FUTURE RELIANCE CAPITAL Accounting Policy

1 Background


Reliance Capital Limited (''''the Company'''') is registered as Non-Banking Financial Company (NBFC) as defined under section 45 - IA of the Reserve Bank of India Act, 1934 (RBI). Before demerger, the Company was principally engaged in lending and investing activities. Post Demerger of its commercial finance business, the Company has positioned itself as a Core Investment Company (''''CIC'''') and in terms of the Core Investment Companies (Reserve Bank) Directions, 2016 (RBI CIC Directions). As a CIC, the Company is primarily a holding company, holding investments in its subsidiaries and other group companies. The Company''''s subsidiaries are engaged in a wide array of businesses in the financial service sector.


2 Significant Accounting Policies


a Basis of Preparation of Standalone Financial Statements


The accompanying standalone financial statements are prepared and presented under the historical cost convention, on the accrual basis of accounting unless otherwise stated in accordance with the generally accepted accounting principles (GAAP) in India and comply with the Accounting Standards specified under section 133 of the Companies Act, 2013 (The Act), read with Rule 7 of the Companies (Accounts) Rules, 2014 and relevant provisions of the Act. These financial statements are presented in Indian rupees rounded to the nearest crore except otherwise stated.


All assets and liabilities have been classified as current or non-current as per the Company''''s normal operating cycle and other criteria set out in Schedule III to the Act. Based on the nature of the services and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as twelve months for the purpose of current or non-current classification of assets and liabilities.


The Company complies, with the prudential norms relating to income recognition, asset classification and provisioning for bad and doubtful debts and other matters, specified in the directions issued by the Reserve Bank of India in terms of "Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016" issued by the Reserve Bank of India ("RBI") vide their Notification No. RBI/DNBR/201 6-17/45 Master Direction DNBR. PD. 008/03.10.1 1 9/2016-17 dated September 1, 2016, as applicable to the Company before demerger and has taken necessary measures so as to comply with the prudential norms applicable to CIC and has commenced adherence to those norms e.g. Concentration norms, Leverage ratio, Capital to Risk Assets Ratio (CRAR) etc. as of March 31, 2017. Accordingly, the Company has prepared and presented its financial statements and disclosures for the year ended March 31, 2017 as per RBI Directions applicable to CIC. The above is in line with the Company''''s communications with RBI.


b Use of Estimates


The preparation of financial statements requires estimates and assumptions to be made that affect the reported amount of assets and liabilities, disclosure of contingent liabilities on the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Difference between the actual results and estimates are recognized in the period in which the results are known/materialized.


c Revenue Recognition


i) Interest income:


Interest income is recognized as it accrues on a time proportion basis taking into account the amount outstanding and the rate applicable except in the case of nonperforming assets ("NPAs") where it is recognized, upon realization.


ii) Dividend income:


Dividend income is recognized when the right to receive payment is established.


iii) Income from investments:


Profit / (Loss) earned from sale of securities is recognized on trade date basis. The cost of securities is computed based on weighted average basis.


iv) Lease rental income:


Lease rental income is recognized in the Statement of Profit and Loss on a straight-line basis over the lease term.


v) Discount on investments:


The difference between the acquisition cost and face value of debt instruments is recognized as interest income over the tenor of the instrument on straight-line basis.


vi) Redemption premium on investments:


Redemption premium on investments is recognized as finance income over the tenor of the investments.


vii) Share of profits or losses in partnership firm:


Share of profits / losses in partnership firm is accounted for once the amount of the share of profit/loss is ascertained and credited/debited to the Company''''s account in the books of the partnership firm.


viii) Loan processing fee income:


Loan processing fee income is accounted for upfront upon processing of loan as and when it becomes due.


ix) Management fee income:


Management fee income towards support services is accounted as and when services are rendered and it becomes due on contractual terms with the parties.


x) Income from assignment / securitization:


In case of assignment / securitization of loans, the assets are derecognized 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/ securitized loans in accordance with the Guidelines issued by Reserve Bank of India vide RBI/2012-13/170 DNBS. PD. No. 301 /3.10.01 /201 2-1 3 dated August 21, 2012. The profit if any, as reduced by the estimated provision for loss/ expenses and incidental expenses related to the transaction, is recognized as gain or loss arising on assignment / securitization over the tenure of the deal. Loss arising from these transactions if any are recognized immediately in the statement of profit and loss.


xi) Servicing fee income:


Servicing fees received is accounted for based on the underlying deal structure of the transaction as per the agreement. d Fixed assets - Property, Plant & Equipments


i) Tangible assets Leased assets


All assets given on operating lease are shown as fixed assets net of depreciation and impairment loss, if any. Initial direct costs in respect of leases are expensed in the year in which such costs are incurred.


Own assets


Tangible Assets are stated at cost of acquisition less accumulated depreciation and impairment loss if any. Cost includes acquisition cost which is directly attributable to bring the asset to its working condition for its intended use.


ii) Intangible assets


Intangible assets are recognized where it is probable that the future economic benefit attributable to the assets will flow to the Company and its cost can be reliably measured. Intangible assets are stated at cost of acquisition less accumulated amortization.


Expenditure incurred on acquisition / development of intangible assets which are not put / ready to use at the reporting date is disclosed under intangible assets under development.


e Depreciation / Amortization


Depreciation on fixed assets is provided as follows:


i) Tangible assets


Depreciation on Property, Plant and Equipment is provided in accordance with the provisions of Schedule II of the Companies Act, 2013. Tangible assets are depreciated on straight line basis method over the useful life of assets, as prescribed in Part C of Schedule II of the Companies Act, 2013.


The estimated useful lives for the different types of assets are :


(i) Furniture and Fixtures -10 years


(ii) Office equipments - 5 years


(iii) Computers - 3 years


(iv) Vehicles - 8 years


(v) Plant & Machinery given on lease - 8 years


(vi) Data processing machineries given on lease - 3 years


(vii) Vehicles given on lease - 8 years


(viii) Buildings - 60 years


ii) Intangible Assets are amortized on straight-line basis over the useful life of the asset up to a maximum of 5 years commencing from the month in which such asset is first installed.


The Company provides pro-rata depreciation from the day the asset is put to use and for any asset sold, till the date of sale.


f Impairment of assets


The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset is less than the carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the Statement of Profit and Loss. If at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciable historical cost.


g Investments


Investments are classified as long term or current based on intention of the management at the time of purchase. Current investments are valued, scrip wise at cost and market value, whichever is lower. Long-term investments are carried at carrying cost less diminution in value which is other than temporary, determined separately for each individual investment scrip wise.


An investment property is accounted for in accordance with cost model. The cost of any shares in a co-operative society or a company, the holding of which is directly related to the right to hold the investment property, is added to the carrying amount of the investment property.


h Repossessed assets


Assets repossessed against the settlement of loans are carried in the balance sheet at outstanding loan amount. The classification and provision is based on the underlying Days Past Due (DPD) for these loans.


i Loan origination/acquisition cost


All direct cost incurred for the loan origination is amortized over the tenure of the loan.


j Security of loans given


Housing loans / loans against property granted are secured by equitable registered mortgage of property and / or undertaking to create a security. Other secured loans are secured against hypothecation of respective assets.


k Provisions for Non Performing Assets (NPA) and doubtful debts


Loans and advances, receivables are identified as bad/ doubtful based on the duration of the delinquency. The duration is set at appropriate levels for each product. NPA provisions are made based on the management''''s assessment of the degree of impairment and the level of provisioning meets the CIC Master Directions as prescribed by the Reserve Bank of India.


l Provisions for standard assets


Provisions for standard assets are made as per para 18 of CIC Master Directions as prescribed by the Reserve Bank of India.


m Market linked debentures (MLD)


The Company has issued certain non-convertible debentures, the rate of interest which is linked to performance of specified indices over the period of the debentures. The Company hedges its interest rate risk on MLD by taking positions in future & options based on specified indices. Any gain/loss on these hedge positions are netted against with interest expense on MLD and resultant ''''net loss / gain'''' is recognized in Statement of Profit and Loss.


n Discount on commercial paper


The difference between the issue price and the redemption value of commercial papers is apportioned on time basis and recognized as discounting expense.


o Foreign currency transactions


Transactions denominated in foreign currencies are recorded at the exchange rate prevailing at the time of the transaction. Exchange differences, if any arising out of transactions settled during the year are recognized in the Statement of Profit and Loss.


Monetary assets and liabilities denominated in foreign currencies at the yearend are restated at year end rates.


p Employee benefits


i) Provident fund: Company''''s contributions to the recognized provident fund, which is a defined contribution scheme, are charged to the Statement of Profit and Loss.


ii) Gratuity: The Company''''s gratuity benefit scheme is a defined benefit plan. The Company''''s net obligation in respect of the gratuity benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets, if any, is deducted.


The present value of the obligation under such defined benefit plan is determined based on actuarial valuation using the Projected Unit Credit Method, which recognises each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.


The obligation is measured at the present value of the estimated future cash flows. The discount rates used for determining the present value of the obligation under defined benefit plan, are based on the market yields on Government securities as at the balance sheet date.


Actuarial gains and losses are recognized immediately in the Statement of Profit and Loss.


iii) Leave encashment: Leave encashment which is a defined benefit, is accrued for based on an actuarial valuation at the balance sheet date carried out by an independent actuary.


iv) Phantom Shares: As a long term incentive plan to employees, the Company has initiated Phantom stock option plan which are cash settlement rights where the employees are entitled to get cash compensation based on agreed formulae linked to market value of group company shares upon exercise of phantom stock options over notional or hypothetical shares, whereby instead of becoming entitled to buy the actual shares on vesting, they become entitled to cash payment equivalent to appreciation in the value over defined base price of shares. The present value of the obligation under such plan is determined based on actuarial valuation.


q Employee Stock Option Scheme ("ESOS")


The employees of the Company and its subsidiaries are entitled for grant of stock options (equity shares), based on the eligibility criteria set in ESOS plan of the Company. The employee compensation expenses are accounted on the basis of "intrinsic value method" as prescribed by the Guidance Note on Employee share based payments issued by the Institute of Chartered Accountants of India as required by the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014. The excess, if any, of quoted market price over the exercise price on the date of grant would be recognized as compensation cost over the vesting period. The Company recognizes compensation cost on the basis of estimated number of stock options expected to vest.


r Borrowing costs


Borrowing costs, which are directly attributable to the acquisition / construction of fixed assets, till the time such assets are ready for intended use, are capitalized as part of the cost of the assets. Other borrowing costs are recognized as an expense in the year in which they are incurred. Brokerage costs directly attributable to a borrowing are expensed over the tenure of the borrowing.


s Operating leases


Lease payments for assets taken on an operating lease are recognized as an expense in the Statement of Profit and Loss on a straight-line basis over the lease term.


t Earnings per share


The basic earnings per share is computed by dividing the net profit / (loss) after tax attributable to the equity shareholders for the period by the weighted average number of equity shares outstanding during the reporting year. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. Diluted earnings per share, is computed by dividing the net profit / (loss) after tax by the weighted average number of equity shares and dilutive potential equity shares outstanding during the year.


In computing dilutive earnings per share, only potential equity shares that are dilutive and that reduce profit / increase loss per share are included. u Taxation


- Current Tax


Provision for current tax is made after taking into consideration benefits admissible under the provisions of the Income Tax Act, 1961. Minimum Alternative Tax (MAT) credit entitlement is recognized where there is convincing evidence that the same can be realised in future.


- Deferred tax


The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognized using the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognized when there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognized to the extent there is virtual certainty of realization of such assets. Deferred tax assets are reviewed as at each balance sheet date and written down or written up to reflect the amount that is reasonably / virtually certain (as the case may be) to be realized.


v Provisions, contingent liabilities and contingent assets


The Company creates a provision when there is a present obligation as a result of past events and it is probable that there will be outflow of resources and a reliable estimate of the obligation can be made of the amount of the obligation. Contingent liabilities are not recognized but are disclosed in the notes to the financial statements. 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.


Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that the outflow of resources would be required to settle the obligation, the provision is reversed.


Contingent assets are not recognized nor disclosed in the financial statements.


3 Previous year figures has been regrouped / reclassified wherever necessary. The figures for the previous year includes figures of Commercial Finance Business of the Company demerged with Reliance Commercial Finance Limited (formerly Reliance Gilts Limited) with effect from April 1, 2016 i.e. the Appointed Date and therefore to that extent not strictly comparable to that of current year''''s figures.


(e) The Company has one class of equity shares having a par value of Rs, 10 per share. Each shareholder is eligible for one vote per share held. In the event of liquidation of the Company, the holder of equity shares will be entitled to receive remaining assets of the Company. The distribution will be in proportion to the number of equity shares held by the shareholder.


The Board of Directors have recommended a dividend of 105 per cent [Rs, 10.50 (Previous year Rs, 10) per equity share] for the year subject to the approval of the members of the Company at the ensuing Annual General Meeting. In terms of revised Accounting Standard (AS) 4 ''''Contingencies and Events Occurring after the Balance sheet date'''' as notified by the Ministry of Corporate Affairs through Amendments to the Companies (Accounting Standards) Amendment, Rules 2016 dated March 30, 2016, the Company has not accounted for proposed dividend as a liability as at March 31, 2017. Accordingly, the proposed dividend of Rs, 265 crore and tax thereon Rs, 25 crore (net of dividend distribution tax setoff receivable from subsidiaries) are not recognized as liability in the financial statements for the year ended March 31, 2017.


(g) As on March 31, 2017, 14,76,167 equity shares (Previous year 6,21,809 equity shares) are held by custodian against which depository receipts have been issued.


* Includes Rs, 846 crore (Previous year Rs, 846 crore) created pursuant to the scheme of amalgamation approved by High Court which shall for all regulatory and accounting purposes be considered to be part of the owned funds / net worth of the Company.


** Includes Rs, 3 837 crore (Previous year Rs, 3 837 crore) created pursuant to scheme of amalgamation approved by High Court.


*** Created pursuant to section 45-IC of Reserve Bank of India Act, 1934.


a. Cash Credits amounting to Rs, Nil (Previous year Rs, 3 crore) referred above are secured by pari passu first charge on all present and future book debts (only performing assets), receivables and loan assets pertaining only to the Company''''s commercial finance division which has been demerged as on April 1, 2016.


b. Short term loan amounting to Rs, Nil (Previous year Rs, 675 crore) referred above are secured by pari passu first charge on all present and future book debts (only performing assets), receivables and loan assets pertaining only to the Company''''s commercial finance division which has been demerged as on April 1, 2016.


c. In respect of Commercial Papers maximum amount outstanding during the year was Rs, 4 074 crore (Previous year Rs, 5 499 crore).


Disclosure of amounts payable to vendors as defined under the "Micro, Small and Medium Enterprise Development Act, 2006" is based on the information available with the Company regarding the status of registration of such vendors under the said Act. There are no overdue principal amounts / interest payable amounts for delayed payments to such vendors at the Balance Sheet date. There are no delays in payment made to such suppliers during the year or for any earlier years and accordingly there is no interest paid or outstanding interest in this regard in respect of payments made during the year or brought forward from previous years.

CIN: U67190WB2003PTC096617. Trading in Commodities is done through our Group Company Dynamic Commodities Pvt. Ltd. The company is also engaged in Proprietory Trading apart from Client Business.
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Disclaimer: There is no guarantee of profits or no exceptions from losses. The investment advice provided are solely the personal views of the research team. You are advised to rely on your own judgment while making investment / Trading decisions. Past performance is not an indicator of future returns. Investment is subject to market risks. You should read and understand the Risk Disclosure Documents before trading/Investing.

Disclosure: We, Dynamic Equities Private Limited are also engaged in Proprietory Trading apart from Client Business. In case of any complaints/grievances, clients may write to us at compliance@dynamiclevels.com

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