2.2.5. Provisions and contingent liabilities
The Company creates a provision when there is present obligation as a result of a past event that probably requires an outflow of resources, and a reliable estimate can be made of the amount of the obligation.
A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. The Company also discloses present obligations for which a reliable estimate cannot be made. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
2.3. Business Combination
The Company applies the acquisition method of accounting for business combinations where common control does not exist. The consideration transferred by the Company for the acquisition of business comprises of fair value of the assets transferred, liabilities incurred, and the equity interests issued by the Company as at the acquisition date i.e. the date on which it obtains the control of the acquiree. The acquisition related costs are recognised in the statement of profit and loss as incurred, except to the extent related to the issue of debt or equity securities.
Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values on the acquisition date. Intangible assets acquired in a business combination and recognised separately from Goodwill are initially recognised at their fair value at the acquisition date. Subsequent to initial recognition, intangible assets as well as Goodwill acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, respectively.
Goodwill is initially measured at cost, being the excess of the consideration transferred over the fair value of the net identifiable assets acquired. After initial recognition, Goodwill is tested annually for impairment and any impairment loss for Goodwill is recognised in the statement of profit and loss.
If the consideration transferred is less than the fair value of net identifiable assets acquired, the difference is recognised as capital reserve in other equity If there does not exist clear evidence of the underlying reasons for classifying the business combination as a bargain purchase otherwise the difference is recognised in other
comprehensive income on the acquisition date and accumulate the same in equity as capital reserve. Further details and impact of this merger on financial statements of the Company is disclosed in note 64.
2.4 Recent Accounting Pronouncements
Ministry of Corporate Affairs has notified Companies (Indian Accounting Standards) Amendment Rules, 2023 dated 31 March 2023 to amend the following Ind AS which are effective from period starting 01 April 2023:
Ind AS 107 - Financial instruments: Disclosures
This amendment adds to the amendments in Ind AS 1 and specifies that material accounting policy information needs to be disclosed. It also specifies that information about the measurement basis (or bases) used for financial instruments is expected to be material information. Prior to the amendment, Ind AS 107 required an entity to disclose significant accounting policies, comprising the measurement basis (or bases) and other accounting policies used that are relevant to an understanding of the financial statements. Consequential changes have been carried out in Appendix B -Application Guidance. The said amendment does not have any material impact on the Company's financial statements.
Ind AS 1 - Presentation of financial statements
This amendment aims to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their 'significant accounting policies' with a requirement to disclose their 'material accounting policy information' and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures. Consequential amendments have been made in Ind AS 107. The Company is currently assessing its accounting policy information disclosures to ensure consistency with the amended requirements.
Ind AS 8 - Accounting policies, changes in accounting estimates and errors
This amendment provides a clear definition of accounting estimates and clarifies the distinction between changes in accounting estimates and changes in accounting policies/correction of errors. It also, explains the difference between estimation techniques and valuation techniques by way of examples to provide clarity. The said amendment is not expected to have a material impact on the Company's financial statements.
Ind AS 12 - Income taxes
This amendment narrows the scope of the initial recognition exception under Ind AS 12, so that it no longer applies to transactions that give rise to equal taxable and deductible temporary differences. The amendments should be applied to transactions that occur on or after the beginning of the earliest comparative period presented. In addition, at the beginning of the earliest comparative period presented, a deferred tax asset (provided that sufficient taxable profit is available) and a deferred tax liability should also be recognised for all deductible and taxable temporary differences associated with leases and decommissioning obligations. Consequential amendments have been made in Ind AS 101. The Company is currently assessing the impact of the amendments.
Ind AS 34 - Interim financial reporting
This amendment substitutes the words 'significant accounting policies' with the words 'material accounting policy information' consequential to the amendments to Ind AS 1 as stated above. The Company is currently assessing the impact on the financial statements.
2.5 Critical accounting judgments and key sources of estimation uncertainty
The preparation of financial statements in accordance with Ind AS requires use of estimates and assumptions for some items, which might have an effect on their recognition and measurement in the balance sheet and statement of profit and loss. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. The actual results may differ from these estimates. The Company's management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Any revision to the accounting estimates is recognised prospectively in the current and future periods.
1. In case of trade receivables, cash and cash equivalents, trade payables, short term borrowings and other financial assets and liabilities it is assessed that the fair values approximate their carrying amounts largely due to the short-term maturities of these instruments.
2. The fair values of the financial assets and financial liabilities included above have been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparties.
Fair Value hierarchy
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 hierarchy - Includes Financial Instruments measured using quoted prices in the active market.
Level 2 hierarchy - The Fair value of Financial Instruments that are not traded in an active market, is determined using valuation techniques which maximize the use of observable market data.
Level 3 hierarchy - Inputs are not based on observable market data. Fair values are determined in whole or in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data.
B. Measurement of fair values
Financial instruments fair valued under Level 3 hierarchy are measured using Market multiples method.
The carrying amount of trade receivables, cash and cash equivalents ,other financial assets, trade payables and other financial liabilities are considered to be the fair value due to short term nature.
There are no transfers between level 1 , level 2 and level 3 during the year.
a) Scheme of arrangement between the Company and Reliance Commercial Finance Limited (""RCFL or Demerged company"") and their respective shareholders and creditors has been approved by Honourable National Company Law Tribunal (NCLT), Mumbai Bench vide Order dated 10th May 2024. The certified copy of the said Order was filed with Registrar of Companies and the effective date of the Scheme of arrangement is 21st May 2024 and the Appointed Date of the Scheme of arrangement is 1st October 2023. Pursuant to Scheme the entire Lending Business (Demerged Undertaking) of the RCFL (comprising all assets, liabilities, licences, rights, employees etc. ) has been transferred to the Company with effect from the Appointed Date as going concern in the manner and terms and conditions as contemplated in the Scheme and accounting for the transaction of the Demerged Undertaking from the period 1st October 2023 to 31st March 2024 has been done in the books of the accounts of the Reliance Commercial Finance Limited.
b) Further, all the inter company balances pertaining to the Demerged Undertaking have been cancelled and all the inter company transactions (in relation to the Demerged Undertaking) between Appointed Date and Effective Date have been cancelled.
c) The demerger has been accounted in accordance with Ind-AS 103 ""Business Combinations"". The financials have been restated with effect from 01st October, 2023 (Appointed Date).
2) Assignment Deal:
During the year ended March 31, 2024 and March 31, 2023, there were no Assignment deals undertaken by the Company.
3) Transferred financial assets that are derecognised in their entirety but where the Company has continuing involvement
The Company has not transferred any assets that are derecognised in their entirety where the Company continues to have continuing involvement.
Note: 42 and 43 Capital risk management
The Company actively manages its capital base to cover risks inherent to its business and meet the capital adequacy requirement of RBI. The adequacy of the Company's capital is monitored using, among other measures, the regulations issued by RBI.
(i) Capital management
The primary objectives of the Company's capital management policy are to ensure that the Company complies with externally imposed capital requirements and maintains strong credit ratings and healthy capital ratios in order to support its business and to maximise shareholder value. No changes have been made to the objectives, policies and processes from the previous years. However, they are under constant review by the board.
The Company manages its capital structure and makes adjustments to it according to changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes have been made to the objectives, policies and processes from the previous years. However, they are under constant review by the board.
(ii) Regulatory Capital
The Company is subject to the capital adequacy requirements of the Reserve Bank of India (RBI). Under RBI's capital adequacy guidelines, the Company is required to maintain a capital adequacy ratio consisting of Tier I and Tier II Capital. The minimum capital ratio as prescribed by RBI guidelines and applicable to the Company, consisting of Tier I and Tier II csadditional information is disclosed in terms of the RBI circular (Ref No. DNBR .PD. 008 / 03.10.119 / 2016-17 dated September 01, 2016) and RBI circular DNBR(PD) CC No. 053 / 03.10.119 / 2015-16 :
Note: 45 Employee benefit plans Contd. b) Defined benefit plans
The company has a defined benefit gratuity plan in India (funded). The company's defined benefit gratuity plan is a final salary plan for India employees, which requires contributions to be made to a separately administered fund. The gratuity plan is governed by the Payment of Gratuity Act, 1972. Under the act, employee who has completed five years of service is entitled to specific benefit. The level of benefits provided depends on the member's length of service and salary at retirement age.
The following tables summarise the components of net benefit expense recognised in the statement of profit or loss and the funded status and amounts recognised in the balance sheet for the respective plans:
Notes :
1. Transaction values are including taxes and duties (after netting off input credit), if any.
2. Amounts in bracket : (-) denote previous years figures i.e. financial year 2022-23.
3. Name of the related parties and nature of their relationships where control exists have been disclosed irrespective of whether or not there have been transactions with the Company. In other cases, disclosures have been made only when there have been transactions with those parties.
4. Related parties as defined under clause 9 of the Ind AS 24 'Related party disclosures' have been identified based on representations made by key managerial personnel and information available with the Company. AH above transactions are in the ordinary course of business and on an arms' length basis.
5. Provisions for gratuity, compensated absences and other long term service benefits are made for the Company as a whole and the amounts pertaining to the key managerial personnel are not specifically identified and hence are not included above.
6. #On October 14th, 2022, Reliance Commercial Finance Ltd., Reliance Capital Ltd., and Authum Investment and Infrastructure Ltd. entered a Supplemental Resolution Implementation Memorandum. As per this memorandum, the company has successfully acquired entire 13,53,25,694 equity shares of Rs.10/- each, 40,00,00,000 preference shares of Rs.10/- each, and inter-corporate deposit Rs. 749.06 of Reliance Commercial Finance Ltd. from Reliance Capital Ltd. for Rs. 1.00 Crores.
(b) Market risk
Market risk is the risk that the fair value of future cash flow of financial instruments will fluctuate due to changes in the market variables such as interest rates, foreign exchange rates and equity prices. The Company do not have any exposure to foreign exchange rate and equity price risk.
(c) Credit risk
Credit risk is the risk of financial loss arising out of a customer or counterparty failing to meet their repayment obligations to the Company. It has a diversified lending model and focuses on six broad categories viz: (i) consumer/ retail lending, (ii) SME lending, (iii) infra lending, (iv) micro financing, and (vi) other commercial lending. The Company assesses the credit quality of all financial instruments that are subject to credit risk. The company has manged the credit risk by diversifying into retail segment in recent years. In SME lending also, focus has been on the products with lower ticket size.
Classification of financial assets under various stages
The Company classifies its financial assets in three stages having the following characteristics:
- Stage 1: unimpaired and without significant increase in credit risk since initial recognition on which a 12 months allowance for ECL is recognised;
- Stage 2: a significant increase in credit risk since initial recognition on which a lifetime ECL is recognised;
- Stage 3: objective evidence of impairment, and are therefore considered to be in default or otherwise credit impaired on which a lifetime ECL is recognised.
Unless identified at an earlier stage, all financial assets are deemed to have suffered a significant increase in credit risk when they are 30 days past due (DPD) and are accordingly transferred from stage 1 to stage 2. For stage 1 an ECL allowance is calculated based on a 12 months Point in Time (PIT) probability weighted probability of default (PD). For stage 2 and 3 assets a life time ECL is calculated based on a lifetime PD.
The Company has calculated ECL using three main components: a probability of default (PD), a loss given default (LGD) and the exposure at default (EAD).
(ii) Collateral Valuation
The nature of products across these broad categories are either unsecured or secured by collateral. Although collateral is an important risk mitigant of 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 product and the Company's assessment of the customer's credit risk, a loan may be offered with suitable collateral. Depending on its form, collateral can have a significant financial effect in mitigating the Company's credit risk.
(iii) Analysis of Concentration Risk
The Company has started new products like two wheelers and other retail products to manage the concentration risk. The company also has portfolio across geographies to manage the geographical risk.
a) Financial instruments - fair value and risk management
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.
Valuation methodologies adopted
Fair values of financial assets, other than those which are subsequently measured at amortised cost, have been arrived at as under:
(i) Fair values of investments held for trading under FVTPL have been determined under level 1 using quoted market prices of the underlying instruments;
(ii) Fair values of strategic investments in equity instruments designated under FVOCI have been measured under level 3 at fair value based on a discounted cash flow model.
(iii) Fair values of other investments under FVOCI have been determined under level 1 using quoted market prices of the underlying instruments;
(iv) Fair value of loans held under a business model that is achieved by both collecting contractual cash flows and partially selling the loans through partial assignment to willing buyers and which contain contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest are measured at FVOCI. The fair value of these loans have been determined under level 3.
The Company has determined that the carrying values of cash and cash equivalents, bank balances, trade receivables, short term loans, floating rate loans, investments in equity instruments designated at FVOCI, trade payables, short term debts, borrowings, bank overdrafts and other current liabilities are a reasonable approximation of their fair value and hence their carrying value are deemed to be fair value.
b) Fair value hierarchy
This section explains the judgements and estimates made in determining the fair values of the financial instruments that are:
(a) recognised and measured at fair value and
(b) measured at amortised cost and for which fair values are disclosed in the financial statements
Note: 48A Fair value Measurment Contd.
The Company determines fair values of its financial instruments according to the following hierarchy:
Level 1: valuation based on quoted market price: financial instruments with quoted prices for identical instruments in active markets that the Company can access at the measurement date.
Level 2: valuation based on using observable inputs: financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.
Level 3: valuation technique with significant unobservable inputs: - financial instruments valued using valuation techniques where one or more significant inputs are unobservable. Equity investments designated under FVOCI has been valued using discounted cash flow method.
AH of the resulting fair value estimates are included in level 2 except for unlisted equity securities, a contingent consideration receivable and certain derivative contracts, where the fair values have been determined based on present values and the discount rates used were adjusted for counterparty or own credit risk.
For financial assets and financial liabilities that have a short-term maturity (less than twelve months), the carrying amounts, which are net of impairment, are a reasonable approximation of their fair value. Such instruments include: cash and balances, Trade receivables, cash and cash equivalents, bank deposits and trade payables. Such amounts have been classified as Level 3 on the basis that no adjustments have been made to the balances in the balance sheet.
The fair values for loans were calculated based on cash flows discounted using a current lending rate. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counterparty credit risk.
The fair values of debt securities, borrowing other than debt securities, subordinate liability are based on discounted cash flows using a current borrowing rate. They are classified as level 3 fair values in the fair value hierarchy due to the use of unobservable inputs, including own credit risk.
For financial assets and liabilities that are measured at fair value, the carrying amounts are equal to the fair values.
4. Derivatives
Forward Rate Agreement (FRA) / Interest Rate Swap (IRS)
The Company has not entered into any Forward Rate Agreement/Interest Rate Swap transactions during the current financial year and in the previous financial year. Hence disclosures relating to Forward Rate Agreement/Interest Rate Swap are not applicable.
Exchange Traded Interest Rate (IR) Derivative
The Company has not entered into any Exchange Traded Interest Rate (IR) Derivatives transactions during the current financial year and in the previous financial year. Hence disclosures relating to Exchange Traded Interest Rate (IR) Derivatives are not applicable.
Disclosures on Risk Exposure in Derivatives
A. Qualitative Disclosure
The Company has Board approved risk management policy for capital market exposure including derivatives contract trading. Risk Management Team independently calculates sensitivities and revalues portfolio on daily basis and ensures that risk limits are adhered on daily basis. Market risk limits have been established at portfolio level.
The Company has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Company has reviewed and ensured that adequate provision as required under any law/ accounting standards there are no foreseeable losses on such long term contracts (including derivative contracts) has been made in the books of accounts (Refer "Significant Accounting Policy” point 1).
11. Compliance with approved Scheme(s) of Arrangements
The Company has entered into a scheme of arrangement with Reliance Commercial Finance Limited, the details of which are captured in Note No.64 below.
12. Utilisation of Borrowed funds and share premium
A. During the year, the Company has not advanced 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. During the year, 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 to or on behalf of the Ultimate Beneficiaries
13. Undisclosed income
There is no transaction 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 accounts
14. Details of Crypto Currency or Virtual Currency
The Company has not traded or invested in crypto currency or virtual currency during the current or previous year.
63. Events after reporting date
There have been no events after the reporting date.
64. Business Combination
a) Scheme of arrangement between the Company and Reliance Commercial Finance Limited ("”RCFL or Demerged company””) and their respective shareholders and creditors has been approved by Honourable National Company Law Tribunal (NCLT), Mumbai Bench vide Order dated 10th May 2024. The certified copy of the said Order was filed with Registrar of Companies and the effective date of the Scheme of arrangement is 21st May 2024 and the Appointed Date of the Scheme of arrangement is 1st October 2023. Pursuant to Scheme the entire Lending Business (Demerged Undertaking) of the RCFL (comprising all assets, liabilities, licences, rights, employees etc. ) has been transferred to the Company with effect from the Appointed Date as going concern in the manner and terms and conditions
as contemplated in the Scheme and accounting for the transaction of the Demerged Undertaking from the period 1st October 2023 to 31st March 2024 has been done in the books of the accounts of the Reliance Commercial Finance Limited.
b) Further, all the inter company balances pertaining to the Demerged Undertaking have been cancelled and all the inter company transactions (in relation to the Demerged Undertaking) between Appointed Date and Effective Date have been cancelled.
c) The demerger has been accounted in accordance with Ind-AS 103 "’’Business Combinations””. The financials have been restated with effect from 01st October, 2023 (Appointed Date).
a) Scheme of arrangement between the Company and Reliance Commercial Finance Limited ("”RCFL or Demerged company””) and their respective shareholders and creditors has been approved by Honourable National Company Law Tribunal (NCLT), Mumbai Bench vide Order dated 10th May 2024. The certified copy of the said Order was filed with Registrar of Companies and the effective date of the Scheme of arrangement is 21st May 2024 and the Appointed Date of the Scheme of arrangement is 1st October 2023. Pursuant to Scheme the entire Lending Business (Demerged Undertaking) of the RCFL (comprising all assets, liabilities, licences, rights, employees etc. ) has been transferred to the Company with effect from the Appointed Date as going concern in the manner and terms and conditions as contemplated in the Scheme.
b) Further, all the inter company balances pertaining to the Demerged Undertaking have been cancelled and all the inter company transactions (in relation to the Demerged Undertaking) between Appointed Date and Effective Date have been cancelled.
c) The demerger has been accounted in accordance with Ind-AS 103 "’’Business Combinations””. The financials have been restated with effect from 01st October, 2023 (Appointed Date).
65 . The Code on Social Security, 2020 (the Code) has been enacted, which would impact contribution by the Company towards Provident Fund and Gratuity. The effective date from which changes are applicable is yet to be notified and the rules thereunder are yet to be announced. The actual impact on account of this change will be evaluated and accounted for when notification becomes effective.
66. Rs. 0.00 in Standalone Financial Statement indicates amount below Rs.50,000.
67. Previous year figures have been regrouped / rearranged wherever necessary.
This is the standalone notes to account referred to our report of even date.
For H.R. Agarwal & Associates For and on behalf of the Board
Chartered Accountants Firm Reg No: 323029E
Shyam Sunder Agarwal Amit Dangi Sanjay Dangi
Partner Whole Time Director Director
Membership No: 060033 DIN: 06527044 DIN: 00012833
UDIN: 24060033BKDKGJ8836
Place: Mumbai Deepak Dhingra Hitesh Vora
Date: 30th May, 2024 Chief Financial Officer Company Secretary
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