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Accounting Policies of PNB Gilts Ltd. Company
Mar 31, 2025
C. Summary of material accounting policies information
I. Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity.
Financial assets
Classification
The Company classifies its financial assets in the following measurement categories:
Those to be measured subsequently at fair value (either through other comprehensive income (FVTOCI), or through
profit or loss (FVTPL) and those to be measured subsequently at amortised cost.
The classification is done depending upon the Companyâs business model for managing the financial assets and the
contractual terms of the cash flows.
For assets classified as âmeasured at fair valueâ, gains and losses will either be recorded in profit or loss or other
comprehensive income, as elected. For assets classified as âmeasured at amortised costâ, this will depend on the
business model and contractual terms of the cash flows.
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 Companyâs 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:
⢠How the performance of the business model and the financial assets held within that business model are
evaluated and reported to the entityâs key management personnel
⢠The risks that affect the performance of the business model (and the financial assets held within that business
model) and, in particular, the way those risks are managed
⢠The expected frequency, value and timing of sales are also important aspects of the Companyâs assessment
However, this assessment is performed on the basis of scenarios that the Company reasonably expects to occur and
not so-called âworst caseâ or âstress caseâ scenarios
The Company considers sale of Investment (Government Security - SDL) measured at amortised cost portfolio as
consistent with a business model whose objective is to hold financial assets in order to collect contractual cash flows
if these sales are:
i. In case of liquidity crisis faced by the company which can hit the funding operations. Company may liquidate
the amortised cost portfolio if the funding cost exceeds MIBOR plus 50 bps for three successive working
days. The decision to sell under such circumstances shall be taken by the Investment Committee.
ii. Catastrophic scenarios, which could be termed as one off situations (GFC, COVID crisis etc) wherein
portfolio liquidation needs to be carried out. However, sale under such scenarios shall only be undertaken
post approval from the Risk Management Committee.
The sale window shall however remain open for 30 days from trigger of the stress event.
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.
For the purpose of SPPI test, principal is the fair value of the financial asset at initial recognition. That principal
amount may change over the life of the financial asset (e.g. if there are repayments of principal). Interest consists of
consideration for the time value of money, for the credit risk associated with the principal amount outstanding during
a particular period of time and for other basic lending risks and costs, as well as a profit margin.
Contractual terms that introduce exposure to risks or volatility in the contractual cash flows that are unrelated to a
basic lending arrangement, such as exposure to changes in equity prices or commodity prices, do not give rise to
contractual cash flows that are SPPI, such financial assets are either classified as fair value through profit and loss
account or fair value through other comprehensive income.
Initial recognition and measurement
All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value
through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or
sales of financial assets that require delivery of assets within a time frame established by regulation or convention in
the market place (regular way trades) are recognised on the settlement date.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in three categories:
⢠Debt instruments at amortised cost
⢠Debt instruments at fair value through other comprehensive income (FVTOCI)
⢠Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
i. Debt instruments at Amortised cost.
A âdebt instrumentâ is measured at the amortised cost if both the following conditions are met.
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash
flows, and
b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal
and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the effective
interest rate (EIR) method.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs
that are an integral part of the EIR.
ii. Debt instruments at FVTOCi
A âdebt instrumentâ is classified as at the FVTOCI if both of the following criteria are met.
a) The objective of the business model is achieved both by collecting contractual cash flows and selling the
financial assets, and
b) The assetâs contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date
at fair value. Fair value movements are recognized in the other comprehensive income (OCI).
iii. Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
Debt instrument at FVTPL: FVTPL is a residual category for debt instruments. Any debt instrument, which
does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL. Debt
instruments included within the FVTPL category are measured at fair value with all changes recognized in the
PandL.
Equity investments: All equity investments in scope of Ind AS 109 are measured at fair value. Equity
instruments which are held for trading are classified as at FVTPL. All other equity instruments are classified as
per provisions of relevant Ind AS.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized
in the P and L.
Derivative financial instruments: The Company uses derivative financial instruments, such as Future
contracts, Options, Interest rate Future contracts for trading purpose and interest rate swaps for trading as well
as to hedge its interest rate risks. Such derivative financial instruments are initially recognised at fair value on
the date on which a derivative contract is entered into and are subsequently re-measured at fair value and the
resulting gain or loss is recognized in statement of Profit and Loss. Derivatives are carried as financial assets
when the fair value is positive and as financial liabilities when the fair value is negative.
Impairment of financial assets
In accordance with Ind AS 109, the company applies expected credit loss (ECL) model for measurement and
recognition of impairment loss on the following financial assets and credit risk exposure:
Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt securities and
deposits.
For recognition of impairment loss on financial assets and risk exposure, the company determines that whether there
has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly,
12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL
is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant
increase in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based
on 12-month ECL.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the
statement of profit and loss (PandL).
Financial liabilities
Initial recognition and measurement
A financial liability is initially measured at fair value plus, for an item not at fair value through profit and loss (FVTPL),
transaction costs that are directly attributable to its acquisition or issue.
Subsequent measurement
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at
FVTPL, if it is classified as held for trading, or it is a derivative or it is designated as such on initial recognition.
Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense,
are recognised in statement of profit and loss. Other financial liabilities are subsequently measured at amortised
cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in
statement of profit and loss.
Reclassification of financial instruments
The company did not reclassify any of its financial assets or liabilities subsequent to its initial recognition during the
FY 2024-25 and FY 2023-24.
Derecognition of Financial instruments
A financial asset is derecognised only when Company has transferred the rights to receive cash flows from the financial
asset. Where the entity has transferred an asset, the Company evaluates whether it has transferred substantially all
risks and rewards of ownership of the financial asset. In such cases, the financial asset is derecognised.
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a
currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to
realise the assets and settle the liabilities simultaneously.
II. Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand, short-term deposits and other
highly liquid investments, with an original maturity of three months or less and are readily convertible into known
amounts of cash, which are subject to an insignificant risk of changes in value.
For the purpose of the Financial Statements, cash and cash equivalents consist of cash and short-term deposits, as
defined above, net of outstanding bank overdrafts as they are considered an integral part of the Companyâs cash
management.
III. Revenue recognition
i. Interest income, for all debt instruments measured either at amortised cost (Short term lending, Fixed
deposits and Government securities) or at fair value through other comprehensive income, is recorded using
the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments
or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the
gross carrying amount of the financial asset or to the amortised cost of a financial liability. The calculation
takes into account all contractual terms of the financial instrument (for example, prepayment options) and
includes any fees or incremental costs that are incrementally directly attributable to the instrument and are
an integral part of the EIR, but not future credit losses.
ii. Changes in fair value of securities classified at fair value through profit and loss (FVTPL) (Certificates of
Deposit, Commercial Papers, Bills Re-discounted, Treasury Bills (including Cash Management Bills), Zero
Coupon Bonds, Government dated securities (including State Development Loan), Corporate bonds and
debentures, Equity sharesand Mutual funds) shall be taken to Profit and Loss.
iii. The difference between the acquisition cost and maturity value of Certificates of Deposit, Commercial
Papers, Bills Re-discounted, Treasury Bills (including Cash Management Bills) and Zero Coupon Bonds is
apportioned on time basis. The above is recognised as accrued income.
iv. Interest income on Government Dated Securities and Corporate Bonds and Debentures is recognised at its
coupon rate and that of Floating Rate Bonds is recognised on the yield of instruments to which these are
linked
v. Dividend income is recognized when the Companyâs right to receive payment is established by the reporting
date.
vi. Underwriting fees: Underwriting fee earned on the government securities is credited in the statement of
profit and loss account.
vii. Commission and other fees: Commission and other fees will be recognized as and when the performance
obligation is satisfied as per IND AS 115.
viii. Other income received through rent, interest on staff loans, house rent recovery and Misc. Income are
accounted for on accrual basis.
IV. Accounting of Expenses
Interest expense is measured and recognised on Effective Interest Rate (EIR) method. Other expenses are accounted
for on accrual basis as and when it gets accrued.
V. Accounting for Repo Transactions
Sales / Purchases of Treasury Bills (including Cash Management Bills) and Government Dated Securities, as
disclosed in Statement of Profit and Loss do not include Repo/Reverse Repo transactions in accordance with RBI
guidelines No. RBI/2009-2010/356/IDMD/4135/11.08.43/2009-10 dated March 23, 2010.
In conformity with RBI guidelines, securities sold under Repo transactions are not excluded from the portfolio and
the securities purchased under Reverse Repo are not included in the portfolio. Contra heads are used to reflect the
transfer of securities.
Repo seller continues to accrue coupon/ discount on securities, as the case may be, even during the repo period
while the repo buyer shall not accrue the same.
VI. Fair value measurement
On initial recognition, all the financial instruments are measured at fair value.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption that
the transaction to sell the asset or transfer the liability takes place either:
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 best interest.
A fair value measurement of a non-financial asset takes into account a market participantâs 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 - Those where the inputs used in the valuation are unadjusted quoted prices from active
markets for identical assets or liabilities that the Company has access to at the measurement date. The Company
considers markets as active only if there are sufficient trading activities with regards to the volume and liquidity of
the identical assets or liabilities and when there are binding and exercisable price quotes available on the balance
sheet date.
Level 2 financial instruments - Those where the inputs that are used for valuation and are significant, are derived
from directly or indirectly observable market data available over the entire period of the instrumentâs life. Such inputs
include prices for similar assets or liabilities in active markets, quoted prices for identical instruments in inactive
markets and observable inputs other than quoted prices such as interest rates and yield curves, implied volatilities,
and credit spreads. In addition, adjustments may be required for the condition or location of the asset or the extent
to which it relates to items that are comparable to the valued instrument. However, if such adjustments are based
on unobservable inputs which are significant to the entire measurement, the Company will classify the instruments
as Level 3.
Level 3 financial instruments - Those that include one or more unobservable input that is significant to the measurement
as whole.
The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during
which the change has occurred.
The Company has used the following methods for deriving the fair values:
i. Fair Value of Government dated Securities, Treasury Bills (including Cash Management Bills), State
development loans, Interest Rate Swaps, Certificates of Deposit and PSU/Corporate bonds and debentures,
is determined by the prices or yield, as applicable, declared by Fixed Income Money Market and Derivatives
Association of India (FIMMDA)/Financial Benchmark India Private Limited (FBIL) on last working day of the
Financial Year.
ii. In case of Commercial Papers, company shall use market observable spread over T Bill curve and based
on that new benchmark (T-Bill constant spread across the curve) company shall interpolate and calculate
CP prices corresponding to the residual maturities.
iii. Fair value of Equity Shares is determined by the closing rates provided by the stock exchanges on last
working day of the Financial Year.
iv. In case of units of Mutual Fund, valuation is done on the basis of closing NAV declared by the Mutual Fund.
v. In case of Future and Options contracts (i.e IRF, Equity futures and Nifty futures) valuation is done as per
the closing prices provided by Stock Holding Corporation of India Limited (SHCIL).
VII. Taxes
Tax expense comprises current and deferred tax.
Current income 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
Current income tax assets and liabilities 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, at the reporting date.
Current income tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in
other comprehensive income or in equity).
Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable temporary differences.
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits
and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit
will be available against which the deductible temporary differences, and the carry forward of unused tax credits and
unused tax losses can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.
Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has
become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the
asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively
enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other
comprehensive income or in equity).
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax
assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation
authority.
Uncertain Tax Position
Further, the company periodically evaluates positions taken in the tax returns with respect to situations in which
applicable tax regulations are subject to interpretation. The company considers whether it is probable that a taxation
authority will accept an uncertain tax treatment. If the company concludes, it is probable that the taxation authority will
accept an uncertain tax treatment, it determines the taxable profit (tax loss), tax bases, unused tax losses, unused
tax credits or tax rates consistently with the tax treatment used or planned to be used and its income tax filings.
If the company concludes, it is not probable that the taxation authority will accept an uncertain tax treatment, the
company reflects the effect of uncertainty in determining the related taxable profit (tax loss), tax bases, unused
tax losses, unused tax credits or tax rates. The company reflects the effect of uncertain tax positions in the overall
measurement of tax expense and or based on the most likely amount or the expected value arrived at by the
company, which provides a better prediction of the resolution of uncertainty.
Significant judgements are involved in determining the provision for income taxes, including amount expected to
be paid/recovered for uncertain tax positions. Uncertain tax positions are monitored and updated as and when
new information becomes available, typically upon examination or action by taxing authorities or through statute,
expiration and judicial precedent.
VIII. Exceptional Items
Exceptional items include income or expense that are considered to be part of ordinary activities, however are of
such significance and nature that separate disclosure enables the user of the financial statements to understand
the impact in a more meaningful manner. Exceptional items are identified by virtue of their size, nature or incidence.
IX. 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 diluted earnings per share, the net profit or loss for the period attributable to equity
shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects
of all dilutive potential equity shares.
X. Event of Default
As per the Companies (Indian Accounting Standards) Rules 2015, as amended from time to time, NBFCs have
to comply with IND AS 109 for preparation of financial statements from FY 2018-19 onwards. Amongst its various
requirements, it requires entities to define default in a manner consistent with internal risk management policies (IND
AS does not explicitly define default). Complying with the requirements of the IND AS 109, the Company has defined
default and the accounting treatment of the default asset in the following manner:
1. Definition of Event of Default
Any asset/issuer shall be termed as default if there is any instance of non-receipt of interest and/or principal obligation
by an issuer towards any securities/issuance/s in Companyâs books.
2. Accounting Treatment
Company proposes the following accounting adjustments to be adopted with respect to the securities/issuances that
fall under the definition of default.
Accounting Treatment
The number of such defaults and the total amount outstanding and the overdue amounts shall be disclosed in the
notes to the financial statements.
In case of recovery of the default asset, if the amount is received before the date of balance sheet signing, the same
will be accounted for in the said balance sheet as per the provisions of Ind AS-10 âEvents after the Reporting periodâ.
Mar 31, 2024
C. Summary of material accounting policies information
I. Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
Classification
The Company classifies its financial assets in the following measurement categories:
Those to be measured subsequently at fair value (either through other comprehensive income (FVTOCI), or through profit or loss (FVTPL) and those to be measured subsequently at amortised cost.
The classification is done depending upon the Companyâs business model for managing the financial assets and the contractual terms of the cash flows.
For assets classified as âmeasured at fair valueâ, gains and losses will either be recorded in profit or loss or other comprehensive income, as elected. For assets classified as âmeasured at amortised costâ, this will depend on the business model and contractual terms of the cash flows.
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 Companyâs 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:
⢠How the performance of the business model and the financial assets held within that business model are evaluated and reported to the entityâs key management personnel
⢠The risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way those risks are managed
⢠The expected frequency, value and timing of sales are also important aspects of the Companyâs assessment However, this assessment is performed on the basis of scenarios that the Company reasonably expects to occur and not so-called âworst caseâ or âstress caseâ scenarios
The Company considers sale of Investment (Government Security - SDL) measured at amortised cost portfolio as consistent with a business model whose objective is to hold financial assets in order to collect contractual cash flows if these sales are:
i. In case of liquidity crisis faced by the company which can hit the funding operations. Company may liquidate the amortised cost portfolio if the funding cost exceeds MIBOR plus 50 bps for three successive working days. The decision to sell under such circumstances shall be taken by the Investment Committee.
ii. Catastrophic scenarios, which could be termed as one off situations (GFC, COVID crisis etc) wherein portfolio liquidation needs to be carried out. However, sale under such scenarios shall only be undertaken post approval from the Risk Management Committee.
The sale window shall however remain open for 30 days from trigger of the stress event.
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.
For the purpose of SPPI test, principal is the fair value of the financial asset at initial recognition. That principal amount may change over the life of the financial asset (e.g. if there are repayments of principal). Interest consists of
consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a profit margin.
Contractual terms that introduce exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement, such as exposure to changes in equity prices or commodity prices, do not give rise to contractual cash flows that are SPPI, such financial assets are either classified as fair value through profit and loss account or fair value through other comprehensive income.
Initial recognition and measurement
All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the settlement date.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in three categories:
⢠Debt instruments at amortised cost
⢠Debt instruments at fair value through other comprehensive income (FVTOCI)
⢠Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
i. Debt instruments at Amortised cost.
A âdebt instrumentâ is measured at the amortised cost if both the following conditions are met.
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.
ii. Debt instruments at FVTOCi
A âdebt instrumentâ is classified as at the FVTOCI if both of the following criteria are met.
a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b) The assetâs contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the other comprehensive income (OCI).
iii. Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
Debt instrument at FVTPL: FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL. Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the PandL.
Equity investments: All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading are classified as at FVTPL. All other equity instruments are classified as per provisions of relevant Ind AS.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the PandL.
Derivative financial instruments: The Company uses derivative financial instruments, such as Future contracts, Options, Interest rate Future contracts for trading purpose and interest rate swaps for trading as well as to hedge its interest rate risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value and the resulting gain or loss is recognized in statement of Profit and Loss. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Impairment of financial assets
In accordance with Ind AS 109, the company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the following financial assets and credit risk exposure:
Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt securities and deposits.
For recognition of impairment loss on financial assets and risk exposure, the company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12-month ECL.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of profit and loss.
Financial liabilities
Initial recognition and measurement
A financial liability is initially measured at fair value plus, for an item not at fair value through profit and loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue.
Subsequent measurement
Financial liabilities are classified and measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL, if it is classified as held for trading, or it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in statement of profit and loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in statement of profit and loss.
Reclassification of financial instruments
The company did not reclassify any of its financial assets or liabilities subsequent to its initial recognition during the FY 2022-23 and FY 2023-24.
Derecognition of Financial instruments
A financial asset is derecognised only when Company has transferred the rights to receive cash flows from the financial asset. Where the entity has transferred an asset, the Company evaluates whether it has transferred substantially all risks and rewards of ownership of the financial asset. In such cases, the financial asset is derecognised.
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
II. Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand, short-term deposits and other highly liquid investments, with an original maturity of three months or less and are readily convertible into known amounts of cash, which are subject to an insignificant risk of changes in value.
For the purpose of the Financial Statements, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Companyâs cash management.
III. Revenue recognition
i. Interest income, for all debt instruments measured either at amortised cost (Short term lending, Fixed deposits and Government securities) or at fair value through other comprehensive income, is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortised cost of a financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are incrementally directly attributable to the instrument and are an integral part of the EIR, but not future credit losses.
ii. Changes in fair value of securities classified at fair value through profit and loss (FVTPL) (Certificates of Deposit, Commercial Papers, Bills Re-discounted, Treasury Bills (including Cash Management Bills), Zero Coupon Bonds, Government dated securities (including State Development Loan), Corporate bonds and debentures, Equity shares and Mutual funds) shall be taken to Profit and Loss.
iii. The difference between the acquisition cost and maturity value of Certificates of Deposit, Commercial Papers, Bills Re-discounted, Treasury Bills (including Cash Management Bills) and Zero Coupon Bonds is apportioned on time basis. The above is recognised as accrued income.
iv. Interest income on Government Dated Securities and Corporate Bonds and Debentures is recognised at its coupon rate and that of Floating Rate Bonds is recognised on the yield of instruments to which these are linked
v. Dividend income is recognized when the Companyâs right to receive payment is established by the reporting date.
vi. Underwriting fees: Underwriting fee earned on the government securities is credited in the statement of profit and loss account.
vii. Commission and other fees: Commission and other fees will be recognized as and when the performance obligation is satisfied as per IND AS 115.
viii. Other income received through rent, interest on staff loans, house rent recovery and Misc. Income are accounted for on accrual basis.
IV. Accounting of Expenses
Interest expense is measured and recognised on Effective Interest Rate (EIR) method. Other expenses are accounted for on accrual basis as and when it gets accrued.
V. Accounting for Repo Transactions
Sales / Purchases of Treasury Bills (including Cash Management Bills) and Government Dated Securities, as disclosed in Statement of Profit and Loss do not include Repo/Reverse Repo transactions in accordance with RBI guidelines No. RBI/2009-2010/356/IDMD/4135/11.08.43/2009-10 dated March 23, 2010.
In conformity with RBI guidelines, securities sold under Repo transactions are not excluded from the portfolio and the securities purchased under Reverse Repo are not included in the portfolio. Contra heads are used to reflect the transfer of securities.
Repo seller continues to accrue coupon/ discount on securities, as the case may be, even during the repo period while the repo buyer shall not accrue the same.
VI. Fair value measurement
On initial recognition, all the financial instruments are measured at fair value.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
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 best interest.
A fair value measurement of a non-financial asset takes into account a market participantâs 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 - Those where the inputs used in the valuation are unadjusted quoted prices from active markets for identical assets or liabilities that the Company has access to at the measurement date. The Company considers markets as active only if there are sufficient trading activities with regards to the volume and liquidity of the identical assets or liabilities and when there are binding and exercisable price quotes available on the balance sheet date.
Level 2 financial instruments - Those where the inputs that are used for valuation and are significant, are derived from directly or indirectly observable market data available over the entire period of the instrumentâs life. Such inputs include prices for similar assets or liabilities in active markets, quoted prices for identical instruments in inactive markets and observable inputs other than quoted prices such as interest rates and yield curves, implied volatilities, and credit spreads. In addition, adjustments may be required for the condition or location of the asset or the extent to which it relates to items that are comparable to the valued instrument. However, if such adjustments are based on unobservable inputs which are significant to the entire measurement, the Company will classify the instruments as Level 3.
Level 3 financial instruments - Those that include one or more unobservable input that is significant to the measurement as whole.
The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
The Company has used the following methods for deriving the fair values:
i. Fair Value of Government dated Securities, Treasury Bills (including Cash Management Bills), State development loans, Interest Rate Swaps, Certificates of Deposit and PSU/Corporate bonds and debentures, is determined by the prices or yield, as applicable, declared by Fixed Income Money Market and Derivatives Association of India (FIMMDA)/Financial Benchmark India Private Limited (FBIL) on last working day of the Financial Year.
ii. In case of Commercial Papers, company shall use market observable spread over T Bill curve and based on that new benchmark (T-Bill constant spread across the curve) company shall interpolate and calculate CP prices corresponding to the residual maturities.
iii. Fair value of Equity Shares is determined by the closing rates provided by the stock exchanges on last working day of the Financial Year
iv. In case of units of Mutual Fund, valuation is done on the basis of closing NAV declared by the Mutual Fund.
v. In case of Future and Options contracts (i.e IRF, Equity futures and Nifty futures) valuation is done as per the closing prices provided by Stock Holding Corporation of India Limited (SHCIL).
VII. Taxes
Tax expense comprises current and deferred tax.
Current income 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
Current income tax assets and liabilities 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, at the reporting date.
Current income tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive income or in equity).
Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable temporary differences.
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive income or in equity).
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Uncertain Tax Position
Further, the company periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation. The company considers whether it is probable that a taxation authority will accept an uncertain tax treatment. If the company concludes, it is probable that the taxation authority will accept an uncertain tax treatment, it determines the taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment used or planned to be used and its income tax filings.
If the company concludes, it is not probable that the taxation authority will accept an uncertain tax treatment, the company reflects the effect of uncertainty in determining the related taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates. The company reflects the effect of uncertain tax positions in the overall measurement of tax expense and or based on the most likely amount or the expected value arrived at by the company, which provides a better prediction of the resolution of uncertainty.
Significant judgements are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions. Uncertain tax positions are monitored and updated as and when new information becomes available, typically upon examination or action by taxing authorities or through statute, expiration and judicial precedent.
VIII. Exceptional Items
Exceptional items include income or expense that are considered to be part of ordinary activities, however are of such significance and nature that separate disclosure enables the user of the financial statements to understand the impact in a more meaningful manner. Exceptional items are identified by virtue of their size, nature or incidence.
IX. 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 diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
X. Event of Default
As per the Companies (Indian Accounting Standards) Rules 2015, as amended from time to time, NBFCs have to comply with IND AS 109 for preparation of financial statements from FY 2018-19 onwards. Amongst its various requirements, it requires entities to define default in a manner consistent with internal risk management policies (IND AS does not explicitly define default). Complying with the requirements of the IND AS 109, the Company has defined default and the accounting treatment of the default asset in the following manner:
1. Definition of Event of Default
Any asset/issuer shall be termed as default if there is any instance of non-receipt of interest and/or principal obligation by an issuer towards any securities/issuance/s in Companyâs books.
2. Accounting Treatment
Company proposes the following accounting adjustments to be adopted with respect to the securities/issuances that fall under the definition of default.
The number of such defaults and the total amount outstanding and the overdue amounts shall be disclosed in the notes to the financial statements.
In case of recovery of the default asset, if the amount is received before the date of balance sheet signing, the same will be accounted for in the said balance sheet as per the provisions of Ind AS-10 âEvents after the Reporting periodâ.
Mar 31, 2023
A. Corporate information
PNB Gilts Limited is a public limited company domiciled in India and incorporated under the provisions of the Companies Act, 1956. The Company has been granted the License of NBFC by the Reserve Bank of India and working as a Standalone Primary Dealer. The Company''s primary activities entail supporting government borrowing program via underwriting of government securities issuances and trade in a gamut of fixed income instruments such as Government securities, Treasury Bills, State Development Loans, Corporate Bonds, Interest Rate Swaps and various money market instruments such as Certificates of Deposits, Commercial Papers etc. The Company has dedicated trading desk managed by experienced professionals having strong research and market insights. The Company is also providing custodian services to its constituents. The Companyâs registered office is at 5, Sansad Marg, New Delhi, India. The company is also a subsidiary of one of the largest Indian commercial banks Punjab National Bank.
The financial statements are approved for issuance by the Companyâs Board of Directors on May 03, 2023
B. Basis of preparation Statement of Compliance
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 and subsequent amendments thereto and comply with the relevant provisions of the Companies Act 2013 and the Reserve Bank of India guidelines as applicable to the Primary Dealers and NBFC. The financial statements have been prepared in accordance with Division III of Schedule III notified by MCA on 11th October, 2018 as amended from time to time.
The financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities (refer accounting policy no. VII regarding financial instruments) which have been measured at fair value.
Functional & presentation Currency
The Companyâs presentation and functional currency is Indian rupee. All amounts in these financial statements, except per share amounts and unless as stated otherwise, have been rounded off to two decimal places and have been presented in lakhs.
Presentation of financial statements
The Company presents its balance sheet in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in Note no. 39 "Maturity Analysis of assets and liabilities".
Financial assets and financial liabilities are generally reported gross in the balance sheet. They are only offset and reported net when, in addition to having an unconditional legally enforceable right to offset the recognised amounts without being contingent on a future event, the parties also intend to settle on a net basis in all of the following circumstances:
- The normal course of business
- The event of default
- The event of insolvency or bankruptcy of the Company and/or its counterparties
Derivative assets and liabilities with master netting arrangements are only presented net when they satisfy the eligibility of netting for all of the above criteria and not just in the event of default.
C. Summary of significant accounting policies
la. Property, plant and equipment (PPE) and intangible assets
PPE are stated at cost (including incidental expenses directly attributable to bringing the asset to its working condition for its intended use) less accumulated depreciation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use.
Subsequent expenditure related to PPE is capitalized only when it is probable that future economic benefits associated with these will flow to the Company and the cost of item can be measured reliably. Other repairs and maintenance costs are expensed off as and when incurred.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in the statement of profit and loss when the asset is derecognised.
An intangible asset is recognised 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. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.
lb. Investment Properties
The flats classified as Investment Property are purchased for the staff. However, in view of no requirement by the staff members, they are given to the PNB employees only for a period of 11 months with two/ more extensions.
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation and accumulated impairment loss, if any.
The cost includes the cost of replacing parts and borrowing cost for long term construction projects if the recognition criteria are met. When significant parts of the investment property are required to be replaced at intervals, the company depreciates them separately based on their specific useful lives. All other repair and maintenance costs are recognised in statement of profit or loss as incurred.
The company depreciates investment property over 60 years from the date of original purchase.
Though the company measures investment property using cost based measurement, the fair value of investment property is disclosed in the Note 11A of the financial statements.
Investment properties are derecognised either when they have been disposed off or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in statement of profit or loss in the period of derecognition.
lc. Depreciation on Property, plant and equipment, Investment Properties and Amortization of intangible assets
The depreciation on the Property plant and equipment is calculated on a Written Down Value (WDV) basis using the rates arrived at, based on useful lives estimated by the management, which coincides with the lives prescribed under Schedule II of the Companies Act, 2013. Residual value of Land & Building and Vehicles is taken as 5 percent of the original cost, whereas for assets other than those specified above the residual value is taken as Re.1.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in
accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit and loss.
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. 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.
Company as a lessee:
The Companyâs lease asset classes primarily consist of leases for buildings. The Company assesses whether a contract contains a lease, at inception of a contract. 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 (âROUâ) and a corresponding lease liability for all lease arrangements in which it is a lessee, except for leases with a term of twelve months or less (short-term leases) and low value leases. For these short-term and low value leases, the Company recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease.
Certain lease arrangements include the options to extend or terminate the lease before the end of the lease term. ROU assets and lease liabilities includes these options when it is reasonably certain that they will be exercised.
The right-of-use assets are initially recognized at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or prior to the commencement date of the lease plus any initial direct costs less any lease incentives. 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. Right of use assets are evaluated for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For the purpose of impairment testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the Cash Generating Unit (CGU) to which the asset belongs.
The lease liability is initially measured at amortized cost at the present value of the future lease payments. The lease payments are discounted using the Incremental borrowing rates in the lease or, if not readily determinable, using the incremental borrowing rates in the country of domicile of these leases. Lease liabilities are remeasured with a corresponding adjustment to the related right of use asset if the Company changes its assessment if whether it will exercise an extension or a termination option.
Lease liability and ROU asset have been separately presented in the Balance Sheet.
Leases which have expired have not been accounted as per Ind AS 116.
The Company as a lessor
Leases for which the Company is a lessor is classified as a finance or operating lease. Whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases.
For operating leases, rental income is recognized on a straight-line basis over the term of the relevant lease.
III. Impairment of non-financial assets
The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the company estimates the assetâs
recoverable amount. An assetâs recoverable amount is the higher of an assetâs fair value less costs of disposal and its value in use (i.e. the present value of the future cash flows expected to be derived from an asset or cash generating unit). The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or Company of assets. When the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment loss, if any, will be charged to statement of profit and loss, unless the asset is carried at revalued amount in accordance with another standard. Any impairment loss of a revalued asset shall be treated as a revaluation decrease in accordance with that other standard.
IV. Provisions, Contingent liabilities and Contingent assets
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to a provision is charged/provided in the statement of profit and loss.
The Company does not recognize a contingent liability but discloses its existence in the financial statements Contingent liability is disclosed in the case of:
⢠A present obligation arising from past events, when it is not probable that an outflow of resources will not be required to settle the obligation
⢠A present obligation arising from past events, when no reliable estimate is possible
⢠A possible obligation arising from past events, unless the probability of outflow of resources is remote Contingent liabilities are reviewed at each reporting date.
Contingent assets usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic benefits to the entity. Contingent assets are recognized when the realization of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate. Contingent assets are reviewed at each reporting date. A contingent asset is disclosed where an inflow of economic benefits is probable.
V. Accounting of Expenses
Interest expense is measured and recognised on Effective Interest Rate (EIR) method. Other expenses are accounted for on accrual basis as and when it gets accrued.
VI. Employee Benefit Expenses
Employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service are classified as short-term employee benefits. Benefits such as salaries, wages and bonus etc.,are recognised in the statement of profit and loss in the period in which the employee renders the related service.
Defined contribution plan
Retirement benefit in the form of provident fund is a defined contribution scheme and the contributions are charged to the Statement of Profit and Loss of the period when the contributions to the respective funds are due. There are no other obligations other than the contribution payable to the respective fund.
Leave liability is defined benefit obligation which is unfunded. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method with actuarial valuations being carried out at each reporting date. Gratuity under the employee group gratuity cum life insurance scheme of LIC is defined benefit obligation which is funded and the cost of providing benefits under the defined benefit plan is determined using the projected unit credit method provided by LIC.
Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts
included in net interest on the net defined benefit liability), are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through other comprehensive income (OCI) in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.Past service costs are recognised in profit or loss on the earlier of:
i. The date of the plan amendment or curtailment, and
ii. The date that the Company recognises related restructuring costs
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Company recognises the following changes in the net defined benefit obligation as an expense in the statement of profit and loss:
i. Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements; and
ii. Net interest expense or income
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assetsClassification
The Company classifies its financial assets in the following measurement categories:
Those to be measured subsequently at fair value (either through other comprehensive income (FVTOCI), or through profit or loss (FVTPL) and those to be measured subsequently at amortised cost.
The classification is done depending upon the Companyâs business model for managing the financial assets and the contractual terms of the cash flows.
For assets classified as âmeasured at fair valueâ, gains and losses will either be recorded in profit or loss or other comprehensive income, as elected. For assets classified as âmeasured at amortised costâ, this will depend on the business model and contractual terms of the cash flows.
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 Companyâs 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:
⢠How the performance of the business model and the financial assets held within that business model are evaluated and reported to the entityâs key management personnel
⢠The risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way those risks are managed
⢠The expected frequency, value and timing of sales are also important aspects of the Companyâs assessment
However, this assessment is performed on the basis of scenarios that the Company reasonably expects to occur and not so-called âworst caseâ or âstress caseâ scenarios
The Company considers sale of Investment (Government Security - SDL) measured at amortised cost portfolio as consistent with a business model whose objective is to hold financial assets in order to collect contractual cash flows if these sales are:
i. In case of liquidity crisis faced by the company which can hit the funding operations. Company may liquidate the amortised cost portfolio if the funding cost exceeds MIBOR plus 50 bps for three successive working days. The decision to sell under such circumstances shall be taken by the Investment Committee.
ii. Catastrophic scenarios, which could be termed as one off situations (GFC, COVID crisis etc) wherein portfolio liquidation needs to be carried out. However, sale under such scenarios shall only be undertaken post approval from the Risk Management Committee.
The sale window shall however remain open for 30 days from trigger of the stress event.
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.
For the purpose of SPPI test, principal is the fair value of the financial asset at initial recognition. That principal amount may change over the life of the financial asset (e.g. if there are repayments of principal). Interest consists of consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a profit margin.
Contractual terms that introduce exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement, such as exposure to changes in equity prices or commodity prices, do not give rise to contractual cash flows that are SPPI, such financial assets are either classified as fair value through profit & loss account or fair value through other comprehensive income.
Initial recognition and measurement
All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the settlement date.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in three categories:
⢠Debt instruments at amortised cost
⢠Debt instruments at fair value through other comprehensive income (FVTOCI)
⢠Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
i. Debt instruments at Amortised cost.
A âdebt instrumentâ is measured at the amortised cost if both the following conditions are met.
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.
ii. Debt instruments at FVTOCI
A âdebt instrumentâ is classified as at the FVTOCI if both of the following criteria are met.
a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b) The assetâs contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the other comprehensive income (OCI).
iii. Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
Debt instrument at FVTPL: FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL. Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the
p&l.
Equity investments: All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading are classified as at FVTPL. All other equity instruments are classified as per provisions of relevant Ind AS.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the P&L.
Derivative financial instruments:The Company uses derivative financial instruments, such as Future contracts, Options, Interest rate Future contracts for trading purpose and interest rate swaps for trading as well as to hedge its interest rate risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value and the resulting gain or loss is recognized in statement of Profit and Loss. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Impairment of financial assets
In accordance with Ind AS 109, the company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the following financial assets and credit risk exposure:
Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt securities and deposits.
For recognition of impairment loss on financial assets and risk exposure, the company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12-month ECL.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of profit and loss (P&L).
Financial liabilities
Initial recognition and measurement
A financial liability is initially measured at fair value plus, for an item not at fair value through profit and loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue.
Subsequent measurement
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL, if it is classified as held for trading, or it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in statement of profit and loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in statement of profit and loss.
Reclassification of financial instruments
The company did not reclassify any of its financial assets or liabilities subsequent to its initial recognition during the FY 2021-22 and FY 2022-23.
Derecognition of Financial instruments
A financial asset is derecognised only when Company has transferred the rights to receive cash flows from the financial asset. Where the entity has transferred an asset, the Company evaluates whether it has transferred substantially all risks and rewards of ownership of the financial asset. In such cases, the financial asset Is derecognised.
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
Cash flows are reported using the indirect method, whereby profit before tax is adjusted for the effect of transactions of a non cash nature, any deferral or accruals of past and future operating cash receipts or payments and items of income associated with investing or financing cash flows.
IX. Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand, short-term deposits and other highly liquid investments, with an original maturity of three months or less and are readily convertible into known amounts of cash, which are subject to an insignificant risk of changes in value.
For the purpose of the Financial Statements, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Companyâs cash management.
On initial recognition, all the financial instruments are measured at fair value.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
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 best interest.
A fair value measurement of a non-financial asset takes into account a market participantâs 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 - Those where the inputs used in the valuation are unadjusted quoted prices from active markets for identical assets or liabilities that the Company has access to at the measurement date. The Company considers markets as active only if there are sufficient trading activities with regards to the volume and liquidity of the identical assets or liabilities and when there are binding and exercisable price quotes available on the balance sheet date.
Level 2 Financial instruments - Those where the inputs that are used for valuation and are significant, are derived from directly or indirectly observable market data available over the entire period of the instrumentâs life. Such
inputs include prices for similar assets or liabilities in active markets, quoted prices for identical instruments in inactive markets and observable inputs other than quoted prices such as interest rates and yield curves, implied volatilities, and credit spreads. In addition, adjustments may be required for the condition or location of the asset or the extent to which it relates to items that are comparable to the valued instrument. However, if such adjustments are based on unobservable inputs which are significant to the entire measurement, the Company will classify the instruments as Level 3.
Level 3 Financial instruments - Those that include one or more unobservable input that is significant to the measurement as whole.
The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
The Company has used the following methods for deriving the fair values:
i. Fair Value of Government dated Securities, Treasury Bills (including Cash Management Bills), State development loans, Interest Rate Swaps, Certificates of Deposit and PSU/Corporate bonds & debentures, is determined by the prices or yield, as applicable, declared by Fixed Income Money Market and Derivatives Association of India (FIMMDA)/Financial Benchmark India Private Limited (FBIL) on last working day of the Financial Year.
ii. In case of Commercial Papers, company shall use market observable spread over T Bill curve and based on that new benchmark (T-Bill constant spread across the curve) company shall interpolate and calculate CP prices corresponding to the residual maturities.
iii. Fair value of Equity Shares is determined by the closing rates provided by the stock exchanges on last working day of the Financial Year
iv. In case of units of Mutual Fund, valuation is done on the basis of closing NAV declared by the Mutual Fund.
v. In case of Future & Options contracts (i.e IRF, Equity futures & Nifty futures) valuation is done as per the closing prices provided by Stock Holding Corporation of India Limited (SHCIL).
XI. Revenue recognition
i. Interest income, for all debt instruments measured either at amortised cost (Short term lending, Fixed deposits and Government securities) or at fair value through other comprehensive income, is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortised cost of a financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are incrementally directly attributable to the instrument and are an integral part of the EIR, but not future credit losses.
ii. Changes in fair value of securities classified at fair value through profit and loss (FVTPL) (Certificates of Deposit, Commercial Papers, Bills Re-discounted, Treasury Bills (including Cash Management Bills), Zero Coupon Bonds, Government Dated Securities (including State Development Loan), Corporate bonds & debentures, Equity shares and Mutual funds) shall be taken to statement of Profit and Loss.
iii. The difference between the acquisition cost and maturity value of Certificates of Deposit, Commercial Papers, Bills Re-discounted, Treasury Bills (including Cash Management Bills) and Zero Coupon Bonds is apportioned on time basis. The above is recognised as accrued income.
iv. Interest income on Government Dated Securities and Corporate Bonds & Debentures is recognised at its coupon rate and that of Floating Rate Bonds is recognised on the yield of instruments to which these are linked
v. Dividend income is recognized when the Companyâs right to receive payment is established by the reporting date.
vi. Underwriting fees: Underwriting fee earned on the government securities is credited in the statement of profit and loss account.
vi. Commission & other fees: Commission & other fees will be recognized as and when the performance obligation is satisfied as per IND AS 115.
vii. Other income received through rent, interest on staff loans, house rent recovery and Misc. Income are accounted for on accrual basis.
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
Current income tax assets and liabilities 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, at the reporting date.
Current income tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive income or in equity).
Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable temporary differences.
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive income or in equity).
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Further, the company periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation. The company considers whether it is probable that a taxation authority will accept an uncertain tax treatment. If the company concludes, it is probable that the taxation authority will accept an uncertain tax treatment, it determines the taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment used or planned to be used and its income tax filings.
If the company concludes, it is not probable that the taxation authority will accept an uncertain tax treatment, the company reflects the effect of uncertainty in determining the related taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates. The company reflects the effect of uncertain tax positions in the overall measurement of tax expense and or based on the most likely amount or the expected value arrived at by the company, which provides a better prediction of the resolution of uncertainty.
Significant judgements are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions. Uncertain tax positions are monitored and updated as and when new information becomes available, typically upon examination or action by taxing authorities or through statute, expiration and judicial precedent.
XIII. Exceptional Items
Exceptional items include income or expense that are considered to be part of ordinary activities, however are of such significance and nature that separate disclosure enables the user of the financial statements to understand the impact in a more meaningful manner. Exceptional items are identified by virtue of their size, nature or incidence.
XIV. 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 diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
The Company recognises a liability to make cash distributions to equity holders when the distribution is authorised and the distribution is no longer at the discretion of the Company. As per the corporate laws in India, a distribution is authorised when it is approved by the shareholders. A corresponding amount is recognised directly in equity.
XVI. Corporate Social Responsibility (''CSR'') expenditure
The Company charges its CSR expenditure during the year to the statement of profit and loss.
XVII. Accounting for Repo Transactions
Sales / Purchases of Treasury Bills (including Cash Management Bills) and Government Dated Securities, as disclosed in Statement of Profit and Loss do not include Repo/Reverse Repo transactions in accordance with RBI guidelines No. RBI/2009-2010/356/IDMD/4135/11.08.43/2009-10 dated March 23, 2010.
In conformity with RBI guidelines, securities sold under Repo transactions are not excluded from the portfolio and the securities purchased under Reverse Repo are not included in the portfolio. Contra heads are used to reflect the transfer of securities.
Repo seller continues to accrue coupon/ discount on securities, as the case may be, even during the repo period while the repo buyer shall not accrue the same.
As per the Companies (Indian Accounting Standards) Rules 2015, as amended from time to time, NBFCs have to comply with IND AS 109 for preparation of financial statements from FY 2018-19 onwards. Amongst its various requirements, it requires entities to define default in a manner consistent with internal risk management policies (IND AS does not explicitly define default). Complying with the requirements of the IND AS 109, the Company has defined default and the accounting treatment of the default asset in the following manner:
1. Definition of Event of Default
Any asset/issuer shall be termed as default if there is any instance of non-receipt of interest and/or principal obligation by an issuer towards any securities/issuance/s in Companyâs books.
The Company has adopted the following accounting adjustments with respect to be adopted with respect to the securities/issuances that fall under the definition of default.
|
Accounting Treatment |
||
|
Cashflow Type |
Matured Issuance/Security |
Existing Issuance/Security |
|
Interest Amount* |
Interest accrued but not received will be written off with immediate effect. |
⢠Total interest accrued but not received will be written off in the fourth quarter from the event of default or in the quarter in which maturity falls (whichever is earlier). ⢠Till write off, provision for the same will be made on monthly basis from the event of default. |
|
Book Value of Investment |
Book value of investment will be written off with immediate effect. |
⢠Total Book value of investment will be written off in the fourth quarter from the event of default or in the quarter in which maturity falls (whichever is earlier). ⢠Till write off, provision for the same will be made on proportionate basis from the event of default. |
*ln case of non-receipt of interest amount, any delay of interest payment by the issuer due to technical issues pertaining to transfer of the interest, if timely informed by the issuer, shall not be treated as a case of default.
The number of such defaults and the total amount outstanding and the overdue amounts shall be disclosed in the notes to the financial statements.
In case of recovery of the default asset, if the amount is received before the date of balance sheet signing, the same will be accounted for in the said balance sheet as per the provisions of Ind AS-10 âEvents after the Reporting periodâ.
3. Significant Judgement and Estimates
The preparation of the financial statements in conformity with Indian Accounting Standards (''Ind AS) requires the management to make estimates, judgements and assumptions. These estimates, judgements and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Accounting estimates could change from period to period. Actual results could differ from those estimates. Revisions to accounting estimates are recognised prospectively. The Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognised in the periods in which the results are known / materialise. Some of the areas involving significant estimation / judgement are determination of Expected Credit Loss, Fair valuation of Investments, Income taxes and Employee benefits.
Recent Accounting Pronouncements
The Ministry of Corporate Affairs (âMCAâ) notifies new standards or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time. On March 31,2023, MCA amended the Companies (Indian Accounting Standards) Amendment Rules, 2015, by issuing the Companies (Indian Accounting Standards) Amendment Rules, 2023, which are applicable for annual reporting periods beginning from April 01, 2023, as below:
Ind AS 1 - Presentation of Financial Statements
This amendment requires the entities to disclose their material accounting policies rather than their significant accounting policies. Accounting policy information, together with other information, is material when it can reasonably be expected to influence decisions of primary users of general purpose financial statements. The Company has evaluated the amendment and the impact of the amendment is insignificant in the Companyâs financial statements.
Ind AS 8 - Accounting Policies, Changes in Accounting Estimates and Errors
This amendment will help entities to distinguish between accounting policies and accounting estimates. The definition of change in accounting estimates has been replaced with a definition of accounting estimates. Under the new definition, accounting estimates are ''monetary amounts in financial statements that are subject to measurement uncertainty.'' The Company has evaluated the amendment and there is no significant impact on its financial statements.
This amendment has narrowed the scope of recognition exemption so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. The Company does not expect to have any significant impact on its financial statement.
Other amendments
Other amendments include amendments in Ind AS 102, Share- based Payments, Ind AS 103, Business Combination, Ind AS 109, Financial Instruments, Ind AS 115, Revenue from contract with customers are mainly editorial in nature in order to provide better clarification of respective Ind AS. The Company does not expect to have any significant impact on its financials statements.
Mar 31, 2018
NOTE -1
SIGNIFICANT ACCOUNTING POLICIES
1.1. Basis of Preparation of Financial Statements
The Company follows accrual system of accounting and the financial statements are prepared on historical cost basis. The basis of preparation of Financial Statements is in accordance with generally accepted accounting principles. These statements are also in compliance with the mandatory Accounting Standards as prescribed under Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules 2014 and the Reserve Bank of India guidelines as applicable to the Primary Dealers and NBFC.
As the Company is a trader in Government and Fixed Income Securities, the Company buys and sells securities depending upon the market condition. There is no normal fixed period for sale of stock. However, for the purpose of preparing Balance Sheet and Statement of Profit and Loss (as per the revised guidelines), the Company assumes, one year is the operating cycle period.
The preparation of financial statements in conformity with Indian GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities and disclosure of contingent liabilities at the end of the reporting period. Although these estimates are based on the management''s best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods.
The difference, if any, between the actual and the estimate is recognized in the accounting period in which the same is acknowledged or materialized.
1.2. Revenue Recognition
i) The difference between the acquisition cost and maturity value of Certificates of Deposit, Commercial Papers, Bills Re-discounted, Treasury Bills (including Cash Management Bills) and Zero Coupon Bonds is apportioned on time basis. The above is recognised as accrued income and included in the carrying cost of the securities.
ii) Interest accrued on Government Dated Securities, Fixed Deposits and Corporate Bonds and Debentures is recognised at its coupon rate and that of Floating Rate Bonds is recognised on the yield of instruments to which these are linked at the prevailing floating rates.
iii) Purchase and sale price of Fixed Income Securities is bifurcated into cost and accrued interest paid or realised. Accrued interest paid on purchase and received on sale is netted and reckoned as expense/ income.
iv) Profit/loss on sale of securities is accounted on weighted average cost method and is recognised on settlement date. Profit on sale of securities is netted scrip wise with loss on sale of securities.
vi) Brokerage and front-end fee received on subscription of securities is deducted in arriving at the cost of relevant securities. Underwriting fee earned is reduced from the cost of securities devolved/allotted and the remaining amount is directly recognised as income.
vii) For continuing or long term duration activities (e.g. Mutual Fund Distribution), the fee is accrued proportionately as per performance (Proportionate Completion Method). The revenue is recognized only if there is no significant uncertainty regarding the amount of consideration.
viii) For Mutual Fund (MF) Investment, in case of Daily Dividend Reinvestment Plan the income (dividend) is accounted based on the dividend declaration by the Mutual Fund. In case of growth plan, the income is accounted daily on the basis of closing NAV declared by Mutual Fund.
viii) As per Board approval, the Company transfers Stale Cheques outstanding for more than three years to Miscellaneous Income, and if any claim arises thereafter the same is paid by debit of Miscellaneous Expenses in the year in which it is actually paid.
ix) Dividend income is recognized when the shareholders'' right to receive payment is established by the reporting date.
1.3. Expenses Recognition
The brokerage paid in connection with acquisition of securities is added to the cost of acquisition and on sale of securities it is charged to Statement of Profit and Loss. Interest and other expenses are accounted on accrual basis.
Share issue expenditure is charged to Statement of Profit and Loss in the year of occurrence.
1.4. Valuation of Inventories
i) All securities (except securities under HTM category classified as Non-Current Investment) in which the Company deals are regarded as Inventory (Stock-in-Trade) and grouped as hedged and non-hedged portfolio.
ii) The Company has the following categories of securities namely, Treasury Bills, CDs, CPs, Deep Discount Bonds, Dated Government Securities (including Central and State and Repo Stock), Corporate/PSD Bonds & Debentures, Hedging contracts/Swaps, Trading Swaps, Equity, Mutual Fund Units, Interest Rate Futures, Futures & Options.The stock of Central Government Securities, Treasury Bills (including Cash Management Bills), State Development Loans and PSD/Corporate Bonds, Debentures and Equity Shares are valued at weighted average cost or market value, whichever is lower. Market Value is determined by the prices declared by Fixed Income Money Market and Derivatives Association of India (FIMMDA) on last working day of the Financial Year, except for Equity Shares. Market value of Equity Shares is determined by the closing rates provided by the stock exchanges on last working day of the Financial Year. The securities in each category are considered scrip-wise and the cost and market value aggregated for all securities in each category. Net unrealized diminution, if any, for each category of securities is provided for and charged to Statement of Profit and Loss. Net unrealized appreciation, if any, is ignored. The unrealized diminution in one category of securities is not set off against unrealised appreciation in another category.
iii) Certificates of Deposit, Commercial Papers, Bills Re-discounted and Zero Coupon Bonds held on the Balance Sheet date are valued at carrying cost.
iv) In case of units of Mutual Fund, valuation is done on the basis of closing NAV declared by the Mutual Fund.
v) In case of Hedging Contracts, the diminution/appreciation of hedged assets will be netted with diminution/ appreciation of hedging swaps and net diminution if any, is charged to Statement of Profit and Loss and net appreciation if any, is ignored.
vi) In case of Future contracts (i.e IRF, Equity futures & Nifty futures) valuation is done as per the closing prices provided by SHCIL.
vii) The secondary market short sale transactions in Government securities as permitted by RBI Circular No. RBI/2006-2007/243 IDMD.No.711.01.01 (B)/2006-07 are grouped under other liabilities.
viii) All the inventories are recognized in accounts on delivery basis i.e. when the delivery of the same takes place and the same are credited in SQL 1 / Demat account of the company.
1.5. Held To Maturity (HTM) Securities
The securities under HTM category shall be valued as per the guidelines issued by RBI from time to time, and important provisions are under:
⢠Transfer to/from HTM category shall be done at the acquisition cost/book value/market value on the date of transfer, whichever is the least, and the depreciation if any, on such transfer shall be fully provided for.
⢠Investments classified under HTM category will be carried at acquisition cost, unless it is more than the face value, in which case the premium should be amortized over the remaining period to maturity. The book value of the security should continue to be reduced to the extent of the amount amortized during the relevant accounting period
⢠The profit on sale of securities, if any from HTM category shall first be taken to the Statement of Profit and Loss and thereafter be appropriated to the Capital Reserve Account (net of tax). Loss on sale shall be recognized in the Statement of Profit and Loss. The balance in the reserve account shall be utilized strictly as per the regulatory guidelines.
1.6. Accounting for Repo Transactions
Sales / Purchases of Treasury Bills (including Cash Management Bills) and Government Dated Securities, as disclosed in Statement of Profit and Loss do not include Repo/Reverse Repo transactions in accordance with RBI guidelines No. RBI/2009-2010/356/IDMD/4135/11.08.43/2009-10 dated March 23, 2010.
In conformity with RBI guidelines, securities sold under Repo transactions are not excluded from stock-in-trade and the securities purchased under Reverse Repo are not included in the stock-in-trade. Contra heads are used to reflect the transfer of securities.
Repo seller continues to accrue coupon/ discount on securities as the case may be, even during the repo period while the repo buyer shall not accrue the same.
1.7. Interest Rate Swaps (IRS)
Assets and Liabilities in respect of notional principal amount of IRS are nullified. The related interest is recognized on accrual basis.
i) Trading Swaps
Trading Interest rate swaps outstanding at balance sheet date are Marked- to- Market and the resultant loss, if any, is recorded in Statement of Profit and Loss. Any other charges relating to Trading Interest Rate Swaps are charged to Statement of Profit and Loss.
ii) Hedge Swaps
Hedge Swaps are accounted for on accrual basis. A hedge swap designated to an asset/liability is carried at market value. The resulting Marked-to-Market loss/gain on swap is recorded as an adjustment to the market value of designated Asset/Liability. Gains or losses on the termination / redesignation of hedge swaps is recognized against the offsetting gain or loss recognized on the designated Asset or Liability.
On redesignation of a hedge swap from one item of Asset/Liability to another item of Asset/Liability, the Marked-to-market profit/loss of the hedge swap on the day of redesignation is amortized over the shorter of the remaining life of the swap or the remaining life of the Asset/Liability.
1.8. Accounting for Future and Options Transactions
i) Initial Margin payable at the time of entering into Future Contract/sale of Option is adjusted against the deposits with the exchanges in the form of fixed deposits, cash deposits and securities.
ii) Transactions in Future Contracts are done as Purchases and Sales at the notional trade value of the contract.
iii) The difference in the settlement price or exchange closing price of the previous day and exchange closing price of the subsequent day, paid to or received from the exchange is treated as Marked-to- Market Margin (or by whatever name). The balance in the Marked- to- Market Margin Account represents the net amount paid or received on the basis of movement in the prices of open interest in Futures Contracts till the Balance Sheet date. Net debit balance in the Marked- to- Market Margin Account is charged off to revenue, whereas net credit balance is shown under Current Liabilities.
iv) Premium paid or received on purchase and sale of Options and the difference paid or received on exercise of Options is accounted as Purchases or Sales. In case of open interest in Options sold as on the Balance Sheet date, provision is made for the amount by which premium prevailing on the Balance Sheet date exceeds the premium received for those Options. The excess of premium received over the premium prevailing on the Balance Sheet date is not recognized. Similarly, in case of Options bought, provision is made for the amount by which the premium paid for the Option exceeds the premium prevailing on the Balance Sheet date and the excess of premium prevailing on the Balance Sheet date over the premium paid is ignored. In case of multiple open positions, provision is made or excess premiums are ignored after netting off the balance in buy as well as sell positions.
1.9. Dividend and Tax on Dividend
Final Dividends on Shares and Dividend Distribution Tax thereon as per Section 115-O of the Income Tax Act, 1961 are recorded as liability as on the date of approval of dividend. Interim Dividends are recorded as a liability on the date of declaration by the Company''s Board of Directors.
1.10. Retirement Benefits - Provident Fund, Gratuity & Leave Liability (As per Accounting Standard 15)
i) Gratuity contribution made under the Employee Group Gratuity cum life insurance scheme of LIC is charged to revenue. The premium is calculated on actuarial basis by LIC as per Projected Unit Credit Method (PUCM) as per AS-15.
ii) Leave Liability is accounted for on actuarial valuation carried at year-end and actuarial gains/losses are charged to revenue.
iii) Contribution to recognised provident fund is charged to revenue.
1.11. Property,Plant & Equipment And Depreciation
Tangible Fixed Assets are stated at their cost of acquisition or construction alongwith the other directly related costs incurred in acquiring the tangible fixed assets and making it ready for its intended use less depreciation and impairment. Intangible assets are amortized over a useful life of the asset. Intangible assets are stated at cost of acquisition or construction alongwith the other directly related costs incurred in acquiring the intangible fixed assets less depreciation and impairment.
Depreciation on Fixed Assets is charged as per the useful life prescribed in Schedule II of the Companies Act 2013 on Written Down Value (WDV) basis. Residual value of Land & Building and Vehicles is taken as 5 percent of the original cost, whereas for assets other than those specified above the residual value is taken as Re.1/-.
1.12. Impairment of Assets
The management periodically (annually) assesses whether there is any indication that an asset may be impaired. An impairment loss is recognized wherever the carrying value of the asset exceeds its recoverable amount. The carrying amount of the asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of any accumulated amortization or depreciation) had no impairment loss been recognized for the asset in prior years.
1.13. Income Taxes And Deferred Taxes
Tax expense comprises of current and deferred taxes. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the provisions of the Income tax Act, 1961 enacted in India.
Deferred tax is recognized in accordance with the provisions of Accounting Standard 22 issued by Institute of Chartered Accountants of India on "Accounting for Taxes on Income".
Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years.
Deferred tax assets are recognized only to the extent there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. Unrecognised deferred tax assets of earlier years are re-assessed and recognized to the extent that it has become reasonably certain that future taxable income will be available against which such deferred tax assets can be realized.
Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the reporting date.
The carrying amount of deferred tax assets are reviewed at each reporting date. The Company writes-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually not 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.
1.14. Segment Reporting
The Company''s primary business segments are reflected based on the principal business carried out, i.e. trading in securities.
The risk and returns of the business of the company is not associated with geographical segmentation, hence there is no secondary segment reporting based on geographical segment.
1.15. Cash flow statement
Cash flows are reported using the indirect method as prescribed in AS-3, whereby profit before tax is adjusted for the effect of transactions of a non cash nature, any deferral or accruals of past and future operating cash receipts or payments and items of income associated with investing or financing cash flows.
1.16. Cash and Cash Equivalents
Cash and Cash Equivalents comprise cash at bank and in hand and short term investments with an original maturity of three months or less.
Mar 31, 2017
1.1. Basis of Preparation of Financial Statements
The Company follows accrual system of accounting and the financial statements are prepared on historical cost basis. The basis of preparation of Financial Statements is in accordance with generally accepted accounting principles. These statements are also in compliance with the mandatory Accounting Standards as prescribed under Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules 2014 and the Reserve Bank of India guidelines as applicable to the Primary Dealers and NBFC.
1.2. Sales / Purchases of Treasury Bills (including Cash Management Bills) and Government Dated Securities, as disclosed in Statement of Profit and Loss do not include Repo/Reverse Repo transactions in accordance with RBI guidelines No. RBI/2009-2010/356/IDMD/4135/11.08.43/2009-10 dated March 23, 2010.
1.3. Revenue Recognition
i). The difference between the acquisition cost and maturity value of Certificates of Deposit, Commercial Papers, Bills Re-discounted, Treasury Bills (including Cash Management Bills) and Zero Coupon Bonds is apportioned on time basis. The above is recognized as accrued income and included in the carrying cost of the securities.
ii). Interest accrued on Government Dated Securities, Fixed Deposits and Corporate Bonds and Debentures is recognized at its coupon rate and that of Floating Rate Bonds is recognized on the yield of instruments to which these are linked at the prevailing floating rates.
iii). Purchase and sale price of Fixed Income Securities is bifurcated into cost and accrued interest paid or realized. Accrued interest paid on purchase and received on sale is netted and reckoned as expense/ income.
iv). Profit/loss on sale of securities is accounted on weighted average cost method and is recognized on settlement date. Profit on sale of securities is netted scrip wise with loss on sale of securities.
v). Brokerage and front-end fee received on subscription of securities is deducted in arriving at the cost of relevant securities. Underwriting fee earned is reduced from the cost of securities devolved/allotted and the remaining amount is directly recognized as income.
vi). For continuing or long term duration activities (e.g. Mutual Fund Distribution), the fee is accrued proportionately as per performance (Proportionate Completion Method). The revenue is recognized only if there is no significant uncertainty regarding the amount of consideration.
vii). For Mutual Fund (MF) Investment, in case of Daily Dividend Reinvestment Plan, the income (dividend) is accounted based on the dividend declaration by the Mutual Fund. In case of growth plan, the income is accounted daily on the basis of closing NAV declared by Mutual Fund.
viii). As per Board approval, the Company transfers Stale Cheques outstanding for more than three years to Miscellaneous Income, and if any claim arises thereafter the same is paid by debit of Miscellaneous Expenses in the year in which it is actually paid.
1.4. Expenses Recognition
The brokerage paid in connection with acquisition of securities is added to the cost of acquisition and on sale of securities it is charged to Statement of Profit and Loss. Interest and other expenses are accounted on accrual basis.
1.5. Valuation of Inventories / Investment
a. Current Investment / Inventories
i) All securities (except securities under HTM category classified as Non-Current Investment) in
which the Company deals are regarded as Inventory (Stock-in-Trade) and grouped as hedged and non-hedged portfolio.
ii) The Company has the following categories of securities namely, Treasury Bills, CDs, CPs, Deep Discount Bonds, Dated Government Securities (including Central and State and Repo Stock), Corporate/PSU Bonds & Debentures, Hedging contracts/Swaps, Trading Swaps, Equity, Mutual Fund Units, Interest Rate Futures, Futures & Options. The stock of Central Government Securities, Treasury Bills (including Cash Management Bills), State Development Loans and PSU/Corporate Bonds, Debentures and Equity Shares are valued at weighted average cost or market value, whichever is lower (except securities under HTM category as per RBI circular). Market Value is determined by the prices declared by Fixed Income Money Market and Derivatives Association of India (FIMMDA) on last working day of the Financial Year, except for Equity Shares. Market value of Equity Shares is determined by the closing rates provided by the stock exchanges on last working day of the Financial Year. The securities in each category are considered scrip-wise and the cost and market value aggregated for all securities in each category. Net unrealized diminution, if any, for each category of securities is provided for and charged to Statement of Profit and Loss. Net unrealized appreciation, if any, is ignored. The unrealized diminution in one category of securities is not set off against unrealized appreciation in another category.
iii) Certificates of Deposit, Commercial Papers, Bills Re-discounted and Zero Coupon Bonds held on the Balance Sheet date are valued at carrying cost.
iv) In case of units of Mutual Fund, valuation is done on the basis of closing NAV declared by the Mutual Fund.
v) In case of Hedging Contracts, the diminution/appreciation of hedged assets will be netted with diminution/appreciation of hedging swaps and net diminution if any, is charged to Statement of Profit and Loss and net appreciation if any, is ignored.
vi) In case of Future contracts (i.e IRF, Equity futures & Nifty futures) valuation is done as per the closing prices provided by SHCIL.
vii) The secondary market short sale transactions in Government securities as permitted by RBI Circular No. RBI/2006-2007/243 IDMD .No./11.01.01(B)/2006-07 are grouped under other liabilities.
b. Non-Current Investments
The securities under HTM category shall be valued as per the guidelines issued by RBI from time to time, and important provisions are under:
- Transfer to/from HTM category shall be done at the acquisition cost/book value/market value on the date of transfer, whichever is the least, and the depreciation if any, on such transfer shall be fully provided for.
- Investments classified under HTM category need not be Marked-to-Market and will be carried at acquisition cost, unless it is more than the face value, in which case the premium should be amortized over the remaining period to maturity. The book value of the security should continue to be reduced to the extent of the amount amortized during the relevant accounting period
- The profit on sale of securities, if any from HTM category shall first be taken to the Statement of Profit and Loss and thereafter be appropriated to the Capital Reserve Account (net of tax). Loss on sale shall be recognized in the Statement of Profit and Loss. The balance in the reserve account shall be utilized strictly as per the regulatory guidelines
1.6. Accounting for Repo Transactions
In conformity with RBI guidelines, securities sold under Repo transactions are not excluded from stock-in-trade and the securities purchased under Reverse Repo are not included in the stock-in-trade. Contra heads are used to reflect the transfer of securities.
Repo seller continues to accrue coupon/ discount on securities as the case may be, even during the repo period while the repo buyer shall not accrue the same.
1.7. Interest Rate Swaps (IRS)
Assets and Liabilities in respect of notional principal amount of IRS are nullified. The related interest is recognized on accrual basis.
i) Trading Swaps
Trading Interest rate swaps outstanding at balance sheet date are Marked- to- Market and the resultant loss, if any, is recorded in Statement of Profit and Loss. Any other charges relating to Trading Interest Rate Swaps are charged to Statement of Profit and Loss.
ii) Hedge Swaps
Hedge Swaps are accounted for on accrual basis. A hedge swap designated to an asset/liability is carried at market value. The resulting Marked-to-Market loss/gain on swap is recorded as an adjustment to the market value of designated Asset/Liability. Gains or losses on the termination / redesignation of hedge swaps is recognized against the offsetting gain or loss recognized on the designated Asset or Liability.
On redesignation of a hedge swap from one item of Asset/Liability to another item of Asset/Liability, the Marked-to-market profit/loss of the hedge swap on the day of redesignation is amortized over the shorter of the remaining life of the swap or the remaining life of the Asset/Liability.
1.8. Accounting for Future and Options Transactions
i. Initial Margin payable at the time of entering into Future Contract/sale of Option is adjusted against the deposits with the exchanges in the form of fixed deposits, cash deposits and securities.
ii. Transactions in Future Contracts are done as Purchases and Sales at the notional trade value of the contract.
iii. The difference in the settlement price or exchange closing price of the previous day and exchange closing price of the subsequent day, paid to or received from the exchange is treated as Marked- to- Market Margin (or by whatever name). The balance in the Marked- to- Market Margin Account represents the net amount paid or received on the basis of movement in the prices of open interest in Futures Contracts till the Balance Sheet date. Net debit balance in the Marked- to- Market Margin Account is charged off to revenue, whereas net credit balance is shown under Current Liabilities.
iv. Premium paid or received on purchase and sale of Options and the difference paid or received on exercise of Options is accounted as Purchases or Sales. In case of open interest in Options sold as on the Balance Sheet date, provision is made for the amount by which premium prevailing on the Balance Sheet date exceeds the premium received for those Options. The excess of premium received over the premium prevailing on the Balance Sheet date is not recognized. Similarly, in case of Options bought, provision is made for the amount by which the premium paid for the Option exceeds the premium prevailing on the Balance Sheet date and the excess of premium prevailing on the Balance Sheet date over the premium paid is ignored. In case of multiple open positions, provision is made or excess premiums are ignored after netting off the balance in buy as well as sell positions.
1.9. Investment
Long Term Investment in debt is valued at carrying cost. However, provision for diminution is made, when there is a decline other than temporary in the value of long-term investment.
1.10. Deferred Tax
Deferred tax is recognized in accordance with the provisions of Accounting Standard 22 issued by Institute of Chartered Accountants of India on âAccounting for Taxes on Incomeâ.
1.11. Depreciation
Depreciation on Fixed Assets is charged as per the useful life prescribed in Schedule II of the Companies Act
2013 on Written Down Value (WDV) basis. Residual value of Land & Building and Vehicles is taken as 5 percent of the original cost, whereas for assets other than those specified above the residual value is taken as Re.1/-.
1.12. Share Issue Expenses
Share issue expenditure is charged to Statement of Profit and Loss in the year of occurrence.
1.13. Dividend and Tax on Dividend
Final Dividends on Shares and Dividend Distribution Tax thereon as per Section 115-O of the Income Tax Act, 1961 are recorded as liability as on the date of approval of dividend. Interim Dividends are recorded as a liability on the date of declaration by the Companyâs Board of Directors.
1.14. Retirement Benefits - Provident Fund, Gratuity & Leave Liability (As per Accounting Standard 15)
i. Gratuity contribution made under the Employee Group Gratuity cum life insurance scheme of LIC is charged to revenue. The premium is calculated on actuarial basis by LIC as per Projected Unit Credit Method (PUCM) as per aS-15.
ii. Leave Liability is accounted for on actuarial valuation carried at year-end.
iii. Contribution to recognized provident fund is charged to revenue.
1.15. Operating Cycle
As the Company is a trader in Government and Fixed Income Securities, the Company buys and sells securities depending upon the market condition. There is no normal fixed period for sale of stock. However, for the purpose of preparing Balance Sheet and Statement of Profit and Loss (as per the revised guidelines), the Company assumes, one year is the operating cycle period.
1.16. Fixed Assets
Tangible Fixed Assets are stated at their cost of acquisition or construction along with the other directly related costs incurred in acquiring the tangible fixed assets and making it ready for its intended use less depreciation and impairment. Intangible assets are amortized over a useful life of the asset. Intangible assets are stated at cost of acquisition or construction along with the other directly related costs incurred in acquiring the intangible fixed assets less depreciation and impairment.
1.17. Impairment of Assets
The management periodically (annually) assesses whether there is any indication that an asset may be impaired. An impairment loss is recognized wherever the carrying value of the asset exceeds its recoverable amount. The carrying amount of the asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of any accumulated amortization or depreciation) had no impairment loss been recognized for the asset in prior years.
1.18. Use of Estimates
The preparation of financial statements in conformity with Indian GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of revenue expenses, assets and liabilities and disclosure of contingent liabilities at the end of the reporting period. Although these estimates are based on the managementâs best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods.
The difference, if any, between the actual and the estimate is recognized in the accounting period in which the same is acknowledged or materialized.
1.19. Income Taxes
Tax expense comprises of current and deferred taxes. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the provisions of the Income tax Act, 1961 enacted in India.
Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years.
Deferred tax assets are recognized only to the extent there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. Unrecognized deferred tax assets of earlier years are re-assessed and recognized to the extent that it has become reasonably certain that future taxable income will be available against which such deferred tax assets can be realized.
Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the reporting date.
The carrying amount of deferred tax assets are reviewed at each reporting date. The Company writes-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually not 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.
1.20. Segment Reporting
The Companyâs primary business segments are reflected based on the principal business carried out, i.e. trading in securities.
The risk and returns of the business of the company is not associated with geographical segmentation, hence there is no secondary segment reporting based on geographical segment.
1.21. Cash flow statement
Cash flows are reported using the indirect method as prescribed in AS-3, whereby profit before tax is adjusted for the effect of transactions of a non cash nature, any deferral or accruals of past and future operating cash receipts or payments and items of income associated with investing or financing cash flows.
1.22. Cash and Cash Equivalents
Cash and Cash Equivalents for the purposes of cash flow statement comprise cash at bank and in hand and short term investments with an original maturity of three months or less.
- Rights, preferences and restrictions attached to each class of shares including restrictions on the distribution of dividends and the repayment of capital:
The Company has only one class of equity shares having a par value of Rs 10 per share. Each holder of equity shares is entitled to one vote per share. Dividend distribution is for all equity shareholders who are eligible for dividend as on the record date. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
- Shares reserved for issue under options and contracts/commitments for the sale of shares/disinvestment, including the terms and amounts: Nil (Prev. Year: Nil)
- For the period of five years immediately preceding the date as at which the Balance Sheet is prepared:
(a) Aggregate number and class of shares allotted as fully paid-up pursuant to contract(s) without payment being received in cash: Nil (Prev. Year: Nil)
(b) Aggregate number and class of shares allotted as fully paid-up by way of bonus shares: No. of Equity Shares - 44992534. Current Year : Nil (Prev. Year : NIL)
(c) Aggregate number and class of shares bought back : Nil (Prev. Year: Nil)
- Terms of any securities convertible into equity/preference shares issued along with the earliest date of conversion in descending order starting from the farthest such date : Nil (Prev. Year : Nil)
- Calls unpaid (showing aggregate value of calls unpaid by Directors and Officers): Nil (Prev. Year : Nil)
- Forfeited shares: Nil (Prev. Year : Nil)
- A sum of Rs. 3343.48 lacs (Prev.Year : Rs, 689.93 lacs) (20 per cent of Profit After Tax) has been transferred to Statutory Reserve Fund as per RBI Guidelines
- Net Profit (after tax) through sale of securities from HTM category amounting Rs, 2229.71 lacs (Prev. Year : Rs, 356.56 lacs) has been transferred to Capital Reserve Account as per RBI guidelines. The same will be utilized as per the regulatory guidelines.
- The Board of Directors, in its meeting held on January 9, 2003, had decided to build up Market Fluctuation Reserve over a period of time with the cap equal to paid up capital of the company. At the time of adoption of annual accounts each year, the Board may decide the quantum of amount to be transferred to this Reserve, if necessary. For the financial year 2016-17, Board of Directors had decided not to appropriate any amount to this reserve and the balance outstanding as on March 31, 2017 in this reserve is Rs, 6300 lacs (Prev.Year : Rs, 6300 lacs).
- Ministry of Corporate Affairs amended the Companies (Accounting Standards) Rules, 2006 on March 30, 2016 and vide its General Circular no. 4/2016 dated 27.04.2016 has clarified that the Companies (Accounting Standards) Amended Rules, 2016 would be applicable for preparation of accounts for accounting period commencing on or after the date of notification i.e. w.e.f Financial Year 2016-17.
According to this amendment, the proposed dividend is not recognizable in the accounts as liability until it is approved.
Accordingly, the proposed dividend for FY 2016-17 of Rs, 2.50 (Prev.Year : Rs, 1.10 per equity share of Rs, 10 each) per equity share of Rs, 10 each has not been recognized as liability as well as an appropriation of profit in the Annual Financial Statements for the FY 2016-17. If the dividend as proposed is approved, the outflow of dividend will be of Rs, 4500.25 lacs (Prev.Year : Rs, 1980.11 lacs) and the Dividend Distribution Tax thereon shall be Rs, 916.15 lacs (Prev.Year : Rs, 403.10 lacs). These will be recognized as liability on approval of the same.
On account of this change, the accounting policy followed for recognizing proposed dividend for this current financial year and the previous financial year are different and hence the financial statement for these two years are not comparable to that extent.
- Net owned Funds (after deducting Deferred Tax and Intangible Assets) of the Company stands at Rs, 89835.70 lacs (Prev.Year : Rs, 73122.23 lacs) as against the minimum stipulated capital of Rs, 25000.00 lacs. Return on Average Net Worth for the year 2016-17 stands at 20.51 per cent (Prev.Year : 5.10 per cent).
- Capital Adequacy Ratios as on June 30, 2016, September 30, 2016, December 31, 2016 and March 31, 2017 were 72.02 per cent (Prev.Year : 66.41 per cent), 82.14 per cent (Prev.Year : 69.50 per cent), 74.90 per cent (Prev.Year : 71.39 per cent) and 54.48 per cent (Prev.Year : 68.07 per cent) respectively as against RBI stipulation of 15 per cent.
- Securities amounting to Face Value Rs, 187819.70 lacs were sold directly from the HTM category (Prev. Year: Rs, 111781.50 lacs) and the company earned a gross profit of Rs, 3394.38 lacs (Prev. Year : Rs, 545.26 lacs). Balance profit after tax amounting to Rs, 2229.71 lacs has been transferred to Capital Reserve Account in accordance with RBI guidelines (Prev. Year : Rs, 356.56 lacs).
- Amortization of Rs, 79.33 lacs on the HTM category as on March 31, 2017 has been separately provided in Note No. 2.23 relating to other expenses (Prev. Year figures of amortization in HTM category as on March 31, 2016 is Rs, 42.47 lacs)
An amount of Rs, 1000 lacs was lent in Call Money to Madhavpura Mercantile Co-operative Bank Ltd. (MMCBL) in March 2001, which became overdue as on March 31, 2001. The Company was informed by MMCBL that the Government of India (Ministry of Agriculture, Department of Agriculture and Co-operation, New Delhi), in consultation with RBI, has formed Reconstruction Scheme and the amount would be paid accordingly. However, the repayment was not done by them as per the scheme and vide Governmentâs notifications instructed that all payments by bank including installment of repayment due in August 2007, August 2008 and August 2009 (totaling to Rs, 761.88 lacs against which Rs, 761.88 lacs provision was outstanding) and payments of interest and the deposit amount were deferred till August 2011. RBI cancelled the license of MMCBL to carry
- For basis of valuation, please refer accounting policy (note 1.5a). Details of securities are given in Annex-2.
- Stock-in-Trade includes hedged securities (Book Value - Rs, 12401.09 lacs and the market value of the same is Rs, 12737.90 lacs (Prev. Year : Book Value Rs, 14842.50 lacs and Market Value Rs, 15117.65 lacs) and there is a net provision of Rs, NIL lacs (Prev. Year : Rs, 107.83 lacs) for diminution after adjusting the depreciation in Swaps of Rs, 143.18 lacs (Prev. Year : Rs, 382.99 lacs).
- The company is providing custodian services to its constituents and total holdings of 85 (Prev. Year : 97) constituents in Govt. Securities as at 31.03.2017 in SGL II with RBI is Rs, 3575148.21 lacs (Prev. Year : Rs, 2830037.91 lacs)
* The aggregate carrying value and market value as at March 31, 2017 is Rs, 388535.20 lacs (Prev. Year : Rs, 496058.15 lacs).
(i) Govt. Securities pledged for availing LAF/Term Repo - Face Value Rs, 40589.90 lacs - Book Value Rs, 40782.00 lacs (Prev. Year : Face Value Rs, 129547.00 lacs and Book value Rs, 126254.03 lacs)
(ii) Govt. Securities pledged for availing CBLO borrowing - Face Value Rs, 25470.00 lacs - Book value Rs, 24965.94 lacs (Prev. Year : Face Value Rs, 71900.00 lacs and Book value Rs, 70551.04 lacs)
(iii) Govt. Securities pledged for availing RBI Refinance - Face Value Rs, NIL lacs - Book Value Rs, NIL lacs (Prev. Year : Face Value Rs, 37156.00 lacs and Book value Rs, 36364.83 lacs)
The securities mentioned in (i) ,(ii) and (iii) above were not available for trading as on March 31, 2017, although included in the inventories as on March 31, 2017.
As per Para 9 of the Accounting Standard 18 on Related Party Disclosures, the Company, being a state controlled enterprise, is not required to make disclosures of related party relationships with other state controlled enterprises and transactions with such enterprises. Other information as per the Standard is as under:
- The overall supervision and control of the company vests with the Board of Directors. The Managing Director and Executive Director and CFO of the company, appointed by the Board of Directors, who are working full time with the company.
- Out of the total Eight Directors on the Board of the company as at March 31, 2017, four are independent Directors. Only the Non-Executive Directors are being paid sitting fees for the Board / Committee Meetings. Sitting fee to be paid to Non-Executive Directors is Rs, 25000/- for attending each meeting of the Board and Rs, 10000/- for attending each meeting of Audit Committee/CSR Committee/Nomination and Remuneration Committee/Only Independent Directorsâ Meeting. Sitting fee for attending each meeting of (a) Share Transfer and Issue of Duplicate Shares Committee; and (b) Stakeholdersâ Relationship Committee is Rs, 5000/-. During the year, the Company has paid a sum of Rs, 18.57 lacs (Prev. Year : Rs, 12.21 lacs) towards sitting fee, including service tax.
- Other information in this regard is available in Corporate Governance Report and Boardâs report.
Market Risk In the event of 100 basis points adverse movement in interest
rate there will be a negative impact of Rs, 214.50 lacs (Prev. Year : Rs, 391.07 lacs) on Hedging Swaps in Swap Book.
The losses, which would be incurred if, counter parties fail to fulfill their obligations works out to Rs, NIL lacs (Prev. Year : Rs, Nil lacs)
The Companyâs exposure with regard to outstanding swap transactions is limited to banks and CCIL.
Collateral No Collateral is insisted upon from counterpart
Credit Risk Concentration Rs, 18.23 lacs (Prev. Year : Rs, 60.04 lacs)
Mar 31, 2015
1.1. Method of Accounting
The Company follows accrual system of accounting and the financial
statements are prepared on historical cost basis, in accordance with
generally accepted accounting principles and Reserve Bank of India
guidelines as applicable to the Primary Dealers.
1.2. Sales / Purchases of Treasury Bills (including Cash Management
Bills) and Government Dated Securities, as disclosed in Statement of
Profit and Loss do not include Repo transactions in accordance with
revised RBI guidelines.
1.3. Revenue Recognition
i) The difference between the acquisition cost and maturity value of
Certificates of Deposit, Commercial Papers, Bills Re-discounted,
Treasury Bills (including Cash Management Bills) and Zero Coupon Bonds
is apportioned on time basis. The above is recognised as accrued income
and included in the carrying cost of the securities.
ii) Interest accrued on Government Dated Securities, Fixed Deposits and
Corporate Bonds and Debentures is recognised at its coupon rate and
that of Floating Rate Bonds is recognised on the yield of instruments
to which these are linked.
iii) Purchase and sale price of Fixed Income Securities is bifurcated
into cost and accrued interest paid or realised. Accrued interest paid
on purchase and received on sale is netted and reckoned as
expense/income.
iv) Profit/loss on sale of securities is accounted on weighted average
cost method and is recognised on settlement date. Profit on sale of
securities is netted with loss on sale of securities.
v) Brokerage and front-end fee received on subscription of securities
is deducted in arriving at the cost of relevant securities.
Underwriting fee earned is reduced from the cost of securities
devolved/allotted and the remaining amount is directly recognised as
income.
vi) For continuing or long term duration activities (e.g. Mutual Fund
Distribution), the fee is accrued proportionately as per performance
(Proportionate Completion Method). The revenue is recognized only if
there is no significant uncertainty regarding the amount of
consideration.
vii) For Mutual Fund (MF) Investment, in case of Daily Dividend
Reinvestment Plan the income (dividend) is accounted based on the
dividend declaration by the Mutual Fund. In case of growth plan, the
income is accounted daily on the basis of closing NAV declared by
Mutual Fund.
1.4. Expenses Recognition
The brokerage paid in connection with acquisition of securities is
added to the cost of acquisition and on sale of securities it is
charged to Statement of Profit and Loss. Interest and other expenses
are accounted on accrual basis.
1.5. Valuation of Inventories / Investment
a. Inventories
i) All securities (except securities under HTM category classified as
Non-Current Investment) in which the Company deals are regarded as
Inventory (Stock-in-Trade) and grouped as hedged and non- hedged
portfolio.
ii) The stock of Central Government Securities, Treasury Bills
(including Cash Management Bills), State Development Loans and
PSU/Corporate Bonds, Debentures and Equity Shares are valued at
weighted average cost or market value, whichever is lower (except
securities under HTM category as per RBI circular). Market Value is
determined by the prices declared by Fixed Income Money Market and
Derivatives Association of India (FIMMDA) as on March 31, 2015, except
for Equity Shares. Market value of Equity Shares is determined by the
closing rates provided by the stock exchanges as on March 31, 2015. For
this purpose, the securities in each category are considered scrip-wise
and the cost and market value aggregated for all securities in each
category. Net diminution, if any, for each category of securities is
provided for and charged to Statement of Profit and Loss. Net
appreciation, if any, is ignored. The diminution in one category of
securities is not set off against appreciation in another category.
iii) Certificates of Deposit, Commercial Papers, Bills Re-discounted
and Zero Coupon Bonds held on the Balance Sheet date are valued at
carrying cost.
iv) In case of units of Mutual Fund, valuation is done on the basis of
closing NAV declared by the Mutual Fund.
v) In case of Hedging Contracts, the diminution/appreciation of hedged
assets will be netted with diminution/ appreciation of hedging swaps
and net diminution if any, is charged to Statement of Profit and Loss
and net appreciation if any, is ignored.
b. Non-Current Investments
The securities under HTM category shall be valued as per the guidelines
issued by RBI from time to time, and important provisions are under:
* Securities classified under HTM category need not be Marked-to-Market
and will be carried out at the value at which they were transferred to
HTM portfolio.
* Transfer to/from HTM category shall be done at the acquisition
cost/book value/market value on the date of transfer, whichever is the
least, and the depreciation if any, on such transfer shall be fully
provided for.
* Investments classified under HTM will be carried at acquisition cost,
unless it is more than the face value, in which case the premium should
be amortized over the remaining period to maturity. The book value of
the security should continue to be reduced to the extent of the amount
amortized during the relevant accounting period.
* The profit on sale of securities, if any from HTM category shall
first be taken to the Statement of Profit and Loss and thereafter be
appropriated to the Capital Reserve Account (net of tax). Loss on sale
shall be recognized in the Statement of Profit and Loss. The balance in
the reserve account shall be utilized strictly as per the regulatory
guidelines.
1.6 Accounting for Repo Transactions
In conformity with RBI guidelines, securities sold under Repo
transactions are not excluded from stock-in-trade and the securities
purchased under Reverse Repo are not included in the stock-in-trade.
Contra heads are used to reflect the transfer of securities.
Repo seller continues to accrue coupon/ discount on securities as the
case may be, even during the repo period while the repo buyer shall not
accrue the same.
1.7 Interest Rate Swaps (IRS)
Assets and Liabilities in respect of notional principal amount of IRS
are nullified. The related interest is recognized on accrual basis.
i) Trading Swaps
Trading Interest rate swaps outstanding at balance sheet date are
Marked-to-Market and the resultant loss, if any, is recorded in
Statement of Profit and Loss. Any other charges relating to Trading
Interest Rate Swaps are charged to Statement of Profit and Loss.
ii) Hedge Swaps
Hedge Swaps are accounted for on accrual basis. A hedge swap designated
to an asset/liability is carried at market value. The resulting
Marked-to-Market loss/gain on swap is recorded as an adjustment to the
market value of designated Asset/Liability. Gains or losses on the
termination / redesignation of hedge swaps is recognized against the
offsetting gain or loss recognized on the designated Asset or
Liability.
On redesignation of a hedge swap from one item of asset/liability to
another item of Asset/Liability, the Marked-to-Market profit/loss of
the hedge swap on the day of redesignation is amortized over the
shorter of the remaining life of the swap or the remaining life of the
Asset/Liability.
1.8. Accounting for Future and Options Transactions
i. Initial Margin payable at the time of entering into Future
Contract/sale of Option is adjusted against the deposits with the
exchanges in the form of fixed deposits, cash deposits and securities.
ii. Transactions in Future Contracts are accounted as Purchases and
Sales at the notional trade value of the contract. The open interest in
futures as at the Balance Sheet date is netted by its notional value.
iii. The difference in the settlement price or exchange closing price
of the previous day and exchange closing price of the subsequent day,
paid to or received from the exchange is treated as Marked-to-Market
Margin. The balance in the Marked-to-Market Margin Account represents
the net amount paid or received on the basis of movement in the prices
of open interest in Futures Contracts till the Balance Sheet date. Net
debit balance in the Marked-to-Market Margin Account is charged off to
revenue, whereas net credit balance is shown under Current Liabilities.
iv. Premium paid or received on purchase and sale of Options and the
difference paid or received on exercise of Options is accounted as
Purchases or Sales. In case of open interest in Options sold as on the
Balance Sheet date, provision is made for the amount by which premium
prevailing on the Balance Sheet date exceeds the premium received for
those Options. The excess of premium received over the premium
prevailing on the Balance Sheet date is not recognized. Similarly, in
case of Options bought, provision is made for the amount by which the
premium paid for the Option exceeds the premium prevailing on the
Balance Sheet date and the excess of premium prevailing on the Balance
Sheet date over the premium paid is ignored. In case of multiple open
positions, provision is made or excess premiums are ignored after
netting off the balance in buy as well as sell positions.
1.9. Investment
Long Term Investment in debt is valued at carrying cost. However,
provision for diminution is made, when there is a decline other than
temporary in the value of long-term investment.
1.10. Deferred Tax
Deferred tax is recognized in accordance with the provisions of
Accounting Standard 22 issued by Institute of Chartered Accountants of
India on "Accounting for Taxes on Income".
1.11 Depreciation
Depreciation on Fixed Assets is charged as per the useful life
prescribed in Schedule II of the Companies Act 2013 on Written Down
Value (WDV) basis. Residual value of Land & Building and Vehicles is
taken as 5 percent of the original cost, whereas for assets other than
those specified above the residual value is taken as Re.1/-.
1.12 Preliminary Expenses
Preliminary expenses are written off in the year in which these are
incurred.
1.13 Share Issue Expenses
Share issue expenditure is charged to Statement of Profit and Loss in
the year of occurrence.
1.14 Tax on Dividend
Dividend Distribution Tax payable on dividend declared in terms of
Section 115-0 of the Income Tax Act, 1961, is accounted for in the year
to which the dividend relates.
1.15 Retirement Benefits - Provident Fund, Gratuity & Leave Liability
(As per Accounting Standard 15)
i. Gratuity contribution made under the Employee Group Gratuity cum
life insurance scheme of LIC is charged to revenue.
ii. Leave Liability is accounted for on actuarial valuation carried at
year-end.
iii. Contribution to recognised provident fund is charged to revenue.
1.16 Operating Cycle
As the Company is a trader in Government and Fixed Income Securities,
the Company buys and sells securities depending upon the market
condition. There is no normal fixed period for sale of stock. However,
for the purpose of preparing Balance Sheet and Statement of Profit and
Loss (as per the revised guidelines), the Company assumes, one year is
the operating cycle period.
1.17 Fixed Assets
Tangible Fixed Assets are stated at their cost of acquisition or
construction alongwith the other directly related costs incurred in
acquiring the tangible fixed assets and making it ready for its
intended use less depreciation and impairment. Intangible assets are
amortized over a useful life of the asset. The useful life of
intangible asset has been taken as 3 years. Intangible assets are
stated at cost of acquisition or construction alongwith the other
directly related costs incurred in acquiring the intangible fixed
assets less depreciation and impairment.
1.18 Impairment of Assets
The management periodically assesses whether there is any indication
that an asset may be impaired. An impairment loss is recognized
wherever the carrying value of the asset exceeds its recoverable
amount. The carrying amount of the asset is increased to its revised
recoverable amount, provided that this amount does not exceed the
carrying amount that would have been determined (net of any accumulated
amortization or depreciation) had no impairment loss been recognized
for the asset in prior years.
Mar 31, 2014
1.1 Method of Accounting
The Company follows accrual system of accounting and the financial
statements are prepared on historical cost basis, in accordance with
Generally Accepted Accounting Principles and Reserve Bank of India
guidelines as applicable to the Primary Dealers.
1.2 Sales/Purchases of Treasury Bills (including Cash Management Bills)
and Government Dated Securities, as disclosed in Statement of Profit &
Loss Account do not include Repo transactions in accordance with revised
RBI guidelines.
1.3 Revenue Recognition
i) The difference between the acquisition cost and maturity value of
Certificates of Deposit, Commercial Papers, Bills Re-discounted,
Treasury Bills (including Cash Management bills) and Zero Coupon Bonds
is apportioned on time basis. The above is recognised as accrued income
and included in the carrying cost of the securities.
ii) Interest accrued on Government Dated Securities and Corporate Bonds
and Debentures is recognised at its coupon rate and that of Floating
Rate Bonds is recognised on the yield of instruments to which these are
linked.
iii) Purchase and sale price of Fixed Income Securities is bifurcated
into cost and accrued interest paid or realised. Accrued interest paid
on purchase and received on sale is netted and reckoned as
expense/income.
iv) Profit/loss on sale of securities is accounted on weighted average
cost method and is recognised on settlement date. Profit on sale of
securities is netted with loss on sale of securities.
v) Brokerage and front-end fee received on subscription of securities is
deducted in arriving at the cost of relevant securities. Underwriting
fee earned is reduced from the cost of securities devolved/allotted and
the remaining amount is directly recognised as income.
vi) For continuing or long term duration activities (e.g. Mutual Fund
Distribution), the fee is accrued proportionately as per performance
(Proportionate Completion Method). The revenue is recognized only if
there is no significant uncertainty regarding the amount of
consideration.
vii) For Mutual Fund (MF) Investment, in case of Daily Dividend
Reinvestment Plan the income (dividend) is accounted based on the
dividend declaration by the Mutual Fund. In case of growth plan, the
income is accounted daily on the basis of closing NAV declared by Mutual
Fund.
1.4 Expenses Recognition
The brokerage paid in connection with acquisition of securities is added
to the cost of acquisition and on sale of securities it is charged to
Profit and Loss Account.
1.5 Valuation of Inventories/Investment a Inventories
i) All securities in which the Company deals are regarded as Inventory
(Stock-in-Trade) and grouped as hedged and non-hedged portfolio.
ii) The stock of Central Government Securities, Treasury Bills
(including Cash Management Bills), State Development Loans and
PSU/Corporate Bonds, Debentures and equity Shares are valued at weighted
average cost or market value, whichever is lower (except securities
under HTM category as per RBI guidelines). Market Value is determined by
the prices declared by Fixed Income Money Market and Derivatives
Association of India (FIMMDA), except for equity shares. Market value of
Equity shares is determined by the closing rates provided by the stock
exchanges. For this purpose, the securities in each category are
considered scrip-wise and the cost and market value aggregated for all
securities in each category. Net diminution, if any, for each category
of securities is provided for and charged to Profit and Loss Account.
Net appreciation, if any, is ignored. The diminution in one category of
securities is not set off against appreciation in another category.
iii) Certificates of Deposit, Commercial Papers, Bills Re-discounted and
Zero Coupon Bonds held on the Balance Sheet date are valued at carrying
cost.
iv) In case of units of mutual fund, valuation is done on the basis of
closing NAV declared by the Mutual Fund.
v) In case of Hedging Contracts, the diminution/appreciation of hedged
assets will be netted with diminution/ appreciation of hedging swaps and
net diminution if any, is charged to Profit and Loss Account and net
appreciation, if any, is ignored.
b. Non-Current Investments
The securities under HTM category shall be valued as per the guidelines
issued by RBI from time to time, and important provisions are under:
* Securities classified under HTM category need not be
Marked-to-Market and will be carried out at the value at which they were
transferred to HTM portfolio.
* Transfer to/from HTM category shall be done at the acquisition
cost/book value/market value on the date of transfer, whichever is the
least, and the depreciation if any, on such transfer shall be fully
provided for.
* Investments classified under HTM will be carried at acquisition
cost, unless it is more than the face value, in which case the premium
should be amortized over the remaining period to maturity. The book
value of the security should continue to be reduced to the extent of the
amount amortized during the relevant accounting period
* The profit on sale of securities, if any from HTM category shall
first be taken to the Profit and Loss Account and thereafter be
appropriated to the Capital Reserve Account (net of tax). Loss on sale
shall be recognized in the Profit and Loss Account. The balance in the
reserve account shall be utilized strictly as per the regulatory
guidelines.
1.6 Accounting for Repo Transactions
In conformity with RBI guidelines, securities sold under Repo
transactions are not excluded from stock-in-trade and the securities
purchased under Reverse Repo are not included in the stock-in-trade.
Contra heads are used to reflect the transfer of securities.
Repo seller continues to accrue coupon/discount on securities as the
case may be, even during the repo period while the repo buyer shall not
accrue the same.
1.7 Interest Rate Swaps (IRS)
Assets and Liabilities in respect of notional principal amount of IRS
are nullified. The related interest is recognized on accrual basis.
i) Trading Swaps
Trading Interest Rate Swaps outstanding at Balance Sheet date are
Marked-to-Market and the resultant loss, if any, is recorded in Profit
and Loss Account. Any other charges relating to Trading Interest Rate
Swaps are charged to Profit and Loss Account.
ii) Hedge Swaps
Hedge Swaps are accounted for on accrual basis. A hedge swap designated
to an asset/liability is carried at market value. The resulting
Marked-to-Market loss/gain on swap is recorded as an adjustment to the
market value of designated Asset/Liability. Gains or losses on the
termination/redesignation of hedge swaps is recognized against the
offsetting gain or loss recognized on the designated Asset or Liability.
On redesignation of a hedge swap from one item of asset/liability to
another item of Asset/Liability, the Mark-to-Market profit/loss of the
hedge swap on the day of redesignation is amortized over the shorter of
the remaining life of the swap or the remaining life of the
Asset/Liability.
1.8 Accounting for Future and Options Transactions
i. Initial Margin payable at the time of entering into Future
contract/sale of Option is adjusted against the deposits with the
exchanges in the form of fixed deposits, cash deposits and securities.
ii Transactions in Future contracts are accounted as Purchases and Sales
at the notional trade value of the contract. The open interest in
Futures as at the Balance Sheet date is netted by its notional value.
iii The difference in the settlement price or exchange closing price of
the previous day and exchange closing price of the subsequent day, paid
to or received from the exchange is treated as Marked-to-Market Margin.
The balance in the Marked-to-Market Margin Account represents the net
amount paid or received on the basis of movement in the prices of open
interest in Futures Contracts till the Balance Sheet date. Net debit
balance in the Marked-to-Market Margin Account is charged off to
Revenue, whereas net credit balance is shown under Current Liabilities.
iv Premium paid or received on purchase and sale of Options and the
difference paid or received on exercise of Options is accounted as
Purchases or Sales. In case of open interest in Options sold as on the
Balance Sheet date, provision is made for the amount by which premium
prevailing on the Balance Sheet date exceeds the premium received for
those Options. The excess of premium received over the premium
prevailing on the Balance Sheet date is not recognized. Similarly, in
case of Options bought, provision is made for the amount by which the
premium paid for the Option exceeds the premium prevailing on the
Balance Sheet date and the excess of premium prevailing on the Balance
Sheet date over the premium paid is ignored. In case of multiple open
positions, provision is made or excess premiums are ignored after
netting off the balance in buy as well as sell positions.
1.9 Investment
Long Term Investment in debt is valued at carrying cost. However,
provision for diminution is made, when there is a decline other than
temporary in the value of long-term investment.
1.10 Deferred Tax
Deferred tax is recognized in accordance with the provisions of
Accounting Standard - 22 issued by the Institute of Chartered
Accountants of India on "Accounting for Taxes on Income".
1.11 Depreciation
Depreciation on fixed assets is charged on written down value method in
accordance with the rates specified in Schedule XIV to the Companies
Act, 1956. Intangible Assets comprise of software acquired by the
company to facilitate its operations and these are depreciated @40 per
cent on WDV basis.
1.12 Preliminary Expenses
Preliminary expenses are written off in the year in which these are
incurred.
1.13 Share Issue Expenses
Share issue expenditure is charged to Profit and Loss account in the
year of occurrence.
1.14 Tax on Dividend
Dividend Distribution Tax payable on dividend declared in terms of
Section 115-O of the Income Tax Act, 1961, is accounted for in the year
to which the dividend relates.
1.15 Retirement Benefits - Provident Fund, Gratuity and Leave Liability
(As per Accounting Standard - 15)
i. Gratuity contribution made under the Employee Group Gratuity cum life
insurance scheme of LIC is charged to Revenue.
ii. Leave Liability is accounted for on actuarial valuation carried at
year-end.
iii. Contribution to recognised provident fund is charged to Revenue.
1.16 Operating Cycle
As the Company is a trader in Government and Fixed Income Securities,
the Company buys and sells securities depending upon the market
condition. There is no normal fixed period for sale of stock. However,
for the purpose of preparing Balance Sheet and Profit and Loss Account
(as per the revised guidelines), the Company has assured one year as its
operating cycle year.
Mar 31, 2013
1.1. Method of Accounting
The Company follows accrual system of accounting and the financial
statements are prepared on historical cost basis, in accordance with
Generally Accepted Accounting Principles and Reserve Bank of India
guidelines as applicable to the Primary Dealers.
1.2. Sales / Purchases of Treasury Bills (including Cash management
bills) and Government Dated Securities, as disclosed in Statement of
Profit & Loss Account, do not include Repo transactions in accordance
with revised RBI guidelines.
1.3. Revenue Recognition
i) The difference between the acquisition cost and maturity value of
Certificates of Deposit, Commercial Papers, Bills Re-discounted,
Treasury Bills (including Cash Management Bills) and Zero Coupon Bonds
is apportioned on time basis. The above is recognised as accrued income
and included in the carrying cost of the securities.
ii) Interest accrued on Government Dated Securities and Corporate Bonds
and Debentures is recognised at its coupon rate and that of Floating
Rate Bonds is recognised on the yield of instruments to which these are
linked.
iii) Purchase and sale price of Fixed Income Securities is bifurcated
into cost and accrued interest paid or realised. Accrued interest paid
on purchase and received on sale is netted and reckoned as
expense/income.
iv) Profit/loss on sale of securities is accounted on weighted average
cost method and is recognised on settlement date. Profit on sale of
securities is netted with loss on sale of securities.
v) Brokerage and front-end fee received on subscription of securities
is deducted in arriving at the cost of relevant securities.
Underwriting fee earned is reduced from the cost of securities
devolved/allotted and the remaining amount is directly recognised as
income.
vi) For continuing or long term duration activities (e.g. Mutual fund
Distribution), the fee is accrued proportionately as per performance
(Proportionate Completion Method). The revenue is recognized only if
there is no significant uncertainty regarding the amount of
consideration.
vii) For Mutual Fund (MF) Investment, in case of Daily Dividend
Reinvestment Plan, the income (dividend) is accounted based on the
dividend declaration by the Mutual Fund. In case of growth plan, the
income is accounted daily on the basis of closing NAV declared by
Mutual Fund.
1.4. Expenses Recognition
The brokerage paid in connection with acquisition of securities is
added to the cost of acquisition and on sale of securities it is
charged to Profit and Loss Account.
1.5. Valuation of Inventories / Investment
a. Inventories
i) All securities in which the Company deals are regarded as Inventory
(Stock-in-Trade) and grouped as hedged and nonhedged portfolio.
ii) The stock of Central Government Securities, Treasury Bills
(including Cash Management Bills), State Development Loans and
PSU/Corporate Bonds, Debentures and Equity Shares are valued at
weighted average cost or market value, whichever is lower (except
securities under HTM category as per RBI guidelines). Market Value is
determined by the prices declared by Fixed Income Money Market and
Derivatives Association of India (FIMMDA), except for Equity Shares.
Market value of Equity shares is determined by the closing rates
provided by the stock exchanges. For this purpose, the securities in
each category are considered scrip-wise and the cost and market value
aggregated for all securities in each category. Net diminution, if any,
for each category of securities is provided for and charged to Profit
and Loss Account. Net appreciation, if any, is ignored. The diminution
in one category of securities is not set off against appreciation in
another category.
iii) Certificates of Deposit, Commercial Papers, Bills Re-discounted
and Zero Coupon Bonds held on the balance sheet date are valued at
carrying cost.
iv) In case of units of Mutual Fund, valuation is done on the basis of
closing NAV declared by the Mutual Fund.
v) In case of Hedging Contracts, the diminution/appreciation of hedged
assets is netted with diminution/ appreciation of hedging swaps and net
diminution, if any, is charged to Profit and Loss Account and net
appreciation, if any, is ignored.
b. Non-Current Investments
The securities under HTM category shall be valued as per the guidelines
issued by RBI from time to time, and important provisions are under:
i) Securities classified under HTM category need not be
Marked-to-Market and will be carried out at the value at which they
were transferred to HTM portfolio.
ii) Transfer to/from HTM category shall be done at the acquisition
cost/book value/market value on the date of transfer, whichever is the
least, and the depreciation, if any, on such transfer shall be fully
provided for.
iii) Investments classified under HTM will be carried at acquisition
cost, unless it is more than the face value, in which case the premium
should be amortized over the remaining period to maturity. The book
value of the security should continue to be reduced to the extent of
the amount amortized during the relevant accounting period
iv) The profit on sale of securities, if any, from HTM category shall
first be taken to the Profit and Loss Account and thereafter be
appropriated to the Capital Reserve Account (net of tax). Loss on sale
shall be recognized in the Profit and Loss Account. The balance in the
reserve account shall be utilized strictly as per the regulatory
guidelines
1.6 Accounting for Repo Transactions
In conformity with RBI guidelines, securities sold under Repo
transactions are not excluded from stock-in-trade and the securities
purchased under Reverse Repo are not included in the stock-in-trade.
Contra heads are used to reflect the transfer of securities.
Repo seller continues to accrue coupon/ discount on securities, as the
case may be, even during the repo period, while the repo buyer shall
not accrue the same.
1.7 Interest Rate Swaps (IRS)
Assets and Liabilities in respect of notional principal amount of IRS
are nullified. The related interest is recognized on accrual basis.
i) Trading Swaps
Trading Interest rate swaps outstanding at Balance Sheet date are
Marked-to-Market and the resultant loss, if any, is recorded in Profit
and Loss Account. Any other charges relating to Trading Interest Rate
Swaps are charged to Profit and Loss Account.
ii) Hedge Swaps
Hedge Swaps are accounted for on accrual basis. A hedge swap designated
to an asset/liability is carried at market value. The resulting
Marked-to-Market loss/gain on swap is recorded as an adjustment to the
market value of designated asset/liability. Gain or loss on the
termination / redesignation of Hedge Swaps is recognized against the
offsetting gain or loss recognized on the designated Asset or
Liability.
On redesignation of a Hedge Swap from one item of asset/liability to
another item of Asset/Liability, the Marked-to- Market profit/loss of
the Hedge Swap on the day of redesignation is amortized over the
shorter of the remaining life of the Swap or the remaining life of the
Asset/Liability.
1.8 Accounting for Future and Options Transactions
i) Initial Margin payable at the time of entering into Future
Contract/sale of Option is adjusted against the deposits with the
exchanges in the form of fixed deposits, cash deposits and securities.
ii) Transactions in Future Contracts are accounted as Purchases and
Sales at the notional trade value of the contract. The open interest
in Futures as at the Balance Sheet date is netted by its notional
value.
iii) The difference in the settlement price or exchange closing price
of the previous day and exchange closing price of the subsequent day,
paid to or received from the exchange is treated as Marked-to-Market
Margin. The balance in the Marked-to-Market Margin Account represents
the net amount paid or received on the basis of movement in the prices
of open interest in Futures Contracts till the Balance Sheet date. Net
debit balance in the Marked-to-Market Margin Account is charged off to
Revenue, whereas net credit balance is shown under Current Liabilities.
iv) Premium paid or received on purchase and sale of Options and the
difference paid or received on exercise of Options is accounted as
Purchases or Sales. In case of open interest in Options sold as on the
Balance Sheet date, provision is made for the amount by which premium
prevailing on the Balance Sheet date exceeds the premium received for
those Options. The excess of premium received over the premium
prevailing on the Balance Sheet date is not recognized. Similarly, in
case of Options bought, provision is made for the amount by which the
premium paid for the Option exceeds the premium prevailing on the
Balance Sheet date and the excess of premium prevailing on the Balance
Sheet date over the premium paid is ignored. In case of multiple open
positions, provision is made or excess premiums are ignored after
netting off the balance in buy as well as sell positions.
1.9 Investment
Long Term Investment in debt is valued at carrying cost. However,
provision for diminution is made, when there is a decline other than
temporary in the value of long-term investment.
1.10 Deferred Tax
Deferred tax is recognized in accordance with the provisions of
Accounting Standard 22 issued by Institute of Chartered Accountants of
India on "Accounting for Taxes on Income".
1.11 Depreciation
Depreciation on fixed assets is charged on written down value method in
accordance with the rates specified in Schedule XIV to the Companies
Act, 1956. Intangible Assets comprise of software acquired by the
Company to facilitate its operations and these are depreciated @40 per
cent on WDV basis.
1.12 Preliminary Expenses
Preliminary expenses are written off in the year in which these are
incurred.
1.13 Share Issue Expenses
Share issue expenditure is charged to Profit and Loss account in the
year of occurrence.
1.14 Tax on Dividend
Dividend Distribution Tax payable on dividend declared in terms of
Section 115-O of the Income Tax Act, 1961, is accounted for in the year
to which the dividend relates.
1.15 Retirement Benefits - Provident Fund, Gratuity and Leave Liability
(As per Accounting Standard 15)
i) Gratuity contribution made under the Employee Group Gratuity cum
life insurance scheme of LIC is charged to revenue.
ii) Leave Liability is accounted for on actuarial valuation carried at
year-end.
iii) Contribution to recognised provident fund is charged to revenue.
1.16 Operating Cycle
As our Company is a trader in Government and Fixed Income Securities,
the Company buys and sells securities depending upon the market
condition. There is no normal fixed period for sale of stock. However,
for the purpose of preparing Balance Sheet and Profit and Loss Account
(as per the revised guidelines), the Company has assumed one year as
operating cycle period.
Mar 31, 2012
1.1 Method of Accounting
The company follows accrual system of accounting and the financial
statements are prepared on historical cost basis, in accordance with
Generally Accepted Accounting Principles and Reserve Bank of India
guidelines as applicable to the Primary Dealers.
1.2 Sales / Purchases of Treasury Bills (including Cash Management
Bills) and Government Dated Securities, as disclosed in Statement of
Profit & Loss Account, do not include Repo transactions in accordance
with revised RBI guidelines.
1.3 Revenue Recognition
i) The difference between the acquisition cost and maturity value of
Certificates of Deposit, Commercial Papers, Bills Re-discounted,
Treasury Bills (including Cash Management Bills) and Zero Coupon Bonds
is apportioned on time basis. The above is recognised as accrued income
and included in the carrying cost of the securities.
ii) Interest accrued on Government Dated Securities, Corporate Bonds
and Debentures is recognised at its coupon rate and that of Floating
Rate Bonds is recognised on the yield of instruments to which these are
linked.
iii) Purchase and sale price of Fixed Income Securities is bifurcated
into cost and accrued interest paid or realised. Accrued interest paid
on purchase & received on sale is netted and reckoned as
expense/income.
iv) Profit/loss on sale of securities is accounted on weighted average
cost method and is recognised on settlement date. Profit on sale of
securities is netted with loss on sale of securities.
v) Brokerage and front-end fee received on subscription of securities
is deducted in arriving at the cost of relevant securities.
Underwriting fee earned on allotment/devolvement in respect of
underwriting commitments is proportionately reduced from the cost of
securities alloted/devolved and the remaining amount is directly
recognized as income.
vi) For continuing or long term duration activities (e.g. Mutual fund
Distribution), the fee is accrued proportionately as per performance
(Proportionate Completion Method). The revenue is recognized only if
there is no significant uncertainty regarding the amount of
consideration.
vii) For Mutual Fund (MF) Investment, in case of Daily Dividend
Reinvestment Plan the income (dividend) is accounted based on the
dividend declared by the Mutual Fund. In case of growth plan, the
income is accounted daily on the basis of closing NAV declared by
Mutual Fund.
1.4 Expenses Recognition
The brokerage paid in connection with acquisition of securities is
added to the cost of acquisition and on sale of securities, is charged
to Profit & Loss Account.
1.5 Valuation of Inventories / Investments
a. Inventories
i) All securities in which the company deals are regarded as Inventory
(Stock-in-Trade) and grouped as hedged and non-hedged portfolio.
ii) The stock of Central Government Securities, Treasury Bills
(including Cash Management Bills), State Development Loans and
PSU/Corporate Bonds, Debentures and Equity Shares are valued at
weighted average cost or market value, whichever is lower (except
securities under HTM category as per RBI guidelines). Market Value is
determined by the prices declared by Fixed Income Money Market and
Derivatives Association of India (FIMMDA) except for equity shares.
Market value of Equity shares is determined by the closing rates
provided by the stock exchanges.
Further, the securities in each category are considered scrip-wise and
the cost and market value aggregated for all securities in each
category. Net diminution, if any, for each category of securities is
provided for and charged to Profit & Loss Account. Net appreciation, if
any, is ignored. The diminution in one category of securities is not
set off against appreciation in another category.
iii) Certificates of Deposit, Commercial Papers, Bills Re-discounted
and Zero Coupon Bonds held on the Balance Sheet date are valued at
carrying cost.
iv) In case of units of Mutual Fund, valuation is done on the basis of
closing NAV declared by the Mutual Fund.
b. Non-Current Investments
The securities under HTM category shall be valued as per the guidelines
issued by RBI from time to time, and important provisions, at present,
are under:
i) Securities classified under HTM category need not be Marked to
Market and will be carried at the value at which they were transferred
to HTM portfolio.
ii) Transfer to/from HTM category shall be done at the acquisition
cost/book value/market value on the date of transfer, whichever is the
least, and the depreciation, if any, on such transfer shall be fully
provided for.
iii) The profit on sale of securities, if any from HTM category shall
first be taken to the Profit & Loss Account and thereafter be
appropriated to the Capital Reserve Account (net of tax). Loss on sale
shall be recognized in the Profit & Loss Account. The balance in the
reserve account shall be utilized strictly as per the regulatory
guidelines.
1.6 Accounting for Repo Transactions
In conformity with RBI guidelines, securities sold under Repo
transactions are not excluded from stock-in-trade and the securities
purchased under Reverse Repo are not included in the stock-in-trade.
Contra heads are used to reflect the transfer of securities.
Repo seller continues to accrue coupon/ discount on securities as the
case may be, even during the Repo period while the Repo buyer shall not
accrue the same.
1.7 Interest Rate Swaps (IRS)
Assets and Liabilities in respect of notional principal amount of IRS
are nullified. The related interest is recognized on accrual basis.
i) Trading Swaps
Trading Interest Rate Swaps outstanding at Balance Sheet date are
Marked to Market and the resultant loss, if any, is recorded in Profit
and Loss Account. Any other charges relating to Trading Interest Rate
Swaps are charged to Profit and Loss Account.
ii) Hedge Swaps
Hedge Swaps are accounted for on accrual basis except the swap
designated with an Asset or Liability that is carried at market value
or lower of cost or market value. In that case the swap should be
marked to market with the resulting gain or loss recorded as an
adjustment to the market value of designated Asset or Liability.
Gains or losses on the termination of Swaps are recognized when the
offsetting gain or loss is recognized on the designated Asset or
Liability. This implies that any gain or loss on the terminated swap is
deferred and recognized over the shorter of the remaining contractual
life of the Swap or the remaining life of the Asset / Liability.
On redesignation of a Hedge Swap from one item of asset/liability to
another item of asset/liability, the Marked-to- Market profit/loss of
the Hedge Swap on the day of redesignation is amortized over the
shorter of the remaining life of the swap or the remaining life of the
Asset / Liability.
1.8 Accounting for Future and Options Transactions
i) Initial Margin payable at the time of entering into Future
Contract/sale of Option is adjusted against the deposits with the
exchanges in the form of fixed deposits, cash deposits and securities.
ii) Transactions in Future Contracts are accounted as Purchases and
Sales at the notional trade value of the contract. The open interest
in Futures as at the Balance Sheet date is netted by its notional
value.
iii) The difference in the settlement price or exchange closing price
of the previous day and exchange closing price of the subsequent day,
paid to or received from the exchange is treated as Marked to Market
Margin. The balance in the Marked to Market Margin Account represents
the net amount paid or received on the basis of movement in the prices
of open interest in Futures Contracts till the Balance Sheet date. Net
debit balance in the Marked to Market Margin Account is charged off to
revenue, whereas net credit balance is shown under Current Liabilities.
iv) Premium paid or received on purchase and sale of Options and the
difference paid or received on exercise of Options is accounted as
Purchases or Sales. In case of open interest in Options sold as on the
Balance Sheet date, provision is made for the amount by which premium
prevailing on the Balance Sheet date exceeds the premium received
for those Options. The excess of premium received over the premium
prevailing on the Balance Sheet date is not recognized. Similarly, in
case of Options bought, provision is made for the amount by which the
premium paid for the Option exceeds the premium prevailing on the
Balance Sheet date and the excess of premium prevailing on the Balance
Sheet date over the premium paid is ignored. In case of multiple open
positions, provision is made or excess premiums are ignored after
netting off the balance in buy as well as sell positions.
1.9 Investment
Long Term Investment in debt is valued at carrying cost. However,
provision for diminution is made, when there is a decline other than
temporary in the value of long-term investment.
1.10 Deferred Tax
Deferred tax is recognized in accordance with the provisions of
Accounting Standard 22 issued by the Institute of Chartered Accountants
of India on "Accounting for Taxes on Income".
1.11 Depreciation
Depreciation on fixed assets is charged on written down value method in
accordance with the rates specified in Schedule XIV to the Companies
Act, 1956. Intangible Assets comprise of software acquired by the
company to facilitate its operations and these are depreciated @ 40 per
cent on WDV basis.
1.12 Preliminary Expenses
Preliminary expenses are written off in the year in which these are
incurred.
1.13 Share Issue Expenses
Share issue expenditure is charged to Profit and Loss Account in the
year of occurrence.
1.14 Tax on Dividend
Dividend Distribution Tax payable on dividend declared in terms of
Section 115-O of the Income Tax Act, 1961, is accounted for in the year
to which the dividend relates.
1.15 Retirement Benefits - Provident Fund, Gratuity & Leave Encashment
(As per Accounting Standard 15)
i) Gratuity contribution made under the Employee Group Gratuity cum
Life Insurance Scheme of LIC is charged to revenue.
ii) Leave Encashment is accounted for on actuarial valuation carried at
year-end.
iii) Contribution to recognized provident fund is charged to revenue.
1.16 Operating Cycle
As the company is a trader in Government and Fixed Income Securities,
the company buys and sells securities depending upon the market
conditions. There is no normal fixed period for sale of stock. However,
for the purpose of preparing Balance Sheet and Profit & Loss Account
(as per the revised guidelines), the company has assumed one year as
operating cycle period.
Mar 31, 2011
1. Method of Accounting
The company follows accrual system of accounting and the financial
statements are prepared on historical cost basis, in accordance with
generally accepted accounting principles and Reserve Bank of India
guidelines as applicable to the Primary Dealers.
2. Sales / Purchases of Treasury Bills (including Cash Management
Bills) and Government Dated Securities, as disclosed in Profit & Loss
Account does not includes repo transactions in accordance with revised
RBI guidelines. In year prior to this, sale / purchase of Government
dated securities includes repo transactions as well.
3. Revenue Recognition
i) The difference between the acquisition cost and maturity value of
Certificates of Deposit, Commercial Papers, Bills Re-discounted,
Treasury Bills (including Cash Management Bills) and Zero Coupon Bonds
is apportioned on time basis. The above is recognised as accrued income
and included in the carrying cost of the securities.
ii) Interest accrued on Government Dated Securities and Corporate Bonds
and Debentures is recognised at its coupon rate and that of floating
rate bonds is recognised on the yield of instruments to which these are
linked.
iii) Purchase and sale price of fixed income securities is bifurcated
into cost and accrued interest paid or realised. Accrued interest paid
on purchase & received on sale is netted and reckoned as
expense/income.
iv) Profit/loss on sale of securities is accounted on weighted average
cost method and is recognised on settlement date. Profit on sale of
securities is netted with loss on sale of securities.
v) Brokerage and front-end fee received on subscription of securities
is deducted in arriving at the cost of relevant securities.
Underwriting fee earned in respect of devolvement in respect of
underwriting commitments is proportionately reduced from the cost of
securities devolving and the remaining amount is directly recognised as
income.
vi) In case of Merchant Banking activities (Project Appraisal, Loan
Syndication etc.) the fee is accrued only on the completion of the
assignment/work. For continuing or long term duration activities (e.g.
Mutual fund Distribution), the fee is accrued proportionately as per
performance (Proportionate Completion Method). The revenue is
recognized only if there is no significant uncertainty regarding the
amount of consideration.
vii) In case of Units of Mutual Fund, the company has invested in Daily
Dividend Reinvestment Plan and the income (dividend) is accounted based
on the dividend declaration by the Mutual Fund. Income on investment
made in Mutual Funds with growth plan is accounted daily on the basis
of closing NAV declared by mutual funds.
4. Expenses Recognition
The brokerage paid in connection with acquisition of securities is
added to the cost of acquisition and on sale of securities it is
charged to Profit & Loss Account.
5. Valuation of Stock-in-Trade
i) All securities in which the company deals are regarded as Current
Assets (Stock-in-Trade) and grouped as hedge and non-hedge portfolio.
ii) The stock of Central Government Securities, Treasury Bills
(including Cash Management Bills), State Development Loans and
PSU/Corporate Bonds & Debentures, Equity Shares are valued at weighted
average cost or market value, whichever is lower (except securities
under HTM category as per RBI circular). Market Value is determined by
the prices declared by Fixed Income Money Market and Derivatives
Association of India (FIMMDA) except for Equity Shares. Market value of
Equity Shares is determined by the closing rates provided by the stock
exchanges. For this purpose, the securities in each category are
considered scrip-wise and the cost and market value aggregated for all
securities in each category. Net diminution, if any, for each category
of securities is provided for and charged to Profit and Loss Account.
Net appreciation, if any, is ignored. The diminution in one category of
securities is not set off against appreciation in another category.
The securities under HTM category are valued as per the guidelines
issued by RBI from time to time.
iii) Certificates of Deposit, Commercial Papers, Bills Re-discounted
and Zero Coupon Bonds held on the balance sheet date are valued at
carrying cost.
iv) In case of units of Mutual Fund valuation is done on the basis of
closing NAV declared by the Mutual Fund.
6. Accounting for Repo Transactions
In confirmation with RBI guidelines, securities sold under repo
transactions are not excluded from stock-in-trade and the securities
purchased under reverse repo are not included in the stock-in-trade.
Contra heads are used to reflect the transfer of securities.
Repo seller continues to accrue coupon/ discount on securities, as the
case may be, even during the repo period while the repo buyer shall not
accrue the same. The above said rules are applicable from this
financial year onwards (2010-11) as per RBI guidelines.
7. Interest Rate Swaps (IRS)
Assets and Liabilities in respect of notional principal amount of IRS
are nullified. The related interest is recognized on accrual basis.
i) Trading Swaps
Trading Interest Rate Swaps outstanding at Balance Sheet date are
marked to market and the resultant loss, if any, is recorded in Profit
and Loss Account. Any other charges relating to Trading Interest Rate
Swaps are charged to Profit and Loss Account.
ii) Hedge Swaps
Hedge Swaps are accounted for on accrual basis. A Hedge Swap designated
to an asset/liability is carried at market value. The resulting
mark-to-market loss/gain on swap is recorded as an adjustment to the
market value of designated asset/liability. Gains or losses on the
termination / redesignation of hedge swaps is recognized against the
offsetting gain or loss recognized on the designated asset or
liability.
On redesignation of a Hedge Swap from one item of asset/liability to
another item of asset/liability, the mark-to-market profit/loss of the
Hedge Swap on the day of redesignation is amortized over the shorter of
the remaining life of the swap or the remaining life of the
asset/liability
8. Accounting for Future and Options Transactions
i) Initial Margin payable at the time of entering into future
contract/sale of option is adjusted against the deposits with the
exchanges in the form of fixed deposits, cash deposits and securities.
ii) Transactions in Future contracts are accounted as Purchases and
Sales at the notional trade value of the contract. The open interest
in futures as at the Balance Sheet date is netted by its notional
value.
iii) The difference in the settlement price or exchange closing price
of the previous day and exchange closing price of the subsequent day,
paid to or received from the exchange is treated as Mark to Market
Margin. The balance in the Mark to Market Margin Account represents the
net amount paid or received on the basis of movement in the prices of
open interest in futures contracts till the Balance Sheet date. Net
debit balance in the Mark to Market Margin Account is charged off to
revenue whereas net credit balance is shown under current liabilities.
iv) Premium paid or received on purchase and sale of options and the
difference paid or received on exercise of options is accounted as
Purchases or Sales. In case of open interest in options sold as on the
Balance Sheet date, provision is made for the amount by which premium
prevailing on the Balance Sheet date exceeds the premium received for
those options. The excess of premium received over the premium
prevailing on the Balance Sheet date is not recognized. Similarly, in
case of options bought, provision is made for the amount by which the
premium paid for the option exceeds the premium prevailing on the
Balance Sheet date and the excess of premium prevailing on the Balance
Sheet date over the premium paid is ignored. In case of multiple open
positions, provision is made or excess premiums are ignored after
netting off the balance in buy as well as sell positions.
9. Investment
Long Term Investment in debt is valued at carrying cost. However,
provision for diminution is made, when there is a decline other than
temporary in the value of long-term investment.
10. Deferred Tax
Deferred tax is recognized in accordance with the provisions of
Accounting Standard 22 issued by The Institute of Chartered Accountants
of India on ÃAccounting for Taxes on IncomeÃ.
11. Depreciation
Depreciation on fixed assets is charged on written down value method in
accordance with the rates specified in Schedule XIV to the Companies
Act, 1956. Intangible Assets comprise of software acquired by the
company to facilitate its operations and these are depreciated @40 per
cent on WDV basis.
12. Preliminary Expenses
Preliminary expenses are written off in the year in which these are
incurred.
13. Share Issue Expenses
Share issue expenditure is charged to Profit and Loss account in the
year of occurrence.
14. Tax on Dividend
Dividend Distribution Tax payable on dividend declared in terms of
Section 115-O of the Income Tax Act, 1961, is accounted for in the year
to which the dividend relates.
15. Retirement Benefits à Provident Fund, Gratuity & Leave Encashment
(As per Accounting Standard 15)
i. Gratuity contribution made under the Employee Group Gratuity cum
life insurance scheme of LIC is charged to revenue.
ii. Leave Encashment is accounted for on actuarial valuation carried
at year-end.
iii. Contribution to recognised provident fund is charged to revenue.
Mar 31, 2010
1. Method of Accounting
The company follows accrual system of accounting and the financial
statements are prepared on historical cost basis, in accordance with
generally accepted accounting principles and Reserve Bank of India
guidelines as applicable to the Primary Dealers.
2. Sales / Purchases of Treasury Bills and Government Dated
Securities, as disclosed in Profit & Loss Account includes repo
transactions.
3. Revenue Recognition
i) The difference between the acquisition cost and maturity value of
Certificates of Deposit, Commercial Papers, Bills Re-discounted,
Treasury Bills and Zero Coupon Bonds is apportioned on time basis. The
above is recognised as accrued income and included in the carrying cost
of the securities.
ii) Interest accrued on Government Dated Securities and Corporate Bonds
and Debentures is recognised at its coupon rate and that of floating
rate bonds is recognised on the yield of instruments to which these are
linked.
iii) Purchase and sale price of fixed income securities is bifurcated
into cost and accrued interest paid or realised. Accrued interest paid
on purchase & received on sale is netted and reckoned as
expense/income.
iv) Profit/loss on sale of securities is accounted on weighted average
cost method and is recognised on settlement date. Profit on sale of
securities is netted with loss on sale of securities.
v) Brokerage and front-end fee received on subscription of securities
is deducted in arriving at the cost of relevant securities.
Underwriting fee earned in respect of devolvement in respect of
underwriting commitments is proportionately reduced from the cost of
securities devolving and the remaining amount is directly recognised as
income.
vi) In cases where performance is basically complete with the execution
of a single act over a short duration (e.g. Merchant Banking Activities
like Project Appraisal) revenue is accrued on the completion of the
single act. For continuing or long duration activities (e.g. Mutual
Fund Distribution), the fee is accrued proportionately as per
performance (Proportionate Completion Method). The revenue is
recognised only if there is no significant uncertainty regarding the
amount of consideration.
vii) In case of Units of Mutual Fund, the company has invested in Daily
Dividend Reinvestment Plan and the income (Dividend) is accounted based
on the dividend declaration by the Mutual Fund.
4. Expenses Recognition
The brokerage paid in connection with acquisition of securities is
added to the cost of acquisition and on sale of securities it is
charged to Profit & Loss Account.
5. Valuation of Stock-in-Trade
i) All securities in which the company deals are regarded as Current
Assets (Stock-in-Trade) and grouped as hedge and non-hedge portfolio.
ii) The stock of Central Government Securities, Treasury Bills, State
Development Loans and PSU/Corporate Bonds & Debentures, Equity Shares
are valued at weighted average cost or market value whichever is lower
(except securities transferred under HTM category as permitted by RBI
vide circular dated August 31, 2009 - refer note no.12 given below for
further explanation). Market Value is determined by the prices declared
by Fixed Income Money Market and Derivatives Association of India
(FIMMDA) except for Equity Shares. Market value of Equity Shares is
determined by the closing rates provided by the stock exchanges. For
this purpose, the securities in each category are considered scrip-wise
and the cost and market value aggregated for all securities in each
category. Net diminution, if any, for each category of securities is
provided for and charged to trading income in the Profit and Loss
Account. Net appreciation, if any, is ignored. The diminution in one
category of securities is not set off against appreciation in another
category.
iii) Certificates of Deposit, Commercial Papers, Bills Re-discounted
and Zero Coupon Bonds held on the Balance Sheet date are valued at
carrying cost.
iv) All the Non-SLR securities issued by the Government of India will
be valued at a spread of 25 basis points (previously 50 basis points)
above the corresponding yield on Government of India securities.
v) In case of units of Mutual Fund valuation is done on the basis of
closing NAV declared by the Mutual Fund.
6. Accounting for Repo Transactions
Securities sold under repo transactions are excluded from
stock-in-trade and the securities purchased under reverse repo are
included in the stock-in-trade.
The securities purchased under reverse repo are valued in accordance
with the valuation norms applicable for the respective category of
security.
In case of securities sold under repo, the notional loss, if any,
arising out of the difference between the transaction price and book
value in the first leg of the repo transaction is provided for,
notional gains, if any, are ignored.
7. Interest Rate Swaps (IRS)
Assets and Liabilities in respect of notional principal amount of IRS
are nullified. The related interest is recognized on accrual basis.
i) Trading Swaps
Trading Interest Rate swaps outstanding at Balance Sheet date are
marked to market and the resultant loss, if any, is recorded in Profit
and Loss Account. Any other charges relating to Trading Interest Rate
Swaps are charged to Profit and Loss Account.
ii) Hedge Swaps
Hedge Swaps are accounted for on accrual basis. A Hedge Swap designated
to an asset/liability is carried at market value. The resulting
mark-to-market loss/gain on swap is recorded as an adjustment to the
market value of designated asset/liability. Gains or losses on the
termination / redesignation of hedge swaps is recognized against the
offsetting gain or loss recognized on the designated asset or
liability.
On redesignation of a Hedge Swap from one item of asset/liability to
another item of asset/liability, the mark-to-market profit/loss of the
Hedge Swap on the day of redesignation is amortized over the shorter of
the remaining life of the swap or the remaining life of the
asset/liability.
8. Accounting for Future and Options Transactions
i) Initial Margin payable at the time of entering into future
contract/sale of option is adjusted against the deposits with the
exchanges in the form of fixed deposits, cash deposits and securities.
ii) Transactions in Future Contracts are accounted as Purchases and
Sales at the notional trade value of the contract. The open interest
in futures as at the Balance Sheet date is netted by its notional
value.
iii) The difference in the settlement price or exchange closing price
of the previous day and exchange closing price of the subsequent day,
paid to or received from the exchange is treated as Mark to Market
Margin. The balance in the Mark to Market Margin Account represents the
net amount paid or received on the basis of movement in the prices of
open interest in futures contracts till the Balance Sheet date. Net
debit balance in the Mark to Market Margin Account is charged off to
revenue whereas net credit balance is shown under current liabilities.
iv) Premium paid or received on purchase and sale of options and the
difference paid or received on exercise of options is accounted as
Purchases or Sales. In case of open interest in options sold as on the
Balance Sheet date, provision is made for the amount by which premium
prevailing on the Balance Sheet date exceeds the premium received for
those options. The excess of premium received over the premium
prevailing on the Balance Sheet date is not recognized. Similarly, in
case of options bought, provision is made for the amount by which the
premium paid for the option exceeds the premium prevailing on the
Balance Sheet date and the excess of premium prevailing on the Balance
Sheet date over the premium paid is ignored. In case of multiple open
positions, provision is made or excess premiums are ignored after
netting off the balance in buy as well as sell positions.
9. Investment
Long Term Investment in debt is valued at carrying cost. However,
provision for diminution is made, when there is a decline other than
temporary in the value of long-term investment.
10. Deferred Tax
Deferred tax is recognized in accordance with the provisions of
Accounting Standard 22 issued by The Institute of Chartered Accountants
of India on "Accounting for Taxes on Income".
11. Depreciation
Depreciation on fixed assets is charged on written down value method in
accordance with the rates specified in Schedule XIV to the Companies
Act, 1956. Intangible Assets comprises of software acquired by the
company to facilitate its operations and these are depreciated @ 40 per
cent on WDV basis.
12. Preliminary Expenses
Preliminary expenses are written off in the year in which these are
incurred.
13. Share Issue Expenses
Share issue expenditure is charged to Profit and Loss account in the
year of occurrence.
14. Tax on Dividend
Dividend Distribution Tax payable on dividend declared in terms of
Section 115-O of the Income Tax Act, 1961, is accounted for in the year
to which the dividend relates.
15. Retirement Benefits - Provident Fund, Gratuity & Leave Encashment
(As per Accounting Standard 15)
i. Gratuity contribution made under the Employee Group Gratuity cum
Life Insurance Scheme of LIC is charged to revenue.
ii. Leave Encashment is accounted for on actuarial valuation carried
at year-end.
iii. Contribution to Recognised Provident Fund is charged to revenue.
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