NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST MARCH, 2016 CORPORATE INFORMATION Muthoot Capital Services Limited (the Company) is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Muthoot Capital Services Limited was incorporated on February 18, 1994 as a public limited company. Its shares are listed on the Bombay Stock Exchange and the National Stock Exchange. The Company is registered as an A-category Deposit taking Non-Banking Financial Company (NBFC) with Reserve Bank of India. During the year the Company was mainly engaged in the business of financing for purchase of automobiles, mainly two wheelers against hypothecation of the respective vehicles and granting of personal/business loans against Security of receivables (Term loans)/ demand promissory notes. The Company also engaged itself in the business of buying loan portfolios from other NBFCs financing the two wheelers /small business/micro finance segment. The Company has a reasonably good brsence in the non-banking financial sector in rural and semi-urban areas. 1. SIGNIFICANT ACCOUNTING POLICIES 1.1 Basis for brparation of financial statements i.The financial statements for the year ended 31st March, 2016, have been brpared and brsented under historical cost convention and on the accrual basis of accounting in accordance with Indian Generally Accepted Accounting Principles (“GAAP”) and in compliance with the provisions of the Companies Act, 2013, mandatory and relevant Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) and the directions issued by Reserve Bank of India for Non-Banking Financial Companies from time to time, wherever applicable. ii. All assets and liabilities have been classified as current and non-current as per the Company’s normal operating cycle and other criteria set out in the Schedule III of the Companies Act, 2013. Based on the nature of financial services provided and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as 36 months for the purpose of classification of its assets and liabilities into current and non-current as per the requirements of Schedule III of the Companies Act, 2013. iii. The accounting policies have been consistently applied by the Company and are consistent with those used in the brvious year. 1.2 Use of Estimates The brparation of the financial statements requires the use of estimates and assumptions that affect the reported amount of assets and liabilities as at the Balance Sheet date, reported amounts of revenues and expenses during the period and disclosure of contingent liabilities as at that date. The estimates and assumptions used in these financial statements are based upon the management’s evaluation of the relevant facts and circumstances as on the date of financial statements. Although these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates. Any revisions to the accounting estimates are recognized prospectively in the current and future years. 1.3 Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured: • Income from Financial Services i. Finance charges in respect of hypothecation loan transactions are accounted by applying the Internal Rate of Return method. Overdue charges on belated hypothecation loan instalments are accounted as and when received by the Company. ii. Interest on loans and advances, including Loan Buyout and Other business loans, is recognized on accrual basis at the contract rate wherever feasible. Overdue charges for delayed payments are accounted as and when received. iii. Income in respect of Non-performing assets is recognized as and when received as per the guidelines given in the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 2007. iv. Interest Income on SLR Investment/ Deposits is recognized on accrual basis. • Windmill Income Income from power generation is recognized on supply of power to the grid as per the terms of the arrangement with Muthoot Bankers. • Income from Investments Dividend on investments is recognized as income, when right to receive payment is established by the date of Balance Sheet. The profit/loss on Capital Market Operations is recognized at the time of actual sale/redemption of investments. 1.4 Receivables from Financing Activities The Company has followed the Directions issued by the Reserve Bank of India for Non-Banking Financial Companies in respect of Prudential Norms for Income Recognition, Asset Classification, Accounting Standards, Provisioning / Writing off for bad and doubtful debts, Capital Adequacy and Concentration of credit / investments and also the Non- Banking Financial Companies acceptance of Public Deposits (Reserve Bank) Directions 2007. Hypothecation Loans i. Hypothecation loans are stated at the amounts advanced including finance charges accrued and due, as reduced by amounts received against the due amount, up to Balance Sheet date. Advance instalments received against Hypothecation loans is shown as Current Liabilities ii. Repossessed automobile assets are valued at lower of book value and estimated realizable value. iii. Interest on hypothecation loans are recognized on accrual basis up to the current reporting date. 1.5 Tangible Fixed Assets Fixed Assets are stated at historical cost, net of accumulated debrciation and accumulated impairment losses, if any. The cost comprises of purchase price, borrowing costs if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebate are deducted in arriving at the purchase price. Subsequent expenditure related to an item of fixed asset is added to its book value, only if it increases the future benefit of the existing asset beyond its brviously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the Statement of Profit and Loss for the period during which such expenses are incurred. Gains or losses arising from de-recognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the Statement of Profit and Loss when the asset is de-recognized. 1.6 Debrciation on Tangible Fixed Assets Debrciation on assets held for own use of the Company is provided on written down value method as per the useful years of life of the assets and in the manner brscribed under Schedule II of the Companies Act, 2013. The company has adopted the following as the useful years of life to provide debrciation on its fixed assets. Description of the Assets -Useful Years of Life 1 Motor vehicles (i) Car -8 (ii) Cycles, Scooters-10 2 Furniture and fittings- 10 3 Office Equipments -5 4 Computer and Accessories (i) Computers -3 (ii) Networks and Servers- 6 5 Windmill generator 22 Impairment of tangible and intangible assets i) The carrying amounts of assets are reviewed at each Balance Sheet date to ascertain impairment based on internal/ external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. An asset’s recoverable amount is the higher of an asset’s net selling price and its value in use. ii) After impairment, debrciation is provided on the revised carrying amount of the asset as per the Useful Life as brscribed in Schedule II of the Companies Act 2013. iii) An assessment is made at each reporting date as to whether there is any indication that brviously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the company estimates the asset’s recoverable amount. A brviously recognized impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have brvailed by charging usual debrciation if there was no impairment. 1.7 Leases Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the Statement of Profit and Loss on straight line basis over the lease term. 1.8 Investments a) Investment in Government Securities i. Non -Current Investments are stated at cost and provision for diminution in value, other than temporary, is considered wherever necessary. ii. Current Investments are valued at lower of cost and market value/net asset value. b) Investments - Others i. Investments, which are readily realizable and intended to be held for not more than three years from the date on which such investments are made, are classified as Current Investments. All other investments are classified as Non -Current Investments. On initial recognition, all investments are measured at cost. The cost comprises of purchase price and directly attributable acquisition charges such as brokerage, fees and duties. Current Investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis. Non -Current Investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of the investments. On disposal of investments, the difference between its carrying amount and net disposal proceeds is charged or credited to the Statement of Profit and Loss. 1.9 Forigen Currency Transactions Transactions in foreign currencies are accounted at the brvailing rates of exchange on the date(s) of the transaction. 1.10 Income Tax Tax expense comprises of Current and Deferred Tax. Current Income Tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted, at the reporting date. Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and the reversal of timing differences of the earlier years. Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets are recognized for deductible timing differences only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. The carrying amount of deferred tax assets are reviewed at each reporting date. The company writes down the carrying amount of deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax asset against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxation authority. 1.11 Retirement and Other Employee Benefits a) Defined Contribution Plan (i) Provident Fund Retirement benefit in the form of provident fund is a defined contribution scheme. The contributions to the provident fund are charged to the Statement of Profit and Loss for the year when the contributions are due in accordance with the fund rules. The Company has no obligation, other than the contribution payable to the provident fund. (ii) Employees State Insurance The Company also contributes to Employees State Insurance Corporation on behalf of its employees. b) Defined Benefit Plan-Gratuity Payment of gratuity to employees is covered by the Gratuity Trust Scheme based on the Group Gratuity Cum Assurance Scheme of the LIC of India which is a defined benefit scheme. The yearly contribution/brmium paid/payable is determined on actuarial valuation done by LIC. Actuarial gain and loss for defined benefit plan is recognized in full in the period in which they occur in the Statement of Profit and Loss. 1.12 Segment Reporting The Company’s business activity primarily falls within a single business segment which constitutes Financing Activities (Advancing of hypothecation loans, term loans, buying loan portfolio of other NBFCs/ Micro Finance Companies and loan against demand promissory notes etc.). Hence, no additional disclosure is required under Accounting Standard 17 ‘Segment Reporting’. The Company operates primarily in India; hence there is no other significant geographical segment that requires the disclosure. 1.13 Related Party Disclosures Disclosures are made as per the requirements of the Accounting Standard 18 “Related Party Disclosures” read with the clarifications issued by the Institute of Chartered Accountants of India. 1.14 Earnings per Share The Company reports basic earnings per share in accordance with Accounting Standard-20 “Earnings per Share”, issued by the ICAI. Basic earnings per share has been computed by dividing net profit after tax by the weighted average number of equity shares outstanding for the year. 1.15 Cash and Cash Equivalents Cash and Cash Equivalents in the cash flow statement comprise cash at hand and at bank, remittances in transits and short term investments with an original maturity period of three months or less. 1.16 Material Events Material Events occurring after the Balance Sheet date are taken into cognizance. 1.17 Expenses on Deposits, Debentures, Subordinated Debts. The interest on Public Deposits, Debentures and Subordinated Debts is recognised on accrual basis at the rate applicable to each scheme. The brokerage incurred on Public Deposits and Subordinated Debts are treated as expenditure in the year in which it is incurred. 1.18 Provisions other than that for Non-Performing Assets A provision is recognized when the company has a brsent legal and constructive obligation as a result of past event, for which it is probable that an out flow of resources embodying economic benefits will be required to settle the obligation and reliable estimate can be made for the amount of the obligation. Provisions are not discounted to their brsent value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates. 1.19 Contingent Liabilities A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non occurrence of one or more uncertain future events beyond the control of the company or a brsent obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The company does not recognize a contingent liability but discloses its existence, if it exists, in the financial statements. 1.20 Classification and provisioning of Assets as per RBI Guidelines As per the guidelines given in the Prudential Norms for Non-Banking Financial Companies brscribed by the Reserve Bank of India, the Company makes adequate provisions against Non-Performing Assets in the following manner; a. Standard Assets: Provision against Standard Assets is made at the rate of 0.30% as required by Paragraph 9A of the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions 2007 read with the Revised Regulatory Framework issued by Reserve Bank of India (RBI) for Non-Banking Financial Companies (NBFCs) on 10th November 2014 and the related notification dated 27th March 2015 (collectively referred to as ‘the framework’). b. Sub-standard, Doubtful and Loss Assets: Provision as required by Paragraph 9 of the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions 2007. c. An additional provision/write off of hypothecation loans as considered appropriate by the management, towards nonperforming assets. 2. NOTES ON ACCOUNTS FOR THE YEAR ENDED 31ST MARCH, 2016 1. GENERAL (i) Some of the Receivables and Payables, Loans and Advances, Hypothecation loans, Deposits, Secured Debentures and Unsecured Loans are subject to confirmation/reconciliation due to non receipt of the statement of accounts and confirmation letters. Necessary adjustments, if any, in the accounts will be made on completion of there conciliation/receipt of confirmation letters/statement of accounts. (ii) Amount Payable To Micro, Small And Medium Enterprises There are no Micro, Small and Medium Enterprises as defined in the Micro, Small and Medium Enterprises Development Act, 2006 to whom the Company owes dues on account of Principal amount together with interest and accordingly no additional disclosures have been made. The above information regarding Micro, Small and Medium Enterprises has been determined to the extent such parties have been identified on the basis of information available with the Company. This has been relied upon by the auditors. (iii) Particulars showing maturity pattern of secured privately placed Redeemable Non-Convertible Debentures Secured by a charge on all movable assets, book debts, receivables and advances including loan against gold created by the Company. 2. REPORTING ON FRAUD During the year there have been certain instances of fraud on the Company by employees, where in hypothecation loans related misapproppriations or cash embazzlements have occured for amounts aggregating to Rs. 4 28 thousand. The Company fully recovered the said amount of Rs. 4 28 thousand. 3. brVIOUS YEAR FIGURES HAVE BEEN REWORKED, RE-GROUPED,RE-ARRANGED AND RE-CLASSIFIED TO CONFORM TO THE CURRENT YEARbrSENTATION. For K.VENKATACHALAM AIYER & CO. CHARTERED ACCOUNTANTS Firm Regn No: 004610 S CA .A. GOPALAKRISHNAN PARTNER Membership Number: 18159 For and on behalf of the Board of Directors of MUTHOOT CAPITAL SERVICES LIMITED THOMAS GEORGE MUTHOOT MANAGING DIRECTOR THOMAS JOHN MUTHOOT CHAIRMAN THOMAS MUTHOOT DIRECTOR VINODKUMAR M. PANICKER CHIEF FINANCE OFFICER SYAM KUMAR R. COMPANY SECRETARY & HEAD- GOVERNANCE Place: Kochi Date : 19th April, 2016 |