1 COMPANY OVERVIEW

GRUH Finance Limited (‘GRUH’ or ‘the Company”) incorporated in 1986 as a specialised Housing Finance Company domiciled in India as a limited company having its registered office at Ahmedabad. The principal business is to provide loans for purchase or construction of residential houses. The business is conducted through its branches in India and is supported by a network of Referral Associates for sourcing loans as well as deposits. The Company is a public limited company and its shares are listed in India on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

2 SIGNIFICANT ACCOUNTING JUDGMENT, ESTIMATES AND ASSUMPTIONS

2.1 Critical accounting Judgments

The preparation of the financial statements in conformity with Ind AS requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities and the reported income and expenses during the year. The Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognised in the periods in which the results are known / materialise.

2.2 Expected Credit Loss

When determining whether the risk of default on other loans (i.e. developer loans) portfolio has increased significantly since initial recognition, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and credit assessment and including forward-looking information. In certain cases, the assessment based on past experience is required for future estimation of cash flows which requires significant judgment.

The inputs used and process followed by the Company in determining the increase in credit risk has been detailed in note to accounts on Impairment.

2.3 Fair Valuation of Investments

Some of the Company’s assets and liabilities are measured at fair value for financial reporting purposes. In estimating the fair value of an asset and liability, the Company uses market observable data to the extent it is available. When Level 1 inputs are not available, the Company has applied appropriate valuation techniques and inputs to the valuation model.

Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are disclosed in Note 37.

2.4 Income Taxes

The Company’s tax jurisdiction is in India. Significant judgments are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions.

3 FIRST TIME ADOPTION OF IND AS (IND AS 101)

The Company has prepared financial statements for the year ended March 31, 2019, in accordance with Ind AS for the first time. For the periods upto and including the year ended March 31, 2018, the Company prepared its financial statements in accordance with the accounting standards notified under Section 133 of the Companies Act, 2013, read together with the Companies (Accounting Standards) Rules, 2006, as amended (Previous GAAP). Accordingly, the Company has prepared its financial statements to comply with Ind AS for the year ending March 31, 2019, together with comparative information as at and for the year ended March 31, 2018, as described in the summary of significant accounting policies. In preparing these financial statements, the Company’s opening Balance Sheet was prepared as at April 1, 2017 i.e. the transition date to Ind AS for the Company. Previous GAAP financials statements as on April 1, 2017 being transition date and for previous year ended March 31, 2018 have been restated as per Ind AS.

This note explains the principal adjustment made by the Company in restating its Previous GAAP financial statements, including the Balance Sheet as at April 1, 2017, and the financial statements as at and for the year ended March 31, 2018.

3.1 Exemptions availed :

3.1.1 Deemed Cost for Property, Plant and Equipment and Intangible Assets :

The Company has elected to continue with the carrying value of all of its property, plant and equipment and intangible assets recognised as of April 1, 2017 (the transition date), measured as per the Previous GAAP and use that carrying value as its deemed cost as of the transition date under Ind AS.

3.1.2 Classification and Measurement of Financial Assets :

The Company has classified the financial assets in accordance with Ind AS 109 on the basis of facts and circumstances that exist at the date of transition to Ind AS.

3.1.3 Fair Value of Financials Assets and Liabilities :

As per Ind AS exemption, the Company has not fair valued the financial assets and liabilities retrospectively and has measured the same prospectively.

3.1.4 Investments :

Under Previous GAAP, the transaction cost incurred on acquisition, of Investments in Government Securities, were valued at Amortised Cost on Straight Line Method while under Ind AS such cost are included in the initial recognition amount of Investments in Government Securities and recognised against Interest Income using Effective Interest Method. Consequently, Investment in Government Securities on the date of transition has decreased by Rs. 0.17 crore and for the year ended March 31, 2018 has decreased by Rs. 0.03 crore.

Further, for the Investments in Mutual Funds the fair value changes are recognised in the Statement of Profit and Loss. On transitioning to Ind AS, these financial assets have been measured at their fair values which is higher than cost as per Previous GAAP. Consequently, Investments in Mutual Funds on the date of transition has increased by Rs. 0.01 crore and for year ended March 31, 2018 has increased by Rs. 2,600.00.

Above has led to decrease in profit before tax of Rs. 0.03 crore and profit after tax of Rs. 0.02 crore for the year ended March 31, 2018.

3.1.5 Deferred Tax :

The Previous GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS 12 requires entities to account for deferred taxes using the Balance Sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the Balance Sheet and its tax base.

The application of Ind AS 12 approach has resulted in the various transitional adjustments being temporary differences. Accordingly, the Company has accounted for such differences. These adjustments are recognised in co-relation to the underlying transaction either in retained earnings, OCI or profit and loss respectively.

3.1.6 Effective Interest Rate (EIR) :

a. Under Previous GAAP, transaction costs charged to customers was recognised upfront while under Ind AS, such costs are included in the initial recognition amount of financial asset and recognised as interest income using the effective interest method. Consequently loan to customers on date of transition have decreased by Rs. 43.68 crore and interest income for the year ended March 31, 2018 has increases by Rs. 11.56 crore and consequently Loan Assets has been increased by Rs. 11.56 crore.

b. Under Previous GAAP, transaction costs incurred on borrowings was charged to statement of profit and loss/securities premium upfront while under Ind AS, such costs are included in the initial recognition amount of financial liabilities and recognised as interest expense using the effective interest method. Consequently, Non-Convertible Debentures and Subordinated Liabilities on date of transition date have decreased by Rs. 4.80 crore and Rs. 0.21 crore respectively and interest expense for the year ended March 31, 2018 has increased by Rs. 3.43 crore. Non-Convertible Debentures as at March 31, 2018 has been increased by Rs. 0.39 crore and Subordinated Liabilities has been increased by Rs. 0.03 crore.

3.1.7 Share-Based Payments :

Under Previous GAAP, the cost of equity-settled employee share-based payments was recognised using the intrinsic value method.

Under Ind AS, the cost of equity-settled employee share-based payments is recognised based on the fair value of the options as on the grant date. The change does not affect total equity, but there is a decrease in profit before tax as well as profit after tax for the year ended March 31, 2018 by Rs. 3.36 crore and Rs. 2.18 crore respectively.

3.1.8 Defined Benefit Obligation :

Both under Previous GAAP and Ind AS, the Company recognised costs related to its post-employment defined benefit plan on an actuarial basis. Under Previous GAAP, the entire cost, including actuarial gain and losses, are charged to profit or loss. Under Ind AS, remeasurements (comprising of actuarial gains and losses, the effect of assets ceiling, excluding amounts included in net interest on the net defined benefit liability and return on plan assets excluding amount included in net interest on the net defined benefit liability) are recognised in Other Comprehensive Income (OCI). Thus, employee benefit expense is reduced by Rs. 0.30 crore and is recognised in OCI during the year ended March 31,2018.

The current tax amounting to Rs. 0.11 crore is also regrouped from profit or loss to OCI for the year ended March 31, 2018. The above change does not affect total equity as at March 31, 2018. However, profit before tax and profit for the year ended March 31, 2018, is increased by Rs. 0.30 crore and Rs. 0.19 crore respectively.

3.1.9 Other Comprehensive Income (OCI) :

Under Previous GAAP, there was no concept of OCI. Re-measurement of defined benefit plan liability is recognised in OCI.

4.1 Loans includes Rs. 44.30 crore (Previous Year Rs. 36.70 crore) in respect of properties held for disposal under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

4.2 Loans includes Rs. 0.23 crore (Previous Year Rs. 0.25 crore) given to the related party of GRUH under the Staff Loan Scheme.

4.3 Collateral and Other Credit Enhancements :

The amount and type of collateral required depends on an assessment of the credit risk of the counterparty.

Loans granted by GRUH are secured or partly secured by one or combination of following securities :

a) Equitable mortgage of property and / or

b) Pledge of shares, Units, Other Securities, assignments of Life Insurance policies and / or

c) Hypothecation of assets and / or

d) Bank guarantees, Company guarantees or Personal guarantees and / or

e) Undertaking to create a security.

The Company monitors the value of collateral and will request additional collateral in accordance with the loan agreement.

In its normal course of business, the Company does not physically repossess properties or other assets. Property acquisition is a last recourse which company exercise in case recovery become very difficult. Any surplus funds after settlement of outstanding loan are returned to the customers. As a result of this practice, the residential properties under legal repossession processes are not treated as non-current assets held for sale.

The tables below is the most informative and includes the total value of all collateral, any surplus collateral (i.e. the extent to which the value of collateral held is greater than the exposure to which it relates) and the net exposure to credit risk.

The information as required to be disclosed under the Micro, Small and Medium Enterprises Development Act, 2006 has been determined to the extent such parties have been identified on the basis of Information available with the Company. The amount of principal and interest outstanding during the year is given below.

5.1 Non-Convertible Debentures includes Rs. 1,314.42 crore (As At March 31, 2018 Rs. 1,313.75 crore and As At April 1, 2017 Rs. 1,313.08 crore) from a related party.

5.2 Redeemable Non-Convertible Debentures are secured by the mortgage of specific immovable property created in favour of Debenture Trustees and by a negative lien on all the assets of the Company excluding the Statutory Liquid Assets having floating charge in favour of the Public Deposit Trustees against the Public Deposits.

5.3 Terms of repayment, nature of security & rate of interest in case of Debt Securities.

Nature of Security : mortgage of specific immovable property created in favour of Debenture Trustees and by a negative lien on all the assets of the Company excluding the Statutory Liquid Assets having floating charge in favour of the Public Deposit Trustees against the Public Deposits.

NCDs are not listed on any stock exchange.

6.1 Public deposits as defined in paragraph 2(1)(y) of the Housing Finance Companies (NHB) Directions, 2010, are secured by floating charge and Lien in favour of the Trustees for Depositors on the Statutory Liquid Assets maintained in terms of sub-sections (1) & (2) of Section 29B of the National Housing Bank Act, 1987.

7.1 Unsecured Non-Convertible Subordinated Debentures

Redeemable unsecured Non-Convertible Subordinated Debentures, for value aggregating to Rs. 35 crore are subordinated debt to present and future senior indebtedness of the Company and qualify as Tier II Capital under National Housing Bank’s (NHB) guidelines for assessing capital adequacy. These NCDs are redeemable at par on March 22, 2023 (Rs. 10 crore) and on March 25, 2023 (Rs. 25 crore).

These debentures are subordinated to present and future senior indebtedness of the Company and qualify as Tier II capital under National Housing Bank’s (NHB) guidelines for assessing capital adequacy. Based on the balance term to maturity as at March 31, 2019, 60% (Previous Year 80%) of the face value of the subordinated debt is considered as Tier II capital for the purpose of capital adequacy computation.

As required under Section 125 of the Companies Act 2013, the Company has transferred Rs. 0.20 crore (Previous Year Rs. 0.16 crore) to the Investor Education and Protection Fund (IEPF) during the year. As of March 31, 2019, no amount was due for transfer to the IEPF.

Aggregate number of shares allotted as fully paid-up by way of Bonus Shares (During 5 years immediately preceding March 31, 2019) :

During the year 2018-19, pursuant to approval of shareholders at the 32nd Annual General Meeting (AGM) of GRUH held on May 30, 2018, GRUH allotted 36,57,20,011 Bonus Equity Shares of Rs. 2 each as fully paid-up shares in the proportion of 1 : 1. In order to facilitate issue of bonus shares, the authorised share capital of the Company has been increased from Rs. 100 crore to Rs. 200 crore.

During the year 2014-15, pursuant to approval of shareholders at the 28th Annual General Meeting (AGM) of GRUH held on May 28, 2014, GRUH allotted 18,01,31,150 Bonus Equity Shares of Rs. 2 each as fully paid-up shares in the proportion of 1 : 1. In order to facilitate issue of bonus shares, the authorised share capital of the Company has been increased from Rs. 50 crore to Rs. 100 crore.

Terms/Rights attached to Equity Shares :

GRUH has one class of share referred to as equity shares having a face value of Rs. 2 each. Each shareholder is entitled to one vote per share held and dividends, if any, proposed by the Board of Directors subject to the approval of the shareholders at the ensuing Annual General Meeting.

The Board of Directors at its meeting held on March 14, 2019, upon the recommendation of the Nomination and Remuneration Committee of Directors of the Company, approved the issue of additional 90,00,000 equity shares of Rs. 2 each of the Company to eligible employees under existing Employee Stock Option Scheme 2015, in terms of SEBI (Share Based Employee Benefits) Regulations, 2014 and amendment of the Employee Stock Option Scheme 2015 by increasing the number of stock options to be granted to eligible employees. Subsequently, members of the Company with requisite majority have, on April 22, 2019, passed the said special resolution through postal ballot/e-voting.

8.1 Securities Premium Reserve : Securities premium reserve is credited when shares are issued at premium. It can be used to issue bonus shares, to provide for premium on redemption of shares or debentures, write-off equity related expenses like underwriting costs, etc.

8.2 General Reserve : It is a free reserve which is created by appropriation from profits of the current year and/or undistributed profits of previous years, before declaration of dividend duly complying with any regulations in this regard.

8.3 As per section 29C of the National Housing Bank Act, 1987, GRUH is required to transfer at least 20% of its net profit every year to reserve before any dividend is declared. For this purpose any Special Reserve created by GRUH under section 36(1)(viii) of the Income Tax Act, 1961 is considered to be an eligible transfer. GRUH has transferred an amount of Rs. 105.00 crore (Previous Year Rs. 106.25 crore) to Statutory Reserve in terms of section 36 (1)(viii) of the Income Tax Act, 1961. GRUH doesn’t anticipate any withdrawal from Statutory Reserve in foreseeable future.

8.4 Additional Reserve has been created over the years in terms of section 29C of the NHB Act, 1987 out of the distributable profits of the Company.

8.5 Employee Stock Option Reserve : The Company has a share option scheme under which options to subscribe for the Company’s shares have been granted to employees including key management personnel. The share-based payment reserve is used to recognise the value of equity-settled share-based payments provided to employees, as part of their remuneration.

9.1 Interest Income on Investments are Interest on Long-Term SLR Investments which are held-to-maturity.

9.2 Surplus from deployment in Cash Management Schemes of Mutual Funds is in respect of Investments held as Current Investments.

10.1 In accordance with the Indian Accounting Standard on ‘Leases’ (Ind AS 17), the following disclosure in respect of operating leases are made :

GRUH has taken office premises under operating lease for a period ranging from 11 months to 180 months. These are cancellable and have no specific obligation for renewal. The total lease payments for current year amounts to Rs. 7.31 crore (Previous year Rs. 6.50 crore) which is recognised in the Statement of Profit and Loss under ‘Rent Expenses’.

10.2 Expenditure incurred for Corporate Social Responsibility are Rs. 6.23 crore (Previous Year Rs. 4.37 crore)

Disclosure on Corporate Social Responsibility (CSR) activities u/s 135 of the Companies Act, 2013 is as under :

(a) Gross amount required to be spent by GRUH during the year : Rs. 9.11 crore (Previous year Rs. 7.36 crore)

(b) Amount spent, utilised and charged during the year on :

11 The Board of Directors of the Company, at its meeting held on January 7, 2019, approved a Scheme of Amalgamation, for the merger of GRUH Finance Limited with Bandhan Bank Limited with effect from proposed Appointed Date of January 1, 2019. In this regards, Competition Commission of India, BSE and NSE have approved proposed scheme of merger. The scheme remains subject to receipt of approvals of National Company Law Tribunal, Shareholders and Creditors of the Company. The effective date shall be based on the receipt of the aforesaid approvals. Pending the same, the proposed transaction does not have any impact on the current financial statements of the Company as at and for the year ended March 31, 2019.

The number of equity shares considered in the above computation includes 36,57,20,011 equity shares allotted as fully paid-up Bonus Shares during the year. The figures for the previous year have been adjusted for the Bonus Shares.

12 SEGMENT REPORTING

The Company’s main business is to provide loans for purchase or construction of residential houses. All other activities of the Company revolve around the main business. As such, there are no separate reportable segments, as per the Ind AS 108 “Operating Segments” specified under section 133 of the Companies Act, 2013.

13 MATURITY ANALYSIS OF ASSETS AND LIABILITIES

The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled. With regard to loans and advances to customers, the Company uses the same basis of expected repayment behaviour as used for estimating the EIR. Issued debt reflect the contractual coupon amortisations.

14 RELATED PARTY DISCLOSURES

As per the Indian Accounting Standard on ‘Related Party Disclosures’ (Ind AS 24), details of related parties, nature of the relationship, with whom company has entered transactions and the balances in related party accounts at year end, are as mentioned below. All these transactions with related parties were carried out in ordinary course of business and on arm’s length basis.

(a) Holding Company

Housing Development Finance Corporation Limited (HDFC)

(b) Fellow Subsidiary Companies

(i) HDFC Life Insurance Co. Limited

(ii) HDFC ERGO General Insurance Co. Limited

(c) Fellow Associate Company HDFC Bank Limited

(d) Chairman (Non-Executive and Non-Independent)

Mr. Keki M. Mistry

(e) Non-Executive and Non-Independent Director

(i) Ms. Renu S. Karnad (up to March 8, 2019)

(ii) Mr. K. G. Krishnamurthy

(f) Independent Directors

(i) Mr. Prafull Anubhai (up to March 31, 2019)

(ii) Mr. S. G. Mankad

(iii) Mr. Biswamohan Mahapatra

(iv) Mr. Pankaj Patel

(v) Mr. Rajesh Gupta

(vi) Ms. Bhavna Doshi

(g) Key Management Personnel

(i) Mr. Sudhin Choksey, Managing Director

(ii) Mr. Kamlesh Shah, Executive Director

(iii) Mr. Marcus Lobo, Company Secretary

(iv) Mr. Hitesh Agrawal, Chief Financial Officer

(h) Entity in which Independent Director exercise significant influence M/s SNG & Partners, Advocates & Solicitors

(i) Entities in which Key Management Personnel exercise significant influence

(i) GRUH Finance Limited Employees’ Provident Fund Trust

(ii) GRUH Finance Limited Employees’ Gratuity Trust Fund

(iii) GRUH Finance Limited Officers’ Superannuation Fund

Level 1 : Level 1 hierarchy includes financial instruments measured using quoted prices.

Level 2 : The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3 : If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

The Company’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.

(ii) Valuation technique used to determine fair value

The carrying amounts of cash and cash equivalents, other bank balances, trade payables and other financial liabilities are considered to be the same as their fair values, due to their short-term nature.

The fair values for loans, investment in government securities and other financial assets were calculated based on cash flows discounted using a current lending rate. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counterparty credit risk.

The fair values of debt securities, borrowings other than debt securities, deposits and subordinated liabilities are based on discounted cash flows using a current borrowing rate. They are classified as level 3 fair values in the fair value hierarchy due to the use of unobservable inputs, including own credit risk.

For financial assets and liabilities that are measured at fair value, the carrying amounts are equal to the fair values.

15 FINANCIAL RISK MANAGEMENT

Credit Risk

Credit risk is the risk of loss that may occur from the failure of any party to abide by the terms and conditions of any contract, principally the failure to make required payments of amounts due to company. In lending operations, the Company is principally exposed to credit risk.

The credit risk is governed by various Product Policies. The Product Policy outlines the type of products that can be offered, customer categories, the targeted customer profile and the credit approval process and limits.

The Company measures, monitors and manages credit risk at an individual borrower level and at the group exposure level for other borrowers. The credit risk for retail borrowers is being managed at portfolio level for both Home loans and Non Home Loans. The Company has a structured and standardized credit approval process, which includes a well-established procedure of comprehensive credit appraisal. The Risk Management Policy addresses the recognition, measurement, monitoring and reporting of the Credit risk. The Company has additionally taken the following measures : -

- Borrower group exposure limits as per applicable regulations.

- Establishment of a team to enhance focus on monitoring of process implementation at the branches and to facilitate proactive action wherever required.

- Enhanced monitoring of retail product portfolios through periodic review.

Credit Approval Authorities

The Board of Directors has approved delegation of loan sanctioning powers to Managing Director and member of the management team on a graded level of the loan amount.

Retail Loans

Company’s customers for retail loans are primarily low, middle and high-income, salaried and self-employed individuals. All retail loans are also subjected to risk based pricing wherein the individual cases are graded on a credit score linked to multiple parameters of appraisal.

The Company’s credit officers evaluate credit proposals on the basis of active credit policies as on the date of approval. The criteria typically include factors such as the borrower’s income & obligations, the loan-to-value ratio, Fixed obligation to income ratio and demographic parameters subject to regulatory guidelines. Any deviations need to be approved at the designated levels.

The various process controls such as KYC check, Credit Bureau Report analysis are undertaken. Company’s staff performs comprehensive due diligence process including visits to customer’s business and residence premises.

Company analyses the portfolio performance of each product segment regularly, and use these as inputs in revising the product programs, target market definitions and credit assessment criteria to meet the twin objectives of combining volume growth and maintenance of asset quality. The retail loans are fully secured and have full recourse against the borrower. The Company has a equitable mortgage over the collateral Immovable Properties. Whereever the state laws provide, the memorandum of deposit of title deeds are also registered.

Other Loans

The Company has a framework for the appraisal and execution of project finance transactions and it believes that such framework enables optimal risk identification, allocation and mitigation and helps minimize risk in the transaction.

The project finance approval process undertakes detailed evaluation of credit, technical, commercial and financial besides capacity and capability of developer/promoter. A credit scan by obtaining CIBIL and legal litigation reports of key developer/promotor further strengthens credit evaluation. As part of the appraisal process, a risk matrix is prepared to assess project risks in terms of its viability and implementation of projects and other risks associated with the project.

Project finance loans are fully secured by equitable mortgage with registered MOD of the prime property being land on which project is to be executed besides lien on constructed units. The Company creates lien on the receivables arising from sale of constructed units. Cash flows are being escrowed in favour of the company besides setting up the escrowing of sale proceeds as per the RERA Act. The Company also obtains personal guarantees of the developer/key promoters. Besides, monthly reports on progress of work, sales booking and sales proceeds are being collected from borrowers which are being monitored until loans are fully repaid.

Risk Management and Portfolio Review

The Company ensures effective monitoring of credit facilities through a risk-based asset review framework under which the frequency of asset review is determined depending on the risk associated with the product.

For both Retail and other borrowers, the company staff verifies adherence to the terms of the credit approval prior to the commitment and disbursement of credit facilities.

The Company monitors compliance with the terms and conditions for credit facilities prior to disbursement. It also reviews the completeness of documentation, creation of security and compliance with regulatory guidelines.

The Company, regularly reviews the credit quality of the portfolio and various sub-portfolios. A summary of the reviews carried out is submitted to the concern teams.

The Company reviews adherence to policies and processes, carries out audit through internal auditor and briefs the Audit Committee and the Board periodically.

Expected Credit Loss

Expected Credit loss is a calculation of the present value of the amount expected to be lost on a financial asset, for financial reporting purposes. Credit risk is the potential that the obligor and counterparty will fail to meet its financial obligations to the lender. This requires an effective assessment and management of the credit risk at both individual and portfolio level.

Probability of Default (PD)represents the likelihood of default over a defined time horizon, Exposure at Default (EAD) represents how much the counterparty is likely to be borrowing at the time of default, Loss Given Default (LGD)represents the proportion of EAD that is likely to be lost post-default.The definition of default is taken as 90 days or above past due for all retail and other loans.The ECL is computed as a product of PD, LGD and EAD.

Delinquency buckets have been considered as the basis for the staging of all loans with0-30 days past due loans classified as Stage 1, 3189 days past due loans classified as Stage 2 and90 days or above past due loans classified as Stage 3.

For individual and other loans vintage analysis has been used to create PD terms structure which incorporates both 12 months PD for Stage 1 loans and life time PD for stage 2 and 3 loans. The vintage analysis captures a vintage default experience across a particular portfolio by tracking the yearly slippages from advances originating in a particular year. The vintage slippage experience/default rate is then used to build the PD term structure. This methodology has been used to create the LGD vintage which takes into account the recovery experience across accounts of a particular portfolio post default. The recoveries are tracked and discounted to the date of default using the interest rate.

Significant estimates and judgements Impairment of financial assets

The impairment provisions for financial assets disclosed above are based on assumptions about risk of default and expected loss rates. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

Liquidity risk :

(i) Financing arrangements

The Company had access to the following undrawn borrowing facilities at the end of the reporting period :

The facilities may be drawn at any time and may be terminated by the bank without notice. Subject to the continuance of satisfactory credit ratings, the facilities may be drawn at any time in INR and have an average maturity of 12 months from sanction date.

(ii) Maturities of financial liabilities

The Company’s financial liabilities into relevant maturity groupings based on their contractual maturities for essential for an understanding of the timing of the cash flows.

The amounts disclosed in note 35 are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

Market risk

(i) Cash flow and fair value interest rate risk

The Company’s core business is borrowing and lending, deposit taking as permitted by the National Housing Bank. These activities expose the Company interest rate risk. Interest rate risk is measured through earnings at risk from an earnings perspective and through duration of equity from an economic value perspective. Further, exposure to fluctuations in interest rates is also measured by way of gap analysis, providing a static view of the maturity and re-pricing characteristic of Balance sheet positions. An interest rate sensitivity gap report is prepared by classifying all rate sensitive assets and rate sensitive liabilities into various time period categories according to contracted/ behavioural maturities or anticipated re-pricing date. The difference in the amount of rate sensitive assets and rate sensitive liabilities maturing or being re-priced in any time period category, gives an indication of the extent of exposure to the risk of potential changes in the margins on new or re-priced assets and liabilities. Company monitors interest rate risk through above measures on a regular basis.

(a) Interest rate risk exposure

The exposure of the Company’s borrowing (including debt securities, deposits and subordined liabilities) at face value to interest rate changes at the end of the reporting period are as follows :

(b) Sensitivity

Since 93% of the Company’s Loan Assets are at variable rate of interest, the Company is in a position to pass on increase in cost of borrowings/benefit on reduction of cost of borrowings to its customers. As a result, the interest rate risk arising on account of movement in cost of borrowings is significantly low. However, for any reason, if the Company was not in a position to pass on cost/benefit to its customers, then an impact on profit could have been as under :

* Holding all other variables constant

(ii) Price risk

(a) Exposure

The Company’s exposure to price risk arises from investments held by the Company and classified in the balance sheet at fair value through profit or loss. The Company’s exposure to Mutual Funds is not significant and hence the Company’s exposure to price risk is insignificant.

16 CAPITAL MANAGEMENT

The Company maintains an actively managed capital base to cover risks inherent in the business and is meeting the capital adequacy requirements of National Housing Bank (NHB). The adequacy of the Company’s capital is monitored using, among other measures, the regulations issued by NHB.

The Company has complied with the applicable capital requirements over the reported period.

17 (i) Risk management

The Company’s objectives when managing capital are to :

1. Safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and

2. Maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.Consistent with others in the industry, the Company monitors capital on the basis of the following gearing ratio : Net debt (total borrowings net of cash and cash equivalents) divided by Total ‘equity’ (as shown in the balance sheet).

The Company’s strategy is to maintain a gearing ratio within 16 times as stipulated by National Housing Bank. The gearing ratios were as follows :

Loan covenants

Under the terms of the major borrowing facilities, the Company has complied with the covenants throughout the reporting period. As at March 31, 2019, the ratio of net finance cost to EBITDA was 67.78% (Previous Year - 63.33%).

18. Disclosure as required by National Housing Bank :

The following disclosures have been given in terms of National Housing Bank’s notification no. NHB.HFC.CG-DIR.1/MD&CEO/2016 dated February 9, 2017 and in terms of the circular no. NHB/ND/DRS/Pol-No.35/2010-11 dated October 11, 2010. Further, the disclosures which are for regulatory and supervisory purpose, have been made so as to comply with NHB’s Policy Circular No. NHB(ND)/DRS/Policy Circular No. 89/2017-18 dated June 14, 2018 which requires Housing Finance Companies to continue to follow the extent provisions of National Housing Bank Act, 1987 and Housing Finance Companies (NHB) Directions 2010 including framework on prudential norms and other related circulars issued in this regards by NHB from time to time and the same have been prepared in accordance with Accounting Standards prescribed under section 133 of the Companies Act, read with the Companies (Accounting Standards) Rules, 2006, as amended (Indian GAAP).

18.1 During the year, GRUH has not entered into any a) derivative transaction, b) securitisation, assets reconstruction and assignment transaction,

c) purchase/sale of Non-performing financial assets d) Capital market transaction and exposure, e) financing of Parent Company product,

f) finance of any unsecured advances i.e. advances against intangible securities such as rights, licenses, authoritations etc. as collateral security except as disclosed in note 7 and g) transaction in foreign currency apart from dividend payment to Non-resident shareholder as per note 23.

18.2 GRUH has not exceeded limit prescribed by National Housing Bank for Single Borrower Limit (SBL) and Group Borrower Limit (GBL).

18.3 GRUH do not have an exposure to teaser rate loans.

18.4 Assets liability Management (Note 40.24)

Assets and Liabilities are classified in the maturity buckets as per the guidelines issued by the National Housing Bank.

18.5 GRUH has not obtained registration from any other financial sector regulator.

18.6 National Housing Bank (NHB) has not raised any stricture or direction in their inspection carried out during the year. NHB has not imposed any penalty on GRUH during the year.

18.7 As per the Accounting Standard on ‘Related Party Disclosures’, details of the related parties, nature of the relationship with whom Company has entered transactions, remuneration of directores and balances in related party account at the year end, are given in Note no. 36. There were no material transaction with related parties and all these transactions with related parties were carried out in ordinary course of business at arm’s length price.

18.8 During the year, a) no prior period items occurred which has impact on profit and loss account, b) no change in any accounting policy except implementation of Ind AS required by Ministry of Company Affairs, c) there were no circumstances in which revenue recognition has been postponed pending the resolution of significant uncertainties, and d) there is no withdrawal from Reserve fund.

18.9 GRUH has no subsidiary company. Hence, requirement of consolidated financial statements is not applicable to GRUH.

18.10 GRUH does not have any overseas assets and any off balance sheet Special Purpose Vehicle (SPV) which requires to be consolidated as per accounting norms.

19 In compliance with the Indian Accounting Standard on ‘Employee Benefits’ (Ind AS 19), following disclosures have been made :

19.1 State Plans

GRUH has recognised expenses of Rs. 0.56 crore (Previous Year Rs. 0.55 crore) in Statement of Profit and Loss for Contribution to State Plan namely Employees’ Pension Scheme.

19.2 Defined Benefit Plans

(a) Contribution to Provident Fund :

The Company makes Provident Fund contributions to defined contribution retirement benefit plans for employees. Under the scheme, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. The contributions as specified under the law are paid to the provident fund set up as a trust by the Company.

The Company recognised Rs. 1.07 crore (Previous Year Rs. 0.86 crore) for provident fund contribution in the Statement of Profit and Loss which is included under Contribution to Provident Fund and Other Funds.

The Rules of GRUH’s Provident Fund administered by a Trust require that if the Board of the Trustees are unable to pay interest at the rate declared for Employees’ Provident Fund by the Government under para 60 of the Employees’ Provident Fund Scheme, 1952 for the reason that the return on investment is less or for any other reason, then the deficiency shall be made good by GRUH. Having regard to the assets of the fund and the return on the investments, GRUH does not expect any deficiency in the foreseeable future.

(b) Leave Encashment/Compensated Absences :

Salaries and Bonus includes Rs. 1.30 crore (Previous Year Rs. 1.05 crore) towards provision made as per actuarial valuation in respect of accumulated leave salary encashable on retirement.

(c) Contribution to Gratuity Fund :

Risks associated with defined benefit plan

Gratuity is a defined benefit plan and Company is exposed to the following risks :

Interest rate risk : A fall in the discount rate which is linked to the G-Sec rate will increase the present value of the liability requiring higher provision. Since Gratuity Trust’s investments are carried at book value, they are generally not exposed to interest rate risk.

Salary Risk : The present value of the defined benefit plan liability is calculated by reference to the future salaries of employees. As such, an increase in the salary of the employees more than assumed level will increase the plan’s liability.

Investment Risk : The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the plan in India, it has a relatively balanced mix of investments in government securities, and other debt instruments.

Asset Liability Matching Risk : Company’s Gratuity fund is administered through a trust which is recognised by the Income Tax Authorities and the contribution thereto is charged as an expense based on the amount of contribution determined by actuary. Company’s Gratuity trust faces insignificant ALM risk as to the matching cash flow. Since the trust invests in line of Rule 101 of Income Tax Rules, 1962, this generally reduces ALM risk. Further, trust’s more than 95% of funds are invested in securities/Fixed Deposit with banks with Interest frequency of Quarterly/Half-yearly/Annual which also reduced ALM risk. Trust has also invested in equity Mutual Funds and Fixed Deposit with banks which are easily redeemable.

Mortality risk : Since the benefits under the plan is not payable for life time and payable till retirement age only, plan does not have any longevity risk.

20 Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) is Rs. 0.21 crore (Previous Year Rs. 0.69 crore).

21 Contingent liability in respect of Income-tax demands net of amounts provided for and disputed by GRUH amounts to Rs. 9.92 crore (Previous Year Rs. 7.87 crore). Out of this, Rs. 7.64 crore has been paid/adjusted and will be received as refund, if the matters are decided in favour of GRUH.

There has been a Supreme Court judgement dated February 28, 2019, relating to components of salary structure that need to be taken into account while computing the contribution to provident fund under the Employees’ Provident Funds and Miscellaneous Provident Act, 1952. There are interpretative aspects related to the Judgement including the effective date of application. The Company will continue to assess any further developments in this matter for the implications on financial statements, if any.

22 There are no indications which reflects that any of the assets of GRUH had got impaired from its potential use and therefore no impairment loss was required to be accounted in the current year as per Indian Accounting Standard on ‘Impairment of Assets’ (Ind AS 36).

23 Figures less than Rs. 50,000 which are required to be shown separately, have been shown as actual in brackets.