The Board of Directors and Shareholders of the Company in their respective meetings had approved sale of its shareholding in joint venture Jaguar Advisory Services Private Limited (‘JASPL’) held on November 2, 2021 and December 13, 2021. The Board has reaffirmed plan to sell it’s shareholding in JASPL in its meeting held on April 29, 2024. The sale is subject to requisite regulatory approvals. Accordingly, in line with the requirements of Ind AS 105 "Non-current assets Held for Sale”, such investment has been classified as assets held for sale.
The Company has sold its investment in Grihum Housing Finance Limited (‘GHFL’) (Formerly known as Poonawalla Housing Finance Limited) on July 26, 2023 (effective date) with the requisite regulatory approvals pursuant to execution of a definitive share purchase agreement with Perseus SG Pte. Ltd., an entity affiliated to TPG Global LLC on December 14, 2022, approval of Board of Directors in their meeting held on December 14, 2022, approval of shareholders on January 22, 2023 and approval of RBI vide its letter dated May 30, 2023.
(a) Nature of security
Debentures issued under private placement are secured by first pari passu charge on the loan receivables of the Company except;
(i) 500 units alloted in April, 2017 issued are secured by mortgage of Company’s immovable property situated at Rajarhat, Kolkata in the state of West Bengal and are also secured against designated Loans assets;
(ii) 3,500 units allotted in December, 2019 are only secured by hypothecated loan assets.
Debentures issued under public issue are secured by mortgage of Company’s immovable property situated at Luz Church Road, Mylapore, Chennai and are also secured against designated loan assets. The total asset cover is hundred percent or above of the principal amount of the said debentures.
(a) Nature of security
i) Term Loans, Cash Credit facilities and Working Capital Demand Loans are secured by way of first pari passu charge on the loan receivables of the company under Security Trustee Arrangement.
ii) Loans against securitisation represents amounts received in respect of securitisation transactions (net of repayments and investment therein) as these transactions do not meet the derecognition criteria specified under Ind AS 109 - Financial Instruments.
(c) Details of cash credit facilities and working capital demand loans
The cash credit facilities are repayable on demand and carry interest rates ranging from 8.15% to 9.10% (March 31, 2023: from 7.40% p.a. to 8.50 % p.a). Working capital demand loans are repayable on demand and carry interest rates ranging from 7.23 % to 8.60 % (March 31, 2023: from 6.86 % p.a. to 8.05 % p.a.). As per the prevalent practice, cash credit facilities and working capital demand loans are renewed on a year to year basis and therefore, are revolving in nature.
(d) The Company has used the borrowings from banks and financial institutions for the specific purpose for which it was taken as at the balance sheet date.
(b) Terms / rights attached to equity shares :
The Company has only one class of equity shares having a par value of ^ 2/- each. Each holder of equity share is entitled to one vote per share.
The dividend recommended by the Board of Directors and are subject to approval by the Shareholders in the Annual General meeting is paid in Indian rupees.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
During the year, the Company has allotted equity shares of face value of ^ 2/- each to the eligible employees of the Company under Employee Stock Option Plan 2007 / Restricted Stock Option Plan 2014 / Employee Stock Option Plan 2021 pursuant to the ESOP Guidelines, as amended from time to time. Refer note no 45 for disclosures related to share based payments.
The Board of Directors at its meeting held on January 18, 2024 has declared an interim dividend of ^ 2/-per equity share of face value of ^ 2/- each.
(c) Shares allotted as fully paid-up without payment being received in cash / by way of bonus shares:
The Company has not issued bonus shares or shares for consideration other than cash during the five year period immediately preceding the reporting date.
(d) Shares bought back
The Company has not bought back any of its securities during the five year period immediately preceding the reporting date.
Nature and purpose of reserves :
Capital redemption reserve
Capital redemption reserve is created to keep the capital intact when preference shares are redeemed or equity shares are bought back. It is utilised in accordance with the provisions of the Companies Act, 2013.
Share option outstanding account
The Company instituted the Employee Stock Option Plan (ESOP) in 2007, Restricted Stock Option Plan 2014 (RSOP) in 2014 and Employee Stock Option Plan 2021 in 2021 which were approved by the Board of Directors and the shareholders of the Company. The share option outstanding reserve is used to recognise the grant date fair value of option issued under aforesaid plans.
Treasury shares
The reserve for shares of the Company held by the PFL EWT. Company has issued employees stock option scheme for its employees. The equity shares of the Company have been purchased and held by PFL EWT. PFL EWT to transfer these shares in the name of employees at the time of exercise of option by employees.
Trust Reserve
This represents net of income over expenditure of PFL EWT.
Statutory reserve (created pursuant to Section 45-IC of the Reserve Bank of India Act, 1934)
Statutory reserve represents the Reserve Fund created under section 45-IC of the Reserve Bank of India Act, 1934. The Company is required to transfer a sum not less than twenty percent of its net profit every year as disclosed in the statement of profit and loss. The statutory reserve can be utilized for the purposes as may be specified by the Reserve Bank of India from time to time.
Securities premium
Securities premium represents premium received on issue of shares. This amount can be utilised in accordance with the provisions of the Companies Act, 2013.
Capital reserve
Capital reserve has been created to set aside gains of capital nature from amalgamation and merger. It is utilised in accordance with the provisions of the Companies Act, 2013.
Financial instruments through other comprehensive income
This comprises changes in the fair value of debt instruments recognised in other comprehensive income. The company transfers amounts from such component of equity to retained earnings when the relevant debt instruments are derecognised.
Retained earnings
Retained earnings represents total of all profits retained since Company’s inception. Retained earnings are credited with current year profits, reduced by losses, if any, dividend payouts, transfers to General reserve or any such other appropriations to specific reserves. It also includes impact of remeasurement of defined benefit plans.
** Details of corporate social responsibility expenditure (‘CSR’)
A CSR committee has been formed by the Company as per the Companies Act, 2013. CSR expenses have been incurred through out the year on the activities as specified in Schedule VII of the said Act. The focus area of CSR initiatives undertaken by the Company are education, health and environment. The Company incurs CSR expenses directly.
During the current year, the Company has sold its investment in Grihum Housing Finance Limited (‘GHFL’) (Formerly known as Poonawalla Housing Finance Limited). Due to aforesaid sale transaction, GHFL ceased to be a subsidiary of the Company from the effective date (July 26, 2023). The resultant gain of ^ 2,713.65 crores (net of expenses incurred towards the sale of subsidiary) has been classified and presented as an exceptional item in accordance with Ind AS 1 "Presentation of Financial Statements”.
The Company sold its tangible asset "windmills” for consideration of ^ 16 crores resulting in loss of ^ 9.36 crores.
The Company had created a one-time provision of ^ 1,298.31 crores on discontinued/legacy loan portfolio.
The Company did one-time additional write-off amounting ^ 174.95 crores out of discontinued/legacy loan portfolio.
The Company did one time settlement of old legal cases pertaining to discontinued and legacy loan portfolio amounting to ^ 9.83 crores.
During the previous year , the Company had sold its shareholding in its Joint Venture (JV) namely Magma HDI General Insurance Company Limited (Magma HDI) based on requisite regulatory approvals received on May 27, 2022. Accordingly, the resultant gain of ^ 252.21 crores was classified and presented as an exceptional item in line with Ind AS 1 "Presentation of Financial Statements”. The Company had created an exceptional
provision of ^ 223.75 crores in respect of existing loan portfolio on account of further anticipated slippages in future due to discontinuance of further loans in this segment. Further, intangible assets having book value of ^ 7.25 crores which were replaced with a new system, were written off. The above items are presented as exceptional items on a net basis.
ii. Defined benefit plan Gratuity
The Company has a defined benefit gratuity plan in India, governed by the Payment of Gratuity Act, 1972. This plan entitles an employee, who has rendered at least five years of continuous service, to gratuity at the rate of fifteen days wages for every completed year of service or part thereof in excess of six months, based on the rate of wages last drawn by the employee concerned. The scheme is fully funded with Life Insurance Corporation of India (LIC) & Kotak Mahindra Life Insurance Company Limited . This defined benefit plan expose the Company to actuarial risks, such as regulatory risk, credit risk, liquidity risk, etc as defined below.
The most recent actuarial valuation of plan assets and the present value of the defined benefit obligation for gratuity were carried out as at March 31, 2024. The present value of the defined benefit obligations and the related current service cost and past service cost, are measured using the Projected Unit Credit Method.
A. Funding
The scheme is fully funded with Life Insurance Corporation of India (LIC) and Kotak Mahindra Life Insurance Co. Ltd. (Kotak Life). The funding requirements are based on the gratuity fund’s actuarial measurement framework set out in the funding policies of the plan. The funding of the plan is based on a separate actuarial valuation for funding purposes for which the assumptions may differ from the assumptions set out in Section E below.
E. Sensitivity analysis of significant assumptions
The following table present a sensitivity analysis to one of the relevant actuarial assumption, holding other assumptions constant, showing how the defined benefit obligation would have been affected by changes in the relevant actuarial assumptions that were reasonably possible at the reporting date.
As at March 31, 2024, the weighted-average duration of the defined benefit obligation was 7.35 years (March 31, 2023: 7.56 years ).
G. Description of risk exposures
Valuations are based on certain assumptions, which are dynamic in nature and vary over time. As such company is exposed to various risks as follow -
Investment Risk: For funded plans that rely on insurers for managing the assets, the value of assets certified by the insurer may not be the fair value of instruments backing the liability. In such cases, the present value of the assets is independent of the future discount rate. This can result in wide fluctuations in the net liability or the funded status if there are significant changes in the discount rate during the inter-valuation period.
Market Risk (Interest Rate): Market risk is a collective term for risks that are related to the changes and fluctuations of the financial markets. The discount rate reflects the time value of money. An increase in discount rate leads to decrease in Defined Benefit Obligation of the plan benefits & vice versa. This assumption depends on the yields on the corporate/government bonds and hence the valuation of liability is exposed to fluctuations in the yields as at the valuation date.
Longevity Risk: The impact of longevity risk will depend on whether the benefits are paid before retirement age or after. Typically for the benefits paid on or before the retirement age, the longevity risk is not very material.
Future Salary Increase Risk: Actual Salary increase that are higher than the assumed salary escalation, will result in increase to the obligation at a rate that is higher than expected.
Attrition/Withdrawal Risk: If actual withdrawal rates are higher than assumed withdrawal rates, the benefits will be paid earlier than expected. Similarly if the actual withdrawal rates are lower than assumed, the benefits will be paid later than expected. The impact of this will depend on the demography of the company and the financials assumptions.
Regulatory Risk: Any changes to the current Regulations by the Government, will increase (in most cases) or decrease the obligation which is not anticipated. Sometimes, the increase is many fold which will impact the financials quite significantly.
45 SHARE-BASED PAYMENTSA Description of share-based payment arrangements
The company instituted the Employee Stock Option Plan (ESOP) in 2007, Restricted Stock Option Plan 2014 (RSOP) in 2014, Employee Stock Option Plan (ESOP) in 2021 and Employee Stock Option Plan (ESOP) in 2024 which were approved by the Board of Directors and the shareholders of the Company.
ESOP, 2007
Under ESOP 2007, the Company provided for the creation and issue of 1,000,000 options, that would eventually convert into equity shares of ^ 10/- each in the hands of the Company’s employees. The options are to be granted to the eligible employees at the discretion of and at the exercise price determined by the Nomination and Remuneration Committee of the Company. The options generally vest in a graded manner and are exercisable within 3/4 years from the date of vesting. Following the sub-division of one equity share of the face value of ^ 10/- each into five equity shares of the face value of ^ 2/- each during the financial year ended March 31, 2011, the number of options increased from 1,000,000 to 5,000,000.
During the year, 8,800 options were lapsed/forfeited. The Nomination and Remuneration Committee of the Company has allotted 45,560 options under ESOP 2007 to the eligible employees of the Company (each options entitles the option holder to 1 equity share of ^ 2/- each ).
RSOP, 2014
Under RSOP 2014, the Company provided for the creation and issue of 5,000,000 awards, that would eventually convert into equity shares of ^ 2/- each in the hands of the Company’s employees. The awards are to be granted to the eligible employees at the discretion of the Nomination and Remuneration Committee of the Company and at the exercise price of the face value of ^ 2/- each. The awards generally will vest in a graded manner and are exercisable within 3 years from the date of vesting. The shareholders of the Company on July 24, 2021 had amended the RSOP 2014 by increasing existing plan pool from 5,000,000 equity shares having face value of ^ 2 per equity share to 10,000,000 Equity Shares.
During the year, 38,496 awards were lapsed/forfeited and added in the pool. The Nomination and Remuneration Committee of the Company has allotted 5,194,665 awards under RSOP 2014 to the eligible employees of the Company (each award entitles the award holder to 1 equity share of ^ 2/- each ).
ESOP, 2021
The shareholders of the Company on July 24, 2021 had instituted ESOP Plan 2021 wherein the Company provided for the creation and issue of 15,000,000 options, that would eventually convert into equity shares of ^ 2/- each in the hands of the Company’s employees. The options are to be granted to the eligible employees at the discretion of the Nomination and Remuneration Committee of the Company and at the fair market value. The options generally will vest in a graded manner and are exercisable within 36 months from the date of vesting.
During the year 3,064,998 options were lapsed/forfeited and added in the pool. The Nomination and Remuneration Committee of the Company has allotted 1,362,845 options under ESOP 2021 to the eligible employees of the Company (each award entitles the award holder to 1 equity share of ^ 2/- each ).
During the year, the Nomination and Remuneration Committee of the Company has granted 3,542,500 options under ESOP 2021 to the eligible employees of the Company (each options entitles the option holder to 1 equity share of ^ 2/- each ).
ESOP - 2024
The shareholders of the Company on February 19, 2024 had instituted ESOP -2024 through an Employee Welfare Trust. In this regard, the Company had set up Trust named as - PFL Employee Welfare Trust to acquire, purchase, hold and deal in fully paid-up Equity Shares by way of secondary acquisition for the purpose of implementation of the ESOP-2024. The maximum aggregate number of Options that may be granted and thereby transfer of Shares by the Trust under ESOP -2024 shall not exceed 15,000,000 Shares. The options are to be granted to the eligible employees at the discretion of the Nomination and Remuneration Committee of the Company. The options generally will vest in a graded manner and are exercisable within 36 months from the date of vesting.
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47 CONTINGENT LIABILITIES
Contingent liabilities and commitments (to the extent not provided for) a) Contingent liabilities
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As at
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As at
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| |
March 31, 2024
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March 31, 2023
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|
Claims against the Company not acknowledged as debt
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|
|
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i) Income tax matters under dispute
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4.01
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3.94
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|
ii) VAT and GST matters under dispute
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6.65
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8.20
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|
iii) Service tax matters under dispute
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8.03
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10.20
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|
iv) Legal cases against the Company *
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0.90
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2.78
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* The Company is also involved in other law suits, claims, investigations and proceedings, including collection and repossession related matters, which arise in the ordinary course of business. However, there are no significant claims on such cases. Future cash outflows in respect of the above, if any, is determinable only on receipt ofjudgement / decisions pending with the relevant authorities.
b) The amount included above represents best possible estimate arrived at on the basis of available information. The Management believes that it has a reasonable case in its defense of the proceedings and accordingly no further provision has been created.
c) The Company has certain litigations pending with income tax authorities, service tax authorities and other litigations which have arisen in the ordinary course of business. The Company has reviewed all such pending litigations having an impact on the financial position, and has adequately provided for where provisions are required and disclosed the contingent liabilities where applicable, in its financial statements.
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d) Commitments
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As at
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As at
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March 31, 2024
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March 31, 2023
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Estimated amount of contracts remaining to be executed on capital account and not provided for
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3.01
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2.11
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Bank Guarantees provided
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0.30
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-
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e) The Company has a process whereby periodically all long term contracts are assessed for material foreseeable losses. As at year end, the Company does not have any long term contracts (including derivative contracts) for which there were material foreseeable losses.
48 TRANSFERS OF FINANCIAL ASSETS
In the ordinary course of business, the Company enters into transactions that result in the transfer of financial assets. In accordance with the accounting policy set out in Note 2, the transferred financial assets continue to be recognised or derecognised as per the conditions specified in Ind AS 109 - Financial Instruments.
The Company transfers financial assets that are not derecognised in their entirety are primarily through securitisation transactions, in which loans to customers are transferred to securitisation special purpose vehicles.
Transferred financial assets that are not derecognised in their entirety Securitisation
Certain loans to customers are sold by the Company to securitisation special purpose vehicles, which in turn issue Pass Through Certificates (‘PTC’) to investors collateralised by the purchased assets. In securitisation transactions entered, the Company transfers loans to an unconsolidated securitisation vehicle, however it retains credit risk (principally by providing credit enhancement). The Company retains substantial risks and rewards of such loan transferred and accordingly, does not derecognise the loans transferred in its entirety and recognises an associated liability for the consideration received.
The following table sets out the carrying amounts and fair values of all financial assets transferred that are not derecognised in their entirety and associated liabilities.
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 / other and for which fair values are disclosed in the financial statements.
To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the accounting standard. An explanation of each level follows underneath the table.
Financial instruments valued at carrying value
The respective carrying values of certain on-balance sheet financial instruments approximate their fair value. These financial instruments include cash in hand, balances with other banks, receivables, trade payables and certain other financial assets and liabilities, with maturities less than a year from the balance sheet date. Carrying values were assumed to approximate fair values for these financial instruments as they are shortterm in nature and their recorded amounts approximate fair values or are receivable or payable on demand.
C. Valuation framework
The Company measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements.
Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: The fair value of financial instruments that are not traded in active markets is determined using valuation techniques which maximize the use of observable market data either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets, for substantially the full term of the financial instrument but do not qualify as Level 1 inputs. If all significant inputs required to fair value an instrument are observable the instrument is included in level 2.
Level 3: If one or more of the significant inputs is not based in observable market data, the instruments is included in level 3. That is, Level 3 inputs incorporate market participants’ assumptions about risk and the risk premium required by market participants in order to bear that risk. The Company develops Level 3 inputs based on the best information available in the circumstances.
50 FINANCIAL RISK MANAGEMENT
The Company assumes credit risk, market risk, operational risk, liquidity risk, interest rate risk, compliance risk, and reputational risk in the normal course of its business. This exposes the Company to a substantial level of inherent financial risk.
i Risk management framework
The Company’s board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The board of directors has established the Risk Management Committee, which is responsible for developing and monitoring the Company’s risk management policies. The committee reports regularly to the Board of Directors on its activities.
Risk management involves identifying, measuring, monitoring and managing risks on a regular basis. The objective of risk management is to increase shareholders' value and achieve a return on equity that is commensurate with the risks assumed. To achieve this objective, the Company employs leading risk management practices and recruits skilled and experienced people.
The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities.
ii Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's asset on finance.
The carrying amounts of financial assets represent the maximum credit risk exposure.
a) Credit risk management
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk associated with the industry. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable data:
• A breach of contract such as a default or past due event
• When a borrower becomes more than 90 days past due in its contractual payments
The Risk Management Committee has established credit policies for various lending products under which each new customer is analyzed individually for credit worthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes background verification, financial statements, income tax returns, GST details, credit bureau information, industry information, etc (as applicable).
b) Probability of default (PD)
Analysis of historical data regarding days past due (DPD) or delinquency of loans is the primary input into the determination of the term structure of PD for exposures. The Company collects performance and default information about its credit risk exposures analysed by type of product or borrower as well as by DPD. The Company employs statistical methods to analyse the data collected and generate estimates of the PD of exposures.
In case of newly launched products, where the Company does not have sufficient historical data to estimate PD, it uses industry level aggregate data obtained from credit bureaus, or third-party data providers or performance of an existing product which closely resembles the new product.
Expected loss has been calculated as an unbiased and probability-weighted amount for multiple scenarios. The probability of default has been calculated for 3 scenarios: upside (16% probability), downside (16%) and base (68%). These weightages have been decided on best practices and expert judgement.
c) Definition of default
The Company considers a financial instrument defaulted, and therefore Stage 3 (credit-impaired), for ECL calculations in all cases when the borrower becomes 90 DPD from its contractual payments or has been classified as NPA as per regulatory classification. The Company considers probability of default upon initial recognition of asset and whether there has been any significant increase in credit risk (SICR) on an ongoing basis throughout each reporting period. To assess whether there is SICR the Company compares the risk of default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. Following indicators are incorporated:
- DPD analysis as on each reporting date
- significant increase in credit risk on other financial instruments of same borrower
d) Exposure at default (EAD)
The exposure at default (EAD) represents the gross carrying amount of the financial instruments subject to the impairment calculation;
To calculate the ECL for a Stage 1 loan, the Company assesses the possible default events within 12 months for the calculation of the 12 month ECL. For Stage 2 and Stage 3 financial assets, the exposure at default is considered for events over the lifetime of the instruments.
e) Loss given default (LGD)
Loss given default (LGD) represents estimated financial loss the Company is likely to suffer in respect of default account and it is used to calculate provision requirement on EAD along with PD. The Company uses collection details on previously defaulted cases for calculating LGD including estimated direct cost of collection from default cases. Appropriate discounting rates are applied to calculate present value of future estimated collection net of direct collection cost. LGD thus calculated is used for all stages, i.e. Stage 1, Stage 2 and Stage 3.
For newly launched products, where historical collection data is not available or insufficient, the Company either uses the collection performance of an existing product which closely resembles the new product or industry level aggregate data obtained from credit bureaus/third-party data providers, or regulatory guidance available if any.
f) Discounting
ECL is computed by estimating timing of expected credit shortfalls associated with defaults and discounting them using effective interest rate.
g) Significant increase in credit risk
The Company continuously monitors all assets subject to ECLs. In order to determine whether an instrument or a portfolio of instruments is subject to 12 months ECL or lifetime ECL, the Company assesses whether there has been a significant increase in credit risk since initial recognition. The Company also applies other qualitative factors for triggering a significant increase in credit risk for an asset, such as restructuring. Regardless of the
change in credit profile, if the contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial recognition.
The Company has applied a three-stage approach to measure expected credit losses (ECL) on loans and other credit exposures accounted for at amortised cost and FVOCI. Loss rates are calculated using a ‘roll rate’ method based on the probability of a receivable progressing through successive stages of delinquency to write-off. Assets migrate through following three stages based on the changes in credit quality since initial recognition:
(a) Stage 1: 12-months ECL: For exposures where there is no significant increase in credit risk since initial recognition and that are not credit-impaired upon origination, the portion of the lifetime ECL associated with the probability of default events occurring within the next 12- months is recognized.
(b) Stage 2: Lifetime ECL, not credit-impaired: For credit exposures where there has been a significant increase in credit risk since initial recognition but are not credit-impaired, a lifetime ECL is recognized.
(c) Stage 3: Lifetime ECL, credit-impaired: Financial assets are assessed as credit impaired upon occurrence of one or more events that have a detrimental impact on the estimated future cash flows of that asset. For financial assets that have become credit-impaired, a lifetime ECL is recognized and interest revenue is recognized on net basis.
h) Expected Credit Loss on Loans
The Company assesses whether the credit risk on a financial asset has increased significantly on collective basis. For the purpose of collective evaluation of impairment, financial assets are grouped on the basis of shared credit risk characteristics, taking into account instrument type, product type, collateral type, and other relevant factors.
Expected credit loss on trade and other receivables
Trade/other receivables primarily includes receivables against sale of power, support services and operating lease. The company follows ‘simplified approach’ for recognition of impairment loss allowance on trade/other receivables that do not contain a significant financing component. The application of simplified approach does not require to track changes in credit risk. It recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition. It holds the trade/other receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortized cost, less loss allowance.
Cash and cash equivalents and bank balance other than cash and cash equivalents
The Company holds cash and cash equivalents and bank balance other than cash and cash equivalents of ^ 268.54 crores at March 31, 2024 (March 31, 2023: ^ 657.43 crores). The cash and cash equivalents are held with bank and financial institution counterparties with sound credit ratings.
The Company considers defaulted assets as those which are contractually 90 days past due, other than those assets where there is empirical evidence to the contrary. Financial assets which are contractually more than 30 days and upto 90 days past due are classified under Stage 2 - life time ECL, not credit impaired, barring those where there is empirical evidence to the contrary. An asset migrates down the ECL stage based on the change in the risk of a default occurring since initial recognition. If in a subsequent period, credit quality improves and reverses any previously assessed significant increase in credit risk since origination, then the loan loss provision stage reverses to 12-months ECL from lifetime ECL.
The Company measures the amount of ECL on a financial instrument in a way that reflects an unbiased and probability-weighted amount. The Company considers its historical loss experience and adjusts the same for current observable data. The key inputs into the measurement of ECL are the probability of default, loss given default and exposure at default. These parameters are derived from the Company’s internally developed models and other historical data. In addition, the Company uses reasonable and supportable information on future economic conditions including macroeconomic factors. Since incorporating these forward looking information increases the judgment as to how the changes in these macroeconomic factor will affect ECL, the methodology and assumptions are reviewed regularly.
Forward looking information
In its ECL models, the Company relies on a broad range of forward looking information as macro economic inputs. As required by Ind AS 109, Macro Economic (ME) overlays are required to be factored in ECL Models and accordingly, Company has used Consumer Price Index as the relevant ME variable. Overtime, new ME variables may emerge to have a better correlation and may replace ME being used now.
Policy on write off of loan assets
Financial assets are fully provided for or written off (either partially or in full) when there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof. However, financial assets that are written off could still be subject to enforcement activities under the Company recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognized in statement of profit or loss on actual realization from customer.
iii Liquidity risk
The revised terms usually include extending the maturity, changing the timing of interest payments and amending the terms of loan covenants. Upon renegotiation, such accounts are classified as Stage 2 or Stage 3 depending upon nature and status of account at the time of renegotiation. Such accounts are upgraded only upon observation of satisfactory repayments of one year from the date of renegotiation.
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions in a timely manner, without incurring unacceptable losses or risking damage to the Company's reputation. The Company uses activity-based costing to cost its products and services, which assists it in monitoring cash flow requirements and optimising its cash return on investments.
The Company has obtained fund and non-fund based working capital lines from various banks. Further, the Company has access to funds from debt markets through commercial paper, non-convertible debentures and other debt instruments including term loans. Cash Credit / WCDL limits are renewed on annual basis and are therefore revolving in nature.
Exposure to liquidity risk
The following are the remaining gross and undiscounted contractual maturities of financial liabilities (including interest portion) at the reporting date.
The model assumes that interest rate changes are instantaneous parallel shifts in the yield curve. Although some assets and liabilities may have similar maturities or periods to re-pricing, these may not react correspondingly to changes in market interest rates. Also, the interest rates on some types of assets and liabilities may fluctuate with changes in market interest rates, while interest rates on other types of assets may change with a lag.
The risk estimates provided assume a parallel shift of 100 basis points interest rate across all yield curves. This calculation also assumes that the change occurs at the balance sheet date and has been calculated based on risk exposures outstanding as at that date. The year-end balances are not necessarily representative of the average debt outstanding during the year. This analysis assumes that all other variables remain constant.
Legal and operational risk Legal risk
iv Market risk
Market risk is the risk that changes in market prices such as foreign exchange rates, interest rates and equity prices, which will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. All such transactions are carried out within the guidelines set by the Risk Management Committee. Generally, borrowings are denominated in currencies that match the cash flows generated by the underlying operations of the Company - primarily ^. In cases where the borrowings is denominated in foreign currency, the Company uses derivatives to manage market risks.
Interest rate risk
Interest rate risk is measured by using the cash flow sensitivity for changes in variable interest rates. Any movement in the reference rates could have an impact on the Company’s cash flows as well as costs. The Company is subject to variable interest rates on some of its interest bearing financial assets/ liabilities. The Company also uses a mix of interest rate sensitive financial instruments to manage the liquidity and fund requirements for its day to day operations like short-term loans.
Legal risk is the risk relating to losses due to legal or regulatory action that invalidates or otherwise precludes performance by the end user or its counterparty under the terms of the contract or related netting agreements.
The Company has developed preventive controls and formalised procedures to identify legal risks so that potential losses arising from non-adherence to laws and regulations, negative publicity, etc. are significantly reduced.
As at March 31, 2024, there were legal cases pending against the Company aggregating ^ 0.90 crores (March 31, 2023: ^ 2.78 crores). Based on the opinion of the Company’s legal advisors, the management believes that no substantial liability is likely to arise from these cases.
Operational risk
Operational risk framework is designed to cover all functions and verticals towards identifying the key risks in the underlying processes.
The framework, at its core, has the following elements:
1. Documented Operational Risk Management Policy and Standard Operating Procedures (SOP)
2. Third party risk management through Outsourcing Risk Policy and SOP
3. Well defined Governance Structure
4. Use of Identification & Monitoring tools and like Risk Control Self- Assessment (RCSA), Key Risk Indicators (KRIs), Risk Appetite Statements (RAS) and Control testing
5. Standardized reporting templates, reporting structure and frequency
6. Regular workshops and training for enhancing awareness and risk culture
The Company has adopted the globally accepted 3-lines of defense approach to risk management.
First line - Each function / vertical undergoes transaction testing to evaluate internal compliance and thereby lay down processes for further improvement. Thus, the approach is “bottom-up”, ensuring acceptance of findings and faster adoption of corrective actions, if any, to ensure mitigation of perceived risks.
Second line - Independent risk management vertical supports the first line in developing risk mitigation strategies and provides oversight through regular monitoring. All key risks are presented to the Risk Management Committee on a quarterly basis.
Third line - Internal Audit conducts periodic risk-based audits of all functions and process to provide an independent assurance to the Audit Committee.
During the year ended March 31, 2024, the Operational Risk (‘OR’) team has helped to identify, assess, monitor and mitigate risks across the organization. RCSA exercises, Internal Finance Control (‘IFC’) testing and KRI monitoring have been conducted for key business units / support functions, and action plans have been developed to plug process gaps. Apart from this quarterly RAS monitoring and Outsourcing Risk management was also undertaken during the FY. The OR team helps senior management monitor risks through quarterly reporting of OR information to the Operational Risk Management Committee (‘ORMC’) and the RMC.
53 OPERATING SEGMENTS
The Company is engaged primarily in the business of financing and there are no separate reportable segments as per Ind AS 108. The Executive Committee of the Company has been identified as the Chief Operating Decision Maker (CODM) pursuant to the requirements of Ind AS 108, "Operating Segments.” The Company's operating segments are established in the manner consistent with the components of the Company that are reviewed regularly by the CODM for the purpose of allocation of resources and evaluation of performance. The Company does not have operations outside India and hence there is no external revenue or assets which require disclosure.
The company does not derives revenue, from any single customer, 10% or more of company's total revenue.
52 CAPITAL MANAGEMENT
The Company actively manages capital base to cover risks inherent in the business and meets the Capital Adequacy Requirements (CRAR) of the Reserve Bank of India (RBI). The adequacy of the Company’s capital is monitored using, among other measures, the regulations issued by RBI. The 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 maintains strong credit ratings and healthy capital ratios in order to support its business and to maximize shareholder value. The funding requirements are met through equity, nonconvertible debentures and other long-term/ short-term borrowings. The Company’s policy is aimed at appropriate combination of short-term and long term borrowings. The Company manages its capital structure and makes adjustments to it according to changes in economic conditions and the risk characteristics of its activities. No changes have been made to the objectives, policies and processes from the previous years. However, they are under constant review by the Board.
i. Regulatory capital
The Company’s regulatory capital consists of the sum of the following elements :
- Tier 1 capital, which includes ordinary share capital, retained earnings,perpetual debt and reserves and deduction for intangible assets,deferred tax asset and other regulatory adjustments relating to items that are not included in equity but are treated differently for capital adequacy purposes.
ii. Capital allocation
Management uses regulatory capital ratios to monitor its capital base. There is no allocation of capital required as Company is operating primarily in a single segment i.e., financing.
The Company’s policies in respect of capital management and allocation are reviewed regularly by the Board of Directors.
55 ADDITIONAL INFORMATION
a) The Company does not have any Benami property, where any proceeding has been initiated or pending against the Company for holding any Benami property.
b) The quarterly information statement filed by the Company with banks or financial institutions are in agreement with the books of accounts.
c) The Company has not been declared as Wilful defaulter by any banks, financial institution or other lenders.
d) The Company does not have any charges or satisfaction which is yet to be registered with ROC beyond the statutory period.
e) The provision related to number of layers as prescribed under section 2(87) of the Companies Act read with Companies (Restriction on number of Layers) Rules, 2017 is not applicable to Company.
f) The Company have not advanced or given loan or invested funds to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding that the Intermediary shall 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 provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries except loans or advances given in normal course of business.
g) The Company have 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 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 provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries except loans or advances given in normal course of business.
h) The Company does not have any such transaction which is not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the Income Tax Act, 1961).
i) The Company have not traded or invested in Crypto currency or Virtual Currency during the financial year.
j) Relationship with Struck off Companies :
In respect of the disclosure required vide notification dated March 24, 2021 issued by Ministry of Corporate Affairs, the Company has taken steps to identify transactions with the struck-off companies and considering the nature of business which is primarily lending to individuals and other small players, there are no such outstanding balances which may be required to be reported.
k) The Ministry of Corporate Affairs (MCA) has prescribed a new requirement for companies under the proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 inserted by the Companies (Accounts) Amendment Rules 2021 requiring companies, which uses accounting software for maintaining its books of account, shall use only such accounting software which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in the books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled.
The Company has enabled the audit trail (edit logs) facility of the accounting software used for maintenance of all accounting records during the year ended March 31, 2024 except for cases mentioned as below:
In case of accounting software Finmechannics implemented from June 01, 2023 maintained for borrowing records of the Company, audit trails are available through front end and every action performed by user is being tracked. No Database level activity is being executed but as additional measure Company has enabled database audit trail post March 20, 2024.
In case of accounting software CCA maintained for loan records the Company, the audit trail (edit logs) are enabled at database level to capture the changes by user at action level, action name and object change and not at query details level.
In case of accounting software Finnone maintained for loan records the Company, audit of service organisation for the year ended March 31, 2024 is under process and hence Service Organisation Control Type 2 report not yet available with the Company.
l) Figures of previous year have been regrouped / reclassified, wherever necessary, to make them comparable with current year and the impact of such regrouping / reclassification are not material to standalone financial statements.
56 DISCLOSURES AS REQUIRED UNDER MASTER DIRECTION - RESERVE BANK OF INDIA (NONBANKING FINANCIAL COMPANY - SCALE BASED REGULATION) DIRECTIONS, 2023 AND OTHER RELEVANT RBI NOTIFICATIONS* (CONTD.)
* Amounts included herein are based on current and previous year financials, as per Ind AS.
(q) Disclosures as required by the Master Direction - Monitoring of Frauds in NBFCs (Reserve Bank) Directions, 2016.
During the year ended March 31, 2024, 07 frauds (March 31, 2023: 10 frauds) has been identified by management aggregating to ^ 2.00 crores (March 31, 2023: ^ 1.00 crore) by the employees, customers or third party and have been reported to RBI.
(r) Liquidity Coverage Ratio (LCR) disclosures and Public disclosure on liquidity risk
1 Liquidity Coverage Ratio (LCR) disclosures Qualitative disclosure
Liquidity Coverage Ratio (LCR) is a tool for measuring and promoting short term resilience of the Company to potential liquidity disruptions by ensuring maintenance of sufficient unencumbered high quality liquid assets (HQLAs) to survive at severe stress scenario lasting for 30 calendar days. Reserve Bank of India (RBI) introduced the LCR requirement for all deposit-taking NBFCs and non-deposit taking NBFCs with an asset size of ^ 5,000 crores and above. The ratio comprises of HQLAs as numerator and net cash outflows in next 30 calendar days as denominator.
HQLA computation consist of two parts i.e.
(i) Assets to be included as HQLA without any haircut i.e. cash, government securities, etc. and
(ii) Assets to be considered for HQLA with haircuts (ranging 15% to 50%) which comprises of investments in highly rated non-financial corporate bonds and listed equity investments which are considered at prescribed haircuts.
In order to determine net cash outflows, the Company considers total expected cash outflow minus total expected cash inflows for the subsequent 30 calendar days. As per regulations, stressed cash flows is computed by assigning a predefined stress percentage to the overall cash inflows and cash outflows. Net cash outflow over next 30 days is computed as stressed outflows less minimum of stressed inflows or 75% of stressed outflow. Accordingly, LCR would be computed by dividing Company’s stock of HQLA by its total net cash outflow.
The LCR requirement has been inducted in a phased manner with Company required to maintain minimum LCR of 50% from December 1, 2020 eventually increasing to 100% by December 1, 2024. The Company has implemented the LCR framework and has consistently maintained LCR well above the regulatory threshold for all the quarters during the current financial year. The Company has maintained an average LCR of 130.62 % for the quarter ended March 31, 2024 (for the quarter ended March 31, 2023 : 153.24 %) as against minimum regulatory requirement of 85% (March 31, 2023 : 70%). The Company has maintained average HQLAs of ^ 961.63 crores for the quarter ended March 31, 2024 (for the quarter ended March 31, 2023 : ^ 469.75 crores).
Apart from LCR, Company also uses various liquidity indicators to measure the liquidity risk in terms of funding stability, concentration risk i.e. concentration by significant counter-parties and concentration by significant instruments / product, stock ratios etc.
The Company has adopted the liquidity risk framework as required under RBI regulation. The Board of Directors have delegated responsibility of balance sheet Liquidity Risk Management to the Asset Liability Committee (ALCO). ALCO reviews asset liability management (ALM) and ensures that there are no excessive concentration of either assets or liability side of the balance sheet. Liquidity risk is managed in accordance with ALM policy. The same is reviewed periodically to incorporate regulatory changes, economic scenario and business requirements of the Company.
6) Institutional set-up for liquidity risk management
Board constituted Asset Liability committee (ALCO) reviews Asset Liability Management (ALM). It also ensures that there are no excessive concentration of either assets or liability side of the balance sheet.
ALM is monitored as a regular process and necessary steps are taken wherever required. Company also maintains sufficient liquidity buffer through credit lines and other means to meet its liability when they are due, under both normal and stressed conditions in a timely manner. Maturity profile of financial assets and financial liabilities is assessed along with borrowing and business and as a part of review of liquidity position.
The Company has obtained fund and non-fund based working capital lines and Term Loans from various banks and financial institutions. Further, the Company has access to funds from debt markets through nonconvertible debentures and other debt instruments. Cash Credit / WCDL limits are renewed on annual basis and
(x) There are no such circumstances in which revenue has been postponed pending the resolution of significant uncertainties.
(y) Divergence in asset classification and provisioning
No disclosure on divergence in asset classification and provisioning for NPAs is required with respect to RBI’s supervisory inspection for the year ended March 31, 2023 and for the year ended March 31, 2022 as per the requirement of the circular no. RBI/2022-23/26 DOR.ACC.REC.No.20/21.04.018/2022-23 dated April 19, 2022.
56 DISCLOSURES AS REQUIRED UNDER MASTER DIRECTION - RESERVE BANK OF INDIA (NONBANKING FINANCIAL COMPANY - SCALE BASED REGULATION) DIRECTIONS, 2023 AND OTHER RELEVANT RBI NOTIFICATIONS* (CONTD.)
* Amounts included herein are based on current and previous year financials, as per Ind AS.
(z) Net profit or loss for the period, prior period items and changes in accounting policies
There are no prior period items which are impacting Company’s current year profit and loss.
(aa) The Company has consolidated financial statements of its subsidiary and its joint venture.
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