3.14 Provision, contingent liabilities and contingent assets
a. Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of obligation. Provisions are measured at the best estimate of the expenditure required to settle the present obligation, at the balances sheet date.
If the effect of the time value of money is material, provisions are discounted to reflect its present value using a current pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
b. Contingent Liabilities
A disclosure for a contingent liability is made when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation arising as a result of past event that probably will not require an outflow of resources or where a reliable estimate of the obligation cannot be made.
c. Contingent Assets
Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.
3.15 Investment Property
Properties, held to earn rentals and/or capital appreciation are classified as investment property and measured at cost, including transaction costs.
Depreciation is recognised using straight line method so as to write off the cost of the investment property less their residual values over their useful lives specified in Schedule II to the Companies Act, 2013. Depreciation method is reviewed at each financial year end to reflect the expected pattern of consumption of the future benefits embodied in the investment property.
An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of property is recognised in the statement of profit and loss in the same period.
3.16 Taxes
a. Current tax
Current income tax, assets and liabilities are measured at the amount expected to be paid to or recovered from the taxation authorities in accordance with the tax regime inserted by the Taxation Laws (Amendment) Act, 2019 in the Income Tax Act, 1961 and the Income Computation and Disclosure Standards (ICDS) enacted in India by using tax rates and the tax laws that are enacted at the reporting date.
Current tax relating to items recognized outside profit or loss is recognized in correlation to the underlying transactions either in OCI or directly in other equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which the applicable tax regulations are subject to interpretation and establishes provisions where applicable.
b. Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax assets and liabilities are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
3.17 Earning per share
Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. Earnings considered in ascertaining the Company’s earnings per share is the net profit for the period after tax. The
weighted average number of equity shares outstanding during the period and for all periods presented is adjusted for events, such as bonus shares, sub-division of shares etc. that have changed the number of equity shares outstanding, without a corresponding change in resources.
For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders is divided by the weighted average number of equity shares outstanding during the period, considered for deriving basic earnings per share and weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares.
For the purpose of calculating basic EPS, shares allotted to ESOP trust pursuant to the employee share based payment plan are not included in the shares outstanding as on the reporting date till the employees have exercised their right to obtain shares, after fulfilling the requisite vesting conditions. Till such time, the shares so allotted are considered as dilutive potential equity shares for the purpose of calculating diluted EPS.
3.18 Significant accounting judgements, estimates and assumptions
The preparation of standalone financial statements in conformity with Ind AS requires the management to make use of estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of standalone financial statements, and the reported amount of revenues and expenses during the reporting period. In view of the inherent uncertainties and a level of subjectivity involved in measurement of items, it is possible that the outcomes in the subsequent financial years could differ from those on which the Management’s estimates are based.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying values of assets and liabilities within the next financial year are given below.
Fair value of financial instruments
Fair value of financial instruments is required to be estimated for financial reporting purposes. The Company applies appropriate valuation techniques and inputs for fair value measurements. In estimating the fair value of an asset or a liability, the Company uses quoted prices and market-observable data to the extent it is available. When the fair value of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques, based on the inputs to these models taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
Effective Interest Rate (EIR) method
The Company recognizes interest income/expense using a rate of return that represents the best estimate of a constant rate of return over the expected life of the loans given/taken.
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 other fee income/ expense that are integral parts of the instrument.
Impairment of financial assets - Expected Credit Loss
The measurement of impairment loss allowance for financial asset measured at amortised cost requires use of statistical models, significant assumptions about future economic conditions and credit behavior (e.g. likelihood of borrowers defaulting and resulting losses). In estimating the cash flows expected to be recovered from credit impaired loans, the Company makes judgements about the borrower’s financial situation, current status of the project, net realisable value of securities/collateral etc. As these estimates are based on various assumptions, actual results may vary leading to changes to the impairment loss allowance. Further, judgement is also made in identifying the default and significant increase in credit risk (SICR) on financial assets as well as for homogeneous grouping of similar financial assets. Impairment assessment also takes into account the data from the loan portfolio, levels of arrears and an analysis of historical defaults.
Useful life of property, plant and equipment
The Property, Plant and Equipment are depreciated on straight line method over their respective useful lives. Management estimates the useful lives of these assets as detailed in Note 3.9 above. Changes in the expected level of usage, technological developments, level of wear and tear could impact the economic useful lives and the residual values of these assets, therefore, future depreciation charges could be revised and could have an impact on the financial position in future years.
Assets Held for Sale
Assets acquired by the Company under settlement with the borrrowers, are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through its use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell. An impairment loss is recognised for any initial or subsequent write-down of the asset to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell, but not in excess of any cumulative impairment loss previously recognised. These assets are not depreciated or amortised while they are classified as held for sale.
35. SEGMENT INFORMATION
In the opinion of the management, there is only business segment i.e. lending, which have similar risks and return for the purpose of Ind AS 108 ‘Operating segments’, prescribed under Section 133 of the Companies Act, 2013 (‘Act’) read with the relevant rules issued thereunder. Accordingly, no separate disclosure for segmental reporting is required to be made in the financial statements or the Company.
Secondary segmentation based on geography has not been presented as the Company operates primarily in India and the Company perceives that there is no significant difference in its risk and returns in operating from different geographic areas within India.
All the operating revenue of the Company is from the external customers with in India only. No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Company’s total revenue in year ended 31st March, 2024 or 31st March, 2023.
36. EMPLOYEE STOCK OPTION SCHEME (ESOS)
The ESOS Scheme titled “CSL Employee Stock options Scheme 2016” (CSL ESOS 2016) was approved by the shareholders on 30th September, 2016. 7,00,000 options are covered under the CSL ESOS, 2016.
During the financial year 2016-17, the Compensation Committee in its meeting held on 3rd February, 2016 and 11th February, 2016 has granted 4,50,000 options (aggregate) under ESOS to eligible employees of the Company. Each
option comprises one underlying equity share. The terms regarding vesting and exercise of options are governed by the grant letters issued to the eligible employees to whom options are granted. The Exercise price has been determined at ' 226/- per share for the grant of aforesaid 4,50,000 options.
During the financial year 2017-18, the Compensation Committee in its meeting held on 12th May, 2017 and 7th July, 2017 has granted 1,15,000 options (aggregate) under ESOS to eligible employees of the Company. Each option comprises one underlying equity share. The terms regarding vesting and exercise of options are governed by the grant letters issued to the eligible employees to whom options are granted. The Exercise price has been determined at ' 240/- per share for the grant of aforesaid 1,15,000 options.
During the financial year 2018-19, 69,350 options were exercised and 1,65,000 equity shares were allotted. However, 90,000 options were lapsed during the financial year 2018-19 and no fresh options were granted during the year.
During the financial year 2019-20, 24,891 options were exercised and 90,000 equity shares were allotted. However, 12,500 options were lapsed during the financial year 2019-20 and no fresh options were granted during the year.
During the financial year 2020-21, 34921 options were exercised. and 1,20,838 options were lapsed during the financial year 2020-21 and no fresh options were granted during the year.
During the financial year 2021-22, 6,625 options were exercised. During the current financial year 4,00,000 equity shares were allotted along with the 71,676 bonus shares
40.2 Valuation methodologies of financial instruments not measured at fair value
Below are the methodologies and assumptions used to determine fair values for the above financial instruments which are not recorded and measured at fair value in the Company’s financial statements. These fair values were calculated for disclosure purposes only.
Short-term financial assets and liabilities
For financial assets and financial liabilities that have a shortterm 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, balances other than cash and cash equivalents. Such amounts have been classified as Level 1 on the basis that no adjustments have been made to the balances in the balance sheet.
Loans and advances to customers
For loans and advances, the fair value is calculated for SME and Wholesale portfolios separately. The weighted
average rate of lending is computed for each segment on reporting date and the portfolio is then adjusted for changes in these rates.
Borrowings
The fair values of financial liability held-to-maturity are estimated using effective interest rate model based on contractual cash flows using weighted average rate of borrowing of the Company.
41. CREDIT RISK MANAGEMENT 41.1 Credit Risk
Credit risk is the risk that the Company will incur a loss because its customers fail to discharge their contractual obligations.The Company has a comprehensive framework for monitoring credit quality of its loans primarily based on days past due monitoring at period end. Repayment by individual customers and portfolio is tracked regularly and required steps for recovery are taken through follow ups and legal recourse.
41.3 ECL Methodology
In assessing the impairment of financial loans under Expected Credit Loss (ECL) Model, the assets have been segmented into three stages. The three stages reflect the general pattern of credit deterioration of a financial instrument.
Stage 1: 0-30 days past due Stage 2: 31-90 days past due Stage 3: More than 90 days past due
In assessing the impairment of other financial assets Company applies the simplified approach to providing for expected credit losses prescribed by Ind AS 109.
(i) Definition of default
The Company considers a financial asset to be in “default” and therefore Stage 3 (credit impaired) for ECL calculations when the borrower becomes 90 days past due on its contractual payments.
(ii) Exposure at default
“Exposure at Default” (EAD) represents the gross carrying amount of the assets subject to impairment calculations. “Loss given default” (LGD) is estimated and applied on stage III assets.
(iii) Estimations and assumptions considered in the ECL model
Probability of Default” (PD) is applied on Stage 1 and Stage 2 on portfolio basis and for Stage 3 PD at 20% for period of default from 4 to 15 months, at 30% for default from 16 to 27 months and at 50% for period exceeding 27 months. This is calculated based on the management’s best estimate, movement of default rates and future adjustment for macro-economic factor.
(iv) Forward looking information
PDs has been converted into forward looking PD which incorporates the forward looking economic outlook. For SME and Wholesale portfolio, Real GDP (% change p.a.) is used as the macroeconomic variable.
(v) Assessment of significant increase in credit risk
When determining whether the credit risk has increased significantly since initial recognition, the Company considers both quantitative and qualitative information and analysis based on the Company’s historical experience, including forward-looking information. The Company considers reasonable and supportable information that is relevant and available without undue cost and effort.
(vi) Write offs/Recoveries
The gross carrying amount of a financial asset is written off when there is no realistic prospect of further recovery. This is generally the case when the Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write off. However, financial assets that are written off could still be subject to enforcement activities under the Company’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss.
(vii) Undrawn commitments
These commitments pertain to the loans sanctioned but amount remaining undrawn. The Company can opt not to disburse the undrawn amount at its discretion. Therefore, no provision has been created on these commitments.
42. LIQUIDITY RISK AND FUNDING MANAGEMENT
Liquidity risk is defined as the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Company might be unable to meet its payment obligations when they fall due as a result of mismatches in the timing of the cash flows under both normal and stress circumstances.
The Company manages liquidity risk by measuring and managing net funding requirments by calculating the cummulative surplus or deficit of funds at a selected maturity dates. The Company also maintains adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
42.1 Maturity profile of Financial Liabilities
The disclosure is based upon the earliest date on which the Company can be required to pay. The table includes both interest and principal cash flows. The table below summarises the maturity profile of the undiscounted cash flows of the Company’s financial assets and liabilities as at 31st March, 2024 and 31st March, 2023.
43. MARKET RISK
Market the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, Foreign Currency.
The Company’s financial statements are not exposed to currency and price risk.
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments.
The sensitivity of the statement of profit and loss is the effect of the assumed changes in interest rates on the profit or loss for a year, based on the floating rate non-trading financial assets and financial liabilities held at 31th March, 2024.
44. TRANSFER OF FINANCIAL ASSETS
The Company has not transferred any assets that are derecognised in their entirety where the Company continues to have continuing involvement.
45. CAPITAL MANAGEMENT
The Company’s capital management strategy is to effectively determine, raise and deploy capital so as to create value for its shareholders. The same is done through a mix of either equity and/or convertible and/or combination of short term/long term debt as may be appropriate.
The Company determines the amount of capital required on the basis of operations, capital expenditure and strategic investment plans. The capital structure is monitored on the basis of net debt to equity and maturity profile of overall debt portfolio.
46. DIVIDEND
During the year ended 31th March, 2024, the Board of Directors have recommneded a dividend @ 25% per equity share of ' 10/- subject to approval of members at the ensuing Annual General Meeting.
47. RELATED PARTY DISCLOSURES
(A) Names of related parties and description of relationship as identified and certified by the Company
Key Management Personnel (KMP) and their relatives
Mr. Rohit Gupta, Managing Director
Ms. Rachita Gupta, Whole-Time Director
Ms. Preeti Gupta, Company Secretary
Mr. Naresh C. Varshney, Chief Financial Officer
Mr. Pramod Bindal, Independent Director
Mr. Subhash Chand Kwatra, Independent Director
Mr. Ayussh Mittaal, Independent Director
Mr. Ashok Kumar Kathuria, Director
Enterprises over which key management personnel and relatives of such personnel exercise significant influence with whom transactions has been undertaken
CSL Capital Private Limited
Post employee benefit plans
CSL FINANCE LIMITED - Employees Group Gratuity Trust
Relatives of Key Management Personnel
Ms. Ridhima Gupta
(b) Others
Other than in the normal and ordinary course of business there are no funds that have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other persons or entities, including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever (“Ultimate Beneficiaries”) by or on behalf of the Company; or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
Other than in the normal and ordinary course of business there are no funds that have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other persons or entities, including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever (“Ultimate Beneficiaries”) by or on behalf of the Company; or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
50.4 Risks associated with Defined benefit obligation
Gratuity is a defined benefit plan and Company is exposed to the Following Risks:
Interest rate risk: A fall in the discount rate which is linked to the G.Sec. Rate will increase the present value of the liability requiring higher provision. A fall in the discount rate generally increases the mark to market value of the assets depending on the duration of asset.
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.
Investment risk: The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the plan in India, it has a relatively balanced mix of investments in government securities, and other debt instruments.
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, 1962, this generally reduces ALM risk.
Mortality risk: Since the benefits under the plan is not payable for life time and payable till retirement age only, plan does not have any longevity 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 less as insurance companies have to follow regulatory guidelines.
Para 139 ©Characteristics of defined benefit plans
During the year there we no plan amendements, curtailments & settlements.
Para 147(a)
A separate trust fund is created to manage the Gratuity plan and the contributions towards the trust fund is done as guided by rule 103 of Income Tax Rules, 1962.
53. No proceedings have been initiated or pending against the Company for holding any benami property which is the subject matter under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and the rules made thereunder.
54. During the year the Company has neither got registered nor satisfied any charge with ROC/MCA beyond the statutory period.
55. FOREIGN EXCHANGE EARNINGS: EARNINGS IN FOREIGN EXCHANGE CLASSIFIED UNDER THE FOLLOWING HEADS
56. The title deeds in respect of the buildings included in the financial statements under Property, plant and equipments and investment property (other than buildings where the Company is the lessee and the lease agreement is duly executed in its favour) are held in the name of the Company.
57. The Company has not surrendered or disclosed any transaction, which was not recorded in the books of accounts, as income during the year in the tax assessments under the Income Tax Act, 1961.
58. The Company has not been declared as willful defaulter by any banks/FI.
59. The Company has neither approved any scheme of arrangement nor has any proposal for such arrangement.
60. The Company uses accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the software except in certain components where the audit trail were not operating due to system limitations. Further at no instance the Audit Trail feature was tempered with.
61 . Previous year figures have been regrouped/rearranged wherever necessary to render them comparable with current year figures.
As per our Report of even date attached For & on behalf of the Board
For S. P. Chopra & Co. (Rohit Gupta) (Ashok Kumar Kathuria)
Chartered Accountants Managing Director Director
Firm Registration No.: 000346N DIN: 00045077 DIN: 01010305
(Pawan K. Gupta) (Preeti Gupta) (Naresh C. Varshney)
Partner Company Secretary Chief Financial Officer
Membership No.: 092529 M. No.: A43593
Place: New Delhi Date: 15th May, 2024
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