Notes to financial statements for the year ended 31 March 2017 (Contd.)
1 General information
The Company is a registered non-banking finance company engaged in the business of providing finance. The Company is registered with the Reserve Bank of India as a Non-Banking Finance Company (NBFC) with effect from 5 March 1998, with Registration No.A-13.00243. The Company primarily deals in the financing of two and three-wheelers, consumer durables, small business loans, personal loan cross-sell, mortgage loans and loan against securities etc. The Reserve Bank of India vide its letter dated 7 October 2010, has re-classified the Company as a ''''Loan Company'''' from ''''Asset Finance Company''''.
2 Statement of significant accounting policies Basis of preparation
The financial statements have been prepared in conformity with generally accepted accounting principles to comply in all material respects with the notified Accounting Standards (''''AS'''') under section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 and the guidelines issued by the Reserve Bank of India (''''RBI'''') as applicable to a Non-Banking Finance Company (''''NBFC''''). The financial statements have been prepared under the historical cost convention on an accrual basis. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year except for the change in accounting policies explained below. The complete financial statements have been prepared along with all disclosures.
All assets and liabilities have been classified as current or non-current as per the criteria set out in Schedule III to the Companies Act, 2013. Based on the nature of the products and services and the time between acquisition of assets for processing and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as twelve months for the purpose of current/non-current classification of its assets and liabilities.
A) System of Accounting
(i) The Company follows the mercantile system of accounting and recognizes income and expenditure on an accrual basis except in case of significant uncertainties.
(ii) Financial Statements are based on historical cost. These costs are not adjusted to reflect the impact of changing value in the purchasing power of money.
(iii) The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent liabilities as on the date of financial statements. The estimates and assumptions used in the accompanying financial statements are based upon Management''''s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results could differ from those estimates. Any revision to accounting estimates is recognized prospectively in current and future periods.
B) Fixed assets, depreciation/amortization
Tangible fixed assets
Fixed assets are stated at cost less accumulated depreciation and impairment losses, if any. Cost comprises the purchase
price and any attributable cost of bringing the asset to its working condition for its intended use.
Depreciation on tangible fixed assets
(i) Depreciation is provided on a pro-rata basis for all tangible assets on straight line method over the useful life of assets, except buildings which is determined on written down value method.
(ii) Useful lives of assets are determined by the Management by an internal technical assessment except where such assessment suggests a life significantly different from those prescribed by Schedule II - Part C of the Companies Act, 2013 where the useful life is as assessed and certified by a technical expert.
(iii) Depreciation on leasehold improvements is provided for on straight line method over the primary period of lease of premises.
(iv) Depreciation on addition to assets and assets sold during the year is being provided for on a pro rata basis with reference to the month in which such asset is added or sold as the case may be.
(vi) Assets having unit value up to H 5,000 is charged off fully in the financial year of purchase of assets.
Intangible assets and amortization thereof
Intangible assets, representing specialized software etc. are recognized at cost and carried net of amortization, consistent with the criteria specified in Accounting Standard 26 ''''Intangible Assets'''' as prescribed by Companies (Accounting Standards) Rules, 2006. Intangible assets are amortized systematically over the useful life of the assets. Accordingly, most software cost are generally amortized as an intangible equally over a period of sixty months unless it has a shorter life.
C) Impairment of assets
An assessment is done at each Balance Sheet date as to whether there is any indication that an asset may be impaired. If any such indication exists, an estimate of the recoverable amount of asset is determined. If the carrying value of relevant asset is higher than the recoverable amount, the carrying value is written down accordingly.
(i) Investments maturing within twelve months from the date of acquisition and investments made with the specific intention to dispose off within twelve months from the date of acquisition are classified as short-term/current investments and are carried at their cost or market value/net realizable value, whichever is lower. Investments maturing within three months from the date of acquisition are classified as cash equivalents if they are readily convertible into cash.
(ii) Investments other than short-term/current investments are carried at their cost of acquisition. Long-term investments maturing within twelve months from the close of the year (i.e. current maturities) are reclassified as current investments. Provision for diminution in value of investments, if any, is made if, in the opinion of the Management, such diminution is other than temporary.
(iii) Long-term fixed income securities are stated at cost less amortization of premium/discount as the case may be [Refer E(ii)(c) below].
E) Revenue recognition
(i) Income from financing activity
Interest, finance charges, service charges etc. are recognized as income on accrual basis with reference to the terms of contractual commitments such as interest subsidy and finance agreements entered into with borrowers, as the case may be, except in the case of delinquent assets provided for where income is recognized only when realized and, interest subsidy income, where income is recognized when right to receive payment is established.
(ii) Income from investment
a. Dividend is accrued when the right to receive is established i.e. when declared by the investee entity.
b. Interest on securities is accounted for on accrual basis except where the ultimate collection cannot be established with reasonable certainty.
c. In order to reflect the contracted yield as interest income, the premium/discount on fixed income securities is amortized with reference to the ''''yield to maturity'''' prevailing on acquisition.
(iii) Income from assignment
a. In case of assignment of loans, the loans assigned are de-recognized when all the rights, title, future receivables and interest thereof along with all the risks and rewards of ownership are transferred to the purchasers of assigned loans. On de-recognition, loss arising is recognized upfront, however, premium is amortized based on receivables over the remaining tenure of loans.
b. Income on retained interest in the assigned asset, if any, is accounted on accrual basis except in case of non-performing assets wherein interest income is recognized on receipt basis as per NBFC prudential norms.
c. Servicing fee received is accounted for based on the underlying deal structure of the transaction as per the agreement
(iv) Gain/loss on sale of non-performing assets
Gain/loss on sale of non-performing assets is recognized in line with the extant RBI guidelines.
(v) Other income
Other income is mainly accounted on accrual basis, except in case of significant uncertainties.
F) Receivables under financing activity
(i) Receivables under financing activity represent principal and matured finance charges outstanding at the close of the year but net of amount written off.
(ii) The Company assesses all receivables for their recoverability and accordingly makes provisions for non-performing assets and delinquent assets not yet NPAs as considered necessary including by accelerating provision to an early stage based on past experience, emerging trends and estimates which is disclosed under ''''Short-term provisions'''' in note no. 7 to the financial statements. However, the Company ensures that the said provisions are not lower than the provisions stipulated in the applicable RBI Regulations/Guidelines.
(iii) A general provision, as required by RBI Regulations/Guidelines, is also made by the Company on the standard assets outstanding which is disclosed under ''''Long-term provisions'''' in note no. 7 to the financial statements.
G) Borrowing costs
All borrowing costs are charged to Statement of Profit and Loss in the year in which they are incurred.
H) Employee benefits
(i) Gratuity: Payment for present liability of future payment of gratuity is being fully made to the approved gratuity fund viz. Bajaj Auto Ltd. gratuity fund trust, which covers the same under cash accumulation policy and debt fund of the Life Insurance Corporation of India and Bajaj Allianz Life Insurance Company Ltd. (BALICL). However, any deficits in Plan Assets managed by LIC and BALICL as compared to actuarial liability determined using the projected unit credit method are recognized as a liability.
(ii) Superannuation: Defined Contribution to superannuation fund is being made as per the scheme of the Company.
(iii) Provident fund contributions are made to Bajaj Auto Ltd. provident fund trust. Deficits, if any, of the fund as compared to aggregate liability is additionally contributed by the Company and recognized as an expense. Shortfall in fund assets over present obligation determined using the projected unit credit method by an appointed actuary is recognized as a liability.
(iv) Privilege Leave: Privilege leave entitlements are recognized as a liability, in the calendar year of rendering of service, as per the rules of the Company. As accumulated leave can be availed and/or encased at any time during the tenure of employment, the liability using the projected unit credit method is recognized at the actuarially determined value by an appointed actuary.
(v) Defined contribution to Employees'''' Pension Scheme, 1995 is made to Government provident fund authority.
I) Income tax
Provision for taxation is made on the basis of the taxable profits computed for the current accounting period in accordance with the Income Tax Act,1961. Deferred tax resulting from timing differences between book profits and tax profits is accounted for at the current rate of tax or the substantively enacted rate of tax to the extent the timing differences are expected to crystallize, in case of deferred tax liabilities with reasonable certainty and in case of deferred tax assets with reasonable certainty that there would be adequate future taxable income against which deferred tax assets can be realized. However, deferred tax asset arising on account of unabsorbed depreciation and business losses are recognized only if there is virtual certainty supported by convincing evidence that there would be adequate future taxable income against which the same can be realized/set off.
J) Provisions and contingent liabilities
The Company creates a provision when there is present obligation as a result of a past event that probably requires an outflow of resources and a realizable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
K) Employee Stock Option Scheme
The Company operates its Employee Stock Option Scheme through a trust formed for the purpose. Equity shares are issued to the trust on the basis of the Company''''s expectation of the options being exercised by employees. Cost of benefit, if any, is recognized as an expense by the Company. The balance equity shares not exercised and held by the trust are disclosed as a reduction from the share capital and securities premium account with an equivalent adjustment to the subscription loan advanced to the Trust. See note no. 29.
L) Operating Leases
As a lessee: Leases in which a significant portion of the risks and rewards of ownership are retained by the less or are classified as operating leases. Payments made under operating leases are charged to the Statement of Profit and Loss on a straight line basis over the period of the lease.
M) Foreign currency translation
Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.
Foreign currency monetary items are retranslated using the exchange rate prevailing at the reporting date. Non-monetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. Non-monetary items, which are measured at fair value or other similar valuation denominated in a foreign currency, are translated using the exchange rate at the date when such value was determined.
All exchange differences are dealt with including differences arising on translation settlement of monetary items in the Statement of Profit and Loss.
# Pursuant to approval of the Members:
(i) Authorized share capital of the Company was increased and subdivided from H 75 crore (consisting of 75,000,000 equity shares of face value of H 10 each) to H 150 crore (consisting of 750,000,000 equity shares of face value of H 2 each), consequent to the decision to subdivide issued capital of 53,872,190 equity shares of face value of H 10 each as on the record date, i.e. 10 September 2016 (end of the day), into 269,360,950 equity shares of face value of H 2 each and declaration of bonus thereon as stated in (ii) below.
(ii) On 14 September 2016, the Allotment Committee of the Board of Directors allotted 269,360,950 equity shares of face value of H 2 each as bonus shares in the proportion of one bonus equity share for every one equity share of face value of H 2 held as on the record date, by capitalizing an amount of H 538,721,900 from securities premium account. The bonus shares were listed on BSE Ltd. and National Stock Exchange of India Ltd. w.e.f. 19 September 2016.
(a) in terms of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, the exercise price and the number of warrants earlier issued to the promoter, Bajaj Finserv Ltd. and equity shares offered on rights basis held in abeyance1, were proportionately adjusted and
(b) in terms of the Employee Stock Option Scheme, 2009 of the Company, the grant price and the number of outstanding stock options in respect of stock options granted under the Employee Stock Option Scheme, 2009 were proportionately adjusted.
During the year, Bajaj Finserv Ltd. (Promoter) exercised the option to convert 9,250,000 warrants, issued on preferential basis, upon payment of H 306.08 crore being balance 75% amount of the issue consideration and accordingly, 9,250,000 equity shares of the face value of H 2 each were allotted to Bajaj Finserv Ltd. on 23 November 2016 at a premium of H 439.20 per equity share. The funds received upon allotment have been utilized for meeting funding requirements of the business activities of the Company as per the objects of the issue.
(b) Terms/rights/restrictions attached to equity shares
(i) The Company has only one class of equity shares having a par value of H2 per share (Previous year H 10 each). Each holder of equity shares is entitled to one vote per share. The dividend recommended by the Board of Directors and approved by the shareholders in the Annual General Meeting is paid in Indian Rupees. In the event of liquidation
of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
(ii) Pursuant to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, equity shares held by Bajaj Finserv Ltd. are restricted from transfer as per details below:
(a) 308,566,130 equity shares up to 13 June 2017.
(b) 9,250,000 equity shares up to 11 December 2019.
Consequent to the opinion expressed by the ''''Expert Advisory Committee'''' of the Institute of Chartered Accountants of India on the applicability of clause 22A.1 of the SEBI Guidelines, the balance unexercised equity shares held by the trust at the close of the year have been reduced against the share capital as if the trust is administered by the Company itself.
The securities premium related to the unexercised equity shares held by the trust at the close of the year aggregating H 622,283,779 (as at 31 March 2016 H 448,741,587) has also been reduced from securities premium account and adjusted against the loan outstanding from the trust. See note no. 29 for further details.
Dividends declared by the Company do not accrete to unexercised options. Accordingly, any dividend received by the ESOP trust is remitted to the Company and adjusted against the source from which dividend has been paid.