Notes to Accounts of Spandana Sphoorty Financial Ltd.

Mar 31, 2025

l) 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.

m) 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 non-occurrence 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.

n) Earnings per equity share (EPS)

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.

o) 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.

p) Statements of cash flows

The standalone statement of cash flows from operating
activities is prepared in accordance with the Indirect
method as per Ind AS 7. Standalone statement of cash

flows 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.

q) Offsetting financial instruments

Financial assets and financial liabilities are offset
when it currently has a legally enforceable right (not
contingent on future events) to off-set the recognised
amounts and the company intends either to settle on a
net basis, or to realise the assets and settle the liabilities
simultaneously.

r) Proposed dividend

As per Ind AS -10, ''Events 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 recognized when the declaration of
dividend is approved by the shareholders.

s) Recent Accounting pronouncements

Ministry of Corporate Affairs ("MCA") notifies new
standards or amendments to the existing standards
under Companies (Indian Accounting Standards) Rules
as issued from time to time. For the year ended March
31, 2025, MCA has not notified any new standards or
amendments to the existing standards applicable to
the Company.

7: Loans (Contd.)

from the customer and the field staff. In a joint liability group model (JLG), the fellow group / centre members understand the
financial position and their intent to pay. Inputs on product guideline are driven basis feedback received during interactions
between the customers (group members attending centre meetings) and our field staff. Recommendations basis these
interactions are then given to the supervisory hierarchy including the Chief Business Officer who in turn evaluates and
recommends for approval to the COO. In determining whether lending to these customers has any significant increase
in credit risk or impairment of such loans and potential future loss estimate, the Company takes into consideration the
borrowers'' vintage, past repayment behaviour and viability of their businesses, as a separate cohort. Accordingly, the
company has classified such loans based on their latest repayment schedule as at respective period end and in the respective
stage buckets. Further, the company has discontinued disbursement to delinquent (30 ) borrowers w.e.f January 1, 2025.

21: Other Equity (contd.)

Nature and purpose of other equity
Securities premium

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

General reserve

Amount set aside from retained profits as a general reserve to be utilised in accordance with provisions of the Companies
Act, 2013.

Capital redemption reserve

In accordance with section 55 of the Companies Act, 2013, the Company had transferred an amount equivalent of the
nominal value of Optionally convertible cumulative redeemable preference shares redeemed during previous years, to the
Capital Redemption Reserve. The reserve can be utilised only for limited purposes in accordance with the provisions of the
Companies Act, 2013.

Share options outstanding account

The share option outstanding account is used to recognise the grant date fair value of option issued to employees under
employee stock option scheme.

Statutory reserve (As required by Section 45-IC of Reserve Bank of India Act, 1934

Statutory reserve represents the accumulation of amount transferred from surplus year on year based on the fixed percentage
of profit for the year, as per section 45-IC of Reserve Bank of India Act 1934.

Retained earnings

Retained earnings are the profits that the Company has earned till date, less any transfers to statutory reserve, general
reserve or any other such other appropriations to specific reserves.

Fair valuation on loans through other comprehensive income

The Company has elected to recognize changes in the fair value of loans in other comprehensive income. These changes
are accumulated as reserve within equity. The Company transfers amount from this reserve to retained earnings when the
relevant loans are derecognized.

Effective portion of cashflow hedges

For designated and qualifying cash flow hedges, the effective portion of the cumulative gain or loss on the hedging instrument
is initially recognised directly in OCI within equity (cash flow hedge reserve). 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.

Note: For the year ended March 31, 2025, 4,72,139 employee stock options granted under ESOP were excluded from the
calculation of diluted weighted average number of equity shares as their effect would have been anti-dilutive.

33: Operating segment

The Company operates in a single business segment i.e. financing, as the nature of the loans are exposed to similar risk
and return profiles hence they are collectively operating under a single segment as per I nd AS 108 on ''Operating Segments''.
The Company operates in a single geographical segment i.e. domestic, and hence there is no external revenue or assets
which require disclosure. No revenue from transactions with a single external customer aggregates to 10% or more of the
Company''s total revenue during the year ended March 31, 2025 or March 31,2024.

34: Related party disclosures (As per Ind AS 24)

(a) Name of related parties and nature of relationship

I. Subsidiary Companies

a) Caspian Financial Services Limited

b) Criss Financial Limited

II. Key Management Personnel (“KMP")

a) Mr. Shalabh Saxena - Managing Director and Chief Executive Officer (resigned w.e.f April 23, 2025)

b) Mr. Ashish Damani - Interim CEO, President and Chief Financial Officer (Interim CEO w.e.f. April 23, 2025)

c) Mr. Ramesh Periasamy - Company Secretary and Chief Compliance Officer (KMP upto January 22, 2024)

d) Mr. Vinay Prakash Tripathi - Company Secretary (w.e.f. January 23, 2024)

36: Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the
principal (or most advantageous) market at the measurement date under current market conditions (i.e., an exit price),
regardless of whether that price is directly observable or estimated using a valuation technique. In order to show how
fair values have been derived, financial instruments are classified based on a hierarchy of valuation techniques. This note
describes the fair value measurement.

Valuation framework

The Company will assess the fair values for assets qualifying for fair valuation. The Company''s valuation framework includes:

1. Benchmarking prices against observable market prices or other independent sources;

2. Development and validation of fair valuation models using model logic, inputs and adjustments.

These valuation models are subject to a process of due diligence and validation before they become operational and are
continuously calibrated. These models are subject to approvals by various functions.

Fair values of financial assets, other than those which are subsequently measured at amortised cost, have been arrived at
as under:

1. Fair values of investments held under FVTPL have been determined under level 1 using quoted Net Asset Value of the
underlying instruments;

2. Fair value of loans held under a business model that is achieved by both collecting contractual cash flows and selling
the loans are measured at FVOCI. The fair value of these loans has been determined under level 2.

37: Fair Value Hierarchy of assets and liabilities

Fair value measurement

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

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

Level 2 - The fair value of financial instruments that are not traded in an active market are determined using valuation
techniques which maximise the use of observable market data (either directly as prices or indirectly derived from prices)
and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are
observable, the instrument is included in level 2. The financial instruments included in Level 2 of fair value hierarchy have
been valued using quotes available for similar assets and liabilities in the active market.

Level 3 - If one or more of the significant inputs is not based on observable market data (unobservable), the instrument is
included in level 3.

Note:

The carrying amounts of cash and cash equivalents, bank balances other than cash and cash equivalents and other financial
assets / liabilities approximate the fair value because of their short-term nature.

Valuation technique used
For Term loans

The scheduled future cash flows (including principal and interest) are discounted using the lending rate prevailing as at the
balance sheet date. The discounting factor is applied assuming the cash flows will be evenly received in a month. Further the
overdue cash flows upto 90 Days (upto stage II) are discounted assuming they will be received in the third month. Fairvalue
of cash flows for stage III loans are assumed as carrying value less provision for impairment loss allowance.

For investment in mutual funds

For investments, the Company has assessed the fair value on the basis of the NAV (Net Asset Value) declared by the
mutual fund houses.

For investment in security receipts

The expected recoveries are discounted at yield to arrive at the present value of the recoveries. Fair value of cash flows
are assumed as carrying value less provision for impairment loss allowance.

Financial liabilities measured at amortised cost
For Borrowings

The fair value of fixed rate borrowings is determined by discounting expected future contractual cash flows using current
market interest rate being charged for new borrowings. The fair value of floating rate borrowing is deemed to equal its
carrying value.

There have been no transfer between Level 1, 2 and 3 during the year ended March 31, 2025 and March 31, 2024.

38: Capital Management (Refer Note 51)

The Company''s objective for capital management is to maximize shareholders'' value, safeguard business continuity, meet
the regulatory requirement and support the growth of the Company. The Company determines the capital requirement based
on annual operating plans and long-term and other strategic investment plans. The funding requirements are met through
borrowings, retained earnings and operating cash flows generated.

As an NBFC-MFI, the RBI requires us to maintain a minimum capital to risk weighted assets ratio ("CRAR") consisting of Tier
I and Tier II capital of 15% of our aggregate risk weighted assets. Further, the total of our Tier II capital cannot exceed 100%
of our Tier I capital at any point of time. The capital management process of the Company ensures to maintain a healthy
CRAR at all the times.

39: Defined Benefit Gratuity Plan

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service is eligible
for gratuity, on cessation of employment and it is computed at 15 days salary (last drawn salary) for each completed year of
service subject to limit of '' 0.2 crs per the Payment of Gratuity Act, 1972. The scheme is funded with an insurance Company
in the form of a qualifying insurance policy.

The following tables summarized the components of net benefit expense recognized in the statement of profit and loss and
the funded status and amounts recognized in the Balance Sheet for the gratuity plan.

Investment risk

The plan liabilities are calculated using a discount rate set with references to government bond yields; if plan assets
underperform compared to this yield, this will create or increase a deficit. Currently, for the plan in India, it has a relatively
balanced mix of investments in government securities, and other debt instruments.

Interest rate risk

A decrease in government bond yields will increase plan liabilities, although this is expected to be partially offset by an
increase in the value of the plan''s investment in debt instruments.

Variability in withdrawal rates

If actual withdrawal rates are higher than assumed withdrawal rate assumption, then the gratuity benefits will be paid earlier
than expected. The impact of this will depend on whether the benefits are vested as at the resignation date.

Regulatory Risk

Gratuity Benefit must comply with the requirements of the Payment of Gratuity Act, 1972 (as amended up-to-date). There is
a risk of change in the regulations requiring higher gratuity payments (e.g. raising the present ceiling of '' 20,00,000, raising
accrual rate from 15/26 etc.).

Inflation Risk

The present value of some of the defined benefit plan obligations are calculated with reference to the future salaries of plan
participants. As such, an increase in the salary of the plan participants will increase the plan''s liability.

Salary Risk

The present value of the defined benefit plan liability is calculated by reference to the future salaries of members. As such,
an increase in the salary of the members more than assumed level will increase the plan''s liability.

Asset Liability Matching Risk

The plan faces the ALM risk as to the matching cash flow. Since the plan is invested in lines of Rule 101 of Income Tax Rules,
1062, this generally reduces ALM risk.

Concentration Risk

Plan is having a concentration risk as all the assets are invested with the insurance company and a default will wipe out all
the assets. Although probability of this is very low.

Life expectancy

The present value of defined benefit plan obligation is calculated by reference to the best estimate of the mortality of plan
participants, both during and after the employment. An increase in the life expectancy of the plan participants will increase
the plan''s liability.

If actual mortality rates are higher than assumed mortality rate assumption than the gratuity benefits will be paid earlier than
expected. Since there is no condition of vesting on the death benefit, the acceleration of cashflow will lead to an actuarial
loss or gain depending on the relative values of the assumed salary growth and discount rate.

42: Risk Management and financial objectives

Risk is an integral part of the Company''s business and sound risk management is critical to the success. As a financial
intermediary, the Company is exposed to risks that are particular to its line of business and the environment within which it
operates and primarily includes credit, liquidity and market risks. The Company has a risk management policy which covers
all types of risks that the Company is exposed to. The risk management policy is approved by the Board of Directors.

The Company has identified and implemented comprehensive policies and procedures to assess, monitor and manage risk
throughout the Company. The risk management process is continuously reviewed, improved and adapted in the context of
changing risk scenarios and agility of the risk management process is monitored and reviewed for its appropriateness in
the changing risk landscape. The process of continuous evaluation of risks includes taking stock of the risk landscape on
an event-driven basis.

The Company has an elaborate process for risk management. Major risks identified by the businesses and functions are
systematically addressed through mitigating actions on a continuing basis.

42.1 Credit Risk

Credit risk is the risk that the counterparty shall not meet its obligations under a financial instrument or customer contract,
leading to a financial loss for the lender. Credit risk encompasses of both, the direct risk of default and the risk of deterioration
of the creditworthiness as well as concentration of risks. Credit risk arises primarily from financial assets such as loan
receivables, investment in securities, balances with banks and other receivables.

Financial instruments that are subject to concentration of credit risk principally consist of investments, bank deposits and
other financial assets. The policies of the Company are framed in a manner that ensure that none of the financial instruments
where the Company has invested result in material concentration of credit risk.

None of the Company''s cash equivalents, including fixed deposits, were either past due or impaired as at March 31, 2025
and March 31,2024. The Company has diversified its portfolio of investment in cash and cash equivalents and term deposits
with various banks with sound credit ratings, hence the risk is reduced.

Loans

Credit risk is the risk of loss that may occur from defaults by our borrowers under our loan agreements. In order to address
this credit risk, we have stringent credit assessment policies for client selection. Measures such as verifying client details,
online documentation and the usage of credit bureau data to get information on past credit behaviour also supplement the
efforts for containing credit risk. We also follow a systematic methodology in the opening of new branches, which takes into
account factors such as the demand for credit in the area; income and market potential; and socio-economic and law and
order risks in the proposed area. Further, our client due diligence procedures encompass various layers of checks, designed
to assess the quality of the proposed group and to confirm that they meet our criteria.

The Company is a rural focused NBFC-MFI with a geographically diversified presence in India and offers income generation
loans under the joint liability group model, predominantly to women from low-income households in rural areas. Further,
as we focus on providing micro-loans in rural areas, the results of our operations are affected by the performance and the
future growth potential of microfinance in rural India. Our clients typically have limited sources of income, savings and
credit histories and our loans are typically provided free of collateral. Such clients generally do not have a high level of
financial resilience, and, as a result, they can be adversely affected by declining economic conditions and natural calamities.
In addition, we rely on non-traditional guarantee mechanisms rather than tangible assets as collateral, which may not be
effective in recovering the value of our loans.

The criteria of default, significant increase in credit risk and stage assessment is mentioned in note 3 (j) of the material
accounting policies. The below discussion describes the Company''s approach for assessing impairment.

A) Probability of default (PD)

The Company compute PD at enterprise level considering the borrower profile and loan product offered to them are
homogeneous. The product features like loan tenure, interest rate, ticket size, customer selection are uniform across
the branches and thus carry similar uncertainties. The geographical related political and natural calamity risk is more
rationalised when looked at the enterprise level.

Accordingly, the Company determines PD for each stage depending upon the underlying classification of asset (i.e.,
Stage I or Stage II). The PD rates for Stage I and II have been further bifurcated based on the days-past-due (DPD) status
of the loans (i.e., current to 30 DPD, 31-60 DPD and 61-90 DPD) to incorporate adequate granularity. PD rate for stage 3
is derived as 100% considering that the default occurs as soon as the loan becomes overdue for 90 days.

B) Exposure at default (EAD)

Exposure at default (EAD) is the sum of outstanding principal and the interest amount accrued but not received on
each loan as at reporting date.

C) Loss given default

The Company determines its expectation of lifetime loss by estimating recoveries towards its loan through analysis
of historical information. The Company determines its recovery rates by analysing the recovery trends over different
periods of time after a loan has defaulted. LGD is the difference between the exposure at default and its recovery rate.
It is based on the difference between the contractual cash flows due and those that the Company would expect to
receive. LGD is calculated as % of Exposure that the Company expects to lose at the time of default. LGD is computed
as {1-Recovery Rate (RR)} where RR indicates % of Recovery post default.

Collateral and other credit enhancement

The Company''s secured portfolio consists of loans against property (including land and building). Although collateral is an
important mitigant credit risk, the Company''s practice is to lend on the basis of its assessment of the customer''s ability to
repay rather than placing primary reliance on collateral. Based on the nature of the product and the Company''s assessment
of the customer''s credit risk, a loan may be offered with suitable collateral.

42.1 .a I nter-corporate advance given by the Company to related parties are repayable on demand and governed by Company''s
policy on demand loans approved by the board of directors. Such policy requires credit appraisal of the financial and
operational performance of the counter parties, to be performed by the Company before renewing/rolling over of the advance.

42.2 Liquidity Risk

Liquidity risk refers to the risk that the Company may not meet its financial obligations. Liquidity risk arises due to the
unavailability of adequate funds at an appropriate cost or tenure. The objective of liquidity risk management is to maintain
sufficient liquidity and ensure that funds are available for use as per requirements. The Company consistently generates
sufficient cash flows from operating and financing activities to meet its financial obligations as and when they fall due. Our
resource mobilization team sources funds from multiple sources, including from banks, financial institutions and capital
markets to maintain a healthy mix of sources. The resource mobilization team is responsible for diversifying fundraising
sources, managing interest rate risks and maintaining a strong relationship with banks, financial institutions, mutual funds,
insurance companies, other domestic and foreign financial institutions and rating agencies to ensure the liquidity risk is well
addressed. In order to reduce dependence on a single lender, the Company has adopted a cap on borrowing from any single
lender at 25%. The maturity schedule for all financial liabilities and assets are regularly reviewed and monitored. Company
has a asset liability management (ALM) policy and ALM Committee to review and monitor the liquidity risk and ensure the
compliance with the prescribed regulatory requirement. The ALM Policy prescribes the detailed guidelines for managing
the liquidity risk.

Spandana Employee Stock Option Plan 2018 and Spandana Employee Stock Option Scheme, 2018 (''ESOP Plan 2018 and
ESOP Scheme 2018'')

Spandana Employee Stock Option Plan 2018 and Spandana Employee Stock Option Scheme, 2021 (''ESOP Plan 2018 and
ESOP Scheme 2021'')

Spandana Employee Stock Option Plan 2021 Series A and Spandana Employee Stock Option Scheme, 2021 -Series A (''ESOP
Plan 2021 and ESOP Scheme 2021 Series A'')

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

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

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

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

(i) directly or indirectly lend or invest in other person or entity identified in any manner whatsoever by or on behalf of
the Funding Party (Ultimate Beneficiaries) or

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

Exchange Traded Interest Rate (IR) Derivatives

The Company has not traded in Interest Rate Derivative during the financial year ended March 31,2025 (March 31, 2024: Nil).

Disclosures on Risk Exposure in Derivatives
A. Qualitative Disclosure

The Company manages various risks associated with the lending business, including liquidity risk, foreign exchange risk,
interest rate risk and counterparty risk. To manage these risks, the Company has Board approved policies and framework,
including the Risk Management Policy and ALM Policy, which sets limits for exposures on currency, interest rates and other
parameters. The Company manages its currency risk and enters in to derivative contracts in accordance with the guidelines
prescribed therein.

Liquidity risk and Interest rate risk arising out of maturity mismatch of assets and liabilities are managed through regular
monitoring of maturity profiles. The currency risk and interest rate risk on borrowings is actively managed mainly through
derivative financial instruments by entering in to forward contracts and cross currency interest rate swaps. Counter party
risk is reviewed periodically to ensure that exposure to various counter parties is well diversified and is within the limits fixed
by the Risk Management Committee.

H. The Company does not have any parent company, hence disclosure relating to product financed by parent company is
not applicable.

I. Details of Single Borrower Limit (SGL) / Group Borrower Limit (GBL) exceeded by the applicable NBFC

The Company has not exceeded the prudential exposure limits for Single Borrower Limit / Group Borrower Limit during
current and previous year.

J. Unsecured Advances - Refer note 7

K. Registration obtained from other financial sector regulators:

The Company is registered with the ''Ministry of Corporate Affairs'' (Financial regulators as described by Ministry of
Finance).

L. Disclosure of Penalties imposed by RBI and Other Regulators:

For the year ended March 31, 2025: No penalty imposed by RBI and other Regulators

For the year ended March 31, 2024: No penalty imposed by RBI and other Regulators

48: Additional information required by Master Direction - Reserve Bank of India (Non-Banking Financial
Company - Scale Based Regulation) Directions, 2023, as amended from time to time. (contd.)

AC: Liquidity coverage ratio

The RBI has issued final guidelines on Liquidity Risk Management Framework for Non-Banking Financial Companies and
Core Investment Companies on November 04, 2019. As per the said guidelines, LCR requirement shall be binding on all
non-deposit taking systemically important NBFCs with asset size of '' 5000 crore and above but less than '' 10,000 crs from
December 1, 2020, with the minimum LCR to be 30%, progressively increasing, till it reaches the required level of 100%, by
December 1, 2024.

The Company follows the criteria laid down by RBI for calculation of High Quality Liquid Assets (HQLA), gross outflows
and inflows within the next 30-day period. HQLA predominantly comprises cash and balance with other banks in current
account. All significant outflows and inflows determined in accordance with RBI guidelines are included in the prescribed
LCR computation template. The disclosure on Liquidity Coverage Ratio of the Company for the period ended March 31, 2025
is as under:

6. Institutional set-up for liquidity risk management:

The Company has an Asset Liability Management Committee (ALCO), a management level committee to handle liquidity
risk management. The ALCO meetings are held at periodic intervals. At the apex level, the Risk Committee (RC), a sub¬
committee of the Board of Directors of the Company, oversees the liquidity risk management. The RC subsequently
updates the Board of Directors on the same.

Notes:

1. Significant counterparty is as defined in RBI Circular RBI/2019-20/88 DOR.NBFC (PD) CC.No.102/03.10.001/2019-20
dated November 4, 2019 on Liquidity Risk Management Framework for Non-Banking Financial Companies and Core
Investment Companies.

2. Significant instrument/product is as defined in RBI Circular RBI/2019-20/88 DOR.NBFC (PD) CC.No.102/03.10.001/2019-20
dated November 4, 2019 on Liquidity Risk Management Framework for Non-Banking Financial Companies and Core
Investment Companies.

3. Total Liabilities has been computed as sum of all liabilities (Balance Sheet figure) less Equities and Reserves/Surplus.

4. Short term liabilities includes all financial and non-financial liabilities expected to be paid within one year.

5. Public funds is as defined in Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit
taking Company and Deposit taking Company (Reserve Bank) Direction, 2016.

49: The Company in respect of the observation made by the RBI in its inspection report for the years ended March 31, 2018
and March 31, 2019 and subsequent correspondence with Reserve Bank of India ("RBI") with respect to the compliance with
the pricing of credit guidelines prescribed under paragraph 56 of the Master Direction - Non-Banking Financial Company -
Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016, dated
September 1,2016, as amended had adequately recognised the impact of excess interest collected on loans disbursed during
the period from Oct 2017 to Feb 2020, in the financial statements for the year ended March 31,2021. During the year ended
March 31, 2025, the Company had refunded '' 2.14 crores by way of credit into customers bank accounts / loan accounts.
Given the profile of the customers and accessibility issues, the company is unable to trace borrower / bank account of
borrower for remaining balances of '' 23.13 crores and has sought advice from Reserve bank of India on the refund of balance
amount (for which bank account details are not available with the Company) and will act as per directive from Reserve bank
of India.

Note 2: The Company has not restructed any loan accounts under RBI''s Resolution Framework 1.0 dated August 6, 2020.

51 (a): During the financial year ended March 31,2025, the microfinance industry faced unprecedented challenges due to a

combination of external and structural headwinds. These included climatic disruptions, the weakening of the Joint
Liability Group (JLG) lending model, deterioration in borrower discipline, elevated levels of borrower indebtedness,
and external socio-political influences affecting customer behavior. These factors, which emerged in Q1 and
persisted through the year, significantly impacted field operations, disrupted center meetings, and hindered the
timely delivery of services to borrowers including timely collections. Operational stress was further intensified by
increased field-level attrition, contributing to higher delinquencies, gross slippages, elevated credit costs, and a
resulting in reported loss for the quarter and year ended March 31, 2025.

As a prudent and conservative accounting measure, the Company has recognized technical write-offs amounting
to ''646.81 crores for the quarter ended March 31, 2025 and ''1,555.39 crores for the year ended March 31, 2025.
These accelerated write-offs also contributed to elevated credit costs and a reported loss for both the quarter
and the financial year ended March 31, 2025. The selection of accounts for write-off was based on objective

criteria, including loan ageing and persistent non-repayment behaviour as of the reporting date. The Company
remains focused on strengthening on-ground recovery initiatives and is confident of driving improved collection
performance going forward. Any recoveries from these technically written-off assets will be recognized in the
statement of profit and loss in the period in which they are realized.

Owing to the reasons outlined above, the Company was non-compliant with certain covenants related to portfolio
at risk (PAR) 30, PAR 60, Gross non-performing assets, non-performing loans, tangible net worth, and quarterly /
annual profitability as of and for the year ended March 31, 2025. The Company has obtained waivers in respect of
such non-compliant covenants from few of the lenders.

The Company has been in constant communication with its lenders and is confident that no demand for immediate
repayment of borrowed funds will be made due to non-compliance with the covenants. As on the date of these
financial results, none of the lenders have intimated about the same.

(b) The Company, being an NBFC-MFI, is required to deploy a minimum of 75% of its total assets toward "microfinance
loans" in accordance with paragraph 5.1.21 of the Master Direction - Reserve Bank of India (Non-Banking Financial
Company - Scale Based Regulation) Directions, 2023, as amended from time to time. As of March 31, 2025, the
Company''s qualifying assets (i.e., microfinance loans to total assets) stand at 65.51%. Pursuant to the Company''s
request dated January 18, 2025, the RBI, vide its communication dated February 6, 2025, has granted an extension
of time until June 30, 2025 to meet the qualifying asset requirement of 75%. The Company will take the necessary
steps including continued disbursement of microfinance loans in the normal course of business to fully comply
with the qualifying asset criteria by June 30, 2025.

(c) The Company''s cautious and calibrated disbursement strategy resulted in a reduction of the loan book from
''10,566.91 crores as of March 31, 2024, to ''5,554.45 crores as of March 31, 2025. The Company continues to
maintain a strong capital position, with Tier I capital of ''1,672.74 crores and a healthy Capital to Risk-Weighted
Assets Ratio (CRAR) of 36.31%, well above the regulatory minimum requirement.

The Company''s healthy CRAR has the ability to support current operations and much of its future growth projections.
Further, the Company has a strong nationwide presence with a large and engaged borrower base, including over
23-24 lakh active customers and an additional pool of dormant borrowers with fresh credit demand. Some of these
borrowers maintain a primary lending relationship with the Company, reinforcing customer loyalty and demand
visibility. With the implementation of industry guardrails, the broader ecosystem is expected to become more
credit-disciplined, contributing to sustainable improvements across key performance metrics. Backed by a healthy
liquidity position and an upcoming proposed equity infusion as confidence capital, approved by the Board and
shareholders, the Company is well-positioned to meet future growth requirements while maintaining operational
continuity and financial resilience.

(d) Considering the factors outlined in Notes 51 (a), (b) and (c), management has carried out an assessment of its going
concern assumption and concluded that going concern assumption is appropriate for the preparation of financial
statements. Management is of the view that the Company will be able to realise all its assets and discharge all
its liabilities in the normal course of business. There are no material uncertainties on the Company''s ability to
continue as a going concern. Accordingly, the standalone financial statements for the year ended March 31, 2025,
have been prepared on a going concern basis.

(e) The Company has recognized a deferred tax asset of ''437.97 crores to the extent it is considered recoverable,
based on probable future taxable income supported by approved business plans and budgets. The losses for
the current year were mainly due to significant impairment losses (including technical write offs) arising from
credit deterioration of loans to customers (as stated in Note 51 (a)) and this will be improved going forward by
strengthening on-ground recovery and implementaion of industry guardrails. Accordingly, the Company expects
to generate sufficient taxable profits to fully utilize the losses.

52. The Company maintains its records through an integrated software application that encompasses both the financial
accounting and loan management modules. This application was historically managed and updated by the Original
Equipment Manufacturer (OEM). During the financial year 2024-25, the Company transitioned the control of further system
enhancements and deployments in-house, thereby mitigating operational risks associated with third-party dependency.

In FY 2024-25, the Company faced operational challenges particularly in field operations because of elevated attrition at
the branch level. This resulted in discontinuity & disruption at branch-level controls such as increased instances of fraud
[refer note 48 (w)], delays in end-of-day (EOD) processing & operational monitoring. The financial impact of these events
has been fully recognized and appropriately accounted for in the financial statements.

To prevent recurrence and strengthen operational oversight, the Company has implemented corrective measures including
deploying additional monitoring layer in form of Branch Quality Manager (BQM) at the branches, increased its frequency
of branch monitoring by supervisory levels, customer engagement & tightening measures of operational control through
technology.

53: Additional Regulatory Information

(a) There is no such immovable properties held whose title deeds are not held in the name of the Company.

(b) There are no investment property as on March 31, 2025 and March 31, 2024.

(c) The Company has not revalued its Property, Plant and Equipment (including Right-of Use Assets) and intangible
assets based on the valuation by a registered valuer as defined under rule 2 of Companies (Registered Valuers
and Valuation) Rules, 2017.

(d) No proceeding has been initiated or pending against the Company for holding any benami property under the
Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and rules made thereunder.

(e) The statements of current assets filed by the Company with banks or financial institutions with respect to its
borrowings including debt securities and working capital limits on a quarterly basis are in agreement with the
books of accounts.

(f) The Company has not been declared wilful defaulter by any bank or financial Institution or other lender.

(g) No transactions were carried out during the year with companies struck off under section 248 of the Companies
Act, 2013 or section 560 of Companies Act, 1956 except as disclosd below:

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

(i) There is no income surrendered or disclosed as income during the current or previous year in the tax assessments
under the Income Tax Act, 1961, that has not been recorded in the books of account.

(j) The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.

(k) The Company has been sanctioned working capital limits by banks or financial institutions on the basis of security
of current assets during the year.

(l) The Company has availed borrowings from banks and financial institutions and has applied the funds for the
specific purposes for which they were sanctioned, as at the balance sheet date. Any unutilized funds as at March
31, 2025 and March 31, 2024 have been temporarily deployed in investments and bank deposits, pending their
intended utilization.

(m) The Company has a process whereby periodically all long-term contracts (including derivative contracts) are
assessed for material foreseeable losses. The Company reviews and ensures that adequate provision as required
under any law/ accounting standards for material foreseeable losses on such long-term contracts (including
derivative contracts) has been made in the books of account. There were no such contracts for which there were
any material foreseeable losses for the year ended March 31, 2025.

As per our report of even date

For B S R & Co. LLP For and on behalf of the Board of Directors of

Chartered Accountants Spandana Sphoorty Financial Limited

ICAI Firm registration number

101248W/W-100022

Kapil Goenka Abanti Mitra Ashish Damani

Partner Chairperson Interim CEO, President &

Membership No.: 118189 DIN: 02305893 Chief Financial Officer

Vinay Prakash Tripathi

Company Secretary

Membership No.: ACS-18976

Place: Hyderabad Place: Hyderabad

Date: May 30, 2025 Date: May 30, 2025

---

Mar 31, 2024

j) 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

k) 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 non-occurrence 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.

l) 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, except trade receivables which is recorded at transaction price. 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:

• Loan Portfolio at amortized cost

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

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

• Other financial assets at amortized cost

Loan Portfolio at amortized cost:

Loan Portfolio is measured at amortized cost where:

• 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

• 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:

• 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

• 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.

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 ‘SPPI 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 ‘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 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.

m) 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.

n) 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:

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

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

• 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.

o) 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.

p) 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.

q) Proposed dividend

As per Ind AS -10, ‘Events 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.

r) New and amended standards

i) Disclosure of Accounting Policies- Amendments to lnd AS 1, Presentation of financial statements

The amendment requires entities to disclose their material rather than their significant accounting policies. The amendments define what is material accounting policy information and explain how

to identity when accounting policy information is material. They further clarify that immaterial accounting policy information does not need to be disclosed. If it is disclosed, it should not obscure material accounting information.

The amendment have had an impact on the Company''s disclosure of accounting policy, but not on the measurement, recognition or presentation of any item in the financial statements

ii) Amendments to Ind AS 8, Accounting policies, changes in accounting estimates and errors

The amendment clarifies how entities should distinguish changes in accounting policies from changes in accounting estimates. The distinction is important, because changes in accounting estimates are applied prospectively to future transactions and other future events, but changes in accounting policies are generally applied retrospectively to past transactions and other past events as well as the current period. The amendment have no impact on the financial statements.

iii) Deferred tax related to assets and liabilities transaction - Amendments to Ind AS 12, Income taxes

The amendment requires entities to recognise deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. They will typically apply to transactions such as leases of lessees and decommissioning obligations and will require the recognition of additional deferred tax assets and liabilities. In addition, entities should recognise deferred tax assets (to the extent that it is probable that they can be utilised) and liabilities at the beginning of the eartiest comparative period for all deductible and taxable temporary differences associated with right-of-use assets and lease liabilities, and decommissioning restoration and similar liabilities, and the corresponding amounts recognised as part of the cost of the related assets. The amendment have no impact on the financial statements.

s) Recent Accounting pronouncements

Ministry of Corporate Affairs ("MCA") notifies new standards or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time. For the year ended March 31, 2024, MCA has not notified any new standards or amendments to the existing standards applicable to the Company.

Note 3: The Company product programme guideline allows disbursement to borrowers which are in SMA buckets subject to fulfilment of other eligibility criteria as applicable. While product guidelines allow such disbursement, the decision to disburse to these specific clients (by preclosing existing loan and give top-up loans) are taken based on inputs received from the customer and the field staff. In a joint liability group model (JLG), the fellow group / centre members understand the financial position and their intent to pay. Inputs on product guideline are driven basis feedback received during interactions between the customers (group members attending centre meetings) and our field staff. Recommendations basis these interactions are then given to the supervisory hierarchy including the Chief Business Officer who in turn evaluates and recommends for approval to the COO. In determining whether lending to these customers has any significant increase in credit risk or impairment of such loans and potential future loss estimate, the Company takes into consideration the borrowers'' vintage, past repayment behaviour and viability of their businesses, as a separate cohort. Accordingly, the company has classified such loans as follows:

a) The loans which are disbursed to stage II borrowers are classified based on their latest repayment schedule as at respective period end and in the respective stage buckets.

b) The loans which are disbursed to stage III borrowers are either classified under "stage III" or in respective staging bucket as per the latest repayment schedule, depending upon management''s assessment of the customer repayment behaviour.

Note 4: No impairment allowance has been recognized on the outstanding inter-corporate advances to related parties as at March 31, 2024 and March 31, 2023.

13 (B) Instances of breach of covenant of loan availed or debt securities issued during year ended March 31, 2024:

(i) During the year ended March 31,2024, the Company was in non-confirmation of certain specific covenants associated with a few of its borrowings. However, following discussions with the lenders, the Company is confident that no adverse measures, such as increase in interest rates or demand for immediate repayment of the borrowed funds, will be taken by the lenders due to non-compliance with the covenants. The instances of non-confirmation of specific covenants relates to three months liquidity in case of two ISINs, two months liquidity in case of another two ISINs (upto September 30, 2023) and maintenance of tangible net worth in case of two ISINs (upto September 30, 2023). Pursuant to the non-confirmation, few debenture holders holding NCDs aggregating to ''6.54 crs (out of ''325 crs issue pertaining to these ISINs), have exercised their right of accelerated redemption and the Company has already honoured such request including payment / accrual of additional interest during the year. The Company has made necessary disclosures to stock exchanges in this regard.

The Company is holding cash and cash equivalents of ''1,385.55 crs as on March 31, 2024 and did not have any cumulative mismatch across all ALM buckets.

The two ISINs (having three months liquidity covenant) which continue to be non-compliant due to the reasons as explained below.

a) Significant increase in borrowings from ''5,934.20 crs as of March 31,2023 to ''9,012.16 crs as of March 31, 2024; and

b) An increase in liabilities leads to a higher amount of cash and bank balance to be maintained in accordance with the covenant related to three months liquidity. As of March 31, 2024, the Company is holding cash and cash equivalents aggregating ''1,385.55 crs, against the required liquidity amount of ''2,415.10 crs as per the term of the debenture trust deed and does not have any cumulative mismatch across all the ALM buckets. The maintenance of such higher level of cash and bank balances adversely impact the qualifying assets criteria as applicable to NBFC-MFIs pursuant to the Master Direction - Reserve Bank of India (Non-Banking Financial Company - Scale Based Regulation) Directions 2023'' ("SBR Master Direction").

Till date, none of the lenders have indicated any intention to initiate remedial actions, and the Company has consistently met its debt servicing obligations. Accordingly, no adjustment are made in the financial statements..

(ii) During the year ended and as at March 31, 2023, the Company has been regular in serving all its borrowings though there has been breach of some of the convenants relating to 30 PAR, GNPA, NNPA, annualized return on assets, tangible net worth and two / three months Liquidity as per the formula defined in the respective Debenture Trust Deeds. All these covenants have been complied with since the quarter ended June 20, 2023 except as explained above during the year ended March 31, 2024.

18: Share capital (Contd.)

(a) Terms / rights attached to equity shares

The Company has only one class of equity shares of par value of ''10 per share. Each holder of equity shares is entitled to one vote per share. Any dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. The Company declares and pays dividends in Indian rupees. During the current financial year no dividend has been proposed by the Company.

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.

19: Other Equity (Contd.)

Capital redemption reserve

in accordance with section 55 of the Companies Act, 2013, the Company had transferred an amount equivalent of the nominal value of OCCRPS redeemed during previous years, to the Capital Redemption Reserve. The reserve can be utilised only for limited purposes in accordance with the provisions of the Companies Act, 2013.

Share options outstanding account

The share option outstanding account is used to recognise the grant date fair value of option issued to employees under employee stock option scheme.

Statutory reserve (As required by Sec 45-IC of Reserve Bank of India Act, 1934

Statutory reserve represents the accumulation of amount transferred from surplus year on year based on the fixed percentage of profit for the year, as per section 45-IC of Reserve Bank of India Act 1934.

Money received against share warrants

During the year ended March 31, 2022, the Company had alloted 18,52,739 fully convertible warrants of ''10 each at issue price of ''458.78 per warrant including premium of ''448.78 per warrant on preferential basis to Kedaara Capital Fund iii LLP, against receipt of upfront money amounting to ''75 crore, in compliance with the SEBI Regulations and the Companies Act, 2013, to the extent applicable. Subsequently on May 21, 2022, these warrants have been exercised and are converted into 18,52,739 equity shares of ''10 each at issue price of ''458.78 per share including premium of ''448.78 per share.

Retained earnings

Retained earnings are the profits that the Company has earned till date, less any transfers to statutory reserve, general reserve or any other such other appropriations to specific reserves.

Fair valuation on loans through other comprehensive income

The Company has elected to recognize changes in the fair value of loans in other comprehensive income. These changes are accumulated as reserve within equity. The Company transfers amount from this reserve to retained earnings when the relevant loans are derecognized.

31: Segment Reporting

The Company operates in a single business segment i.e. financing, as the nature of the loans are exposed to similar risk and return profiles hence they are collectively operating under a single segment as per I nd AS 108 on ‘Operating Segments''. The Company operates in a single geographical segment i.e. domestic, and hence there is no external revenue or assets which require disclosure. No revenue from transactions with a single external customer aggregates to 10% or more of the Company''s total revenue during the year ended March 31, 2024 or March 31, 2023.

32: Related party disclosures (As per Ind AS 24)

(a) Name of related parties and nature of relationship

I. Subsidiary Company

a) Caspian Financial Services Limited

b) Criss Financial Limited

II. Entities in which Key Management Personnel and their relatives have significant influence

a) Spandana Employee Welfare Trust

b) Spandana Rural and Urban Development Organization (upto November 02, 2021)

c) Abhiram Marketing Services Limited (upto November 02, 2021)

III. Key Management Personnel ("KMP")

a) Mr. Shalabh Saxena - Managing Director & Chief Executive Officer

b) Mr. Ashish Damani - President & Chief Financial Officer

c) Mr. Ramesh Periasamy - Company Secretary & Chief Compliance Officer (KMP upto January 22, 2024)

d) Mr. Vinay Prakash Tripathi - Company Secretary (w.e.f. January 23, 2024)

32: Related party disclosures (As per Ind AS 24) (Contd.)

IV. Directors

a) Mrs. Abanti Mitra - Non-Executive Chairperson and independent Director

b) Mr. Deepak Vaidya - independent Director

c) Mr. Animesh Chauhan - independent Director

d) Mrs. Deepali Seth - independent Director (w.e.f May 2, 2023)

e) Mr. Vinayak Prasad - independent Director (w.e.f May 2, 2023)

f) Mr. Sunish Sharma - Nominee Director

g) Mr. Kartikeya Dhruv Kaji - Nominee Director

h) Mr. Ramachandra Kasargod Kamath - Nominee Director

i) Mr. Neeraj Swaroop - Nominee Director

j) Mr. Bharat Shah - independent Director (upto April 16, 2023)

k) Mr. Jagdish Capoor - independent Director (upto June 05, 2023)

l) Mrs. Padmaja Gangireddy - Non-Executive Director (upto May 27, 2023)

V. Close member of family of director

a) Mr. Vijaya Sivarami Reddy Vendidandi (upto November 02, 2021)

Close members of the family of the person are those family members who may be expected to influence, or be influenced by, that person in their dealing with the entity including :-

a) that person''s children, spouse or domestic partner, brother, sister, father and mother;

b) children of that person''s spouse or domestic partner; and

c) dependant of that person or that person''s spouse or domestic partner.

33: Contingent Liabilities (Contd.)

ii) The Commissioner, Service Tax Commissionerate, Hyderabad, through order dated August 7, 2012 levied service tax, interest and penalty on pre-closure interest charged by the Company on loans preclosed during FY 2006-07 to FY 2010-11. The Company filed an appeal against the order before the Custom, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad. During February 2024 CESTAT, Hyderabad bench has passed an Order in favour of the Company and held that "Foreclosure charges collected by the banks and non-banking financial companies on premature termination of loans are not leviable to service tax". Consequently, the Company has discontniued contingent liability provided for this case.

iii) Additional Director, DGGI, Mumbai, has issued penalty show cause notie ("SCN") and alleged that Company has by willful acts of omission and commission have passed ineligible ITC under cover of invoices without underlying supply of goods or services have rendered themselves liable for penal action under the provision of Section 122 (l)(ii) of CGST Act, 2017 during the FY April 2018 to Aug 2022. Company is in process of preparing reply to SCN. However, given the facts of these cases and managment''s internal assessment, the penalty indicated in the SCN ''13.41 crore is considered as a Contingent Liability as at March 31, 2024.

iv) The Asst. Commissioner of Commercial Taxes (Audit -2), Karnataka, through his order dated December 22, 2023, levied GST, interest and penalty on multiple issues during FY 2017-18. The Company filed an appeal against the order before the, The Additional Commissioner of Commercial Taxes (Appeals-3), which is pending for hearing on March 31, 2024. However, given the facts of these cases and managment''s internal assessment, the demand indicated in the order ''4.93 crore is considered as a contingent liability as at March 31, 2024.

v) The Asst. Commissioner of State Tax, Odisha, through his order dated December 30, 2023, levied GST, interest and

penalty on excess ITC claimed in comparison to GSTR 2A during FY 2017-18. The Company filed an appeal against the order before the, The Joint Commissioner (Appeals), which is pending for hearing on March 31, 2024. However, given the facts of these cases and managment''s internal assessment, the demand indicated in the order ''0.34 crore is considered as a contingent liability as at March 31, 2024.

vi) The Company received an income tax assessment-cum-demand order for FY 2016-17, inter alia, raising a demand of ''51.92 crore (including accrued interest) under section 69A read with section 115BBE of the Income Tax Act, 1961 ("IT Act"). The Company has filed an appeal against this order before the Commissioner of Income Tax (Appeals) that will be heard in due course. However, based on the expert opinions obtained, the Company confident that the matter will be decided in its favour. Accordingly, the aforesaid amount has been considered as a contingent liability as at March 31, 2024. The Company has deposited ''6.92 crore against such demand.

vii) The Company received an income tax assessment-cum-demand order for FY 2017-18, disallowing deduction of ''1.34 crore claimed under section 80JJAA. While, the addition has not resulted in any additional tax demand (since during FY 2017-18), the Company had paid income tax under section 115JB of the IT Act. However, the assessing officer has levied a penalty of ''0.89 crore under section 270A of the IT Act. The Company has filed an appeal before the CIT(A) against the levy of penalty.

Based on the internal assessment and / or legal opinion, the Management is confident that, for the aforesaid mentioned contingent liabilities under paragraph (i) to (vi) above, no further provision is required to be made as at March 31,2024.

34: Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e., an exit price), regardless of whether that price is directly observable or estimated using a valuation technique. In order to show how fair values have been derived, financial instruments are classified based on a hierarchy of valuation techniques. This note describes the fair value measurement.

Valuation framework

The Company will assess the fair values for assets qualifying for fair valuation. The Company''s valuation framework includes;"

1. Benchmarking prices against observable market prices or other independent sources;

2. Development and validation of fair valuation models using model logic, inputs, outputs and adjustments.

These valuation models are subject to a process of due diligence and validation before they become operational and are continuously calibrated. These models are subject to approvals by various functions.

Fair values of financial assets, other than those which are subsequently measured at amortised cost, have been arrived at as under;

1. Fair values of investments held under FVTPL have been determined under level 1 using quoted Net Asset Value of the underlying instruments;

2. Fair value of loans held under a business model that is achieved by both collecting contractual cash flows and selling the loans are measured at FVOCI. The fair value of these loans has been determined under level 2.

35: Fair Value Hierarchy of assets and liabilities Fair value measurement

The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable and consists of the following three levels;

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

Level 2 - The fair value of financial instruments that are not traded in an active market are determined using valuation techniques which maximise the use of observable market data (either directly as prices or indirectly derived from prices) and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. The financial instruments included in Level 2 of fair value hierarchy have been valued using quotes available for similar assets and liabilities in the active market.

Level 3 - If one or more of the significant inputs is not based on observable market data (unobservable), the instrument is included in level 3.

Note:

The carrying amounts of cash and cash equivalents, bank balances other than cash and cash equivalents and other financial assets / liabilities approximate the fair value because of their short-term nature.

Valuation technique used For Loans

The scheduled future cash flows (including principal and interest) are discounted using the lending rate prevailing as at the balance sheet date. The discounting factor is applied assuming the cash flows will be evenly received in a month. Further the overdue cash flows upto 90 Days (upto stage 2) are discounted assuming they will be received in the third month. Fairvalue of cash flows for stage 3 loans are assumed as carrying value less provision for expected credit loss.

For investment in equity instruments

For investments, the Company has assessed the fair value on the basis of using a market comparable book value multiple. For investment in security receipts

For investments in security receipts, the Company has considered the net asset value declared by the trust.

Financial liabilities measured at amortised cost For Borrowings

The fair value of fixed rate borrowings is determined by discounting expected future contractual cash flows using current market interest rate being charged for new borrowings. The fair value of floating rate borrowing is deemed to equal its carrying value.

There have been no transfer between Level 1, 2 and 3 during the year ended March 31, 2024 and March 31, 2023.

36: Capital Management

The Company''s objective for capital management is to maximize shareholders'' value, safeguard business continuity, meet the regulatory requirement and support the growth of the Company. The Company determines the capital requirement based on annual operating plans and long-term and other strategic investment plans. The funding requirements are met through borrowings, retained earnings and operating cash flows generated.

As an NBFC-MFI, the RBI requires us to maintain a minimum capital to risk weighted assets ratio ("CRAR") consisting of Tier I and Tier II capital of 15% of our aggregate risk weighted assets. Further, the total of our Tier II capital cannot exceed 100% of our Tier I capital at any point of time. The capital management process of the Company ensures to maintain a healthy CRAR at all the times.

The Company has a board approved policy on resource planning which states that the resource planning of the Company shall be based on its Asset Liability Management (ALM) requirement. The policy of the Company on resource planning will also cover the objectives of the regulatory requirement. The policy prescribes the sources of funds, threshold for mix from various sources, tenure, manner of raising the funds etc.

38:Leases Company as a lessee

The Company''s significant leasing arrangements are in respect of operating leases of office premises (Head office and branch offices). The branch office premises are generally rented on cancellable term of eleven months with or without escalation clause, however none of the branch lease agreements carries non-cancellable lease periods. The head office premises have been obtained on a lease term of five years with an annual escalation clause of five percent. The Company has applied short term lease exemption for leasing arrangements where the period of lease is less than 12 months.

39: Amount payable to micro small and medium enterprises

Based on information available with the Company, as at the reporting period, there are no dues payable to suppliers who are registered as micro and small enterprises under the provisions of the Micro, Small and Medium Enterprises Development Act, 2006.

40: Risk Management and financial objectives

Risk is an integral part of the Company''s business and sound risk management is critical to the success. As a financial intermediary, the Company is exposed to risks that are particular to its lending and the environment within which it operates and primarily includes credit, liquidity and market risks. The Company has a risk management policy which covers risks associated with the financial assets and liabilities. The risk management policy is approved by the Board of Directors.

The Company has identified and implemented comprehensive policies and procedures to assess, monitor and manage risk throughout the Company. The risk management process is continuously reviewed, improved and adapted in the context of changing risk scenario and the agility of the risk management process is monitored and reviewed for its appropriateness in the changing risk landscape. The process of continuous evaluation of risks includes taking stock of the risk landscape on an event-driven basis.

The Company has an elaborate process for risk management. Major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis.

40: Risk Management and financial objectives (Contd.)

40.1 Credit Risk

Credit risk is the risk that the counterparty shall not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Credit risk encompasses of both, the direct risk of default and the risk of deterioration of the creditworthiness as well as concentration of risks. Credit risk arises primarily from financial assets such as loan receivables, investment in equity shares, balances with banks and other receivables.

Financial instruments that are subject to concentration of credit risk principally consist of investments, cash and cash equivalents, bank deposits and other financial assets. None of the financial instruments of the Company result in material concentration of credit risk.

Financial assets that are neither past due nor impaired.

None of the Company''s cash equivalents, including fixed deposits, were either past due or impaired as at March 31, 2024 and March 31,2023. The Company has diversified its portfolio of investment in cash and cash equivalents and term deposits with various banks with sound credit ratings, hence the risk is reduced.

Loans

Credit risk is the risk of loss that may occur from defaults by our Borrowers under our loan agreements. In order to address credit risk, we have stringent credit assessment policies for client selection. Measures such as verifying client details, online documentation and the usage of credit bureau data to get information on past credit behaviour also supplement the efforts for containing credit risk. We also follow a systematic methodology in the opening of new branches, which takes into account factors such as the demand for credit in the area; income and market potential; and socio-economic and law and order risks in the proposed area. Further, our client due diligence procedures encompass various layers of checks, designed to assess the quality of the proposed group and to confirm that they meet our criteria."

The Company is a rural focused NBFC-MFI with a geographically diversified presence in India and offer income generation loans under the joint liability group model, predominantly to women from low-income households in Rural Areas. Further, as we focus on providing micro-loans in Rural Areas, our results of operations are affected by the performance and the future growth potential of microfinance in rural India. Our clients typically have limited sources of income, savings and credit histories and our loans are typically provided free of collateral. Such clients generally do not have a high level of financial resilience, and, as a result, they can be adversely affected by declining economic conditions and natural calamities. In addition, we rely on non-traditional guarantee mechanisms rather than tangible assets as collateral, which may not be effective in recovering the value of our loans.

In order to mitigate the impact of credit risk in the future profitability, the Company creates impairment loss allowance basis the expected credit loss (ECL) model for the outstanding loans as at balance sheet date.

The criteria of default, significant increase in credit risk and stage assessment is mentioned in note 3 (e) of the significant accounting policies. The below discussion describes the Company''s approach for assessing impairment.

A) Probability of default (PD)

The Company compute PD at enterprise level considering the borrower profile and loan product offered to them are homogeneous. The product features like loan tenure, interest rate, ticket size, customer selection are uniform across the branches and thus carry similar uncertainties. The geographical related political and natural calamity risk is more rationalised when looked at the enterprise level.

Accordingly, the Company determines PD for each stage depending upon the underlying classification of asset (i.e., Stage I or Stage II). The PD rates for Stage I and II have been further bifurcated based on the days-past-due (DPD) status of the loans (i.e., current to 30 DPD, 31-60 DPD and 61-90 DPD) to incorporate adequate granularity. PD rate for stage 3 is derived as 100% considering that the default occurs as soon as the loan becomes overdue for 90 days.

B) Exposure at default (EAD)

Exposure at default (EAD) is the sum of outstanding principal and the interest amount accrued but not received on each loan as at reporting date.

40: Risk Management and financial objectives (Contd.)

C) Loss given default

The Company determines its expectation of lifetime loss by estimating recoveries towards its loan through analysis of historical information. The Company determines its recovery rates by analysing the recovery trends over different periods of time after a loan has defaulted. LGD is the difference between the exposure at default and its recovery rate. It is based on the difference between the contractual cash flows due and those that the Company would expect to receive. LGD is calculated as % of Exposure that the Company expects to lose at the time of default. LGD is computed as {1-Recovery Rate (RR)} where RR indicates % of Recovery post default.

Collateral and other credit enhancement

The Company''s secured portfolio consists of loans against property (including land and building). Although collateral is an important mitigant credit risk, the Company''s practice is to lend on the basis of its assessment of the customer''s ability to repay rather than placing primary reliance on collateral. Based on the nature of the product and the Company''s assessment of the customer''s credit risk, a loan may be offered with suitable collateral.

40.1.a Inter-corporate advance given by the Company to related parties are repayable on demand and governed by Company''s policy on demand loans approved by the board of directors. Such policy requires credit appraisal of the financial and operational performance of the counter parties, to be performed by the Company before renewing/rolling over of the advance.

40.2 Liquidity Risk

Liquidity risk refers to the risk that the Company may not meet its financial obligations. Liquidity risk arises due to the unavailability of adequate funds at an appropriate cost or tenure. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company consistently generates sufficient cash flows from operating and financing activities to meet its financial obligations as and when they fall due. Our resource mobilization team sources funds from multiple sources, including from banks, financial institutions and capital markets to maintain a healthy mix of sources. The resource mobilization team is responsible for diversifying fundraising sources, managing interest rate risks and maintaining a strong relationship with banks, financial institutions, mutual funds, insurance companies, other domestic and foreign financial institutions and rating agencies to ensure the liquidity risk is well addressed. In order to reduce dependence on a single lender, the Company has adopted a cap on borrowing from any single lender at 25%. The maturity schedule for all financial liabilities and assets are regularly reviewed and monitored. Company has a asset liability management (ALM) policy and ALM Committee to review and monitor the liquidity risk and ensure the compliance with the prescribed regulatory requirement. The ALM Policy prescribes the detailed guidelines for managing the liquidity risk.

40.3 Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market factor. Such changes in the values of financial instruments may result from changes in the interest rates, credit, liquidity and other market changes. The Company is exposed to two types of market risks as follows;"

40.3a Interest rate risk

Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates."

We are subject to interest rate risk, principally because we lend to clients at fixed interest rates and for periods that may differ from our funding sources, while our borrowings are at both fixed and variable interest rates for different periods. We assess and manage our interest rate risk by managing our assets and liabilities. Our Asset Liability Management Committee evaluates asset liability management, and ensures that all significant mismatches, if any, are being managed appropriately.

The Company has Board Approved Asset Liability Management (ALM) policy for managing interest rate risk and policy for determining the interest rate to be charged on the loans given.

The following table demonstrates the sensitivity to a reasonably possible change in the interest rates on the portion of borrowings affected. With all other variables held constant, the profit before tax / equity is affected through the impact on floating rate borrowings, as follows;

41: Transfer of Financial assets a. Securitisation Transaction:

The Company has entered into securitisation arrangement with various parties. Under such arrangement, the Company has transferred a pool of loans, which does not fulfil the derecognition criteria specified under Ind AS 109 as the Company has concluded that risk and rewards with respect to these assets are not substantially transferred. Following such transfer, the Company''s involvement in these assets is as follows:

• As a servicer of the transferred assets

• To the extent of credit enhancements provided to such parties

J. Registration obtained from other financial sector regulators:

The Company is registered with the ‘Ministry of Corporate Affairs'' (Financial regulators as described by Ministry of

Finance).

K. Disclosure of Penalties imposed by RBI and Other Regulators:

For the year ended March 31, 2024: no penalty imposed by RBI and other Regulators

For the year ended March 31, 2023:

(i) Reserve Bank of India in exercise of powers under the provisions of clause (b) of sub-section (1) of section 58 G read with clause (aa) of sub-section (5) of section 58 B of the Reserve Bank of India Act, 1934, by an order dated August 05, 2022 (notified on August 08, 2022), based on the observations of statutory inspections for FY2019 and FY2020, has imposed a monetary penalty of ''2.33 Cr on the Company for non-adherence to the pricing of credit guidelines as applicable to Non-Banking Financial Company- Micro Finance Institutions for that period.

(ii) Pursuant to the RBI Guidelines for Appointment of Statutory Central Auditors (SCAs) / Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs) dated April 27, 2021 (the "RBI Guidelines") and in line with the specific instructions received from the RBI, the predecessor auditor''s had resigned on January 28, 2022, after completion of limited review on the financial results of the Company for the quarter and half year ended September 30, 2021. Such resignation and subsequent appointment of new statutory auditors, being contrary to the provisions of para 6(A) of SEBI guidelines on "Resignation of statutory auditors from listed entities and their material subsidiaries" issued vide circular no. CIR/CFD/CMD1/114/2019 dated October 18, 2019, the Company has submitted application dated February 3, 2022 with SEBI, seeking settlement in this matter. Further, the Company vide letter dated June 3, 2022, has paid ''0.25 Cr to settle the matter as directed by SEBI vide the Settlement Order no. SO/EFD-2/SD/429/OCTOBER/2022 dated October 25, 2022.

AC: Liquidity coverage ratio

The RBI has issued final guidelines on Liquidity Risk Management Framework for Non-Banking Financial Companies and Core investment Companies on November 04, 2019. As per the said guidelines, LCR requirement shall be binding on all non-deposit taking systemically important NBFCs with asset size of 5000 crore and above but less than 10,000 crs from December 1, 2020, with the minimum LCR to be 30%, progressively increasing, till it reaches the required level of 100%, by December 1, 2024.

The Company follows the criteria laid down by RBI for calculation of High Quality Liquid Assets (HQLA), gross outflows and inflows within the next 30-day period. HQLA predominantly comprises cash and balance with other banks in current account. All significant outflows and inflows determined in accordance with RBI guidelines are included in the prescribed LCR computation template. The disclosure on Liquidity Coverage Ratio of the Company for the year ended March 31,2024 is as under:

6. Institutional set-up for liquidity risk management:

The Company has an Asset Liability Management Committee (ALCO), a management level committee to handle liquidity risk management. The ALCO meetings are held at periodic intervals. At the apex level, the Risk Committee (RC), a sub-committee of the Board of Directors of the Company, oversees the liquidity risk management. The RC subsequently updates the Board of Directors on the same.

Notes:

1. Significant counterparty is as defined in RBI Circular RBI/2019-20/88 DOR.NBFC (PD) CC.No.102/03.10.001/2019-20 dated November 4, 2019 on Liquidity Risk Management Framework for Non-Banking Financial Companies and Core Investment Companies.

2. Significant instrument/product is as defined in RBI Circular RBI/2019-20/88 DOR.NBFC (PD) CC.No.102/03.10.001/2019-20 dated November 4, 2019 on Liquidity Risk Management Framework for Non-Banking Financial Companies and Core Investment Companies.

3. Total Liabilities has been computed as sum of all liabilities (Balance Sheet figure) less Equities and Reserves/Surplus.

4. Short term liabilities includes all financial and non-financial liabilities expected to be paid within one year.

5. Public funds is as defined in Master Direction - Non-Banking Financial Company - Systemically Important NonDeposit taking Company and Deposit taking Company (Reserve Bank) Direction, 2016.

47: The Company in respect of the observation made by the RBI in its inspection report for the years ended March 31,2018 and March 31, 2019 and subsequent correspondence with Reserve Bank of India ("RBI") with respect to the compliance with the pricing of credit guidelines prescribed under paragraph 56 of the Master Direction - Non-Banking Financial Company -Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016, dated September 1, 2016, as amended had adequately recognised the impact of excess interest collected on loans disbursed during the period from Oct 2017 to Feb 2020, in the financial statements for the year ended March 31, 2021. During the year ended March 31, 2024, the Company had refunded ''15.51 crores by way of credit into customers bank accounts / loan accounts. Given the profile of the customers and accessibility issues, the company is unable to trace borrower / bank account of borrower for remaining balances of ''23.36 crores and has sought advice from Reserve bank of India on the refund of balance amount (for which bank account details are not available with the Company) and will act as per directive from Reserve bank of India.

49: Additional Regulatory Information

(a) There is no such immovable properties held whose title deeds are not held in the name of the Company.

(b) There are no investment property as on March 31, 2024 and March 31, 2023.

(c) The Company has not revalued its Property, Plant and Equipment (including Right-of Use Assets) and intangible assets based on the valuation by a registered valuer as defined under rule 2 of Companies (Registered Valuers and Valuation) Rules, 2017.

(d) No proceeding has been initiated or pending against the Company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and rules made thereunder.

(e) The Company has not taken borrowings from banks or financial institutions on the basis of security of current assets.

(f) The Company has not been declared wilful defaulter by any bank or financial Institution or other lender.

(g) No transactions were carried out during the year with companies struck off under section 248 of the Companies Act, 2013 or section 560 of Companies Act, 1956.

(h) No charges or satisfaction yet to be registered with ROC beyond the statutory period.

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

(j) There is no income surrendered or disclosed as income during the current or previous year in the tax assessments under the Income Tax Act, 1961, that has not been recorded in the books of account.

(k) The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.

(l) The Company has not been sanctioned working capital limits by banks or financial institutions on the basis of security of current assets at any point of time during the year.

50. The Ministry of Corporate Affairs (MCA) has prescribed a new requirement for companies under the proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 inserted by the Companies (Accounts) Amendment Rules 2021 requiring companies, which uses accounting software for maintaining its books of account, shall use only such accounting software which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in the books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled. The Company, in respect of financial year commencing on 1 April 2023 has used an accounting software Financial Information Monitoring Organizer (FIMO) for maintaining books of account which has a feature of recording audit trail (edit log). The users of the Company do not have any access to database IDs with Data Manipulation Language (DML) authority, which can make direct data changes (create, change, delete) at database level. Accordingly, the Company had not enabled the feature of recording audit trail

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Mar 31, 2023

Inter corporate advances are provided to Subsidiaries of SSFL which is i.e. Criss Financial Limited (‘CFL") and Caspian Financial Services Limited (‘CFSL'').

CFL is registered as a non-deposit accepting Non-Banking Financial Company (‘NBFC-ND'') with the Reserve Bank of India (‘RBI''). The Company is engaged in the business of finance by providing Individual Loans, Small Business Loans and Loan Against Property Loans. CFSL is a 100 % subsidiary of SSFL incorporated under the provisions of the Companies Act, 1956. Inter corporate advances are provided to assist these companies for their working capital requirement and day-to-day business activities.

Note 2: The table below discloses the credit quality of Company''s exposures on loan portfolio (excluding inter-corporate advances) as at the reporting date:

Note 3: The Company product programme guideline allows disbursement to borrowers which are in SMA buckets subject to fulfilment of other eligibility criteria as applicable. While product guidelines allow such disbursement, the decision to disburse to these specific clients (by preclosing existing loan and give top-up loans) are taken based on inputs received from the customer and the field staff. In a joint liability group model (JLG), the fellow group / centre members understand the financial position and their intent to pay. Inputs on product guideline are driven basis feedback received during interactions between the customers (group members attending centre meetings) and our field staff. Recommendations basis these interactions are then given to the supervisory hierarchy including the Chief Business Officer who in turn evaluates and recommends for approval to the COO. In determining whether lending to these customers has any significant increase in credit risk or impairment of such loans and potential future loss estimate, the Company takes into consideration the borrowers'' vintage, past repayment behaviour and viability of their businesses, as a separate cohort. Accordingly, the company has classified such loans as follows:

a) The loans which are disbursed to stage II borrowers are classified based on their latest repayment schedule as on March 31, 2023 in the respective stage buckets.

b) The loans which are disbursed to stage III borrowers are either classified under "stage III" or in respective staging bucket as per the latest repayment schedule, depending upon management''s assessment of the customer repayment behaviour.

Note 4: No impairment allowance has been recognized on the outstanding inter-corporate advances to related parties as at March 31, 2023 and March 31, 2022.

13B. Compliance with the loan covenants

The Company has been regular in serving all its borrowings though there has been breach of some of the convenants relating to borrowings during the year ended and as at March 31, 2023. Given the large scale Covid-19 induced disruptions, many of the borrowers across the microfinance industry were unable to service their loans on-time resulting in significantly elevated PAR, GNPA, NPA etc., Spandana was not immune to this industry trend and witnessed breach of some of the covenants due to elevated portfolio stress levels.

Based on the discussions with the lenders, the Company has no reason to belive that any adverse action, such as levy of higher interest or a recall of the facility, will be invoked by the lenders on account of such breach; and as of the date of these financial statements, none of the lenders have intimated about initiation of any remedial action. Accordingly, no adjustment are required in these financial statements.

(a) Terms / rights attached to equity shares

The Company has only one class of equity shares of par value of '' 10 per share. Each holder of equity shares is entitled to one vote per share. Any dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. The Company declares and pays dividends in Indian rupees. During the current financial year no dividend has been proposed by the Company.

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.

(i) During the year, the Company has allotted 18,52,739 equity shares of '' 10 each at issue price of '' 458.78 per share including premium of '' 448.78 per share to Kedaara Capital Fund III LLP on conversion of 18,52,739 fully convertible warrants allotted on preferential basis, in terms of Regulation 169(4) of Chapter V of Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended ("SEBI Regulations") and the Companies Act, 2013, to the extent applicable.

(ii) During the year, the Company has allotted 36,000 equity shares to eligible employees under Employee stock Option Plan at a price of '' 263.35 per equity share including premium of '' 253.35 per equity share.

(c) Details of shareholders holding more than 5% in the Company:

As per the records of the Company, including register of shareholders/members and other declaration received from shareholders regarding beneficial interest, the shareholding given below represents both legal and beneficial ownership of shares.

Nature and purpose of other equity Securities premium

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

General reserve

Amount set aside from retained profits as a general reserve to be utilised in accordance with provisions of the Companies Act, 2013.

Capital redemption reserve

In accordance with section 55 of the Companies Act, 2013, the Company had transferred an amount equivalent of the nominal value of OCCRPS redeemed during previous years, to the Capital Redemption Reserve. The reserve can be utilised only for limited purposes in accordance with the provisions of the Companies Act, 2013.

Share options outstanding account

The share option outstanding account is used to recognise the grant date fair value of option issued to employees under employee stock option scheme.

Statutory reserve (As required by Sec 45-IC of Reserve Bank of India Act, 1934

Statutory reserve represents the accumulation of amount transferred from surplus year on year based on the fixed percentage of profit for the year, as per section 45-IC of Reserve Bank of India Act 1934.

Money received against share warrants

During the year ended March 31, 2022, the Company had alloted 18,52,739 fully convertible warrants of '' 10 each at issue price of '' 458.78 per warrant including premium of '' 448.78 per warrant on preferential basis to Kedaara Capital Fund III LLP, against receipt of upfront money amounting to '' 750 million, in compliance with the SEBI Regulations and the Companies Act, 2013, to the extent applicable. Subsequently on May 21, 2022, these warrants have been exercised and are converted into 18,52,739 equity shares of '' 10 each at issue price of '' 458.78 per share including premium of '' 448.78 per share.

Retained earnings

Retained earnings are the profits that the Company has earned till date, less any transfers to statutory reserve, general reserve or any other such other appropriations to specific reserves.

Fair valuation on loans through other comprehensive income

The Company has elected to recognize changes in the fair value of loans in other comprehensive income. These changes are accumulated as reserve within equity. The Company transfers amount from this reserve to retained earnings when the relevant loans are derecognized.

31: Segment Reporting

The Company operates in a single business segment i.e. financing, as the nature of the loans are exposed to similar risk and return profiles hence they are collectively operating under a single segment as per Ind AS 108 on ‘Operating Segments''. The Company operates in a single geographical segment i.e. domestic, and hence there is no external revenue or assets which require disclosure. No revenue from transactions with a single external customer aggregates to 10% or more of the Company''s total revenue during the year ended March 31, 2023 or March 31, 2022.

i) The Commissioner, Service Tax Commissionerate, Hyderabad ("CST"), through two orders dated August 7, 2012 and October 9, 2013, levied service tax, interest and penalty on pre-closure interest charged by the Company on loans preclosed during FY 2006-07 to FY 2011-12. The CST also issued an order dated March 27, 2015, levying service tax, interest and penalty on a part of profit on portfolio sale during FY 2007-08 to FY 2010-11, deeming it to be consideration for collection and remittance of loan instalments. The Company filed an appeal against these orders before the Custom, Excise and Service Tax Appellate Tribunal (CESTAT) which is pending for hearing on March 31, 2023. The service tax and interest thereon in respect of these matters have been provided for in earlier years based on Company''s assessment. However, given the facts of these cases, legal precedents, and general opinion, the penalty indicated in these orders aggregating '' 48.66 million is considered as a contingent liability as at March 31, 2023.

ii) The Company received an income tax assessment-cum-demand order for FY 2016-17, inter alia, raising a demand of '' 477.64 million (including accrued interest) under section 69A read with section 115BBE of the Income Tax Act, 1961 ("IT Act"). The Company has filed an appeal against this order before the Commissioner of Income Tax (Appeals) that will be heard in due course. However, based on the expert opinions obtained, the Company confident that the matter will be decided in its favour. Accordingly, the aforesaid amount has been considered as a contingent liability as at March 31, 2023. The Company has deposited '' 69.22 million against such demand.

iii) The Company received an income tax assessment-cum-demand order for FY 2017-18, disallowing deduction of '' 13.45 million claimed under section 80JJAA. While, the addition has not resulted in any additional tax demand (since during FY 2017-18), the Company had paid income tax under section 115JB of the IT Act. However, the assessing officer has levied a penalty of '' 8.96 million under section 270A of the IT Act. SSFL has filed an appeal before the CIT(A) against the levy of penalty.

Based on the internal assessment and / or legal opinion, the Management is confident that, for the aforesaid mentioned contingent liabilities under paragraph (i) to (iii) above, no further provision is required to be made as at March 31,2023.

34: Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e., an exit price), regardless of whether that price is directly observable or estimated using a valuation technique. In order to show how fair values have been derived, financial instruments are classified based on a hierarchy of valuation techniques. This note describes the fair value measurement.

Valuation framework

The Company will assess the fair values for assets qualifying for fair valuation. The Company''s valuation framework includes:

1. Benchmarking prices against observable market prices or other independent sources;

2. Development and validation of fair valuation models using model logic, inputs, outputs and adjustments.

These valuation models are subject to a process of due diligence and validation before they become operational and are continuously calibrated. These models are subject to approvals by various functions.

Fair values of financial assets, other than those which are subsequently measured at amortised cost, have been arrived at as under:

1. Fair values of investments held under FVTPL have been determinedunder level 1 using quoted Net Asset Value of the underlying instruments;

2. Fair value of loans held under a business model that is achieved by both collecting contractual cash flows and selling the loans are measured at FVOCI. The fair value of these loans has been determined under level 2.

35: Fair Value Hierarchy of assets and liabilities Fair value measurement

The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable and consists of the following three levels:

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

Level 2 - The fair value of financial instruments that are not traded in an active market are determined using valuation techniques which maximise the use of observable market data (either directly as prices or indirectly derived from prices) and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. The financial instruments included in Level 2 of fair value hierarchy have been valued using quotes available for similar assets and liabilities in the active market.

Level 3 - If one or more of the significant inputs is not based on observable market data (unobservable), the instrument is included in level 3.

Note:

The carrying amounts of cash and cash equivalents, bank balances other than cash and cash equivalents and other financial assets / liabilities approximate the fair value because of their short-term nature.

Valuation technique used For Loans

The scheduled future cash flows (including principal and interest) are discounted using the lending rate prevailing as at the balance sheet date. The discounting factor is applied assuming the cash flows will be evenly received in a month. Further the overdue cash flows upto 90 Days (upto stage 2) are discounted assuming they will be received in the third month. Fairvalue of cash flows for stage 3 loans are assumed as carrying value less provision for expected credit loss.

For derivative financial instruments

For derivative financial instruments, the Company has assessed the fair value under Monte Carlo Simulation model which involves input parameters like discount rate, volatility, expected tenure, risk-free rates, coupon payment date, time steps and iterations.

For investment in equity instruments

For investments, the Company has assessed the fair value on the basis of using a market comparable book value multiple. For investment in security receipts

For investments in security receipts, the Company has considered the net asset value declared by the trust.

Financial liabilities measured at amortised cost For Borrowings

The fair value of fixed rate borrowings is determined by discounting expected future contractual cash flows using current market interest rate being charged for new borrowings. The fair value of floating rate borrowing is deemed to equal its carrying value.

There have been no transfer between Level 1, 2 and 3 during the year ended March 31, 2023 and March 31, 2022.

36: Capital Management

The Company''s objective for capital management is to maximize shareholders'' value, safeguard business continuity, meet the regulatory requirement and support the growth of the Company. The Company determines the capital requirement based on annual operating plans and long-term and other strategic investment plans. The funding requirements are met through borrowings, retained earnings and operating cash flows generated.

As an NBFC-MFI, the RBI requires us to maintain a minimum capital to risk weighted assets ratio ("CRAR") consisting of Tier I and Tier II capital of 15% of our aggregate risk weighted assets. Further, the total of our Tier II capital cannot exceed 100% of our Tier I capital at any point of time. The capital management process of the Company ensures to maintain a healthy CRAR at all the times.

37: Employee Benefit Plans

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service is eligible for gratuity, on cessation of employment and it is computed at 15 days salary (last drawn salary) for each completed year of service subject to limit of '' 2 million per the Payment of Gratuity Act, 1972. The scheme is funded with an insurance Company in the form of a qualifying insurance policy.

The following tables summarized the components of net benefit expense recognized in the statement of profit and loss and the funded status and amounts recognized in the Balance Sheet for the gratuity plan.

The Code on Social Security, 2020

The Code on Social Security, 2020 (‘Code'') relating to employee benefits during employment and post-employment benefits received Presidential assent in September 2020. The Code has been published in the Gazette of India. However, the date on which the Code will come into effect has not been notified and the final rules/interpretation have not yet been issued. The Company will assess the impact of the Code when it comes into effect and will record any related impact in the period the Code becomes effective.

38:Leases Company as a lessee

The Company''s significant leasing arrangements are in respect of operating leases of office premises (Head office and branch offices). The branch office premises are generally rented on cancellable term of eleven months with or without escalation clause, however none of the branch lease agreements carries non-cancellable lease periods. The head office premises have been obtained on a lease term of five years with an annual escalation clause of five percent. The Company has applied short term lease exemption for leasing arrangements where the period of lease is less than 12 months.

39: Amount payable to micro small and medium enterprises

Based on information available with the Company, as at the reporting period, there are no dues payable to suppliers who are registered as micro and small enterprises under the provisions of the Micro, Small and Medium Enterprises Development Act, 2006.

40: Risk Management and financial objectives

Risk is an integral part of the Company''s business and sound risk management is critical to the success. As a financial intermediary, the Company is exposed to risks that are particular to its lending and the environment within which it operates and primarily includes credit, liquidity and market risks. The Company has a risk management policy which covers risks associated with the financial assets and liabilities. The risk management policy is approved by the Board of Directors.

The Company has identified and implemented comprehensive policies and procedures to assess, monitor and manage risk throughout the Company. The risk management process is continuously reviewed, improved and adapted in the context of changing risk scenario and the agility of the risk management process is monitored and reviewed for its appropriateness in the changing risk landscape. The process of continuous evaluation of risks includes taking stock of the risk landscape on an event-driven basis.

The Company has an elaborate process for risk management. Major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis.

40.1 Credit Risk

Credit risk is the risk that the counterparty shall not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Credit risk encompasses of both, the direct risk of default and the risk of deterioration of the creditworthiness as well as concentration of risks. Credit risk arises primarily from financial assets such as loan receivables, investment in equity shares, balances with banks and other receivables.

40: Risk Management and financial objectives (Contd.)

Financial instruments that are subject to concentration of credit risk principally consist of investments, cash and cash equivalents, bank deposits and other financial assets. None of the financial instruments of the Company result in material concentration of credit risk.

Financial assets that are neither past due nor impaired

None of the Company''s cash equivalents, including fixed deposits, were either past due or impaired as at March 31, 2023 and March 31, 2022. The Company has diversified its portfolio of investment in cash and cash equivalents and term deposits with various banks with sound credit ratings, hence the risk is reduced.

Loans

Credit risk is the risk of loss that may occur from defaults by our Borrowers under our loan agreements. In order to address credit risk, we have stringent credit assessment policies for client selection. Measures such as verifying client details, online documentation and the usage of credit bureau data to get information on past credit behaviour also supplement the efforts for containing credit risk. We also follow a systematic methodology in the opening of new branches, which takes into account factors such as the demand for credit in the area; income and market potential; and socio-economic and law and order risks in the proposed area. Further, our client due diligence procedures encompass various layers of checks, designed to assess the quality of the proposed group and to confirm that they meet our criteria.

The Company is a rural focused NBFC-MFI with a geographically diversified presence in India and offer income generation loans under the joint liability group model, predominantly to women from low-income households in Rural Areas. Further, as we focus on providing micro-loans in Rural Areas, our results of operations are affected by the performance and the future growth potential of microfinance in rural India. Our clients typically have limited sources of income, savings and credit histories and our loans are typically provided free of collateral. Such clients generally do not have a high level of financial resilience, and, as a result, they can be adversely affected by declining economic conditions and natural calamities. In addition, we rely on non-traditional guarantee mechanisms rather than tangible assets as collateral, which may not be effective in recovering the value of our loans.

In order to mitigate the impact of credit risk in the future profitability, the Company creates impairment loss allowance basis the expected credit loss (ECL) model for the outstanding loans as at balance sheet date.

The criteria of default, significant increase in credit risk and stage assessment is mentioned in note 3 (e) of the significant accounting policies. The below discussion describes the Company''s approach for assessing impairment.

A) Probability of default (PD)

The Company determines PD on a collective basis by stratifying the entire portfolio into meaningful categories. The Company uses historical vintage information of its loan portfolio to estimate PD. Based on uncertainties and risks arising from its operations in different geographical states in the country, the Company bifurcates the entire portfolio into different states. Further the Company performs analysis of its defaults in various states over different observation period. In determining the PD''s, an effort is made to eliminate outliers for a particular observation period which are not likely to happen in future. Accordingly, the Company determines PD for each stage depending upon the underlying classification of asset (i.e., Stage I or Stage II). The PD rates for Stage I and II have been further bifurcated based on the days-past-due (DPD) status of the loans (i.e., current, 1-30 DPD, 31-60 DPD and 61-90 DPD) to incorporate adequate granularity. PD rate for stage 3 is derived as 100% considering that the default occurs as soon as the loan becomes overdue for 90 days."

B) Exposure at default (EAD)

Exposure at default (EAD) is the sum of outstanding principal and the interest amount accrued but not received on each loan as at reporting date.

C) Loss given default

The Company determines its expectation of lifetime loss by estimating recoveries towards its loan through analysis of historical information. The Company determines its recovery rates by analysing the recovery trends over different periods of time after a loan has defaulted. LGD is the difference between the exposure at default and its recovery rate. Similar to PDs, the LGD rates have also been reassessed for COVID-19 affected portfolio by comparing past recovery experience from less frequent / non-recurring default events. Appropriate adjustments have also been made for recoveries observed during the post-pandemic period which are considered as an appropriate representation of expected post-default recoveries.

Collateral and other credit enhancement

The Company''s secured portfolio consists of loans against property (including land and building). Although collateral is an important mitigant credit risk, the Company''s practice is to lend on the basis of its assessment of the customer''s ability to repay rather than placing primary reliance on collateral. Based on the nature of the product and the Company''s assessment of the customer''s credit risk, a loan may be offered with suitable collateral.

40.1.a Inter-corporate advance given by the Company to related parties are repayable on demand and governed by Company''s policy on demand loans approved by the board of directors. Such policy requires credit appraisal of the financial and operational performance of the counter parties, to be performed by the Company before renewing/rolling over of the advance.

40.2 Liquidity Risk

Liquidity risk refers to the risk that the Company may not meet its financial obligations. Liquidity risk arises due to the unavailability of adequate funds at an appropriate cost or tenure. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company consistently generates sufficient cash flows from operating and financing activities to meet its financial obligations as and when they fall due. Our resource mobilization team sources funds from multiple sources, including from banks, financial institutions and capital markets to maintain a healthy mix of sources. The resource mobilization team is responsible for diversifying fundraising sources, managing interest rate risks and maintaining a strong relationship with banks, financial institutions, mutual funds, insurance companies, other domestic and foreign financial institutions and rating agencies to ensure the liquidity risk is well addressed. In order to reduce dependence on a single lender, the Company has adopted a cap on borrowing from any single lender at 25%. The maturity schedule for all financial liabilities and assets are regularly reviewed and monitored. Company has a asset liability management (ALM) policy and ALM Committee to review and monitor the liquidity risk and ensure the compliance with the prescribed regulatory requirement. The ALM Policy prescribes the detailed guidelines for managing the liquidity risk.

40.3 Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market factor. Such changes in the values of financial instruments may result from changes in the interest rates, credit, liquidity and other market changes. The Company is exposed to two types of market risks as follows:"

40.3a Interest rate risk

Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates."

We are subject to interest rate risk, principally because we lend to clients at fixed interest rates and for periods that may differ from our funding sources, while our borrowings are at both fixed and variable interest rates for different periods. We assess and manage our interest rate risk by managing our assets and liabilities. Our Asset Liability Management Committee evaluates asset liability management, and ensures that all significant mismatches, if any, are being managed appropriately.

The Company has Board Approved Asset Liability Management (ALM) policy for managing interest rate risk and policy for determining the interest rate to be charged on the loans given.

40.3b Price Risk

The Company''s exposure to price risk is not material and it is primarily on account of investment of temporary treasury surplus in the highly liquid debt funds for very short durations. The Company has a board approved policy of investing its surplus funds in highly rated debt mutual funds and other instruments having insignificant price risk, not being equity funds/ risk bearing instruments.

40.3c Currency Risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Foreign currency risk arise majorly on account of foreign currency borrowings. The Company manages its foreign currency risk by entering in to cross currency swaps and forward contract.

41: Transfer of Financial assets a. Securitisation Transaction:

The Company has entered into securitisation arrangement with various parties. Under such arrangement, the Company has transferred a pool of loans, which does not fulfil the derecognition criteria specified under Ind AS 109 as the Company has concluded that risk and rewards with respect to these assets are not substantially transferred. Following such transfer, the Company''s involvement in these assets is as follows:

• As a servicer of the transferred assets

• To the extent of credit enhancements provided to such parties

The shortfall of fair value of associated liabilities over fair value of assets is '' Nil (March 31, 2022: '' 57.82 millions) b. Assignment Transaction:

The Company has sold some loans and advances measured at FVOCI as per assignment deals, as a source of finance. As per the terms of deal, since the derecognition criteria as per Ind AS 109, including transfer of substantially all the risks and rewards relating to assets to the buyer being met, the assets have been derecognised.

Since the Company transferred the above financial asset in a transfer that qualified for derecognition in its entirety, therefore the whole of the interest spread (over the expected life of the asset) is recognised on the date of derecognition itself as interest only strip receivable and correspondingly recognised as profit on derecognition of financial asset.

Spandana Employee Stock Option Plan 2018 and Spandana Employee Stock Option Scheme, 2018 (‘ESOP Plan 2018 and ESOP Scheme 2018’)

Spandana Employee Stock Option Plan 2018 and Spandana Employee Stock Option Scheme, 2021 (‘ESOP Plan 2018 and ESOP Scheme 2021’)

Spandana Employee Stock Option Plan 2021 and Spandana Employee Stock Option Scheme, 2021-Series A (‘ESOP Plan 2021 and ESOP Scheme 2021 Series A’)

43: Utilisation of Borrowed funds and share premium

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

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

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

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

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

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

I. Unsecured Advances - Refer note 6

J. Registration obtained from other financial sector regulators:

The Company is registered with the ‘Ministry of Corporate Affairs'' (Financial regulators as described by Ministry of

Finance).

K. Disclosure of Penalties imposed by RBI and Other Regulators:

(i) Reserve Bank of India in exercise of powers under the provisions of clause (b) of sub-section (1) of section 58 G read with clause (aa) of sub-section (5) of section 58 B of the Reserve Bank of India Act, 1934, by an order dated August 05, 2022 (notified on August 08, 2022), based on the observations of statutory inspections for FY2019 and FY2020, has imposed a monetary penalty of '' 23.30 millions on the Company for non-adherence to the pricing of credit guidelines as applicable to Non-Banking Financial Company- Micro Finance Institutions for that period.

(ii) Pursuant to the RBI Guidelines for Appointment of Statutory Central Auditors (SCAs) / Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs) dated April 27, 2021 (the "RBI Guidelines") and in line with the specific instructions received from the RBI, the predecessor auditor''s had resigned on January 28, 2022, after completion of limited review on the financial results of the Company for the quarter and half year ended September 30, 2021. Such resignation and subsequent appointment of new statutory auditors, being contrary to the provisions of para 6(A) of SEBI guidelines on "Resignation of statutory auditors from listed entities and their material subsidiaries" issued vide circular no. CIR/CFD/CMD1/114/2019 dated October 18, 2019, the Company has submitted application dated February 3, 2022 with SEBI, seeking settlement in this matter. Further, the Company vide letter dated June 3, 2022, has paid '' 2.5 million to settle the matter as directed by SEBI vide the Settlement Order no. SO/EFD-2/SD/429/OCTOBER/2022 dated October 25, 2022.

1. Interest on NPA loans is required to be de-recognised under IRACP norms. However, interest on Stage III loans is required to be recognised on the credit impaired (net of ECL) loan balance. Such income de-recognition is not considered as a provision for the purpose of above comparison.

# Figures under this columns Represents provisions determined in accordance with the Asset classification and provisioning norms as stipulated under Master Directions

AC: Liquidity coverage ratio

The RBI has issued final guidelines on Liquidity Risk Management Framework for Non-Banking Financial Companies and Core Investment Companies on November 04, 2019. As per the said guidelines, LCR requirement shall be binding on all non-deposit taking systemically important NBFCs with asset size of '' 5000 crore and above but less than '' 10,000 crs from December 1, 2020, with the minimum LCR to be 30%, progressively increasing, till it reaches the required level of 100%, by December 1, 2024.

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

AD. Information on Net Interest Margin

The Reserve Bank of India, issued Master Direction - Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022 on March 14, 2022. The Master Direction harmonized Microfinance lending across all regulated entities under the purview of the RBI. While implementation was to be effective from April 1, 2022, in view of difficulties expressed by some regulated entities (REs), RBI deferred the implementation to October 1, 2022. The company was in compliance with these regulations from July 11, 2022 including having a board approved product pricing policy in place. The policy is disclosed on the company''s website.

AE. Public Disclosure on liquidity risk

1. Funding concentration based on significant counterparty *(both deposits and borrowings) - The Company does not accept any deposits.

6. Institutional set-up for liquidity risk management:

The Company has an Asset Liability Management Committee (ALCO), a management level committee to handle liquidity risk management. The ALCO meetings are held at periodic intervals. At the apex level, the Risk Committee (RC), a sub-committee of the Board of Directors of the Company, oversees the liquidity risk management. The RC subsequently updates the Board of Directors on the same.

*Notes:

1. Significant counterparty is as defined in RBI Circular RBI/2019-20/88 DOR.NBFC (PD) CC.No.102/03.10.001/2019-20 dated November 4, 2019 on Liquidity Risk Management Framework for Non-Banking Financial Companies and Core Investment Companies.

2. Significant instrument/product is as defined in RBI Circular RBI/2019-20/88 DOR.NBFC (PD) CC.No.102/03.10.001/2019-20 dated November 4, 2019 on Liquidity Risk Management Framework for Non-Banking Financial Companies and Core Investment Companies.

3. Total Liabilities has been computed as sum of all liabilities (Balance Sheet figure) less Equities and Reserves/Surplus.

4. Short term liabilities includes all financial and non-financial liabilities expected to be paid within one year.

5. Public funds is as defined in Master Direction - Non-Banking Financial Company - Systemically Important NonDeposit taking Company and Deposit taking Company (Reserve Bank) Direction, 2016.

47 The Company in respect of the observation made by the RBI in its inspection report for the years ended March 31,2018 and March 31, 2019 and subsequent correspondence with Reserve Bank of India ("RBI") with respect to the compliance with the pricing of credit guidelines prescribed under paragraph 56 of the Master Direction - Non-Banking Financial Company -Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016, dated September 1, 2016, as amended had adequately recognised the impact of excess interest collected on loans disbursed during the period from Oct 2017 to Feb 2020, in the financial statements for the year ended March 31,2021. During the year ended March 31,2023, the Company had refunded '' 66.07 million by way of credit into customers bank accounts. Given the profile of the customers and accessibility issues, the company is unable to trace borrower / bank account of borrower for remaining balances of '' 388.74 million and has sought advice from Reserve bank of India on the refund of balance amount (for which bank account details are not available with the Company) and will act as per directive from Reserve bank of India.

49 Pursuant to the RBI circular dated November 12, 2021 on "Prudential norms on Income Recognition, Asset Classification and Provisioning (‘IRAC'') pertaining to Advances-Clarifications" to be read with circular dated February 15, 2022, the Company has changed its NPA definition to comply with the applicable norms effective from October 1, 2022.

50 The Company has settled the differences that arose between the Company and its Board of Directors with the erstwhile Managing Director Ms. Padmaja Gangireddy and other entities, amicably in terms of a settlement agreement and other related agreements subject to terms and conditions stated therein In June, 2022. As a result, the Company has made all the required payments which were fully provided for in the financial statement for year ended March 31, 2022, under ‘Other expenses''.

51: Additional Regulatory Information

(a) There is no such immovable properties held whose title deeds are not held in the name of the Company.

(b) There are no investment property as on March 31, 2023 and March 31, 2022.

(c) The Company has not revalued its Property, Plant and Equipment (including Right-of Use Assets) and intangible assets based on the valuation by a registered valuer as defined under rule 2 of Companies (Registered Valuers and Valuation) Rules, 2017.

(d) No proceeding has been initiated or pending against the Company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and rules made thereunder.

(e) The Company has not taken borrowings from banks or financial institutions on the basis of security of current assets.

(f) The Company has not been declared wilful defaulter by any bank or financial Institution or other lender.

(g) No transactions were carried out during the year with companies struck off under section 248 of the Companies Act, 2013 or section 560 of Companies Act, 1956.

(h) No charges or satisfaction yet to be registered with ROC beyond the statutory period.

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

(j) There is no income surrendered or disclosed as income during the current or previous year in the tax assessments under the Income Tax Act, 1961, that has not been recorded in the books of account.

(k) The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.

52 Previous year figures have been regrouped/ reclassified wherever applicable. The impact of such restatements/ regroupings are not material to Financial Statements.

---

Mar 31, 2021

7/, During the year, the Company has pre-closed loan accounts and provided fresh (top-up) loans to certain borrowers for restarting their businesses after a temporary suspension of economic activities due to COVID-19 pandemic. In determining whether this resulted in a significant increase in credit risk or impairment of these loans and potential future loss estimate, the Company takes into consideration the borrowers’ vintage, past repayment behaviour and viability of their businesses, as a separate cohort.

Based on such assessment at March 31, 2021 in accordance with Ind AS 109 principles, including those relating to modified loans, and in terms of the ECL policy approved by the Board of Directors ("ECL Policy"), the Company has classified loans amounting to '' 3,680 million as Stage 2 and '' 1,079 million as Stage 3, although there were nil overdues as per the latest repayment schedule for these loans at March 31,2021. While the staging movement has been carried out taking cognizance of the overdues in previous loan, the Company has applied relatively lower probability of default (PD) and loss given default (LGD) factors as per its ECL Policy considering the borrowers’ repayment behaviour in earlier loan cycles. Accordingly, the Company has recognized a total impairment allowance of '' 848 million on such loans.

Further, as the loans are provided to borrowers having running businesses with steady cash flows and not as a concession to overcome financial difficulties faced by borrowers other than the temporary suspension due to lockdown, these cases are not considered as restructured accounts in terms of extant RBI Master Directions.

7.4 The COVID-19 pandemic has continued to cause a significant disruption of the economic activities across the globe including India throughout the year, with second wave of the pandemic emerging towards the later part of the financial year in India. The Government of India announced a nation-wide lockdown to contain the spread of the virus which continued till May 31,2020. Subsequently, various state governments and local statutory authorities imposed restrictions on economic activities in different parts of the country which continued to impact Company’s operations including lending and collection activities. Further, pursuant to the Reserve Bank of India (''RBI’) COVID-19 Regulatory package issued vide circulars dated March 27, 2020 and May 23, 2020 which allowed lending institutions to offer moratorium to borrowers on payment of instalments falling due between March 1,2020 and August 31,2020, the Company had offered a moratorium to its borrowers until May 31,2020 which was further extended up to August 31,2020 based on borrowers’ requests.

In assessing the impairment allowance for loan portfolio, the Company has considered internal and external sources of information available including indicators of deterioration in the macro-economic factors. Further, the management has estimated the impact of the ongoing second wave of the pandemic on its loan portfolio, based on reasonable and supportable information available till date and considering performance after the first wave, and has noted that the existing provisioning levels are adequate to cover any further delinquencies. Given the unique nature and scale of this pandemic, its full extent of impact on the Company’s operations and financial metrics, more specifically on the borrower’s ability to service their obligations on a timely basis, will depend on the severity and duration of the pandemic as well as on highly uncertain future developments including governmental and regulatory measures and the Company’s responses thereto. Accordingly, the management’s estimate of impairment losses based on various variables and assumptions could result in actual credit loss being different than that being estimated.

The higher delinquencies caused due to COVID-19 pandemic have resulted in breach of some of the covenants related to borrowings such as portfolio at risk (PAR) ratios, NPA ratios, etc. The Company has been servicing all its borrowings, albeit with certain delays (on account of discussions with lenders seeking loan moratoriums pursuant to the RBI’s COVID-19 Regulatory Package) and has sought forbearance/ waiver from the lenders with respect to non-compliance of these covenants, wherever applicable.

In most of the cases, the consequence of covenant breach is either an increase in interest rate or a right to recall of the facility. While a formal approval of the waiver is awaited, based on our discussions with the lenders, sanction of fresh facilities received in most cases and considering the long track record with lenders, the Company is confident of securing the forbearance and has no reason to believe that any adverse action will be invoked by the lenders. Further, the Company believes that its contingency refinance or funding plan and current capital adequacy status would enable it to tide over any impact of covenant breaches. Accordingly, no adjustments are required in the maturity profile of the borrowings.

Nature and purpose of other equity Securities premium

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

General Reserve

Amounts set aside from retained profits as a reserve to be utilized for permissible general purpose as per Law.

Share options outstanding reserve

The stock option outstanding account is used to recognize the grant date fair value of option issued to employees under employee stock option scheme.

Capital redemption reserve

In accordance with Section 55 of the Companies Act, 2013, the Company has transferred an amount equivalent of the nominal value of OCCRPS redeemed during previous years, to the Capital Redemption Reserve. The reserve can be utilized only for limited purposes in accordance with the provisions of the Companies Act, 2013.

Statutory reserve (As required by Sec 45-IC of Reserve Bank of India Act, 1934

Statutory reserve represents the accumulation of amount transferred from surplus year on year based on the fixed percentage of profit for the year, as per section 451C of Reserve Bank of India Act 1934.

Retained earnings

Retained earnings represents the surplus in profit and loss account and appropriations.

Other Comprehensive income

Re-measurement of the net defined benefit liability/(asset) comprises actuarial gain and losses and return on plan assets (excluding interest income) and net fair valuation gain/(loss) on financial assets measured at fair value through other comprehensive income.

The effective income tax rate for March 31,2021 is 25.168% ( March 31,2020 is 25.168%).

Pursuant to the Taxation Laws (Amendment) Ordinance 2019, promulgated on September 20, 2019, the Company has opted to exercise the option permitted u/s 115BAA of the Income Tax Act, 1961 to compute income tax at the revised rate (i.e. 25.17%) from the previous financial year. As a result, the change on account of remeasurement of deferred tax assets and reversal of MAT credit entitlement during the previous year ended March 31,2020 aggregates to '' 1,116.77 million..

Q2I SEGMENT REPORTING

The Company operates in a single business segment i.e. financing, since the nature of the loans are exposed to similar risk and return profiles hence they are collectively operating under a single segment for the purpose of Ind AS 108 on ''Operating Segments’ notified under the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016. The Company operates in a single geographical segment i.e. domestic.

K1 DISCLOSURE OF RELATED PARTIES IN ACCORDANCE WITH IND AS 24.I. Holding Company

Kangchenjunga Limited (upto.August 14, 2019)

II. SUBSIDIARY COMPANY

a) Caspian Financial Services Limited (w.e.f October 13, 2017)

b) Criss Financial Holdings Limited (w.e.f December 27,2018)

III. Entities in which Key Management Personnel and their relatives have significant influence.

a) Spandana Rural and Urban Development Organization

b) Abhiram Marketing Services Limited

c) Spandana Employee Welfare Trust.

IV. Key Management Personnel

a) Mrs. Padmaja Gangireddy - Managing Director

b) Mr. Sudhesh Chandrasekar - Chief Financial Officer (w.e.f. May 17, 2019 upto June 5, 2020)

c) Mr. Rakesh Jhinjharia - Company Secretary (upto June 5, 2020)

d) Mr. Abdul Feroz Khan - Chief Strategy Officer

e) Mr. Bharat Shah (Independent Director)

f) Mr. Deepak Vaidya (Independent Director)

g) Mr. Jagdish Capoor (Independent Director)

h) Ms. Abanti Mitra (Independent Director)

i) Mr. Sunish Sharma (Nominee Director)

j) Mr.Kartikeya Dhruv Kaji (Nominee Director)

k) Mr. Darius Dinshaw Pandole (Nominee Director) (upto September 21,2020)

l) Mr. Amit Sobti (Nominee Director)

m) Mr. Ramachandra Kasargod Kamath (Nominee Director)

n) Mr. Satish Kottakota - Chief Financial Officer (w.e.f June 1,2020)

o) Mr. Ramesh Periasamy - Company Secretary (w.e.f August 29, 2020)

p) Mrs. Sharmila Kunguma - Chief Risk Officer (w.e.f December 28, 2020)

V. Relative of Key Management Personnel

a) Mr. Revan Saahith

b) Mr. Vijaya Sivarami Reddy Vendidandi

VI. Related parties in accordance with RBI Master directions

a) Spandana Mutual Benefit Trust

b) Spandana Sphoorty Chit Funds Private Limited

* Of the Inter-corporate advances (ICA) given aggregating '' 1,080 million, the Company received repayment of '' 1,385 million including previous year outstanding from Criss Financial Holdings Limited (During year ended March 31,2020, ICA aggregating ''1,209 million were given out of which the Company received ''448.93 million).

Of the ICA given aggregating '' 210 million, the Company has received repayment of '' 1,180.16 million including previous year outstanding (March 31,2021: ICA given aggregating ''789.65 million the Company has received repayment of '' 34.65 million) from Abhiram Marketing Services Limited.

** Refer note 49 to the financial statements.

*** Refer note 34(b) for guarantee given.

All above transactions are in the ordinary course of business and on arms length basis. All outstanding balances are to be settled in cash and are unsecured.

#As the provision for gratuity is made for the Company as a whole, the amount pertaining to the Key Management Personnel is not specifically identified and hence is not included above.

Transactions during the year are shown net of GST and inclusive of TDS.

ii) The Commissioner, Service Tax Commissionerate, Hyderabad ("CST"), through two orders dated August 7, 2012 and October 9, 2013, levied service tax, interest and penalty on pre-closure interest charged by the Company on loans predosed during FY 2006-07 to FY 2011-12. The CST also issued an order dated March 27, 2015, levying service tax, interest and penalty on a part of profit on portfolio sale during FY 2007-08 to FY 2010-11, deeming it to be consideration for collection and remittance of loan instalments. The Company filed an appeal against these orders before the Custom, Excise and Service Tax Appellate Tribunal (CESTAT) which is pending for hearing on March 31,2021. The service tax and interest thereon in respect of these matters have been provided for in earlier years based on Company’s assessment. However, given the facts of these cases, legal precedents, and general opinion, the penalty indicated in these orders aggregating ''48.66 million is considered as a contingent liability as at March 31,2021.

iii) The Company received an income tax assessment-cum-demand order for FY 2016-17, inter alia, raising a demand of '' 539.42 million (including interest) under section 69A read with section 115BBE of the Income Tax Act, 1961. The Company has filed an appeal against this order before the Commissioner of Income Tax (Appeals) that will be heard in due course. However, based on the expert opinions obtained, the Company confident that the matter will be decided in its favour. Accordingly, the aforesaid amount has been considered as a contingent liability as at March 31,2021. The Company has deposited '' 69.22 million against such demand in the process of filling the aforesaid appeal.

iv) It is not practicable for the Company to estimate the timings of the cash flows, if any, in respect of the above pending resolution of the respective proceedings.

OH FAIR VALUE

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e., an exit price), regardless of whether that price is directly observable or estimated using a valuation technique.

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

This note describes the fair value measurement .

Valuation framework

The Company will assess the fair values for assets qualifying for fair valuation.

The Company’s valuation framework includes:

1. Benchmarking prices against observable market prices or other independent sources;

2. Development and validation of fair valuation models using model logic, inputs, outputs and adjustments.

These valuation models are subject to a process of due diligence and validation before they become operational and are continuously calibrated. These models are subject to approvals by various functions.

Valuation methodologies adopted

Fair values of financial assets, other than those which are subsequently measured at amortised cost, have been arrived at as under:

1. Fair values of investments held under FVTPL have been determined under level 1 using quoted Net Asset Value of the underlying instruments;

2. Fair value of loans held under a business model that is achieved by both collecting contractual cash flows and selling the loans are measured at FVOCI. The fair value of these loans has been determined under level 2.

Refer Note 35 for further details

1361 FAIR VALUE HIERARCHY OF ASSETS AND LIABILITIES Fair value measurement

The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable and consists of the following three levels:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 - The fair value of financial instruments that are not traded in an active market are determined using valuation techniques which maximize the use of observable market data (either directly as prices or indirectly derived from prices) and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. The financial instruments included in Level 2 of fair value hierarchy have been valued using quotes available for similar assets and liabilities in the active market.

Level 3 - If one or more of the significant inputs is not based on observable market data( unobservable), the instrument is included in level 3.

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis and financial assets that are not measured at fair value on a recurring basis (but fair value disclosure is required):-

The financial asset above does not include inter-corporate deposits, which are measured at amortized cost and approximates fair value. Further, it does not include securitization portfolio which is not de-recognized in accordance with Ind AS 109.

The management assessed that carrying value of financial assets (except loan and investments) and financial liabilities (except debt securities, borrowings (other than debt securities) and subordinated liabilities) approximate their fair value largely due to short term maturities of these instruments.

Assets categorized under Level 3 as on March 31,2021 are '' 1 million (As on March 31,2020 ''1 million)

Valuation technique used

Assets measured at fair value on a recurring basis For Loans

The scheduled future cash flows (including principal and interest) are discounted using the lending rate prevailing as at the Balance sheet date. The discounting factor is applied assuming the cash flows will be evenly received in a month. Further, the overdue cash flows are discounted assuming they will be received in the third month. Fair value of cash flows for stage 3 loans are assumed as carrying value less provision for expected credit loss.

For Derivative financial instruments

For derivative financial instruments, the Company has assessed the fair value under Monte Carlo Simulation model which involves input parameters like, discount rate, volatility, expected tenure, risk-free rates, coupon payment date, time steps and iterations.

For Investment in equity instruments

For Investment in equity instruments, the Company has assessed the fair value on the basis of recent investment made in the Criss Financial Holdings Limited. For investment in equity instruments of Caspian Financial Services Limited, the carrying amount approximates fair value.

Financial liabilities measured at amortized cost For Borrowing

The fair value of fixed rate borrowings is determined by discounting expected future contractual cash flows using current market interest rate being charged for new borrowings. The fair value of floating rate borrowing is deemed to equal its carrying value. There have been no transfer between Level 1,2 and 3 during the year ended March 31,2021 and March 31,2020.

OQI CAPITAL MANAGEMENT

The Company’s objective for capital management is to maximize shareholders’ value, safeguard business continuity, meet the regulatory requirement and support the growth of the Company. The Company determines the capital requirement based on annual operating plans and long-term and other strategic investment plans. The funding requirements are met through borrowings, retained earnings and operating cash flows generated.

As an NBFC-MFI, the RBI requires us to maintain a minimum capital to risk weighted assets ratio (""CRAR"") consisting of Tier I and Tier II capital of 15% of our aggregate risk weighted assets. Further, the total of our Tier II capital cannot exceed 100% of our Tier I capital at any point of time. The capital management process of the Company ensures to maintain a healthy CRAR at all the times.

The Company has a board approved policy on resource planning which states that the resource planning of the Company shall be based on its Asset Liability Management (ALM) requirement. The policy of the Company on resource planning will also cover the objectives of the regulatory requirement. The policy prescribes the sources of funds, threshold for mix from various sources, tenure, manner of raising the funds etc.

Bin AMOUNT PAYABLE TO MICRO SMALL AND MEDIUM ENTERPRISES

As per information available with the Company, there are no amounts that need to be disclosed in accordance with the Micro Small and Medium Enterprise Development Act, 2006 (the ''MSMED'') pertaining to micro or small enterprises.

As at March 31,2021 and March 31,2020, no supplier has intimated the Company about its status as micro or small enterprises or its registration with the appropriate authority under MSMED.

PH RISK MANAGEMENT AND FINANCIAL OBJECTIVES

Risk is an integral part of the Company’s business and sound risk management is critical to the success. As a financial intermediary, the Company is exposed to risks that are particular to lending and the environment within which it operates and primarily include credit, liquidity and market risks. The Company has a risk management policy which covers risks associated with the financial assets and liabilities. The risk management policy is approved by the Board of Directors.

The Company has identified and implemented comprehensive policies and procedures to assess, monitor and manage risk throughout the Company. The risk management process is continuously reviewed, improved and adapted in the context of changing risk scenario and the agility of the risk management process is monitored and reviewed for its appropriateness in the changing risk landscape. The process of continuous evaluation of risks includes taking stock of the risk landscape on an event-driven basis.

41.1 CREDIT RISK

Credit risk is the risk of loss that may occur from defaults by our Borrowers under our loan agreements. In order to address credit risk, we have stringent credit assessment policies for client selection. Measures such as verifying client details, online documentation and the usage of credit bureau data to get information on past credit behaviour also supplement the efforts for containing credit risk. We also follow a systematic methodology in the opening of new branches, which takes into account factors such as the demand for credit in the area; income and market potential; and socio-economic and law and order risks in the proposed area. Further, our client due diligence procedures encompass various layers of checks, designed to assess the quality of the proposed group and to confirm that they meet our criteria.

The Company is a rural focused NBFC-MFI with a geographically diversified presence in India and offer income generation loans under the joint liability group model, predominantly to women from low-income households in rural areas. Further, as we focus on providing micro-loans in rural areas, our results of operations are affected by the performance and the future growth potential of microfinance in rural India. Our clients typically have limited sources of income, savings and credit histories and our loans are typically provided free of collateral. Such clients generally do not have a high level of financial resilience, and, as a result, they can be adversely affected by declining economic conditions and natural calamities. In addition, we rely on nontraditional guarantee mechanisms rather than tangible assets as collateral, which may not be effective in recovering the value of our loans.

In order to mitigate the impact of credit risk in the future profitability, the Company creates impairment loss allowance basis the expected credit loss (ECL) model for the outstanding loans as at balance sheet date.

The criteria of default, significant increase in credit risk and stage assessment is mentioned in note 3(e) of the significant accounting policies. The below discussion describes the Company’s approach for assessing impairment.

A) Probability of default (PD)

The Company determines PD on a collective basis by stratifying the entire portfolio into meaningful categories as discussed below.

The Company uses historical vintage information of its loan portfolio to estimate PD. Based on uncertainties and risks arising from its operations in different geographical states in the country, the Company bifurcates the entire portfolio into different states. Further the Company performs analysis of its defaults in various states over different observation periods. Such observation time frame varies depending upon the type of underlying assets analysed by the Company i.e. for Stage II, the timeframe used is more than 1 year.

In determining the above PD’s, an effort is made to eliminate outliers for a particular observation period which are not likely to happen in future. Accordingly, the Company determines PD for each state depending upon the underlying classification of asset (i.e. Stage I or Stage II).

Re-calibration of PDs for FY 2020-21 on account COVID-19 pandemic:

During the year, the Company has reassessed its estimates of PD for the loan portfolio impacted by COVID-19 disruption, considering it as a separate cohort. In respect of this cohort, the Company has considered more recent flow rates (i.e. slippages into default category) subsequent to expiry of loan moratorium granted to borrowers pursuant to the RBI’s COVID-19 Regulatory Package. Such flow rates are considered to represent the expected defaults more appropriately than the pre-COVID loss experience. The PD rates for Stage I and II have been further bifurcated based on the days-past-due (DPD) status of the loans (i.e. current, 1-30 DPD, 31-60 DPD and 61-90 DPD) to incorporate adequate granularity.

B) Exposure at default (EAD)

Exposure at default (EAD) is the sum of outstanding principal and the interest amount accrued loans as at reporting date. Such outstanding balances as at the reporting date is considered as EAD by the Company. Considering that the PD determined above factors in amount at default, there is no separate requirement to estimate EAD.

C) Loss given default

The Company determines its expectation of lifetime loss by estimating recoveries towards its entire loan at state level through analysis of historical information. The Company determines its recovery rates by analysing the recovery trends over different periods of time after a loan has defaulted. Based on its analysis of historical trends, the Company has assessed that significant recoveries happen in the year in which default has occurred. Accordingly, it believes no significant difference arise from discounting such recoveries for determining ultimate loss rates. In estimating LGD, the Company reviews macro-economic developments taking place in the economy.

Re-calibration of LGDs for FY 2020-21 on account COVID-19 pandemic:

Similar to PDs, the LGD rates have also been reassessed for COVID-19 affected portfolio by comparing past recovery experience from less frequent/ non-recurring default events. Appropriate adjustments have also been made for recoveries observed during the post-pandemic period which are considered as an appropriate representation of expected postdefault recoveries.

Collateral and other credit enhancement

The Company’s secured portfolio includes loans against security of Gold and property (including land and building). Although collateral is an important mitigant credit risk, the Company’s practice is to lend on the basis of assessment of the customer’s ability to repay rather than placing primary reliance on collateral. Based on the nature of the product and the Company’s assessment of the customer’s credit risk, a loan may be offered with suitable collateral.

41.1. a Inter-corporate advance given by the Company to related parties are repayable on demand and governed by Company’s policy on demand loans approved by the board of directors. Such policy requires credit appraisal of the financial and operational performance of the counter parties, to be performed by the Company before renewing/rolling over of the advance.

41.1. b CREDIT RISK DUE TO COVID-19 PANDEMIC Refer note 7.4.41.2 LIQUIDITY RISK

Liquidity risk refers to the risk that the Company may not meet its financial obligations. Liquidity risk arises due to the unavailability of adequate funds at an appropriate cost or tenure. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company consistently generates sufficient cash flows from operating and financing activities to meet its financial obligations as and when they fall due. Our resource mobilization team sources funds from multiple sources, including from banks, financial institutions and capital markets to maintain a healthy mix of sources. The resource mobilization team is responsible for diversifying fundraising sources, managing interest rate risks and maintaining a strong relationship with banks, financial institutions, mutual funds, insurance companies, other domestic and foreign financial institutions and rating agencies to ensure the liquidity risk is well addressed. In order to reduce dependence on a single lender, the Company has adopted a cap on borrowing from any single lender at 25%. The maturity schedule for all financial liabilities and assets are regularly reviewed and monitored. Company has a asset liability management (ALM) policy and ALM Committee to review and monitor the liquidity risk and ensure the compliance with the prescribed regulatory requirement. The ALM Policy prescribes the detailed guidelines for managing the liquidity risk

The tables below provide details regarding the contractual maturities of significant financial assets and liabilities as on:-

41.3 MARKET RISK

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market factor. Such changes in the values of financial instruments may result from changes in the interest rates, credit, liquidity and other market changes. The Company is exposed to two types of market risks as follows:

41.3a Interest rate risk

Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

We are subject to interest rate risk, principally because we lend to clients at fixed interest rates and for periods that may differ from our funding sources, while our borrowings are at both fixed and variable interest rates for different periods. We assess and manage our interest rate risk by managing our assets and liabilities. Our Asset Liability Management Committee evaluates asset liability management, and ensures that all significant mismatches, if any, are being managed appropriately.

The Company has Board Approved Asset Liability Management (ALM) policy for managing interest rate risk and policy for determining the interest rate to be charged on the loans given.

The following table demonstrates the sensitivity to a reasonably possible change in the interest rates on the portion of borrowings affected. With all other variables held constant, the profit before tax is affected through the impact on floating rate borrowings, as follows:

b. Assignment Transaction:

During the year ended March 31, 2021, the Company has sold some loans and advances measured at FVOCI as per assignment deals, as a source of finance. As per the terms of deal, since the derecognition criteria as per Ind AS 109, including transaction of substantially all the risks and rewards relating to assets being transferred to the buyer being met, the assets have been derecognized. Further, in respect of such de-recognized financial assets, where the Company continues to act as a servicing agent on behalf of the assignee, any contracts pre-closed by the Company at borrowers’ request against issuance of fresh loans does not result in retention of incremental risk on the loans assigned. Accordingly, such pre-closures are not considered to impact the de-recognition of other assignment transactions as at reporting date. The management has performed an assessment of the impact of the assignment transactions done during the year for its business model. Based on such assessment, the Company’s business model for the portfolio loans continues with an objective to hold such assets for collecting underlying contractual cash flows and realising cash by selling the portfolio loans wherever appropriate.

The Liquidity Coverage Ratio (LCR) is one of the key parameters monitored by RBI for strengthening the asset-liability management in the financial sector. The objective of LCR is to promote an environment wherein balance sheet carries strong liquidity for short term cash flow requirements which is being done by ensuring that NBFCs have an adequate stock of unencumbered high quality liquid assets (HQLA) which can be easily converted into cash to meet liquidity needs, for at least 30 calendar days, calculated under a stressed scenario. The LCR is expected to improve the ability of financial sector to absorb the shocks arising from financial and/or economic stress, whatever the source, thus reducing the risk of spill over from financial sector to real economy The Liquidity Risk Management of the Company is performed by the Asset Liability Committee (ALCO) under the governance of Board approved Liquidity Risk Framework and Asset Liability Management policy. The LCR levels for the balance sheet date has been derived by arriving at the stressed expected cash inflow and outflow for the next 30-day period. To determine the stressed cash outflow, all expected and contracted cash outflows have been considered by applying a stress factor of 15%. Similarly, inflows for the Company have been arrived at by considering all expected and contracted inflows at a haircut of 25%.

In determining the outflows, the Company has taken into account all the contractual debt repayments and other expected or contracted cash outflows. Since the Company does not provide any committed credit facilities to its customers, no outflows have been considered in this regard. Inflows mainly comprise of expected receipts from all performing loans and liquid assets (such as short-term deposits maturing over next 30-days) which are unencumbered and not been considered as part of HQLA.

HQLA for the Company comprises of cash and bank balances.

The LCR is calculated by dividing the monthly average stock of HQLA by the monthly average of total net cash outflows over a 30-day stress period. The guidelines for LCR were effective from December 1,2020 with a minimum requirement at 30% which would rise in annual steps to reach 100% by December 1, 2024. This graduated approach is designed to ensure that the LCR could be introduced without material disruption to the orderly strengthening of NBFCs. The present requirement, as on March 31,2021 for NBFCs with assets size of '' 5,000 crore and above but less than '' 10,000 crore is 30%.

S. S. The Company has not sold financial assets to Securitization / Reconstruction companies for asset reconstruction in the current and previous year.

T. The Company has not purchased / sold non-performing financial assets in the current and previous year.

U. The Company does not have any parent company, hence disclosure relating to product financed by parent company is not applicable.

V. Unsecured advances - Refer note 7

W. Registration obtained from other financial sector regulators:

The Company is registered with the ''Ministry of Corporate Affairs’ (Financial regulators as described by Ministry of Finance)

X. No penalties imposed by RBI and other regulators during current and previous year.

1. Above computation is in accordance with the method accepted by RBI vide its letter no DNBS.PD.NO.4906/03.10.038/ 2012-13 dated April 4, 2013 to Micro-finance Institutions Network (the "MFIN format") read with the FAQs issued by RBI on October 14, 2016 and RBI circulated dated March 13, 2020 on implementation of Indian Accounting Standards.

2. Average loan outstanding determined for the purpose of calculating NIM is based on carrying value of loans under Ind AS, excluding effect of following:

a. Fair value changes recognized through other comprehensive income;

b. Securitized loans qualifying for de-recognition as per RBI’s "true sale" criteria and related interest income have not been considered for computation of "average interest charged" in accordance with the MFIN format. Accordingly, the purchase consideration received towards such securitizations and related finance costs have also not been considered for computation of "average effective cost of borrowings".

c. Impairment allowance adjusted from the carrying value of loans in accordance with Ind AS 109;

3. Interest income considered for computation of "average interest charged" excludes loan processing fee collected from customers in accordance with para 54 (vi) of the RBI Master Directions. As per Ind AS 109, such loan processing fee forms part of interest income in the Ind AS financial statements.

4. The average interest charged and net interest margin excluding the loans originated in the states of Andhra Pradesh/ Telangana prior to January 1,2012 are Nil (PY: 21.58%) and Nil (PY: 9.34%) respectively.

*Notes:

1. Significant counterparty is as defined in RBI Circular RBI/2019-20/88 DOR.NBFC (PD) CC.No.102/03.10.001/2019-20 dated November 4, 2019 on Liquidity Risk Management Framework for Non-Banking Financial Companies and Core Investment Companies.

2. Significantinstrument/productisasdefinedinRBICircularRBI/2019-20/88DOR.NBFC(PD)CC.No.102/03.10.001 /2019-20 dated November 4, 2019 on Liquidity Risk Management Framework for Non-Banking Financial Companies and Core Investment Companies.

3. Total Liabilities has been computed as sum of all liabilities (Balance Sheet figure) less Equities and Reserves/ Surplus.

4. Short term liabilities includes all financial and non-financial liabilities expected to be paid within one year.

5. Public funds is as defined in Master Direction - Non-Banking Financial Company - Systemically Important NonDeposit taking Company and Deposit taking Company (Reserve Bank) Direction, 2016.

AC: As per the policy on moratorium approved by the Board of Directors pursuant to RBI circular no. DOR.No.BP

BC.47/21.04.048/2019-20 dated March 27, 2020, the Company has not granted moratorium to customers with overdues as at March 1, 2020. Accordingly, no disclosure as per para 10 of RBI circular no. DOR.No.BPBC.63/21.04.048/2020-21 dated April 17, 2020 is required.

49. During the year ended March 31, 2021, the Company has transferred its Loan against Property (LAP) business of 14 branches to its subsidiary, Criss Financial Holdings Limited for a consideration of '' 902.15 million. The net assets of the Loan against property business amounts to '' 892.88 million.

50. The Company has certain litigations pending with income tax authorities, service tax authorities and other litigations which have arisen in the ordinary course of business. The Company has reviewed all such pending litigations having an impact on the financial position, and has adequately provided for where provisions are required and disclosed the contingent liability where applicable in the financial statements. Refer note 34(a) for details on tax litigations.

51. The Company is in correspondence with Reserve Bank of India ("RBI") with respect to the pricing of credit guidelines prescribed under paragraph 56 of the Master Direction - Non-Banking Financial Company - Systemically Important NonDeposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016, dated September 1, 2016, as amended. In respect of the observation made by the RBI in its inspection report for the years ended March 31,2018 and March 31, 2019, the Company has adequately recognized its impact in these financial statements. Further, as per RBI’s

directives, the Company has initiated the process to quantify the interest amount in respect of closed loan accounts in order to process the refund and has offered to reduce the interest rate on active loans in respect of which RBI’s confirmation is awaited.

52j On March 31,2021, the Company has invested an amount of '' 500 million in Criss Financial Holdings Limited, a subsidiary of the Company, by subscribing to 2,824,858 equity shares of face value of '' 10 per share for cash at '' 177 per share (including premium of ''167 per share), offered on preferential basis.

ESI Disclosure pursuant to RBI Notification - RBI/2020-21/17 DOR.No.BPBC/4/21.04.048/2020-21 ("Micro, Small and Medium Enterprises (MSME) sector - Restructuring of Advances") or RBI/2020-21/16 D0R.No.BP.BC/3/21.04.048/2020-21 ("Resolution Framework for COVID-19 Related Stress") both dated August 6, 2020, is not applicable as the Company has not restructured any loan accounts during the year. Also refer note 7.3 relating to loan pre-closures.

⁵⁴- | In accordance with the instructions in the RBI circular dated April 7, 2021, all lending institutions shall refund/adjust

''interest on interest’ to all borrowers including these who had availed working capital facilities during the moratorium period, irrespective of whether moratorium had been fully or partially availed, or not availed. Pursuant to these instructions, the Indian Banks Association (IBA) in consultation with other industry participants/bodies published the methodology for calculation of the amount of such ''interest on interest’. Accordingly, the Company has estimated the said amount and made provision for refund/adjustment to the tune of ? 104.71 million in these financial statements.

⁵⁵- | There have been no events after the reporting date that require adjustment / disclosure in these financial statements.