NOTE 1 : Notes to the Financial Statements COMPANY OVERVIEW_ Magma Fincorp Limited ('the Company'), incorporated and headquartered in Kolkata, India is a publicly held non-banking finance company engaged in providing asset finance through its pan India branch network. The Company is registered as a systemically important non-deposit taking Non-Banking Financial Company ('NBFC') as defined under Section 45-IA of the Reserve Bank of India (RBI) Act, 1934. Its equity shares are listed on National Stock Exchange and Bombay Stock Exchange. NOTE 2 : SIGNIFICANT ACCOUNTING POLICIES_ (i) Basis of brparation (a) These financial statements have been brpared in compliance with Generally Accepted Accounting Principles in India ('Indian GAAP') to comply with the mandatory Accounting Standards brscribed under Section 133 of the Companies Act, 2013 ('the 2013 Act') read with Rule 7 of the Companies (Accounts) Rules, 2014, the provisions of the 2013 Act (to the extent notified and applicable), the directions brscribed by the Reserve Bank of India ('RBI') for Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies and the guidelines issued by the Securities and Exchange Board of India (SEBI) to the extent applicable. The financial statements have been brpared under the historical cost convention and on accrual basis, unless otherwise stated. The financial statements are brsented in Indian rupees rounded off to the nearest lac upto two decimal places. (b) An operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. In case of non-banking financial companies normal operating cycle is not determinable, and therefore operating cycle is considered as 12 months for classification of current and non-current assets and liabilities as required by Schedule III of the Companies Act, 2013. (c) The accounting policies set out below have been applied consistently to the periods brsented in these financial statements. (ii) Use of estimates and judgements The brparation of financial statements in conformity with Generally Accepted Accounting Principles ('Indian GAAP') requires the management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities (including contingent liabilities) as on the date of the financial statements and the reported income and expenses during the reporting period. Actual results could differ from these estimates. Any revision to accounting estimates is recognised prospectively in current and future periods. (iii) Assets on finance (a) Assets on finance include assets given on finance / loan and amounts paid for acquiring financial assets including non-performing assets (NPAs) from other Banks / Non Banking Financial Companies (NBFCs). (b) Assets on finance rebrsents amounts receivable under finance / loan agreements and are valued at net investment amount including installments due. The balance is also net of amounts securitised / assigned. (iv) Revenue recognition (a) Interest / finance income from assets on finance / loan included in revenue from operations rebrsents interest income arrived at based on Internal Rate of Return method. Interest income is recognised as it accrues on a time proportion basis taking into account the amount outstanding and the rate applicable, except in the case of non-performing assets (NPA) where it is recognised upon realisation. (b) Income on direct assignment / securitisation : The Company enters into arrangements for sale of loan receivables through direct assignment / securitisation. The said assets are de-recognised upon transfer of significant risks and rewards to the purchaser and on meeting the true sale criteria. The Company retains the contractual right to receive share of future monthly interest i.e. excess interest sbrad ("EIS") on the transferred assets which is the difference between the pool IRR and the yield agreed with the portfolio buyer. The Company recognises gain / excess interest sbrad on direct assignment / securitisation transactions in line with RBI circular "Revisions to the Guidelines on Securitisation Transactions" issued on 21 August 2012. Accordingly, direct assignment / securitisation transactions effected post issuance of the said guidelines are accounted as under: i. Gain / income realised on direct assignment / securitisation of loan receivables arising under brmium structure is recognised over the tenure of securities issued by Special Purpose Vehicle (SPV) / agreements. Loss, if any, is recognised upfront. ii. EIS under par structure of securitisation / direct assignment of loan receivables is recognised only when redeemed in cash, over the tenure of the securities issued by SPV / agreements. Loss, if any, is recognised upfront. (c) Interest on fixed deposits is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable. (d) Upfront income / expense pertaining to loan origination is amortised over the tenure of the underlying loan contracts. (e) Assets given by the Company under operating lease are included in fixed assets. Lease income from operating leases is recognised in the statement of profit and loss on a straight line basis over the lease term unless another systematic basis is more rebrsentative of the time pattern in which benefit derived from the leased asset is diminished. Costs, including debrciation, incurred in earning the lease income are recognised as expenses. Initial direct costs incurred specifically for an operating lease are deferred and recognised in the statement of profit and loss over the lease term in proportion to the recognition of lease income. (f) Overdue interest is treated to accrue on realisation, due to uncertainty of realisation and is accounted for accordingly. (g) In respect of NPAs acquired, recoveries in excess of consideration paid is recognised as income in accordance with RBI guidelines. Statements (continued) (h) Income from power generation is recognised based on the units generated as per the terms of the respective power purchase agreements with the respective State Electricity Boards. (i) Income from dividend is accounted for on receipt basis. (j) All other items of income are accounted for on accrual basis. (v) Provision for non-performing assets ('NPA') and doubtful debts Non-performing assets ('NPA') including loans and advances, receivables are identified as sub-standard / doubtful based on the tenor of default. The tenor is set at appropriate levels for each product. NPA provisions are made based on the management's assessment of the degree of impairment and the level of provisioning and meets the Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015 brscribed by Reserve Bank of India vide circular dated 10 November 2014 on Revised Regulatory Framework for Non-Banking Finance Companies (NBFCs) and the related notification dated 27 March 2015 (collectively referred to as 'the framework'). These provisioning norms are considered the minimum and additional provision is made based on perceived credit risk where necessary. All contracts which as per the management are not likely to be recovered are considered as loss assets and written-off as bad debts. Recoveries made from written off contracts are included in "Other Income". (vi) Fixed assets, intangible assets and capital work-in-progress Fixed assets are carried at the cost of acquisition or construction less accumulated debrciation. The cost of fixed assets includes non-refundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets. Advances paid towards the acquisition of fixed assets outstanding at each balance sheet date are disclosed as long-term loans and advances. The cost of fixed assets not ready for their intended use at each balance sheet date is disclosed as capital work-in-progress. All assets given on operating lease are shown at the cost of acquisition less accumulated debrciation. I ntangible assets are recorded at the consideration paid for acquisition / development and licensing less accumulated amortisation. (vii) Debrciation and amortisation Debrciation on fixed assets is provided using the straight line method at the rates specified in Schedule II to the Companies Act, 2013. Debrciation is calculated on a pro-rata basis from the date of installation till the date the assets are sold or disposed. Leasehold improvements are amortised over the underlying lease term on a straight line basis. Debrciation on vehicles given on operating lease is provided on straight line method at rates based on tenure of the underlying lease contracts not exceeding 8 years. Individual assets costing less than Rs. 5,000/- are debrciated in full in the year of acquisition. For the following class of assets, based on internal assessment, the management believes that the useful lives is as given below best rebrsent the period over which management expects to use these assets. Hence the useful lives for these assets is different from the useful lives as brscribed under Part C of Schedule II of the Companies Act 2013. Desktops 6 years Laptops / Hand Held Device 4 years I ntangible assets are amortised over their estimated useful lives, not exceeding six years, on a straight line basis, commencing from the date the asset is available to the Company for its use. (viii) Impairment The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of profit and loss. If at the balance sheet date there is an indication that a brviously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of debrciated historical cost. (ix) Investments (a) Investments are classified as non-current or current based on intention of management at the time of purchase. (b) Non-current investments are carried at cost less any other-than-temporary diminution in value, determined separately for each individual investment. (c) Current investments are carried at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each investments. (d) Any reduction in the carrying amount and any reversals of such reduction are charged or credited to the statement of profit and loss. (e) Profit or loss on sale of investments is determined on the basis of weighted average carrying amount of investments disposed off. (x) Employee benefits (a) Provident fund Contributions paid / payable to the recognised provident fund, which is a defined contribution scheme, are charged to the statement of profit and loss. (b) Gratuity The Company's gratuity benefit scheme is a defined benefit plan. The Company's net obligation in respect of the gratuity benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its brsent value, and the fair value of any plan assets, if any, is deducted. The brsent value of the obligation under such defined benefit plan is determined based on actuarial valuation using the Projected Accrued Benefit Method (same as Projected Unit Credit Method), which recognises each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation. The obligation is measured at the brsent value of the estimated future cash flows. The discount rates used for determining the brsent value of the obligation under defined benefit plan, are based on the market yields on Government securities as at the balance sheet date. Actuarial gains and losses are recognised immediately in the statement of profit and loss. (c) Compensated absences The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is recognised in the period in which the absences occur. (xi) Employee Stock Compensation Cost The Employees Stock Option Scheme (the Scheme) provides for grant of the equity shares of the Company to employees. The scheme provides that employees are granted an option to subscribe to the equity shares of the Company that vest in a graded manner. The options may be exercised with in the specified period. The Company follows the intrinsic value method to account for its stock based employee compensation plans. The expense or credit recognised in the statement of profit and loss for a period rebrsents the movement in cumulative expense recognized as at the beginning and end of that period. (xii) Taxes on income Income-tax expense comprises of current tax (i.e. amount of tax for the period determined in accordance with the income-tax law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period). Income-tax expense is recognised in the statement of profit and loss. (a) Current tax Current tax is measured at the amount expected to be paid to (recovered from) the taxation authorities, using the applicable tax rates and tax laws. (b) Deferred tax Deferred tax is recognised in respect of timing differences between taxable income and accounting income i.e. differences that originate in one period and are capable of reversal in one or more subsequent periods. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed debrciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets are reviewed as at each balance sheet date and written down or written-up to reflect the amount that is reasonably / virtually certain (as the case may be) to be realised. (c) Minimum alternative tax Minimum alternative tax ('MAT') under the provisions of the Income Tax Act, 1961 is recognised as current tax in the statement of profit and loss. The credit available under the Act in respect of MAT paid is recognised as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the period for which the MAT credit can be carried forward for set-off against the normal tax liability. MAT credit recognised as an asset is reviewed at each balance sheet date and written down to the extent the aforesaid convincing evidence no longer exists. (xiii) Provision A provision is recognised if, as a result of a past event, the Company has a brsent obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are recognised at the best estimate of the expenditure required to settle the brsent obligation at the balance sheet date. The provisions are measured on an undiscounted basis. (a) Onerous contracts A contract is considered as onerous when the expected economic benefits to be derived by the Company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract. (b) Contingencies Provision in respect of loss contingencies relating to claims, litigation, assessment, fines, penalties, etc. are recognised when it is probable that a liability has been incurred, and the amount can be estimated reliably. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that the outflow of resources would be required to settle the obligation, the provision is reversed. (xiv) Contingent liabilities and contingent assets A contingent liability exists when there is a possible but not probable obligation, or a brsent obligation that may, but probably will not, require an outflow of resources, or a brsent obligation whose amount cannot be estimated reliably. Contingent liabilities do not warrant provisions, but are disclosed unless the possibility of outflow of resources is remote. Contingent assets are neither recognised nor disclosed in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs. (xv) Derivative transactions Fair value of derivative contracts is determined based on the appropriate valuation techniques considering the terms of the contract as at the balance sheet date. Mark to market losses in derivative contracts are recognised in the statement of profit and loss in the period in which they arise. Mark to market gains are not recognised keeping in view the principle of prudence as enunciated in "Accounting Standard (AS) 1 - Disclosure of Accounting Policies". (xvi) Borrowing costs Interest on borrowings is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable on the borrowings. Discount on commercial papers is amortised over the tenor of the commercial papers. Brokerage and other ancillary expenditure directly attributable to a borrowing is amortised over the tenure of the respective borrowing. Unamortised borrowing costs remaining, if any, is fully expensed off as and when the related borrowing is brpaid / cancelled. (xvii) Operating leases Lease payments for assets taken on an operating lease are recognised as an expense in the statement of profit and loss on a straight line basis over the lease term. (xviii) Earnings per share The basic earnings per share ('EPS') is computed by dividing the net profit after tax attributable to the equity shareholders for the year by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net profit after tax attributable to the equity shareholders for the year and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. The dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued at a later date. The diluted potential equity shares have been adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares). In computing dilutive earnings per share, only potential equity shares that are dilutive and that reduces profit / loss per share are included. (xix) Cash and cash equivalents Cash and cash equivalents comprise cash and cash on deposit with banks and corporations. The Company considers all highly liquid investments with an original maturity at the date of purchase of three months or less and that are readily convertible to known amounts of cash to be cash equivalents. (xx) Cash flow statement Cash flows are reported using the indirect method, whereby net profit before tax is adjusted for the effects of transactions of non-cash nature, any deferrals, or accruals of past or future operating cash receipts or payments and item of expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated Equity shares The Company has only one class of equity shares having a par value of Rs. 2/- each. Each holder of equity share is entitled to one vote per share. The Company declares and pays dividend on equity shares in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders at the ensuing Annual General Meeting. During the year ended 31 March 2015, the amount of per share dividend recognised as distribution to equity shareholders was Rs. 0.80 (40%) per equity share of the face value of Rs. 2/- each. Total dividend appropriation on 190,425,875 equity shares for the year ended 31 March 2015 amounted to Rs. 1,833.54 lacs including corporate dividend tax of Rs. 310.13 lacs. During the year, the Company has allotted on 30 July 2014, 05 November 2014 and 03 February 2015, 211,075 equity shares, 51,325 equity shares and 43,500 equity shares respectively of the face value of Rs. 2/- each under Employee Stock Option Plan pursuant to SEBI (ESOS and ESPS) Guidelines, 1999 to the eligible employees of the Company. The Board of Directors at their meeting held on 30 March 2015 approved issuance of 46,296,297 equity shares of the face value of Rs. 2/- each, at a price of Rs. 108/- each aggregating to Rs. 50,000 lacs, including a brmium of Rs. 106/-per share to Zend Mauritius VC Investments, Limited, Indium V (Mauritius) Holdings Limited, Leapfrog Financial Inclusion India Holdings Limited on brferential basis under Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended and Companies Act, 2013 read with relevant rules thereunder and other applicable provisions, which was subsequently approved by the shareholders at the Extraordinary General Meeting held on 28 April 2015. Accordingly, the Board of Directors at their meeting held on 08 May 2015 allotted 4,62,96,297 equity shares to the above mentioned allottees. The total paid-up equity share capital of the Company stands increased to 23,67,22,172 equity shares of Rs. 2/- each aggregating to Rs. 4,734.44 lacs. The equity shares issued and allotted as aforesaid rank pari passu with the existing equity shares of the Company in all respect. 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 to brference shareholders. The distribution will be in proportion to the number of equity shares held by the equity shareholders. Preference shares The Company declares and pays dividend on brference shares in both Indian rupees and foreign currencies. The dividend proposed by the Board of Directors is subject to approval of the shareholders at the ensuing Annual General Meeting. The Company has redeemed Rs. 1,300.20 lacs being third installment of Rs. 20/- per share in respect of 65,00,999 cumulative non-convertible redeemable brference shares of Rs. 100/- per share during April 2014. The paid-up value as at 31 March 2015 of the above brference shares stands reduced to Rs. 40/- per share from Rs. 100/- per share. The above brference shares were redeemed out of the proceeds of the issue of equity shares made for the purposes in the earlier years which inter-alia include redemption of brference shares and accordingly, no transfer has been made to capital redemption reserve. The Company has redeemed Rs. 421.84 lacs being fifth and final installment of Rs. 20/- per share in respect of 2,109,199 cumulative non-convertible redeemable brference shares of Rs. 100/- per share during February 2015. The paid-up value as at 31 March 2015 of the above brference shares stands reduced to Rs. Nil/- per share from Rs. 100/- per share. The above brference shares were redeemed out of the proceeds of the issue of equity shares made for the purposes in the earlier years which inter-alia include redemption of brference shares and accordingly, no transfer has been made to capital redemption reserve. As per the terms of issue, the holders of the 65,00,999 cumulative non-convertible redeemable brference shares of Rs. 100/- each aggregating to Rs. 6,501.00 lacs (equivalent to USD 15 Million) allotted on 26 March 2007 are entitled to fixed dividend at the rate equivalent to 6 months US Dollar Libor applicable on the respective dates i.e. 30 December or 29 June depending upon the actual date of payment plus 3.25% on subscription amount of USD 15 Million. Accordingly, the Company had provided dividend for the financial year ended 31 March 2014 in accounts based on the 6 months US Dollar Libor applicable as on 30 December 2013 and closing exchange rate applicable as on 31 March 2014 and which was liable to vary depending on the actual date of payment of the dividend. Accordingly, the excess dividend and tax thereon of Rs. 3.50 lacs (2014: deficit of Rs. 55.53 lacs) provided with respect to above brference shares for the brvious financial year ended 31 March 2014 has been adjusted in the current year with consequent impact on earnings per share for the year. In the event of liquidation of the Company, the holders of brference shares will have priority over equity shares in payment of dividend and repayment of capital. 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 brceding the reporting date. NOTE 2 : TRANSFER PRICING The Company has developed a system of maintaining information and documents as required by the transfer pricing legislation under the Income Tax Act, 1961. Management is of the opinion that its domestic transactions are at arm's length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation. NOTE 3 : brVIOUS YEAR'S FIGURE Previous year's figure including those in brackets have been regrouped and / or rearranged wherever necessary. As per our report of even date attached. For and on behalf of the Board of Directors For B S R & Co. LLP Chartered Accountants Firm's Regn. No. 101248W/W-100022 Mayank Poddar Chairman Sanjay Chamria Vice Chairman & Managing Director Akeel Master Partner Membership No. 046768 Place : Mumbai, date : 08 May 2015 Atul Bansal Chief Financial Officer Kailash Baheti Chief Strategy Officer & Company Secretary Place : Kolkata, date : 08 May 2015 |