3.11 Provisions, Contingent Liabilities and Contingent Assets
Provisions are recognised when the company has a present obligation (legal or constructive) as a result of past
events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation, and a reliable estimate can be made of the amount of the obligation. When the effect of the time value of
money is material, the Company determines the level of provision by discounting the expected cash flows at a pre¬
tax rate reflecting the current rates specific to the liability. The expense relating to any provision is presented in
the statement of profit and loss net of any reimbursement.
Contingent liabilities are recognised only when there is a possible obligation arising from past events, due to
occurrence or non-occurrence of one or more uncertain future events, not wholly within the control of the Company,
or where any present obligation cannot be measured in terms of future outflow of resources, or where a reliable
estimate of the obligation cannot be made. Obligations are assessed on an ongoing basis and only those having a
largely probable outflow of resources are provided for.
Contingent assets are not disclosed in the financial statements unless an inflow of economic benefits is probable.
3.12 Dividends on ordinary shares
The Company recognises a liability to make cash distributions to equity holders when the distribution is authorised
and the distribution is no longer at the discretion of the Company. As per the Companies Act, 2013 in India, a
distribution is authorised when it is approved by the shareholders. A corresponding amount is recognised directly in
equity.
3.13 Determination of Fair value
The Company measures financial instruments at fair value at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability takes place either:
• In the principal market for the asset or liability, or
• In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant that
would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are
available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of
unobservable inputs.
In order to show how fair values have been derived, financial instruments are classified based on a hierarchy of
valuation techniques, as summarised below:
• Level 1 financial instruments - Those where the inputs used in the valuation are unadjusted quoted prices from
active markets for identical assets or liabilities that the Company has access to at the measurement date. The
Company considers markets as active only if there are sufficient trading activities with regards to the volume and
liquidity of the identical assets or liabilities and when there are binding and exercisable price quotes available on the
balance sheet date.
• Level 2 financial instruments - Those where the inputs that are used for valuation and are significant, are derived
from directly or indirectly observable market data available over the entire period of the instrument's life. Such inputs
include quoted prices for similar assets or liabilities in active markets, quoted prices for identical instruments in
inactive markets and observable inputs other than quoted prices such as interest rates and yield curves, implied
volatilities, and credit spreads. In addition, adjustments may be required for the condition or location of the asset or
the extent to which it relates to items that are comparable to the valued instrument. However, if such adjustments
are based on unobservable inputs which are significant to the entire measurement, the Company will classify the
instruments as Level 3.
• Level 3 financial instruments - Those that include one or more unobservable input that is significant to the
measurement as whole.
• For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company
determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on
the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
• The company evaluates the levelling at each reporting period on an instrument-by-instrument basis and reclassifies
instruments when necessary based on the facts at the end of the reporting period.
3.14 Recognition of Income
Revenue (other than for those items to which Ind AS 109 Financial Instruments are applicable) is measured at fair
value of the consideration received or receivable.
3.14.1 Interest on Overdue Balances and Other Charges
Overdue interest in respect of loans is recognised upon realisation.
3.14.2 Fee Income & Sale of Service
a) Fee income from loans are recognised upon satisfaction of following:
i) Completion of service
ii) and realisation of the fee income.
b) Servicing and collections fees on assignment are recognised upon completion of service.
3.15 Dividend Income
Dividend income (including from FVOCI investments) is recognised when the Company's right to receive the payment
is established, it is probable that the economic benefits associated with the dividend will flow to the entity and the
amount of the dividend can be measured reliably. This is generally when the shareholders approve the dividend.
3.16 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. The weighted average
number of equity shares outstanding during the period and for all periods presented is adjusted for events, such
as bonus shares, other than the conversion of potential equity shares 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.
3.17 Cash Flow Statement
Cash flows are reported using the indirect method, where by profit / (loss) before tax is adjusted for the effects of
transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments
For the purpose of the Statement of Cash Flows, cash and cash equivalents as defined above, net of outstanding bank
overdrafts as they are considered an integral part of cash management of the company.
3.18 Cash and Cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand and short-term deposits with an
original maturity of three months or less, which are subject to an insignificant risk of changes in value.
3.19 Leases
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement
at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent
on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that
right is not explicitly specified in an arrangement.
Operating Lease
Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased assets
are classified as operating leases. Operating lease payments are recognised as an expense in the Statement of Profit
and Loss on a straight line basis over the lease term.
4. Significant accounting judgements, estimates and assumptions
The preparation of the Company's financial statements requires management to make judgements, estimates and
assumptions that affect the reported amount of revenues, expenses, assets and liabilities, and the accompanying
disclosures, as well as the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates
could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in
future periods.
In the process of applying the Company's accounting policies, management has made the following judgements,
which have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next financial year.
4.1 De-recognition of Financial instruments
The Company enters into securitisation transactions where financial assets are transferred to a structured entity for
a consideration. The financial assets transferred qualify for derecognition only when substantial risk and rewards are
transferred.
This assessment includes judgements reflecting all relevant evidence including the past performance of the assets
transferred and credit risk that the Company has been exposed to. Based on this assessment, the Company believes
that the credit enhancement provided pursuant to the transfer of financial assets under securitisation are higher than
the loss incurred on the similar portfolios of the Company hence it has been concluded that securitisation
transactions entered by the Company does not qualify de-recognition since substantial risk and rewards of the
ownership has not been transferred. The transactions are treated as financing arrangements and the sale
consideration received is treated as borrowings.
4.2 Fair value of Financial Instruments
The fair value of financial instruments is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction in the principal (or most advantageous) market at the measurement date under current
market conditions (i.e., an exit price) regardless of whether that price is directly observable or estimated using
another valuation technique. When the fair values of financial assets and financial liabilities recorded in the balance
sheet cannot be derived from active markets, they are determined using a variety of valuation techniques that include
the use of valuation models. The inputs to these models are taken from observable markets where possible, but where
this is not feasible, estimation is required in establishing fair values. Judgements and estimates include considerations
of liquidity and model inputs related to items such as credit risk (both own and counterparty), funding value
adjustments, correlation and volatility. For further details about determination of fair value please see Fair value note
in accounting policy.
4.3 Impairment of Financial Asset
The measurement of impairment losses across all categories of financial assets requires judgement, in particular, the
estimation of the amount and timing of future cash flows and collateral values when determining impairment losses
and the assessment of a significant increase in credit risk. These estimates are driven by a number of factors, changes
in which can result in different levels of allowances.
The Company's ECL calculations are outputs of complex models with a number of underlying assumptions regarding
the choice of variable inputs and their interdependencies. Elements of the ECL models that are considered accounting
judgements and estimates include:
• The Company's criteria for assessing if there has been a significant increase in credit risk and so allowances for
financial assets should be measured on a LTECL basis and the qualitative assessment
• The segmentation of financial assets when their ECL is assessed on a collective basis
• Development of ECL models, including the various formulas and the choice of inputs
• Determination of temporary adjustments as qualitative adjustment or overlays based on broad range of forward
looking information as economic inputs
It has been the Company's policy to regularly review its models in the context of actual loss experience and adjust
when necessary.
4.4 Provisions and other contingent liabilities
When the Company can reliably measure the outflow of economic benefits in relation to a specific case and considers
such outflows to be probable, the Company records a provision against the case. Where the probability of outflow is
considered to be remote, or probable, but a reliable estimate cannot be made, a contingent liability is disclosed.
Given the subjectivity and uncertainty of determining the probability and amount of losses, the Company takes into
account a number of factors including legal advice, the stage of the matter and historical evidence from similar
incidents. Significant judgement is required to conclude on these estimates.
4.5 Recent Pronouncements
Ministry of Corporate Affairs ("MCA") notifies new standards or amendments to the existing standards under
Companies (Indian Accounting Standards) Rules as issued from time to time.
On March 31, 2023, MCA amended the Companies (Indian Accounting Standards) Amendment Rules, 2023, as below:
Ind AS 12 - Income Taxes - This amendment has narrowed the scope of the initial recognition exemption so that it
does not apply to transactions that give rise to equal and offsetting temporary differences. The effective date for
adoption of this amendment is annual periods beginning on or after April 1, 2023. The Company has evaluated the
amendment and there is no impact on its financial statement.
Ind AS 1 - Presentation of Financial Statements - This amendment requires the entities to disclose their material
accounting policies rather than their significant accounting policies. The effective date for adoption of this amendment
is annual periods beginning on or after April 1, 2023. The Company has evaluated the amendment and the impact of
the amendment is insignificant in the financial statements.
Ind AS 8 - Accounting Policies, Changes in Accounting Estimates and Errors - This amendment has introduced a
definition of 'accounting estimates' and included amendments to Ind AS 8 to help entities distinguish changes in
accounting policies from changes in accounting estimates. The effective date for adoption of this amendment is annual
periods beginning on or after April 1, 2023. The Company has evaluated the amendment and there is no impact on
its financial statements.
29 SEGMENT INFORMATION
The Company is primarily engaged in the business of financing. All the activities of the company revolve around
the main business. Further, the Company does not have any separate geographic segments other than India.
30 RELATED PARTY DISCLOSURES
List of Related Parties
• Holding Company : Inimitable Capital Finance Pvt. Ltd. (ICFPL)
• Key Managerial Personnel:
a) Mr. Hemendranath Rajendranath Choudhary (HRC)
b) Mr. Ashok Katra (AK)
c) Mr. Aniket Naresh Prabhu (ANP) [up to 31-10-2022]
d) Mr. Mayur Doshi (MD)
• Enterprise where individuals referred in above point have significant influence:
a) AMW Auto Components Ltd - (AACL)
33. CAPITAL MANAGEMENT
The company maintains an actively managed capital base to cover risks inherent in the business, meeting the capital
adequacy requirements of Reserve Bank of India (RBI), maintain strong credit rating and healthy capital ratios in order
to support business and maximise shareholder value. The adequacy of the Company's capital is monitored by the Board
using, among other measures, the regulations issued by RBI.
The company manages its capital structure and makes adjustments to it according to changes in economic conditions
and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Company may adjust
the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities.
The company has complied in full with the capital requirements prescribed by RBI over the reported period.
a) Risk Management
The company has put in place a robust risk management framework to promote a proactive approach in reporting,
evaluating and resolving risks associated with the business. Given the nature of the business, the company is engaged
in, the risk framework recognizes that there is uncertainty in creating and sustaining value as well as in identifying
opportunities. Risk management is therefore made an integral part of the company's effective management
practice.
Risk Management Framework: The Company's risk management framework is based on (a) clear understanding and
identification of various risks (b) disciplined risk assessment by evaluating the probability and impact of each risk (c)
Measurement and monitoring of risks by establishing Key Risk Indicators with thresholds for all critical risks and (d)
adequate review mechanism to monitor and control risks.
The company has a well-established risk reporting and monitoring framework. The in-house developed risk
monitoring tool, Composite Risk Index, highlights the movement of top critical risks. This provides the level and
direction of the risks, which are arrived at based on the two level risk thresholds for the identified Key Risk Indicators
and are aligned to the overall company's risk appetite framework approved by the board. The company also
developed such risk reporting and monitoring mechanism for the risks at business / vertical level. The company
identifies and monitors risks periodically. This process enables the company to reassess the top critical risks in a
changing environment that need to be focused on
Risk Governance structure: The Company's risk governance structure operates with a clearly laid down charter and
senior management direction and oversight. The board oversees the risk management process and monitors the risk
profile of the company directly as well as through a board constituted risk management committee.
The risk management division has established a comprehensive risk management framework across the business and
provides appropriate reports on risk exposures and analysis in its pursuit of creating awareness across the company
about risk management. The key risks faced by the company are credit risk, liquidity risk, interest rate risk,
operational risk, reputational and regulatory risk, which are broadly classified as credit risk, market risk, operational
risk, and liquidity risk.
a) Liquidity and funding risk
Liquidity risk arises from mismatches in the timing of cash flows.
Funding risk arises from:
• inability to raise incremental borrowings to fund business requirement or repayment obligations
• when long term assets cannot be funded at the expected term resulting in cashflow mismatches;
• Amidst volatile market conditions impacting sourcing of funds from banks and money markets
The Company monitors asset liability mismatches to ensure that there are no imbalances or excessive concentrations
on either side of the Balance Sheet.
The Company continued to maintain significantly higher amount of liquidity buffer to safeguard itself against any
significant liquidity risk emanating from economic volatility.
b) Market risk
Market risk arises from fluctuation in the fair value of future cash flow of financial instruments due to changes in
the market variables such as interest rates, foreign exchange rates and equity prices.
Market risks for the Company encompass exposures to Equity investments,
(i) Interest rate risks on investment portfolios.
Interest rate risk stems from movement in market factors such as interest rates, credit spreads which
impacts investments, income and value of portfolios. The board appointed Asset liability Committee (ALCO)
monitors interest rate risk by assessment of probable impacts of interest rates sensitivities on both fixed and
floating assets & liabilities.
(ii) Price risk
The Company's quoted equity investments carry a risk of change in prices. To manage its price risk arising
from investments in equity securities, the Company periodically monitors the sectors it has invested in,
performance of the investee companies, measures mark-to-market gains/losses.
c) Credit risk
Credit risk arises when a borrower is unable to meet financial obligations to the lender. This
could be either because of wrong assessment of the borrower's payment capabilities or due to
uncertainties in future. The effective management of credit risk requires the establishment of
appropriate credit risk policies and processes.
The company has comprehensive and well-defined credit policies which encompass credit approval
process for all businesses along with guidelines for mitigating the risks associated with them. The
appraisal process includes detailed risk assessment of the borrowers, physical verifications and field
visits. The company has a robust post sanction monitoring process to identify credit portfolio trends
and early warning signals. This enables it to implement necessary changes to the credit policy,
whenever the need arises.
Other financial assets considered to have a low credit risk:
Credit risk on cash and cash equivalents is limited as we generally invest in deposits with banks with high
credit ratings assigned by domestic credit rating agencies. Investments comprise of quoted equity
instruments, mutual funds which are market tradeable. Other financial assets include interest accrued
on loans and accrued income on private equity fund. In addition to the historical pattern of credit loss,
the Company has considered the likelihood of increased credit risk and consequential default
considering emerging situations due to COVID-19.
Measurement uncertainty and sensitivity analysis of ECL estimates
Allowance for impairment on financial instruments recognised in the financial statements reflect the
effect of a range of possible economic outcomes, calculated on a probability-weighted basis, based on
the economic scenarios described below. The recognition and measurement of expected credit losses
('ECL') involves the use of estimation. It is necessary to formulate multiple forward-looking economic
forecasts and its impact as an integral part of ECL model.
d) Operational risk
Operational risk is the risk arising from inadequate or failed internal processes, people or systems, or from external
events. The Company manages operational risks through comprehensive internal control systems and procedures
laid down around various key activities in the Company viz. loan acquisition, customer service, IT operations,
finance function etc. Internal Audit also conducts a detailed review of all the functions at least once a year, this
helps to identify process gaps on timely basis. Further IT and Operations have a dedicated compliance and control
units within the function who on continuous basis review internal processes. This enables the Management to
evaluate key areas of operational risks and the process to adequately mitigate them on an ongoing basis.
The Company has put in place a robust Disaster Recovery (DR) plan and Business Continuity Plan (BCP) to ensure
continuity of operations including services to customers, if any eventuality is to happen such as natural disasters,
technological outage etc. Robust periodic testing is carried, and results are analysed to address gaps in the
framework, if any. DR and BCP are reviewed on a periodical basis to provide assurance regarding the effectiveness
of the Company's readiness.
34. a) Fair value of financial instruments not measured at fair value
Set out below is a comparison, by class, of the carrying amounts and fair values of the company's financial
instruments that are not carried at fair value in the balance sheet. This table does not include the fair values of
non-financial assets and non-financial liabilities.
The Management assessed that cash and cash equivalents, bank balance other than Cash and cash equivalents, Loans,
Other financial assets, payables, Borrowings and other financial liabilities approximates their carrying amount largely
due to short term maturities of these instruments.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following
methods and assumptions were used to estimate the fair values of financial assets or liabilities disclosed under level 2
category.
i) The fair value of loans have estimated by discounting expected future cash flows using discount rate equal to the
rate near to the reporting date of the comparable product.
ii) The fair value of borrowings other than debt securities and subordinated liabilities have estimated by discounting
expected future cash flows discounting rate near to report date based on comparable rate / market observable data.
Derivative financial instruments
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