3.16 Provisions, contingent liabilities and contingent
assets
A. Provisions
Provisions are recognised when the Company has a
present obligation (legal or constructive) as a result
of past events, and it is probable that an outflow of
resources embodying economic benefits will be required
to settle the obligation, and a reliable estimate can be
made of the amount of the obligation. When the effect
of the time value of money is material, the Company
determines the level of provision by discounting the
expected cash flows at a pre-tax rate reflecting the
current rates specific to the liability. The expense relating
to any provision is presented in the statement of profit
and loss net of any reimbursement.
B. Contingent liability
A possible obligation that arises from past events
and the existence of which will be confirmed only by
the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control
of the Company or; present obligation that arises from
past events where it is not probable that an outflow
of resources embodying economic benefits will be
required to settle the obligation; or the amount of the
obligation cannot be measured with sufficient reliability
are disclosed as contingent liability and not provided for.
C. Contingent asset
A contingent asset is a possible asset that arises from
past events and whose existence will be confirmed only
by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of
the Company. Contingent assets are neither recognised
nor disclosed except when realisation of income is
virtually certain, related asset is disclosed.
3.17 Taxes
A. Current tax
Current tax assets and liabilities for the current and
prior years are measured at the amount expected to
be recovered from, or paid to, the taxation authorities.
Current tax is the amount of tax payable on the taxable
income for the period as determined in accordance with
the applicable tax rates and the provisions of the Income
Tax Act, 1961.
B. Deferred tax
Deferred tax is recognised on temporary differences
between the carrying amounts of assets and liabilities
in the standalone financial statements and the
corresponding tax bases used in the computation of
taxable profit. Deferred tax liabilities and assets are
measured at the tax rates that are expected to apply in
the period in which the liability is settled or the asset
realised, based on tax rates (and tax laws) that have
been enacted or substantively enacted by the end of
the reporting period. The carrying amount of deferred
tax liabilities and assets are reviewed at the end of each
reporting period.
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 items are recognised in correlation to the
underlying transaction either in OCI or equity.
Deferred tax assets and liabilities are offset if such items
relate to taxes on income levied by the same governing
tax laws and the Company has a legally enforceable right
for such set off.
C. Goods and services tax paid on acquisition of assets
or on incurring expenses
Expenses and assets are recognised net of the goods
and services tax paid, except when the tax incurred
on a purchase of assets or availing of services is not
recoverable from the taxation authority, in which case,
the tax paid is recognised as part of the cost of acquisition
of the asset or as part of the expense item, as applicable.
The net amount of tax recoverable from, or payable to,
the taxation authority is included as part of receivables
or payables in the balance sheet.
3.18 Earnings per share
Basic earnings per share (“EPS") is computed by dividing
the profit after tax (i.e., profit attributable to ordinary
equity holders) by the weighted average number of
equity shares outstanding during the year.
Diluted EPS is computed by dividing the profit after tax
(i.e. profit attributable to ordinary equity holders) as
adjusted for after-tax amount of dividends and interest
recognised in the period in respect of the dilutive
potential ordinary shares and is adjusted for any other
changes in income or expense that would result from
the conversion of the dilutive potential ordinary shares,
by the weighted average number of equity shares
considered for deriving basic earnings per share as
increased by the weighted average number of additional
ordinary shares that would have been outstanding
assuming the conversion of all dilutive potential ordinary
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. Dilutive potential
equity shares are determined independently for each
period presented. The number of equity shares and
potentially dilutive equity shares are adjusted for share
splits / reverse share splits, right issue and bonus shares,
as appropriate.
3.19 Dividends on ordinary shares
The Company recognises a liability to make cash or
non-cash distributions to equity holders of the Company
when the distribution is authorised and the distribution
is no longer at the discretion of the Company. As per
the Act, final dividend is authorised when it is approved
by the shareholders and interim dividend is authorised
when it is approved by the Board of Directors of the
Company. A corresponding amount is recognised
directly in equity.
Non-cash distributions are measured at the fair
value of the assets to be distributed with fair value
re-measurement recognised directly in equity.
Upon distribution of non-cash assets, any difference
between the carrying amount of the liability and the
carrying amount of the assets distributed is recognised
in the statement of profit and loss.
(a) Capitalised Borrowing Cost: Borrowing Cost Capitalised on Property, Plant and Equipment during the year H Nil (PY.
H Nil).
(b) Contractual Obligations: Refer Note. 31 for disclosure of Contractual Commitments for the acquisition of property,
Plant & Equipment.
(c) Title deeds of immovable property (other than proper taken on lease by duly executed lease agreement) are held in
the name of the company.
(d) No proceedings have been initiated or pending against the company for holding any benami property under the
Benami transactions (Prohibition) Act,1988 (45 of 1988) and the rules made thereunder.
(e) During the year, the Company revised the useful life of Office Equipment to 5 years from 10 years in line with the
requirements of Schedule II of the Companies Act, 2013. The change has been accounted for prospectively in
accordance with Ind AS 8.
26.1 Employee Benefit Plan:
Disclosure in respect of employee benefits under Ind AS 19 - Employee Benefit are as under:
a) Defined contribution plan:
The Company's contribution to provident fund and employee state insurance scheme are considered as defined
contribution plans. The Company's contribution to provident fund and employee state insurance aggregating H181.73
lakhs (Year ended March 31,2024: H124.40 lakhs) has been recognised in the statement of profit and loss under the
head employee benefits expense.
b) Defined benefit plan:
Financial assets not measured at fair value:
The Company operates a defined benefit plan (the “gratuity plan") covering eligible employees. The gratuity plan is
governed by the Payment of Gratuity Act, 1972.
Under the act, employee who has completed five years of service is entitled to specific benefit. The level of benefits
provided depends on the member's length of service and salary at retirement age/ resignation date.
The defined benefit plans expose the Company to risks such as actuarial risk, investment risk, liquidity risk, market
risk, legislative risk.
These are discussed as follows:
Actuarial risk: It is the risk that benefits will cost more than expected. This can arise due to one of the following reasons:
Adverse salary growth experience: Salary hikes that are higher than the assumed salary escalation will result into
an increase in obligation at a rate that is higher than expected.
Variability in mortality rates: If actual mortality rates are higher than assumed mortality rate assumption than the
gratuity benefits will be paid earlier than expected. Since there is no condition of vesting on the death benefit, the
acceleration of cash flow will lead to an actuarial loss or gain depending on the relative values of the assumed salary
growth and discount rate.
Variability in withdrawal rates: If actual withdrawal rates are higher than assumed withdrawal rate assumption than
the gratuity benefits will be paid earlier than expected. The impact of this will depend on whether the benefits are
vested as at the resignation date.
Investment risk: For funded plans that rely on insurers for managing the assets, the value of assets certified by the
insurer may not be the fair value of instruments backing the liability. In such cases, the present value of the assets is
independent of the future discount rate. This can result in wide fluctuations in the net liability or the funded status if
there are significant changes in the discount rate during the inter-valuation period.
Liquidity risk: Employees with high salaries and long durations or those higher in hierarchy, accumulate significant
level of benefits. If some of such employees resign / retire from the Company, there can be strain on the cash flows.
Market risk: Market risk is a collective term for risks that are related to the changes and fluctuations of the financial
markets. One actuarial assumption that has a material effect is the discount rate. The discount rate reflects the time
value of money. An increase in discount rate leads to decrease in defined benefit obligation of the plan benefits and
vice versa. This assumption depends on the yields on the government bonds and hence the valuation of liability is
exposed to fluctuations in the yields as at the valuation date.
Legislative risk: Legislative risk is the risk of increase in the plan liabilities or reduction in the plan assets due to
change in the legislation/ regulation. The government may amend the Payment of Gratuity Act, 1972, thus requiring
the companies to pay higher benefits to the employees. This will directly affect the present value of the defined benefit
obligation and the same will have to be recognized immediately in the year when any such amendment is effective.
III. Transfers between levels I and II
There has been no transfer in between level I and level II.
IV. Valuation techniques
Loans
The Company has computed fair value of the loans and advances through OCI considering its business model.
These have been fair valued using the base of the interest rate of loan disbursed in the last fifteen days of the year
end which is an observable input and therefore these has been considered to be fair valued using Level 3 inputs.
D Capital:
The Company maintains an actively managed capital base to cover risks inherent in the business and is meeting the capital
adequacy requirements of the local banking supervisor, RBI. The adequacy of the Company's capital is monitored using,
among other measures, the regulations issued by RBI.
The Company has complied in full with all its externally imposed capital requirements over the reported period. Equity share
capital and other equity are considered for the purpose of Company's capital management.
D.1 Capital management
The primary objectives of the Company's capital management policy are to ensure that the Company complies with
externally imposed capital requirements and maintains strong credit ratings and healthy capital ratios in order to support
its business and to maximize shareholder value.
The Company manages its capital structure and makes adjustments to it according to changes in economic conditions
and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Company may adjust the
amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes have
been made to the objectives, policies and processes from the previous years. However, they are under constant review by
the Board. .
C Measurement of fair values
I. Valuation techniques and significant unobservable inputs
The carrying amounts of financial assets and liabilities which are at amortised cost are considered to be the same as
their fair values as there is no material differences from the carrying values presented.
II. Financial instruments - fair value
The fair value of financial instruments as referred to in note (A) above have been classified into three categories
depending on the inputs used in the valuation technique. The hierarchy gives the highest priority to quoted prices
in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs
(Level 3 measurement).
The categories used are as follows:
Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices;
Level 2: The fair value of financial instruments that are not traded in active market is determined using valuation
technique which maximizes the use of observable market data and rely as little as possible on entity specific estimates.
If all significant inputs required to fair value on instrument are observable, the instrument is included in level 2; and
Level 3: If one or more of significant input is not based on observable market data, the instrument is included in level 3.
40 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES:
The Company's principal financial liabilities comprise borrowings and trade payables. The main purpose of these financial
liabilities is to finance the Company's operations and to support its operations. The Company's financial assets include loan
and advances, cash and cash equivalents that derive directly from its operations.
The Company is exposed to credit risk, liquidity risk and market risk. The Company's board of directors has an overall
responsibility for the establishment and oversight of the Company's risk management framework. The board of directors
has established the risk management committee, which is responsible for developing and monitoring the Company's risk
management policies. The committee reports regularly to the board of directors on its activities.
The Company's risk management policies are established to identify and analyse the risks faced by the Company, to set
appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems
are reviewed regularly to reflect changes in market conditions and the Company's activities.
The Company's risk management committee oversees how management monitors compliance with the Company's risk
management policies and procedures, and reviews the adequacy of the risk management framework in relation to the
risks faced by the Company.
I Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counter-party to financial instrument fails to meet its
contractual obligations and arises principally from the Company's receivables from customers and loans.
The carrying amounts of financial assets represent the maximum credit risk exposure.
Loans and advances:
The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer.
However, management also considers the factors that may influence the credit risk of its customer base, including the
default risk associated with the industry.
The risk management committee has established a credit policy under which each new customer is analysed individually for
creditworthiness before the Company's standard payment and delivery terms and conditions are offered. The Company's review
includes external ratings, if they are available, financial statements, credit agency information, industry information etc.
An impairment analysis is performed at each reporting date based on the facts and circumstances existing on that date
to identify expected losses on account of time value of money and credit risk. For the purposes of this analysis, the loan
receivables are categorised into groups based on days past due. Each group is then assessed for impairment using the ECL
model as per the provisions of Ind AS 109 - financial instruments.
As per Ind AS 109, Company is required to group the portfolio based on the shared risk characteristics. Company has
assessed the risk and its impact on the various portfolios and has divided the portfolio into following groups.
a TW and LAP Loans
b SME Loans
c Retail Asset Channel Loans
Staging:
As per the requirement of Ind AS 109 general approach all financial instruments are allocated to stage 1 on initial recognition
except originated credit-impaired financial assets which are considered to be under stage 3 on day of origination.
However, if a significant increase in credit risk is identified at the reporting date compared with the initial recognition,
then an instrument is transferred to stage 2. If there is objective evidence of impairment, then the asset is credit impaired
and transferred to stage 3.
The Company considers a financial instrument defaulted and therefore Stage 3 (credit-impaired) for ECL calculations in all
cases when the borrower becomes 90 days past due on its contractual payments
For financial assets in stage 1, the impairment calculated based on defaults that are possible in next twelve months, whereas
for financial instrument in stage 2 and stage 3 the ECL calculation considers default event for the lifespan of the instrument
As per Ind AS 109, Company assesses whether there is a significant increase in credit risk at the reporting date from the
initial recognition. Company has staged the assets based on the Day past dues criteria and other market factors which
significantly impacts the portfolio.
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
Company. The Company is exposed to credit risk from its operating activities, cash and cash equivalents and other financial
instruments.
Customer credit risk is managed by each business unit subject to the Company's established policy, procedures and control
relating to the customer credit risk management. Outstanding customer receivables are regularly monitored and taken up on
case to case basis. The Company has adopted a policy of dealing with creditworthy counterparties and obtaining sufficient
collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company's exposure and
the credit scores of its counterparties are continuously monitored. Credit exposure is controlled by counterparty limits that
are reviewed and approved by the management team on a regular basis. The Company evaluates the concentration of
risk with respect to loan receivables as low, as its customers are located in several jurisdictions representing large number
of minor receivables operating in largely independent markets. The credit risk on cash and bank balances and derivative
financial instruments is limited because the counterparties are banks with high credit ratings assigned by international
credit rating agencies.
EXPECTED CREDIT LOSS FOR LOANS:
The Company considers default in all cases when the borrower becomes 90 days past due on its contractual payments.
'The Expected Credit Loss (ECL) is measured at 12-month ECL for Stage 1 loan assets and at lifetime ECL for Stage 2 and
Stage 3loan assets. ECL is the product of the Probability of Default, Exposure at Default and Loss Given Default.
Marginal probability of default:
PD is defined as the probability of whether borrowers will default on their obligations in the future. Historical PD is derived
from NBFC internal data calibrated with forward looking macroeconomic factors. For computation of probability of default
(“PD"), Vasicek Single Factor Model was used to forecast the PD term structure over lifetime of loans. As per Vasicek model,
given long term PD and current macroeconomic conditions, conditional PD corresponding to current macroeconomic
condition is estimated. Company has worked out on PD based on the last five years historical data.
Marginal probability:
The PDs derived from the Vasicek model, are the cumulative PDs, stating that the borrower can default in any of the
given years, however to compute the loss for any given year, these cumulative PDs have to be converted to marginal PDs.
Marginal PDs is probability that the obligor will default in a given year, conditional on it having survived till the end of the
previous year.
Conditional marginal probability:
As per Ind AS 109, expected loss has to be calculated as an unbiased and probability-weighted amount for multiple
scenarios.
Based on the historical loss experience, adjustments need to be made on the average PD computed to give effect of the
current conditions which is done through management overlay by assigning probability weightages to different scenarios.
LGD:
LGD is an estimate of the loss from a transaction given that a default occurs. Under Ind AS 109, lifetime LGD's are defined
as a collection of LGD's estimates applicable to different future periods.
Various approaches are available to compute the LGD. Company has considered workout LGD approach. The following
steps are performed to calculate the LGD:
1) Analysis of historical credit impaired accounts at cohort level.
2) The computation consists of five components, which are:
a) Outstanding balance
b) Recovery amount (discounted yearly) by initial contractual rate.
c) Expected recovery amount (for incomplete recoveries), discounted to reporting date using initial contractual rate.
d) Collateral (security) amount.
The formula for the computation is as below:
% Recovery rate = (discounted recovery amount security amount discounted estimated recovery) / (total POS)
% LGD = 1 - recovery rate
EAD:
As per Ind AS 109, EAD is estimation of the extent to which the financial entity may be exposed to counterparty in the event
of default and at the time of counterparty's default. Company has modelled EAD based on the contractual and behavioral
cash flows till the lifetime of the loans considering the expected prepayments. Company has considered expected cash
flows for all the loans at DPD bucket level for each of the segments, which was used for computation of ECL. Moreover, the
EAD comprised of principal component, accrued interest and also the future interest for the outstanding exposure.
So discounting was done for computation of expected credit loss.
II Liquid Risk:
Liquidity risk is the risk that the Company will encounter difficulty in meeting its obligations associated with its financial
liabilities. The Company's approach in managing liquidity is to ensure that it will have sufficient funds to meet its liabilities
when due.
The Company is monitoring its liquidity risk by estimating the future inflows and outflows during the start of the year and
planned accordingly the funding requirement. The Company manages its liquidity by unutilized cash credit facility, term
loans and direct assignment.
The composition of the Company's liability mix ensures healthy asset liability maturity pattern and well diverse resource mix.
Capital adequacy ratio of the Company, as on 31 March 2025 is 37.34% against regulatory norms of 15%. Tier I capital is
36.59% as against requirement of 10%. Tier II capital is 0.75% which may increase from time to time depending on the
requirement and also as a source of structural liquidity to strengthen asset liability maturity pattern.
The total FDOD & CC limit available to the Company is H377.6 lakhs spread across 2 banks. The utilization level is maintained
in such a way that ensures sufficient liquidity on hand. Majority of the Company's portfolio is MSME loans which qualifies
as Priority Sector Lending. During the year, the Company has maintained around 5% to 10% of assets under management
as off book through direct assignment transactions. It is with door to door maturity and without recourse to the Company.
This further strengthens the liability management.
The table below summarizes the maturity profile of the Company's non derivative financial liabilities based on contractual
undiscounted payments along with its carrying value as at the balance sheet date.
III Market risk :
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in
market prices. Market risk includes interest rate risk and foreign currency risk. The objective of market risk management is
to manage and control market risk exposures within acceptable parameters, while optimizing the return.
IV Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in market interest rates. The Company's exposure to the risk of changes in market interest rates relates primarily to the
Company's investment in bank deposits and variable interest rate borrowings and lending. Whenever there is a change in
borrowing interest rate for the Company, necessary change is reflected in the lending interest rates over the timeline in
order to mitigate the risk of change in interest rates of borrowings.
K. Details of financing of parent Company products:
This disclosure is not applicable as the Company does not have any holding / parent Company.
L. Details of Single Borrower Limit ("SGL") / Group Borrower Limit ("GBL") exceeded by the NBFC
(i) Loans and advances, excluding advance funding but including off-balance sheet exposures to any single party in
excess of 15 per cent of owned fund of the NBFC: Nil
(ii) Loans and advances to (excluding advance funding but including debentures/bonds and off-balance sheet exposures)
and investment in the shares of single party in excess of 25 per cent of the owned fund of the NBFC: Nil
M. Unsecured Advances
i) Refer Note No. 3 to the financial statements.
ii) The Company has not granted any advances against intangible securities (March 31,2024: Nil)
N. Registration obtained from other financial sector regulators.
The Company is registered with following other financial sector regulators (financial regulators as described by Ministry of
Finance):
i) Ministry of Corporate Affairs
ii) Ministry of Finance
O. Disclosure of penalties imposed by RBI and other regulators.
No penalties imposed by RBI and other regulator during current year and previous year.
51. Previous year's figures have been regrouped and rearranged wherever necessary, to make them comparable with those
of current year.
52. The Group is not a declared wilful defaulter by any bank or financial Institution or other lender, in accordance with the
guidelines on wilful defaulters issued by the Reserve Bank of India, during the year ended 31 March 2025 and 31 March 2024.
53. The Group does not have any transactions with the companies struck off under section 248 of Companies Act, 2013 or
section 560 of Companies Act, 1956 during the year ended 31 March 2025 and 31 March 2024.
54. All the charges or satisfaction, as applicable are registered with ROC within the statutory period.
55. The Group has taken borrowings from banks and financial institutions and utilized them for the specific purpose for which
they were taken as at the Balance sheet date. Unutilized funds as at 31 March 2025 are held by the Group in the form of
deposits or in current accounts till the time the utilization is made subsequently.
56. There have been no transactions which have not been recorded in the books of accounts, that have been surrendered or
disclosed as income during the year ended 31 March 2025 and 31 March 2024, in the tax assessments under the Income
Tax Act, 1961. There have been no previously unrecorded income and related assets which were to be properly recorded
in the books of account during the year ended 31 March 2025 and 31 March 2024.
57. As a part of normal lending business, the Group grants loans and advances on the basis of security / guarantee provided
by the Borrower/ co-borrower. These transactions are conducted after exercising proper due diligence. Other than the
transactions described above,
(a) No funds have been advanced or loaned or invested by the Group to or in any other person(s) or entity(ies) including
foreign entities (“Intermediaries") with the understanding that the Intermediary shall lend or invest in a party identified
by or on behalf of the Company (Ultimate Beneficiaries);
(b) No funds have been received by the Group from any party(s) (Funding Party) with the understanding that the Group
shall whether, directly or indirectly, lend or invest in other persons or entities identified by or on behalf of the Group
(“Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
58. The Group has not traded or invested in Crypto currency or Virtual Currency during the year ended March 31,2025 and
March 31,2024.
59. The Group has complied with the number of layers prescribed under clause (87) of section 2 of the Act read with Companies
(Restriction on number of Layers) Rules, 2017 for the financial years ended March 31,2025 and March 31,2024.
As per our report of even date attached herewith
For, Arman Financial Services Limited
For, Laxminiwas & Co.
Chartered Accountants
[Firm Regd. No. 011168S]
[Guharoy Ashish Kumar] Jayendra Patel Aalok Patel Vivek Modi
Partner Vice Chairman & Managing Director Joint Managing Director Chief Financial Officer
[M.No. 018659] (DIN - 00011814) (DIN - 02482747)
Place: Ahmedabad
Date: 29th May, 2025
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