Accounting Policies of Housing Development Finance Corporation Ltd. Company
Mar 31, 2022
1 Overview
Housing Development Finance Corporation Limited (''HDFC'' or ''the Corporation'' or ''the Company'') was incorporated in 1977 as the first specialised Mortgage Company domiciled in India as a limited company having its Corporate office at HDFC House, H T Parekh Marg, Churchgate, Mumbai 400 020. The principal business is providing finance to individuals, corporates and developers for the purchase, construction, development and repair of houses, apartments and commercial properties in India. The business is conducted through its branches in India and its overseas offices at London, Singapore and Dubai supported by a network of agents for sourcing loans as well as deposits. HDFC is the holding company for investments in its associates and subsidiary companies. The Corporation is a public limited company and its shares are listed on the BSE Limited, India, and the National Stock Exchange of India Ltd. (NSE), India, and the Corporation''s Synthetic INR Denominated bonds are listed on the London Stock Exchange.
2 Basis of Preparation and Presentation2.1 Statement of Compliance and Basis of Preparation and Presentation
The Balance Sheet, the Statement of Profit and Loss and the Statement of Changes in Equity are prepared and presented in the format prescribed in the Division III of Schedule III to the Companies Act, 2013 (the âAct"). The Statement of Cash Flows has been prepared and presented as per the requirements of Ind AS 7 âStatement of Cash Flows". The Balance Sheet, Statement of Profit and Loss, Statement of Cash Flow and Statement of Changes in Equity are together referred as the financial statement of the Corporation.
The standalone financial statements of the Corporation are prepared in accordance with the Companies (Indian Accounting Standards) Rules, 2015 under Section 133 of Act and relevant amendment rules issued thereafter (âInd AS").
The financial statements are prepared and presented on going concern basis and the relevant provisions of Act and the guidelines and directives issued by the Reserve Bank of India (RBI) and National Housing Bank (âNHB") to the extent applicable.
Amounts in the financial statements are presented in Indian Rupees in crore rounded off to two decimal places as permitted by Schedule III to the Act. Per share data is presented in Indian Rupee to two decimal places. The Corporation presents its Balance Sheet in the order of liquidity. An analysis regarding maturity of assets and liabilities within 12 months after the reporting date and more than 12 months after the reporting date is presented in Note 39.
Accounting policies are consistently applied except where a newly-issued Ind AS initially adopted or a revision to an existing Ind AS requires a change in the accounting policy.
2.2 Functional and Presentation Currency
The financial statements are presented in Indian Rupees (?) which is the functional and the presentation currency of the Corporation and all values are rounded to the nearest crore with two decimals, except when otherwise indicated.
The financial statements have been prepared on historical cost basis except for certain financial instruments that are measured at fair values.
A historical cost is a measure of value used for accounting in which the price of an asset on the balance sheet is based on its historical cost, it is generally fair value of consideration given in exchange for goods and services at the time of transaction or original cost when acquired by the Corporation.
Fair value is the price that likely to be received on sell of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Corporation takes into account the characteristics of the asset or liability that market participants would take into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in the financial statements is determined on such a basis, except for share based payment transactions that are within the scope of Ind AS 102 Share based payment, leasing transactions that are within the scope of Ind AS 116 Leases.
Fair value measurements under Ind AS are categorised into fair value hierarchy based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
⢠Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities that the Corporation can access on measurement date;
⢠Level 2 inputs, other than quoted prices included within level 1, that are observable for the asset or liability, either directly or indirectly; and
⢠Level 3 where unobservable inputs are used for the valuation of assets or liabilities.
2.4 Use of Estimates and Judgements
The preparation of the financial statements in conformity with Indian Accounting Standards (âInd 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, share based payments and employee benefits.
3 Significant Accounting Policies3.1 Revenue Recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Corporation and the revenue can be reliably measured and there exists reasonable certainty of its recovery.
3.1.1 Interest
Interest income on financial instruments is recognised on a time proportion basis taking into account the amount outstanding and the effective interest rate (âEIR") applicable.
The EIR is the rate that exactly discounts estimated future cash flows of the financial instrument through the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount. The future cash flows are estimated taking into account all the contractual terms of the instrument.
The calculation of the EIR includes all fees paid or received between parties to the contract that are incremental and directly attributable to the specific lending arrangement, transaction costs, and all other premiums or discounts. For financial assets measured at fair value through profit and loss (âFVTPL"), transaction costs are recognised in the statement of profit and loss at initial recognition.
Interest income/expenses is calculated by applying the EIR to the gross carrying amount of non-credit impaired financial assets/liabilities (i.e. at the amortised cost of the financial asset before adjusting for any expected credit loss allowance). For credit-impaired financial assets, interest income is calculated by applying the EIR to the amortised cost of the credit-impaired financial assets (i.e. the gross carrying amount less the allowance for expected credit losses).
Dividend income is recognised when the Corporation''s right to receive dividend is established.
3.1.3 Fee and Commission Income
Fee and commission income include fees other than those that are an integral part of EIR. The Corporation recognises the fee and commission income in accordance with the terms of the relevant contracts / agreement and when it is probable that the Corporation will collect the consideration.
3.1.4 Income on Derecognised (Assigned) loans
Gains arising out of direct assignment transactions comprises of the difference between interest on the loan portfolio and the applicable rate at which the direct assignment is entered into with the assignee, also known as the right of excess interest spread (EIS). The future EIS basis the scheduled cash flow on execution of the transaction, discounted at the applicable rate entered into with the assignee is recorded upfront in the statement of profit and loss.
Income from operating leases are recognised in the statement of profit and loss as per the contractual rentals unless another systematic basis is more representative of the time pattern in which benefits are derived from the leased assets.
Other Income represents income earned from the activities incidental to the business and is recognised when the right to receive the income is established as per the terms of the contract.
3.2 Financial Instruments3.2.1 Fair Valuation of Investments (other than Investment in Subsidiaries and Associates)
Some of the Corporation''s Investments (other than Investment in Subsidiaries and Associates) are measured at fair value. In determining the fair value of such Investments, the Corporation uses quoted prices (unadjusted) in active markets for identical assets or based on inputs which are observable either directly or indirectly. However in certain cases, the Corporation adopts valuation techniques and inputs which are not based on market data. When Market observable information is not available, the Corporation has applied appropriate valuation techniques and inputs to the valuation model.
The Corporation uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
Information about the valuation techniques and inputs used in determining the fair value of Investments are disclosed in Note 43.3.2.
3.2.2 Recognition and Initial Measurement
All financial assets and liabilities, (including financial instruments received in settlement of erstwhile loan assets) with the exception of loans, debt securities, deposits and borrowings are initially recognised on the trade date, i.e., the date that the Corporation becomes a party to the contractual provisions of the instrument.
Loans are recognised when fund transfer is initiated or disbursement cheque is issued to the customer. The Corporation recognises debt securities, deposits and borrowings when funds are received by the Corporation.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs and revenues that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities measured at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs and revenues directly attributable to the acquisition of financial assets or financial liabilities measured at FVTPL are recognised immediately in the statement of profit and loss.
If the transaction price differs from fair value at initial recognition, the Corporation recognise for such difference as follows:
⢠if fair value is evidenced by a quoted price in an active market for an identical asset or liability or based on a valuation technique that uses only data from observable markets, then the difference is recognised in the statement of profit and loss on initial recognition (i.e. day 1 profit or loss);
⢠in all other cases, the fair value will be adjusted to defer the difference between the fair value at initial recognition and the transaction price.
After initial recognition, the deferred gain or loss will be recognised in the statement of profit and loss on a rational basis, only to the extent that it arises from a change in a factor (including time) that market participants would take into account when pricing the asset or liability.
3.2.3 Classification and Subsequent Measurement of Financial Assets and Liabilities
3.2.3.1 Financial Assets
The Corporation classifies and measures all its financial assets based on the business model for managing the assets and the asset''s contractual terms, either at:
⢠Amortised cost
⢠Fair Value through other comprehensive income
⢠Fair Value through Profit and Loss
3.2.3.1.1 Amortised Cost
The Corporation classifies and measures cash and bank balances, Loans, Trade receivable, certain debt investments and other financial assets at amortised cost if the following condition is met:
⢠Financial Assets that are held within a business model whose objective is to hold financial assets in order to collect the contractual cash flows, and that have contractual cash flows that are SPPI;
3.2.3.1.2 Fair Value through Other Comprehensive Income (âFVOCIâ)
The Corporation classifies and measures certain debt instruments at FVOCI when the investments are held within a business model, the objective of which is achieved by both, collecting contractual cash flows and selling the financial instruments and the contractual terms of the financial instruments meet the Solely Payment of Principal and Interest on principal amount outstanding (''SPPI'') test.
The Corporation measures all equity investments at fair value through profit or loss, unless the investments is not for trading and the Corporation''s management has elected to classify irrevocably some of its equity instruments at FVOCI, when such instruments meet the definition of Equity under Ind AS 32 Financial Instruments: Presentation and are not held for trading. Such classification is determined on an instrument-by-instrument basis.
3.2.3.1.3 Fair Value through Profit and Loss (âFVTPLâ)
Financial assets at FVTPL are:
⢠assets with contractual cash flows that are not SPPI; and/or
⢠assets that are held in a business model other than held to collect contractual cash flows or held to collect and sell; or
⢠assets designated at FVTPL using the fair value option.
These assets are measured at fair value, with any gains/losses arising on remeasurement is recognised in the statement of profit and loss.
3.2.4 Evaluation of Business Model
Classification and measurement of financial instruments depends on the results of the Solely Payments of Principal and Interest on the principal amount outstanding (âSPPI") and the business model test (refer note 3.2.4.1). The Corporation determines the business model at a level that reflects how the Corporation''s financial instruments are managed together to achieve a particular business objective.
The Corporation monitors financial assets measured at amortised cost or fair value through other comprehensive income that are derecognised prior to their maturity to understand the reason for their disposal and whether the reasons are consistent with the objective of the business for which the asset was held. Monitoring is part of the Corporation''s continuous assessment of whether the business model for which the remaining financial assets are held continues to be appropriate and if it is not appropriate whether there has been a change in business model and so a prospective change to the classification of those instruments.
3.2.4.1 Business Model Test
An assessment of business model for managing financial assets is fundamental to the classification of a financial asset. The Corporation determines the business model at a level that reflects how financial assets are managed together to achieve a particular business objective. The Corporation''s business model does not depend on management''s intentions for an individual instrument, therefore the business model assessment is performed at a higher level of aggregation rather than on an instrument-by-instrument basis.
The Corporation considers all relevant information and evidence available when making the business model assessment such as:
⢠how the performance of the business model and the financial assets held within that business model are evaluated and reported to the Corporation''s 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 in which those risks are managed; and
⢠how managers of the business are compensated (e.g. whether the compensation is based on the fair value of the assets managed or on the contractual cash flows collected).
At initial recognition of a financial asset, the Corporation determines whether newly recognised financial assets are part of an existing business model or whether they reflect a new business model. The Corporation reassesses it''s business model at each reporting period to determine whether the business model has changed since the preceding period. For the current and prior reporting period the Corporation has not identified a change in its business model.
The loans initiated by the Corporation and outstanding as at reporting date include loans for which an option is given to a third party to acquire loans by way of assignment. This is consequent to an arrangement with the
party that sources loans for the Corporation and has an option to acquire certain quantum of loans through assignment, which is a fixed percentage of the aggregate value of loans sourced by it for the Corporation at a predetermined price. As per the arrangement, loans assigned are substituted by newly sourced loans by the third party which ensures contractual cash flows are collected by the Corporation. Accordingly, all such outstanding loans have been classified at amortised cost under the current Business model. Assignment of loans that occur for other reasons, such as assignment made to manage credit concentration risk (without an increase in the assets'' credit risk), is consistent with a business model whose objective is to hold financial assets in order to collect contractual cash flows. In particular, such assignment is consistent with a business model whose objective is to hold financial assets in order to collect contractual cash flows.
Solely Payments of Principal and Interest (âSPPIâ) on the principal amount outstanding
For an asset to be classified and measured at amortised cost or at FVOCI, its contractual terms should give
rise to cash flows that meet 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.
3.2.4.1.1 Subsequent Measurement and Gain and Losses Financial Assets at Amortised Cost
These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income and impairment loss are recognised in statement of profit and loss. Any gain or loss on derecognition is recognised in statement of profit and loss.
Debt Instrument at FVOCI
These assets are subsequently measured at fair value. Interest income and impairment loss are recognised in statement of profit and loss. Any gain or loss on subsequent measurement is recognised in OCI and on derecognition the cumulative gain or loss recognised in OCI will be recycled to statement of profit and loss.
Equity Instrument at FVOCI
Gains and losses on equity instruments measured at FVOCI are recognised in other comprehensive income and never recycled to the statement of profit and loss. Dividends are recognised in profit or loss as dividend income when the right to receive payment has been established, except when the Corporation benefits from such proceeds as a recovery of whole or part of the cost of the instrument, in which case, such gains are recorded in OCI. Equity instruments at FVOCI are fair valued at each reporting date and not subject to an impairment assessment.
Financial Assets at FVTPL
These assets are subsequently measured at fair value. Net gain or losses, including any interest or dividend income, are recognised in the statement of profit and loss.
If the business model under which the Corporation holds financial assets changes, the financial assets affected are reclassified. The classification and measurement requirements related to the new category apply prospectively from the first day of the first reporting period following the change in business model that result in reclassifying the Corporation''s financial assets.
3.2.4.2 Financial Liabilities and Equity Instruments
3.2.4.2.1 Classification as Debt or Equity
Debt and equity instruments that are issued are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
A financial liability is a contractual obligation to deliver cash or another financial asset or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Corporation or a contract that will or may be settled in the Corporation''s own equity instruments and is a non-derivative contract for which the Corporation is or may be obliged to deliver a variable number of its own equity instruments, or a derivative contract over own equity that will or may be settled other than by the exchange of a fixed amount of cash (or another financial asset) for a fixed number of the Corporation''s own equity instruments.
3.2.4.2 2 Equity Instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Corporation are recognised at the face value and proceeds received in excess of the face value are recognised as Securities Premium.
3.2.4.2 3 Subsequent Measurement and Gain and Losses
Financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense is recognised in statement of profit and loss. Any gain or loss on derecognition is recognised in statement of profit and loss.
3.2.5 Impairment and Write-off
The Corporation recognises loss allowances for Expected Credit Losses on the following financial instruments that are not measured at FVTPL:
- Loans and advances to customers;
- Other financial assets;
- Debt instruments measured at amortised cost and at FVOCI;
- Loan commitments; and
- Financial guarantees.
Equity instruments are measured at fair value and not subject to an impairment loss.
ECL is required to be measured through a loss allowance at an amount equal to:
⢠12-month ECL, i.e. loss allowance on default events on the financial instrument that are possible within 12 months after the reporting date, (referred to as Stage 1); or
⢠Lifetime ECL, i.e. lifetime ECL that results from all possible default events over the life of the financial instrument, (referred to as Stage 2 and Stage 3).
A loss allowance for lifetime ECL is required for a financial instrument if the credit risk on that financial instrument has increased significantly since initial recognition. For all other financial instruments, ECL is measured at an amount equal to the 12-month ECL.
The Corporation has established a policy to perform an assessment at the end of each reporting period whether a financial instrument''s credit risk has increased significantly since initial recognition by considering the change in the risk of default occurring over the remaining life of the financial instruments.
Based on the above process, the Corporation categorises its loans into Stage 1, Stage 2 and Stage 3 as described below:
Stage 1: When loans are first recognised, the Corporation recognises an allowance based on 12 months ECL. Stage 1 loans also include facilities where the credit risk has improved and the loan has been reclassified from Stage 2 to Stage 1.
Stage 2: When a loan has shown a significant increase in credit risk since origination, the Corporation records an allowance for the life time expected credit losses. Stage 2 loans also include facilities, where the credit risk has improved and the loan has been reclassified from Stage 3 to Stage 2.
Stage 3: When loans are considered credit-impaired, the Corporation records an allowance for the life time expected credit losses.
For financial assets for which the Corporation has no reasonable expectations of recovering either the entire outstanding amount, or a proportion thereof, the gross carrying amount of the financial asset is reduced. This is considered a (partial) derecognition of the financial asset.
3.2.6 Determination of Expected Credit Loss (âECLâ)
The measurement of impairment losses (ECL) across all categories of financial assets requires judgement.
In particular, the estimation of the amount and timing of future cash flows based on Corporation''s historical experience and collateral values when determining impairment losses along with the assessment of a significant increase in credit risk. These estimates are driven by a number of factors, changes in which can result in different levels of allowances.
Elements of the ECL models that are considered accounting judgments and estimates include:
⢠Bifurcation of the financial assets into different portfolios when ECL is assessed on a collective basis.
⢠Corporation''s criteria for assessing if there has been a significant increase in credit risk.
⢠Development of ECL models, including choice of inputs / assumptions used.
The various inputs used and the process followed by the Corporation in measurement of ECL has been detailed below.
3.2.61 Measurement of Expected Credit Losses
The Corporation calculates ECL based on probability-weighted scenarios to measure expected cash shortfalls, discounted at an approximation to the portfolio. A cash shortfall is a difference between the cash flows that are due to the Corporation in accordance with the contract and the cash flows that the Corporation expects to receive.
When estimating ECL for undrawn loan commitments, the Corporation estimates the expected portion of the loan commitment that will be drawn down over its expected life. The ECL is then based on the present value of the expected shortfalls in cash flows if the loan is drawn down. The expected cash shortfalls are discounted at an approximation to the Interest rate on the loan.
The Corporation''s ECL for financial guarantee is estimated based on the present value of the expected payments to reimburse the holder for a credit loss that it incurs.
The Corporation measures ECL on an individual basis, or on a collective basis for portfolios of loans that share similar economic risk characteristics. The measurement of the loss allowance is based on the present value of the asset''s expected cash flows using the asset''s original EIR, regardless of whether it is measured on an individual basis or a collective basis.
The mechanics of the ECL calculations are outlined below and the key elements are, as follows:
Exposure at Default (EAD) is an total amount outstanding including accrued interest as of reporting date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committed facilities after considering the credit conversion factor (for Stage 1 and Stage 2 assets), and accrued interest from missed payments.
Probability of Default (PD) is the probability of whether borrowers will default on their obligations which are calculated based on historical default rate summary of past years using origination vintage analysis. Historical default rate are further calibrated with forward looking macroeconomic factors to determine the PD.
Loss Given Default (LGD) is an estimate of the loss from a financial asset given that a default occurs. The LGD is computed using the Corporation''s own loss and recovery experience. It is usually expressed as a percentage of the EAD.
3.2.6 2 Significant Increase in Credit Risk
The Corporation monitors all financial assets, including loan commitments and financial guarantee contracts issued that are subject to impairment requirements, to assess whether there has been a significant increase in credit risk since initial recognition. If there has been a significant increase in credit risk the Corporation measures the loss allowance based on lifetime rather than 12-month ECL. The Corporation monitors all financial assets, issued loan commitments and financial guarantee contracts that are subject to impairment for a significant increase in credit risk.
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Corporation compares the risk of a default occurring on the financial instrument at the reporting date based on the remaining maturity of the instrument with the risk of a default occurring that was anticipated for the remaining maturity at the current reporting date when the financial instrument was first recognised. In making this assessment, the Corporation considers both quantitative and qualitative information that is reasonable and supportable, including historical experience that is available without undue cost or effort.
The quantitative factors that indicate a significant increase in credit risk are reflected in PD models on a timely basis. However, the Corporation still considers separately some qualitative factors to assess if credit risk has increased significantly. For corporate lending, there is a particular focus on assets that are included on a ''watch list''. Given an exposure is on a watch list once, there is a concern that the creditworthiness of the specific counterparty has deteriorated. ECL assessment for watch list accounts is done on a case by case approach after considering the probability of weighted average in a different recovery scenario. For individual loans the Corporation considers the expectation of forbearance, payment holidays, and events such as unemployment, bankruptcy, divorce, or death.
Given that a significant increase in credit risk since initial recognition is a relative measure, a given change, in absolute terms, in the PD is more significant for a financial instrument with a lower initial PD than compared to a financial instrument with a higher PD.
As a back-stop when a financial asset becomes 30 days past due and overdue more than 1 calendar month, but not Stage 3; in addition to SICR accounts, the Corporation considers that a significant increase in credit risk has occurred and the asset is classified in stage 2 of the impairment model, i.e. the loss allowance is measured as the lifetime ECL.
3,2,6 3 Credit-Impaired Financial Assets
A financial asset is ''credit-impaired'' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Credit-impaired financial assets are referred to as Stage 3 assets. Evidence of credit-impairment includes observable data about the following events:
⢠significant financial difficulty of the borrower or issuer;
⢠a breach of contract such as a default or past due event;
⢠restructuring of loans due to financial difficulty of the borrowers;
⢠the disappearance of an active market for a security because of financial difficulties; or
⢠the purchase of a financial asset at a deep discount that reflects the incurred credit losses.
It may not be possible to identify a single discrete event. Instead the combined effect of several events may
have caused financial assets to become credit-impaired. The Corporation assesses whether debt instruments that are financial assets measured at amortised cost or FVOCI are credit-impaired at each reporting date. To assess if corporate debt instruments are credit impaired, the Corporation considers factors such as bond yields, credit ratings and the ability of the borrower to raise funds.
A loan is considered credit-impaired when a concession is granted to the borrower due to deterioration in the borrower''s financial condition. The definition of default includes unlikeliness to pay indicators and a back-stop if amounts are overdue for more than 90 days.
Borrowers forming part of schemes released under the regulatory packages like Moratorium, One-Time Restructuring (OTR) 1 & 2 and Emergency credit linked guaranteed scheme were evaluated for credit impairment.
3 2 6 4 Definition of Default
The definition of default is used in measuring the amount of ECL and in the determination of whether the loss allowance is based on 12-month or lifetime ECL.
The Corporation considers the following as constituting an event of default:
⢠the borrower is past due more than 90 days Accounts Identified by the Corporation as NPA as per regulatory guidelines Objective Evidence for impairment (Qualitative Overlay); or
⢠the borrower is unlikely to pay its credit obligations to the Corporation.
When assessing if the borrower is unlikely to pay its credit obligation, the Corporation takes into account both qualitative and quantitative indicators. The information assessed depends on the type of the asset, for example in corporate lending a qualitative indicator used is the breach of covenants, which is not as relevant for individual lending. Quantitative indicators, such as overdue status and non-payment on another obligation of the same counterparty are key inputs in this analysis.
Pursuant to RBI Circular RBI/2021-22/125 D0R.STR.REC.68/21.04.048/2021-22 dated November 12, 2021, on âPrudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances -Clarifications" the Corporation has taken necessary steps to revise its process of NPA classification to flag the borrower as overdue as part of the day-end process for the due date.
Further to this, on February 15, 2022, RBI allowed deferment of para 10 of the aforesaid circular till September 30, 2022 pertaining to upgrade of non performing accounts. However, the Corporation has not opted for the deferment.
3.2.65 Write-off
Loans and debt securities are written off when the Corporation has no reasonable expectations of recovering the financial asset (either in its entirety or a portion of it). This is the case when the Corporation 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 derecognition event. The Corporation may apply enforcement activities to financial assets written off/ may assign / sell loan exposure to ARC / Bank / a financial institution for a negotiated consideration. Recoveries resulting from the Corporation''s enforcement activities could result in impairment gains. The corporation has a Board approved policy on Write off and one time settlement of loans.
3.2.7 Modification and Derecognition of Financial Assets
A modification of a financial asset occurs when the contractual terms governing the cash flows of a financial asset are renegotiated or otherwise modified between the initial recognition and maturity of the financial asset. A modification affects the amount and/or timing of the contractual cash flows either immediately or at a future date. In addition, the introduction or adjustment of existing covenants of an existing loan would constitute a modification even if these new or adjusted covenants do not yet affect the cash flows immediately but may affect the cash flows depending on whether the covenant is or is not met (e.g. a change to the increase in the interest rate that arises when covenants are breached).
The Corporation renegotiates loans to customers in financial difficulty to maximise collection and minimise the risk of default. Loan forbearance is granted in cases where although the borrower made all reasonable efforts to pay under the original contractual terms, there is a high risk of default or default has already happened and the borrower is expected to be able to meet the revised terms. The revised terms in most of the cases include an extension of the maturity of the loan, changes to the timing of the cash flows of the loan (principal and interest repayment), reduction in the amount of cash flows due (principal and interest forgiveness) and amendments to covenants.
When a financial asset is modified the Corporation assesses whether this modification results in derecognition. In accordance with the Corporation''s policy, a modification results in derecognition when it gives rise to substantially different terms. To determine if the modified terms are substantially different from the original contractual terms the Corporation considers the following:
Qualitative factors, such as contractual cash flows after modification, are no longer SPPI, change in currency or change of counterparty, the extent of change in interest rates, maturity, covenants, if these do not clearly indicate a substantial modification, then; a quantitative assessment is performed to compare the present value of the remaining contractual cash flows under the original terms with the contractual cash flows under the revised terms, both amounts discounted at the original EIR. If there is a significant difference in present value, the Corporation deems the arrangement substantially different, leading to derecognition.
In the case where the financial asset is derecognised the loss allowances for ECL is remeasured at the date of derecognition to determine the net carrying amount of the asset at that date. The difference between this revised carrying amount and the fair value of the new financial asset with the revised terms may lead to a gain or loss on derecognition. The new financial asset may have a loss allowance measured based on 12-month ECL except where the new loan is considered to be originated-credit impaired. This applies only in the case where the fair value of the new loan is recognised at a significant discount to its revised par amount because there remains a high risk of default which has not been reduced by the modification. The Corporation monitors the credit risk of modified financial assets by evaluating qualitative and quantitative information, such as if the borrower is in past due status under the new terms.
When the contractual terms of a financial asset are modified and the modification does not result in derecognition, the Corporation determines if the financial asset''s credit risk has increased significantly since initial recognition by comparing:
⢠The remaining lifetime PD estimated based on data at initial recognition and the original contractual terms;
⢠The remaining lifetime PD at the reporting date based on the modified terms.
For financial assets modified, where modification does not result in derecognition, the estimate of PD reflects the Corporation''s ability to collect the modified cash flows taking into account the Corporation''s previous experience of similar forbearance action, as well as various behavioural indicators, including the borrower''s payment performance against the modified contractual terms. If the credit risk remains significantly higher than what was expected at initial recognition, the loss allowance is continued to be measured at an amount equal to lifetime ECL. The loss allowance on forborne loans is generally measured based on 12-month ECL when there is evidence of the borrower''s improved repayment behaviour following modification leading to a reversal of the previous significant increase in credit risk.
Where a modification does not lead to derecognition, the Corporation calculates the modification gain/loss comparing the gross carrying amount before and after the modification (excluding the ECL allowance). Then the Corporation measures ECL for the modified asset, where the expected cash flows arising from the modified financial asset are included in calculating the expected cash shortfalls from the original asset.
The Corporation derecognises a financial asset only when the contractual rights to the asset''s cash flows expire (including expiry arising from a modification with substantially different terms), or when the financial asset and substantially all the risks and rewards of ownership of the asset are transferred to another entity. If the Corporation neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Corporation recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Corporation retains substantially all the risks and rewards of ownership of a transferred financial asset, the Corporation continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
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/loss that had been recognised in OCI and accumulated in equity is recognised in the statement of profit and loss, with the exception of equity investment designated as measured at FVOCI, where the cumulative gain/loss previously recognised in OCI is not subsequently reclassified to the statement of profit and loss.
On derecognition of a financial asset other than in its entirety (e.g. when the Corporation retains an option to repurchase part of a transferred asset), the Corporation allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain/loss allocated to it that had been recognised in OCI is recognised in the statement of profit and loss. A cumulative gain/loss that had been recognised in OCI is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts. This does not apply for equity investments designated as measured at FVOCI, as the cumulative gain/loss previously recognised in OCI is not subsequently reclassified to the statement of profit and loss.
3.2.8 Derecognition of Financial Liabilities
The Corporation derecognises financial liabilities when, and only when, the Corporation''s obligations are discharged, cancelled or have expired. 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.
3.2.9 Collateral Valuation and Repossession
The Corporation provides fully secured, partially secured, to individuals and Corporates. to mitigate the credit risk on financial assets, the Corporation seeks to use collateral, where possible as per the powers conferred on the Housing Finance Companies under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (âSARFAESI").
In its normal course of business, the Corporation does not physically repossess properties or other assets in its retail portfolio, but engages external agents to recover funds, generally at auction, to settle outstanding debt. Any surplus funds are returned to the customers/obligors. As a result of this practice, the residential properties under legal repossession processes are not recorded on the balance sheet and not treated as non-current assets held for sale.
3.2.10 Servicing of Assets / Liabilities
The Corporation transfers loans through securitisation and direct assignment transactions. The transferred loans are de-recognised and gains/losses are accounted for, only if the Corporation transfers substantially all risks and rewards specified in the underlying assigned loan contract. In accordance with the Ind AS 109, on de-recognition of a financial asset under assigned transactions for a fee, the Corporation recognises the fair value of future service fee income over service obligations cost on net basis as service fee income in the statement of profit and loss and, correspondingly creates a service asset in balance sheet.
The Corporation recognises either a servicing asset or a servicing liability for servicing contract. If the fee to be received is not expected to compensate the Corporation adequately for performing the servicing activities, a servicing liability for the servicing obligation is recognised at its fair value. If the fee to be received is expected to be more than adequate compensation for the servicing activities, a servicing asset is recognised. Corresponding amount is recognised in Statement of Profit and Loss.
3.2.11 Derivative Financial Instruments
The Corporation enters into a variety of derivative financial instruments to manage its exposure to interest rate risk and foreign exchange rate risk. Derivatives held include foreign exchange forward contracts, interest rate swaps, cross currency interest rate swaps and foreign exchange option contracts.
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 timing of the recognition in the statement of profit and loss depends on the nature of the hedge relationship. The Corporation designates certain derivatives as either hedges of the fair value of recognised assets or liabilities (fair value hedges) or 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.
3.2.11.1 Hedge Accounting
The Corporation makes use of derivative instruments to manage exposures to interest rate and foreign currency. In order to manage particular risks, the Corporation applies hedge accounting for transactions that meet specified criteria.
At the inception of a hedge relationship, the Corporation formally designates and documents the hedge relationship to which the Corporation wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes the Corporation''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 Corporation 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.
Hedges that meet the criteria for hedge accounting are accounted for, as described below:
3.2.11.2 Fair Value Hedges
Fair value hedges hedge the exposure to changes in the fair value of a recognised asset or liability, or an identified portion of such an asset, liability, that is attributable to a particular risk and could affect profit or loss.
For designated and qualifying fair value hedges, the cumulative change in the fair value of a hedging derivative is recognised in the statement of profit and loss in Finance Costs. Meanwhile, the cumulative change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item in the balance sheet and is also recognised in the statement of profit and loss in Finance Cost.
The Corporation classifies a fair value hedge relationship when the hedged item (or group of items) is a distinctively identifiable asset or liability hedged by one or a few hedging instruments. The financial instruments hedged for interest rate risk in a fair value hedge relationship is fixed rate debt issued and other borrowed funds. If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for hedge accounting, the hedge relationship is discontinued prospectively. If the relationship does not meet hedge effectiveness criteria, the Corporation discontinues hedge accounting from the date on which the qualifying criteria are no longer met. For hedged items recorded at amortised cost, the accumulated fair value hedge adjustment to the carrying amount of the hedged item on termination of the hedge accounting relationship is amortised over the remaining term of the original hedge using the recalculated EIR method by recalculating the EIR at the date when the amortisation begins. If the hedged item is derecognised, the unamortised fair value adjustment is recognised immediately in the statement of profit and loss.
3.2.11.3 Cash Flow Hedges
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 profit or 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 as 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.
3.2.12 Financial Guarantee Contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument.
Financial guarantee contracts issued by the Corporation are initially measured at their fair values and, if not designated as at FVTPL and not arising from a transfer of a financial asset, are subsequently measured at the higher of:
⢠the amount of the loss allowance determined in accordance with Ind AS 109; and
⢠the amount initially recognised less, where appropriate, cumulative amount of income recognised in accordance with the Corporation''s revenue recognition policies.
The Corporation has not designated any financial guarantee contracts as FVTPL.
3.2.13 Accounting for Repo/Reverse Repo Transactions
The Repo / Reverse repo are accounted as collateralized borrowing (classified as borrowings) and lending transactions. Costs and revenues are accounted as interest expenditure / interest income, as the case may be. The underlying securities under repo continue to be accounted as investment thereby reflecting continued economic interest in the securities during the repo period. Underlying Securities against reverse repo (lending) is not included in Investment accounts.
3.3 Property, Plant and Equipment (âPPEâ)
PPE held for use are stated in the balance sheet at cost less accumulated depreciation and accumulated impairment losses.
PPE is recognised when it is probable that future economic benefits associated with the item is expected to flow to the Corporation and the cost of the item can be measured reliably. PPE is stated at original cost net of tax/duty credits availed, if any, less accumulated depreciation and cumulative impairment, if any. Cost includes professional fees related to the acquisition of PPE.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property,
Mar 31, 2021
3 Significant Accounting Policies
3.1 Revenue Recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Corporation and the revenue can be reliably measured and there exists reasonable certainty of its recovery.
3.1.1 Interest
Interest income on financial instruments is recognised on a time proportion basis taking into account the amount outstanding and the effective interest rate (âEIRâ) applicable.
The EIR is the rate that exactly discounts estimated future cash flows of the financial instrument through the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount. The future cash flows are estimated taking into account all the contractual terms of the instrument.
The calculation of the EIR includes all fees paid or received between parties to the contract that are incremental and directly attributable to the specific lending arrangement, transaction costs, and all other premiums or discounts. For financial assets measured at fair value through profit and loss (âFVTPLâ), transaction costs are recognised in the statement of profit and loss at initial recognition.
Interest income/expenses is calculated by applying the EIR to the gross carrying amount of non-credit impaired financial assets/liabilities (i.e. at the amortised cost of the financial asset before adjusting for any expected credit loss allowance). For credit-impaired financial assets, interest income is calculated by applying the EIR to the amortised cost of the credit-impaired financial assets (i.e. the gross carrying amount less the allowance for expected credit losses).
3.1.2 Dividend Income
Dividend income is recognised when the Corporation''s right to receive dividend is established.
3.1.3 Fee and Commission Income
Fee and commission income include fees other than those that are an integral part of EIR. The Corporation recognises the fee and commission income in accordance with the terms of the relevant contracts / agreement and when it is probable that the Corporation will collect the consideration.
3.1.4 Rental Income
Income from operating leases are recognised in the statement of profit and loss as per the contractual rentals unless another systematic basis is more representative of the time pattern in which benefits are derived from the leased assets.
3.1.5 Other Income
Other Income represents income earned from the activities incidental to the business and is recognised when the right to receive the income is established as per the terms of the contract.
3.2 Financial Instruments
3.2.1 Fair Valuation of Investments (other than Investment in Subsidiaries and Associates)
Some of the Corporation''s Investments (other than Investment in Subsidiaries and Associates) are measured at fair value. In determining the fair value of such Investments, the Corporation uses quoted prices (unadjusted) in active markets for identical assets or based on inputs which are observable either directly or indirectly. However in certain cases, the Corporation adopts valuation techniques and inputs which are not based on market data. When Market observable information is not available, the Corporation has applied appropriate valuation techniques and inputs to the valuation model.
The Corporation uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
Information about the valuation techniques and inputs used in determining the fair value of Investments are disclosed in Note 44.3.2.
3.2.2 Recognition and Initial Measurement
All financial assets and liabilities, (including financial instruments received in settlement of erstwhile loan assets) with the exception of loans, debt securities, deposits and borrowings are initially recognised on the trade date, i.e., the date that the Corporation becomes a party to the contractual provisions of the instrument. Loans are recognised when fund transfer is initiated or disbursement cheque is issued to the customer. The Corporation recognises debt securities, deposits and borrowings when funds are received by the Corporation.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs and revenues that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities measured at FVTPL) are added to or deducted from the fair value of
the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs and revenues directly attributable to the acquisition of financial assets or financial liabilities measured at FVTPL are recognised immediately in the statement of profit and loss.
If the transaction price differs from fair value at initial recognition, the Corporation recognise for such difference as follows:
⢠if fair value is evidenced by a quoted price in an active market for an identical asset or liability or based on a valuation technique that uses only data from observable markets, then the difference is recognised in the statement of profit and loss on initial recognition (i.e. day 1 profit or loss);
⢠in all other cases, the fair value will be adjusted to defer the difference between the fair value at initial recognition and the transaction price.
After initial recognition, the deferred gain or loss will be recognised in the statement of profit and loss on a rational basis, only to the extent that it arises from a change in a factor (including time) that market participants would take into account when pricing the asset or liability.
3.2.3 Classification and Subsequent Measurement of Financial Assets and Liabilities
3,2,31 Financial Assets
The Corporation classifies and measures all its financial assets based on the business model for managing the assets and the asset''s contractual terms, either at:
⢠Amortised cost
⢠Fair Value through other comprehensive income
⢠Fair Value through Profit and Loss
3.2.311 Amortised Cost
The Corporation classifies and measures cash and bank balances, Loans, Trade receivable, certain debt investments and other financial assets at amortised cost if the following condition is met:
⢠Financial Assets that are held within a business model whose objective is to hold financial assets in order to collect the contractual cash flows, and that have contractual cash flows that are SPPI;
3.2.3.1.2 Fair Value through Other Comprehensive Income (âFVOCIâ)
The Corporation classifies and measures certain debt instruments at FVOCI when the investments are held within a business model, the objective of which is achieved by both, collecting contractual cash flows and selling the financial instruments and the contractual terms of the financial instruments meet the Solely Payment of Principal and Interest on principal amount outstanding (''SPPI'') test.
The Corporation measures all equity investments at fair value through profit or loss, unless the investments is not for trading and the Corporation''s management has elected to classify irrevocably some of its equity instruments at FVOCI, when such instruments meet the definition of Equity under Ind AS 32 Financial Instruments: Presentation and are not held for trading. Such classification is determined on an instrument-by-instrument basis.
3.2.3.13 Fair Value through Profit and Loss (âFVTPLâ)
Financial assets at FVTPL are:
⢠assets with contractual cash flows that are not SPPI; and/or
⢠assets that are held in a business model other than held to collect contractual cash flows or held to collect and sell; or
⢠assets designated at FVTPL using the fair value option.
These assets are measured at fair value, with any gains/losses arising on remeasurement is recognised in the statement of profit and loss.
3.2.4 Evaluation of Business Model
Classification and measurement of financial instruments depends on the results of the Solely Payments of Principal and Interest on the principal amount outstanding (âSPPIâ) and the business model test (refer note). The Corporation determines the business model at a level that reflects how the Corporation''s financial instruments are managed together to achieve a particular business objective.
The Corporation monitors financial assets measured at amortised cost or fair value through other comprehensive income that are derecognised prior to their maturity to understand the reason for their disposal and whether the reasons are consistent with the objective of the business for which the asset was held. Monitoring is part of the Corporation''s continuous assessment of whether the business model for which the remaining financial assets are held continues to be appropriate and if it is not appropriate whether there has been a change in business model and so a prospective change to the classification of those instruments.
3.2.4.1 Business Model Test
An assessment of business model for managing financial assets is fundamental to the classification of a financial asset. The Corporation determines the business model at a level that reflects how financial assets are managed together to achieve a particular business objective. The Corporation''s business model does not depend on management''s intentions for an individual instrument, therefore the business model assessment is performed at a higher level of aggregation rather than on an instrument-by-instrument basis.
The Corporation considers all relevant information and evidence available when making the business model assessment such as:
⢠how the performance of the business model and the financial assets held within that business model are evaluated and reported to the Corporation''s 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 in which those risks are managed; and
⢠how managers of the business are compensated (e.g. whether the compensation is based on the fair value of the assets managed or on the contractual cash flows collected).
At initial recognition of a financial asset, the Corporation determines whether newly recognised financial assets are part of an existing business model or whether they reflect a new business model. The Corporation reassesses it''s business model at each reporting period to determine whether the business model has changed since the preceding period. For the current and prior reporting period the Corporation has not identified a change in its business model.
The loans initiated by the Corporation and outstanding include loans for which an option is given to a third party to acquire loans by way of assignment. This is consequent to an arrangement with the party that sources loans for the Corporation and has an option to acquire through assignment, a fixed percentage of the aggregate value of loans sourced by it for the Corporation at a predetermined price. As per the arrangement, loans assigned are substituted by newly sourced loans which ensures contractual cash flows are collected by the Corporation. Accordingly, all such outstanding loans have been classified at amortised cost.
3.2.4.1.1 Solely Payments of Principal and Interest (âSPPIâ) on the principal amount outstanding
For an asset to be classified and measured at amortised cost or at FVOCI, its contractual terms should give rise to cash flows that meet 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.
3.2.4.1.2 Subsequent Measurement and Gain and Losses Financial Assets at Amortised Cost
These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income and impairment loss are recognised in statement of profit and loss. Any gain or loss on derecognition is recognised in statement of profit and loss.
Debt Instrument at FVOCI
These assets are subsequently measured at fair value. Interest income and impairment loss are recognised in statement of profit and loss. Any gain or loss on subsequent measurement is recognised in OCI and on derecognition the cumulative gain or loss recognised in OCI will be recycled to statement of profit and loss.
Equity Instrument at FVOCI
Gains and losses on equity instruments measured at FVOCI are recognised in other comprehensive income and never recycled to the statement of profit and loss. Dividends are recognised in profit or loss as dividend income when the right to receive payment has been established, except when the Corporation benefits from such proceeds as a recovery of whole or part of the cost of the instrument, in which case, such gains are recorded in OCI. Equity instruments at FVOCI are fair valued at each reporting date and not subject to an impairment assessment.
Financial assets at FVTPL
These assets are subsequently measured at fair value. Net gain or losses, including any interest or dividend income, are recognised in the statement of profit and loss.
3.2.4.1.3 Reclassifications
If the business model under which the Corporation holds financial assets changes, the financial assets affected are reclassified. The classification and measurement requirements related to the new category apply prospectively from the first day of the first reporting period following the change in business model that result in reclassifying the Corporation''s financial assets.
3.2.4 2 Financial Liabilities and Equity Instruments
3.2.4.2.1 Classification as Debt or Equity
Debt and equity instruments that are issued are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
A financial liability is a contractual obligation to deliver cash or another financial asset or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Corporation or a contract that will or may be settled in the Corporation''s own equity instruments and is a non-derivative contract for which the Corporation is or may be obliged to deliver a variable number of its own equity instruments, or a derivative contract over own equity that will or may be settled other than by the exchange of a fixed amount of cash (or another financial asset) for a fixed number of the Corporation''s own equity instruments.
3.2.4.2 2 Equity Instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Corporation are recognised at the face value and proceeds received in excess of the face value are recognised as Securities Premium.
3.2.4.2 3 Subsequent Measurement and Gain and Losses
Financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense is recognised in statement of profit and loss. Any gain or loss on derecognition is recognised in statement of profit and loss.
3.2.5 Impairment and Write-off
The Corporation recognises loss allowances for Expected Credit Losses on the following financial instruments that are not measured at FVTPL:
- Loans and advances to customers;
- Other financial assets;
- Debt instruments measured at amortised cost and at FVOCI;
- Loan commitments; and
- Financial guarantees.
Equity instruments are measured at fair value and not subject to an impairment loss.
ECL is required to be measured through a loss allowance at an amount equal to:
⢠12-month ECL, i.e. loss allowance on default events on the financial instrument that are possible within 12 months after the reporting date, (referred to as Stage 1); or
⢠Lifetime ECL, i.e. lifetime ECL that results from all possible default events over the life of the financial instrument, (referred to as Stage 2 and Stage 3).
A loss allowance for lifetime ECL is required for a financial instrument if the credit risk on that financial instrument has increased significantly since initial recognition. For all other financial instruments, ECL is measured at an amount equal to the 12-month ECL.
The Corporation has established a policy to perform an assessment at the end of each reporting period whether a financial instrument''s credit risk has increased significantly since initial recognition by considering the change in the risk of default occurring over the remaining life of the financial instruments.
Based on the above process, the Corporation categorises its loans into Stage 1, Stage 2 and Stage 3 as described below:
Stage 1: When loans are first recognised, the Corporation recognises an allowance based on 12 months ECL.
Stage 1 loans also include facilities where the credit risk has improved and the loan has been reclassified from Stage 2 to Stage 1.
Stage 2: When a loan has shown a significant increase in credit risk since origination, the Corporation records an allowance for the life time expected credit losses. Stage 2 loans also include facilities, where the credit risk has improved and the loan has been reclassified from Stage 3 to Stage 2.
Stage 3: When loans are considered credit-impaired, the Corporation records an allowance for the life time expected credit losses.
For financial assets for which the Corporation has no reasonable expectations of recovering either the entire outstanding amount, or a proportion thereof, the gross carrying amount of the financial asset is reduced. This is considered a (partial) derecognition of the financial asset.
3.2.6 Determination of Expected Credit Loss (âECLâ)
The measurement of impairment losses (ECL) across all categories of financial assets requires judgement.
In particular, the estimation of the amount and timing of future cash flows based on Corporation''s historical experience and collateral values when determining impairment losses along with the assessment of a significant increase in credit risk. These estimates are driven by a number of factors, changes in which can result in different levels of allowances.
Elements of the ECL models that are considered accounting judgments and estimates include:
⢠Bifurcation of the financial assets into different portfolios when ECL is assessed on a collective basis.
⢠Corporation''s criteria for assessing if there has been a significant increase in credit risk. (Refer Note)
⢠Development of ECL models, including choice of inputs / assumptions used.
The various inputs used and the process followed by the Corporation in measurement of ECL has been detailed in Note.
3.2.6.1 Measurement of Expected Credit Losses
The Corporation calculates ECL based on probability-weighted scenarios to measure expected cash shortfalls, discounted at an approximation to the portfolio EIR. A cash shortfall is a difference between the cash flows that are due to the Corporation in accordance with the contract and the cash flows that the Corporation expects to receive.
When estimating ECL for undrawn loan commitments, the Corporation estimates the expected portion of the loan commitment that will be drawn down over its expected life. The ECL is then based on the present value of the expected shortfalls in cash flows if the loan is drawn down. The expected cash shortfalls are discounted at an approximation to the expected EIR on the loan.
The Corporation''s ECL for financial guarantee is estimated based on the present value of the expected payments to reimburse the holder for a credit loss that it incurs.
The Corporation measures ECL on an individual basis, or on a collective basis for portfolios of loans that share similar economic risk characteristics. The measurement of the loss allowance is based on the present value of the asset''s expected cash flows using the asset''s original EIR, regardless of whether it is measured on an individual basis or a collective basis.
The mechanics of the ECL calculations are outlined below and the key elements are, as follows:
Exposure at Default (EAD) is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committed facilities after considering the credit conversion factor (for Stage 1 and Stage 2 assets), and accrued interest from missed payments.
Probability of Default (PD) is the probability of whether borrowers will default on their obligations which are calculated based on historical default rate summary of past years using origination vintage analysis.
Loss Given Default (LGD) is an estimate of the loss from a financial asset given that a default occurs. The LGD is computed using the Corporation''s own loss and recovery experience. It is usually expressed as a percentage of the EAD.
3.2.6 2 Significant Increase in Credit Risk
The Corporation monitors all financial assets, including loan commitments and financial guarantee contracts issued that are subject to impairment requirements, to assess whether there has been a significant increase in credit risk since initial recognition. If there has been a significant increase in credit risk the Corporation measures the loss allowance based on lifetime rather than 12-month ECL. The Corporation''s accounting policy is not to use the practical expedient that financial assets with ''low'' credit risk at the reporting date are deemed not to have had a significant increase in credit risk. As a result the Corporation monitors all financial assets, issued loan commitments and financial guarantee contracts that are subject to impairment for a significant increase in credit risk.
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Corporation compares the risk of a default occurring on the financial instrument at the reporting date based on the remaining maturity of the instrument with the risk of a default occurring that was anticipated for the remaining maturity at the current reporting date when the financial instrument was first recognised. In making this assessment, the Corporation considers both quantitative and qualitative information that is reasonable and supportable, including historical experience that is available without undue cost or effort.
The qualitative factors that indicate a significant increase in credit risk are reflected in PD models on a timely basis. However, the Corporation still considers separately some qualitative factors to assess if credit risk has increased significantly. For corporate lending, there is a particular focus on assets that are included on a ''watch list''. Given an exposure is on a watch list once, there is a concern that the creditworthiness of the specific counterparty has deteriorated. ECL assessment for watch list accounts is done on a case by case approach after considering the probability of weighted average in a different recovery scenario. For individual loans the Corporation considers the expectation of forbearance, payment holidays, and events such as unemployment, bankruptcy, divorce, or death.
Given that a significant increase in credit risk since initial recognition is a relative measure, a given change, in absolute terms, in the PD is more significant for a financial instrument with a lower initial PD than compared to a financial instrument with a higher PD.
As a back-stop when a financial asset becomes 30 days past due and overdue more than 1 calendar month, but not Stage 3; in addition to SICR accounts, the Corporation considers that a significant increase in credit risk has occurred and the asset is classified in stage 2 of the impairment model, i.e. the loss allowance is measured as the lifetime ECL.
A financial asset is ''credit-impaired'' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Credit-impaired financial assets are referred to as Stage 3 assets. Evidence of credit-impairment includes observable data about the following events:
⢠significant financial difficulty of the borrower or issuer;
⢠a breach of contract such as a default or past due event;
⢠restructuring of loans due to financial difficulty of the borrowers;
⢠the disappearance of an active market for a security because of financial difficulties; or
⢠the purchase of a financial asset at a deep discount that reflects the incurred credit losses.
It may not be possible to identify a single discrete event. Instead the combined effect of several events may
have caused financial assets to become credit-impaired. The Corporation assesses whether debt instruments that are financial assets measured at amortised cost or FVOCI are credit-impaired at each reporting date. To assess if corporate debt instruments are credit impaired, the Corporation considers factors such as bond yields, credit ratings and the ability of the borrower to raise funds.
A loan is considered credit-impaired when a concession is granted to the borrower due to deterioration in the borrower''s financial condition. The definition of default includes unlikeliness to pay indicators and a back-stop if amounts are overdue for 90 days or more.
Borrowers forming part of schemes released under the regulatory packages like Moratorium, One-Time restructuring and Emergency credit linked guaranteed scheme were evaluated for credit impairment.
3.2.6 4 Definition of Default
The definition of default is used in measuring the amount of ECL and in the determination of whether the loss allowance is based on 12-month or lifetime ECL.
The Corporation considers the following as constituting an event of default:
⢠the borrower is past due more than 90 days Accounts Identified by HDFC as NPA as per regulatory guidelines Objective Evidence for impairment (Qualitative Overlay); or
⢠the borrower is unlikely to pay its credit obligations to the Corporation.
When assessing if the borrower is unlikely to pay its credit obligation, the Corporation takes into account both qualitative and quantitative indicators. The information assessed depends on the type of the asset, for example in corporate lending a qualitative indicator used is the breach of covenants, which is not as relevant for individual lending. Quantitative indicators, such as overdue status and non-payment on another obligation of the same counterparty are key inputs in this analysis.
3.2.65 Write-off
Loans and debt securities are written off when the Corporation has no reasonable expectations of recovering the financial asset (either in its entirety or a portion of it). This is the case when the Corporation 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 derecognition event. The Corporation may apply enforcement activities to financial assets written off/ may assign / sell loan exposure to ARC / Bank / a financial institution for a negotiated consideration. Recoveries resulting from the Corporation''s enforcement activities could result in impairment gains. The corporation has a Board approved policy on Write off and one time settlement of loans.
A modification of a financial asset occurs when the contractual terms governing the cash flows of a financial asset are renegotiated or otherwise modified between the initial recognition and maturity of the financial asset. A modification affects the amount and/or timing of the contractual cash flows either immediately or at a future date. In addition, the introduction or adjustment of existing covenants of an existing loan would constitute a modification even if these new or adjusted covenants do not yet affect the cash flows immediately but may affect the cash flows depending on whether the covenant is or is not met (e.g. a change to the increase in the interest rate that arises when covenants are breached).
The Corporation renegotiates loans to customers in financial difficulty to maximise collection and minimise the risk of default. Loan forbearance is granted in cases where although the borrower made all reasonable efforts to pay under the original contractual terms, there is a high risk of default or default has already happened and the borrower is expected to be able to meet the revised terms. The revised terms in most of the cases include an extension of the maturity of the loan, changes to the timing of the cash flows of the loan (principal and interest repayment), reduction in the amount of cash flows due (principal and interest forgiveness) and amendments to covenants.
When a financial asset is modified the Corporation assesses whether this modification results in derecognition. In accordance with the Corporation''s policy, a modification results in derecognition when it gives rise to substantially different terms. To determine if the modified terms are substantially different from the original contractual terms the Corporation considers the following:
Qualitative factors, such as contractual cash flows after modification, are no longer SPPI, change in currency or change of counterparty, the extent of change in interest rates, maturity, covenants, if these do not clearly indicate a substantial modification, then; a quantitative assessment is performed to compare the present value of the remaining contractual cash flows under the original terms with the contractual cash flows under the revised terms, both amounts discounted at the original EIR. If there is a significant difference in present value, the Corporation deems the arrangement substantially different, leading to derecognition.
In the case where the financial asset is derecognised the loss allowances for ECL is remeasured at the date of derecognition to determine the net carrying amount of the asset at that date. The difference between this revised carrying amount and the fair value of the new financial asset with the revised terms may lead to a gain or loss on derecognition. The new financial asset may have a loss allowance measured based on 12-month ECL except where the new loan is considered to be originated-credit impaired. This applies only in the case where the fair value of the new loan is recognised at a significant discount to its revised par amount because there remains a high risk of default which has not been reduced by the modification. The Corporation monitors the credit risk of modified financial assets by evaluating qualitative and quantitative information, such as if the borrower is in past due status under the new terms.
When the contractual terms of a financial asset are modified and the modification does not result in derecognition, the Corporation determines if the financial asset''s credit risk has increased significantly since initial recognition by comparing:
⢠The remaining lifetime PD estimated based on data at initial recognition and the original contractual terms;
⢠The remaining lifetime PD at the reporting date based on the modified terms.
For financial assets modified, where modification does not result in derecognition, the estimate of PD reflects the Corporation''s ability to collect the modified cash flows taking into account the Corporation''s previous experience of similar forbearance action, as well as various behavioral indicators, including the borrower''s
payment performance against the modified contractual terms. If the credit risk remains significantly higher than what was expected at initial recognition, the loss allowance is continued to be measured at an amount equal to lifetime ECL. The loss allowance on forborne loans is generally measured based on 12-month ECL when there is evidence of the borrower''s improved repayment behavior following modification leading to a reversal of the previous significant increase in credit risk.
Where a modification does not lead to derecognition, the Corporation calculates the modification gain/loss comparing the gross carrying amount before and after the modification (excluding the ECL allowance). Then the Corporation measures ECL for the modified asset, where the expected cash flows arising from the modified financial asset are included in calculating the expected cash shortfalls from the original asset.
The Corporation derecognises a financial asset only when the contractual rights to the asset''s cash flows expire (including expiry arising from a modification with substantially different terms), or when the financial asset and substantially all the risks and rewards of ownership of the asset are transferred to another entity. If the Corporation neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Corporation recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Corporation retains substantially all the risks and rewards of ownership of a transferred financial asset, the Corporation continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
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/loss that had been recognised in OCI and accumulated in equity is recognised in the statement of profit and loss, with the exception of equity investment designated as measured at FVOCI, where the cumulative gain/loss previously recognised in OCI is not subsequently reclassified to the statement of profit and loss.
On derecognition of a financial asset other than in its entirety (e.g. when the Corporation retains an option to repurchase part of a transferred asset), the Corporation allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain/loss allocated to it that had been recognised in OCI is recognised in the statement of profit and loss. A cumulative gain/loss that had been recognised in OCI is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts. This does not apply for equity investments designated as measured at FVOCI, as the cumulative gain/loss previously recognised in OCI is not subsequently reclassified to the statement of profit and loss.
3.2.8 Derecognition of Financial Liabilities
The Corporation derecognises financial liabilities when, and only when, the Corporation''s obligations are discharged, cancelled or have expired. 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.
3.2.9 Collateral Valuation and Repossession
The Corporation provides fully secured, partially secured, and unsecured loans to individuals and Corporates to mitigate the credit risk on financial assets, the Corporation seeks to use collateral, where possible as per the powers conferred on the Housing Finance Companies under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (âSARFAESIâ).
In its normal course of business, the Corporation does not physically repossess properties or other assets in its retail portfolio, but engages external agents to recover funds, generally at auction, to settle outstanding debt. Any surplus funds are returned to the customers/obligors. As a result of this practice, the residential properties under legal repossession processes are not recorded on the balance sheet and not treated as non-current assets held for sale
Mar 31, 2019
1. Significant Accounting Policies
1.1 Revenue Recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Corporation and the revenue can be reliably measured and there exists reasonable certainty of its recovery.
1.1.1 Interest
Interest income on financial instruments is recognised on a time proportion basis taking into account the amount outstanding and the effective interest rate applicable.
Effective Interest Rate (âEIRâ)
The EIR is the rate that exactly discounts estimated future cash flows of the financial instrument through the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount. The future cash flows are estimated taking into account all the contractual terms of the instrument.
The calculation of the EIR includes all fees paid or received between parties to the contract that are incremental and directly attributable to the specific lending arrangement, transaction costs, and all other premiums or discounts. For financial assets measured at Fair Value Through Profit and Loss (âFVTPLâ), transaction costs are recognised in the statement of profit and loss at initial recognition.
Interest income/expenses is calculated by applying the EIR to the gross carrying amount of non-credit impaired financial assets/liabilities (i.e. at the amortised cost of the financial asset before adjusting for any expected credit loss allowance). For credit-impaired financial assets interest income is calculated by applying the EIR to the amortised cost of the credit-impaired financial assets (i.e. the gross carrying amount less the allowance for expected credit losses).
1.1.2 Dividend Income
Dividend income is recognised when the Corporationâs right to receive dividend is established by the reporting date.
1.1.3 Fee and Commission Income
Fee and commission income include fees other than those that are an integral part of EIR. The Corporation recognises the fee and commission income in accordance with the terms of the relevant contracts / agreement and when it is probable that the Corporation will collect the consideration.
1.1.4 Rental Income
Income from operating leases are recognised in the statement of profit and loss as per the contractual rentals unless another systematic basis is more representative of the time pattern in which benefits derived from the leased assets.
1.1.5 Other Income
Other Income represents income earned from the activities incidental to the business and is recognised when the right to receive the income is established as per the terms of the contract.
1.2 Financial Instruments
1.2.1 Recognition and Initial Measurement
Financial assets and liabilities, with the exception of loans, debt securities, deposits and borrowings are initially recognised on the trade date, i.e., the date that the Corporation becomes a party to the contractual provisions of the instrument. Loans are recognised when fund transfer is initiated or disbursement cheque is issued to the customer. The Corporation recognises debt securities, deposits and borrowings when funds are received by the Corporation.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs and revenues that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities measured at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs and revenues directly attributable to the acquisition of financial assets or financial liabilities measured at FVTPL are recognised immediately in the statement of profit and loss.
If the transaction price differs from fair value at initial recognition, the Corporation will account for such difference as follows:
- If fair value is evidenced by a quoted price in an active market for an identical asset or liability or based on a valuation technique that uses only data from observable markets, then the difference is recognised in the statement of profit and loss on initial recognition (i.e. day 1 profit or loss);
- In all other cases, the fair value will be adjusted to bring it in line with the transaction price (i.e. day 1 profit or loss will be deferred by including it in the initial carrying amount of the asset or liability).
After initial recognition, the deferred gain or loss will be recognised in the statement of profit and loss on a rational basis, only to the extent that it arises from a change in a factor (including time) that market participants would take into account when pricing the asset or liability.
1.2.2 Classification and Subsequent Measurement of Financial Assets and Liabilities
1.2.2.1 Financial Assets
The Corporation classifies and measures all its financial assets based on the business model for managing the assets and the assetâs contractual terms, either at:
- Amortised cost
- Fair Value through Other Comprehensive Income
- Fair Value through Profit and Loss
1.2.2.1.1 Amortised Cost
The Corporation classifies and measures Cash and Bank balances, Loans, Trade Receivable, certain debt investments and other financial assets at amortised cost if following condition is met:
- Financial Assets that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are SPPI, are subsequently measured at amortised cost.
1.2.2.1.2 Fair Value through Other Comprehensive Income (âFVOCIâ)
The Corporation classifies and measures certain debt instruments at FVOCI when the investments are held within a business model, the objective of which is achieved by both, collecting contractual cash flows and selling the financial instruments and the contractual terms of the financial instruments meet the SPPI test.
The Corporation measures all equity investments at fair value through profit or loss, unless the investments is not for trading and Corporationâs management has elected to classify irrevocably some of its equity investments as equity instruments at FVOCI, when such instruments meet the definition of Equity under Ind AS 32 Financial Instruments: Presentation and are not held for trading. Such classification is determined on an instrument-by-instrument basis.
1.2.2.1.3 Fair Value through Profit and Loss (âFVTPLâ)
Financial assets at FVTPL are:
- Assets with contractual cash flows that are not SPPI; and/or
- Assets that are held in a business model other than held to collect contractual cash flows or held to collect and sell; or
- Assets designated at FVTPL using the fair value option.
These assets are measured at fair value, with any gains/losses arising on remeasurement recognised in the statement of profit and loss.
1.2.2.1.4 Business Model Test
An assessment of business model for managing financial assets is fundamental to the classification of a financial asset. The Corporation determines the business model at a level that reflects how financial assets are managed together to achieve a particular business objective. The Corporationâs business model does not depend on managementâs intentions for an individual instrument, therefore the business model assessment is performed at a higher level of aggregation rather than on an instrument-by-instrument basis.
The Corporation considers all relevant information and evidence available when making the business model assessment such as:
- How the performance of the business model and the financial assets held within that business model are evaluated and reported to the Corporationâs 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 in which those risks are managed; and
- How managers of the business are compensated (e.g. whether the compensation is based on the fair value of the assets managed or on the contractual cash flows collected).
At initial recognition of a financial asset, the Corporation determines whether newly recognised financial assets are part of an existing business model or whether they reflect a new business model. The Corporation reassesses itâs business model at each reporting period to determine whether the business model has changed since the preceding period. For the current and prior reporting period the Corporation has not identified a change in its business model.
The Corporation recognises certain loans which are sourced by a third party and measured at amortised cost. The third party has the contractual right to acquire a fixed percentage of value of the loans at predetermined price. The loans assigned are substituted by newly sourced loans which approximate the contractual cash flows to be collected by the Corporation.
1.2.2.1.5 Solely Payments of Principal and Interest (âSPPIâ) on the principal amount outstanding
For an asset to be classified and measured at amortised cost or at FVOCI, its contractual terms should give rise to cash flows that meet 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. The SPPI assessment is made in the currency in which the financial asset is denominated.
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.
1.2.2.1.6 Subsequent Measurement and Gain and Losses Financial Assets at Amortised Cost
These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income and impairment loss are recognised in statement of profit and loss. Any gain or loss on derecognition is recognised in statement of profit and loss.
Debt Instrument at FVOCI
These assets are subsequently measured at fair value. Interest income and impairment loss are recognised in statement of profit and loss. Any gain or loss on subsequent measurement is recognised in OCI and on derecognition the cumulative gain or loss recognised in OCI will be recycled to statement of profit and loss.
Equity Instrument at FVOCI
Gains and losses on equity instruments at FVOCI are never recycled to the statement of profit and loss. Dividends are recognised in profit or loss as dividend income when the right of the payment has been established, except when the Corporation benefits from such proceeds as a recovery of part of the cost of the instrument, in which case, such gains are recorded in OCI. Equity instruments at FVOCI are not subject to an impairment assessment.
Financial assets at FVTPL
These assets are subsequently measured at fair value. Net gain and losses, including any interest or dividend income, are recognised in statement of profit and loss.
1.2.2.1.7 Reclassifications
If the business model under which the Corporation holds financial assets changes, the financial assets affected are reclassified. The classification and measurement requirements related to the new category apply prospectively from the first day of the first reporting period following the change in business model that result in reclassifying the Corporationâs financial assets. During the current financial year and previous accounting period there was no change in the business model under which the Corporation holds financial assets and therefore no reclassifications were made.
1.2.2.2 Financial Liabilities and Equity Instruments
1.2.2.2.1 Classification as Debt or Equity
Debt and equity instruments that are issued are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
A financial liability is a contractual obligation to deliver cash or another financial asset or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Corporation or a contract that will or may be settled in the Corporationâs own equity instruments and is a nonderivative contract for which the Corporation is or may be obliged to deliver a variable number of its own equity instruments, or a derivative contract over own equity that will or may be settled other than by the exchange of a fixed amount of cash (or another financial asset) for a fixed number of the Corporationâs own equity instruments.
1.2.2.2.2 Equity Instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Corporation are recognised at the face value and proceeds received in excess of the face value are recognised as securities premium.
1.2.2.2.3 Subsequent Measurement and Gain and Losses
Financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense is recognised in statement of profit and loss. Any gain or loss on derecognition is recognised in statement of profit and loss.
1.2.3 Impairment and Write-off
The Corporation recognises loss allowances for Expected Credit Losses on the following financial instruments that are not measured at FVTPL:
- Loans and advances to customers;
- Other financial assets;
- Debt instruments measured at amortised cost and at FVOCI;
- Loan commitments; and
- Financial guarantees.
Equity instruments are measured at fair value and not subject to impairment loss.
ECL is required to be measured through a loss allowance at an amount equal to:
- 12-month ECL, i.e. loss allowance on default events on the financial instrument that are possible within
12 months after the reporting date, (referred to as Stage 1); or
- Lifetime ECL, i.e. lifetime ECL that results from all possible default events over the life of the financial instrument, (referred to as Stage 2 and Stage 3).
A loss allowance for lifetime ECL is required for a financial instrument if the credit risk on that financial instrument has increased significantly since initial recognition. For all other financial instruments, ECL is measured at an amount equal to the 12-month ECL.
The Corporation has established policy to perform an assessment at the end of each reporting period whether a financial instrumentâs credit risk has increased significantly since initial recognition by considering the change in the risk of default occurring over the remaining life of the financial instruments.
Based on the above process, the Corporation categorises its loans into Stage 1, Stage 2 and Stage 3 as described below:
Stage 1: When loans are first recognised, the Corporation recognises an allowance based on 12 month ECL. Stage 1 loans also include facilities where the credit risk has improved and the loan has been reclassified from Stage 2 to Stage 1.
Stage 2: When a loan has shown a significant increase in credit risk since origination, the Corporation records an allowance for the life time expected credit losses. Stage 2 loans also include facilities, where the credit risk has improved and the loan has been reclassified from Stage 3 to Stage 2.
Stage 3: When loans are considered credit-impaired, the Corporation records an allowance for the life time expected credit losses.
For financial assets for which the Corporation has no reasonable expectations of recovering either the entire outstanding amount, or a proportion thereof, the gross carrying amount of the financial asset is reduced. This is considered a (partial) derecognition of the financial asset.
1.2.3.1 Measurement of Expected Credit Losses
The Corporation calculates ECL based on probability-weighted scenarios to measure expected cash shortfalls, discounted at an approximation to the portfolio EIR. A cash shortfall is the difference between the cash flows that are due to the Corporation in accordance with the contract and the cash flows that the Corporation expects to receive.
When estimating ECL for undrawn loan commitments, the Corporation estimates the expected portion of the loan commitment that will be drawn down over its expected life. The ECL is then based on the present value of the expected shortfalls in cash flows if the loan is drawn down. The expected cash shortfalls are discounted at an approximation to the expected EIR on the loan.
Corporationâs ECL for financial guarantee is estimated based on the present value of the expected payments to reimburse the holder for a credit loss that it incurs. The shortfalls are discounted by the interest rate relevant to the exposure.
The Corporation measures ECL on an individual basis, or on a collective basis for portfolios of loans that share similar economic risk characteristics. The measurement of the loss allowance is based on the present value of the assetâs expected cash flows using the assetâs original EIR, regardless of whether it is measured on an individual basis or a collective basis.
The mechanics of the ECL calculations are outlined below and the key elements are, as follows:
Exposure at Default (EAD) is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committed facilities after considering the credit conversion factor (for Stage 1 and Stage 2 assets), and accrued interest from missed payments.
Probability of Default (PD) is the probability of whether borrowers will default on their obligations which is calculated based on historical default rate summary of past years using origination vintage analysis.
Loss Given Default (LGD) is an estimate of the loss from a financial asset given that a default occurs. The LGD is computed using a âWorkout approachâ based on the Corporationâs own loss and recovery experience. It is usually expressed as a percentage of the EAD.
1.2.3 2 Significant Increase in Credit Risk
The Corporation monitors all financial assets, including loan commitments and financial guarantee contracts issued that are subject to impairment requirements, to assess whether there has been a significant increase in credit risk since initial recognition. If there has been a significant increase in credit risk the Corporation measures the loss allowance based on lifetime rather than 12-month ECL. The Corporationâs accounting policy is not to use the practical expedient that financial assets with âlowâ credit risk at the reporting date are deemed not to have had a significant increase in credit risk. As a result the Corporation monitors all financial assets, issued loan commitments and financial guarantee contracts that are subject to impairment for significant increase in credit risk.
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Corporation compares the risk of a default occurring on the financial instrument at the reporting date based on the remaining maturity of the instrument with the risk of a default occurring that was anticipated for the remaining maturity at the current reporting date when the financial instrument was first recognised. In making this assessment, the Corporation considers both quantitative and qualitative information that is reasonable and supportable, including historical experience that is available without undue cost or effort.
The qualitative factors that indicate significant increase in credit risk are reflected in PD models on a timely basis. However the Corporation still considers separately some qualitative factors to assess if credit risk has increased significantly. For corporate lending there is particular focus on assets that are included on a âwatch listâ. Given an exposure is on a watch list once, there is a concern that the creditworthiness of the specific counterparty has deteriorated. ECL assessment for watch list accounts is done on a case by case approach after considering the probability of weighted average in different recovery scenario. For individual loans the Corporation considers the expectation of forbearance, payment holidays and events such as unemployment, bankruptcy, divorce or death.
Given that a significant increase in credit risk since initial recognition is a relative measure, a given change, in absolute terms, in the PD is more significant for a financial instrument with a lower initial PD than compared to a financial instrument with a higher PD.
As a back-stop when a financial asset becomes 30 days past due, the Corporation considers that a significant increase in credit risk has occurred and the asset is classified in Stage 2 of the impairment model, i.e. the loss allowance is measured as the lifetime ECL.
1.2.3 3 Credit-Impaired Financial Assets
A financial asset is âcredit-impairedâ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Credit-impaired financial assets are referred to as Stage 3 assets. Evidence of credit-impairment includes observable data about the following events:
- significant financial difficulty of the borrower or issuer;
- a breach of contract such as a default or past due event;
- restructuring of loans due to financial difficulty of the borrowers;
- the disappearance of an active market for a security because of financial difficulties; or
- the purchase of a financial asset at a deep discount that reflects the incurred credit losses.
I t may not be possible to identify a single discrete event. Instead, the combined effect of several events may have caused financial assets to become credit-impaired. The Corporation assesses whether debt instruments that are financial assets measured at amortised cost or FVOCI are credit-impaired at each reporting date. To assess if corporate debt instruments are credit impaired, the Corporation considers factors such as bond yields, credit ratings and the ability of the borrower to raise funds.
A loan is considered credit-impaired when a concession is granted to the borrower due to deterioration in the borrowerâs financial condition. The definition of default includes unlikeliness to pay indicators and a back-stop if amounts are overdue for 90 days or more.
1.2.3.4 Definition of Default
The definition of default is used in measuring the amount of ECL and in the determination of whether the loss allowance is based on 12-month or lifetime ECL.
The Corporation considers the following as constituting an event of default:
- the borrower is past due more than 90 days on any material credit obligation to the Corporation; or
- the borrower is unlikely to pay its credit obligations to the Corporation in full.
When assessing if the borrower is unlikely to pay its credit obligation, the Corporation takes into account both qualitative and quantitative indicators. The information assessed depends on the type of the asset, for example in corporate lending a qualitative indicator used is the breach of covenants, which is not as relevant for individual lending. Quantitative indicators, such as overdue status and non-payment on another obligation of the same counterparty are key inputs in this analysis.
1.2.3.5 Write-off
Loans and debt securities are written off when the Corporation has no reasonable expectations of recovering the financial asset (either in its entirety or a portion of it). This is the case when the Corporation 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 derecognition event. The Corporation may apply enforcement activities to financial assets written off. Recoveries resulting from the Corporationâs enforcement activities could result in impairment gains.
1.2.4 Modification and Derecognition of Financial Assets
A modification of a financial asset occurs when the contractual terms governing the cash flows of a financial asset are renegotiated or otherwise modified between initial recognition and maturity of the financial asset. A modification affects the amount and/or timing of the contractual cash flows either immediately or at a future date. In addition, the introduction or adjustment of existing covenants of an existing loan would constitute a modification even if these new or adjusted covenants do not yet affect the cash flows immediately but may affect the cash flows depending on whether the covenant is or is not met (e.g. a change to the increase in the interest rate that arises when covenants are breached).
The Corporation renegotiates loans to customers in financial difficulty to maximise collection and minimise the risk of default. Loan forbearance is granted in cases where although the borrower made all reasonable efforts to pay under the original contractual terms, there is a high risk of default or default has already happened and the borrower is expected to be able to meet the revised terms. The revised terms in most of the cases include an extension of the maturity of the loan, changes to the timing of the cash flows of the loan (principal and interest repayment), reduction in the amount of cash flows due (principal and interest forgiveness) and amendments to covenants.
When a financial asset is modified the Corporation assesses whether this modification results in derecognition. In accordance with the Corporationâs policy a modification results in derecognition when it gives rise to substantially different terms. To determine if the modified terms are substantially different from the original contractual terms the Corporation considers the following:
Qualitative factors, such as contractual cash flows after modification, are no longer SPPI, change in currency or change of counterparty, the extent of change in interest rates, maturity, covenants, if these do not clearly indicate a substantial modification, then a quantitative assessment is performed to compare the present value of the remaining contractual cash flows under the original terms with the contractual cash flows under the revised terms, both amounts discounted at the original EIR. If there is a significant difference in present value, the Corporation deems the arrangement substantially different, leading to derecognition.
In the case where the financial asset is derecognised the loss allowances for ECL is remeasured at the date of derecognition to determine the net carrying amount of the asset at that date. The difference between this revised carrying amount and the fair value of the new financial asset with the revised terms may lead to a gain or loss on derecognition. The new financial asset may have a loss allowance measured based on 12-month ECL except where the new loan is considered to be originated-credit impaired. This applies only in the case where the fair value of the new loan is recognised at a significant discount to its revised par amount because there remains a high risk of default which has not been reduced by the modification. The Corporation monitors credit risk of modified financial assets by evaluating qualitative and quantitative information, such as if the borrower is in past due status under the new terms.
When the contractual terms of a financial asset are modified and the modification does not result in derecognition, the Corporation determines if the financial assetâs credit risk has increased significantly since initial recognition by comparing:
- The remaining lifetime PD estimated based on data at initial recognition and the original contractual terms;
- The remaining lifetime PD at the reporting date based on the modified terms.
For financial assets modified, where modification does not result in derecognition, the estimate of PD reflects the Corporationâs ability to collect the modified cash flows taking into account the Corporationâs previous experience of similar forbearance action, as well as various behavioural indicators, including the borrowerâs payment performance against the modified contractual terms. If the credit risk remains significantly higher than what was expected at initial recognition the loss allowance is continue to be measured at an amount equal to lifetime ECL. The loss allowance on forborne loans is generally measured based on 12-month ECL when there is evidence of the borrowerâs improved repayment behaviour following modification leading to a reversal of the previous significant increase in credit risk.
Where a modification does not lead to derecognition the Corporation calculates the modification gain/loss comparing the gross carrying amount before and after the modification (excluding the ECL allowance). Then the Corporation measures ECL for the modified asset, where the expected cash flows arising from the modified financial asset are included in calculating the expected cash shortfalls from the original asset.
The Corporation derecognises a financial asset only when the contractual rights to the assetâs cash flows expire (including expiry arising from a modification with substantially different terms), or when the financial asset and substantially all the risks and rewards of ownership of the asset are transferred to another entity. If the Corporation neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Corporation recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Corporation retains substantially all the risks and rewards of ownership of a transferred financial asset, the Corporation continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the difference between the assetâs carrying amount and the sum of the consideration received and receivable and the cumulative gain/loss that had been recognised in OCI and accumulated in equity is recognised in the statement of profit and loss, with the exception of equity investment designated as measured at FVOCI, where the cumulative gain/loss previously recognised in OCI is not subsequently reclassified to the statement of profit and loss.
On derecognition of a financial asset other than in its entirety (e.g. when the Corporation retains an option to repurchase part of a transferred asset), the Corporation allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain/loss allocated to it that had been recognised in OCI is recognised in the statement of profit and loss. A cumulative gain/loss that had been recognised in OCI is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts. This does not apply for equity investments designated as measured at FVOCI, as the cumulative gain/loss previously recognised in OCI is not subsequently reclassified to the statement of profit and loss.
1.2.5 Derecognition of Financial Liabilities
The Corporation derecognises financial liabilities when, and only when, the Corporationâs obligations are discharged, cancelled or have expired. 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.
1.2.6 Collateral Valuation and Repossession
To mitigate the credit risk on financial assets, the Corporation seeks to use collateral, where possible as per the powers conferred on the Housing Finance Companies under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (âSARFAESIâ). The Corporation provides fully secured, partially secured and unsecured loans to individuals and Corporates.
In its normal course of business, the Corporation does not physically repossess properties or other assets in its retail portfolio, but engages external agents to recover funds, generally at auction, to settle outstanding debt. Any surplus funds are returned to the customers/obligors. As a result of this practice, the residential properties under legal repossession processes are not recorded on the balance sheet and not treated as non-current assets held for sale.
1.2.7 Transfer and Servicing of Assets
The Corporation transfers loans through securitisation and direct assignment transactions. The transferred loans are de-recognised and gains/losses are accounted for, only if the Corporation transfers substantially all risks and rewards specified in the underlying assigned loan contract. In accordance with the Ind AS 109, on de-recognition of a financial asset under assigned transactions, the difference between the carrying amount and the consideration received are recognised in the Statement of Profit and Loss.
The Corporation recognises either a servicing asset or a servicing liability for servicing contract. If the fee to be received is not expected to compensate the Corporation adequately for performing the servicing activities, a servicing liability for the servicing obligation is recognised at its fair value. If the fee to be received is expected to be more than adequate compensation for the servicing activities, a servicing asset is recognised. Corresponding amount is recognised in the Statement of Profit and Loss.
1.2.8 Derivative Financial Instruments
The Corporation enters into a variety of derivative financial instruments to manage its exposure to interest rate risk and foreign exchange rate risk. Derivatives held include foreign exchange forward contracts, interest rate swaps, cross currency interest rate swaps and foreign exchange option contracts.
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 timing of the recognition in the statement of profit and loss depends on the nature of the hedge relationship. The Corporation designates certain derivatives as either hedges of the fair value of recognised assets or liabilities (fair value hedges) or 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.
1.2.8.1 Hedge Accounting
The Corporation makes use of derivative instruments to manage exposures to interest rate and foreign currency. In order to manage particular risks, the Corporation applies hedge accounting for transactions that meet specified criteria.
At the inception of a hedge relationship, the Corporation formally designates and documents the hedge relationship to which the Corporation wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes the Corporationâs 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 Corporation would assess the effectiveness of changes in the hedging instrumentâs fair value in offsetting the exposure to changes in the hedged itemâs 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.
Hedges that meet the criteria for hedge accounting are accounted for, as described below:
1.2 8.2 Fair Value Hedges
Fair value hedges hedge the exposure to changes in the fair value of a recognised asset or liability or an identified portion of such an asset, liability, that is attributable to a particular risk and could affect profit or loss.
For designated and qualifying fair value hedges, the cumulative change in the fair value of a hedging derivative is recognised in the statement of profit and loss in net gain on fair value changes. Meanwhile, the cumulative change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item in the balance sheet and is also recognised in the statement of profit and loss in net gain on fair value changes.
The Corporation classifies a fair value hedge relationship when the hedged item (or group of items) is a distinctively identifiable asset or liability hedged by one or a few hedging instruments. The financial instruments hedged for interest rate risk in a fair value hedge relationship fixed rate debt issued and other borrowed funds. If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for hedge accounting, the hedge relationship is discontinued prospectively. If the relationship does not meet hedge effectiveness criteria, the Corporation discontinues hedge accounting from the date on which the qualifying criteria are no longer met. For hedged items recorded at amortised cost, the accumulated fair value hedge adjustment to the carrying amount of the hedged item on termination of the hedge accounting relationship is amortised over the remaining term of the original hedge using the recalculated EIR method by recalculating the EIR at the date when the amortisation begins. If the hedged item is derecognised, the unamortised fair value adjustment is recognised immediately in the statement of profit and loss.
1.2.8.3 Cash Flow Hedges
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 profit or 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 as 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.
1.2.9 Financial Guarantee Contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument.
Financial guarantee contracts issued by the Corporation are initially measured at their fair values and, if not designated as at FVTPL and not arising from a transfer of a financial asset, are subsequently measured at the higher of:
- the amount of the loss allowance determined in accordance with Ind AS 109; and
- the amount initially recognised less, where appropriate, cumulative amount of income recognised in accordance with the Corporationâs revenue recognition policies.
The Corporation has not designated any financial guarantee contracts as FVTPL.
1.3 Property, Plant and Equipment (âPPEâ)
PPE held for use are stated in the balance sheet at cost less accumulated depreciation and accumulated impairment losses.
PPE is recognised when it is probable that future economic benefits associated with the item is expected to flow to the Corporation and the cost of the item can be measured reliably. PPE is stated at original cost net of tax/duty credits availed, if any, less accumulated depreciation and cumulative impairment, if any. Cost includes professional fees related to the acquisition of PPE.
For transition to Ind AS, the Corporation has elected to adopt as deemed cost, the carrying value of PPE measured as per IGAAP less accumulated depreciation and cumulative impairment on the transition date of April 1, 2017.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of profit and loss.
1.4 Investment Property
Investment properties are properties held to earn rentals and/or capital appreciation and are measured and reported at cost, including transaction costs.
For transition to Ind AS, the Corporation has elected to adopt as deemed cost, the carrying value of investment property as per IGAAP less accumulated depreciation and cumulative impairment on the transition date of April 1, 2017.
An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on de-recognition of property is recognised in the Statement of Profit and Loss in the same period.
1.5 Intangible Assets
Intangible assets are recognised when it is probable that the future economic benefits that are attributable to the asset will flow to the Corporation and the cost of the asset can be measured reliably. Intangible assets are stated at original cost net of tax/duty credits availed, if any, less accumulated amortisation and cumulative impairment. Administrative and other general overhead expenses that are specifically attributable to acquisition of intangible assets are allocated and capitalised as a part of the cost of the intangible assets.
For transition to Ind AS, the Corporation has elected to adopt as deemed cost, the carrying value of Intangible assets measured as per IGAAP less accumulated amortisation and cumulative impairment on the transition date of April 1, 2017.
Intangible assets not ready for the intended use on the date of Balance Sheet are disclosed as âIntangible assets under developmentâ.
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognised in the statement of profit and loss when the asset is derecognised.
1.6 Capital work-in-progress
Capital work-in-progress includes assets not ready for the intended use and is carried at cost, comprising direct cost and related incidental expenses.
1.7 Depreciation and Amortisation
Depreciation is recognised using straight line method so as to write off the cost of the assets (other than freehold land) less their residual values over their estimated useful lives specified in Schedule II to the Act, or in case of assets where the estimated useful life was determined by technical evaluation, over the useful life so determined. Depreciation method is reviewed at each financial year end to reflect expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful life and residual values are also reviewed at each financial year end with the effect of any change in the estimates of useful life/residual value is recognised on prospective basis.
Depreciation for additions to/deductions from, owned assets is calculated pro rata to the period of use.
Freehold land is not depreciated. Leasehold land is amortised over the duration of the lease. The useful life of the property, plant and equipment held by the Corporation is as follows:
* For the above class of assets, based on internal assessment and independent technical evaluation carried out by external valuers, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets are different from the useful lives as prescribed under Part C of Schedule II of the Act.
Intangible assets are amortised on straight line basis over the estimated useful life of 4 years. The method of amortisation and useful life are reviewed at the end of each accounting year with the effect of any changes in the estimate being accounted for on a prospective basis.
1.8 Impairment of Assets other than Financial Instruments
As at the end of each accounting year, the Corporation reviews the carrying amounts of its PPE, investment property and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If such indication exists, the PPE, investment property and intangible assets are tested for impairment so as to determine the impairment loss, if any.
1.9 Employee Benefits
1.9.1 Share-based payment arrangements
The stock options granted to employees pursuant to the Corporationâs Stock Options Schemes, are measured at the fair value of the options at the grant date using Black-Scholes Model. The fair value of the options determined at grant date is accounted as employee compensation cost over the vesting period on a straight line basis over the period of option, based on the number of grants expected to vest, with corresponding increase in equity.
1.9.2 Defined Contribution Plans
1.9.2.1 Superannuation Fund
The Corporationâs contribution to superannuation fund is considered as a defined contribution plan and is charged as an expense based on the amount of contribution required to be made.
1.9.3 Defined Benefit Plans
1.9.3.1 Provident Fund
All employees of the Corporation are entitled to receive benefits under the Provident Fund. The Corporation makes a contribution to provident fund and the schemes thereunder, as recognised by the Income-tax authorities and administered by the trust. The contributions are recognised as an expense in the year in which they are incurred. The Rules of the Corporationâs Provident Fund administered by a Trust require that if the Board of Trustees is unable to pay interest at the rate declared for Employeesâ Provident Fund by the Government under para 60 of the Employeesâ Provident Fund Scheme, 1952 for the reason that the return on investment is less or for any other reason, then the deficiency shall be made good by the Corporation. Actuarial valuation of this Provident Fund interest shortfall is done as per the guidance note issued in this respect by The Institute of Actuaries of India (IAI) and provision towards this liability, if any is recognised.
1.9.3.2 Gratuity and Other Post Retirement Benefits
For defined benefit plans in the form of gratuity fund and post retirement pension scheme for whole-time Directors, the cost of providing benefits is determined using the Projected Unit Credit method, with actuarial valuations being carried out at each balance sheet date. Remeasurements are recognised in the Other Comprehensive Income in the period in which they occur. Past service cost is recognised immediately to the extent that the benefits are already vested and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognised in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, as reduced by the fair value of planned assets.
1.9.3.3 Short-term Employee Benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees are recognised during the year when the employees render the service. These benefits include performance incentive and compensated absences which are expected to occur within twelve months after the end of the period in which the employee renders the related service.
1.9.3.4 Long-term Employee Benefits
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related service are recognised as a liability at the present value of the defined benefit obligation as at the balance sheet date, based on actuarial valuation.
1.10 Leases
The determination of whether an agreement is, or contains, a lease is based on the substance of the agreement at the date of inception.
1.10.1 Operating Leases
A. Lease rentals on assets under operating lease are charged to the Statement of Profit and Loss on a straight line basis over the term of the relevant lease unless the payments are structured to increase in line with expected general inflation to compensate for the lessorâs expected inflationary cost increases.
B. Assets leased out under operating leases are continued to be shown under the respective class of assets. Rental income is recognised on a straight line basis over the term of the relevant lease unless the payments are structured to increase in line with expected general inflation to compensate for the Corporationâs expected inflationary cost increases.
1.11 Dividends on ordinary shares
The Corporation recognises a liability to make cash to equity holders of the Corporation when the dividend is authorised and the distribution is no longer at the discretion of the Corporation. As per the corporate laws in India, an interim dividend is authorised when it is approved by the Board of Directors and final dividend is authorised when it is approved by the shareholders. A corresponding amount is recognised directly in equity.
1.12 Cash and Cash Equivalents
Cash comprises of cash on hand and demand deposits with banks. Cash equivalents are short-term deposits with banks (with an original maturity of three months or less from the date of placement) and cheques on hand. Short term and liquid investments being subject to more than insignificant risk of change in value, are not included as part of cash and cash equivalents.
1.13 Securities Premium Account
Securities premium is credited when shares are issued at premium. It can be used to issue bonus shares, to provide for premium on redemption of shares and issue expenses of securities which qualify as equity instruments.
1.14 Borrowing Costs
Borrowing costs include interest expense calculated using the EIR on respective financial instruments measured at amortised cost, finance charges in respect of assets acquired on finance lease and exchange differences arising from foreign currency borrowings, to the extent they are regarded as an adjustment to interest costs.
1.15 Foreign Currencies
(i) Functional currency of the Corporation and foreign operations has been determined based on the primary economic environment in which the Corporation and its foreign operations operate considering the currency in which funds are generated, spent and retained.
(ii) Transactions in currencies other than the Corporationâs 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 rates prevailing at the year-end. 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 except for Long Term Monetery Items outstanding as at March 31, 2018, for which differences are recognised in FCMITDA and amortised in Statement of Profit and Loss.
1.16 Segments
The Corporationâs main business is financing by way of loans for the purchase or construction of residential houses, commercial real estate and certain other purposes, in India. All other activities of the Corporation revolve around the main business. This in the context of Ind AS 108 - Operating Segments reporting is considered to constitute one reportable segment.
1.17 Investments in Subsidiaries, Joint Ventures and Associates
Investments in Subsidiaries and Associates are measured at cost as per Ind AS 27 - Separate Financial Statements.
1.18 Earnings per share
Basic earnings per share are computed by dividing profit or loss attributable to ordinary equity holders by the weighted average number of shares outstanding during the year. Diluted earnings per share are computed using the weighted average number of shares and dilutive potential shares, except where the result would be anti-dilutive.
1.19 Taxes on Income
Income tax expense comprises current and deferred taxes. Income tax expense is recognized in the Statement of Profit and Loss except when they relate to items that are recognized outside statement of profit and loss (whether in other comprehensive income or directly in equity), in which case tax is also recognized outside statement of profit and loss.
Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying values of assets and liabilities and their respective tax bases, and unutilized business loss and depreciation carry-forwards and tax credits. Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available against which the deductible temporary differences, unused tax losses, depreciation carry-forwards and unused tax credits could be utilized.
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 based on the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Corporation intends to settle its current tax assets and liabilities on a net basis.
1.20 Goods and Services Input Tax Credit
Goods and Services tax input credit is recognised for in the books in the period in which the supply of goods or service received is recognised and when there is no uncertainty in availing/utilising the credits.
1.21 Provisions, Contingent Liabilities and Contingent Assets
Provisions are recognised only when:
(i) The Corporation has a present obligation (legal or constructive) as a result of a past event; and
(ii) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
(iii) A reliable estimate can be made of the amount of the obligation.
Provision is measured using the cash flows estimated to settle the present obligation and when the effect of time value of money is material, the carrying amount of the provision is the present value of those cash flows.
Contingent liability is disclosed in case of:
(i) A present obligation arising from past events, when it is not probable that an outflow of resources will be required to settle the obligation; or
(ii) A present obligation arising from past events, when no reliable estimate is possible.
Where the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under such contract, the present obligation under the contract is recognised and measured as a provision.
Contingent Assets:
Contingent assets are not recognised in the financial statements.
Contingent assets are disclosed where an inflow of economic benefits is probable.
Provisions, contingent liabilities and contingent assets are reviewed at each Balance Sheet date.
1.22 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 and joint venture companies; and
d) Other non-cancellable commitments, if any, to the extent they are considered material and relevant in the opinion of management.
1.23 Non-Current Assets held for sale
Non-current assets are classified as held for sale if their carrying amount is intended to be recovered principally through a sale (rather than through continuing use) when the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sale of such asset and the sale is highly probable and is expected to qualify for recognition as a completed sale within one year from the date of classification.
Non-current assets classified as held for sale are measured at lower of their carrying amount and fair value less costs to sell.
1.24 Statement of Cash Flows
Statement of Cash Flows is prepared segregating the cash flows into operating, investing and financing activities. Cash flow from operating activities is reported using indirect method adjusting the net profit for the effects of:
i. Changes during the period in operating receivables and payables transactions of a non-cash nature;
ii. Non-cash items such as depreciation, provisions, deferred taxes, unrealised foreign currency gains and losses; and
iii. All other items for which the cash effects are investing or financing cash flows.
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 Balance Sheet.
1.25 Standards issued but not effective
1.25.1 Ind AS 116 Leases
Ind AS 116 Leases was notified on 28th March, 2019 and it replaces Ind AS 17 Leases, including appendices thereto. Ind AS 116 is effective for annual periods beginning on or after April 01, 2019. Ind AS 116 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under Ind AS 17. The standard includes two recognition exemptions for lessees - leases of âlow-valueâ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. The Corporation is currently evaluating the impact of Ind AS 116 on its financial statements.
1.25.2 Amendment to Ind AS 12 Income Taxes
Income tax consequences of distribution of profits (i.e. dividends), including payments on financial instruments classified as equity, should be recognised when a liability to pay dividend is recognised.
The income tax consequences should be recognised in the Statement of Profit and Loss, Other Comprehensive Income or equity according to where the past transactions or events that generated distributable profits were originally recognised.
Appendix C has been added to Ind AS 12 which seeks to bring clarity to the accounting for uncertainties on income tax treatments that are yet to be accepted by tax authorities and to reflect it in the measurement of current and deferred taxes.
1.25.3 Amendments to Ind AS 109 Financial Instruments
A financial asset would be classified and measured at amortised cost or at Fair Value through Other Comprehensive Income (FVOCI) if its contractual cash flows are solely in the nature of principal and interest on the principal amount outstanding (SPPI criterion).
An exception has been prescribed to the classification and measurement requirements with respect to the SPPI criterion for financial assets that:
- Have a prepayment feature which results in a negative compensation.
- Apart from the prepayment feature, other features of the financial asset would have contractual cash flows which would meet the SPPI criterion, and
- The fair value of the prepayment feature is insignificant when the entity initially recognises the financial asset. If this is impracticable to assess based on facts and circumstances that existed on initial recognition of the asset, then the exception would not be available.
Such financial assets could be measured at amortised cost or
Mar 31, 2018
1. SIGNIFICANT ACCOUNTING POLICIES
1.1 BACKGROUND
Housing Development Finance Corporation Limited (''HDFC'' or ''the Corporation'') was incorporated in 1977 as the first specialized mortgage company in India. The principal business is providing finance to individuals, corporate and developers for the purchase, construction, development and repair of houses, apartments and commercial property in India. The business is conducted through its branches in India and its overseas offices at London, Singapore and Dubai supported by a network of agents for sourcing loans as well as deposits. HDFC is the holding company for investments in its associates and subsidiary companies.
1.2 ACCOUNTING CONVENTION
These financial statements have been prepared and presented on an accrual basis in accordance with historical cost convention, applicable Accounting Standards specified under Section 133 of the Companies Act, 2013, the relevant provisions of the Companies Act, 2013 and the guidelines issued by the National Housing Bank to the extent applicable. The Balance Sheet and the Statement of Profit and Loss of the Corporation are prepared in accordance with the provisions contained in Section 129 of the Companies Act, 2013, read with Schedule III.
Accounting policies applied have been consistent with previous year except where different treatment is required as per new pronouncements made by the regulatory authorities. The management evaluates, all recently issued or revised accounting pronouncements, on an ongoing basis.
The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. 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 recognized in the periods in which the results are known / materialize.
1.3 OPERATING CYCLE
Based on the nature of its activities, the Corporation has determined its operating cycle as 12 months for the purpose of classification of its assets and liabilities as current and non-current.
1.4 CASH FLOW STATEMENT
Cash flows are reported using the indirect method, whereby profit / (loss) before extraordinary items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Corporation are segregated based on the available information.
1.5 CASH AND CASH EQUIVALENTS (FOR PURPOSES OF CASH FLOW STATEMENT)
Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term deposits with banks (with an original maturity of three months or less from the date of placement), highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.
1.6 LOANS AND RECEIVABLES AND CREDIT LOSS ALLOWANCES
Loans are initially recorded at the disbursed principal amounts and are subsequently adjusted for recoveries and any lumpsum principal repayment (prepayment).
A loan is recognized as non-performing (âNPAâ) or as a âdoubtfulâ or as a âlossâ asset based on the period for which the repayment installment or interest has remained in arrears as prescribed under the Housing Finance Companies (NHB) Directions, 2010, (the âNHB Directionsâ) as updated from time to time. Allowances for credit losses are made on an individual basis at rates prescribed under the NHB Directions unless, the management estimates that a higher individual allowance is required to reduce the carrying value of loan asset, including accrued interest, to its estimated realizable amount. The fair value of the underlying security is taken into consideration to estimate the realizable amount of the loan. When a loan is identified as a âLoss Assetâ that is adversely affected by a potential threat of non-recoverability, the outstanding balance is fully written off or fully provided for.
The Corporation recognizes general provision towards standard assets as prescribed under the Housing Finance Companies (NHB) Directions, 2010, (the âNHB Directionsâ) as updated from time to time. In addition to the above, the Corporation, on a prudent basis, recognizes provisions on standard assets, on the basis of consideration of economic and business conditions impacting a specific exposure or a group of advances. These provisions are recognized as per the Board approved policy and included as part of ''Other Provision and Contingencies - Accelerated Provisioning''. These provisions are transferred as provision on the same/ specific advance/group of advances in case it slips into non-performing asset. When such provision is no longer required the same will be reversed in the Statement of Profit and Loss.
In addition to the above, the Corporation, as per a Board approved policy, sets aside a portion of significant one off gains arising on sale of its shares in subsidiaries/associates as additional provisions on specific loans and advances. Such provisions are either recognized against specifically identified standard assets/projects or additional provisions (over and above the regulatory requirements) against specific non-performing assets. These provisions are included as part of ''Other Provision and Contingencies - Accelerated Provisioning''. These provisions are transferred as provision on the same/specific standard advance/group of advances in case it slips into non-performing asset. When such provision is no longer required the same will be reversed in the Statement of Profit and Loss.
1.7 INTEREST INCOME ON LOANS
Repayment of housing loans is generally by way of Equated Monthly Installments (EMIs) comprising principal and interest. EMIs commence generally once the entire loan is disbursed. Certain customers request for commencement of regular principal repayments even before the entire loan is disbursed, especially when the projects are of long gestation. A recalculated EMI based on Principal Outstanding is offered in such cases. Pending commencement of EMIs, pre-EMI interest is payable every month. Interest on loans is computed generally on a monthly rest based on the principal outstanding at the beginning of the month/relevant period.
Interest income is allocated over the contractual term of the loan by applying the committed interest rate to the outstanding amount of the loan. Interest income is accrued as earned with the passage of time.
Interest on loan assets classified as ânon-performingâ is recognized only on realization.
1.8 DIVIDEND
Dividend income is recognized when the right to receive has been established. Dividends from units of mutual funds, where received, are accounted on receipt of such amounts.
1.9 FEES AND OTHER REVENUE
Fees, charges and other revenue, net of amounts incurred towards commission to Direct Selling Agents, is recognized after the service is rendered to the extent that it is probable that the economic benefits will flow to the Corporation and that the revenue can be reliably measured, regardless of when the payment is being made.
1.10 INCOME FROM LEASES
Leases of assets under which substantially all of the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. The Corporation has let out portions of its buildings to its subsidiaries / associates under operating lease arrangements. Income is recognized over the period over which the property is used by the lessee based on the lease terms as the arrangements are cancellable and do not contain any minimum lease payment or contingent rent payments.
1.11 INCOME FROM INVESTMENTS
Interest Income on Debentures/ Bonds and Government Securities is accounted on accrual basis.
Any discount/premium on account of these investments held as long-term investments, is recognized over the life of the security on a pro-rata basis.
The gains/ losses on sale of investments are recognized in the Statement of Profit and Loss on the trade date. Gain or loss on sale of investments is determined after consideration of cost on a weighted average basis.
1.12 BORROWING AND BORROWING COSTS
The Corporation borrows funds, primarily in Indian Rupees, that carry a fixed rate or floating rate of interest. As a part of its risk management strategy, the Corporation converts some of such borrowings into floating rate or foreign currency borrowings by entering into interest rate swaps or cross currency interest rate swaps having the same notional amount and maturity as the underlying borrowings and generally holds these instruments till maturity.
Borrowing costs include interest, amortized brokerage on deposits and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Ancillary costs in connection with long-term external commercial borrowings are amortized to the Statement of Profit and Loss over the tenure of the loan. Issue expenses and discounts on certain securities are charged to the securities premium account.
Brokerage and incentive on deposits are amortized over the period of the deposit.
1.13 TRANSLATION OF FOREIGN CURRENCY Initial recognition
Transactions in foreign currencies entered into by the Corporation are accounted at the exchange rates prevailing on the date of the transaction.
Measurement at the Balance Sheet date
Assets and liabilities in foreign currencies are converted at the rates of exchange prevailing at the year-end. Wherever the Corporation has entered into a forward contract or an instrument that is, in substance, a forward exchange contract, the difference between the forward rate and the exchange rate on the date of the transaction is recognized as income or expense over the life of the contract.
The net loss/gain on translation of long term monetary assets and liabilities in foreign currencies is amortized over the maturity period of such monetary assets and liabilities and charged to the Statement of Profit and Loss. The unamortized exchange difference is carried in the Balance Sheet as âForeign Currency Monetary Item Translation Difference Accountâ. The net loss/gain on translation of short term monetary assets and liabilities in foreign currencies is recorded in the Statement of Profit and Loss.
1.14 ACCOUNTING FOR DERIVATIVE CONTRACTS
Consequent to the Guidance Note on Accounting for Derivative Contracts issued by the Institute of Chartered Accountants of India, becoming effective from April 1, 2016, on and from that date, all derivative contracts are recognized in the balance sheet and measured at fair value. The corresponding fair value changes are recognized in the Statement of Profit and Loss unless hedge accounting is applied.
In case of fair value hedges, fair value changes of the derivative contracts are recognized through the Statement of Profit and Loss in the same period as the offsetting losses and gains on the hedged item.
For derivative contracts designated as cash flow hedges, the hedging instrument is measured at fair value and any gain or loss that is determined to be an effective hedge is recognized within equity i.e., Cash flow Hedge Reserve. Amounts recognized in equity are transferred to the Statement of Profit and Loss in the same period as the cash flows of hedged items affect the Statement of Profit and Loss. When a derivative contract expires or is sold or if a hedge no longer meets the criteria for hedge accounting, any cumulative profit or loss in the Cash Flow Hedge Reserve is retained in equity until the hedged cash flow is recognized in the Statement of Profit and Loss. However, if hedged cash flows are no longer expected to occur, the profit or loss against the corresponding derivative contract, accumulated in the Cash Flow Hedge Reserve, is immediately released through the Statement of Profit and Loss.
Changes in the fair values of derivative instruments that do not qualify for hedge accounting are recognized immediately in the Statement of Profit and Loss.
1.15 OPERATING LEASES
Payments under a non-cancellable operating lease arrangement, where the risks and rewards incidental to ownership of an asset substantially vest with the less or, are charged to the Statement of Profit and Loss on a straight-line basis over the lease term, unless another systematic basis is more appropriate.
1.16 INVESTMENTS
Investments are capitalized at cost inclusive of brokerage and stamp charges and are classified into two categories, viz. Current or Long Term. Long-term investments (excluding investment in properties), are carried individually at cost less provision for diminution, other than temporary, in the market value of such investments. Provision for diminution in the value of investments is made in accordance with the guidelines issued by the National Housing Bank and the Accounting Standard on ''Accounting for Investments'' (AS 13), and is recognized through the Provision for Contingencies Account.
Current investments are carried individually, at the lower of cost and market value.
Investments in properties acquired as part of the debt asset settlement are recorded at the fair value on the date of the transfer. Investments in properties are carried individually at cost less accumulated depreciation and impairment, if any.
1.17 TANGIBLE FIXED ASSETS
Fixed Assets (including such assets which have been leased out by the Corporation) including any cost attributable for bringing the same to its working condition are capitalized at cost inclusive of legal, registration and/or installation expenses.
1.18 INTANGIBLE ASSETS
Intangible Assets comprising of system software are stated at cost of acquisition, less accumulated amortization. Any expenses on such software for support and maintenance payable annually are charged to the Statement of Profit and Loss.
1.19 DEPRECIATION AND AMORTISATION Tangible Fixed Assets
Depreciable amount for assets is the cost of an asset, or other amount substituted for cost, less its estimated residual value.
Depreciation on tangible fixed assets has been provided on the straight-line method as per the useful life prescribed in Schedule II to the Companies Act, 2013 except in respect of the following categories of assets, in whose case the life of the assets has been assessed as under based on management''s technical valuation, taking into account the nature of the asset, the estimated usage of the asset, the operating conditions of the asset, past history of replacement, anticipated technological changes, manufacturers warranties and maintenance support, etc.:
(a) Computers and data processing equipment - 4 years
(b) Vehicles - 5 years
(c) Leasehold land is amortized over the duration of the lease.
Intangible Assets
Intangible assets are amortized over their estimated useful life on straight line method as follows:
Computers Software - 4 years
The estimated useful life of the intangible assets and the amortization period are reviewed at the end of each financial year and the amortization period is revised to reflect the changed pattern, if any.
Investment In Properties
Depreciation on Investment in properties is provided on a pro-rata basis from the date of acquisition.
1.20 PROVISIONS AND CONTINGENCIES
A provision is recognized when the Corporation has a present obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made. Provisions (excluding employee benefits) are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. Contingent liabilities are disclosed in the Notes. Contingent assets are neither recognized nor disclosed in the financial statements.
1.21 EMPLOYEE BENEFITS
Employee Stock Option Scheme (âESOSâ)
The Employee Stock Option Scheme (''the Scheme'') provides for the grant of options to acquire equity shares of the Corporation to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within a specified period.
The Corporation follows the intrinsic value method to account for its stock-based employee compensation plans. Compensation cost is measured by the excess, if any, of the market price of the underlying stock over the exercise price as determined under the option plan. The market price is the closing price on the stock exchange where there is highest trading volume on the working day immediately preceding the date of grant. Compensation cost, if any, is amortized over the vesting period.
Defined contribution plans
Superannuation Fund
The Corporation''s contribution to superannuation fund is considered as a defined contribution plan and is charged as an expense based on the amount of contribution required to be made.
Defined benefit plans
Provident Fund
All employees of the Corporation are entitled to receive benefits under the Provident Fund. The Corporation makes a contribution to provident fund and the schemes there under, as recognized by the Income-tax authorities and administered by various trustees. The contributions are recognized as an expense in the year in which they are incurred. The Rules of the Corporation''s Provident Fund administered by a Trust require that if the Board of Trustees is unable to pay interest at the rate declared for Employees'' Provident Fund by the Government under para 60 of the Employees'' Provident Fund Scheme, 1952 for the reason that the return on investment is less or for any other reason, then the deficiency shall be made good by the Corporation. The guidance on implementing AS-15, Employee Benefits issued by the ICAI, states that benefits involving employer established provident funds, which require interest shortfalls to be provided, are to be considered as defined benefit plans. Actuarial valuation of this Provident Fund interest shortfall is done as per the guidance note issued in this respect by The Institute of Actuaries of India (IAI) and provision towards this liability is recognized.
Gratuity and Other Post Retirement Benefits
For defined benefit plans in the form of gratuity fund and post retirement pension scheme for whole-time Directors, the cost of providing benefits is determined using the Projected Unit Credit method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognized in the Statement of Profit and Loss in the period in which they occur. Past service cost is recognized immediately to the extent that the benefits are already vested and otherwise is amortized on a straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognized in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognized past service cost, as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the schemes.
In the case of Dubai branch of the Corporation, the provision for gratuity is made in accordance with the prevalent local laws.
Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees are recognized during the year when the employees render the service. These benefits include performance incentive and compensated absences which are expected to occur within twelve months after the end of the period in which the employee renders the related service.
Long-term employee benefits
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related service are recognized as a liability at the present value of the defined benefit obligation as at the balance sheet date, based on actuarial valuation.
1.22 EARNINGS PER SHARE
Basic earnings per share is computed by dividing the profit / (loss) after tax (including the post-tax effect of extraordinary items, if any) 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 (including the post-tax effect of extraordinary items, if any) 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. The dilutive potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). 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 and bonus shares, as appropriate.
1.23 TAXES ON INCOME
Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the provisions of the Income Tax Act, 1961 (the âIncome Tax Actâ).
Deferred tax is recognized on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax assets are recognized for timing differences of items other than unabsorbed depreciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realized. However, if there are unabsorbed depreciation and carry forward of losses, deferred tax assets are recognized only if there is virtual certainty that there will be sufficient future taxable income available to realize the assets.
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. Deferred tax assets are reviewed at each balance sheet date for their reliability.
Current and deferred taxes relating to items directly recognized in reserves are recognized in reserves and not in the Statement of Profit and Loss.
Minimum Alternative Tax (''MAT'') under the provisions of the Income-tax Act, 1961 is recognized as current tax in the Statement of Profit and Loss where appropriate. The credit available under the Act in respect of MAT paid is recognized as an asset where there is convincing evidence that the Corporation will pay normal income tax during the period for which the MAT credit can be carried forward for set-off against the normal tax liability.
1.24 GOODS AND SERVICES TAX INPUT CREDIT
Goods and Services tax input credit is accounted for in the books in the period in which the supply of goods or service received is accounted and when there is no uncertainty in availing/utilising the credits.
1.25 ASSIGNED / SECURITISED LOANS AND SECURITISATION LIABILITIES
The Corporation enters into transactions through direct assignment route. Transfer of pools of mortgages under the direct assignment route involve transfer of proportionate shares in the pools of mortgages. Such transfers result in derecognition only of that proportion of the mortgages which meets the derecognition criteria. The portion retained by the Corporation continue to be accounted for as loans.
The Corporation also periodically transfers pools of mortgages. Such assets are derecognized, if and only if, the Corporation loses control of the contractual rights that comprise the corresponding pools or mortgages transferred. In respect of pools securitised, wherever required, the Corporation provides credit enhancement in the form of guarantees and undertaking.
The Corporation also acts as a servicing agent for pools assigned/securitized.
On de-recognition, the difference between the book value of the securitized asset and consideration received is recognized as gain arising on securitization in the Statement of Profit and Loss over the balance maturity period of the pool transferred. Losses, if any, arising from such transactions, are recognized immediately in the Statement of Profit and Loss.
2.3 The Corporation has only one class of shares referred to as equity shares having Face Value of '' 2 each. Each holder of equity share is entitled to one vote per share.
The holders of equity shares are entitled to dividends, if any, proposed by the Board of Directors and approved by Shareholders at the Annual General Meeting.
As at March 31, 2018 11,04,53,219 shares (Previous Year 12,29,51,224 shares) were reserved for issuance as follows:
a) 7,44,67,819 shares of '' 2 each (Previous Year 8,64,51,224 shares of '' 2 each) towards outstanding Employees Stock Options granted / available for grant, including lapsed options [Refer Note 2.4].
b) 3,59,85,400 shares of Rs, 2 each (Previous Year 3,65,00,000 shares of Rs, 2 each) towards outstanding share warrants [Refer Note 3.13].
2.4 Through postal ballot held on March 10, 2017, the shareholders had approved the issue of 4,98,51,524 equity shares of Rs, 2 each to the eligible employees and directors of the Corporation. The Nomination and Remuneration Committee of Directors (NRC) at its meeting held during the year on various dates, approved the grant of 4,28,45,977 new stock options, representing 4,28,45,977 equity shares of Rs, 2 each under ESOS-2017, to the eligible employees and Directors. The same represents the Options approved for grant by the shareholders at the postal ballot held on March 10, 2017 plus 10,59,040 options lapsed under previous schemes (ESOS-11 : 3,90,350 options, and ESOS-14 : 6,68,690 options), net of 80,64,587 options reserved. The options were granted at an exercise price ranging between Rs, 1,569.85 to Rs, 1,908.30 per option, being the latest available closing price of the equity shares of the Corporation on the stock exchange on which the shares are listed and having higher trading volume, prior to the meeting of the NRC at which the options were granted.
In terms of ESOS-17, the options would vest over a period of 1-3 years from the date of grant, but not later than December 1, 2020, depending upon options grantee completing continuous service of three years with the Corporation. Accordingly, no options have vested during the current year. The options can be exercised over a period of five years from the date of respective vesting.
Under Employees Stock Option Scheme - 2014 (ESOS - 14), the Corporation had on October 8, 2014, granted 62,73,064 options at an exercise price of Rs, 5,073.25 per option representing 3,13,65,320 equity shares of Rs, 2 each to the employees and directors of the Corporation. The said price was determined in accordance with the pricing formula approved by the shareholders i.e. at the latest available closing price on the stock exchange having higher trading volume, prior to grant of options.
In terms of ESOS-14, the options would vest over a period of 1-3 years from the date of grant, but not later than October 7, 2017, depending upon options grantee completing continuous service of three years with the Corporation. Accordingly, during the year 49,902 options (Previous Year 1,57,799 options) were vested. In the current year 1,799 options (Previous Year 22,390 options) lapsed. The options can be exercised over a period of five years from the date of respective vesting.
Under Employees Stock Option Scheme - 2011 (ESOS - 11), the Corporation had on May 23, 2012, granted 61,02,475 options at an exercise price of Rs, 3,177.50 per option representing 3,05,12,375 equity shares of Rs, 2 each to the employees and directors of the Corporation. The said price was determined in accordance with the pricing formula approved by the shareholders i.e. at the latest available closing price on the stock exchange having higher trading volume, prior to grant of options.
In terms of ESOS - 11, the options would vest over a period of 1-3 years from the date of grant, but not later than May 22, 2015, depending upon option grantee completing continuous service of three years with the Corporation. Accordingly, all the options have been vested in the earlier years. In the current year 27 options (Previous Year 1,936 options) lapsed. The options can be exercised over a period of five years from the date of respective vesting.
Under Employees Stock Option Scheme - 2008 (ESOS - 08), the Corporation had on November 25, 2008, granted 57,90,000 options at an exercise price of Rs, 1,350.60 per option representing 57,90,000 equity shares of Rs, 10 each to the employees and directors of the Corporation. The said price was determined in accordance with the pricing formula approved by the shareholders i.e. at the latest available closing price on the stock exchange having higher trading volume, prior to grant of options.
In terms of ESOS - 08, the options would vest over a period of 1-3 years from the date of grant, but not later than November 24, 2011, depending upon option grantee completing continuous service of three years with the Corporation. Accordingly, all the options have been vested in the earlier years. In the current year Nil options (Previous Year 228 options) lapsed. 4,874 options are yet to be lapsed.
Under Employees Stock Option Scheme - 2007 (ESOS - 07), the Corporation had on September 12, 2007, granted 54,56,835 options at an exercise price of Rs, 2,149 per option representing 54,56,835 equity shares of Rs, 10 each to the employees and directors of the Corporation. The said price was determined in accordance with the pricing formula approved by the shareholders i.e. at the latest available closing price on the stock exchange having higher trading volume, prior to grant of options.
In terms of ESOS - 07, the options would vest over a period of 1-3 years from the date of grant, but not later than September 11, 2010, depending upon option grantee completing continuous service of three years with the Corporation. Accordingly, all the options have been vested in the earlier years. 5,287 options are yet to be lapsed.
Method used for accounting for share based payment plan:
The Corporation has adopted intrinsic value method to recognise the compensation cost of stock options to employees of the Corporation. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the option. Since the options under ESOS-17, ESOS-14, ESOS-11, ESOS-08 and ESOS-07 were granted at the market price, the intrinsic value of the option is Nil. Consequently, compensation cost is also Nil.
With effect from August 21, 2010, the nominal face value of equity shares of the Corporation was subdivided from Rs, 10 per share to Rs, 2 per share. Each option exercised under ESOS-07, ESOS-08, ESOS-11 and ESOS-14 entitles 5 equity shares of Rs, 2 each. An option exercised under ESOS-17 entitles 1 equity share of Rs, 2 each.
Fair Value Methodology:
The fair value of options have been estimated on the date of grant using Black-Scholes model as under:
Since all the stock options granted under ESOS-2014, ESOS-2011, ESOS-2008 and ESOS-2007 have been vested, the stock based compensation expense determined under fair value based method is Rs, Nil (Previous Year Rs, Nil). Accordingly there is no change in the reported and pro-forma net profit and Basic and Diluted EPS.
2.5 Through postal ballot held on February 14, 2018, the shareholders of the Corporation had approved the following :
a) Increase in the Authorized Share Capital of the Corporation to Rs, 370 Crores comprising 185,00,00,000 equity shares of Rs, 2 each.
b) Issue of 6,43,29,882 equity shares of face value of Rs, 2 each on a preferential basis at a price of Rs, 1,726.05 per Equity Share.
c) Issue of equity shares on a Qualified Institutional Placement basis for a total consideration not exceeding Rs, 1,896 crore.
Pursuant to the said approval, the Corporation has allotted 6,43,29,882 equity shares of face value of Rs, 2 each on a preferential basis at a price of Rs, 1,726.05 per Equity share during the year. The Corporation has also allotted 1,03,89,041 equity shares of face value of Rs, 2 each on a Qualified Institutional Placement basis at a price of Rs, 1,825 per Equity Share.
2.6 The Corporation has not allotted any share pursuant to contracts without payment being received in cash or as bonus shares nor has it bought back any shares during the preceding period of 5 financial years.
3.2 Vide circular NHB(ND)/DRS/Pol. 62/2014 dated May 27, 2014, the National Housing Bank (NHB) had directed Housing Finance Companies (HFCs) to provide for deferred tax liability in respect of the balance in the âSpecial Reserveâ created under Section 36(1)(viii) of the Income Tax Act, 1961. Vide circular NHB(ND)/ DRS/Pol. 65/2014 dated August 22, 2014, NHB has permitted HFCs to create the Deferred Tax Liability over a period of 3 years, in a phased manner in the ratio of 25:25:50. Accordingly, the Corporation had created 50 percent of deferred tax liability of Rs, 1,119.08 crore on the balance of accumulated Special Reserve as on April 1, 2014 by debiting the General Reserve during the year ended March 2015 and March 2016. During the previous year the Corporation had created balance 50 percent of deferred tax liability of Rs, 1,119.08 crore by debiting the General Reserve [Refer Note 5].
3.3 As per Section 29C of The National Housing Bank Act, 1987 (the âNHB Actâ), the Corporation is required to transfer at least 20% of its net profits every year to a reserve before any dividend is declared. For this purpose any Special Reserve created by the Corporation under Section 36(1)(viii) of the Income-tax Act, 1961 is considered to be an eligible transfer. The Corporation has transferred an amount of Rs, 1,355 crore (Previous Year Rs, 1,247 crore) to Special Reserve No. II in terms of Section 36(1)(viii) of the Income-tax Act, 1961 and an amount of Rs, 1,078 crore (Previous Year Rs, 245 crore) to âStatutory Reserve (As per Section 29C of The NHB Act)â.
3.4 During the year, the Corporation utilised Rs, 499.93 crore (net of tax effect of Rs, 264.58 crore) [Previous Year Rs, 573.95 crore (net of tax effect of Rs, 303.76 crore)] in accordance with Section 52 of the Companies Act, 2013, towards the proportionate premium payable on redemption of Zero Coupon Secured Redeemable Non-Convertible Debentures, towards early redemption of Secured Redeemable Non-Convertible Debentures, issue expenses in respect of Rupee Denominated Bonds and Medium Term Note Programme (MTN Programme) and issue of shares to qualified institutional buyers and also under preferential basis.
3.5 The Guidance Note on Accounting for Derivative Contracts issued by the Institute of Chartered Accountants of India was effective from April 1, 2016. On and from that date, all derivative contracts are recognized on the balance sheet and measured at fair value. The fair value changes are recognized in the Statement of Profit and Loss unless hedge accounting is used. Where hedge accounting is used, fair value changes of the derivative contracts are recognized through the Statement of Profit and Loss in the same period as the offsetting losses and gains on the hedged item. The long term monetary items other than derivatives continue to be amortized, through the Statement of Profit and Loss over the balance period of such long term asset or liability as explained in Note 3.6.
3.6 Pursuant to the notification dated December 29, 2011 issued by the Ministry of Corporate Affairs amending the Accounting Standard 11, the Corporation has exercised the option as per Para 46A inserted in the Standard for all long term monetary assets and liabilities. Consequently, an amount of Rs, 168.54 crore (without considering future tax benefit of Rs, 58.33 crore) [(Previous Year Rs, 171.69 crore) (without considering future tax benefits of Rs, 59.42 crore)] is carried forward in the Foreign Currency Monetary Items Translation Difference Account as on March 31, 2018. This amount is to be amortized over the period of the monetary assets/liabilities ranging upto 3 years.
3.8 The Board of Directors have proposed dividend on equity shares at Rs, 16.50 per share at their meeting held on April 30, 2018. As per the Companies (Accounting Standard) Amendment Rules, 2016, the dividend will be recorded after the approval in ensuing Annual General Meeting.
3.9 The Board of Directors of the Corporation at its meeting held on March 16, 2018, inter alia, has approved the payment of an interim dividend of Rs, 3.50 per equity share of face value of Rs, 2 each of the Corporation, for the financial year 2017-18.
3.11 In the previous year, the Corporation availed a credit of Rs, 9.98 crore (for FY 2015-16), which is adjusted against the dividend tax paid by the subsidiary companies of the Corporation on the dividend paid to the Corporation as per Section 115-O(1A) of the Income Tax Act, 1961.
3.12 In respect of equity shares issued pursuant to Employee Stock Option Schemes between April 1, 2016 and the date of the Annual General Meeting, the Corporation, in the previous year, paid dividend of Rs, 3.09 crore for the year 2015-16 and tax on dividend of Rs, 0.63 crore as approved by the shareholders at the Annual General Meeting held on July 27, 2016.
3.13 The Corporation had on October 5, 2015 issued 3,65,00,000 warrants, convertible into 3,65,00,000 equity share of Rs, 2 each at a conversion price of Rs, 1,475.00 each, simultaneously with the issue of
5,000 secured redeemable non-convertible debentures of face value of Rs, 1,00,00,000 each, to eligible qualified institutional buyers by way of a qualified institutions placement in accordance with Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations,
2009, and Sections 42 and 71 of the Companies Act, 2013 and the rules made thereunder. An amount of Rs, 51.10 crore was received towards subscription of warrants. The warrants may be converted into equivalent number of shares on payment of the conversion price at any time on or before October 5,
2018. In the event the warrants are not converted into shares within the said period, the Corporation is eligible to forfeit the amounts received towards the warrants. During the year 5,14,600 warrants were converted to equity shares of Rs, 2 each.
4.3 Non-Convertible Debentures includes Rs, 1,180 crore (Previous Year Rs, 665 crore) and Deposits includes Rs, 60.01 crore (Previous Year Rs, 72.95 crore) from related parties [Refer Note 35].
4.4 The Corporation has availed a loan of USD 100 million from the Asian Development Bank (Loan II). In respect of tranches 1 and 2 aggregating to USD 60 million, as per the agreements with a scheduled bank, the Corporation has handed over the dollar funds to the bank overseas and has obtained rupee funds in India amounting to Rs, 200 crore by way of a term loan and Rs, 100 crore through the issue of bonds which have been subscribed by the bank.
In respect of tranche 3 of USD 40 million, as per the agreement with a financial institution, the Corporation has handed over the dollars to the Bank of India, Cayman Island and under a back-to-back arrangement obtained rupee funds in India. All payments in foreign currency are the responsibility of the financial institution. In terms of the agreements, the Corporation''s foreign exchange liability is protected.
The loan availed from the Asian Development Bank and the deposit placed with Bank of India, Cayman Island are revalued at the closing rate of exchange and are shown separately in the financial statement.
4.5 The Corporation had availed External Commercial Borrowing (ECBs) of USD 1,175 million for financing prospective owners of low cost affordable housing units under âapproval routeâ in terms of Reserve Bank of India (âRBIâ) guidelines. The borrowing has a maturity of five years. In terms of the RBI guidelines, these borrowings have been swapped into rupees for the entire maturity by way of principal only swaps. The currency exposure on the interest has been hedged by way of forward contracts.
The charges for raising of the aforesaid ECB has been amortized over the tenure of the ECB.
4.6 The Corporation has raised Rs, 9,600 crore through Rupee Denominated Bonds to overseas investors till date. The Corporation was the first Indian corporate issuer of such bonds. Out of the said issuances, Rs, 5,000 crore has been issued through standalone issuances to various investors under the automatic route.
The Corporation had established a Medium Term Note Programme (MTN Programme) for USD 750 mn so as to enable the Corporation to issue debt instruments in the international capital markets, subject to regulatory approvals. During the year, the Corporation has upsized its MTN Programme from USD 750 mn to USD 1.3 bn. Subsequently, during the annual updation of the MTN Programme on the London Stock Exchange, the Corporation increased the limit of the Programme by another USD 1.5 bn. Consequently, the MTN Programme limit currently is USD 2.8 bn.
During the year, the Corporation raised Rs, 1,300 crore through issue of Rupee Denominated Bonds under the MTN Programme to International Finance Corporation (IFC) through the approval route. IFC, member of the World bank group has partnered with the Corporation, to finance the construction of affordable housing projects in the country for an amount of Rs, 5,200 crore. Under the said agreement, IFC contributes Rs, 1,300 crore, by subscribing to the said Bonds. The Corporation shall contribute the balance amount of Rs, 3,900 crore. The Corporation shall finance eligible sub projects by way of loans to eligible sub borrowers.
The Corporation has raised Rs, 4,600 crore till date under the MTN Programme through the approval route in accordance with the external commercial borrowing guidelines issued by the Reserve Bank of India (RBI).
The bonds are listed on the London Stock Exchange. These bonds are unsecured and the currency risk is borne by the investor.
4.7 As on March 31, 2018, the Corporation has foreign currency borrowings of USD 3,029.15 million equivalent (Previous Year USD 2,944.46 million equivalent). The Corporation has undertaken currency swaps and forward contracts of a notional amount of USD 2,325 million equivalent (Previous Year USD 2,554.92 million equivalent) and dollar denominated assets and foreign currency arrangements of USD 367.39 million (PY USD 401.66 million) to hedge the foreign currency risk. As on March 31, 2018, the CorporationRs,s net foreign currency exposure on borrowings net of risk management arrangements is USD 336.76 million (Previous Year Nil).
Further, interest rate swaps on a notional amount of USD Nil (Previous Year USD 70 million equivalent) are outstanding, which have been undertaken to hedge the interest rate risk on the foreign currency borrowings.
As a part of asset liability management on account of the CorporationRs,s Adjustable Rate Home Loan product as well as to reduce the overall cost of borrowings, the Corporation has entered into INR interest rate swaps of a notional amount of Rs, 48,270 crore (Previous Year Rs, 30,355 crore) and Cross Currency Interest rate swaps of notional amount of Rs, 100 crore (Previous Year '' 300 crore) as on March 31, 2018 for varying maturities into floating rate liabilities linked to various benchmarks. The Corporation has currency swaps of a notional amount of USD Nil (Previous Year USD 49.42 million equivalent) through which it has converted its rupee liabilities into foreign currency liabilities and the interest rate is linked to the benchmarks of respective currencies.
4.8 Public deposits as defined in paragraph 2(1)(y) of the Housing Finance Companies (NHB) Directions, 2010, are secured by floating charge and Lien in favour of the Trustee''s for Depositors on the Statutory Liquid Assets maintained in terms of sub-sections (1) & (2) of Section 29B of the National Housing Bank Act, 1987.
4.9 As at March 31, 2018, the Corporation''s outstanding subordinated debt is '' 5,500 crore (Previous Year '' 5,500 crore). These debentures are subordinated to present and future senior indebtedness of the Corporation and qualify as Tier II capital under National Housing Bank (NHB) guidelines for assessing capital adequacy. Based on the balance term to maturity as at March 31, 2018, 74.55% (Previous Year 83.64%) of the book value of the subordinated debt is considered as Tier II capital for the purpose of capital adequacy computation.
7.1 Provisions and Contingencies includes provisions for standard assets and all other contingencies. As per National Housing Bank Circular No. NHB.HFC.DIR.4/CMD/2012 dated January 19, 2012, NHB.HFC.DIR.9/ CMD/2013 dated September 6, 2013 and NHB.HFC.DIR.18/MD&CEO/2017 dated August 2, 2017, in addition to provision for non performing assets, all housing finance companies are required to carry a general provision. (i) at the rate of 1% of Standard Assets in respect of Commercial Real Estate (âCREâ) other than Residential Housing, (ii) at the rate of 0.75% Commercial Real Estate - Residential Housing, (iii) at the rate of 0.25% in respect of Individual Housing Loans and (iv) at the rate of 0.40% of the total outstanding amount of loans which are Standard Assets other than (i), (ii) & (iii) above. Loans to Individuals for 3rd dwelling units onwards are treated as CRE exposure.
Accordingly, the Corporation is required to carry a minimum provision of Rs, 1,598.44 crore (Previous Year Rs, 1,604.92 crore) towards standard assets.
8.1 All secured short term borrowing are secured by negative lien on the assets of the Corporation and/or mortgage of property as the case may be, subject to the charge created in favour of its depositors pursuant to the regulatory requirement under section 29B of the National Housing Bank Act, 1987.
8.2 Deposits includes Rs, 32.25 crore (Previous Year Rs, 15.40 crore) from related parties [Refer Note 35].
8.3 Commercial papers of the Corporation have a maturity value of Rs, 44,275 crore (Previous Year Rs, 38,380 crore). Yield on commercial paper varies between 6.25% to 8.50% (Previous Year: 6.50% to 9.20%).
9.2 As required under Section 125 of the Companies Act, 2013, the Corporation has transferred Rs, 2.76 crore (Previous Year Rs, 2.16 crore) to the Investor Education and Protection Fund (IEPF) during the year. As of March
31, 2018, no amount was due for transfer to the IEPF.
9.3 Trade Payables includes Rs, 92.96 crore (Previous Year Rs, 52.83 crore) due to related parties [Refer Note 35].
10.2 Secured current maturities of long term borrowings are secured by negative lien on the assets of the Corporation and/or mortgage of property as the case may be, subject to the charge created in favour of its depositors pursuant to the regulatory requirement under Section 29B of the National Housing Bank Act, 1987.
10.3 Current maturities of Non-Convertible Debentures includes Rs, 1,815 crore (Previous Year Rs, 592 crore) and Deposits includes Rs, 42.96 crore (Previous Year Rs, 0.01 crore) from related parties [Refer Note 35].
15.1 Corporate Deposits aggregating to Rs, 7.02 crore (Previous Year Rs, 2,957.08 crore) are secured or partly secured by one or a combination of the following securities:
(a) Registered/equitable mortgage of property;
(b) Non disposal undertakings in respect of shares, pledge of shares, units, other securities, assignment of life insurance policies;
(c) Hypothecation of assets;
(d) Bank guarantees, company guarantees or personal guarantees;
(e) Negative lien;
(f) Assignment of receivables;
(g) Liquidity Support. Collateral [e.g. DSRA (Debt Service Reserve Account), Lien of Fixed Deposit]
15.2 Corporate Deposits include Sub-standard and Doubtful assets of Rs, 8.82 crore (Previous Year Rs, 8.88 crore).
16.1 Bank deposits, with maturities beyond twelve months from the balance sheet date, includes earmarked balances Rs, 106.96 crore (Previous Year Rs, 132.88 crore) against foreign currency loans [Refer Note 4.4] and Rs, 0.39 crore (Previous Year Rs, Nil) towards letter of credit issued by Bank.
17.1 Investment in Debentures, Pass Through Certificates, Security Receipts and Corporate Deposits amounting to Rs, 1,306.02 crore (Previous Year Rs, 4,594.92 crore) are towards Financial Real Estate Projects, The Debentures, Pass Through Certificates and Security Receipts are reflected as a part of Investment in Notes 14 and 18. The Corporate Deposits are reflected as part of Loans and Advances in Notes 15 and 21.
17.2 Loans include amounts due from the directors Rs, 0.05 crore (Previous Year Rs, 0.06 crore) and other related parties Rs, 108.87 crore (Previous Year Rs, 110.40 crore) [Refer Note 35].
17.3 Loans granted by the Corporation aggregating to Rs, 3,54,779.15 crore (Previous Year Rs, 2,92,524.88 crore) are secured or partly secured by one or a combination of the following securities;
(a) Registered/equitable mortgage of property;
(b) Non disposal undertakings in respect of shares, pledge of shares, units, other securities, assignment of life insurance policies;
(c) Hypothecation of assets;
(d) Bank guarantees, company guarantees or personal guarantees;
(e) Negative lien;
(f) Assignment of receivables;
(g) Liquidity Support. Collateral [e.g. DSRA (Debt Service Reserve Account), Lien of Fixed Deposit].
17.4 There were no loans given against the collateral of gold jewellery and hence the percentage of such loans to the total outstanding asset is Nil (Previous Year Nil).
17.5 Loans includes Sub-Standard, Doubtful Loans and loss assets of Rs, 4,018.72 crore (Previous Year Rs, 2,377.69 crore).
17.6 Loans include Rs, 182.12 crore (Previous Year Rs, 95.73 crore) in respect of properties held for disposal under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
21.2 Corporate Deposits includes amounts due from the related parties Nil (Previous Year Rs, 13.30 crore) [Refer Note 35].
21.3 Other Advances includes amounts due from the related parties Rs, 9.85 crore (Previous Year Rs, 9.52 crore) [Refer Note 35].
23. CONTINGENT LIABILITIES AND COMMITMENTS
The Corporation is involved in certain appellate, judicial and arbitration proceedings (including those described below) concerning matters arising in the normal course of business including claims from revenue authorities, customers, contingencies arising from having issued guarantees to lenders or to other entities. The proceedings in respect of these matters are in various stages. Management has assessed the possible obligations arising from such claims against the Corporation, in accordance with the requirements of Accounting Standard 29 and based on judicial precedents, consultation with lawyers or based on its historical experiences. Accordingly, management is of the view that based on currently available information no provision in addition to that already recognized in its financial statements is considered necessary in respect of the above.
23.1 Given below are amounts in respect of claims asserted by revenue authorities and others:
a) Contingent liability in respect of income-tax demands, net of amounts provided for and disputed by the Corporation, amounts to Rs, 1,528.78 crore (Previous Year Rs, 1,241.88 crore). The said amount has been paid/ adjusted and will be received as refund if the matters are decided in favour of the Corporation.
b) Contingent liability in respect of disputed dues towards wealth tax, interest on lease tax, and payment towards employers'' contribution to ESIC not provided for by the Corporation amounts to Rs, 0.15 crore (Previous Year Rs, 0.15 crore).
The Management is generally unable to reasonably estimate a range of possible loss for proceedings or disputes other than those included in the estimate above as plaintiffs / parties have not claimed an amount of money damages, the proceedings are in early stages and/or there are significant factual issues to be resolved.
The management believes that the above claims made are untenable and is contesting them.
23.2 Contingent liability in respect of guarantees and undertakings comprise of the following:
a) Guarantees Rs, 511.88 crore (Previous Year Rs, 628.09 crore).
b) Corporate undertakings for securitisation of receivables aggregated to Rs, 1,838.21 crore (Previous Year Rs, 1,838.21 crore). The outflows would arise in the event of a shortfall, if any, in the cash flows of the pool of the securitised receivables.
In respect of these guarantees and undertaking, the management does not believe, based on currently available information, that the maximum outflow that could arise, will have a material adverse effect on the CorporationRs,s financial condition.
23.3 Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) is Rs, 1,066.99 crore (Previous Year Rs, 580.63 crore).
24.1 a) Other Interest includes interest on investments amounting to Rs, 627.69 crore (Previous Year Rs, 500.74 crore), including Rs, 29.01 crore (Previous Year Rs, 31.32 crore) in respect of investments classified as current investments.
b) Other Interest includes interest on income tax refund Rs, 192.65 crore (Previous Year Rs, 32.59 crore).
24.2 Dividend income includes Rs, 625.04 crore (Previous Year Rs, 524.93 crore) received from subsidiary companies which have been classified as Long Term Investments [Refer Note 35].
24.3 Surplus from deployment in Cash Management Schemes of Mutual Funds amounting to Rs, 425.08 crore (Previous Year Rs, 444.64 crore) is in respect of investments held as current investments.
24.4 Fees and Other Charges is net of amounts incurred towards Commission to Direct Selling Agents Rs, 670.02 crore (Previous Year Rs, 502.38 crore).
24.6 Fees and Other Charges includes brokerage of Rs, 0.05 crore (Previous Year Rs, 0.07 crore) received in respect of insurance/agency business undertaken by the Corporation.
24.7 Fees and Other Charges includes Rs, 102.61 crore (Previous Year Rs, 84.38 crore) received from related parties.
25. Profit on sale of investments includes profit of Rs, 265.46 crore on account of sale of equity shares of HDFC Developers Limited and HDFC Realty Limited (Subsidiary Companies). [Previous Year Rs, 919.90 crore on account of sale of equity shares of HDFC ERGO General Insurance Company Ltd. (Subsidiary Company)].
26. Other Income includes rent of Rs, 26.45 crore (Previous Year Rs, 26.73 crore).
26.1 In accordance with the Accounting Standard (AS 19) on ''Leases'', the following disclosures in respect of Operating Leases are made:
a) The above amounts are net of tax deducted at source.
b) The above expenses include Rs, 16.23 crore (Previous Year Rs, 15.06 crore) debited to Securities Premium, being expenses incurred in respect of issuance of Synthetic INR Denominated Bonds.
28.1 Salaries and Bonus include provisions made in respect of accumulated leave salary and leave travel assistance which is in the nature of Long Term and Short Term Employee Benefits and has been actuarially determined as per the Accounting Standard (AS) 15 on Employee Benefits.
28.2 Expenditure shown above is net of recovery from subsidiary companies in respect of Salaries Rs, 2.81 crore (Previous Year Rs, 4.11 crore).
28.3 Employee Benefits
(a) Defined contribution plans
The Corporation makes Superannuation Fund contributions to defined contribution retirement benefit plans for eligible employees. Under the schemes, the Corporation is required to contribute a specified percentage of the payroll costs to fund the benefits.
The Corporation recognized Rs, 13.54 crore (Previous Year Rs, 12.88 crore) for superannuation contributions in the Statement of Profit and Loss. The contributions payable to these plans by the Corporation are at rates specified in the rules of the schemes.
(b) Defined benefit plans Provident Fund
The Corporation makes Provident Fund contributions to defined contribution retirement benefit plans for eligible employees. Under the schemes, the Corporation is required to contribute a specified percentage of the payroll costs to fund the benefits. The contributions as specified under the law are paid to the provident fund set up as a trust by the Corporation. The Corporation is liable for annual contributions and any deficiency in interest cost compared to interest computed based on the rate of interest declared by the Central Government under the Employees'' Provident Fund Scheme, 1952 and recognizes such deficiency as an expense in the year it is determined.
The fair value of the assets of the provident fund and the accumulated membersRs, corpus is Rs, 382.06 crore and Rs, 379.49 crore respectively (Previous Year Rs, 334.12 crore and Rs, 332.90 crore respectively). In accordance with an actuarial valuation, there is no deficiency in the interest cost as the present value of the expected future earnings on the fund is greater than the expected amount to be credited to the individual members based on the expected guaranteed rate of interest of 8.55 %. The actuarial assumptions include discount rate of 7.73% (Previous Year 7.27%) and an average expected future period of 14 years (Previous Year 13.27 years). Expected guaranteed interest rate (weighted average yield) is 8.77% (Previous Year 8.88%).
The Corporation recognized Rs, 18.29 crore (Previous Year Rs, 15.90 crore) for provident fund contributions and Rs, 13.54 crore (Previous Year Rs, 12.88 crore) for superannuation contributions in the Statement of Profit and Loss. The contributions payable to these plans by the Corporation are at rates specified in the rules of the schemes.
Other Post Retirement Benefit Plan
The details of the CorporationRs,s post-retirement benefit plans for its employees including whole-time directors are given below which is as certified by the actuary and relied upon by the auditors:
29.1 In accordance with the Accounting Standard (AS) 19 on ''Leases'', the following disclosures in respect of Operating Leases are made :
The Corporation has acquired properties under non-cancellable operating leases for periods ranging from 12 months to 36 months. The total minimum lease payments for the current year, in respect thereof, included under Rent, amounts to Rs, 0.29 crore (Previous Year Rs, 0.41 crore).
30.1 Miscellaneous Expenses include Securities Transaction Tax amounting to Rs, 0.07 crore (Previous Year Rs, 0.04 crore).
a) Auditors'' Remuneration for the year ended March 31, 2018 comprises of remuneration of Rs, 1.00 crore paid to the previous auditor.
b) Audit Fees in the previous year include Rs, 0.04 crore paid to Branch Auditors.
c) Auditors'' Remuneration exclude Rs, 0.75 crore (Net of tax Rs, 0.49 crore) being certification fees in respect of Qualified Institutional Placements (QIP) issue of equity shares, Preferential issue of equity shares & Medium Term Note Programme (MTN Programme), utilised out of Securities Premium Account. [Previous Year exclude Rs, 1.55 crore (Net of tax Rs, 1.01 crore) being certification fee in respect of Rupee Denominated Bonds and for Medium Term Note Programme (MTN Programme), utilized out of Securities Premium Account].
d) Auditors'' Remuneration above is excluding Goods and Service Tax, Service Tax, Swachh Bharat Cess and Krishi Kalyan Cess.
Mar 31, 2017
1. SIGNIFICANT ACCOUNTING POLICIES
1.1 ACCOUNTING CONVENTION
These financial statements have been prepared in accordance with historical cost convention, applicable Accounting Standards specified under Section 133 of the Companies Act, 2013, the relevant provisions of the Companies Act, 2013 and the guidelines issued by the National Housing Bank to the extent applicable.
Accounting policies applied have been consistent with previous year except where different treatment is required as per new pronouncements made by the regulatory authorities. The management evaluates, all recently issued or revised accounting pronouncements, on an ongoing basis.
The preparation of financial statements requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. 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 recognized in the periods in which the results are known / materialize.
1.2 SYSTEM OF ACCOUNTING
The Corporation adopts the accrual concept in the preparation of the financial statements.
The Balance Sheet and the Statement of Profit and Loss of the Corporation are prepared in accordance with the provisions contained in Section 129 of the Companies Act, 2013, read with Schedule III.
1.3 INFLATION
Assets and liabilities are recorded at historical cost to the Corporation. These costs are not adjusted to reflect the changing value in the purchasing power of money.
1.4 OPERATING CYCLE
Based on the nature of its activities, the Corporation has determined its operating cycle as 12 months for the purpose of classification of its assets and liabilities as current and non-current.
1.5 CASH FLOW STATEMENT
Cash flows are reported using the indirect method, whereby profit / (loss) before extraordinary items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Corporation are segregated based on the available information.
1.6 CASH AND CASH EQUIVALENTS (FOR PURPOSES OF CASH FLOW STATEMENT)
Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term deposits with banks (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.
1.7 LOANS AND RECEIVABLES AND CREDIT LOSS ALLOWANCES
Loans are initially recorded at the disbursed principal amounts and are subsequently adjusted for recoveries and any unearned income. Loans are carried net of the allowances for credit losses.
A loan is recognized as non-performing (âNPAâ) or as a âdoubtfulâ or as a âlossâ asset based on the period for which the repayment installment or interest has remained in arrears as prescribed under the Housing Finance Companies (NHB) Directions, 2010, (the âNHB Directionsâ) as updated from time to time. Allowances for credit losses are made on an individual basis at rates prescribed under the NHB Directions unless, the management estimates that a higher individual allowance is required to reduce the carrying value of loan asset, including accrued interest, to its estimated realizable amount. The fair value of the underlying security is taken into consideration to estimate the realizable amount of the loan. When a loan is identified as a âLoss Assetâ that is adversely affected by a potential threat of non-recoverability, the outstanding balance is fully written off or fully provided for.
1.8 INTEREST INCOME ON LOANS
Repayment of housing loans is generally by way of Equated Monthly Installments (EMIs) comprising principal and interest. EMIs commence generally once the entire loan is disbursed. Certain customers request for commencement of regular principal repayments even before the entire loan is disbursed, especially when the projects are of long gestation. A recalculated EMI based on Principal Outstanding is offered in such cases. Pending commencement of EMIs, pre-EMI interest is payable every month. Interest on loans is computed either on an annual rest or on a monthly rest basis on the principal outstanding at the beginning of the relevant period.
Interest income is allocated over the contractual term of the loan by applying the committed interest rate to the outstanding amount of the loan. Interest income is accrued as earned with the passage of time.
Interest on loan assets classified as ânon-performingâ is recognized only on realization.
1.9 DIVIDEND
Dividend income is recognized when the right to receive has been established.
1.10 FEES AND OTHER REVENUE
Fees, charges and other revenue is recognized after the service is rendered to the extent that it is probable that the economic benefits will flow to the Corporation and that the revenue can be reliably measured, regardless of when the payment is being made.
1.11 INCOME FROM LEASES
Leases of assets under which substantially all of the risks and rewards of ownership are effectively retained by the less or are classified as operating leases. The Corporation has let out portions of its buildings to its subsidiaries / associates under operating lease arrangements. Income is recognized over the period over which the property is used by the lessee based on the lease terms as the arrangements are cancellable and do not contain any minimum lease payment or contingent rent payments.
1.12 INCOME FROM INVESTMENTS
The gain/loss on account of Investments in Preference Shares, Debentures/Bonds and Government Securities held as long-term investments and acquired at a discount/premium, is recognized over the life of the security on a pro-rata basis. Interest Income is accounted on accrual basis.
The gains/losses on sale of investments are recognized in the Statement of Profit and Loss on the trade date. Gain or loss on sale of investments is determined after consideration of cost on a weighted average basis.
1.13 BORROWING AND BORROWING COSTS
The Corporation borrows funds, primarily in Indian Rupees, that carry a fixed rate or floating rate of interest. As a part of its risk management strategy, the Corporation converts some of such borrowings into floating rate or foreign currency borrowings by entering into interest rate swaps or cross currency interest rate swaps having the same notional amount and maturity as the underlying borrowings and generally holds these instruments till maturity.
Borrowing costs include interest, amortized brokerage on deposits and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Ancillary costs in connection with long-term external commercial borrowings are amortized to the Statement of Profit and Loss over the tenure of the loan. Issue expenses of certain securities are charged to the securities premium account.
1.14 TRANSLATION OF FOREIGN CURRENCY Initial recognition
Transactions in foreign currencies entered into by the Corporation are accounted at the exchange rates prevailing on the date of the transaction.
Measurement at the Balance Sheet date
Assets and liabilities in foreign currencies are converted at the rates of exchange prevailing at the year-end. Wherever the Corporation has entered into a forward contract or an instrument that is, in substance, a forward exchange contract, the difference between the forward rate and the exchange rate on the date of the transaction is recognized as income or expense over the life of the contract.
The net loss/gain on translation of long term monetary assets and liabilities in foreign currencies is amortized over the maturity period of such monetary assets and liabilities and charged to the Statement of Profit and Loss. The unamortized exchange difference is carried in the Balance Sheet as âForeign Currency Monetary Item Translation Difference Accountâ. The net loss/gain on translation of short term monetary assets and liabilities in foreign currencies is recorded in the Statement of Profit and Loss.
1.15 ACCOUNTING FOR DERIVATIVE CONTRACTS
Consequent to the Guidance Note on Accounting for Derivative Contracts issued by the Institute of Chartered Accountants of India, becoming effective from April 1, 2016, on and from that date, all derivative contracts are recognized in the balance sheet and measured at fair value. The corresponding fair value changes are recognized in the Statement of Profit and Loss unless hedge accounting is applied.
In case of fair value hedges, fair value changes of the derivative contracts are recognized through the Statement of Profit and Loss in the same period as the offsetting losses and gains on the hedged item.
For derivative contracts designated as cash flow hedges, the hedging instrument is measured at fair value and any gain or loss that is determined to be an effective hedge is recognized within equity i.e., Cash Flow Hedge Reserve. Amounts recognized in equity are transferred to the Statement of Profit and Loss in the same period as the cash flows of hedged items affect the Statement of Profit and Loss. When a derivative contract expires or is sold or if a hedge no longer meets the criteria for hedge accounting, any cumulative profit or loss in the Cash Flow Hedge Reserve is retained in equity until the hedged cash flow is recognized in the Statement of Profit and Loss. However, if hedged cash flows are no longer expected to occur, the profit or loss against the corresponding derivative contract, accumulated in the Cash Flow Hedge Reserve, is immediately released through the Statement of Profit and Loss.
Changes in the fair values of derivative instruments that do not qualify for hedge accounting are recognized immediately in the Statement of Profit and Loss.
1.16 BROKERAGE AND INCENTIVE ON DEPOSITS
Brokerage and incentive brokerage on deposits are amortized over the period of the deposit.
1.17 OPERATING LEASES
Payments under a non-cancellable operating lease arrangement, where the risks and rewards incidental to ownership of an asset substantially vest with the less or, are charged to the Statement of Profit and Loss on a straight-line basis over the lease term, unless another systematic basis is more appropriate.
1.18 INVESTMENTS
Investments are capitalized at cost inclusive of brokerage and stamp charges and are classified into two categories, viz. Current or Long-term. Long-term investments (excluding investment in properties), are carried individually at cost less provision for diminution, other than temporary, in the value of such investments. Current investments are carried individually, at the lower of cost and fair value. Provision for diminution in the value of investments is made in accordance with the guidelines issued by the National Housing Bank and the Accounting Standard on ''Accounting for Investments'' (AS 13), and is recognized through the Provision for Contingencies Account. Investment in properties acquired as part of the debt asset settlement are recorded at the fair value on the date of the transfer. Investment in properties are carried individually at cost less accumulated depreciation and impairment, if any.
1.19 TANGIBLE FIXED ASSETS
Fixed Assets (including such assets which have been leased out by the Corporation) are capitalized at cost inclusive of legal and/or installation expenses.
1.20 INTANGIBLE ASSETS
Intangible Assets comprising of system software are stated at cost of acquisition, including any cost attributable for bringing the same to its working condition, less accumulated amortization. Any expenses on such software for support and maintenance payable annually are charged to the Statement of Profit and Loss.
1.21 DEPRECIATION AND AMORTISATION Tangible Fixed Assets
Depreciable amount for assets is the cost of an asset, or other amount substituted for cost, less its estimated residual value.
Depreciation on tangible fixed assets has been provided on the straight-line method as per the useful life prescribed in Schedule II to the Companies Act, 2013 except in respect of the following categories of assets, in whose case the life of the assets has been assessed as under based on technical advice, taking into account the nature of the asset, the estimated usage of the asset, the operating conditions of the asset, past history of replacement, anticipated technological changes, manufacturers'' warranties and maintenance support, etc.:
Computers and data processing equipment - 4 years
Vehicles - 5 years
Leasehold land is amortized over the duration of the lease.
Intangible Assets
Intangible assets are amortized over their estimated useful life on straight line method as follows:
Computers Software - 4 years
The estimated useful life of the intangible assets and the amortization period are reviewed at the end of each financial year and the amortization period is revised to reflect the changed pattern, if any.
Investment In Properties
Depreciation on Investment in properties is provided on a pro-rata basis from the date of acquisition.
1.22 PROVISIONS AND CONTINGENCIES
A provision is recognized when the Corporation has a present obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made. Provisions (excluding employee benefits) are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. Contingent liabilities are disclosed in the Notes. Contingent assets are neither recognized nor disclosed in the financial statements.
1.23 PROVISION FOR NON-PERFORMING ASSETS AND CONTINGENCIES
The Corporation''s policy is to carry adequate amounts in the Provision for Non-Performing Assets Account and the Provision and Contingencies account to cover the amount outstanding in respect of all non-performing assets and standard assets respectively as also all other contingencies. All loans and other credit exposures where the installments, interest are overdue for ninety days and more are classified as non-performing assets in accordance with the prudential norms prescribed by the National Housing Bank (NHB). The provision for non-performing assets is deducted from loans and advances. The provisioning policy of the Corporation covers the minimum provisioning required as per the NHB Guidelines.
1.24 STANDARD ASSET PROVISIONING (COLLECTIVE ALLOWANCES)
Provisions are established on a collective basis against loan assets classified as âStandardâ to absorb credit losses on the aggregate exposures in each of the Corporation''s loan portfolios based on the NHB Directions. A higher standard asset provision may be made based upon an analysis of past performance, level of allowance already in place and Management''s judgments. This estimate includes consideration of economic and business conditions. The amount of the collective allowance for credit losses is the amount that is required to establish a balance in the Provision for Standard Assets Account that the Corporation''s management considers adequate, after consideration of the prescribed minimum under the NHB Directions, to absorb credit related losses in its portfolio of loan items after individual allowances or write offs.
1.25 EMPLOYEE BENEFITS
Employee Stock Option Scheme (âESOSâ)
The Employee Stock Option Scheme (''the Scheme'') provides for the grant of options to acquire equity shares of the Corporation to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within a specified period.
The Corporation follows the intrinsic value method to account for its stock-based employee compensation plans. Compensation cost is measured by the excess, if any, of the market price of the underlying stock over the exercise price as determined under the option plan. The market price is the closing price on the stock exchange where there is highest trading volume on the working day immediately preceding the date of grant. Compensation cost, if any, is amortized over the vesting period.
Defined contribution plans
The Corporation''s contribution to provident fund and superannuation fund are considered as defined contribution plans and are charged as an expense based on the amount of contribution required to be made. These funds and the schemes there under are recognized by the Income-tax authorities and administered by various trustees. The Rules of the Corporation''s Provident Fund administered by a Trust require that if the Board of Trustees are unable to pay interest at the rate declared for Employees'' Provident Fund by the Government under para 60 of the Employees'' Provident Fund Scheme, 1952 for the reason that the return on investment is less or for any other reason, then the deficiency shall be made good by the Corporation.
Defined benefit plans
For defined benefit plans in the form of gratuity fund and post retirement pension scheme for whole-time Directors, the cost of providing benefits is determined using the Projected Unit Credit method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognized in the Statement of Profit and Loss in the period in which they occur. Past service cost is recognized immediately to the extent that the benefits are already vested and otherwise is amortized on a straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognized in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognized past service cost, as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the schemes.
In the case of Dubai branch of the Corporation, the provision for gratuity is made in accordance with the prevalent local laws.
Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees are recognized during the year when the employees render the service. These benefits include performance incentive and compensated absences which are expected to occur within twelve months after the end of the period in which the employee renders the related service.
The cost of short-term compensated absences is accounted as under:
(a) in case of accumulated compensated absences, when employees render the services that increase their entitlement of future compensated absences; and
(b) in case of non-accumulating compensated absences, when the absences occur.
Long-term employee benefits
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related service are recognized as a liability at the present value of the defined benefit obligation as at the balance sheet date.
1.26 EARNINGS PER SHARE
Basic earnings per share is computed by dividing the profit / (loss) after tax (including the post tax effect of extraordinary items, if any) 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 (including the post tax effect of extraordinary items, if any) 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. The dilutive potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). 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 and bonus shares, as appropriate.
1.27 TAXES ON INCOME
Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the provisions of the Income Tax Act, 1961 (the âIncome Tax Actâ).
Deferred tax is recognized on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax assets are recognized for timing differences of items other than unabsorbed depreciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realized. However, if there are unabsorbed depreciation and carry forward of losses, deferred tax assets are recognized only if there is virtual certainty that there will be sufficient future taxable income available to realize the assets.
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. Deferred tax assets are reviewed at each balance sheet date for their reliability.
Current and deferred tax relating to items directly recognized in reserves are recognized in reserves and not in the Statement of Profit and Loss.
1.28 SERVICE TAX INPUT CREDIT
Service tax input credit is accounted for in the books in the period in which the underlying service received is accounted and when there is no uncertainty in availing / utilizing the credits.
1.29 SECURITISED LOANS AND SECURITISATION LIABILITIES
The Corporation periodically transfers pools of mortgages. Such assets are derecognized, if and only if, the Corporation loses control of the contractual rights that comprise the corresponding pools or mortgages transferred.
Transfers of pools of mortgages under the current programs involve transfer of proportionate shares in the pools of mortgages. Such transfers result in de-recognition only of that proportion of the mortgages as meet the de-recognition criteria. The portion retained by the Corporation continue to be accounted for as loans as described above.
On de-recognition, the difference between the book value of the securitized asset and consideration received is recognized as gain arising on securitization in the Statement of Profit and Loss over the balance maturity period of the pool transferred. Losses, if any, arising from such transactions, are recognized immediately in the Statement of Profit and Loss.
2.3 The Corporation has only one class of shares referred to as equity shares having Face Value of '' 2 each. Each holder of equity share is entitled to one vote per share.
The holders of equity shares are entitled to dividends, if any, proposed by the Board of Directors and approved by Shareholders at the Annual General Meeting.
As at March 31, 2017 12,29,51,224 shares (Previous Year 8,19,25,500 shares) were reserved for issuance as follows:
a) 8,64,51,224 shares of Rs, 2 each (Previous Year 4,54,25,500 shares of Rs, 2 each) towards outstanding Employees Stock Options granted / available for grant, including lapsed options [Refer Note 2.4].
b) 3,65,00,000 shares of Rs, 2 each (Previous Year 3,65,00,000 shares of Rs, 2 each) towards outstanding share warrants [Refer Note 3.12].
2.4 Under Employees Stock Option Scheme - 2014 (ESOS - 14), the Corporation had on October 8, 2014, granted 62,73,064 options at an exercise price of Rs, 5,073.25 per option representing 3,13,65,320 equity shares of Rs, 2 each to the employees and directors of the Corporation. The said price was determined in accordance with the pricing formula approved by the shareholders i.e. at the latest available closing price on the stock exchange having higher trading volume, prior to grant of options.
In terms of ESOS-14, the options would vest over a period of 1-3 years from the date of grant, but not later than October 7, 2017, depending upon options grantee completing continuous service of three years with the Corporation. Accordingly, during the year 1,57,799 options (Previous Year 59,58,841 options) were vested. In the current year 22,390 options (Previous Year 51,427 options) lapsed. The options can be exercised over a period of five years from the date of respective vesting.
Under Employees Stock Option Scheme - 2011 (ESOS - 11), the Corporation had on May 23, 2012, granted 61,02,475 options at an exercise price of Rs, 3,177.50 per option representing 3,05,12,375 equity shares of Rs, 2 each to the employees and directors of the Corporation. The said price was determined in accordance with the pricing formula approved by the shareholders i.e. at the latest available closing price on the stock exchange having higher trading volume, prior to grant of options.
In terms of ESOS - 11, the options would vest over a period of 1-3 years from the date of grant, but not later than May 22, 2015, depending upon option grantee completing continuous service of three years with the Corporation. Accordingly, during the year Nil options (Previous Year 36,043 options) were vested. In the current year 1,936 options (Previous Year 2,884 options) lapsed. The options can be exercised over a period of five years from the date of respective vesting.
Under Employees Stock Option Scheme - 2008 (ESOS - 08), the Corporation had on November 25, 2008, granted 57,90,000 options at an exercise price of Rs, 1,350.60 per option representing 57,90,000 equity shares of Rs, 10 each to the employees and directors of the Corporation. The said price was determined in accordance with the pricing formula approved by the shareholders i.e. at the latest available closing price on the stock exchange having higher trading volume, prior to grant of options.
In terms of ESOS - 08, the options would vest over a period of 1-3 years from the date of grant, but not later than November 24, 2011, depending upon option grantee completing continuous service of three years with the Corporation. Accordingly, all the options have been vested in the earlier years. In the current year 228 options (Previous Year Nil options) lapsed. The options can be exercised over a period of five years from the date of respective vesting.
Under Employees Stock Option Scheme - 2007 (ESOS - 07), the Corporation had on September 12, 2007, granted 54,56,835 options at an exercise price of Rs, 2,149 per option representing 54,56,835 equity shares of Rs, 10 each to the employees and directors of the Corporation. The said price was determined in accordance with the pricing formula approved by the shareholders i.e. at the latest available closing price on the stock exchange having higher trading volume, prior to grant of options.
In terms of ESOS - 07, the options would vest over a period of 1-3 years from the date of grant, but not later than September 11, 2010, depending upon option grantee completing continuous service of three years with the Corporation. All the options have been vested in the earlier years. In the current year Nil options (Previous Year 628 options) lapsed. The options can be exercised over a period of five years from the date of respective vesting.
Method used for accounting for share based payment plan:
The Corporation has used intrinsic value method to account for the compensation cost of stock options to employees of the Corporation. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the option. Since the options under ESOS-14, ESOS-
11, ESOS-08 and ESOS-07 were granted at the market price, the intrinsic value of the option is Nil. Consequently the accounting value of the option (compensation cost) is also Nil.
3.1 Special Reserve has been created over the years in terms of Section 36(1)(viii) of the Income-tax Act, 1961, out of the distributable profits of the Corporation. Special Reserve No. I relates to the amounts transferred upto the Financial Year 1996-97, whereas Special Reserve No. II relates to the amounts transferred thereafter.
3.2 Vide circular NHB(ND)/DRS/Pol. 62/2014 dated May 27, 2014, the National Housing Bank (NHB) had directed Housing Finance Companies (HFCs) to provide for deferred tax liability in respect of the balance in the âSpecial Reserveâ created under Section 36(1)(viii) of the Income-Tax Act, 1961. Vide circular NHB(ND)/DRS/Pol. 65/2014 dated August 22, 2014, NHB has permitted HFCs to create the Deferred Tax Liability over a period of 3 years, in a phased manner in the ratio of 25:25:50. Accordingly, the Corporation had created 50 percent of deferred tax liability of Rs, 1,119.08 crore on the balance of accumulated Special Reserve as on April 1, 2014 by debiting the General Reserve in earlier years. During the year the Corporation has created balance 50 percent of deferred tax liability of Rs, 1,119.08 crore (Previous Year Rs, 559.54 crore) by debiting the General Reserve [Refer Note 14].
3.3 As per Section 29C of The National Housing Bank Act, 1987 (the âNHB Actâ), the Corporation is required to transfer at least 20% of its net profits every year to a reserve before any dividend is declared. For this purpose any Special Reserve created by the Corporation under Section 36(1)(viii) of the Income-tax Act, 1961, is considered to be an eligible transfer. The Corporation has transferred an amount of Rs, 1,247 crore (Previous Year Rs, 1,095 crore) to Special Reserve No. II in terms of Section 36(1)(viii) of the Income-tax Act, 1961 and an amount of Rs, 245 crore (Previous Year Rs, 325 crore) to âStatutory Reserve (As per Section 29C of The NHB Act)â.
3.4 During the year, the Corporation utilized Rs, 573.95 crore (net of tax effect of Rs, 303.76 crore) [(Previous Year Rs, 468.29 crore (net of tax effect of Rs, 247.84 crore)] in accordance with Section 52 of the Companies Act, 2013, towards the proportionate premium payable on redemption of Zero Coupon Secured Redeemable Non Convertible Debentures and issue expenses in respect of Rupee Denominated Bonds and Medium Term Note Programme (MTN Programme).
3.5 The Guidance Note on Accounting for Derivative Contracts issued by the Institute of Chartered Accountants of India was effective from April 1, 2016. On and from that date, all derivative contracts are recognized on the balance sheet and measured at fair value. The fair value changes are recognized in the Statement of Profit and Loss unless hedge accounting is used. Where hedge accounting is used, fair value changes of the derivative contracts are recognized through the Statement of Profit and Loss in the same period as the offsetting losses and gains on the hedged item. As a result of the change, in accordance with the transitional provisions of the Guidance Note, the Corporation has debited an amount of Rs, 241.31 crore (net of deferred tax of Rs, 127.70 crore) on account of the cumulative impact of all derivatives contracts outstanding as of April 1, 2016, to the opening reserves. The long term monetary items other than derivatives continue to be amortized, through the Statement of Profit and Loss over the balance period of such long term asset or liability as explained in Note 3.6.
The figures in Notes 3.6, 3.7 and 26.2 are not comparable with those of the previous year due to revision in the accounting policy during the year upon alignment with the accounting recommended in the said Guidance Note.
3.6 Pursuant to the notification dated December 29, 2011 issued by the Ministry of Corporate Affairs amending the Accounting Standard 11, the Corporation has exercised the option as per Para 46A inserted in the Standard for all long term monetary assets and liabilities. Consequently, an amount of Rs, 171.69 crore (without considering future tax benefit of Rs, 59.42 crore) [(Previous Year Rs, 122.07 crore) (without considering future tax benefits of Rs, 42.25 crore)] is carried forward in the Foreign Currency Monetary Items Translation Difference Account as on March 31, 2017. This amount is to be amortized over the period of the monetary assets/liabilities ranging upto 4 years.
3.7 During the year, there was a net addition of Rs, 49.62 crore (Previous Year net addition Rs, 88.32 crore) in the Foreign Currency Monetary Items Translation Difference Account as under :
3.8 The Board of Directors have proposed dividend on equity shares at Rs, 15 per share at their meeting held on May 4, 2017. As per the Companies (Accounting Standard) Amendment Rules, 2016, the dividend will be recorded after the approval in Annual General Meeting.
3.9 The Board of Directors of the Corporation at its meeting held on March 3, 2017, inter alia, has approved the payment of an interim dividend of Rs, 3 per equity share of face value of Rs, 2 each of the Corporation, for the financial year 2016-17.
3.10 During the year, the Corporation availed a credit of Rs, 9.98 crore (for FY 2015-16) [Previous Year Rs, 11.14 crore (for FY 2014-15)], which is adjusted against the dividend tax paid by the subsidiary companies of the Corporation on the dividend paid to the Corporation as per Section 115-O(1A) of the Income Tax Act, 1961.
3.11 In respect of equity shares issued pursuant to Employee Stock Option Schemes between April 1, 2016 and the date of the Annual General Meeting, the Corporation paid dividend of Rs, 3.09 crore for the year 2015-16 (Rs, 2.19 crore for the year 2014-15) and tax on dividend of Rs, 0.63 crore (Previous Year Rs, 0.45 crore) as approved by the shareholders at the Annual General Meeting held on July 27, 2016.
3.12 The Corporation had on October 5, 2015 issued 3,65,00,000 warrants, convertible into 3,65,00,000 equity share of Rs, 2 each at a conversion price of Rs, 1,475.00 each, simultaneously with the issue of 5,000 secured redeemable non-convertible debentures of face value of Rs, 1,00,00,000 each, to eligible qualified institutional buyers by way of a qualified institutions placement in accordance with Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations,
2009, and Sections 42 and 71 of the Companies Act, 2013 and the rules made there under. An amount of Rs, 51.10 crore was received towards subscription of warrants. The warrants may be converted into equivalent number of shares on payment of the conversion price at any time on or before October 5,
2018. In the event the warrants are not converted into shares within the sand period, the Company is eligible to forfeit the amounts received towards the warrants.
4.2 All secured long term borrowing are secured by negative lien on the assets of the Corporation and/or mortgage of property as the case may be, subject to the charge created in favour of its depositors pursuant to the regulatory requirement under Section 29B of the National Housing Bank Act, 1987.
4.3 Non-Convertible Debentures includes Rs, 665.00 crore (Previous Year Rs, 676.00 crore) and Deposits includes Rs, 2.95 crore (Previous Year Rs, 0.01 crore) from related parties [Refer Note 35].
4.4 The Corporation has availed a loan of USD 100 million from the Asian Development Bank (Loan II). In respect of tranches 1 and 2 aggregating to USD 60 million, as per the agreements with a scheduled bank, the Corporation has handed over the dollar funds to the bank overseas and has obtained rupee funds in India amounting to Rs, 200 crore by way of a term loan and Rs, 100 crore through the issue of bonds which have been subscribed by the bank.
In respect of tranche 3 of USD 40 million, as per the agreement with a financial institution, the Corporation has handed over the dollars to the Bank of India, Cayman Island and under a back-to-back arrangement obtained rupee funds in India. All payments in foreign currency are the responsibility of the financial institution. In terms of the agreements, the Corporation''s foreign exchange liability is protected.
The loan availed from Asian Development Bank and the deposit placed with Bank of India, Cayman Island are revalued at the closing rate of exchange and are shown separately in the financial statement.
4.5 The Corporation had availed an External Commercial Borrowing (ECB) of USD 300 million for financing prospective owners of low cost affordable housing units under âapproval routeâ in terms of Reserve Bank of India (âRBIâ) guidelines dated December 17, 2012. The borrowing has original maturity of five years. In terms of the RBI guidelines, these borrowings have been swapped into rupees for the entire maturity using principal only swaps.
The Corporation has availed an ECB of USD 500 million for financing prospective owners of low cost affordable housing units under âapproval routeâ in terms of Reserve Bank of India (âRBIâ) guidelines dated December 17, 2012. The borrowing has a maturity of five years. In terms of the RBI guidelines, these borrowings have been swapped into rupees for the entire maturity by way of principal only swaps.
During the Financial year, the Corporation has availed an ECB of USD 375 million for financing prospective owners of low cost affordable housing units under âapproval routeâ in terms of Reserve Bank of India (âRBIâ) guidelines dated December 17, 2012. The borrowing has a maturity of five years. In terms of the RBI guidelines, these borrowings have been swapped into rupees for the entire maturity by way of principal only swaps.
The charges for raising of the aforesaid ECB has been amortized over the tenure of the ECB.
4.6 During the year, the Corporation raised Rs, 5,000 crore through various issues of Rupee Denominated Bonds to overseas investors under the automatic route in accordance with the external commercial borrowing guidelines issued by the Reserve Bank of India (âRBIâ). The Corporation was the first Indian corporate issuer of such bonds.
The Corporation also established a Medium Term Note Programme (MTN Programme) of up to USD 750 million so as to enable the Corporation to issue Rupee Denominated debt instruments in the international capital markets, subject to regulatory approvals. Under this programme, the Corporation raised Rs, 3,300 crore through the issuance of Rupee Denominated Bonds to overseas investors through the approval route.
The bonds are listed on the London Stock Exchange. These bonds are unsecured and the currency risk is borne by the investor.
4.7 As on March 31, 2017, the Corporation has foreign currency borrowings of USD 2,944.46 million equivalent (Previous Year USD 1,447.36 million equivalent). The Corporation has undertaken currency swaps, options and forward contracts on a notional amount of USD 2,554.92 million equivalent (Previous Year USD 1,295.81 million equivalent) to hedge the foreign currency risk. As on March 31, 2017, the Corporation''s net foreign currency exposure on borrowings net of risk management arrangements is USD Nil (Previous Year USD Nil).
Further, interest rate swaps on a notional amount of USD 70 million equivalent (Previous Year USD 70 million equivalent) are outstanding, which have been undertaken to hedge the interest rate risk on the foreign currency borrowings.
As a part of asset liability management on account of the Corporation''s Adjustable Rate Home Loan product as well as to reduce the overall cost of borrowings, the Corporation has entered into interest rate swaps wherein it has converted its fixed rate rupee liabilities of a notional amount of '' 30,655 crore (Previous Year '' 19,935 crore) as on March 31, 2017 for varying maturities into floating rate liabilities linked to various benchmarks. In addition, the Corporation has entered into currency swaps of a notional amount of USD 49.42 million equivalent (Previous Year USD 243.11 million equivalent) through which it has converted its rupee liabilities into foreign currency liabilities and the interest rate is linked to the benchmarks of respective currencies.
4.8 Monetary assets and liabilities denominated in foreign currencies are revalued at the rate of exchange prevailing at the year end.
For forward contracts or instruments that are in substance, forward exchange contracts, the exchange differences on such contracts are being amortized over the life of contracts. The amount of exchange difference in respect of such contracts to be recognized as expense in the Statement of Profit and Loss over subsequent accounting periods is Rs, 270.58 crore (Previous Year Rs, 84.98 crore).
4.9 Public deposits as defined in paragraph 2(1)(y) of the Housing Finance Companies (NHB) Directions, 2010, are secured by floating charge and Lien in favour of the Trustee''s for Depositors on the Statutory Liquid Assets maintained in terms of sub-sections (1) & (2) of Section 29B of the National Housing Bank Act, 1987.
4.10 As at March 31, 2017, the Corporation''s outstanding subordinated debt is Rs, 5,500 crore (Previous Year Rs, 5,975 crore). These debentures are subordinated to present and future senior indebtedness of the Corporation and qualify as Tier II capital under National Housing Bank (NHB) guidelines for assessing capital adequacy. Based on the balance term to maturity as at March 31, 2017, 83.64% (Previous Year 85.36%) of the book value of the subordinated debt is considered as Tier II capital for the purpose of capital adequacy computation.
6.1 Provisions and Contingencies includes provisions for standard assets and all other contingencies. As per National Housing Bank Circular No. NHB.HFC.DIR.4/CMD/2012 dated January 19, 2012 and NHB.HFC.DIR.9/ CMD/2013 dated September 6, 2013, in addition to provision for non-performing assets, all housing finance companies are required to carry a general provision. (i) at the rate of 1% of Standard Assets in respect of Commercial Real Estate (âCREâ) other than Residential Housing, (ii) at the rate of 0.75% Commercial Real Estate - Residential Housing and (iii) at the rate of 0.40% of the total outstanding amount of loans which are Standard Assets other than (i) & (ii) above. Loans to Individuals for 3rd dwelling units onwards are treated as CRE exposure.
Accordingly, the Corporation is required to carry a minimum provision of Rs, 1,604.92 crore (Previous Year Rs, 1,341.03 crore) towards standard assets.
7.1 All secured short-term borrowing are secured by negative lien on the assets of the Corporation and/or mortgage of property as the case may be, subject to the charge created in favour of its depositors pursuant to the regulatory requirement under Section 29B of the National Housing Bank Act, 1987.
7.2 Deposits includes Rs, 15.40 crore (Previous Year Rs, 0.50 crore) from related parties [Refer Note 35].
7.3 Commercial papers of the Corporation have a maturity value of Rs, 38,380 crore (Previous Year Rs, 26,650 crore). Yield on commercial paper varies between 6.50% to 9.20% (Previous Year 7.38% to 9.50%).
9.2 Secured current maturities of long-term borrowings are secured by negative lien on the assets of the Corporation and/or mortgage of property as the case may be, subject to the charge created in favour of its depositors pursuant to the regulatory requirement under Section 29B of the National Housing Bank Act, 1987.
9.3 Current maturities of Non-Convertible Debentures includes Rs, 592.00 crore (Previous Year Rs, 141.00 crore) and Deposits includes Rs, 0.01 crore (Previous Year Rs, 2.48 crore) from related parties [Refer Note 35].
Mar 31, 2015
1.1 ACCOUNTING CONVENTION
These financial statements have been prepared in accordance with
historical cost convention, applicable Accounting Standards specified
under Section 133 of the Companies Act, 2013, read with Rule 7 of the
Companies (Accounts) Rules, 2014, the relevant provisions of the
Companies Act, 2013 and the guidelines issued by the National Housing
Bank to the extent applicable.
Accounting policies applied have been consistent with previous year
except where different treatment is required as per new pronouncements
made by the regulatory authorities. The management evaluates, all
recently issued or revised accounting pronouncements, on an ongoing
basis.
The preparation of financial statements requires the Management to make
estimates and assumptions considered in the reported amounts of assets
and liabilities (including contingent liabilities) as of the date of
the financial statements and the reported income and expenses during
the reporting period. 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.
1.2 SYSTEM OF ACCOUNTING
The Corporation adopts the accrual concept in the preparation of the
financial statements.
The Balance Sheet and the Statement of Profit and Loss of the
Corporation are prepared in accordance with the provisions contained in
Section 129 of the Companies Act, 2013, read with Schedule III.
1.3 INFLATION
Assets and liabilities are recorded at historical cost to the
Corporation. These costs are not adjusted to reflect the changing value
in the purchasing power of money.
1.4 OPERATING CYCLE
Based on the nature of its activities, the Corporation has determined
its operating cycle as 12 months for the purpose of classification of
its assets and liabilities as current and non-current.
1.5 CASH FLOW STATEMENT
Cash flows are reported using the indirect method, whereby
profit/(loss) before extraordinary items and tax is adjusted for the
effects of transactions of non-cash nature and any deferrals or
accruals of past or future cash receipts or payments. The cash flows
from operating, investing and financing activities of the Corporation
are segregated based on the available information.
1.6 CASH AND CASH EQUIVALENTS (FOR PURPOSES OF CASH FLOW STATEMENT)
Cash comprises cash on hand and demand deposits with banks. Cash
equivalents are short-term deposits with banks (with an original
maturity of three months or less from the date of acquisition), highly
liquid investments that are readily convertible into known amounts of
cash and which are subject to insignificant risk of changes in value.
1.7 LOANS AND RECEIVABLES AND CREDIT LOSS ALLOWANCES
Loans are initially recorded at the disbursed principal amounts and are
subsequently adjusted for recoveries and any unearned income. Loans are
carried net of the allowances for credit losses.
A loan is recognised as non-performing ("NPA") or as a
"doubtful" or as a "loss" asset based on the period for which
the repayment instalment or interest has remained in arrears as
prescribed under the Housing Finance Companies (NHB) Directions, 2010,
(the "NHB Directions"). Allowances for credit losses are made on an
individual basis at rates prescribed under the NHB Directions unless,
the management estimates that a higher individual allowance is required
to reduce the carrying value of loan asset, including accrued interest,
to its estimated realisable amount. The fair value of the underlying
security is taken into consideration to estimate the realisable amount
of the loan. When a loan is identified as a "Loss Asset" that is
adversely affected by a potential threat of non-recoverability, the
outstanding balance is fully written off or fully provided for.
1.8 INTEREST INCOME ON LOANS
Repayment of housing loans is generally by way of Equated Monthly
Instalments (EMIs) comprising principal and interest. EMIs commence
generally once the entire loan is disbursed. Certain customers request
for commencement of regular principal repayments even before the entire
loan is disbursed, especially when the projects are of long gestation.
A recalculated EMI based on Principal Outstanding is offered in such
cases. Pending commencement of EMIs, pre-EMI interest is payable every
month. Interest on loans is computed either on an annual rest or on a
monthly rest basis on the principal outstanding at the beginning of the
relevant period.
Interest income is allocated over the contractual term of the loan by
applying the committed interest rate to the outstanding amount of the
loan. Interest income is accrued as earned with the passage of time.
Interest on loan assets classified as "non-performing" is
recognised only on actual receipt.
1.9 DIVIDEND
Dividend income is recognised when the right to receive has been
established.
1.10 FEES AND OTHER REVENUE
Fees, charges and other revenue is recognised after the service is
rendered to the extent that it is probable that the economic benefits
will flow to the Corporation and that the revenue can be reliably
measured, regardless of when the payment is being made.
1.11 INCOME FROM LEASES
Leases of assets under which substantially all of the risks and rewards
of ownership are effectively retained by the lessor are classified as
operating leases. The Corporation has let out portions of its buildings
to its subsidiaries/associates under operating lease arrangements.
Income is recognised over the period over which the property is used by
the lessee based on the lease terms as the arrangements are cancellable
and do not contain any minimum lease payment or contingent rent
payments.
1.12 INCOME FROM INVESTMENTS
The gain/loss on account of Investments in Preference Shares,
Debentures/Bonds and Government Securities held as long-term
investments and acquired at a discount/premium, is recognised over the
life of the security on a pro-rata basis. Interest Income is accounted
on accrual basis.
1.13 BORROWING AND BORROWING COSTS
The Corporation borrows funds, primarily in Indian Rupees, and carry a
fixed rate or floating rate of interest. As a part of its risk
management strategy, the Corporation converts such borrowings into
floating rate or foreign currency borrowings by entering into interest
rate swaps or cross currency interest rate swaps having the same
notional amount and maturity as the underlying borrowings and holds
these instruments till maturity. At each reporting date these
liabilities are restated at the closing rate.
Borrowing costs include interest, amortised brokerage on deposits and
exchange differences arising from foreign currency borrowings to the
extent they are regarded as an adjustment to the interest cost.
Ancillary costs in connection with long-term external commercial
borrowings are amortised to the Statement of Profit and Loss over the
tenure of the loan. Issue expenses of certain securities are charged to
the securities premium account.
1.14 TRANSLATION OF FOREIGN CURRENCY Initial recognition
Transactions in foreign currencies entered into by the Corporation are
accounted at the exchange rates prevailing on the date of the
transaction.
Measurement at the Balance Sheet date
Assets and liabilities in foreign currencies are converted at the rates
of exchange prevailing at the year-end, where not covered by forward
contracts. Wherever the Corporation has entered into a forward contract
or an instrument that is, in substance, a forward exchange contract,
the difference between the forward rate and the exchange rate on the
date of the transaction is recognised as income or expense over the
life of the contract. Monetary items represented by currency swap
contracts are recorded at closing rate.
The net loss/gain on translation of long-term monetary assets and
liabilities in foreign currencies is amortised over the maturity period
of such monetary assets and liabilities and charged to the Statement of
Profit and Loss. The unamortised exchange difference is carried in the
Balance Sheet as "Foreign Currency Monetary Item Translation
Difference Account". The net loss/gain on translation of short-term
monetary assets and liabilities in foreign currencies is recorded in
the Statement of Profit and Loss.
1.15 BROKERAGE AND INCENTIVE ON DEPOSITS
Brokerage and incentive brokerage on deposits is amortised over the
period of the deposit.
1.16 OPERATING LEASES
Payments under a non cancellable operating lease arrangement, where the
risks and rewards incidental to ownership of an asset substantially
vest with the lessor, are charged to the Statement of Profit and Loss
on a straight-line basis over the lease term, unless another systematic
basis is more appropriate.
1.17 INVESTMENTS
Investments are capitalised at cost inclusive of brokerage and stamp
charges and are classified into two categories, viz. Current or
Long-Term. Long-term investments (excluding investment in properties),
are carried individually at cost less provision for diminution, other
than temporary, in the value of such investments. Current investments
are carried individually, at the lower of cost and fair value.
Provision for diminution in the value of investments is made in
accordance with the guidelines issued by the National Housing Bank and
the Accounting Standard on ''Accounting for Investments'' (AS 13) and is
recognised through the Provision for Contingencies Account. Investment
in properties are carried individually at cost less accumulated
depreciation and impairment, if any.
1.18 TANGIBLE FIXED ASSETS
Fixed Assets (including such assets which have been leased out by the
Corporation) are capitalised at cost inclusive of legal and/or
installation expenses.
1.19 INTANGIBLE ASSETS
Intangible Assets comprising of system software are stated at cost of
acquisition, including any cost attributable for bringing the same to
its working condition, less accumulated amortisation. Any expenses on
such software for support and maintenance payable annually are charged
to the Statement of Profit and Loss.
1.20 DEPRECIATION AND AMORTISATION Tangible Fixed Assets
Depreciable amount for assets is the cost of an asset, or other amount
substituted for cost, less its estimated residual value.
Depreciation on tangible fixed assets has been provided on the
straight-line method as per the useful life prescribed in Schedule II
to the Companies Act, 2013 except in respect of the following
categories of assets, in whose case the life of the assets has been
assessed as under based on technical advice, taking into account the
nature of the asset, the estimated usage of the asset, the operating
conditions of the asset, past history of replacement, anticipated
technological changes, manufacturers warranties and maintenance
support, etc.:
Computers and data processing equipment - 4 years Vehicles - 5 years
Leasehold land is amortised over the duration of the lease.
Intangible Assets
Intangible assets are amortised over their estimated useful life on
straight line method as follows:
Computer Software - 4 years Investment in Properties
Depreciation on investment in properties is provided on a pro-rata
basis from the date of acquisition.
The estimated useful life of the intangible assets and the amortisation
period are reviewed at the end of each financial year and the
amortisation period is revised to reflect the changed pattern, if any.
1.21 PROVISIONS AND CONTINGENCIES
A provision is recognised when the Corporation has a present obligation
as a result of past events and it is probable that an outflow of
resources will be required to settle the obligation in respect of which
a reliable estimate can be made. Provisions (excluding employee
benefits) are not discounted to their present value and are determined
based on the best estimate required to settle the obligation at the
balance sheet date. These are reviewed at each balance sheet date and
adjusted to reflect the current best estimates. Contingent liabilities
are disclosed in the Notes. Contingent assets are neither recognised
nor disclosed in the financial statements.
1.22 PROVISION FOR CONTINGENCIES AND NON-PERFORMING ASSETS
The Corporation''s policy is to carry adequate amounts in the Provision
for Non-Performing Assets Account and the Provision for Contingencies
Account to cover the amount outstanding in respect of all
non-performing assets and standard assets respectively as also all
other contingencies. All loans and other credit exposures where the
instalments, interest are overdue for ninety days and more are
classified as non-performing assets in accordance with the prudential
norms prescribed by the National Housing Bank (NHB). The provision for
non-performing assets is deducted from loans and advances. The
provisioning policy of the Corporation covers the minimum provisioning
required as per the NHB Guidelines.
1.23 STANDARD ASSET PROVISIONING (COLLECTIVE ALLOWANCES)
Provisions are established on a collective basis against loan assets
classified as "Standard" to absorb credit losses on the aggregate
exposures in each of the Corporation''s loan portfolios based on the NHB
Directions. A higher standard asset provision may be made based upon
statistical analysis of past performance, level of allowance already in
place and Management''s judgement. This estimate includes consideration
of economic and business conditions. The amount of the collective
allowance for credit losses is the amount that is required to establish
a balance in the Provision for Standard Assets Account that the
Corporation''s management considers adequate, after consideration of the
prescribed minimum under the NHB Directions, to absorb credit related
losses in its portfolio of loan items after individual allowances or
write offs.
1.24 EMPLOYEE BENEFITS
Employee Stock Option Scheme (''ESOS'')
The Employee Stock Option Scheme (''the Scheme'') provides for the grant
of options to acquire equity shares of the Corporation to its
employees. The options granted to employees vest in a graded manner and
these may be exercised by the employees within a specified period.
The Corporation follows the intrinsic value method to account for its
stock-based employee compensation plans. Compensation cost is measured
by the excess, if any, of the market price of the underlying stock over
the exercise price as determined under the option plan. The market
price is the closing price on the stock exchange where there is highest
trading volume on the working day immediately preceding the date of
grant. Compensation cost, if any, is amortised over the vesting
period.
Defined contribution plans
The Corporation''s contribution to provident fund and superannuation
fund are considered as defined contribution plans and are charged as an
expense based on the amount of contribution required to be made. These
funds and the schemes thereunder are recognised by the Income-tax
authorities and administered by various trustees. The Rules of the
Corporation''s Provident Fund administered by a Trust require that if
the Board of Trustees are unable to pay interest at the rate declared
for Employees'' Provident Fund by the Government under para 60 of the
Employees'' Provident Fund Scheme, 1952 for the reason that the return
on investment is less or for any other reason, then the deficiency
shall be made good by the Corporation.
Defined benefit plans
For defined benefit plans in the form of gratuity fund and post
retirement pension scheme for whole-time Directors, the cost of
providing benefits is determined using the Projected Unit Credit
method, with actuarial valuations being carried out at each balance
sheet date. Actuarial gains and losses are recognised in the Statement
of Profit and Loss in the period in which they occur. Past service cost
is recognised immediately to the extent that the benefits are already
vested and otherwise is amortised on a straight-line basis over the
average period until the benefits become vested. The retirement benefit
obligation recognised in the Balance Sheet represents the present value
of the defined benefit obligation as adjusted for unrecognised past
service cost, as reduced by the fair value of scheme assets. Any asset
resulting from this calculation is limited to past service cost, plus
the present value of available refunds and reductions in future
contributions to the schemes.
Except in case of Dubai branch of the Corporation, the provision for
gratuity is made in accordance with the prevalent local laws.
Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be
paid in exchange for the services rendered by employees are recognised
during the year when the employees render the service. These benefits
include performance incentive and compensated absences which are
expected to occur within twelve months after the end of the period in
which the employee renders the related service.
The cost of short-term compensated absences is accounted as under:
(a) in case of accumulated compensated absences, when employees render
the services that increase their entitlement of future compensated
absences; and
(b) in case of non-accumulating compensated absences, when the absences
occur.
Long-term employee benefits
Compensated absences which are not expected to occur within twelve
months after the end of the period in which the employee renders the
related service are recognised as a liability at the present value of
the defined benefit obligation as at the Balance Sheet date.
1.25 EARNINGS PER SHARE
Basic earnings per share is computed by dividing the profit/(loss)
after tax (including the post tax effect of extraordinary items, if
any) 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 (including the post tax effect of extraordinary
items, if any) 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. The dilutive potential equity
shares are adjusted for the proceeds receivable had the shares been
actually issued at fair value (i.e. average market value of the
outstanding shares). 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 and bonus shares, as appropriate.
1.26 TAXES ON INCOME
Current tax is the amount of tax payable on the taxable income for the
year as determined in accordance with the provisions of the Income Tax
Act, 1961 (the "Income Tax Act").
Deferred tax is recognised on timing differences, being the differences
between the taxable income and the accounting income that originate in
one period and are capable of reversal in one or more subsequent
periods. Deferred tax is measured using the tax rates and the tax laws
enacted or substantively enacted as at the reporting date. Deferred tax
assets are recognised for timing differences of items other than
unabsorbed depreciation and carry forward losses only to the extent
that reasonable certainty exists that sufficient future taxable income
will be available against which these can be realised. However, if
there are unabsorbed depreciation and carry forward of losses, deferred
tax assets are recognised only if there is virtual certainty that there
will be sufficient future taxable income available to realise the
assets.
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. Deferred tax assets
are reviewed at each balance sheet date for their realisability.
Current and deferred tax relating to items directly recognised in
reserves are recognised in reserves and not in the Statement of Profit
and Loss.
1.27 SERVICE TAX INPUT CREDIT
Service tax input credit is accounted for in the books in the period in
which the underlying service received is accounted and when there is no
uncertainty in availing/utilising the credits.
1.28 SECURITISED LOANS AND SECURITISATION LIABILITIES
The Corporation periodically transfers pools of mortgages. Such assets
are de-recognised, if and only if, the Corporation loses control of the
contractual rights that comprise the corresponding pools or mortgages
transferred.
Transfers of pools of mortgages under the current programs involve
transfer of proportionate shares in the pools of mortgages. Such
transfers result in de-recognition only of that proportion of the
mortgages as meet the de-recognition criteria. The portion retained by
the Corporation continue to be accounted for as loans as described
above.
On de-recognition, the difference between the book value of the
securitised asset and consideration received is recognised as gain
arising on securitisation in the Statement of Profit and Loss over the
balance maturity period of the pool transferred. Losses, if any,
arising from such transactions, are recognised immediately in the
Statement of Profit and Loss.
2.3 5,05,74,170 shares of Rs. 2 each (Previous Year 3,35,28,585 shares of
Rs. 2 each) were reserved for issuance towards outstanding Employees
Stock Options granted / available for grant, including lapsed options
[Refer Note 2.4].
The Corporation has only one class of shares referred to as equity
shares having Face Value of Rs. 2 each. Each holder of equity share is
entitled to one vote per share.
The holders of equity shares are entitled to dividends, if any,
proposed by the Board of Directors and approved by Shareholders at the
Annual General Meeting.
At the 37th Annual General Meeting (AGM) held on July 21, 2014, the
shareholders had approved the issue of 62,42,130 stock options
representing 3,12,10,650 equity shares of Rs. 2 each to the eligible
employees and Directors of the Corporation. The Nomination and
Remuneration Committee of Directors (NRC) at its meeting held on
October 8, 2014, approved the grant of 62,73,064 new stock options,
representing 3,13,65,320 equity shares of Rs. 2 each under ESOS-14, to
the eligible employees and Directors. The same represents the Options
approved for grant by the shareholders at the AGM held on July 21, 2014
together with 41,810 options lapsed under previous schemes (ESOS-05 :
12,285 options, ESOS-07 : 29,267 options and ESOS-08 : 258 options),
net of 10,876 options reserved. The options were granted at an exercise
price of Rs. 5,073.25 per option (i.e. Rs. 1,014.65 per equity share of Rs. 2
each) being the latest available closing price of the equity shares of
the Corporation on the stock exchange on which the shares are listed
and having higher trading volume, prior to the meeting of the NRC at
which the options were granted.
In terms of ESOS-14, the options would vest over a period of 1-3 years
from the date of grant, but not later than October 7, 2017, depending
upon option grantee completing continuous service of three years with
the Corporation. Accordingly, no options have vested during the current
year. The options can be exercised over a period of five years from the
date of respective vesting.
2.4 Under Employees Stock Option Scheme-2011 (ESOS-11), the Corporation
had on May 23, 2012, granted 61,02,475 options at an exercise price of
Rs. 3,177.50 per option representing 3,05,12,375 equity shares of Rs. 2
each to the employees and Directors of the Corporation. The said price
was determined in accordance with the pricing formula approved by the
shareholders i.e. at the latest available closing price on the stock
exchange having higher trading volume, prior to grant of options.
In terms of ESOS-11, the options would vest over a period of 1-3 years
from the date of grant, but not later than May 22, 2015, depending upon
option grantee completing continuous service of three years with the
Corporation. Accordingly, during the year 1,80,438 options (Previous
Year 58,26,953 options) were vested. In the current year, 13,263
options (Previous Year 28,787 options) were lapsed. The options can be
exercised over a period of five years from the date of respective
vesting.
Under Employees Stock Option Scheme-2008 (ESOS-08), the Corporation had
on November 25, 2008, granted 57,90,000 options at an exercise price of
Rs. 1,350.60 per option representing 57,90,000 equity shares of Rs. 10 each
to the employees and Directors of the Corporation. The said price was
determined in accordance with the pricing formula approved by the
shareholders i.e. at the latest available closing price on the stock
exchange having higher trading volume, prior to grant of options.
In terms of ESOS-08, the options would vest over a period of 1-3 years
from the date of grant, but not later than November 24, 2011, depending
upon option grantee completing continuous service of three years with
the Corporation. Accordingly, all the options have been vested in the
earlier years. In the current year, 97 options (Previous Year 146
options) were lapsed after vesting. The options can be exercised over a
period of five years from the date of respective vesting.
Under Employees Stock Option Scheme-2007 (ESOS-07), the Corporation had
on September 12, 2007, granted 54,56,835 options at an exercise price
of Rs. 2,149 per option representing 54,56,835 equity shares of Rs. 10 each
to the employees and Directors of the Corporation. The said price was
determined in accordance with the pricing formula approved by the
shareholders i.e. at the latest available closing price on the stock
exchange having higher trading volume, prior to grant of options.
In terms of ESOS-07, the options would vest over a period of 1-3 years
from the date of grant, but not later than September 11, 2010,
depending upon option grantee completing continuous service of three
years with the Corporation. All the options have been vested in the
earlier years. In the current year, 882 options (Previous Year 28,742
options) were lapsed after vesting. The options can be exercised over a
period of five years from the date of respective vesting.
Method used for accounting for share based payment plan:
The Corporation has used intrinsic value method to account for the
compensation cost of stock options to employees of the Corporation.
Intrinsic value is the amount by which the quoted market price of the
underlying share exceeds the exercise price of the option. Since the
options under ESOS-14, ESOS-11, ESOS-08 and ESOS-07 were granted at the
market price, the intrinsic value of the option is Nil. Consequently
the accounting value of the option (compensation cost) is also Nil.
With effect from August 21, 2010, the nominal face value of equity
shares of the Corporation was sub-divided from Rs. 10 per share to Rs. 2
per share. Accordingly, each option exercised after August 21, 2010 is
entitled to 5 equity shares of Rs. 2 each.
Fair Value Methodology:
The fair value of options have been estimated on the date of grant
using Black-Scholes model as under:
The key assumptions used in Black-Scholes model for calculating fair
value under ESOS-14, ESOS-11, ESOS-08 and ESOS-07 as on the date of
grant viz. October 8, 2014, May 23, 2012, November 25, 2008 and
September 12, 2007, are as follows :
Since all the stock options granted under ESOS-08 and ESOS-07 have been
vested, the stock based compensation expense determined under fair
value based method is Rs. Nil (Previous Year Rs. Nil). Accordingly, there
is no change in the reported and pro-forma net profit and Basic and
Diluted EPS.
2.5 The Corporation has not allotted any share pursuant to contracts
without payment being received in cash or as bonus shares nor has it
bought back any shares during the preceding period of 5 financial
years.
3.1 Special Reserve has been created over the years in terms of Section
36(1)(viii) of the Income-tax Act, out of the distributable profits of
the Corporation. Special Reserve No. I relates to the amounts
transferred upto the Financial Year 1996-97, whereas Special Reserve
No. II relates to the amounts transferred thereafter.
3.2 Vide circular NHB(ND)/DRS/Pol. 62/2014 dated May 27, 2014, the
National Housing Bank (NHB) had directed Housing Finance Companies
(HFCs) to provide for deferred tax liability in respect of the balance
in the "Special Reserve" created under section 36(1)(viii) of the
Income Tax Act, 1961. Vide circular NHB(ND)/DRS/Pol. 65/2014 dated
August 22, 2014, NHB has permitted HFCs to create the Deferred Tax
Liability over a period of 3 years, in a phased manner in the ratio of
25:25:50. Accordingly, the Corporation has created 25 percent of
deferred tax liability of Rs. 559.54 crore (Previous Year Rs. Nil) on
opening balance of accumulated Special Reserve. [Refer Note 14].
3.3 As per Section 29C of the The National Housing Bank Act, 1987 (the
"NHB Act"), the Corporation is required to transfer at least 20% of
its net profits every year to a reserve before any dividend is
declared. For this purpose any Special Reserve created by the
Corporation under Section 36(1)(viii) of the Income- tax Act, is
considered to be an eligible transfer. The Corporation has transferred
an amount of Rs. 1,054 crore (Previous Year Rs. 890 crore) to Special
Reserve No. II in terms of Section 36(1)(viii) of the Income-tax Act,
1961 and an amount of Rs. 150 crore (Previous Year Rs. 900 crore) to
"Statutory Reserve (As per Section 29C of The NHB Act)".
3.4 During the year, in addition to the charge of Rs. 165 crore (Previous
Year Rs. 100 crore) to the Statement of Profit and Loss, an amount of Rs.
Nil (net of Deferred Tax Rs. Nil) [Previous Year Rs. 49.51 crore (net of
Deferred Tax Rs. 25.49 crore)], has been transferred from Statutory
Reserve (as per Section 29C of the NHB Act) pursuant to circular
NHB(ND)/DRS/Pol-No.03/2004-05 dated August 26, 2004 as under:
3.5 During the year, the Corporation utilised Rs. 415.06 crore (net of
tax effect of Rs. 213.72 crore) [Previous Year Rs. 357.17 crore (net of tax
effect of Rs. 183.91 crore)] in accordance with Section 52 of the
Companies Act, 2013, towards the proportionate premium payable on
redemption of Zero Coupon Secured Redeemable Non- Convertible
Debentures.
3.6 Miscellaneous Expenses under Note 29.1 exclude Rs. 10.83 crore
(Previous Year Rs. 13.02 crore) in respect of amounts utilised out of
Shelter Assistance Reserve during the year.
3.7 Pursuant to the notification dated December 29, 2011 issued by the
Ministry of Corporate Affairs amending the Accounting Standard 11, the
Corporation has exercised the option as per Para 46A inserted in the
Standard for all long term monetary assets and liabilities.
Consequently, an amount of Rs. 33.75 crore (without considering future
tax benefit of Rs. 11.47 crore) [Previous Year Rs. 142.34 crore (without
considering future tax benefits of Rs. 48.38 crore)] is carried forward
in the Foreign Currency Monetary Items Translation Difference Account
as on March 31, 2015. This amount is to be amortised over the period of
the monetary assets/liabilities ranging upto 4 years.
3.9 The Board of Directors of the Corporation at its meeting held on
March 19, 2015, inter alia, has approved the payment of an interim
dividend of Rs. 2 per equity share of face value of Rs. 2 each of the
Corporation, for the financial year 2014-15.
3.10 Additional Tax on dividend FY 2013-14 credit taken, Rs. 18.59 crore
(Previous Year Rs. 15.18 crore for FY 2012-13), pertains to the dividend
tax paid by the subsidiary companies of the Corporation on the dividend
paid to the Corporation as per Section 115(O)(1A) of the Income Tax
Act, 1961.
3.11 In respect of equity shares issued pursuant to Employee Stock
Option Schemes, the Corporation paid dividend of Rs. 8.98 crore for the
year 2013-14 (Rs. 9.73 crore for the year 2012-13) and tax on dividend of
Rs. 1.53 crore (Previous Year Rs. 1.66 crore) as approved by the
shareholders at the Annual General Meeting held on July 21, 2014.
4.2 All secured long-term borrowing are secured by negative lien on the
assets of the Corporation and/or mortgage of property as the case may
be, subject to the charge created in favour of its depositors pursuant
to the regulatory requirement under Section 29B of the National Housing
Bank Act, 1987.
4.3 Non-Convertible Debentures includes Rs. 785.00 crore (Previous Year Rs.
735.00 crore) and Deposits includes Rs. 2.38 crore (Previous Year Rs. 0.88
crore) from related parties [Refer Note 35].
4.4 The Corporation has availed a loan of USD 100 million from the
Asian Development Bank (Loan II). In respect of tranches 1 and 2
aggregating to USD 60 million, as per the agreements with a scheduled
bank, the Corporation has handed over the dollar funds to the bank
overseas and has obtained rupee funds in India amounting to Rs. 200 crore
by way of a term loan and Rs. 100 crore through the issue of bonds which
have been subscribed by the bank.
In respect of tranche 3 of USD 40 million, as per the agreement with a
financial institution, the Corporation has handed over the dollars to a
financial institution overseas and under a back-to-back arrangement
obtained rupee funds in India. All payments in foreign currency are the
responsibility of the financial institution. In terms of the
agreements, the Corporation''s foreign exchange liability is protected.
4.5 The Corporation has availed an External Commercial Borrowing of USD
300 million for financing prospective owners of low cost affordable
housing units under "approval route" in terms of Reserve Bank of
India ("RBI") guidelines dated December 17, 2012. The borrowing has
a maturity of five years. In terms of the RBI guidelines, these
borrowings have been swapped into rupees for the entire maturity by way
of principal only swaps.
4.6 As on March 31, 2015, the Corporation has foreign currency
borrowings of USD 1,013.01 million equivalent (Previous Year USD 740.63
million equivalent). The Corporation has undertaken currency swaps,
options and forward contracts on a notional amount of USD 495.81
million equivalent (Previous Year USD 513 million equivalent) to hedge
the foreign currency risk. As on March 31, 2015, the Corporation''s net
foreign currency exposure on borrowings net of risk management
arrangements is USD Nil (Previous Year USD Nil).
Further, interest rate swaps on a notional amount of USD 330 million
equivalent (Previous Year USD 83 million equivalent) are outstanding,
which have been undertaken to hedge the interest rate risk on the
foreign currency borrowings.
As a part of asset liability management on account of the Corporation''s
Adjustable Rate Home Loan product as well as to reduce the overall cost
of borrowings, the Corporation has entered into interest rate swaps
wherein it has converted its fixed rate rupee liabilities of a notional
amount of Rs. 15,240 crore (Previous Year Rs. 19,040 crore) as on March 31,
2015 for varying maturities into floating rate liabilities linked to
various benchmarks. In addition, the Corporation has entered into
currency swaps of a notional amount of USD 408.69 million equivalent
(Previous Year USD 409.49 million equivalent) through which it has
converted its rupee liabilities into foreign currency liabilities and
the interest rate is linked to the benchmarks of respective currencies.
4.7 Monetary assets and liabilities (including those in respect of
currency swap contracts) denominated in foreign currencies are revalued
at the rate of exchange prevailing at the year end. Monetary items
represented by currency swap contracts are restated at closing rate.
For forward contracts or instruments that are in substance, forward
exchange contracts, the exchange differences on such contracts are
being amortised over the life of contracts. The amount of exchange
difference in respect of such contracts to be recognised as expense in
the Statement of Profit and Loss over subsequent accounting periods is
Rs. Nil (Previous Year Rs. 6.77 crore).
4.8 Public deposits as defined in paragraph 2(1)(y) of the Housing
Finance Companies (NHB) Directions, 2010, are secured by floating
charge on the Statutory Liquid Assets maintained in terms of
sub-sections (1) & (2) of Section 29B of the National Housing Bank Act,
1987.
4.9 As at March 31, 2015, the Corporation''s outstanding subordinated
debt is Rs. 6,475 crore (Previous Year Rs. 3,475 crore). These debentures
are subordinated to present and future senior indebtedness of the
Corporation and qualify as Tier II capital under National Housing Bank
(NHB) guidelines for assessing capital adequacy. Based on the balance
term to maturity as at March 31, 2015, 84.86% (Previous Year 80.29%) of
the book value of the subordinated debt is considered as Tier II
capital for the purpose of capital adequacy computation.
6.1 Provision for Contingencies includes provisions for standard assets
and all other contingencies. As per National Housing Bank Circular No.
NHB/HFC/DIR.4/CMD/2012 dated January 19, 2012 and NHB.HFC.DIR.9/
CMD/2013 dated September 6, 2013, in addition to provision for non
performing assets, all housing finance companies are required to carry
a general provision. (i) at the rate of 1% of Standard Assets in
respect of Commercial Real Estate ("CRE") other than Residential
Housing, (ii) at the rate of 0.75% Commercial Real Estate - Residential
Housing and (iii) at the rate of 0.40% of the total outstanding amount
of loans which are Standard Assets other than (i) & (ii) above. Loans
to Individuals for 3rd dwelling units onwards are treated as CRE
exposure.
Accordingly, the Corporation is required to carry a minimum provision
of Rs. 1,170.92 crore (Previous Year Rs. 1,012.03 crore) towards standard
assets [Refer Note 30.1].
7.1 All secured short-term borrowings are secured by negative lien on
the assets of the Corporation and/or mortgage of property as the case
may be, subject to the charge created in favour of its depositors
pursuant to the regulatory requirement under Section 29B of the
National Housing Bank Act, 1987.
7.2 Deposits includes Rs. 16.84 crore (Previous Year Rs. 24.80 crore) from
related parties [Refer Note 35].
7.3 Commercial papers of the Corporation have a maturity value of Rs.
26,665.00 crore (Previous Year Rs. 9,575.00 crore).
8.1 Trade Payables include Rs. 0.07 crore (Previous Year Rs. 0.10 crore)
payable to "Suppliers" registered under the Micro, Small and Medium
Enterprises Development Act, 2006. No interest has been paid/payable by
the Corporation during the year to the "Suppliers" covered under
the Micro, Small and Medium Enterprises Development Act, 2006. The
above information takes into account only those suppliers who have
responded to inquiries made by the Corporation for this purpose.
8.2 As required under Section 205C of the Companies Act, 1956, the
Corporation has transferred Rs. 2.18 crore (Previous Year Rs. 1.65 crore)
to the Investor Education and Protection Fund (IEPF) during the year
except to the extent Rs. 0.87 crore in the previous year in respect of
claims that are disputed. As of March 31, 2015, no amount was due for
transfer to the IEPF.
8.3 Trade Payables includes Rs. 23.08 crore (Previous Year Rs. 19.57 crore)
due to related parties [Refer Note 35].
9.2 Secured Current maturities of long-term borrowings are secured by
negative lien on the assets of the Corporation and/or mortgage of
property as the case may be, subject to the charge created in favour of
its depositors pursuant to the regulatory requirement under Section 29B
of the National Housing Bank Act, 1987.
9.3 Current maturities of Non-Convertible Debentures includes Rs. 116.00
crore (Previous Year Rs. 40.00 crore) and Deposits includes Rs. 0.98 crore
(Previous Year Rs. 3.87 crore) from related parties [Refer Note 35].
11.1 The Corporation has reviewed its policy of providing for
depreciation on its tangible fixed assets and has also reassessed their
useful lives. On and from April 1, 2014, the straight line method is
being used to depreciate all classes of tangible fixed assets.
Previously, the straight line method was used for depreciating
Buildings, Computers, Leased Assets and Leasehold Improvements while
other tangible fixed assets were being depreciated using the reducing
balance method. The revised useful lives, as assessed by Management,
match those specified in Part C of Schedule II to the Companies Act,
2013, for all classes of assets other than Computer Hardware and
Vehicles. Management believes that the revised useful lives of the
assets reflect the periods over which these assets are expected to be
used.
As a result of the change, the charge on account of Depreciation for
year, is lower by Rs. 12.94 crore compared to the method used and useful
lives estimated in earlier periods.
11.2 Depreciation charge for the financial year above, excludes Rs. 3.98
crore (Previous Year Rs. 2.27 crore) being depreciation charge on
investment in Properties.
Notes :
1) Unquoted investments include Rs. Nil (Previous Year Rs. 6.08 crore) in
respect of equity shares, which are subject to a lock-in period and
include Rs. 40.17 crore (Previous Year Rs. 35.96 crore) in respect of
equity shares, which are subject to restrictive covenant. Quoted
investments include Rs. 60.74 crore (Previous Year Rs. 60.74 crore) in
respect of equity shares, which are subject to restrictive covenant.
2) Market value of Investments in Unquoted Mutual Funds represents the
repurchase price of the units issued by the Mutual Funds.
3) NHB Sumeru Zero Coupon Bonds are held as Capital Assets under
Section 2(48) of the Income Tax Act, 1961.
14. DEFERRED TAX ASSET/LIABILITY
In compliance with the Accounting Standard relating to ''Accounting for
Taxes on Income'' (AS 22), the Corporation has taken debit of Rs. 271.00
crore (Previous Year Rs. 27.00 crore) in the Statement of Profit and Loss
for the year ended March 31, 2015 towards deferred tax liability (net)
for the year, arising on account of timing differences, Rs. 559.54 crore
(Previous Year Rs. Nil) has been adjusted against utilisation from the
General Reserve (as per Note 3.2) and Rs. Nil (Previous Year Rs. 25.49
crore) has been adjusted against the utilisation from Statutory Reserve
(As per Section 29C of National Housing Bank Act, 1987) as per Note
3.4.
15.2 Investments in Debentures, Pass Through Certificates and Security
Receipts amounting to Rs. 100.44 crore (Previous Year Rs. 205.24 crore) are
towards financing Real Estate Projects. The Debentures, Pass Through
Certificates and Security Receipts are reflected in Note 13.
15.3 Loans granted by the Corporation aggregating to Rs. 1,99,935.60
crore (Previous Year Rs. 1,74,277.73 crore) are secured or partly secured
by:
(a) Equitable mortgage of property and/or
(b) Pledge of shares, units, other securities, assignment of life
insurance policies and/or
(c) Hypothecation of assets and/or
(d) Bank guarantees, company guarantees or personal guarantees and/or
(e) Negative lien and/or
(f) Assignment of hire purchase receivables and/or
(g) Undertaking to create a security.
15.4 Loans include Rs. 198.33 crore (Previous Year Rs. 35.31 crore) in
respect of properties held for disposal under Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002.
15.5 Long term loans and advances includes Sub-Standard and Doubtful
Loans of Rs. 1,542.36 crore (Previous Year Rs. 1,413.12 crore) [Refer Note
30.1].
16.1 Bank deposits, with maturities beyond twelve months from the
Balance Sheet date, includes earmarked balances Rs. 58.46 crore (Previous
Year Rs. 62.82 crore) against foreign currency loans [Refer Note 4.4] and
Rs. 0.13 crore (Previous Year Rs. 0.13 crore) towards letter of credit
issued by Bank.
20.1 Loans granted by the Corporation, aggregating Rs. 22,922.81 crore
(Previous Year Rs. 19,343.97 crore) are secured and considered good
[Refer Note 15.3].
20.2 Out of the Corporate Deposits, amounts aggregating to Rs. 253.40
crore (Previous Year Rs. 601.65 crore) are secured and considered good
[Refer Note 15.3].
20.3 Corporate Deposits includes amounts due from the related parties Rs.
23.58 crore (Previous Year Rs. 25.00 crore) [Refer Note 35].
20.4 Other Advances includes amounts due from the related parties Rs.
9.48 crore (Previous Year Rs. 9.51 crore) [Refer Note 35].
20.5 Investments in Debentures and Corporate Deposits amounting to Rs.
604.77 crore (Previous Year Rs. 547.93 crore) are towards financing Real
Estate Projects. The Debentures are reflected in Note 17.
20.6 Current maturities of staff loans includes amounts due from the
directors Rs. 0.05 crore (Previous Year Rs. 0.02 crore) [Refer Note 35].
Mar 31, 2014
1.1 ACCOUNTING CONVENTION
These accounts have been prepared in accordance with historical cost
convention, applicable Accounting Standards as notified under the
Companies Act, 1956 (which continue to be applicable in respect of
Section 133 of the Companies Act, 2013 in terms of the General Circular
15/2013 dated September 13, 2013 of the Ministry of Corporate Affairs),
the relevant provisions of the Companies Act, 1956 and the guidelines
issued by the National Housing Bank to the extent applicable. The
accounting policies adopted in the preparation of the financial
statements are consistent with those followed in the previous year.
The preparation of financial statements requires the Management to make
estimates and assumptions considered in the reported amounts of assets
and liabilities (including contingent liabilities) as of the date of
the financial statements and the reported income and expenses during
the reporting period. 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.
1.2 SYSTEM OF ACCOUNTING
The Corporation adopts the accrual concept in the preparation of the
accounts.
The Balance Sheet and the Statement of Profit and Loss of the
Corporation are prepared in accordance with the provisions contained in
Section 211 of the Companies Act, 1956, read with Revised Schedule VI.
1.3 INFLATION
Assets and liabilities are recorded at historical cost to the
Corporation. These costs are not adjusted to reflect the changing value
in the purchasing power of money.
1.4 OPERATING CYCLE
Based on the nature of its activities, the Corporation has determined
its operating cycle as 12 months for the purpose of classification of
its assets and liabilities as current and non-current.
1.5 CASH FLOW STATEMENT
Cash flows are reported using the indirect method, whereby profit/
(loss) before extraordinary items and tax is adjusted for the effects
of transactions of non-cash nature and any deferrals or accruals of
past or future cash receipts or payments. The cash flows from
operating, investing and financing activities of the Corporation are
segregated based on the available information.
1.6 CASH AND CASH EQUIVALENTS (FOR PURPOSES OF CASH FLOW STATEMENT)
Cash comprises cash on hand and demand deposits with banks. Cash
equivalents are short-term balances (with an original maturity of three
months or less from the date of acquisition), highly liquid investments
that are readily convertible into known amounts of cash and which are
subject to insignificant risk of changes in value.
1.7 LOANS AND RECEIVABLES AND CREDIT LOSS ALLOWANCES
Loans are initially recorded at the disbursed principal amounts and are
subsequently adjusted for recoveries and any unearned income. Loans are
carried net of the allowances for credit losses.
A loan is recognised as non-performing ("NPA") or as a "doubtful" or as
a "loss" asset based on the period for which the repayment instalment
or interest has remained in arrears as prescribed under the Housing
Finance Companies (NHB) Directions, 2010, (the "NHB Directions").
Allowances for credit losses are made on an individual basis at rates
prescribed under the NHB Directions unless, the management estimates
that a higher individual allowance is required to reduce the carrying
value of loan asset, including accrued interest, to its estimated
realisable amount. The fair value of the underlying security is taken
into consideration to estimate the realisable amount of the loan. When
a loan is identified as a "Loss Asset" that is adversely affected by a
potential threat of non-recoverability, the outstanding balance is
fully written off or fully provided for.
1.8 INTEREST INCOME ON LOANS
Repayment of housing loans is generally by way of Equated Monthly
Instalments (EMIs) comprising principal and interest. EMIs commence
generally once the entire loan is disbursed. Certain customers request
for commencement of regular principal repayments even before the entire
loan is disbursed, especially when the projects are of long gestation.
A recalculated EMI based on Principal Outstanding is offered in such
cases. Pending commencement of EMIs, pre-EMI interest is payable every
month. Interest on loans is computed either on an annual rest or on a
monthly rest basis on the principal outstanding at the beginning of the
relevant period.
Interest income is allocated over the contractual term of the loan by
applying the committed interest rate to the outstanding amount of the
loan. Interest income is accrued as earned with the passage of time.
Interest on loan assets classified as "non-performing" is recognised
only on actual receipt.
1.9 DIVIDEND
Dividend income is recognised when the right to receive has been
established.
1.10 FEES AND OTHER REVENUE
Fees and other revenue is recognised after the service is rendered to
the extent that it is probable that the economic benefits will flow to
the Corporation and that the revenue can be reliably measured,
regardless of when the payment is being made.
1.11 INCOME FROM LEASES
Lease rental income in respect of leases is recognised in accordance
with the Accounting Standard on ''Leases'' (AS 19) notified by the
Companies (Accounting Standards) Rules, 2006.
1.12 INCOME FROM INVESTMENTS
The gain/loss on account of Investments in Preference Shares,
Debentures/Bonds and Government Securities held as long-term
investments and acquired at a discount/premium, is recognised over the
life of the security on a pro-rata basis. Interest Income is accounted
on accrual basis.
1.13 BORROWING AND BORROWING COSTS
The Corporation borrows funds, primarily in Indian Rupees, and carry a
fixed rate or floating of interest. As a part of its risk management
strategy, the Corporation converts such borrowings into floating rate
or foreign currency borrowings by entering into interest rate swaps or
cross currency interest rate swaps having the same notional amount and
maturity as the underlying borrowings and holds these instruments till
maturity. At each reporting date these liabilities are restated at the
closing rate.
Borrowing costs include interest, amortised brokerage on deposits and
exchange differences arising from foreign currency borrowings to the
extent they are regarded as an adjustment to the interest cost.
Ancillary costs in connection with long-term external commercial
borrowings are amortised to the Statement of Profit and Loss over the
tenure of the loan. Issue expenses of certain securities are charged to
the securities premium account.
1.14 TRANSLATION OF FOREIGN CURRENCY
Initial recognition
Transactions in foreign currencies entered into by the Corporation are
accounted at the exchange rates prevailing on the date of the
transaction.
Measurement at the Balance Sheet date
Assets and liabilities in foreign currencies are converted at the rates
of exchange prevailing at the year-end, where not covered by forward
contracts. Wherever the Corporation has entered into a forward contract
or an instrument that is, in substance, a forward exchange contract,
the difference between the forward rate and the exchange rate on the
date of the transaction is recognised as income or expense over the
life of the contract. Monetary items represented by currency swap
contracts are recorded at closing rate.
The net loss/gain on translation of long term monetary assets and
liabilities in foreign currencies is amortised over the maturity period
of such monetary assets and liabilities and charged to the Statement of
Profit and Loss. The unamortized exchange difference is carried in the
Balance Sheet as "Foreign Currency Monetary Item Translation Difference
Account". The net loss/gain on translation of short term monetary
assets and liabilities in foreign currencies is recorded in the
Statement of Profit and Loss.
1.15 BROKERAGE ON DEPOSITS
Brokerage, other than incentive brokerage on deposits, is amortised
over the period of the deposit. Incentive brokerage, which is payable
to agents who achieve certain collection targets, is charged to the
Statement of Profit and Loss.
1.16 OPERATING LEASES
Payments under an operating lease arrangement, where the risks and
rewards incidental to ownership of an asset substantially vest with the
lesser, are charged to the Statement of Profit and Loss on a
straight-line basis over the lease term, unless another systematic
basis is more appropriate.
1.17 INVESTMENTS
Investments are capitalised at cost inclusive of brokerage and stamp
charges and are classified into two categories, viz. Current or Long
Term. Long-term investments (excluding investment properties), are
carried individually at cost less provision for diminution, other than
temporary, in the value of such investments. Current investments are
carried individually, at the lower of cost and fair value. Provision
for diminution in the value of investments is made in accordance with
the guidelines issued by the National Housing Bank and the Accounting
Standard on Accounting for Investments'' (AS 13) notified by the
Companies (Accounting Standards) Rules, 2006, and is recognised through
the Provision for Contingencies Account. Investment properties are
carried individually at cost less accumulated depreciation and
impairment, if any.
1.18 TANGIBLE FIXED ASSETS
Fixed Assets are capitalised at cost inclusive of legal and/or
installation expenses. Leased Assets are accounted in accordance with
the Accounting Standard on ''Leases'' (AS 19) notified by the Companies
(Accounting Standards) Rules, 2006.
1.19 INTANGIBLE ASSETS
Intangible Assets comprising of system software are stated at cost of
acquisition, including any cost attributable for bringing the same to
its working condition, less accumulated amortisation. Any expenses on
such software for support and maintenance payable annually are charged
to the Statement of Profit and Loss.
1.20 DEPRECIATION AND AMORTISATION
Tangible Fixed Assets
Depreciation on all Fixed Assets other than Leased Assets and Leasehold
Improvements, is provided for the full year in respect of assets
acquired during the year. No depreciation is provided in the year of
sale.
In respect of Leased Assets and Leasehold Improvements depreciation is
provided on a pro-rata basis from the date of installation /
acquisition.
Depreciation on Buildings, Computers, Leased Assets and Leasehold
Improvements, is calculated as per the straight-line method; and on
other assets as per the reducing balance method. All assets except
Computers and Leased Assets are depreciated at rates specified by the
Companies Act, 1956. Depreciation on Computers is calculated at the
rate of 25 per cent per annum. Depreciation in respect of finance
leases is provided on the straight line method over the primary period
of lease or over the specified period, as defined under Section
205(5)(a) of the Companies Act, 1956, whichever is shorter.
Depreciation in respect of Leasehold Improvements is provided on the
straight-line method over the primary period of the lease.
Intangible Assets
Capitalised software is amortised over a period of four years on a
straight-line basis.
Investment In Properties
Depreciation on Investment in properties is provided on a pro-rata
basis from the date of acquisition.
1.21 PROVISIONS AND CONTINGENCIES
A provision is recognised when the Corporation has a present obligation
as a result of past events and it is probable that an outflow of
resources will be required to settle the obligation in respect of which
a reliable estimate can be made. Provisions (excluding employee
benefits) are not discounted to their present value and are determined
based on the best estimate required to settle the obligation at the
balance sheet date. These are reviewed at each balance sheet date and
adjusted to reflect the current best estimates. Contingent liabilities
are disclosed in the Notes. Contingent assets are neither recognised
nor disclosed in the financial statements.
1.22 PROVISION FOR CONTINGENCIES AND NON-PERFORMING ASSETS
The Corporation''s policy is to carry adequate amounts in the Provision
for Non-Performing Assets Account and the Provision for Contingencies
account to cover the amount outstanding in respect of all
non-performing assets and standard assets respectively as also all
other contingencies. All loans and other credit exposures where the
instalments, interest are overdue for ninety days and more are
classified as non-performing assets in accordance with the prudential
norms prescribed by the National Housing Bank. The provision for non-
performing assets is deducted from loans and advances. The provisioning
policy of the Corporation covers the minimum provisioning required as
per the NHB guidelines.
1.23 STANDARD ASSET PROVISIONING (COLLECTIVE ALLOWANCES)
Provisions are established on a collective basis against loan assets
classified as "Standard" to absorb credit losses on the aggregate
exposures in each of the Corporation''s loan portfolios based on the NHB
Directions. A higher standard asset provision may be made based upon
statistical analysis of past performance, level of allowance already in
place and Management''s judgement. This estimate includes consideration
of economic and business conditions. The amount of the collective
allowance for credit losses is the amount that is required to establish
a balance in the Provision for Standard Assets Account that the
Corporation''s management considers adequate, after consideration of the
prescribed minimum under the NHB Directions, to absorb credit related
losses in its portfolio of loan items after individual allowances or
write offs.
1.24 EMPLOYEE BENEFITS
Defined contribution plans
The Corporation''s contribution to provident fund and superannuation
fund are considered as defined contribution plans and are charged as an
expense based on the amount of contribution required to be made. These
funds and the schemes there under are recognised by the Income-tax
authorities and administered by various trustees. The Rules of the
Corporation''s Provident Fund administered by a Trust require that if
the Board of Trustees are unable to pay interest at the rate declared
for Employees'' Provident Fund by the Government under para 60 of the
Employees'' Provident Fund Scheme, 1952 for the reason that the return
on investment is less or for any other reason, then the deficiency
shall be made good by the Corporation.
Defined benefit plans
For defined benefit plans in the form of gratuity fund and post
retirement pension scheme for whole time Directors, the cost of
providing benefits is determined using the Projected Unit Credit
method, with actuarial valuations being carried out at each balance
sheet date. Actuarial gains and losses are recognised in the Statement
of Profit and Loss in the period in which they occur. Past service cost
is recognised immediately to the extent that the benefits are already
vested and otherwise is amortised on a straight-line basis over the
average period until the benefits become vested. The retirement benefit
obligation recognised in the Balance Sheet represents the present value
of the defined benefit obligation as adjusted for unrecognised past
service cost, as reduced by the fair value of scheme assets. Any asset
resulting from this calculation is limited to past service cost, plus
the present value of available refunds and reductions in future
contributions to the schemes.
Except in case of Dubai branch of the Corporation, the provision for
gratuity is made in accordance with the prevalent local laws.
Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be
paid in exchange for the services rendered by employees are recognised
during the year when the employees render the service. These benefits
include performance incentive and compensated absences which are
expected to occur within twelve months after the end of the period in
which the employee renders the related service.
The cost of short-term compensated absences is accounted as under:
(a) in case of accumulated compensated absences, when employees render
the services that increase their entitlement of future compensated
absences; and
(b) in case of non-accumulating compensated absences, when the absences
occur.
Long-term employee benefits
Compensated absences which are not expected to occur within twelve
months after the end of the period in which the employee renders the
related service are recognised as a liability at the present value of
the defined benefit obligation as at the balance sheet date.
1.25 EARNINGS PER SHARE
Basic earnings per share is computed by dividing the profit/ (loss)
after tax (including the post tax effect of extraordinary items, if
any) 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 (including the post tax effect of
extraordinary items, if any) 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. The dilutive potential equity
shares are adjusted for the proceeds receivable had the shares been
actually issued at fair value (i.e. average market value of the
outstanding shares). 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 and bonus shares, as appropriate.
1.26 TAXES ON INCOME
Current tax is the amount of tax payable on the taxable income for the
year as determined in accordance with the provisions of the Income Tax
Act, 1961.
Deferred tax is recognised on timing differences, being the differences
between the taxable income and the accounting income that originate in
one period and are capable of reversal in one or more subsequent
periods. Deferred tax is measured using the tax rates and the tax laws
enacted or substantively enacted as at the reporting date. Deferred tax
assets are recognised for timing differences of items other than
unabsorbed depreciation and carry forward losses only to the extent
that reasonable certainty exists that sufficient future taxable income
will be available against which these can be realised. However, if
there are unabsorbed depreciation and carry forward of losses, deferred
tax assets are recognised only if there is virtual certainty that there
will be sufficient future taxable income available to realise the
assets.
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. Deferred tax assets
are reviewed at each balance sheet date for their reliability.
Current and deferred tax relating to items directly recognised in
reserves are recognised in reserves and not in the Statement of Profit
and Loss.
1.27 SERVICE TAX INPUT CREDIT
Service tax input credit is accounted for in the books in the period in
which the underlying service received is accounted and when there is no
uncertainty in availing/ utilising the credits.
1.28 SECURITISED LOANS AND SECURITISATION LIABILITIES
The Corporation periodically transfers pools of mortgages. Such assets
are derecognised, if and only if, the Corporation loses control of the
contractual rights that comprise the corresponding pools or mortgages
transferred.
Transfers of pools of mortgages under the current programs involve
transfer of proportionate shares in the pools of mortgages. Such
transfers result in de-recognition only of that proportion of the
mortgages as meet the de-recognition criteria. The portion retained by
the Corporation continue to be accounted for as loans as described
above.
On de-recognition, the difference between the book value of the
securitised asset and consideration received is recognised as gain
arising on securitisation in the Statement of Profit and Loss over the
balance maturity period of the pool transferred. Losses, if any,
arising from such transactions, are recognised immediately in the
Statement of Profit and Loss.
Mar 31, 2013
1.1 ACCOUNTING CONVENTION
These accounts have been prepared in accordance with historical cost
convention, applicable Accounting Standards notified by the Companies
(Accounting Standards) Rules, 2006 and relevant provisions of the
Companies Act, 1956 and the guidelines issued by the National Housing
Bank. The accounting policies adopted in the preparation ofthe
financial statements are consistent with those followed in the previous
year.
The preparation of financial statements requires the Management to make
estimates and assumptions considered in the reported amounts of assets
and liabilities (including contingent liabilities) as of the date of
the financial statements and the reported income and expenses during
the reporting period. Management believes thatthe estimates used in
preparation ofthefinancial statementsare prudentand 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.
1.2 SYSTEM OF ACCOUNTING
The Corporation adopts the accrual concept in the preparation of the
accounts.
The Balance Sheet and the Statement of Profit and Loss of the
Corporation are prepared in accordance with the provisions contained in
Section 211 ofthe Companies Act 1956, read with Revised Schedule VI.
1.3 INFLATION
Assets and liabilities are recorded at historical cost to the
Corporation. These costs are not adjusted to reflect the changing value
in the purchasing power of money.
1.4 OPERATING CYCLE
Based on the nature of its activities, the Corporation has determined
its operating cycle as 12 months for the purpose of classification of
its assets and liabilities as current and non-current.
1.5 CASH FLOW STATEMENT
Cash flows are reported using the indirect method, whereby
profit/(loss) before extraordinary items and tax is adjusted for the
effects of transactions of non-cash nature and any deferrals or
accruals of past or future cash receipts or payments. The cash flows
from operating, investing and financing activities ofthe Corporation
are segregated based on the available information.
1.6 CASH AND CASH EQUIVALENTS (FOR PURPOSES OF CASH FLOW STATEMENT)
Cash comprises cash on hand and demand deposits with banks. Cash
equivalents are short-term balances (with an original maturity of three
months or less from the date of acquisition), highly liquid investments
that are readily convertible into known amounts of cash and which are
subject to insignificant risk of changes in value.
1.7 INTEREST ON HOUSING LOANS
Repayment of housing loans is generally by way of Equated Monthly
Instalments (EMIs) comprising principal and interest. EMIs commence
once the entire loan is disbursed. Pending commencement of EMIs,
pre-EMI interest is payable every month. Interest on loans is computed
either on an annual rest or on a monthly rest basis.
1.8 INCOME FROM LEASES
Lease rental income in respect of leases is recognised in accordance
with the AccountingStandard on ''Leases'' (AS 19) notified by the
Companies (Accounting Standards) Rules, 2006.
1.9 INCOME FROM INVESTMENTS
The gain/loss on account of Investments in Preference Shares,
Debentures/Bonds and Government Securities held as long-term
investments and acquired at a discount/premium, is recognised over the
life of the security on a pro-rata basis. Interest Income is accounted
on accrual basis. Dividend income is accounted when the right to
receive is established.
1.10 BROKERAGE AND SERVICE CHARGES ON DEPOSITS
Brokerage, other than incentive brokerage, and service charges on
deposits are amortised over the period of the deposit. Incentive
brokerage, which is payable to agents who achieve certain collection
targets, is charged to the Statement of Profit and Loss.
1.11 TRANSLATION OF FOREIGN CURRENCY Initial recognition
Transactions in foreign currencies entered into by the Corporation are
accounted at the exchange rates prevailing on the date of the
transaction.
Measurement at the Balance Sheet date
Assets and liabilities in foreign currencies are converted at the rates
of exchange prevailing at the year-end, where not covered by forward
contracts. Wherever the Corporation has entered into a forward contract
or an instrumentthat is, in substance, a forward exchange contract, the
difference between the forward rate and the exchange rate on the date
of the transaction is recognised as income or expense over the life of
the contract.
Cross currency interest rate swaps are recorded by marking the foreign
currency component to spot rate.
The net loss/gain on translation of long term monetary assets and
liabilities in foreign currencies is amortised over the maturity period
of such monetary assets and liabilities and charged to the Statement of
Profit and Loss. The unamortised exchange difference is carried in the
Balance Sheet as "Foreign currency monetary item translation
difference account". The net loss/gain on translation of short term
monetary assets and liabilities in foreign currencies is recorded in
the Statement of Profit and Loss.
1.12 INVESTMENTS
Investments are capitalised at cost inclusive of brokerage and stamp
charges and are classified into two categories, viz. Current or Long
Term. Long-term investments (excluding investment properties), are
carried individually at cost less provision for diminution, other than
temporary, in the value of such investments. Current investments are
carried individually, at the lower of cost and fair value. Provision
for diminution in the value of investments is made in accordance with
the guidelines issued by the National Housing Bank and the
AccountingStandard on ''Accountingfor Investments'' (AS 13) notified
bythe Companies (AccountingStandards) Rules, 2006, and is recognised
through the Provision for Contingencies Account. Investment properties
are carried individually at cost less accumulated depreciation and
impairment, if any.
1.13 TANGIBLE FIXED ASSETS
Fixed Assets are capitalised at cost inclusive of legal and/or
installation expenses. Leased Assets are accounted in accordance with
the Accounting Standard on ''Leases'' (AS 19) notified by the
Companies (Accounting Standards) Rules, 2006.
1.14 INTANGIBLE ASSETS
Intangible Assets comprisingofsystem software are stated at cost
ofacquisition, includingany costattributable for bringing the same to
its working condition, less accumulated amortisation. Any expenses on
such software for support and maintenance payable annually are charged
to the Statement of Profit and Loss.
1.15 DEPRECIATION AND AMORTISATION Tangible Fixed Assets
Depreciation on all Fixed Assets other than Leased Assets and Leasehold
Improvements, is provided for the full year in respect of assets
acquired during the year. No depreciation is provided in the year of
sale.
In respect of Leased Assets and Leasehold Improvements depreciation is
provided on a pro-rata basis from the date of installation/acquisition.
Depreciation on Buildings, Computers, Leased Assets and Leasehold
Improvements, is calculated as per the straight-line method; and on
other assets as per the reducing balance method. All assets except
Computers and Leased Assets are depreciated at rates specified by the
Companies Act, 1956. Depreciation on Computers is calculated at the
rate of 25 per cent per annum. Depreciation in respect of finance
leases is provided on the straight line method over the primary period
of lease or over the specified period, as defined under Section
205(5)(a) ofthe CompaniesAct, 1956, whichever isshorter. Depreciation
in respectof Leasehold Improvements is provided on the straight-line
method over the primary period of the lease.
Intangible Assets
Capitalised software is amortised over a period of four years on a
straight-line basis.
Investment in Properties
Depreciation on Investment in properties is provided on a pro-rata
basis from the date of acquisition.
1.16 PROVISIONS AND CONTINGENCIES
A provision is recognised when the Corporation has a present obligation
as a result of past events and it is probable that an outflow of
resources will be required to settle the obligation in respect of which
a reliable estimate can be made. Provisions (excluding retirement
benefits) are not discounted to their present value and are determined
based on the best estimate required to settle the obligation at the
balance sheet date. These are reviewed at each balance sheet date and
adjusted to reflect the current best estimates. Contingent liabilities
are disclosed in the Notes. Contingent assets are neither recognised
nor disclosed in the financial statements.
1.17 PROVISION FOR CONTINGENCIES AND NON-PERFORMING ASSETS
The Corporation''s policy is to carry adequate amounts in the Provision
for Non-Performing Assets account and the Provision for Contingencies
account to cover the amount outstanding in respect of all
non-performing assets and standard assets respectively as also all
other contingencies. All loans and other credit exposures where the
instalments are overdue for Ninety days and more are classified as
non-performing assets in accordance with the prudential norms
prescribed bythe National Housing Bank. The provision for
non-performingassets is deducted from loans and advances. The
provisioning policy of the Corporation covers the minimum provisioning
required as per the NHB guidelines.
1.18 EMPLOYEE BENEFITS Defined contribution plans
The Corporation''s contribution to providentfund and superannuation
fund are considered as defined contribution plans and are charged as an
expense based on the amount of contribution required to be made. These
funds and the schemes thereunder are recognised by the Income-tax
authorities and administered by various trustees. The Rules of the
Corporation''s Provident Fund administered by a Trust require that if
the Board of Trustees are unable to pay interest at the rate declared
for Employees'' Provident Fund by the Government under para 60 of the
Employees'' Provident Fund Scheme, 1952 for the reason that the return
on investment is less or for any other reason, then the deficiency
shall be made good by the Corporation.
Defined Benefit Plans
For defined benefit plans in the form of gratuity fund and post
retirement pension scheme for whole time Directors, the cost of
providing benefits is determined using the Projected Unit Credit
method, with actuarial valuations being carried out at each balance
sheet date. Actuarial gains and losses are recognised in the Statement
of Profit and Loss in the period in which they occur. Past service cost
is recognised immediately to the extent that the benefits are already
vested and otherwise is amortised on a straight-line basis over the
average period until the benefits become vested. The retirement benefit
obligation recognised in the Balance Sheet represents the present value
of the defined benefit obligation as adjusted for unrecognised past
service cost, as reduced by the fair value of scheme assets. Any asset
resulting from this calculation is limited to past service cost, plus
the present value of available refunds and reductions in future
contributions to the schemes.
Except in case of Dubai branch of the Corporation, the provision for
gratuity is made in accordance with the prevalent local laws.
Short-term Employee Benefits
The undiscounted amount of short-term employee benefits expected to be
paid in exchange for the services rendered by employees are recognised
duringthe year when the employees render the service. These benefits
include performance incentive and compensated absences which are
expected to occur within twelve months after the end of the period in
which the employee renders the related service.
The cost of short-term compensated absences is accounted as under:
(a) in case of accumulated compensated absences, when employees render
the services that increase their entitlement of future compensated
absences; and
(b) in case of non-accumulating compensated absences, when the absences
occur.
Long-term Employee Benefits
Compensated absences which are not expected to occur within twelve
months after the end of the period in which the employee renders the
related service are recognised as a liability at the present value of
the defined benefit obligation as at the balance sheet date.
1.19 EARNINGS PER SHARE
Basic earnings per share is computed by dividing the profi1/(loss)
after tax (including the post tax effect of extraordinary items, if
any) 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 (including the post tax effect of extraordinary
items, if any) 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. The dilutive potential equity
shares are adjusted for the proceeds receivable had the shares been
actually issued at fair value (i.e. average market value of the
outstanding shares). 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 and bonus shares, as appropriate.
1.20 INCOME-TAX
Current tax is the amount of tax payable on the taxable income for the
year as determined in accordance with the provisions of the Income Tax
Act, 1961.
Deferred tax is recognised on timing differences, being the differences
between the taxable income and the accounting income that originate in
one period and are capable of reversal in one or more subsequent
periods. Deferred tax is measured using the tax rates and the tax laws
enacted or substantively enacted as at the reporting date. Deferred tax
assets are recognised for timing differences of items other than
unabsorbed depreciation and carry forward losses only to the extent
that reasonable certainty exists that sufficient future taxable income
will be available against which these can be realised. However, if
there are unabsorbed depreciation and carry forward of losses, deferred
tax assets are recognised only if there is virtual certainty that there
will be sufficient future taxable income available to realise the
assets.
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. Deferred tax assets
are reviewed at each balance sheet date for their realisability.
Current and deferred tax relating to items directly recognised in
reserves are recognised in reserves and not in the Statement of Profit
and Loss.
1.21 SERVICE TAX INPUT CREDIT
Service tax input credit is accounted for in the books in the period in
which the underlying service received is accounted and when there is no
uncertainty in availing/utilising the credits.
1.22 SECURITISED ASSETS
Derecognition of securitised assets in the books of the Corporation,
recognition of gain or loss arising on securitisation and accounting
for credit enhancement provided by the Corporation is based on the
Guidance Note on Accounting for Securitisation issued by the Institute
of Chartered Accountants of India.
Securitised assets are derecognised in the books of the Corporation
based on the principle of surrender of control over the assets. Credit
Enhancement provided by the Corporation by way of investments in
subordinate Class B Pass Through Certificates is included under
Investments in Pass Through Certificates in Note no. 13.
Mar 31, 2012
1.1 ACCOUNTING CONVENTION
These accounts have been prepared in accordance with historical cost
convention, applicable Accounting Standards notified by the Companies
(Accounting Standards) Rules, 2006 and relevant provisions of the
Companies Act, 1956 and the guidelines issued by the National Housing
Bank.
The preparation of financial statements requires the Management to make
estimates and assumptions considered in the reported amounts of assets
and liabilities (including contingent liabilities) as of the date of
the financial statements and the reported income and expenses during
the reporting period. Management believes that the estimates used in
preparation of the financial statements are prudent and reasonable.
Future results could differ from these estimates.
1.2 SYSTEM OF ACCOUNTING
The Corporation adopts the accrual concept in the preparation of the
accounts.
The Balance Sheet and the Statement of Profit and Loss of the
Corporation are prepared in accordance with the provisions contained in
Section 211 of the Companies Act 1956, read with Revised Schedule VI.
1.3 INFLATION
Assets and liabilities are recorded at historical cost to the
Corporation. These costs are not adjusted to reflect the changing value
in the purchasing power of money.
1.4 INTEREST ON HOUSING LOANS
Repayment of housing loans is generally by way of Equated Monthly
Instalments (EMIs) comprising principal and interest. EMIs commence
once the entire loan is disbursed. Pending commencement of EMIs,
pre-EMI interest is payable every month. Interest on loans is computed
either on an annual rest or on a monthly rest basis.
1.5 INCOME FROM LEASES
Lease rental income in respect of leases is recognised in accordance
with the Accounting Standard on 'Leases' (AS 19) notified by the
Companies (Accounting Standards) Rules, 2006.
1.6 INCOME FROM INVESTMENTS
The gain/loss on account of Investments in Preference Shares,
Debentures/Bonds and Government Securities held as long-term
investments and acquired at a discount/premium, is recognised over the
life of the security on a pro-rata basis. Interest Income is accounted
on accrual basis. Dividend income is accounted when the right to
receive is established.
1.7 BROKERAGE AND SERVICE CHARGES ON DEPOSITS
Brokerage, other than incentive brokerage, and service charges on
deposits are amortised over the period of the deposit. Incentive
brokerage, which is payable to agents who achieve certain collection
targets, is charged to the Statement of Profit and Loss.
1.8 TRANSLATION OF FOREIGN CURRENCY
Assets and liabilities in foreign currencies are converted at the rates
of exchange prevailing at the year- end, where not covered by forward
contracts. Wherever the Corporation has entered into a forward contract
or an instrument that is, in substance, a forward exchange contract,
the difference between the forward rate and the exchange rate on the
date of the transaction is recognised as income or expense over the
life of the contract. Cross currency interest rate swaps are recorded
by marking the foreign currency component to spot rate. The net
loss/gain on translation of long term monetary assets and liabilities
in foreign currencies is amortised over the period of monetary assets
and liabilities. The net loss/gain on translation of short term
monetary assets and liabilities in foreign currencies is recorded in
the Statement of Profit and Loss.
1.9 INVESTMENTS
Investments are capitalised at cost inclusive of brokerage and stamp
charges and are classified into two categories, viz. Current or Long
Term. Provision for diminution in the value of investments is made in
accordance with the guidelines issued by the National Housing Bank and
the Accounting Standard on 'Accounting for Investments' (AS 13)
notified by the Companies (Accounting Standards) Rules, 2006, and is
recognised through the Provision for Contingencies Account. The
investment in properties is net of provision for depreciation.
1.10 TANGIBLE FIXED ASSETS
Fixed Assets are capitalised at cost inclusive of legal and/or
installation expenses. Leased Assets are accounted in accordance with
the Accounting Standard on 'Leases' (AS 19) notified by the
Companies (Accounting Standards) Rules, 2006.
1.11 INTANGIBLE ASSETS
Intangible Assets comprising of system software are stated at cost of
acquisition, including any cost attributable for bringing the same to
its working condition, less accumulated amortisation. Any expenses on
such software for support and maintenance payable annually are charged
to the Statement of Profit and Loss.
1.12 DEPRECIATION AND AMORTISATION
Tangible Fixed Assets
Depreciation on all Fixed Assets other than Leased Assets and Leasehold
Improvements, is provided for the full year in respect of assets
acquired during the year. No depreciation is provided in the year of
sale.
In respect of Leased Assets and Leasehold Improvements, depreciation is
provided on a pro-rata basis from the date of installation /
acquisition.
Depreciation on Buildings, Computers, Leased Assets and Leasehold
Improvements, is calculated as per the straight-line method; and on
other assets as per the reducing balance method. All assets except
Computers and Leased Assets are depreciated at rates specified by the
Companies Act, 1956. Depreciation on Computers is calculated at the
rate of 25 per cent per annum. Depreciation in respect of finance
leases is provided on the straight line method over the primary period
of lease or over the specified period, as defined under Section
205(5)(a) of the Companies Act, 1956, whichever is shorter.
Depreciation in respect of Leasehold Improvements is provided on the
straight-line method over the primary period of the lease.
Intangible Assets
Capitalised software is amortised over a period of four years on a
straight-line basis.
1.13 INVESTMENT IN PROPERTIES
Depreciation on Investment in properties is provided on a pro-rata
basis from the date of acquisition.
1.14 PROVISION FOR CONTINGENCIES AND NON PERFORMING ASSETS
The Corporation's policy is to carry adequate amounts in the
Provision for Non-Performing Assets account and the Provision for
Contingencies account to cover the amount outstanding in respect of all
non-performing assets and standard assets respectively as also all
other contingencies. All loans and other credit exposures where the
instalments are overdue for Ninety days and more are classified as
non-performing assets in accordance with the prudential norms
prescribed by the National Housing Bank. The provision for non-
performing assets is deducted from loans and advances. The provisioning
policy of the Corporation covers the minimum provisioning required as
per the NHB guidelines.
1.15 EMPLOYEE BENEFITS
Provident Fund and Superannuation Fund Contributions
The Corporation's contributions paid / payable during the year
towards Provident Fund and Superannuation Fund are considered as
defined contribution plans and are charged in the Statement of Profit
and Loss every year. These funds and the schemes thereunder are
recognised by the Income-tax authorities and administered by various
trustees.
Gratuity and Post Retirement Pension
The net present value of the Corporation's obligation towards
gratuity to employees and post retirement pension scheme for whole time
Directors is actuarially determined based on the projected unit credit
method, except in the case of Dubai branch where the provision for
gratuity is made in accordance with the prevalent local laws. Actuarial
gains and losses are immediately recognised in the Statement of Profit
and Loss.
Other Employee Benefits
Compensated absences in the form of short term benefits are determined
on an undiscounted basis and recognised over the period of service,
which entitles the employees to such benefits. Any such benefits which
are long term in nature are actuarially determined.
1.16 INCOME-TAX
The accounting treatment for income-tax in respect of the
Corporation's income is based on the Accounting Standard 22 on
'Accounting for Taxes on Income' as notified by the Companies
(Accounting Standards) Rules, 2006. The provision made for income-tax
in the accounts comprises both, the current tax and the deferred tax.
The deferred tax assets and liabilities for the year, arising on
account of timing differences, are recognised in the Statement of
Profit and Loss and the cumulative effect thereof is reflected in the
Balance Sheet.
Deferred tax is measured based on the tax rates and the tax laws
enacted or substantively enacted at the Balance Sheet date. Deferred
tax asset is recognised only to the extent that there is reasonable
certainty that sufficient future taxable income will be available
against which such deferred tax asset can be realised. In situations
where the Company has unabsorbed depreciation or carried forward
losses, deferred tax assets are recognised only if there is virtual
certainty supported by convincing evidence that the same can be
realised against future taxable profits.
1.17 SECURITISED ASSETS
Derecognition of securitised assets in the books of the Corporation,
recognition of gain or loss arising on securitisation and accounting
for credit enhancement provided by the Corporation is based on the
Guidance Note on Accounting for Securitisation issued by the Institute
of Chartered Accountants of India.
Securitised assets are derecognised in the books of the Corporation
based on the principle of surrender of control over the assets. Credit
Enhancement provided by the Corporation by way of investments in
subordinate Class B Pass Through Certificates is included under
Investments in Pass Through Certificates in Note no. 13.
Mar 31, 2011
1 ACCOUNTING CONVENTION
These accounts have been prepared in accordance with historical cost
convention, applicable Accounting Standards notified by the Companies
(Accounting Standards) Rules, 2006 and relevant provisions of the
Companies Act, 1956 and the guidelines issued by the National Housing
Bank.
The preparation of financial statements requires the Management to make
estimates and assumptions considered in the reported amounts of assets
and liabilities (including contingent liabilities) as of the date of
the financial statements and the reported income and expenses during
the reporting period. Management believes that the estimates used in
preparation of the financial statements are prudent and reasonable.
Future results could differ from these estimates.
2 SYSTEM OF ACCOUNTING
The Corporation adopts the accrual concept in the preparation of the
accounts.
The Balance Sheet and the Profit and Loss account of the Corporation
are prepared in accordance with the provisions contained in Section 211
of the Companies Act 1956, read with Schedule VI thereto and the
approvals granted under the section by the Company Law Board.
3 INFLATION
Assets and liabilities are recorded at historical cost to the
Corporation. These costs are not adjusted to reflect the changing value
in the purchasing power of money.
4 INTEREST ON HOUSING LOANS
Repayment of housing loans is generally by way of Equated Monthly
Instalments (EMIs) comprising principal and interest. EMIs commence
once the entire loan is disbursed. Pending commencement of EMIs,
pre-EMI interest is payable every month. Interest on loans is computed
either on an annual rest or on a monthly rest basis.
5 INCOME FROM LEASES
Lease rental income in respect of leases is recognised in accordance
with the Accounting Standard on Leases (AS 19) notified by the
Companies (Accounting Standards) Rules, 2006.
6 INCOME FROM INVESTMENTS
The gain/loss on account of Investments in Preference Shares,
Debentures/Bonds and Government Securities held as long-term
investments and acquired at a discount/premium, is recognised over the
life of the security on a pro-rata basis.
7 BROKERAGE AND SERVICE CHARGES ON DEPOSITS
Brokerage, other than incentive brokerage, and service charges on
deposits are amortised over the period of the deposit. Incentive
brokerage, which is payable to agents who achieve certain collection
targets, is charged to the Profit and Loss Account.
8 TRANSLATION OF FOREIGN CURRENCY
Assets and liabilities in foreign currencies are converted at the rates
of exchange prevailing at the year-end, where not covered by forward
contracts. Wherever the Corporation has entered into a forward contract
or an instrument that is, in substance, a forward exchange contract,
the difference between the forward rate and the exchange rate on the
date of the transaction is recognised as income or expense over the
life of the contract. Cross currency swaps and other derivatives have
been fair valued at the year end. The net loss on translation of assets
and liabilities in foreign currencies and fair value of derivatives is
debited to Profit and Loss Account.
9 INVESTMENTS
Investments are capitalised at cost inclusive of brokerage and stamp
charges and are classified into two categories, viz. Current or Long
Term. Provision for diminution in the value of investments is made in
accordance with the guidelines issued by the National Housing Bank and
the Accounting Standard on Accounting for Investments (AS 13)
notified by the Companies (Accounting Standards) Rules, 2006, and is
recognised through the Provision for Contingencies Account. The
investment in properties is net of provision for depreciation.
10 FIXED ASSETS
Fixed Assets are capitalised at cost inclusive of legal and/or
installation expenses. Leased Assets are accounted in accordance with
the Accounting Standard on Leases (AS 19) notified by the Companies
(Accounting Standards) Rules, 2006.
11 INTANGIBLE ASSETS
Intangible Assets comprising of system software are stated at cost of
acquisition, including any cost attributable for bringing the same to
its working condition, less accumulated amortisation. Any expenses on
such software for support and maintenance payable annually are charged
to revenue account.
12 DEPRECIATION AND AMORTISATION
Fixed Assets
Depreciation on all Fixed Assets other than Leased Assets and Leasehold
Improvements, is provided for the full year in respect of assets
acquired during the year. No depreciation is provided in the year of
sale.
In respect of Leased Assets and Leasehold Improvements depreciation is
provided on a pro-rata basis from the date of installation /
acquisition.
Depreciation on Buildings, Computers, Leased Assets and Leasehold
Improvements, is calculated as per the straight-line method; and on
other assets as per the reducing balance method. All assets except
Computers and Leased Assets are depreciated at rates specified by the
Companies Act, 1956. Depreciation on Computers is calculated at the
rate of 25 per cent per annum. Depreciation in respect of finance
leases is provided on the straight line method over the primary period
of lease or over the specified period, as defined under Section
205(5)(a) of the Companies Act, 1956, whichever is shorter.
Depreciation in respect of Leasehold Improvements is provided on the
straight-line method over the primary period of the lease.
Intangible Assets
Capitalised software is amortised over a period of four years on a
straight-line basis.
13 INVESTMENT IN PROPERTIES
Depreciation on Investment in properties is provided on a pro-rata
basis from the date of acquisition.
14 PROVISION FOR CONTINGENCIES
The Corporations policy is to carry adequate amounts in the Provision
for Contingencies account to cover the principal amount outstanding in
respect of all non-performing assets, standard assets as also all other
contingencies. All loans and other credit exposures where the
instalments are overdue for Ninety days and more are classified as
non-performing assets in accordance with the prudential norms
prescribed by the National Housing Bank. The provisioning policy of the
Corporation covers the minimum provisioning required as per the NHB
guidelines.
15 EMPLOYEE BENEFITS
Provident Fund and Superannuation Fund Contributions
The Corporations contributions paid / payable during the year towards
Provident Fund and Superannuation Fund are charged in the Profit and
Loss Account every year. These funds and the schemes thereunder are
recognised by the Income-tax authorities and administered by various
trustees.
Gratuity and Post Retirement Pension
The net present value of the Corporations obligation towards gratuity
to employees and post retirement pension scheme for whole time
Directors is actuarially determined based on the projected unit credit
method, except in the case of Dubai branch where the provision for
gratuity is made in accordance with the prevalent local laws. Actuarial
gains and losses are immediately recognised in the Profit and Loss
Account.
Other Employee Benefits
Compensated absences in the form of short term benefits are determined
on an undiscounted basis and recognised over the period of service,
which entitles the employees to such benefits. Any such benefits which
are long term in nature are actuarially determined.
16 INCOME-TAX
The accounting treatment for income-tax in respect of the Companys
income is based on the Accounting Standard 22 on Accounting for Taxes
on Income as notified by the Companies (Accounting Standards) Rules,
2006. The provision made for income-tax in the accounts comprises both,
the current tax and the deferred tax. The deferred tax assets and
liabilities for the year, arising on account of timing differences, are
recognised in the Profit and Loss Account and the cumulative effect
thereof is reflected in the Balance Sheet.
Deferred tax is measured based on the tax rates and the tax laws
enacted or substantively enacted at the Balance Sheet date. Deferred
tax asset is recognised only to the extent that there is reasonable
certainty that sufficient future taxable income will be available
against which such deferred tax asset can be realised. In situations
where the Company has unabsorbed depreciation or carried forward
losses, deferred tax assets are recognised only if there is virtual
certainty supported by convincing evidence that the same can be
realised against future taxable profits.
17 SECURITISED ASSETS
Derecognition of securitised assets in the books of the Corporation,
recognition of gain or loss arising on securitisation and accounting
for credit enhancement provided by the Corporation is based on the
Guidance Note on Accounting for Securitisation issued by the Institute
of Chartered Accountants of India.
Securitised assets are derecognised in the books of the Corporation
based on the principle of surrender of control over the assets. Credit
Enhancement provided by the Corporation by way of investments in
subordinate Class B Pass Through Certificates is included under
Investments in Pass Through Certificates in Schedule 5.
Mar 31, 2010
1 ACCOUNTING CONVENTION
These accounts have been prepared in accordance with historical cost
convention, applicable Accounting Standards notified by the Companies
(Accounting Standards) Rules, 2006 and relevant provisions of the
Companies Act, 1956 and the guidelines issued by the National Housing
Bank.
The preparation of financial statements requires the Management to make
estimates and assumptions considered in the reported amounts of assets
and liabilities (including contingent liabilities) as of the date of
the financial statements and the reported income and expenses during
the reporting period. Management believes that the estimates used in
preparation of the financial statements are prudent and reasonable.
Future results could differ from these estimates.
2 SYSTEM OF ACCOUNTING
The Corporation adopts the accrual concept in the preparation of the
accounts.
The Balance Sheet and the Profit and Loss account of the Corporation
are prepared in accordance with the provisions contained in Section 211
of the Companies Act 1956, read with Schedule VI thereto and the
approvals granted under the section by the Company Law Board.
3 INFLATION
Assets and liabilities are recorded at historical cost to the
Corporation. These costs are not adjusted to reflect the changing value
in the purchasing power of money.
4 INTEREST ON HOUSING LOANS
Repayment of housing loans is generally by way of Equated Monthly
Instalments (EMIs) comprising principal and interest. EMIs commence
once the entire loan is disbursed. Pending commencement of EMIs,
pre-EMI interest is payable every month. Interest on loans is computed
either on an annual rest or on a monthly rest basis.
5 INCOME FROM LEASES
Lease rental income in respect of leases is recognised in accordance
with the Accounting Standard on ÃLeasesà (AS 19) notified by the
Companies (Accounting Standards) Rules, 2006.
6 INCOME FROM INVESTMENTS
The gain/loss on account of Investments in Preference Shares,
Debentures/Bonds and Government Securities held as long-term
investments and acquired at a discount/premium, is recognised over the
life of the security on a pro-rata basis.
7 BROKERAGE AND SERVICE CHARGES ON DEPOSITS
Brokerage, other than incentive brokerage, and service charges on
deposits are amortised over the period of the deposit. Incentive
brokerage, which is payable to agents who achieve certain collection
targets, is charged to the Profit and Loss Account.
8 TRANSLATION OF FOREIGN CURRENCY
Assets and liabilities in foreign currencies are converted at the rates
of exchange prevailing at the year-end, where not covered by forward
contracts. Wherever the Corporation has entered into a forward contract
or an instrument that is, in substance, a forward exchange contract,
the difference between the forward rate and the exchange rate on the
date of the transaction is recognised as income or expense over the
life of the contract. Cross currency swaps and other derivatives have
been marked to market at the year end. The net loss on translation of
assets and liabilities in foreign currencies and mark to market of
derivatives is debited to Profit and Loss Account.
9 INVESTMENTS
Investments are capitalised at cost inclusive of brokerage and stamp
charges and are classified into two categories, viz. Current or Long
Term. Provision for diminution in the value of investments is made in
accordance with the guidelines issued by the National Housing Bank and
the Accounting Standard on ÃAccounting for Investmentsà (AS 13)
notified by the Companies (Accounting Standards) Rules, 2006, and is
recognised through the Provision for Contingencies Account. The
investment in properties is net of provision for depreciation.
10 FIXED ASSETS
Fixed Assets are capitalised at cost inclusive of legal and/or
installation expenses. Leased Assets are accounted in accordance with
the Accounting Standard on ÃLeasesà (AS 19) notified by the Companies
(Accounting Standards) Rules, 2006.
11 INTANGIBLE ASSETS
Intangible Assets comprising of system software are stated at cost of
acquisition, including any cost attributable for bringing the same to
its working condition, less accumulated amortisation. Any expenses on
such software for support and maintenance payable annually are charged
to revenue account.
12 DEPRECIATION AND AMORTISATION
Fixed Assets
Depreciation on all Fixed Assets other than Leased Assets and Leasehold
Improvements, is provided for the full year in respect of assets
acquired during the year. No depreciation is provided in the year of
sale.
In respect of Leased Assets and Leasehold Improvements, depreciation is
provided on a pro-rata basis from the date of installation /
acquisition.
Depreciation on Buildings, Computers, Leased Assets and Leasehold
Improvements, is calculated as per the straight-line method; and on
other assets as per the reducing balance method. All assets except
Computers and Leased Assets are depreciated at rates specified by the
Companies Act, 1956. Depreciation on Computers is calculated at the
rate of 25 per cent per annum. Depreciation in respect of finance
leases is provided on the straight line method over the primary period
of lease or over the specified period, as defined under Section
205(5)(a) of the Companies Act, 1956, whichever is shorter.
Depreciation in respect of Leasehold Improvements is provided on the
straight-line method over the primary period of the lease.
Intangible Assets
Capitalised software is amortised over a period of four years on a
straight-line basis.
13 INVESTMENT IN PROPERTIES
Depreciation on Investment in properties is provided on a pro-rata
basis from the date of acquisition.
14 PROVISION FOR CONTINGENCIES
The CorporationÃs policy is to carry adequate amounts in the Provision
for Contingencies account to cover the principal amount outstanding in
respect of all non-performing assets, standard assets as also all other
contingencies. All loans and other credit exposures where the
instalments are overdue for Ninety days and more are classified as
non-performing assets in accordance with the prudential norms
prescribed by the National Housing Bank. The provisioning policy of the
Corporation covers the minimum provisioning required as per the NHB
guidelines.
15 EMPLOYEE BENEFITS
Provident Fund and Superannuation Fund Contributions
The CorporationÃs contributions paid / payable during the year towards
Provident Fund and Superannuation Fund are charged in the Profit and
Loss Account every year. These funds and the schemes thereunder are
recognised by the Income-tax authorities and administered by various
trustees.
Gratuity and Post Retirement Pension
The net present value of the CorporationÃs obligation towards gratuity
to employees and post retirement pension scheme for whole time
Directors is actuarially determined based on the projected unit credit
method, except in the case of Dubai branch where the provision for
gratuity is made in accordance with the prevalent local laws. Actuarial
gains and losses are immediately recognised in the Profit and Loss
Account.
Other Employee Benefits
Compensated absences in the form of short term benefits are determined
on an undiscounted basis and recognised over the period of service,
which entitles the employees to such benefits. Any such benefits which
are long term in nature are actuarially determined.
16 INCOME-TAX
The accounting treatment for Income-tax in respect of the CorporationÃs
income is based on the Accounting Standard on ÃAccounting for Taxes on
Incomeà (AS 22) notified by the Companies (Accounting Standards) Rules,
2006. The provision made for Income-tax in the Accounts comprises both,
the current tax and the deferred tax. The deferred tax assets and
liabilities for the year, arising on account of timing differences, are
recognised in the Profit and Loss Account; and the cumulative effect
thereof is reflected in the Balance Sheet.
Deferred tax is measured based on the tax rates and the tax laws
enacted or substantively enacted at the Balance Sheet date. Deferred
tax asset is recognised only to the extent that there is reasonable
certainty that sufficient future taxable income will be available
against which such deferred tax asset can be realised. In situations
where the Company has unabsorbed depreciation or carried forward
losses, deferred tax assets are recognised only if there is virtual
certainty supported by convincing evidence that the same can be
realised against future taxable profits.
17 SECURITISED ASSETS
Derecognition of securitised assets in the books of the Corporation,
recognition of gain or loss arising on securitisation and accounting
for credit enhancement provided by the Corporation is based on the
Guidance Note on Accounting for Securitisation issued by the Institute
of Chartered Accountants of India.
Securitised assets are derecognised in the books of the Corporation
based on the principle of surrender of control over the assets. Credit
Enhancement provided by the Corporation by way of investments in
subordinate Class B Pass Through Certificates is included under
Investments in Pass Through Certificates in Schedule 5.
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