Accounting Policies of SBFC Finance Ltd. Company

Mar 31, 2025

2. Material accounting policies

2.1 Basis of preparation

The standalone financial statement of the Company
have been prepared in accordance with Indian
Accounting Standards (Ind AS) notified under the
Companies (Indian Accounting Standards) Rules, 2015
(as amended from time to time) and other accounting
principles generally accepted in India mainly considering
the Master Directions issued by the Reserve Bank of
India (‘RBI’) as applicable to Non deposit taking Non¬
Banking Finance Companies. The standalone financial
statement have been prepared under the historical
cost convention, as modified by the application of fair
value measurements required or allowed by relevant
Accounting Standards. Accounting policies have been
consistently applied to all periods presented, unless
otherwise stated.

The preparation of standalone financial statement
requires the use of certain critical accounting estimates
and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses and
the disclosed amount of contingent liabilities. Areas
involving a higher degree of judgement or complexity,
or areas where assumptions are significant to the
Company are discussed in Note 2.15- Significant
accounting judgements, estimates and assumptions.

The standalone financial statement are presented in
Indian Rupees (?) in Million and all values are rounded
to the nearest Rupee in Ten Thousands, except when
otherwise indicated.

2.2. Presentation of standalone financial statement

The standalone financial statement of the Company
are presented as per Schedule III (Division III) of the
Companies Act, 2013, applicable to NBFCs as notified
by the Ministry of Corporate Affairs (MCA). Financial
assets and financial liabilities are generally reported on
a gross basis except when, there is an unconditional
legally enforceable right to offset the recognised
amounts without being contingent on a future event and
the parties intend to settle on a net basis in the following
circumstances:

a) The normal course of business

b) The event of default

c) The event of insolvency or bankruptcy of the
Company and/ or its counterparties

2.3. Statement of compliance

The standalone financial statement have been prepared
in accordance with the Indian Accounting Standards
(Ind AS) on the historical cost basis except for certain
financial instruments that are measured at fair values
at the end of each reporting period as explained in the
accounting policies below and the relevant provisions of
the Act.

Accounting policies have been consistently applied
except where a newly-issued accounting standard is
initially adopted or a revision to an existing accounting
standard requires a change in the accounting policy
hitherto in use.

The Company has adopted the amendments to Ind AS
1 for the first time in the current year as per Companies
(Indian Accounting Standards) Amendment Rules, 2023
and applicable from April 1, 2023. The amendments
change the requirements in Ind AS 1 with regard to
disclosure of accounting policies. The amendments
replace all instances of the term ‘significant accounting
policies’ with ‘material accounting policy information’.
Accounting policy information is material if, when
considered together with other information included in
an entity’s financial statements, it can reasonably be
expected to influence decisions that the primary users
of general-purpose financial statements make on the
basis of those financial statements.

2.4. Financial instruments

(i) Classification of financial instruments

The Company classifies its financial assets into the
following measurement categories:

a) Financial assets to be measured at amortised cost

b) Financial assets to be measured at fair value
through other comprehensive income

c) Financial assets to be measured at fair value
through profit or loss account

The classification depends on the contractual terms
of the financial assets’ cash flows and the Company’s
business model for managing financial assets which are
explained below:

Business model assessment

The Company determines its business model at the
level that best reflects how it manages groups of
financial assets to achieve its business objective.

The Company’s business model is not assessed on an
instrument-by-instrument basis, but at a higher level
of aggregated portfolios and is based on observable
factors such as:

a) How the performance of the business model and
the financial assets held within that business
model are evaluated and reported to the entity’s
key management personnel

b) The risks that affect the performance of the
business model (and the financial assets held
within that business model) and the way those
risks are managed

c) How managers of the business are compensated
(for example, whether the compensation is based
on the fair value of the assets managed or on the
contractual cash flows collected)

d) The expected frequency, value and timing of sales
are also important aspects of the Company’s
assessment. The business model assessment is
based on reasonably expected scenarios without
taking ‘worst case’ or ‘stress case’ scenarios
into account. If cash flows after initial recognition
are realised in a way that is different from the
Company’s original expectations, the Company
does not change the classification of the remaining
financial assets held in that business model but
incorporates such information when assessing
newly originated or newly purchased financial
assets going forward.

The Solely Payments of Principal and Interest (SPPI)
test

As a second step of its classification process, the
Company assesses the contractual terms of financial
assets to identify whether they meet the SPPI test.

‘Principal’ for the purpose of this test is defined as the fair
value of the financial asset at initial recognition and may
change over the life of the financial asset (for example,
if there are repayments of principal or amortisation of
the premium/ discount).

In making this assessment, the Company considers
whether the contractual cash flows are consistent with
a basic lending arrangement i.e. interest includes only

consideration for the time value of money, credit risk,
other basic lending risks and a profit margin that is
consistent with a basic lending arrangement. Where the
contractual terms introduce exposure to risk or volatility
that are inconsistent with a basic lending arrangement,
the related financial asset is classified and measured at
fair value through profit or loss.

The Company classifies its financial liabilities at
amortised costs.

(ii) Financial assets measured at amortised cost

These financial assets comprise bank balances,
receivables, investments and other financial assets.

These are measured at amortised cost where they
have:

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

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

These instruments are initially recognised at fair
value plus directly attributable transaction costs and
subsequently measured at amortised cost.

(iii) Items at fair value through profit or loss (FVTPL)

Items at fair value through profit or loss comprise:

a) Investments (including equity shares) held for
trading;

b) Items specifically designated as FVTPL on initial
recognition; and

c) debt instruments with contractual terms that do
not represent solely payments of principal and
interest.

Financial instruments held at FVTPL are initially
recognised at fair value, with transaction costs
recognised in the standalone statement of profit and
loss as incurred. Subsequently, they are measured at
fair value and any gains or losses are recognised in the
standalone statement of profit and loss as they arise.

(iv) Debt securities and other borrowed funds

After initial measurement, debt issued, and other
borrowed funds are subsequently measured at
amortised cost. Amortised cost is calculated by taking
into account any discount or premium on issue funds,
and costs that are an integral part of the EIR.

(v) Reclassification

If the business model under which the Company holds
financial assets changes, the financial assets affected
are reclassified. The classification and measurement
requirements related to the new category apply

prospectively from the first day of the first reporting
period following the change in business model that
result in reclassifying the Company’s financial assets.
Changes in contractual cash flows are considered under
the accounting policy on Modification and derecognition
of financial assets described below.

(vi) Recognition and Derecognition of financial assets
and liabilities

Recognition:

a) Loans and Advances are initially recognised when
the Financial Instruments are transferred to the
customers.

b) Investments are initially recognised on the trade
date.

c) Debt securities, deposits and borrowings are
initially recognised when funds reach the Company.

d) Other Financial assets and liabilities are initially
recognised on the trade date, i.e., the date that
the Company becomes a party to the contractual
provisions of the instrument.

Derecognition of financial assets
a) Financial assets:

A financial asset (or, where applicable, a part of a
financial asset or part of a group of similar financial
assets) is derecognised when the rights to receive
cash flows from the financial asset have expired.
The Company also derecognises the financial
asset if it has both transferred the financial asset
and the transfer qualifies for derecognition.

The Company has transferred the financial asset if,
the Company has transferred its contractual rights
to receive cash flows from the financial asset.

A transfer only qualifies for derecognition if 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

The Company considers control to be transferred
if and only if, the transferee has the practical ability
to sell the asset in its entirety to an unrelated third
party and is able to exercise that ability unilaterally
and without imposing additional restrictions on the
transfer.

When the Company has neither transferred nor
retained substantially all the risks and rewards
and has retained control of the asset, the asset
continues to be recognised only to the extent of
the Company’s continuing involvement, in which

case, the Company also recognises an associated
liability. The transferred asset and the associated
liability are measured on a basis that reflects
the rights and obligations that the Company has
retained.

b) Financial liabilities:

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

(vii) Impairment of financial assets

Overview of the ECL principles

The Company records allowance for expected credit
losses for all loans, other debt financial assets not held
at FVTPL, together with financial guarantee contracts,
in this section all referred to as ‘financial instruments.
Equity instruments are not subject to impairment under
Ind AS 109.

The ECL allowance is based on the credit losses
expected to arise over the life of the asset (the lifetime
expected credit loss), unless there has been no
significant increase in credit risk since origination, in
which case, the allowance is based on the 12 months’
expected credit loss.

Lifetime ECL are the expected credit losses resulting
from all possible default events over the expected life of
a financial instrument. The 12-month ECL is the portion
of Lifetime ECL that represent the ECLs that result
from default events on a financial instrument that are
possible within the 12 months after the reporting date.

Both Lifetime ECLs and 12-month ECLs are calculated
on either an individual basis or a collective basis.

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. The
Company does the assessment of significant increase
in credit risk at a borrower level. If a borrower has
various facilities having different past due status, then
the highest days past due (DPD) is considered to be
applicable for all the facilities of that borrower.

Based on the above, the Company categorises its loans
into Stage 1, Stage 2 and Stage 3 as described below:

Stage 1

All exposures where there has not been a significant
increase in credit risk since initial recognition or that
has low credit risk at the reporting date and that are
not credit impaired upon origination are classified
under this stage. The Company classifies all standard
advances and advances up to 0-30 days default under
this category. Stage 1 loans also include facilities where
the credit risk has improved, and the loan has been
reclassified from Stage 2.

Stage 2

All exposures where there has been a significant
increase in credit risk since initial recognition but are
not credit impaired are classified under this stage.
Financial assets past due for 31-90 days are classified
under this stage. The Company uses the below criteria
for assessing movement to Stage 2:

a) Financial assets past due between 31-90

b) The Company becomes aware about any
deterioration in the financial condition and
reputation of the obligor which the management
believes may lead to significant deterioration in
credit risk

Stage 3

All exposures assessed as credit impaired when one
or more events that have a detrimental impact on the
estimated future cash flows of that asset have occurred
are classified in this stage. For exposures that have
become credit impaired, a lifetime ECL is recognised
and interest revenue is calculated by applying the
effective interest rate to the amortised cost (net of
provision) rather than the gross carrying amount.
Stage 3 is considered where “Contractual payments of
principal and/or interest are past due for more than 90
days”.

Non performing Asset classification is done in line with
Reserve Bank of India Master Circular on Prudential
norms on Income Recognition, Asset Classification and
Provisioning pertaining to Advances and Clarifications
dated November 12, 2021 and dated February 15, 2022.

The mechanics of ECL

The Company calculates ECLs based on probability-
weighted scenarios to measure the expected cash
shortfalls, discounted at an approximation to the EIR. A
cash shortfall is the difference between the cash flows
that are due to the Company and the cash flows that the
Company expects to receive.

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

Probability of Default (PD) - Probability of default (“PD”)
is defined as the likelihood of default over a particular
time horizon. The PD of an obligor is a fundamental

risk parameter in credit risk analysis and depends on
obligor specific as well as macroeconomic risk factors.
The impact of macroeconomic criteria on the PD results
in two different PD estimates, through-the-cycle (“TTC”)
and the point-in-time (“PIT”) PD. A TTC PD estimate
remains largely unaffected by the economic cycle, while
a PIT PD estimate varies with the economic cycle.

Exposure at Default (EAD) - EAD is taken as the gross
exposure under a facility upon default of an obligor.
The amortized principal and the interest accrued is
considered as EAD for the purpose of ECL computation

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

Repossessed assets

In Loan Against Property / Mortgage Loan, the collateral
on a loan can be repossessed as part of legal process
through SARFAESI, arbitration etc. In such scenario,
property value assessment to be done based on
existing valuation done for NPA cases or fresh valuation
done post repossession of the property. Basis the
assessment of the valuation, additional provision to be
done to the extent of shortfall in the value of asset not
covered with the existing ECL provision.

Further, property auction/sale to be conducted for such
repossessed assets as per legal process and guidelines
basis collection manual. Once the property is sold,
based on the actual realization the ECL shortfall or
surplus to be accounted for.

If any repossessed asset is not sold for 24 months
post repossession, the account should be marked
for accelerated provision and account should be fully
provided.

(viii) Write-offs

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

(ix) Determination of fair value

On initial recognition, all the financial instruments are
measured at fair value. For subsequent measurement,

the Company measures certain categories of financial
instruments (as explained in Note 2.4) at fair value on
each balance sheet date.

Fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date. The fair value measurement is
based on the presumption that the transaction to sell
the asset or transfer the liability takes place either:

i. In the principal market for the asset or liability, or

ii. In the absence of a principal market, in the most
advantageous market for the asset or liability

The principal or the most advantageous market must be
accessible by the Company.

The fair value of an asset or a liability is measured using
the assumptions that market participants would use
when pricing the asset or liability, assuming that market
participants act in their economic best interest.

A fair value measurement of a non-financial asset takes
into account a market participant’s ability to generate
economic benefits by using the asset in its highest and
best use or by selling it to another market participant
that would use the asset in its highest and best use.

The Company uses valuation techniques that are
appropriate in the circumstances and for which sufficient
data are available to measure fair value, maximising the
use of relevant observable inputs and minimising the
use of unobservable inputs.

In order to show how fair values have been derived,
financial instruments are classified based on a hierarchy
of valuation techniques, as summarised below:

Level 1 financial instruments - Those where the inputs
used in the valuation are unadjusted quoted prices from
active markets for identical assets or liabilities that the
Company has access to at the measurement date. The
Company considers markets as active only if there are
sufficient trading activities with regards to the volume
and liquidity of the identical assets or liabilities and
when there are binding and exercisable price quotes
available on the balance sheet date.

Level 2 financial instruments - Those where the inputs
that are used for valuation and are significant, are
derived from directly or indirectly observable market
data available over the entire period of the instrument’s
life. Such inputs include quoted prices for similar assets
or liabilities in active markets, quoted prices for identical
instruments in inactive markets and observable inputs
other than quoted prices such as interest rates and
yield curves, implied volatilities, and credit spreads. In
addition, adjustments may be required for the condition
or location of the asset or the extent to which it relates
to items that are comparable to the valued instrument.
However, if such adjustments are based on unobservable
inputs which are significant to the entire measurement,
the Company will classify the instruments as Level 3.

Level 3 financial instruments - Those that include one
or more unobservable input that is significant to the
measurement as whole.

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

Difference between transaction price and fair value at
initial recognition

The best evidence of the fair value of a financial
instrument at initial recognition is the transaction
price (i.e. the fair value of the consideration given
or received) unless the fair value of that instrument
is evidenced by comparison with other observable
current market transactions in the same instrument
(i.e. without modification or repackaging) or based on a
valuation technique whose variables include only data
from observable markets. When such evidence exists,
the Company recognises the difference between the
transaction price and the fair value in profit or loss on
initial recognition (i.e. on day one).

When the transaction price of the instrument differs from
the fair value at origination and the fair value is based
on a valuation technique using only inputs observable
in market transactions, the Company recognises the
difference between the transaction price and fair value
in net gain on fair value changes. In those cases where
fair value is based on models for which some of the
inputs are not observable, the difference between the
transaction price and the fair value is not recognised at
the initial recognition stage.

(x) Derivatives and hedging activity

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

Cash flow hedges that qualify for hedge accounting

The hedge instruments are designated and documented
as hedges at the inception of the contract. The Company
determines the existence of an economic relationship
between the hedging instrument and hedged item based
on the currency, amount and timing of their respective
cash flows. The effectiveness of hedge instruments
to reduce the risk associated with the exposure being
hedged is assessed and measured at inception and
on an ongoing basis. If the hedged future cash flows
are no longer expected to occur, then the amounts that
have been accumulated in other equity are immediately

reclassified in net foreign exchange gains in the
statement of profit and loss.

The effective portion of change in the fair value of the
designated hedging instrument is recognised in the
other comprehensive income and accumulated under
the heading cash flow hedging reserve. Such amounts
are reclassified into the statement of profit and loss
when the related hedged items affect profit and loss.

Hedge accounting is discontinued when the hedging
instrument expires or is sold, terminated or no longer
qualifies for hedge accounting. Any gain or loss
recognised in other comprehensive income and
accumulated in equity till that time remains and is
recognised in the statement of profit and loss when
the forecasted transaction ultimately affects profit and
loss. Any gain or loss is recognised immediately in the
statement of profit and loss when the hedge becomes
ineffective.

2.5 Investment in subsidiaries

Investment in subsidiaries and associates are
recognised at cost. Cost of investment represents
amount paid for acquisition of the said investment.

The Company assesses at the end of each reporting
period if there are any indications of impairment on
such investments. If so, the Company estimates the
recoverable value/amount of the investment and
provides for impairment, if any i.e. the deficit in the
recoverable value over cost.

2.6 Share Capital

The Company has only one class of equity shares.
Par value of the equity share is recorded as the share
capital and the amount received in excess of par value
is classified as share premium. Equity shares issued by
the Company are recognised at the proceeds received
net of direct issue cost.

Treasury shares represent the consideration paid by
the Company, including any directly attributable costs,
to repurchase its own ordinary shares. Treasury shares
are presented as a deduction from total equity. On
cancellation of treasury shares, the amount paid is
adjusted against share capital, to the extent of the par
value of ordinary shares repurchased, and the balance
is adjusted against share premium.

2.7 Revenue from operations

(i) Interest Income

Interest income is recognised by applying (EIR) to the
gross carrying amount of financial assets other than
credit-impaired assets and financial assets classified
as measured at FVTPL, taking into account the amount
outstanding and the applicable interest rate.

Processing fees on loans is collected towards processing
of loan and are considered integral part of loan. This
is amortised on EIR basis over the contractual life of
the loan.

The EIR is computed:

a. As the rate that exactly discounts estimated future
cash payments or receipts through the expected
life of the financial asset to the gross carrying
amount of a financial asset

b. By considering all the contractual terms of the
financial instrument (for example, prepayment,
extension, call and similar options) in estimating
the cash flows

c. Including all fees paid or received between parties
to the contract that are an integral part of the
effective interest rate, transaction costs, and all
other premiums or discounts.

Any subsequent changes in the estimation of the future
cash flows are recognised in interest income with the
corresponding adjustment to the carrying amount of the
assets.

Delayed payment interest (penal interest) levied on
customers for delay in repayments/ non-payment of
contractual cashflows is recognised on realisation.

(ii) Fees & Commission Income

Fees and commission income that are not integral part of
loans and advances and therefore excluded for effective
interest calculation, is recognised when the Company
satisfies the performance obligation, at transaction price
when the consideration received or receivable based on
a five-step model as set out below.:

Step 1: Identify contract(s) with a customer: A contract
is defined as an agreement between two or more parties
that creates enforceable rights and obligations and sets
out the criteria for every contract that must be met.

Step 2: Identify performance obligations in the contract:
A performance obligation is a promise in a contract with
a customer to transfer a good or service to the customer.

Step 3: Determine the transaction price: The transaction
price is the amount of consideration to which the
Company expects to be entitled in exchange for
transferring promised goods or services to a customer,
excluding amounts collected on behalf of third parties.

Step 4: Allocate the transaction price to the performance
obligations in the contract: For a contract that has more
than one performance obligation, the Company allocates
the transaction price to each performance obligation in
an amount that depicts the amount of consideration to
which the Company expects to be entitled in exchange
for satisfying each performance obligation.

Step 5: Recognise revenue when (or as) the Company
satisfies a performance obligation

Initial money Deposit charges are collected from
customers for document processing, which is non
refundable in the nature and are recognized on
realization basis

(iii) Net gain on Fair value changes

Any differences between the fair values of financial
assets classified as FVTPL held by the Company on the
balance sheet date is recognised as an unrealised gain/
loss. In cases there is a net gain in the aggregate, the
same is recognised in “Net gains on fair value changes”
under Revenue from operations and if there is a net
loss the same is disclosed as “Net loss on fair value
changes” under Expenses in the standalone statement
of profit and loss.

Similarly, any realised gain or loss on sale of financial
instruments measured at FVTPL is recognised in net
gain/ loss on fair value changes.

(iv) Advertisement income

The Company recognises advertisement income on
realisation or when the right to receive the same without
any uncertainties of recovery is established.

(v) Other Operating Income

The Company recognises income on recoveries of
financial assets written off on realisation or when the
right to receive the same without any uncertainties of
recovery is established.

Foreclosure charges are collected from loan customers
for early payment/ closure of loan and are recognized
on realization.

2.8 Expenses

(i) Finance costs

Finance costs on borrowings is paid towards availing of
loan, is amortised on EIR basis over the contractual life
of loan.

The EIR in case of a financial liability is computed

a) As the rate that exactly discounts estimated future
cash payments through the expected life of the
financial liability to the gross carrying amount of
the amortised cost of a financial liability.

b) By considering all the contractual terms of the
financial instrument in estimating the cash flows

c) Including all fees paid between parties to the
contract that are an integral part of the effective
interest rate, transaction costs, and all other
premiums or discounts.

Any subsequent changes in the estimation of the future
cash flows are recognised in interest expense with the
corresponding adjustment to the carrying amount of the
liability.

Interest expense includes issue costs that are initially
recognized as part of the carrying value of the financial
liability and amortized over the expected life using
the effective interest method. These include fees and
commissions payable to advisers and other expenses
such as external legal costs, Rating Fee etc, provided
these are incremental costs that are directly related to
the issue of a financial liability.

(ii) Retirement and other employee benefits

Short term employee benefit

All employee benefits payable wholly within twelve
months of rendering the service are classified as
short-term employee benefits. These benefits include
short term compensated absences such as paid
annual leave. The undiscounted amount of short-term
employee benefits expected to be paid in exchange for
the services rendered by employees is recognised as
an expense during the period. Benefits such as salaries
and wages, etc. and the expected cost of the bonus/
ex-gratia are recognised in the period in which the
employee renders the related service.

Post-employment employee benefits

a) Defined contribution schemes

All the eligible employees of the Company who
have opted to receive benefits under the Provident
Fund and Employees State Insurance scheme,
defined contribution plans in which both the
employee and the Company contribute monthly at
a stipulated rate. The Company has no liability for
future benefits other than its annual contribution
and recognises such contributions as an expense
in the period in which employee renders the
related service. If the contribution payable to the
scheme for service received before the Balance
Sheet date exceeds the contribution already paid,
the deficit payable to the scheme is recognised as
a liability after deducting the contribution already
paid. If the contribution already paid exceeds the
contribution due for services received before the
Balance Sheet date, then excess is recognised
as an asset to the extent that the pre-payment will
lead to, for example, a reduction in future payment
or a cash refund.

b) Defined Benefit schemes

The Company provides for the gratuity, a defined
benefit retirement plan covering all employees. The
plan provides for lump sum payments to employees
upon death while in employment or on separation
from employment after serving for the stipulated
years mentioned under ‘The Payment of Gratuity
Act, 1972’. The present value of the obligation
under such defined benefit plan is determined
based on actuarial valuation, carried out by an
independent actuary at each Balance Sheet date,
using the Projected Unit Credit Method, which
recognizes each period of service as giving rise to
an 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.

Net interest recognized in profit or loss is calculated by
applying the discount rate used to measure the defined
benefit obligation to the net defined benefit liability or
asset. The actual return on the plan assets above or
below the discount rate is recognized as part of re¬
measurement of net defined liability or asset through
other comprehensive income. An actuarial valuation
involves making various assumptions that may differ
from actual developments in the future. These include
the determination of the discount rate, attrition rate,
future salary increases and mortality rates. Due to the
complexities involved in the valuation and its long-term
nature, these liabilities are highly sensitive to changes
in these assumptions. All assumptions are reviewed at
each reporting date.

The Company fully contributes all ascertained liabilities
to The Trustees - “SBFC Finance Private Limited
employees group gratuity cash accumulation scheme”.
Trustees administer contributions made to the trust and
contributions are invested in a scheme of insurance with
the IRDA approved Insurance Company- Life Insurance
Corporation of India.

Re-measurement, comprising of actuarial gains and
losses and the return on plan assets (excluding amounts
included in net interest on the net defined benefit
liability), are recognized immediately in the balance
sheet with a corresponding debit or credit to retained
earnings through OCI in the period in which they occur.
Re-measurements are not reclassified to profit and loss
in subsequent periods.

Other employee benefits

Company’s liabilities towards compensated absences to
employees are accrued on the basis of valuations, as at
the Balance Sheet date, carried out by an independent
actuary using Projected Unit Credit Method. Actuarial
gains and losses comprise experience adjustments and
the effects of changes in actuarial assumptions and are
recognised immediately in the standalone statement of
profit and loss.

The Company presents the Provision for compensated
absences under provisions in the Balance Sheet.

Share-based payment arrangements

The stock options granted to employees pursuant to the
Company’s Stock Options Schemes, are measured at
the fair value of the options at the grant date using Black
Scholes Model. The fair value of the options determined
at grant date is accounted as employee compensation
cost over the vesting period on a straight line basis over
the period of option, based on the number of grants
expected to vest, with corresponding increase in equity.
The employee stock option outstanding account is
shown under Reserves and Surplus.

The Company has created an Employee Welfare Trust
for providing share-based payment to its employees
for (a) SBFC Stock Option Policy I 2018 and (b) SBFC
Stock Option Policy 2021 - I policies. The Company

uses the Trust as a vehicle for distributing shares to
employees under the employee remuneration schemes
for the above mentioned two policies. The Company
allots shares to the Trustee of the Trust, for giving
shares to employees. The Company treats Trust as its
extension and shares held by the Trust are treated as
treasury shares.

(iii) Leases:

In accordance with Ind AS 116 - Leases at the date
of commencement of the lease, the Company has
recognised a Lease Liability, except for leases with a
term of 12 months or less (short-term leases) and low
value leases.

The Company evaluates if an arrangement qualifies
to be a lease as per the requirements of Ind AS 116.
Identification of a lease requires significant judgment.
The Company uses significant judgement in assessing
the lease term (including anticipated renewals) and the
applicable discount rate. The Company determines the
lease term as the non-cancellable period of a lease,
together with both periods covered by an option to
extend the lease if the Company is reasonably certain to
exercise that option; and periods covered by an option
to terminate the lease if the Company is reasonably
certain not to exercise that option. In assessing whether
the Company is reasonably certain to exercise an
option to extend a lease, or not to exercise an option
to terminate a lease, it considers all relevant facts
and circumstances that create an economic incentive
for the Company to exercise the option to extend the
lease, or not to exercise the option to terminate the
lease. The Company revises the lease term if there is
a change in the non-cancellable period of a lease. The
discount rate is generally based on the incremental
borrowing rate. The Company makes assessment on
the expected lease term on lease by lease basis and
thereby assesses whether it is reasonably certain that
any option to extend or terminate the contract will be
exercised. In evaluating the lease term, the Company
considers factors such as any significant leasehold
improvements undertaken over the lease term, costs
relating to termination of lease and the importance of
the underlying to the Company’s operation taking into
account the location of the underlying asset and the
availability of the suitable alternatives. The lease term
in future periods is reassessed to ensure that the lease
term reflect the current economic circumstances.

The right-of-use assets is subsequently measured
at cost less accumulated depreciation, accumulated
impairment losses, if any, and adjusted for any
remeasurement of the lease liability.

The right-of-use assets is depreciated using the
straight-line method from the commencement date over
the shorter of lease term or useful life of right-of-use
asset. Right-of-use assets are tested for impairment
whenever there is any indication that their carrying
amounts may not be recoverable. Impairment loss, if
any, is recognised in the standalone statement of profit
and loss.

The company recognises the amount of the re¬
measurement of lease liability due to modification as
an adjustment to the right-of-use asset and standalone
statement of profit and loss depending upon the nature
of modification. Where the carrying amount of the right-
of-use asset is reduced to zero and there is a further
reduction in the measurement of the lease liability, the
Company recognises any remaining amount of the re¬
measurement in standalone statement of profit and loss.

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

(v) Impairment of non-financial assets

The carrying amount of assets is reviewed at each
balance sheet date if there is any indication of
impairment based on internal/ external factors. An
impairment loss is recognized wherever the carrying
amount of an asset exceeds its recoverable amount.
The recoverable amount is the greater of the assets,
net selling price and value in use. In assessing value
in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of
money and risks specific to the asset.

In determining net selling price, recent market
transactions are taken into account, if available. If no
such transactions can be identified, an appropriate
valuation model is used. After impairment, depreciation
is provided on the revised carrying amount of the asset
over its remaining useful life.

Goodwill represents the excess of the cost of an
acquisition over the fair value of the Company’s share
of the net identifiable assets of the acquired entity
at the date of acquisition. Goodwill is carried at cost
less accumulated impairment losses. Impairment
loss on goodwill is not reversed. Goodwill is not
subject to amortization and tested at least annually
for impairment or whenever events or changes in
circumstances indicate that the carrying amount may
not be recoverable. An impairment loss is recognized
for the amount by which the asset’s carrying amount
exceeds its recoverable amount.

(vi) Taxes

Current Tax

Current tax assets and liabilities for the current and
prior years are measured at the amount expected to
be recovered from, or paid to, the taxation authorities.
The tax rates and tax laws used to compute the amount
are those that are enacted, or substantively enacted, by
the reporting date in the countries where the Company
operates and generates taxable income.

Current income tax relating to items recognised
outside profit or loss is recognised outside profit or loss

(either in other comprehensive income or in equity).
Current tax items are recognised in correlation to the
underlying transaction either in OCI or directly in equity.
Management periodically evaluates positions taken
in the tax returns with respect to situations in which
applicable tax regulations are subject to interpretation
and establishes provisions where appropriate.

Deferred tax

Deferred tax assets and liabilities are recognised for
temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts.
Deferred income tax is determined using tax rates (and
laws) that have been enacted or substantively enacted
by the reporting date and are expected to apply when
the related deferred income tax asset is realised or the
deferred income tax liability is settled.

Deferred tax assets are only recognised for temporary
differences, unused tax losses and unused tax credits
if it is probable that future taxable amounts will arise to
utilise those temporary differences and losses. Deferred
tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that
the related tax benefit will be realised.

Deferred tax assets and liabilities are offset where there
is a legally enforceable right to offset current tax assets
and liabilities and they relate to income taxes levied by
the same tax authority on the same taxable entity.

Goods and services tax paid on acquisition of assets or
on incurring expenses:

Expenses and assets are recognised net of the goods
and services tax/ service tax/ value added taxes paid,
except:

i. When the tax incurred on a purchase of assets
or services is not recoverable from the taxation
authority, in which case, the tax paid is recognised
as part of the cost of acquisition of the asset or as
part of the expense item, as applicable

ii. When receivables and payables are stated with
the amount of tax included

The net amount of tax recoverable from, or payable to,
the taxation authority is included as part of receivables
or payables in the balance sheet.

2.9 Cash and cash equivalents

Cash and cash equivalents comprise the net amount
of short-term, highly liquid investments that are readily
convertible to known amounts of cash (short-term
deposits with an original maturity of three months or
less) and are subject to an insignificant risk of change in
value. They are held for the purposes of meeting short¬
term cash commitments (rather than for investment or
other purposes).

For the purpose of the statement of cash flows, cash
and cash equivalents consist of cash and short- term
deposits, as defined above.

2.10 Property, plant and equipment

Property, plant and equipment (PPE) are measured at
cost less accumulated depreciation and accumulated
impairment, (if any). The total cost of assets comprises
its purchase price, freight, duties, taxes and any other
incidental expenses directly attributable to bringing the
asset to the location and condition necessary for it to
be capable of operating in the manner intended by the
management. Changes in the expected useful life are
accounted for by changing the amortisation period or
methodology, as appropriate, and treated as changes in
accounting estimates.

Subsequent expenditure related to an item of tangible
asset are added to its gross value only if it increases the
future benefits of the existing asset, beyond its previously
assessed standards of performance and cost can be
measured reliably. Other repairs and maintenance costs
are expensed off as and when incurred.

Depreciation

Depreciation is calculated using the straight line method
to write down the cost of property and equipment
to their residual values over their estimated useful
lives which is in line with the estimated useful life as
specified in Schedule II of the Act except for Leasehold
improvements which are amortised on a straight-line
basis over the period of lease or 3 years whichever is
less. Leasehold improvements include all expenditure
incurred on the leasehold premises that have future
economic benefits. The residual values, useful lives
and methods of depreciation of property, plant and
equipment are reviewed at each financial year end and
adjusted prospectively, if appropriate.

The estimated useful lives as used by the Company are
listed below:

2.11 Intangible assets

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

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

The useful lives of intangible assets are assessed to
be either finite or indefinite. Intangible assets with finite
lives are amortised over the useful economic life. The
amortisation period and the amortisation method for an
intangible asset with a finite useful life are reviewed at
least at each financial year-end. Changes in the expected
useful life, or the expected pattern of consumption of
future economic benefits embodied in the asset, are
accounted for by changing the amortisation period or
methodology, as appropriate, which are then treated
as changes in accounting estimates. The amortisation
expense on intangible assets with finite lives is presented
as a separate line item in the standalone statement of
profit and loss. Amortisation on assets acquired/ sold
during the year is recognised on a pro-rata basis to the
standalone statement of profit and loss from/ upto the
date of acquisition/ sale.

Amortisation is calculated using the straight-line
method to write down the cost of intangible assets to
their residual values over their estimated useful lives.
Intangible assets comprising of software are amortised
on a straight-line basis over a period of 5 years, unless
it has a shorter useful life.

Intangible assets with indefinite useful life is tested for
impairment at each reporting period.

Gains or losses from derecognition of intangible assets
are measured as the difference between the net
disposal proceeds and the carrying amount of the asset
are recognised in the standalone statement of profit and
loss when the asset is derecognised.

Property plant and equipment is derecognised on
disposal or when no future economic benefits are
expected from its use. Any gain or loss arising on
derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying
amount of the asset) is recognised in other income/
expense in the standalone statement of profit and
loss in the year the asset is derecognised. The date of
disposal of an item of property, plant and equipment
is the date the recipient obtains control of that item in
accordance with the requirements for determining when
a performance obligation is satisfied in Ind AS 115.

---

Mar 31, 2024

1. Corporate Information

SBFC Finance Limited (Erstwhile SBFC Finance Private Limited) (‘the Company’) is a limited company incorporated in India under the Companies Act, 1956, having its registered office at First Floor, C&B Square, Sangam Complex, Andheri Kurla Road, Chakala, Andheri (East), Mumbai- 400059, Maharashtra. The Company is registered with the Reserve Bank of India (RBI) as a 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 classified under “Middle Layer” pursuant to Master Direction- Reserve Bank of India (Non-Banking Financial Company- Scale Based Regulation) Directions, 2023.

The registration details are as follows:

Reserve Bank of India Registration no : N-13.01913 Corporate Identity Number (CIN) :U67190MH200

PLC178270

The Company has changed its name from ‘SBFC Finance Private Limited’ to ‘SBFC Finance Limited’ w.e.f September 30, 2022.

The Company is in the business of giving loans to Micro Enterprise secured by residential or commercial property. The Company also gives Loan against Gold, which offers the Company superior yields with almost liquid security assets. The Company also gives unsecured personal loans and unsecured business loans.

The standalone financial statement for the year ended 31 March 2024 were authorised for issue in accordance with a resolution of the board of directors on 27 April 2024.

2. Material accounting policies

2.1 Basis of preparation

The standalone financial statement of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time) and other accounting principles generally accepted in India mainly considering the Master Directions issued by the Reserve Bank of India (‘RBI’) as applicable to Non deposit taking Non-Banking Finance Companies. The standalone financial statement have been prepared under the historical cost convention, as modified by the application of fair value measurements required or allowed by relevant Accounting Standards. Accounting policies have been consistently applied to all periods presented, unless otherwise stated.

The preparation of standalone financial statement requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosed amount of contingent liabilities. Areas involving a higher degree of judgement or complexity, or areas where assumptions are significant to the Company are discussed in Note 2.15- Significant accounting judgements, estimates and assumptions.

The standalone financial statement are presented in Indian Rupees (?) in Million and all values are rounded to the nearest Rupee in Ten Thousands, except when otherwise indicated.

2.2 Presentation of standalone financial statement

The standalone financial statement of the Company are presented as per Schedule III (Division III) of the Companies Act, 2013, applicable to NBFCs as notified by the Ministry of Corporate Affairs (MCA). Financial assets and financial liabilities are generally reported on a gross basis except when, there is an unconditional legally enforceable right to offset the recognised amounts without being contingent on a future event and the parties intend to settle on a net basis in the following circumstances:

a. The normal course of business

b. The event of default

c. The event of insolvency or bankruptcy of the Company and/ or its counterparties

2.3 Statement of compliance

The standalone financial statement have been prepared in accordance with the Indian Accounting Standards (Ind AS) on the historical cost basis except for certain financial instruments that are measured at fair values at the end of each reporting period as explained in the accounting policies below and the relevant provisions of the Act.

Accounting policies have been consistently applied except where a newly-issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.

The Company has adopted the amendments to Ind AS 1 for the first time in the current year as per Companies (Indian Accounting Standards) Amendment Rules, 2023 and applicable from 1 April 2023. The amendments change the requirements in Ind AS 1 with regard to disclosure of accounting policies. The amendments replace all instances of the term ‘significant accounting

policies’ with ‘material accounting policy information’. Accounting policy information is material if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements.

2.4 Financial instruments

(i) Classification of financial instruments

The Company classifies its financial assets into the following measurement categories:

a. Financial assets to be measured at amortised cost

b. Financial assets to be measured at fair value through other comprehensive income

c. Financial assets to be measured at fair value through profit or loss account

The classification depends on the contractual terms of the financial assets’ cash flows and the Company’s business model for managing financial assets which are explained below:

Business model assessment

The Company determines its business model at the level that best reflects how it manages groups of financial assets to achieve its business objective.

The Company’s business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated portfolios and is based on observable factors such as:

a. How the performance of the business model and the financial assets held within that business model are evaluated and reported to the entity’s key management personnel

b. The risks that affect the performance of the business model (and the financial assets held within that business model) and the way those risks are managed

c. How managers of the business are compensated (for example, whether the compensation is based on the fair value of the assets managed or on the contractual cash flows collected)

d. The expected frequency, value and timing of sales are also important aspects of the Company’s assessment. The business model assessment is

based on reasonably expected scenarios without taking ‘worst case’ or ‘stress case’ scenarios into account. If cash flows after initial recognition are realised in a way that is different from the Company’s original expectations, the Company does not change the classification of the remaining financial assets held in that business model but incorporates such information when assessing newly originated or newly purchased financial assets going forward.

The Solely Payments of Principal and Interest (SPPI) test

As a second step of its classification process, the Company assesses the contractual terms of financial assets to identify whether they meet the SPPI test.

‘Principal’ for the purpose of this test is defined as the fair value of the financial asset at initial recognition and may change over the life of the financial asset (for example, if there are repayments of principal or amortisation of the premium/ discount).

In making this assessment, the Company considers whether the contractual cash flows are consistent with a basic lending arrangement i.e. interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin that is consistent with a basic lending arrangement. Where the contractual terms introduce exposure to risk or volatility that are inconsistent with a basic lending arrangement, the related financial asset is classified and measured at fair value through profit or loss.

The Company classifies its financial liabilities at amortised costs.

(ii) Financial assets measured at amortised cost

These financial assets comprise bank balances, receivables, investments and other financial assets.

These are measured at amortised cost where they have:

a. Contractual terms that give rise to cash flows on specified dates, that represent solely payments of principal and interest on the principal amount outstanding; and

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

These instruments are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at amortised cost.

(iii) Items at fair value through profit or loss (FVTPL)

a. Items at fair value through profit or loss comprise:

b. Investments (including equity shares) held for trading;

c. Items specifically designated as FVTPL on initial recognition; and

d. debt instruments with contractual terms that do not represent solely payments of principal and interest.

Financial instruments held at FVTPL are initially recognised at fair value, with transaction costs recognised in the standalone statement of profit and loss as incurred. Subsequently, they are measured at fair value and any gains or losses are recognised in the standalone statement of profit and loss as they arise.

(iv) Debt securities and other borrowed funds

After initial measurement, debt issued, and other borrowed funds are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on issue funds, and costs that are an integral part of the EIR.

(v) Reclassification

I f the business model under which the Company holds financial assets changes, the financial assets affected are reclassified. The classification and measurement requirements related to the new category apply prospectively from the first day of the first reporting period following the change in business model that result in reclassifying the Company’s financial assets. Changes in contractual cash flows are considered under the accounting policy on Modification and derecognition of financial assets described below.

(vi) Recognition and Derecognition of financial assets and liabilities

Recognition

a. Loans and Advances are initially recognised when the Financial Instruments are transferred to the customers.

b. Investments are initially recognised on the trade date.

c. Debt securities, deposits and borrowings are initially recognised when funds reach the Company.

d. Other Financial assets and liabilities are initially recognised on the trade date, i.e., the date that

the Company becomes a party to the contractual provisions of the instrument.

Derecognition of financial assets

a) Financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when the rights to receive cash flows from the financial asset have expired. The Company also derecognises the financial asset if it has both transferred the financial asset and the transfer qualifies for derecognition.

The Company has transferred the financial asset if, the Company has transferred its contractual rights to receive cash flows from the financial asset.

A transfer only qualifies for derecognition if 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

The Company considers control to be transferred if and only if, the transferee has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without imposing additional restrictions on the transfer.

When the Company has neither transferred nor retained substantially all the risks and rewards and has retained control of the asset, the asset continues to be recognised only to the extent of the Company’s continuing involvement, in which case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

b) Financial liabilities

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

c. The disappearance of an active market for a security because of financial difficulties.

The mechanics of ECL

The Company calculates ECLs based on probability-weighted scenarios to measure the expected cash shortfalls, discounted at an approximation to the EIR. A cash shortfall is the difference between the cash flows that are due to the Company and the cash flows that the Company expects to receive.

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

Probability of Default (PD) - Probability of default (“PD”) is defined as the likelihood of default over a particular time horizon. The PD of an obligor is a fundamental risk parameter in credit risk analysis and depends on obligor specific as well as macroeconomic risk factors. The impact of macroeconomic criteria on the PD results in two different PD estimates, through-the-cycle (“TTC”) and the point-in-time (“PIT”) PD. A TTC PD estimate remains largely unaffected by the economic cycle, while a PIT PD estimate varies with the economic cycle.

Exposure at Default (EAD) - EAD is taken as the gross exposure under a facility upon default of an obligor. The amortized principal and the interest accrued is considered as EAD for the purpose of ECL computation

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

Repossessed assets

In Loan Against Property / Mortgage Loan, the collateral on a loan can be repossessed as part of legal process through SARFAESI, arbitration etc. In such scenario, property value assessment to be done based on existing valuation done for NPA cases or fresh valuation done post repossession of the property. Basis the assessment of the valuation, additional provision to be done to the extent of shortfall in the value of asset not covered with the existing ECL provision.

Further, property auction/sale to be conducted for such repossessed assets as per legal process and guidelines basis collection manual. Once the property is sold, based on the actual realization the ECL shortfall or surplus to be accounted for.

(vii) Impairment of financial assets

Overview of the ECL principles

The Company records allowance for expected credit losses for all loans, other debt financial assets not held at FVTPL, together with financial guarantee contracts, in this section all referred to as ‘financial instruments. Equity instruments are not subject to impairment under Ind AS 109.

The ECL allowance is based on the credit losses expected to arise over the life of the asset (the lifetime expected credit loss), unless there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12 months’ expected credit loss.

Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument. The 12-month ECL is the portion of Lifetime ECL that represent the ECLs that result from default events on a financial instrument that are possible within the 12 months after the reporting date.

Both Lifetime ECLs and 12-month ECLs are calculated on either an individual basis or a collective basis.

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. The Company does the assessment of significant increase in credit risk at a borrower level. If a borrower has various facilities having different past due status, then the highest days past due (DPD) is considered to be applicable for all the facilities of that borrower.

Based on the above, the Company categorises its loans into Stage 1, Stage 2 and Stage 3 as described below:

Stage 1

All exposures where there has not been a significant increase in credit risk since initial recognition or that has low credit risk at the reporting date and that are not credit impaired upon origination are classified under this stage. The Company classifies all standard advances and advances up to 0-29 days default under this category. Stage 1 loans also include facilities where the credit risk has improved, and the loan has been reclassified from Stage 2.

Stage 2

All exposures where there has been a significant increase in credit risk since initial recognition but are not credit impaired are classified under this stage. Financial assets past due for 30-89 days are classified under this stage. The Company uses the below criteria for assessing movement to Stage 2:

a. Financial assets past due between 30-89

b. The Company becomes aware about any deterioration in the financial condition and reputation of the obligor which the management believes may lead to significant deterioration in credit risk

Stage 3

All exposures assessed as credit impaired when one or more events that have a detrimental impact on the estimated future cash flows of that asset have occurred are classified in this stage. For exposures that have become credit impaired, a lifetime ECL is recognised and interest revenue is calculated by applying the effective interest rate to the amortised cost (net of provision) rather than the gross carrying amount. 90 days Past Due is considered as default for classifying a financial instrument as credit impaired. If an event warrants a provision higher than as mandated under ECL methodology, the Company may classify the financial asset in Stage 3 accordingly.

Non performing Asset classification is done in line with Reserve Bank of India Master Circular on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances and Clarifications dated 12 November 2021 and dated February 15, 2022.

Credit-impaired financial assets

At each reporting date, the Company assesses whether financial assets carried at amortised cost and debt financial assets carried at FVTOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

a. Significant financial difficulty of the borrower or issuer;

b. A breach of contract such as a default or past due event; or

If any repossessed asset is not sold for 24 months post repossession, the account should be marked for accelerated provision and account should be fully provided.

(viii) Write-offs

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

(ix) Determination of fair value

On initial recognition, all the financial instruments are measured at fair value. For subsequent measurement, the Company measures certain categories of financial instruments (as explained in Note 2.4) at fair value on each balance sheet date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

(i) In the principal market for the asset or liability, or

(ii) I n the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible by the Company.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

In order to show how fair values have been derived, financial instruments are classified based on a hierarchy of valuation techniques, as summarised below:

Level 1 financial instruments - Those where the inputs used in the valuation are unadjusted quoted prices from active markets for identical assets or liabilities that the Company has access to at the measurement date. The Company considers markets as active only if there are sufficient trading activities with regards to the volume and liquidity of the identical assets or liabilities and when there are binding and exercisable price quotes available on the balance sheet date.

Level 2 financial instruments - Those where the inputs that are used for valuation and are significant, are derived from directly or indirectly observable market data available over the entire period of the instrument’s life. Such inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical instruments in inactive markets and observable inputs other than quoted prices such as interest rates and yield curves, implied volatilities, and credit spreads. In addition, adjustments may be required for the condition or location of the asset or the extent to which it relates to items that are comparable to the valued instrument. However, if such adjustments are based on unobservable inputs which are significant to the entire measurement, the Company will classify the instruments as Level 3.

Level 3 financial instruments - Those that include one or more unobservable input that is significant to the measurement as whole.

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

Difference between transaction price and fair value at initial recognition

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price (i.e. the fair value of the consideration given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets.

When such evidence exists, the Company recognises the difference between the transaction price and the fair value in profit or loss on initial recognition (i.e. on day one).

When the transaction price of the instrument differs from the fair value at origination and the fair value is based on a valuation technique using only inputs observable in market transactions, the Company recognises the difference between the transaction price and fair value in net gain on fair value changes. In those cases where fair value is based on models for which some of the inputs are not observable, the difference between the transaction price and the fair value is not recognised at the initial recognition stage.

(x) Derivatives and hedging activity

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

Cash flow hedges that qualify for hedge accounting The hedge instruments are designated and documented as hedges at the inception of the contract. The Company determines the existence of an economic relationship between the hedging instrument and hedged item based on the currency, amount and timing of their respective cash flows. The effectiveness of hedge instruments to reduce the risk associated with the exposure being hedged is assessed and measured at inception and on an ongoing basis. If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in other equity are immediately reclassified in net foreign exchange gains in the statement of profit and loss.

The effective portion of change in the fair value of the designated hedging instrument is recognised in the other comprehensive income and accumulated under the heading cash flow hedging reserve. Such amounts are reclassified into the statement of profit and loss when the related hedged items affect profit and loss.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income and accumulated in equity till that time remains and is recognised in the statement of profit and loss when the forecasted transaction ultimately affects profit and loss. Any gain or loss is recognised immediately in the statement of profit and loss when the hedge becomes ineffective.

2.5 Investment in subsidiaries

Investment in subsidiaries and associates are recognised at cost. Cost of investment represents amount paid for acquisition of the said investment.

The Company assesses at the end of each reporting period if there are any indications of impairment on such investments. If so, the Company estimates the recoverable value/amount of the investment and provides for impairment, if any i.e. the deficit in the recoverable value over cost.

2.6 Share Capital

The Company has only one class of equity shares. Par value of the equity share is recorded as the share capital and the amount received in excess of par value is classified as share premium. Equity shares issued by the Company are recognised at the proceeds received net of direct issue cost.

Treasury shares represent the consideration paid by the Company, including any directly attributable costs, to repurchase its own ordinary shares. Treasury shares are presented as a deduction from total equity. On cancellation of treasury shares, the amount paid is adjusted against share capital, to the extent of the par value of ordinary shares repurchased, and the balance is adjusted against share premium.

2.7 Revenue from operations

(i) Interest Income

Interest income is recognised by applying (EIR) to the gross carrying amount of financial assets other than credit-impaired assets and financial assets classified as measured at FVTPL, taking into account the amount outstanding and the applicable interest rate.

Processing fees on loans is collected towards processing of loan and are considered integral part of loan. This is amortised on EIR basis over the contractual life of the loan.

The EIR is computed:

a. As the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset to the gross carrying amount of a financial asset

b. By considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) in estimating the cash flows

c. I ncluding all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts.

Any subsequent changes in the estimation of the future cash flows are recognised in interest income with the corresponding adjustment to the carrying amount of the assets.

Delayed payment interest (penal interest) levied on customers for delay in repayments/ non-payment of contractual cashflows is recognised on realisation.

(ii) Fees & Commission Income

Fees and commission income that are not integral part of loans and advances and therefore excluded for effective interest calculation, is recognised when the Company satisfies the performance obligation, at transaction price when the consideration received or receivable based on a five-step model as set out below.:

Step 1: Identify contract(s) with a customer: A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and sets out the criteria for every contract that must be met.

Step 2: Identify performance obligations in the contract: A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer.

Step 3: Determine the transaction price: The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

Step 4: Allocate the transaction price to the performance obligations in the contract: For a contract that has more than one performance obligation, the Company allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to

then excess is recognised as an asset to the extent that the pre-payment will lead to, for example, a reduction in future payment or a cash refund.

b. Defined Benefit schemes

The Company provides for the gratuity, a defined benefit retirement plan covering all employees. The plan provides for lump sum payments to employees upon death while in employment or on separation from employment after serving for the stipulated years mentioned under ‘The Payment of Gratuity Act, 1972’. The present value of the obligation under such defined benefit plan is determined based on actuarial valuation, carried out by an independent actuary at each Balance Sheet date, using the Projected Unit Credit Method, which recognizes each period of service as giving rise to an 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.

Net interest recognized in profit or loss is calculated by applying the discount rate used to measure the defined benefit obligation to the net defined benefit liability or asset. The actual return on the plan assets above or below the discount rate is recognized as part of remeasurement of net defined liability or asset through other comprehensive income. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, attrition rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, these liabilities are highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

The Company fully contributes all ascertained liabilities to The Trustees - “SBFC Finance Private Limited employees group gratuity cash accumulation scheme”. Trustees administer contributions made to the trust and contributions are invested in a scheme of insurance with the IRDA approved Insurance Company- Life Insurance Corporation of India.

Re-measurement, comprising of actuarial gains and losses and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognized immediately in the balance sheet with a corresponding debit or credit to retained

which the Company expects to be entitled in exchange for satisfying each performance obligation.

Step 5: Recognise revenue when (or as) the Company satisfies a performance obligation

Initial money Deposit charges are collected from customers for document processing, which is non refundable in the nature and are recognized on realization basis

(iii) Net gain on Fair value changes

Any differences between the fair values of financial assets classified as FVTPL held by the Company on the balance sheet date is recognised as an unrealised gain/ loss. In cases there is a net gain in the aggregate, the same is recognised in “Net gains on fair value changes” under Revenue from operations and if there is a net loss the same is disclosed as “Net loss on fair value changes” under Expenses in the standalone statement of profit and loss.

Similarly, any realised gain or loss on sale of financial instruments measured at FVTPL is recognised in net gain/ loss on fair value changes.

(iv) Advertisement income

The Company recognises advertisement income on realisation or when the right to receive the same without any uncertainties of recovery is established.

(v) Other Operating Income

The Company recognises income on recoveries of financial assets written off on realisation or when the right to receive the same without any uncertainties of recovery is established.

Foreclosure charges are collected from loan customers for early payment/ closure of loan and are recognized on realization.

2.8 Expenses (i) Finance costs

Finance costs on borrowings is paid towards availing of loan, is amortised on EIR basis over the contractual life of loan.

The EIR in case of a financial liability is computed

a. As the rate that exactly discounts estimated future cash payments through the expected life of the financial liability to the gross carrying amount of the amortised cost of a financial liability.

b. By considering all the contractual terms of the financial instrument in estimating the cash flows

c. Including all fees paid between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts.

Any subsequent changes in the estimation of the future cash flows are recognised in interest expense with the corresponding adjustment to the carrying amount of the liability.

Interest expense includes issue costs that are initially recognized as part of the carrying value of the financial liability and amortized over the expected life using the effective interest method. These include fees and commissions payable to advisers and other expenses such as external legal costs, Rating Fee etc, provided these are incremental costs that are directly related to the issue of a financial liability.

(ii) Retirement and other employee benefits

Short term employee benefit

All employee benefits payable wholly within twelve months of rendering the service are classified as shortterm employee benefits. These benefits include short term compensated absences such as paid annual leave. The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognised as an expense during the period. Benefits such as salaries and wages, etc. and the expected cost of the bonus/ ex-gratia are recognised in the period in which the employee renders the related service.

Post-employment employee benefits

a. Defined contribution schemes All the eligible employees of the Company who have opted to receive benefits under the Provident Fund and Employees State Insurance scheme, defined contribution plans in which both the employee and the Company contribute monthly at a stipulated rate. The Company has no liability for future benefits other than its annual contribution and recognises such contributions as an expense in the period in which employee renders the related service. If the contribution payable to the scheme for service received before the Balance Sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognised as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received before the Balance Sheet date, earnings through OCI in the period in which they occur. Re-measurements are not reclassified to profit and loss in subsequent periods.

Other employee benefits

Company’s liabilities towards compensated absences to employees are accrued on the basis of valuations, as at the Balance Sheet date, carried out by an independent actuary using Projected Unit Credit Method. Actuarial gains and losses comprise experience adjustments and the effects of changes in actuarial assumptions and are recognised immediately in the standalone statement of profit and loss.

The Company presents the Provision for compensated absences under provisions in the Balance Sheet.

Share-based payment arrangements

The stock options granted to employees pursuant to the Company’s Stock Options Schemes, are measured at the fair value of the options at the grant date using Black Scholes Model. The fair value of the options determined at grant date is accounted as employee compensation cost over the vesting period on a straight line basis over the period of option, based on the number of grants expected to vest, with corresponding increase in equity. The employee stock option outstanding account is shown under Reserves and Surplus.

The Company has created an Employee Welfare Trust for providing share-based payment to its employees for (a) SBFC Stock Option Policy I 2018 and (b) SBFC Stock Option Policy 2021 - I policies. The Company uses the Trust as a vehicle for distributing shares to employees under the employee remuneration schemes for the above mentioned two policies. The Company allots shares to the Trustee of the Trust, for giving shares to employees. The Company treats Trust as its extension and shares held by the Trust are treated as treasury shares.

(iii) Leases

In accordance with Ind AS 116 - Leases at the date of commencement of the lease, the Company has recognised a Lease Liability, except for leases with a term of 12 months or less (short-term leases) and low value leases.

The Company evaluates if an arrangement qualifies to be a lease as per the requirements of Ind AS 116. Identification of a lease requires significant judgment. The Company uses significant judgement in assessing the lease term (including anticipated renewals) and the applicable discount rate. The Company determines the lease term as the non-cancellable period of a lease,

together with both periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option; and periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option. In assessing whether the Company is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, it considers all relevant facts and circumstances that create an economic incentive for the Company to exercise the option to extend the lease, or not to exercise the option to terminate the lease. The Company revises the lease term if there is a change in the non-cancellable period of a lease. The discount rate is generally based on the incremental borrowing rate. The Company makes assessment on the expected lease term on lease by lease basis and thereby assesses whether it is reasonably certain that any option to extend or terminate the contract will be exercised. In evaluating the lease term, the Company considers factors such as any significant leasehold improvements undertaken over the lease term, costs relating to termination of lease and the importance of the underlying to the Company’s operation taking into account the location of the underlying asset and the availability of the suitable alternatives. The lease term in future periods is reassessed to ensure that the lease term reflect the current economic circumstances.

The right-of-use assets is subsequently measured at cost less accumulated depreciation, accumulated impairment losses, if any, and adjusted for any remeasurement of the lease liability.

The right-of-use assets is depreciated using the straightline method from the commencement date over the shorter of lease term or useful life of right-of-use asset. Right-of-use assets are tested for impairment whenever there is any indication that their carrying amounts may not be recoverable. Impairment loss, if any, is recognised in the standalone statement of profit and loss.

The company recognises the amount of the remeasurement of lease liability due to modification as an adjustment to the right-of-use asset and standalone statement of profit and loss depending upon the nature of modification. Where the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Company recognises any remaining amount of the remeasurement in standalone statement of profit and loss.

The Company has elected not to apply the requirements of Ind AS 116 Leases to short-term leases of all assets that have a lock in period of 12 months or less and leases for which the underlying asset is of low value. The lease payments associated with these leases are

recognized as an expense on a straight-line basis over the lease term.

(iv) Other income and expenses

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

(v) Impairment of non-financial assets

The carrying amount of assets is reviewed at each balance sheet date if there is any indication of impairment based on internal/ external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assets, net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset.

In determining net selling price, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life.

Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identifiable assets of the acquired entity at the date of acquisition. Goodwill is carried at cost less accumulated impairment losses. Impairment loss on goodwill is not reversed. Goodwill is not subject to amortization and tested at least annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.

(vi) Taxes

Current Tax

Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from, or paid to, the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted, or substantively enacted, by the reporting date in the countries where the Company operates and generates taxable income.

Current income tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive income or in equity). Current tax items are recognised in correlation to the

underlying transaction either in OCI or directly in equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred tax

Deferred tax assets and liabilities are recognised for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are only recognised for temporary differences, unused tax losses and unused tax credits if it is probable that future taxable amounts will arise to utilise those temporary differences and losses. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and they relate to income taxes levied by the same tax authority on the same taxable entity.

Goods and services tax/ service tax/ value added taxes paid on acquisition of assets or on incurring expenses:

Expenses and assets are recognised net of the goods and services tax/ service tax/ value added taxes paid, except:

(i) When the tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the tax paid is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable

(ii) When receivables and payables are stated with the amount of tax included

The net amount of tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

2.9 Cash and cash equivalents

Cash and cash equivalents comprise the net amount of short-term, highly liquid investments that are readily convertible to known amounts of cash (short-term deposits with an original maturity of three months or less) and are subject to an insignificant risk of change in

value. They are held for the purposes of meeting shortterm cash commitments (rather than for investment or other purposes).

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short- term deposits, as defined above.

.10 Property, plant and equipment

Property, plant and equipment (PPE) are measured at cost less accumulated depreciation and accumulated impairment, (if any). The total cost of assets comprises its purchase price, freight, duties, taxes and any other incidental expenses directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the management. Changes in the expected useful life are accounted for by changing the amortisation period or methodology, as appropriate, and treated as changes in accounting estimates.

Subsequent expenditure related to an item of tangible asset are added to its gross value only if it increases the future benefits of the existing asset, beyond its previously assessed standards of performance and cost can be measured reliably. Other repairs and maintenance costs are expensed off as and when incurred.

Depreciation

Depreciation is calculated using the straight line method to write down the cost of property and equipment to their residual values over their estimated useful lives which is in line with the estimated useful life as specified in Schedule II of the Act except for Leasehold improvements which are amortised on a straight-line basis over the period of lease or 3 years whichever is less. Leasehold improvements include all expenditure incurred on the leasehold premises that have future economic benefits. The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.

The estimated useful lives as used by the Company are listed below:

Nature of assets	Useful life in years
Computers End user machines	3
Servers and networks	6
Furniture and Fixtures	10
Office equipment	5
Vehicle	8

Gains or losses from derecognition of intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset are recognised in the standalone statement of profit and loss when the asset is derecognised.

2.12 Provisions

Provisions are recognised when the enterprise has a present obligation (legal or constructive) as a result of past events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

When the effect of the time value of money is material, the enterprise determines the level of provision by discounting the expected cash flows at a pre-tax rate reflecting the current rates specific to the liability. The expense relating to any provision is presented in the standalone statement of profit and loss net of any reimbursement.

2.13 Contingent Liabilities

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the financial statement.

2.14 Earnings Per Share

The Company reports basic and diluted earnings per share in accordance with Ind AS 33 on Earnings per share. Basic EPS is calculated by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.

For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares including the treasury shares held by the Company to satisfy the exercise of the share options by the employees. Dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued

Property plant and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in other income/ expense in the standalone statement of profit and loss in the year the asset is derecognised. The date of disposal of an item of property, plant and equipment is the date the recipient obtains control of that item in accordance with the requirements for determining when a performance obligation is satisfied in Ind AS 115.

2.11 Intangible assets

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

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

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life, or the expected pattern of consumption of future economic benefits embodied in the asset, are accounted for by changing the amortisation period or methodology, as appropriate, which are then treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is presented as a separate line item in the standalone statement of profit and loss. Amortisation on assets acquired/ sold during the year is recognised on a pro-rata basis to the standalone statement of profit and loss from/ upto the date of acquisition/ sale.

Amortisation is calculated using the straight-line method to write down the cost of intangible assets to their residual values over their estimated useful lives. Intangible assets comprising of software are amortised on a straight-line basis over a period of 5 years, unless it has a shorter useful life.

Intangible assets with indefinite useful life is tested for impairment at each reporting period.

at a later date. In computing the dilutive earnings per share, only potential equity shares that are dilutive and that either reduces the earnings per share or increases loss per share are included.

Mar 31, 2023

1.    Corporate Information

SBFC Finance Limited (Erstwhile SBFC Finance Private Limited) (‘the Company') is a limited company incorporated in India under the Companies Act, 1956, having its registered office at First Floor, C&B Square, Sangam Complex, Andheri Kurla Road, Chakala, Andheri (East), Mumbai- 400059, Maharashtra. The Company is registered with the Reserve Bank of India (RBI) as a "systemically important non-deposit taking" NBFC ND-SI.

The registration details are as follows:

Reserve Bank of India Registration no : N-13.01913 Corporate Identity Number (CIN) : U67190MH2008PLC178270

The Company is in the business of giving loans to Micro Enterprise secured by residential or commercial property. The Company also gives Loan against Gold, which offers the Company superior yields with almost liquid security assets. The Company also gives unsecured personal loans and unsecured business loans.

The standalone financial statement for the year ended 31 March 2023 were authorised for issue in accordance with a resolution of the board of directors on 27 April 2023.

2.    Significant accounting policies

2.1 Basis of preparation

The standalone financial statement of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time) and other accounting principles generally accepted in India mainly considering the Master Directions issued by the Reserve Bank of India (‘RBI') as applicable to Non-Banking Finance Companies- NDSI. The standalone financial statement have been prepared under the historical cost convention, as modified by the application of fair value measurements required or allowed by relevant Accounting Standards. Accounting policies have been consistently applied to all periods presented, unless otherwise stated.

The preparation of standalone financial statement requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosed amount of contingent liabilities. Areas involving a higher degree of judgement or complexity, or areas where assumptions are

significant to the Company are discussed in Note 2.15- Significant accounting judgements, estimates and assumptions.

The standalone financial statement are presented in Indian Rupees (?) in Million and all values are rounded to the nearest Rupee in Ten Thousands, except when otherwise indicated.

2.2.    Presentation of standalone financial statement

The standalone financial statement of the Company are presented as per Schedule III (Division III) of the Companies Act, 2013, applicable to NBFCs as notified by the Ministry of Corporate Affairs (MCA). Financial assets and financial liabilities are generally reported on a gross basis except when, there is an unconditional legally enforceable right to offset the recognised amounts without being contingent on a future event and the parties intend to settle on a net basis in the following circumstances:

i.    The normal course of business

ii.    The event of default

iii.    The event of insolvency or bankruptcy of the Company and/ or its counterparties

2.3.    Statement of compliance

The standalone financial statement have been prepared in accordance with the Indian Accounting Standards (Ind AS) on the historical cost basis except for certain financial instruments that are measured at fair values at the end of each reporting period as explained in the accounting policies below and the relevant provisions of the Act.

Accounting policies have been consistently applied except where a newly-issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy

hitheito in use.

2.4.    Financial instruments

(i) Classification of financial instruments

The Company classifies its financial assets into the following measurement categories:

1.    Financial assets to be measured at amortised

cost

2.    Financial assets to be measured at fair value through other comprehensive income

3.    Financial assets to be measured at fair value through profit or loss account

The classification depends on the contractual terms of the financial assets' cash flows and the Company's business model for managing financial assets which are explained below:

Business model assessment

*    The Company determines its business model at the level that best reflects how it manages groups of financial assets to achieve its business objective.

*    The Company's business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated portfolios and is based on observable factors such as:

*    How the performance of the business model and the financial assets held within that business model are evaluated and reported to the entity's key management personnel

*    The risks that affect the performance of the business model (and the financial assets held within that business model) and the way those risks are managed

*    How managers of the business are compensated (for example, whether the compensation is based on the fair value of the assets managed or on the contractual cash flows collected)

*    The expected frequency, value and timing of sales are also important aspects of the Company's assessment. The business model assessment is based on reasonably expected scenarios without taking 'worst case' or 'stress case' scenarios into account. If cash flows after initial recognition are realised in a way that is different from the Company's original expectations, the Company does not change the classification of the remaining financial assets held in that business model but incorporates such information when assessing newly originated or newly purchased financial assets going forward.

The Solely Payments of Principal and Interest

(SPPI) test

As a second step of its classification process, the Company assesses the contractual terms of financial assets to identify whether they meet the SPPI test.

‘Principal' for the purpose of this test is defined as the fair value of the financial asset at initial recognition and may change over the life of the financial asset (for example, if there are repayments of principal or amortisation of the premium/ discount).

In making this assessment, the Company considers whether the contractual cash flows are consistent with a basic lending arrangement i.e. interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin that is consistent with a basic lending arrangement. Where the contractual terms introduce exposure to risk or volatility that are inconsistent with a basic lending arrangement, the related financial asset is classified and measured at fair value through profit oi loss.

The Company classifies its financial liabilities at amortised costs.

(ii)    Financial assets measured at amortised cost

These financial assets comprise bank balances, receivables, investments and other financial assets.

These are measured at amortised cost where they

have:

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

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

flows.

These instruments are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at amortised cost.

(iii)    Items at fair value through profit or loss (FVTPL)

Items at fair value through profit or loss comprise:

•    Investments (including equity shares) held for

finding:

•    Items specifically designated as FVTPL on initial recognition; and

•    debt instruments with contractual terms that do not represent solely payments of principal and interest.

Financial instruments held at FVTPL are initially recognised at fair value, with transaction costs recognised in the standalone statement of profit and loss as incurred. Subsequently, they are measured at fair value and any gains or losses are recognised in the standalone statement of profit and loss as they

anse.

(iv)    Debt securities and other borrowed funds

After initial measurement, debt issued, and other borrowed funds are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on issue funds, and costs that are an integral part of the EIR.

(v)    Reclassification

If the business model under which the Company holds financial assets changes, the financial assets affected are reclassified. The classification and measurement requirements related to the new category apply prospectively from the first day of the first reporting period following the change in business model that result in reclassifying the Company's financial assets. Changes in contractual cash flows are considered under the accounting policy on Modification and derecognition of financial assets described below.

(vi) Recognition and Derecognition of financial assets and liabilities

Recognition:

a)    Loans and Advances are initially recognised when the Financial Instruments are transferred to the customers.

b)    Investments are initially recognised on the trade

date.

c)    Debt securities, deposits and borrowings are initially recognised when funds reach the Company.

d)    Other Financial assets and liabilities are initially recognised on the trade date, i.e., the date that the Company becomes a party to the contractual provisions of the instrument.

Derecognition of financial assets

a) Financial assets:

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when the rights to receive cash flows from the financial asset have expired. The Company also derecognises the financial asset if it has both transferred the financial asset and the transfer qualifies for derecognition.

The Company has transferred the financial asset if, the Company has transferred its contractual rights to receive cash flows from the financial

asset.

A transfer only qualifies for derecognition if either:

i.    The Company has transferred substantially all the risks and rewards of the asset, or

ii.    The Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset

The Company considers control to be transferred if and only if, the transferee has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without imposing additional restrictions on the transfer.

When the Company has neither transferred nor retained substantially all the risks and rewards and has retained control of the asset, the asset continues to be recognised only to the extent of the Company's continuing involvement, in which case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

b) Financial liabilities

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

(vii) Impairment of financial assets

Overview of the ECL principles

The Company records allowance for expected credit losses for all loans, other debt financial assets not held at FVTPL, together with financial guarantee contracts, in this section all referred to as ‘financial instruments.' Equity instruments are not subject to impairment under Ind AS 109.

The ECL allowance is based on the credit losses expected to arise over the life of the asset (the lifetime expected credit loss), unless there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12 months' expected credit loss.

Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument. The 12-month ECL is the portion of Lifetime ECL that represent the ECLs that result from default events on a financial instrument that are possible within the 12 months after the reporting date.

Both Lifetime ECLs and 12-month ECLs are calculated on either an individual basis or a collective basis.

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. The Company does the assessment of significant increase in credit risk at a borrower level. If a borrower has various facilities having different past due status, then the highest days past due (DPD) is considered to be applicable for all the facilities of that borrower.

Based on the above, the Company categorises its loans into Stage 1, Stage 2 and Stage 3 as described

below:

Stage 1

All exposures where there has not been a significant increase in credit risk since initial recognition or that has low credit risk at the reporting date and that are not credit impaired upon origination are classified under this stage. The Company classifies all standard advances and advances up to 0-29 days default under this category. Stage 1 loans also include facilities where the credit risk has improved, and the loan has been reclassified from Stage 2.

Stage 2

All exposures where there has been a significant increase in credit risk since initial recognition but are not credit impaired are classified under this stage. Financial assets past due for 30-89 days are classified under this stage. Stage 2 loans also include facilities where the credit risk has improved, and the loan has been reclassified from Stage 3.

Stage 3

All exposures assessed as credit impaired when one or more events that have a detrimental impact on the estimated future cash flows of that asset have occurred are classified in this stage. For exposures that have become credit impaired, a lifetime ECL is recognised and interest revenue is calculated by applying the effective interest rate to the amortised cost (net of provision) rather than the gross carrying amount. 90 days Past Due is considered as default for classifying a financial instrument as credit impaired. If an event warrants a provision higher than as mandated under ECL methodology, the Company may classify the financial asset in Stage 3 accordingly.

In line with Reserve Bank of India Master Circular on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances and Clarifications dated 12 November 2021 borrower accounts shall be flagged as overdue as part of the day-end processes for the due date, irrespective of the time of running such processes. Similarly, classification of borrower accounts as NonPerforming Asset/ Stage 3 shall be done as part of day-end process for the relevant date i.e. more than 90 days overdue and NPA/ Stage 3 classification date shall be the calendar date for which the day end process is run. In other words, the date of NonPerforming Asset/ Stage 3 shall reflect the asset classification status of an account at the day-end of that calendar date.

The Company has carried out the requirement in line with Reserve Bank of India Clarification and accordingly, the change in accounting policy is effective financial year 2021-22 and impact on financials is disclosed in note 50. Upgradation of accounts classified as Stage 3/ Non-performing assets (NPA) - The Company upgrades loan accounts classified as Stage 3/ NPA to "standard" asset category only if the entire arrears of interest, principal and other amount are paid by the borrower and there is no change in the accounting policy followed by the Company in this regard.

Credit-impaired financial assets:

At each reporting date, the Company assesses whether financial assets carried at amortised cost and debt financial assets carried at FVTOCI are credit-impaired. A financial asset is ‘credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

a)    Significant financial difficulty of the borrower or

issuei;

b)    A breach of contract such as a default or past due

event; or

c)    The disappearance of an active market for a security because of financial difficulties.

The mechanics of ECL:

The Company calculates ECLs based on probability-weighted scenarios to measure the expected cash shortfalls, discounted at an approximation to the EIR. A cash shortfall is the difference between the cash flows that are due to the Company and the cash flows that the Company expects to receive.

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

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

a)    The Company has applied 12 months PD to Stage

1    Advances

b)    The Lifetime PD is computed using basic exponentiation technique after considering the residual maturity of the respective loan for Stage

2    Advances.

c)    PD of 100% is considered for Stage 3 Advances.

Exposure at Default (EAD) - EAD is taken as the gross exposure under a facility upon default of an obligor. The amortized principal and the interest accrued is considered as EAD for the purpose of ECL computation

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

Collateral Valuation

To mitigate its credit risks on financial assets, the Company seeks to use collateral, where possible. The collateral comes in various forms, such as the underlying asset financed, cash, securities, etc. However, the fair value of collateral affects the calculation of ECLs. To the extent possible, the Company uses active market data for valuing financial assets held as collateral. Other financial assets which do not have readily determinable market values are valued using models.

Collateral repossessed

In its normal course of business, the Company does not physically repossess properties or other assets in its retail portfolio, but engages its employees to recover funds, to settle outstanding debt. Any surplus funds are returned to the customers/ obligors. As a result of this practice, assets under legal repossession processes are not recorded on the balance sheet. These repossessed assets which are intended to be realised by way of sale are considered as Stage 3 assets and the ECL allowance is determined based on the estimated net realisable value of the repossessed asset.

(viii)    Write-offs

The Company reduces the gross carrying amount of a financial asset when the Company has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. This is generally the case when the Company determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subjected to write-offs. Any subsequent recoveries against such loans are credited to the Statement of Profit and Loss.

(ix)    Determination of fair value

On initial recognition, all the financial instruments are measured at fair value. For subsequent measurement, the Company measures certain categories of financial instruments (as explained in Note 2.4) at fair value on each balance sheet date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is

based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

i.    In the principal market for the asset or liability, or

ii.    In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible by the Company.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best

inteiest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

In order to show how fair values have been derived, financial instruments are classified based on a hierarchy of valuation techniques, as summarised

below:

Level 1 financial instruments - Those where the inputs used in the valuation are unadjusted quoted prices from active markets for identical assets or liabilities that the Company has access to at the measurement date. The Company considers markets as active only if there are sufficient trading activities with regards to the volume and liquidity of the identical assets or liabilities and when there are binding and exercisable price quotes available on the balance sheet date.

Level 2 financial instruments - Those where the inputs that are used for valuation and are significant, are derived from directly or indirectly observable market data available over the entire period of the instrument's life. Such inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical instruments in inactive markets and observable inputs other than quoted prices such as interest rates and yield curves, implied volatilities, and credit spreads. In addition, adjustments may be required for the condition or location of the asset or the extent to which it relates to items that are comparable to the valued instrument. However, if such adjustments are based on unobservable inputs which are significant to the entire measurement, the Company will classify the instruments as Level 3.

Level 3 financial instruments - Those that include one or more unobservable input that is significant to the measurement as whole.

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

Difference between transaction price and fair value at initial recognition

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price (i.e. the fair value of the consideration given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. When such evidence exists, the Company recognises the difference between the transaction price and the fair value in profit or loss on initial recognition (i.e. on day one).

When the transaction price of the instrument differs from the fair value at origination and the fair value is based on a valuation technique using only inputs observable in market transactions, the Company recognises the difference between the transaction price and fair value in net gain on fair value changes. In those cases where fair value is based on models for which some of the inputs are not observable, the difference between the transaction price and the fair value is not recognised at the initial recognition stage.

2.5 Revenue from operations

(i) Interest Income

Interest income is recognised by applying (EIR) to the gross carrying amount of financial assets other than credit-impaired assets and financial assets classified as measured at FVTPL, taking into account the amount outstanding and the applicable interest rate. Interest income is recognised on non-performing assets at net of ECL.

The EIR is computed:

a)    As the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset to the gross carrying amount of a financial asset

b)    By considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) in estimating the cash flows

c)    Including all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts.

Any subsequent changes in the estimation of the future cash flows are recognised in interest income with the corresponding adjustment to the carrying amount of the assets.

Delayed payment interest (penal interest) levied on customers for delay in repayments/ non-payment of contractual cashflows is recognised on realisation.

(ii)    Dividend Income

Dividend income is recognised when the right to receive the payment is established.

(iii)    Fees & Commission Income

Fees and commissions are recognised when the Company satisfies the performance obligation, at fair value of the consideration received or receivable based on a five-step model as set out below, unless included in the effective interest calculation:

Step 1: Identify contract(s) with a customer: A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and sets out the criteria for every contract that must be met.

Step 2: Identify performance obligations in the contract: A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer.

Step 3: Determine the transaction price: The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of thud paities.

Step 4: Allocate the transaction price to the performance obligations in the contract: For a contract that has more than one performance obligation, the Company allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the Company expects to be entitled in exchange for satisfying each performance obligation.

Step 5: Recognise revenue when (or as) the Company satisfies a performance obligation

Foreclosure charges are collected from loan customers for early payment/ closure of loan and are recognized on realization.

Initial money Deposit charges are collected from customers for document processing, which is non refundable in the nature and are recognized on realization basis

(iv)    Net gain on Fair value changes

Any differences between the fair values of financial assets classified as FVTPL held by the Company on the balance sheet date is recognised as an unrealised gain/ loss. In cases there is a net gain in the aggregate, the same is recognised in "Net gains on fair value changes" under Revenue from operations and if there is a net loss the same is disclosed as "Net loss on fair value changes" under Expenses in the standalone statement of profit and loss.

Similarly, any realised gain or loss on sale of financial instruments measured at FVTPL and debt instruments measured at FVOCI is recognised in net gain/ loss on fair value changes.

However, Net gain/ loss on derecognition of financial instruments classified as amortised cost is presented separately under the respective head in the standalone statement of profit and loss.

(v)    Loan Processing Fees

Processing fees on loans is collected towards processing of loan, this is amortised on EIR basis over the contractual life of the loan.

(vi)    Other Operating Income

The Company recognises income on recoveries of financial assets written off on realisation or when the right to receive the same without any uncertainties of recovery is established.

2.6 Expenses

(i) Finance costs

Finance costs on borrowings is paid towards availing of loan, is amortised on EIR basis over the contractual

life of loan.

The EIR in case of a financial liability is computed

a)    As the rate that exactly discounts estimated future cash payments through the expected life of the financial liability to the gross carrying amount of the amortised cost of a financial liability.

b)    By considering all the contractual terms of the financial instrument in estimating the cash flows

c)    I ncluding all fees paid between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts.

Any subsequent changes in the estimation of the future cash flows are recognised in interest expense with the corresponding adjustment to the carrying amount of the liability.

Interest expense includes issue costs that are initially recognized as part of the carrying value of the financial liability and amortized over the expected

life using the effective interest method. These include fees and commissions payable to advisers and other expenses such as external legal costs, Rating Fee etc, provided these are incremental costs that are directly related to the issue of a financial liability.

(ii) Retirement and other employee benefits

Short term employee benefit

All employee benefits payable wholly within twelve months of rendering the service are classified as short-term employee benefits. These benefits include short term compensated absences such as paid annual leave. The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognised as an expense during the period. Benefits such as salaries and wages, etc. and the expected cost of the bonus/ ex-gratia are recognised in the period in which the employee renders the related service.

Post-employment employee benefits

a)    Defined contribution schemes

All the eligible employees of the Company who have opted to receive benefits under the Provident Fund and Employees State Insurance scheme, defined contribution plans in which both the employee and the Company contribute monthly at a stipulated rate. The Company has no liability for future benefits other than its annual contribution and recognises such contributions as an expense in the period in which employee renders the related service. If the contribution payable to the scheme for service received before the Balance Sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognised as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received before the Balance Sheet date, then excess is recognised as an asset to the extent that the prepayment will lead to, for example, a reduction in future payment or a cash refund.

b)    Defined Benefit schemes

The Company provides for the gratuity, a defined benefit retirement plan covering all employees. The plan provides for lump sum payments to employees upon death while in employment or on separation from employment after serving for the stipulated years mentioned under ‘The Payment of Gratuity Act, 1972'. The present value of the obligation under such defined benefit plan is determined based on actuarial valuation, carried out by an independent actuary at each Balance Sheet date, using the Projected Unit Credit Method, which recognizes each period of service as giving rise to an 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.

Net interest recognized in profit or loss is calculated by applying the discount rate used to measure the defined benefit obligation to the net defined benefit liability or asset. The actual return on the plan assets above or below the discount rate is recognized as part of re-measurement of net defined liability or asset through other comprehensive income. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, attrition rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, these liabilities are highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

The Company fully contributes all ascertained liabilities to The Trustees - "SBFC Finance Private Limited employees group gratuity cash accumulation scheme". Trustees administer contributions made to the trust and contributions are invested in a scheme of insurance with the IRDA approved Insurance Company- Life Insurance Corporation of India.

Re-measurement, comprising of actuarial gains and losses and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognized immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Re-measurements are not reclassified to profit and loss in subsequent periods.

Other employee benefits

Company's liabilities towards compensated absences to employees are accrued on the basis of valuations, as at the Balance Sheet date, carried out by an independent actuary using Projected Unit Credit Method. Actuarial gains and losses comprise experience adjustments and the effects of changes in actuarial assumptions and are recognised immediately in the standalone statement of profit and loss.

The Company presents the Provision for compensated absences under provisions in the Balance Sheet.

Share-based payment arrangements

The stock options granted to employees pursuant to the Company's Stock Options Schemes, are measured

at the fair value of the options at the grant date using Black Scholes Model. The fair value of the options determined at grant date is treated as discount and accounted as employee compensation cost over the vesting period on a straight line basis over the period of option, based on the number of grants expected to vest, with corresponding increase in equity. The employee stock option outstanding account is shown under Reserves and Surplus.

The Company has created an Employee Welfare Trust for providing share-based payment to its employees for (a) SBFC Stock Option Policy I 2018 and (b) SBFC Stock Option Policy 2021 - I policies. The Company uses the Trust as a vehicle for distributing shares to employees under the employee remuneration schemes for the above mentioned two policies. The Company allots shares to the Trustee of the Trust, for giving shares to employees. The Company treats Trust as its extension and shares held by the Trust are treated as treasury shares.

(iii) Leases:

Effective 1 April 2019 the company has adopted Ind AS 116- Leases and applied it to all lease contracts existing on 1 April 2019 using the modified retrospective approach under which the company recognised Lease Liabilities at the initial date of application. At the date of commencement of the lease, the Company has recognised a Lease Liability, except for leases with a term of 12 months or less (short-term leases) and low value leases.

The Company evaluates if an arrangement qualifies to be a lease as per the requirements of Ind AS 116. Identification of a lease requires significant judgment. The Company uses significant judgement in assessing the lease term (including anticipated renewals) and the applicable discount rate. The Company determines the lease term as the noncancellable period of a lease, together with both periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option; and periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option. In assessing whether the Company is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, it considers all relevant facts and circumstances that create an economic incentive for the Company to exercise the option to extend the lease, or not to exercise the option to terminate the lease. The Company revises the lease term if there is a change in the non-cancellable period of a lease. The discount rate is generally based on the incremental borrowing rate. The Company makes assessment on the expected lease term on lease by lease basis and

thereby assesses whether it is reasonably certain that any option to extend or terminate the contract will be exercised. In evaluating the lease term, the Company considers factors such as any significant leasehold improvements undertaken over the lease term, costs relating to termination of lease and the importance of the underlying to the Company's operation taking into account the location of the underlying asset and the availability of the suitable alternatives. The lease term in future periods is reassessed to ensure that the lease term reflect the current economic circumstances.

The right-of-use assets is subsequently measured at cost less accumulated depreciation, accumulated impairment losses, if any, and adjusted for any remeasurement of the lease liability.

The right-of-use assets is depreciated using the straight-line method from the commencement date over the shorter of lease term or useful life of right-of-use asset. Right-of-use assets are tested for impairment whenever there is any indication that their carrying amounts may not be recoverable. Impairment loss, if any, is recognised in the standalone statement of profit and loss.

The company recognises the amount of the remeasurement of lease liability due to modification as an adjustment to the right-of-use asset and standalone statement of profit and loss depending upon the nature of modification. Where the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Company recognises any remaining amount of the re-measurement in standalone statement of profit and loss.

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

(iv)    Other income and expenses

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

(v)    Impairment of non-financial assets

The carrying amount of assets is reviewed at each balance sheet date if there is any indication of impairment based on internal/ external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assets, net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted

to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset.

In determining net selling price, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life.

(vi) Taxes

Cunent Tax

Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from, or paid to, the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted, or substantively enacted, by the reporting date in the countries where the Company operates and generates taxable income.

Current income tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive income or in equity). Current tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred tax

Deferred tax assets and liabilities are recognised for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are only recognised for temporary differences, unused tax losses and unused tax credits if it is probable that future taxable amounts will arise to utilise those temporary differences and losses. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and they relate to income taxes levied by the same tax authority on the same taxable entity.

Goods and services tax/ service tax/ value added taxes paid on acquisition of assets or on incurring

expenses:

Expenses and assets are recognised net of the goods and services tax/ service tax/ value added taxes paid,

except:

i.    When the tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the tax paid is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable

ii.    When receivables and payables are stated with the amount of tax included

The net amount of tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

2.7    Cash and cash equivalents

Cash and cash equivalents comprise the net amount of short-term, highly liquid investments that are readily convertible to known amounts of cash (shortterm deposits with an original maturity of three months or less) and are subject to an insignificant risk of change in value. They are held for the purposes of meeting short-term cash commitments (rather than for investment or other purposes).

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short- term deposits, as defined above.

2.8    Property, plant and equipment

Property, plant and equipment (PPE) are measured at cost less accumulated depreciation and accumulated impairment, (if any). The total cost of assets comprises its purchase price, freight, duties, taxes and any other incidental expenses directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the management. Changes in the expected useful life are accounted for by changing the amortisation period or methodology, as appropriate, and treated as changes in accounting estimates.

Subsequent expenditure related to an item of tangible asset are added to its gross value only if it increases the future benefits of the existing asset, beyond its previously assessed standards of performance and cost can be measured reliably. Other repairs and maintenance costs are expensed off as and when inclined.

Depreciation

Depreciation is calculated using the straight line method to write down the cost of property and equipment to their residual values over their estimated useful lives which is in line with the estimated useful life as specified in Schedule II of the Act. The estimated useful lives are as prescribed by Schedule II of the Act. The residual values, useful

lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.

Property plant and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in other income/ expense in the standalone statement of profit and loss in the year the asset is derecognised. The date of disposal of an item of property, plant and equipment is the date the recipient obtains control of that item in accordance with the requirements for determining when a performance obligation is satisfied in Ind AS 115.

2.9 Intangible assets

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

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

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life, or the expected pattern of consumption of future economic benefits embodied in the asset, are accounted for by changing the amortisation period or methodology, as appropriate, which are then treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is presented as a separate line item in the standalone statement of profit and loss. Amortisation on assets acquired/ sold during the year is recognised on a pro-rata basis to the standalone statement of profit and loss from/ upto the date of acquisition/ sale.

Amortisation is calculated using the straight-line method to write down the cost of intangible assets to their residual values over their estimated useful lives. Intangible assets comprising of software are amortised on a straight-line basis over a period of 5 years, unless it has a shorter useful life.

Intangible assets with indefinite useful life is tested for impairment at each reporting period.

Gains or losses from derecognition of intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset are recognised in the standalone statement of profit and loss when the asset is derecognised.

2.10    Provisions

Provisions are recognised when the enterprise has a present obligation (legal or constructive) as a result of past events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

When the effect of the time value of money is material, the enterprise determines the level of provision by discounting the expected cash flows at a pre-tax rate reflecting the current rates specific to the liability. The expense relating to any provision is presented in the standalone statement of profit and loss net of any reimbursement.

2.11    Contingent Liabilities

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the financial statement.

2.12    Commitments

Commitments are future liabilities for contractual expenditure, classified and disclosed as follows:

•    estimated amount of contracts remaining to be executed on capital account and not provided for;

•    Other non-cancellable commitments, if any, to the extent they are considered material and relevant in the opinion of management.

2.13    Earnings Per Share

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

For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to

equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued at a later date. In computing the dilutive earnings per share, only potential equity shares that are dilutive and that either reduces the earnings per share or increases loss per share are included.

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