Significant Accounting Policies and Notes I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 1) Basis for brparation of financial statements: The financial statements have been brpared in accordance with the Generally Accepted Accounting Principles (IGAAP] under the historical cost convention as a going concern and on accrual basis and in accordance with the provisions of the Companies Act, 2013 and the Accounting Standards specified under section 133 of the Companies Act, 2013 ("the Act"] read with Rule 7 of the Companies (Accounts] Rules 2014 (as amended]. 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 services and their realisation in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current/non-current classification of assets and liabilities. Further, the Company follows prudential norms for income recognition, assets classification and provisioning for Non-performing assets as well as contingency provision for Standard assets as brscribed by The Reserve Bank of India (RBI] for Non-Banking Financial Companies. The Company has a policy of making additional provision on a prudential basis (refer note no. 29 of notes to the financial statements]. 2) Use of estimates: The brparation of financial statements requires the management to make estimates and assumptions considered in the reported amount of assets and liabilities (including contingent liabilities] as on the date of financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in the brparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods. 3) Revenue recognition: I. General: Revenue is recognised as earned and accrued when it is reasonably certain that its ultimate collection will be made and the revenue is measureable. II. Income from loans: a] I nterest income from loan transactions is accounted for by applying the interest rate implicit in such contracts. b] Service charges, documentation charges and other fees on loan transactions are recognised at the commencement of the contract. c] Delayed payment charges, fee based income and interest on trade advances, are recognised when they become measurable and when it is not unreasonable to expect their ultimate collection. d] Income on business assets classified as Non-performing Assets, is recognised strictly in accordance with the guidelines issued by The Reserve Bank of India for Non-Banking Financial Companies. Unrealized interest recognized as income in the brvious period is reversed in the month in which the asset is classified as Non-performing. III. Subvention income: Subvention received from manufacturers/ dealers on vehicles financed is booked over the period of the contract. IV. I ncome from assignment/securitization transactions: A. Income accounted prior to the issuance of RBI Circular dated August 21, 2012 (the Circular]: i. I n case of receivables assigned/ securitised by the Company, the assets are de-recognised as all the rights, title, future receivables and interest thereof are assigned to the purchaser. ii. On de-recognition, the difference between book value of the receivables assigned/ securitised and consideration received as reduced by the estimated provision for loss/expenses and incidental expenses related to the transaction is recognised as gain or loss arising on assignment/ securitisation. iii. On the maturity of an underlying assignment/securitisation deal, estimated provision for loss/expenses and incidental expenses in respect of the said deal are reversed as the actual losses/ expenses have already been debited to the Statement of Profit and Loss over the period. B. Income accounted post the issuance of RBI Circular dated August 21, 2012 (the Circular]: i. Securitisation transactions: a. Securitized receivables are de-recognized in the balance sheet when they are sold i.e. if they fully meet the true sale criteria. V. Income from investments: a] Dividend from investments is accounted for as income when the right to receive dividend is established. b] Interest income is accounted on accrual basis. c] Interest income from investments made in structured instruments are accounted based on implicit rate built in such instruments. b. Gains arising on securitisation of assets are recognised over the tenure of securities issued by Special Purpose Vehicles Trust (SPV]. c. Company's contractual rights to receive the share of future interest (i.e. interest sbrad] in the transferred assets from the SPV is capitalised at the brsent value as Interest Only (I/O] strip with a corresponding liability created for unrealised gains on loan transfer transactions. The excess interest sbrad on the securitisation transactions are recognised in the Statement of Profit and Loss only when it is redeemed in cash by the SPV. Losses, if any, are recognised upfront. ii. Assignment transactions: a. Receivables under the assignment transactions are de-recognized in the balance sheet when they are sold subject to the portion of loan assets which is required under the Minimum Retention Criteria and reflected as Loans and Advances (refer note no. 13 and 18]. b. The amount of profit in cash on such transactions is held under an accounting head styled as "Cash profit on loan transfer transactions pending recognition" maintained on an individual transaction basis. The amortisation of cash profit arising out of loan assignment transaction is done at the end of every financial year based on the formula brscribed as per the Circular. The unamortized portion is reflected as "Other long-term liabilities"/"Other current liabilities" (refer note no. 4 and 8]. 4) Fixed assets, debrciation and amortization: a) Tangible assets: i. Tangible assets are stated at cost of acquisition (including incidental expenses], less accumulated debrciation. ii. Assets held for sale or disposals are stated at the lower of their net book value and net realisable value. b) Debrciation on Tangible assets: Debrciation on tangible assets is charged on Straight Line Method (SLM] in accordance with the useful lives specified in Schedule II to the Companies Act, 2013 on a pro-rata basis except for following assets in respect of which useful life is taken as estimated by the management based on the actual usage pattern of the assets. a] Assets costing less than Rs.5,000/- are fully debrciated in the period of purchase. b] Vehicles used by employees are debrciated over the period of 48 months considering this period as the useful life of vehicle for the Company. c] Repossessed assets, which are primarily used vehicles, that have been capitalised for own use are debrciated at the rate of 15% on SLM over the remaining useful life of these assets. The same have been grouped under the head 'Vehicles' forming part of Company's Tangible assets in note no. 10. d] Residual value of the assets is considered as nil reflecting the estimate of realisable values at the end of the useful life of an asset. c) Intangible assets: Intangible assets are stated at cost less accumulated amortization and impairment loss, if any. d) Amortization of Intangible assets: Intangible assets comprises of computer software which is amortized over the estimated useful life. The maximum period for such amortization is taken as 36 months based on management's estimates of useful life. 5) Foreign exchange transactions and translations: i. Initial recognition: Transactions in foreign currencies are recognised at the brvailing exchange rates between the reporting currency and a foreign currency on the transaction dates. ii. Conversion: a. Foreign currency monetary assets and liabilities at the year-end are translated at the year-end exchange rates and the resultant exchange differences are recognised in the Statement of Profit and Loss. b. Non-monetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. Non-monetary items, which are measured at fair value or other similar valuation denominated in a foreign currency, are translated using the exchange rate at the date when such value was determined. iii. Exchange differences: The Company accounts for exchange differences arising on translation/settlement of foreign currency monetary items as below: a. Realized gains and losses on settlement of foreign currency transactions are recognised in the Statement of Profit and Loss. b. Foreign currency monetary assets and liabilities at the year-end are translated at the year-end exchange rates and the resultant exchange differences are recognised in the Statement of Profit and Loss. iv. Forward exchange and other derivative contracts entered into to hedge foreign currency risk of an existing asset/liability: a. I n case of forward contracts with underlying assets or liabilities, the difference between the forward rate and the exchange rate which is either a brmium or discount arising at the inception of a forward contract is amortised over the life of the contract. Unamortised forward brmium as at the year end is reflected as Other long-term/ short-term liabilities depending on the period over which the brmium is amortised. b. Exchange differences on such contracts are recognised in the Statement of Profit and Loss in the period in which the exchange rate changes. c. Any profit or loss arising on cancellation or renewal of forward exchange contracts are recognised as income or expense for the period. d. As per the risk management policy, the Company has taken foreign currency swap to cover the risk exposure on account of foreign currency loans. These transactions are structured in such a way that the Company's foreign currency liability is crystallized at a rate of exchange brvailing on the date of taking the swap. Accordingly, no loss or gain is expected on the settlement of swap as compared to the rate of exchange brvailing on the date of the swap. In such cases, foreign currency gain/losses on currency swap contracts are recognised to the extent of loss/gain on the underlying loan liabilities. e. I nterest rate swaps in the nature of hedge, taken to manage interest rate risk on foreign currency liabilities, whereby variable interest rate is swapped for fixed interest rate, are recognized on accrual basis at fixed interest rate and charged to the Statement of Profit and Loss. 6) Investments: In terms of Non-Banking Financial Companies Prudential Norms (Reserve Bank] Directions, 1998, investments held as long-term investments are generally carried at cost comprising of acquisition and incidental expenses. Long-term investments in structured instruments are carried at cost less principal repayments till reporting date. Provision for diminution in value of investments, if any, is made if in the opinion of management, such diminution is other than temporary. Any brmium on acquisition is amortised over the remaining maturity of the security on a constant yield to maturity basis. Such amortisation of brmium is adjusted against interest income from investments. The book value of the investments is reduced to the extent of amount amortised during the relevant accounting period. Investments other than long-term investments are classified as current investments and valued at lower of cost or fair value. 7) Loans against assets: Loans against assets are stated at agreement value net of instalments received less unmatured finance charges. 8) Employee benefits: (a) Contribution to Provident Fund: Company's contribution paid/payable during the year to provident fund is recognised in the Statement of Profit and Loss. (b) Gratuity: The Company provides for gratuity, a defined benefit retirement plan covering all employees. The plan provides for lump sum payments to employees upon death while in employment or on separation from employment after serving for the stipulated period mentioned under 'The Payment of Gratuity Act, 1972'. The Company accounts for liability of future gratuity benefits based on an external actuarial valuation on projected unit credit method carried out for assessing liability as at the reporting date. Actuarial gains/losses are immediately taken to the Statement of Profit and Loss and are not deferred. (c) Superannuation: The Company makes contribution to the Superannuation scheme, a defined contribution scheme, administered by Life Insurance Corporation of India. Contributions are charged to the Statement of Profit and Loss. The Company has no obligation to the scheme beyond its contributions. (d) Leave encashment/compensated absences/ sick leave: The Company provides for the encashment/ availment of leave with pay subject to certain rules. The employees are entitled to accumulate leave subject to certain limits for future encashment/availment. The liability is provided based on the number of days of unutilized leave at each balance sheet date on the basis of an independent actuarial valuation. 9) Borrowing costs: Borrowing costs that are attributable to the acquisition or construction of qualifying assets are capitalised as part of the cost of such assets. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale. All other borrowing costs are charged to the Statement of Profit and Loss. Ancillary expenditure incurred in connection with the arrangement of borrowings is amortised over the tenure of the respective borrowings. 10) Current and deferred tax: Tax expense for the period, comprising current tax and deferred tax, are included in the determination of the net profit or loss for the period. Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the provisions of the Income Tax Act, 1961. Deferred tax on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods is accounted for using the tax rates and tax laws enacted or substantively enacted as on the balance sheet date. Deferred tax assets arising on account of unabsorbed debrciation or carry forward of tax losses are recognised only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised. Other deferred tax assets are recognised only when there is a reasonable certainty of their realisation. 11) Share issue expenses: Expenses incurred in connection with fresh issue of Share Capital are adjusted against Securities Premium Reserve in the year in which they are incurred. 12) Impairment of assets: The carrying value of assets/cash generating units at each balance sheet date are reviewed for impairment. If any indication of impairment exists, the recoverable amount of such assets is estimated and impairment is recognised, if the carrying amount of these assets exceeds their recoverable amount. The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived at by discounting the future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life to their brsent value based on an appropriate discount factor. 13) Provisions and contingent liabilities: Provisions are recognised when there is a brsent obligation as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and there is a reliable estimate of the amount of the obligation. Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the Company or a brsent obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount cannot be made. 14) Employee Stock Compensation Costs: Measurement and disclosure of the Employee Share-based Payment plans is done in accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme] Guidelines, 1999 and the Guidance Note on Accounting for Employee Share-based Payments, issued by ICAI. The Company measures compensation cost relating to employee stock options using the Intrinsic Value Method (i.e. excess of market value of shares over the exercise price of the option at the date of grant]. Compensation cost is amortized over the vesting period of the option on a straight line basis. The options which have lapsed are reversed by a credit to Employee compensation cost, equal to the amortised portion of value of lapsed portion and credit to Deferred employee compensation cost equal the unamortised portion. 15) Lease: Lease rentals in respect of assets taken on operating lease arrangements are recognized as per the terms of the lease. 16) Earnings Per Share: Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. Earnings considered in ascertaining the Company's earnings per share is the net profit for the period after deducting brference dividends and any attributable tax thereto for the period. The weighted average number of equity shares outstanding during the period and for all periods brsented is adjusted for events, such as bonus shares, sub-division of shares etc. that have changed the number of equity shares outstanding, without a corresponding change in resources. For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period is adjusted for the effects of all dilutive potential equity shares. NOTE 2 LOAN PROVISIONS AND WRITE OFFS a] The Company has made adequate provision for the Non-performing assets identified, in accordance with the guidelines issued by The Reserve Bank of India. As per the practice consistently followed, the Company has also made additional provision on a prudential basis. The RBI vide it's notification no DNBR. 011/CGM (CDS]-2015 dt. March 27, 2015 has revised the asset classification norms for NPAs and substandard assets under its prudential norms applicable to NBFCs in a phased manner commencing from financial year ending 31st March, 2016, upto the financial year ending 31st March, 2018 which would result in an additional provision. As on 31st March, 2016, the Company has recognised NPAs based on 4 months overdue norms as against the revised regulatory norms of recognising NPAs at 5 months overdue applicable for the current financial year resulting in an additional provision of Rs. 3,454.79 lacs and income derecognition of Rs. 2,095.16 lacs with a consequent impact of Rs. 5,549.96 Lacs on Profit before tax for the year ended 31st March, 2016. The cumulative additional/accelerated provision made by the Company as on March 31, 2016 is Rs. 73,567.48 Lacs (March 31, 2015 : Rs. 53,319.01 Lacs]. b] In accordance with the Notification No. DNBS.222/ CGM (US]-2011 dated January 17, 2011 issued by The Reserve Bank of India (RBI] vide its directions to all NBFC's to make a general provision of 0.25% on the Standard assets, the Company has made a provision of Rs. 1,353.00 Lacs (March 31, 2015 : Rs. 1,057.00 Lacs]. The total amount of provision on Standard assets of Rs. 14,035.00 Lacs (March 31, 2015 : Rs. 12,682.00 Lacs] is shown separately as "Contingent provision for Standard assets" under Long-term and Short-term provisions in the balance sheet (refer note no. 5 and 9]. The said amount includes additional/accelerated provision of 0.15% for Rs. 5,262.00 Lacs as at March 31, 2016 (March 31, 2015 : Rs. 4,757.00 Lacs]. c] Bad debts and write offs includes loss on termination which mainly rebrsents shortfall on settlement of certain contracts due to lower realisation from such hire purchase/leased/loan assets on account of poor financial position of such customers. d] I n accordance with the Prudential norms for restructured advances, the Company has made provisions of Rs. 32.51 Lacs (March 31, 2015 : Rs. 31.87 Lacs] as Higher provisions and Provisions for diminution in fair value on account of restructured advance which are shown separately under Long-term and Short-term provisions in the Balance sheet (refer note no. 5 and 9]. NOTE 3 Commission and brokerage mainly rebrsents amount incurred in respect of acquisition of customers and mobilisation of public deposits. NOTE 4 The Company is engaged primarily in the business of financing and accordingly there are no separate reportable segments as per Accounting Standard 17 dealing with Segment Reporting. NOTE 5 In the opinion of the Board, Current assets, Loans and advances are approximately of the value stated if realised in the ordinary course of business. NOTE 6 Deposits/advances received against loan agreements are on account of loan against assets, which are repayable/adjusted over the period of the contract NOTE 7 DISCLOSURE ON DERIVATIVES Outstanding derivative instruments and un-hedged foreign currency exposures as on March 31, 2016 The Company has outstanding Foreign Currency Non-Repatriable (FCNR (b)) loans of US $ 1,209.88 Lacs (March 31, 2015: US $ 872.71 Lacs). The said loan has been fixed to INR liability using a cross currency swap and floating interest thereon in LIBOR plus rate has been swapped for fixed rate in Indian rupee. There is no unhedged foreign currency exposure as on March 31, 2016. NOTE 8 SECURITISATION/ASSIGNMENT TRANSACTIONS a) During the year, the Company has without recourse securitised on "at par" basis vide PTC route loan receivables of 30940 contracts (March 31, 2015: 27907 contracts) amounting to Rs. 85,586.85 Lacs (March 31, 2015: Rs. 72,229.92 Lacs) for a consideration of Rs. 85,586.85 Lacs (March 31, 2015: Rs. 72,229.92 Lacs) and de-recognised the assets from the books. b) Income from assignment/securitization transactions include write back of provision for loss/expenses in respect of matured assignment transactions amounting to Rs 6,756.56 Lacs (March 31, 2015: Rs. 8,807.91 Lacs) considered no longer necessary (refer Accounting policy 3 (IV) A (iii)). c) I n terms of the accounting policy stated in 3 (IV) (B) (i) (c), securitisation income is recognized as per RBI Guidelines dated 21st August, 2012. Accordingly, interest only strip rebrsenting brsent value of interest sbrad receivable has been recognized and reflected under loans and advances (refer note no. 13 and 18) and equivalent amount of unrealised gains have been recognised as liabilities (refer note no. 4 and 8). NOTE 9 The gold loans outstanding as a percentage of total assets is at 0.02% (March 31, 2015: 0.02%]. NOTE 10 During the year, the Company has incurred an expenditure of Rs. 2,791.69 Lacs (March 31, 2015: Rs. 2,374.07 Lacs] towards Corporate Social Responsibility activities which includes contribution/ donations made to the trusts which are engaged in activities brscribed under section 135 of the Companies Act, 2013 read with Schedule VII to the said Act and expense of Rs. 114.26 Lacs (March 31, 2015: Rs.113.56 Lacs] towards the CSR activities undertaken by the Company (refer note no. 26 NOTE 11 Disclosure of trade payables to Micro, Small and Medium Enterprises under Current liabilities is based on the information available with the Company regarding the status of the suppliers as defined under the "Micro, Small and Medium Enterprises Development Act, 2006". Amount outstanding as on March 31, 2016 to Micro, Small and Medium Enterprises on account of principle amount aggregate to Rs. Nil (March 31, 2015: Rs. Nil) [including overdue amount of Rs. Nil (March 31, 2015: Rs. Nil)] and interest due thereon is Rs. Nil (March 31, 2015: Rs. Nil) and interest paid during the year Rs. Nil (March 31, 2015: Rs. Nil). NOTE 12 Previous year figures have been regrouped/reclassified wherever found necessary. Signatures to Significant accounting policies and Notes to the financial statements – I and II For B. K. Khare and Co. Chartered Accountants FRN :105102W Naresh Kumar Kataria Partner Membership No.037825 Dhananjay Mungale Chairman Ramesh Iyer Vice-Chairman & Managing Director M. G. Bhide Director Piyush Mankad Director C.B. Bhave Director V. Ravi Executive Director & Chief Financial Officer Rama Bijapurkar Director Arnavaz Pardiwala Company Secretary V. S. Parthasarathy Director Dr. Anish Shah Director Place : Mumbai Date : 23rd April, 2016 |