Mar 31, 2023
Shriram Finance Limited (formerly known as Shriram Transport Finance Company Limited) (âthe Companyâ) is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its equity shares and non-convertible debentures are listed on BSE Limited and National Stock Exchange of India Limited.
The Company is registered with the Reserve Bank of India (RBI), Ministry of Corporate Affairs (MCA) and Insurance Regulatory and Development Authority of India (IRDA). The registration details are as follows:
RBI |
07-00459 |
Corporate Identity Number (CIN) |
L65191TN1979PLC007874 |
IRDA |
CA0197 |
Shriram Capital Private Limited (formerly Shriram Financial Ventures (Chennai) Private Limited) and Shriram Ownership Trust are the promoters of the Company. The Company is a Deposit Accepting Non-Banking Finance Company (âNBFCâ), NBFC-Investment and Credit Company (NBFC-ICC) holding a Certificate of Registration from the RBI dated April 17, 2007 which was endorsed in the new name on January 31, 2023. The RBI, under Scale Based Regulations (SBR) had categorised the Company in Upper Layer (NBFC-UL) vide its circular dated September 30, 2022.
The registered office of the Company is Sri Towers, 14A, South Phase, Industrial Estate, Guindy, Chennai, Tamil Nadu- 600 032. The principal place of business is Wockhardt Towers, West Wing, Level-3, C-2, G-Block, Bandra - Kurla Complex, Bandra (East), Mumbai, Maharashtra - 400 051.
The Company is primarily engaged in the business of financing commercial vehicles, passenger vehicles, construction equipment, farm equipment, micro, small and medium enterprises, two-wheelers, gold and personal loans.
Pursuant to the Honâble National Company Law Tribunal, Chennai Bench (âNCLTâ) approval of the Composite Scheme of Arrangement and Amalgamation, Shriram Capital Limited (SCL) with its remaining undertaking and Shriram City Union Finance Limited (SCUF) with its entire undertaking amalgamated with the Company.
The financial statements of the Company for the year ended March 31, 2023 were approved for issue in accordance with the resolution of the Board of Directors on April 27, 2023.
¦n BASIS OF PREPARATION
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015, as amended by the Companies (Indian Accounting Standards) Rules, 2016, notified under the Section 133 of the Companies Act, 2013 (âthe Actâ) and other relevant provisions of the Companies Act, 2013. The financial statements have been prepared under the historical cost convention, as modified by the application of fair value measurements required or allowed by relevant Accounting Standards, except for the assets and liabilities acquired under business combination are measured at fair value. The financial statements have been prepared as per the guidelines issued by the RBI as applicable to a NBFCs and other accounting principles generally accepted in India. Any applicable guidance / clarifications / directions issued by RBI or other regulators are implemented as and when they are issued / applicable.
The regulatory disclosures as required by Master Direction - Non-Banking Financial Company - Systemically Important NonDeposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 issued by the RBI are prepared as per the Ind AS financial statements, pursuant to the RBI notification on Implementation of Indian Accounting Standards, dated March 13, 2020.
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 (refer note 6.1 (xi)).
The preparation of financial statements 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 7 -Significant accounting judgements, estimates and assumptions.
The financial statements are presented in Indian Rupees in crores (INR crores or Rs. in crores) which is also the functional currency of the Company and all values are rounded to the nearest crore, except when otherwise indicated.
¦» PRESENTATION OF FINANCIAL STATEMENT
The financial statements of the Company are presented as per Schedule III (Division III) of the Companies Act, 2013 applicable to Non-banking Finance Companies (NBFCs), as notified by the MCA. The Statement of Cash Flows is presented as per the requirements of Ind AS 7 - Statement of Cash Flows. The Company classifies its assets and liabilities as financial and non-financial and presents them in the order of liquidity. An analysis regarding expected recovery or settlement within 12 months after the reporting date and more than 12 months after the reporting date is presented in notes to the financial statements. 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
derivative assets and liabilities with master netting arrangements (e.g. International Swaps and derivative Association Arrangements) are presented net if all the above criteria are met.
STATEMENT OF COMPLIANCE
These standalone or separate financial statements of the Company have been prepared in accordance with Indian Accounting Standards as per the Companies (Indian Accounting Standards) Rules, 2015 as amended by the Companies (Indian Accounting Standards) Rules, 2016, notified under Section 133 of the Companies Act, 2013 and the other relevant provisions of the Act.
The Company has consistently applied accounting policies to all the periods except for note 6.1 (xi).
¦n NEW ACCOUNTING STANDARDS ISSUED BUT NOT EFFECTIVE/ RECENT ACCOUNTING DEVELOPMENTS
MCA notifies new standards or amendments to the existing standards. during year ended March 31, 2023, MCA has not notified any new standards or amendments to the existing standards applicable to the Company.
On March 23, 2022, MCA amended the Companies (Indian Accounting Standards) Amendment Rules, 2022 which was effective from April 01, 2022.
SIGNIFICANT ACCOUNTING POLICIES
6.1 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
The classification depends on the contractual terms of the cashflows of the financial assets and the Companyâs 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 Companyâs 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 entityâs 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 Companyâs assessment. The business model assessment is based on reasonably expected scenarios without taking âworst caseâ or âstress caseâ scenarios into account. If cash flows after initial recognition are realised in a way that is different from the Companyâs 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.
? At initial recognition of a financial asset, the Company determines whether newly recognised financial assets are part of an existing business model or whether they reflect the commencement of a new business model. The Company reassesses its business models each reporting period to determine whether the business model/ (s) have changed since the preceding period. For the current and prior reporting period the Company has not identified a change in its business model.
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.
âPrincipalâ 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 unless it has designated liabilities at fair value through the profit and loss or is required to measure liabilities at fair value through profit or loss such as derivative liabilities.
(ii) Financial assets measured at amortised cost
Debt instruments
These financial assets comprise bank balances, loans, trade receivables, investments and other financial assets.
Debt instruments 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 debt instruments are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at amortised cost. However, trade receivables that do not contain a significant financing component are initially measured at transaction price.
(iii) Financial assets measured at fair value through other comprehensive income
Debt instruments
Investments in debt instruments are measured at fair value through other comprehensive income 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 both collecting contractual cash flows and selling financial assets.
These debt instruments are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at fair value. Gains and losses arising from changes in fair value are included in other comprehensive income within a separate component of equity. Impairment losses or reversals, interest revenue and foreign exchange gains and losses are recognised in the Statement of Profit and Loss. Upon disposal, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to the Statement of Profit and Loss. As at the reporting date, the Company does not have any debt instruments measured at fair value through other comprehensive income.
Equity instruments
Investment in equity instruments that are neither held for trading nor contingent consideration recognised by the Company in a business combination to which Ind AS 103 âBusiness Combinationâ applies, are measured at fair value through other comprehensive income, where an irrevocable election has been made by management and when such instruments meet the
definition of Equity under Ind AS 32 Financial Instruments: Presentation. Such classification is determined on an instrument-by-instrument basis. Amounts presented in other comprehensive income are not subsequently transferred to the Statement of profit and Loss. Dividends on such investments are recognised in the Statement of profit and Loss.
The Company has accounted for its investment in subsidiary at fair value at the time of acquisition due to business combination. The investment is subsequently measured at cost.
(iv) Financial assets measured at fair value through profit or loss
Items at fair value through profit or loss comprise:
⢠Investments (including equity shares) held for trading;
⢠Items specifically designated as fair value through profit or loss on initial recognition; and
⢠Debt instruments with contractual terms that do not represent solely payments of principal and interest.
Financial instruments held at fair value through profit or loss are initially recognised at fair value, with transaction costs recognised in the Statement of profit and Loss as incurred. Subsequently, they are measured at fair value and any gains or losses are recognised in the Statement of profit and Loss as they arise.
Financial instruments held for trading
A financial instrument is classified as held for trading if it is acquired or incurred principally for selling or repurchasing in the near term, or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking, or it is a derivative not in a qualifying hedge relationship.
Trading derivatives and trading securities are classified as held for trading and recognised at fair value.
Financial instruments specifically designated as measured at fair value through profit or loss
Upon initial recognition, financial instruments may be designated as measured at fair value through profit or loss. A financial asset may only be designated at fair value through profit or loss if doing so eliminates or significantly reduces measurement or recognition inconsistencies (i.e. eliminates an accounting mismatch) that would otherwise arise from measuring financial assets or liabilities on a different basis.
As at the reporting date the Company does not have any financial instruments specifically designated as measured at fair value through profit or loss.
Debt instruments with contractual terms that do not represent solely payments of principal and interest
debt instruments held at fair value through profit or loss are initially recognised at fair value, with transaction costs recognised in the Statement of profit and Loss as incurred. Subsequently, they are measured at fair value and any gains or losses are recognised in the statement of profit and loss as they arise.
As at the reporting date the Company does not have any debt instruments measured at fair value through profit or loss. Equity Investments
Investment in Associate is carried at cost in the Separate Financial Statements as permitted under Ind AS 27. The Company has accounted for its investment in subsidiary at fair value at the time of acquisition due to business combination. The investment is subsequently measured at cost. All other equity investments are measured at fair value through profit or loss.
A financial liability may be designated at fair value through profit or loss if it eliminates or significantly reduces an accounting mismatch or:
⢠if a host contract contains one or more embedded derivatives; or
⢠if financial assets and liabilities are both managed and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Where a financial liability is designated at fair value through profit or loss, the movement in fair value attributable to changes in the Companyâs own credit quality is calculated by determining the changes in credit spreads above observable market interest rates and is presented separately in other comprehensive income. As at the reporting date, the Company has not designated any financial liability as measured at fair value through profit or loss.
A derivative is a financial instrument or other contract with all three of the following characteristics:
⢠Its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided that, in the case of a non-financial variable, it is not specific to a party to the contract (i.e., the âunderlyingâ).
⢠It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts expected to have a similar response to changes in market factors.
⢠It is settled at a future date.
The Company enters into derivative transactions with various counterparties to hedge its foreign currency risks and interest rate risks. Derivative transaction consists of hedging of foreign exchange transactions, which includes interest rate and currency swaps, interest rate options and forwards. The Company undertakes derivative transactions for hedging on-balance sheet liabilities.
Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. The notional amount and fair value of such derivatives are disclosed separately. Changes in the fair value of derivatives are included in net gain on fair value changes.
Hedge accounting
The Company has adopted hedge accounting. The Company makes use of derivative instruments to manage exposures to interest rate risk and foreign currency risk. In order to manage particular risks, the Company applies hedge accounting for transactions that meet specified criteria. The Company has formally designated and documented the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes the Companyâs risk management objective and strategy for undertaking hedge, the hedging/economic relationship, the hedged item or transaction, the nature of the risk being hedged, hedge ratio and how the Company would assess the effectiveness of changes in the hedging instruments fair value in offsetting the exposure to changes in the hedged itemâs cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an on-going basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
Hedges that meet the criteria for hedge accounting and qualify as cash flow hedges are accounted as follows:
Cash flow hedge
A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability and could affect the Statement of Profit and Loss. For designated and qualifying cash flow hedges, the effective portion of the cumulative gain or loss on the hedging instrument is initially recognised directly in other comprehensive income as cash flow hedge reserve. The ineffective portion of the gain or loss on the hedging instrument is recognised immediately as finance cost in the Statement of Profit and Loss. When the hedged cash flow affects the Statement of profit and Loss, the effective portion of the gain or loss on the hedging instrument is recorded in the corresponding income or expense line of the Statement of Profit and Loss. When a hedging instrument expires, is sold, terminated, exercised, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss that has been recognised in OCI at that time remains in OCI and is recognised when the hedged forecast transaction is ultimately recognised in the Statement of Profit and Loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in OCI is immediately transferred to the Statement of Profit and Loss.
(vi) Embedded Derivatives
An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative.
If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract.
(vii) 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 transaction costs that are an integral part of the Effective Interest Rate (EIR).
(viii) Financial guarantees
Financial guarantees are initially recognised in the financial statements at fair value, being the premium received. Subsequent to initial recognition, the Companyâs liability under each guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the Statement of Profit and Loss.
? The premium is recognised in the Statement of Profit and Loss on a straight-line basis over the life of the guarantee.
(ix) Reclassification of financial assets and liabilities
The Company does not reclassify its financial assets subsequent to their initial recognition. Financial liabilities are never reclassified. The Company did not reclassify any of its financial assets or liabilities in FY 2021-22 and until the year ended March 31, 2023.
(x) Recognition and Derecognition of financial assets and liabilities
Recognition
a) Loans and Advances are initially recognised when the funds are transferred to the customers account or delivery of assets by the dealer, whichever is earlier.
b) Investments are initially recognised on the settlement 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. This includes regular way trades: purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.
Derecognition of financial assets due to substantial modification of terms and conditions
The Company derecognises a financial asset, such as a loan to a customer, when the terms and conditions have been renegotiated to the extent that, substantially, it becomes a new loan, with the difference recognised as derecognition gain or loss, to the extent that an impairment loss has not already been recorded. The newly recognised loans are classified as Stage 1 for ECL measurement purposes, unless the new loan is deemed to be purchased or Originated as Credit Impaired (pOCI).
If the modification does not result in cash flows that are substantially different, the modification does not result in derecognition. Based on the change in cash flows discounted at the original EIR, the Company records a modification gain or loss, to the extent that an impairment loss has not already been recorded.
Derecognition of financial assets other than due to substantial modification
a) Financial assets
A financial asset (or, where applicable, a part ofa financial asset or part ofa group ofsimilar 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, and only if, either:
i. The Company has transferred its contractual rights to receive cash flows from the financial asset, or
ii. It retains the rights to the cash flows, but has assumed an obligation to pay the received cash flows in full without material delay to a third party under a âpass-throughâ arrangement.
Pass-through arrangements are transactions whereby the Company retains the contractual rights to receive the cash flows of a financial asset (the âoriginal assetâ), but assumes a contractual obligation to pay those cash flows to one or more entities (the âeventual recipientsâ), when all of the following three conditions are met:
i. The Company has no obligation to pay amounts to the eventual recipients unless it has collected equivalent amounts from the original asset, excluding short-term advances with the right to full recovery of the amount lent plus accrued interest at market rates.
ii. The Company cannot sell or pledge the original asset other than as security to the eventual recipients.
iii. The Company has to remit any cash flows it collects on behalf of the eventual recipients without material delay. In addition, the Company is not entitled to reinvest such cash flows, except for investments in cash or cash equivalents including interest earned, during the period between the collection date and the date of required remittance to the eventual recipients.
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 Companyâs 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.
On derecognition of a financial asset in its entirety, the difference between the carrying amount (measured at the date of derecognition) and the consideration received (including any new asset obtained less any new liability assumed) is recognised in the Statement of Profit and Loss. Accordingly, gain or loss on sale or derecognition of assigned portfolio are recorded upfront in the Statement of Profit and Loss as per Ind AS 109. Also, the Company recognises servicing income as a percentage of interest spread over tenure of loan in cases where it retains the obligation to service the transferred financial asset. As per the guidelines of RBI, the Company is required to retain certain portion of the loan assigned to parties in its books as Minimum Retention Requirement (âMRRâ). Therefore, it continues to recognise the portion retained by it as MRR.
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 Statement of Profit and Loss. As at the reporting date, the Company does not have any financial liabilities which have been derecognised.
(xi) Impairment of financial assets Overview of the ECL principles
The Company records allowance for expected credit losses for all loans, other financial assets not held at fair value through profit or loss (FVTPL), together with financial guarantee contracts, in this section all referred to as âfinancial instrumentsâ. 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 monthsâ 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, depending on the nature of the underlying portfolio of financial instruments. The Company has grouped its loan portfolio into Secured Loans for New Vehicles, Secured Loans for Used Vehicles, Gold loans, MSME Loans , Two Wheelers Loans and Personal Loans.
The Company has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrumentâs 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:
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 upto 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 or Stage 3.
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. 30 Days Past Due is considered as significant increase in credit risk.
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 (for e.g. any natural calamity) warrants a provision higher than as mandated under ECL methodology, the Company may classify the financial asset in Stage 3 accordingly.
As required by RBI Circular reference no. RBI/2019-20/170 Dor (NBFC).CC.pD.No. 109/22.10.106/ FY 2019-20 dated March 13, 2020; where impairment allowance under Ind AS 109 is lower than the provisioning required as per extant prudential norms on Income Recognition, Asset Classification and provisioning (IRACp) including borrower/beneficiary wise classification, provisioning for standard as well as restructured assets, NpA ageing, etc., the Company shall appropriate the difference from their net profit or loss after tax to a separate âImpairment Reserveâ.
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, 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 Non-performing 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 Non-performing 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 from financial year 2021-22 and impact on financials is disclosed in note 81B.
Upgradation of accounts classified as Stage 3/Non-performing assets (NpA) - The Company upgrades loan accounts classified as Stage 3/ NpA to âstandardâ 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. With regard to upgradation of accounts classified as NpA due to restructuring, the instructions as specified for such cases as per the said RBI guidelines shall continue to be applicable.
Credit-impaired financial assets
At each reporting date, the Company assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI are credit-impaired. A financial asset is âcredit-impairedâ 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;
c) The restructuring of a loan or advance by the Company on terms that the Company would not consider otherwise;
d) It is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
e) The disappearance of an active market for a security because of financial difficulties.
ECL on Investment in Government securities
The Company has invested in Government of India loans. Investment in Government securities are classified under stage 1. No ECL has been applied on these investments as there is no history of delay in servicing of interest/ repayments. The Company does not expect any delay in interest/redemption servicing in future.
ECL on Loans secured by the Companyâs fixed deposit
No ECL has been applied on loans given against the Companyâs fixed deposit as they are fully secured by the Companyâs fixed deposits.
Simplified approach for trade/ other receivables and contract assets
The Company follows âsimplified approachâ for recognition of impairment loss allowance on trade/ other receivables that do not contain a significant financing component. The application of simplified approach does not require the Company to track changes in credit risk. It recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition. At every reporting date, the historical observed default rates are updated for changes in the forwardlooking estimates. For trade receivables that contain a significant financing component a general approach is followed.
Financial guarantee contracts
The Companyâs liability under financial guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the Statement of profit and Loss, and the ECL provision. For this purpose, the Company estimates ECLs by applying a credit conversion factor. The ECLs related to financial guarantee contracts, if any, are recognised within provisions.
ECL on Debt instruments measured at fair value through OCI
The ECLs for debt instruments measured at FVOCI do not reduce the carrying amount of these financial assets in the balance sheet, which remains at fair value. Instead, an amount equal to the allowance that would arise if the assets were measured at amortised cost is recognised in OCI as an accumulated impairment amount, with a corresponding charge to the Statement of profit and Loss. The accumulated loss recognised in OCI is recycled to the Statement of profit and Loss upon derecognition of the assets. As at the reporting date, the Company does not have any debt instruments measured at fair value through OCI.
When estimating ECL for undrawn loan commitments, a credit conversion factor of 100% is applied for expected drawdown. The Company discloses ECL allowance on undrawn loan commitments under the head âprovisionsâ under non-financial liabilities.
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 in accordance with the contract 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. The concept of PD is further explained in Note 55.
exposure at default (EAD) - The Exposure at Default is an estimate of the exposure at a future default date. The concept of EAD is further explained in Note 55.
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 Company would expect to receive, including from the realisation of any collateral. It is usually expressed as a percentage of the EAD. The concept of LGD is further explained in Note 55.
Forward looking information
While estimating the expected credit losses, the Company reviews macro-economic developments occurring in the economy and the market it operates in. Macro-economic regression models are built to identify the key macro-economic factors (independent variables) that drive the default rates. The best possible single variable linear regression model is identified basis the R-square and the economic intuition of the relationship between the independent variable and the default rates.
The Company considers various external factors such as GDP growth, Inflation, weighted average lending rate of Scheduled Commercial Banks etc., as macro-economic factors affecting the Companyâs ECL estimates and the most relevant macroeconomic factor affecting the particular loan product is factored in while arriving at the PD of that product. The Company formulated three different macro-economic stress scenarios under the premise of mild stress, medium stress and severe stress condition. The medium stress scenario largely reflected the current economic conditions, and accordingly was used for ECL modelling.
On a periodic basis, the Company monitors the situation and economic factors affecting the operations of the company and assesses the requirement of any modification to ECL model.
Collateral Valuation
To mitigate its credit risks on financial assets, the Company seeks to use collateral, wherever possible. The collateral comes in various forms, such as movable and immovable assets, guarantees, 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. Non-financial collateral, such as vehicles, is valued based on data provided by third parties or management judgements.
Collateral repossessed
In its normal course of business whenever default occurs, the Company may take possession of properties or other assets in its retail portfolio and generally disposes such assets through auction, to settle outstanding debt. Any surplus funds are returned to the customers/ obligors. The Company generally does not use the assets repossessed for the internal operations. The underlying loans in respect of which collaterals have been repossessed and not sold for more than 6 months are considered as Stage 3 assets and fully provided for net of estimated realisable value or written off. As a result of this practice, assets under legal repossession processes are not recorded on the balance sheet as it does not meet the recognition criteria in other standards and consequently the Company also does not derecognise the underlying financial asset immediately on repossession. The change in accounting policy is effective financial year 2021-22 and impact on financials is disclosed in note 81A.
Restructured loans
The Company is permitted to restructure customer accounts. Restructuring would normally involve modification of terms of the advances/ securities, which would generally include, among others, alteration of payment period/ payable amount/ the amount of instalments/ rate of interest/ sanction of additional credit facility/ release of additional funds for a customer account. The Company considers the modification of the loan only before the loans gets credit impaired. In case of restructuring, the accounts classified as âstandardâ shall be immediately downgraded as non-performing assets/ Stage 3 unless and other wise explicitly stated in the Circulars and Directions issued by Reserve Bank of India from time to time. Once an asset has been classified as restructured, it will remain restructured for a period of one year from the date on which it has been restructured until the customer account demonstrates satisfactory performance during the specified period.
For upgradation of accounts classified as Non-Performing Assets due to restructuring, the instructions as specified for such cases as per the said RBI guidelines shall continue to be applicable.
Loan accounts which have been restructured or modified in accordance with RBI Notifications - RBI/2020-21/16 DOR. No.BP.BC/3/21.04.048/2020-21 dated August 06, 2020- Resolution Framework for COVID-19 related Stress and RBI/2021-22/31/DOR.STR.REC.11/21.04.048/2021-22 dated May 05, 2021- Resolution Framework - 2.0: Resolution of Covid-19 related stress of Individuals and Small Businesses and RBI/2020-21/17 DOR. No.BP.BC/4/21.04.048/2020-21- dated August 06, 2020 - Micro, Small and Medium Enterprises (MSME) sector - Restructuring of Advances and RBI/2021-22/32 DOR. STR.REC.12/21.04.048/2021-22 dated May 05, 2021 Resolution Framework 2.0 - Resolution of Covid-19 related stress of Micro, Small and Medium Enterprises (MSMEs) have been classified as Stage 2 due to significant increase in credit risk.
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. Write off in case of standard accounts is done by way of waiver of last one or two instalments in case the borrower pays all the EMIs as per the due dates mentioned in the agreement.
(xiii) 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 6.1(iii) to 6.1(vi)) 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 participantâs 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 financial instruments 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 financial instruments 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 instruments 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 financial instruments 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. No such instances of transfers between levels of the fair value hierarchy were recorded during the reporting period.
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 deferred and is only recognised in the Statement of profit and Loss when the inputs become observable, or when the instrument is derecognised.
(i) Interest Income
Interest income is recognised by applying the Effective Interest Rate (EIR) to the gross carrying amount of financial assets measured at amortised cost other than credit-impaired assets and financial assets classified as measured at FVTpL.
The EIR in case of a financial asset is computed
a. As the rate that exactly discounts estimated future cash 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 in estimating the cash flows.
c. Including all fees 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 is recognised in interest income with the corresponding adjustment to the carrying amount of the assets.
Interest income on credit impaired assets is recognised by applying the effective interest rate to the net amortised cost (net of ECL provision) of the financial asset.
Interest on delayed payments by customers are treated to accrue only on realisation, due to uncertainty of realisation and are accounted accordingly.
Interest spread under par structure of direct assignment of loan receivables is recognised upfront. On derecognition of the loan receivables in its entirety, the difference between the carrying amount (measured at the date of derecognition) and the consideration received (including any new asset obtained less any new liability assumed) shall be recognised upfront in the Statement of profit and Loss.
(ii) dividend income
Dividend income is recognised when the right to receive the payment is established.
(iii) rental income
Rental income arising from operating leases is recognised on a straight-line basis over the lease term. In cases where the increase is in line with expected general inflation, rental income is recognised as per the contractual terms.
Operating leases are leases where the Company does not transfer substantially all of the risk and benefits of ownership of the asset.
(iv) Fees & Commission income
Fees and commissions are recognised when the Company satisfies the performance obligation, at the amount of transaction price (net of variable consideration) allocated to that performance obligation 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 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.
(v) Net gain/loss on fair value changes
Any differences between the fair values of financial assets classified as fair value through the profit or loss (refer Note 34), 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 changesâ under Revenue from operations and if there is a net loss the same is disclosed under âExpensesâ in the Statement of Profit and Loss.
Similarly, any realised gain or loss on sale of financial instruments measured at FVTPL and debt or equity instruments measured at FVOCI is recognised in net gain / loss on fair value changes. As at the reporting date, the Company does not have any debt instruments measured at FVOCI.
(vi) Recoveries of financial assets written off
The Company recognises income on recoveries of financial assets written off on realisation basis.
(vii) net gain/ loss on derecognition of financial instruments under amortised cost category
In case where transfer of a part of financial assets qualifies for de-recognition, any difference between the proceeds received on such sale and the carrying value of the transferred asset is recognised as gain or loss on derecognition of such financial asset previously carried under amortisation cost category is presented separately under the respective head in the Statement of Profit and Loss. The resulting interest only strip initially is recognised at FVTPL under interest income.
(i) Finance costs
Finance costs represents Interest expense recognised by applying the Effective Interest Rate (EIR) to the gross carrying amount of financial liabilities other than financial liabilities classified as FVTPL.
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 instrumen
Mar 31, 2022
CORPORATE INFORMATION
Shriram Transport Finance Company Limited (the Company) is a public company domiciled in India and incorporated under the provisions of the companies Act, 1956. its equity shares are listed on BSE limited and National Stock Exchange of india limited. The company is primarily engaged in the business of financing commercial vehicles. it also provides loans for equipment and other business purposes. it also accepts deposits from the public. The company is registered with the Reserve Bank of india (RBi), Ministry of corporate affairs (McA) and insurance Regulatory and Development authority of india (IRDA). The registration details are as follows:
RBi |
07-00459 |
corporate identity Number (ciN) |
L65191TN1979PLc007874 |
irda |
cA0197 |
The company is an associate of Shriram capital limited and deposit accepting Mon-Banking Finance company (âNBFcâ), NBFc - investment and credit company (NBFc-icc)holding a certificate of Registration from the Reserve Bank of india (âRBiâ) dated April 17, 2007.
The registered office of the company is Sri Towers, 14A, South Phase, industrial Estate, Guindy, chennai, Tamil Nadu- 600 032. The principal place of business is Wockhardt Towers, West Wing, Level-3, c-2, G-Block, Bandra -Kurla complex, Bandra (East), Mumbai, Maharashtra- 400 051.
The financial statements of the company for the year ended March 31, 2022 were approved for issue in accordance with the resolution of the Board of Directors on April 28, 2022.
¦n BASIS OF PREPARATION
The financial statements of the company have been prepared in accordance with indian Accounting Standards (ind AS) as per the companies (indian Accounting Standards) Rules, 2015, as amended by the companies (indian Accounting Standards) Rules, 2016, notified under the Section 133 of the companies Act, 2013 (âthe Actâ). The financial statements have been prepared under the historical cost convention, as modified by the application of fair value measurements required or allowed by relevant Accounting standards and other relevant provisions of the companies Act 2013, guidelines issued by the RBi as applicable to a NBFcs and other accounting principles generally accepted in india. Any application guidance / clarifications / directions issued by RBi or other regulators are implemented as and when they are issued / applicable.
The regulatory disclosures as required by Master Direction - Non-Banking Financial company - Systemically important NonDeposit taking company and Deposit taking company (Reserve Bank) Directions, 2016 issued by the RBi are prepared as per the ind AS financial statements, pursuant to the RBi notification on implementation of indian Accounting Standards, dated March 13, 2020.
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 (refer note 6.1 (xi)).
The preparation of financial statements 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 7 -Significant accounting judgements, estimates and assumptions.
The financial statements are presented in indian Rupees in crores (iNR crores or Rs. in crores) which is also the functional currency of the company and all values are rounded to the nearest crore, except when otherwise indicated.
¦» PRESENTATION OF FINANCIAL STATEMENT
The financial statements of the company are presented as per Schedule iii (Division iii) of the companies Act, 2013 applicable to Non-banking Finance companies (NBFcs), as notified by the MQA. The Statement of cash Flows has been presented as per the requirements of ind-AS 7 Statement of cash Flows. The company classifies its assets and liabilities as financial and non-financial and presents them in the order of liquidity. An analysis regarding expected recovery or settlement within 12 months after the reporting date and more than 12 months after the reporting date is presented in notes to the financial statements. 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
Derivative assets and liabilities with master netting arrangements (e.g. international Swaps and Derivative Association Arrangements) are presented net if all the above criteria are met.
¦« STATEMENT OF COMPLIANCE
These standalone or separate financial statements of the Company have been prepared in accordance with Indian Accounting Standards as per the companies (Indian accounting Standards) Rules, 2015 as amended and notified under Section 133 of the companies Act, 2013 and the other relevant provisions of the Act.
The company has consistently applied accounting policies to all the periods except for note 6.1 (xi).
¦n NEW ACCOUNTING STANDARDS ISSUED BUT NOT EFFECTIVE /RECENT ACCOUNTING DEVELOPMENTS
McA notifies new standard or amendments to the existing standards. on March 23, 2022, McA amended the companies (Indian accounting Standards) Amendment Rules, 2022 which is effective from April 01, 2022. on March 24, 2021, MQA through a notification, amended Schedule iii of the companies Act, 2013 effective from April 01, 2021. Amendments relating to Division iii which relate to NBFcs whose financial statements are required to comply with companies (indian Accounting Standards) Rules 2015, as amended by the companies (indian Accounting Standards) Rules, 2016, have been complied with.
¦A SIGNIFICANT ACCOUNTING POLICIES
6.1 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
The classification depends on the contractual terms of the cashflows of the financial assets and the companyâs 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 companyâs 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 entityâs 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 companyâs assessment. The business model assessment is based on reasonably expected scenarios without taking âworst caseâ or âstress caseâ scenarios into account. if cash flows after initial recognition are realised in a way that is different from the companyâs 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.
? At initial recognition of a financial asset, the company determines whether newly recognised financial assets are part of an existing business model or whether they reflect the commencement of a new business model. The company reassesses its business models each reporting period to determine whether the business model/ (s) have changed since the preceding period. For the current and prior reporting period the company has not identified a change in its business model.
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.
âPrincipalâ 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 unless it has designated liabilities at fair value through the profit and loss or is required to measure liabilities at fair value through profit or loss such as derivative liabilities.
(ii) Financial assets measured at amortised cost
Debt instruments
These financial assets comprise bank balances, Loans, Trade receivables, investments and other financial assets.
Debt instruments 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 debt instruments are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at amortised cost.
(iii) Financial assets measured at fair value through other comprehensive income
Debt instruments
investments in debt instruments are measured at fair value through other comprehensive income 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 both collecting contractual cash flows and selling financial assets.
These debt instruments are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at fair value. Gains and losses arising from changes in fair value are included in other comprehensive income within a separate component of equity. impairment losses or reversals, interest revenue and foreign exchange gains and losses are recognised in the statement of profit and loss. upon disposal, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to the statement of profit and loss. As at the reporting date, the company does not have any financial instruments measured at fair value through other comprehensive income.
Equity instruments
investment in equity instruments that are neither held for trading nor contingent consideration recognised by the company in a business combination to which ind As 103 âBusiness combinationâ applies, are measured at fair value through other comprehensive income, where an irrevocable election has been made by management and when such instruments meet the definition of Equity under ind AS 32 Financial instruments: Presentation. Such classification is determined on an instrument-by-instrument basis. As at reporting date, there are no equity instruments measured at fair value through other comprehensive income (FVOCi).
Amounts presented in other comprehensive income are not subsequently transferred to the statement of profit and loss. Dividends on such investments are recognised in the statement of profit and loss.
(iv) Financial assets measured at fair value through profit or loss
items at fair value through profit or loss comprise:
⢠investments (including equity shares) held for trading;
⢠items specifically designated as fair value through profit or loss on initial recognition; and
⢠Debt instruments with contractual terms that do not represent solely payments of principal and interest.
Financial instruments held at fair value through profit or loss are initially recognised at fair value, with transaction costs recognised in the statement of profit and loss as incurred. Subsequently, they are measured at fair value and any gains or losses are recognised in the statement of profit and loss as they arise.
Financial instruments held for trading
A financial instrument is classified as held for trading if it is acquired or incurred principally for selling or repurchasing in the near term, or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking, or it is a derivative not in a qualifying hedge relationship.
Trading derivatives and trading securities are classified as held for trading and recognised at fair value.
Financial instruments designated as measured at fair value through profit or loss
Upon initial recognition, financial instruments may be designated as measured at fair value through profit or loss. A financial asset may only be designated at fair value through profit or loss if doing so eliminates or significantly reduces measurement or recognition inconsistencies (i.e. eliminates an accounting mismatch) that would otherwise arise from measuring financial assets or liabilities on a different basis.
Investment in Associate is carried at cost in the Separate Financial Statements as permitted under Ind AS 27. All other equity investments are measured at fair value through profit or loss.
a financial liability may be designated at fair value through profit or loss if it eliminates or significantly reduces an accounting mismatch or:
⢠if a host contract contains one or more embedded derivatives; or
⢠if financial assets and liabilities are both managed and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Where a financial liability is designated at fair value through profit or loss, the movement in fair value attributable to changes in the companyâs own credit quality is calculated by determining the changes in credit spreads above observable market interest rates and is presented separately in other comprehensive income. As at the reporting date, the company has not designated any financial liability as measured at fair value through profit or loss.
(v) Derivatives
A derivative is a financial instrument or other contract with all three of the following characteristics:
⢠Its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided that, in the case of a nonfinancial variable, it is not specific to a party to the contract (i.e., the âunderlyingâ).
⢠It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts expected to have a similar response to changes in market factors.
⢠It is settled at a future date.
The Company enters into derivative transactions with various counterparties to hedge its foreign currency risks and interest rate risks. Derivative transaction consists of hedging of foreign exchange transactions, which includes interest rate and currency swaps, interest rate options and forwards. The Company undertakes derivative transactions for hedging on-balance sheet liabilities.
Hedge accounting:
The company has adopted hedge accounting. The company makes use of derivative instruments to manage exposures to interest rate risk and foreign currency risk. In order to manage particular risks, the company applies hedge accounting for transactions that meet specified criteria. The company has formally designated and documented the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes the Companyâs risk management objective and strategy for undertaking hedge, the hedging/economic relationship, the hedged item or transaction, the nature of the risk being hedged, hedge ratio and how the Company would assess the effectiveness of changes in the hedging instrumentâs fair value in offsetting the exposure to changes in the hedged itemâs cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an on-going basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
Hedges that meet the criteria for hedge accounting and qualify as cash flow hedges are accounted as follows:
Cash flow hedge: A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability and could affect the statement of profit and loss. For designated and qualifying cash flow hedges, the effective portion of the cumulative gain or loss on the hedging instrument is initially recognised directly in other comprehensive income as cash flow hedge reserve. The ineffective portion of the gain or loss on the hedging instrument is recognised immediately as finance cost in the statement of profit and loss. When the hedged cash flow affects the statement of profit and loss, the effective portion of the gain or loss on the hedging instrument is recorded in the corresponding income or expense line of the statement of profit and loss. When a hedging instrument expires, is sold, terminated, exercised, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss that has been recognised in OCI at that time remains in OCI and is recognised when the hedged forecast transaction is ultimately recognised in the statement of profit and loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in OCI is immediately transferred to the statement of profit and loss.
(vi) Embedded Derivatives
An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative.
If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract.
(vii) 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 transaction costs that are an integral part of the Effective Interest Rate (EIR).
(viii) Financial guarantees
Financial guarantees are initially recognised in the financial statements at fair value, being the premium received. Subsequent to initial recognition, the companyâs liability under each guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the statement of profit and loss.
? The premium is recognised in the statement of profit and loss on a straight-line basis over the life of the guarantee.
(ix) Reclassification of financial assets and liabilities
The Company does not reclassify its financial assets subsequent to their initial recognition. Financial liabilities are never reclassified. The Company did not reclassify any of its financial assets or liabilities in 2020-21 and until the year ended March 31, 2022.
(x) Recognition and derecognition of financial assets and liabilities
Recognition
a) Loans and Advances are initially recognised when the funds are transferred to the customersâ account or delivery of assets by the dealer, whichever is earlier.
b) Investments are initially recognised on the settlement 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. This includes regular way trades: purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace.
Derecognition of financial assets due to substantial modification of terms and conditions:
The Company derecognises a financial asset, such as a loan to a customer, when the terms and conditions have been renegotiated to the extent that, substantially, it becomes a new loan, with the difference recognised as a derecognition gain or loss, to the extent that an impairment loss has not already been recorded. The newly recognised loans are classified as Stage 1 for ECL measurement purposes, unless the new loan is deemed to be Purchased or Originated as Credit Impaired (POCI).
If the modification does not result in cash flows that are substantially different, the modification does not result in derecognition. Based on the change in cash flows discounted at the original EIR, the Company records a modification gain or loss, to the extent that an impairment loss has not already been recorded.
Derecognition of financial assets other than due to substantial modification a) Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group ofsimilar 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, and only if, either:
i. The Company has transferred its contractual rights to receive cash flows from the financial asset, or
ii. It retains the rights to the cash flows, but has assumed an obligation to pay the received cash flows in full without material delay to a third party under a âpass-throughâ arrangement.
Pass-through arrangements are transactions whereby the Company retains the contractual rights to receive the cash flows of a financial asset (the âoriginal assetâ), but assumes a contractual obligation to pay those cash flows to one or more entities (the âeventual recipientsâ), when all of the following three conditions are met:
i. The Company has no obligation to pay amounts to the eventual recipients unless it has collected equivalent amounts from the original asset, excluding short-term advances with the right to full recovery of the amount lent plus accrued interest at market rates.
ii. The Company cannot sell or pledge the original asset other than as security to the eventual recipients.
iii. The Company has to remit any cash flows it collects on behalf of the eventual recipients without material delay. In addition, the Company is not entitled to reinvest such cash flows, except for investments in cash or cash equivalents including interest earned, during the period between the collection date and the date of required remittance to the eventual recipients.
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 companyâs 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.
On derecognition of a financial asset in its entirety, the difference between the carrying amount (measured at the date of derecognition) and the consideration received (including any new asset obtained less any new liability assumed) is recognised in the statement of profit and loss. Accordingly, gain or loss on sale or derecognition of assigned portfolio are recorded upfront in the statement of profit and loss as per ind AS 109. Also, the company recognises servicing income as a percentage of interest spread over tenure of loan in cases where it retains the obligation to service the transferred financial asset. As per the guidelines of RBi, the company is required to retain certain portion of the loan assigned to parties in its books as Minimum Retention Requirement (âMRRâ). Therefore, it continues to recognise the portion retained by it as MRR.
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 statement of profit and loss. As at the reporting date, the company does not have any financial liabilities which have been derecognised.
(xi) Impairment of financial assets Overview of the ECL principles
The company records allowance for expected credit losses for all loans, other financial assets not held at fair value through profit or loss (FVTPL), together with financial guarantee contracts, in this section all referred to as âfinancial 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 monthsâ 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, depending on the nature of the underlying portfolio of financial instruments. The company has grouped its loan portfolio into Business Loans, secured loans for new vehicles, secured loans for used vehicles and Equipment Finance Loans.
The company has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instruments 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 upto 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 or Stage 3.
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. 30 Days Past Due is considered as significant increase in credit risk.
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 (for e.g. any natural calamity) 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 November 12, 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 Non-Performing 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 Non-Performing 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 79.
Upgradation of accounts classified as Stage 3/Non-performing assets (NPA) - The Company upgrades loan accounts classified as Stage 3/NPA to âstandardâ 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 FVOCi are credit-impaired. A financial asset is âcredit-impairedâ 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;
c) The restructuring of a loan or advance by the Company on terms that the Company would not consider otherwise;
d) it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
e) The disappearance of an active market for a security because of financial difficulties.
ECL on Investment in Government securities:
The Company has invested in Government of india loans. investment in Government securities are classified under stage 1. No ECL has been applied on these investments as there is no history of delay in servicing of interest/repayments. The Company does not expect any delay in interest/redemption servicing in future.
Simplified approach for trade/other receivables and contract assets
The Company follows âsimplified approachâ for recognition of impairment loss allowance on trade/other receivables that do not contain a significant financing component. The application of simplified approach does not require the Company to track changes in credit risk. it recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition. At every reporting date, the historical observed default rates are updated for changes in the forwardlooking estimates. For trade receivables that contain a significant financing component a general approach is followed.
Financial guarantee contracts
The Companyâs liability under financial guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the statement of profit and loss, and the ECL provision. For this purpose, the Company estimates ECLs by applying a credit conversion factor.
EcL on Debt instruments measured at fair value through oCi
The ECLs for debt instruments measured at FVOCi do not reduce the carrying amount of these financial assets in the balance sheet, which remains at fair value. instead, an amount equal to the allowance that would arise if the assets were measured at amortised cost is recognised in oCi as an accumulated impairment amount, with a corresponding charge to the statement of profit and loss. The accumulated loss recognised in OCi is recycled to the statement of profit and loss upon derecognition of the assets. As at the reporting date, the Company does not have any debt instruments measured at fair value through oCi.
When estimating ECL for undrawn loan commitments, a credit conversion factor of 100% is applied for expected drawdown. The Company discloses ECL allowance on undrawn loan commitments under the head âProvisionsâ under Non-financial liabilities.
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 in accordance with the contract 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. The concept of Pd is further explained in Note 53.
Exposure at Default (EAD) - The exposure at Default is an estimate of the exposure at a future default date. The concept of EAD is further explained in Note 53.
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 company would expect to receive, including from the realisation of any collateral. it is usually expressed as a percentage of the EAD. The concept of LGD is further explained in Note 53.
Forward looking information
While estimating the expected credit losses, the company reviews macro-economic developments occurring in the economy and market it operates in. on a periodic basis, the company analyses if there is any relationship between key economic trends like GDP, unemployment rates, benchmark rates set by the Reserve Bank of india, inflation etc. with the estimate of PD, LGD determined by the company based on its internal data. While the internal estimates of PD, LGD rates by the company may not be always reflective of such relationships, temporary overlays, if any, are embedded in the methodology to reflect such macro-economic trends reasonably. Refer note 63 for impact of coViD and macro-economic factors on PD and LGD estimation.
Collateral Valuation
To mitigate its credit risks on financial assets, the company seeks to use collateral, wherever possible. The collateral comes in various forms, such as movable and immovable assets, guarantees, 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. Non-financial collateral, such as vehicles, is valued based on data provided by third parties or management judgements.
Collateral repossessed
in its normal course of business whenever default occurs, the company may take possession of properties or other assets in its retail portfolio and generally disposes such assets through auction, to settle outstanding debt. Any surplus funds are returned to the customers/obligors. The company generally does not use the assets repossessed for the internal operations. The underlying loans in respect of which collaterals have been repossessed and not sold for more than 12 months are considered as Stage 3 assets and fully provided for net of estimated realizable value or written off. As a result of this practice, assets under legal repossession processes are not recorded on the balance sheet as it does not meet the recognition criteria in other standards and consequently the company also does not derecognise the underlying financial asset immediately on repossession. The company had revised its policy to fully provide for the underlying loans net of its estimated realisable value in respect of which collaterals had been repossessed and not sold for more than 6 months. The change in accounting policy is effective financial year 2021-22 and impact on financials is disclosed in note 78.
Restructured loans
The company is permitted to restructure customer accounts. Restructuring would normally involve modification of terms of the advances / securities, which would generally include, among others, alteration of payment period / payable amount / the amount of instalments / rate of interest, sanction of additional credit facility/ release of additional funds for a customer account. The company considers the modification of the loan only before the loans gets credit impaired. in case of restructuring, the accounts classified as âstandardâ shall be immediately downgraded as non-performing assets / Stage 3 unless and other wise explicitly stated in the circulars and Directions issued by Reserve Bank of india from time to time. Once an asset has been classified as restructured, it will remain restructured for a period of year from the date on which it has been restructured until the customer account demonstrates satisfactory performance during the specified period.
For upgradation of accounts classified as Non-Performing Assets due to restructuring, the instructions as specified for such cases as per the said RBi guidelines shall continue to be applicable
Loan accounts which have been restructured or modified in accordance with RBi Notifications - RBi/2020-21/16 DOR. No.BP.Bc/3/21.04.048/2020-21 dated August 06, 2020- Resolution Framework for cOViD-19 related Stress and RBi/2021-22/31/DOR.STR.REc.11/21.04.048/2021-22 dated May 05, 2021- Resolution Framework - 2.0: Resolution of covid-19 related stress of individuals and Small Businesses and RBi/2020-21/17 DOR. No.BP.Bc/4/21.04.048/2020-21- dated August 06, 2020 - Micro, Small and Medium Enterprises (MSME) sector - Restructuring of Advances and RBi/2021-22/32 DoR.STR.REc.12/21.04.048/2021-22 dated May 5, 2021 Resolution Framework 2.0 - Resolution of covid-19 related stress of Micro, Small and Medium Enterprises (MSMEs) have been classified as Stage 2 due to significant increase in credit risk.
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. Write off in case of standard accounts is done by way of waiver of last one or two instalments in case the borrower pays all the EMIs as per the due dates mentioned in the agreement.
(xiii) 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 6.1(iii) to 6.1(vi)) 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 participantâs 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 instrumentâs 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. No such instances of transfers between levels of the fair value hierarchy were recorded during the reporting period.
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 deferred and is only recognised in the statement of profit and loss when the inputs become observable, or when the instrument is derecognised.
(i) Interest Income
Interest income is recognised by applying the Effective Interest Rate (EIR) to the gross carrying amount of financial assets measured at amortised cost other than credit-impaired assets and financial assets classified as measured at FVTPL.
The EIR in case of a financial asset is computed
a. As the rate that exactly discounts estimated future cash 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 in estimating the cash flows.
c. including all fees 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 is recognised in interest income with the corresponding adjustment to the carrying amount of the assets.
interest income on credit impaired assets is recognised by applying the effective interest rate to the net amortised cost (net of EcL provision) of the financial asset.
interest on delayed payments by customers are treated to accrue only on realisation, due to uncertainty of realisation and are accounted accordingly.
interest spread under par structure of direct assignment of loan receivables is recognised upfront. on derecognition of the loan receivables in its entirety, the difference between the carrying amount (measured at the date of derecognition) and the consideration received (including any new asset obtained less any new liability assumed) shall be recognised upfront in the statement of profit and loss.
(ii) Dividend Income
Dividend income is recognised when the right to receive the payment is established.
(iii) Rental income
Rental income arising from operating leases is recognised on a straight-line basis over the lease term. in cases where the increase is in line with expected general inflation, rental income is recognised as per the contractual terms.
operating leases are leases where the company does not transfer substantially all of the risk and benefits of ownership of the asset.
(iv) Fees & Commission income
Fees and commissions are recognised when the company satisfies the performance obligation, at fair value ofthe 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 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.
(v) Net gain/loss on fair value changes
Any differences between the fair values of financial assets classified as fair value through the profit or loss (refer Note 34), 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 ânet gains on fair value changesâ under Revenue from operations and if there is a net loss the same is disclosed under âexpensesâ in the 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. As at the reporting date, the company does not have any debt instruments measured at FVOci.
(vi) Net gain/loss on derecognition of financial instruments under amortised cost category
in case where transfer of a part of financial assets qualifies for de-recognition, any difference between the proceeds received on such sale and the carrying value of the transferred asset is recognised as gain or loss on derecognition of such financial asset previously carried under amortisation cost category is presented separately under the respective head in the statement of profit and loss. The resulting interest only strip initially is recognised at FVTPL under interest income.
(i) Finance costs
Finance costs represents interest expense recognised by applying the Effective interest Rate (EiR) to the gross carrying amount of financial liabilities other than financial liabilities classified as FVTPL.
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 is recognised in interest income with the corresponding adjustment to the carrying amount of the assets.
interest expense includes issue costs that are initially recognised as part of the carrying value of the financial liability and amortised 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
ah 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 employees of the company are entitled 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 âThe Payment of Gratuity Act, 1972â. 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 recognises 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 recognised 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 recognised 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 morta
Mar 31, 2021
lj CORPORATE INFORMATION
Shriram Transport Finance Company Limited (the Company) is a public company domiciled in India and incorporated under the provisions of the companies Act, 1956. its shares are listed on BSE limited and National Stock Exchange of india limited. The company is primarily engaged in the business of financing commercial vehicles. it also provides loans for equipment and other business purposes. The company is registered with the Reserve Bank of india (RBi), Ministry of corporate affairs and insurance Regulatory and Development authority of india (IRDA). The registration details are as follows:
RBi |
07-00459 |
corporate identity Number (ciN) |
L65191TN1979PLc007874 |
irda |
cA0197 |
The company is an associate of Shriram capital Limited.
The registered office of the company is Sri Towers, 14A, South Phase, industrial Estate, Guindy, chennai, Tamil Nadu- 600 032. The principal place of business is Wockhardt Towers, West Wing, Level-3, c-2, G-Block, Bandra -Kurla complex, Bandra (East), Mumbai, Maharashtra- 400 051.
The financial statements of the company for the year ended March 31, 2021 were approved for issue in accordance with the resolution of the Board of Directors on April 29, 2021.
BASIS OF PREPARATION
The financial statements of the company have been prepared in accordance with indian Accounting Standards (ind AS) notified under the Section 133 of the companies Act, 2013 (âthe Actâ) read with Rule 3 of the companies (indian Accounting Standards) Rules, 2015 (as amended from time to time). The financial statements 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 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 (refer note 6.1 (v)).
The preparation of financial statements 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 7 -Significant accounting judgements, estimates and assumptions.
The financial statements are presented in indian Rupees (iNR) and all values are rounded to the nearest crore, except when otherwise indicated.
PRESENTATION OF FINANCIAL STATEMENT
The financial statements 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 (MQA). 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
Derivative assets and liabilities with master netting arrangements (e.g. international Swaps and Derivative Association Arrangements) are presented net if all the above criteria are met.
STATEMENT OF COMPLIANCE
These standalone or separate financial statements of the company have been prepared in accordance with indian Accounting Standards as per the companies (indian Accounting Standards) Rules, 2015 as amended and notified under Section 133 of the companies Act, 2013 and the other relevant provisions of the Act.
The company has consistently applied accounting policies to all periods except for note 6.1 (v).
NEW ACCOUNTING STANDARDS ISSUED BUT NOT EFFECTIVE
Ministry of corporate Affairs (âMQAâ) notifies new standard or amendments to the existing standards. There is no such notification which would have been applicable from April 01, 2021.
6j SIGNIFICANT ACCOUNTING POLICIES6.1 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 cashflows of the financial assets and the companyâs 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 Companyâs 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 entityâs 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 Companyâs assessment. The business model assessment is based on reasonably expected scenarios without taking âworst caseâ or âstress caseâ scenarios into account. if cash flows after initial recognition are realised in a way that is different from the Companyâs 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.
âPrincipalâ 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 unless it has designated liabilities at fair value through the profit and loss account or is required to measure liabilities at fair value through profit or loss such as derivative liabilities.
(ii) Financial assets measured at amortised cost
Debt instruments
These financial assets comprise bank balances, Loans, Trade receivables, investments and other financial assets.
Debt instruments 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 debt instruments are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at amortised cost.
(iii) Financial assets measured at fair value through other comprehensive income
Debt instruments
Investments in debt instruments are measured at fair value through other comprehensive income 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 both collecting contractual cash flows and selling financial assets.
These debt instruments are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at fair value. Gains and losses arising from changes in fair value are included in other comprehensive income within a separate component of equity. impairment losses or reversals, interest revenue and foreign exchange gains and losses are recognised in the statement of profit and loss. upon disposal, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to the statement of profit and loss. As at the reporting date, the company does not have any financial instruments measured at fair value through other comprehensive income.
Equity instruments
investment in equity instruments that are neither held for trading nor contingent consideration recognised by the company in a business combination to which ind As 103 âBusiness combinationâ applies, are measured at fair value through other comprehensive income, where an irrevocable election has been made by management and when such instruments meet the definition of Equity under Ind AS 32 Financial Instruments: Presentation. Such classification is determined on an instrument-by-instrument basis. As at reporting date, there are no equity instruments measured at fair value through other comprehensive income (FVOCI).
Amounts presented in other comprehensive income are not subsequently transferred to the statement of profit and loss. Dividends on such investments are recognised in the statement of profit and loss.
(iv) Items at fair value through profit or loss
Items at fair value through profit or loss comprise:
⢠Investments (including equity shares) held for trading;
⢠Items specifically designated as fair value through profit or loss on initial recognition; and
⢠debt instruments with contractual terms that do not represent solely payments of principal and interest. As at the reporting date, the Company does not have any financial instruments measured at fair value through profit or loss.
Financial instruments held at fair value through profit or loss are initially recognised at fair value, with transaction costs recognised in the statement of profit and loss as incurred. Subsequently, they are measured at fair value and any gains or losses are recognised in the statement of profit and loss as they arise.
Financial instruments held for trading
A financial instrument is classified as held for trading if it is acquired or incurred principally for selling or repurchasing in the near term, or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking, or it is a derivative not in a qualifying hedge relationship.
Trading derivatives and trading securities are classified as held for trading and recognised at fair value.
Financial instruments designated as measured at fair value through profit or loss
Upon initial recognition, financial instruments may be designated as measured at fair value through profit or loss. A financial asset may only be designated at fair value through profit or loss if doing so eliminates or significantly reduces measurement or recognition inconsistencies (i.e. eliminates an accounting mismatch) that would otherwise arise from measuring financial assets or liabilities on a different basis. As at the reporting date, the Company does not have any financial instruments designated as measured at fair value through profit or loss.
A financial liability may be designated at fair value through profit or loss if it eliminates or significantly reduces an accounting mismatch or:
⢠if a host contract contains one or more embedded derivatives; or
⢠if financial assets and liabilities are both managed and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Where a financial liability is designated at fair value through profit or loss, the movement in fair value attributable to changes in the companyâs own credit quality is calculated by determining the changes in credit spreads above observable market interest rates and is presented separately in other comprehensive income. As at the reporting date, the company has not designated any financial instruments as measured at fair value through profit or loss.
A derivative is a financial instrument or other contract with all three of the following characteristics:
? Its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided that, in the case of a non-financial variable, it is not specific to a party to the contract (i.e., the âunderlyingâ).
? It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts expected to have a similar response to changes in market factors.
? It is settled at a future date.
? The Company enters into derivative transactions with various counterparties to hedge its foreign currency risks and interest rate risks. Derivative transaction consists of hedging of foreign exchange transactions, which includes interest rate and currency swaps, interest rate options and forwards. The Company undertakes derivative transactions for hedging on-balance sheet liabilities.
Hedge accounting:
Till March 31, 2020, Derivatives were initially recognised at fair value at the date the derivative contracts are entered into and were subsequently measured at their fair value at the end of each reporting period. Such derivative instruments were presented as assets in case of a fair value gain and as liabilities in case of fair value loss. Changes in the fair value of derivatives were included in net gain on fair value changes.
Effective April 01, 2020, the Company has adopted hedge accounting. The Company makes use of derivative instruments to manage exposures to interest rate risk and foreign currency risk. In order to manage particular risks, the Company applies hedge accounting for transactions that meet specified criteria. The Company has formally designated and documented the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes the Companyâs risk management objective and strategy for undertaking hedge, the hedging/economic relationship, the hedged item or transaction, the nature of the risk being hedged, hedge ratio and how the Company would assess the effectiveness of changes in the hedging instrumentâs fair value in offsetting the exposure to changes in the hedged itemâs cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an on-going basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
During the year ended March 31, 2021, hedges that meet the criteria for hedge accounting and qualify as cash flow hedges are accounted as follows:
Cash flow hedge: A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability and could affect the statement of profit and loss. For designated and qualifying cash flow hedges, the effective portion of the cumulative gain or loss on the hedging instrument is initially recognised directly in other comprehensive income as cash flow hedge reserve. The ineffective portion of the gain or loss on the hedging instrument is recognised immediately as finance cost in the statement of profit and loss. When the hedged cash flow affects the statement of profit and loss, the effective portion of the gain or loss on the hedging instrument is recorded in the corresponding income or expense line of the statement of profit and loss. When a hedging instrument expires, is sold, terminated, exercised, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss that has been recognised in OCI at that time remains in oCI and is recognised when the hedged forecast transaction is ultimately recognised in the statement of profit and loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in oCI is immediately transferred to the statement of profit and loss.
(vi) Embedded Derivatives
An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative.
If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract.
(vii) 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 transaction costs that are an integral part of the Effective Interest Rate (EIR).
(viii) Financial guarantees
Financial guarantees are initially recognised in the financial statements at fair value, being the premium received. Subsequent to initial recognition, the Companyâs liability under each guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the statement of profit and loss.
? The premium is recognised in the statement of profit and loss on a straight-line basis over the life of the guarantee.
(ix) Reclassification of financial assets and liabilities
The Company does not reclassify its financial assets subsequent to their initial recognition. Financial liabilities are never reclassified. The company did not reclassify any of its financial assets or liabilities in 2019-20 and until the year ended March 31, 2021.
(x) Recognition and Derecognition of financial assets and liabilities
Recognition
a) Loans and Advances are initially recognised when the funds are transferred to the customersâ account or delivery of assets by the dealer, whichever is earlier.
b) investments are initially recognised on the settlement 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. This includes regular way trades: purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace.
Derecognition of financial assets due to substantial modification of terms and conditions:
The Company derecognises a financial asset, such as a loan to a customer, when the terms and conditions have been renegotiated to the extent that, substantially, it becomes a new loan, with the difference recognised as a derecognition gain or loss, to the extent that an impairment loss has not already been recorded. The newly recognised loans are classified as Stage 1 for ECL measurement purposes, unless the new loan is deemed to be Purchased or Originated as Credit impaired (POCi).
if the modification does not result in cash flows that are substantially different, the modification does not result in derecognition. Based on the change in cash flows discounted at the original EiR, the Company records a modification gain or loss, to the extent that an impairment loss has not already been recorded.
Derecognition of financial assets other than due to substantial modification a) Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group ofsimilar 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, and only if, either:
i. The Company has transferred its contractual rights to receive cash flows from the financial asset, or
ii. it retains the rights to the cash flows, but has assumed an obligation to pay the received cash flows in full without material delay to a third party under a âpass-throughâ arrangement.
Pass-through arrangements are transactions whereby the Company retains the contractual rights to receive the cash flows of a financial asset (the âoriginal assetâ), but assumes a contractual obligation to pay those cash flows to one or more entities (the âeventual recipientsâ), when all of the following three conditions are met:
i. The Company has no obligation to pay amounts to the eventual recipients unless it has collected equivalent amounts from the original asset, excluding short-term advances with the right to full recovery of the amount lent plus accrued interest at market rates.
ii. The Company cannot sell or pledge the original asset other than as security to the eventual recipients.
iii. The Company has to remit any cash flows it collects on behalf of the eventual recipients without material delay. in addition, the Company is not entitled to reinvest such cash flows, except for investments in cash or cash equivalents including interest earned, during the period between the collection date and the date of required remittance to the eventual recipients.
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 Companyâs 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.
On derecognition of a financial asset in its entirety, the difference between the carrying amount (measured at the date of derecognition) and the consideration received (including any new asset obtained less any new liability assumed) is recognised in the statement of profit and loss. Accordingly, gain or loss on sale or derecognition of assigned portfolio are recorded upfront in the statement of profit and loss as per Ind As 109. AIso, the company recognises servicing income as a percentage of interest spread over tenure of loan in cases where it retains the obligation to service the transferred financial asset. As per the guidelines of RBi, the company is required to retain certain portion of the loan assigned to parties in its books as Minimum Retention Requirement (âMRRâ). Therefore, it continues to recognise the portion retained by it as MRR.
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 statement of profit and loss. As at the reporting date, the company does not have any financial liabilities which have been derecognised.
(xi) 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 fair value through profit or loss (FVTPL), together with financial guarantee contracts, in this section all referred to as âfinancial 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 monthsâ 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, depending on the nature of the underlying portfolio of financial instruments. The company has grouped its loan portfolio into Business Loans, secured loans for new vehicles, secured loans for used vehicles and Equipment Finance Loans.
The company has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instruments 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 upto 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. 30 Days Past Due is considered as significant increase 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 (for e.g. any natural calamity) warrants a provision higher than as mandated under EcL methodology, the company may classify the financial asset in Stage 3 accordingly.
Credit-impaired financial assets
At each reporting date, the company assesses whether financial assets carried at amortised cost and debt financial assets carried at FVocI are credit-impaired. A financial asset is âcredit-impairedâ 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;
c) The restructuring of a loan or advance by the company on terms that the company would not consider otherwise;
d) It is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
e) The disappearance of an active market for a security because of financial difficulties.
ECL on Investment in Government securities:
The company has invested in Government of india loans. investment in Government securities are classified under stage 1. No EcL has been applied on these investments as there is no history of delay in servicing of interest/repayments. The company does not expect any delay in interest/redemption servicing in future.
Simplified approach for trade/other receivables and contract assets
The company follows âsimplified approachâ for recognition of impairment loss allowance on trade/other receivables that do not contain a significant financing component. The application of simplified approach does not require the company to track changes in credit risk. It recognises impairment loss allowance based on lifetime EcLs at each reporting date, right from its initial recognition. At every reporting date, the historical observed default rates are updated for changes in the forwardlooking estimates. For trade receivables that contain a significant financing component a general approach is followed.
Financial guarantee contracts
The companyâs liability under financial guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the statement of profit and loss, and the EGL provision. For this purpose, the company estimates EcLs by applying a credit conversion factor.
EcL on Debt instruments measured at fair value through oCi
The EcLs for debt instruments measured at FVOci do not reduce the carrying amount of these financial assets in the balance sheet, which remains at fair value. Instead, an amount equal to the allowance that would arise if the assets were measured at amortised cost is recognised in Oci as an accumulated impairment amount, with a corresponding charge to the statement of profit and loss. The accumulated loss recognised in Oci is recycled to the statement of profit and loss upon derecognition of the assets. As at the reporting date, the company does not have any debt instruments measured at fair value through Oci.
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 in accordance with the contract 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. The concept of PD is further explained in Note 53.
exposure at default (EAD) - The Exposure at Default is an estimate of the exposure at a future default date. The concept of EAD is further explained in Note 53.
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 company would expect to receive, including from the realisation of any collateral. it is usually expressed as a percentage of the EAD. The concept of LGD is further explained in Note 53.
Forward looking information
While estimating the expected credit losses, the company reviews macro-economic developments occurring in the economy and market it operates in. On a periodic basis, the company analyses if there is any relationship between key economic trends like GDP, unemployment rates, benchmark rates set by the Reserve Bank of india, inflation etc. with the estimate of PD, LGD determined by the company based on its internal data. While the internal estimates of PD, LGD rates by the company may not be always reflective of such relationships, temporary overlays, if any, are embedded in the methodology to reflect such macro-economic trends reasonably. Refer note 63 for impact of cOViD and macro-economic factors on PD and LGD estimation.
Collateral Valuation
To mitigate its credit risks on financial assets, the company seeks to use collateral, wherever possible. The collateral comes in various forms, such as movable and immovable assets, guarantees, 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. Non-financial collateral, such as vehicles, is valued based on data provided by third parties or management judgements.
Collateral repossessed
In its normal course of business whenever default occurs, the Company may take possession of properties or other assets in its retail portfolio and generally disposes such assets through auction, to settle outstanding debt. Any surplus funds are returned to the customers/obligors. The company generally does not use the assets repossessed for the internal operations. The underlying loans in respect of which collaterals have been repossessed and not sold for more than 12 months are considered as Stage 3 assets and fully provided for net of estimated realizable value or written off. As a result of this practice, assets under legal repossession processes are not recorded on the balance sheet as it does not meet the recognition criteria in other standards and consequently the company also does not derecognise the underlying financial asset immediately on repossession.
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. Write off in case of standard accounts is done by way of waiver of last one or two instalments in case the borrower pays all the EMis as per the due dates mentioned in the agreement.
(xiii) 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 6.1(iii) to 6.1(vi)) 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 participantâs 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 instrumentâs 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. No such instances of transfers between levels of the fair value hierarchy were recorded during the reporting period.
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 deferred and is only recognised in the statement of profit and loss when the inputs become observable, or when the instrument is derecognised.
(i) Interest Income
interest income is recognised by applying the Effective interest Rate (EiR) to the gross carrying amount of financial assets other than credit-impaired assets and financial assets classified as measured at FVTPL.
The EiR in case of a financial asset is computed
a. As the rate that exactly discounts estimated future cash 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 in estimating the cash flows.
c. including all fees 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 is recognised in interest income with the corresponding adjustment to the carrying amount of the assets.
interest income on credit impaired assets is recognised by applying the effective interest rate to the net amortised cost (net of provision) of the financial asset.
interest on delayed payments by customers are treated to accrue only on realisation, due to uncertainty of realisation and are accounted accordingly.
interest spread under par structure of direct assignment of loan receivables is recognised upfront. on derecognition of the loan receivables in its entirety, the difference between the carrying amount (measured at the date of derecognition) and the consideration received (including any new asset obtained less any new liability assumed) shall be recognised upfront in the statement of profit and loss.
(ii) Dividend Income
Dividend income is recognised when the right to receive the payment is established.
(iii) Rental income
Rental income arising from operating leases is recognised on a straight-line basis over the lease term. in cases where the increase is in line with expected general inflation, rental income is recognised as per the contractual terms.
operating leases are leases where the company does not transfer substantially all of the risk and benefits of ownership of the asset.
(iv) Fees & Commission Income
Fees and commissions are recognised when the company satisfies the performance obligation, at fair value ofthe 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 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.
(v) Net gain/loss on fair value changes
Any differences between the fair values of financial assets classified as fair value through the profit or loss (refer Note 34), 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 ânet gains on fair value changesâ under Revenue from operations and if there is a net loss the same is disclosed under âExpensesâ in the 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. As at the reporting date, the company does not have any financial instruments measured at FVTPL and debt instruments measured at FVocI.
(vi) Net gain/loss on derecognition of financial instruments under amortised cost category
in case where transfer of a part of financial assets qualifies for de-recognition, any difference between the proceeds received on such sale and the carrying value of the transferred asset is recognised as gain or loss on derecognition of such financial asset previously carried under amortisation cost category is presented separately under the respective head in the statement of profit and loss. The resulting interest only strip initially is recognised at FVTPL under interest income.
6.3 Expenses
(i) Finance costs
Finance costs represents interest expense recognised by applying the effective interest Rate (EIR) to the gross carrying amount of financial liabilities other than financial liabilities classified as FVTPL.
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 is recognised in interest income with the corresponding adjustment to the carrying amount of the assets.
interest expense includes issue costs that are initially recognised as part of the carrying value of the financial liability and amortised 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 employees of the company are entitled 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 âThe Payment of Gratuity Act, 1972â. 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 recognises 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 recognised 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 recognised 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 annually.
The company fully contributes all ascertained liabilities to The Trustees - Shriram Transport Finance company Limited Employees Group Gratuity assurance Scheme. trustees administer contributions made to the trust and contributions are invested in a scheme of insurance with the IRDA approved insurance companies.
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 recognised 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 the statement of profit and loss in subsequent periods.
Other long-term employee benefits
companyâs 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 statement of profit and loss.
The company presents the provision for compensated absences under provisions in the Balance Sheet.
(iii) Leases
The company has adopted ind AS 116 âLeasesâ with the date of initial application being April 01, 2019 (transition date). The determination of whether an arrangement is a lease, or contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or whether the arrangement conveys a right to use the asset. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a time in exchange for a consideration. The company, at the inception of a contract, assesses whether the contract is a lease or not lease. For arrangements entered into prior to April 01, 2019, the company has determined whether the arrangement contains a lease on the basis of facts and circumstances existing on the date of transition.
The companyâs lease asset classes consist of leases for office premises.
The company recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the companyâs incremental borrowing rate at the transition date in case of leases existing as on the date of transition date and in case of leases entered after transition date, incremental borrowing rate as on the date of lease commencement date. in case of existing leases, the said date would be the date of transition. it is remeasured when there is a change in future lease payments arising from a change in a rate, if the company changes its assessment of whether it will exercise an extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in the statement of profit and loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Company has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The company recognises the lease payments associated with these leases as an expense over the lease term.
In case of a sub-lease, the company accounts for its head lease and sub-lease separately.
(iv) Other income and expenses
All other income and expense are recognised 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 recognised 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
Current Tax
current tax assets and liabilities for the current a
Mar 31, 2019
1. SIGNIFICANT ACCOUNTING POLICIES
1.1 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 assetsâ cash flows and the Companyâs 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 Companyâs 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 entityâs 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 Companyâs assessment. The business model assessment is based on reasonably expected scenarios without taking âworst caseâ or âstress caseâ scenarios into account. If cash flows after initial recognition are realised in a way that is different from the Companyâs 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.
âPrincipalâ 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 unless it has designated liabilities at fair value through the profit and loss account or is required to measure liabilities at fair value through profit or loss such as derivative liabilities.
(ii) Financial assets measured at amortised cost
Debt instruments
These financial assets comprise bank balances, Loans, Trade receivables, investments and other financial assets.
Debt instruments 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 debt instruments are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at amortised cost.
(iii) Financial assets measured at fair value through other comprehensive income
Debt instruments
Investments in debt instruments are measured at fair value through other comprehensive income 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 both collecting contractual cash flows and selling financial assets.
These debt instruments are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at fair value. Gains and losses arising from changes in fair value are included in other comprehensive income within a separate component of equity. Impairment losses or reversals, interest revenue and foreign exchange gains and losses are recognised in profit and loss. Upon disposal, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to the statement of profit and loss. As at the reporting date, the Company doesnot have any financial instruments measured at fair value through other comprehensive income.
Equity instruments
Investment in equity instruments that are neither held for trading nor contingent consideration recognised by the Company in a business combination to which Ind AS 103 âBusiness Combinationâ applies, are measured at fair value through other comprehensive income, where an irrevocable election has been made by management and when such instruments meet the definition of Equity under Ind AS 32 Financial Instruments: Presentation. Such classification is determined on an instrument-by-instrument basis. As at reporting date, there are no equity instruments measured at FVOCI.
Amounts presented in other comprehensive income are not subsequently transferred to profit or loss. Dividends on such investments are recognised in profit or loss.
(iv) Items at fair value through profit or loss
Items at fair value through profit or loss comprise:
- Investments (including equity shares) held for trading;
- Items specifically designated as fair value through profit or loss on initial recognition; and
- debt instruments with contractual terms that do not represent solely payments of principal and interest. As at the reporting date, the Company doesnot have any financial instruments measured at fair value through profit or loss.
Financial instruments held at fair value through profit or loss are initially recognised at fair value, with transaction costs recognised in the statement of profit and loss as incurred. Subsequently, they are measured at fair value and any gains or losses are recognised in the statement of profit and loss as they arise.
Financial instruments held for trading
A financial instrument is classified as held for trading if it is acquired or incurred principally for selling or repurchasing in the near term, or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking, or it is a derivative not in a qualifying hedge relationship.
Trading derivatives and trading securities are classified as held for trading and recognised at fair value.
Financial instruments designated as measured at fair value through profit or loss
Upon initial recognition, financial instruments may be designated as measured at fair value through profit or loss. A financial asset may only be designated at fair value through profit or loss if doing so eliminates or significantly reduces measurement or recognition inconsistencies (i.e. eliminates an accounting mismatch) that would otherwise arise from measuring financial assets or liabilities on a different basis. As at the reporting date, the Company doesnot have any financial instruments designated as measured at fair value through profit or loss.
A financial liability may be designated at fair value through profit or loss if it eliminates or significantly reduces an accounting mismatch or:
- if a host contract contains one or more embedded derivatives; or
- if financial assets and liabilities are both managed and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Where a financial liability is designated at fair value through profit or loss, the movement in fair value attributable to changes in the Companyâs own credit quality is calculated by determining the changes in credit spreads above observable market interest rates and is presented separately in other comprehensive income. As at the reporting date, the Company has not designated any financial instruments as measured at fair value through profit or loss.
(v) Derivatives
A derivative is a financial instrument or other contract with all three of the following characteristics:
- Its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided that, in the case of a non-financial variable, it is not specific to a party to the contract (i.e., the âunderlyingâ).
- It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts expected to have a similar response to changes in market factors.
- It is settled at a future date.
The Company enters into derivative transactions with various counterparties to hedge its foreign currency risks and interest rate risks. Derivative transaction consists of hedging of foreign exchange transactions, which includes interest rate and currency swaps, interest rate options and forwards. The Company undertakes derivative transactions for hedging on-balance sheet liabilities. Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. The notional amount and fair value of such derivatives are disclosed separately. Changes in the fair value of derivatives are included in net gain on fair value changes.
(vi) Embedded Derivatives
An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative.
If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract.
(vii) 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 transaction costs that are an integral part of the Effective Interest Rate (EIR).
(viii) Financial guarantees
Financial guarantees are initially recognised in the financial statements at fair value, being the premium received. Subsequent to initial recognition, the Companyâs liability under each guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the statement of profit and loss.
- The premium is recognised in the statement of profit and loss on a straight-line basis over the life of the guarantee.
(ix) Reclassification of financial assets and liabilities
The Company does not reclassify its financial assets subsequent to their initial recognition. Financial liabilities are never reclassified. The Company did not reclassify any of its financial assets or liabilities in 2017-18 and until the year ended March 31, 2019.
(x) Recognition and Derecognition of financial assets and liabilities Recognition:
a) Loans and Advances are initially recognised when the funds are transferred to the customersâ account or delivery of assets by the dealer, whichever is earlier.
b) Investments are initially recognised on the settlement 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. This includes regular way trades: purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.
Derecognition of financial assets due to substantial modification of terms and conditions:
The Company derecognises a financial asset, such as a loan to a customer, when the terms and conditions have been renegotiated to the extent that, substantially, it becomes a new loan, with the difference recognised as a derecognition gain or loss, to the extent that an impairment loss has not already been recorded. The newly recognised loans are classified as Stage 1 for ECL measurement purposes, unless the new loan is deemed to be Purchased or Originated as Credit Impaired (POCI).
If the modification does not result in cash flows that are substantially different, the modification does not result in derecognition. Based on the change in cash flows discounted at the original EIR, the Company records a modification gain or loss, to the extent that an impairment loss has not already been recorded.
Derecognition of financial assets other than due to substantial modification
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, and only if, either:
i. The Company has transferred its contractual rights to receive cash flows from the financial asset, or
ii. It retains the rights to the cash flows, but has assumed an obligation to pay the received cash flows in full without material delay to a third party under a âpass-throughâ arrangement.
Pass-through arrangements are transactions whereby the Company retains the contractual rights to receive the cash flows of a financial asset (the âoriginal assetâ), but assumes a contractual obligation to pay those cash flows to one or more entities (the âeventual recipientsâ), when all of the following three conditions are met:
i. The Company has no obligation to pay amounts to the eventual recipients unless it has collected equivalent amounts from the original asset, excluding short-term advances with the right to full recovery of the amount lent plus accrued interest at market rates.
ii. The Company cannot sell or pledge the original asset other than as security to the eventual recipients
iii. The Company has to remit any cash flows it collects on behalf of the eventual recipients without material delay. In addition, the Company is not entitled to reinvest such cash flows, except for investments in cash or cash equivalents including interest earned, during the period between the collection date and the date of required remittance to the eventual recipients.
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 Companyâs 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 profit or loss. As at the reporting date, the Company does not have any financial liabilities which have been derecognised.
(xi) 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 âfinancial instrumentsâ. 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 monthsâ expected credit loss as outlined in Note 5.6.2).
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, depending on the nature of the underlying portfolio of financial instruments. The Company has grouped its loan portfolio into Business Loans, Secured loans for new vehicles, Secured loans for used vehicles and Equipment Finance Loans and large borrowers with exposure over Rs. 1 crore.
The Company has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrumentâs 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 upto 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. 30 Days Past Due is considered as significant increase 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 (for eg. any natural calamity) warrants a provision higher than as mandated under ECL methodology, the Company may classify the financial asset in Stage 3 accordingly.
Credit-impaired financial assets:
At each reporting date, the company assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI are credit-impaired. A financial asset is âcredit-impairedâ 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;
c) The restructuring of a loan or advance by the company on terms that the company would not consider otherwise;
d) It is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
e) The disappearance of an active market for a security because of financial difficulties.
Financial guarantee contracts
The Companyâs liability under financial guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the statement of profit and loss, and the ECL provision. For this purpose, the Company estimates ECLs by applying a credit conversion factor.
ECL on Debt instruments measured at fair value through OCI
The ECLs for debt instruments measured at FVOCI do not reduce the carrying amount of these financial assets in the balance sheet, which remains at fair value. Instead, an amount equal to the allowance that would arise if the assets were measured at amortised cost is recognised in OCI as an accumulated impairment amount, with a corresponding charge to profit or loss. The accumulated loss recognised in OCI is recycled to the profit and loss upon derecognition of the assets. As at the reporting date, the Company does not have any debt instruments measured at fair value through OCI.
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 in accordance with the contract 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. The concept of PD is further explained in Note 54.
Exposure at Default(EAD) - The Exposure at Default is an estimate of the exposure at a future default date. The concept of EAD is further explained in Note 54.
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 Company would expect to receive, including from the realisation of any collateral. It is usually expressed as a percentage of the EAD. The concept of LGD is further explained in Note 54.
Forward looking information
While estimating the expected credit losses, the Company reviews macro-economic developments occurring in the economy and market it operates in. On a periodic basis, the Company analyses if there is any relationship between key economic trends like GDP, unemployment rates, benchmark rates set by the Reserve Bank of India, inflation etc. With the estimate of PD, LGD determined by the Company based on its internal data. While the internal estimates of PD, LGD rates by the Company may not be always reflective of such relationships, temporary overlays, if any, are embedded in the methodology to reflect such macro-economic trends reasonably.
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 movable and immovable assets, guarantees, 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. Non-financial collateral, such as vehicles, is valued based on data provided by third parties or management judgements.
Collateral repossessed
In its normal course of business whenever default occurs, the Company may take possession of properties or other assets in its retail portfolio and generally disposes such assets through auction, 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.
(xii) 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.
(xiii)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 5.1(iii) to 5.1(vi)) 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 participantâs 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 instrumentâs 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. No such instances of transfers between levels of the fair value hierarchy were recorded during the reporting period.
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 deferred and is only recognised in profit or loss when the inputs become observable, or when the instrument is derecognised.
1.2 Revenue from operations
(i) Interest Income
Interest income is recognised by applying the Effective Interest Rate (EIR) to the gross carrying amount of financial assets other than credit-impaired assets and financial assets classified as measured at FVTPL.
The EIR in case of a financial asset is computed
a. As the rate that exactly discounts estimated future cash 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 in estimating the cash flows.
c. Including all fees 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 is recognised in interest income with the corresponding adjustment to the carrying amount of the assets.
Interest income on credit impaired assets is recognised by applying the effective interest rate to the net amortised cost (net of provision) of the financial asset.
(ii) Dividend Income
Dividend income is recognised
a. When the right to receive the payment is established,
b. it is probable that the economic benefits associated with the dividend will flow to the entity and
c. the amount of the dividend can be measured reliably
(iii) Rental Income
Rental income arising from operating leases is recognised on a straight-line basis over the lease term. In cases where the increase is in line with expected general inflation rental income is recognised as per the contractual terms.
Operating leases are leases where the Company does not transfer substantially all of the risk and benefits of ownership of the asset.
(iv) 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 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.
(v) Net gain on Fair value changes
Any differences between the fair values of financial assets classified as fair value through the profit or loss (refer Note 35), 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 âNet gains on fair value changesâunder Revenue from operations and if there is a net loss the same is disclosed under âExpensesâ in the 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. As at the reporting date the Company does not have any financial instruments measured at FVTPL and debt instruments measured at FVOCI.
However, net gain / loss on derecognition of financial instruments classified as amortised cost is presented separately under the respective head in the Statement of Profit and Loss.
1.3 Expenses
(i) Finance costs
Finance costs represents Interest expense recognised by applying the Effective Interest Rate (EIR) to the gross carrying amount of financial liabilities other than financial liabilities classified as FVTPL.
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 is recognised in interest income with the corresponding adjustment to the carrying amount of the assets.
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 employees of the Company are entitled 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 âThe Payment of Gratuity Act, 1972â. 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 annually.
The Company fully contributes all ascertained liabilities to The Trustees - Shriram Transport Finance Company Limited Employees Group Gratuity Assurance Scheme. Trustees administer contributions made to the trust and contributions are invested in a scheme of insurance with the IRDA approved Insurance Companies.
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. Remeasurements are not reclassified to profit and loss in subsequent periods.
Other long-term employee benefits
Companyâs 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 Statement of Profit and Loss.
The Company presents the provision for compensated absences under provisions in the Balance Sheet.
(iii) Rent Expense
Identification of Lease:
The determination of whether an arrangement is a lease, or contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or whether the arrangement conveys a right to use the asset.
For arrangements entered into prior to April 01, 2017 the Company has determined whether the arrangement contain lease on the basis of facts and circumstances existing on the date of transition.
Recognition of lease payments:
Rent Expenses representing operating lease payments are recognised as an expense in the statement of profit and loss on a straight-line basis over the lease term, unless the increase is in line with expected general inflation, in which case lease payments are recognised based on contractual terms.
Leases that do not transfer to the Company substantially all of the risks and benefits incidental to ownership of the leased items are operating leases.
(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 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, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities are realised simultaneously.
Minimum Alternate Tax (MAT)
Minimum alternate tax (MAT) paid in a year is charged to the statement of profit and loss as current tax. The Company recognizes MAT credit available as an asset only to the extent that it is probable that the Company will pay normal income tax during the specified period, i.e., the period for which MAT credit is allowed to be carried forward. In the year in which the Company recognizes MAT credit as an asset in accordance with the Guidance Note on Accounting for Credit Available in respect of Minimum Alternative Tax under the Income-tax Act, 1961, the said asset is created by way of credit to the statement of profit and loss and shown as âMAT Credit Entitlement.â The Company reviews the MAT Credit Entitlement asset at each reporting date and writes down the asset to the extent the Company does not have convincing evidence that it will pay normal tax during the specified period.
Goods and services 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/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.
1.4 Foreign currency translation
(i) Functional and presentational currency
The standalone financial statements are presented in Indian Rupees which is also functional currency of the Company and the currency of the primary economic environment in which the Company operates.
(ii) Transactions and balances
Initial recognition:
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.
Conversion:
Monetary assets and liabilities denominated in foreign currency, which are outstanding as at the reporting date, are translated at the reporting date at the closing exchange rate and the resultant exchange differences are recognised in the Statement of Profit and Loss.
Non-monetary items that are measured at historical cost in a foreign currency are translated using the spot exchange rates as at the date of recognition.
1.5 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, cheques on hand and balances with banks. 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.
1.6 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 Companies Act, 2013 except for Leasehold improvements which are amortised on a straight line basis over the period of lease or estimated period of useful life of such improvement, subject to a maximum period of 60 months. Leasehold improvements include all expenditure incurred on the leasehold premises that have future economic benefits. Land is not depreciated.
The estimated useful lives are as follows:
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 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.
1.7 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 statement of profit and loss. Amortisation on assets acquired/sold during the year is recognised on a pro-rata basis to the 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 3 years, unless it has a shorter useful life.
The Companyâs intangible assets consist of computer software with definite life.
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 Statement of Profit and Loss when the asset is derecognised.
1.8 Investment Property
Properties, held to earn rentals and/or capital appreciation are classified as investment property and measured and reported at cost, including transaction costs. For transition to Ind AS, the company has elected to adopt as deemed cost, the carrying value of investment property as per Indian GAAP less accumulated depreciation and cumulative impairment, (if any) as on the transition date of April 01, 2017.
Depreciation is recognised using straight line method so as to write off the cost of the investment property less their residual values over their useful lives specified in Schedule II to the Companies Act, 2013 or in case of assets where the useful life was determined by technical evaluation, over the useful life so determined. Depreciation method is reviewed at each financial year end to reflect the expected pattern of consumption of the future benefits embodied in the investment property. The estimated useful life and residual values are also reviewed at each financial year end and the effect of any change in the estimates of useful life/residual value is accounted on prospective basis.
An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of property is recognised in the Statement of Profit and Loss in the same period.
1.9 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 statement of profit and loss net of any reimbursement. As at reporting date, the Company does not have any such provisions where the effect of time value of money is material.
1.10 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 statements.
1.11 Earning 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.
Mar 31, 2018
(a) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting year end. Although these estimates are based upon managementâs best knowledge of current events and actions, actual results could differ from these estimates. Any revisions to the accounting estimates are recognised prospectively in the current and future years.
(b) 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.
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. The carrying amount of an item of PPE is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The gain/ loss arising from derecognition of an item of PPE is included in the Statement of Profit and Loss. The gain or loss arising from the derecognition of an item of PPE would be the difference between the net disposal proceeds, if any, and the carrying amount of the item.
The residual value, useful life and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if required.
(c) Depreciation
Depreciation on cost of PPE is provided on straight line method at estimated useful life, which is in line with the estimated useful life as specified in Schedule II of the Companies Act, 2013. Leasehold improvements include all expenditure incurred on the leasehold premises that have future economic benefits. Leasehold Improvements are amortised on a straight line basis over the period of lease or estimated period of useful life of such improvement, subject to a maximum period of 60 months.
(d) Intangible assets and amortisation
Intangible assets are carried at cost less accumulated amortisation and impairment losses, if any. 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. Intangible assets comprising of software are amortised on a straight line basis over a period of 3 years, unless it has a shorter useful life.
Amortisation on assets acquired/sold during the year is recognised on a pro-rata basis to the Statement of Profit and Loss from/upto the date of acquisition/sale.
The amortisation period and the amortisation method are reviewed at least at each financial year end. If the expected useful life of the asset is significantly different from previous estimates, the amortisation period is changed accordingly. 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 Statement of Profit and Loss when the asset is derecognised.
(e) Impairment of 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 recognised 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.
After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life.
A previously recognised impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation if there was no impairment. The reversal of impairment is recognised in Statement of Profit and Loss, unless the same is carried at revalued amount and treated as revaluation reserve.
(f) Investments
On initial recognition, all investments are measured at cost. The cost comprises purchase price and directly attributable acquisition charges such as brokerage, fees and duties.
Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as âcurrent investmentsâ. All other investments are classified as âlong term investmentsâ.
âLong term investmentsâ are carried at acquisition/amortised cost. A provision is made for diminution other than temporary on an individual basis.
âCurrent Investmentsâ are carried at the lower of cost or fair value on an individual basis.
Profit or loss on sale of investments is recorded on transfer of title from the Company and is determined as the difference between the sales price and the carrying value of the investment.
Any premium or discount on acquisition is amortised over the remaining maturity of the security on constant yield to maturity basis. Such amortisation of premium/discount is adjusted against interest income from investments. The book value of the investment is reduced to the extent of amount amortised during the relevant accounting year.
Investment in buildings, which is not intended to be occupied substantially for use by, or in the operations of, the Company, is classified as investment property. Investment properties are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Depreciation on building component of investment property is calculated on a straight-line basis using the rate arrived at based on the useful life as prescribed as per the Schedule II of the Companies Act, 2013.
(g) Loans
Loans are stated at the amount advanced including finance charges accrued and expenses recoverable, up to the Balance Sheet date as reduced by the amounts received and loans securitized.
(h) Securitisation/direct assignment
The Company enters into arrangements for sale of loan receivables through direct assignment/securitisation. The said assets are derecognised upon transfer of significant risks and rewards to the purchaser and on meeting the true sale criteria.
(i) Provisioning/write off of assets
The Company assesses all loans and receivables for their recoverability and makes provision for Non-performing assets (NPA)/restructured assets as considered necessary based on past experience, emerging trends and estimates, subject to the minimum provision required as per Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 (âRBI Master Directionâ) as and when amended.
NPA loans where underlying asset has been repossessed are provided in full. Provision on standard assets is made as per RBI Master Direction.
Delinquencies on assets securitised/assigned are provided for based on management estimates.
(j) Foreign currency transactions Initial recognition
Foreign currency transactions are recorded in the reporting currency which is Indian Rupee, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.
Conversion
Monetary assets and liabilities in foreign currency, which are outstanding as at the year-end, are translated at the year-end at the closing exchange rate and the resultant exchange differences are recognised in the Statement of Profit and Loss. Non-monetary foreign currency items are carried at cost.
Exchange Differences
Exchange differences arising on the settlement of monetary items or on reporting monetary items of the Company at rates different from those at which they were initially recorded during the year, or reported in previous financial statements, are recognised as income or as expenses in the year in which they arise.
Forward contracts
The premium or discount arising at the inception of forward exchange contract is amortised and recognised as an expense/income over the life of the contract. Exchange differences on such contracts are recognised in the Statement of Profit and Loss in the period in which the exchange rates change. Any profit or loss arising on cancellation or renewal of such forward exchange contract is also recognised as income or expense for the period.
(k) Revenue/income recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured.
Income from financing activities
- Income from financing activities is recognised on the basis of internal rate of return on time proportion basis. All other charges relating to financing activities are recognised on accrual basis.
- Income recognised and remaining unrealised after installments become overdue for 90 days or more in case of secured/ unsecured loans are reversed and are accounted as income when these are actually realised.
- Additional finance charges/additional interest are treated to accrue only on realisation, due to uncertainty of realisation and are accounted accordingly.
- Income from application and processing fees, including recovery of documentation charges are recognised upfront at the inception of the contract.
- Subvention income is recognised as income over the tenor of the loan agreements. For the agreements foreclosed/transferred through assignment, balance of subvention income is recognised as income at the time of such foreclosure/transfer through assignment.
Income from securitisation
- Interest spread under par structure of securitisation/direct assignment of loan receivables is recognised on realisation over the tenure of the âsecurities issued by SPVâ /agreements.
- Loss (if any)/expenditure in relation to securitisation/direct assignment is recognised upfront.
Income from investments
- Interest income on fixed deposits/margin money, call money (Collateralised borrowing and lending obligation), certificate of deposits, pass through certificates, subordinated debts, non-convertible debentures, government securities, inter-corporate deposits and treasury bills are recognised on a time proportion basis taking into account the amount outstanding and the rate applicable. Discount, if any, on government and other securities acquired as longterm investments is recognised on a time proportion basis over the tenure of the securities.
- Dividend income on investments is recognised as income when right to receive payment is established by the date of Balance Sheet.
- Profit/loss on the sale of investments is computed on the basis of weighted average cost of investments and recognised at the time of actual sale/redemption.
Income from any other activities
- Income from services is recognised as per the terms of the contract on accrual basis.
- Income from guarantee commission is recognised on a time proportion basis taking into account the amount outstanding and the commission rate applicable.
(l) 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
Defined Contribution schemes
All the employees of the Company are entitled 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.
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 âThe Payment of Gratuity Act, 1972â. 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.
The Company fully contributes all ascertained liabilities to The Trustees - Shriram Transport Finance Company Limited Employees Group Gratuity Assurance Scheme. Trustees administer contributions made to the trust and contributions are invested in a scheme of insurance with the IRDA approved Insurance Companies.
The Company recognises the net obligation of the gratuity plan in the Balance Sheet as an asset or liability, respectively in accordance with AS-15 âEmployee Benefitsâ. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the Statement of Profit and Loss in the period in which they arise.
Other long term employee benefits
Companyâs 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 Statement of Profit and Loss.
The Company presents the entire leave as a current liability in the Balance Sheet, since it does not have an unconditional right to defer its settlement for twelve months after the reporting date.
(m) Leases
Where the Company is the lessee:
Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognised as an expense in the Statement of Profit and Loss on a straight-line basis over the lease term.
Where the Company is the lessor:
Assets given on operating leases are included in Investment property. Lease income is recognised in the Statement of Profit and Loss on a straight-line basis over the lease term. Costs, including depreciation incurred in earning rental income are recognised as an expense in the Statement of Profit and Loss. Initial direct costs such as legal costs, brokerage costs, etc. are recognised immediately in the Statement of Profit and Loss.
(n) Taxation
Income-tax expense comprises current tax, deferred tax charge or credit and minimum alternate tax (MAT).
Current tax
Current income-tax is measured at the amount expected to be paid to the tax authorities after considering tax allowances, deductions and exemptions determined in accordance with Income Tax Act, 1961 and the prevailing tax laws. The tax rate and laws used to compute the amount are those which are enacted at the reporting date.
Minimum alternate tax
Minimum alternate tax (MAT) obligation in accordance with the tax laws, which give rise to future economic benefits in the form of adjustment of future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal tax during the specified period. Accordingly, it is recognised as an asset in the Balance Sheet when it is probable that the future economic benefit associated with it will flow to the Company and the asset can be measured reliably, and reviewed at each reporting date.
Deferred tax
Deferred tax liability or asset is recognised for timing differences between the profits/losses offered for income tax and profits/losses as per the financial statements. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted at the Balance Sheet date.
Deferred tax asset is recognised only to the extent there is reasonable certainty that the assets can be realized in future; however, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax asset is recognised only if there is a virtual certainty of realization of such asset. Deferred tax asset is reviewed as at each Balance Sheet date and written down or written up to reflect the amount that is reasonably/virtually certain to be realized.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred taxes relate to the same taxable entity and the same taxation authority.
(o) Provisions and contingencies
A provision is recognised when an enterprise has a present obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to their present values and are determined based on management estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current management estimates.
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 recognised 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 recognised because it cannot be measured reliably. The company does not recognise a contingent liability but discloses its existence in the financial statements.
When there is an obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
(p) Earnings per share
Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period.
Diluted earnings per share are calculated after adjusting effects of potential equity shares (PES). PES are those shares which will convert into equity shares at a later stage. Profit/loss is adjusted by the expenses incurred on such PES. Adjusted profit/loss is divided by the weighted average number of ordinary plus potential equity shares.
(q) Borrowing cost
Borrowing cost includes interest, amortisation of ancillary costs incurred in connection with the arrangement of borrowings and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Borrowing costs to the extent related/attributable to the acquisition/construction of assets that takes substantial period of time to get ready for their intended use are capitalized along with the respective fixed asset up to the date such asset is ready for use. Other borrowing costs are charged to the Statement of Profit and Loss in the period they occur.
(r) Cash and cash equivalents
Cash and cash equivalents for the purposes of cash flow statement comprise cash at bank and in hand and short term investments with an original maturity of three months or less.
(s) Debenture issue expenses
Public issue expenses, other than the brokerage, incurred on issue of debentures are charged off on a straight-line basis over the weighted average tenor of underlying debentures. The brokerage incurred on issue of debentures is treated as expenditure in the year in which it is incurred.
Expenses incurred for private placement of debentures, are charged to Statement of Profit and Loss in the year in which they are incurred.
Mar 31, 2017
1. CORPORATE INFORMATION
Shriram Transport Finance Company Limited (the Company) is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on BSE Limited and National Stock Exchange of India Limited. The Company provides finance for commercial vehicles, equipments and other loans.
The Company is registered with the Reserve Bank of India (RBI), Ministry of Corporate Affairs and Insurance Regulatory and Development Authority of India (IRDA). The registration details are as follows:
2. BASIS OF PREPARATION
The financial statements have been prepared in conformity with generally accepted accounting principles to comply in all material respects with the notified Accounting Standards (âASâ) under section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 and the Companies (Accounting Standards) Amendment Rules, 2016 and the guidelines issued by the Reserve Bank of India (âRBIâ) as applicable to a Non-Banking Finance Company (âNBFCâ). The financial statements have been prepared under the historical cost convention on an accrual basis. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year except for the change in accounting policy explained below. The complete financial statements have been prepared along with all disclosures.
2.1 Significant accounting policies
(a) Change in accounting policy Accounting for proposed dividend
As per the requirements of pre-revised AS 4, the Company used to create a liability for dividend proposed/declared after the Balance Sheet date if dividend related to periods covered by the financial statements. Going forward, as per AS 4(R), the Company cannot create provision for dividend proposed/declared after the Balance Sheet date unless a statute requires otherwise. Rather, Company will need to disclose the same in notes to the financial statements. Accordingly, the Company has disclosed dividend proposed by board of directors after the Balance Sheet date in the notes.
Had the Company continued with creation of provision for proposed dividend, its surplus in the Statement of Profit and Loss would have been lower by Rs. 16,384.24 lacs and current provision would have been higher by Rs. 16,384.24 lacs (including dividend distribution tax of Rs. 2,771.28 lacs).
(b) Current/non-current classification of assets/liabilities
The Company has classified all its assets/liabilities into current/non-current portion based on the time frame of 12 months from the date of the financial statements. Accordingly, assets/liabilities expected to be realized/settled within
12 months from the date of financial statements are classified as current and other assets/liabilities are classified as noncurrent.
(c) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting year end. Although these estimates are based upon managementâs best knowledge of current events and actions, actual results could differ from these estimates. Any revisions to the accounting estimates are recognized prospectively in the current and future years.
(d) Fixed assets, depreciation/amortization and impairment Property, plant and equipment
Fixed assets are stated at cost less accumulated depreciation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Borrowing costs relating to acquisition of assets which takes substantial period of time to get ready for its intended use are also included to the extent they relate to the period till such assets are ready to be put to use.
Depreciation on property, plant and equipment
Depreciation on property, plant and equipment is provided on Straight Line Method (âSLMâ) using the rates arrived at based on the useful lives estimated by the management. The Company has used the following useful life to provide depreciation on its fixed assets:
Leasehold improvement is amortized on SLM over the lease term subject to a maximum of 60 months.
Depreciation on assets acquired/sold during the year is recognized on a pro-rata basis to the Statement of Profit and Loss till the date of acquisition/sale.
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition intangible assets are stated at cost less accumulated amortization and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use.
Amortization is provided on Straight Line Method (âSLMâ), which reflect the managementâs estimate of the useful life of the intangible asset.
Amortization on assets acquired/sold during the year is recognized on a pro-rata basis to the Statement of Profit and Loss till the date of acquisition/sale.
Impairment of fixed 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.
After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life.
A previously recognized impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation if there was no impairment. The reversal of impairment is recognized in Statement of Profit and Loss, unless the same is carried at revalued amount and treated as revaluation reserve.
(e) Investments
Investments intended to be held for not more than a year are classified as current investments. All other investments are classified as long-term investments. Current investments are carried at lower of cost and fair value determined on an individual investment basis. Long-term investments are carried at cost. However, provision for diminution in value is made to recognize a decline, other than temporary, in the value of the investments.
An investment in buildings, which is not intended to be occupied substantially for use by, or in the operations of, the Company, is classified as investment property. Investment properties are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Depreciation on building component of investment property is calculated on a straight-line basis using the rate arrived at based on the useful life as prescribed as per the Schedule II of the Companies Act, 2013.
(f) Provisioning/write-off of assets
Non-performing loans are written off/provided for, as per management estimates, subject to the minimum provision required as per Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 as and when amended. Delinquencies on assets securitized/assigned are provided for based on management estimates.
Provision on standard assets is made as per Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 as and when amended.
Pursuant to Reserve Bank India (RBI) notification no. DNBR 011/CGM (CDS) dated March 27, 2015, the Company has revised its recognition norms of Non-Performing Assets (NPA) from 150 days to 120 days and increased provision on standard assets from 0.30% to 0.35%. Had the Company continued to use the earlier policy of classification of NPA and provision for standard asset, provisions and write-offs for the year ended March 31, 2017 would have been lower by Rs. 36,867.13 lacs, income from operations for the same period would have been higher by Rs. 1,769.38 lacs and profit before tax for the same period would have been higher by Rs. 38,636.51 lacs (net of tax Rs. 25,265.19 lacs).
(g) Loans
Loans are stated at the amount advanced including finance charges accrued and expenses recoverable, up to the Balance Sheet date as reduced by the amounts received and loans securitized.
(h) Leases
where the Company is the lessor
Assets given on operating leases are included in fixed assets. Lease income is recognized in the Statement of Profit and Loss on a straight-line basis over the lease term. Costs, including depreciation are recognized as an expense in the Statement of Profit and Loss. Initial direct costs such as legal costs, brokerage costs, etc. are recognized immediately in the Statement of Profit and Loss.
where the Company is the lessee
Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the Statement of Profit and Loss on a straight-line basis over the lease term.
(i) Foreign currency translation Initial recognition
Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.
Conversion
Foreign currency monetary items are retranslated using the exchange rate prevailing at the reporting date. Nonmonetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. Non-monetary items, which are measured at fair value or other similar valuation denominated in a foreign currency, are translated using the exchange rate at the date when such value was determined.
Exchange differences
All exchange differences are dealt with including differences arising on translation settlement of monetary items in the Statement of Profit and Loss.
Forward exchange contracts entered into to hedge foreign currency risk of an existing asset/liability
The premium or discount arising at the inception of forward exchange contract is amortized and recognized as an expense/income over the life of the contract. Exchange differences on such contracts are recognized in the Statement of Profit and Loss in the period in which the exchange rates change. Any profit or loss arising on cancellation or renewal of such forward exchange contract is also recognized as income or expense for the period.
(j) Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured.
i. Income from financing activities is recognized on the basis of internal rate of return on time proportion basis. All other charges relating to financing activities are recognized on accrual basis.
ii. Subvention income is recognized as income over the tenor of the loan agreements. For the agreements foreclosed/transferred through assignment, balance of subvention income is recognized as income at the time of such foreclosure/transfer through assignment.
iii. Income recognized and remaining unrealized after installments become overdue for 120 days or more in case of secured/unsecured loans are reversed and are accounted as income when these are actually realized.
iv. Additional finance charges/additional interest are treated to accrue only on realization, due to uncertainty of realization and are accounted accordingly.
v. Income apportioned on securitization/direct assignment of loan receivables arising under premium structure is recognized over the tenure of securities issued by SPV/agreements. Interest spread under par structure of securitization/direct assignment of loan receivables is recognized on realization over the tenure of the âsecurities issued by SPVâ/agreements. Loss, if any/expenditure for securitization/direct assignment is recognized upfront.
vi. Interest income on fixed deposits/margin money, call money (Collaterised borrowing and lending obligation), certificate of deposits, pass through certificates, subordinated debts, non-convertible debentures, government securities, inter-corporate deposits and treasury bills are recognized on a time proportion basis taking into account the amount outstanding and the rate applicable. Discount, if any, on government and other securities acquired as long-term investments is recognized on a time proportion basis over the tenure of the securities.
vii. Dividend is recognized as income when right to receive payment is established by the date of Balance Sheet.
viii. Profit/loss on the sale of investments is computed on the basis of weighted average cost of investments and recognized at the time of actual sale/redemption.
ix. Income from services is recognized as per the terms of the contract on accrual basis.
x. Income from operating lease is recognized as rentals, as accrued on straight line basis over the period of the lease.
(k) Retirement and other employee benefits Provident fund
Retirement benefit in the form of provident fund is a defined contribution scheme. All the employees of the Company are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and the Company contribute monthly at a stipulated rate. The Company has no liability for future provident fund benefits other than its annual contribution and recognizes 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 recognized 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 recognized as an asset to the extent that the pre-payment will lead to, for example, a reduction in future payment or a cash refund.
Gratuity
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 âThe Payment of Gratuity Act, 1972â. Liabilities with regard to the Gratuity Plan are determined by actuarial valuation at each Balance Sheet date using the Projected Unit Credit Method. The Company fully contributes all ascertained liabilities to The Trustees - Shriram Transport Finance Company Limited Employees Group Gratuity Assurance Scheme. Trustees administer contributions made to the trust and contributions are invested in a scheme of insurance with the IRDA approved Insurance Companies. The Company recognizes the net obligation of the gratuity plan in the Balance Sheet as an asset or liability, respectively in accordance with AS-15 âEmployee Benefits. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in the Statement of Profit and Loss in the period in which they arise.
Leave encashment
Accumulated leave, which is expected to be utilized within the next twelve months, is treated as short-term employee benefit. The Company measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused entitlement that has accumulated at the reporting date.
The Company treats accumulated leave expected to be carried forward beyond twelve months, as long-term employee benefit for measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuation using the Projected Unit Credit Method at the reporting date. Actuarial gains/losses are immediately taken to the Statement of Profit and Loss and are not deferred.
The Company presents the entire leave as a current liability in the Balance Sheet, since it does not have an unconditional right to defer its settlement for twelve months after the reporting date.
(l) Income tax
Tax expense comprises of current tax and deferred tax. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Indian Income Tax Act, 1961 enacted in India and tax laws prevailing in the respective tax jurisdictions where the Company operates. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets are recognized for deductible timing differences only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where the Company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits.
The un-recognized deferred tax assets are re-assessed by the Company at each Balance Sheet date and are recognized to the extent that it has become reasonably certain or virtually certain, as the case may be that sufficient future taxable income will be available against which such deferred tax assets can be realized.
The carrying cost of the deferred tax assets are reviewed at each Balance Sheet date. The Company writes down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write-down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available.
Minimum Alternate Tax (MAT) paid in a year is charged to the Statement of Profit and Loss as current tax. The Company recognizes MAT credit available as an asset only to the extent that there is convincing evidence that the Company will pay normal income tax during the specified period i.e. the period for which MAT credit is allowed to be carried forward. In the year in which the Company recognizes MAT credit as an asset in accordance with the Guidance Note on Accounting for credit available in respect of MAT under the Income tax Act, 1961, the said asset is created by way of credit to the Statement of Profit and Loss and shown as âMAT credit entitlementâ. The Company reviews the âMAT credit entitlementâ asset at each reporting date and writes down the asset to the extent the Company does not have convincing evidence that it will pay normal tax during the specified period.
(m) Segment reporting policies
Identification of segments:
The Companyâs operating businesses are organized and managed separately according to the nature of products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. The analysis of geographical segments is based on the areas in which major operating divisions of the Company operate.
Unallocated items:
Unallocated items include income, expenses, assets and liabilities which are not allocated to any reportable business segment.
Segment policies :
The Company prepares its segment information in conformity with the accounting policies adopted for preparing and presenting the financial statements of the Company as a whole.
(n) Earnings per share
Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting 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.
(o) Provisions
A provision is recognized when the Company has a present obligation as a result of past event; it is probable that outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.
(p) Cash and cash equivalents
Cash and cash equivalents in the cash flow statement comprise cash at bank and in hand, cheques on hand, remittances in transit and short-term investments with an original maturity of three months or less.
(q) Equity shares and debentures issue expenses
Expenses incurred on issue of equity shares are charged to Statement of Profit and Loss on a straight line basis over a period of 10 years.
Public issue expenses, other than the brokerage, incurred on issue of debentures are charged off on a straight line basis over the weighted average tenor of underlying debentures. The brokerage incurred on issue of debentures is treated as expenditure in the year in which it is incurred.
Expenses incurred for private placement of debentures, are charged to Statement of Profit and Loss in the year in which they are incurred.
(r) Borrowing costs
Borrowing cost includes interest and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Ancillary and other borrowing costs are charged to Statement of Profit and Loss in the year in which they are incurred.
(s) Employee stock compensation costs
In accordance with Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 and the Guidance Note on Accounting for Employee Share-based Payments, issued by The Institute of Chartered Accountants of India, the Company measures compensation cost relating to employee stock options using the intrinsic value method. Compensation expense is amortized over the vesting period of the option on a straight line basis.
(t) 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 statements.
Mar 31, 2014
1. Corporate information
Shriram Transport Finance Company Limited (the Company) is a public
company domiciled in India and incorporated under the provisions of the
companies Act, 1956. Its shares are listed on Bombay Stock Exchange and
National Stock Exchange. The company provides finance for commercial
vehicles, construction equipments and other loans.
2. Basis of preparation
The financial statements have been prepared in conformity with generally
accepted accounting principles to comply in all material respects with
the notified Accounting Standards (''AS'') under provisions of the
Companies Act, 1956 (''the Act'') read with General Circular 8/2014 dated
April 04, 2014 , issued by the Ministry of Corporate Affairs and the
guidelines issued by the Reserve Bank of India (''RBI'') as applicable to
a Non Banking Finance Company (''NBFC''). The financial statements have
been prepared under the historical cost convention on an accrual basis.
The accounting policies have been consistently applied by the company
and are consistent with those used in the previous year. The complete
financial statements have been prepared along with all disclosures.
a. Current / Non-current classification of assets / liabilities
The Company has classified all its assets / liabilities into current /
non-current portion based on the time frame of 12 months from the date
of financial statements. Accordingly, assets/liabilities expected to be
realised /settled within 12 months from the date of financial statements
are classified as current and other assets/ liabilities are classified as
non-current.
b. use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
year end. Although these estimates are based upon management''s best
knowledge of current events and actions, actual results could differ
from these estimates. Any revisions to the accounting estimates are
recognised prospectively in the current and future years.
c. Fixed assets, depreciation/amortisation and impairment
Tangible fixed assets
Fixed assets are stated at cost less accumulated depreciation and
impairment losses, if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use. Borrowing costs relating to acquisition of fixed
assets which takes substantial period of time to get ready for its
intended use are also included to the extent they relate to the period
till such assets are ready to be put to use.
Depreciation on tangible fixed assets
Depreciation is provided on Straight Line Method (''SLM''), which reflect
the management''s estimate of the useful lives of the respective fixed
assets and are greater than or equal to the corresponding rates
prescribed in Schedule XIV of the Act.
Leasehold improvement is amortised on SLM over the lease term subject
to a maximum of 60 months.
All fixed assets individually costing Rs. 5,000/- or less are fully
depreciated in the year of installation.
Depreciation on assets acquired/sold during the year is recognised on a
pro-rata basis to the statement of profit and loss till the date of
acquisition/sale.
intangible assets
Intangible assets are stated at cost less accumulated amortisation and
impairment losses, if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use.
Amortisation provided on straight line method (SLM), which reflect the
management''s estimate of the useful life of the intangible asset.
particulars rates (SLm)
Computer software 33.33%
Amortisation on assets acquired/sold during the year is recognised on a
pro-rata basis to the statement of profit and loss till the date of
acquisition/sale.
impairment of 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 recognised 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.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
A previously recognised impairment loss is increased or reversed
depending on changes in circumstances. However, the carrying value
after reversal is not increased beyond the carrying value that would
have prevailed by charging usual depreciation if there was no
impairment. The reversal of impairment is recognised in statement of
profit and loss account, unless the same is carried at revalued amount
and treated as revaluation reserve.
d. investments
Investments intended to be held for not more than a year are classified
as current investments. All other investments are classified as
long-term investments. Current investments are carried at lower of cost
and fair value determined on an individual investment basis. Long-term
investments are carried at cost. However, provision for diminution in
value is made to recognise a decline, other than temporary, in the
value of the investments.
e. Provisioning / Write-off of assets
Nonperforming loans are written off / provided for, as per management
estimates, subject to the minimum provision required as per Non-
Banking Financial (Deposit accepting or holding) Companies Prudential
Norms (Reserve Bank) Directions, 2007. Delinquencies on assets
securitised/assigned are provided for based on management estimates of
the historical data.
Provision on standard assets is made as per the notification
DNBS.PD.CC.No.207/ 03.02.002 /2010-11 issued by Reserve Bank of India.
f. Loans
Loans are stated at the amount advanced including finance charges
accrued and expenses recoverable, up to the balance sheet date as
reduced by the amounts received and loans securitised.
g. Leases
where the Company is the lessor
Assets given on operating leases are included in fixed assets. Lease
income is recognised in the statement of profit and loss on a
straight-line basis over the lease term. Costs, including depreciation
are recognised as an expense in the statement of profit and loss.
Initial direct costs such as legal costs, brokerage costs, etc. are
recognised immediately in the statement of profit and loss.
where the Company is the lessee
Leases where the lesser effectively retains substantially all the risks
and benefits of ownership of the leased items, are classified as
operating leases. Operating lease payments are recognised as an expense
in the statement of profit and loss on a straight-line basis over the
lease term.
h. Foreign Currency Translation
initial recognition
Transactions in foreign currency entered into during the year are
recorded at the exchange rates prevailing on the date of the
transaction.
Conversion
Monetary assets and liabilities denominated in foreign currency are
translated in to rupees at exchange rate prevailing on the date of the
balance sheet.
Exchange differences
All exchange differences are dealt with including differences arising
on translation settlement of monetary items in the statement of profit
and loss.
Forward exchange contracts entered into to hedge foreign currency risk
of an existing asset/liability
The premium or discount arising at the inception of forward exchange
contract is amortised and recognised as an expense/income over the life
of the contract. Exchange differences on such contracts are recognised
in the statement of profit and loss in the period in which the exchange
rates change. Any profit or loss arising on cancellation or renewal of
such forward exchange contract is also recognised as income or expense
for the period.
i. revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured.
i. Income from financing activities is recognised on the basis of
internal rate of return on time proportion basis. Income from other
charges are booked at the commencement of the contract. Service tax on
charges/fees is collected by the Company as an intermediary and
accordingly revenue is presented on net basis.
ii. Income recognised and remaining unrealised after installments
become overdue for six months or more in case of secured/unsecured
loans are reversed and are accounted as income when these are actually
realised.
iii. Additional finance charges / additional interest are treated to
accrue only on realisation, due to uncertainty of realisation and are
accounted accordingly.
iv. Income apportioned on securitisation/direct assignment of loan
receivables arising under premium structure is recognised over the
tenure of securities issued by SPV/agreements. Interest spread under
par structure of securitisation/direct assignment of loan receivables
is recognised on realisation over the tenure of the ''securities issued
by SPV'' / agreements. Loss/expenditure, if any, in respect of
securitisation /direct assignment is recognised upfront.
Unrealised gain on securitisation comprises of future interest
receivable under par structure of securitisation/ assignment.
Securitisation deferred consideration receivable comprises of Company''s
share of future interest strip receivables in case of a par structure
securitised / assigned deals.
v. Interest income on fixed deposits/margin money, call money
(Collaterised borrowing and lending obligation), certificate of
deposits, pass through certificates, subordinate debts, government
securities, inter corporate deposits and treasury bills is recognised
on a time proportion basis taking into account the amount outstanding
and the rate applicable. Discount, if any, on government and other
securities acquired as long term investments is recognised on a time
proportion basis over the tenure of the securities.
vi. Dividend is recognised as income when right to receive payment is
established by the date of balance sheet.
vii. Profit/loss on the sale of investments is computed on the basis of
weighted average cost of investments and recognized at the time of
actual sale/redemption.
viii. Income from services is recognised as per the terms of the
contract on accrual basis.
ix. Income from operating lease is recognized as rentals, as accrued on
straight line basis over the period of the lease.
j. Retirement and other employee benefits
provident Fund
All the employees of the company are entitled to receive benefits under
the provident fund, a defined contribution plan in which both the
employee and the company contribute monthly at a stipulated rate. The
company has no liability for future provident fund benefits other than
its annual contribution and recognises such contributions as an expense
in the period in which service is received.
Gratuity
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 year mentioned under ''The
Payment of Gratuity Act, 1972''. Liabilities with regard to the Gratuity
Plan are determined by actuarial valuation at each Balance Sheet Date
using the Projected Unit Credit Method. The Company fully contributes
all ascertained liabilities to The Trustees- Shriram Transport Finance
Company Limited Employees Group Gratuity Assurance Scheme. Trustees
administer contributions made to the trust and contributions are
invested in a scheme of insurance with the IRDA approved Insurance
Companies. The Company recognizes the net obligation of the gratuity
plan in the Balance Sheet as an asset or liability, respectively in
accordance with AS-15 ''Employee Benefits''. Actuarial gains and losses
arising from experience adjustments and changes in actuarial
assumptions are recognized in the Statement of Profit and Loss in the
period in which they arise.
Leave encashment
Accumulated leave, which is expected to be utilized within the next
twelve months, is treated as short-term employee benefit. The company
measures the expected cost of such absences as the additional amount
that it expects to pay as a result of the unused entitlement that has
accumulated at the reporting date.
The company treats accumulated leave expected to be carried forward
beyond twelve months, as long-term employee benefit for measurement
purposes. Such long-term compensated absences are provided for based on
the actuarial valuation using the projected unit credit method at the
reporting date. Actuarial gains/losses are immediately taken to the
statement of proft and loss and are not deferred.
The company presents the entire leave as a current liability in the
balance sheet, since it does not have an unconditional right to defer
its settlement for twelve months after the reporting date.
k. Income tax
Tax expense comprises of current tax and deferred tax. Current income
tax is measured at the amount expected to be paid to the tax
authorities in accordance with the Indian Income Tax Act, 1961.
Deferred income taxes reflects the impact of current year timing
differences between taxable income and accounting income for the year
and reversal of timing differences of earlier years. Deferred tax is
measured based on the tax rates and the tax laws enacted or
substantively enacted at the balance sheet date. Deferred tax assets
are recognised only to the extent that there is reasonable certainty
that sufficient future taxable income will be available against which
such deferred tax assets can be realised. In situations where the
Company has unabsorbed depreciation or carry forward tax losses, all
deferred tax assets are recognised only if there is virtual certainty
supported by convincing evidence that they can be realised against
future taxable profits.
The un-recognised deferred tax assets are re-assessed by the Company at
each balance sheet date and are recognised to the extent that it has
become reasonably certain or virtually certain, as the case may be that
sufficient future taxable income will be available against which such
deferred tax assets can be realised.
The carrying cost of the deferred tax assets are reviewed at each
balance sheet date. The company writes down the carrying amount of a
deferred tax asset to the extent that it is no longer reasonably
certain or virtually certain, as the case may be, that sufficient future
taxable income will be available against which deferred tax asset can
be realised. Any such write down is reversed to the extent that it
becomes reasonably certain or virtually certain, as the case may be,
that sufficient future taxable income will be available.
l. Segment reporting policies
Identification of segments:
The company''s operating businesses are organised and managed separately
according to the nature of products and services provided, with each
segment representing a strategic business unit that offers different
products and serves different markets. The analysis of geographical
segments is based on the areas in which major operating divisions of
the company operate.
unallocated items:
Unallocated items include income and expenses which are not allocated
to any reportable business segment.
Segment policies :
The Company prepares its segment information in conformity with the
accounting policies adopted for preparing and presenting the financial
statements of the Company as a whole.
m. earnings per share
Basic earnings per share is calculated by dividing the net profit or
loss for the year attributable to equity shareholders (after deducting
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
proft 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.
n. provisions
A provision is recognised when the Company has a present obligation as
a result of past event; it is probable that outflow of resources will be
required to settle the obligation, in respect of which a reliable
estimate can be made. Provisions are not discounted to its present
value and are determined based on best estimate required to settle the
obligation at the balance sheet date. These are reviewed at each
balance sheet date and adjusted to reflect the current best estimates.
o. Cash and cash equivalents
Cash and cash equivalents in the cash flow statement comprise cash at
bank and in hand, cheques on hand, remittances in transit and short
term investments with an original maturity of three months or less.
p. Equity shares and debentures issue expenses
Expenses incurred on issue of equity shares are charged to statement of
proft and loss on a straight line basis over a period of 10 years.
Public issue expenses, other than the brokerage, incurred on issue of
debentures are charged off on a straight line basis over the weighted
average tenor of underlying debentures. The brokerage incurred on issue
of debentures is treated as expenditure in the year in which it is
incurred.
Expenses incurred for private placement of debentures, are charged to
statement of profit and loss in the year in which they are incurred.
q. Borrowing costs
Borrowing cost includes interest and exchange differences arising from
foreign currency borrowings to the extent they are regarded as an
adjustment to the interest cost. Ancillary and other borrowing costs
are charged to statement of profit and loss in the year in which they
are incurred.
r. employee stock compensation costs
In accordance with the SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments, issued by The Institute
of Chartered Accountants of India, the compensation cost relating to
employee stock options is measured and recognised using intrinsic value
method. Compensation expense is amortised over the vesting period of
the option on a straight line basis.
s. Contingent liabilities
A contingent liability is a possible obligation that arises from past
events whose existence will be conformed 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 statements.
b. Terms/rights attached to equity shares
The Company has only one class of equity shares having a par value of
Rs. 10/- per share. Each holder of equity shares is entitled to one
vote per share. The dividend is subject to the approval of the
shareholders in the ensuing annual general meeting.
During the year ended March 31, 2014, the amount of per equity share
dividend recognized as distributions to equity shareholders was Rs.
7.00 ( March 31, 2013 : Rs. 7.00). Out of the total dividend declared
during the year ended March 31, 2014, amount of interim dividend paid
was Rs. 3.00 per equity share ( March 31, 2013: Rs. 3.00) and amount of
final dividend proposed was Rs. 4.00 per equity share ( March 31, 2013:
Rs. 4.00).
In the event of liquidation of the company, the holders of equity
shares will be entitled to receive remaining assets of the company,
after distribution of all preferential amounts. The distribution will
be in proportion to the number of equity shares held by the
shareholders.
c. Shares reserved for issue under options
The Company has reserved Nil (March 31, 2013: 18,800) equity shares for
issue under employee stock option scheme 2005. During the year ended
March 31, 2014, 18,800 equity shares were vested and exercised.
d. Aggregate number of equity shares issued for consideration other
than cash during the period of five years immediately preceding the
reporting date:
The company has issued total 3,712,568 equity shares (March 31 2013 :
4,069,968) during the period of five years immediately preceding the
reporting date on exercise of options granted under the employee stock
option plan (ESOP) wherein part consideration was received in form of
employee service, and includes 500,868 equity shares issued on account
of merger of Shriram Holdings (Madras) Private Limited as per note (f)
given below.
f. The Hon''ble Madras High Court sanctioned the Scheme of arrangement
for merger of Shriram Holdings (Madras) Private Limited (SHMPL) with
the company( ''the scheme'') and the scheme came into effect from
November 05,2012 when the company fled the scheme with the registrar of
companies, Tamil Nadu, Chennai. Pursuant to the scheme, the investment
of SHMPL in the share capital of the company viz. 93,371,512 fully
paid-up Equity shares of Rs.10/- each stood cancelled and the company
issued and allotted 93,872,380 new equity shares of Rs. 10/- each fully
paid-up to the shareholders of SHMPL. This resulted into increase of
Rs.50.09 lacs in the paid-up capital of the company with effect from
November 05, 2012. The merger is effective from April 01, 2012 and the
effect of the same is considered in the financial statements for the
year ended March 31, 2013.
nature of security
Secured by specific assets covered under hypothecation loan and by way
of exclusive charge and equitable mortgage of immovable property.
Debentures may be bought back subject to applicable statutory and/or
regulatory requirements, upon the terms and conditions as may be
decided by the Company.
iii) Privately placed redeemable non-convertible debenture of Rs.
3,000,000/- each Terms of repayment as on march 31, 2014 Long term
borrowing ( gross of unamortised discount on debenture of rs. nil)
Long term borrowing is Rs. Nil as on March 31, 2014
Terms of repayment as on march 31, 2013
Long term borrowing( gross of unamortised discount on debenture of rs.
nil)
Long term borrowing is Rs. Nil as on March 31, 2013
Current maturity
Current maturity is Rs. Nil as on March 31, 2013
nature of security
Secured by specific assets covered under hypothecation loan and by way
of exclusive charge and equitable mortgage of immovable property.
Debentures may be bought back subject to applicable statutory and/or
regulatory requirements, upon the terms and conditions as may be
decided by the Company.
nature of security
Secured by specific assets covered under hypothecation loan and by way
of exclusive charge and equitable mortgage of immovable property.
The funds raised from the public issue of 9,999,996 secured NCD
aggregating to Rs. 99,999.96 lacs have been utilised, after meeting the
expenditure of and related to the public issue, for various financing
activities of the Company including lending, investments and repayment
of borrowings.
Debentures may be bought back subject to applicable statutory and/or
regulatory requirements, upon the terms and conditions as may be
decided by the Company.
Subject to the provisions of The Companies Act, 1956, where the company
has fully redeemed or repurchased any Secured NCD(s), the company shall
have the right to keep such Secured NCDs in effect without
extinguishment thereof, for the purpose of resale or reissue.
The Company has bought back NCDs of Rs. 4,215.23 lacs on 12-March-2010
and Rs. 3,000.00 lacs on 27- March-2012 , Rs. 23,505.26 lacs on
28-March-2012 and as per the terms of the issue Rs. 46,923.16 lacs and
Rs. 6,439.79 lacs were redeemed on 26-August-2012 and 26-August-2013
respectively.
Put options were exercised for option III and IV on 26-August-2013 and
Rs. 2,913.86 lacs and Rs. 1,275.02 lacs respectively were paid on
1-October-2013 in compliance with the terms of issue.
nature of security
Secured by specific assets covered under hypothecation loan and by way
of exclusive charge and equitable mortgage of immovable property.
The Company has utilised the entire sum of Rs. 41,689.68 lacs raised
from public issue (net off expenses) towards asset financing activities
as per the objects stated in the prospectus for the issue.
Debentures may be bought back subject to applicable statutory and/or
regulatory requirements, upon the terms and conditions as may be
decided by the Company.
Subject to the provisions of The Companies Act, 1956, where the company
has fully redeemed or repurchased any Secured NCD(s), the company shall
have the right to keep such Secured NCDs in effect without
extinguishment thereof, for the purpose of resale or reissue.
The Company has bought back NCDs of Rs. 1,000.00 lacs on 14-July-2011
and as per the terms of the issue Rs. 7,472.34 lacs were redeemed on
1-June-2013.
Put options were exercised for option I on 1-June-2013 and Rs. 9,019.04
lacs were paid on 5-July-2013 in compliance with the terms of issue.
vi) Public issue of redeemable non-convertible debentures of Rs.
1,000/- each (2011) Terms of repayment Long term borrowing
nature of security
Secured by specific assets covered under hypothecation loan agreements
and by way of exclusive charge and equitable mortgage of immovable
property.
The Company has utilised the entire sum of Rs. 99,999.93 lacs raised
from public issue (net off expenses) towards asset financing activities
as per the objects stated in the prospectus for the issue. Debentures
may be bought back subject to applicable statutory and/or regulatory
requirements, upon the terms and conditions as may be decided by the
Company.
Subject to the provisions of The Companies Act, 1956, where the company
has fully redeemed or repurchased any Secured NCD(s), the company shall
have the right to keep such Secured NCDs in effect without
extinguishment thereof, for the purpose of resale or reissue.
Current maturity
Current maturity is Rs. Nil as on March 31, 2014 and March 31, 2013.
nature of security
Secured by specific assets covered under hypothecation loan agreements
and by way of exclusive charge and equitable mortgage of immovable
property.
The Company has utilised the entire sum of Rs. 60,000/- lacs raised
from public issue (net of expenses) towards asset financing activities
as per the objects stated in the prospectus for the issue.
Debentures may be bought back subject to applicable statutory and/or
regulatory requirements, upon the terms and conditions as may be
decided by the Company.
viii) Public issue of redeemable non-convertible debentures of Rs.
1,000/- each (2013)-1 Terms of repayment
nature of security
Secured by specify assets covered under hypothecation loan agreements
and by way of exclusive charge and equitable mortgage of immovable
property.
The Company has utilised the entire sum of Rs. 73,589.04 lacs raised
from public issue (net of expenses) towards asset financing activities
as per the objects stated in the prospectus for the issue.
Debentures may be bought back subject to applicable statutory and/or
regulatory requirements, upon the terms and conditions as may be
decided by the Company.
ix) Public issue of redeemable non-convertible debentures of Rs.
1,000/- each (2013)-2 Terms of repayment Long term borrowing
Current maturity
Current maturity is Rs. Nil as on March 31, 2014 and March 31, 2013.
nature of security
Secured by specify assets covered under hypothecation loan agreements
and by way of exclusive charge and equitable mortgage of immovable
property.
The Company has utilised the entire sum of Rs. 50,000.00 lacs raised
from public issue (net of expenses) towards asset financing activities
as per the objects stated in the prospectus for the issue.
Debentures may be bought back subject to applicable statutory and/or
regulatory requirements, upon the terms and conditions as may be
decided by the Company.
Mar 31, 2013
A. Change in accounting policy
Accounting Policy for securitisation transactions
During the year ended March 31, 2013, the Company adopted the
accounting policy for securitisation transactions, as notified by RBI
in its circular "Revisions to the Guidelines on Securitisation
Transactions" issued on August 21, 2012. Accordingly, the income from
securitisation transactions during the year ended March 31, 2013 is
lower by Rs. 529.78 Lacs on account of change in the method of deferral
of recognition of income prescribed in the revised guidelines issued by
RBI.
b. Current / Non-current classification of assets / liabilities
The Company has classified all its assets / liabilities into current /
non-current portion based on the time frame of 12 months from the date
of financial statements. Accordingly, assets/liabilities expected to be
realised /settled within 12 months from the date of financial
statements are classified as current and other assets/ liabilities are
classified as non current.
c. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
fi nancial statements and the results of operations during the
reporting year end. Although these estimates are based upon
management''s best knowledge of current events and actions, actual
results could differ from these estimates. Any revisions to the
accounting estimates are recognised prospectively in the current and
future years.
d. Tangible/Intangible Fixed Assets, Depreciation/Amortisation and
Impairment Tangible Fixed Assets
Fixed assets are stated at cost less accumulated depreciation and
impairment losses, if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use. Borrowing costs relating to acquisition of fixed
assets which takes substantial period of time to get ready for its
intended use are also included to the extent they relate to the period
till such assets are ready to be put to use.
Depreciation on tangible fixed assets
Depreciation is provided on Straight Line Method (''SLM''), which
reflect the management''s estimate of the useful lives of the
respective fixed assets and are greater than and equal to the
corresponding rates prescribed in Schedule XIV of the Act.
Leasehold improvement is amortised on SLM over the lease term subject
to a maximum of 60 months.
All fixed assets individually costing Rs. 5,000/- or less are fully
depreciated in the year of installation.
Depreciation on assets acquired/sold during the year is recognised on a
pro-rata basis to the statement of profit and loss till the date of
acquisition/sale.
Intangible assets
Intangible assets are stated at cost less accumulated amortisation and
impairment losses, if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use. Amortisation is provided on Straight Line Method
(''SLM''), which refiect the management''s estimate of the useful
life of the intangible asset.
Amortisation on assets acquired/sold during the year is recognised on a
pro-rata basis to the statement of profit and loss till the date of
acquisition/sale.
Impairment of 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 recognised 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 f i ows 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. After impairment, depreciation is
provided on the revised carrying amount of the asset over its remaining
useful life.
A previously recognised impairment loss is increased or reversed
depending on changes in circumstances. However, the carrying value
after reversal is not increased beyond the carrying value that would
have prevailed by charging usual depreciation if there was no
impairment. The reversal of impairment is recognised in statement of
profit and loss account, unless the same is carried at revalued amount
and treated as revaluation reserve.
e. Investments
Investments intended to be held for not more than a year are classified
as current investments. All other investments are classified as
long-term investments. Current investments are carried at lower of cost
and fair value determined on an individual investment basis. Long-term
investments are carried at cost. However, provision for diminution in
value is made to recognise a decline, other than temporary, in the
value of the investments.
f. Provisioning / Write-off of assets
Non performing loans are written off / provided for, as per management
estimates, subject to the minimum provision required as per Non-
Banking Financial (Deposit Accepting or Holding) Companies Prudential
Norms (Reserve Bank) Directions, 2007. Delinquencies on assets
securitised/assigned are provided for based on management estimates of
the historical data.
Provision on standard assets is made as per the notification
DNBS.PD.CC.No.207/ 03.02.002 /2010-11 issued by Reserve Bank of India.
g. Loans
Loans are stated at the amount advanced including fi nance charges
accrued and expenses recoverable, as reduced by the amounts received up
to the balance sheet date and loans securitised.
h. Leases
Where the Company is the lessor
Assets given on operating leases are included in fixed assets. Lease
income is recognised in the statement of profit and loss on a
straight-line basis over the lease term. Costs, including depreciation
are recognised as an expense in the statement of profit and loss.
Initial direct costs such as legal costs, brokerage costs, etc. are
recognised immediately in the statement of profit and loss.
Where the Company is the lessee
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased term, are classified as
operating leases. Operating lease payments are recognised as an expense
in the statement of profit and loss on a straight-line basis over the
lease term.
i. FOREIGN CURRENCY TRANSLATION Initial recognition
Transactions in foreign currency entered into during the year are
recorded at the exchange rates prevailing on the date of the
transaction.
Conversion
Monetary assets and liabilities denominated in foreign currency are
translated in to Rupees at exchange rate prevailing on the date of the
Balance Sheet.
Exchange differences
All exchange differences are dealt with including differences arising
on translation settlement of monetary items in the statement of profit
and loss.
Forward exchange contracts entered into to hedge foreign currency risk
of an existing asset/liability
The premium or discount arising at the inception of forward exchange
contract is amortised and recognised as an expense/income over the life
of the contract. Exchange differences on such contracts are recognised
in the statement of profit and loss in the period in which the exchange
rates change. Any profit or loss arising on cancellation or renewal of
such forward exchange contract is also recognised as income or expense
for the period.
j. Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured.
i. Income from financing activities is recognised on the basis of
internal rate of return. Service tax on charges/ fees is collected by
the Company as an intermediary and accordingly revenue is presented on
net basis.
ii. Income recognised and remaining unrealised after installments
become overdue for six months or more in case of secured/unsecured
loans and twelve months or more in case of financial lease transactions
are reversed and are accounted as income when these are actually
realised.
iii. Additional finance charges / additional interest are treated to
accrue only on realisation, due to uncertainty of realisation and are
accounted accordingly.
iv. Gain/Income realised on securitisation/direct assignment of loan
receivables arising under premium structure is recognised over the
tenure of securities issued by SPV/agreements. Interest Spread under
par structure of securitisation/direct assignment of loan receivables
is recognised on realisation over the tenure of the ''securities
issued by SPV'' / agreements. Loss/expenditure, if any, in respect of
securitisation /direct assignment is recognised upfront.
Unrealised gain on securitisation comprises of future interest
receivable under par structure of securitisation/ assignment.
Securitisation deferred consideration receivable comprises of
Company''s share of future interest strip receivables in case of a par
structure securitised / assigned deals.
v. Interest income on fixed deposits/margin money, call money
(Collaterised Borrowing and Lending Obligation), certificate of
deposits, pass through certificates, subordinate debts, government
securities and treasury bills is recognised on a time proportion basis
taking into account the amount outstanding and the rate applicable.
Discount, if any, on government and other securities acquired as long
term investments is recognised on a time proportion basis over the
tenure of the securities.
vi. Dividend is recognised as income when right to receive payment is
established by the date of balance sheet.
vii. Profit/loss on the sale of investments is computed on the basis of
weighted average cost of investments and recognized at the time of
actual sale/redemption.
viii. Income from services is recognised as per the terms of the
contract on accrual basis.
ix. Income from operating lease is recognized as rentals, as accrued
on straight line basis over the period of the lease.
k. Retirement and other employee benefits Provident Fund
All the employees of the Company are entitled to receive benefits under
the Provident Fund, a defined contribution plan in which both the
employee and the Company contribute monthly at a stipulated rate. The
Company has no liability for future Provident Fund benefits other than
its annual contribution and recognises such contributions as an expense
in the year it is incurred.
Gratuity
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 period mentioned under
''The Payment of Gratuity Act, 1972''. The Company accounts for
liability of future gratuity benefits based on an external actuarial
valuation on projected unit credit method carried out for assessing
liability as at the reporting date. Actuarial gains/losses are
immediately taken to the statement of profit and loss and are not
deferred.
Leave Encashment
Accumulated leave, which is expected to be utilized within the next
twelve months, is treated as short-term employee benefit. The Company
measures the expected cost of such absences as the additional amount
that it expects to pay as a result of the unused entitlement that has
accumulated at the reporting date.
The Company treats accumulated leave expected to be carried forward
beyond twelve months, as long-term employee benefit for measurement
purposes. Such long-term compensated absences are provided for based on
the actuarial valuation using the projected unit credit method at the
reporting date. Actuarial gains/losses are immediately taken to the
statement of profit and loss and are not deferred.
The Company presents the entire leave as a current liability in the
balance sheet, since it does not have an unconditional right to defer
its settlement for twelve months after the reporting date.
l. Income tax
Tax expense comprises of current tax and deferred tax. Current income
tax is measured at the amount expected to be paid to the tax
authorities in accordance with the Indian Income Tax Act, 1961.
Deferred income taxes reflects the impact of current year timing
differences between taxable income and accounting income for the year
and reversal of timing differences of earlier years. Deferred tax is
measured based on the tax rates and the tax laws enacted or
substantively enacted at the balance sheet date. Deferred tax assets
are recognised only to the extent that there is reasonable certainty
that sufficient future taxable income will be available against which
such deferred tax assets can be realised. In situations where the
Company has unabsorbed depreciation or carry forward tax losses, all
deferred tax assets are recognised only if there is virtual certainty
supported by convincing evidence that they can be realised against
future taxable profits.
The un-recognised deferred tax assets are re-assessed by the Company at
each balance sheet date and are recognised to the extent that it has
become reasonably certain or virtually certain, as the case may be that
sufficient future taxable income will be available against which such
deferred tax assets can be realised.
The carrying cost of the deferred tax assets are reviewed at each
balance sheet date. The Company writes down the carrying amount of a
deferred tax asset to the extent that it is no longer reasonably
certain or virtually certain, as the case may be, that sufficient
future taxable income will be available against which deferred tax
asset can be realised. Any such write down is reversed to the extent
that it becomes reasonably certain or virtually certain, as the case
may be, that sufficient future taxable income will be available.
m. Segment reporting policies Identification of segments:
The Company''s operating businesses are organised and managed
separately according to the nature of products and services provided,
with each segment representing a strategic business unit that offers
different products and serves different markets. The analysis of
geographical segments is based on the areas in which major operating
divisions of the Company operate.
Unallocated items:
Unallocated items include income and expenses which are not allocated
to any reportable business segment.
Segment Policies :
The Company prepares its segment information in conformity with the
accounting policies adopted for preparing and presenting the financial
statements of the Company as a whole.
n. Earnings per share
Basic earnings per share is calculated by dividing the net profit or
loss for the year attributable to equity shareholders (after deducting
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.
o. Provisions
A provision is recognised when the Company has a present obligation as
a result of past event; it is probable that outflow of resources will
be required to settle the obligation, in respect of which a reliable
estimate can be made. Provisions are not discounted to its present
value and are determined based on best estimate required to settle the
obligation at the balance sheet date. These are reviewed at each
balance sheet date and adjusted to reflect the current best estimates.
p. Cash and cash equivalents
Cash and cash equivalents in the cash fiow statement comprise cash at
bank and in hand, cheques on hand, remittances in transit and short
term investments with an original maturity of three months or less.
q. Equity shares and Debentures issue expenses
Expenses incurred on issue of equity shares are charged to statement of
profit and loss on a straight line basis over a period of 10 years.
Public issue expenses, other than the brokerage, incurred on issue of
debentures are charged off on a straight line basis over the weighted
average tenor of underlying debentures. The brokerage incurred on issue
of debentures is treated as expenditure in the year in which it is
incurred.
Expenses incurred for private placement of debentures, are charged to
statement of profit and loss in the year in which they are incurred.
r. Borrowing costs
Borrowing cost includes interest and exchange differences arising from
foreign currency borrowings to the extent they are regarded as an
adjustment to the interest cost. Ancillary and other borrowing costs
are charged to statement of Profit & Loss in the year in which they are
incurred.
s. Employee stock compensation costs
Measurement and disclosure of the employee share-based payment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments, issued by The Institute
of Chartered Accountants of India. The Company measures compensation
cost relating to employee stock options using the intrinsic value
method. Compensation expense is amortised over the vesting period of
the option on a straight line basis.
t. 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 statements.
Mar 31, 2012
(a) Change in accounting policy
Presentation and disclosure of financial statements
During the year ended March 31, 2012, the revised Schedule VI notified
under the Companies Act 1956, has become applicable to the Company, for
preparation and presentation of its financial statements. The adoption
of revised Schedule VI does not impact recognition and measurement
principles followed for preparation and disclosures made in the
financial statements. However, it has significant impact on
presentation and disclosures made in the financial statements. The
Company has also reclassified the previous year figures in accordance
with the requirements applicable in the current year. For further
details, refer note 34.
(b) Current / Non-current classification of assets / liabilities
Pursuant to applicability of Revised Schedule VI on presentation of
financial statements for the financial year ended March 31, 2012; the
Company has classified all its assets / liabilities into current /
non-current portion based on the time frame of 12 months from the date
of financial statements. Accordingly, assets/ liabilities expected to
be realised /settled within 12 months from the date of financial
statements are classified as current and other assets/ liabilities are
classifies as non current.
(c) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
year end. Although these estimates are based upon management's best
knowledge of current events and actions, actual results could differ
from these estimates. Any revisions to the accounting estimates are
recognised prospectively in the current and future years.
NOTE 2 BASIS OF PREPARATION (Contd.)
(d) Tangible/Intangible Fixed Assets, Depreciation/Amortisation and
Impairment Tangible Fixed Assets
Fixed assets are stated at cost less accumulated depreciation and
impairment losses, if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use. Borrowing costs relating to acquisition of fixed
assets which takes substantial period of time to get ready for its
intended use are also included to the extent they relate to the year
till such assets are ready to be put to use.
Depreciation on tangible fixed assets
Depreciation is provided on Straight Line Method ('SLM'), which
reflect the management's estimate of the useful lives of the
respective fixed assets and are greater than and equal to the
corresponding rates prescribed in Schedule XIV of the Act. During the
year, consequent to the re-assessment and reduction in the estimated
useful life of the certain items of fixed assets falling in the
category of Plant & Equipment, Office equipments, Furniture & Fixtures,
Computers and Vehicles depreciation rates are revised as follows (refer
note 33):
Leasehold improvement is amortised on SLM over the lease term subject
to a maximum of 60 months.
All fixed assets individually costing Rs. 5,000/- or less are fully
depreciated in the year of installation. Depreciation on assets
acquired/sold during the year is recognised on a pro-rata basis to the
statement of profit and loss till the date of acquisition/sale.
Intangible assets
Intangible assets are stated at cost less accumulated amortisation and
impairment losses, if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use.
Amortisation is provided on Straight Line Method ('SLM'), which
reflect the management's estimate of the useful life of the intangble
asset.
Amortisation on assets acquired/sold during the year is recognised on a
pro-rata basis to the statement of profit and loss till the date of
acquisition/sale.
Impairment of 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 recognised 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.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
A previously recognised impairment loss is increased or reversed
depending on changes in circumstances. However, the carrying value
after reversal is not increased beyond the carrying value that would
have prevailed by charging usual depreciation if there was no
impairment.
(e) Investments
Investments intended to be held for not more than a year are classified
as current investments. All other investments are classified as
long-term investments. Current investments are carried at lower of cost
and fair value determined on an individual investment basis. Long-term
investments are carried at cost. However, provision for diminution in
value is made to recognise a decline, other than temporary, in the
value of the investments.
(f) Provisioning / Write-off of assets
Non performing loans are written off / provided for, as per management
estimates, subject to the minimum provision required as per Non-
Banking Financial (Deposit Accepting or Holding) Companies Prudential
Norms (Reserve Bank) Directions, 2007. Delinquencies on assets
securitised/assigned are provided for based on management estimates of
the historical data.
Provision on standard assets is made as per the notification
DNBS.PD.CC.No.207/ 03.02.002 /2010-11 issued by Reserve Bank of India.
(g) Loans
Loans are stated at the amount advanced including finance charges
accrued and expenses recoverable, as reduced by the amounts received up
to the balance sheet date and loans securitised.
(h) Leases
Where the Company is the lessor
Assets given on operating leases are included in fixed assets. Lease
income is recognised in the statement of profit and loss on a
straight-line basis over the lease term. Costs, including depreciation
are recognised as an expense in the statement of profit and loss.
Initial direct costs such as legal costs, brokerage costs, etc. are
recognised immediately in the statement of profit and loss.
Where the Company is the lessee
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased term, are classified as
operating leases. Operating lease payments are recognised as an expense
in the statement of profit and loss on a straight-line basis over the
lease term.
(i) Foreign currency translation Initial recognition
Transactions in foreign currency entered into during the year are
recorded at the exchange rates prevailing on the date of the
transaction.
Conversion
Monetary assets and liabilities denominated in foreign currency are
translated in to Rupees at exchange rate prevailing on the date of the
Balance Sheet.
Exchange differences
All exchange differences are dealt with in the statement of profit and
loss.
Forward exchange contracts entered into to hedge foreign currency risk
of an existing asset/liability
The premium or discount arising at the inception of forward exchange
contract is amortised and recognised as an expense/income over the life
of the contract. Exchange differences on such contracts are recognised
in the statement of profit and loss in the period in which the exchange
rates change. Any profit or loss arising on cancellation or renewal of
such forward exchange contract is also recognised as income or expense
for the period.
(j) Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured.
i. Income from financing activities is recognised on the basis of
internal rate of return. Service tax on charges/ fees is collected by
the Company as an intermediary and accordingly revenue is presented on
net basis.
ii. Income recognised and remaining unrealised after installments
become overdue for six months or more in case of secured/unsecured
loans and twelve months or more in case of financial lease transactions
are reversed and are accounted as income when these are actually
realised.
iii. Additional finance charges / additional interest are treated to
accrue only on realisation, due to uncertainty of realisation and are
accounted accordingly.
iv. Gains arising on securitisation/direct assignment of assets is
recognised over the tenure of securities issued by SPV/agreements as
per guideline on securitisation of standard assets issued by RBI, loss,
if any is recognised upfront. Expenditure in respect of securitisation
/direct assignment (except bank guarantee fees for credit enhancement)
is recognised upfront. Bank gurarantee fees for credit enhancement are
amortised over the tenure of the agreements. Securitisation deferred
consideration receivable comprises of Company's share of future
interest strip receivables in case of a par structure securitised /
assigned deals.
v. Interest income on fixed deposits/margin money, call money
(Collaterised Borrowing and Lending Obligation), certificate of
deposits, pass through certificates, subordinate debts, government
securities and treasury bills is recognised on a time proportion basis
taking into account the amount outstanding and the rate applicable.
Discount, if any, on government and other securities acquired as long
term investments is recognised on a time proportion basis over the
tenure of the securities.
vi. Dividend is recognised as income when right to receive payment is
established by the date of balance sheet.
vii. Profit/loss on the sale of investments is computed on the basis of
weighted average cost of investments and recognized at the time of
actual sale/redemption.
viii. Income from operating lease is recognized as rentals, as accrued
on straight line basis over the period of the lease.
(k) Retirement and other employee benefits Provident Fund
All the employees of the Company are entitled to receive benefits under
the Provident Fund, a defined contribution plan in which both the
employee and the Company contribute monthly at a stipulated rate. The
Company has no liability for future Provident Fund benefits other than
its annual contribution and recognises such contributions as an expense
in the year it is incurred.
Gratuity
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 year mentioned under 'The
Payment of Gratuity Act, 1972'. The Company accounts for liability of
future gratuity benefits based on an external actuarial valuation on
projected unit credit method carried out for assessing liability as at
the reporting date.
Leave Encashment
Accumulated leave, which is expected to be utilized within the next
twelve months, is treated as short-term employee benefit. The Company
measures the expected cost of such absences as the additional amount
that it expects to pay as a result of the unused entitlement that has
accumulated at the reporting date.
The Company treats accumulated leave expected to be carried forward
beyond twelve months, as long-term employee benefit for measurement
purposes. Such long-term compensated absences are provided for based on
the actuarial valuation using the projected unit credit method at the
reporting date. Actuarial gains/losses are immediately taken to the
statement of profit and loss and are not deferred.
The Company presents the entire leave as a current liability in the
balance sheet, since it does not have an unconditional right to defer
its settlement for twelve months after the reporting date.
(l) Income tax
Tax expense comprises of current tax and deferred tax. Current income
tax is measured at the amount expected to be paid to the tax
authorities in accordance with the Indian Income Tax Act, 1961.
Deferred income taxes reflects the impact of current year timing
differences between taxable income and accounting income for the year
and reversal of timing differences of earlier years. Deferred tax is
measured based on the tax rates and the tax laws enacted or
substantively enacted at the balance sheet date. Deferred tax assets
are recognised only to the extent that there is reasonable certainty
that sufficient future taxable income will be available against which
such deferred tax assets can be realised. In situations where the
Company has unabsorbed depreciation or carry forward tax losses, all
deferred tax assets are recognised only if there is virtual certainty
supported by convincing evidence that they can be realised against
future taxable profits.
The un-recognised deferred tax assets are re-assessed by the Company at
each balance sheet date and are recognised to the extent that it has
become reasonably certain or virtually certain, as the case may be that
sufficient future taxable income will be available against which such
deferred tax assets can be realised.
The carrying cost of the deferred tax assets are reviewed at each
balance sheet date. The Company writes down the carrying amount of a
deferred tax asset to the extent that it is no longer reasonably
certain or virtually certain, as the case may be, that sufficient
future taxable income will be available against which deferred tax
asset can be realised. Any such write down is reversed to the extent
that it becomes reasonably certain or virtually certain, as the case
may be, that sufficient future taxable income will be available.
(m) Segment reporting policies Identification of segments:
The Company's operating businesses are organised and managed
separately according to the nature of products and services provided,
with each segment representing a strategic business unit that offers
different products and serves different markets. The analysis of
geographical segments is based on the areas in which major operating
divisions of the Company operate.
Unallocated items:
Unallocated items include income and expenses which are not allocated
to any reportable business segment Segment Policies :
The Company prepares its segment information in conformity with the
accounting policies adopted for preparing and presenting the financial
statements of the Company as a whole.
(n) Earnings per share
Basic earnings per share is calculated by dividing the net profit or
loss for the year attributable to equity shareholders (after deducting
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.
(o) Provisions
A provision is recognised when the Company has a present obligation as
a result of past event; it is probable that outflow of resources will
be required to settle the obligation, in respect of which a reliable
estimate can be made. Provisions are not discounted to its present
value and are determined based on best estimate required to settle the
obligation at the balance sheet date. These are reviewed at each
balance sheet date and adjusted to reflect the current best estimates.
(p) Cash and cash equivalents
Cash and cash equivalents in the cash flow statement comprise cash at
bank and in hand, cheques on hand, remittances in transit and short
term investments with an original maturity of three months or less.
(q) Equity shares and Debentures issue expenses
Expenses incurred on issue of equity shares are charged to statement of
profit and loss on a straight line basis over a period of 10 years.
Public issue expenses, other than the brokerage, incurred on issue of
debentures are charged off on a straight line basis over the weighted
average tenor of underlying debentures. The brokerage incurred on issue
of debentures is treated as expenditure in the year in which it is
incurred.
Expenses incurred for private placement of debentures, are charged to
statement of profit and loss in the year in which they are incurred.
(r) Borrowing costs
Borrowing cost includes interest and exchange differences arising from
foreign currency borrowings to the extent they are regarded as an
adjustment to the interest cost. Ancillary and other borrowing costs
are charged to statement of Profit & Loss in the year in which they are
incurred.
(s) Employee stock compensation costs
Measurement and disclosure of the employee share-based payment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments, issued by The Institute
of Chartered Accountants of India. The Company measures compensation
cost relating to employee stock options using the intrinsic value
method. Compensation expense is amortised over the vesting period of
the option on a straight line basis.
(t) 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 statements.
Mar 31, 2011
(a) Basis of preparation
The financial statements have been prepared in conformity with
generally accepted accounting principles to comply in all material
respects with the notifi ed Accounting Standards (AS) under Companies
Accounting Standard Rules, 2006, as amended, the relevant provisions of
the Companies Act, 1956 (the Act) and the guidelines issued by the
Reserve Bank of India (RBI) as applicable to a Non Banking Finance
Company (NBFC). The financial statements have been prepared under
the historical cost convention on an accrual basis. The accounting
policies have been consistently applied by the Company and are
consistent with those used in the previous year.
(b) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the
reporting year end. Although these estimates are based upon
managements best knowledge of current events and actions, actual
results could differ from these estimates. Any revisions to the
accounting estimates are recognised prospectively in the current and
future years.
(c) Fixed Assets, Depreciation/Amortisation and Impairment of assets
Fixed Assets
Fixed assets are stated at cost less accumulated
depreciation/amortisation and impairment losses, if any. Cost comprises
the purchase price and any attributable cost of bringing the asset to
its working condition for its intended use. Borrowing costs relating to
acquisition of fi xed assets which takes substantial period of time to
get ready for its intended use are also included to the extent they
relate to the year till such assets are ready to be put to use.
Windmills are amortised over the remaining life of the asset, the life
of windmills are estimated to be 10 years
Leasehold improvement is amortised over the lease term subject to a
maximum of 60 months.
All fi xed assets individually costing Rs. 5,000 or less are fully
depreciated in the year of installation.
Depreciation on assets sold during the year is recognised on a pro-rata
basis to the Profit and loss account till the date of sale.
Impairment of 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 recognised 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 specifi
c to the asset.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
A previously recognised impairment loss is increased or reversed
depending on changes in circumstances. However the carrying value after
reversal is not increased beyond the carrying value that would have
prevailed by charging usual depreciation if there was no impairment.
(d) Investments
Investments intended to be held for not more than a year are classifi
ed as current investments. All other investments are classifi ed as
long-term investments. Current investments are carried at lower of cost
and fair value determined on an individual investment basis. Long-term
investments are carried at cost. However, provision for diminution in
value is made to recognise a decline, other than temporary, in the
value of the investments.
(e) Provisioning / Write-off of assets
Non performing loans are written off / provided for, as per management
estimates, subject to the minimum provision required as per Non-
Banking Financial (Deposit Accepting or Holding) Companies Prudential
Norms (Reserve Bank) Directions, 2007. Delinquencies on assets
securitised are provided for based on management estimates of the
historical data.
Provision on standard assets is made as per the notifi cation
DNBS.PD.CC.No.207/ 03.02.002 /2010-11 issued by Reserve Bank of India.
(f) Hypothecation loans
Hypothecation loans are stated at the amount advanced including fi
nance charges accrued and expenses recoverable, as reduced by the
amounts received up to the balance sheet date and loans securitised.
(g) Leases
Where the Company is the lessor
Assets given on operating leases are included in fi xed assets. Lease
income is recognised in the Profit and Loss Account on a straight-line
basis over the lease term. Costs, including depreciation are recognised
as an expense in the Profit and Loss Account. Initial direct costs
such as legal costs, brokerage costs, etc. are recognised immediately
in the Profit and Loss Account.
Where the Company is the lessee
Leases where the lessor effectively retains substantially all the risks
and benefi ts of ownership of the leased term, are classifi ed as
operating leases. Operating lease payments are recognised as an expense
in the Profit and Loss account on a straight-line basis over the lease
term.
(h) Foreign currency translation
Initial recognition
Transactions in foreign currency entered into during the year are
recorded at the exchange rates prevailing on the date of the
transaction.
Conversion
Monetary assets and liabilities denominated in foreign currency are
translated in to Rupees at exchange rate prevailing on the date of the
Balance Sheet.
Exchange differences
All exchange differences are dealt with in the Profit and loss
account.
(i) Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefi ts will flow to the Company and the revenue can be
reliably measured.
i. Income from financing activities is recognised on the basis of
internal rate of return.
ii. Income recognised and remaining unrealised after installments
become overdue for six months or more in case of secured/unsecured
loans and twelve months or more in case of financial lease
transactions are reversed and are accounted as income when these are
actually realised.
iii. Additional finance charges / additional interest are treated to
accrue only on realisation, due to uncertainty of realisation and are
accounted accordingly.
iv. Gains arising on securitisation/direct assignment of assets is
recognised over the tenure of agreements as per guideline on
securitisation of standard assets issued by RBI, loss, if any is
recognised upfront.
v. Income from services is recognised as per the terms of the contract
on an accrual basis.
vi. Interest income on fi xed deposits/margin money, call money (CBLO),
certifi cate of deposits, pass through certifi cates, subordinate debts
and treasury bills is recognised on a time proportion basis taking into
account the amount outstanding and the rate applicable.
vii. Dividend is recognised as income when right to receive payment is
established by the date of balance sheet.
viii. Profit/loss on the sale of investments is recognized at the
time of actual sale/redemption.
ix. Income from operating lease is recognized as rentals, as accrued on
straight line basis over the period of the lease.
(j) Employee benefi ts
Provident Fund
All the employees of the Company are entitled to receive benefi ts
under the Provident Fund, a defi ned contribution plan in which both
the employee and the Company contribute monthly at a stipulated rate.
The Company has no liability for future Provident Fund benefi ts other
than its annual contribution and recognises such contributions as an
expense in the year it is incurred.
Gratuity
The Company provides for the gratuity, a defi ned benefi t 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 year mentioned under The
Payment of Gratuity Act, 1972. The Company accounts for liability of
future gratuity benefi ts based on an external actuarial valuation on
projected unit credit method carried out for assessing liability as at
the reporting date.
Leave Encashment
Short term compensated absences are provided for based on estimates.
Long term compensated absences are provided for based on actuarial
valuation. The actuarial valuation is done as per projected unit credit
method as at the reporting date.
Actuarial gains/losses are immediately taken to Profit and loss
account and are not deferred.
(k) Income tax
Tax expense comprises of current tax and deferred tax. Current income
tax is measured at the amount expected to be paid to the tax
authorities in accordance with the Indian Income Tax Act, 1961.
Deferred income taxes reflects the impact of current year timing
differences between taxable income and accounting income for the year
and reversal of timing differences of earlier years. Deferred tax is
measured based on the tax rates and the tax laws enacted or
substantively enacted at the balance sheet date. Deferred tax assets
are recognised only to the extent that there is reasonable certainty
that sufficient future taxable income will be available against which
such deferred tax assets can be realised. In situations where the
Company has unabsorbed depreciation or carry forward tax losses, all
deferred tax assets are recognised only if there is virtual certainty
supported by convincing evidence that they can be realised against
future taxable Profits.
The un-recognised deferred tax assets are re-assessed by the Company at
each balance sheet date and are recognised to the extent that it has
become reasonably certain or virtually certain, as the case may be that
sufficient future taxable income will be available against which such
deferred tax assets can be realised.
The carrying cost of the deferred tax assets are reviewed at each
balance sheet date. The Company writes down the carrying amount of a
deferred tax asset to the extent that it is no longer reasonably
certain or virtually certain, as the case may be, that sufficient
future taxable income will be available against which deferred tax
asset can be realised. Any such write down is reversed to the extent
that it becomes reasonably certain or virtually certain, as the case
may be, that sufficient future taxable income will be available.
(l) Segment reporting policies
Identification of segments:
The Companys operating businesses are organised and managed separately
according to the nature of products and services provided, with each
segment representing a strategic business unit that offers different
products and serves different markets. The analysis of geographical
segments is based on the areas in which major operating divisions of
the Company operate.
Unallocated items:
Unallocated items include income and expenses which are not allocated
to any reportable business segment.
Segment Policies :
The company prepares its segment information in conformity with the
accounting policies adopted for preparing and presenting the financial
statements of the company as a whole.
(m) Earnings per share
Basic earnings per share is calculated by dividing the net Profit or
loss for the year attributable to equity shareholders (after deducting
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.
(n) Provisions
A provision is recognised when the company has a present obligation as
a result of past event; it is probable that outflow of resources will
be required to settle the obligation, in respect of which a reliable
estimate can be made. Provisions are not discounted to its present
value and are determined based on best estimate required to settle the
obligation at the balance sheet date. These are reviewed at each
balance sheet date and adjusted to reflect the current best estimates.
(o) Cash and cash equivalents
Cash and cash equivalents in the cash flow statement comprise cash at
bank and in hand, cheques on hand, remittances in transit and short
term investments with an original maturity of three months or less.
(p) Equity shares and Debentures issue expenses
Issue expenses incurred on issue of equity shares are charged on a
straight line basis over a period of 10 years.
Public issue expenses, other than the brokerage, incurred on issue of
debentures are charged off on a straight line basis over the weighted
average tenor of underlying debentures. The brokerage incurred on issue
of debentures is treated as expenditure in the year in which it is
incurred.
(q) Ancillary cost of borrowings
Ancillary cost of borrowings are charged to Profit & Loss account in
the year in which they are incurred.
(r) Employee stock compensation costs
Measurement and disclosure of the employee share-based payment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments, issued by ICAI. The
Company measures compensation cost relating to employee stock options
using the intrinsic value method. Compensation expense is amortised
over the vesting period of the option on a straight line basis.
Mar 31, 2010
(a) Basis of preparation
The financial statements have been prepared in conformity with
generally accepted accounting principles to comply in all material
respects with the notified Accounting Standards (ÃASÃ) under Companies
Accounting Standard Rules, 2006, as amended, the relevant provisions of
the Companies Act, 1956 (Ãthe ActÃ) and the guidelines issued by the
Reserve Bank of India (ÃRBIÃ) as applicable to a Non Banking Finance
Company (ÃNBFCÃ). The financial statements have been prepared under the
historical cost convention on an accrual basis. the accounting policies
have been consistently applied by the Company and are consistent with
those used in the previous year.
(b) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
year end. Although these estimates are based upon managementÃs best
knowledge of current events and actions, actual results could differ
from these estimates. Any revisions to the accounting estimates are
recognized prospectively in the current and future years.
(c) Fixed assets, Depreciation/Amortisation and Impairment of assets
Fixed Assets
Fixed assets are stated at cost less accumulated
depreciation/amortisation and impairment losses, if any. Cost
comprises the purchase price and any attributable cost of bringing the
asset to its working condition for its intended use. Borrowing costs
relating to acquisition of fixed assets which takes substantial period
of time to get ready for its intended use are also included to the
extent they relate to the period till such assets are ready to be put
to use.
Impairment of 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 at the weighted average cost of capital.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
A previously recognized impairment loss is increased or reversed
depending on changes in circumstances. However the carrying value
after reversal is not increased beyond the carrying value that would
have prevailed by charging usual depreciation if there was no
impairment.
(d) Investments
Investments intended to be held for not more than a year are classified
as current investments. All other investments are classified as
long-term investments. Current investments are carried at lower of cost
and market value /realizable value determined on an individual
investment basis. Long-term investments are carried at cost. However,
provision for diminution in value is made to recognise a decline, other
than temporary, in the value of the investments.
(e) Provisioning / Write-off of assets
Loan and lease receivables are written off / provided for, as per
management estimates, subject to the minimum provision required as per
Non- Banking Financial (Deposit Accepting or Holding) Companies
Prudential Norms (Reserve Bank) Directions, 2007. Delinquencies on
assets securitized are provided for based on management estimates of
the historical data.
(f) Hypothecation Loans
Hypothecation loans are stated at the amount advanced including finance
charges accrued and expenses recoverable, as reduced by the amounts
received up to the balance sheet date and loans securitized.
(g) Leases
Where the company is the lessor
Assets given under a finance lease are recognised as a receivable at an
amount equal to the net investment in the lease. Lease rentals are
apportioned between principal and interest on the internal rate of
return (ÃIRRÃ). the principal amount received reduces the net
investment in the lease and interest is recognised as revenue. Initial
direct costs are recognised immediately in the Profit and Loss Account.
Assets given on operating leases are included in fixed assets. Lease
income is recognised in the Profit and Loss Account on a straight-line
basis over the lease term. Costs, including depreciation are recognised
as an expense in the Profit and Loss Account. Initial direct costs such
as legal costs, brokerage costs, etc. are recognised immediately in the
Profit and Loss Account.
Where the Company is the lessor
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased term, are classified as
operating leases. Operating lease payments are recognized as an expense
in the Profit and Loss account on a straight-line basis over the lease
term.
(h) Foreign currency translation
Initial recognition
Transactions in foreign currency entered into during the year are
recorded at the exchange rates prevailing on the date of the
transaction.
Conversion
Monetary assets and liabilities denominated in foreign currency are
translated in to Rupees at exchange rate prevailing on the date of the
Balance Sheet.
Exchange differences
All exchange differences are dealt with in the profit and loss account.
(i) Inventories
Inventories are valued as follows:
Raw materials, components, stores and spares:
Lower of cost and net realizable value. Cost is determined on a
weighted average basis. Net realizable value is the estimated selling
price in the ordinary course of business, less estimated costs of
completion and estimated costs necessary to make the sale.
(j) Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured.
i. Finance and service charges on financial lease/ loans is recognised
on the basis of internal rate of return.
ii. Income recognized and remaining unrealized after installments
become overdue for six months or more in case of secured loans and
twelve months or more in case of financial lease transactions are
reversed and are accounted as income when these are actually realized.
iii. Additional finance charges / additional interest are treated to
accrue only on realization, due to uncertainty of realization and are
accounted accordingly.
iv. Gains arising on securitization/direct assignment of assets is
recognized over the tenure of agreements as per guideline on
securitization of standard assets issued by RBI, loss, if any is
recognised upfront.
v. Income from power generation is recognized on supply of power to the
grid as per the terms of the Power Purchase Agreements with State
Electricity Boards.
vi. Income from services is recognized as per the terms of the
contract on accrual basis.
vii. Interest income on fixed deposits/margin money, call money(CBLO),
certificate of deposits and pass through certificates is recognized on
a time proportion basis taking into account the amount outstanding and
the rate applicable.
viii. Dividend is recognized as income when right to receive payment is
established by the date of balance sheet.
ix. Profit/loss on the sale of investments is recognized at the time
of actual sale/redemption.
x. Income from operating lease is recognized as rentals, as accrued on
straight line basis over the period of the lease.
(k) Employee benefits
Provident fund
All the employees of the Company are entitled to receive benefits under
the Provident Fund, a defined contribution plan in which both the
employee and the Company contribute monthly at a stipulated rate. the
Company has no liability for future Provident Fund benefits other than
its annual contribution and recognizes such contributions as an expense
in the year it is incurred.
Gratuity
The Company provides for the gratuity, a defined benefit retirement
plan covering all employees. The plan provides for lump sum payments to
employees at retirement, death while in employment or on termination of
employment. The Company accounts for liability of future gratuity
benefits based on an external actuarial valuation on projected unit
credit method carried out for assessing liability as at the reporting
date.
Leave encashment
Short term compensated absences are provided for based on estimates.
Long term compensated absences are provided for based on actuarial
valuation. the actuarial valuation is done as per projected unit credit
method as at the reporting date.
Actuarial gains/losses are immediately taken to profit and loss account
and are not deferred.
(l) Income tax
Tax expense comprises of current, deferred and fringe benefit tax.
Current income tax and fringe benefit tax is measured at the amount
expected to be paid to the tax authorities in accordance with the
Indian Income Tax Act, 1961. Deferred income taxes refects the impact
of current year timing differences between taxable income and
accounting income for the year and reversal of timing differences of
earlier years.
Deferred tax is measured based on the tax rates and the tax laws
enacted or substantively enacted at the balance sheet date. Deferred
tax assets are recognized only to the extent that there is reasonable
certainty that sufficient future taxable income will be available
against which such deferred tax assets can be realized. In situations
where the Company has unabsorbed depreciation or carry forward tax
losses, all deferred tax assets are recognized only if there is virtual
certainty supported by convincing evidence that they can be realized
against future taxable profits.
The un-recognized deferred tax assets are re-assessed by the Company at
each balance sheet date and are recognized to the extent that it has
become reasonably certain or virtually certain, as the case may be that
sufficient future taxable income will be available against which such
deferred tax assets can be realized.
The carrying cost of the deferred tax assets are reviewed at each
balance sheet date. the Company writes down the carrying amount of a
deferred tax asset to the extent that it is no longer reasonably
certain or virtually certain, as the case may be, that sufficient
future taxable income will be available against which deferred tax
asset can be realized. Any such write down is reversed to the extent
that it becomes reasonably certain or virtually certain, as the case
may be, that sufficient future taxable income will be available.
(m) Segment Reporting Policies
Identification of segments:
The CompanyÃs operating businesses are organized and managed separately
according to the nature of products and services provided, with each
segment representing a strategic business unit that offers different
products and serves different markets. the analysis of geographical
segments is based on the areas in which major operating divisions of
the Company operate.
Unallocated items:
Unallocated items include income and expenses which are not allocated
to any reportable business segment.
Segment Policies :
The company prepares its segment information in conformity with the
accounting policies adopted for preparing and presenting the financial
statements of the company as a whole.
(n) Earnings per share
Basic earnings per share is calculated by dividing the net profit or
loss for the period attributable to equity shareholders (after
deducting attributable taxes) by the weighted average number of equity
shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period are
adjusted for the effects of all dilutive potential equity shares.
(o) Provisions
A provision is recognised when the company has a present obligation as
a result of past event; it is probable that outflow of resources will
be required to settle the obligation, in respect of which a reliable
estimate can be made. Provisions are not discounted to its present
value and are determined based on best estimate required to settle the
obligation at the balance sheet date. these are reviewed at each
balance sheet date and adjusted to refect the current best estimates.
(p) Cash and cash equivalents
Cash and cash equivalents in the cash flow statement comprise cash at
bank and in hand, cheques on hand, remittances in transit and short
term investments with an original maturity of three months or less.
(q) Equity Shares and Debentures Issue Expenses
Issue expenses incurred on issue of equity shares are charged on a
straight line basis over a period of 10 years.
Public issue expenses incurred on issue of debentures are charged off
on a straight line basis over the weighted average tenor of underlying
debentures.
(r) Ancillary cost of borrowings
Ancillary cost of borrowings are charged to Profit & Loss account in
the year in which they are incurred.
(s) Employee stock compensation costs
Measurement and disclosure of the employee share-based payment plans is
done in accordance with SEBI (Employee Stock option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments, issued by ICAI. the
Company measures compensation cost relating to employee stock options
using the intrinsic value method. Compensation expense is amortized
over the vesting period of the option on a straight line basis.