(9) 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 the Company will be required to settle the obligation, and a reliable estimate can
be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present
obligation at the end of the reporting period, considering the risks and uncertainties surrounding the obligation.
When a provision is measured using the cash flows estimated to settle the present obligation, it's carrying
amount is the present value of those cash flows (when the effect of the time value of money is material).
A contingent liability is disclosed unless the possibility of an outflow of resources embodying the economic
benefits is remote. Contingent assets are neither recognised nor disclosed in the financial statements.
Provisions, contingent liabilities, and contingent assets are reviewed at each balance sheet date and adjusted
to reflect the current best estimates.
(10) Commitments
Commitments are future liabilities for contractual expenditure, classified and disclosed as follows:
(a) estimated amount of contracts remaining to be executed on capital account and not provided for;
(b) uncalled liability on shares and other investments partly paid;
(c) funding related commitment to associate companies; and
(d) other non-cancellable commitments, if any, to the extent they are considered material and relevant in the
opinion of the management.
(11) Foreign currencies
(i) The functional currency and presentation currency of the Company is Indian Rupee (Rs.). Functional
currency of the Company has been determined based on the primary economic environment in which the
Company operates considering the currency in which funds are generated, spent and retained.
(ii) Transactions in currencies other than the Company's functional currency are recorded on initial recognition
using the exchange rate at the transaction date. At each balance sheet date, foreign currency monetary
items are reported at the prevailing closing spot rate. Non-monetary items that are measured in terms of
historical cost in foreign currency are not retranslated.
Exchange differences that arise on settlement of monetary items or on reporting of monetary items at each
balance sheet date at the closing spot rate are recognised in the statement of profit and loss in the period in
which they arise.
(12) Cash and cash equivalents
Cash and cash equivalents include cash at banks and cash on hand, demand deposits with banks, other short¬
term highly liquid investments with original maturities of three months or less that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value.
(13) Segment reporting
The Company is primarily engaged in the business of lending, with a focus on financing the MSME sector.
The management monitors the Company's business as a single segment, i.e. financing, for the purpose of
resource allocation and performance assessment. Accordingly, in accordance with Ind AS 108 - Operating
Segments, the Company has determined that it operates in a single reportable segment, namely financing
activities, and hence no separate segment disclosures are required.
The Company has no operations outside India and hence there is no external revenue or assets which require
disclosure. Further, no single external customer contributes 10% or more of the total revenue of the Company.
(14) Financial instruments
(a) Recognition of financial instruments
Financial assets and financial liabilities are recognised when the Company becomes a party to the
contractual provisions of the financial instruments.
(b) Initial measurement of financial instruments
Financial assets and financial liabilities are initially measured at fair value. However, trade receivables that
do not contain a significant financing component are measured at transaction price. Transaction costs that
are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than
financial assets and financial liabilities at FVTPL) are added to or deducted from their respective fair value
on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial
liabilities at FVTPL are recognised immediately in the statement of profit and loss.
A financial asset and a financial liability is offset and presented on a net basis in the balance sheet when
there is a current legally enforceable right to set-off the recognised amounts and it is intended to either
settle on net basis or to realise the asset and settle the liability simultaneously.
(c) Classification and subsequent measurement of financial instruments
Financial assets
All regular way purchases or sales of financial assets are recognised and derecognised on a trade-date
basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of
assets within the time frame established by regulation or convention in the marketplace.
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair
value, depending on the classification of the financial assets.
- Financial assets carried at amortised cost (AC)
A financial asset is measured at amortised cost if it is held within a business model whose objective
is to hold the asset in order to collect contractual cash flows and the contractual terms of the financial
assets give rise on specified dates to cash flows that are solely payments of principal and interest on
the principal amount outstanding.
Debt instruments that meet the following conditions are subsequently measured at amortised cost
(except for debt instruments that are designated as at fair value through profit or loss on initial
recognition).
• the asset is held within a business model whose objective is to hold assets in order to collect
contractual cash flows; and
• the contractual terms of the instrument give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
Effective Interest Rate Method
The Effective Interest Rate Method is a method of calculating the amortized cost of a debt instrument
and of allocating interest income over the relevant period. The Effective Interest Rate is the rate that
exactly discounts estimated future cash receipts (including all fees that form an integral part of the
effective interest rate, transaction costs and premiums or discounts) through the expected life of the
instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
- Financial assets at fair value through other comprehensive income (FVTOCI)
A financial asset is measured at FVTOCI if it is held within a business model whose objective is
achieved by both collecting contractual cash flows and selling financial assets and the contractual
terms of the financial asset gives rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
Debt instruments that meet the following conditions are subsequently measured at fair value through
other comprehensive income (except for debt instruments that are designated as at fair value through
profit or loss on initial recognition):
• the asset is held within a business model whose objective is achieved both by collecting
contractual cash flows and selling financial assets; and
• the contractual terms of the instrument give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
Movements in the carrying amount of such financial assets are recognised in other comprehensive
income (OCI). When the investment is disposed-off, the cumulative gain or loss previously accumulated
in this reserve is reclassified to the statement of profit and loss.
- Financial assets at fair value through profit or loss (FVTPL)
A financial asset which is not classified in any of the above categories is measured at FVTPL.
Debt instruments that do not meet the amortised cost criteria or FVTOCI criteria are measured at
FVTPL. In addition, debt instruments that meet the amortised cost criteria or the FVTOCI criteria but
are designated at FVTPL are measured at FVTPL.
A financial asset that meets the amortised cost criteria or debt instruments that meet the FVTOCI
criteria may be designated at FVTPL upon initial recognition if such designation eliminates or
significantly reduces a measurement or recognition inconsistency that would arise from measuring
assets or liabilities or recognising the gains and losses on them on different bases. The Company has
not designated any debt instrument at FVTPL.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any
gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised
in profit or loss incorporates any dividend or interest earned on the financial asset and is included in
the 'Revenue from operations' line item.
Investment in subsidiaries
Investment in subsidiaries are recognised at cost and are not adjusted to fair value at the end of
each reporting period as allowed by Ind AS 27 'Separate financial statement’. Cost of investment
represents amount paid for acquisition of the said investment.
Impairment of financial assets
The Company applies the expected credit loss model for recognising impairment loss on financial
assets measured at amortised cost, debt instruments at FVTOCI and other contractual rights to
receive cash or other financial assets.
Expected credit losses are the weighted average of credit losses with the respective risks of default
occurring as the weights. Credit loss is the difference between all contractual cash flows that are due
to the Company in accordance with the contract and all the cash flows that the Company expects to
receive (i.e. all cash shortfalls), discounted at the original effective interest rate (or credit-adjusted
effective interest rate for purchased or originated credit-impaired financial assets). The Company
estimates cash flows by considering all contractual terms of the financial instrument (for example,
prepayment, extension, call and similar options) through the expected life of that financial instrument.
For loans, cash credit and term loans measured at amortised cost
(1) Definition of default :
A default shall be considered to have occurred when any of the following criteria are met:
i) An account shall be tagged as NPA once the day end process is completed for the 90th day past
due.
ii) If one facility of borrower is NPA, all the facilities of that borrower are to be treated as NPA.
For the purpose of counting of days past due for the assessment of default, special dispensations in
respect of any class of assets, if any (e.g. under COVID-19 relief package of RBI) are applied in line
with the notification by the RBI in this regard.
(2) Portfolio segmentation :
The entire portfolio is segmented into homogenous risk segments. Common factors for segmentation
includes asset classes, internal rating grade, size, geography, product etc.
(3) Probability of Default (PD) :
An internally developed statistical model that computes rating at a loan level and categorises them
from Least Risk to High Risk is used for the computation of PD. These internal credit score bands
along with external default performance from bureau have been observed and calibrated to derive
benchmarked 12-month PD rates. These benchmarked 12-month PD rates have been categorized
across 5 Bands viz Risk Band 1 (RB1 - Least Risk) to Risk Band 5 (RB5 - Highest Risk) for secured
and unsecured asset types respectively.
Since, PD benchmarks for each Risk band have been determined separately for “Secured” and
“Unsecured” category, therefore, from a segmentation point, all the business segments are classified
into either Secured or Unsecured category. Business segments, wherever risk coverage is available,
is factored over and above the PD benchmarks depending on the nature of coverage.
The PD applied in the ECL (Expected Credit Loss) computation model is based on the recomputed/
refreshed/updated Risk band/rating at a loan level. All the loans are rated and Risk Bands are
recomputed every quarter using the latest credit bureau scrub. For the loan disbursed in the current/
latest quarter, wherever the band from credit bureau scrub is not available, the Risk Band at point of
origination is applied. Wherever the band is not available at a loan level (either at origination/scrub),
the average PD across the 5 Risk Bands shall be applicable for the respective Secured and Unsecured
categories.
The 12-month PD shall continue to be applicable in calculating expected credit loss for Stage 1 assets
and Lifetime PD shall be applicable for Stage 2 assets.
Life-time PD :
Life-time PD is applied for Stage 2 accounts.
Life-time PDs are computed based on survival approach. Survival analysis is statistics for analysing
the expected duration of time until default event happens.
(4) Loss given default :
Loss given default (LGD) is defined as the expected/estimated amount or percentage of exposure
that may not be recovered when a loan defaults. UGRO Capital Limited calculates LGD at a loan level
considering the type of advance (Secured/Unsecured) & the collateral (financial/ property/ machine/
physical) available.
Derecognition of financial assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the
asset expire or when it transfers the financial asset and substantially all the risks and rewards of
ownership of the asset to another party.
If the Company enters into transactions whereby it transfers assets recognised on its balance sheet but
retains either all or substantially all of the risks and rewards of the transferred assets, the transferred
assets are not de-recognised, and the proceeds received are recognised as a collateralised borrowing.
On derecognition of a financial asset in its entirety, the difference between the asset's carrying amount
and the sum of the consideration received and receivable and the cumulative gain or loss that had been
recognised in other comprehensive income and accumulated in equity is recognised in the statement
of profit and loss.
Financial liabilities and equity instruments
- Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or
as equity in accordance with the substance of the contractual arrangements and the definitions of
a financial liability and an equity instrument.
- Equity instruments
An Equity Instrument is any contract that evidences a residual interest in the assets of the
Company after deducting all of its liabilities.
- Compound financial instruments
The component parts of compound financial instruments issued by the Company are classified
separately as financial liabilities and equity in accordance with the substance of the contractual
arrangements and the definitions of a financial liability and an equity instrument. A conversion
option that will be settled by the exchange of a fixed amount of cash or another financial asset for
a fixed number of the Company's own equity instruments is an equity instrument.
At the date of issue, the fair value of the liability component is estimated using the prevailing market
interest rate for similar non-convertible instruments. This amount is recognised as a liability on an
amortised cost basis using the effective interest rate method until extinguished upon conversion or at
the instrument's maturity date.
Financial liabilities
A financial liability is any liability that is :
> Contractual obligation :
• to deliver cash or another financial asset to another entity; or
• to exchange financial assets or financial liabilities with another entity under conditions that are
potentially unfavourable to the entity; or
> a contract that will or may be settled in the entity's own equity instruments.
All financial liabilities are subsequently measured at amortised cost using the effective interest rate
method or at FVTPL.
- Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the Company's obligations
are discharged, cancelled or have expired. An exchange with a lender of debt instruments with
substantially different terms is accounted for as an extinguishment of the original financial liability and
the recognition of a new financial liability. Similarly, a substantial modification of the terms of an existing
financial liability (whether or not attributable to the financial difficulty of the debtor) is accounted for as
an extinguishment of the original financial liability and the recognition of a new financial liability. The
difference between the carrying amount of the financial liability derecognised and the consideration
paid and payable is recognised in the statement of profit and loss.
Write-off
Loans and debt securities are written-off when the Company has no reasonable expectations of
recovering the financial asset (either in its entirety or a portion of it). This is the case when the Company
determines that the borrower does not have assets or sources of income that could generate sufficient
cash flows to repay the amounts subject to the write-off. A write-off constitutes a de-recognition event.
The Company may apply enforcement activities to financial assets written-off. Recoveries resulting
from the Company's enforcement activities will result in impairment gains.
(15) Derivative financial instruments
The Company enters into derivative financial instruments to manage its exposure to interest rate risk and foreign
exchange rate risk. Derivatives held include interest rate swaps and cross-currency interest rate swaps.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are
subsequently remeasured to their fair value at each balance sheet date. The resulting gain/loss is recognised
in the statement of profit and loss immediately unless the derivative is designated and is effective as a hedging
instrument, in which event the resulting gain/loss is recognised through other comprehensive income (OCI). The
Company designates certain derivatives as hedges of highly probable forecast transactions (cash flow hedges).
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair
value is recognised as a financial liability.
(16) Hedge
The Company makes use of derivative instruments to manage exposures to interest rate and foreign currency.
In order to manage particular risks, the Company applies hedge accounting for transactions that meet specific
criteria. At the inception of a hedge relationship, the Company formally designates and documents the hedge
relationship to which the Company wishes to apply hedge accounting and the risk management objective and
strategy for undertaking the hedge. The documentation includes the Company's risk management objective and
strategy for undertaking hedge, the hedging/ economic relationship, the hedged item or transaction, the nature
of the risk being hedged, hedge ratio and how the Company would assess the effectiveness of changes in the
hedging instrument's fair value in offsetting the exposure to changes in the hedged item's fair value or cash flows
attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in
fair value or cash flows and are assessed on an on-going basis to determine that they actually have been highly
effective throughout the financial reporting periods for which they were designated.
(17) Cash flow hedge
A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk
associated with a recognised asset or liability (such as all or some future interest payments on variable rate
debt) or a highly probable forecast transaction and could affect the statement of profit and loss. For designated
and qualifying cash flow hedges, the effective portion of the cumulative gain or loss on the hedging instrument
is initially recognised directly in OCI within equity (cash flow hedge reserve). The ineffective portion of the gain
or loss on the hedging instrument is recognised immediately in finance cost in the statement of profit and loss.
When the hedged cash flow affects the statement of profit and loss, the effective portion of the gain or loss on the
hedging instrument is recorded in the corresponding income or expense line of the statement of profit and loss.
When a hedging instrument expires, is sold, terminated, exercised, or when a hedge no longer meets the criteria
for hedge accounting, any cumulative gain or loss that has been recognised in OCI at that time remains in OCI
and is recognised when the hedged forecast transaction is ultimately recognised in the statement of profit and
loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported
in OCI is immediately transferred to the statement of profit and loss.
The Company's hedging policy only allows for effective hedging relationships to be considered as hedges as per
the relevant Ind AS. Hedge effectiveness is determined at the inception of the hedge relationship, and through
periodic prospective effectiveness assessments to ensure that an economic relationship exists between the
hedged item and hedging instrument. The Company enters into hedge relationships where the critical terms of
the hedging instrument match with the terms of the hedged item, and so a qualitative and quantitative assessment
of effectiveness is performed.
(18) Non-current assets held for sale
Assets acquired in satisfaction of debt (SOD) are treated as non-current assets held for sale. Assets acquired in
satisfaction of debts are disclosed in the balance sheet at outstanding principal loan amount or fair market value
(as per valuation reports) whichever is lower. In case the fair market value of assets acquired is lower than the
outstanding principal loan amount, difference is charged to the statement of profit and loss under impairment on
financial instruments. In case of sale of repossessed assets, the gain/ loss on sale is adjusted in the statement
of profit and loss under impairment on financial instruments.
(19) Earnings per share
Basic earnings per share is computed by dividing the profit/ (loss) after tax by the weighted average number of
equity shares outstanding during the year. Diluted earnings per share is computed by dividing the profit/ (loss)
after tax as adjusted for dividend, interest and other charges to expense or income (net of any attributable taxes)
relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for
deriving basic earnings per share and the weighted average number of equity shares which could have been
issued on the conversion of all dilutive potential equity shares.
Potential equity shares are deemed to be dilutive only if their conversion to equity shares would decrease the net
profit per share from continuing ordinary operations. Potential dilutive equity shares are deemed to be converted
as at the beginning of the period, unless they have been issued at a later date.
(20) Statement of cash flows
The Statement of cash flows shows the changes in cash and cash equivalents arising during the year from
operating activities, investing activities and financing activities.
The cash flows from operating activities are determined by using the indirect method. Net income is therefore
adjusted by non-cash items, such as measurement gains or losses, changes in provisions, impairment
of property, plant and equipment and intangible assets, as well as changes from receivables and liabilities.
In addition, all income and expenses from cash transactions that are attributable to investing or financing activities
are eliminated.
Cash and cash equivalents (including bank balances) shown in the statement of cash flows exclude items which
are not available for general use as on the date of the Balance Sheet.
(21) Recent accounting pronouncements
The Ministry of Corporate Affairs ('MCA') notifies new standards or amendments to the existing standards under
the Companies (Indian Accounting Standards) Rules, 2015 as amended from time to time. For the year ended
March 31,2026, the MCA has notified amendments to (Ind AS 1, Presentation of Financial Statements) and (Ind
AS 7, Statement of Cash Flows and Ind AS 107, Financial Instruments: Disclosures) amendments relating to
Classification of liabilities as current or non-current and non-current liabilities with Covenants and Disclosure of
supplier finance arrangements , applicable to the Company, w.e.f., April 1, 2025. The Company has reviewed the
new pronouncements and based on its evaluation, has determined that the new pronouncement is not applicable
to the Company.
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