Accounting Policies of Muthoot Capital Services Ltd. Company

Mar 31, 2025

6. MATERIAL ACCOUNTING POLICIES

6.1 Financial instruments

(i) Business Model Assessment

The Company determines its business model at the level that best reflects how it manages
groups of financial assets to achieve its business objective.

The Company''s business model is not assessed on an instrument-by-instrument basis, but at a
higher level of aggregated portfolios and is based on observable factors such as:

a. How the performance of the business model and the financial assets held within that
business model are evaluated and reported to the entity''s key management.

b. The risks that affect the performance of the business model (and the financial assets held
within that business model) and the way those risks are managed.

c. How managers of the business are compensated (for example, whether the compensation is
based on the fair value of the assets managed or on the contractual cash flows collected).

d. The expected frequency, value and timing of sales are also important aspects of the
Company''s assessment. The business model assessment is based on reasonably expected
scenarios without taking ‘worst case'' or ‘stress case'' scenarios into account. If cash flows after
initial recognition are realised in a way that is different from the Company''s original
expectations, the Company does not change the classification of the remaining financial
assets held in that business model, but incorporates such information when assessing newly
originated or newly purchased financial assets going forward.

(ii) The Solely Payments of Principal and Interest (SPPI) test

As a second step of its classification process the Company assesses the contractual terms of
financial assets to identify whether they meet the SPPI test.

‘Principal'' for the purpose of this test is defined as the fair value of the financial asset at initial
recognition and may change over the life of the financial asset (for example, if there are
repayments of principal or amortisation of the premium/ discount).

In making this assessment, the Company considers whether the contractual cash flows are
consistent with a basic lending arrangement i.e. interest includes only consideration for the
time value of money, credit risk, other basic lending risks and a profit margin that is consistent
with a basic lending arrangement. Where the contractual terms introduce exposure to risk or
volatility that are inconsistent with a basic lending arrangement, the related financial asset is
classified and measured at fair value through profit or loss.

The Company classifies its financial liabilities at amortised cost unless it has designated
liabilities at fair value through the profit and loss account or is required to measure liabilities at
fair value through profit or loss such as derivative liabilities.

(iii) Financial Assets

a. Initial recognition and measurement

All financial assets are recognized initially at fair value when the parties become party to the
contractual provisions of the financial asset. In case of financial assets which are not
recorded at fair value through profit or loss, transaction costs that are directly attributable to
the acquisition or issue of the financial assets, are adjusted to the fair value on initial
recognition.

b. Subsequent measurement

The Company classifies its financial assets into various categories for subsequent
measurements. The classification depends on the contractual terms of the financial assets,
cash flows and the company''s business model for managing financial assets. The basis of
classification and methodology for subsequent measurement is described below:

(i) Financial assets measured at amortised cost

A financial asset is measured at Amortised Cost if it is held within a business model
whose objective is to hold the asset in order to collect contractual cash flows and the
contractual terms of the Financial Asset give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal amount outstanding.

(ii) Financial assets measured at fair value through other comprehensive income (FVOCI)

A financial asset is measured at FVOCI if it is held within a business model whose
objective is achieved by both collecting contractual cash flows and selling financial
assets and contractual terms of financial asset give rise on specified dates to cash flows
that are solely payments of principal and interest on the principal amount outstanding.

(iii) Financial assets measured at fair value through profit or loss (FVTPL)

A financial asset which is not classified in any of the above categories are measured at
FVTPL.

(iv) Financial Liabilities

a. Initial recognition and measurement

All financial liabilities are recognized initially at fair value and, in the case of
borrowings and payables, net of directly attributable transaction costs.

b. Subsequent Measurement

Financial Liabilities are subsequently measured at amortized cost using the effective
interest method, except those that are classified as FVTPL. Financial Liability is
classified at FVTPL if it is held for trading or it is a derivative or it is designated as such
on initial recognition.

(v) Derecognition of financial assets and liabilities
a. Financial Asset

The Company derecognises a financial asset when the contractual cash fIows from
the asset expire or it transfers its rights to receive contractual cash fIows from the
financial asset in a transaction in which substantially all the risks and rewards of
ownership are transferred. Any interest in transferred financial assets that is created
or retained by the Company is recognized as a separate asset or liability.

An entity has transferred the financial asset if, and only if, either:

i) It has transferred its contractual rights to receive cash fIows from the financial
asset or

ii) It retains the rights to the cash fIows, but has assumed an obligation to pay the
received cash fIows in full without material delay to a third party under a ‘pass¬
through'' arrangement.

b. Financial Liability

A financial liability is derecognised when the obligation under the liability is
discharged, cancelled or expired. Where an existing financial liability is replaced by
another from the same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or modification is
treated as derecognition of the original liability and the recognition of a new liability.
The difference between the carrying value of the original financial liability and the
consideration paid is recognized in profit or loss.

The Company''s lease asset class consist of lease of buildings.A contract is, or contains,
a lease if the contract conveys the right to control the use of an identified asset for a
period of time in exchange for consideration. To assess whether a contract conveys
the right to control the use of an identified asset, the Company assesses whether:

(i) the contract involves the use of an identified asset

(ii) the Company has substantially all of the economic benefits from use of the asset
through the period of the lease and ;

(iii) the Company has the right to direct the use of the asset.At the date of
commencement of the lease, the Company recognizes a right-of-use asset
(“ROU”) and a corresponding lease liability for all lease arrangements in which it is
a lessee for a period of twelve months or less (short-term leases).For short-term ,
the Company recognizes the lease payments as an operating expense on a
straight-line basis over the term of the lease. The lease liability is the present
value of the lease payments to be made over the lease term using the
incremental borrowing rates.The right-of-use assets are initially recognized at
adjusted for any lease payments made at or prior to the commencement date of
the lease plus any initial direct costs incurred. They are subsequently measured at
cost less accumulated depreciation and impairment losses.

Right-of-use assets are depreciated from the commencement date on a straight¬
line basis over the shorter of the lease term and useful life of the underlying asset.

(vi) Determination of Fair Value

On initial recognition, all the Financial Instruments are measured at fair value. For subsequent
measurement, the Company measures certain categories of Financial Instruments (eg.
Derivatives) at fair value on each Balance Sheet date.

Fair value is the price that would be received on selling 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:

i. In the principal market for the asset or liability, or

ii. 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 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, maximising the use of relevant
observable inputs and minimising 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 - These inputs used in the valuation are at 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 regard 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 - These inputs used for valuation are significant, and 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 a whole.

(vii) Impairment of Financial Assets

In accordance with Ind AS 109, the company uses Expected Credit Loss model (ECL) for
evaluating impairment of Financial Assets other than those measured at fair value through
profit or loss.

The ECL allowance is based on the credit losses expected to arise over the life of the asset (the
lifetime expected credit loss), unless there has been no significant increase in credit risk since
initial recognition, in which case, the allowance is based on the 12 months'' expected credit loss.

Lifetime ECL are the expected credit losses resulting from all possible default events over the
expected life of a financial instrument. The 12 month ECL is the portion of Lifetime ECL that
represent the ECL that result from default events on a financial instrument that are possible
within the 12 months after the reporting date.

Both Lifetime ECLs and 12-month ECLs are calculated either on an individual basis or a
collective basis, depending on the nature of the underlying portfolio of financial instruments.

The Company has established a policy to perform an assessment, at the end of each reporting
period, of whether a financial instrument''s credit risk has increased significantly since initial
recognition, by considering the change in the risk of default occurring over the remaining life of
the financial instrument. The Company does the assessment of significant increase in credit risk
at a borrower level.

Pursuant to the Ind AS 109 - Financial Instruments , the Company is following the ‘three-stage''

model to evaluate impairment of assets based on changes in credit quality since initial
recognition which is summarized as below:

Stage 1 (Upto 30 days default)

Includes loan assets that have not had a significant increase in credit risk since initial
recognition or that have low credit risk at the reporting date; sub-categorized into “0” bucket
and “1-30” bucket.

Stage 2 (31-90 days default)

Includes loan assets that have had a significant increase in credit risk since initial recognition,
but that do not have objective evidence of impairment; sub categorized into “31-60” and “61-90”
buckets.

Stage 3 (All accounts marked as credit-impaired in line with the revised RBI circular noted
below)

In line with Reserve Bank of India Master Circular on Prudential norms on Income Recognition,
Asset Classification and Provisioning pertaining to Advances and Clarifications dated November
12, 2021 borrower accounts shall be flagged as overdue as part of the day-end processes for the
due date, irrespective of the time of running such processes. Similarly, classification of borrower
accounts as Non-Performing Asset / Stage 3 shall be done as part of day-end process for the
relevant date i.e. more than 90 days overdue and NPA/Stage 3 classification date shall be the
calendar date for which the day end process is run. In other words, the date of Non-Performing
Asset / Stage 3 shall reflect the asset classification status of an account at the day-end of that
calendar date. The Company has carried out the requirement in line with Reserve Bank of India
Clarification and accordingly the change in accounting policy is effective financial year 2021-22.
Upgradation of accounts classified as Stage 3/Non-performing assets (NPA) - The Company
upgrades loan accounts classified as Stage 3/NPA to standard” asset category only if the entire
arrears of interest, principal and other amount are paid by the borrower and there is no change
in the accounting policy followed by the company in this regard.

Credit-impaired financial assets:

At each reporting date, the company assesses whether financial assets carried at amortised
cost are credit- impaired. A financial asset is ''credit-impaired'' when one or more events that
have a detrimental impact on the estimated future cash flows of the financial asset have
occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

a) Significant financial difficulty of the borrower or issuer;

b) A breach of contract such as a default or past due event;

c) The restructuring of a loan or advance by the company on terms that the company would
not consider otherwise;

d) It is becoming probable that the borrower will enter bankruptcy or other financial
reorganization; or

e) The disappearance of an active market for a security because of financial difficulties.

The Expected Credit Loss (ECL)

As per Ind AS 109, the loan losses are to be provided based on ECL method. ECL is measured at
12-month ECL for Stage 1 loan assets and at Lifetime ECL for Stage 2 and Stage 3 loan assets.

ECL is the product of the Probability of Default, Exposure at Default and Loss Given Default, i.e.,
ECL=PD X EAD X LGD

PD: Probability of Default ("PD") is an estimate of the likelihood of default over a given time
horizon. A default may only happen at a certain time over the assessed period, if the facility has
not been previously derecognized and is still in the portfolio. The PD is computed for Stage 1,
Stage 2 and Stage 3 independently by determining default rates based on the historical data
after giving due weightage for abnormal period and events, probability of roll back etc.

EAD: Exposure at Default ("EAD") is an estimate of the exposure at a future default date, taking
into account expected changes in the exposure after the reporting date, including repayments
of principal and interest, whether scheduled by contract or otherwise, expected draw down on
committed facilities, etc.

LCD: Loss Given Default ("LGD") is an estimate of the loss arising in the case where a default
occurs at a given time. It is based on the difference between the contractual cash flows due
and those that the lender would expect to receive, including from the realization of any
collateral. It is usually expressed as a percentage of the EAD. In respect of Financial Assets
where historical information is not available, minimum provision as mandated under RBI
guidelines would be made along with additional provision as considered necessary by the
management.

Forward Looking Information

While estimating the expected credit losses, the Company reviews macro-economic
developments occurring in the economy and the market it operates in. On a periodic basis, the
Company analyses if there is any relationship between key economic trends like GDP,
unemployment rates, benchmark rates set by the Reserve Bank of India, inflation etc. with the
estimate of PD, LGD and EAD determined by the Company based on its internal data as
described above. While the internal estimates of PD, LGD and EAD rates by the Company may
not be always reflective of such relationships, temporary overlays, if any, are embedded in the
methodology to reflect such macro-economic trends reasonably.

To mitigate its credit risks on Financial Assets, the Company seeks to use collateral where
possible. The collateral comes in various forms such as vehicles, guarantees, securities etc.
However, the fair value of collateral affects the calculation of ECL. The collateral is majorly the
property for which the loan is given. The fair value of the same is based on historical data of
recovery/management estimates provided by third party on management judgements.

(viii) Write-Offs

The Company reduces the gross carrying amount of a Financial Asset when the Company has
no reasonable expectations of recovering a Financial Asset in its entirety or a portion thereof.
This is generally the case when the Company determines that the borrower does not have
assets or sources of income that could generate sufficient cashflows to repay the amounts
subjected to write-offs. Any subsequent recoveries against such loans are credited to the
Statement of Profit and Loss.

6.2 Revenue from Operations

6.2.1 Interest Income

i) Interest income is recognized by applying the Effective Interest Rate (EIR) to the gross
carrying amount of financial assets except for purchased or originated credit impaired
Financial Assets and other credit impaired assets.The EIR in case of a Financial Asset is
computed

a. At the rate that exactly discounts estimated future cash receipts through the expected
life of a Financial Asset to the gross carrying amount of the Financial Asset.

b. By considering all the contractual terms of the financial instrument in estimating the
cash fIows.

c. Including all fees received between parties to the contract that are an integral part of the
Effective Interest Rate, transaction costs, and all other premiums or discounts.

ii) Interest income on overdue interest levied on customers for delay in repayment of
contractual cash flows are both recognized on receipt basis.

iii) Interest income on credit-impaired financial assets: the Company recognises interest
income on the amortised cost net of impairment loss of the financial asset at EIR. If the
financial asset is no longer credit-impaired, the Company reverts to calculating interest
income on a gross basis.

6.2.2 Recognition of revenue from sale of goods or services and Fees and Charges Income

Revenue (other than for Financial Instruments within the scope of Ind AS 109) is measured at
an amount that reflects the considerations, to which an entity expects to be entitled in
exchange for transferring goods or services to customer, excluding amounts collected on
behalf of third parties.

The Company recognizes revenue basis on receipts from contracts with customers based on a
five-step model as set out in Ind AS 115:

Step 1: Identify contract(s) with a customer: A contract is defined as an agreement between
two or more parties that creates enforceable rights and obligations and sets out the criteria for
every contract that must be met.

Step 2: Identify performance obligations in the contract. A performance obligation is a promise
in a contract with a customer to transfer a good or service to the customer.

Step 3: Determine the transaction price: The transaction price is the amount of consideration to
which the respective company expects to be entitled in exchange for transferring promised
goods or services to a customer, excluding amounts collected on behalf of third parties.

Step 4: Allocate the transaction price to the performance obligations in the contract: For a
contract that has more than one performance obligation, the respective company allocates the
transaction price to each performance obligation in an amount that depicts the amount of
consideration to which the company expects to be entitled in exchange for satisfying each
performance obligation.

Step 5: Recognise revenue when (or as) the respective company satisfies a performance
obligation. Revenue from contract with customer for rendering services is recognized at a
point in time when the performance obligation is satisfied.

6.2.3 Net Gain on Derecognition of Financial Instruments Under Amortized Cost Category

Net gain/loss arising on derecognition of Financial Instruments is recognised directly in the
Statement of Profit and Loss and presented separately under the head Net Gain on
Derecognition of Financial Instruments Under Amortized Cost Category.

6.2.4 Income for acting as Corporate Agent

The Company is acting as a corporate agent for its insurance service against its customers
offered by the insurance partner.For this the company is getting an agreed commission.

6.3 Expenses

6.3.1 Finance Costs

Finance costs represents Interest expense recognized by applying the Effective Interest Rate

(EIR) to the gross carrying amount of financial liabilities other than financial liabilities classified
as FVTPL.

The EIR in case of a financial liability is computed:

a. At the rate that exactly discounts estimated future cash payments through the expected life
of the Financial Liability to the gross carrying amount of the amortised cost of a Financial
Liability.

b. By considering all the contractual terms of the Financial Instrument in estimating the cash
flows.

c. Including all fees paid between parties to the contract that are an integral part of the
Effective Interest Rate, transaction costs, and all other premiums or discounts.

Interest expense includes issue costs that are initially recognized as part of the carrying
value of the Financial Liability and amortized over the expected life using the effective
interest method. These include fees and commissions payable to advisors and other
expenses such as external legal costs, rating fee etc, provided these are incremental costs
that are directly related to the issue of a Financial Liability.

6.3.2 Taxes

a) Current Tax

Current Tax Assets and Liabilities for the current and prior years are measured at the
amount expected to be recovered from, or paid to, the taxation authorities. The tax rates and
tax laws used to compute the amount are those that are enacted, or substantively enacted,
by the reporting date in the countries where the Company operates and generates taxable
income.

Current income tax relating to items recognized outside profit or loss is recognized outside
profit or loss (either in Other Comprehensive Income or in Equity). Current tax items are
recognized in correlation to the underlying transaction either in Other Comprehensive
Income (OCI) or directly in equity. Management periodically evaluates positions taken in the
tax returns with respect to situations in which applicable tax regulations are subject to
interpretation and establishes provisions where appropriate.

b) Deferred Tax

Deferred Tax Assets and Liabilities are recognized for temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts. Deferred Income Tax is
determined using tax rates (and laws) that have been enacted or substantively enacted by
the reporting date and are expected to apply when the related Deferred Income Tax asset is
realized or the Deferred Income Tax liability is settled.

Deferred Tax Assets are recognized for detectable temporary differences, carry forward,
unused tax losses and unused tax credits if it is probable that future taxable amounts will
arise to utilise those temporary differences and losses. Deferred Tax Assets are reviewed at
each reporting date and are reduced to the extent that it is no longer probable that the
related tax benefit will be realized.

Deferred Tax Assets and Liabilities are offset where there is a legally enforceable right to
offset Current Tax Assets and Liabilities and they relate to income taxes levied by the same
tax authority on the same taxable entity, or on different tax entities, but they intend to settle
Current Tax Liabilities and assets on a net basis or their tax assets and liabilities are realised
simultaneously.

6.4 Cash and Cash Equivalents

Cash and Cash Equivalents comprise the net amount of short-term, highly liquid investments that
are readily convertible to known amounts of cash (short-term deposits with an original maturity of
three months or less) and are subject to an insignificant risk of change in value, cheques on hand
and balances with banks. They are held for the purposes of meeting short-term cash commitments
(rather than for investment or other purposes).

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short¬
term deposits, as defined above.

6.5 Property, Plant and Equipment

Property, Plant and Equipment (PPE) are measured at cost less accumulated depreciation and
accumulated impairment, (if any). The total cost of assets comprises its purchase price, freight,
duties, taxes and any other incidental expenses directly attributable to bringing the asset to the
location and condition necessary for it to be capable of operating in the manner intended by the
management. Changes in the expected useful life are accounted for by changing the amortisation
period or methodology, as appropriate, and treated as changes in accounting estimates.

Subsequent expenditure related to an item of tangible asset are added to its gross value only if it
increases the future benefits of the existing asset, beyond its previously assessed standards of
performance and cost can be measured reliably. Other repairs and maintenance costs are expensed
off as and when incurred.

6.5.1 Depreciation

Depreciation is calculated using the written down value method to write down the cost of
Property, Plant and Equipment to their residual values over their estimated useful lives which is
in line with the estimated useful life as specified in Schedule II of the Companies Act, 2013.

Property, Plant and Equipment is derecognised on disposal or when no future economic
benefits are expected from its use. Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal proceeds and the carrying amount of
the asset) is recognized in other income/ expense in the Statement of Profit and Loss in the
year the asset is derecognised. The date of disposal of an item of Property, Plant and
Equipment is the date the recipient obtains control of that item in accordance with the
requirements for determining when a performance obligation is satisfied in Ind AS 115.

6.6 Intangible Assets

An intangible asset is recognized only when its cost can be measured reliably and it is probable that
the expected future economic benefits that are attributable to it will flow to the Company.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of an
intangible asset comprises its purchase price and any directly attributable expenditure on making
the asset ready for its intended use and net of any trade discounts and rebates. Following initial
recognition, intangible assets are carried at cost less any accumulated amortisation and any
accumulated impairment losses.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets
with finite lives are amortised over the useful economic life. The amortisation period and the
amortisation method for an intangible asset with a finite useful life are reviewed at least at each
financial year-end. Changes in the expected useful life, or the expected pattern of consumption of
future economic benefits embodied in the asset, are accounted for by changing the amortisation
period or methodology, as appropriate, which are then treated as changes in accounting estimates.

The amortisation expense on intangible assets with finite lives is presented as a separate line item in
the Statement of Profit and Loss. Amortisation on assets acquired/sold during the year is recognised
on a pro-rata basis in the Statement of Profit and Loss from/upto the date of acquisition/sale.

Amortisation is calculated using the written down value method to write down the cost of intangible
assets to their residual values over their estimated useful lives. Intangible assets comprising of
software are amortised on a written down value basis over a period of 3 years, unless it has a shorter
useful life.

The Company''s intangible assets consist of computer software with definite life.

Gains or losses from derecognition of intangible assets, measured as the difference between the net
disposal proceeds and the carrying mount of the asset are recognized in the Statement of Profit and
Loss when the asset is derecognised.

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Mar 31, 2024

6. MATERIAL ACCOUNTING POLICIES

6.1 Financial instruments

(i) Business Model Assessment

The Company determines its business model at the level that best reflects how it manages

groups of financial assets to achieve its business objective.

The Company’s business model is not assessed on an instrument-by-instrument basis, but at a

higher level of aggregated portfolios and is based on observable factors such as:

a. How the performance of the business model and the financial assets held within that business model are evaluated and reported to the entity’s key management.

b. The risks that affect the performance of the business model (and the financial assets held within that business model) and the way those risks are managed.

c. How managers of the business are compensated (for example, whether the compensation is based on the fair value of the assets managed or on the contractual cash flows collected).

d. The expected frequency, value and timing of sales are also important aspects of the Company’s assessment. The business model assessment is based on reasonably expected scenarios without taking ‘worst case’ or ‘stress case’ scenarios into account. If cash flows after initial recognition are realised in a way that is different from the Company’s original expectations, the Company does not change the classification of the remaining financial assets held in that business model, but incorporates such information when assessing newly originated or newly purchased financial assets going forward.

(ii) The Solely Payments of Principal and Interest (SPPI) test

As a second step of its classification process the Company assesses the contractual terms of

financial assets to identify whether they meet the SPPI test.

‘Principal’ for the purpose of this test is defined as the fair value of the financial asset at initial recognition and may change over the life of the financial asset (for example, if there are repayments of principal or amortisation of the premium/discount).

In making this assessment, the Company considers whether the contractual cash flows are consistent with a basic lending arrangement i.e. interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin that is consistent with a basic lending arrangement. Where the contractual terms introduce exposure to risk or volatility that are inconsistent with a basic lending arrangement, the related financial asset is classified and measured at fair value through profit or loss.

The Company classifies its financial liabilities at amortised cost unless it has designated liabilities at fair value through the profit and loss account or is required to measure liabilities at fair value through profit or loss such as derivative liabilities.

(iii) Financial Assets

a. Initial recognition and measurement

All financial assets are recognized initially at fair value when the parties become party to the contractual provisions of the financial asset. In case of financial assets which are not recorded at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial assets, are adjusted to the fair value on initial recognition.

b. Subsequent measurement

The Company classifies its financial assets into various categories for subsequent measurements. The classification depends on the contractual terms of the financial assets, cash flows and the company’s business model for managing financial assets. The basis of classification and methodology for subsequent measurement is described below:

(i) Financial assets measured at amortised cost

A financial asset is measured at Amortised Cost if it is held within a business model whose objective is to hold the asset in order to collect contractual cash flows and the contractual terms of the Financial Asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

(ii) Financial assets measured at fair value through other comprehensive income (FVOCI)

A financial asset is measured at FVOCI if it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and contractual terms of financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

(iii) Financial assets measured at fair value through profit or loss (FVTPL)

A financial asset which is not classified in any of the above categories are measured at FVTPL.

(iv) Financial Liabilities

a. Initial recognition and measurement

All financial liabilities are recognized initially at fair value and, in the case of borrowings and payables, net of directly attributable transaction costs.

b. Subsequent Measurement

Financial Liabilities are subsequently measured at amortized cost using the effective interest method, except those that are classified as FVTPL. Financial Liability is classified at FVTPL if it is held for trading or it is a derivative or it is designated as such on initial recognition.

(v) Derecognition of financial assets and liabilities

a. Financial Asset

The Company derecognises a financial asset when the contractual cash flows from the asset expire or it transfers its rights to receive contractual cash fIows from the financial asset in a transaction in which substantially all the risks and rewards of ownership are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability.

An entity has transferred the financial asset if, and only if, either:

i) It has transferred its contractual rights to receive cash fIows from the financial asset or

ii) It retains the rights to the cash fIows, but has assumed an obligation to pay the received cash fIows in full without material delay to a third party under a ‘pass-through’ arrangement.

b. Financial Liability

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognized in profit or loss.

(vi) Determination of Fair Value

On initial recognition, all the Financial Instruments are measured at fair value. For subsequent measurement, the Company measures certain categories of Financial Instruments (eg. Derivatives) at fair value on each Balance Sheet date.

Fair value is the price that would be received on selling 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:

i. In the principal market for the asset or liability, or

ii. 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 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, maximising the use of relevant observable inputs and minimising 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 - These inputs used in the valuation are at 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 regard 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 - These inputs used for valuation are significant, and 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 a whole.

(vii) Impairment of Financial Assets

In accordance with Ind AS 109, the company uses Expected Credit Loss model (ECL) for evaluating impairment of Financial Assets other than those measured at fair value through profit or loss.

The ECL allowance is based on the credit losses expected to arise over the life of the asset (the lifetime expected credit loss), unless there has been no significant increase in credit risk since initial recognition, in which case, the allowance is based on the 12 months’ expected credit loss.

Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument. The 12 month ECL is the portion of Lifetime ECL that represent the ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date. Both Lifetime ECLs and 12-month ECLs are calculated either on an individual basis or a collective basis, depending on the nature of the underlying portfolio of financial instruments.

The Company has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument. The Company does the assessment of significant increase in credit risk at a borrower level.

Pursuant to the Ind AS 109 - Financial Instruments , the Company is following the ‘three-stage’ model to evaluate impairment of assets based on changes in credit quality since initial recognition which is summarized as below:

Stage 1 (Upto 30 days default)

Includes loan assets that have not had a significant increase in credit risk since initial recognition or that have low credit risk at the reporting date; sub-categorized into "0” bucket and "1-30” bucket.

Stage 2 (31-90 days default)

Includes loan assets that have had a significant increase in credit risk since initial recognition, but that do not have objective evidence of impairment; sub categorized into "31-60” and "61-90” buckets.

Stage 3 (All accounts marked as credit-impaired in line with the revised RBI circular noted below)

In line with Reserve Bank of India Master Circular on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances and Clarifications dated November 12, 2021 borrower accounts shall be flagged as overdue as part of the day-end processes for the due date, irrespective of the time of running such processes. Similarly, classification of borrower accounts as Non-Performing Asset / Stage 3 shall be done as part of day-end process for the relevant date i.e. more than 90 days overdue and NPA/Stage 3 classification date shall be the calendar date for which the day end process is run. In other words, the date of Non-Performing Asset / Stage 3 shall reflect the asset classification status of an account at the day-end of that calendar date. The Company has carried out the requirement in line with Reserve Bank of India Clarification and accordingly the change in accounting policy is effective financial year 2021-22. Upgradation of accounts classified as Stage 3/Non-performing assets (NPA) - The Company upgrades loan accounts classified as Stage 3/NPA to "standard” asset category only if the entire arrears of interest, principal and other amount are paid by the borrower and there is no change in the accounting policy followed by the company in this regard.

Credit-impaired financial assets:

At each reporting date, the company assesses whether financial assets carried at amortised cost are credit- impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

a) Significant financial difficulty of the borrower or issuer;

b) A breach of contract such as a default or past due event;

c) The restructuring of a loan or advance by the company on terms that the company would not consider otherwise;

d) It is becoming probable that the borrower will enter bankruptcy or other financial reorganization; or

e) The disappearance of an active market for a security because of financial difficulties.

The Expected Credit Loss (ECL)

As per Ind AS 109, the loan losses are to be provided based on ECL method. ECL is measured at 12-month ECL for Stage 1 loan assets and at Lifetime ECL for Stage 2 and Stage 3 loan assets.

ECL is the product of the Probability of Default, Exposure at Default and Loss Given Default, i.e., ECL=PD X EAD X LGD

PD: Probability of Default ("PD”) is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognized and is still in the portfolio. The PD is computed for Stage 1, Stage 2 and Stage 3 independently by determining default rates based on the historical data after giving due weightage for abnormal period and events, probability of roll back etc.

EAD: Exposure at Default ("EAD”) is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected draw down on committed facilities, etc.

LGD: Loss Given Default ("LGD”) is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral. It is usually expressed as a percentage of the EAD. In respect of Financial Assets where historical information is not available, minimum provision as mandated under RBI guidelines would be made along with additional provision as considered necessary by the management.

Forward Looking Information

While estimating the expected credit losses, the Company reviews macro-economic developments occurring in the economy and the market it operates in. On a periodic basis, the Company analyses if there is any relationship between key economic trends like GDP, unemployment rates, benchmark rates set by the Reserve Bank of India, inflation etc. with the estimate of PD, LGD and EAD determined by the Company based on its internal data as described above. While the internal estimates of PD, LGD and EAD rates by the Company may not be always reflective of such relationships, temporary overlays, if any, are embedded in the methodology to reflect such macro-economic trends reasonably.

To mitigate its credit risks on Financial Assets, the Company seeks to use collateral where possible. The collateral comes in various forms such as vehicles, guarantees, securities etc. However, the fair value of collateral affects the calculation of ECL. The collateral is majorly the property for which the loan is given. The fair value of the same is based on historical data of recovery/management estimates provided by third party on management judgements.

(viii) Write-Offs

The Company reduces the gross carrying amount of a Financial Asset when the Company has no reasonable expectations of recovering a Financial Asset in its entirety or a portion thereof. This is generally the case when the Company determines that the borrower does not have assets or sources of income that could generate sufficient cashflows to repay the amounts subjected to write-offs. Any subsequent recoveries against such loans are credited to the Statement of Profit and Loss.

6.2 Revenue from Operations

6.2.1 Interest Income

i) Interest income is recognized by applying the Effective Interest Rate (EIR) to the gross carrying amount of financial assets except for purchased or originated credit impaired Financial Assets and other credit impaired assets. The EIR in case of a Financial Asset is computed

a. At the rate that exactly discounts estimated future cash receipts through the expected life of a Financial Asset to the gross carrying amount of the Financial Asset.

b. By considering all the contractual terms of the financial instrument in estimating the cash fIows.

c. Including all fees received between parties to the contract that are an integral part of the Effective Interest Rate, transaction costs, and all other premiums or discounts.

ii) Interest income on overdue interest levied on customers for delay in repayment of contractual cash flows are both recognized on receipt basis.

iii) Interest income on credit-impaired financial assets: The Company recognises interest income on the amortised cost net of impairment loss of the financial asset at EIR. If the financial asset is no longer credit-impaired, the Company reverts to calculating interest income on a gross basis. Refer Note 40 on Change in accounting policy w.r.t ‘Accounting of Interest income on credit impaired assets’ during previous year.

6.2.2 Recognition of revenue from sale of goods or services and Fees and Charges Income

Revenue (other than for Financial Instruments within the scope of Ind AS 109) is measured at an amount that reflects the considerations, to which an entity expects to be entitled in exchange for transferring goods or services to customer, excluding amounts collected on behalf of third parties.

The Company recognizes revenue basis on receipts from contracts with customers based on a five-step model as set out in Ind AS 115:

Step 1: Identify contract(s) with a customer: A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and sets out the criteria for every contract that must be met.

Step 2: Identify performance obligations in the contract. A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer.

Step 3: Determine the transaction price: The transaction price is the amount of consideration to which the respective company expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

Step 4: Allocate the transaction price to the performance obligations in the contract: For a contract that has more than one performance obligation, the respective company allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the company expects to be entitled in exchange for satisfying each performance obligation.

Step 5: Recognise revenue when (or as) the respective company satisfies a performance obligation. Revenue from contract with customer for rendering services is recognized at a point in time when the performance obligation is satisfied.

6.2.3 Net Gain on Derecognition of Financial Instruments Under Amortized Cost Category

Net gain/loss arising on derecognition of Financial Instruments is recognised directly in the Statement of Profit and Loss and presented separately under the head Net Gain on Derecognition of Financial Instruments Under Amortized Cost Category.

6.3 Expenses

6.3.1 Finance Costs

Finance costs represents Interest expense recognized by applying the Effective Interest Rate (EIR) to the gross carrying amount of financial liabilities other than financial liabilities classified as FVTPL. The EIR in case of a financial liability is computed:

a. At the rate that exactly discounts estimated future cash payments through the expected life of the Financial Liability to the gross carrying amount of the amortised cost of a Financial Liability.

b. By considering all the contractual terms of the Financial Instrument in estimating the cash flows.

c. Including all fees paid between parties to the contract that are an integral part of the Effective Interest Rate, transaction costs, and all other premiums or discounts.

Interest expense includes issue costs that are initially recognized as part of the carrying value of the Financial Liability and amortized over the expected life using the effective interest method. These include fees and commissions payable to advisors and other expenses such as external legal costs, rating fee etc, provided these are incremental costs that are directly related to the issue of a Financial Liability.

6.3.2 Taxes

a) Current Tax

Current Tax Assets and Liabilities for the current and prior years are measured at the amount expected to be recovered from, or paid to, the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted, or substantively enacted, by the reporting date in the countries where the Company operates and generates taxable income.

Current income tax relating to items recognized outside profit or loss is recognized outside profit or loss (either in Other Comprehensive Income or in Equity). Current tax items are recognized in correlation to the underlying transaction either in Other Comprehensive Income (OCI) or directly in equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

b) Deferred Tax

Deferred Tax Assets and Liabilities are recognized for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred Income Tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related Deferred Income Tax asset is realized or the Deferred Income Tax liability is settled.

Deferred Tax Assets are recognized for detectable temporary differences, carry forward, unused tax losses and unused tax credits if it is probable that future taxable amounts will arise to utilise those temporary differences and losses. Deferred Tax Assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Deferred Tax Assets and Liabilities are offset where there is a legally enforceable right to offset Current Tax Assets and Liabilities and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle Current Tax Liabilities and assets on a net basis or their tax assets and liabilities are realised simultaneously.

6.4 Cash and Cash Equivalents

Cash and Cash Equivalents comprise the net amount of short-term, highly liquid investments that are readily convertible to known amounts of cash (short-term deposits with an original maturity of three months or less) and are subject to an insignificant risk of change in value, cheques on hand and balances with banks. They are held for the purposes of meeting short-term cash commitments (rather than for investment or other purposes).

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and shortterm deposits, as defined above.

6.5 Property, Plant and Equipment

Property, Plant and Equipment (PPE) are measured at cost less accumulated depreciation and accumulated impairment, (if any). The total cost of assets comprises its purchase price, freight, duties, taxes and any other incidental expenses directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the management. Changes in the expected useful life are accounted for by changing the amortisation period or methodology, as appropriate, and treated as changes in accounting estimates.

Subsequent expenditure related to an item of tangible asset are added to its gross value only if it increases the future benefits of the existing asset, beyond its previously assessed standards of performance and cost can be measured reliably. Other repairs and maintenance costs are expensed

off as and when incurred.

6.5.1 Depreciation

Depreciation is calculated using the written down value method to write down the cost of Property, Plant and Equipment to their residual values over their estimated useful lives which is in line with the estimated useful life as specified in Schedule II of the Companies Act, 2013.

The residual values, useful lives and methods of depreciation of Property, Plant and Equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.

Property, Plant and Equipment is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in other income/ expense in the Statement of Profit and Loss in the year the asset is derecognised. The date of disposal of an item of Property, Plant and Equipment is the date the recipient obtains control of that item in accordance with the requirements for determining when a performance obligation is satisfied in Ind AS 115.

6.6 Intangible Assets

An intangible asset is recognized only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Company.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of an intangible asset comprises its purchase price and any directly attributable expenditure on making the asset ready for its intended use and net of any trade discounts and rebates. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each

financial year-end. Changes in the expected useful life, or the expected pattern of consumption of future economic benefits embodied in the asset, are accounted for by changing the amortisation period or methodology, as appropriate, which are then treated as changes in accounting estimates.

The amortisation expense on intangible assets with finite lives is presented as a separate line item in the Statement of Profit and Loss. Amortisation on assets acquired/sold during the year is recognised on a pro-rata basis in the Statement of Profit and Loss from/upto the date of acquisition/sale.

Amortisation is calculated using the written down value method to write down the cost of intangible assets to their residual values over their estimated useful lives. Intangible assets comprising of software are amortised on a written own value basis over a period of 3 years, unless it has a shorter useful life.

The Company’s intangible assets consist of computer software with definite life.

Gains or losses from derecognition of intangible assets, measured as the difference between the net disposal proceeds and the carrying amount of the asset are recognized in the Statement of Profit and Loss when the asset is derecognised.

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Mar 31, 2019

1. SIGNIFICANT ACCOUNTING POLICIES

1.1 Basis for preparation of financial statements

i. The financial statements have been prepared and presented under historical cost convention on accrual basis of accounting in accordance with the Generally Accepted Accounting Principles in India (“Indian GAAP”) in compliance with the provisions of the Companies Act, 2013, Accounting Standards specified under section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 and the applicable directions issued by Reserve Bank of India for Non-Banking Financial Companies. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year, except wherever stated.

ii. All assets and liabilities have been classified as current and non-current as per the Company’s normal operating cycle and other criteria set out in the Schedule III of the Companies Act, 2013. Based on the nature of financial services provided and their realization in cash and cash equivalents, the Company has assessed its operating cycle as 12 months for the purpose of classification of its assets and liabilities into current and non-current as per the requirements of Schedule III of the Companies Act, 2013.

1.2 Use of Estimates

The preparation of the financial statements requires the use of estimates and assumptions that affect the reported amount of assets and liabilities as at the Balance Sheet date, reported amounts of revenues and expenses during the period and disclosure of contingent liabilities as at that date. The estimates and assumptions used in these financial statements are based upon the management’s evaluation of the relevant facts and circumstances as on the date of financial statements. Although these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates. Any revisions to the accounting estimates are recognized prospectively in the current and future years.

1.3 Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured:

- Income from Financial Services

i. Interest Income in respect of hypothecation loans are recognised on accrual basis with reference to contractual terms, applying the Internal Rate of Return method. Overdue charges on belated hypothecation loan installments are accounted as and when received by the company.

ii. Interest on loans and advances, including Loan Buyout and Other business loans, is recognized on accrual basis at the contract rate wherever feasible. Overdue charges for belated payments are accounted as and when received.

iii. Income in respect of Non-performing assets is recognized as and when received as per The Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.

iv. Interest Income on SLR Investments / Bank Deposits including collateral deposits is recognized on accrual basis.

v. Income from securitisation transactions, being interest spread under par structure of securitisation loan receivables, is recognized as income on realisation of dues in cash from Special purpose vehicle.

vi. Income on retained interest in the assigned asset , if any, is accounted on accrual basis.

vii. Income from financing activities and services is recognized on accrual basis.

- Income from Investments

Dividend on investments is recognized as income, when right to receive payment is established by the date of Balance Sheet. The profit/loss on Capital Market Operations is recognized at the time of actual sale/redemption of investments.

1.4 Receivables from Financing Activities

The Company has followed the Master Directions issued by the Reserve Bank of India for NonBanking Financial Companies in respect of Prudential Norms for Income Recognition, Asset Classification, Accounting Standards, Provisioning / writing off for bad and doubtful debts, Capital Adequacy and Concentration of credit / investments.

- Hypothecation Loans

i. Hypothecation loans are stated at the amounts advanced including Interest and other finance charges accrued and due, as reduced by amounts received and loans securitised.

ii. Advance instalments received against Hypothecation loans are shown as Current Liabilities.

iii. Repossessed assets are valued at lower of book value and estimated realisable value.

- Securitisation transactions: -

i. Securitised receivables are de-recognized in the Balance Sheet when they are sold i.e. if they fully meet the true sale criteria as per the Master Direction issued by the Reserve Bank of India.

ii. Company’s contractual rights to receive the share of the future interest (i.e. interest spread) in respect of the transferred asset from the SPV is capitalized at the present value as Interest Only (I/O) Strip(Interest Strip Retained on Securitisation of Receivables) with the corresponding liability created for Unrealized Gains on Loan Transfer Transactions.

1.5 Tangible Assets (Property, Plant and Equipment)

Property, Plant and Equipment are stated at historical cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises of purchase price, borrowing costs, if capitalization criteria are met, and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebate are deducted in arriving at the purchase price.

Subsequent expenditure related to an item of property,plant & equipment is added to its book value, only if it increases the future benefit of the existing asset beyond its previously assessed standard of performance. All other expenses on existing Property, Plant and Equipment, including day-to-day repairs and maintenance expenditure and cost of replacing parts, are charged to the Statement of Profit and Loss for the period during which such expenses are incurred.

Gains or losses arising from de-recognition of Property, Plant and Equipment are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the Statement of Profit and Loss when the asset is de-recognized.

1.6 Intangible Assets

Intangible assets are recorded at the cost incurred for developing such assets and are carried at cost less accumulated amortization and impairment, if any.

Intangible assets under development not put for use as at the date of balance sheet,are classified as asset under development.

1.7 Depreciation / Amortization of Tangible and Intangible assets.

i. Depreciation on assets held for own use of the Company is provided on written down value method as per the useful years of life of the assets and in the manner prescribed under Schedule II of the Companies Act, 2013 and in accordance with revised Accounting Standard-10 “Property, Plant and Equipment”.

ii. Intangible assets are amortized over a period of three years.

1.8 Impairment of Tangible and Intangible Assets

i. The carrying amounts of assets are reviewed at each Balance Sheet date to ascertain impairment based on internal / external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. An asset’s recoverable amount is the higher of an asset’s net selling price and its value in use.

ii. An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s recoverable amount. A previously recognized impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value, after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation, if there was no impairment.

1.9 Leases

Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the Statement of Profit and Loss on straight line basis over the lease term.

1.10 Investments

i. Investment in Government Securities

a. Non - Current Investments are stated at cost and provision for diminution in value, other than temporary, is considered wherever necessary.

b. Current Investments are valued at lower of cost and market value / net asset value.

ii. Investments - Others

a. Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as Current Investments. All other investments are classified as Non-Current Investments.

On initial recognition, all investments are measured at cost. The cost comprises of purchase price and directly attributable acquisition charges such as brokerage, fees and duties. Current investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis. Non-Current Investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of the investments.

On disposal of investments, the difference between its carrying amount and net disposal proceeds is charged or credited to the Statement of Profit and Loss.

1.11 Income Tax

Tax expense comprises of Current and Deferred Tax. Current Income Tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted, at the reporting date.

Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and the reversal of timing differences of the earlier years.

Deferred Tax Liabilities are recognized for all taxable timing differences. Deferred Tax Assets are recognized for deductible timing differences only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such Deferred Tax Assets can be realized.

The carrying amount of Deferred Tax Assets are reviewed at each reporting date. The company writes down the carrying amount of deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which Deferred Tax Asset can be realized. Any such write down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available.

Deferred Tax Assets and Deferred Tax Liabilities are offset, if a legally enforceable right exists to set off current tax asset against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxation authority.

1.12 Retirement and Other Employee Benefits

i. Defined Contribution Plan

(i) Provident Fund

The contributions to the provident fund are charged to the Statement of Profit and Loss for the year when the contributions are due in accordance with the fund rules. The Company has no obligation, other than the contribution payable to the provident fund.

(ii) Employees State Insurance

The Company also contributes to Employees State Insurance Corporation on behalf of its employees.

ii. Defined Benefit Plan

a. Gratuity (Funded)

Payment of gratuity to employees is covered by the Gratuity Trust Scheme based on the Group Gratuity Cum Assurance Scheme of the LIC of India which is a defined benefit scheme. The yearly contribution/premium paid/ payable is determined on actuarial valuation done by an independent valuer. Actuarial gain and loss for defined benefit plan is recognized in full in the period in which they occur in the Statement of Profit and Loss.

b. Accumulated Compensated Absences

The company provides for liability of accumulated compensated absences for eligible employees on the basis of an independent actuarial valuation carried out at the end of the year, using the projected unit credit method. Actuarial gains and losses are recognised in the Statement of Profit and Loss for the period in which they occur.

1.13 Segment Reporting

The Company’s business activity primarily falls within a single reportable business segment which constitutes Financing Activities (Advancing of hypothecation loans, term loans, buying loan portfolio of other NBFCs/ Micro Finance Companies and loan against demand promissory notes etc.). Hence additional disclosures are not required under Accounting Standard -17 “Segment Reporting”.

The Company operates only in India; hence there is no other significant geographical segment that requires the disclosure.

1.14 Related Party Disclosures

Disclosures are made as per the requirements of the Accounting Standard- 18 “Related Party Disclosures”.

1.15 Earnings per Share

Basic earnings per share are 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.For the purpose of calculating the diluted earnings per share, the net profit or loss for the period attributable to the equity shareholders and the weighted average number of shares outstanding during the period is adjusted for the effects of all dilutive potential equity shares.

1.16 Material Events

Material Events occurring after the Balance Sheet date are taken into cognizance.

1.17 Provisions other than that for Non-Performing Assets

A provision is recognized when the Company has a present legal or constructive obligation as a result of past event, for which it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and reliable estimate can be made for the amount of the obligation. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates.

1.18 Contingent Liabilities

A Contingent Liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A Contingent Liability also arises, in extremely rare cases, where there is a liability that cannot be recognized because it cannot be measured reliably. The company does not recognize a Contingent Liability, but discloses its existence, if it exists, in the financial statements.

1.19 Classification and Provisioning of receivables from Financing Activity

i. As per the guidelines given in the Master Directions issued by the Reserve Bank of India for Non-Banking Financial Companies in respect of Prudential Norms for Income Recognition, Asset Classification, Accounting Standards, Provisioning / Writing off for bad and doubtful debts, Capital Adequacy and Concentration of credit / investments, the company makes adequate provisions against Receivables from financing activities in the following manner;

a. Standard Assets:

Provision against Standard Assets is made at the rate prescribed by The Master Direction -Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.

b. Non-Performing assets : Sub-standard, Doubtful and loss assets:

Provision as required under The Master Direction - Non-Banking Financial Company -Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 is made. Further additional provision over and above the minimum levels specified is made as considered appropriate by the management.

ii. Loss on Sale of Repossessed Assets represents shortfall in realization of outstanding loan receivable balances on disposal of the underlying hypothecated assets and includes provisions created in the earlier years in respect of such loan balances.

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Mar 31, 2018

NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31^st MARCH, 2018

CORPORATE INFORMATION

Muthoot Capital Services Limited (‘the Company’) is a public company domiciled in India,governed by the Companies Act 2013 and is a Systemically Important Deposit Accepting Non-Banking Financial Company (“NBFC”) registered with Reserve Bank of India. The shares of the Company are listed on the Bombay Stock Exchange and the National Stock Exchange. During the year, the Company was primarily engaged in the business of financing for purchase of automobiles, mainly two wheelers against hypothecation of the vehicles and granting of personal/business loans etc.

1. SIGNIFICANT ACCOUNTING POLICIES 1.1 Basis for preparation of financial statements

i. The financial statements have been prepared and presented under historical cost convention on accrual basis of accounting in accordance with the Generally Accepted Accounting Principles in India (“Indian GAAP”) in compliance with the provisions of the Companies Act, 2013, Accounting Standards specified under section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 and the applicable directions issued by Reserve Bank of India for Non-Banking Financial Companies. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year, except wherever stated.

ii. All assets and liabilities have been classified as current and non-current as per the Company’s normal operating cycle and other criteria set out in the Schedule III of the Companies Act, 2013. Based on the nature of financial services provided and their realization in cash and cash equivalents, the Company has reassessed its operating cycle as 12 months (from 36 months adopted earlier) for the purpose of classification of its assets and liabilities into current and non-current as per the requirements of Schedule III of the Companies Act, 2013 with appropriate modifications to reflect such change in classification during the current and corresponding previous year.

1.2 Use of Estimates

The preparation of the financial statements requires the use of estimates and assumptions that affect the reported amount of assets and liabilities as at the Balance Sheet date, reported amounts of revenues and expenses during the period and disclosure of contingent liabilities as at that date. The estimates and assumptions used in these financial statements are based upon the management’s evaluation of the relevant facts and circumstances as on the date of financial statements. Although these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates. Any revisions to the accounting estimates are recognized prospectively in the current and future years.

1.3 Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured:

- Income from Financial Services

i. Interest Income in respect of hypothecation loans are recognized on accrual basis with reference to contractual terms, applying the Internal Rate of Return method. Overdue charges on belated hypothecation loan installments are accounted as and when received by the company.

ii. Interest on loans and advances, including Loan Buyout and Other business loans, is recognized on accrual basis at the contract rate wherever feasible. Overdue charges for belated payments are accounted as and when received.

iii. Income in respect of Non-performing assets is recognized as and when received as per The Master Direction – Non Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.

iv. Interest Income on SLR Investments/ Bank Deposits including collateral deposits is recognized on accrual basis.

v. Income from securitization transactions, being interest spread under par structure of securitization loan receivables, is recognized as income on realization of dues in cash from Special purpose vehicle.

vi. Income on retained interest in the assigned asset , if any, is accounted on accrual basis.

vii. Income from financing activities and services is recognized on accrual basis.

- Income from Investments

Dividend on investments is recognized as income, when right to receive payment is established by the date of Balance Sheet. The profit/loss on Capital Market Operations is recognized at the time of actual sale/redemption of investments.

1.4 Receivables from Financing Activities

The Company has followed the Master Directions issued by the Reserve Bank of India for Non-Banking Financial Companies in respect of Prudential Norms for Income Recognition, Asset Classification, Accounting Standards, Provisioning / writing off for bad and doubtful debts, Capital Adequacy and Concentration of credit / investments.

- Hypothecation Loans

i. Hypothecation loans are stated at the amounts advanced including Interest and other finance charges accrued and due, as reduced by amounts received and loans securitized.

ii. Advance installments received against Hypothecation loans are shown as Current Liabilities.

iii. Repossessed assets are valued at lower of book value and estimated realizable value.

- Securitization transactions: -

i. Securitized receivables are de-recognized in the Balance Sheet when they are sold i.e. if they fully meet the true sale criteria as per the Master Direction issued by the Reserve Bank of India.

ii. Company’s contractual rights to receive the share of the future interest (i.e. interest spread) in respect of the transferred asset from the SPV is capitalized at the present value as Interest Only (I/O) Strip(Interest Strip Retained on Securitization of Receivables) with the corresponding liability created for Unrealized Gains on Loan Transfer Transactions.

1.5 Tangible Assets (Property, Plant and Equipment)

Property, Plant and Equipment are stated at historical cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises of purchase price, borrowing costs, if capitalization criteria are met, and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebate are deducted in arriving at the purchase price.

Subsequent expenditure related to an item of fixed asset is added to its book value, only if it increases the future benefit of the existing asset beyond its previously assessed standard of performance. All other expenses on existing Property, Plant and Equipment, including day-to-day repairs and maintenance expenditure and cost of replacing parts, are charged to the Statement of Profit and Loss for the period during which such expenses are incurred.

Gains or losses arising from de-recognition of Property, Plant and Equipment are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the Statement of Profit and Loss when the asset is de-recognized.

1.6 Intangible Assets

Intangible assets are recorded at the cost incurred for developing such assets and are carried at cost less accumulated amortization and impairment, if any.

1.7 Depreciation / Amortization of Tangible and Intangible assets.

i. Depreciation on assets held for own use of the Company is provided on written down value method as per the useful years of life of the assets and in the manner prescribed under Schedule II of the Companies Act, 2013 and in accordance with revised Accounting Standard-10 “Property, Plant and Equipment”.

ii. Intangible assets are amortized over a period of three years.

1.8 Impairment of Tangible and Intangible Assets

i. The carrying amounts of assets are reviewed at each Balance Sheet date to ascertain impairment based on internal / external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. An asset’s recoverable amount is the higher of an asset’s net selling price and its value in use.

ii. An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s recoverable amount. A previously recognized impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value, after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation, if there was no impairment.

1.9 Leases

Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the Statement of Profit and Loss on straight line basis over the lease term.

1.10 Investments

i. Investment in Government Securities

a. Non - Current Investments are stated at cost and provision for diminution in value, other than temporary, is considered wherever necessary.

b. Current Investments are valued at lower of cost and market value / net asset value.

ii. Investments - Others

a. Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as Current Investments. All other investments are classified as Non-Current Investments.

On initial recognition, all investments are measured at cost. The cost comprises of purchase price and directly attributable acquisition charges such as brokerage, fees and duties. Current investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis. Non-Current Investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of the investments.

On disposal of investments, the difference between its carrying amount and net disposal proceeds is charged or credited to the Statement of Profit and Loss.

1.11 Income Tax

Tax expense comprises of Current and Deferred Tax. Current Income Tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted, at the reporting date.

Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and the reversal of timing differences of the earlier years.

Deferred Tax Liabilities are recognized for all taxable timing differences. Deferred Tax Assets are recognized for deductible timing differences only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such Deferred Tax Assets can be realized.

The carrying amount of Deferred Tax Assets are reviewed at each reporting date. The company writes down the carrying amount of deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which Deferred Tax Asset can be realized. Any such write down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available.

Deferred Tax Assets and Deferred Tax Liabilities are offset, if a legally enforceable right exists to set off current tax asset against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxation authority.

1.12 Retirement and Other Employee Benefits

i. Defined Contribution Plan

(i) Provident Fund

Retirement benefit in the form of provident fund is a defined contribution scheme. The contributions to the provident fund are charged to the Statement of Profit and Loss for the year when the contributions are due in accordance with the fund rules. The Company has no obligation, other than the contribution payable to the provident fund.

(ii) Employees State Insurance

The Company also contributes to Employees State Insurance Corporation on behalf of its employees.

ii. Defined Benefit Plan - Gratuity

Payment of gratuity to employees is covered by the Gratuity Trust Scheme based on the Group Gratuity Cum Assurance Scheme of the LIC of India which is a defined benefit scheme. The yearly contribution/premium paid/ payable is determined on actuarial valuation done by an independent valuer. Actuarial gain and loss for defined benefit plan is recognized in full in the period in which they occur in the Statement of Profit and Loss.

1.13 Segment Reporting

The Company’s business activity primarily falls within a single reportable business segment which constitutes Financing Activities (Advancing of hypothecation loans, term loans, buying loan portfolio of other NBFCs/ Micro Finance Companies and loan against demand promissory notes etc.). Hence additional disclosures are not required under Accounting Standard -17 “Segment Reporting”.

The Company operates only in India; hence there is no other significant geographical segment that requires the disclosure.

1.14 Related Party Disclosures

Disclosures are made as per the requirements of the Accounting Standard- 18 “Related Party Disclosures”.

1.15 Earnings per Share

The Company reports basic earnings per share in accordance with Accounting Standard-20 “Earnings per Share”. Basic earnings per share has been computed by dividing net profit after tax by the weighted average number of equity shares outstanding for the year.

1.16 Material Events

Material Events occurring after the Balance Sheet date are taken into cognizance.

1.17 Provisions other than that for Non-Performing Assets

A provision is recognized when the Company has a present legal or constructive obligation as a result of past event, for which it is probable that an out flow of resources embodying economic benefits will be required to settle the obligation and reliable estimate can be made for the amount of the obligation. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates.

1.18 Contingent Liabilities

A Contingent Liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A Contingent Liability also arises, in extremely rare cases, where there is a liability that cannot be recognized because it cannot be measured reliably. The company does not recognize a Contingent Liability, but discloses its existence, if it exists, in the financial statements.

1.19 Classification and Provisioning of receivables from Financing Activity

i. As per the guidelines given in the Master Directions issued by the Reserve Bank of India for Non-Banking Financial Companies in respect of Prudential Norms for Income Recognition, Asset Classification, Accounting Standards, Provisioning / Writing off for bad and doubtful debts, Capital Adequacy and Concentration of credit / investments, the company makes adequate provisions against Receivables from financing activities in the following manner;

a. Standard Assets:

Provision against Standard Assets is made at the rate prescribed by The Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.

b. Non-Performing assets : Sub-standard, Doubtful and loss assets:

Provision as required under The Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 is made. Further incremental provision over and above the minimum levels specified is made as considered appropriate by the management.

ii. Loss on Sale of Repossessed Assets represents shortfall in realization of outstanding loan receivable balances on disposal of the underlying hypothecated assets and includes provisions created in the earlier years in respect of such loan balances.

The Company has only one class of shares referred to as equity shares having a par value of Rs, 10. Each holder of equity share is entitled to one vote per share.

In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of all preferential amounts. However, no such preferential amounts exist currently. The distribution will be in proportion to the number of equity shares held by the shareholders.

During the year ,the Company (on 14^th June 2017) allotted 12 47 258 equity shares of Rs,10/- each as bonus shares in proportion of one equity share for every ten equity shares held. Also, on 13^th November 2017 ,the company has made allotment of 27 27 700 equity shares to Qualified Institutional Buyers at an issue price of Rs,605/- per equity share including a premium of Rs,595/- per share.

As per the records of the Company, including its register of shareholders/members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownerships of shares.

Terms of Repayment of Bank Loans:

Security and Rate of Interest of Term Loans from Banks

The term loans from banks are secured by creating a first charge by way of hypothecation of entire current assets including hypothecation loans and all other loan and other current assets of the company.

Rate of interest varies from 9.40% to 10.30% as on the Balance Sheet date.

These loans are repayable in equal monthly/ quarterly installments spread over 10 months to 33 months.

2.3.2 Debentures:

The Company has issued Redeemable Non-Convertible Debentures on Private Placement basis in various series. The debentures issued under each series have a repayment period depending on the scheme it falls under. The debentures are repayable within a period of 1 to 6 years, depending on the schemes. The schemes range from Monthly, Annual and Maturity Interest payment. The rate of interest of the Unmatured debentures is 10.92% per annum and the rate of interest of matured debentures ranges from 9.5% to 14.19% per annum.

The issued debentures are secured by a pari-passu First charge with the banks against the loans, including cash credit, demand loans and term loans, taken from them, on all movable assets, book debts and receivables created by undertaking the business of Hypothecation Loan and all other types of Loans, both present and future, created by the company.

2.3.3 Subordinated Term Loans/Debts (Sub Debts):

A. Northern Arc Capital Limited (Formerly known as IFMR Capital Finance Private Limited) -

The Company has taken two Subordinated Unsecured Term Loans from IFMR Capital Finance Private Limited of Rs, 15 00 00 thousand each on 29^th June, 2016 and 30^th March, 2017 respectively, with interest rates being 12.5% and

11.95%. The loans will be repaid only on maturity i.e. after 66 months from the date of availing the loan.

B. The Company has also accepted subordinated debts from public under three schemes, namely Monthly, Annual and Maturity interest payment with interest rates ranging from 9.06% to 13.4%. The maturity period of the loan ranges from 60 months to 96 months. The subordinated debts issued under each scheme will be repaid only on maturity.

The Unsecured Term loans / Subordinated Debts of the Company qualify as Tier II Capital under Master Directions – Non Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016 issued by Reserve Bank of India.

2.3.4 Public Deposits:

The Company has accepted Public Deposits under three schemes, namely Monthly, Annual and Maturity interest payment. The deposits issued under each scheme will be repaid only on maturity, unless claimed by the depositor earlier and, if permissible, to be repaid as per the regulations issued in this regard by the Reserve Bank of India. The rate of interest on these deposits ranges from 7.0 % to 12.5% per annum. The repayment period ranges from 12 months to 60 months

2.5.1 Loans from Banks - Working Capital Demand Loans and Cash Credits Guaranteed Loans

The Working Capital Demand Loans, Cash Credits and Term Loans obtained from Banks have been personally guaranteed by the Promoter Directors of the Company, namely, Mr. Thomas John Muthoot, Mr. Thomas George Muthoot and Mr. Thomas Muthoot.

Security and Rate of Interest of Working Capital Demand Loans and Cash Credits from Banks

The Cash Credits and Working Capital Demand Loan facilities have been obtained from the banks by creating First Charge by way of hypothecation of the entire current assets, including business loans, hypothecation loans and all other loan receivables, ranking pari-passu with other banks and Debenture Holders.

Interest on these loans varies between 8.5% to 11.35% per annum as on the Balance Sheet date.

These loans are repayable within a period upto 12 months from the date of sanction.

2.5.2. Loans and Advances from Related Parties

The Company has entered into transactions with Promoter Directors of the Company. The Company pays interest @ 12% p.a in respect of interest bearing loans(Balance outstanding as at 31^st March, 2018 was Rs, 3 05 00 thousand (Rs, 10 91 00 thousand)). The total balance outstanding (interest and non-interest bearing loan) as at 31^st March 2018 is Rs, 5 78 06 thousand (Rs,13 64 06 thousand)

2.5.3. Inter Corporate Deposits

The Company has taken an Inter Corporate Deposit from Adtech Systems Ltd. This is repayable after a period of 3 months with an effective rate of interest of 9% per annum. The balance Outstanding as on 31^st March, 2018: Rs, 1 49 95 thousand (Rs, 1 52 61 thousand).

2.5.4.Commercial Paper

The Company has made three Commercial Paper issuances during the year. One commercial paper was redeemed during the year itself. Total value of issuance during the year is Rs, 225 00 00 thousand. The balance of Discounted Value Outstanding as at 31^st March, 2018: Rs, 145 23 09 thousand (Nil).

Trade Payables includes amounts payable to related parties amounting to Rs, 2 47 26 thousand (Rs, 2 13 20 thousand)

2.6.1 Amount Payable to Micro, Small And Medium Enterprises

There are no Micro, Small and Medium Enterprises as defined in the Micro, Small and Medium Enterprises Development Act, 2006 to whom the Company owes dues on account of Principal amount together with interest and accordingly no additional disclosures have been made.

The above information regarding Micro, Small and Medium Enterprises has been determined to the extent such parties have been identified on the basis of information available with the Company. This has been relied upon by the auditors.

2.10.1 Investment in PMS represents the following-

(a) 7 750 (7 075) shares of ''2/- each in Manappuram Finance Ltd -''7 64 thousand (''7 06 thousand)

(b) 10 526 (5 456) shares of ''10/- each in Muthoot Finance Ltd-''48 57 thousand (''19 30 thousand)

(c ) Balance with PMS ''4 thousand(''23 59 thousand)

2.10.2 Aggregrate amount of quoted investment is ''14 81 15 (''14 51 30) and market value is ''15 60 91 (''15 83 68), aggregate amount of unquoted investment is ''3 05 04 (''23 59). Aggregate provision for diminution in value of investment is Nil.

2.10.3 In accordance with the guidelines given in the Master Direction - Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016 issued by Reserve Bank of India the Company has created floating charge on the statutory liquid assets comprising of Investment in Government Securities of face value of Rs,14 88 00 thousand (Cost- Rs,14 24 94 thousand) and bank deposits of Rs,4 81 25 thousand in favor of trustees representing the deposit holders of the Company.

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Mar 31, 2017

CORPORATE INFORMATION

Muthoot Capital Services Limited (the Company) is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Muthoot Capital Services Limited was incorporated on February 18, 1994 as a public limited company. Its shares are listed on the Bombay Stock Exchange and the National Stock Exchange. The Company is registered as an A category Deposit taking Non Banking Financial Company (NBFC) with Reserve Bank of India. During the year, the Company was primarily engaged in the business of financing for purchase of automobiles, mainly two wheelers against hypothecation of the respective vehicles, corporate loans and granting of business/personal loans against Security of receivables (Term loans) / demand promissory notes respectively. The Company also engaged itself in the business of buying loan portfolios from other NBFCs financing the two wheelers /small business/micro finance segment. The Company has a reasonably good presence in the non-banking financial sector in rural and semi urban areas.

1. SIGNIFICANT ACCOUNTING POLICIES 1.1 Basis for preparation of financial statements

i. The financial statements for the year ended 31^st March, 2017, have been prepared and presented under historical cost convention and on the accrual basis of accounting in accordance with Indian Generally Accepted Accounting Principles ("GAAP") and in compliance with the provisions of the Companies Act, 2013, mandatory and relevant Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) and the directions issued by Reserve Bank of India for Non-Banking Financial Companies from time to time, wherever applicable.

ii. All assets and liabilities have been classified as current and non-current as per the Company''s normal operating cycle and other criteria set out in the Schedule III of the Companies Act, 2013. Based on the nature of financial services provided and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as 36 months for the purpose of classification of its assets and liabilities into current and non-current as per the requirements of Schedule III of the Companies Act, 2013.

iii. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year.

1.2 Use of Estimates

The preparation of the financial statements requires the use of estimates and assumptions that affect the reported amount of assets and liabilities as at the Balance Sheet date, reported amounts of revenues and expenses during the period and disclosure of contingent liabilities as at that date. The estimates and assumptions used in these financial statements are based upon the management''s evaluation of the relevant facts and circumstances as on the date of financial statements. Although these estimates are based upon management''s best knowledge of current events and actions, actual results could differ from these estimates. Any revisions to the accounting estimates are recognized prospectively in the current and future years.

1.3 Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured:

Income from Financial Services

i. Finance charges in respect of hypothecation loan transactions are accounted by applying the Internal Rate of Return method. Overdue charges on belated hypothecation loan installments are accounted as and when received by the Company.

ii. Interest on loans and advances, including Loan Buyout and Other business loans, is recognized on accrual basis at the contract rate wherever feasible. Overdue charges for belated payments are accounted as and when received.

iii. Income in respect of Non-performing assets is recognized as and when received as per The Master Direction -Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 dated 09^th March, 2017.

iv. Interest Income on SLR Investments/ Bank Deposits including collateral deposits is recognized on accrual basis.

v. Income from securitization transaction, being interest spread under par structure of securitization loan receivables, is recognized over the tenure of the ''securities issued by SPV\

Windmill Income

Income from power generation is recognized on supply of power to the grid as per the terms of the arrangement with the buyers of power.

Income from Investments

Dividend on investments is recognized as income, when right to receive payment is established by the date of Balance Sheet. The profit/loss on Capital Market Operations is recognized at the time of actual sale/ redemption of investments.

1.4 Receivables from Financing Activities

The Company has followed the Master Directions dated 09^th March 2017 issued by the Reserve Bank of India for Non-Banking Financial Companies in respect of Prudential Norms for Income Recognition, Asset Classification, Accounting Standards, Provisioning / Writing off for bad and doubtful debts, Capital Adequacy and Concentration of credit / investments.

Hypothecation Loans

i. Hypothecation loans are stated at the amounts advanced including finance charges accrued and due, as reduced by amounts received and loans securitized.

ii. Advance installments received against Hypothecation loans is shown as Current Liabilities.

iii. Repossessed automobile assets are valued at lower of book value and estimated realizable value.

Securitization transactions

i. Securitized receivables are de-recognized in the Balance Sheet when they are sold i.e. if they fully meet the true sale criteria as per the Master Direction dated 09^th March 2017 issued by the Reserve Bank of India.

ii. Company''s contractual rights to receive the share of the future interest (i.e. interest spread) in respect of the transferred asset from the SPV is capitalized at the present value as Interest Only (I/O) Strip(Interest Strip Retained on Securitization of Receivables) with the corresponding liability created for Unrealized Gains on Loan Transfer Transactions.

1.5 Fixed Assets, Depreciation/Amortization and Impairment

Fixed Assets are stated at historical cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises of purchase price, borrowing costs, if capitalization criteria are met, and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebate are deducted in arriving at the purchase price.

Subsequent expenditure related to an item of fixed asset is added to its book value, only if it increases the future benefit of the existing asset beyond its previously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repairs and maintenance expenditure and cost of replacing parts, are charged to the Statement of Profit and Loss for the period during which such expenses are incurred.

Gains or losses arising from de-recognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the Statement of Profit and Loss when the asset is de-recognized.

Depreciation on Tangible Fixed Assets

Depreciation on assets held for own use of the Company is provided on written down value method as per the useful years of life of the assets and in the manner prescribed under Schedule II of the Companies Act, 2013 and in accordance with revised Accounting Standard 10: Property, Plant and Equipment issued by the Ministry of Corporate Affairs on 30^th March 2016.

The Company has adopted the following as the useful years of life to provide depreciation on its tangible assets.

Impairment of Tangible and Intangible Fixed Assets

(i) The carrying amounts of assets are reviewed at each Balance Sheet date to ascertain impairment based on internal/external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. An asset''s recoverable amount is the higher of an asset''s net selling price and its value in use.

(ii) After impairment, depreciation is provided on the revised carrying amount of the asset as per the Useful Life as prescribed in Schedule II of the Companies Act, 2013.

(iii) An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset''s recoverable amount. A previously recognized impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation, if there was no impairment.

1.6 Leases

Leases, where the lesser effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the Statement of Profit and Loss on straight line basis over the lease term.

1.7 Investments

(i) Investments in Government Securities

(a) Non - Current Investments are stated at cost and provision for diminution in value, other than temporary, is considered wherever necessary.

(b) Current Investments are valued at lower of cost and market value/net asset value.

(ii) Investments - Others

(a) Investments, which are readily realizable and intended to be held for not more than three years from the date on which such investments are made, are classified as Current Investments. All other investments are classified as Non-Current Investments.

On initial recognition, all investments are measured at cost. The cost comprises of purchase price and directly attributable acquisition charges such as brokerage, fees and duties. Current investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis. NonCurrent Investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of the investments.

On disposal of investments, the difference between its carrying amount and net disposal proceeds is charged or credited to the Statement of Profit and Loss.

1.8 Income Tax

Tax expenses comprises of Current and Deferred Tax. Current Income Tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted, at the reporting date.

Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and the reversal of timing differences of the earlier years.

Deferred Tax Liabilities are recognized for all taxable timing differences. Deferred Tax Assets are recognized for deductible timing differences only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such Deferred Tax Assets can be realized.

The carrying amount of Deferred Tax Assets is reviewed at each reporting date. The Company writes down the carrying amount of Deferred Tax Asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which Deferred Tax Asset can be realized. Any such write down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available.

Deferred Tax Assets and Deferred Tax Liabilities are offset, if a legally enforceable right exists to set off current tax asset against current tax liabilities and the Deferred Tax Assets and Deferred Tax Liabilities relate to the same taxation authority.

1.9 Retirement and Other Employee Benefits

(i) Defined Contribution Plan

(a) Provident Fund

Retirement benefit in the form of provident fund is a defined contribution scheme. The contributions to the provident fund are charged to the Statement of Profit and Loss for the year when the contributions are due in accordance with the fund rules. The Company has no obligation, other than the contribution payable to the provident fund.

(b) Employees State Insurance

The Company also contributes to Employees State Insurance Corporation on behalf of its employees.

(ii) Defined Benefit Plan - Gratuity

Payment of gratuity to employees is covered by the Gratuity Trust Scheme based on the Group Gratuity Cum Assurance Scheme of the LIC of India which is a defined benefit scheme. The yearly contribution/ premium paid/payable is determined on actuarial valuation done by an independent valuer. Actuarial gain and loss for defined benefit plan is recognized in full in the period in which they occur in the Statement of Profit and Loss.

1.10 Segment Reporting

The Company''s business activity primarily falls within a single business segment which constitutes Financing Activities (Advancing of hypothecation loans, term loans, buying loan portfolio of other NBFCs/Micro Finance

Companies and loans against demand promissory notes etc.). Hence additional disclosures are not required under Accounting Standard 17 ''Segment Reporting''.

The Company operates only in India, hence there is no other significant geographical segment that requires the disclosure.

1.11 Related Party Disclosures

Disclosures are made as per the requirements of the Accounting Standard 18 "Related Party Disclosures" read with the clarifications issued by ICAI.

1.12 Earnings per Share

The Company reports basic earnings per share in accordance with Accounting Standard 20 "Earnings per Share", issued by the ICAI. Basic earnings per share has been computed by dividing net profit after tax by the weighted average number of equity shares outstanding for the year.

1.13 Cash and Cash Equivalents

(i) Cash and Cash Equivalents in the cash flow statements comprise cash at hand and at bank, remittances in transits and short term investments with an original maturity period of three months or less. Cash at bank excludes fixed deposits having a maturity more than three months held as SLR deposits and other deposits given as collateral security for securitization transactions.

(ii) Cash and Cash Equivalents in the Balance Sheet comprise cash at hand and at bank, remittances in transits and short term investments. Cash at bank includes deposit having a maturity of more than three months held as SLR deposits and other deposits given as collateral security for securitization transactions.

1.14 Material Events

Material Events occurring after the Balance Sheet date are taken into cognizance.

1.15 Expenses on Public Deposits / Debentures / Subordinated Debts/ Securitization

The interest on Public Deposits, Debentures and Subordinated Debt is recognized on accrual basis at the rate applicable to each scheme. The brokerage incurred on Public Deposits and Subordinated Debts are treated as expenditure in the year in which it is incurred. Expenditure on securitization is recognized upfront. The Company has followed the Master Direction - Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016 dated August 25, 2016.

1.16 Provisions other than that for Non-Performing Assets

A provision is recognized when the Company has a present legal or constructive obligation as a result of past event, for which it is probable that an out flow of resources embodying economic benefits will be required to settle the obligation and reliable estimate can be made for the amount of the obligation. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates.

1.17 Contingent Liabilities

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises, in extremely rare cases, where there is a liability that cannot be recognized because it cannot be measured reliably. The Company does not recognize a contingent liability, but discloses its existence, if it exists, in the financial statements.

1.18 Classification and Provisioning of Assets as per RBI Guidelines

As per the guidelines given in the Master Directions dated 09^th March, 2017 issued by the Reserve Bank of

India for Non-Banking Financial Companies in respect of Prudential Norms for Income Recognition, Asset Classification, Accounting Standards, Provisioning / Writing off for bad and doubtful debts, Capital Adequacy and Concentration of credit / investments, the Company makes adequate provisions against Non-Performing Assets in the following manner;

(i) Standard Assets:

Provision against Standard Assets is made at the rate of 0.35% as required by Paragraph 14 of The Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 dated 09^th March, 2017.

(ii) Sub-standard, Doubtful and Loss Assets:

Provision as required by Paragraph 13 of The Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 dated 09^th March, 2017.

(iii) Loans in the doubtful assets category held for a period of more than two years in respect of Hypothecation advance against two wheelers and three wheelers are written off as considered appropriate by the management.

(iv) Loss assets Loans against security of gold ornaments in the loss asset category are written off as considered appropriate by the management.

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Mar 31, 2015

1.1 Basis for preparation of financial statements

i. The financial statements for the year ended 31st March, 2015, have been prepared under historical cost convention and on the accrual basis of accounting in accordance with Indian Generally Accepted Accounting Principles ("GAAP") and in compliance with the provisions of the Companies Act, 2013, mandatory and relevant Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) and the directions issued by Reserve Bank of India for Non-Banking Financial Companies from time to time, wherever applicable.

ii. All assets and liabilities have been classified as current and non-current as per the Company's normal operating cycle and other criteria set out in the Schedule III of the Companies Act, 2013. Based on the nature of financial services provided and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as 36 months for the purpose of classification of its assets and liabilities into current and non-current as per the requirements of Schedule III of the Companies Act, 2013.

iii. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year.

1.2 Use of Estimates

The preparation of the financial statements requires the use of estimates and assumptions that affect the reported amount of assets and liabilities as at the Balance Sheet date, reported amounts of revenues and expenses during the period and disclosure of contingent liabilities as at that date. The estimates and assumptions used in these financial statements are based upon the management's evaluation of the relevant facts and circumstances as on the date of financial statements. Although these estimates are based upon management's best knowledge of current events and actions, actual results could differ from these estimates. Any revisions to the accounting estimates are recognized prospectively in the current and future years.

1.3 Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured:

* Income from Financial Services

Finance charges in respect of hypothecation loan transactions are accounted by applying the Internal Rate of Return method. Overdue charges on belated hypothecation loan instalments are accounted as and when received by the Company.

Interest on loans and advances, including Loan Buyout, is recognized on accrual basis at the contract rate wherever feasible. Overdue charges for delayed payments are accounted as and when received.

Income in respect of Non-performing assets is recognized as and when received as per the guidelines given in the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 2007.

Interest income on SLR Investment/ Deposits is recognized on accrual basis.

* Windmill Income

Income from power generation is recognized on supply of power to the grid as per the terms of the agreement with Muthoot Bankers.

* Dividend Income

Dividend on investments is recognized as income, when right to receive payment is established by the date of Balance Sheet. The profit/loss on Capital Market Operations is recognized at the time of actual sale/redemption of investments.

1.4 Receivables from Financing Activities

The Company has followed the Directions issued by the Reserve Bank of India for Non-Banking Financial Companies in respect of Prudential Norms for Income Recognition, Asset Classification, Accounting Standards, Provisioning / Writing off for bad and doubtful debts, Capital Adequacy and Concentration of credit / investments and also the Non-Banking Financial Companies acceptance of Public Deposits (Reserve Bank) Directions 2007.

Hypothecation Loans

i. Hypothecation loans are stated at the amounts advanced including finance charges accrued and due, as reduced by amounts received up to Balance Sheet date.

ii. Repossessed automobile assets are valued at lower of book value and estimated realizable value.

iii. Interest on hypothecation loans was recognized on accrual basis up to the current reporting date.

1.5 Tangible Fixed Assets

Fixed Assets are stated at historical cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises purchase price, borrowing costs, if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebate are deducted in arriving at the purchase price.

Subsequent expenditure related to an item of fixed asset is added to its book value, only if it increases the future benefit of the existing asset beyond its previously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the Statement of Profit & Loss for the period during which such expenses are incurred.

Gains or losses arising from de-recognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the Statement of Profit & Loss when the asset is de-recognized.

1.6 Depreciation on Tangible Fixed Assets

Depreciation on assets held for own use of the Company is provided on written down value method as per the useful years of life of the assets and in the manner prescribed under Schedule II of the Companies Act, 2013.

The company has adopted the following as the useful years of life to provide depreciation on its fixed assets.

Sl No Description of the Assets Useful Years of Life

1 Motor Vehicles

(i) Car 8 (ii) Cycles, Scooters 10

2 Furniture and Fittings 10

3 Office Equipments 5

4 Computer and Accessories

(i) Computers 3

(ii) Networks & Servers 6

5 Windmill generator 22

Carrying Amounts of assets for which useful life is reduced as per the Schedule II of the Companies Act, 2013 which came into effect from 1st April, 2014, are depreciated as shown below:

a. The Carrying amount as on 1st April, 2014, is depreciated over remaining useful life of the asset as per Schedule II of the Companies Act, 2013

b. If the useful life of asset as on 1st April, 2014, is nil as per Schedule II of the Companies Act, 2013,the carrying amount as on 1st April, 2014, is recognized in the opening balance of the Reserves and Surplus.

Impairment of tangible and intangible assets

a) The carrying amounts of assets are reviewed at each Balance Sheet date to ascertain impairment based on internal / external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. An asset's recoverable amount is the higher of an asset's net selling price and its value in use.

b) After impairment, depreciation is provided on the revised carrying amount of the asset as per the Useful Life as prescribed in Schedule II of the Companies Act 2013.

c) An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the company estimates the asset's recoverable amount. A previously recognized impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation if there was no impairment.

1.7 Leases

Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the Statement of Profit and Loss on straight line basis over the lease term.

1.8 Investments

a) Investment in Government Securities

Long-Term Investments are stated at cost and provision for diminution in value, other than temporary, is considered wherever necessary.

Current Investments are valued at lower of cost and market value / net asset value.

b) Investments - Others

Investments, which are readily realizable and intended to be held for not more than three years from the date on which such investments are made, are classified as current investments. All other investments are classified as Long- Term investments.

On initial recognition, all investments are measured at cost. The cost comprises of purchase price and directly attributable acquisition charges such as brokerage, fees and duties. Current investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis. Long term investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of the investments.

On disposal of investments, the difference between its carrying amount and net disposal proceeds is charged or credited to the Statement of Profit & Loss.

1.9 Income Tax

Tax expense comprises of Current and Deferred Tax. Current Income Tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted, at the reporting date.

Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and the reversal of timing differences of the earlier years.

Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets are recognized for deductible timing differences only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.

The carrying amount of deferred tax assets are reviewed at each reporting date. The Company writes down the carrying amount of deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax asset against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxation authority.

1.10 Retirement and Other Employee Benefits

a) Defined Contribution Plan

(i) Provident Fund

Retirement benefit in the form of provident fund is a defined contribution scheme. The contributions to the provident fund are charged to the Statement of Profit & Loss for the year when the contributions are due in accordance with the fund rules. The Company has no obligation, other than the contribution payable to the provident fund.

(ii) Employees State Insurance

The Company also contributes to Employees State Insurance Corporation on behalf of its employees.

b) Defined Benefit Plan - Gratuity.

Payment of gratuity to employees is covered by the Gratuity Trust Scheme based on the Group Gratuity Cum Assurance Scheme of the LIC of India which is a defined benefit scheme. The yearly contribution/premium paid/ payable is determined on actuarial valuation done by LIC. Actuarial gain and loss for defined benefit plan is recognized in full in the period in which they occur in the Statement of Profit & Loss.

1.11 Segment Reporting

The Company's business activity primarily falls within a single business segment which constitutes Financing Activities (Advancing of hypothecation loans, buying loan portfolio of other NBFCs/ Micro Finance company and loan against demand promissory notes etc.). Hence, there is no additional disclosures required under Accounting Standard 17 'Segment Reporting'.

The Company operates primarily in India; hence there is no other significant geographical segment that requires the disclosure.

1.12 Related Party Disclosure

Disclosures are made as per the requirements of the Accounting Standard 18 'Related Party' read with the clarifications issued by Institute of Chartered Accountants of India.

1.13 Earnings per Share

The Company reports basic earning per share in accordance with Accounting Standared -20 "Earnings per Share", issued by the ICAI. Basic earnings per share has been computed by dividing net profit after tax by the weighted average number of equity shares outstanding for the year.

1.14 Cash and Cash Equivalents

Cash and Cash equivalents in the cash flow statements comprise cash at hand and at bank, remittances in transits and short-term investments with an original maturity of three months or less.

1.15 Material Events

Material Event occurring after the Balance Sheet date is taken into cognizance.

1.16 Provisions other than that for Non-Performing Assets

A provision is recognized when the Company has a present legal and constructive obligation as a result of past event, it is probable that an out flow of resources embodying economic benefits will be required to settle the obligation and reliable estimate can be made of the amount of the obligation. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates.

1.17 Contingent Liabilities

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the financial statements.

1.18 Classification and provisioning as per RBI Guidelines

As per the guidelines given in the Prudential Norms for Non-Banking Financial Companies prescribed by the Reserve Bank of India, the Company makes adequate provisions against Non-Performing Assets in the following manner;

a. Standard Assets:

Provision against Standard Assets is made at the rate of 0.25% as required by Paragraph 9A of the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions 2007 read with Notification No. DNBS.222/CGM (US)-2011 issued by Reserve Bank of India on January 17, 2011.

b. Sub-standard, Doubtful and Loss Assets:

Provision as required by Paragraph 9 of the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions 2007.

c. An additional adhoc provision as considered appropriate by the management towards provision against non-performing assets.

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Mar 31, 2014

CORPORATE INFORMATION

Muthoot Capital Services Limited (the company) is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed in the Bombay Stock Exchange in India. The Company is registered as a Non-Banking Financial Company (NBFC) with Reserve Bank of India. During the year the Company is mainly engaged in asset financing activities, especially two wheelers and three wheelers. The Company has a strong presence in the Non-banking financial sector in rural and semi-urban areas in South India. Muthoot Capital Services Limited was incorporated on February 18, 1994 as a public limited company.

1.1 Basis for preparation of financial statements

i. The financial statements for the year ended 31st March, 2014, have been prepared under historical cost convention and on the accrual basis of accounting in accordance with Indian Generally Accepted Accounting Principles ("GAAP") and in compliance with the provisions of the Companies Act, 2013 (to the extent modified) and the Companies Act, 1956 (to the extent applicable), mandatory and relevant Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) and the directions issued by Reserve Bank of India for Non Banking Financial Companies from time to time, wherever applicable.

ii. All assets and liabilities have been classified as current and non current as per the Company''s normal operating cycle and other criteria set out in the revised Schedule VI of the Companies Act, 1956. Based on the nature of services and their realization in cash and cash equivalents, the Company has adopted its operating cycle as 12 months for the purpose of current and non current classification of its assets and liabilities.

iii. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year.

1.2 Use of Estimates

The preparation of the financial statements requires the use of estimates and assumptions that affect the reported amount of assets and liabilities as at the balance sheet date, reported amounts of revenues and expenses during the period and disclosure of contingent liabilities as at that date. The estimates and assumptions used in these financial statements are based upon the management''s evaluation of the relevant facts and circumstances as on the date of financial statements. Although these estimates are based upon management''s best knowledge of current events and actions, actual results could differ from these estimates. Any revisions to the accounting estimates are recognized prospectively in the current and future years.

1.3 Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured:

- Income from Financial Services

- Finance charges in respect of hypothecation loan transactions are accounted by applying the Internal Rate of Return method. Overdue charges on belated hypothecation loan installments are accounted as and when received by the Company.

- Interest on loans and advances is recognized on accrual basis at the contract rate wherever feasible. Overdue charges for delayed payments are accounted as and when received.

- Income in respect of Non performing assets is recognized as and when received as per the guidelines given in the Non Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 2007.

- Income from Services is recognized on accrual basis as per the terms of the contract.

- Interest Income on SLR Investment is recognized on accrual basis

Windmill Income

Income from power generation is recognized on supply of power to the grid as per the terms of the power purchase agreement with Tamil Nadu State Electricity Board.

Dividend Income

Dividend on investments is recognized as income, when right to receive payment is established by the date of balance sheet. The profit / loss on Capital Market Operations is recognized at the time of actual sale / redemption of investments.

1.4 Receivables from Financing Activities

The Company has followed the Directions issued by the Reserve Bank of India for Non-Banking Financial Companies in respect of Prudential Norms for Income Recognition, Asset Classification, Accounting Standards, provisioning / writing off for bad and doubtful debts, Capital Adequacy and Concentration of credit / investments and also the Non-Banking Finance Companies acceptance of Public Deposits (Reserve Bank) Directions 2007.

Hypothecation Loans

i. Hypothecation loans are stated at the amounts advanced including finance charges accrued and due, as reduced by amounts received up to balance sheet date.

ii. Repossessed automobile assets are valued at lower of book value and estimated realizable value.

iii. Interest on hypothecation loans was recognized on accrual basis up to the current reporting date.

1.5 Tangible Fixed Assets

Fixed Assets are stated at historical cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises purchase price, borrowing costs if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebate are deducted in arriving at the purchase price.

Subsequent expenditure related to an item of fixed asset is added to its book value, only if it increases the future benefit of the existing asset beyond its previously assessed standard of performance. All other expenses on existing fixed assets, including day to day repair and maintenance expenditure and cost of replacing parts, are charged to the Statement of Profit & Loss for the period during which such expenses are incurred.

Gains or losses arising from de-recognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the Statement of Profit and Loss when the asset is de recognized.

1.6 Depreciation on tangible fixed assets

Depreciation on assets held for own use of the Company is provided on written down value method at the rates and in the manner prescribed under schedule XIV of the Companies Act, 1956. All fixed assets individually costing Rs. 5,000 or less are fully depreciated in the year of installation.

1.7 Impairment of tangible and intangible assets

a) The carrying amounts of assets are reviewed at each balance sheet date to ascertain impairment based on internal / external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. An asset''s recoverable amount is the higher of an asset''s net selling price and its value in use.

b) After impairment, depreciation is provided on the revised carrying amount of the asset as per the depreciation rate prescribed in Schedule XIV of the Companies Act, 1956.

c) An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the company estimates the asset''s recoverable amount. A previously recognized impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation if there was no impairment.

1.8 Leases

Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the Statement of Profit and Loss on straight line basis over the lease term.

1.9 Investments

(a) Investment in Government Securities- Long term Investments are stated at cost and provision for diminution in value, other than temporary, is considered wherever necessary.

Current Investments are valued at lower of cost and market value / net asset value.

(b) Investments - Others

Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. All other investments are classified as long term investments.

On initial recognition, all investments are measured at cost. The cost comprises purchase price and directly attributable acquisition charges such as brokerage, fees and duties.

Current investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis. Long term investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of the investments.

On disposal of investments, the difference between its carrying amount and net disposal proceeds is charged or credited to the Statement of Profit and Loss.

1.10 Income Tax

Tax expense comprises of Current and Deferred Tax. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income tax Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted, at the reporting date.

Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and the reversal of timing differences of the earlier years.

Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets are recognized for deductible timing differences only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.

The carrying amount of deferred tax assets are reviewed at each reporting date. The company writes down the carrying amount of deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax asset against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxation authority.

1.11 Retirement and Other Employees Benefits

a) Defined Contribution Plan

(i) Provident Fund

Retirement benefit in the form of provident fund is a defined contribution scheme. The contributions to the provident fund are charged to the Statement of Profit and Loss for the year when the contributions are due in accordance with the fund rules. The Company has no obligation, other than the contribution payable to the provident fund.

(ii) Employee State Insurance

The company also contributes to Employees State Insurance Corporation on behalf of its employees.

b) Defined Benefit Plan - Gratuity.

Payment of gratuity to employees is covered by the Gratuity Trust Scheme based on the Group Gratuity Cum Assurance Scheme of the LIC of India which is a defined benefit scheme. The yearly contribution / premium paid / payable is determined on actuarial valuation done by LIC. Actuarial gain and loss for defined benefit plan is recognized in full in the period in which they occur in the Statement of Profit and Loss.

1.12 Segment Reporting

The company''s business activity primarily falls within a single business segment which constitutes Financing Activities (Advancing of hypothecation loans and loan against demand promissory notes etc.). Hence, there are no additional disclosures required under Accounting Standard 17 ''Segment Reporting''.

The Company operates primarily in India; hence there is no other significant geographical segment that requires the disclosure.

1.13 Related Party Disclosure

Disclosures are made as per the requirements of the Accounting Standard 18 read with the clarifications issued by Institute of Chartered Accountants of India.

1.14 Earnings per Share

The Company reports basic earning per share in accordance with AS-20 "Earnings per Share", issued by the ICAI. Basic earnings per share has been computed by dividing net profit after tax by the weighted average number of equity shares outstanding for the year.

1.15 Cash and Cash Equivalents

Cash and cash equivalents in the cash flow statements comprise cash at hand and at bank, remittances in transits and short term investments with an original maturity of three months or less.

1.16 Provisions other than that for Non Performing Assets

A provision is recognized when the company has a present legal and constructive obligation as a result of past event, it is probable that an out flow of resources embodying economic benefits will be required to settle the obligation and reliable estimate can be made of the amount of the obligation. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates.

1.17 Contingent Liabilities

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The company does not recognize a contingent liability but discloses its existence in the financial statements.

1.18 Classification and provisioning as per RBI Guidelines

As per the guidelines given in the Prudential Norms for Non Banking Financial Companies prescribed by the Reserve Bank of India, the Company makes adequate provisions against Non Performing Assets in the following manner;

a. Standard Assets:

Provision against Standard Assets is made at the rate of 0.25% as required by Paragraph 9A of the Non Banking Financial Companies Prudential Norms (Reserve Bank) Directions 2007 read with Notification No. DNBS.222/CGM (US)-2011 issued by Reserve Bank India on January 17, 2011.

b. Sub-standard, Doubtful and Loss Assets:

Provision as required by paragraph 9 of the Non Banking Financial Companies Prudential Norms (Reserve Bank) Directions 2007.

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Mar 31, 2013

1.1 Basis for preparation of financial statements

i. The financial statements for the year ended March 31, 2013, have been prepared under historical cost convention and on the accrual basis of accounting in accordance with Indian Generally Accepted Accounting Principles (“GAAP") and in compliance with the provisions of Companies Act, 1956, mandatory and relevant Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) and the directions issued by Reserve Bank of India for Non Banking Financial Companies from time to time, wherever applicable.

ii. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year.

1.2 Use of Estimates

The preparation of the financial statements requires the use of estimates and assumptions that affect the reported amount of assets and liabilities as at the balance sheet date, reported amounts of revenues and expenses during the period and disclosure of contingent liabilities as at that date. The estimates and assumptions used in these financial statements are based upon the management''s evaluation of the relevant facts and circumstances as on the date of financial statements. Although these estimates are based upon management''s best knowledge of current events and actions, actual results could differfrom these estimates. Any revisions to the accounting estimates are recognized prospectively in the current and future years.

1.3 Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flowtothe Company and the revenue can be reliably measured:

Income from Financial Services

- Finance charges in respect of hypothecation loan transactions are accounted by applying the Internal Rate of Return method. Overdue charges on belated hypothecation loan installments are accounted as and when received by the Company.

- Interest on loans and advances is recognized on accrual basis at the contract rate wherever feasible. Overdue charges for delayed payments are accounted as and when received.

- Income in respect of Non-performing assets is recognized as and when received as per the guidelines given in the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 2007.

- Income from Services is recognized on accrual basis as perthe terms ofthe contract.

Windmill Income

Income from power generation is recognized on supply of power to the grid as per the terms of the power purchase agreement with Tamil Nadu State Electricity Board.

Dividend Income

Dividend on investments is recognized as income when right to receive payment is established by the date of balance sheet. The profit/loss on Capital Market Operations is recognized at the time of actual sale/redemption of investments.

1.4 Receivables from Financing Activities

The Company has followed the Directions issued by the Reserve Bank of India for Non Banking Financial Companies in respect of Prudential Norms for Income Recognition, Asset Classification, Accounting Standards, provisioning / writing off for bad and doubtful debts, Capital Adequacy and Concentration of credit/investments and also the Non Banking Finance Companies acceptance of Public Deposits (Reserve Bank) Directions 2007.

Hypothecation Loans

i. Hypothecation loans are stated at the amounts advanced including finance charges accrued and due, as reduced by amounts received up to balance sheet date.

ii. Repossessed automobile assets are valued at lower of book value and estimated realizable value.

iii. Interest on hypothecation loans was recognized on accrual basis uptothe current reporting date.

1.5 Tangible Fixed Assets

Fixed Assets are stated at historical cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises purchase price, borrowing costs if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebate are deducted in arriving atthe purchase price.

Subsequent expenditure related to an item of fixed asset is added to its book value, only if it increases the future benefit of the existing asset beyond its previously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the Statement of Profit & Loss forthe period during which such expenses are incurred.

Gains or losses arising from de-recognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount ofthe asset and are recognized in the Statement of Profit & Loss when the asset is de-recognized.

1.6 Depreciation on tangible fixed assets

Depreciation on assets held for own use ofthe Company is provided on written down value method at the rates prescribed under schedule XIV ofthe Companies Act, 1956. All fixed assets individually costingRs. 5,000/- orless are fully depreciated in the year of installation.

1.7 Impairment of tangible and intangible assets

a) The carrying amounts of assets are reviewed at each balance sheet date to ascertain impairment based on internal / external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. An asset''s recoverable amount is the higher of an asset''s net selling price and its value in use.

b) After impairment, depreciation is provided on the revised carrying amount of the asset as per the depreciation rate prescribed in Schedule XIV ofthe Companies Act 1956.

c) An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the company estimates the asset''s recoverable amount. A previously recognized impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation if there was no impairment.

1.8 Leases

Leases, where the lessor effectively retains substantially all the risks and benefits of ownership ofthe leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the Statement of Profit and Loss on straight line basis overthe lease term.

1.9 Investments

Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. All other investments are classified as longterm investments.

On initial recognition, all investments are measured at cost. The cost comprises purchase price and directly attributable acquisition charges such as brokerage, fees and duties.

Current investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis. Long term investments are carried at cost. However, provision for diminution in value is made to recognize a decline otherthan temporary in the value ofthe investments.

On disposal of investments, the difference between its carrying amount and net disposal proceeds is charged or credited to the Statement of Profit & Loss.

1.10 Income Tax

Tax expense comprises of Current and Deferred Tax. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income tax Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted, at the reporting date.

Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating duringthe current year and the reversal of timing differences ofthe earlier years.

Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets are recognized for deductible timing differences only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.

The carrying amount of deferred tax assets are reviewed at each reporting date. The company writes down the carrying amount of deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax asset against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxation authority.

1.11 Retirement and other employee Benefits

a) Defined Contribution plan

(i) Provident Fund

Retirement benefit in the form of Provident fund is a defined contribution scheme. The contributions to the Provident fund are charged to the Statement of Profit & Loss for the year when the contributions are due in accordance with the fund rules. The company has no obligation, otherthan the contribution payable to the provident fund.

(ii) Employee State Insurance

The company also contributes to Employees State Insurance Corporation on behalf of its employees.

b) Defined Benefit plan-Gratuity.

Payment of gratuity to employees is covered by the Gratuity Trust Scheme based on the Group Gratuity Cum Assurance Scheme of the LIC of India which is a defined benefit scheme. The yearly contribution/premium paid/payable is determined on actuarial valuation done by LIC. Actuarial gain and loss for defined benefit plan is recognized in full in the period in which they occur in the Statement of Profit & Loss.

1.12 Segment Reporting

The company''s business activity primarily falls within a single business segment which constitutes Financing Activities (Advancing of hypothecation loans, loan against demand promissory notes etc.). Hence, there are no additional disclosures required under Accounting Standard 17 ''Segment Reporting1.

The Company operates primarily in India; hence there is no other significant geographical segment that requires the disclosure.

1.13 Related Party Disclosure

Disclosures are made as perthe requirements ofthe Accounting Standard 18 read with the clarifications issued by I nstitute of Chartered Accou ntants of I nd ia.

1.14 Earnings per Share

The Company reports basic earning per share in accordance with AS-20 "Earnings per Share", issued by the ICAI. Basic earning per share has been computed by dividing net profit after tax by the weighted average numberof equity shares outstandingfortheyear.

1.15 Cash and Cash Equivalents

Cash and cash equivalents in the cash flow statements comprise cash at hand and at bank, remittances in transits and shortterm investments with an original maturity of three months or less.

1.16 Provisions otherthan that for non performing assets

A provision is recognized when the company has a present legal and constructive obligation as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and reliable estimate can be made of the amount ofthe obligation. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates.

1.17 Contingent Liabilities

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The company does not recognize a contingent liability but discloses its existence in the financial statements.

1.18 Classification and provisioning as per RBI Guidelines

As per the guidelines given in the Prudential Norms for Non Banking Financial Companies prescribed by the Reserve Bank of India, the Company makes adequate provisions against Non Performing Assets in the following manner;

a. Standard Assets:

Provision against Standard Assets is made atthe rate of 0.25% as required by Paragraph 9Aofthe Non Banking Financial Companies Prudential Norms (Reserve Bank) Directions 2007 read with Notification No. DNBS.222/CGM(US)-20I I issued by Reserve Bankof India on January 17,201 I.

b. Sub-standard. Doubtful and Loss Assets:

Provision as required by paragraph 9 of the Non Banking Financial Companies Prudential Norms (Reserve Bank) Directions 2007.

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Mar 31, 2012

1.1 Basis for preparation of financial statement

i. The financial statements for the year ended March 31, 2012, have been prepared under historical cost convention in accordance with Indian Generally Accepted Accounting Principles ("GAAP") and in compliance with the provisions of Companies Act, 1956, mandatory and relevant Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) and the directions issued by Reserve Bank of India for Non Banking Financial Companies from time to time, wherever applicable.

ii. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year, except for the change in accounting policy explained below:

a. Presentation and disclosure of financial statements

During the year ended March 31, 2012, the revised Schedule VI notified under the Companies Act, 1956, has become applicable to the company, for preparation and presentation of its financial statements. The adoption of revised Schedule VI does not impact recognition and measurement principles followed for preparation of the financial statements. However it has significant impact on presentation and disclosures made in the financial statements. The company has also reclassified the previous year figures in accordance with the requirements applicable in the current year.

b. Interest on hypothecation loans was recognized on accrual basis up to the current reporting date as against for the completed months up to the previous year. This resulted in an increase of operating revenue by Rs. 412.39 Lakhs for the year ended March 31, 2012.

1.2 Use of Estimates

The preparation of the financial statements requires the use of estimates and assumptions that affect the reported amount of assets and liabilities as at the balance sheet date, reported amounts of revenues and expenses during the period and disclosure of contingent liabilities as at that date. The estimates and assumptions used in these financial statements are based upon the management's evaluation of the relevant facts and circumstances as of the date of financial statements. Although these estimates are based upon management's best knowledge of current events and actions, actual results could differ from these estimates. Any revisions to the accounting estimates are recognised prospectively in the current and future years.

1.3 Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured:

Income from Financial Services

- Finance charges in respect of hypothecation loan transactions are accounted by applying the Internal Rate of Return method. Overdue charges on belated hypothecation loan installments are accounted as and when received by the Company.

- Interest on loans and advances is recognized on accrual basis at the contract rate wherever feasible. Overdue charges for delayed payments are accounted as and when received.

- Income in respect of Non-performing assets is recognized as and when received as per the guidelines given in the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 2007.

- Income from Services is recognized on accrual basis as per the terms of the contract.

Windmill Income

Income from power generation is recognized on supply of power to the grid as per the terms of the power purchase agreement with Tamil Nadu Electricity Board.

Dividend Income

Dividend on investments is recognized as income when right to receive payment is established by the date of balance sheet. The profit/loss on Capital Market Operations is recognised at the time of actual sale/redemption of investments.

1.4 Receivables from Financing Activities

The Company has followed the Directions issued by the Reserve Bank of India for Non Banking Financial Companies in respect of Prudential Norms for Income Recognition, Asset Classification, Accounting Standards, provisioning / writing off for bad and doubtful debts, Capital Adequacy and Concentration of credit / investments and also the Non Banking Finance Companies acceptance of Public Deposits (Reserve Bank) Directions 2007

Hypothecation Loans

i. Hypothecation loans are stated at the amounts advanced including finance charges accrued and due, as reduced by amounts received up to balance sheet date.

ii. Repossessed automobile assets are valued at lower of book value and estimated realizable value.

iii. Interest on hypothecation loans was recognized on accrual basis up to the current reporting date

1.5 Tangible fixed assets

Fixed Assets are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises purchase price, borrowing costs if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Trade discount and rebate if any due or received are deducted in arriving at the purchase price.

Subsequent expenditure related to an item of fixed asset is added to its book value only if it increases the future benefit from the existing asset beyond its previously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of profit & loss for the period during which such expenses are incurred.

Gains or losses arising from de-recognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit & loss when the asset is de-recognized.

1.6 Depreciation on tangible fixed assets

Depreciation on assets held for own use of the Company is provided on written down value method at the rates prescribed under schedule XIV of the Companies Act, 1956. All fixed assets individually costing Rs. 5,000/- or less are fully depreciated in the year of installation. The company has used the following rates to provide depreciation on its fixed assets.

1.7 Impairment of tangible and intangible assets

a) The carrying amounts of assets are reviewed at each balance sheet date to ascertain impairment based on internal / external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. An asset's recoverable amount is the higher of an asset's net selling price and its value in use.

b) After impairment, depreciation is provided on the revised carrying amount of the asset as per the depreciation rate prescribed in Schedule XIV of the Companies Act 1956.

c) An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the company estimates the asset's recoverable amount. A previously recognized impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation if there was no impairment.

1.8 Leases

Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item are classified as operating leases. Operating lease payments are recognized as an expense in the statement of profit and loss on straight line basis over the lease term.

1.9 Investments

Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. All other investments are classified as long term investments.

On initial recognition, all investments are measured at cost. The cost comprises purchase price and directly attributable acquisition charges such as brokerage, fees and duties.

Current investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis. Long term investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of the investments.

On disposal of investments, the difference between its carrying amount and net disposal proceeds is charged or credited to the statement of profit & loss.

1.10 Income Tax

Tax expense comprises current and deferred tax. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income tax Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted, at the reporting date.

Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and the reversal of timing differences of the earlier years. Deferred tax is measured using the tax rates and the tax laws enacted or substantially enacted at the reporting date.

Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets are recognized for deductible timing differences only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.

The carrying amounts of deferred tax assets are reviewed at each reporting date. The company writes down the carrying amount of deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax asset against current tax liabilities and the deferred tax assets and deferred taxes relate to the same taxation authority.

1.11 Retirement and other employee Benefits

a) Defined Contribution plan- Provident Fund.

Retirement benefit in the form of provident fund is a defined contribution scheme. The contributions to the provident fund are charged to the statement of profit & loss for the year when the contributions are due. The company has no obligation, other than the contribution payable to the provident fund.

b) Defined Benefit plan – Gratuity.

Payment of gratuity to employees is covered by the Gratuity Trust Scheme based on the Group Gratuity Cum Assurance Scheme of the LIC of India which is a defined benefit scheme. The yearly contribution/premium paid/payable is determined on actuarial valuation done by LIC. Actuarial gain and loss for defined benefit plan is recognized in full in the period in which they occur in the statement of profit & loss.

1.12 Segment Reporting

The company's business activity primarily falls within a single business segment which constitutes Financing Activities (Advancing of hypothecation loans, gold loan, loan against demand promissory notes etc.), hence, there are no additional disclosures required under Accounting Standard 17 'Segment Reporting'. The Company operates only in India; hence there is no other significant geographical segment that requires the disclosure.

1.13 Related Party Disclosure

Disclosures are made as per the requirements of the Accounting Standard 18 read with the clarifications issued by Institute of Chartered Accountants of India.

1.14 Earnings per Share

Basic earnings per share are 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 is adjusted for events such as bonus element in a right issue 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 share holders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.

1.15 Cash and Cash Equivalents

Cash and cash equivalents in the cash flow statements comprise cash at hand and at bank, remittances in transits and short term investments with an original maturity of three months or less.

1.16 Right Issue Expenses

Issue expenses incurred in respect of right issue of the Company has been fully charged to the statement of Profit and Loss.

1.17 Provisions other than that for non performing assets

A provision is recognized when the company has a present obligation as a result of past event, and it is probable that an out flow of resources embodying economic benefits will be required to settle the obligation and reliable estimate can be made of the amount of the obligation. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates.

1.18 Contingent Liabilities

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The company does not recognize a contingent liability but discloses its existence in the financial statements.

1.19 Classification and provisioning as per RBI Guidelines

i. As per the guidelines given in the Prudential Norms for Non Banking Financial Companies prescribed by the Reserve Bank of India, the Company makes adequate provisions against Non Performing Assets in the following manner.

a. Standard Assets:

Provision against Standard Assets is made at the rate of 0.25% as required by Paragraph 9A of the Non Banking Financial Companies Prudential Norms (Reserve Bank) Directions 2007 read with Notification No. DNBS.222/ CGM (US)-2011 issued by Reserve Bank of India on January 17, 2011.

b. Sub-standard, Doubtful and Loss Assets

Provision as required by paragraph 9 of the Non Banking Financial Companies Prudential Norms (Reserve Bank) Directions 2007.

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Mar 31, 2010

1.1. Basis for preparation of financial statements.

The financial statements for the year 2009-10, have been prepared under historical cost convention, in compliance with Indian Generally Accepted Accounting Principles ( GAAP ) with mandatory and relevant Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) and in compliance with the provisions of Companies Act, 1956 and the directions issued by Reserve Bank of India for Non Banking Financial Companies from time to time wherever applicable.

The preparation of the financial statements requires the use of estimates and assumptions that affect the reported amount of assets and liabilities as at the Balance sheet date, reported amounts of revenues and expenses during the year. The estimates and assumptions used in these financial statements are based upon the managements evaluation of the relevant facts and circumstances as on the date of financial statements.

1.2. Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured

a. Finance charges in respect of Hire Purchase/Hypothecation loan transactions are accounted by applying the Internal Rate of Return method. Over due charges on belated Hire Purchase/Hypothecation loan installments are accounted as and when received by the Company.

b. Interest on loans and advances is recognized on accrual basis at the contract rate wherever feasible. Overdue charges for delayed payments are accounted as and when received.

c. Interest on investments is accounted on accrual basis. Dividend is recognized as income when right to receive payment is established by the date of balance sheet. The Profit/Loss on the sale of investments is dealt with at the time of actual sale/redemption.

d. Income in respect of Non-performing assets is recognized as and when received as per the guidelines given in the Non-Banking Financial Companies (Reserve Bank) Directions, 2007.

e. Income from Services is recognized on accrual basis.

1.3. Treatment of expenses:

a. It is the Companys policy to provide for all expenses on accrual basis, unless otherwise stated.

b. As per the guidelines given in the Prudential Norms for Non-Banking Financial Companies prescribed by the Reserve Bank of India, the Company makes adequate provisions against Non-Performing Assets in the following manner.

(i) Sub-standard Assets:

Provision as required by paragraph 9 of the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions 2007.

(ii) Doubtful/Loss Assets:

Provision as required by paragraph 9 of the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions 2007. The Company has written off an amount equivalent to the amount required to be provided as per Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 2007 if the provision required to be made is 100%.

1.4. The Company has followed the Directions prescribed by the Reserve Bank of India for Non-Banking Financial Companies in respect of Prudential Norms for Income Recognition, Asset Classification, Accounting Standards, provisioning/writing off for bad and doubtful debts, Capital Adequacy and Concentration of credit / investments and Non Banking Finance Companies acceptance of Public Deposits (Reserve Bank) Directions 2007

1.5.Fixed assets:

Fixed assets are carried at historical cost less accumulated depreciation.

1.6.Depreciation:

Depreciation on assets held for own use of the Company is provided on written down value method at the rates prescribed under schedule XIV of the Companies Act, 1956. Assets costing Rs. 5,000/- or less acquired during the year are fully depreciated.

1.7. Investments:

The investments made by the Company, are valued as per the Accounting Standard-13 issued by The Institute of Chartered Accountants of India. Current investments are valued at lower of cost or market value.

1.8.Stock on hire:

1) Stock under hire purchase of assets is stated at the full agreement value less un- matured finance and other charges in respect of installments not fallen due.

2) Stock of repossessed assets is valued at realizable market price or hire purchase installments receivable whichever is less.

1.9.Income Tax:-

Provision for taxation is made in accordance with the Accounting Standard-22 on Accounting for Taxes on Income issued by ICAI. Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted at the Balance Sheet date. Deferred tax assets and deferred tax liabilities are recognized for the future tax consequences attributable to differences in the financial statements between carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and deferred tax liabilities are recognized subject to managements judgment.

1.10.Employee Benefits

a) Short Term Employee Benefits

Short Term Employee Benefits for services rendered by employees are recognized during the period when the services are rendered.

b) Post Employment Benefits

(i) Defined Contribution plan- Provident Fund.

Contributions to provident fund made in accordance with the EPF rules are accounted on actual cost to the company.

(ii) Defined Benefit plan - Gratuity

Payment of gratuity to employees is covered by the Gratuity Trust Scheme based on the Group Gratuity Cum Assurance scheme of the LIC of India which is a defined benefit scheme. The yearly contribution/premium paid/payable to be determined on actuarial principle by LIC will be charged to the Profit & Loss Account.

1.11. Impairment of Assets

The carrying amounts of assets are reviewed at each balance sheet date to ascertain impairment based on internal / external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the net selling price of the assets and their value in use.

1.12. Segment Reporting: -

The companys operations are classified into two reportable business segments, viz. Financing Activities (Advancing of Gold Loan, Hire Purchase and Hypothecation Loans, etc.) and Insurance Services (as a corporate agent of HDFC Standard Life Insurance and data sharing partner of Birla SunLife Insurance) and the segment information is reported accordingly. Unallocated items include income and expenses which are not allocated to any business segment.

1.13.Related Party Disclosure: -

Disclosures are made as per the requirements of the Accounting Standard 18 read with the clarifications issued by Institute of Chartered Accountants of India.

1.14.Earnings per Share: -

The Company reports basic earning per share in accordance with AS-20 "Earnings per Share", issued by the ICAI. Basic earning per share has been computed by dividing net profit after tax by the weighted average number of equity shares outstanding for the year.

1.15.Provisions

Provisions are recognized when the Company has present legal or constructive obligations, as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made for the amount of the obligation.

1.16.Contingent Liabilities

Contingent Liabilities are not provided for, and are disclosed by way of notes.