Accounting Policies of Spandana Sphoorty Financial Ltd. Company

Mar 31, 2025

3. Material accounting policy

This note provides a list of the material accounting
policies adopted in the preparation of this standalone
financial statements. These policies have been
consistently applied to all the years presented, unless
otherwise stated.

a) Foreign Currency Transactions
Transaction and balance

Transactions in foreign currencies are initially recorded
in the functional currency at the spot rate of exchange
ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are
retranslated into the functional currency at the spot
rate of exchange at the reporting date. All exchange
differences arising from foreign currency borrowings
to the extent not capitalized

are regarded as a cost of borrowing and presented
under Finance cost.

b) Revenue from contracts with customers

The Company recognizes revenue from contracts with
customers (other than financial assets to which I nd
AS 109 ''Financial Instruments'' is applicable) based
on a comprehensive assessment model as set out in
Ind AS 115 ''Revenue from Contracts with Customers''.
The Company identifies contract(s) with a customer
and its performance obligations under the contract,
determines the transaction price and its allocation
to the performance obligations in the contract and
recognizes revenue only on satisfactory completion of
performance obligations. Revenue is measured at fair
value of the consideration received or receivable.

Revenue from advertisement activity is recognized
upon satisfaction of performance obligation (over the
time) by rendering of services underlying the contract
with third party customers.

c) Employee benefits
Short-term employee benefits

Short-term employee benefits are measured on an
undiscounted basis and expensed as the related service
is provided. A liability is recognised for the amount
expected to be paid under short-term cash bonus, if the
Company has a present legal or constructive obligation
to pay this amount as a result of past service provided by
the employee and the obligation can be estimated reliably

Defined contribution plan - gratuity

Retirement benefit in the form of provident fund is a
defined contribution scheme. The Company has no
obligation other than the contribution payable to the
provident fund. The Company recognizes contribution
payable to the provident fund scheme as expenditure
when an employee renders the related service.

Share based payments

The cost of equity-settled transactions is determined
by the fair value at the date when the grant is made
using the Black Scholes valuation model. That cost is
recognized in employee benefits expense, together with
a corresponding increase in share options outstanding
account in Other equity, over the period in which the
performance and/or service conditions are fulfilled.
The cumulative expense recognized for equity-settled
transactions at each reporting date until the vesting
date reflects the extent to which the vesting period has
expired and the Company''s best estimate of the number
of equity instruments that will ultimately vest. The
expense or credit for a period represents the movement
in cumulative expense recognized as at the beginning
and end of that period and is recognized in employee
benefits expense. Service and non-market performance
conditions are not taken into account when determining
the grant date fair value of awards, but the likelihood
of the conditions being met is assessed as part of
the Company''s best estimate of the number of equity
instruments that will ultimately vest. The dilutive effect
of outstanding options is reflected as additional share
dilution in the computation of diluted earnings per
share.

Defined benefit plans

The Company has defined benefit gratuity plan. The
Company''s net obligation in respect of defined benefit
plans is calculated separately by estimating the amount
of future benefit that employees have earned in the
current and prior periods, discounting that amount and
deducting the fair value of any plan assets.

The calculation of defined benefit obligations is
performed annually by a qualified actuary using the
projected unit credit method. When the calculation
results in a potential asset for the Company, the
recognised asset is limited to the present value
of economic benefits available in the form of any
future refunds from the plan or reductions in future

contributions to the plan (''the asset ceiling''). To calculate
the present value of economic benefits, consideration is
given to any applicable minimum funding requirements.

Remeasurements of the net defined benefit liability
/ (asset), which comprise actuarial gains and losses,
the return on plan assets (excluding interest) and the
effect of the asset ceiling (if any, excluding interest),
are recognised immediately in OCI. The Company
determines the net interest expense (income) on the
net defined benefit liability (asset) by applying the
discount rate, used to measure the net defined liability
/ (asset) as determined at the start of the financial year
after taking into account any changes in the net defined
benefit liability (asset) during the year as a result of
contributions and benefit payments. Net interest
expense and other expenses related to defined benefit
plans are recognised in the statement of profit and loss.
Remeasurements are not reclassified to profit and loss
in subsequent periods.

When the benefits of a plan are changed or when a plan
is curtailed, the resulting change in benefit that relates
to past service (''past service cost'' or ''past service
gain'') or the gain or loss on curtailment is recognised
immediately in the statement of profit and loss. The
Company recognises gains and losses on the settlement
of a defined benefit plan when the settlement occurs.

Other long-term employee benefits - compensated
absences

Compensated absences are a long-term employee
benefit and are accrued based on an actuarial valuation
done as per projected unit credit method as at the
Balance Sheet date, carried out by an independent
actuary.

Actuarial gains and losses arising during the year are
immediately recognized in the statement of profit and
loss.

d) Recognition of income and expense

The Company earns revenue primarily from giving loans.
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. The following
specific recognition criteria must also be met before
revenue is recognized:

(i) Interest income and expense

Interest revenue and expense is recognized using
the effective interest method (EIR). The effective
interest rate is the rate that discounts estimated
future cash payments or receipts through the
expected life of the financial instrument or, when

appropriate, a shorter period, to the gross carrying
amount of the financial asset or financial liability.
The calculation takes into account all contractual
terms of the financial instrument (for example,
prepayment options) and includes any fees or
incremental costs that are directly attributable to
the instrument and are an integral part of the EIR,
but not future credit losses.

The company calculates interest income by
applying the EIR to the gross carrying amount of
financial assets (other than credit-impaired assets).
When a financial asset becomes credit-impaired
and is, therefore, regarded as ''Stage IN'', the
company calculates interest income by applying
the effective interest rate to the net amortized cost
of the financial asset. If the financial assets cures
and is no longer credit-impaired, the Company
reverts to calculating interest income on a gross
basis.

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 payable to arrangers and other
expenses such as external legal costs, provided
these are incremental costs that are directly
related to the issue of financial liability.

(ii) Other income and expense

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

The Company recognises gains on fair value
change of financial assets measured at FVTPL
and realised gains on derecognition of financial
asset measured at FVTPL and FVOCI on net basis.

e) Income taxes
Current Taxes

Current income tax assets and liabilities are measured
at the amount expected to be recovered from or paid to
the taxation authorities in accordance with the Income
Tax Act, 1961. It is computed using tax rates and tax laws
enacted or substantively enacted at the reporting date.
Current income tax relating to items recognized outside
statement of profit and loss are recognized either in
other comprehensive income or in other equity.

Current tax assets and liabilities are offset only if there
is a legally enforceable right to set off the recognised

amounts, and it is intended to realise the asset and
settle the liability on a net basis or simultaneously.

Deferred Taxes

Deferred tax is provided on temporary differences at
the reporting date between the tax bases of assets
and liabilities and their carrying amounts for financial
reporting purposes.

Deferred tax liabilities are recognized for all taxable
temporary differences, except:

â¢ Where the deferred tax liability arises from the initial
recognition of goodwill or of an asset or liability in a
transaction that is not a business combination and, at the
time of the transaction, affects neither the accounting
profit nor taxable profit or loss.

â¢ In respect of taxable temporary differences associated
with investments in subsidiaries, where the timing of the
reversal of the temporary differences can be controlled
and it is probable that the temporary differences will not
reverse in the foreseeable future.

Deferred tax assets are recognized only to the extent
that it is probable that future taxable profits will be
available against which the asset can be utilized. The
carrying amount of deferred tax assets are reviewed at
each reporting date and reduced to the extent that it is
no longer probable that sufficient taxable profit will be
available to allow all or part of the deferred tax asset
to be utilized. Unrecognized deferred tax assets are
reassessed at each reporting date and are recognized to
the extent that it becomes probable that future taxable
profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the
tax rates that are expected to apply in the year when
the asset is realized or the liability is settled, based
on tax rates (and tax laws) that have been enacted or
substantively enacted at the reporting date.

Deferred tax relating to items recognized outside profit
or loss are recognized either in other comprehensive
income or in other equity. Deferred tax items are
recognized in correlation to the underlying transaction
either in OCI or directly in equity.

Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax liabilities
and assets, 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 will be realised simultaneously.

Current and deferred taxes are recognized as income
tax benefits or expenses in the statement of profit and
loss except for tax related to the FVOCI instruments.
The Company also recognizes the tax consequences
of payments and issuing costs, related to financial
instruments that are classified as equity, directly in
equity.

f) Property, plant and equipment (PPE)

The cost of an item of property, plant and equipment is
recognised as an asset if, and only if:

(a) it is probable that future economic benefits
associated with the item will flow to the entity; and

(b) the cost of the item can be measured reliably.

PPE are stated at cost (including incidental expenses
directly attributable to bringing the asset to its working
condition for its intended use) less accumulated
depreciation and accumulated 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. Subsequent expenditure
related to PPE is capitalized only when it is probable
that future economic benefits associated with these
will flow to the Company and the cost of item can be
measured reliably. Other repairs and maintenance costs
are expensed off as and when incurred.

Leasehold improvements are amortized on straight line
basis over the lease term or the estimated useful life of
the assets, whichever is lower.

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.

An item of property, plant and equipment and any
significant part initially recognized is derecognized
upon disposal or when no future economic benefits
are expected from its use or disposal. Any gain or loss
arising on de-recognition of the asset (calculated as
the difference between the net disposal proceeds
and the carrying amount of the asset) is included
in the statement of profit and loss when the asset is
derecognized.

Depreciation

Depreciation on property, plant and equipment provided
on a written down value method at the rates arrived
based on useful life of the assets, prescribed under
Schedule 11 of the Act, which also represents the estimate
of the useful life of the assets by the management.
Depreciation on assets sold during the year is charged
to the statement of profit and loss to the date of sale.
Property, plant and equipment costing up to '' 5,000

(amount in full) individually are fully depreciated in the
year of purchase.

The Company has used the following useful lives
to provide depreciation on its Property, plant and
equipment:

g) Intangible assets

Intangible assets that are acquired by the Company
are measured initially at cost and are stated at cost
less accumulated depreciation as adjusted for
impairment, if any. Any gain on disposal of intangible
asset is recognised in the statement of profit and
loss. Subsequent expenditure is capitalised only if it is
probable that the future economic benefits associated
with the expenditure will flow to the Company.

Amortization

Amortisation is calculated to write-off the cost of
intangible asset using the written down value method
at the rates arrived based on useful life of the assets,
prescribed under Schedule II of the Act, which also
represents the estimate of the useful life of the assets
by the management. The estimated useful life used for
computation of depreciation is five years

h) Leases

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

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 earlier of
the end of the useful life of the right-of-use asset or the
end of the lease term.

If ownership of the leased asset transfers to the
Company at the end of the lease term or the cost
reflects the exercise of a purchase option, depreciation
is calculated using the estimated useful life of the asset.

At the commencement date of the lease, the Company
recognizes lease liabilities measured at the present
value of lease payments to be made over the lease term.
The lease payments include fixed payments (including
in substance fixed payments) less any lease incentives
receivable, variable lease payments that depend on
an index or a rate, and amounts expected to be paid
under residual value guarantees. The lease payments
also include the exercise price of a purchase option
reasonably certain to be exercised by the Company
and payments of penalties for terminating the lease,
if the lease term reflects the Company exercising the
option to terminate.

In calculating the present value of lease payments,
the Company uses its incremental borrowing rate at
the lease commencement date because the interest
rate implicit in the lease is not readily determinable.
After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest
and reduced for the lease payments made. In addition,
the carrying amount of lease liabilities is remeasured
if there is a modification, a change in the lease term, a
change in the lease payments (e.g.,changes to future
payments resulting from a change in rate used to
determine such lease payments) or a change in the
assessment of an option to purchase the underlying
asset.

Short term lease

The Company applies the short-term lease recognition
exemption to its short-term leases (i.e., those leases
that have a lease term of 12 months or less from the
commencement date and do not contain a purchase
option). Lease payments on short term leases are
recognized as and when due.

i) Financial instruments

A financial instrument is any contract that gives rise to
a financial asset of one entity and a financial liability or
equity instrument of another entity. Financial assets
and financial liabilities are recognized when the entity
becomes a party to the contractual provisions of the
instruments.

financial assets that require delivery of assets within a
time frame established by regulation or convention in
the marketplace (regular way trades) are recognized on
the trade date, i.e., the date that the Company commits
to purchase or sell the asset.

Subsequent measurement

For the purpose of subsequent measurement, financial
assets are classified in four categories:

â¢ Loan Portfolio at amortized cost

â¢ Loan Portfolio at fair value through other comprehensive
income (FVOCI)

â¢ Investment in equity instruments and mutual funds at
fair value through profit or loss

â¢ Other financial assets at amortized cost

Loan Portfolio at amortized cost:

Loan Portfolio is measured at amortized cost where:

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

â¢ are held within a business model whose objective is
achieved by Company to collect contractual cash flows.

Loan Portfolio at FVOCI:

Loan Portfolio is measured at FVOCI where:

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

â¢ the financial asset is held within a business model where
objective is achieved by both collecting contractual cash
flows and selling financial assets.

Business model: The business model reflects how the
Company manages the assets in order to generate cash
flows. That is, where the Company''s objective is solely
to collect the contractual cash flows from the assets,
the same is measured at amortized cost or where the
Company''s objective is to collect both the contractual
cash flows and cash flows arising from the sale of
assets, the same is measured at fair value through other
comprehensive income (FVOCI). If neither of these is
applicable (e.g. financial assets are held for trading
purposes), then the financial assets are classified as
part of ''other'' business model and measured at FVTPL.

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
amortized cost, as mentioned above, is computed using
the effective interest rate method.

After initial measurement, these financial assets are
subsequently measured at amortized cost using the
effective interest rate (EIR) method less impairment.
Amortized cost is calculated by taking into account any
discount or premium on acquisition and fees or costs
that are an integral part of the EIR. The EIR amortization
is included in interest income in the statement of profit
and loss. The losses arising from impairment are
recognized under the head ''impairment on financial
instruments'' in the statement of profit and loss.

The measurement of credit impairment is based on the
three-stage expected credit loss model described in
Note: Impairment of financial assets (refer note 3(j)).

Effective interest method - The effective interest
method is a method of calculating the amortized cost
of a debt instrument and of allocating interest income
over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash
receipts (including all fees and points paid or received
that form an integral part of the effective interest rate,
transaction costs and other premiums or discounts)
through the expected life of the debt instrument, or,
where appropriate, a shorter period, to the net carrying
amount on initial recognition. The amortized cost of
the financial asset is adjusted if the Company revises
its estimates of payments or receipts. The adjusted
amortized cost is calculated based on the original or
latest re-estimated EIR and the change is recorded
as ''Interest and similar income'' for financial assets.
Income is recognized on an effective interest basis
for loan portfolio other than those financial assets
classified as at FVTPL.

Equity instruments and Mutual Funds

Equity instruments and mutual funds included within
the FVTPL category are mandatorily measured at fair
value with all changes recognized in the statement of
profit and loss.

Financial liabilities

Initial Measurement

Financial liabilities are classified and measured at
amortized cost. All financial liabilities are recognized
initially at fair value and, in the case of loans and

borrowings and payables, net of directly attributable
transaction costs. The Company''s financial liabilities
include trade and other payables, loans and borrowings
including bank overdrafts and derivative financial
instruments.

Subsequent Measurement

Financial liabilities are subsequently carried at
amortized cost using the effective interest method.

De-recognition of financial assets and financial
liabilities

The company de-recognises a financial asset when the
contractual right to the cash flows from the asset expire,
or when it transfers the financial asset and substantially
all the risks and rewards of ownership of the assets
to another party. If the company neither transfers
nor retains substantially all the risks and rewards of
ownership and continues to control the transferred
asset, the Company recognizes its retained interest in
the asset and an associated liability for amounts it may
have to pay. If the company retains substantially all the
risks and rewards of ownership of a transferred financial
asset, the Company continues to recognize the financial
asset and also recognises an associated liability as
collateralized borrowing for the proceeds received.

On derecognition of a financial asset, the difference
between the asset''s carrying amount and the sum
of the consideration received and receivable and the
cumulative gain or loss that had been recognized in
OCI, and accumulated in equity is recognized in OCI and
accumulated in equity is recognized in the statement of
profit and loss.

A financial liability is derecognized from the balance
sheet when the Company has discharged its obligation
or the contract is cancelled or expires.

Securitization and direct assignment

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

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

Net gain on derecognition of financial instruments
measured at FVOCI

Gains arising out of direct assignment transactions
comprise the difference between the interest on the
loan portfolio and the applicable rate at which the direct
assignment is entered into with the assignee, also known
as the right of excess interest spread (EIS). The future
EIS is based on the scheduled cash flows on execution
of the transaction, discounted at the applicable rate
entered into with the assignee is recorded upfront in
the statement of profit and loss.

Derivatives and hedging activities

The Company enters into a variety of derivative fi nancial
instruments to manage its exposure to interest rate
risk and foreign exchange rate risk, including cross
currency interest rate swaps and cross currency
swaps. Derivatives are initially recognised at fair value
at the date the derivative contracts are entered into
and are subsequently remeasured to their fair value at
the end of each reporting date. The resulting gain or
loss is recognised in the statement of profit and loss
immediately unless the derivative is designated and
effective as a hedging instrument, in which event the
timing of recognition in profit or loss depends on the
nature of the hedging relationship and nature of the
hedge item.

Embedded derivatives

Derivatives embedded in a host contract that is an
asset within the scope of Ind AS 109 are not separated.
Financial assets and financial liabilities with embedded
derivatives are considered in their entirety when
determining whether their cash flows are solely payment
of principal and interest.

Derivatives embedded in all other host contract are
separated only if the economic characteristics and risks
of the embedded derivatives are not closely related to
the economic characteristics and risks of the host and
accordingly, are measured at fair value through profit or
loss. Embedded derivatives closely related to the host
contracts are not separated.

Hedge accounting

The Company designates foreign currency forward
derivative contracts as hedges of foreign exchange
risk associated with the cash flows of foreign currency
risks associated with the borrowings denominated in
foreign currency (referred to as ''cash flow hedges''). The
Company documents at the inception of the hedging
transaction the economic relationship between the
hedging instruments and hedge items including

whether the hedging instrument is expected to offset
changes in the cash flows of hedge items. The Company
documents its risk management objective and strategy
for undertaking various hedge transactions at the
inception of the hedging relationship.

) Impairment on financial assets

Overview of principles for measuring expected credit
loss (''ECL'')

In accordance with Ind AS 109, the Company is required
to measure expected credit losses on its financial
instruments designated at amortized cost and fair value
through other comprehensive income. Accordingly, the
Company is required to determine lifetime losses on
financial instruments where credit risk has increased
significantly since its origination. For other instruments,
the Company is required to recognize credit losses over
next 12-month period. The Company has an option to
determine such losses on individual basis or collectively
depending upon the nature of underlying portfolio. The
Company has a process to assess credit risk of all
exposures at each year end as follows:

Stage I

These represent 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. The
Company has assessed that all standard exposures
(i.e., exposures with no overdues) and exposure upto
30 day overdues fall under this category. In accordance
with Ind AS 109, the Company measures ECL on such
assets over next 12 months.

Stage II

Financial instruments that have had a significant
increase in credit risk since initial recognition are
classified under this stage. Based on empirical
evidence, significant increase in credit risk is witnessed
after the overdues on an exposure exceed for a period
more than 30 days. Accordingly, the Company classifies
all exposures with overdues exceeding 30 days at each
reporting date under this Stage. The Company measures
lifetime ECL on stage II loans.

Stage III

All exposures having overdue balances for a period
exceeding 90 days are considered to be defaults and are
classified under this stage. Accordingly, the Company
measures lifetime losses on such exposure. Interest
revenue on such contracts is calculated by applying
the effective interest rate to the amortized cost (net of
impairment allowance) instead of the gross carrying
amount.

Methodology for calculating ECL

The Company determines ECL based on a probability
weighted outcome of factors indicated below to
measure the shortfalls in collecting contractual cash
flows.

The Company does not discount such shortfalls
considering relatively shorter tenure of loan contracts.

Key factors applied to determine ECL are outlined as
follows:

a) Probability of default (PD) - The probability of
default is an estimate of the likelihood of default
over a given time horizon (12-month or lifetime,
depending upon the stage of the asset).

b) Exposure at default (EAD) - It represents an
estimate of the exposure of the Company at a
future date after considering repayments by the
counterparty before the default event occurs.

c) Loss given default (LGD) - It represents an
estimate of the loss expected to be incurred when
the event of default occurs.

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 are embedded
in the methodology to reflect such macro-economic
trends reasonably.

Write-offs (Refer Note 51)

Loans are written off (either partially or in full) when
there is no realistic prospect of recovery. 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. All such write-offs
are charged to the statement of profit and loss. Any
subsequent recoveries against such loans are credited
to the statement of profit and loss.

k) 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.

Mar 31, 2024

3. Material accounting policy information

This note provides a list of the material accounting policies adopted in the preparation of this standalone financial statements. These policies have been consistently applied to all the years presented, unless otherwise stated

a) Recognition of income and expense

The Company earns revenue primarily from giving loans. 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. The following specific recognition criteria must also be met before revenue is recognized:

(i) Interest income and expense

Interest revenue is recognized using the effective interest method (EIR). The effective interest method calculates the amortized cost of a financial instrument and allocates the interest income or interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period, to the gross carrying amount of the financial asset or liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses.

The Company calculates interest income by applying the EIR to the gross carrying amount of financial assets other than credit-impaired assets. When a financial asset becomes credit-impaired and is, therefore, regarded as âStage 3'', the Company calculates interest income by applying the effective interest rate to the net amortized cost of the financial asset. If the financial assets cures and is no longer credit-impaired, the Company reverts to calculating interest income on a gross basis.

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 arrangers and other expenses such as external legal costs, provided these are incremental costs that are directly related to the issue of a financial liability.

(ii) Other income and expense

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

The Company recognises gains on fair value change of financial assets measured at FVTPL and realised gains on derecognition of financial asset measured at FVTPL and FVOCI on net basis

b) Property, plant and equipment (PPE)

PPE

PPE are stated at cost (including incidental expenses directly attributable to bringing the asset to its working condition for its intended use) 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. Subsequent expenditure related to PPE is capitalized only when it is probable that future economic benefits associated with these will flow to the Company and the cost of item can be measured reliably. Other repairs and maintenance costs are expensed off as and when incurred.

An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit and loss when the asset is derecognized.

c) Depreciation and amortization Depreciation

i. Depreciation on property, plant and equipment provided on a written down value method at the rates arrived based on useful life of the assets, prescribed under Schedule II of the Act, which also represents the estimate of the useful life of the assets by the management.

ii. Property, plant and equipment costing up to ''5,000 (amount in full) individually are fully depreciated in the year of purchase.

The Company has used the following useful lives to provide depreciation on its Property, plant and equipment:

d) Impairment

i) Overview of principles for measuring expected credit loss (''ECL'') on financial assets.

In accordance with Ind AS 109, the Company is required to measure expected credit losses on its financial instruments designated at amortized cost and fair value through other comprehensive

income. Accordingly, the Company is required to determine lifetime losses on financial instruments where credit risk has increased significantly since its origination. For other instruments, the Company is required to recognize credit losses over next 12-month period. The Company has an option to determine such losses on individual basis or collectively depending upon the nature of underlying portfolio. The Company has a process to assess credit risk of all exposures at each year end as follows:

Stage I

These represent 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. The Company has assessed that all standard exposures (i.e. exposures with no overdues) and exposure upto 30 day overdues fall under this category. In accordance with Ind AS 109, the Company measures ECL on such assets over next 12 months.

Stage II

Financial instruments that have had a significant increase in credit risk since initial recognition are classified under this stage. Based on empirical evidence, significant increase in credit risk is witnessed after the overdues on an exposure exceed for a period more than 30 days. Accordingly, the Company classifies all exposures with overdues exceeding 30 days at each reporting date under this Stage. The Company measures lifetime ECL on stage II loans.

Stage III

All exposures having overdue balances for a period exceeding 90 days are considered to be defaults and are classified under this stage. Accordingly, the Company measures lifetime losses on such exposure. Interest revenue on such contracts is calculated by applying the effective interest rate to the amortized cost (net of impairment allowance) instead of the gross carrying amount.

Methodology for calculating ECL

The Company determines ECL based on a probability weighted outcome of factors indicated below to measure the shortfalls in collecting contractual cash flows. The Company does not discount such shortfalls considering relatively shorter tenure of loan contracts.

Key factors applied to determine ECL are outlined as follows:

Probability of default (PD) - The probability of default is an estimate of the likelihood of default

over a given time horizon (12-month or lifetime, depending upon the stage of the asset).

Exposure at default (EAD) - It represents an estimate of the exposure of the Company at a future date after considering repayments by the counterparty before the default event occurs.

Loss given default (LGD) - It represents an estimate of the loss expected to be incurred when the event of default occurs.

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 are embedded in the methodology to reflect such macroeconomic trends reasonably.

Write-offs

Loans are written off (either partially or in full) when there is no realistic prospect of recovery. 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. All such write-offs are charged to the Profit and Loss Statement. Any subsequent recoveries against such loans are credited to the statement of profit and loss.

ii) 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.

e) Revenue from Contracts with Customers

The Company recognises revenue from contracts with customers (other than financial assets to which Ind AS 109 âFinancial Instruments'' is applicable) based on a comprehensive assessment model as set out in Ind AS 115 âRevenue from Contracts with Customers''. The Company identifies contract(s) with a customer and its performance obligations under the contract, determines the transaction price and its allocation to the performance obligations in the contract and recognises revenue only on satisfactory completion of performance obligations. Revenue is measured at fair value of the consideration received or receivable.

The Company recognizes revenue from advertisement activities upon satisfaction of performance obligation (at a point in time) by rendering of services underlying the contract with third party customers.

f) Employee Provident Fund

Retirement benefit in the form of provident fund is a defined contribution scheme. The Company has no obligation, other than the contribution payable to the provident fund. The Company recognizes contribution payable to the provident fund scheme as expenditure when an employee renders the related service.

g) Employee Stock Option Plan

Employees (including senior executives) of the Company receive remuneration in the form of share-based payments in form of employee stock options, whereby employees render services as consideration for equity instruments (equity-settled transactions). The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using the Black Scholes valuation model. That cost is recognized in employee benefits expense, together with a corresponding increase in Stock Option Outstanding reserves in Other equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company''s best estimate of the number of equity instruments that will ultimately vest. The expense or credit for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized in employee benefits expense. Service and non-market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Company''s best estimate of the number of equity instruments that will ultimately vest.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share.

h) Income taxes Current Taxes

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities in accordance with The Income Tax Act, 1961. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. Current income tax relating to items recognized outside profit or loss is recognized outside profit or loss (either in other comprehensive income or in equity).

Deferred Taxes

Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

â¢ Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

â¢ In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. The carrying amount of deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it becomes probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Current and deferred taxes are recognized as income tax benefits or expenses in the income statement except for tax related to the FVOCI instruments. The Company also recognizes the tax consequences of payments and issuing costs, related to financial instruments that are classified as equity, directly in equity.

The Company only off-sets its deferred tax assets against liabilities when there is both a legal right to offset and it is the Company''s intention to settle on a net basis.

i) Earnings per share (EPS)

The Company reports basic and diluted earnings per share in accordance with Ind AS33 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, 2023

1. Corporate information

Spandana Sphoorty Financial Limited (âSSFL'' or the âCompany'') is a public company domiciled in India and incorporated under the provisions of erstwhile Companies Act, 1956 on March 10, 2003. The Company was registered as a non-deposit accepting non-banking financial company (âNBFC-ND'') with the Reserve Bank of India (âRBI'') and got classified as a non-banking financial company - micro finance institution (NBFC - MFI) effective April 13, 2015. The Company''s shares are listed on BSE Limited (âBSE'') and National Stock Exchange of India Ltd (âNSE''). The registered office of the Company is located at Galaxy, Wing B, 16^th floor, Plot No.1,SY no 83/1,Hyderabad knowledge city,TSIIC,Raidurg Panmaktha, Hyderabad Rangareddy, Telangana, India.

The Company is primarily engaged in the business of micro finance providing small value unsecured loans to low-income customers in semi-urban and rural areas. The tenure of these loans is generally spread over one to two years.

2. Basis of preparation

a) Statement of compliance in preparation of standalone financial statements

The standalone financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as prescribed in the Companies (Indian Accounting Standards) Rules, 2015 as amended from time to time and notified under section 133 of the Companies Act, 2013 (the Act) along with other relevant provisions of the Act, the Master Direction - NonBanking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 (âthe NBFC Master Directions''), notification for Implementation of Indian Accounting Standards issued by RBI vide circular RBI/2019-20/170 DOR(NBFC).CC.PD. No.109/22.10.106/2019-20 dated 13 March 2020 (âRBI notification for Implementation of Ind AS'') and other applicable RBI circulars/notifications. The Company uses accrual basis of accounting.

The functional currency of the Company is the Indian rupee. These standalone financial statements are presented in Indian rupees ("Rs. or "INR") and all values / amounts are rounded off to nearest millions, unless otherwise stated.

The financial statements are prepared on a going concern basis as the Management is satisfied that the Company shall be able to continue its business for the foreseeable future and no material uncertainty exists that may cast significant doubt on the going concern assumption. In making this assessment,

the Management has considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows and capital resources.

The standalone financial statements have been prepared on a historical cost basis, except for fair value through other comprehensive income (FVOCI) instruments, derivative financial instruments and other financial assets held for trading and all of which have been measured at fair value.

These financial statements were authorised for issue by the Board of Directors on May 02, 2023.

b) Presentation of financial statements

The Company presents its balance sheet in order of liquidity. Financial assets and financial liabilities are generally reported gross in the balance sheet. They are only offset and reported net when, in addition to having an unconditional legally enforceable right to offset the recognised amounts without being contingent on a future event, the parties also intend to settle on a net basis in all of the following circumstances:

a. The normal course of business

b. The event of default

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

3. Significant accounting policies

This note provides a list of the significant accounting policies adopted in the preparation of this standalone financial statements. These policies have been consistently applied to all the years presented, unless otherwise stated

a) Use of estimates, judgments and assumptions

The preparation of financial statements in conformity with the Ind AS requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the accompanying disclosure and the disclosure of contingent liabilities, at the end of the reporting period. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and future periods are affected. Although these estimates are based on the management''s best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods.

In particular, information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes:

i) Defined employee benefit assets and liabilities The cost of the defined benefit gratuity plan and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

ii) Fair value measurement

When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using various valuation techniques. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

iii) Impairment of loan portfolio

Judgment is required by management in the estimation of the amount and timing of future cash flows when determining an impairment allowance for loans and advances. In estimating these cash flows, the Company makes judgments about the borrower''s financial situation. These estimates are based on assumptions about a number of factors such as credit quality, level of arrears etc. and actual results may differ, resulting in future changes to the impairment allowance.

iv) Provisions other than impairment on loan portfolio

Provisions are held in respect of a range of future obligations. Some of the provisions involve significant judgment about the likely outcome of various events and estimated future cash flows. The measurement of these provisions involves the exercise of management judgments about the ultimate outcomes of the transactions. Payments

that are expected to be incurred after more than one year are discounted at a rate which reflects both current interest rates and the risks specific to that provision.

v) Other estimates

These include contingent liabilities, useful lives of tangible and intangible assets etc.

b) Recognition of income and expense

The Company earns revenue primarily from giving loans. 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. The following specific recognition criteria must also be met before revenue is recognized:

(i) Interest income and expense

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 arrangers and other expenses such as external legal costs, provided these are incremental costs that are directly related to the issue of a financial liability.

(ii) Dividend income

Dividend income is recognized when the Company''s right to receive the payment is established, which is generally when the shareholders approve the dividend.

(iii) Other income and expense

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

The Company recognises gains on fair value change of financial assets measured at FVTPL and realised gains on derecognition of financial asset measured at FVTPL and FVOCI on net basis

c) Property, plant and equipment (PPE) and intangible asset

PPE

PPE are stated at cost (including incidental expenses directly attributable to bringing the asset to its working condition for its intended use) 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. Subsequent expenditure related to PPE is capitalized only when it is probable that future economic benefits associated with these will flow to the Company and the cost of item can be measured reliably. Other repairs and maintenance costs are expensed off as and when incurred.

An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit and loss when the asset is derecognized.

Intangible asset

Intangible assets represent software expenditure which is stated at cost less accumulated amortization and any accumulated impairment losses.

d) Depreciation and amortization Depreciation

ii. Property, plant and equipment costing up to Rs.5,000 individually are fully depreciated in the year of purchase.

The Company has used the following useful lives to provide depreciation on its Property, plant and equipment:

Asset Category	Useful Life (in years)
Furniture & Fixtures	10
Computers & Printers	3
Office Equipment	5
Leasehold Improvements	3
Vehicles	8
Land & Buildings	60

Amortization

Intangible assets are amortized at a rate of 40% per annum on a "Written Down Value" method, from the date that they are available for use.

e) Impairment

i) Overview of principles for measuring expected credit loss (''ECL'') on financial assets.

In accordance with Ind AS 109, the Company is required to measure expected credit losses on its financial instruments designated at amortized cost and fair value through other comprehensive income. Accordingly, the Company is required to determine lifetime losses on financial instruments where credit risk has increased significantly since its origination. For other instruments, the Company is required to recognize credit losses over next 12-month period. The Company has an option to determine such losses on individual basis or collectively depending upon the nature of underlying portfolio. The Company has a process to assess credit risk of all exposures at each year end as follows:

Stage I

These represent 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. The Company has assessed that all standard exposures (i.e. exposures with no overdues) and exposure upto 30 day overdues fall under this category. In accordance with Ind AS 109, the Company measures ECL on such assets over next 12 months.

Stage II

an exposure exceed for a period more than 30 days. Accordingly, the Company classifies all exposures with overdues exceeding 30 days at each reporting date under this Stage. The Company measures lifetime ECL on stage II loans.

Stage III

All exposures having overdue balances for a period exceeding 90 days are considered to be defaults and are classified under this stage. Accordingly, the Company measures lifetime losses on such exposure. Interest revenue on such contracts is calculated by applying the effective interest rate to the amortized cost (net of impairment allowance) instead of the gross carrying amount.

Methodology for calculating ECL

Key factors applied to determine ECL are outlined as follows:

Probability of default (PD) - The probability of default is an estimate of the likelihood of default over a given time horizon (12-month or lifetime, depending upon the stage of the asset).

Exposure at default (EAD) - It represents an estimate of the exposure of the Company at a future date after considering repayments by the counterparty before the default event occurs.

Loss given default (LGD) - It represents an estimate of the loss expected to be incurred when the event of default occurs.

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 are embedded in the methodology to reflect such macroeconomic trends reasonably.

Write-offs

Loans are written off (either partially or in full) when there is no realistic prospect of recovery. 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. All such write-offs are charged to the Profit and Loss Statement. Any subsequent recoveries against such loans are credited to the statement of profit and loss.

ii) Non financial assets

f) Revenue from Contracts with Customers

(a) Commission is earned by selling of services and products of other entities under distribution arrangements. The income so earned is recognised on successful sales on behalf of other entities subject to there being no significant uncertainty of its recovery.

(b) The Company recognizes revenue from advertisement activities upon satisfaction of performance obligation by rendering of services underlying the contract with third party customers

g) Leases

Measurement of lease liability

At the time of initial recognition, the Company measures lease liability as present value of all lease payment discounted using the Company''s incremental cost of borrowing rate. Subsequently, the lease liability is (a) increased by interest on lease liability; and (b) reduce by lease payment made.

Measurement of Right-of-Use asset

At the time of initial recognition, the Company measures âRight-of-Use assets'' as present value of all lease payment discounted using the Company''s incremental cost of borrowing rate w.r.t said lease contract. Subsequently, âRight-of-Use assets'' is measured using cost model i.e. at cost less any accumulated depreciation and any accumulated impairment losses adjusted for any re-measurement of the lease liability specified in Ind AS 116 âLeases''.

Depreciation on âRight-of-Use assets'' is provided on straight line basis over the lease period

Short-term leases:

Short term leases not covered under Ind AS 116 are classified as operating lease. Lease payments during the year are charged to statement of profit and loss.

h) Retirement and employee benefits

The Company participates in various employee benefit plans. Post-employment benefits are classified as either defined contribution plans or defined benefit plans. Under a defined contribution plan, the Company''s only obligation is to pay a fixed amount with no obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits. The related actuarial and investment risks fall on the employee. The expenditure for defined contribution plans is recognized as expense during the period when the employee provides service. Under a defined benefit plan, it is the Company''s obligation to provide agreed benefits to the employees. The related actuarial and investment risks fall on the Company. The present value of the defined benefit obligations is calculated using the projected unit credit method.

The Company operates following employee benefit plans:

i) Employee Provident Fund

ii) Gratuity

In accordance with the Payment of Gratuity Act, 1972, the Company provides for a lump sum payment to eligible employees, at retirement or termination of employment based on the last drawn salary and years of employment with the Company. The Company''s obligation in respect of the gratuity plan, which is a defined benefit plan, is provided for based on actuarial valuation.

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, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, these liabilities are highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

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.

iii) Leaves

The service rules of the Company do not provide for the carry forward of the accumulated leave balance and leaves to credit of employees are encashed periodically at average gross salary.

iv) Employee Stock Option Plan

i) Income taxes Current Taxes

Deferred Taxes

Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

â¢ Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

â¢ In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. The carrying amount of deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it becomes probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

The Company only off-sets its deferred tax assets against liabilities when there is both a legal right to offset and it is the Company''s intention to settle on a net basis.

j) Earnings per share (EPS)

k) Provisions

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

When the effect of the time value of money is material, the Company determines the level of provision by discounting the expected cash flows at a pre-tax rate reflecting the current rates specific to the liability. The increase in the provision due to un-winding of discount over passage of time is recognized within finance costs.

Provisions are reviewed at each reporting date and are adjusted to reflect the current best estimate" for accounting policy of provisions

l) Contingent liabilities and assets

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.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the entity. The Company does not have any contingent assets in the financial statements.

m) Financial Instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets and financial liabilities are recognized when the entity becomes a party to the contractual provisions of the instruments.

Financial Assets - All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.

Subsequent measurement

For the purpose of subsequent measurement, financial assets are classified in four categories:

â¢ Loan Portfolio at amortized cost

â¢ Loan Portfolio at fair value through other comprehensive income (FVOCI)

â¢ Investment in equity instruments and mutual funds at fair value through profit or loss

â¢ Other financial assets at amortized cost

Loan Portfolio at amortized cost:

Loan Portfolio is measured at amortized cost where:

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

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

Loan Portfolio at FVOCI:

Loan Portfolio is measured at FVOCI where:

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

â¢ the financial asset is held within a business model where objective is achieved by both collecting contractual cash flows and selling financial assets.

Business model: The business model reflects how the Company manages the assets in order to generate cash flows. That is, where the Company''s objective is solely to collect the contractual cash flows from the assets, the same is measured at amortized cost or where the Company''s objective is to collect both the contractual cash flows and cash flows arising from the sale of assets, the same is measured at fair value through other comprehensive income (FVOCI). If neither of these is applicable (e.g. financial assets are held for trading purposes), then the financial assets are classified as part of âother'' business model and measured at FVTPL.

SPPI: Where the business model is to hold assets to collect contractual cash flows (i.e. measured at amortized cost) or to collect contractual cash flows and sell (i.e. measured at fair value through other comprehensive income), the Company assesses whether the financial instruments'' cash flows represent solely payments of principal and interest (the âSPPI test''). 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 amortized cost, as mentioned above, is computed using the effective interest rate method.

After initial measurement, these financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the profit or loss. The losses arising from impairment are recognized in the Statement of Profit and Loss.

The measurement of credit impairment is based on the three-stage expected credit loss model described in Note: Impairment of financial assets (refer note 3(e)).

Effective interest method - The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. The amortized cost of the financial asset is adjusted if the Company revises its estimates of payments or receipts. The adjusted amortized cost is calculated based on the original or latest re-estimated EIR and the change is recorded as âInterest and similar income'' for financial assets. Income is recognized on an effective interest basis for loan portfolio other than those financial assets classified as at FVTPL

Equity instruments and Mutual Funds

Equity instruments in other than subsidiaries, associates and joint ventures and mutual funds included within the FVTPL category are measured at fair value with all changes recognized in the Profit and Loss Statement.

Investments in subsidiaries, associates and joint ventures

Investments in subsidiaries, associates and joint ventures are carried at cost less accumulated impairment losses, if any. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On disposal of investments in subsidiaries and joint venture, the difference between net disposal proceeds and the carrying amounts are recognised in the statement of profit and loss.

Financial liabilities Initial Measurement

Financial liabilities are classified and measured at amortized cost. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Company''s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts and derivative financial instruments.

Subsequent Measurement

Financial liabilities are subsequently carried at amortized cost using the effective interest method.

De-recognition

The Company derecognizes a financial asset when the contractual cash flows from the asset expire or it transfers its rights to receive contractual cash flows from the financial asset in a transaction in which substantially all the risks and rewards of ownership are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability.

A financial liability is derecognized from the balance sheet when the Company has discharged its obligation or the contract is cancelled or expires.

n) Derivative financial instruments

Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

o) Fair value measurement

The Company measures financial instruments at fair value at each balance sheet date using various valuation techniques.

Fair value is the price at the measurement date, at which an asset can be sold or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

The Company''s accounting policies require, measurement of certain financial / non-financial assets and liabilities at fair values (either on a recurring or non-recurring basis). Also, the fair values of financial instruments measured at amortized cost are required to be disclosed in the said financial statements.

The Company is required to classify the fair valuation method of the financial / non-financial assets and liabilities, either measured or disclosed at fair value in the financial statements, using a three level fair-value-hierarchy (which reflects the significance of inputs used in the measurement).

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

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy described as follows:

â¢ 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.

â¢ Level 2 financial instruments - Those where the inputs that are used for valuation and are significant, are derived from directly or indirectly observable market data available over the entire period of the instrument''s life.

â¢ Level 3 financial instruments - include one or more unobservable input where there is little market activity for the asset/liability at the measurement date that is significant to the measurement as a whole.

p) Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at banks and on hand and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.

q) Cash flow statements

The standalone cash flow statement is prepared in accordance with the Indirect method. Standalone cash flow statement presents the cash flows by operating, financing and investing activities of the Company. Operating cash flows are arrived by adjusting profit or loss before tax for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.

r) Proposed dividend

As per Ind AS -10, âEvents after the Reporting period'', the Company disclose the dividend proposed by board of directors after the balance sheet date in the notes to these standalone financial statements. The liability to pay dividend is recognised when the declaration of dividend is approved by the shareholders.

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