the financial
asset to reflect its credit risk. They are measured
as follows:

• Stage 1: financial assets that are not credit
impaired - as the present value of all cash
shortfalls that are possible within 12 months
after the reporting date.

• Stage 2: financial assets with significant
increase in credit risk but not credit impaired
- as the present value of all cash shortfalls that
result from all possible default events over the
expected life of the financial asset.

• Stage 3: financial assets that are credit
impaired - as the difference between the
gross carrying amount and the present value
of estimated cash flows.

The Company''s policy for determining significant
increase in credit risk is set out in Note 50.

The Company has established a policy to perform
an assessment, at the end of each reporting
period, of whether a financial instrument''s
credit risk has increased significantly since initial
recognition, by considering the change in the risk
of default occurring over the remaining life of the
financial instrument.

Management overlay is used to estimate the ECL
allowance in circumstances where management
believes that the existing inputs, assumptions
and model techniques do not factor the related
exception scenario or captures all the risk factors
relevant to the Company''s lending portfolios.

To mitigate the credit risk on financial assets, the
Company seeks to use collateral, where possible
as per the powers conferred on the Non-Banking
Finance Companies under the Securitization
and Reconstruction of Financial Assets and
Enforcement of Securities Interest Act, 2002
(“SARFAESI").

Financial assets are fully provided for or written
off (either partially or in full) when there is no
reasonable expectation of recovering a financial
asset in its entirety or a portion thereof.

However, financial assets that are written off
could still be subject to enforcement activities
under the company''s recovery procedures, taking
into account legal advice where appropriate. Any
recoveries made are credited to impairment loss
on actual realization from customer.

Impairment losses and releases are accounted for
and disclosed separately from modification losses
or gains that are accounted for as an adjustment
of the financial asset''s gross carrying value.

For more details, refer Note 49.

Presentation of ECL allowance for financial
asset:

ECL allowance for financial asset measured at
Amortized cost or FVOCI is shown as a deduction
from the gross carrying amount of the assets.

Modification of financial assets

A modification of a financial asset occurs when
the contractual terms governing the cash flows
of a financial asset are renegotiated or otherwise
modified between initial recognition and maturity
of the financial asset. A modification affects the
amount and/or timing of the contractual cash
flows either immediately or at a future date.

i) Non-Current Assets Held for Sale

Non-current assets are classified as held for
sale if their carrying amount will be recovered
principally through a sale transaction rather than
through continuing use and a sale is considered
highly probable. They are measured at the lower
of their carrying amount and fair value less costs
to sell, except for assets such as deferred tax
assets, assets arising from employee benefits,
financial assets and contractual rights under
insurance contracts, which are specifically
exempt from this requirement.

An impairment loss is recognized for any initial or
subsequent write-down of the asset to fair value
less costs to sell. A gain is recognized for any
subsequent increases in fair value less costs to sell
of an asset, but not in excess of any cumulative
impairment loss previously recognized. A gain or
loss not previously recognized by the date of the
sale of the non-current asset is recognized at the
date of de-recognition.

Non-current assets are not depreciated or amortized
while they are classified as held for sale. Interest
and other expenses attributable to the liabilities of a
disposal group classified as held for sale continue to
be recognized.

Non-current assets classified as held for sale are
presented separately from the other assets in the
balance sheet. The liabilities of a disposal group
classified as held for sale are presented separately
from other liabilities in the balance sheet.

j) Leases

I) The Company as lessor

Leases are classified as finance leases whenever
the terms of the lease transfer substantially all
the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.

Amounts due from lessees under finance leases
are recognized as receivables at the amount of the
Company''s net investment in the leases. Finance
lease income is allocated to accounting periods
so as to reflect a constant periodic rate of return
on the Company''s net investment outstanding in
respect of the leases.

Rental income from operating leases is
recognized on a straight-line basis over the lease
term. In certain lease arrangements, variable
rental charges are also recognized over and
above minimum commitment charges based on
usage pattern.

II) The Company as lessee

i) Right of use assets and Lease liability

The Company assesses whether a contract
is or contains a lease, at inception of a
contract. A contract is, or contains, a lease
if it conveys the right to control the use of
an identified asset for a period in exchange
for consideration. To assess whether a
contract conveys the right to control the
use of an identified asset, the Company
assesses whether:

a) the contract involves the use of an
identified asset;

b) t he Company has substantially all the
economic benefits from use of the asset
through the period of the lease; and

c) the Company has the right to direct the
use of the asset.

Recognition and initial measurement

At the lease commencement date, the
Company recognizes a Right-of-Use ("RoU")
asset and equivalent amount of lease liability.
The right-of-use asset is measured at cost,
which is made up of the initial measurement
of the lease liability, any initial direct costs
incurred by the Company, an estimate of any
costs to dismantle and remove the asset at
the end of the lease (if any), and any lease
payments made in advance of the lease
commencement date (net of any incentives
received).

Subsequent measurement

The Company depreciates the right-of-use
assets on a straight-line basis from the lease
commencement date to the earlier of the
end of the useful life of the right-of-use asset
or the end of the lease term. The Company
also assesses the right-of-use asset for
impairment when such indicators exist.

At the lease commencement date, the
Company measures the lease liability at
the present value of the lease payments
unpaid at that date, discounted using the
interest rate implicit in the lease if that
rate is readily available or the notional
borrowing rate. Lease payments included
in the measurement of the lease liability
are made up of fixed payments (including
in substance fixed payments). Subsequent
to initial measurement, the liability will be
reduced for payments made and increased
for interest. It is re-measured to reflect any
reassessment or modification, or if there are
changes in the in-substance fixed payments.
When the lease liability is re-measured, the
corresponding adjustment is reflected in the
right-of-use asset or is recorded in statement
of profit and loss if the carrying amount of
the right-of-use asset has been reduced
to zero.

Presentation

Lease liability and right of use assets have
been separately presented in the balance
sheet and lease payments have been
classified as financing cash flows.

The Company has elected to account for
short-term leases and leases of low-value
assets using the practical expedients.
Instead of recognizing a right-of-use asset

and lease liability, the payments in relation to
these leases are recognized as an expense in
the statement of profit and loss on a straight¬
line basis over the lease term.

ii) De-recognition

An item of right of use assets and lease
liability is de-recognized upon termination
of lease agreement. Any difference between
the carrying amount of right of use asset and
lease liability is recognized in statement of
profit and loss.

k) Employee Benefits

l) Short term employee benefits

Short term employee benefits are expensed
as the related service is provided. A liability
is recognized for the amount expected
to be paid if the Company has a present
legal or constructive obligation to pay this
amount as a result of past service provided
by the employee and the obligation
can be estimated reliably. This includes
performance linked incentives. Short term
employee obligations are measured at
undiscounted basis.

II) Post-employment benefits

i) Defined contribution plans

A defined contribution plan is a post¬
employment benefit plan under which an
entity pays fixed contributions into a separate
entity and will have no legal or constructive
obligations to pay further amounts.

Provident Fund

Retirement benefit in the form of provident
fund is a defined contribution scheme.
Contributions paid/payable to the recognized
provident fund, which is a defined
contribution scheme, are expensed as the
related service is rendered by an employee
and recognized as personnel expenses in
statement of profit and loss.

ii) Defined benefit plans
Gratuity

The Company''s gratuity benefit scheme is
a defined benefit plan. The Company''s net
obligation in respect of the gratuity benefit
scheme is calculated by estimating the
amount of future benefit that employees
have earned in return for their service in
the current and prior periods; that benefit is

discounted to determine its present value,
and the fair value of any plan assets, if any,
is deducted.

The present value of the obligation under
such defined benefit plan is determined
based on actuarial valuation using the
Projected Accrued Benefit Method (same
as Projected Unit Credit Method), which
recognizes each period of service as giving
rise to additional unit of employee benefit
entitlement and measures each unit
separately to build up the final obligation.

The obligation is measured at the present
value of the estimated future cash flows.
The discount rates used for determining the
present value of the obligation under defined
benefit plan, are based on the market yields
on Government securities as at the balance
sheet date. When the calculation results
in a potential asset for the Company, the
recognized asset is limited to the present
value of economic benefits available in the
form of any future refunds from the plan or
reductions in future contribution to the plan.

The change in defined benefit plan liability
is split into changes arising out of service,
interest cost and re-measurements and
the change in defined benefit plan asset
is split between interest income and re¬
measurements. Changes due to service cost
and net interest cost/income is recognized
in the statement of profit and loss. Re¬
measurements of net defined benefit liability/
(asset) which comprise of the below are
recognized in other comprehensive income:

• Actuarial gains and losses;

• The return on plan assets, excluding
amounts included in net interest on the
net defined benefit liabil ity/(asset)

II) Other long term employee benefits
Compensated absences

The employees of the Company are entitled
to compensated absences which are both
accumulating and non-accumulating in nature.
Compensated absences which are not expected
to occur within twelve months after the end of
the year in which the employee renders the
related service are recognised as a liability at the
present value of the defined benefit obligation
as at the balance sheet date. The expected cost
of accumulating compensated absences is

determined by actuarial valuation based on the
additional amount expected to be paid as a result
of the unused entitlement that has accumulated
at the balance sheet date. The expenses and
actuarial gain/loss on account of the above
benefit plans are recognized in the statement of
profit and loss on the basis of actuarial valuation.

IV) Share-based payment arrangements -
Employee Stock Options

Equity-settled share-based payments to
employees are measured at the fair value of the
equity instruments at the grant date. The fair
value determined at the grant date of the equity-
settled share-based payments is expensed on a
straight-line basis over the vesting period, based
on the Company''s estimate of equity instruments
that will eventually vest, with a corresponding
increase in other equity.

In case, the company modifies the terms and
condition on which the equity instruments
were granted in a manner that is beneficial
to the employees, the incremental cost will
be recognized over the period starting from
the modification date till the date of vesting
if the modification occurs during the vesting
period. In case, modification occurs after the
vesting period, the incremental cost will be
recognized immediately.

V) Treasury Shares

The Company has created an ESOP Trust (the
‘Trust) for providing share-based payment to
its employees. The Company uses the Trust as
a vehicle for distributing shares to employees
under the Employee Stock Option Scheme. The
Trust purchase shares of the Company from
the market, for giving shares to employees. The
Company treats Trust as its extension and shares
held by the Trust are treated as treasury shares.

Own equity instruments that are re-acquired
(treasury shares) are recognized at cost and
deducted from other equity. No gain or loss is
recognized in the statement of profit and loss
on the purchase, sale, issue or cancellation of
the company''s own equity instruments. Share
options exercised during the reporting period
are settled with treasury shares. Trust reserve

represents net of income over expenditure of
the Trust.

l) Derivative financial instruments

The Company enters into derivative financial
instruments, such as cross currency swaps to
manage exposures to interest rate risk and
foreign currency risk.

Such derivative financial instruments are initially
recognized at fair value on the date which
a derivative contract is entered into and are
subsequently re-measured at fair value at each
balance sheet date. Derivatives are carried as
financial assets when the fair value is positive
and as financial liabilities when the fair value
is negative.

Any gains or losses arising from changes in the
fair value of derivatives are taken directly to
the statement of profit and loss, except for the
effective portion of cash flow hedges, which is
recognised in OCI and later reclassified to the
statement of profit and loss (if any) when the
hedge item cash flows affects the statement of
profit and loss.

Hedge Accounting

The Company makes use of derivative financial
instruments, such as cross currency swaps to
manage exposures to interest rate risk and
foreign currency risk. At the inception of a hedge
relationship, the Company formally designates
and documents the hedge relationship to which
the Company wishes to apply hedge accounting
and the risk management objective and strategy
for undertaking the hedge. The documentation
includes the Company''s risk management
objective and strategy for undertaking hedge,
the hedging/economic relationship, the hedged
item or transaction, the nature of the risk being
hedged, hedge ratio and how the Company
would assess the effectiveness of changes in
the hedging instrument''s fair value in offsetting
the exposure to changes in the hedged item''s
cash flows attributable to the hedged risk. Such
hedges are expected to be highly effective in
achieving offsetting changes in cash flows and
are assessed on regular intervals to determine

that hedge is effective throughout the financial
reporting periods for which they were designated.

Hedges that meet the criteria for hedge
accounting and qualify as cash flow hedges are
accounted as follows:

Cash Flow Hedge

A cash flow hedge is a hedge of the exposure to
variability in cash flows that is attributable to a
particular risk associated with a recognised asset
or liability and could affect profit or loss.

For designated and qualifying cash flow hedges,
the effective portion of the cumulative gain or loss
on the hedging instrument is initially recognised
directly in OCI within equity (cash flow hedge
reserve). The ineffective portion (if any) of the gain
or loss on the hedging instrument is recognised
immediately as finance cost in the statement of
profit and loss.

When the hedged cash flow affects the statement
of profit and loss, the effective portion of the gain
or loss on the hedging instrument is recorded in
the corresponding income or expense line of the
statement of profit and loss.

When a hedging instrument expires, is sold,
terminated, exercised, or when a hedge no
longer meets the criteria for hedge accounting,
any cumulative gain or loss recognised in OCI
is subsequently transferred to the statement of
profit and loss on ultimate recognition of the
underlying hedged forecast transaction. When
a forecast transaction is no longer expected
to occur, the cumulative gain or loss that was
reported in OCI is immediately transferred to the
statement of profit and loss.

m) Income Taxes

Income-tax expense comprises of current tax
(i.e. amount of tax for the period determined in
accordance with the income tax law) and deferred
tax charge or credit (reflecting the tax effects of
temporary differences between tax base and
book base). It is recognized in statement of profit
and loss except to the extent that it relates to
a business combination, or items recognized
directly in equity or in OCI.

I) Current tax

Current tax is measured at the amount expected
to be paid in respect of taxable income for the
year in accordance with the Income Tax Act,
1961. Current tax comprises the tax payable

on the taxable income or loss for the year and
any adjustment to the tax payable in respect
of previous years. It is measured using tax
rates enacted or substantively enacted at the
reporting date.

The amount of current tax reflects the best
estimate of the tax amount expected to be paid
after considering the uncertainty, if any, related
to income taxes.

Current tax assets and liabilities are offset only if,
the Company:

- has a legally enforceable right to set off the
recognized amounts; and

- intends either to settle on a net basis, or to realize
the asset and settle the liability simultaneously.

II) Deferred tax

Deferred tax is recognized in respect of
temporary differences between the carrying
amounts of assets and liabilities for financial
reporting purposes and the amounts used for
taxation purposes.

Deferred tax assets are reviewed at each
reporting date and based on management''s
judgement, are reduced to the extent that it is no
longer probable that the related tax benefit will
be realized; such reductions are reversed when
the probability of future taxable profits improves.

Unrecognized deferred tax assets are reassessed
at each reporting date and recognized to the
extent that it has become probable that future
taxable profits will be available against which
they can be used.

Deferred tax is measured at the tax rates that are
expected to be applied to temporary differences
when they reverse, using tax rates enacted or
substantively enacted at the reporting date.

The measurement of deferred tax reflects the
tax consequences that would follow from the
manner in which the Company expects, at the
reporting date, to recover or settle the carrying
amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if
the Company:

- has a legally enforceable right to set off current
tax assets against current tax liabilities; and

- the deferred tax assets and the deferred tax
liabilities relate to income taxes levied by the
same taxation authority.

n) Property, plant and equipment and
Investment property

Recognition and measurement

Property, plant and equipment (PPE) held for
use or for administrative purposes, are stated
in the balance sheet at cost less accumulated
depreciation and accumulated impairment
losses. The cost includes non-refundable taxes,
duties, freight and other incidental expenses
related to the acquisition and installation of
the respective assets. PPE is recognized when
it is probable that future economic benefits
associated with the item will flow to the
Company. Subsequent expenditure on PPE
after its purchase is capitalized if it is probable
that the future economic benefits will flow to
the enterprise.

Properties in the course of construction for
production, supply or administrative purposes
are carried at cost, less accumulated depreciation
and recognized impairment loss. Such properties
are classified to the appropriate categories of
property, plant and equipment when completed
and ready for intended use. Depreciation of
these assets, on the same basis as other property
assets, commences when the assets are ready for
their intended use.

Investment Property consists of building let out
to earn rentals. The Company follows cost model
for measurement of investment property.

Depreciation and amortization expense

Depreciation on PPE is provided using the
straight line method at the rates specified in
Schedule II to the Act. Depreciation is calculated
on a pro-rata basis from the date of installation till
the date the assets are sold or disposed.

Depreciation on vehicles given on operating
lease is provided on straight line method at rates
based on tenure of the underlying lease contracts
not exceeding 8 years. These leases are having
residual value greater than 5%, Company has
justification in place for considering the same.

For the following class of assets, based on internal
assessment, the management believes that
the useful lives as given below best represent
the period over which management expects
to use these assets. Hence the useful lives for
these assets are different from the useful lives as
prescribed under Part C of Schedule II of the Act:

The estimated useful lives, residual values and
depreciation method are reviewed at the end
of each reporting period, with the effect of
any changes in estimate accounted for on a
prospective basis.

During the year ended 31 March 2026, the
Company has changed the estimated useful life
of Laptops from 4 years to 5 years. Accordingly,
the balance written down value of said Laptops
had been depreciated over the revised remaining
useful life from the date of change.

De-recognition

An item of PPE or investment property is de¬
recognized upon disposal or when no future
economic benefits are expected to arise from
the continued use of the asset. Any gain or loss
arising on the disposal or retirement of an item of
PPE or investment property is determined as the
difference between the sales proceeds and the
carrying amount of the asset and is recognized in
statement of profit and loss.

Capital work-in-progress

PPE not ready for the intended use on the date
of the balance sheet are disclosed as "capital
work-in-progress” and carried at cost, comprising
direct cost, related incidental expenses and
attributable interest.

I ndividual assets costing less than or equal to
H 5,000/- are depreciated in full in the month
of acquisition.

o) Intangible assets

Recognition and measurement

Intangible assets with finite useful lives that
are acquired separately are capitalized and
carried at cost less accumulated amortization
and impairment losses, if any. Cost includes
non-refundable taxes, duties, freight and other
incidental expenses related to the acquisition and
installation of the respective assets. Intangible
assets are recognized when it is probable that the
future economic benefits that are attributable to
the asset will flow to the Company.

Expenditure on internally developed software is
recognized as an asset when the Company is able
to demonstrate that the product is technically and
commercially feasible, its intention and ability to
complete the development and use the software
in a manner that will generate future economic
benefits, and that it can reliably measure the
costs to complete the development.

The costs of i nternal ly developed softwa re include
all costs directly attributable to developing the
software and capitalized borrowing costs, and
are Amortized over its useful life.

Amortization

Amortization of intangible assets is recognized
on a straight-line basis over a period up to 6 years,
which is the Management''s estimate of its useful
life. The estimated useful life and amortization
method are reviewed at the end of each reporting
period, with the effect of any changes in estimate
being accounted for on a prospective basis.

De-recognition

An intangible asset is de-recognized on disposal,
or when no future economic benefits are
expected from use or disposal. Gains or losses
arising from de-recognition of an intangible
asset, measured as the difference between the
net disposal proceeds and the carrying amount
of the asset, are recognized in statement of profit
and loss when the asset is de-recognized.

Intangible assets under development

Intangible assets not ready for the intended use
on the date of balance sheet are disclosed as
"Intangible assets under development.

p) Impairment of non-financial assets

The Company''s non - financial assets including
deferred tax is assessed at each balance sheet
date whether there is any indication that an asset
may be impaired. If any such indication exists, the
Company estimates the recoverable amount of
the asset. If such recoverable amount of the asset
or the recoverable amount of the cash generating
unit to which the asset belongs is less than its
carrying amount, the carrying amount is reduced
to its recoverable amount. The reduction is
treated as an impairment loss and is recognized in
the statement of profit and loss. If at the balance
sheet date there is an indication that a previously
assessed impairment loss no longer exists, the
recoverable amount is reassessed and the asset
is reflected at the recoverable amount subject
to a maximum of depreciated historical cost.
A reversal of an impairment loss is recognized
immediately in the statement of profit and loss.

q) Foreign Currency Transactions

Transactions in currencies other than Company''s
operational currency are recorded on initial
recognition using the exchange rates prevailing
on the date of the transaction. At each Balance
Sheet date, foreign currency monetary items
are reported at the rates prevailing at the year
end and exchange differences that arise on
settlement of monetary items or on reporting
of monetary items at the closing spot rate are
recognized in the statement of profit and loss
in the period in which they arise. Non-monetary
items that are measured in terms of historical
cost in foreign currency are not retranslated.

NOTE 1: COMPANY OVERVIEW Background

Poonawalla Fincorp Limited (‘the Company’), having its registered office in Pune, India is a publicly held Non-Banking Finance Company (‘NBFC’) engaged in providing finance through its pan India branch network.

The Company is registered as a non-deposit taking NBFC as defined under Section 45-IA of the Reserve Bank of India (RBI) Act, 1934. The Company is also registered as a corporate agent under Insurance Regulatory and Development Authority of India (Registration of Corporate Agents) Regulations, 2015. Its equity shares are listed on National Stock Exchange and Bombay Stock Exchange.

Effective October 01, 2022, the Company has been categorized as NBFC-ML under the RBI Scale Based Regulation dated October 22, 2021.

NOTE 2: MATERIAL ACCOUNTING POLICY INFORMATION AND KEY ACCOUNTING ESTIMATES AND JUDGEMENTS:

a) Statement of compliance and basis of preparation

The financial statements for the year ended March 31, 2025 have been prepared by the Company in accordance with Indian Accounting Standards ("Ind AS”) notified by the Ministry of Corporate Affairs, Government of India under the Companies (Indian Accounting Standards) Rules, 2015 (as amended) notified under Section 133 of the Companies Act, 2013, (the ‘Act’) and other relevant provisions of the Act.

Further, the Company has complied with all the directions related to Implementation of Indian Accounting Standards prescribed for Non-Banking Financial Companies (NBFCs) in accordance with the RBI notification no. RBI/2019-20/170 DOR (NBFC).CC.PD.No.109/22.10.106/2019-20 dated March 13, 2020. Any application guidance/ clarifications/ directions issued by RBI or other regulators are implemented as and when they are issued/ applicable.

The financial statements are prepared and presented in the format prescribed in the Division III of Schedule III of the Act.

A summary of the material accounting policy information and other explanatory information is in accordance with the Companies (Indian Accounting Standards) Rules, 2015 (as

amended) as specified under Section 133 of the Act including applicable Ind AS and accounting principles generally accepted in India. The Company consistently applies the following accounting policies to all periods presented in these financial statements, unless otherwise stated.

The Company has prepared the financial statements on the basis that it will continue to operate as a going concern. The Management is satisfied that the company shall be able to continue its business for the foreseeable future and no material uncertainty exists that may cast significant doubt on the going concern assumption. In making this assessment, the Management has considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows and capital resources.

These financial statements have been approved by the Company’s Board of Directors and authorized for issue on April 25, 2025.

b) Functional and Presentation currency

These financial statements are presented in Indian Rupees (INR), which is the Company’s functional currency. All amounts have been denominated in crores and rounded off to the nearest two decimal, except when otherwise indicated. Amounts less than H 50,000 /- are presented as H 0.00 crores in the financial statements.

c) Historical cost convention

The financial statements have been prepared on a historical cost basis, except for the following material items:

• Certain financial assets at Fair value through other comprehensive income (FVTOCI).

• Financial instruments at Fair value through profit and loss (FVTPL) that is measured at fair value.

• Net defined benefit (asset)/ liability - fair value of plan assets less present value of defined benefit obligation.

d) Measurement of fair values

A number of Company’s accounting policies and disclosures require the measurement of fair values, for both, financial and nonfinancial assets and liabilities. The Company has established policies and procedures with respect to the measurement of fair values. Fair values

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

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

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

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

e) Significant areas ofestimation uncertainty, critical judgements and assumptions in applying accounting policies

In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities (including contingent liabilities and assets) as on the date of the financial statements and the reported income and expenses for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized prospectively.

Key sources of estimation of uncertainty at the date of financial statements, which may cause a material adjustment to the carrying amount of assets and liabilities within the next financial year are included in the following notes:

- Note 50 - impairment of financial instruments: determining inputs into the Expected Credit Loss (ECL) model, including incorporation of forward-looking information and assumptions used in estimating recoverable cash flows

- Note 49 - determination of the fair value of financial instruments with significant unobservable inputs

- Note 42 - measurement of defined benefit obligations: key actuarial assumptions

- Note 11 - recognition of deferred tax assets: availability of future taxable profit against which carry-forward tax losses can be used

Judgements:

Information about judgements made in applying policies that have the most significant effects on the amount recognized in the standalone financial statements is included in the following note:

Classification of financial assets: Assessment of the business model within which the assets are held for sale, held for sale and maturity, and held for maturity.

f) Revenue recognition

I) I nterest income from financial assets (assets on finance) is recognized on accrual basis using Effective Interest Rate (‘EIR’) method. EIR is applied on future principal of amortized cost of assets on finance. Interest income on stage 3 assets is recognized on net basis, i.e., on noncredit impaired portion.

II) The EIR is the rate that discounts the estimated future cash flows through the expected life of the financial instrument to the gross carrying amount of the financial asset. The interest income is recognized on EIR method on a time proportion basis applied on the carrying amount for financial assets including credit impaired financial assets.

III) The calculation of the effective interest rate includes transaction costs and fees paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.

IV) The ‘Amortized cost’ of a financial asset is the amount at which the financial asset is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount adjusted for any expected credit loss allowance.

V) Income from direct assignment (sale) transactions represents the present value of excess interest spread receivables on de-recognized assets computed by discounting net cash flows from such assigned pools on the date of transactions.

VI) Penal Charges are recognised on an accrual basis and other charges are treated to accrue on realization, due to uncertainty of realization and is accounted for accordingly.

VII) For revenue recognition from leasing transactions of the Company, refer Note 43 on Leases.

VIII) I ncome from collection and support services is recognized over time as the services are rendered as per the terms of the contract.

IX) Fair value changes from financial instrument measured at FVTPL are recognized in revenue from operations basis their fair valuation and provision.

X) Dividend is recognized when the right to receive the dividend is established.

XI) The Company recognises revenue from contracts with customers (other than financial assets to which Ind AS 109 ‘Financial instruments’ is applicable) based on a comprehensive assessment model as set out in Ind AS 115 ‘Revenue from contracts with customers’. Revenue is measured at the transaction price allocated to the performance obligation in accordance with Ind AS 115. The Company identifies contract(s) with a customer and its performance obligations under the contract, determines the transaction price and its allocation to the performance obligations in the contract and recognises revenue only on satisfactory completion of performance obligations.

Other income

I) Income from power generation is recognized based on the unit’s generated (point in time) as per the terms of the power purchase arrangements with respective State Electricity Boards.

II) All other items of income are accounted for on accrual basis.

g) Finance Costs

Finance costs include interest expense computed by applying the effective interest rate on respective financial instruments measured at Amortized cost. Financial instruments include bank term loans, non-convertible debentures, commercial papers, subordinated debts, perpetual debts and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Interest expense on lease liabilities is computed by applying the notional borrowing rate and has been included under finance costs. It also includes discounting charges paid for securitization transactions entered under ‘passthrough’ arrangement.

h) Financial instruments

I) Initial recognition and measurement

Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs and revenue that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through Profit and loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs and revenues of financial assets or financial liabilities carried at fair value through the Profit and loss account are recognized immediately in the Statement of Profit and Loss. Trade Receivables are measured at transaction price. Trade receivables and debt securities issued are initially recognized when they are originated.

II) Classifications Financial assets

On initial recognition, depending on the Company’s business model for managing the financial assets and its contractual cash flow characteristics, a financial asset is classified as measured at;

- Amortized cost;

- fair value through other comprehensive income (FVTOCI); or

- fair value through profit and loss (FVTPL).

Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its business model for managing financial assets.

The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.

Business model assessment

The Company makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management.

At initial recognition of a financial asset, the Company determines whether newly recognized financial assets are part of an existing business

model or whether they reflect a new business model. The frequency, volume and timing of sales of financial asset in prior periods, the reason for such sales and expectations about future sales activity are important determining factors of the business model. The Company reassess its business models each reporting period to determine whether the business models have changed since the preceding period.

Financial instruments at Amortized Cost

A financial asset is measured at amortized cost only if both of the following conditions are met:

• It is held within a business model whose objective is to hold assets in order to collect contractual cash flows.

• The contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest.

Financial assets at Fair Value through Other Comprehensive Income (‘FVTOCI’)

A financial asset is measured at FVTOCI only if both of the following conditions are met:

• It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.

• The contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest.

Financial assets at Fair Value through Profit and Loss (FVTPL)

Any financial instrument, which does not meet the criteria for categorization as at amortized cost or as FVOCI, is classified as at FVTPL.

Re-classification from Amortized Cost to FVOCI

If there are multiple sale transaction of portfolios exceeding the prescribed threshold except as allowed under Ind AS 109 i.e. for stress case scenarios, and the management estimates that the Company may continue to sell down the loan assets for the purpose of meeting other business objectives then such part of the loan assets (if specifically identified) shall be re-classified to FVOCI from Amortized Cost category.

Re-classification from FVOCI to Amortized Cost

If considerable time period has elapsed since the past sale transaction and the management estimates that there is a very limited probability of selling down the portfolio in future, other than stressed portfolio or other exceptions as allowed

under Ind AS 109, then such portfolio can be reclassified from FVOCI to Amortized Cost category.

Equity Investments

All equity investments other than equity investments in subsidiaries / associates / joint ventures are measured at FVTPL. These include all equity investments in scope of Ind AS 109. The Company accounts for its investments in subsidiaries, associates and joint ventures at cost less accumulated impairment, if any.

Financial liabilities and equity instruments

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

Financial liabilities are classified, at initial recognition, as financial liabilities at amortized cost or fair value through Profit and loss, as appropriate.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company is recognized at the proceeds received, net of directly attributable transaction costs.

III) Subsequent measurement Amortized cost

Amortized cost is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortization using the EIR method of discount or premium on acquisition and fees or costs that are an integral part of the EIR and, for financial assets, adjusted for any loss allowance.

FVTPL

These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in the statement of Profit and loss. The transaction costs and fees are also recorded related to these instruments in the statement of profit and loss.

FVTOCI

Financial assets that are held within a business model whose objective is achieved by both, selling financial assets and collecting contractual cash flows that are solely payments of principal

and interest, are subsequently measured at fair value through other comprehensive income. Fair value movements are recognized in the other comprehensive income (OCI). Interest income measured using the EIR method and impairment losses, if any are recognized in the statement of profit and loss. On derecognition, cumulative gain or loss (if any) previously recognized in OCI is reclassified from the equity to ‘other income’ in the statement of profit and loss.

IV) De-recognition of financial assets and financial liabilities

Financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily de-recognized (i.e. removed from the Company’s balance sheet) when:

• The rights to receive cash flows from the asset have expired, or

• The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company’s continuing involvement. The Company continues to recognize the assets on finance on books which has been securitized under pass through arrangement and does not meet the de-recognition criteria.

On de-recognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset de-recognized) and the sum of the consideration received (including the value of any new asset obtained less any new liability assumed) is transferred to statement of Profit and loss.

Financial liabilities

The Company de-recognizes a financial liability when its contractual obligations are discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in Profit and loss.

Securitization and Assignment

In case of transfer of loans through securitization and direct assignment transactions, the transferred loans are de-recognized and gains/losses are accounted for, only if the Company transfers substantially all risks and rewards specified in the underlying assigned loan contract.

In accordance with the Ind AS 109, on derecognition of a financial asset under assigned transactions, the difference between the carrying amount and the consideration received are recognized in the statement of profit and loss.

Equity

Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

V) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet when the Company has a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

VI) Impairment of Financial Assets

The Company recognizes loss allowances for Expected Credit Loss (ECL) on all the financial assets that are not measured at FVTPL:

ECL are probability weighted estimate of future credit losses based on the staging of the financial asset to reflect its credit risk. They are measured as follows:

• Stage 1: financial assets that are not credit impaired - as the present value of all cash shortfalls that are possible within 12 months after the reporting date.

• Stage 2: financial assets with significant increase in credit risk but not credit impaired

- as the present value of all cash shortfalls that result from all possible default events over the expected life of the financial asset.

• Stage 3: financial assets that are credit impaired

- as the difference between the gross carrying

amount and the present value of estimated cash flows.

The Company’s policy for determining significant increase in credit risk is set out in Note 50.

The Company has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument.

Management overlay is used to estimate the ECL allowance in circumstances where management believes that the existing inputs, assumptions and model techniques do not factor the related exception scenario or captures all the risk factors relevant to the Company’s lending portfolios.

To mitigate the credit risk on financial assets, the Company seeks to use collateral, where possible as per the powers conferred on the Non-Banking Finance Companies under the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (“SARFAESI”).

Financial assets are fully provided for or written off (either partially or in full) when there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof.

However, financial assets that are written off could still be subject to enforcement activities under the company’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are credited to impairment loss on actual realization from customer.

Impairment losses and releases are accounted for and disclosed separately from modification losses or gains that are accounted for as an adjustment of the financial asset’s gross carrying value.

For more details, refer Note 50.

Presentation of ECL allowance for financial asset:

ECL allowance for financial asset measured at Amortized cost or FVOCI is shown as a deduction from the gross carrying amount of the assets.

Modification of financial assets

A modification of a financial asset occurs when the contractual terms governing the cash flows of a financial asset are renegotiated or otherwise modified between initial recognition and

rental charges are also recognized over and above minimum commitment charges based on usage pattern.

II) The Company as lessee

i) Right of use assets and lease liability

The Company assesses whether a contract is or contains a lease, at inception of a contract. A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:

a) the contract involves the use of an identified asset;

b) the Company has substantially all the economic benefits from use of the asset through the period of the lease; and

c) the Company has the right to direct the use of the asset.

Recognition and initial measurement

At the lease commencement date, the Company recognizes a Right of use (“RoU”) asset and equivalent amount of lease liability. The right of use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Company, an estimate of any costs to dismantle and remove the asset at the end of the lease (if any), and any lease payments made in advance of the lease commencement date (net of any incentives received).

Subsequent measurement

The Company depreciates the right of use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right of use asset or the end of the lease term. The Company also assesses the right of use asset for impairment when such indicators exist.

At the lease commencement date, the Company measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the notional borrowing rate. Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed payments). Subsequent to initial measurement, the liability will be reduced for payments made

and increased for interest. It is re-measured to reflect any reassessment or modification, or if there are changes in the in-substance fixed payments. When the lease liability is re-measured, the corresponding adjustment is reflected in the right of use asset or is recorded in statement of Profit and loss if the carrying amount of the right of use asset has been reduced to zero.

Presentation

Lease liability and right of use assets have been separately presented in the balance sheet and lease payments have been classified as financing cash flows.

The Company has elected to account for shortterm leases and leases of low-value assets using the practical expedients. Instead of recognizing a right of use asset and lease liability, the payments in relation to these leases are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term.

ii) De-recognition

An item of right of use assets and lease liability is de-recognized upon termination of lease agreement. Any difference between the carrying amount of right of use asset and lease liability is recognized in statement of Profit and loss.

k) Employee Benefits

l) Short term employee benefits

Short term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. This includes performance linked incentives. Short term employee obligations are measured at undiscounted basis.

II) Post-employment benefits

i) Defined contribution plans

A defined contribution plan is a postemployment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligations to pay further amounts.

Provident Fund

Retirement benefit in the form of provident fund is a defined contribution scheme. Contributions paid / payable to the

recognized provident fund, which is a defined contribution scheme, are expensed as the related service is rendered by an employee and recognized as personnel expenses in statement of Profit and loss.

ii) Defined benefit plans

Gratuity

The Company’s gratuity benefit scheme is a defined benefit plan. The Company’s net obligation in respect of the gratuity benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets, if any, is deducted.

The present value of the obligation under such defined benefit plan is determined based on actuarial valuation using the Projected Accrued Benefit Method (same as Projected Unit Credit Method), which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

The obligation is measured at the present value of the estimated future cash flows. The discount rates used for determining the present value of the obligation under defined benefit plan, are based on the market yields on Government securities as at the balance sheet date. When the calculation results in a potential asset for the Company, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contribution to the plan.

The change in defined benefit plan liability is split into changes arising out of service, interest cost and re-measurements and the change in defined benefit plan asset is split between interest income and remeasurements. Changes due to service cost and net interest cost/ income is recognized in the statement of profit and loss. Remeasurements of net defined benefit liability/ (asset) which comprise of the below are recognized in other comprehensive income:

• Actuarial gains and losses;

• The return on plan assets, excluding amounts included in net interest on the net defined benefit liability / (asset)

III) Other long term employee benefits Compensated absences

The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. Compensated absences which are not expected to occur within twelve months after the end of the year in which the employee renders the related service are recognised as a liability at the present value of the defined benefit obligation as at the balance sheet date. The expected cost of accumulating compensated absences is determined by actuarial valuation based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. The expenses and actuarial gain / loss on account of the above benefit plans are recognized in the statement of profit and loss on the basis of actuarial valuation.

IV) Share-based payment arrangements -Employee Stock Options

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest, with a corresponding increase in other equity.

In case, the company modifies the terms and condition on which the equity instruments were granted in a manner that is beneficial to the employees, the incremental cost will be recognized over the period starting from the modification date till the date of vesting if the modification occurs during the vesting period. In case, modification occurs after the vesting period, the incremental cost will be recognized immediately.

V) Treasury Shares

The Company has created an ESOP Trust (the ‘Trust’) for providing share-based payment to its employees. The Company uses the Trust as a vehicle for distributing shares to employees under the Employee Stock Option Scheme. The Trust purchase shares of the Company from the market, for giving shares to employees. The

Company treats Trust as its extension and shares held by the Trust are treated as treasury shares.

Own equity instruments that are re-acquired (treasury shares) are recognized at cost and deducted from other equity. No gain or loss is recognized in the Statement of Profit and Loss on the purchase, sale, issue or cancellation of the company’s own equity instruments. Share options exercised during the reporting period are settled with treasury shares. Trust reserve represents net of income over expenditure of the Trust.

l) Derivative financial instruments

The Company enters into derivative financial instruments, such as cross currency swaps to manage exposures to interest rate risk and foreign currency risk.

Such derivative financial instruments are initially recognized at fair value on the date which a derivative contract is entered into and are subsequently re-measured at fair value at each balance sheet date. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in the fair value of derivatives are taken directly to the statement of profit and loss, except for the effective portion of cash flow hedges, which is recognised in OCI and later reclassified to the statement of profit and loss (if any) when the hedge item cash flows affects the statement of profit and loss.

Hedge Accounting

The Company makes use of derivative financial instruments, such as cross currency swaps to manage exposures to interest rate risk and foreign currency risk. At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes the Company’s risk management objective and strategy for undertaking hedge, the hedging/economic relationship, the hedged item or transaction, the nature of the risk being hedged, hedge ratio and how the Company would assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s cash flows attributable to the hedged risk. Such

hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on regular intervals to determine that hedge is effective throughout the financial reporting periods for which they were designated.

Hedges that meet the criteria for hedge accounting and qualify as cash flow hedges are accounted as follows :

Cash Flow Hedge

A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability and could affect Profit and loss.

For designated and qualifying cash flow hedges, the effective portion of the cumulative gain or loss on the hedging instrument is initially recognised directly in OCI within equity (cash flow hedge reserve). The ineffective portion (if any) of the gain or loss on the hedging instrument is recognised immediately as finance cost in the Statement of Profit and Loss.

When the hedged cash flow affects the Statement of Profit and Loss, the effective portion of the gain or loss on the hedging instrument is recorded in the corresponding income or expense line of the Statement of Profit and Loss.

When a hedging instrument expires, is sold, terminated, exercised, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss recognised in OCI is subsequently transferred to the Statement of Profit and Loss on ultimate recognition of the underlying hedged forecast transaction. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in OCI is immediately transferred to the Statement of Profit and Loss.

m) Income Tax

Income-tax expense comprises of current tax (i.e. amount of tax for the period determined in accordance with the income tax law) and deferred tax charge or credit (reflecting the tax effects of temporary differences between tax base and book base). It is recognized in statement of Profit and loss except to the extent that it relates to a business combination, or items recognized directly in equity or in OCI.

I) Current tax

Current tax is measured at the amount expected to be paid in respect of taxable income for the

year in accordance with the Income Tax Act, 1961. Current tax comprises the tax payable on the taxable income or loss for the year and any adjustment to the tax payable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date.

The amount of current tax reflects the best estimate of the tax amount expected to be paid after considering the uncertainty, if any, related to income taxes.

Current tax assets and liabilities are offset only if, the Company:

- has a legally enforceable right to set off the recognized amounts; and

- intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

II) Deferred tax

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax assets are reviewed at each reporting date and based on management’s judgement, are reduced to the extent that it is no longer probable that the related tax benefit will be realized; such reductions are reversed when the probability of future taxable profits improves.

Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if the Company:

- has a legally enforceable right to set off current tax assets against current tax liabilities; and

- the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority.

n) Property, plant and equipment and Investment property

Recognition and measurement

Property, plant and equipment (PPE) held for use or for administrative purposes, are stated in the balance sheet at cost less accumulated depreciation and accumulated impairment losses. The cost includes non-refundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets. PPE is recognized when it is probable that future economic benefits associated with the item will flow to the Company. Subsequent expenditure on PPE after its purchase is capitalized if it is probable that the future economic benefits will flow to the enterprise.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less accumulated depreciations and recognized impairment loss. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

I nvestment Property consists of building let out to earn rentals. The Company follows cost model for measurement of investment property.

Depreciation and amortization expense

Depreciation on PPE is provided using the straight line method at the rates specified in Schedule II to the Act. Depreciation is calculated on a pro-rata basis from the date of installation till the date the assets are sold or disposed.

The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

De-recognition

An item of PPE or investment property is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of PPE or investment property is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in statement of Profit and loss.

Capital work-in-progress

PPE not ready for the intended use on the date of the balance sheet are disclosed as "capital work-in-progress” and carried at cost, comprising direct cost, related incidental expenses and attributable interest.

Individual assets costing less than or equal to H 5,000/- are depreciated in full in the month of acquisition.

o) Intangible assets

Recognition and measurement

Intangible assets with finite useful lives that are acquired separately are capitalized and carried at cost less accumulated amortization

and impairment losses, if any. Cost includes non-refundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets. Intangible assets are recognized when it is probable that the future economic benefits that are attributable to the asset will flow to the Company.

Expenditure on internally developed software is recognized as an asset when the Company is able to demonstrate that the product is technically and commercially feasible, its intention and ability to complete the development and use the software in a manner that will generate future economic benefits, and that it can reliably measure the costs to complete the development.

The costs of internally developed software include all costs directly attributable to developing the software and capitalized borrowing costs, and are amortized over its useful life.

Amortization

Amortization of intangible assets is recognized on a straight-line basis over a period up to 6 years, which is the Management’s estimate of its useful life. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

De-recognition

An intangible asset is de-recognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in statement of Profit and loss when the asset is de-recognized.

Intangible assets under development

Intangible assets not ready for the intended use on the date of balance sheet are disclosed as "Intangible assets under development”.

p) Impairment of non-financial assets

The Company’s non - financial assets including deferred tax is assessed at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced

to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the statement of profit and loss. If at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost. A reversal of an impairment loss is recognized immediately in the statement of profit and loss.

q) Foreign Currency Transactions

Transactions in currencies other than Company’s operational currency are recorded on initial recognition using the exchange rates prevailing on the date of the transaction. At each Balance Sheet date, foreign currency monetary items are reported at the rates prevailing at the year end and exchange differences that arise on settlement of monetary items or on reporting of monetary items at the closing spot rate are recognized in the statement of profit and loss in the period in which they arise. Non-monetary items that are measured in terms of historical cost in foreign currency are not retranslated.

r) Provisions and contingencies related to claims, litigation, etc.

A provision is recognized if, as a result of a past event, the Company has a present obligation (legal or constructive) that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. Provisions, contingent liabilities and contingent assets are reviewed at each balance sheet date.

I) Onerous contracts

A contract is considered as onerous when the expected economic benefits to be derived by the Company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognizes any impairment loss on the assets associated with that contract.

operating segments of the Company. Refer note 53 for details on segment information presented.

w) Earnings per equity share

Basic earnings per equity share has been computed by dividing net income attributable to ordinary equity holders by the weighted average number of shares outstanding during the year. Partly paid-up equity share, if any, is included as fully paid equivalent according to the fraction paid up.

Diluted earnings per equity share has been computed using the weighted average number of shares and dilutive potential shares, except where the result would be anti-dilutive.

x) Dividend

Interim dividend declared to equity shareholders, if any, is recognized as liability in the period in which the said dividend is declared by the Board of Directors. Final dividend declared, if any, is recognized in the period in which the said dividend is approved by the Shareholders. Dividend payable is recognized directly in other equity.

y) Subsequent events

The Company evaluates all transactions and events that occur after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements, except as disclosed.

z) Recent pronouncements

Ministry of Corporate Affairs (“MCA”) notifie

Background

Poonawalla Fincorp Limited (‘the Company’), having its registered office in Pune, India is a publicly held Non-Banking Finance Company (‘NBFC’) engaged in providing finance through its pan India branch network.

The Company is registered as a non-deposit taking NBFC as defined under Section 45-IA of the Reserve Bank of India (RBI) Act, 1934. The Company is also registered as a corporate agent under Insurance Regulatory and Development Authority of India (Registration of Corporate Agents) Regulations, 2015. Its equity shares are listed on National Stock Exchange and Bombay Stock Exchange.

Effective October 01, 2022, the Company has been categorized as NBFC-ML under the RBI Scale Based Regulation dated October 22, 2021.

2. MATERIAL ACCOUNTING POLICY INFORMATION AND KEY ACCOUNTING ESTIMATES AND JUDGEMENTS:

a) Statement of compliance and basis of preparation

The financial statements for the year ended March 31, 2024 have been prepared by the Company in accordance with Indian Accounting Standards (‘Ind AS’) notified by the Ministry of Corporate Affairs, Government of India under the Companies (Indian Accounting Standards) Rules, 2015 (as amended) notified under Section 133 of the Companies Act, 2013, (the ‘Act’) and other relevant provisions of the Act.

Further, the Company has complied with all the directions related to Implementation of Indian Accounting Standards prescribed for NBFCs in accordance with the RBI notification no. RBI/2019-20/170 DOR (NBFC).CC.PD. No.109/22.10.106/2019-20 dated March 13, 2020. Any application guidance/ clarifications/ directions issued by RBI or other regulators are implemented as and when they are issued/ applicable.

The financial statements are prepared and presented in the format prescribed in the Division III of Schedule III of the Act.

A summary of the material accounting policy information and other explanatory information is in accordance with the Companies (Indian

Accounting Standards) Rules, 2015 (as amended) as specified under Section 133 of the Act including applicable Ind AS and accounting principles generally accepted in India. The Company consistently applies the following accounting policies to all periods presented in these financial statements, unless otherwise stated.

These financial statements have been approved by the Company’s Board of Directors and authorized for issue on April 29, 2024.

b) Functional and Presentation currency

These financial statements are presented in Indian Rupees (INR), which is the Company’s functional currency. All amounts have been denominated in crores and rounded off to the nearest two decimal, except when otherwise indicated.

c) Historical cost convention

The financial statements have been prepared on a historical cost basis, except for the following material items:

• Certain financial assets at Fair value through other comprehensive income (FVTOCI).

• Financial instruments at Fair value through profit and loss (FVTPL) that is measured at fair value.

• Net defined benefit (asset)/ liability - fair value of plan assets less present value of defined benefit obligation.

d) Measurement of fair values

A number of Company’s accounting policies and disclosures require the measurement of fair values, for both, financial and nonfinancial assets and liabilities. The Company has established policies and procedures with respect to the measurement of fair values. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

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

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

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

e) Significant areas of estimation uncertainty, critical judgements and assumptions in applying accounting policies

In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities (including contingent liabilities and assets) as on the date of the financial statements and the reported income and expenses for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized prospectively.

Key sources of estimation of uncertainty at the date of financial statements, which may cause a material adjustment to the carrying amount of assets and liabilities within the next financial year are included in the following notes:

- Note 50 - impairment of financial instruments: determining inputs into the Expected Credit Loss (ECL) model, including incorporation of forward-looking information and assumptions used in estimating recoverable cash flows

- Note 49 - determination of the fair value of financial instruments with significant unobservable inputs

- Note 42 - measurement of defined benefit obligations: key actuarial assumptions

- Note 10 - recognition of deferred tax assets: availability of future taxable profit against which carry-forward tax losses can be used

Judgements:

Information about judgements made in applying policies that have the most significant effects on the amount recognized in the standalone financial statements is included in the following note:

Classification of financial assets: Assessment of the business model within which the assets are held for sale, held for sale and maturity and held for maturity.

f) Revenue recognition

I ) I nterest income from financial assets (assets on

finance) is recognized on accrual basis using Effective Interest Rate (‘EIR’) method. EIR is

Other income

I) Income from power generation is recognized based on the unit’s generated (point in time) as per the terms of the power purchase arrangements with respective State Electricity Boards.

II) All other items of income are accounted for on accrual basis.

g) Finance Costs

Finance costs include interest expense computed by applying the effective interest rate on respective financial instruments measured at Amortized cost. Financial instruments include term loans, non-convertible debentures, commercial papers, subordinated debts, perpetual debts and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Interest expense on lease liabilities is computed by applying the notional borrowing rate and has been included under finance costs. It also includes discounting charges paid for securitization transactions entered under ‘passthrough’ arrangement.

h) Financial instruments

I) Initial recognition and measurement

Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs and revenue that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs and revenues of financial assets or financial liabilities carried at fair value

through the profit or loss account are recognized immediately in the Statement of profit or loss. Trade Receivables are measured at transaction price. Trade receivables and debt securities issued are initially recognized when they are originated.

II) Classifications Financial assets

On initial recognition, depending on the Company’s business model for managing the financial assets and its contractual cash flow characteristics, a financial asset is classified as measured at;

- Amortized cost;

- fair value through other comprehensive income (FVTOCI); or

- fair value through profit and loss (FVTPL).

Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its business model for managing financial assets.

The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.

Business model assessment

The Company makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management.

At initial recognition of a financial asset, the Company determines whether newly recognized financial assets are part of an existing business model or whether they reflect a new business model. The frequency, volume and timing of sales of financial asset in prior periods, the reason for such sales and expectations about future sales activity are important determining factors of the business model. The Company reassess its business models each reporting period to determine whether the business models have changed since the preceding period.

Financial instruments at Amortized Cost

A financial asset is measured at amortized cost only if both of the following conditions are met:

• It is held within a business model whose objective is to hold assets in order to collect contractual cash flows.

• The contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest.

Financial assets at Fair Value through Other Comprehensive Income (‘FVTOCI’)

A financial asset is measured at FVTOCI only if both of the following conditions are met:

• It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.

• The contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest.

Financial assets at Fair Value through Profit and Loss (FVTPL)

Any financial instrument, which does not meet the criteria for categorization as at amortized cost or as FVOCI, is classified as at FVTPL.

Re-classification from Amortized Cost to FVOCI

If there are multiple sale transaction of portfolios exceeding the prescribed threshold except as allowed under Ind AS 109 i.e. for stress case scenarios, and the management estimates that the Company may continue to sell down the loan assets for the purpose of meeting other business objectives then such part of the loan assets (if specifically identified) shall be re-classified to FVOCI from Amortized Cost category.

Re-classification from FVOCI to Amortized Cost

If considerable time period has elapsed since the past sale transaction and the management estimates that there is a very limited probability of selling down the portfolio in future, other than stressed portfolio or other exceptions as allowed under Ind AS 109, then such portfolio can be re-classified from FVOCI to Amortized Cost category.

Equity Investments

All equity investments other than equity investments in subsidiaries / associates / joint ventures are measured at FVTPL. These include all equity investments in scope of Ind AS 109. The Company accounts for its investments in subsidiaries, associates and joint ventures at cost less accumulated impairment, if any.

Financial liabilities and equity instruments

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

Financial liabilities are classified, at initial recognition, as financial liabilities at amortized cost or fair value through profit or loss, as appropriate.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company is recognized at the proceeds received, net of directly attributable transaction costs.

III) Subsequent measurement Amortized cost

Amortized cost is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortization using the EIR method of discount or premium on acquisition and fees or costs that are an integral part of the EIR and, for financial assets, adjusted for any loss allowance.

FVTPL

These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in the statement of profit or loss. The transaction costs and fees are also recorded related to these instruments in the statement of profit and loss.

FVTOCI

Financial assets that are held within a business model whose objective is achieved by both, selling financial assets and collecting contractual cash flows that are solely payments of principal and interest, are subsequently measured at fair value through other comprehensive income. Fair value movements are recognized in the other comprehensive income (OCI). Interest income measured using the EIR method and impairment losses, if any are recognized in the statement of profit and loss. On derecognition, cumulative gain or loss previously recognized in OCI is reclassified from the equity to ‘other income’ in the statement of profit and loss.

IV) De-recognition of financial assets and financial liabilities

Financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily de-recognized (i.e. removed from the Company’s balance sheet) when:

• The rights to receive cash flows from the asset have expired, or

• The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company’s continuing involvement. The Company continues to recognize the assets on finance on books which has been securitized under pass through arrangement and does not meet the de-recognition criteria.

On de-recognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset de-recognized) and the sum of the consideration received (including the value of any new asset obtained less any new liability assumed) is transferred to statement of profit or loss.

Financial liabilities

The Company de-recognizes a financial liability when its contractual obligations are discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in Statement of profit or loss.

The Company has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument.

Management overlay is used to estimate the ECL allowance in circumstances where management believes that the existing inputs, assumptions and model techniques do not factor the related exception scenario or captures all the risk factors relevant to the Company’s lending portfolios.

To mitigate the credit risk on financial assets, the Company seeks to use collateral, where possible as per the powers conferred on the Non-Banking Finance Companies under the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (“SARFAESI”).

Financial assets are fully provided for or written off (either partially or in full) when there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof.

However, financial assets that are written off could still be subject to enforcement activities under the company’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are credited to impairment loss on actual realization from customer.

I mpairment losses and releases are accounted for and disclosed separately from modification losses or gains that are accounted for as an adjustment of the financial asset’s gross carrying value.

For more details, refer Note 50.

Presentation of ECL allowance for financial asset:

ECL allowance for financial asset measured at Amortized cost or FVOCI is shown as a deduction from the gross carrying amount of the assets.

Modification of financial assets

A modification of a financial asset occurs when the contractual terms governing the cash flows of a financial asset are renegotiated or otherwise modified between initial recognition and maturity of the financial asset. A modification affects the amount and/or timing of the contractual cash flows either immediately or at a future date.

i) Non-Current Assets Held for Sale

Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and contractual rights under insurance contracts, which are specifically exempt from this requirement.

An impairment loss is recognized for any initial or subsequent write-down of the asset to fair value less costs to sell. A gain is recognized for any subsequent increases in fair value less costs to sell of an asset, but not in excess of any cumulative impairment loss previously recognized. A gain or loss not previously recognized by the date of the sale of the non-current asset is recognized at the date of de-recognition.

Non-current assets are not depreciated or amortized while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognized.

Non-current assets classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.

j) Leases

I) The Company as lessor

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Amounts due from lessees under finance leases are recognized as receivables at the amount of the Company’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Company’s net investment outstanding in respect of the leases.

Rental income from operating leases is recognized on a straight-line basis over the lease term. In certain lease arrangements, variable rental charges are also recognized over and above minimum commitment charges based on usage pattern.

II) The Company as lessee

i) Right of use assets and Lease liability

The Company assesses whether a contract is or contains a lease, at inception of a contract. A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:

a) the contract involves the use of an identified asset;

b) the Company has substantially all the economic benefits from use of the asset through the period of the lease; and

c) the Company has the right to direct the use of the asset.

Recognition and initial measurement

At the lease commencement date, the Company recognizes a Right-of-Use (“RoU”) asset and equivalent amount of lease liability. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Company, an estimate of any costs to dismantle and remove the asset at the end of the lease (if any), and any lease payments made in advance of the lease commencement date (net of any incentives received).

Subsequent measurement

The Company depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Company also assesses the right-of-use asset for impairment when such indicators exist.

At the lease commencement date, the Company measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the notional borrowing rate. Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed payments). Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is re-measured to reflect any reassessment or modification, or if there are changes in the in-substance

ii) Defined benefit plans Gratuity

The Company’s gratuity benefit scheme is a defined benefit plan. The Company’s net obligation in respect of the gratuity benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets, if any, is deducted.

The present value of the obligation under such defined benefit plan is determined based on actuarial valuation using the Projected Accrued Benefit Method (same as Projected Unit Credit Method), which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

The obligation is measured at the present value of the estimated future cash flows. The discount rates used for determining the present value of the obligation under defined benefit plan, are based on the market yields on Government securities as at the balance sheet date. When the calculation results in a potential asset for the Company, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contribution to the plan.

The change in defined benefit plan liability is split into changes arising out of service, interest cost and re-measurements and the change in defined benefit plan asset is split between interest income and remeasurements. Changes due to service cost and net interest cost/ income is recognized in the statement of profit and loss. Re-measurements of net defined benefit liability/ (asset) which comprise of the below are recognized in other comprehensive income:

• Actuarial gains and losses;

• The return on plan assets, excluding amounts included in net interest on the net defined benefit liability / (asset)

III) Other long term employee benefits

Compensated absences

The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. The expenses and actuarial gain / loss on account of the above benefit plans are recognized in the statement of profit and loss on the basis of actuarial valuation.

IV) Share-based payment arrangements -Employee Stock Options

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest, with a corresponding increase in other equity.

In case, the company modifies the terms and condition on which the equity instruments were granted in a manner that is beneficial to the employees, the incremental cost will be recognized over the period starting from the modification date till the date of vesting if the modification occurs during the vesting period. In case, modification occurs after the vesting period, the incremental cost will be recognized immediately.

V) Treasury Shares

The Company has created an ESOP Trust (the ‘Trust) for providing share-based payment to its employees. The Company uses the Trust as a vehicle for distributing shares to employees under the Employee Stock Option Scheme. The Trust purchase shares of the Company from the market, for giving shares to employees. The Company treats Trust as its extension and the standalone financial statements includes the financial statements of Trust. The shares held by the Trust are treated as treasury shares.

Own equity instruments that are reacquired (treasury shares) are recognized at cost and deducted from other equity. No gain or loss is recognized in the Statement of Profit and Loss on the purchase, sale, issue or cancellation of the company’s own equity instruments. Share options exercised during the reporting period are settled with treasury shares.

l) Income Taxes

Income-tax expense comprises of current tax (i.e. amount of tax for the period determined in accordance with the income tax law) and deferred tax charge or credit (reflecting the tax effects of temporary differences between tax base and book base). It is recognized in statement of profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in OCI.

I) Current tax

Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income Tax Act, 1961. Current tax comprises the tax payable on the taxable income or loss for the year and any adjustment to the tax payable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date.

The amount of current tax reflects the best estimate of the tax amount expected to be paid after considering the uncertainty, if any, related to income taxes.

Current tax assets and liabilities are offset only if, the Company:

- has a legally enforceable right to set off the recognized amounts; and

- intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

II) Deferred tax

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax assets are reviewed at each reporting date and based on management’s judgement, are reduced to the extent that it is no longer probable that the related tax benefit will

Investment Property consists of building let out to earn rentals. The Company follows cost model for measurement of investment property.

Depreciation and amortization expense

Depreciation on PPE is provided using the straight-line method at the rates specified in Schedule II to the Act. Depreciation is calculated on a pro-rata basis from the date of installation till the date the assets are sold or disposed.

Freehold land is not depreciated.

Depreciation on vehicles given on operating lease is provided on straight line method at rates based on tenure of the underlying lease contracts not exceeding 8 years.

For the following class of assets, based on internal assessment, the management believes that the useful lives as given below best represent the period over which management expects to use these assets. Hence the useful life for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Act:

Desktop, scanner and UPS 6 years

Laptops / Handheld Device 4 years

Leasehold improvements 10 years

The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

When significant parts of an item of PPE have different useful lives, they are accounted for as separate items (major components) of PPE.

De-recognition

An item of PPE or investment property is derecognized upon disposal or when no future economic benefits are expected to arise from

the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of PPE or investment property is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in statement of profit or loss.

Capital work-in-progress

PPE not ready for the intended use on the date of the balance sheet are disclosed as "capital work-in-progress” and carried at cost, comprising direct cost, related incidental expenses and attributable interest.

I ndividual assets costing less than or equal to '' 5,000/- are depreciated in full in the month of acquisition.

n) Intangible assets

Recognition and measurement

Intangible assets with finite useful lives that are acquired separately are capitalized and carried at cost less accumulated amortization and impairment losses, if any. Cost includes non-refundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets. Intangible assets are recognized when it is probable that the future economic benefits that are attributable to the asset will flow to the Company.

Expenditure on internally developed software is recognized as an asset when the Company is able to demonstrate that the product is technically and commercially feasible, its intention and ability to complete the development and use the software in a manner that will generate future economic benefits, and that it can reliably measure the costs to complete the development.

The costs of internally developed software include all costs directly attributable to developing the software and capitalized borrowing costs and are Amortized over its useful life.

Amortization

Amortization of intangible assets is recognized on a straight-line basis over a period of 6 years, which is the Management’s estimate of its useful life. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

De-recognition

An intangible asset is de-recognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in statement of profit or loss when the asset is de-recognized.

Intangible assets under development

Intangible assets not ready for the intended use on the date of balance sheet are disclosed as "Intangible assets under development.

o) Impairment of non-financial assets

The Company’s non - financial assets including deferred tax is assessed at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the statement of profit and loss. If at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost. A reversal of an impairment loss is recognized immediately in the statement of profit and loss. Goodwill is tested annually for impairment.

p) Foreign Currency Transactions

Transactions in currencies other than Company’s operational currency are recorded on initial recognition using the exchange rates prevailing on the date of the transaction. The foreign currency borrowing being a monetary liability is restated to INR (being the functional currency of the Company) at the prevailing rates of exchange at the end of every reporting period with the corresponding exchange gain/ loss being recognized in statement of profit or loss. Exchange differences that arise on settlement of monetary items or on reporting of monetary items at each balance sheet date at the closing spot rate are recognized in the statement of profit and loss in the period in which they arise.

Contingent assets are disclosed in the financial statements where an inflow of economic benefits is probable.

s) Cash and cash equivalents

For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts.

t) Cash flow statement

Cash flows are reported using the indirect method, whereby net profit before tax is adjusted for the effects of transactions of noncash future, any deferrals or accruals of past or future operating cash receipts or payments and item of expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated.

u) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (CODM) of the Company. The CODM is responsible for allocating resources and assessing performance of the operating segments of the Company. Refer note 53 for details on segment information presented.

v) Earnings per equity share

Basic earnings per equity share has been computed by dividing net income attributable to

1. Company Overview Background

Poonawalla Fincorp Limited (Formerly Magma Fincorp Limited) (‘the Company’), having its registered office in Pune, India is a publicly held Non-Banking Finance Company (‘NBFC’) engaged in providing finance through its pan India branch network.

The Company is registered as a systemically important non-deposit taking NBFC as defined under Section 45-IA of the Reserve Bank of India (RBI) Act, 1934. The Company is also registered as a corporate agent under Insurance Regulatory and Development Authority of India (Registration of Corporate Agents) Regulations, 2015. Its equity shares are listed on National Stock Exchange and Bombay Stock Exchange.

Effective October 1, 2022, the Company has been categorised as NBFC-ML under the RBI Scale Based Regulation dated October 22, 2021.

2. Significant Accounting Policies and Key Accounting Estimates and Judgements:a) Statement of compliance and basis of preparation

The financial statements for the year ended March 31, 2023 have been prepared by the Company in accordance with Indian Accounting Standards (‘Ind AS’) notified by the Ministry of Corporate Affairs, Government of India under the Companies (Indian Accounting Standards) Rules, 2015 notified under Section 133 of the Companies Act, 2013, (the ''Act'') and other relevant provisions of the Act.

Further, the Company has complied with all the directions related to implementation of Indian Accounting Standards prescribed for Non-Banking Financial Companies (NBFCs) in accordance with the RBI notification no. RBI/2019-20/170 DOR (NBFC).CC.PD.No.109/22.10.106/2019-20 dated March 13, 2020. Any application guidance/ clarifications/ directions issued by RBI or other regulators are implemented as and when they are issued/ applicable.

The financial statements are prepared and presented in the format prescribed in the Division III of Schedule III of the Act.

A summary of the significant accounting policies and other explanatory information is in accordance with the Companies (Indian Accounting Standards)

e) Significant areas of estimation uncertainty, critical judgements and assumptions in applying accounting policies

In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities (including contingent liabilities and assets) as on the date of the financial statements and the reported income and expenses for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.

Key sources of estimation of uncertainty at the date of financial statements, which may cause a material adjustment to the carrying amount of assets and liabilities within the next financial year are included in the following notes:

- Note 50 - impairment of financial instruments: determining inputs into the Expected Credit Loss (ECL) model, including incorporation of forward-looking information and assumptions used in estimating recoverable cash flows

- Note 49 - determination of the fair value of financial instruments with significant unobservable inputs

- Note 42 - measurement of defined benefit obligations: key actuarial assumptions

- Note 10 - recognition of deferred tax assets: availability of future taxable profit against which carry-forward tax losses can be used

Judgements:

Information about judgements made in applying policies that have the most significant effects on the amount recognised in the standalone financial statements is included in the following note:

Classification of financial assets: Assessment of the business model within which the assets are held for sell, held for sell and maturity and held for maturity.

f) Revenue recognition

I) Interest income from financial assets (assets on finance) is recognised on accrual basis

using Effective Interest Rate (‘EIR’) method. EIR is applied on future principal of amortised cost of assets on finance. Interest income on stage 3 assets is recognised on net basis, i.e. on non-credit impaired portion.

II) The EIR is the rate that discounts the estimated future cash flows through the expected life of the financial instrument to the gross carrying amount of the financial asset. The interest income is recognised on EIR method on a time proportion basis applied on the carrying amount for financial assets including credit impaired financial assets.

III) The calculation of the effective interest rate includes transaction costs and fees paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.

IV) The ‘Amortised cost’ of a financial asset is the amount at which the financial asset is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount adjusted for any expected credit loss allowance.

V) Income from direct assignment (sale) transactions represents the present value of excess interest spread receivables on derecognised assets computed by discounting net cash flows from such assigned pools on the date of transactions.

VI) Overdue interest and other charges are treated to accrue on realisation, due to uncertainty of realisation and is accounted for accordingly.

VII) For revenue recognition from leasing transactions of the Company, refer Note 43 on Leases.

VIII) Income from collection and support services is recognised over time as the services are rendered as per the terms of the contract.

IX) Fair value changes from financial instrument measured at FVTPL are recognised in revenue from operations basis their fair valuation and provision.

X) Dividend is recognised when the right to receive the dividend is established.

Other income

I) Income from power generation is recognised based on the unit’s generated (point in time) as per the terms of the power purchase arrangements with respective State Electricity Boards.

II) All other items of income are accounted for on accrual basis.

g) Finance Costs

Finance costs include interest expense computed by applying the effective interest rate on respective financial instruments measured at Amortised cost. Financial instruments include bank term loans, non-convertible debentures, commercial papers, subordinated debts, perpetual debts and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Interest expense on lease liabilities is computed by applying the notional borrowing rate and has been included under finance costs. It also includes discounting charges paid for securitisation transactions entered under ‘pass-through’ arrangement.

h) Financial instruments

I) Initial recognition and measurement

Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs and revenue that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs and revenues of financial assets or financial liabilities carried at fair value through the profit or loss account are recognised immediately in the Statement of Profit or Loss. Trade Receivables are measured at transaction price. Trade receivables and debt securities issued are initially recognised when they are originated.

II) Classifications Financial assets

On initial recognition, depending on the Company’s business model for managing the financial assets and its contractual cash flow characteristics, a financial asset is classified as measured at;

- Amortised cost;

- fair value through other comprehensive income (FVTOCI); or

- fair value through profit and loss (FVTPL).

Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its business model for managing financial assets.

The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.

Business model assessment

The Company makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management.

At initial recognition of a financial asset, the Company determines whether newly recognised financial assets are part of an existing business model or whether they reflect a new business model. The frequency, volume and timing of sales of financial asset in prior periods, the reason for such sales and expectations about future sales activity are important determining factors of the business model. The Company reassess its business models each reporting period to determine whether the business models have changed since the preceding period.

Financial instruments at Amortised Cost

A financial asset is measured at amortised cost only if both of the following conditions are met:

• It is held within a business model whose objective is to hold assets in order to collect contractual cash flows.

• The contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest.

Financial assets at Fair Value through Other Comprehensive Income (‘FVTOCI’)

A financial asset is measured at FVTOCI only if both of the following conditions are met:

• I t is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.

• The contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest.

Financial assets at Fair Value through Profit and Loss (FVTPL)

Any financial instrument, which does not meet the criteria for categorisation as at amortised cost or as FVOCI, is classified as at FVTPL.

Re-classification from Amortised Cost to FVOCI

If there are multiple sale transaction of portfolios exceeding the prescribed threshold except as allowed under Ind AS 109 i.e. for stress case scenarios, and the management estimates that the Company may continue to sell down the loan assets for the purpose of meeting other business objectives then such part of the loan assets (if specifically identified) shall be re-classified to FVOCI from Amortised Cost category.

Re-classification from FVOCI to Amortised Cost

If considerable time period has elapsed since the past sale transaction and the management estimates that there is a very limited probability of selling down the portfolio in future, other than stressed portfolio or other exceptions as allowed under Ind AS 109, then such portfolio can be re-classified from FVOCI to Amortised Cost category.

Equity Investments

All equity investments other than equity investments in subsidiaries / associates / joint ventures are measured at FVTPL. These include all equity investments in scope of Ind AS 109. The Company accounts for its investments in subsidiaries, associates and joint ventures at cost less accumulated impairment, if any.

Financial liabilities and equity instruments

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

Financial liabilities are classified, at initial recognition, as financial liabilities at amortised cost or fair value through profit or loss, as appropriate.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company is recognised at the proceeds received, net of directly attributable transaction costs.

III) Subsequent measurement Amortised cost

Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the EIR method of discount or premium on acquisition and fees or costs that are an integral part of the EIR and, for financial assets, adjusted for any loss allowance.

FVTPL

These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in the statement of profit or loss. The transaction costs and fees are also recorded related to these instruments in the statement of profit and loss.

FVTOCI

Financial assets that are held within a business model whose objective is achieved by both, selling financial assets and collecting contractual cash flows that are solely payments of principal and interest, are subsequently measured at fair value through other comprehensive income. Fair value movements are recognised in the other comprehensive income (OCI). Interest income measured using the EIR method and impairment losses, if any are recognised in the statement of profit and loss. On derecognition, cumulative gain or loss previously recognised in OCI is reclassified

from the equity to ‘other income’ in the statement of profit and loss.

IV) Derecognition of financial assets and financial liabilities

Financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Company’s balance sheet) when:

• The rights to receive cash flows from the asset have expired, or

• The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Company’s continuing involvement. The Com pany continues to recognise the assets on finance on books which has been securitised under pass through arrangement and does not meet the derecognition criteria.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of the consideration received (including the value of any new asset obtained less any new liability assumed) is transferred to statement of Profit or loss.

Financial liabilities

The Company derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Securitisation and Assignment

In case of transfer of loans through secu ritisation and direct assignment transactions, the transferred loans are derecognised and gains/losses are accounted for, only if the Company transfers substantially all risks and rewards specified in the underlying assigned loan contract.

In accordance with the Ind AS 109, on derecognition of a financial asset under assigned transactions, the difference between the carrying amount and the consideration received are recognised in the statement of profit and loss.

Equity

Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs.

V) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet when the Company has a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

VI) Impairment of Financial Assets

The Company recognises loss allowances for Expected Credit Loss (ECL) on all the financial assets that are not measured at FVTPL.

ECL are probability weighted estimate of future credit losses based on the staging of the financial asset to reflect its credit risk. They are measured as follows:

• Stage 1: financial assets that are not credit impaired - as the present value of all cash shortfalls that are possible within 12 months after the reporting date.

• Stage 2: financial assets with significant increase in credit risk but not credit impaired - as the present value of all cash shortfalls that result from all possible default events over the expected life of the financial asset.

• Stage 3: financial assets that are credit impaired - as the difference between the gross carrying amount and the present value of estimated cash flows.

The Company’s policy for determining significant increase in credit risk is set out in Note 50(ii)(g).

The Company has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument.

Management overlay is used to estimate the ECL allowance in circumstances where management believes that the existing inputs, assumptions and model techniques do not factor the related exception scenario or captures all the risk factors relevant to the Company''s lending portfolios.

To mitigate the credit risk on financial assets, the Company seeks to use collateral, where possible as per the powers conferred on the Non-Banking Finance Companies under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (“SARFAESI”).

Financial assets are fully provided for or written off (either partially or in full) when there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof.

However, financial assets that are written off could still be subject to enforcement activities under the Company’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are credited to impairment loss on actual realisation from customer.

Impairment losses and releases are accounted for and disclosed separately from modification losses or gains that are accounted for as an adjustment of the financial asset’s gross carrying value.

For more details, refer Note 50 (ii).

Presentation of ECL allowance for financial asset:

ECL allowance for financial asset measured at Amortised cost or FVOCI is shown as a deduction from the gross carrying amount of the assets.

Modification of financial assets

A modification of a financial asset occurs when the contractual terms governing the cash flows of a financial asset are renegotiated or otherwise modified between initial recognition and maturity of the financial asset. A modification affects the amount and/ or timing of the contractual cash flows either immediately or at a future date.

i) Non-Current Assets Held for Sale

Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and contractual rights under insurance contracts, which are specifically exempt from this requirement.

An impairment loss is recognised for any initial or subsequent write-down of the asset to fair value less costs to sell. A g ain is recog nised for any subsequent increases in fair value less costs to sell of an asset, but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset is recognised at the date of derecognition.

Non-current assets are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised.

Non-current assets classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.

Subsequent measurement

The Company depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Company also assesses the right-of-use asset for impairment when such indicators exist.

At the lease commencement date, the Company measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the notional borrowing rate. Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed payments). Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is re-measured to reflect any reassessment or modification, or if there are changes in the in-substance fixed payments. When the lease liability is re-measured, the corresponding adjustment is reflected in the right-of-use asset or is recorded in statement of profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

Presentation

Lease liability and right of use assets have been separately presented in the balance sheet and lease payments have been classified as financing cash flows.

The Company has elected to account for shortterm leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these leases are recognised as an expense in the statement of profit and loss on a straight-line basis over the lease term.

ii) Derecognition

An item of right of use assets and lease liability is derecognised upon termination of lease agreement. Any difference between the carrying amount of right of use asset and lease liability is recognised in statement of profit or loss.

k) Employee Benefits

l) Short-term employee benefits

Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Company

has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. This includes performance linked incentives. Short-term employee obligations are measured at undiscounted basis.

II) Post-employment benefits

i) Defined contribution plans

A defined contribution plan is a postemployment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligations to pay further amounts.

Provident Fund

Contributions paid / payable to the recognised provident fund, which is a defined contribution scheme, are expensed as the related service is provided and recognised as personnel expenses in statement of profit or loss.

ii) Defined benefit plans Gratuity

The Company’s gratuity benefit scheme is a defined benefit plan. The Company’s net obligation in respect of the gratuity benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets, if any, is deducted.

The present value of the obligation under such defined benefit plan is determined based on actuarial valuation using the Projected Accrued Benefit Method (same as Projected Unit Credit Method), which recognises each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

The obligation is measured at the present value of the estimated future cash flows. The discount rates used for determining the present value of the obligation under defined benefit plan, are based on the market yields on Government securities as at the balance sheet date. When the calculation results in a potential asset for the Company, the recognised asset is limited to the present value of economic benefits available in the form of any future

refunds from the plan or reductions in future contribution to the plan.

The change in defined benefit plan liability is split into changes arising out of service, interest cost and re-measurements and the change in defined benefit plan asset is split between interest income and re-measurements. Changes due to service cost and net interest cost/ income is recognised in the statement of profit and loss. Re-measurements of net defined benefit liability/ (asset) which comprise of the below are recognised in other comprehensive income:

• Actuarial gains and losses;

• The return on plan assets, excluding amounts included in net interest on the net defined benefit liability/(asset)

III) Other long-term employee benefits Compensated absences

The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. The expenses and actuarial gain / loss on account of the above benefit plans are recognised in the statement of profit and loss on the basis of actuarial valuation.

IV) Share-based payment arrangements - Employee Stock Options

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straightline basis over the vesting period, based on the Company''s estimate of equity instruments that will eventually vest, with a corresponding increase in other equity.

I n case, the Company modifies the terms and condition on which the equity instruments were granted in a manner that is beneficial to the employees, the incremental cost will be recognised over the period starting from the modification date till the date of vesting if the modification occurs during the vesting period. In case, modification

occurs after the vesting period, the incremental cost will be recognised immediately.

l) Income Taxes

Income-tax expense comprises of current tax (i.e. amount of tax for the period determined in accordance with the income tax law) and deferred tax charge or credit (reflecting the tax effects of temporary differences between tax base and book base). It is recognised in statement of profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in OCI.

I) Current tax

Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income Tax Act, 1961. Current tax comprises the tax payable on the taxable income or loss for the year and any adjustment to the tax payable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date.

The amount of current tax reflects the best estimate of the tax amount expected to be paid after considering the uncertainty, if any, related to income taxes.

Current tax assets and liabilities are offset only if, the Company:

- has a legally enforceable right to set off the recognised amounts; and

- intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

II) Deferred tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax assets are reviewed at each reporting date and based on management’s judgement, are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves.

Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if the Company:

- has a legally enforceable right to set off current tax assets against current tax liabilities; and

- the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority.

m) Property, plant and equipment and Investment property

Recognition and measurement

Property, plant and equipment (PPE) held for use or for administrative purposes, are stated in the balance sheet at cost less accumulated depreciation and accumulated impairment losses. The cost includes non-refundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets. PPE is recognised when it is probable that future economic benefits associated with the item will flow to the Company. Subsequent expenditure on PPE after its purchase is capitalised if it is probable that the future economic benefits will flow to the enterprise.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less accumulated depreciations and recognised impairment loss. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Investment Property consists of building let out to earn rentals. The Company follows cost model for measurement of investment property.

Depreciation and amortisation expense

Depreciation on PPE is provided using the straight-line method at the rates specified in

Capital work-in-progress

PPE not ready for the intended use on the date of the balance sheet are disclosed as ‘capital work-in-progress’ and carried at cost, comprising direct cost, related incidental expenses and attributable interest.

n) Intangible assets

Recognition and measurement

Intangible assets with finite useful lives that are acquired separately are capitalised and carried at cost less accumulated amortisation and impairment losses, if any. Cost includes non-refundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets. Intangible assets are recognised when it is probable that the future economic benefits that are attributable to the asset will flow to the Company.

Expenditure on internally developed software is recognised as an asset when the Company is able to demonstrate that the product is technically and commercially feasible, its intention and ability to complete the development and use the software in a manner that will generate future economic benefits, and that it can reliably measure the costs to complete the development.

The costs of internally developed software include all costs directly attributable to developing the software and capitalised borrowing costs, and are Amortised over its useful life.

Amortisation

Amortisation of intangible assets is done recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Derecognition

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, is recognised in statement of profit or loss when the asset is derecognised.

Intangible assets under development

Intangible assets not ready for the intended use on the date of balance sheet are disclosed as ‘Intangible assets under development’.

o) Impairment of non-financial assets

The Company’s non-financial assets including deferred tax is assessed at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of profit and loss. If at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost. A reversal of an impairment loss is recognised immediately in the statement of profit and loss. Goodwill is tested annually for impairment.

p) Foreign Currency Transactions

Transactions in currencies other than Company’s operational currency are recorded on initial recognition using the exchange rates prevailing on the date of the transaction. The foreign currency borrowing being a monetary liability is restated to INR (being the functional currency of the Company) at the prevailing rates of exchange at the end of every reporting period with the corresponding exchange gain/ loss being recognised in statement of profit or loss. Exchange differences that arise on settlement of monetary items or on reporting of monetary items at each balance sheet date at the closing spot rate are recognised in the statement of profit and loss in the period in which they arise.

q) Provisions and contingencies related to claims, litigation, etc.

A provision is recognised if, as a result of a past event, the Company has a present obligation (legal or constructive) that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the present value of management''s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that

t) Cash flow statement

Cash flows are reported using the indirect method, whereby net profit before tax is adjusted for the effects of transactions of non-cash future, any deferrals or accruals of past or future operating cash receipts or payments and item of expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated.

u) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (CODM) of the Company. The CODM is responsible for allocating resources and assessing performance of the operating segments of the Company. Refer note 53 for details on segment information presented.

v) Earnings per equity share

Basic earnings per equity share has been computed by dividing net income attributable to ordinary equity holders by the weighted average number of shares outstanding during the year. Partly paid-up equity share, if any, is included as fully paid equivalent according to the fraction paid up.

Diluted earnings per equity share has been computed using the weighted average number of shares and dilutive potential shares, except where the result would be anti-dilutive.

w) Dividend

Interim dividend declared to equity shareholders, if any, is recognised as liability in the period in which the said dividend is declared by the Board of Directors. Final dividend declared, if any, is recognised in the period in which the said dividend is approved by the Shareholders. Dividend payable is recognised directly in other equity.

x) Subsequent events

The Company evaluates all transactions and events that occur after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognised or non-recognised subsequent events that would have required adjustment or disclosure in the consolidated financial statements, except as disclosed.

y) Recent pronouncements

The Ministry of Corporate Affairs has vide notification dated March 31, 2023 notified Companies (Indian Accounting Standards) Amendment Rules, 2023

(the ‘Rules’) which amends certain accounting standards, and are effective April 1, 2023.

The brief changes pursuant to the notification are as follows -

Disclosures of Accounting Policies - Amendments to Ind AS 1, Presentation of Financial Statements

• Replaced the term ‘significant’ with ‘material’.

• Requires entities to disclose their material accounting policy information instead of their significant accounting policies since ‘material’ is defined in Ind AS and is well understood by stakeholders.

• Provide guidance in determining whether accounting policy information is material or not.

Definition of Accounting Estimates - Amendments to Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors

• Replaced the definition of ‘a change in accounting estimate’ with a definition of ‘accounting estimates’

• Introduced the definition of ‘Accounting Estimates’ to help entities distinguish changes in accounting estimates from changes in accounting policies.

• Prescribed that a change in accounting estimate may result from new information or new developments and is not the correction of an error; and the effects of a change in an input or in a measurement technique used to develop an accounting estimate are changes in accounting estimates unless they result from the correction of prior period errors.

Deferred Tax related to Assets and Liabilities arising from a single transaction - Amendments to Ind AS 12, Income Taxes.

The amendments narrow the scope of the recognition exemption in paragraphs 15 and 24 of Ind AS 12 so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences, for example-in case of leases and decommissioning obligations.

The rules predominantly amend Ind AS 12, Income taxes, and Ind AS 1, Presentation of financial statements. The other amendments to Ind AS notified by these rules are primarily in the nature of clarifications. These amendments are not expected to have a material impact on the Company in the current or future reporting periods and on foreseeable future transactions.

Note 1: Company Overview Background

Poonawalla Fincorp Limited (Formerly Magma Fincorp Limited) (‘the Company’), having its registered office in Pune, india is a publicly held Non-Banking Finance Company (‘NBFC’) engaged in providing finance through its pan india branch network.

The Company is registered as a systemically important non-deposit taking NBFC as defined under Section 45-iA of the Reserve Bank of india (RBI) Act, 1934. The Company is also registered as a corporate agent under insurance Regulatory and Development Authority of india (Registration of Corporate Agents) Regulations, 2015. its equity shares are listed on National Stock Exchange and Bombay Stock Exchange.

On 6 May, 2021, the Company has allotted 493,714,286 equity shares of face value of H 2 each to Rising Sun Holdings Private Limited (RSHPL), Mr. Sanjay Chamria and Mr. May,ank Poddar on preferential basis, aggregating to H 345,600 lacs, including premium of H 68 per share. Pursuant to the said allotment, RSHPL has become the largest shareholder of the Company and shall exercise control over the Company. The name of the Company has changed w.e.f 22 July, 2021 from Magma Fincorp Limited to Poonawalla Fincorp Limited. Consequently, Poonawalla Fincorp Limited (Formerly Magma Fincorp Limited) has become a subsidiary of RSHPL and Poonawalla Housing Finance Limited (formerly Magma Housing Finance Limited) has become a step down subsidiary of RSHPL.

Further, during the year, the Regional Director (Eastern region), Ministry of Corporate Affairs (‘the MCA) vide their order dated 15 December, 2021 has approved the change in registered office of the Company from Kolkata, West Bengal to Pune, Maharashtra.

note 2: Significant Accounting Policies and Key Accounting Estimates and Judgements:

a) Statement of compliance and basis of preparation

The financial statements for the year ended 31 March, 2022 have been prepared by the Company in accordance with indian Accounting Standards ("ind AS”) notified by the Ministry of Corporate Affairs, Government of india under the Companies (indian Accounting Standards) Rules, 2015 notified under Section 133 of the Companies Act, 2013, (the ‘Act’) and other relevant provisions of the Act.

Further, the Company has complied with all the directions related to implementation of indian Accounting Standards prescribed for Non-Banking Financial Companies (NBFCs) in accordance with the RBi notification no. RBi/2019-20/170 DOR NBFC) CC.PD.No.109/22.10.106/2019-20 dated 13 March, 2020. Any application guidance/ clarifications/ directions issued by RBi or other regulators are implemented as and when they are issued/ applicable.

The financial statements are prepared and presented in the format prescribed in the Division iii of Schedule iii of the Act.

A summary of the significant accounting policies and other explanatory information is in accordance with the Companies (indian Accounting Standards) Rules, 2015 as specified under Section 133 of the Act including applicable ind AS and accounting principles generally accepted in india. The Company consistently applies the following accounting policies to all periods presented in these financial statements, unless otherwise stated.

These financial statements have been approved by the Company’s Board of Directors and authorized for issue on 12 May, 2022.

b) Functional and Presentation currency

These financial statements are presented in indian Rupees (iNR), which is the Company’s functional currency. All amounts have been denominated in lacs and rounded off to the nearest two decimal, except when otherwise indicated.

c) Historical cost convention

The financial statements have been prepared on a historical cost basis, except for the following material items: » certain financial assets at Fair value through other comprehensive income (FVTOG).

» Financial instruments at Fair value through profit and loss (FVTPL) that is measured at fair value » Net defined benefit (asset)/ liability - fair value of plan assets less present value of defined benefit obligation

d) Measurement of fair values

A number of company’s accounting policies and disclosures require the measurement of fair values, for both, financial and non-financial assets and liabilities. The Company has established policies and procedures with respect to the measurement of fair values. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

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

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

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

e) Significant areas of estimation uncertainty, critical judgements and assumptions in applying accounting policies

in preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities (including contingent liabilities and assets) as on the date of the financial statements and the reported income and expenses for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized prospectively.

Key sources of estimation of uncertainty at the date of financial statements, which may cause a material adjustment to the carrying amount of assets and liabilities within the next financial year are included in the following notes:

- Note 48 - impairment of financial instruments: determining inputs into the Expected Credit Loss (ECL) model, including incorporation of forward-looking information and assumptions used in estimating recoverable cash flows

- note 47 - determination of the fair value of financial instruments with significant unobservable inputs

- note 40 - measurement of defined benefit obligations: key actuarial assumptions

- note 10 - recognition of deferred tax assets: availability of future taxable profit against which carry-forward tax losses can be used

Judgements:

information about judgements made in applying policies that have the most significant effects on the amount recognized in the standalone financial statements is included in the following note:

Classification of financial assets: Assessment of the business model within which the assets are held for sell, held for sell and maturity and held for maturity.

f) Revenue recognition

i) interest income from financial assets (assets on finance) is recognized on accrual basis using Effective interest Rate (‘EiR’) method. ElR is applied on future principal of amortized cost of assets on finance. interest income on stage 3 assets is recognized on net basis, i.e., on non-credit impaired portion.

ii) The EIR is the rate that discounts the estimated future cash flows through the expected life of the financial instrument to the gross carrying amount of the financial asset. the interest income is recognized on EIR method on a time proportion basis applied on the carrying amount for financial assets including credit impaired financial assets.

iii) the calculation of the effective interest rate include transaction costs and fees paid or received that are an integral part of the effective interest rate. transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.

iV) the ‘Amortized cost’ of a financial asset is the amount at which the financial asset is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount adjusted for any expected credit loss allowance.

V) the ‘gross carrying amount of a financial asset’ is the Amortized cost of a financial asset before adjusting for any expected credit loss allowance.

VI) Income from direct assignment (sale) transactions represents the present value of excess interest spread receivables on de-recognized assets computed by discounting net cash flows from such assigned pools on the date of transactions.

VII) Overdue interest and other charges are treated to accrue on realization, due to uncertainty of realization and is accounted for accordingly.

VIII) For revenue recognition from leasing transactions of the Company, refer Note 41 on Leases.

IX) Income from collection and support services is recognized over time as the services are rendered as per the terms of the contract.

X) Fair value changes from financial instrument measured at FVTPL are recognized in revenue from operations basis their fair valuation and provision.

XI) Income from power generation is recognized based on the unit’s generated (point in time) as per the terms of the power purchase arrangements with respective State Electricity Boards.

XII) Dividend is recognized when the right to receive the dividend is established.

Other income

All other items of income are accounted for on accrual basis.

g) Finance Costs

Finance costs include interest expense computed by applying the effective interest rate on respective financial instruments measured at Amortized cost. Financial instruments include bank term loans, non-convertible debentures, commercial papers, subordinated debts, perpetual debts and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Interest expense on lease liabilities is computed by applying the notional borrowing rate and has been included under finance costs. It also includes discounting charges paid for securitization transactions entered under ‘passthrough’ arrangement.

h) Financial instruments

I) Initial recognition and measurement

Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. transaction costs and revenue that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs and revenues of financial assets or financial liabilities carried at fair value through the profit or loss account are recognized immediately in the Statement of Profit or Loss. Trade Receivables are measured at transaction price. trade receivables and debt securities issued are initially recognized when they are originated.

II) Classifications Financial assets

On initial recognition, depending on the company’s business model for managing the financial assets and its contractual cash flow characteristics, a financial asset is classified as measured at;

- Amortized cost;

- fair value through other comprehensive income (FVTOCi); or

- fair value through profit and loss (FVTPL).

Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its business model for managing financial assets.

The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.

Business model assessment

The Company makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management.

At initial recognition of a financial asset, the Company determines whether newly recognized financial assets are part of an existing business model or whether they reflect a new business model. The frequency, volume and timing of sales of financial asset in prior periods, the reason for such sales and expectations about future sales activity are important determining factors of the business model. The Company reassess its business models each reporting period to determine whether the business models have changed since the preceding period.

Financial instruments at Amortized Cost

A financial asset is measured at amortized cost only if both of the following conditions are met:

» it is held within a business model whose objective is to hold assets in order to collect contractual cash flows.

» The contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest.

Financial assets at Fair Value through Other Comprehensive Income (‘FVTOCI’)

A financial asset is measured at FVTOCi only if both of the following conditions are met:

» it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.

» The contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest.

Financial assets at Fair Value through Profit and Loss (FVTPL)

Any financial instrument, which does not meet the criteria for categorization as at amortized cost or as FVOCi, is classified as at FVTPL.

Re-classification from Amortized Cost to FVOCI

if there are multiple sale transaction of portfolios exceeding the prescribed threshold except as allowed under ind AS 109 i.e. for stress case scenarios, and the management estimates that the Company may continue to sell down the loan assets for the purpose of meeting other business objectives then such part of the loan assets (if specifically identified) shall be re-classified to FVOCi from Amortized Cost category.

Re-classification from FVOCI to Amortized Cost

if considerable time period has elapsed since the past sale transaction and the management estimates that there is a very limited probability of selling down the portfolio in future, other than stressed portfolio or other exceptions as allowed under ind AS 109, then such portfolio can be re-classified from FVOci to Amortized cost category.

Equity Investments

AIl equity investments other than equity investments in subsidiaries / associates / joint ventures are measured at FVTPL. These include all equity investments in scope of ind As 109.

Financial liabilities and equity instruments

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

Financial liabilities are classified, at initial recognition, as financial liabilities at amortized cost or fair value through profit or loss, as appropriate.

Equity instruments

an equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the company is recognized at the proceeds received, net of directly attributable transaction costs.

III) Subsequent measurement Amortized cost

Amortized cost is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortization using the EiR method of discount or premium on acquisition and fees or costs that are an integral part of the EIR and, for financial assets, adjusted for any loss allowance.

FVTPL

these assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in the statement of profit or loss. the transaction costs and fees are also recorded related to these instruments in the statement of profit and loss.

fvtoci

Financial assets that are held within a business model whose objective is achieved by both, selling financial assets and collecting contractual cash flows that are solely payments of principal and interest, are subsequently measured at fair value through other comprehensive income. Fair value movements are recognized in the other comprehensive income (OG). interest income measured using the EIR method and impairment losses, if any are recognized in the statement of profit and loss. On derecognition, cumulative gain or loss previously recognized in Oci is reclassified from the equity to ‘other income’ in the statement of profit and loss.

IV) De-recognition of financial assets and financial liabilities Financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily de-recognized (i.e. removed from the Company’s balance sheet) when:

» The rights to receive cash flows from the asset have expired, or

» The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘passthrough’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the company continues to recognize the transferred asset to the extent of the company’s continuing involvement. The company continues to recognize the assets on finance on books which has been securitized under pass through arrangement and does not meet the de-recognition criteria.

On de-recognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset de-recognized) and the sum of the consideration received (including the value of any new asset obtained less any new liability assumed) is transferred to statement of Profit or loss.

Financial liabilities

The Company de-recognizes a financial liability when its contractual obligations are discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

Securitization and Assignment

in case of transfer of loans through securitization and direct assignment transactions, the transferred loans are de-recognized and gains/losses are accounted for, only if the Company transfers substantially all risks and rewards specified in the underlying assigned loan contract.

in accordance with the ind AS 109, on de-recognition of a financial asset under assigned transactions, the difference between the carrying amount and the consideration received are recognized in the statement of profit and loss.

Equity

Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

V) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet when the Company has a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

VI) Impairment of Financial Assets

The Company recognizes loss allowances for Expected Credit Loss (ECL) on all the financial assets that are not measured at FVTPL:

ECL are probability weighted estimate of future credit losses based on the staging of the financial asset to reflect its credit risk. They are measured as follows:

» Stage 1: financial assets that are not credit impaired - as the present value of all cash shortfalls that are possible within 12 months after the reporting date.

» Stage 2: financial assets with significant increase in credit risk but not credit impaired - as the present value of all cash shortfalls that result from all possible default events over the expected life of the financial asset.

» Stage 3: financial assets that are credit impaired - as the difference between the gross carrying amount and the present value of estimated cash flows.

The Company’s policy for determining significant increase in credit risk is set out in Note 48 (ii) (g).

The Company has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument.

Management overlay is used to estimate the ECL allowance in circumstances where management believes that the existing inputs, assumptions and model techniques do not factor the related exception scenario or captures all the risk factors relevant to the company’s lending portfolios.

To mitigate the credit risk on financial assets, the Company seeks to use collateral, where possible as per the powers conferred on the Non-Banking Finance Companies under the Securitization and Reconstruction of Financial Assets and Enforcement of Securities interest Act, 2002 (“SARFAESi”).

Financial assets are fully provided for or written off (either partially or in full) when there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof.

However, financial assets that are written off could still be subject to enforcement activities under the Company’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are credited to impairment loss on actual realization from customer.

impairment losses and releases are accounted for and disclosed separately from modification losses or gains that are accounted for as an adjustment of the financial asset’s gross carrying value.

For more details, refer Note 48 (ii).

Presentation of ECL allowance for financial asset:

ECL allowance for financial asset measured at Amortized cost or FVOCi is shown as a deduction from the gross carrying amount of the assets.

Modification of financial assets

A modification of a financial asset occurs when the contractual terms governing the cash flows of a financial asset are renegotiated or otherwise modified between initial recognition and maturity of the financial asset. A modification affects the amount and/or timing of the contractual cash flows either immediately or at a future date.

i) Investment in subsidiaries, associates and joint ventures

The Company accounts for its investments in subsidiaries, associates and joint ventures at cost less accumulated impairment, if any.

j) Assets Held for Sale

investment in subsidiaries, associates and joint ventures identified for sale in near future by management has been classified as assets held for sale. They are measured at lower of their net carrying amount and the fair value less costs to sell.

k) Leases

I) The Company as lessor

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Amounts due from lessees under finance leases are recognized as receivables at the amount of the Company’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Company’s net investment outstanding in respect of the leases.

Rental income from operating leases is recognized on a straight-line basis over the lease term. in certain lease arrangements, variable rental charges are also recognized over and above minimum commitment charges based on usage pattern.

II) The Company as lessee

i Right of use assets and Lease liability

The Company assesses whether a contract is or contains a lease, at inception of a contract. A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:

a) the contract involves the use of an identified asset;

b) the Company has substantially all the economic benefits from use of the asset through the period of the lease; and

c) the company has the right to direct the use of the asset.

Recognition and initial measurement

At the lease commencement date, the company recognizes a Right-of-Use (“RoU”) asset and equivalent amount of lease liability. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the company, an estimate of any costs to dismantle and remove the asset at the end of the lease (if any), and any lease payments made in advance of the lease commencement date (net of any incentives received).

Subsequent measurement

the company depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. the company also assesses the right-of-use asset for impairment when such indicators exist.

at the lease commencement date, the company measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the notional borrowing rate. Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed payments). Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. it is remeasured to reflect any reassessment or modification, or if there are changes in the in-substance fixed payments. When the lease liability is re-measured, the corresponding adjustment is reflected in the right-of-use asset or is recorded in statement of profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

Presentation

lease liability and right of use assets have been separately presented in the balance sheet and lease payments have been classified as financing cash flows.

the company has elected to account for short-term leases and leases of low-value assets using the practical expedients. instead of recognizing a right-of-use asset and lease liability, the payments in relation to these leases are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term.

ii) De-recognition

an item of right of use assets and lease liability is de-recognized upon termination of lease agreement. any difference between the carrying amount of right of use asset and lease liability is recognized in statement of profit or loss.

l) Employee Benefits

I) Short term employee benefits

Short term employee benefits are expensed as the related service is provided. a liability is recognized for the amount expected to be paid if the company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. this includes performance linked incentives. Short term employee obligations are measured at undiscounted basis.

II Post-employment benefits i) Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligations to pay further amounts.

Provident Fund

Contributions paid / payable to the recognized provident fund, which is a defined contribution scheme, are expensed as the related service is provided and recognized as personnel expenses in statement of profit or loss.

ii Defined benefit plans Gratuity

The company’s gratuity benefit scheme is a defined benefit plan. The company’s net obligation in respect of the gratuity benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets, if any, is deducted.

The present value of the obligation under such defined benefit plan is determined based on actuarial valuation using the Projected Accrued Benefit Method (same as Projected Unit Credit Method), which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

The obligation is measured at the present value of the estimated future cash flows. The discount rates used for determining the present value of the obligation under defined benefit plan, are based on the market yields on Government securities as at the balance sheet date. When the calculation results in a potential asset for the Company, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contribution to the plan.

The change in defined benefit plan liability is split into changes arising out of service, interest cost and re-measurements and the change in defined benefit plan asset is split between interest income and re-measurements. Changes due to service cost and net interest cost/ income is recognized in the statement of profit and loss. Re-measurements of net defined benefit liability/ (asset) which comprise of the below are recognized in other comprehensive income:

» Actuarial gains and losses;

» The return on plan assets, excluding amounts included in net interest on the net defined benefit liability / (asset).

III) Other long term employee benefits Compensated absences

The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. The expenses and actuarial gain / loss on account of the above benefit plans are recognized in the statement of profit and loss on the basis of actuarial valuation.

IV) Share-based payment arrangements - Employee Stock Options

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest, with a corresponding increase in other equity.

in case, the Company modifies the terms and condition on which the equity instruments were granted in a manner that is beneficial to the employees, the incremental cost will be recognized over the period starting from the modification date till the date of vesting if the modification occurs during the vesting period. in case, modification occurs after the vesting period, the incremental cost will be recognized immediately.

m) Income Taxes

income-tax expense comprises of current tax (i.e. amount of tax for the period determined in accordance with the income tax law) and deferred tax charge or credit (reflecting the tax effects of temporary differences between tax base and book base). it is recognized in statement of profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in Oci.

I) Current tax

current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the income Tax Act, 1961. current tax comprises the tax payable on the taxable income or loss for the year and any adjustment to the tax payable in respect of previous years. it is measured using tax rates enacted or substantively enacted at the reporting date.

the amount of current tax reflects the best estimate of the tax amount expected to be paid after considering the uncertainty, if any, related to income taxes.

current tax assets and liabilities are offset only if, the company:

- has a legally enforceable right to set off the recognized amounts; and

- intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

II) Deferred tax

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax assets are reviewed at each reporting date and based on management’s judgement, are reduced to the extent that it is no longer probable that the related tax benefit will be realized; such reductions are reversed when the probability of future taxable profits improves.

Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if the company:

- has a legally enforceable right to set off current tax assets against current tax liabilities; and

- the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority.

n) Property, plant and equipment and Investment property

Recognition and measurement

Property, plant and equipment (PPE) held for use or for administrative purposes, are stated in the balance sheet at cost less accumulated depreciation and accumulated impairment losses. The cost includes nonrefundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets. PPE is recognized when it is probable that future economic benefits associated with the item will flow to the company. Subsequent expenditure on PPE after its purchase is capitalized if it is probable that the future economic benefits will flow to the enterprise.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less accumulated depreciations and recognized impairment loss. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

investment Property consists of building let out to earn rentals. The Company follows cost model for measurement of investment property.

Depreciation and amortization expense

Depreciation on PPE is provided using the straight line method at the rates specified in Schedule ii to the Act. Depreciation is calculated on a pro-rata basis from the date of installation till the date the assets are sold or disposed.

Freehold land is not depreciated.

Leasehold improvements are amortized over the underlying lease term on a straight line basis.

Depreciation on vehicles given on operating lease is provided on straight line method at rates based on tenure of the underlying lease contracts not exceeding 8 years.

For the following class of assets, based on internal assessment, the management believes that the useful lives as given below best represent the period over which management expects to use these assets. Hence the useful lives for these assets is different from the useful lives as prescribed under Part c of Schedule ii of the AcL

Desktop 6 years

laptops / Hand Held Device 4 years

the estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

When significant parts of an item of PPE have different useful lives, they are accounted for as separate items (major components) of PPE.

De-recognition

an item of PPE or investment property is de-recognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. any gain or loss arising on the disposal or retirement of an item of PPE or investment property is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in statement of profit or loss.

Capital work-in-progress

PPE not ready for the intended use on the date of the balance sheet are disclosed as "capital work-in-progress” and carried at cost, comprising direct cost, related incidental expenses and attributable interest.

o) Intangible assets

Recognition and measurement

intangible assets with finite useful lives that are acquired separately are capitalized and carried at cost less accumulated amortization and impairment losses, if any. Cost includes non-refundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets. intangible assets are recognized when it is probable that the future economic benefits that are attributable to the asset will flow to the Company.

Expenditure on internally developed software is recognized as an asset when the Company is able to demonstrate that the product is technically and commercially feasible, its intention and ability to complete the development and use the software in a manner that will generate future economic benefits, and that it can reliably measure the costs to complete the development.

The costs of internally developed software include all costs directly attributable to developing the software and capitalized borrowing costs, and are Amortized over its useful life.

Amortization

amortization of intangible assets is done recognized on a straight-line basis over their estimated useful lives. the estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

De-recognition

an intangible asset is de-recognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in statement of profit or loss when the asset is de-recognized.

Intangible assets under development

intangible assets not ready for the intended use on the date of balance sheet are disclosed as "intangible assets under development.

p) Impairment of non-financial assets

The Company’s non - financial assets including deferred tax is assessed at each balance sheet date whether there is any indication that an asset may be impaired. if any such indication exists, the Company estimates the recoverable amount of the asset. if such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the statement of profit and loss. if at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost. A reversal of an impairment loss is recognized immediately in the statement of profit and loss. Goodwill is tested annually for impairment.

q) Foreign Currency Transactions

Transactions in currencies other than Company’s operational currency are recorded on initial recognition using the exchange rates prevailing on the date of the transaction. The foreign currency borrowing being a monetary liability is restated to iNR (being the functional currency of the Company) at the prevailing rates of exchange at the end of every reporting period with the corresponding exchange gain/ loss being recognized in statement of profit or loss. Exchange differences that arise on settlement of monetary items or on reporting of monetary items at each balance sheet date at the closing spot rate are recognized in the statement of profit and loss in the period in which they arise.

r) Goods and Services Input tax Credit

Goods and Services input tax credit is accounted for in the books in the period in which the supply of goods or service received is accounted for and when there is no uncertainty in availing/utilizing the credits.

s) Provisions and contingencies related to claims, litigation, etc.

A provision is recognized if, as a result of a past event, the Company has a present obligation (legal or constructive) that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognized as finance cost. Provisions, contingent liabilities and contingent assets are reviewed at each balance sheet date.

I) Onerous contracts

A contract is considered as onerous when the expected economic benefits to be derived by the Company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the company recognizes any impairment loss on the assets associated with that contract.

II) Contingencies related to claims, litigation, etc.

Provision in respect of loss contingencies relating to claims, litigation, assessment, fines, penalties, etc. are recognized when it is probable that a liability has been incurred, and the amount can be estimated reliably. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. if it is no longer probable that the outflow of resources would be required to settle the obligation, the provision is reversed.

t) Contingent liabilities and contingent assets

a contingent liability exists when there is a possible but not probable obligation, or a present obligation that may, but probably will not, require an outflow of resources, or a present obligation whose amount cannot be estimated reliably. contingent liabilities do not warrant provisions, but are disclosed unless the possibility of outflow of resources is remote.

contingent assets are disclosed in the financial statements where an inflow of economic benefits is probable.

u) Cash and cash equivalent

For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts.

v) Cash flow statement

cash flows are reported using the indirect method, whereby net profit before tax is adjusted for the effects of transactions of non-cash future, any deferrals or accruals of past or future operating cash receipts or payments and item of expenses associated with investing or financing cash flows. the cash flows from operating, investing and financing activities of the company are segregated.

w) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief Operating Decision Maker (cODM) of the company. the cODM is responsible for allocating resources and assessing performance of the operating segments of the company. Refer note 51 for details on segment information presented.

x) Earnings per equity share

Basic earnings per equity share has been computed by dividing net income attributable to ordinary equity holders by the weighted average number of shares outstanding during the year. Partly paid-up equity share, if any, is included as fully paid equivalent according to the fraction paid up.

Diluted earnings per equity share has been computed using the weighted average number of shares and dilutive potential shares, except where the result would be anti-dilutive.

y) Dividend

interim dividend declared to equity shareholders, if any, is recognized as liability in the period in which the said dividend is declared by the Board of Directors. Final dividend declared, if any, is recognized in the period in which the said dividend is approved by the Shareholders. Dividend payable is recognized directly in equity.

Background

Magma Fincorp Limited (''the Company''), incorporated in Kolkata and headquartered in Mumbai, India is a publicly held non-banking finance company engaged in providing asset finance through its pan India branch network. The Company is registered as a systemically important non-deposit taking Non-Banking Financial Company (''NBFC'') as defined under Section 45-IA of the Reserve Bank of India (RBI) Act, 1934. The Company is also registered as a corporate agent under Insurance Regulatory and Development Authority of India (Registration of Corporate Agents) Regulations, 2015. Its equity shares are listed on National Stock Exchange and Bombay Stock Exchange.

Note 2: Significant Accounting Policies and Key Accounting Estimates and Judgements:

a) Statement of compliance and Basis of preparation

The financial statements for the year ended March 31, 2021 have been prepared by the Company in accordance with Indian Accounting Standards ("Ind AS") notified by the Ministry of Corporate Affairs, Government of India under the Companies (Indian Accounting Standards) Rules, 2015 notified under Section 133 of the Companies Act, 2013, (the ''Act'') and other relevant provisions of the Act.

Further, the Company has complied with all the directions related to Implementation of Indian Accounting Standards prescribed for Non-Banking Financial Companies (NBFCs) in accordance with the RBI notification no. RBI/2019-20/170 DOR NBFC) CC.PD.No.109/22.10.106/2019-20 Dated 13 March 2020. Any application guidance/ clarifications/ directions issued by RBI or other regulators are implemented as and when they are issued/ applicable.

The Balance Sheet, Statement of Profit and Loss and Statement of Changes in Equity are prepared and presented in the format prescribed in the Division III of Schedule III of the Companies Act, 2013 (the ''Act''). The Statement of Cash Flows has been prepared and presented as per the requirements of Ind AS.

A summary of the significant accounting policies and other explanatory information is in accordance with the Companies (Indian Accounting Standards) Rules, 2015 as specified under Section 133 of the Companies Act, 2013 (the ''Act'') including applicable Indian Accounting Standards (Ind AS) and accounting principles generally accepted in India. The Company consistently applies the following accounting policies to all periods presented in these financial statements, unless otherwise stated.

These financial statements have been approved by the Company''s Board of Directors and authorised for issue on 31 May 2021.

b) Functional and Presentation currency

These financial statements are presented in Indian Rupees (INR), which is the Company''s functional currency. All amounts have been denominated in lakhs and rounded off to the nearest two decimal, except when otherwise indicated.

c) Historical cost convention

The financial statements have been prepared on a historical cost basis, except for the following material items:

• Certain financial assets at Fair value through other comprehensive income (FVTOCI).

• Financial instruments at Fair value through profit and loss (FVTPL) that is measured at fair value

• Net defined benefit (asset)/ liability - fair value of plan assets less present value of defined benefit obligation

d) Measurement of fair values

A number of Company''s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Company has established policies and procedures with respect to the measurement of fair values. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

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

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

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

e) Significant areas of estimation uncertainty, critical judgements and assumptions in applying accounting policies

In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities (including contingent liabilities and assets) as on the date of the financial statements and the reported income and expenses for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.

Key sources of estimation of uncertainty at the date of financial statements, which may cause a material adjustment to the carrying amount of assets and liabilities within the next financial year are included in the following notes:

- Note 47 - Impairment of financial instruments: determining inputs into the Expected Credit Loss (ECL) model, including incorporation of forward looking information and assumptions used in estimating recoverable cash flows

- Note 46 - determination of the fair value of financial instruments with significant unobservable inputs

- Note 39 - measurement of defined benefit obligations: key actuarial assumptions

- Note 10 - recognition of deferred tax assets: availability of future taxable profit against which carry-forward tax losses can be used

Judgements:

Information about judgements made in applying accounting policies that have the most significant effects on the amount recognised in the standalone financial statement is included in the following note:

Classification of financial assets: Assessment of the business model within which the assets are held for sell, held for sell and maturity and held for maturity

f) Revenue recognition

Interest income from financial assets (assets on finance) is recognised on accrual basis using Effective Interest Rate (''EIR'') method. EIR is applied on future principal of amortised cost of assets on finance. Interest income on stage 3 assets is recognised on net basis.

The EIR is the rate that discounts the estimated future cash flows through the expected life of the financial instrument to the gross carrying amount of the financial asset. The interest income is recognised on EIR method on a time proportion basis applied on the carrying amount for financial assets including credit impaired financial assets.

The calculation of the effective interest rate includes transaction costs and fees paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.

The ''amortised cost'' of a financial asset is the amount at which the financial asset is measured on initial recognition

minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount adjusted for any expected credit loss allowance.

The ''gross carrying amount of a financial asset'' is the amortised cost of a financial asset before adjusting for any expected credit loss allowance.

Income from direct assignment transactions represents the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in OCI.

Overdue interest and other charges are treated to accrue on realization, due to uncertainty of realization and is accounted for accordingly.

For revenue recognition from leasing transactions of the Company, refer Note 40 on Leases below.

Income from collection and support services is recognised over time as the services are rendered as per the terms of the contract.

Fair value changes from security receipts is recognised in the revenue from operations basis fair valuation of the security receipts and provision on the same, if any.

Income from power generation is recognised based on the unit''s generated (point in time) as per the terms of the respective power purchase arrangements with respective State Electricity Boards.

Dividend is recognised when the right to receive the dividend is established.

Other income

All other items of income are accounted for on accrual basis.

g) Finance Costs

Finance costs include interest expense computed by applying the effective interest rate on respective financial instruments measured at Amortised cost. Financial instruments include bank term loans, non-convertible debentures, commercial papers, subordinated debts and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Interest expense on lease liabilities computed by applying the Company''s weighted average incremental borrowing rate has been included under finance costs.

h) Financial instruments

I) Initial recognition and measurement

Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs and revenue that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs and revenues of financial assets or financial liabilities carried at fair value through the profit or loss account are recognised immediately in the Statement of Profit or Loss. Trade Receivables are measured at transaction price. Trade receivables and debt securities issued are initially recognised when they are originated.

II) Classifications Financial assets

On initial recognition, depending on the Company''s business model for managing the financial assets and its contractual cash flow characteristics, a financial asset is classified as measured at;

- amortised cost;

- fair value through other comprehensive income (FVTOCI); or

- fair value through profit and loss (FVTPL).

Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its business model for managing financial assets.

The classification depends on the entity''s business model for managing the financial assets and the contractual terms of the cash flows. Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its business model for managing financial assets.

Business model assessment

The Company makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management.

At initial recognition of a financial asset, the Company

determines whether newly recognised financial assets are part of an existing business model or whether they reflect a new business model. The frequency, volume and timing of sales of financial asset in prior periods, the reason for such sales and expectations about future sales activity are important determining factors of the business model. The Company reassess its business models each reporting period to determine whether the business models have changed since the preceding period.

Financial instruments at Amortised Cost

A financial asset is measured at amortised cost only if both of the following conditions are met:

• It is held within a business model whose objective is to hold assets in order to collect contractual cash flows.

• The contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest.

Financial assets at Fair Value through Other Comprehensive Income (''FVTOCI'')

A financial asset is measured at FVTOCI only if both of the following conditions are met:

• It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.

• The contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest.

Financial assets at Fair Value through Profit and Loss (FVTPL)

Any financial instrument, which does not meet the criteria for categorisation as at amortised cost or as FVTOCI, is classified as at FVTPL.

Equity Investments

All equity investments other than equity investments in subsidiaries / associates / joint ventures are measured at FVTPL. These include all equity investments in scope of Ind AS 109.

Financial liabilities and equity instruments

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

Financial liabilities are classified, at initial recognition, as financial liabilities at amortised cost or fair value through profit or loss, as appropriate.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company is recognised at the proceeds received, net of directly attributable transaction costs.

III) Subsequent measurement Amortised cost

Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the EIR method of discount or premium on acquisition and fees or costs that are an integral part of the EIR and, for financial assets, adjusted for any loss allowance.

FVTPL

These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in the statement of profit or loss. The transaction costs and fees are also recorded related to these instruments in the statement of profit and loss.

FVTOCI

Financial assets that are held within a business model whose objective is achieved by both, selling financial assets and collecting contractual cash flows that are solely payments of principal and interest, are subsequently measured at fair value through other comprehensive income. Fair value movements are recognised in the other comprehensive income (OCI). Interest income measured using the EIR method and impairment losses, if any are recognised in the statement of Profit and Loss. On derecognition, cumulative gain or loss previously recognised in OCI is reclassified from the equity to ''other income'' in the statement of Profit and Loss.

IV) De-recognition of financial assets and financial liabilities Financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily de-recognised (i.e. removed from the Company''s balance sheet) when:

• The rights to receive cash flows from the asset have expired, or

• The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ''pass-through'' arrangement; and either (a) the Company has transferred substantially all

the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset

When the Company has transferred its rights to receive cash flows from an asset or has entered into a passthrough arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Company''s continuing involvement. The Company continues to recognise the assets on finance on books which has been securitised under pass through arrangement and does not meet the de-recognition criteria.

On de-recognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of the consideration received (including the value of any new asset obtained less any new liability assumed) is transferred to statement of Profit or loss

Financial liabilities

The Company de-recognises a financial liability when its contractual obligations are discharged or cancelled, or expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Securitization and Assignment

In case of transfer of loans through securitisation and direct assignment transactions, the transferred loans are de-recognised and gains/losses are accounted for, only if the Company transfers substantially all risks and rewards specified in the underlying assigned loan contract.

In accordance with the Ind AS 109, on de-recognition of a financial asset under assigned transactions, the difference between the carrying amount and the consideration received are recognised in the Statement of Profit and Loss.

Equity

Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs.

V) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet when the Company has a legally enforceable right to offset the

recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

VI) Impairment of Financial Assets

The Company recognises loss allowances for Expected Credit Loss (ECL) on all the financial assets that are not measured at FVTPL:

ECL are probability weighted estimate of future credit losses based on the staging of the financial asset to reflect its credit risk. They are measured as follows:

• Stage 1: financial assets that are not credit impaired - as the present value of all cash shortfalls that are possible within 12 months after the reporting date.

• Stage 2: financial assets with significant increase in credit risk but not credit impaired - as the present value of all cash shortfalls that result from all possible default events over the expected life of the financial asset.

• Stage 3: financial assets that are credit impaired - as the difference between the gross carrying amount and the present value of estimated cash flows.

The Company''s policy for determining significant increase in credit risk is set out in Note 48 (ii) (g).

The Company has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument''s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument.

Management overlay is used to estimate the ECL allowance in circumstances where management believes that the existing inputs, assumptions and model techniques do not factor the related exception scenario or captures all the risk factors relevant to the Company''s lending portfolios.

To mitigate the credit risk on financial assets, the Company seeks to use collateral, where possible as per the powers conferred on the Non-Banking Finance Companies under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 ("SARFAESI").

Financial assets are fully provided for or written off (either partially or in full) when there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof.

However, financial assets that are written off could still be

subject to enforcement activities under the Company''s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are credited to impairment loss on actual realization from customer.

Impairment losses and releases are accounted for and disclosed separately from modification losses or gains that are accounted for as an adjustment of the financial asset''s gross carrying value.

For more details, refer Note 47(ii).

Presentation of ECL allowance for financial asset:

ECL allowance for financial asset measured at amortised cost or FVOCI is shown as a deduction from the gross carrying amount of the assets

Modification of financial assets

A modification of a financial asset occurs when the contractual terms governing the cash flows of a financial asset are renegotiated or otherwise modified between initial recognition and maturity of the financial asset. A modification affects the amount and/or timing of the contractual cash flows either immediately or at a future date.

i) Investment in subsidiaries, associates and joint ventures

The Company accounts for its investments in subsidiaries, associates and joint ventures at cost less accumulated impairment, if any.

j) Leases

I) The Company as lessor

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Amounts due from lessees under finance leases are recognised as receivables at the amount of the Company''s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Company''s net investment outstanding in respect of the leases.

Rental income from operating leases is recognised on a straight-line basis over the lease term. In certain lease arrangements, variable rental charges are also recognised over and above minimum commitment charges based on usage pattern.

II) The Company as lessee

i) Right to use assets and Lease liability

The Company assesses whether a contract is or contains a lease, at inception of a contract. A contract

is, or contains, a lease if it conveys the right to control the use of an identified asset for a period in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:

a) the contract involves the use of an identified asset;

b) the Company has substantially all the economic benefits from use of the asset through the period of the lease; and

c) the Company has the right to direct the use of the asset.

Recognition and initial measurement

At the lease commencement date, the Company recognises a right-of-use ("RoU") asset and equivalent amount of lease liability. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Company, an estimate of any costs to dismantle and remove the asset at the end of the lease (if any), and any lease payments made in advance of the lease commencement date (net of any incentives received).

Subsequent measurement

The Company depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Company also assesses the right-of-use asset for impairment when such indicators exist.

At the lease commencement date, the Company measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Company''s incremental borrowing rate. Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed payments). Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is re-measured to reflect any reassessment or modification, or if there are changes in the in-substance fixed payments. When the lease liability is re-measured, the corresponding adjustment is reflected in 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.

Presentation

Lease liability and Right of Use assets have been separately presented in the balance sheet and lease payments have been classified as financing cash flows.

The Company has elected to account for shortterm leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these leases are recognised as an expense in the Statement of profit and loss on a straight-line basis over the lease term.

ii) De-recognition

An item of right to use assets and lease liability is derecognised upon termination of lease agreement. Any difference between the carrying amount of right to use asset and lease liability is recognised in statement of profit or loss.

k) Employee Benefits

I) Short term employee benefits

Short term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. This includes performance linked incentives. Short term employee obligations are measured at undiscounted basis.

II) Post-employment benefits Defined contribution plans

A defined contribution plan is a post - employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligations to pay further amounts.

Provident Fund

Contributions paid / payable to the recognised provident fund, which is a defined contribution scheme, are expensed as the related service is provided and recognised as personnel expenses in profit or loss.

Defined benefit plans Gratuity

The Company''s gratuity benefit scheme is a defined benefit plan. The Company''s net obligation in respect of the gratuity benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods;

that benefit is discounted to determine its present value, and the fair value of any plan assets, if any, is deducted.

The present value of the obligation under such defined benefit plan is determined based on actuarial valuation using the Projected Accrued Benefit Method (same as Projected Unit Credit Method), which recognises each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

The obligation is measured at the present value of the estimated future cash flows. The discount rates used for determining the present value of the obligation under defined benefit plan, are based on the market yields on Government securities as at the balance sheet date. When the calculation results in a potential asset for the Company, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contribution to the plan.

The change in defined benefit plan liability is split into changes arising out of service, interest cost and re-measurements and the change in defined benefit plan asset is split between interest income and remeasurements. Changes due to service cost and net interest cost/ income is recognised in the statement of profit and loss. Re-measurements of net defined benefit liability/ (asset) which comprise of the below are recognised in other comprehensive income:

• Actuarial gains and losses;

• The return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset).

III) Other long term employee benefits Compensated absences

The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. The expenses and actuarial gain / loss on account of the above benefit plans are recognised in the statement of profit and loss on the basis of actuarial valuation.

IV) Share-based payment arrangements - Employee Stock Options

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at

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

In case, the company modifies the terms and condition on which the equity instruments were granted in a manner that is beneficial to the employees, the incremental cost will be recognised over the period starting from the modification date till the date of vesting if the modification occurs during the vesting period. In case, modification occurs after the vesting period, the incremental cost will be recognised immediately.

l) Income Taxes

Income-tax expense comprises of current tax (i.e. amount of tax for the period determined in accordance with the income tax law) and deferred tax charge or credit (reflecting the tax effects of temporary differences between tax base and book base). It is recognised in statement of profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in OCI.

I) Current tax

Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income Tax Act, 1961. Current tax comprises the tax payable on the taxable income or loss for the year and any adjustment to the tax payable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date.

The amount of current tax reflects the best estimate of the tax amount expected to be paid after considering the uncertainty, if any, related to income taxes.

Current tax assets and liabilities are offset only if, the Company:

- has a legally enforceable right to set off the recognised amounts; and

- intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

II) Deferred tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax assets are reviewed at each reporting date and based on management''s judgement, are reduced to

the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves.

Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if the Company:

- has a legally enforceable right to set off current tax assets against current tax liabilities; and

- the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority.

m) Property, plant and equipment and Investment property Recognition and measurement

Property, plant and equipment (PPE) held for use or for administrative purposes, are stated in the balance sheet at cost less accumulated depreciation and accumulated impairment losses. The cost includes non-refundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets. PPE is recognised when it is probable that future economic benefits associated with the item will flow to the Company. Subsequent expenditure on PPE after its purchase is capitalised if it is probable that the future economic benefits will flow to the enterprise.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less accumulated depreciations and recognised impairment loss. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Investment Property consists of building let out to earn rentals. The Company follows cost model for measurement of

Depreciation and amortisation

Depreciation on fixed assets is provided using the straight line method at the rates specified in Schedule II to the Companies Act, 2013. Depreciation is calculated on a pro-rata basis from the date of installation till the date the assets are sold or disposed.

Freehold land is not depreciated.

Leasehold improvements are amortised over the underlying lease term on a straight line basis.

Depreciation on vehicles given on operating lease is provided on straight line method at rates based on tenure of the underlying lease contracts not exceeding 8 years.

For the following class of assets, based on internal assessment, the management believes that the useful lives as given below best represent the period over which management expects to use these assets. Hence the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013:

Desktop 6 years

Laptops / Hand Held Device 4 years

The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of Property, Plant and Equipment.

De-recognition

An item of property, plant and equipment or investment property is de-recognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment or

investment property is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in statement of profit or loss.

Capital work-in-progress

PPE not ready for the intended use on the date of the Balance Sheet are disclosed as "capital work-in-progress" and carried at cost, comprising direct cost, related incidental expenses and attributable interest.

n) Intangible assets

Recognition and measurement

Intangible assets with finite useful lives that are acquired separately are capitalised and carried at cost less accumulated amortisation and accumulated impairment losses. Cost includes non-refundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets. Intangible assets are recognised when it is probable that the future economic benefits that are attributable to the asset will flow to the Company.

Expenditure on internally developed software is recognised as an asset when the company is able to demonstrate: that the product is technically and commercially feasible, its intention and ability to complete the development and use the software in a manner that will generate future economic benefits, and that it can reliably measure the costs to complete the development.

The developing the software and capitalised borrowing costs, and are amortised over its useful life capitalised costs of internally developed software include all costs directly attributable to

Amortization

Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

De-recognition

An intangible asset is de-recognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, is recognised in statement of profit or loss when the asset is de-recognised.

Intangible assets under development

Intangible assets not ready for the intended use on the date of Balance Sheet are disclosed as "Intangible assets under development.

o) Impairment of non-financial assets

The Company''s non - financial assets including deferred tax is assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of profit and loss. If at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost. A reversal of an impairment loss is recognised immediately in the Statement of Profit and Loss. Goodwill is tested annually for impairment

p) Foreign Currency Transactions

Transactions in currencies other than company''s operational currency are recorded on initial recognition using the exchange rates prevailing on the date of the transaction. The foreign currency borrowing being a monetary liability is restated to INR (being the functional currency of the Company) at the prevailing rates of exchange at the end of every reporting period with the corresponding exchange gain/ loss being recognised in statement of profit or loss. Exchange differences that arise on settlement of monetary items or on reporting of monetary items at each Balance Sheet date at the closing spot rate are recognised in the Statement of Profit and Loss in the period in which they arise.

q) Goods and Services Input Tax Credit

Goods and Services Input tax credit is accounted for in the books in the period in which the supply of goods or service received is accounted and when there is no uncertainty in availing/utilising the credits.

r) Provisions and contingencies related to claims, litigation, etc.

A provision is recognised if, as a result of a past event, the Company has a present obligation (legal or constructive) that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the present value of management''s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as finance

cost. Provisions, contingent liabilities and contingent assets are reviewed at each Balance Sheet date.

I) Onerous contracts

A contract is considered as onerous when the expected economic benefits to be derived by the Company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract.

II) Contingencies related to claims, litigation, etc.

Provision in respect of loss contingencies relating to claims, litigation, assessment, fines, penalties, etc. are recognised when it is probable that a liability has been incurred, and the amount can be estimated reliably. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that the outflow of resources would be required to settle the obligation, the provision is reversed.

s) Contingent liabilities and contingent assets

A contingent liability exists when there is a possible but not probable obligation, or a present obligation that may, but probably will not, require an outflow of resources, or a present obligation whose amount cannot be estimated reliably. Contingent liabilities do not warrant provisions, but are disclosed unless the possibility of outflow of resources is remote.

Contingent assets are disclosed in the financial statements where an inflow of economic benefits is probable.

t) Cash and cash equivalent

For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and

which are subject to an insignificant risk of changes in value, and bank overdrafts.

u) Cash flow statement

Cash flows are reported using the indirect method, whereby net profit before tax is adjusted for the effects of transactions of non-cash future, any deferrals or accruals of past or future operating cash receipts or payments and item of expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated.

v) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (CODM) of the company. The CODM is responsible for allocating resources and assessing performance of the operating segments of the Company. Refer note 51 for details on segment information presented.

w) Earnings per share

Basic earnings per share has been computed by dividing net income attributable to ordinary equity holders by the weighted average number of shares outstanding during the year. Partly paid up equity share is included as fully paid equivalent according to the fraction paid up.

Diluted earnings per share has been computed using the weighted average number of shares and dilutive potential shares, except where the result would be anti-dilutive.

x) Dividend payable (including dividend distribution tax, if any)

Interim dividend declared to equity shareholders, if any, is recognised as liability in the period in which the said dividend has been declared by the Board of Directors. Final dividend declared, if any, is recognised in the period in which the said dividend has been approved by the Shareholders.

The dividend payable (including dividend distribution tax, if any) is recognised as a liability with a corresponding amount recognised directly in equity.

(i) Basis of preparation

(a) These financial statements have been prepared in compliance with Generally Accepted Accounting Principles in India (‘Indian GAAP’) to comply with the mandatory Accounting Standards prescribed under Section 133 of the Companies Act, 2013 (‘the 2013 Act’) read with Rule 7 of the Companies (Accounts) Rules, 2014, the provisions of the 2013 Act (to the extent notified and applicable), the directions prescribed by the Reserve Bank of India (‘RBI’) for Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies, the regulations prescribed under Insurance Regulatory and Development Authority of India (Registration of Corporate Agents) Regulations, 2015 and the guidelines issued by the Securities and Exchange Board of India (SEBI) to the extent applicable. The financial statements have been prepared under the historical cost convention and on accrual basis, unless otherwise stated. The financial statements are presented in Indian rupees rounded off to the nearest lac upto two decimal places.

(b) An asset or liability is respectively classified as current when it is expected to be realized or settled in the company’s normal operating cycle or within 12 months after the reporting date. Current assets and liabilities include the current portion of non-current assets and non-current liabilities respectively. All other assets and liabilities are classified as non-current as required by Schedule III of the Companies Act, 2013.

(c) The accounting policies set out below have been applied consistently to the periods presented in these financial statements.

(ii) Use of estimates and judgements

The preparation of financial statements in conformity with

Generally Accepted Accounting Principles (‘Indian GAAP’) requires the management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities (including contingent liabilities) as on the date of the financial statements and the reported income and expenses during the reporting period. Estimates and underlying assumptions are reviewed on an ongoing basis and actual results could differ from these estimates. Any revision to accounting estimates is recognised prospectively in current and future periods.

(iii) Assets on finance

(a) Assets on finance include assets given on finance / loan and amounts paid for acquiring financial assets including non-performing assets (NPAs) from other Banks / Non Banking Financial Companies (NBFCs).

(b) Assets on finance represents amounts receivable under finance / loan agreements and are valued at net investment amount including installments due. The balance is net of amounts securitised / assigned.

(iv) Revenue recognition

(a) Interest / finance income from assets on finance / loan included in revenue from operations represents interest income arrived at based on Internal Rate of Return CIRRO method. Interest income is recognised as it accrues on a time proportion basis taking into account the amount of principle outstanding and the interest rate applicable, except in the case of nonperforming assets (NPA) where it is recognised upon realisation as per RBI Guidelines.

(b) Income on direct assignment / securitisation :

The Company enters into arrangements for sale of loan receivables through direct assignment / securitisation. The said assets are de-recognised upon transfer of significant risks and rewards to the purchaser and on meeting the true sale criteria.

The Company retains the contractual right to receive share of future monthly interest i.e. excess interest spread (“EIS”) on the transferred assets which is the difference between the pool IRR and the yield agreed with the portfolio buyer.

The Company recognises gain / excess interest spread on direct assignment / securitisation transactions in line with RBI Master Direction - NonBanking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 dated 01 September 2016. Accordingly, direct assignment / securitisation transactions effected post issuance of the said guidelines are accounted as under:

(i) Gain / income realised on direct assignment / securitisation of loan receivables arising under premium structure is recognised over the tenure of securities issued by Special Purpose Vehicle (SPV) / agreements. Loss, if any, is recognised upfront.

(ii) EIS under par structure of securitisation / direct assignment of loan receivables is recognised only when redeemed in cash, over the tenure of the securities issued by SPV / agreements. Loss, if any, is recognised upfront.

(c) Interest on fixed deposits is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable.

(d) Upfront income / expense pertaining to loan origination is amortised over the tenure of the underlying loan contracts.

(e) Assets given by the Company under operating lease are included in fixed assets. Lease income from operating leases is recognised in the statement of profit and loss as per contractual rentals unless another systematic basis is more representative of the time pattern in which benefit derived from the leased asset is diminished. Costs, including depreciation, incurred in earning the lease income are recognised as expenses. Initial direct costs incurred specifically for an operating lease are deferred and recognised in the statement of profit and loss over the lease term in proportion to the recognition of lease income.

(f) Overdue interest is treated to accrue on realisation, due to uncertainty of realisation and is accounted for accordingly.

(g) In respect of NPAs acquired, recoveries in excess of consideration paid is recognised as income in accordance with RBI guidelines.

(h) The sale of non-performing assets is accounted for as per the guidelines prescribed by RBI. On sale, the assets are derecognised from the books. If the sale proceeds are lower than the net book value (NBV) (i.e., book value less provisions held), the shortfall is charged to the Statement of Profit and Loss in the year of sale. In case of sale other than in cash, if the sale proceeds are higher than the NBV, the excess provision is written back in the year the amounts are received, as required by the RBI.

(i) Income on Security Receipts (SRs) are recognised only after the full redemption of the entire principal amount of SRs.

(j) Income from collection and support services is recognised as per the terms of the respective contract on accrual basis.

(k) Income from power generation is recognised based on the units generated as per the terms of the respective power purchase agreements with the respective State Electricity Boards.

(l) Income from dividend is accounted for on receipt basis.

(m) All other items of income are accounted for on accrual basis.

(v) Provision for non-performing assets (NPA) and doubtful debts

Non-performing assets (‘NPA’) including loans and advances, receivables are identified as sub-standard / doubtful based on the tenor of default. The tenor is set at appropriate levels for each product. NPA provisions are made based on the management’s assessment of the degree of impairment and the level of provisioning and meets the Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 dated 01 September 2016. These provisioning norms are considered the minimum and additional provision is made based on perceived credit risk where necessary.

All contracts which as per the management are not likely to be recovered are considered as loss assets and written-off as bad debts or fully provided for. Recoveries made from previously written off contracts are included in “Other Income”.

(vi) Property, plant and equipment

Property, plant and equipment are carried at cost of acquisition less accumulated depreciation. The cost of tangible fixed assets comprises the purchase price, taxes, duties, freight (net of rebates and discounts) and any other directly attributable costs of bringing the assets to their working condition for their intended use. Borrowing costs directly attributable to acquisition of those tangible fixed assets which necessarily take a substantial period of time to get ready for their intended use are capitalised.

Advances paid towards the acquisition of fixed assets outstanding at each balance sheet date are disclosed as long-term loans and advances. The cost of fixed assets not ready for their intended use at each balance sheet date is disclosed as capital work-in-progress.

All assets given on operating lease are shown at the cost of acquisition less accumulated depreciation.

Intangible assets are recorded at the consideration paid for acquisition / development and licensing less accumulated amortisation.

(vii) Depreciation and amortisation

Depreciation on fixed assets is provided using the straight line method at the rates specified in Schedule II to the Companies Act, 2013. Depreciation is calculated on a prorata basis from the date of installation till the date the assets are sold or disposed.

Leasehold improvements are amortised over the underlying lease term on a straight line basis.

Depreciation on vehicles given on operating lease is provided on straight line method at rates based on tenure of the underlying lease contracts not exceeding 8 years.

Individual assets costing less than Rs.5,000/- are depreciated in full in the year of acquisition.

For the following class of assets, based on internal assessment, the management believes that the useful lives as given below best represent the period over which management expects to use these assets. Hence the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.

Desktops 6 years

Laptops / Hand Held Device 4 years

Intangible assets are amortised over their estimated useful lives, not exceeding six years, on a straight line basis, commencing from the date the asset is available to the Company for its use.

(viii) Impairment

The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of profit and loss. If at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost.

(ix) Investments

(a) Investments are classified as non-current or current based on intention of management at the time of purchase.

(b) Non-current investments are carried at cost less any other-than-temporary diminution in value, determined separately for each individual investment.

(c) Current investments are carried at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each investments.

(d) Any reduction in the carrying amount and any reversals of such reduction are charged or credited to the statement of profit and loss.

(e) Profit or loss on sale of investments is determined on the basis of weighted average carrying amount of investments disposed off.

(f) Investment in Security Receipts (SRs) is recognised at lower of: (i) Net Book Value (NBV) (i.e., book value less provisions held) of the financial asset; and (ii) estimated redemption value of SRs at the end of each reporting period, as prescribed by RBI.

Accordingly, in cases where the SRs issued by the Securitisation Company / Asset Reconstruction Company (SC/ARC) are limited to the actual realisation of the underlying financial assets, the net asset value, obtained from the SC/ARC, is reckoned for valuation of such investments. The SRs outstanding and not redeemed as at the end of the resolution period are treated as loss assets and are fully provided for.

(x) Employee benefits

(a) Provident fund

Contributions paid / payable to the recognised Government administered provident fund scheme, which is a defined contribution scheme, are charged to the statement of profit and loss.

(b) Gratuity

The Company’s gratuity benefit scheme is a defined benefit plan. The Company’s net obligation in respect of the gratuity benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets, if any, is deducted.

The present value of the obligation under such defined benefit plan is determined based on actuarial valuation using the Projected Accrued Benefit Method (same as Projected Unit Credit Method), which recognises each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

The obligation is measured at the present value of the estimated future cash flows. The discount rates used for determining the present value of the obligation under defined benefit plan, are based on the market yields on Government securities as at the balance sheet date.

Actuarial gains and losses are recognised immediately in the statement of profit and loss.

(c) Compensated absences

The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is recognised in the period in which the absences occur.

(xi) Employee stock option schemes

The Employees Stock Option Scheme (the Scheme) provides for grant of the equity shares of the Company to employees. The scheme provides that employees are granted an option to subscribe to the equity shares of the Company that vest in a graded manner. The options may be exercised with in the specified period. The Company follows the intrinsic value method to account for its stock based employee compensation plans. The expense or credit recognised in the statement of profit and loss for a period represents the movement in cumulative expense recognized as at the beginning and end of that period.

(xii) Income taxes

Income-tax expense comprises of current tax (i.e. amount of tax for the period determined in accordance with the income-tax law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period). Income-tax expense is recognised in the statement of profit and loss.

(a) Current tax

Current tax is measured at the amount expected to be paid to (recovered from) the taxation authorities, using the applicable tax rates and tax laws.

(b) Deferred tax

Deferred tax is recognised in respect of timing differences between taxable income and accounting income i.e. differences that originate in one period and are capable of reversal in one or more subsequent periods. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets are reviewed as at each balance sheet date and written down or written-up to reflect the amount that is reasonably / virtually certain (as the case may be) to be realised. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and deferred tax assets and deferred taxes relate to same taxable entity and same taxation authority.

(c) Minimum alternative tax

Minimum alternative tax (‘MAT’) under the provisions of the Income Tax Act, 1961 is recognised as current tax in the statement of profit and loss. The credit available under the Act in respect of MAT paid is recognised as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the period for which the MAT credit can be carried forward for set-off against the normal tax liability. MAT credit recognised as an asset is reviewed at each balance sheet date and written down to the extent the aforesaid convincing evidence no longer exists.

(xiii) Provision and contingencies

A provision is recognised if, as a result of a past event, the Company has a present obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are recognised at the best estimate of the expenditure required to settle the present obligation at the balance sheet date. The provisions are measured on an undiscounted basis.

(a) Onerous contracts

A contract is considered as onerous when the expected economic benefits to be derived by the Company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract.

(b) Contingencies

Provision in respect of loss contingencies relating to claims, litigation, assessment, fines, penalties, etc. are recognised when it is probable that a liability has been incurred, and the amount can be estimated reliably.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that the outflow of resources would be required to settle the obligation, the provision is reversed.

(xiv) Contingent liabilities and contingent assets

A contingent liability exists when there is a possible but not probable obligation, or a present obligation that may, but probably will not, require an outflow of resources, or a present obligation whose amount cannot be estimated reliably. Contingent liabilities do not warrant provisions, but are disclosed unless the possibility of outflow of resources is remote.

Contingent assets are neither recognised nor disclosed in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.

(xv) Derivative transactions

Fair value of derivative contracts is determined based on the appropriate valuation techniques considering the terms of the contract as at the balance sheet date. Mark to market losses in derivative contracts are recognised in the statement of profit and loss in the period in which they arise. Mark to market gains are not recognised keeping in view the principle of prudence as enunciated in “Accounting Standard (AS) 1 - Disclosure of Accounting Policies”.

(xvi) Borrowing costs

I nterest on borrowings is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable on the borrowings. Discount on commercial papers is amortised over the tenor of the commercial papers.

Brokerage and other ancillary expenditure directly attributable to a borrowing is amortised over the tenure of the respective borrowing. Unamortised borrowing costs remaining, if any, is fully expensed off as and when the related borrowing is prepaid / cancelled.

(xvii)Operating leases

Lease payments for assets taken on an operating lease are recognised as an expense in the statement of profit and loss on a straight line basis over the lease term.

(xviii) Earnings per share

The basic earnings per share (‘EPS’) is computed by dividing the net profit after tax attributable to the equity shareholders for the year by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net profit after tax attributable to the equity shareholders for the year and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. The dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued at a later date. The diluted potential equity shares have been adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares). In computing dilutive earnings per share, only potential equity shares that are dilutive and that reduces profit / loss per share are included.

(xix) Foreign currency transactions

Foreign currency transactions are accounted for at the rates prevailing on the date of the transaction. Exchange differences, if any arising out of transactions settled during the year are recognised in the Statement of Profit and Loss. Monetary assets and liabilities denoted in foreign currencies as at the Balance Sheet date are translated at the closing exchange rates.

Resultant exchange differences, if any, are recognised in the Statement of Profit and Loss and related assets and liabilities are accordingly restated in the Balance Sheet. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency at the Balance Sheet date are reported using exchange rates at the date of the transaction.

(xx) Cash and cash equivalents

Cash and cash equivalents comprise cash, cash-in-transit and cash on deposit with banks and corporations. The Company considers all highly liquid investments with an original maturity at the date of purchase of three months or less and that are readily convertible to known amounts of cash to be cash equivalents.

(xxi) Cash flow statement

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

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES:

(i) Basis of preparation

(a) These financial statements have been prepared in compliance with Generally Accepted Accounting Principles in India (‘Indian GAAP”) to comply with the mandatory Accounting Standards prescribed under Section 133 of the Companies Act, 2013 (‘the 2013 Act”) read with Rule 7 of the Companies (Accounts) Rules, 2014, the provisions of the 2013 Act (to the extent notified and applicable), the directions prescribed by the Reserve Bank of India (‘RBI’) for Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies, the regulations prescribed under Insurance Regulatory and Development Authority of India (Registration of Corporate Agents) Regulations, 2015 and the guidelines issued by the Securities and Exchange Board of India (SEBI) to the extent applicable. The financial statements have been prepared under the historical cost convention and on accrual basis, unless otherwise stated. The financial statements are presented in Indian rupees rounded off to the nearest lac upto two decimal places.

(b) An operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. In case of non-banking financial companies normal operating cycle is not determinable, and therefore operating cycle is considered as 12 months for classification of current and non-current assets and liabilities as required by Schedule III of the Companies Act, 2013.

(c) The accounting policies set out below have been applied consistently to the periods presented in these financial statements.

(ii) Use of estimates and judgements

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (‘Indian GAAP’) requires the management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities (including contingent liabilities) as on the date of the financial statements and the reported income and expenses during the reporting period. Actual results could differ from these estimates. Any revision to accounting estimates is recognised prospectively in current and future periods.

(iii) Assets on finance

(a) Assets on finance include assets given on finance / loan and amounts paid for acquiring financial assets including non-performing assets (NPAs) from other Banks / Non Banking Financial Companies (‘NBFCs’).

(b) Assets on finance represents amounts receivable under finance / loan agreements and are valued at net investment amount including installments due. The balance is net of amounts securitised / assigned.

(iv) Revenue recognition

(a) Interest / finance income from assets on finance / loan included in revenue from operations represents interest income arrived at based on Internal Rate of Return (‘IRR’) method. Interest income is recognised as it accrues on a time proportion basis taking into account the amount of principal outstanding and the interest rate applicable, except in the case of nonperforming assets (‘NPA’) where it is recognised upon realisation as per RBI Guidelines.

(b) Income on direct assignment / securitisation:

The Company enters into arrangements for sale of loan receivables through direct assignment / securitisation. The said assets are de-recognised upon transfer of significant risks and rewards to the purchaser and on meeting the true sale criteria.

The Company retains the contractual right to receive share of future monthly interest i.e. excess interest spread (‘EIS’) on the transferred assets which is the difference between the pool IRR and the yield agreed with the portfolio buyer.

The Company recognises gain / excess interest spread on direct assignment / securitisation transactions in line with RBI Master Direction - Non-Banking Financial Company - Systemically Important NonDeposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 dated 01 September 2016. Accordingly, direct assignment / securitisation transactions effected post issuance of the said guidelines are accounted as under:

(i) Gain / income realised on direct assignment / securitisation of loan receivables arising under premium structure is recognised over the tenure of securities issued by Special Purpose Vehicle (‘SPV’) / agreements. Loss, if any, is recognised upfront.

(ii) EIS under par structure of securitisation / direct assignment of loan receivables is recognised only when redeemed in cash, over the tenure of the securities issued by SPV / agreements. Loss, if any, is recognised upfront.

(c) Interest on fixed deposits is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable.

(d) Upfront income / expense pertaining to loan origination is amortised over the tenure of the underlying loan contracts.

(e) Assets given by the Company under operating lease are included in fixed assets. Lease income from operating leases is recognised in the statement of profit and loss as per contractual rentals unless another systematic basis is more representative of the time pattern in which benefit derived from the leased asset is diminished. Costs, including depreciation, incurred in earning the lease income are recognised as expenses. Initial direct costs incurred specifically for an operating lease are deferred and recognised in the statement of profit and loss over the lease term in proportion to the recognition of lease income.

(f) Overdue interest is treated to accrue on realisation, due to uncertainty of realisation and is accounted for accordingly.

(g) In respect of NPAs acquired, recoveries in excess of consideration paid is recognised as income in accordance with RBI guidelines.

(h) The sale of non-performing assets is accounted for as per the guidelines prescribed by RBI. On sale, the assets are derecognised from the books. If the sale proceeds are lower than the net book value (‘NBV’) (i.e., book value less provisions held), the shortfall is charged to the statement of profit and loss in the year of sale. In case of sale other than in cash, if the sale proceeds are higher than the NBV, the excess provision is written back in the year the amounts are received, as required by the RBI.

(i) Income on security receipts (‘SRs’) are recognised only after the full redemption of the entire principal amount of SRs.

(j) Income from collection and support services is recognised as per the terms of the respective contract on accrual basis.

(k) Income from power generation is recognised based on the units generated as per the terms of the respective power purchase agreements with the respective State Electricity Boards.

(l) Income from dividend is accounted for on receipt basis.

(m) All other items of income are accounted for on accrual basis.

(v) Provision for non-performing assets (‘NPA’) and doubtful debts

Non-performing assets (‘NPA’) including loans and advances, receivables are identified as sub-standard / doubtful based on the tenor of default. The tenor is set at appropriate levels for each product. NPA provisions are made based on the management’s assessment of the degree of impairment and the level of provisioning and meets the Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 dated 01 September 2016

These provisioning norms are considered the minimum and additional provision is made based on perceived credit risk where necessary.

All contracts which as per the management are not likely to be recovered are considered as loss assets and written-off as bad debts. Recoveries made from previously written off contracts are included in “Other Income”.

(vi) Fixed assets, intangible assets and capital work-in-progress

Fixed assets are carried at the cost of acquisition or construction less accumulated depreciation. The cost of fixed assets includes non-refundable taxes, duties,freight and other incidental expenses related to the acquisition and installation of the respective assets.

Advances paid towards the acquisition of fixed assets outstanding at each balance sheet date are disclosed as long-term loans and advances. The cost of fixed assets not ready for their intended use at each balance sheet date is disclosed as capital work-in-progress.

All assets given on operating lease are shown at the cost of acquisition less accumulated depreciation.

Intangible assets are recorded at the consideration paid for acquisition / development and licensing less accumulated amortisation.

(vii) Depreciation and amortisation

Depreciation on fixed assets is provided using the straight line method at the rates specified in Schedule II to the Companies Act, 2013. Depreciation is calculated on a prorata basis from the date of installation till the date the assets are sold or disposed.

Leasehold improvements are amortised over the underlying lease term on a straight line basis.

Depreciation on vehicles given on operating lease is provided on straight line method at rates based on tenure of the underlying lease contracts not exceeding 8 years.

Individual assets costing less than Rs.5,000/- are depreciated in full in the year of acquisition.

For the following class of assets, based on internal assessment, the management believes that the useful lives as given below best represent the period over which management expects to use these assets. Hence the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.

Desktops 6 years

Laptops / Hand Held Device 4 years

Intangible assets are amortised over their estimated useful lives, not exceeding six years, on a straight line basis, commencing from the date the asset is available to the Company for its use.

(viii) Impairment

The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of profit and loss. If at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost.

(ix) Investments

(a) Investments are classified as non-current or current based on intention of management at the time of purchase.

(b) Non-current investments are carried at cost less any other-than-temporary diminution in value, determined separately for each individual investment.

(c) Current investments are carried at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each investments.

(d) Any reduction in the carrying amount and any reversals of such reduction are charged or credited to the statement of profit and loss.

(e) Profit or loss on sale of investments is determined on the basis of weighted average carrying amount of investments disposed off.

(f) Investment in security receipts (SRs) is recognised at lower of: (i) net book value (NBV) (i.e., book value less provisions held) of the financial asset; and (ii) estimated redemption value of SRs at the end of each reporting period, as prescribed by RBI. Accordingly, in cases where the SRs issued by the Securitisation Company / Asset Reconstruction Company (SC/ARC) are limited to the actual realisation of the underlying financial assets, the net asset value, obtained from the SC/ARC, is reckoned for valuation of such investments. The SRs outstanding and not redeemed as at the end of the resolution period are treated as loss assets and are fully provided for.

(x) Employee benefits

(a) Provident fund

Contributions paid / payable to the recognised provident fund, which is a defined contribution scheme, are charged to the statement of profit and loss.

(b) Gratuity

The Company’s gratuity benefit scheme is a defined benefit plan. The Company’s net obligation in respect of the gratuity benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets, if any, is deducted.

The present value of the obligation under such defined benefit plan is determined based on actuarial valuation using the Projected Accrued Benefit Method (same as Projected Unit Credit Method), which recognises each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

The obligation is measured at the present value of the estimated future cash flows. The discount rates used for determining the present value of the obligation under defined benefit plan, are based on the market yields on Government securities as at the balance sheet date.

Actuarial gains and losses are recognised immediately in the statement of profit and loss.

(c) Compensated absences

The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is recognised in the period in which the absences occur.

(xi) Employee Stock Compensation Cost

The Employees Stock Option Scheme (the Scheme) provides for grant of the equity shares of the Company to employees. The scheme provides that employees are granted an option to subscribe to the equity shares of the Company that vest in a graded manner. The options may be exercised with in the specified period. The Company follows the intrinsic value method to account for its stock based employee compensation plans. The expense or credit recognised in the statement of profit and loss for a period represents the movement in cumulative expense recognized as at the beginning and end of that period.

(xii) Taxes on income

Income-tax expense comprises of current tax (i.e. amount of tax for the period determined in accordance with the income-tax law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period). Income-tax expense is recognised in the statement of profit and loss.

(a) Current tax

Current tax is measured at the amount expected to be paid to (recovered from) the taxation authorities, using the applicable tax rates and tax laws.

(b) Deferred tax

Deferred tax is recognised in respect of timing differences between taxable income and accounting income i.e. differences that originate in one period and are capable of reversal in one or more subsequent periods. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets are reviewed as at each balance sheet date and written down or written-up to reflect the amount that is reasonably / virtually certain (as the case may be) to be realised.

(c) Minimum alternative tax

Minimum alternative tax (‘MAT’) under the provisions of the Income Tax Act, 1961 is recognised as current tax in the statement of profit and loss. The credit available under the Act in respect of MAT paid is recognised as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the period for which the MAT credit can be carried forward for set-off against the normal tax liability. MAT credit recognised as an asset is reviewed at each balance sheet date and written down to the extent the aforesaid convincing evidence no longer exists.

(xiii) Provision and contingencies

A provision is recognised if, as a result of a past event, the Company has a present obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are recognised at the best estimate of the expenditure required to settle the present obligation at the balance sheet date. The provisions are measured on an undiscounted basis.

(a) Onerous contracts

A contract is considered as onerous when the expected economic benefits to be derived by the Company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract.

(b) Contingencies

Provision in respect of loss contingencies relating to claims, litigation, assessment, fines, penalties, etc. are recognised when it is probable that a liability has been incurred, and the amount can be estimated reliably.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that the outflow of resources would be required to settle the obligation, the provision is reversed.

(xiv) Contingent liabilities and contingent assets

A contingent liability exists when there is a possible but not probable obligation, or a present obligation that may, but probably will not, require an outflow of resources, or a present obligation whose amount cannot be estimated reliably. Contingent liabilities do not warrant provisions, but are disclosed unless the possibility of outflow of resources is remote. Contingent assets are neither recognised nor disclosed in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.

(xv) Derivative transactions

Fair value of derivative contracts is determined based on the appropriate valuation techniques considering the terms of the contract as at the balance sheet date. Mark to market losses in derivative contracts are recognised in the statement of profit and loss in the period in which they arise. Mark to market gains are not recognised keeping in view the principle of prudence as enunciated in “Accounting Standard (AS) 1 - Disclosure of Accounting Policies”.

(xvi) Borrowing costs

Interest on borrowings is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable on the borrowings. Discount on commercial papers is amortised over the tenor of the commercial papers.

Brokerage and other ancillary expenditure directly attributable to a borrowing is amortised over the tenure of the respective borrowing. Unamortised borrowing costs remaining, if any, is fully expensed off as and when the related borrowing is prepaid / cancelled.

(xvii)Operating leases

Lease payments for assets taken on an operating lease are recognised as an expense in the statement of profit and loss on a straight line basis over the lease term.

(xviii)Earnings per share

The basic earnings per share (‘EPS’) is computed by dividing the net profit after tax attributable to the equity shareholders for the year by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net profit after tax attributable to the equity shareholders for the year and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. The dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued at a later date. The diluted potential equity shares have been adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares). In computing dilutive earnings per share, only potential equity shares that are dilutive and that reduces profit / loss per share are included.

(xix) Cash and cash equivalents

Cash and cash equivalents comprise cash, cash-in-transit and cash on deposit with banks and corporations. The Company considers all highly liquid investments with an original maturity at the date of purchase of three months or less and that are readily convertible to known amounts of cash to be cash equivalents.

(xx) Cash flow statement

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

NOTE 1: COMPANY OVERVIEW

Magma Fincorp Limited (''the Company"), incorporated and headquartered in Kolkata, India is a publicly held non-banking finance company engaged in providing asset finance through its pan India branch network. The Company is registered as a systemically important non-deposit taking Non-Banking Financial Company (''NBFC'') as defined under Section 45-IA of the Reserve Bank of India (RBI) Act, 1934. The Company is also registered as a corporate agent under Insurance Regulatory and Development Authority of India (Registration of Corporate Agents) Regulations, 2015. Its equity shares are listed on National Stock Exchange and Bombay Stock Exchange.

(i) Basis of preparation

(a) These financial statements have been prepared in compliance with Generally Accepted Accounting Principles in India (''Indian GAAP'') to comply with the mandatory Accounting Standards prescribed under Section 133 of the Companies Act, 2013 (''the 2013 Act'') read with Rule 7 of the Companies (Accounts) Rules, 2014, the provisions of the 2013 Act (to the extent notified and applicable), the directions prescribed by the Reserve Bank of India (''RBI'') for Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies, the regulations prescribed under Insurance Regulatory and Development Authority of India (Registration of Corporate Agents) Regulations, 2015 and the guidelines issued by the Securities and Exchange Board of India (SEBI) to the extent applicable. The financial statements have been prepared under the historical cost convention and on accrual basis, unless otherwise stated. The financial statements are presented in Indian rupees rounded off to the nearest lac upto two decimal places.

(b) An operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. In case of non-banking financial companies normal operating cycle is not determinable, and therefore operating cycle is considered as 12 months for classification of current and non-current assets and liabilities as required by Schedule III of the Companies Act, 2013.

(c) The accounting policies set out below have been applied consistently to the periods presented in these financial statements.

(ii) Use of estimates and judgements

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (''Indian GAAP'') requires the management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities (including contingent liabilities) as on the date of the financial statements and the reported income and expenses during the reporting period. Actual results could differ from these estimates. Any revision to accounting estimates is recognised prospectively in current and future periods.

(iii) Assets on finance

(a) Assets on finance include assets given on finance / loan and amounts paid for acquiring financial assets including non-performing assets (''NPAs'') from other Banks / Non Banking Financial Companies (''NBFCs'').

(b) Assets on finance represents amounts receivable under finance / loan agreements and are valued at net investment amount including installments due. The balance is net of amounts securitised / assigned.

(iv) Revenue recognition

(a) Interest / finance income from assets on finance / loan included in revenue from operations represents interest income arrived at based on Internal Rate of Return (''IRR'') method. Interest income is recognised as it accrues on a time proportion basis taking into account the amount of principle outstanding and the interest rate applicable, except in the case of non- performing assets (''NPA'') where it is recognised upon realisation as per RBI Guidelines.

(b) Income on direct assignment / securitisation

The Company enters into arrangements for sale of loan receivables through direct assignment / securitisation. The said assets are de-recognised upon transfer of significant risks and rewards to the purchaser and on meeting the true sale criteria.

The Company retains the contractual right to receive share of future monthly interest i.e. excess interest spread (''EIS'') on the transferred assets which is the difference between the pool IRR and the yield agreed with the portfolio buyer.

The Company recognises gain / excess interest spread on direct assignment / securitisation transactions in line with RBI circular ''Revisions to the Guidelines on Securitisation Transactions'' issued on 21 August 2012. Accordingly, direct assignment / securitisation transactions effected post issuance of the said guidelines are accounted as under:

(i) Gain / income realised on direct assignment / securitisation of loan receivables arising under premium structure is recognised over the tenure of securities issued by Special Purpose Vehicle (SPV) / agreements. Loss, if any, is recognised upfront.

(ii) EIS under par structure of securitisation / direct assignment of loan receivables is recognised only when redeemed in cash, over the tenure of the securities issued by SPV / agreements. Loss, if any, is recognised upfront.

(c) Interest on fixed deposits is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable.

(d) Upfront income / expense pertaining to loan origination is amortised over the tenure of the underlying loan contracts.

(e) Assets given by the Company under operating lease are included in fixed assets. Lease income from operating leases is recognised in the statement of profit and loss on a straight line basis over the lease term unless another systematic basis is more representative of the time pattern in which benefit derived from the leased asset is diminished. Costs, including depreciation, incurred in earning the lease income are recognised as expenses. Initial direct costs incurred specifically for an operating lease are deferred and recognised in the statement of profit and loss over the lease term in proportion to the recognition of lease income.

(f) Overdue interest is treated to accrue on realisation, due to uncertainty of realisation and is accounted for accordingly.

(g) In respect of NPAs acquired, recoveries in excess of consideration paid is recognised as income in accordance with RBI guidelines.

(h) Income from power generation is recognised based on the units generated as per the terms of the respective power purchase agreements with the respective State Electricity Boards.

(i) Income from dividend is accounted for on receipt basis.

(j) All other items of income are accounted for on accrual basis

(v) Provision for non-performing assets (''NPA'') and doubtful debts

Non-performing assets (''NPA'') including loans and advances, receivables are identified as sub-standard / doubtful based on the tenor of default. The tenor is set at appropriate levels for each product. NPA provisions are made based on the management''s assessment of the degree of impairment and the level of provisioning and meets the Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015 prescribed by Reserve Bank of India vide circular dated 10 November 2014 on Revised Regulatory Framework for Non-Banking Finance Companies (''NBFCs'') and the related notification dated 27 March 2015 (collectively referred to as ''the framework''). These provisioning norms are considered the minimum and additional provision is made based on perceived credit risk where necessary.

All contracts which as per the management are not likely to be recovered are considered as loss assets and written-off as bad debts. Recoveries made from written off contracts are included in "Other Income".

(vi) Fixed assets, intangible assets and capital work-in- progress

Fixed assets are carried at the cost of acquisition or construction less accumulated depreciation. The cost of fixed assets includes non-refundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets.

Advances paid towards the acquisition of fixed assets outstanding at each balance sheet date are disclosed as long-term loans and advances. The cost of fixed assets not ready for their intended use at each balance sheet date is disclosed as capital work-in-progress.

All assets given on operating lease are shown at the cost of acquisition less accumulated depreciation.

Intangible assets are recorded at the consideration paid for acquisition / development and licensing less accumulated amortisation.

(vii) Depreciation and amortisation

Depreciation on fixed assets is provided using the straight line method at the rates specified in Schedule II to the Companies Act, 2013. Depreciation is calculated on a pro- rata basis from the date of installation till the date the assets are sold or disposed.

Leasehold improvements are amortised over the underlying lease term on a straight line basis.

Depreciation on vehicles given on operating lease is provided on straight line method at rates based on tenure of the underlying lease contracts not exceeding 8 years.

Individual assets costing less than Rs. 5,000/- are depreciated in full in the year of acquisition.

For the following class of assets, based on internal assessment, the management believes that the useful lives is as given below best represent the period over which management expects to use these assets. Hence the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.

Desktops 6 years

Laptops / Hand Held Device 4 years

Intangible assets are amortised over their estimated useful lives, not exceeding six years, on a straight line basis, commencing from the date the asset is available to the Company for its use.

(viii) Impairment

The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of profit and loss. If at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost.

(ix) Investments

(a) Investments are classified as non-current or current based on intention of management at the time of purchase.

(b) Non-current investments are carried at cost less any other-than-temporary diminution in value, determined separately for each individual investment.

(c) Current investments are carried at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each investments.

(d) Any reduction in the carrying amount and any reversals of such reduction are charged or credited to the statement of profit and loss.

(e) Profit or loss on sale of investments is determined on the basis of weighted average carrying amount of investments disposed off.

(x) Employee benefits

(a) Provident fund

Contributions paid / payable to the recognised provident fund, which is a defined contribution scheme, are charged to the statement of profit and loss.

(b) Gratuity

The Company''s gratuity benefit scheme is a defined benefit plan. The Company''s net obligation in respect of the gratuity benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets, if any, is deducted.

The present value of the obligation under such defined benefit plan is determined based on actuarial valuation using the Projected Accrued Benefit Method (same as Projected Unit Credit Method), which recognises each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

The obligation is measured at the present value of the estimated future cash flows. The discount rates used for determining the present value of the obligation under defined benefit plan, are based on the market yields on Government securities as at the balance sheet date.

Actuarial gains and losses are recognised immediately in the statement of profit and loss.

(c) Compensated absences

The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is recognised in the period in which the absences occur.

(xi) Employee Stock Compensation Cost

The Employees Stock Option Scheme (''the Scheme'') provides for grant of the equity shares of the Company to employees. The scheme provides that employees are granted an option to subscribe to the equity shares of the Company that vest in a graded manner. The options may be exercised with in the specified period. The Company follows the intrinsic value method to account for its stock based employee compensation plans. The expense or credit recognised in the statement of profit and loss for a period represents the movement in cumulative expense recognized as at the beginning and end of that period.

(xii) Taxes on income

Income-tax expense comprises of current tax (i.e. amount of tax for the period determined in accordance with the income-tax law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period). Income-tax expense is recognised in the statement of profit and loss.

(a) Current tax

Current tax is measured at the amount expected to be paid to (recovered from) the taxation authorities, using the applicable tax rates and tax laws.

(b) Deferred tax

Deferred tax is recognised in respect of timing differences between taxable income and accounting income i.e. differences that originate in one period and are capable of reversal in one or more subsequent periods. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets are reviewed as at each balance sheet date and written down or written-up to reflect the amount that is reasonably / virtually certain (as the case may be) to be realised.

(c) Minimum alternative tax

Minimum alternative tax (''MAT'') under the provisions of the Income Tax Act, 1961 is recognised as current tax in the statement of profit and loss. The credit available under the Act in respect of MAT paid is recognised as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the period for which the MAT credit can be carried forward for set-off against the normal tax liability. MAT credit recognised as an asset is reviewed at each balance sheet date and written down to the extent the aforesaid convincing evidence no longer exists.

(xiii) Provision

A provision is recognised if, as a result of a past event, the Company has a present obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are recognised at the best estimate of the expenditure required to settle the present obligation at the balance sheet date. The provisions are measured on an undiscounted basis.

(a) Onerous contracts

A contract is considered as onerous when the expected economic benefits to be derived by the Company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract.

(b) Contingencies

Provision in respect of loss contingencies relating to claims, litigation, assessment, fines, penalties, etc. are recognised when it is probable that a liability has been incurred, and the amount can be estimated reliably.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that the outflow of resources would be required to settle the obligation, the provision is reversed.

(xiv) Contingent liabilities and contingent assets

A contingent liability exists when there is a possible but not probable obligation, or a present obligation that may, but probably will not, require an outflow of resources, or a present obligation whose amount cannot be estimated reliably. Contingent liabilities do not warrant provisions, but are disclosed unless the possibility of outflow of resources is remote.

Contingent assets are neither recognised nor disclosed in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.

(xv) Derivative transactions

Fair value of derivative contracts is determined based on the appropriate valuation techniques considering the terms of the contract as at the balance sheet date. Mark to market losses in derivative contracts are recognised in the statement of profit and loss in the period in which they arise. Mark to market gains are not recognised keeping in view the principle of prudence as enunciated in "Accounting Standard (AS) 1 - Disclosure of Accounting Policies".

(xvi) Borrowing costs

Interest on borrowings is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable on the borrowings. Discount on commercial papers is amortised over the tenor of the commercial papers.

Brokerage and other ancillary expenditure directly attributable to a borrowing is amortised over the tenure of the respective borrowing. Unamortised borrowing costs remaining, if any, is fully expensed off as and when the related borrowing is prepaid / cancelled.

(xvii) Operating leases

Lease payments for assets taken on an operating lease are recognised as an expense in the statement of profit and loss on a straight line basis over the lease term.

(xviii) Earnings per share

The basic earnings per share (''EPS'') is computed by dividing the net profit after tax attributable to the equity shareholders for the year by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net profit after tax attributable to the equity shareholders for the year and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. The dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued at a later date. The diluted potential equity shares have been adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares). In computing dilutive earnings per share, only potential equity shares that are dilutive and that reduces profit / loss per share are included.

(xix) Cash and cash equivalents

Cash and cash equivalents comprise cash, cash-in-transit and cash on deposit with banks and corporations. The Company considers all highly liquid investments with an original maturity at the date of purchase of three months or less and that are readily convertible to known amounts of cash to be cash equivalents.

(xx) Cash flow statement

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

Equity shares

The Company has only one class of equity shares having a par value of Rs. 2/- each. Each holder of equity share is entitled to one vote per share.

The Company declares and pays dividend on equity shares in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders at the ensuing Annual General Meeting.

During the year, the Board of Directors at their meeting held on 08 May 2015 allotted 4,62,96,297 equity shares at a price of Rs. 108/- each aggregating to Rs. 50,000 lacs, including a premium of Rs. 106/- per share to Zend Mauritius VC Investments, Ltd, Indium V (Mauritius) Holdings Limited, LeapFrog Financial Inclusion India Holdings Limited on preferential basis under Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended and Companies Act, 2013 read with relevant rules thereunder and other applicable provisions. The equity shares issued and allotted as aforesaid rank pari passu with the existing equity shares of the Company in all respect.

During the year, the Company has allotted on 24 April 2015, 31 July 2015 and 8 February 2016, 30,000 equity shares, 29,000 equity shares and 47,500 equity shares respectively of the face value of Rs. 2/- each under Employee Stock Option Plan pursuant to SEBI (ESOS and ESPS) Guidelines, 1999 to the eligible employees of the Company. The company has also allotted on 26 April 2016, 15,000 equity shares of the face value of Rs. 2/- each under the said plan pursuant to SEBI (ESOS & ESPS) Guidelines, 1999 to an eligible ex-employee of the company. Consequent to these allotments, the total paid-up equity share capital of the Company stands increased to 23,68,43,672 equity shares of Rs. 2/- each aggregating to Rs. 4,736.87 lacs.

During the year ended 31 March 2016, the amount of per share dividend recognised as distribution to equity shareholders was Rs. 0.80 (40%) per equity share of the face value of Rs. 2/- each. Total dividend appropriation on 23,68,43,672 equity shares for the year ended 31 March 2016 amounted to Rs. 2,280.48 lacs including corporate dividend tax of Rs. 385.73 lacs and on 4,63,26,297 equity shares for the year ended 31 March 2015 amounted to Rs. 446.06 lacs including corporate dividend tax of Rs. 75.45 lacs.

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 to preference shareholders. The distribution will be in proportion to the number of equity shares held by the equity shareholders.

Preference shares

The Company declares and pays dividend on preference shares in both Indian rupees and foreign currencies. The dividend proposed by the Board of Directors is subject to approval of the shareholders at the ensuing Annual General Meeting.

The Company has redeemed Rs. 1,300.20 lacs being fourth installment of Rs. 20/- per share in respect of 65,00,999 cumulative non-convertible redeemable preference shares of Rs. 100/- per share during April 2015. The paid-up value as at 31 March 2016 of the above preference shares stands reduced to Rs. 20/- per share from Rs. 100/- per share. The above preference shares were redeemed out of the proceeds of the issue of equity shares made for the purposes in the earlier years which inter-alia include redemption of preference shares and accordingly, no transfer has been made to capital redemption reserve.

The Company has redeemed Rs. 1,000.00 lacs of 10,00,000 cumulative non-convertible redeemable preference shares of Rs. 100/- per share at Rs. 1,250.00 lacs including a redemption premium of Rs. 250.00 lacs during June 2015. The above preference shares were redeemed out of the proceeds of the issue of equity shares made for the purposes in the earlier year which inter-alia include redemption of preference shares and accordingly, no transfer has been made to capital redemption reserve.

The Company has redeemed Rs. 2,500.00 lacs of 25,00,000 cumulative non-convertible redeemable preference shares of Rs. 100/- per share at par during June 2015. The above preference shares were redeemed out of the proceeds of the issue of equity shares made for the purposes in the earlier year which inter-alia include redemption of preference shares and accordingly, no transfer has been made to capital redemption reserve.

The Company has redeemed Rs. 3,600.00 lacs of 36,00,000 cumulative non-convertible redeemable preference shares of Rs. 100/- per share at par during November 2015. The above preference shares were redeemed out of the proceeds of the issue of equity shares made for the purposes in the current year which inter-alia include redemption of preference shares and accordingly, no transfer has been made to capital redemption reserve.

As per the terms of issue, the holders of the 65,00,999 cumulative non-convertible redeemable preference shares of Rs. 100/- each aggregating to Rs. 6,501.00 lacs (equivalent to USD 15 Million) allotted on 26 March 2007 are entitled to fixed dividend at the rate equivalent to 6 months US Dollar Libor applicable on the respective dates i.e. 30 December or 29 June depending upon the actual date of payment plus 3.25% on subscription amount of USD 15 Million.

Accordingly, the Company had provided dividend for the financial year ended 31 March 2015 in accounts based on the 6 months US Dollar Libor applicable as on 30 December 2014 and closing exchange rate applicable as on 31 March 2015 and which was liable to vary depending on the actual date of payment of the dividend. Accordingly, the excess dividend and tax thereon of Rs. 7.30 lacs (2015: Rs. 3.50 lacs) provided with respect to above preference shares for the previous financial year ended 31 March 2015 has been adjusted in the current year with consequent impact on earnings per share for the year.

In the event of liquidation of the Company, the holders of preference shares will have priority over equity shares in payment of dividend and repayment of capital.

Shares allotted as fully paid-up without payment being received in cash / by way of bonus shares

The Company has not issued bonus shares or shares for consideration other than cash during the five year period immediately preceding the reporting date.

Employee stock options

The Company instituted the Magma Employee Stock Option Plan (MESOP) in 2007 and Magma Restricted Stock Option Plan 2014 (MRSOP) in 2014, which were approved by the Board of Directors.

MESOP, 2007

Under MESOP, the Company provided for the creation and issue of 10,00,000 options, that would eventually convert into equity shares of Rs. 10/- each in the hands of the Company''s employees. The options are to be granted to the eligible employees at the discretion of and at the exercise price determined by the Nomination and Remuneration Committee of the Board of Directors. The options generally vest in a graded manner over a five year period and are exercisable till the grantee remains an employee of the Company. Following the sub-division of one equity share of the face value of Rs. 10/- each into five equity shares of the face value of Rs. 2/- each during the financial year ended 31 March 2011, the number of options increased from 10,00,000 to 50,00,000.

MRSOP, 2014

Under MRSOP, the Company provided for the creation and issue of 50,00,000 options, that would eventually convert into equity shares of Rs. 2/- each in the hands of the Company''s employees. The options are to be granted to the eligible employees at the discretion of the Nomination and Remuneration Committee of the Board of Directors and at the exercise price of the face value of Rs. 2/- each. The options will vest in a graded manner and are exercisable till the grantee remains an employee of the Company.

During the year, the Nomination and Remuneration Committee of the Board of Directors has granted 2,50,000 options under MRSOP 2014 at an exercise price of Rs. 2/- per share to an eligible employee of the Company (each options entitles the option holder to 1 equity share of Rs. 2/- each ).

(i) Basis of preparation

(a) The accounting policies set out below have been applied consistently to the periods presented in these financial statements.

(b) The Company complies with the directions issued by the Reserve Bank of India (RBI) for Non-Banking Financial (Non-Deposit Accepting or Holding) Companies (NBFC- ND), relevant provisions of the Companies Act, 2013 (to the extent notified) and the Companies Act, 1956 and the applicable Accounting Standards prescribed by the Companies (Accounting Standard) Rules, 2006 issued by the Central Government of India and the guidelines issued by the Securities and exchange Board of India (SEBI) to the extent applicable. The financial statements are presented in Indian rupees rounded off to the nearest lac upto two decimal places.

(c) As required by Revised Schedule VI, the Company has classified assets and liabilities into current and non-current based on the operating cycle. An operating cycle is the time between the acquisition of assets and their realisation in cash or cash equivalents. Since in case of non-banking financial company normal operating cycle is not applicable, the operating cycle has been considered as 12 months

(ii) Use of estimates and judgements

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (''GAAP'') requires the management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities (including contingent liabilities) as on the date of the financial statements and the reported income and expenses during the reporting period. Actual results could differ from these estimates. Any revision to accounting estimates is recognised prospectively in current and future periods.

(iii) Assets on finance

(a) Assets on finance include assets given on finance / loan and amounts paid for acquiring financial assets including non- performing assets (NPAs) from other Banks / Non Banking Financial Companies (NBFCs).

(b) Assets on finance represents amounts receivable under finance / loan agreements and are valued at net investment amount including instalments due. The balance is also net of amounts securitised / assigned.

(iv) Revenue recognition

(a) Interest / finance income from assets on finance / loan included in revenue from operations represents interest income arrived at based on Internal Rate of Return method. Interest income is recognised as it accrues on a time proportion basis taking into account the amount outstanding and the rate applicable, except in the case of non-performing assets (NPA) where it is recognised upon realisation.

(b) Income on direct assignment / securitisation :

The Company enters into arrangements for sale of loan receivables through direct assignment / securitisation. The said assets are de-recognised upon transfer of significant risks and rewards to the purchaser and on meeting the true sale criteria.

The Company retains the contractual right to receive share of future monthly interest i.e. excess interest spread ("EIS") on the transferred assets which is the difference between the pool IRR and the yield agreed with the portfolio buyer.

The Company recognises gain / excess interest spread on direct assignment / securitisation transactions in line with RBI circular "Revisions to the Guidelines on Securitisation Transactions" issued on 21 August 2012. Prior to the issuance of circular, the Company used to follow Accounting Standard (AS) 1 on ''Disclosure of Accounting Policies'', which requires recognition of income on accrual basis.

Accordingly, direct assignment / securitisation transactions effected post issuance of the said guidelines are accounted as under:

a. Gain / income realised on direct assignment / securitisation of loan receivables arising under premium structure is recognised over the tenure of securities issued by Special Purpose Vehicle (SPV) / agreements. Loss, if any, is recognised upfront.

b. EIS under par structure of securitisation / direct assignment of loan receivables is recognised only when redeemed in cash, over the tenure of the securities issued by SPV / agreements. Loss, if any, is recognised upfront.

(c) Upfront direct income (net) of direct costs pertaining to loan origination is amortised over the tenure of the underlying loan contracts.

(d) Assets given by the Company under operating lease are included in fixed assets. Lease income from operating leases is recognised in the statement of Profit and loss on a straight line basis over the lease term unless another systematic basis is more representative of the time pattern in which benefit derived from the leased asset is diminished. Costs, including depreciation, incurred in earning the lease income are recognised as expenses. Initial direct costs incurred specifically for an operating lease are deferred and recognised in the statement of Profit and loss over the lease term in proportion to the recognition of lease income.

(e) Overdue interest is treated to accrue on realisation, due to uncertainty of realisation and is accounted for accordingly.

(f) In respect of NPAs acquired, recoveries in excess of consideration paid is recognised as income in accordance with RBI guidelines.

(g) Income from power generation is recognised based on the units generated as per the terms of the respective power purchase agreements with the respective State electricity Boards.

(h) Income from dividend is accounted for on receipt basis.

(i) All other items of income are accounted for on accrual basis.

(v) Provision for non-performing assets (''NPA'') and doubtful debts Non-performing assets (''NPA'') including loans and advances, receivables are identified as bad / doubtful based on the duration of the delinquency. The duration is set at appropriate levels for each product. NPA provisions are made based on the management''s assessment of the degree of impairment and the level of provisioning and meets the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, as amended and prescribed by Reserve Bank of India from time to time. These provisioning norms are considered the minimum and additional provision is made based on perceived credit risk where necessary.

All contracts with over dues for more than 52 months as well as those which, as per the management are not likely to be recovered are considered as loss assets and written-off as bad debts.

The aforesaid provisioning policy followed by the Company is more stringent than the applicable guidelines prescribed by the Reserve Bank of India.

(vi) Fixed assets, intangible assets and capital work-in-progress Fixed assets are carried at the cost of acquisition or construction less accumulated depreciation. The cost of fixed assets includes non-refundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets.

Advances paid towards the acquisition of fixed assets outstanding at each balance sheet date are disclosed as long-term loans and advances. The cost of fixed assets not ready for their intended use at each balance sheet date is disclosed as capital work-in-progress.

All assets given on operating lease are shown at the cost of acquisition less accumulated depreciation.

Intangible assets are recorded at the consideration paid for acquisition / development and licensing less accumulated amortisation.

(vii) Depreciation and amortisation

Depreciation on fixed assets, including assets on operating lease is provided using the straight line method at the rates specified in Schedule XIV to the Companies Act, 1956. Depreciation is calculated on a pro-rata basis from the date of installation till the date the assets are sold or disposed.

Leasehold improvements are amortised over the underlying lease term on a straight line basis.

Depreciation on vehicles given on operating lease is provided on straight line method at rates based on tenure of the underlying lease contracts.

Individual assets costing less than Rs. 5,000/- are depreciated in full in the year of acquisition.

Intangible assets are amortised over their estimated useful lives, not exceeding six years, on a straight line basis, commencing from the date the asset is available to the Company for its use.

(viii) Impairment

The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of Profit and loss. If at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost.

(ix) Investments

(a) Investments are classified as non-current or current based on intention of management at the time of purchase.

(b) Non-current investments are carried at cost less any other- than-temporary diminution in value, determined separately for each individual investment.

(c) Current investments are carried at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each investments.

(d) Any reduction in the carrying amount and any reversals of such reduction are charged or credited to the statement of Profit and loss.

(x) Employee benefits

(a) Provident fund

Contributions paid / payable to the recognised provident fund, which is a defined contribution scheme, are charged to the statement of Profit and loss.

(b) Gratuity

The Company''s gratuity benefit scheme is a defined benefit plan. The Company''s net obligation in respect of the gratuity benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets, if any, is deducted.

The present value of the obligation under such defined benefit plan is determined based on actuarial valuation using the Projected Accrued Benefit Method (same as Projected Unit Credit Method), which recognises each period of ser vice as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

The obligation is measured at the present value of the estimated future cash flows. The discount rates used for determining the present value of the obligation under defined benefit plan, are based on the market yields on Government securities as at the balance sheet date.

Actuarial gains and losses are recognised immediately in the statement of Profit and loss.

(c) Compensated absences

The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. expense on non-accumulating compensated absences is recognised in the period in which the absences occur.

(xi) Employee stock option schemes

The excess of the market price of shares, at the date of grant of options under the employee Stock Option Schemes of the Company, over the exercise price is regarded as employee compensation, and recognised on a straight line basis over the period over which the employees would become unconditionally entitled to apply for the shares.

(xii) Taxes on income

Income-tax expense comprises of current tax (i.e. amount of tax for the period determined in accordance with the income-tax law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period). Income-tax expense is recognised in the statement of Profit and loss.

(a) Current tax

Current tax is measured at the amount expected to be paid to (recovered from) the taxation authorities, using the applicable tax rates and tax laws.

(b) Deferred tax

Deferred tax is recognised in respect of timing differences between taxable income and accounting income i.e. differences that originate in one period and are capable of reversal in one or more subsequent periods. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets are reviewed as at each balance sheet date and written down or written-up to reflect the amount that is reasonably / virtually certain (as the case may be) to be realised.

(c) Minimum alternative tax

Minimum alternative tax (''MAT'') under the provisions of the Income Ta x Act, 1961 is recognised as current tax in the statement of Profit and loss. The credit available under the Act in respect of MAT paid is recognised as an asset only when and to the extent there is convincing evidence that the company will pay normal income tax during the period for which the MAT credit can be carried forward for set-off against the normal tax liability. M AT credit recognised as an asset is reviewed at each balance sheet date and written down to the extent the aforesaid convincing evidence no longer exists.

(xiii) Provision

A provision is recognised if, as a result of a past event, the Company has a present obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are recognised at the best estimate of the expenditure required to settle the present obligation at the balance sheet date. The provisions are measured on an undiscounted basis.

(a) Onerous contracts

A contract is considered as onerous when the expected economic benefits to be derived by the company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract.

(b) Contingencies

Provision in respect of loss contingencies relating to claims, litigation, assessment, fines, penalties, etc. are recognised when it is probable that a liability has been incurred, and the amount can be estimated reliably.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that the outflow of resources would be required to settle the obligation, the provision is reversed.

(xiv) Contingent liabilities and contingent assets

A contingent liability exists when there is a possible but not probable obligation, or a present obligation that may, but probably will not, require an outflow of resources, or a present obligation whose amount cannot be estimated reliably. Contingent liabilities do not warrant provisions, but are disclosed unless the possibility of outflow of resources is remote.

Contingent assets are neither recognised nor disclosed in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.

(xv) Derivative transactions

Fair value of derivative contracts is determined based on the appropriate valuation techniques considering the terms of the contract as at the balance sheet date. Mark to market losses in derivative contracts are recognised in the statement of Profit and loss in the period in which they arise. Mark to market gains are not recognised keeping in view the principle of prudence as enunciated in "Accounting Standard (AS) 1 - Disclosure of Accounting Policies".

(xvi) Borrowing costs

Interest on borrowings is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable on the borrowings. Discount on commercial papers is amortised over the tenor of the commercial papers.

Brokerage and other ancillary expenditure directly attributable to a borrowing is amortised over the tenure of the respective borrowing. Unamortised borrowing costs remaining, if any, is fully expensed off as and when the related borrowing is prepaid / cancelled.

(xvii) Operating leases

Lease payments for assets taken on an operating lease are recognised as an expense in the statement of Profit and loss on a straight line basis over the lease term.

(xviii) Earnings per share

The basic earnings per share (''EPS'') is computed by dividing the net Profit after tax attributable to the equity shareholders for the year by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net Profit after tax attributable to the equity shareholders for the year and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. The dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued at a later date. The diluted potential equity shares have been adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares).

In computing dilutive earnings per share, only potential equity shares that are dilutive and that reduces Profit / loss per share are included.

(xix) Cash and cash equivalents

Cash and cash equivalents comprise cash and cash on deposit with banks and corporations. The Company considers all highly liquid investments with an original maturity at the date of purchase of three months or less and that are readily convertible to known amounts of cash to be cash equivalents.

(xx) Cash flow statement

Cash flows are reported using the indirect method, whereby net Profit before tax is adjusted for the effects of transactions of non- cash nature, any deferrals, or accruals of past or future operating cash receipts or payments and item of expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated.

(i) Basis of preparation

(a) The accounting policies set out below have been applied consistently to the periods presented in these financial statements, except as explained in note 2(B) on changes in accounting policies.

(b) The Company complies with the directions issued by the Reserve Bank of India (RBI) for Non-Banking Financial (Non-Deposit Accepting or Holding) Companies (NBFC-ND), relevant provisions of the Companies Act, 1956 and the applicable Accounting Standards prescribed by the Companies (Accounting Standard) Rules, 2006 issued by the Central Government of India and the guidelines issued by the Securities and Exchange Board of India (SEBI) to the extent applicable. The financial statements are presented in Indian rupees rounded off to the nearest lac upto two decimal places.

(c) As required by revised Schedule VI, the Company has classified assets and liabilities into current and non-current based on the operating cycle. An operating cycle is the time between the acquisition of assets and their realization in cash or cash equivalents. Since in case of non-banking financial company normal operating cycle is not applicable, the operating cycle has been considered as 12 months.

(ii) Use of estimates and judgements

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (''GAAP'') requires the management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities (including contingent liabilities) as on the date of the financial statements and the reported income and expenses during the reporting period. Actual results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods.

(iii) Assets on finance

(a) Assets on finance include assets given on finance / loan and amounts paid for acquiring financial assets including non-performing assets (NPAs) from other Banks / NBFCs.

(b) Assets on finance represents amounts receivable under finance / loan agreements and are valued at net investment amount including installments due and is net of amounts securitised / assigned and includes advances under such agreements.

(iv) Revenue recognition

(a) Interest / finance income from assets on finance / loan included in revenue from operations represents interest income arrived at based on Internal Rate of Return method. Interest income is recognised as it accrues on a time proportion basis taking into account the amount outstanding and the rate applicable, except in the case of non-performing assets (NPA) where it is recognised upon realisation.

(b) Income on securitisation / assignment :

In respect of transfer of financial assets by way of securitisation or bilateral assignments, the said assets are de-recognized upon contractual transfer thereof, and transfer of substantial risks and rewards to the purchaser.

The gain arising on transfer of financial assets by way of securitisation or bilateral assignments, if received in cash, is amortised over the tenure of the related financial assets, and if received by way of excess interest spread, is recognised based on the contractual accrual of the same. Loss on sale, if any, is charged to statement of profit and loss immediately at the time the sale is effected.

(c) Upfront income (net) pertaining to loan origination is amortised over the tenure of the underlying contracts.

(d) Assets given by the Company under operating lease are included in fixed assets. Lease income from operating leases is recognised in the statement of profit and loss on a straight line basis over the lease term unless another systematic basis is more representative of the time pattern in which benefit derived from the leased asset is diminished. Costs, including depreciation, incurred in earning the lease income are recognised as expenses. Initial direct costs incurred specifically for an operating lease are deferred and recognised in the statement of profit and loss over the lease term in proportion to the recognition of lease income.

(e) In respect of NPAs acquired, recoveries in excess of consideration paid is recognised as income in accordance with RBI guidelines.

(f) Income from power generation is recognized based on the units generated as per the terms of the respective power purchase agreements with the respective State Electricity Boards.

(g) Income from dividend is accounted for on receipt basis.

(h) All other items of income are accounted for on accrual basis.

(v) Provision for non performing assets (''NPA'') and doubtful debts

Non performing assets (''NPA'') including loans and advances, receivables are identified as bad / doubtful based on the duration of the delinquency. The duration is set at appropriate levels for each product. NPA provisions are made based on the management''s assessment of the degree of impairment and the level of provisioning and meets the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, as amended and prescribed by Reserve Bank of India from time to time. These provisioning norms are considered the minimum and additional provision is made based on perceived credit risk where necessary.

The Company classifies non-performing assets at 120 days and commences provisioning based on the draft RBI guidelines released on 12 December 2012. The provisioning norms adopted is summarised in the table below:

All contracts with overdues for more than 52 months as well as those which, as per the management are not likely to be recovered are considered as loss assets and written-off as bad debts.

(vi) Fixed Assets, intangible assets and capital work-in-progress

Fixed assets are carried at the cost of acquisition or construction less accumulated depreciation. The cost of fixed assets includes non- refundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets. Advances paid towards the acquisition of fixed assets outstanding at each balance sheet date are disclosed as long term loans and advances. The cost of fixed assets not ready for their intended use at each balance sheet date is disclosed as capital work-in-progress All assets given on operating lease are shown at the cost of acquisition less accumulated depreciation.

Intangible assets are recorded at the consideration paid for acquisition / development and licensing less accumulated amortisation.

(vii) Depreciation and amortisation

Depreciation on fixed assets, including assets on operating lease is provided using the straight-line method at the rates specified in Schedule XIV to the Companies Act, 1956. Depreciation is calculated on a pro-rata basis from the date of installation till the date the assets are sold or disposed.

Leasehold improvements are amortised over the underlying lease term on a straight line basis.

Depreciation on commercial vehicles given on operating lease is provided on Straight Line Method at rates based on economic life of the assets.

Individual assets costing less than Rs 5,000/- are depreciated in full in the year of acquisition.

Intangible assets are amortized over their estimated useful lives, not exceeding six years, on a straight-line basis, commencing from the date the asset is available to the Company for its use.

(viii) Impairment

The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the statement of profit and loss. If at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost.

(ix) Investments

(a) Investments are classified as non current or current based on intention of management at the time of purchase.

(b) Non current investments are carried at cost less any other-than-temporary diminution in value, determined separately for each individual investment.

(c) Current investments are carried at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each investments.

(d) Any reduction in the carrying amount and any reversals of such reduction are charged or credited to the statement of profit and loss.

(x) Employee benefits

(a) Provident fund

Contributions paid / payable to the recognized provident fund, which is a defined contribution scheme, are charged to the statement of profit and loss.

(b) Gratuity

The Company''s gratuity benefit scheme is a defined benefit plan. The Company''s net obligation in respect of the gratuity benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets, if any, is deducted.

The present value of the obligation under such defined benefit plan is determined based on actuarial valuation using the Projected Accrued Benefit Method (same as Projected Unit Credit Method), which recognises each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

The obligation is measured at the present value of the estimated future cash flows. The discount rates used for determining the present value of the obligation under defined benefit plan, are based on the market yields on Government securities as at the balance sheet date.

Actuarial gains and losses are recognised immediately in the statement of profit and loss.

(c) Compensated absences

The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the Balance Sheet date. Expense on non-accumulating compensated absences is recognized in the period in which the absences occur.

(xi) Employee stock option schemes

The excess of the market price of shares, at the date of grant of options under the Employee Stock Option Schemes of the Company, over the exercise price is regarded as employee compensation, and recognised on a straight-line basis over the period over which the employees would become unconditionally entitled to apply for the shares.

(xii) Taxes on income

Income-tax expense comprises of current tax (i.e. amount of tax for the period determined in accordance with the income-tax law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period). Income-tax expense is recognised in profit or loss except that tax expense related to items recognised directly in reserves is also recognised in those reserves.

(a) Current tax

Current tax is measured at the amount expected to be paid to (recovered from) the taxation authorities, using the applicable tax rates and tax laws.

(b) Deferred tax

Deferred tax is recognised in respect of timing differences between taxable income and accounting income i.e. differences that originate in one period and are capable of reversal in one or more subsequent periods. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets are reviewed as at each balance sheet date and written down or written-up to reflect the amount that is reasonably / virtually certain (as the case may be) to be realised.

(c) Minimum alternative tax

Minimum alternative tax (''MAT'') under the provisions of the Income-tax Act, 1961 is recognised as current tax in the statement of profit and loss. The credit available under the Act in respect of MAT paid is recognised as an asset only when and to the extent there is convincing evidence that the company will pay normal income tax during the period for which the MAT credit can be carried forward for set-off against the normal tax liability. MAT credit recognised as an asset is reviewed at each balance sheet date and written down to the extent the aforesaid convincing evidence no longer exists.

(xiii) Provision

A provision is recognised if, as a result of a past event, the Company has a present obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are recognised at the best estimate of the expenditure required to settle the present obligation at the balance sheet date. The provisions are measured on an undiscounted basis.

(a) Onerous Contracts

A contract is considered as onerous when the expected economic benefits to be derived by the company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract.

(b) Contingencies

Provision in respect of loss contingencies relating to claims, litigation, assessment, fines, penalties, etc. are recognised when it is probable that a liability has been incurred, and the amount can be estimated reliably.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that the outflow of resources would be required to settle the obligation, the provision is reversed.

(xiv) Contingent liabilities and contingent assets

A contingent liability exists when there is a possible but not probable obligation, or a present obligation that may, but probably will not, require an outflow of resources, or a present obligation whose amount cannot be estimated reliably. Contingent liabilities do not warrant provisions, but are disclosed unless the possibility of outflow of resources is remote.

Contingent assets are neither recognised nor disclosed in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.

(xv) Transactions in foreign currencies

Foreign currency denominated monetary assets and liabilities are translated at exchange rates in effect at the Balance Sheet date. The gains or losses resulting from such translations are included in the statement of profit and loss. Non-monetary assets and non- monetary liabilities denominated in a foreign currency and measured at fair value are translated at the exchange rate prevalent at the date when the fair value was determined. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at historical cost are translated at the exchange rate prevalent at the date of transaction.

Revenue, expense and cash-flow items denominated in foreign currencies are translated using the exchange rate in effect on the date of the transaction. Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the period in which the transaction is settled.

(xvi) Derivative transactions

Fair value of derivative contracts is determined based on the appropriate valuation techniques considering the terms of the contract as at the balance sheet date. Mark to market losses in option contracts are recognized in the statement of profit and loss in the period in which they arise. Mark to market gains are not recognized keeping in view the principle of prudence as enunciated in AS 1.

(xvii) Borrowing cost

Interest on borrowing is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable on the borrowing. Discount on commercial paper is amortised over the tenor of the commercial paper.

Ancillary expenditure incurred in connection with the arrangement of borrowings is amortized over the tenure of the respective borrowings. Unamortized borrowing costs remaining, if any, is fully expensed off as and when the related borrowing is prepaid / cancelled.

(xviii) Operating leases

Lease payments for assets taken on an operating lease are recognised as an expense in the statement of profit and loss on a straight line basis over the lease term.

(xix) Earnings per share

The basic earnings per share (''EPS'') is computed by dividing the net profit after tax attributable to the equity shareholders for the year by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net profit after tax attributable to the equity shareholders for the year and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. The dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued at a later date. The diluted potential equity shares have been adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares).

In computing dilutive earnings per share, only potential equity shares that are dilutive and that reduce profit / loss per share are included.

(xx) Cash and cash equivalents

Cash and cash equivalents comprise cash and cash on deposit with banks and corporations. The Company considers all highly liquid investments with a remaining maturity at the date of purchase of three months or less and that are readily convertible to known amounts of cash to be cash equivalents.

(xxi) Cash flow statement

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

I) Basis of preparation

(a) The accompanying financial statements have been prepared under the historical cost convention and on an accrual basis unless otherwise stated.

(b) The Company follows the directions prescribed by the Reserve Bank of India for Non-Banking Financial (Non-Deposit Accepting or Holding) Companies (NBFC-ND), provisions of the Companies Act, 1956 and the applicable Accounting Standards notified by the Central Government of India under section 211 (3C) of the Companies Act, 1956. The financial statements are presented in Indian rupees rounded off to the nearest lac upto two decimal places.

(c) As required by revised Schedule VI, the Company has classified assets and liabilities into current and non-current based on the operating cycle. An operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. Since in case of non-banking financial company normal operating cycle is not readily determinable, the operating cycle has been considered as 12 months.

ii) Use of estimates and judgements

The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amount of assets and liabilities (including contingent liabilities) as on the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision to accounting estimates is recognised prospectively in current and future periods.

iii) Assets on finance

(a) Assets on finance include assets given on finance / loan and amounts paid for acquiring financial assets including non- performing assets (NPAs) from other Banks / NBFCs.

(b) Assets on finance represents amounts receivable under finance / loan agreements and are valued at net investment amount including installments due and is net of amounts securitised / assigned and includes advances under such agreements.

(c ) Repossessed assets are valued at lower of book value and estimated realisable value.

iv) Revenue recognition

(a) Interest / finance income from Assets on finance / loan included in revenue from operations represents interest income arrived at based on Internal Rate of Return method.

(b) Overdue interest is treated to accrue on realisation, due to uncertainty of realisation and is accounted for accordingly.

(c) Income on securitisation / assignment :

In respect of transfer of financial assets by way of securitisation or bilateral assignments, the said assets are de-recognised upon contractual transfer thereof, and transfer of substantial risks and rewards to the purchaser.

If the transfer of financial assets amounts to securitisation within the meaning of the guidelines of Reserve Bank of India dated 1 February 2006, the gain arising therefrom, if received in cash, is amortised over the tenure of the related financial assets, and if received by way of excess interest spread, is recognised based on the contractual accrual of the same. Loss on sale, if any, is charged to statement of profit and loss during the year in which sale is effected.

The above policy was being followed only for the securitisation transactions upto 31 March 2011. Effective 1 April 2011, the Company has applied this policy for all transfers of financial assets.

(d) Interest on fixed deposits, loans, margins, etc. is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable.

(e) In case of operating lease, rent income is accounted for on straight line basis over the period of the lease.

(f) In respect of NPAs acquired, recoveries in excess of consideration paid is recognised as income in accordance with RBI guidelines.

(g) Upfront income (net) pertaining to loan origination is amortised over the tenure of the underlying contracts.

(h) Income from power generation is recognised based on the units generated as per the terms of the respective power purchase agreements with the State Electricity Boards.

(i) Income from dividend is accounted for on receipt basis.

(j) All other items of income are accounted for on accrual basis.

v) Provisioning / Write-offs

(a) All contracts with six months past dues other than NPAs acquired are treated as loss assets and written off. This policy on non-performing assets classification and provisioning is more stringent than the guidelines prescribed by the Reserve Bank of India for compliance by Non-Banking Financial (Non-Deposit Accepting or Holding) Companies (NBFC-ND). Any subsequent recoveries out of such contracts is treated as income for the year during which the same is received.

(b) The Company makes provision of 0.25% on standard assets in accordance with RBI guidelines issued on 17 January, 2011. The above contingent provision against standard assets is treated as Tier II capital and accordingly considered as long-term provision.

vi) Prudential norms

Subject to para 1 (v) (a) above, the Company has followed the prudential norms issued by Reserve Bank of India, as applicable, and revenue / assets have been represented (considering adjustments / write-off / net-off, as applicable) keeping in line therewith and management prudence.

vii) Fixed Assets, intangible assets and capital work-in-progress

Fixed assets are carried at the cost of acquisition or construction less accumulated depreciation. The cost of fixed assets includes non- refundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets. Advances paid towards the acquisition of fixed assets outstanding at each balance sheet date are disclosed as long term loans and advances. The cost of fixed assets not ready for their intended use at each balance sheet date is disclosed as capital work- in-progress.

All assets given on operating lease are shown at the cost of acquisition less accumulated depreciation.

Intangible assets are recorded at the consideration paid for acquisition / development and licensing less accumulated amortisation.

viii) Depreciation and amortisation

Depreciation on fixed assets, including assets on operating lease is provided using the straight-line method at the rates specified in Schedule XIV to the Companies Act, 1956. Depreciation is calculated on a pro-rata basis from the date of installation till the date the assets are sold or disposed. Depreciation on commercial vehicles given on operating lease is provided on Straight Line Method at rates based on economic life of the assets. Individual assets costing less than Rs 5,000/- are depreciated in full in the year of acquisition.

Intangible assets are amortised over their estimated useful lives, not exceeding six years, on a straight-line basis, commencing from the date the asset is available to the Company for its use.

ix) Impairment of fixed assets

The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of profit and loss. If at the balance sheet date there is an indication that if a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost.

x) Inventories

Inventories comprises of real estate property held for sale and is valued at lower of cost or net realisable value.

xi) Investments

(a) Long-term investments are carried at cost less any other than temporary diminution in value, determined separately for each individual investment. The reduction in the carrying amount is reversed when there is a rise in the value of the investment or if the reasons for the reduction no longer exist.

(b) Current investments are carried at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each share individually.

xii) Employee benefits

(a) Provident fund

Contributions paid / payable to the recognised provident fund, which is a defined contribution scheme, are charged to the statement of profit and loss.

(b) Gratuity

Gratuity which is a defined benefit scheme, is accrued based on an actuarial valuation at the balance sheet date, carried out by an independent actuary. Actuarial gains and losses are charged to the statement of profit and loss in the period in which they arise.

(c) Compensated absences

Compensated absences, a defined benefit, is accrued based on an actuarial valuation at the balance sheet date, carried out by an independent actuary. The Company accrues for the expected cost of short-term compensated absences in the period in which the employee renders services.

xiii) Taxes on income

Income tax expense comprises current tax and deferred tax charge or credit.

(a) Current tax

The current charge for income tax is calculated in accordance with the relevant tax regulations applicable to the Company.

(b) Deferred tax

Deferred tax charge or credit reflects the tax effects of timing differences between accounting income and taxable income for the period. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates that have been enacted or substantially enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carry forward of losses, deferred tax assets are recognised only if there is a virtual certainty of realisation of such assets. Deferred tax assets are reviewed at each balance sheet date and are written-down or written- up to reflect the amount that is reasonably / virtually certain (as the case may be) to be realised. The break-up of the major components of the deferred tax assets and liabilities as at balance sheet date has been arrived at after setting off deferred tax assets and liabilities where the Company has a legally enforceable right to set-off assets against liabilities and where such assets and liabilities relate to taxes on income levied by the same governing taxation laws.

xiv) Provision and contingent liabilities

The Company creates a provision when there is a present obligation as a result of past events and it is probable that there will be outflow of resources and a reliable estimate of the obligation can be made of the amount of the obligation. Contingent liabilities are not recognised but are disclosed in the notes to the financial statements. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that the outflow of resources would be required to settle the obligation, the provision is reversed.

Contingent assets are not recognised in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an economic benefit will arise, the asset and related income are recognised in the period in which the change occurs.

Provisions for onerous contracts, i.e. contracts where the expected unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it, are recognised when it is probable that an outflow of resources embodying economic benefits will be required to settle a present obligation as a result of an obligating event, based on a reliable estimate of such obligation.

xv) Transactions in foreign currencies

Foreign currency transactions are recorded using the exchange rates prevailing on the dates of the respective transactions. Exchange differences arising on foreign currency transactions settled during the year are recognised in the statement of profit and loss.

Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date are translated at year-end rates. The resultant exchange differences are recognised in the statement of profit and loss. Non-monetary assets are recorded at the rates prevailing on the date of the transaction.

xvi) Derivative transactions

Fair value of derivative contracts is determined based on the appropriate valuation techniques considering the terms of the contract as at the balance sheet date. Mark to market losses in option contracts are recognised in the statement of profit and loss in the period in which they arise. Mark to market gains are not recognised keeping in view the principle of prudence as enunciated in AS 1.

xvii) Borrowing cost

Ancillary expenditure incurred in connection with the arrangement of borrowings is amortised over the tenure of the respective borrowings. Unamortised borrowing costs remaining, if any, is fully expensed off as and when the related borrowing is prepaid / cancelled.

xviii) Earnings per share

The basic earnings per share ('EPS') is computed by dividing the net profit after tax for the year by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net profit after tax for the year and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. The dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued at a later date. The diluted potential equity shares have been adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares).

In computing dilutive earnings per share, only potential equity shares that are dilutive and that reduce profit / loss per share are included.

xix) Cash flow statement

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

Equity shares

The Company has only one class of equity shares having a par value of Rs.2/- each. Each holder of equity share is entitled to one vote per share.

*Allotted to the shareholders of erstwhile Shrachi Infrastructure Finance Limited pursuant to the scheme of amalgamation.

The Company declares and pays dividend on equity shares in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

During the year ended 31 March 2011, the amount of per share dividend recognised as distribution to equity shareholders was Re.0.60 (30%) per equity share of the face value of Rs.2/- each. Total dividend appropriation on equity shares for the year ended 31 March 2011 amounted to Rs.904.95 Lacs including corporate dividend tax of Rs.126.31 Lacs.

On 30 June 2011, the Company has allotted 26,854,375 equity shares of Rs.2/- each to Zend Mauritius VC Investments, Limited, a Foreign body Corporate (a fund within the private equity division of Kohlberg Kravis Roberts & Co. L.P.) ('KKR') and 23,000,000 equity shares of Rs.2/- each to International Finance Corporation,('IFC'), a Multilateral Development Organisation, on preferential basis pursuant to provisions of Section 81(1A) of the Companies Act, 1956 and under chapter VII of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 at a price of Rs.88/- per equity share (including premium of Rs.86/- per share) aggregating to Rs. 43,871.85 Lacs. The funds raised have been deployed in the business of the Company. Pursuant to the terms of the preference share agreement, the Company has redeemed installment of Rs.20/- of the 2,109,199, 9.70 % Cumulative non-convertible redeemable preference shares Rs.100/- each aggregating to Rs.421.84 Lacs due for redemption during the year ended 31 March 2012 and will also be redeeming preference shares due for redemption in future as per the terms of the issue out of the proceeds of this issue.

On 29 July 2011 and 25 November 2011, the Company has allotted, 35,650 and 68,600 equity shares respectively of the face value of Rs.2/- each on preferential basis, under Magma Employee Stock Option Plan (MESOP) pursuant to SEBI (ESOS and ESPS) Guidelines, 1999 to eligible employees of the Company.

On 28 October 2011, the Company has allotted, 10,000,000 equity shares of the face value of Rs.2/- each to Microfirm Softwares Private Limited, a promoter company at a price of Rs.50/- per equity share (including share premium of Rs.48/- per equity share) on receipt of balance 75% consideration amounting to Rs.3,750.00 Lacs pursuant to exercise of the options attached with 10,000,000 warrants allotted to them on 30 April 2010 in terms of provisions of SEBI Guidelines for Preferential Issue (Chapter VII of the SEBI (Issue and Disclosure Requirements) Regulations, 2009). These 2,000,000 warrants were allotted on 30 April 2010 carrying an option to subscribe to equivalent number of equity shares of the face value of Rs.10/- each within a period not exceeding 18 months from the date of issue of such warrants. Following the subdivision of one equity share of the face value of Rs. 10/- each into five equity shares of the face value of Rs. 2/- each during the previous year, the number of warrants increased from 2,000,000 to 10,000,000 and the issue price reduced from Rs. 250/- to Rs. 50/- per equity share of Rs. 2/- each. The Company had received Rs. 1,250.00 Lacs being 25% of the total issue price at the time of allotment of warrants.

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 to preference shareholders. The distribution will be in proportion to the number of equity shares held by the equity shareholders.

Preference shares

The Company declares and pays dividend on preference shares in both Indian rupees and foreign currencies. The dividend proposed by the Board of Directors is subject to approval of the shareholders in the ensuing Annual General Meeting.

The Company has redeemed Rs.421.84 Lacs being second installment of Rs. 20/- per share in respect of 2,109,199 cumulative non- convertible redeemable preference shares of Rs.100/- per share on 17 February 2012. The paid-up value as at 31 March 2012 of the above preference shares stands reduced to Rs.60/- per share from Rs.100/- per share. The above preference shares were redeemed out of the proceeds of a fresh issue of equity shares made for the purposes which inter-alia include redemption of preference shares and accordingly, no transfer has been made to capital redemption reserve.

As per the terms of issue, the holders of the 6,500,999 cumulative non-convertible redeemable preference shares of Rs.100 each aggregating to Rs.6,501.00 Lacs (equivalent to USD 15 Million) allotted on 26 March 2007 are entitled to fixed dividend at the rate equivalent to 6 months US Dollar Libor applicable on the respective dates i.e. 30 December or 29 June depending upon the actual date of payment plus 3.25% on subscription amount of USD 15 Million.

Accordingly, the Company had provided dividend for the financial year ended 31 March 2011 in accounts based on the 6 months US Dollar Libor applicable as on 30 December 2010 and closing exchange rate applicable as on 31 March 2011 and which was liable to vary depending on the actual date of payment of the dividend. Accordingly, the excess/ (deficit) dividend and tax thereon of Rs.0.13 Lacs (Previous Year: (Rs.37.06 Lacs)) provided with respect to above preference shares for the previous financial year ended 31 March, 2011 has been adjusted in the current year with consequent impact on earning per share for the year.

In the event of liquidation of the Company, the holders of preference shares will have priority over equity shares in payment of dividend and repayment of capital.

Employee stock options

The Company instituted the Magma Employee Stock Option Plan (MESOP) in 2007, which was approved by the Board of Directors. Under MESOP, the Company provided for the creation and issue of 1,000,000 options that would eventually convert into equity shares of Rs. 10/- each in the hands of the Company's employees. The options are to be granted to the eligible employees at the discretion of and at the exercise price determined by the Nomination and Remuneration Committee of the Board of Directors. The options generally vest in a graded manner over a five year period and are exercisable till the grantee remains an employee of the Company. Following the subdivision of one equity share of the face value of Rs.10/- each into five equity shares of the face value of Rs.2/- each during the previous year, the number of options increased from 1,000,000 to 5,000,000.

Magma Employee Stock Option Plan 2007 (Tranche 1, year 2007)

The Nomination and Remuneration Committee of the Board of Directors had granted 350,800 Options (each Option entitled to 1 equity share of Rs.10/- each at a price of Rs.180/- per share) to the eligible employees of the Company under "Magma Employee Stock Option Plan 2007" on 12 October 2007. Following the subdivision of one equity share of the face value of Rs.10/- each into five equity shares of the face value of Rs.2/- each during the previous year, the number of options increased from 350,800 to 1,754,000 and the issue price reduced from Rs.180/- to Rs.36/- per equity share of Rs.2/- each.

Magma Employee Stock Option Plan 2007 (Tranche 2, year 2012)

The Nomination and Remuneration Committee of the Board of Directors has granted 250,000 Options (each Option entitled to 1 equity share of Rs.2/- each at a price of Rs.60/- per share) to the eligible employees of the Company under "Magma Employee Stock Option Plan 2007" on 1 February 2012.

Nature of security

(a) Debentures are secured by mortgage of Company's immovable property situated at Village - Mehrun, Taluk and District - Jalgaon in the state of Maharastra and are also secured against designated Assets on finance/loan.

(b) Term loans from Banks/Financial Institutions are secured by hypothecation of designated Assets on finance/loan and future rentals receivable therefrom. Certain term loans are additionally secured by way of personal guarantee of a Director.

(c) Term loans related to wind mills owned by the Company are secured by means of mortgage of the wind mills, assignment of the related receivables, and a bank guarantee in favour of the lending institution alongwith personal guarantee of a Director.

Nature of security

(a) Debentures are secured by mortgage of Company's immovable property situated at Village - Mehrun, Taluk and District - Jalgaon in the state of Maharastra and are also secured against designated Assets on finance/loan.

(b) Term loans from Banks/Financial Institutions are secured by hypothecation of designated Assets on finance/loan and future rentals receivable therefrom. Certain term loans are additionally secured by way of personal guarantee of a Director.

(c) Term loans related to wind mills owned by the Company are secured by means of mortgage of the wind mills, assignment of the related receivables, and a bank guarantee in favour of the lending institution alongwith personal guarantee of a Director.

(d) Cash credit facilities and working capital demand loans from Banks are secured by hypothecation of the Company's finance/loan assets, plant and machinery and future rental income therefrom and other current assets excluding those from real estate (expressly excluding those equipments, plant, machinery, spare parts etc. and future rental income therefrom which have been or will be purchased out of the term loans and/or refinance facility from FIs, Banks or any other finance organisation). These are collaterally secured by equitable mortgage of immovable properties and personal guarantee of a Director.

# Balance would be credited to Investor Education and Protection Fund as and when due.

* Represents liability transferred to and vested in the Company pursuant to the amalgamation of erstwhile Shrachi Infrastructure Finance Limited with the Company in the financial year 2006-07. The Company, in accordance with Reserve Bank of India directives, had transferred the entire outstanding amount together with interest to an escrow account.

I) Basis of Preparation

a) The financial statements have been prepared under the historical cost convention and on an accrual basis unless otherwise stated.

b) The Company follows the directions prescribed by the Reserve Bank of India for Non-Banking Financial (Non-Deposit Accepting or Holding) Companies (NBFC-ND), provisions of the Companies Act, 1956 and the applicable Accounting Standards notified by the Central Government under the Companies (Accounting Standard) Rules, 2006.

c) The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as on the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates.

ii) Assets on Finance

a) Assets on Finance include assets given on Finance / Loan and amounts paid for acquiring financial assets including non-performing assets (NPAs) from other Banks / NBFCs.

b) Assets on Finance represents amounts receivable under Finance / Loan agreements and is net of unmatured / unearned finance charges and amounts securitised / assigned and includes advances under such agreements.

c) Repossessed assets are valued at lower of book value and estimated realisable value.

iii) Revenue Recognition

a) Income from Operations includes finance charges on Assets on Finance / Loan recognised on the basis of Internal Rate of Return method on individual agreements. In case of operating lease, rent income is accounted for on straight line basis over the period of the lease. In respect of NPAs acquired, recoveries in excess of consideration paid is recognised as income in accordance with RBI guidelines.

b) In respect of receivables securitised prior to 1st February, 2006 and receivables assigned bilaterally, the assets are de- recognised as all the rights, titles and future receivables are assigned to the purchaser. On de-recognition, the difference between the book value of the assets securitised / assigned and the discounted value of the receivables is taken to Profit and Loss Account. In terms of Reserve Bank of Indias Guideline, in respect of receivables securitised post 1st February, 2006, gain arising thereon is amortised over the tenure of the related receivables and loss, if any, is charged to Profit and Loss Account during the year in which sale is effected.

c) Upfront income (net) received is recognised upon execution of the respective contracts.

d) Income from dividend is accounted for on receipt basis.

e) Interest on Loans, Margins, Fixed Deposits, etc. are recognised on a time proportion basis taking into account the amount outstanding and the rate applicable.

f) Income from power generation is recognised as per the terms of the relevant Power Purchase Agreements with the respective parties.

g) All other items of income are accounted for on accrual basis.

h) The Company follows a more stringent policy on non-performing assets classification and provisioning than the guidelines prescribed by the Reserve Bank of India for compliance by Non-Banking Financial (Non-Deposit Accepting or Holding) Companies (NBFC-ND). Accordingly, all contracts with 180 days past dues other than NPAs acquired are treated as loss assets and written off. Any subsequent recoveries out of such contracts is treated as income for the year during which the same is received.

i) The Company makes provision of 0.25% on standard assets in accordance with RBI guidelines issued on 17th January, 2011.

iv) Prudential Norms

Subject to Para 1 (iii) (h) above, the Company has followed the Prudential Norms issued by Reserve Bank of India, as applicable, and revenue / assets have been represented (considering adjustments / write-off / net-off, as applicable) keeping in line therewith and management prudence.

v) Fixed Assets

a) Fixed Assets are stated at cost less depreciation and grants received against these assets, if any.

b) Capital work-in-progress is stated at cost and includes advances given for acquisition of assets.

c) Intangible Assets are stated at cost of acquisition less accumulated amortisation.

vi) Depreciation and Amortisation

Depreciation on Fixed Assets for own use and on Operating Lease has been provided on Straight Line Method on book value at the applicable rates and in the manner specified in Schedule-XIV to the Companies Act, 1956. Depreciation on commercial vehicles given on operating lease is provided on Straight Line Method at rates based on economic life of the assets. Intangible Assets are amortised over the assets estimated useful life not exceeding six years.

vii) Stock-in-Trade

Stock-in-Trade comprises of real estate property held for sale and is valued at lower of cost or net realisable value.

viii) Transactions in Foreign Currencies

In respect of transactions covered by Forward Foreign Exchange Contract, the difference between the forward rate and exchange rate at the inception of contract is recognised as income or expense over the life of the contract.

ix) Grants

Grants, if any, received against specific assets are deducted from the gross value of assets concerned in arriving at its book value and grants related to revenue are credited to the related expenditure.

x) Investments

a) Investments that are intended to be held for more than a year, from the date of acquisition, are classified as long term investments and are carried at cost. However, provision for diminution in value of investments is made to recognise a decline, other than temporary.

b) Investments other than long term investments are valued at lower of cost and fair value of each share individually.

xi) Employee Benefits

a) Short term employee benefits are recognised as expense at the undiscounted amount in the profit and loss account of the year in which the related service is rendered.

b) Post employment and other long term employee benefits are recognised as expense in the profit and loss account for the year in which the employees have rendered services. The expenses are recognised at the present value of the amounts payable determined using the actuarial valuation techniques at the end of each financial year. Actuarial gains or losses in respect of post employment and other long term benefits are charged to the profit and loss account.

xii) Taxes on Income

Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognised, subject to consideration of prudence, on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in subsequent periods. Deferred tax assets arising on account of unabsorbed depreciation or carry forward of tax losses are recognised only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which deferred tax assets can be realised.

xiii) Impairment of Fixed Assets

An asset is treated as impaired when the carrying cost of assets exceeds its recoverable value. An impairment loss is charged to the Profit and Loss Account in the year in which an asset is identified as impaired. The impairment loss recognised in prior accounting periods is reversed if there has been a change in estimate of recoverable amount.

xiv) Provisions and Contingent Liabilities

Provisions are recognised in accounts in respect of present probable obligations, the amount of which can be reliably estimated.

Contingent liabilities are disclosed in respect of possible obligations that arise from past events but their existence is confirmed only by occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company.

I) Basis of Preparation

a) The financial statements have been prepared under the historical cost convention and on an accrual basis unless otherwise stated.

b) The Company follows the directions prescribed by the Reserve Bank of India for Non-Banking Financial Companies, provisions of the Companies Act, 1956 and the applicable Accounting Standards notified by the Central Government under the Companies (Accounting Standard) Rules, 2006.

c) The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as on the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates.

ii) Assets on Finance

a) Assets on Finance include assets given on Finance / Loan / Lease / Hire and amounts paid for acquiring financial assets including non-performing assets (NPAs) from other Banks / NBFCs.

b) Assets on Finance represents amounts receivable under Finance / Loan / Lease / Hire agreements and is net of unmatured / unearned finance charges and amounts securitised / assigned and includes advances under such agreements.

c) Repossessed assets are valued at lower of book value and estimated realisable value.

iii) Revenue Recognition

a) Income from Operations include earnings from Assets on Finance / Loan / Lease / Hire arrived at by amortising the installments containing the Finance Charges, as and when these become due, as per the related arrangements, such amortisation being based on Internal Rate of Return method on individual agreements. In case of operating lease, rent income is accounted for as and when this becomes due, as per the related arrangements. In respect of NPAs acquired, recoveries in excess of consideration paid is recognised as income in accordance with RBI guidelines.

b) In respect of receivables securitised prior to 1 February, 2006 and receivables assigned bilaterally, the difference between the book value of the assets securitised / assigned and the sale consideration is taken to income. In terms of Reserve Bank of India’s Guideline, in respect of receivables securitised post 1 February, 2006, gain / (loss) arising thereon is amortised over the tenure of the related receivables.

c) Upfront income (net) received is recognised upon execution of the applicable contracts.

d) Income from dividends is accounted for on receipt basis.

e) Interest on Loans, Margins, Fixed Deposits, etc. are recognised on a time proportion basis taking into account the amount outstanding and the rate applicable.

f) Income from power generation is recognised as per the terms of the relevant Power Purchase Agreements with the respective parties.

g) All other items of income are accounted for on accrual basis.

h) Initial direct costs incurred in respect of operating lease are recognised as expense in the year in which they are incurred.

i) As a part of prudent financial management, the Company had decided to progressively follow the internationally accepted accounting principles on revenue recognition, provisioning and asset classification. These principles stipulate de-recognition of income on 90 days past dues, progressive provisioning and recognition of contracts with 180 days past dues as loss assets. These principles are more stringent than the guidelines prescribed by the Reserve Bank of India for compliance by the finance companies.

In accordance with these prudent accounting policies, all contracts with 180 days past dues other than NPAs acquired have been treated as loss assets and written off as bad debts. Any subsequent recoveries made out of these contracts will be treated as income for the year during which the same is received.

iv) Prudential Norms

Subject to Para 1 (iii) (i) above, the Company has followed the Prudential Norms issued by Reserve Bank of India, as applicable, and revenue / assets have been represented (considering adjustments / write-off / net-off, as applicable) keeping in line therewith and management prudence.

v) Fixed Assets

a) Fixed Assets are stated at cost less depreciation and grants received against these assets, if any.

b) Capital work-in-progress is stated at cost and includes advances given for acquisition of assets.

c) Intangible Assets are stated at cost of acquisition less accumulated amortisation.

vi) Depreciation

Depreciation on Fixed Assets for own use and on Operating Lease has been provided on Straight Line Method on book value at the applicable rates and in the manner specified in Schedule-XIV to the Companies Act, 1956. Depreciation on commercial vehicles given on operating lease is provided on Straight Line Method at rates based on economic life of the assets. Intangible Assets are amortised over the assets’ estimated useful life not exceeding 6 years.

vii) Stock-in-Trade

Stock-in-Trade comprises of real estate property held for sale and is valued at lower of cost or net realisable value.

viii) Transactions in Foreign Currencies

In respect of transactions covered by Forward Foreign Exchange Contract, the difference between the forward rate and exchange rate at the inception of contract is recognised as income or expense over the life of the contract.

ix) Grants

Grants, if any, received against specific assets are deducted from the gross value of assets concerned in arriving at its book value and grants related to revenue are credited to the related expenditure.

x) Investments

a) Investments that are intended to be held for more than a year, from the date of acquisition, are classified as long term investments and are carried at cost. However, provision for diminution in value of investments is made to recognise a decline, other than temporary.

b) Investments other than long term investments are valued at lower of cost and fair value of each share individually.

xi) Retirement and Other Employee Benefits Defined Contribution Plans

Companys contributions to Provident Fund are recognised as expense of the year in which Company’s contributions to the fund are due. The Company has no obligations other than the contributions payable to the fund.

Defined Benefit Plans

Gratuity liability and compensated leave encashment are provided for based on actuarial valuation made at the end of each financial year. Actuarial gain and losses are recognised immediately in the statement of Profit & Loss Account as income or expense.

xii) Taxes on Income

Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognised, subject to consideration of prudence, on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax assets arising on account of unabsorbed depreciation or carry forward of tax losses are recognised only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which deferred tax assets can be realised.

xiii) Impairment of Fixed Assets

An asset is treated as impaired when the carrying cost of assets exceeds its recoverable value. An impairment loss is charged to the Profit and Loss Account in the year in which an asset is identified as impaired. The impairment loss recognised in prior accounting periods is reversed if there has been a change in estimate of recoverable amount.

xiv) Provision and Contingent Liabilities

Provisions are recognized in accounts in respect of present probable obligations, the amount of which can be reliably estimated.

Contingent liabilities are disclosed in respect of possible obligations that arise from past events but their existence is confirmed only by occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company.