Notes Forming Part of the Financial Statements 1. OVERVIEW Religare Enterprises Limited ("REL or the Company") is a leading emerging markets financial services company in India. REL was originally incorporated as a private limited company under the Companies Act, 1956 on January 30, 1984. The Company is listed on National Stock Exchange of India Limited (NSE) and BSE Limited (BSE). The Company was registered with the Reserve Bank of India as a Non- Banking Financial Company under section 45 IA of RBI Act, 1934 governed by Non-Banking Financial (Non Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 ("NBFC Directions"). During the year ended March 31, 2015, the Company received the Certificate of Registration as a Non-Deposit Taking Systemically Important Core Investment Company ("CIC-ND-SI") vide Certificate No. N-14.03222 dated June 03, 2014 issued by the Reserve Bank of India ("RBI"). By virtue of above registration , the provisions of section 45-IA (1)(b) of the Act and provisions of paragraphs 15, 16 and 24 of the Systemically Important Non-Banking financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015 ("NBFC Directions 2015") issued vide Notification No. DNBR. 009/ CGM (CDS) -2015 dated March 27, 2015 not apply to the company, subject to the conditions specified in the CIC Directions. More than 90% of its total assets are invested in long term investments in group companies. REL is a diversified financial services company with brsence in India and abroad operating through its Indian and overseas subsidiaries. The Subsidiaries, Joint Ventures and Associates are primarily engaged in the business of broking in securities and commodities, lending and investments, financial advisory services, custodial and depository operations, portfolio management services, asset management and insurance, institutional equities and investment banking services to its clients. 2. SIGNIFICANT ACCOUNTING POLICIES A) BASIS OF ACCOUNTING These Financial Statements have been brpared in accordance with the generally accepted accounting principles in India under the historical cost convention on accrual basis. Pursuant to section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014, till the standards of accounting or any addendum thereto are brscribed by Central Government in consultation with and after examination of recommendation of the National Financial Reporting Authority, the existing Accounting Standards notified under the Companies Act, 1956 shall continue to apply. Consequently, these financial statements have been brpared to comply in all material aspects with the accounting standards notified under Section 211 (3C) [Companies (Accounting Standards) Rules, 2006, as amended] and other relevant provisions of the Companies Act, 2013, NBFC Directions, 2015 and CIC Directions . All assets and liabilities have been classified as current or non-current as per the Company's normal operating cycle and other criteria set out in the Revised Schedule III to the Companies Act, 2013 read with NBFC Directions 2015 as aforesaid. Based on the nature of products and the time between the acquisition of assets for processing 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. B) USE OF ESTIMATES The brsentation of Financial Statements requires estimates and assumptions to be made that affect the reported amount of assets and liabilities on the date of financial statements and the reported amount of revenue and expenses during the reporting period. Difference between the actual results and estimates are recognized in the year in which results are known / materialized. C) REVENUE RECOGNITION (i) Interest income from financing activities is recognized on an accrual basis except in the case of non-performing assets, where it is recognised on realisation, as per the NBFC Directions, 2015. (ii) Dividend from investments is accounted for as income when the right to receive dividend is established by the reporting date. Dividend income is included under the head "Income from Investments" in the Statement of Profit and Loss. (iii) Income from Interest on Fixed Deposits is recognized on an accrual basis. (iv) Profit earned on sale of securities is recognised on trade date basis, net of expenses. The cost of securities is computed based on weighted average basis. (v) Income from Support Services Fees for rendering of professional services to group companies is recognized on accrual basis. (vi) Revenue excludes service tax. D) DEBENTURE / LOAN EXPENSES Loan processing charges and Debenture Issue Expenses are amortised over the tenor of the loan/debenture from the month in which the Company has incurred the expenditure. E) TANGIBLE ASSETS Tangible Assets are stated at acquisition cost, net of accumulated debrciation and accumulated impairment losses. Cost for this purpose includes purchase price, non refundable taxes or levies and other directly attributable costs of bringing the asset to its working condition for its intended use. Subsequent expenditures related to an item of tangible assets are added to its book value only if they increase the future benefits from the existing asset beyond its brviously assessed standard of performance. Losses arising from the retirement of, and gains or losses arising from disposal of tangible assets which are carried at cost are recognised in the Statement of Profit and Loss. F) INTANGIBLE ASSETS Intangible Assets are recognized only if it is probable that the future economic benefits that are attributable to assets will flow to the enterprise and the cost of the assets can be measured reliably. Intangible assets are recorded at cost and carried at cost less accumulated debrciation and accumulated impairment losses, if any. Intangible assets are amortised on a straight line basis over their estimated useful lives. Computer software which is not an integral part of the related hardware is classified as an intangible asset and is being amortized over the estimated useful life. G) DEbrCIATION Immovable assets at the leased brmises including civil works, electrical items are capitalized as leasehold improvements and are amortized over the primary period of lease subject to maximum of 6 years. Debrciable amount for assets is the cost of an asset, or other amount substituted for cost, less its estimated residual value. Debrciation on tangible fixed assets has been provided on the straight-line method as per the useful life brscribed in Schedule II to the Companies Act, 2013 or the rates based on the useful life of the asset as estimated by the Management taking into account the nature of the asset, the estimated usage of the asset, the operating conditions of the asset, past history of replacement, anticipated technological changes, manufacturers warranties and maintenance support, etc Debrciation is provided for on a pro-rata basis on the assets acquired, sold or disposed off during the year. INVESTMENTS Investments are classified into long term investments and current investments. Investments which are by nature readily realisable and intended to be held for not more than one year from the date of investment are current investments and Investments other than current investments are long term investments. Long term investments are accounted at cost and any decline in the carrying value other than temporary in nature is provided for. Current investments are valued at lower of cost and fair/ market value. In case of mutual funds, the net asset value of the units declared by the Mutual Funds is considered as the fair value. FOREIGN CURRENCY TRANSACTIONS (i) Transactions in foreign currencies are recorded at the rate of exchange in force at the time of occurrence of the transactions. (ii) Exchange differences arising on settlement of revenue transactions are recognized in the Statement of Profit and Loss. (iii) Monetary items denominated in foreign currency are restated using the exchange rates brvailing at the date of the balance sheet and the resulting net exchange difference is recognized in the Statement of Profit and Loss. EMPLOYEE BENEFITS (i) Contribution towards provident fund for all employees is made to regulatory authorities, where the Company has no further obligations. Such benefits are classified as Defined Contribution Scheme as the Company does not carry any further obligations, apart from the contributions made on monthly basis which are charged to the Statement of Profit and Loss as incurred. (ii) The Company has an obligation towards gratuity, a defined benefit retirement plan covering eligible employees. The plan provides for a lump sum payment to vested employees at retirement, death while in employment or on termination of employment. Vesting occurs upon completion of five years of service. The Company makes annual contribution to the gratuity fund ("Religare Enterprises Limited Group Gratuity Scheme") established as trust. The Company accounts for the liability for gratuity benefits payable in future based on an independent actuarial valuation conducted by an independent actuary using the Projected Unit Credit Method as at the Balance Sheet Date. (iii) The employees of the Company are entitled to compensate absences and leave encashment as per the policy of the Company, the liability in respect of which is provided, based on an actuarial valuation as at the Balance Sheet date. (iv) Actuarial gains and losses comprise experience adjustments and the effects of changes in actuarial assumptions and are recognized immediately in the Statement of Profit and Loss as income or expense. (v) The undiscounted amount of short - term employee benefits expected to be paid in exchange for services rendered by an employee is recognized during the period when the employee renders the service. (vi) Stock Options granted to eligible employees under the relevant Stock Option Schemes are accounted for at intrinsic value as per the accounting treatment brscribed by the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations 2014 ("SEBI Regulations"). Accordingly, the excess of average market price, determined as per SEBI Guidelines of the underlying equity shares (market value) over the exercise price of the options is recognized as deferred stock option expense and is charged to Statement of Profit and Loss on a straight line basis over the vesting period of the options. The amortised portion of the cost is shown under reserves and surplus. LEASED ASSETS i. Assets acquired under Leases where a significant portion of the risks and rewards of the ownership are retained by the lessor are classified as Operating Leases. The rentals and all the other expenses of assets under operating lease for the period are treated as revenue expenditure. ii. Assets given on operating leases are included in fixed assets. Lease income is recognized in the statement of profit and loss on straight line basis over the lease term. Operating costs of leased assets, including debrciation are recognized as an expense in the statement of profit and loss. Initial direct cost such as legal costs, brokerages etc. are charged to Statement of Profit and Loss as incurred. L) TAXES ON INCOME (i) Current tax is determined based on the amount of tax payable in respect of taxable income for the year. (ii) Deferred tax is recognized, subject to the consideration of prudence in respect of deferred tax asset, on timing differences, being the differences between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent years. Deferred Tax Asset are recognised and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax asset can be realised. (iii) Provision for taxation for the period(s) is ascertained on the basis of assessable profits computed in accordance with the provisions of the Income Tax Act, 1961. (iv) Deferred Tax asset and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. At each Balance Sheet date, the Company re-assesses unrecognised deferred tax assets, if any. (v) Current tax assets and liabilities are offset when there is a legally enforceable right to set off the recognised amount and there is intention to settle the assets and the liabilities on a net basis. (vi) Deferred tax asset and liabilities are offset when there is a legally enforceable rights to set off assets against liabilities rebrsenting the current tax and where the deferred tax and liabilities relate to taxes on income levied by the same governing taxation laws. M) PROVISIONS, CONTINGENT LIABILITIES Provisions involving substantial degree of estimation in measurement are recognized when there is a brsent obligation as a result of past events and it is probable that there will be an outflow of resources. Contingent liabilities are disclosed where there is a possible obligation arising from past events, the existence of which will be conformed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the Company or at brsent obligation that arises from past events where it is either not probable that an outflow of resources will be required to settled or a reliable estimate of the amount cannot be made. Contingent assets are neither recognized nor disclosed in the financial statements. Provision for non-performing assets and contingent provision against standard assets has been made as per NBFC Directions and CIC Directions. N) IMPAIRMENT OF ASSETS Assets are reviewed for impairment at each balance sheet date. In case, events and circumstances indicate any impairment, the recoverable amount of these assets is determined. An asset is impaired when the carrying amount of the asset exceeds its recoverable amount. An impairment loss is charged to the Statement of Profit and Loss in the period in which an asset is defined as impaired. An impairment loss recognized in prior accounting periods is adjusted/ reversed if there has been a change in the estimate of the recoverable amount and such loss either no longer exists or has decreased. O) BORROWING COSTS Borrowing costs include interest and amortisation of ancillary costs incurred in connection with the arrangement of borrowings to the extent they are regarded as an adjustment to the interest cost. Borrowing costs directly attributable to the acquisition, construction or development of a qualifying asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in the Statement of Profit and Loss in which they occur. P) CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash in hand, demand deposits with banks and other short-term highly liquid investments with original maturities of three months or less. Q) EARNINGS PER SHARE The Basic earnings per share is computed by dividing the net profit / loss attributable to the equity shareholders for the year by the weighted average number of equity shares outstanding during the reporting year. For the purpose of calculating Diluted earnings per share the net profit / loss for the year attributable to equity shareholders and weighted average number of shares outstanding during the reporting year is adjusted for the effects of all dilutive potential equity shares. In considering whether potential equity shares are dilutive or antidilutive, each issue or series of potential equity shares is considered separately rather than in aggregate. The repayment terms of brference shares issued are as below: The above shares are redeemable at a brmium not exceeding Rs. 269.36 (Previous Year Ended March 31, 2014 Rs. 269.36 per share(Tranche I), Rs. 218.42 per share(Tranche II), Rs. 209.14 per share (Tranche III)) on October 31, 2018 or at an earlier date as may be decided by the Board of Directors of the Company. 11.00% Cumulative Non-Convertible Redeemable Preference Shares The face value of each share is Rs. 10. The shares shall have same voting rights applicable to the brference shares under the Companies Act, 2013. Each brference share entitles the holder a right to receive, in priority to Equity shareholder , brference dividend on cumulative basis at a rate not exceeding 11.00% per financial year. In the event of liquidation of the Company, the holder is entitled to receive in priority to all equity shares, amount equal to the total of paid up capital plus the redemption brmium, any unpaid dividend as per the terms of issue. The shares were allotted in one tranche on November 12, 2011 having face value of Rs. 35,000,000 at Rs. 100 each (including a brmium of Rs. 90 per share). The Board of Directors of the Company in its meeting held on May 30, 2014 approved the proposal to redeem the above mentioned class of brference shares out of funds raised through brference allotment of Equity shares of the Company. On June 2, 2014, the Company redeemed 3,500,000 shares at a brmium of Rs. 130.75 per share. 0.01% Cumulative Non-Convertible Redeemable Preference Shares The face value of each share is Rs. 10. The shares shall have same voting rights applicable to the brference shares under the Companies Act, 2013. Each brference share entitles the holder a right to receive, in priority to Equity shareholder, brference dividend on cumulative basis at a rate not exceeding 0.01% per financial year. In the event of liquidation of the Company, the holder is entitled to receive in priority to all equity shares, amount equal to the total of paid up capital plus the redemption brmium, any unpaid dividend as per the terms of issue. The shares were allotted in one tranche on January 24, 2012 having face value of Rs. 26,000,000 at Rs. 100 each (including a brmium of Rs. 90 per share). The Board of Directors of the Company in its meeting held on May 30, 2014 approved the proposal to redeem the above mentioned class of brference shares out of funds raised through brference allotment of Equity shares of the Company. On June 2, 2014, the Company redeemed 2,600,000 shares at a brmium of Rs. 137.01 per share. The redemption of above shares had been made out of proceeds of brferential allotment of shares as stated in Note 3.2 in accordance with provisions of Section 55 of the Companies Act, 2013 (erstwhile Section 80 of the Companies Act 1956) and no amount required to be transferred to Capital Redemption Reserve, since the redemption of the aforesaid brference shares has been made out of proceeds of the brferential allotment. Preference Shareholders of the Company relinquished their voting rights in respect of their brference shares arising by virtue of Section 47(2)of the Companies Act, 2013 (erstwhile Section 87 (2) (b) of the Companies Act, 1956). Note 1: The Company issued privately placed Zero Coupon Non Convertible Debentures (NCDs) and 10.5% Non Convertible Debentures (NCDs) of face value of Rs. 1,000,000 each which are secured by first pari passu charge on freehold land of the Company, assignment of the relevant provisions of the Joint Venture Agreement and the bank guarantee. On September 26, 2014 the Company made an early redemption of above NCDs alongwith interest to the beneficiary holders. Note 2: The Company issued 14% REL 2017 Secured Rated Listed Non Convertible Debentures of the face value of Rs. 1,000,000 each which are secured by Pari Passu mortgage over the Company's immovable property, pari passu / exclusive pledge over issued and paid up equity shares of Religare Finvest Limited, held by the company, exclusive charge on the amount in escrow accounts and first ranking charge and hypothecation under the agreement between the company and RFL (RFL Loan Agreement)* and Unconditional and irrevocable personal guarantees of the Promoters in favor of the Debenture Trustees. *RFL Loan Agreement refers to loan agreements executed or to be executed between the company and RFL whereby the company has extended or will extend loans or similar facilities to RFL which qualify as Tier I or Tier II capital for RFL. Further, as at balance sheet date, apart from investment of Rs.150 crore in Compulsory Convertible Debentures of RFL, the company has not made any other loan to RFL. Note 3 : The Company issued Zero Coupon Rated Listed Secured Non Convertible Debentures of face value of Rs. 1,000,000 each which are secured by first pari passu charge over immovable property of the Company in Gujarat and pledge over 33,242,071 (Previous Year 33,242,071) equity shares of RGAM Investment Advisers Private Limited (formerly RGAM Corporation Private Limited) held by the Company. For the brvious year ended March 31, 2014, the Company has bought back and cancelled 1,240 Zero Coupon Secured Rated Listed Non Convertible Debentures face value of Rs. 1,000,000 each. 2. Other Notes a. Classification of Loans and Advances and provision for Non-Performing Assets/ Provision for dimunition of Investments Other than Long Term has been made in accordance with the NBFC Directions after considering subsequent recoveries and realizable value of investments respectively. Provision for Long Term Investment is made as per Accounting Standard (AS) -13, "Accounting for Investments" of Institute of Chartered Accountant of India (ICAI). The classification of loans into standard, sub-standard and loss assets and investments have been disclosed at gross value and the corresponding provision against non-performing assets/ investments has been included under provisions in accordance with NBFC Directions. b. There are no transactions during the year with Micro, Small and Medium enterprises and as such there is no balance outstanding as at March 31, 2015 c. During the financial year ended March 31, 2012, the Company had paid remuneration to Chairman and Managing Director ("CMD") in excess of the limits brscribed under section 198 read with Schedule XIII by Rs. 76,061,538 as per the terms of agreement pending approval of Ministry of Corporate Affairs (MCA). The Company has reversed the excess remuneration in the brvious year and subsequently recovered the said amount. During the year ended March 31, 2015, the company has received an approval from MCA amounting to Rs. 12,730,000 which has been paid and charged to the Statement of Profit and Loss. d. The provision for Income Tax for year ended March 31, 2015 has been made on an estimated basis in accordance with the provision of Income Tax Act, 1961 of India. No provision has been made for Corporate Dividend Tax in view of Exemption u/s 115-O of Income Tax Act, 1961. e. Operating Cycle An asset or a liability is classified as current when it satisfies any of the following criteria: a. it is expected to be realized / settled, or is intended for sale or consumption, in the Company's normal operating cycle; or b. it is held primarily for the purpose of being traded; or c. it is expected to be realized / due to be settled within twelve months after the reporting date; or d. it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date; or e. the Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. All other assets and liabilities are classified as non-current. f. During the year ended March 31, 2012 Religare Finvest Limited (RFL), one of the subsidiaries of the company, has raised Rs. 150 Cr and Rs. 200 Cr from Avigo Investments Limited, Mauritius and Nylim Jacobs Ballas India Fund III, LLC respectively through compulsory convertible brference shares, the conversion of which is linked to the performance of the said subsidiary for the financial year 2013. Pursuant to the tripartite agreement, REL has given assurance to compensate shortfall in Internal Rate of Return (IRR) of 14% p.a. subject to the terms of agreement. In the opinion of the management of the company, the probability of any liability towards the said assurance is remote considering the track record of financial results, distribution of profits, networth of RFL and the value of shares based on the similar issues in the prior years which justifies higher IRR than 14% on exit of the said investors. Accordingly, management of the company is not anticipating any future liability on this assurance. g. The Company operates in only one business segment and one geographical segment and hence segment information is not required as per Accounting Standard -17. 3. Previous Year Figures Previous year figures have been regrouped, re-arranged and reclassified wherever necessary to conform to the current period's classification. For Price Waterhouse Firm Registration Number: 301112E Chartered Accountants For and on behalf of Board of Directors Sd/-RUSSELL I PARERA Partner Membership Number: 42190 Sd/-PADAM BAHL Director (DIN-01314395) Sd/-SUNIL GODHWANI Chairman & Managing Director (DIN-00174831) Sd/-ANIL SAXENA Group CFO Sd/-MOHIT MAHESHWARI Company Secretary (Membership No: A16914) Sd/-SHACHINDRA NATH Group CEO Place: New Delhi Date: May 29, 2015 |