a. The Board of the Directors of the Company at its meeting held on April 06, 2022 has considered and declared an Interim Dividend of 10% i.e. ' 1 per equity share of the Company. The interim dividend was paid to the eligible shareholders on May 02, 2022, whose names appeared on the Register of Members of the Company as at close of day on April 10, 2022 being the record date for the purpose of the aforesaid interim dividend.
b. The Board of Directors at its meeting held on February 01, 2023 has considered and declared a special interim dividend of 110% i.e. ' 11 per equity share of the Company. The interim dividend was paid to the eligible shareholders on February 23, 2023, whose names appeared on the Register of Members of the Company as at close of the record date February 13, 2023.
29 OTHER NOTES
(i) Reserve Bank of India (“RBI”) has, vide its letter No.DOR..HOL.No.SUO-75590/16.01.146/2021-22 dated July 20, 2021, clarified that after the expiry of lock-in period of 5 years, IDFC Limited can exit as the promoter of IDFC FIRST Bank Limited.
Post completion of lock-in period of 5 years, the Board of Directors of IDFC FIRST Bank at their meeting held on December 30, 2021 has confirmed that they are “In-principle” in favour of Merger of 'IDFC' and 'IDFC FHCL' with 'IDFC FIRST Bank'. The said corporate restructuring activity shall be subject to approval by the Board of Directors of entities involved, shareholders, creditors and other necessary statutory / regulatory approvals.
The Board of Directors of the Company and IDFC FHCL, at their respective meetings held on March 18, 2023, have appointed
a) registered valuer for recommendation of fair share exchange ratio; b) merchant banker for issuance of fairness opinion on the share exchange ratio; c) law firm for conducting legal due diligence, drafting and finalizing scheme of amalgamation and filing regulatory applications.
(ii) The Board of Directors of the Company and IDFC FHCL at their respective meetings held on April 06, 2022, have inter alia considered binding bids received in connection with divestment of IDFC Asset Management Company Limited ('IDFC AMC') along with IDFC AMC Trustee Company Limited ('IDFC AMC Trustee') and have approved sale of the entire shareholding of IDFC AMC and IDFC AMC Trustee held by the Company to a consortium comprising of Bandhan Financial Holding Limited, Lathe Investment Pte. Ltd. (affiliate of GIC), Tangerine Investments Limited, Infinity Partners (affiliates of ChrysCapital) ('Proposed Transaction'). The consideration for the Proposed Transaction is ' 4,500 crores on a fully diluted basis and subject to customary price adjustments at the closure.
All the requisite regulatory and other approvals, as applicable have been received and the Proposed Transaction is completed on January 31, 2023. IDFC FHCL sold 27,636,940 shares (including 846,490 shares purchased from employees on exercise of ESOPs at a price of ' 1,625 per share) in IDFC AMC and 50,000 shares in IDFC AMC Trustee to the consortium for consideration of ' 4,490 crores and ' 0.50 crores respectively. With the conclusion of the transaction, post January 31, 2023, IDFC AMC, IDFC AMC Trustee and IDFC Investment Managers (Mauritius) Limited are no more subsidiaries of the Group.
(iii) On August 15, 2022, Ms. Ritu Anand ceased to be an Independent Director of the Company upon completion of her term.
Pursuant to Regulation 17(1)(c) of SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations 2015, the Board of Directors of the Company shall comprise of not less than six directors. Due to cessation of her directorship from the Board, the number of Directors on the Board of the Company reduced from six to five and the composition of the Board as well as constitution of Board's committees were impacted. As on March 31, 2023 the Company is in process of appointing New Directors, on the Board to comply with Regulation 17(1)(c) of SEBI LODR Regulations 2015.
a) The Company has donated equity shares of its wholly owned subsidiary IDFC Foundation to Upajeevan Sangathan Foundation via a deed of donation signed by both the parties on October 27, 2022. The Company has also undertaken to make good any short fall in the net tax liabilities which become payable arising out of the Tax Appeal which is in excess of the Net Value of the assets realised by the donee. The Undertaking is valid for three years from the date of donation i.e. from October 27, 2022.
b) The Company had issued letter of comfort to IDFC Foundation - wholly owned subsidiary of the Company, if there is any short fall in meeting its obligations towards its contingent liabilities amounting to ' 14.57 crore and any related penalty. The comfort letter was valid till April 30, 2022.
c) The Company holds 26.00% stake in Jetpur Somnath Tollways Private Limited (“JSTPL”). JSTPL had executed the concession agreement with National Highway Authority of India (“NHAI”) for the purpose of four laning of 123.45 km Jetputur Somnath Section of NH-8D in the state of Gujarat under NHDP phase III on Build Operate Transfer (BOT) (TOLL) on DBFO pattern. Due to certain disputes, NHAI terminated the Concession Agreement in November 2016. Matter was referred to Arbitration. Arbitral Tribunal on March 31, 2021 passed an award in favour of JSTPL for ' 1,019.43 crore. JSTPL filed an appeal with Hon'ble Delhi High Court for enforcement of the award dated March 31, 2021. Hon'ble High Court directed NHAI to deposit the entire decretal amount along with interest till the date of payment with court on February 27, 2023. The next hearing is fixed for May 11, 2023.
d) At the time of sale of IDFC AMC and IDFC AMC Trustee company to Bandhan consortium, IDFC as a seller had given various warranties. These includes Business / General warranty, Tax warranty and Fundamental Warranty.
e) The Code on Social Security, 2020 ('Code') relating to employee benefits during employment and postemployment received Indian Parliament approval and Presidential assent in September 2020. The Code has been published in the Gazette of India and subsequently on November 13, 2020 draft rules were published and invited for stakeholders' suggestions. However, the date on which the Code will come into effect has not been notified. The Company will assess the impact of the Code when it comes into effect and will record any related impact in the period the Code becomes effective.
32. CAPITAL MANAGEMENT
The Company maintains a capital base to cover risks inherent in the business and is meeting capital adequacy requirements of the regulator, Reserve Bank of India (RBI) of India. The adequacy of the Company's capital is monitored using, among other measures, the regulations issued by RBI. Company has complied in full with all its externally imposed capital requirements over the reported period. The primary objectives of the Company's capital management policy are to ensure that the Company complies with externally imposed capital requirements and healthy capital ratios in order to support its business and to maximise shareholder value.
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 preceding years. However, they are under constant review by the Board.
The following additional information is disclosed in terms of the RBI circular (Ref No. DNBR .PD. 008 / 03.10.119 / 2016-17 dated September 01, 2016); RBI circular DNBR(PD) CC No. 053/ 03.10.119 / 2015-16 and RBI circular DOR (NBFC).CC.PD.No.109/22.10.106/2019-20 dated March 13, 2020 :
Regulatory capital Tier I capital, which comprises share capital, share premium, special reserves, share option outstanding account, retained earnings including current year profit less accrued dividends. Certain adjustments are made to Ind AS-based results and reserves, as prescribed by the Reserve Bank of India.
i) There are no transfers between levels 1, 2 and 3 during the year.
ii) The Companies policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.
The Company uses the following hierarchy for determining and disclosing the fair value of financial assets by valuation technique:
The fair value of financial instruments are classified into three categories i.e. Level 1, 2 or 3 depending on the inputs used in the valuation technique. The hierarchy gives the highest priority to quoted prices in active market for identical assets or liabilities (level 1 measurements) and lowest priority to unobservable inputs (level 3 measurements).
The hierarchies used are as follows:
Level 1: Hierarchy includes financial instruments measured using quoted prices in an active market.
Level 2: The fair value of financial instruments that are not traded in an active market (such as mutual fund units) is determined using observable market data and not the entity specific estimates. These investments are valued at closing Net Asset Value (NAV), which represents the repurchase price at which the issuer will redeem the units from investors. Since all significant inputs required to fair value an instrument are observable, the investments are included in Level 2.
Level 3: Inputs are not based on observable market data (unobservable inputs). 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) Valuation technique used to determine fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e., an exit price), regardless of whether that price is directly observable or estimated using a valuation technique.
Specific valuation techniques used to value financial instruments include:
• the fair value of the mutual fund units is determined using observable NAV at the reporting date as declared by the issuer.
• the fair value of the venture capital units (VCFs) is determined using NAV at the reporting date as declared by the issuer. *
• the fair value of unlisted equity shares are has been valued by an independent valuer.
• Considering the illiquidity discount, the Company has provided for additional diminution over and above the NAV communicated by the VCFs in order to appropriately reflect the fair value as on March 31, 2022.
c) Valuation Process
In order to assess Level 3 valuations as per Company's investment policy, the management relies on the NAVs issued by the VCF's.
The finance team performs the above process and reports directly to the Chief Financial Officer (CFO) of the Company. Discussions of valuation processes and results are held between the finance team and CFO on regular basis. Investment valuation is placed before the members of the board at least once every three months which is in line with the Company's quarterly reporting periods.
f) Fair value of financial assets and liabilities measured at amortised cost
For financial assets and financial liabilities that have a short-term maturity (less than twelve months), the carrying amounts are a reasonable approximation of their fair value. Such instruments include cash and bank balances, bank deposits, security deposits, trade and other receivables, and trade and other payable.
Advance to related parties and security deposits are evaluated by the Company based on parameters such as interest rates and individual creditworthiness of the counterparty. Based on this evaluation, allowances are taken to account for expected losses of these financial assets. Accordingly, fair value of such instruments is not materially different from their carrying amounts
34. FINANCIAL RISK MANAGEMENT
Risk management is an integral part of the business practices of the Company. The Company's senior management has the overall responsibility for the establishment and oversight of the Company's risk policies. These risk management policies are reviewed regularly to reflect changes in market conditions and the Company's activities.
The objective is that these financial risks are identified, measured and managed in accordance with the Company's policies in a timely manner. The activities are designed to:
• protect the Company's financial results and position from financial risks;
• maintain market risks within acceptable parameters, while optimising returns;
• protect the Company's financial investments, while maximising returns.
Credit risk is the risk of suffering financial loss, should any of the Company's customers, clients or market counterparties fail to fulfil their contractual obligations to the Company. Credit risk arises mainly from cash and cash equivalents, deposits with banks, trade and other receivable, loans measured at amortised cost.
Expected credit loss methodology:
Ind As 109 outlines a “three-stage” model for impairment based on changes in credit quality since initial recognition as summarised below:
• Stage 1 - A financial instrument that is not credit impaired on initial recognition is classified in 'Stage 1' and has its credit risk continuously monitored by the Company. The Company has established credit quality review process which considers net asset position, financial strength and leverage; operational & financial performance; cash flows, etc. in identification of creditworthiness of counterparties.
• Stage 2 - Financial instruments with significant increase in credit risk, but not yet deemed to be credit impaired are moved to Stage 2.
• Stage 3 - Credit impaired financial instruments are moved to stage 3.
The Company performs internal risk assessment on an individual basis and not on a portfolio basis due to the limited number of counterparties involved. The assessment of credit risk of a loans (including loan commitments) entails estimations as to the likelihood of loss occurring due to default of counterparties. The estimation of credit exposure for risk management purposes is complex and considers expected cash flows and the passage of time.
Default and credit-impaired asset:
The Company defines a financial asset as in default or credit-impaired, when it meets one or more of the following criteria:
- Quantitative criteria:
The borrower is more than 90 days past due on its contractual payments to be considered in default.
- Qualitative criteria:
The borrower meets unlikeliness to pay criteria, which indicates the borrower is in significant financial difficulty.
For all financial instruments held by the Company, if the borrower is on the watch list and/or the instrument meets one or more of the following criteria:
• Significant increase in credit spread
• Significant adverse changes in business, financial and/or economic conditions in which the borrower operates
• Actual or expected forbearance or restructuring
• Actual or expected significant adverse change in operating results of the borrower
• Significant change in collateral value (secured facilities only) which is expected to increase risk of default
• Early signs of cash flow/liquidity problems such as delay in servicing of trade creditors/loans Policy for write-off of financial assets
All loans which in the opinion of management are not recoverable are written off. The Company may write off financial assets that are still subject to enforcement activity. The Company still seeks to recover amounts it is legally owed in full, but which have been written off due to no reasonable expectation of full recovery.
Explanation of inputs and assumptions considered in the ECL model:
PD Estimation:
- “Probability of default” (PD) is defined as the probability of whether the borrowers will default on their obligations in the future. For Stage 1, 12 month PD are calculated.
For Stage 2, Lifetime PD are calculated by considering the survival rate of the counterparty for the remaining maturity. For Stage 3, Lifetime PD is taken as 100%.
Exposure at default:
- “Exposure at default” (EAD) represents the expected exposure in the event of a default and is the gross carrying amount in case of the financial assets held by the Company.
For the loan commitments, the exposure at default (EAD) is predicted by aggregating total unfunded credit exposure and applying a “credit conversion factor (CCF)” which considers any further amount that is expected to be lent under arrangement at the time of default. CCF denotes the probability of off-balance sheet exposure (i.e. loan commitment) becoming credit exposure shifting onto the balance sheet if the loan commitment is called.
Loss given default:
- “Loss given default” (LGD) is an estimate of loss from a transaction given that a default occurs. LGD varies by type of counterparty, type and seniority of claim. LGD is expressed as a percentage loss per unit of exposure at the time of default (EAD). LGD is calculated on a 12-month or lifetime basis, where 12-month LGD is the percentage of loss expected to be made if the default occurs in the next 12 months and Lifetime LGD is the percentage of loss expected to be made if the default occurs over the remaining expected lifetime of the loan.
The Expected Credit Loss (ECL) is measured either on a 12-month (12M) or lifetime basis depending on whether a significant increase in credit risk has occurred since initial recognition or whether an asset is considered to be credit impaired. Expected credit losses are the product of the probability of default (PD), exposure at default (EAD) and loss given default (LGD).
There have been no significant changes in estimation techniques or significant assumptions made during the reporting period.
In determining the ECL, management assesses a range of possible outcomes, taking into account past events, current conditions and the economic outlook. Additional facts and circumstances, that in management's judgment are considered to have been inadequately addressed in the ECL Model, are taken into consideration through the application of a management overlay framework. ECL adjustments arising from the exercise of the management overlay are subject to a review.
i) Trade and other receivables
Concentrations of credit risk with respect to trade and other receivables are limited, due to the customer base being limited. All trade receivables are reviewed and assessed for default on a individual basis. Historical experience of collecting receivables of the Company is supported by low level of past default and hence the credit risk is perceived to be low.
ii) Other financial assets
The Company maintains exposure in cash and cash equivalents, deposits with banks. Cash and cash equivalents and bank deposits are held with only high rated banks/financial institutions only, therefore credit risk is perceived to be low.
For investment in mutual fund units and venture capital fund units carried at fair value through profit and loss, the Company does not have significant concentration of credit risk.
The maximum exposure at the end of the reporting period is the carrying amount of these investments is ' 347.82 crores (March 31, 2022: ' 301.26 crores).
b) Market risk
Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from a change in the value of a financial asset. The value of a financial asset may change as a result of changes in the interest rates, foreign currency exchange rates, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments.
i) Fair value interest rate risk:
Interest rate risk is the risk where the company is exposed to the risk that the fair value or future cash flows of its financial instruments will fluctuate as a result of a changes in market interest rates.
The Company is exposed to interest rate risk from investments held in debt oriented mutual fund units. These funds invests in debt securities. Sensitivity analysis for exposure to interest rate risk in case of units backed by debt securities is not disclosed as there are no investments outstanding as on March 31, 2023 and March 31, 2022.
ii) Foreign currency risk:
The Company does not have any foreign currency exposures in respect of financial assets and financial liabilities as at the balance sheet date.
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. Prudent liquidity risk management implies maintaining sufficient cash and liquid investments. The Company believes that current cash and bank balances, bank deposits and investments in liquid investments are sufficient to meet liquidity requirements since Company has no external borrowings. Accordingly, liquidity risk is perceived to be low.
36. EMPLOYEE SHARE BASED PAYMENTS
a) Employee stock option scheme (equity settled) - IDFC Limited
The Company introduced IDFC Employee Stock Option Scheme, 2016 (“IDFC ESOS - 2016”) to enable the employees of the Company and its subsidiaries / associates to participate in the future growth and financial success of the IDFC Group. The scheme is in compliance with the SEBI (Share Based Employee Benefits) Regulations, 2014. The ESOS provides for grant of stock options to employees [including employees of subsidiary companies and IDFC FIRST Bank Limited (an associate of the Company)] to acquire equity shares of the Company, that will vest in a graded manner and that are to be exercised within a specified period.
The fair value of options granted to the employees of the Company under the ESOS is recognised as an employee benefits expense with a corresponding increase in 'Share Option Outstanding Account' under 'Other Equity'. The fair value of options granted to the employees of subsidiaries or associate of the Company is recognised as an increase in the investment in the respective subsidiaries or associate, with a corresponding credit to 'Share Option Outstanding Account' under 'Other Equity' in accordance with group share based payment guidance under Ind AS 102.
Options are granted under the plan carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary share of the Company. The options granted will vest upon the completion of service condition as specified in scheme in a graded manner. Vested options are exercisable for the period of five years after the vesting.
iii) Fair value of options granted
The fair value at grant date is determined using the Black Scholes Model which takes into account the exercise price, the term of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the stock option.
b) Employee stock option scheme (equity settled) - IDFC FIRST Bank Limited
IDFC FIRST Bank Limited (earlier known as IDFC Bank Limited), an indirect associate of the Company, got demerged from the Company under the sanctioned scheme of arrangement in October 2015. Pursuant to Scheme of Demerger, IDFC FIRST Bank Limited has allotted employee stock options to the employees of the Company and it's subsidiaries. The employee share based payments arrangement between the Company and its associate is outside the scope of Ind AS 102 - Group share based payment arrangement, as associate is not a part of the same group. However, under Ind AS 8, the Company has taken a policy choice to account the said employee share based payments arrangement as per the provisions of Ind AS 102.
Applying Ind AS 102 - Group share based payments arrangement guidance, the fair value of options granted to the employees of the Company is recognised as an employee benefits expense with a corresponding decrease in investment in associate. However, the fair value of options granted to the employees of subsidiaries of the Company is recognised as an increase in the investment in the respective subsidiaries and a decrease in investment in associate.
c) Amounts recognised in statement of profit and loss and investment in subsidiary:
The Company had established an intermediate Non-Operating Financial Holding Company (NOFHC) (i.e. IDFC Financial Holding Company Limited) to hold the investment in IDFC FIRST Bank Limited (an associate of the Company) and other subsidiaries of the Company due to regulatory requirements of RBI. Since the Company does not hold direct investment in its associate and other subsidiaries involved in group, the Company increases or decreases its investment in IDFC Financial Holding Company Limited, to give the effect of increase or decrease in the investment in subsidiary or associate for accounting employee stock options.
i) Total expenses arising from share-based payment transactions recognised in statement of profit and loss as part of employee benefit expense for the year ended March 31, 2023 is ' 0.24 crores (preceding year ' 2.01 crores).
ii) Reversal of expense on account of cancel / lapse of employee stock option of IDFC FIRST Bank Limited which has been recognised in statement of profit and loss as part of employee benefit expense for the year ended March 31, 2023 is ' (2.34 crore) (preceding year ' (0.47 crore)).
e) All transactions were made on normal commercial terms and conditions and at market rates. The average interest rate on the inter corporate deposits taken during the year was 10% (previous year 10%) and average interest rate on the inter corporate deposits given during the previous year was 10%.
f) Disclosure requirements in relation to related party transactions wide- NBFC circular RBI/2022-23/26 DOR.ACC.REC. No.20/21.04.018/2022-23 dated April 19, 2022 are complied.
38. SEGMENT INFORMATION
The Company's main business is to carry out Investment activity in India. All other activities of the Company revolve around the main business of the Company. Accordingly, there are no separate reportable segments, as per Ind AS 108 “Operating Segment.” Also the Company does not have any geographical segment.
44 THE DISCLOSURE ON THE FOLLOWING MATTERS REQUIRED UNDER SCHEDULE III AS AMENDED ON MARCH 24, 2021 NOT BEING RELEVANT OR APPLICABLE IN CASE OF THE COMPANY, SAME ARE NOT COVERED:
(i) The Company has not traded or invested in crypto currency or virtual currency during the financial year.
(ii) No proceedings have been initiated or are pending against the Company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and rules made thereunder.
(iii) The Company has not been declared willful defaulter by any bank or financial institution or government or any government authority.
(iv) No satisfaction of charges are pending to be filed with ROC.
(v) There are no transactions which are not recorded in the books of account which have been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961.
(vi) The Company had entered into scheme of arrangement, details of which are disclosed in Note 1A. The Company filed petition with National Company Law Tribunal (NCLT) - Chennai and NCLT has passed the order on November 22, 2022 in favor of the Company.
The Company has given effect to the order and have prepared merged accounts for all the periods appearing in the result. Consequently, all previous periods presented in the statement have been restated.
(vii) There have been no revaluation of Plant, Property and Equipment during the current year.
(viii) The Company has not advanced or loaned or invested funds to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding that the Intermediary shall:
(a) 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
(b) provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries.
(ix) 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:
(a) 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
(b) provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
(x) The Company has not advanced any loans or advances in the nature of loans to specified persons viz. promoters, directors, KMPs, related parties; which are repayable on demand or where the agreement does not specify any terms or period of repayment.
47 The figures of ' 50,000 or less have been denoted by p.
48 Previous year numbers have been regrouped / rearranged wherever necessary, in order to make them comparable. There are no significant regrouping / reclassification during the year. Also refer note 24 above.
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