SIGNIFICANT ACCOUNTING POLICIES
1. Basis of preparation Compliance with Ind AS:
The financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 as amended from time to time and notified under section 133 of the Companies Act, 2013 (the Act) along with other relevant provisions of the Act and the Master Direction - Non- Banking Financial Company (Reserve Bank) Directions, 2016 ('the NBFC Master Directions') issued by RBI.
For all periods up to and including the year ended 31stMarch 2019, the Company had prepared its financial statements in accordance with accounting standards notified under Section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2016 and the Companies (Accounting Standards) Amendment Rules, 2016 and the NBFC Master Directions (hereinafter referred as 'Previous GAAP').These financial statements for the year ended 31 March 2020 are the first the Company has prepared in accordance with Ind AS. The Company has applied Ind AS 101 'First-time Adoption of Indian Accounting Standards', for transition from previous GAAP to Ind AS.
The accounting policies are applied consistently to all the periods presented in the financial statements, including the preparation of the opening Ind AS Balance Sheet as at 1stApril, 2018 being the date of transition to Ind AS, except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.
These financial statements have been prepared and presented under the historical cost convention, on the accrual basis of accounting except for certain financial assets and liabilities that are measured at fair values at the end of each reporting period, as stated in the accounting policies stated out below. The Financial statements have been prepared on a going concern basis.
The Balance Sheet, the Statement of Changes in Equity and the Statement of Profit and Loss are presented in the format prescribed under Division III of Schedule III of the Act, as amended from time to time, for Non-Banking Financial Companies ('NBFCs') that are required to comply with Ind-AS. The Statement of Cash Flows has been presented as per the requirements of Ind-AS 7 Statement of Cash Flows.
Use of estimates andjudgements
The preparation of financial statements in conformity with Ind-AS requires management to make estimates, judgements and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities (including contingent liabilities) and disclosures as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from these estimates. Accounting estimates and underlying assumptions are reviewed on an ongoing basis and could change from period to period. Appropriate changes in estimates are recognised in the periods in which the Company becomes aware of the changes in circumstances surrounding the estimates. Any revisions to accounting estimates are recognised prospectively in the period in which the estimate is revised and future periods. The estimates and judgements that have significant impact on the carrying amount of assets and liabilities at each balance sheet date are:
1. Expected creditloss measurement on Loans Given
2. Use of Effective interest Rates for measurement of revenue from Loan Instruments
3. Determination of Lease terms
4. Recognition of deferred tax
5. Useful life and expected residual value ofassets
Rounding offamounts:The Standalone Financial Statements have been presented in Indian Rupees (INR), which is the Company's functional currency. All amounts disclosed in the financial statements and notes have been rounded off to the nearest lakhas per the requirement of schedule III (except share data), unless otherwise stated. Any differences between total and sums of components in tables contained in this report are due to rounding.
2. Financial Instruments
(A) Date of recognition
Financial assets and financial liabilities are recognised in the Company's balance sheet when the Company becomes a party to the contractual provisions of the instrument
(B) Initial measurement
Recognised financial instruments are initially measured at transaction price, which equates fair value. Transactioncoststhataredirectlyattributabletotheacquisitionorissueoffinancialassetsandfinancial liabilities (Other than the financial assets or financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate,oninitialrecognition.Transactioncostsdirectlyattributabletotheacquisitionoffinancial assets or financial liabilities at fair value through profit and loss are recognised immediately in the statement of
profit and loss.
(C) Classification and subsequent measurement
(i) Financial assets
Basedonthebusinessmodel,thecontractualcharacteristicsofthefinancialassetsandspecific elections where appropriate, the Company classifies and measures financial assets in the following categories:
- Amortised cost
- Fair value through other comprehensive income('FVOCI')
- Fair value through profit and loss('FVTPL')
(a) Financial assets carried at amortised cost
Afinancialassetismeasuredatamortisedcostifitmeetsbothofthefollowingconditions and is not designated as at FVTPL:
• theassetisheldwithinabusinessmodelwhoseobjectiveistoholdassetstocollect contractual cash flows ('Asset held to collect contractual cash flows'); and
• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest ('SPPI') on the principal amount outstanding.
Afterinitialmeasurementandbasedontheassessmentofthebusinessmodelasasset held to collect contractual cash flows and SPPI, such financial assets are subsequently measuredatamortisedcostusingeffectiveinterestrate('EIR')method.Interestincome andimpairmentexpensesarerecognisedinstatementofprofitandloss.Interestincome
fromthesefinancialassetsisincludedinfinanceincomeusingtheEIRmethod.Anygain and loss on derecognition is also recognised in statement of profit and loss.
TheEIRmethodisamethodofcalculatingtheamortisedcostofafinancialinstrumentand of allocating interest over the relevant period. The EIR is the rate that exactly discounts estimatedfuturecashflows(includingallfeespaidorreceivedthatformanintegralpart oftheEIR,transactioncostsandotherpremiumsordiscounts)throughtheexpectedlife oftheinstrument,or,whereappropriate,ashorterperiod,tothenetcarryingamounton initial recognition.
The Company records loans at amortised cost.
(b) Financial assets at fair value through other comprehensive income
Financialassetsthatareheldwithinabusinessmodelwhoseobjectiveisbothtocollect the contractual cash flows and to sell the assets, ('Contractual cash flows of assets collected through hold and sell model') and contractual cash flows that are SPPI, are subsequently measured at FVOCI. Movements in the carrying amount of such financial assets are recognised in Other Comprehensive Income('OCI'). Amounts recorded in OCI are not subsequently transferred to the statement of profit and loss.
(c) Financial assets at fair value through profit and loss
Financialassetswhichdonotmeetthecriteriaforcategorisationasatamortisedcostor
asFVOCI,aremeasuredatFVTPL.Subsequentchangesinfairvaluearerecognisedin the statement of profit and loss.
(ii) Financial liabilities and equity instrument
DebtandequityinstrumentsissuedbytheCompanyareclassifiedaseitherfinancialliabilitiesor
asequityinaccordancewiththesubstanceofthecontractualarrangementsandthedefinitions of a financial liability and an equity instrument.
(a) Equity instrument:
Anequityinstrumentisanycontractthatevidencesaresidualinterestintheassetsofan entity after deducting all of its liabilities. An equity instrument issued by the Company is recognised at the proceeds received, net of directly attributable transaction costs.
(b) Financial liabilities:
Financialliabilitiesaremeasuredatamortisedcost.Thecarryingamountsaredetermined based on the EIR method. Interest expense is recognised in statement of profit and loss.
Any gain or loss on de-recognition of financial liabilities is also recognised in statement of profit and loss.
(D) Reclassification
Financialassetsarenotreclassifiedsubsequenttotheirinitialrecognition,apartfromtheexceptional circumstances in which the Company acquires, disposes of, or terminates a business line or in the period the Company changes its business model for managing financial assets. Financial liabilities are not reclassified.
(E) Derecognition
(i) Financial assets :The company derecognises a financial asset when the contractual rights to the cash flows from the financial assets expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the company neither transfers nor retains substantially all of the risks and rewards of the ownership and does not retain control of the financial asset.
If the company enters into transactions whereby it transfers assets recognised on its balance sheet but retains either all or substantially all of the risks and rewards of the transferred assets, the transferred assets are not derecognised
Onderecognitionofafinancialasset,thedifferencebetweenthecarryingamountofthe
asset(orthecarryingamountallocatedtotheportionoftheassetderecognised)andthe sum of (i) the consideration received (including any new asset obtained less any new liabilityassumed)and(ii)anycumulativegainorlossthathadbeenrecognisedinOCIis recognised in statement of profit andloss.
(ii) Financial liabilities:
Afinancialliabilityisderecognisedwhentheobligationundertheliabilityisdischarged,cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying value of the original financial liability and the new financial liability with modified terms is recognised in statement of profit and loss.
(F) Impairment of financial assets
The Company applies the ECL model in accordance with Ind-AS 109 for recognising impairment loss on financial assets. The ECL allowance is based on the credit losses expected to arise from all possible default events over the expected life of the financial asset ('lifetime ECL'), unless there has been no significant
increase in credit risk since origination, in which case, the allowance is based on the12-monthECL.The12-monthECLisaportionofthelifetimeECLwhichresultsfromdefaultevents that are possible within 12 months after the reporting date.
ECL is calculated on a collective basis, considering the retail nature of financial assets.
The impairment methodology applied depends on whether there has been a significant increase in creditrisk.Whendeterminingwhethertheriskofdefaultonafinancialassethasincreasedsignificantly sinceinitialrecognition,theCompanyconsidersreasonableandsupportableinformationthatisrelevant and available without undue cost or effort. This includes both quantitative and qualitative information andanalysisbasedonaprovisionmatrixwhichtakesintoaccounttheCompany'shistoricalcreditloss experience, current economic conditions and forward-looking information.
Themeasurementofimpairmentlossesacrossallcategoriesoffinancialassetsrequiresjudgement, in
particular, the estimation of the amount and timing of future cash flows when determining impairment losses and the assessment of a significant increase in credit risk. These estimates are driven by a number of factors, changes in which can result in different levels of allowances. The Company regularly reviews its models in the context of actual
lossexperienceandmakesadjustmentswhensuchdifferencesaresignificantlymaterial.
(G) Write offs
Thegrosscarryingamountofafinancialassetiswritten-off(eitherpartiallyorinfull)totheextentthat there is no reasonable expectation of recovering the asset in its entirety or a portion thereof. This is generallythecasewhentheCompanydeterminesthatthedebtordoesnothaveassetsorsourcesof incomethatcouldgeneratesufficientcashflowstorepaytheamountssubjecttothewrite-off. However,
financialassetsthatarewritten-offcouldstillbesubjecttoenforcementactivitiesundertheCompany's recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in statement of profit and loss.
(H) Offsetting
Financial assets and financial liabilities are generally reported gross in the balance sheet. They are onlyoffsetandreportednetwhen,theCompanyhasalegallyenforceablerighttooffset
therecognisedamountsanditintendseithertosettlethemonanetbasisortorealisetheassetandsettletheliabilit y simultaneously.
3. Derivative financial instruments
The company has not entered into any derivative financial instruments.
4. Cash and cash equivalents
Cash and cash equivalents include cash at banks and on hand, demand deposits with banks, other short term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
5. Property, plant and equipment
All property, plant and equipment are stated at cost, less accumulated depreciation and impairment loss, if any. The Cost comprises of purchase cost including taxes paid net of Input tax credit, borrowing costs if
capitalisation criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use and expected cost of decommissioning.
On transition to Ind AS, the Company has elected to continue with the carrying value of all of its property, plant and equipment recognised as at 1 April 2018 measured as per the previous GAAP and use that carrying value as the deemed cost of the property, plant and equipment.
6. Intangible assets
Intangible assets acquired or developed are measured on initial recognition at cost of acquisition and development, including cost attributable
toreadyingtheassetforuse.Suchintangibleassetsaresubsequentlymeasuredatcostlessaccumulated amortisation and any accumulated impairment Losses.
7. Depreciation/Amortisation
Depreciable amount for property, plant and equipment / intangible fixed assets is the cost of an asset, or other amount substituted for cost, less its estimated residual value. Depreciation on property, plant and equipment is provided on Straight line basis as per the useful life estimated by company.
Intangible assets are amortised on straight line basis over their respective individual useful lives estimated by the management. The Company uniformly estimates a zero-residual value for all these assets.
Items costing less than 5,000 are fully depreciated in the year of purchase. Depreciation is pro-rated in the year of acquisition as well as in the year of disposal.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. Changes in the expected useful life are accounted for by changing the depreciation period or methodology, as appropriate, and treated as changes in accounting estimates.
Property, plant and equipment is de-recognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in other income/expense in the statement of profit and loss in the year the asset is de-recognised.
8. Impairment of non-financial assets
The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired due to events or changes in circumstances indicating that their carrying amounts may not be realised. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of profit and loss. If at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the revised recoverable amount, subject to maximum of the depreciated historical cost.
9. Revenue recognition
Specific policies for the Company's different sources of revenue are explained below:
A. Income from lending business
Interest income:
Interestincomeonafinancialassetatamortisedcostisrecognisedonatimeproportionbasistaking into account the amount outstanding and the effective interest rate ('EIR'). The EIR is the rate that exactly discounts estimated future cash flows of the financial asset through the expected life of the financial asset or, where appropriate, a shorter period, to the net carrying amount of the financial instrument. The future cash flows are estimated taking into account all the contractual terms of the instrument. TheinterestincomeiscalculatedbyapplyingtheEIRtothegrosscarryingamountofnon-creditimpaired financialassets(i.e.attheamortisedcostofthefinancialassetbeforeadjustingforanyexpectedcredit lossallowance).Forcredit-impairedfinancialassetstheinterestincomeiscalculatedbyapplyingthe EIR to the amortised cost of the credit-impaired financial assets (i.e. the gross carrying amount less the allowance for ECLs). As required under RBI directions for NBFCs, interest income on loans past due two quarters is recognised on realisation.
B. Other financial charges
Cheque bouncing charges, late payment charges, prepayment charges and application money are recognisedonapoint-in-timebasis,andarerecordedwhenrealisedsincetheprobabilityofcollecting such monies is established when the customer pays.
C. Misc. Income
Any other income is accounted on accrual basis. However, where it is not possible to estimate or accrue such other income, the same is accounted on receipt basis.
10. Employee Benefits
The company at present does not have any employees who are eligible for Provident Fund, ESIC and labour welfare funds, Gratuity, Compensated absences.
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