Note 1 Significant accounting policies
1. Corporate information
KIFS Financial Services Limited (KFSL) incorporated under the provisions of the Companies Act, 1956 on
March 29, 1995 [CIN: L67990GJ1995PLC025234] is a non banking financial company registered with the
Reserve Bank of India (RBI) under the provisions of section 45-IA of the RBI Act, 1934 as a loan company
(RBI registration no. 01.00007 dated 18.02.1998). KFSL is a public limited company and is listed on Bombay
Stock Exchange Ltd. It offers capital market products like margin trading, loan against shares (las) and
funding primary market issues for the retail investors.
The Company's registered office is at 4th Floor, KIFS Corporate House, Nr. Land Mark Hotel, Nr. Neptune
House, Iskon - Ambli Road, Bodakdev, Ahmedabad - 380054, Gujarat, India.
2. Basis of preparation
2.1 Statement of compliance
The standalone financial statements of the Company have been prepared in accordance with the Indian
Accounting Standards (the "Ind AS") prescribed under section 133 of the Companies Act, 2013 (the "Act").
For all periods up to and including the year ended 31 March 2019, the Company prepared its standalone 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, 2014 (Indian GAAP or previous GAAP). These
standalone financial statements for the year ended 31 March 2025 was the Company's sixth financial statements
prepared in accordance with Ind AS.
2.2 Basis of measurement
The standalone financial statements have been prepared on historical cost basis except as stated otherwise.
2.3 Functional and presentation currency
The standalone financial statements are presented in Indian Rupees (?) which is the currency of the primary
economic environment in which the Company operates (the "functional currency").
2.4 Use of estimates and judgments
The preparation of the standalone financial statements in conformity with Ind AS requires management to make
estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent
liabilities) and the reported income and expenses during the year.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised prospectively.
The areas involving the use of estimates or judgements are:
i) Business model assessment
Classification and measurement of financial assets depends on the results of business model and the
solely payments of principal and interest ("SPPI") test. The Company determines the business model at a
level that reflects how groups of financial assets are managed together to achieve a particular business
objective. This assessment includes judgement reflecting all relevant evidence including how the
performance of the assets is evaluated and their performance measured, the risks that affect the
performance of the assets and how these are managed and how the managers of the assets are
compensated. The Company monitors the financial assets measured at amortised cost and this
monitoring is part of the Company's continuous assessment of whether the business model for which the
financial assets are held continues to be appropriate and if it is not appropriate whether there has been a
change in business model and so a prospective change to the classification of those assets.
ii) Effective Interest Rate ("EIR") method
The Company's EIR methodology, as explained in Note 3.1(A), recognises interest income / expense using
a rate of return that represents the best estimate of a constant rate of return over the expected
behavioural life of loans given / taken and recognises the effect of potentially different interest rates at
various stages and other characteristics of the product life cycle (including prepayments and penalty
interest and charges).
This estimation, by nature, requires an element of judgement regarding the expected behaviour and life¬
cycle of the instruments, as well as expected changes to interest rates and other fee income/ expense
that are integral parts of the instrument.
iii) Impairment of financial asset
The measurement of impairment losses across all categories of financial assets requires judgement, in
particular, the estimation of the amount and timing of future cash flows and collateral values 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.
There is no need to provide such impairment of financial assets as the company only provide short term
loans which are mostly payable on demand there is no significant effect on impairment of financial asset.
iv) Provisions and other contingent liabilities
When the Company can reliably measure the outflow of economic benefits in relation to a specific case
and considers such outflows to be probable, the Company records a provision against the case. Where
the probability of outflow is considered to be probable, but a reliable estimate cannot be made, a
contingent liability is disclosed.
Given the subjectivity and uncertainty of determining the probability and amount of losses, the Company
takes into account a number of factors including legal advice, the stage of the matter and historical
evidence from similar incidents. Significant judgement is required to conclude on these estimates.
These estimates and judgements are based on historical experience and other factors, including expectations of
future events that may have a financial impact on the Company and that are believed to be reasonable under the
circumstances. The Management believes that the estimates used in preparation of the standalone financial
statements are prudent and reasonable.
2.5 Presentation of the standalone financial statements
The Company presents its balance sheet in order of liquidity. An analysis regarding recovery or settlement within
12 months after the reporting date (current) and more than 12 months after the reporting date (non -current) is
presented in Note 38.
Financial assets and financial liability are generally reported gross in the balance sheet. They are only offset and
reported net when, in addition to having an unconditional legally enforceable right to offset the recognised
amounts without being contingent on a future event, the parties also intend to settle on a net basis in all of the
following circumstances:
i) The normal course of business
ii) The event of default
3. Summary of significant accounting policies
3.1 Recognition of Interest Income
A. EIR method
Under Ind AS 109, interest income is recorded using the effective interest rate method for all financial
instruments measured at amortised cost, financial instrument measured at FVOCI and financial
instruments designated at FVTPL. The EIR is the rate that exactly discounts estimated future cash receipts
through the expected life of the financial instrument or, when appropriate, a shorter period, to the net
carrying amount of the financial asset.
The EIR (and therefore, the amortised cost of the asset) is calculated by taking into account any discount
or premium on acquisition, fees and costs that are an integral part of the EIR. The Company recognises
interest income using a rate of return that represents the best estimate of a constant rate of return over
the expected life of the financial instrument.
If expectations regarding the cash flows on the financial asset are revised for reasons other than credit
risk, the adjustment is booked as a positive or negative adjustment to the carrying amount of the asset in
the balance sheet with an increase or reduction in interest income. The adjustment is subsequently
amortised through Interest income in the statement of profit and loss.
B. Interest income
The Company calculates interest income by applying the EIR to the gross carrying amount of financial
assets.
3.2 Financial Instrument - Initial Recognition
A. Date of recognition
Financial assets and liabilities, with the exception of loans, debt securities, deposits and borrowings are
initially recognised on the trade date, i.e. the date that the Company becomes a party to the contractual
provisions of the instrument.
B. Initial measurement of financial instruments
The classification of financial instruments at initial recognition depends on their contractual terms and the
business model for managing the instruments (Refer note 3.3(A)). All financial assets and liabilities are
initially recognized at amortised cost. Transaction costs that are directly attributable to the acquisition or
issue of financial assets and financial liabilities, are adjusted to the cost on initial recognition.
C. Measurement categories of financial assets and liabilities
The Company classifies all of its financial assets based on the business model for managing the assets and
the asset's contractual terms, measured at Amortised cost.
3.3 Financial assets and liabilities
A. Financial Assets
Business model assessment
The Company determines its business model at the level that best reflects how it manages groups of
financial assets to achieve its business objective.
The Company's business model is not assessed on an instrument-by-instrument basis, but at a higher level
of aggregated portfolios and is based on observable factors such as:
a) How the performance of the business model and the financial assets held within that business
model are evaluated and reported to the Company's key management personnel.
b) The risks that affect the performance of the business model (and the financial assets held within
that business model) and, in particular, the way those risks are managed.
c) How managers of the business are compensated (for example, whether the compensation is
based on the fair value of the assets managed or on the contractual cash flows collected).
d) The expected frequency, value and timing of sales are also important aspects of the Company's
assessment.
The business model assessment is based on reasonably expected scenarios without taking 'worst case' or
'stress case' scenarios into account. If cash flows after initial recognition are realised in a way that is
different from the Company's original expectations, the Company does not change the classification of
the remaining financial assets held in that business model, but incorporates such information when
assessing newly originated or newly purchased financial assets going forward.
SPPI test
As a second step of its classification process, the Company assesses the contractual terms of financial to
identify whether they meet the SPPI test.
‘Principal' for the purpose of this test is defined as the fair value of the financial asset at initial recognition
and may change over the life of the financial asset (for example, if there are repayments of principal or
amortisation of the premium/ discount).
The most significant elements of interest within a lending arrangement are typically the consideration for
the time value of money and credit risk. To make the SPPI assessment, the Company applies judgement
and considers relevant factors such as the period for which the interest rate is set.
In contrast, contractual terms that introduce a more than de minimise exposure to risks or volatility in the
contractual cash flows that are unrelated to a basic lending arrangement do not give rise to contractual
cash flows that are solely payments of principal and interest on the amount outstanding. In such cases,
the financial asset is required to be measured at FVTPL.
Accordingly, the financial assets are measured as follows:
i) Financial assets carried at amortised cost ("AC")
A financial asset is measured at amortised cost if it is held within a business model whose
objective is to hold the asset in order 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 on the principal amount outstanding.
ii) Financial assets measured at fair value through other comprehensive income ("FVOCI")
A financial asset is measured at FVTOCI if it is held within a business model whose objective is
achieved by both collecting contractual cash flows and selling financial assets and the contractual
terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
iii) Financial assets at fair value through profit or loss ("FVTPL")
A financial asset which is not classified in any of the above categories are measured at FVTPL.
B. Financial Liability
i) Initial recognition and measurement
All financial liability are initially recognized at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial liability, which are not at fair value through
profit or loss, are adjusted to the fair value on initial recognition.
ii) Subsequent measurement
Financial liabilities are carried at amortized cost using the effective interest method.
3.4 Reclassification of financial assets and liabilities
The Company does not reclassify its financial assets subsequent to their initial recognition, apart from the
exceptional circumstances in which the Company acquires, disposes of, or terminates a business line.
Financial liabilities are never reclassified. The Company did not reclassify any of its financial assets or
liabilities in the year 2021-22, 2020-21, 2019-20, 2018-19 and 2017-18.
3.5 Derecognition of financial assets and liabilities
i) Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial
assets) is derecognised when the contractual rights to the cash flows from the financial asset expires 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 ownership and it does not retain control
of the financial asset.
On derecognition of a financial asset in its entirety, the difference between the carrying amount
(measured at the date of derecognition) and the consideration received (including any new asset
obtained less any new liability assumed) is recognised in the statement of profit and loss.
Accordingly, gain on sale or derecognition of assigned portfolio are recorded upfront in the statement of
profit and loss as per Ind AS 109. Also, the Company recognises servicing income as a percentage of
interest spread over tenure of loan in cases where it retains the obligation to service the transferred
financial asset.
As per the guidelines of RBI, the company is required to retain certain portion of the loan assigned to
parties in its books as Minimum Retention Requirement (MRR). Therefore, it continue to recognise the
portion retained by it as MRR.
ii) Financial liability
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or
expires. Where an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original liability and the recognition of a new liability. The
difference between the carrying value of the original financial liability and the consideration paid is
recognised in the statement of profit and loss.
3.6 Impairment of financial assets
A. Overview of the ECL principles
In accordance with Ind AS 109, the Company uses ECL model, for evaluating impairment of financial assets
other than those measured at fair value through profit and loss (FVTPL).
Expected credit losses are measured through a loss allowance at an amount equal to:
i. ) The 12-months expected credit losses (expected credit losses that result from those default
events on the financial instrument that are possible within 12 months after the reporting date); or
ii. ) Full lifetime expected credit losses (expected credit losses that result from all possible default
events over the life of the financial instrument)
Based on the above, the Company categorises its loans into Stage 1, Stage 2 and Stage 3, as described
below:
Stage 1: When loans are first recognised, the Company recognises an allowance based on 12 months ECL.
Stage 1 loans includes those loans where there is no significant credit risk observed and also includes
facilities where the credit risk has been improved and the loan has been reclassified from stage 2 or stage
3.
Stage 2: When a loan has shown a significant increase in credit risk since origination, the Company records
an allowance for the life time ECL. Stage 2 loans also includes facilities where the credit risk has improved
and the loan has been reclassified from stage 3.
Stage 3: Loans considered credit impaired. The Company records an allowance for life time ECL.
B. The calculation of ECLs
The mechanics of the ECL calculations are outlined below and the key elements are, as follows:
PD The Probability of Default is an estimate of the likelihood of default over a given time horizon. A
default may only happen at a certain time over the assessed period, if the facility has not been
previously derecognised and is still in the portfolio.
EAD The Exposure at Default is an estimate of the exposure at a future default date, taking into
account expected changes in the exposure after the reporting date, including repayments
of principal and interest
LGD The Loss Given Default is an estimate of the loss arising in the case where a default occurs at a
given time. It is based on the difference between the contractual cash flows due and those that
the lender would expect to receive, including from the realisation of any collateral. It is usually
expressed as a percentage of the EAD.
The Company has calculated Probability of Default (PDs), Exposure at Default (EAD) and Loss Given Default (LGDs)
to determine impairment loss on the portfolio of loans and discounted at an approximation to the EIR. At every
reporting date, the above calculated PDs, EAD and LGDs are reviewed and changes in the forward looking
estimates are analysed.
C. Forward looking information
In its ECL models, the Company relies on a broad range of forward looking macro parameters and
estimated the impact on the default at a given point of time.
3.7 Write-offs
Financial assets are written off either partially or in their entirety after reasonable efforts for recovery
have been made and when the Company has stopped pursuing the recovery. Any subsequent recoveries
are credited to impairment on financial instrument on the statement of profit and loss.
3.8 Determination of 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 between market participants at the measurement date, regardless of whether that price is
directly observable or estimated using another valuation technique.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2, or 3
based on the degree to which the inputs to the fair value measurements are observable and the
significance of the inputs to the fair value measurement in its entirety, which are described as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the
Company can access at the measurement date;
• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the
asset or liability, either directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or liability.
3.9 Recognition of other income and expenses
Revenue (other than for those items to which Ind AS 109 - Financial Instruments are applicable) is
measured at fair value of the consideration received or receivable. Ind AS 115 - Revenue from contracts
with customers outlines a single comprehensive model of accounting for revenue arising from contracts
with customers and supersedes current revenue recognition guidance found within Ind ASs.
The Company recognises revenue from contracts with customers based on a five step model as set out in
Ind AS 115:
Step 1: Identify contract(s) with a customer: A contract is defined as an agreement between two or more
parties that creates enforceable rights and obligations and sets out the criteria for every contract that
must be met.
Step 2: Identify performance obligations in the contract: A performance obligation is a promise in a
contract with a customer to transfer a good or service to the customer.
Step 3: Determine the transaction price: The transaction price is the amount of consideration to which the
Company expects to be entitled in exchange for transferring promised goods or services to a customer,
excluding amounts collected on behalf of third parties.
Step 4: Allocate the transaction price to the performance obligations in the contract: For a contract that
has more than one performance obligation, the Company allocates the transaction price to each
performance obligation in an amount that depicts the amount of consideration to which the Company
expects to be entitled in exchange for satisfying each performance obligation.
Step 5: Recognise revenue when (or as) the Company satisfies a performance obligation.
A. Interest income on Bank deposits & Other Income
Interest income on Bank deposits is accounted on accrual basis. Other Operating Income such as Service
Charges, Stamp and Document Charges etc. are recognised on accrual basis.
B. Fees and commission income
Fees and commission income such as stamp and document charges, guarantee commission, service
income etc. are recognised on point in time basis.
C. Borrowing costs
Borrowing Costs are the interest and other costs that the Company incurs in connection with the
borrowing of funds. Borrowing costs that are directly attributable to the acquisition or construction of
qualifying assets are capitalised as part of the cost of such assets. A qualifying asset is an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale.
All other borrowing costs are charged to the statement of profit and loss for the period for which they are
incurred.
3.10 Cash and cash equivalents
Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances
(with an original maturity of three months or less from the date of acquisition), highly liquid investments
that are readily convertible into known amounts of cash and which are subject to insignificant risk of
changes in value.
3.11 Property, plant and Equipment
Property, Plant and Equipments are carried at cost, less accumulated depreciation and impairment losses,
if any. The cost of Property, Plant and Equipments comprises its purchase price net of any trade discounts
and rebates, any import duties and other taxes (other than those subsequently recoverable from the tax
authorities), any directly attributable expenditure on making the asset ready for its intended use and
other incidental expenses. Subsequent expenditure on Property, Plant and Equipments after its purchase
is capitalized only if it is probable that the future economic benefits will flow to the enterprise and the
cost of the item can be measured reliably.
Depreciation is calculated using the straight line method to write down the cost of property and
equipment to their residual values over their estimated useful lives as specified under Schedule II of the
Act.
In respect of property, plant and Equipments purchased during the period, depreciation is provided on a
pro-rata basis from the date on which such asset is purchased or ready for its intended use.
The residual values, useful lives and methods of depreciation of property, plant and equipment are
reviewed at each financial year end and adjusted prospectively, if appropriate.
Property plant and equipment is derecognised on disposal or when no future economic benefits are
expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the asset) is recognised in other income /
expense in the statement of profit and loss in the year the asset is derecognised.
3.12 Intangible Assets
The Company's other intangible assets include the value of software and trademark. An intangible asset is
recognised only when its cost can be measured reliably and it is probable that the expected future
economic benefits that are attributable to it will flow to the Company.
Intangible assets acquired separately are measured on initial recognition at cost. Following initial
recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated
impairment losses.
Amortisation is calculated using the straight-line method to write down the cost of intangible assets to
their residual values over their estimated useful lives.
3.13 Impairment of non-financial assets - property, plant and equipment and intangible assets
The carrying values of assets / cash generating units at the each Balance Sheet date are reviewed for
impairment. If any indication of impairment exists, the recoverable amount of such assets is estimated
and if the carrying amount of these assets exceeds their recoverable amount, impairment loss is
recognised in the Statement of Profit and Loss as an expense, for such excess amount. The recoverable
amount is the greater of the net selling price and value in use. Value in use is arrived at by discounting the
future cash flows to their present value based on an appropriate discount factor. When there is indication
that an impairment loss recognised for an asset in earlier accounting periods no longer exists or may have
decreased, such reversal of impairment loss is recognised in the Statement of Profit and Loss.
3.14 Leasing
The determination of whether an arrangement is a lease, or contains a lease, is based on the substance of
the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent
on the use of a specific asset or assets or whether the arrangement conveys a right to use the asset.
Company as a lessee
Leases that do not transfer to the Company substantially all of the risks and benefits incidental to
ownership of the leased items are operating leases. Operating lease payments are recognised as an
expense in the statement of profit and loss on a straight-line basis over the lease term, unless the increase
is in line with expected general inflation, in which case lease payments are recognised based on
contractual terms. Contingent rental payable is recognised as an expense in the period in which they are
incurred.
Company as a lessor
Leases where the Company does not transfer substantially all of the risk and benefits of ownership of the
asset are classified as operating leases. Rental income arising from operating leases is accounted for on a
straight-line basis over the lease terms and is included in rental income in the statement of profit and loss,
unless the increase is in line with expected general inflation, in which case lease income is recognised
based on contractual terms. Initial direct costs incurred in negotiating operating leases are added to the
carrying amount of the leased asset and recognised over the lease term on the same basis as rental
income. Contingent rents are recognised as revenue in the period in which they are earned.
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