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AAVAS Financiers

BSE: 541988|NSE: AAVAS|ISIN: INE216P01012|SECTOR: Finance - General
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Notes to Accounts Year End : Mar '19

A. Corporate Information

AAVAS FINANCIERS LIMITED (“the Company”) is a public limited Company domiciled in India and incorporated under the provisions of the Companies Act, 1956. The Company is registered as a housing finance company with National Housing Bank (NHB) vide Registration No. 04.0151.17 and is engaged in the long term financing activity in the domestic markets to provide housing finance.

B. Basis of preparation of financial statements

a) Basis of preparation

The standalone financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time).

For all years up to and including the year ended 31 March 2018, the Company prepared its financial statements in accordance with accounting standards notified under the section 133 of the Companies Act 2013, read together with paragrapRs.7 of the Companies (Accounts) Rules, 2014 (Indian GAAP or previous GAAP). These financial statements for the year ended 31 March 2019 are the first which has prepared in accordance with Ind AS by the Company. The standalone financial statements have been prepared on a historical cost basis, except for, derivative financial instruments and other financial assets held for trading and all of which have been measured at fair value. The standalone financial statements are presented in Indian Rupees (INR) and all values are rounded to the nearest lakh, except when otherwise indicated.

Disclosures as required in terms of Housing Finance Companies - Corporate Governance (National Housing Bank) Directions, 2018 NHB(ND)/DRS/REG/MC-07/2018, 02 July, 2018 have been prepared on the basis of previous GAAP pursuant to the NHB circular no. NHB (ND)/DRS/Policy Circular No.89/2017-18 dated June 14, 2018, which have been presented solely based on the information compiled by the Management.

b) Basis of measurement

The financial statements have been prepared on an accrual basis as a going concern and under the historical cost convention, except for foreign currency borrowings denominated in INR that are measured at fair value at the end of each reporting date as required under relevant Ind AS.

1(a) Cash on hand includes of RS.0.95 lakh (P.Y. RS.0.95 lakh) balance of franking machine.

1(b) Other Bank Balance in deposit accounts include deposits under lien aggregating to RS.1173.61 lakh (P.Y. RS.1147.30 lakh) towards the first loss guarantee provided by the Company under the securitization agreements.

2(a) The Company uses Cross Currency swaps to manage its foreign currency risk arising from borrowings in foreign currencies. This contract has not been designated in a hedging relationship and are entered into for periods consistent with exposure of the underlying transactions.

i) Loans and receivables are non-derivative financial assets which generate a fixed or variable interest income for the Company. The carrying value may be affected by changes in the credit risk of the counterparties.

ii) Loans granted by the Company are secured by equitable mortgage/registered mortgage of the property and/or undertaking to create a security and/or personal guarantees and/or hypothecation of assets and/or assignments of life insurance policies. The process of security creation was in progress for loans to the extent of RS.15,376.85 lakh at March 31, 2019 (P.Y. RS.17,058.52 lakh)

iii) Loans sanctioned but undisbursed amount is RS.25,211.36 lakh as on March 31, 2019 (P.Y. RS.28,725.99 lakh)

iv) The Company is not granting any loans against gold jewellery as collateral.

v) The Company has assigned a pool of certain loans amounting to RS.76,268.14 lakh (P.Y. RS.48,584.04 lakh) by way of a direct assignment transaction. These loan assets have been de-recognised from the loan portfolio of the Company as the sale of loan assets is an absolute assignment and transfer on a ‘no-recourse’ basis. The Company continues to act as a servicer to the assignment transaction on behalf of assignee. In terms of the assignment agreement, the Company pays to assignee, on a monthly basis, the pro-rata collection amounts.

During the year the Company has securitised assets amounting to HNil (P.Y. RS.10,767.38 lakh). These loan assets have not been de-recognised from the loan portfolio of the Company as these does not meet the de-recognition criteria. The Company is responsible for collection and servicing of this loan portfolio on behalf of buyers/investors. In terms of the said securitisation agreements, the Company pays to buyer/investor on monthly basis the prorated collection amount as per individual agreement terms.

vi) The Company has granted certain loans to staff amounting to RS.1,282.69 lakh as on March 31,2019 (P.Y. RS.415.13 lakh).

vii) Loan assets include three loans which became doubtful due to fraudlent misrepresentation by the borrowers and same has been provided for.

3(a)(1) Impairment allowance for loans and advances to customers

The table below shows the credit quality and the maximum exposure to credit risk excluding Excess Interest Spread (EIS) receivable as on March 31, 2019 based on the Company’s risk assessment model and year-end stage classification. The amounts presented are gross of impairment allowances. Details of the Company’s risk assessment model are explained in Note 4(a)(4)(vii) and policies on whether ECL allowances are calculated on an individual or collective basis are set out in Note 4(a)(4)(vi).

3(a)(2)(i) Housing-Salaried lending

An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to Housing- Salaried lending is, as follows:

3(a)(2)(ii) Housing-Self Employed lending

An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to Housing- Self Employed lending is, as follows:

3(a)(2)(iii) Non-Housing-Salaried lending

An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to Non-Housing-Salaried lending is, as follows:

3(a)(2)(iv) Non-Housing-Self Employed lending

An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to Non-Housing- Self Employed lending is, as follows:

3(a)(3) Loan commitments

An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to loan commitments is, as follows:

3(a)(4) Impairment assessment

The references below show where the Company’s impairment assessment and measurement approach is set out in these notes. It should be read in conjunction with the Summary of significant accounting policies.

3(a)(4)(i) Definition of default

The Company considers a financial instrument as defaulted and considered it as Stage 3 (credit-impaired) for ECL calculations in all cases, when the borrower becomes more than 90 days past due on its contractual payments. The Probability of Default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed year, if the facility has not been previously derecognised and is still in the portfolio.

3(a)(4)(ii) The Company’s process for managing risk

Credit risk is the risk that a customer or counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company’s main income generating activity is lending to customers and therefore credit risk is a principal risk. Credit risk mainly arises from loans and advances to customers , investments in debt securities and derivatives that are an asset position. The Company considers all elements of credit risk exposure such as counterparty default risk, geographical risk and sector risk for risk management purposes.

3(a)(4)(iii) Exposure at default

The exposure at default (EAD) represents the gross carrying amount of the financial instruments subject to the impairment calculation, addressing both the client’s ability to increase its exposure while approaching default and potential early repayments too.

To calculate the EAD for a Stage 1 loan, the Company assesses the possible default events within 12 months for the calculation of the 12mECL. For Stage 2 and Stage 3 financial assets, the exposure at default is considered for events over the lifetime of the instruments.

3(a)(4)(iv) Loss given default

The Company segments its retail lending products into smaller homogeneous portfolios (housing and non housing), based on key characteristics that are relevant to the estimation of future cash flows. The data applied is collected loss data and involves a wider set of transaction characteristics (e.g., product type, wider range of collateral types) as well as borrower characteristics.

3(a)(4)(v) Significant increase in credit risk

The Company continuously monitors all assets subject to ECLs. In order to determine whether an instrument or a portfolio of instruments is subject to 12mECL or LTECL, the Company assesses whether there has been a significant increase in credit risk since initial recognition. The Company considers an exposure to have significantly increased in credit risk when contractual payments are more than 30 days past due.

When estimating ECLs on a collective basis for a group of similar assets, the Company applies the same principles for assessing whether there has been a significant increase in credit risk since initial recognition.

3(a)(4)(vi) Grouping financial assets measured on a collective basis

As explained in Note 1.16, the Company calculates ECLs on collective basis on following asset classes:

- Housing-Salaried lending

- Housing-Self Employed lending

- Non Housing-Salaried lending

- Non Housing-Self Employed lending

The Company groups these exposure into smaller homogeneous portfolios, based on a combination of internal and external characteristics of the loans, as described below:

For housing- salaried & self-employed lending these are:

- Product type

- Customer type

For non-housing salaried & self-employed salaried lending these are:

- Product type

- Customer type

3(a)(4)(vii) Risk assessment model

The Company has designed and operates its risk assessment model that factors in both quantitative as well as qualitative information on the loans and the borrowers. The model uses historical empirical data to arrive at factors that are indicative of future credit risk and segments the portfolio on the basis of combinations of these parameters into smaller homogenous portfolios from the perspective of credit behaviour.

3(a)(5) Collateral

The Company holds collateral to mitigate credit risk associated with financial assets.The main types of collateral and the types of assets these are associated with are listed in the table below. The collateral presented relates to instruments that are measured at amortised cost.

The Company did not hold any financial instrument for which no loss allowance is recognised because of collateral at March 31, 2019. There was no change in the Company’s collateral policy or collateral quality during the year.

Refer note 44(C) for risk concentration based on Loan to value (LTV).

4(a) Under Ind AS, with respect to Assignment deals, Company has created an Excess Interest Spread (EIS) receivable, with corresponding credit to Statement of Proft and loss for the year, which has been computed by discounting EIS to present value.

5(a). Assets obtained by taking possession of collateral

The Company obtained the following assets during the year by taking possession of collateral held as security against loans and advances and held at the year end. The Company’s policy is to realise collateral on a timely basis. The Company does not use non-cash collateral for its operations.

6.1 Secured term loans from National Housing Bank carry rate of interest in the range of 4.61% to 9.40% p.a. The loans are having tenure of 10 to 15 years from the date of disbursement and are repayable in quarterly instalments. These loans are secured by hypothecation (exclusive charge) of the loans given by the Company. Loans from National Housing Bank to the extent of HNil (P.Y. RS.9,994.93 lakh) have been guaranteed by corporate guarantee of AU Small Finance Bank Limited.

6.2 Secured term loans from Banks include loans from various banks and carry rate of interest in the range of 8.30% to 10.20% p.a. The loans are having tenure of 3 to 15 years from the date of disbursement and are repayable in monthly or quarterly or yearly instalments. These loans are secured by hypothecation (exclusive charge) of the loans given by the Company. Secured term loan from banks include auto loans of RS.204.42 lakh (P.Y. RS.167.27 lakh) carrying rate of interest in the range of 8.40% to 10.50% p.a. which are secured by hypothecation of Company’s vehicles.

6.3 Loans from financial institutions include auto loans of RS.61.45 lakh (P.Y. RS.27.43 lakh)

6.4 Cash credit borrowings from bank are secured against hypothecation of housing loans given by the Company, are repayable on demand and carry interest rates ranging from 8.35% to 11.20%

6.5 Other borrowings includes associated liabilities to securitized asset that has been re-recognised due to non fulfillment of derecognition criteria as per Ind AS.

*The Company had made an Initial Public Offer (IPO) during the year ended 31st March, 2019, for 1,99,79,503 equity shares of RS.10 each, comprising of 43,84,897 fresh issue of equity shares by the Company and 1,55,94,606 equity shares offered for sale by Selling shareholders. The equity shares were issued at a price of RS.821 per share (including premium of RS.811 per share). Out of the total proceeds from the IPO of RS.1,64,031.72 lakh, the Company’s share was RS.36,000.00 lakh from the fresh issue of 43,84,897 equity shares. Fresh equity shares were allotted by the Company on 4th October 2018 and the shares of the Company were listed on the stock exchanges on 8th October 2018.

Expenses incurred by the Company aggregating to RS.998.72 lakh, in connection with IPO have been adjusted towards share premium account.

**During the financial year 2018-19 , the Company has converted 360,000 and 440,000 convertible warrants into the equity shares at a Issue Price of RS.328.00 and 430.50 per warrant respectively .

As per records of the Company, including its register of shareholders/ members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownerships of shares.

As per records of the Company, including its register of shareholders/ members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownerships of shares.

7.1 Rights, preferences and restrictions attached to shares Equity shares:

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. The dividend as and when proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholding.

8.1 Nature and purpose of reserve Share Premium Account

Share Premium Account is used to record the premium on issue of shares. The reserve is utilised in accordance with provisions of the Companies Act, 2013.

Special reserve

Section 29C (i) of The National Housing Bank Act, 1987 defines that every housing finance institution which is a Company shall create a reserve fund and transfer therein a sum not less than twenty percent of its net profit every year as disclosed in the statement of profit and loss before any dividend is declared. For this purpose any special reserve created by the Company under Section 36(1) (viii) of Income tax Act 196, is considered to be an eligible transfer. During the year ended March 31, 2019, The Company has transferred an amount of RS.3164.62 lakh (P.Y. RS.2016.85 lakh) to special reserve in terms of Section 36(1) (viii) of the Income Tax Act 1961 considered eligible for special reserve u/s 29C of NHB Act 1987 and also transferred an amount of 358.19 lakh (P.Y. HNil) to the Reserve in terms of Section 29C of the National Housing Bank (“NHB”) Act, 1987.

Share Based Payments Reserve

This Reserve relates to stock options granted by the Company to employees under various ESOP Schemes. This Reserve is transferred to Securities Premium Account on exercise of vested options.

Money received against share warrants

During the financial year 2017-18, the Company had issued 360,000 and 440,000 convertible warrants at a Issue Price of RS.328.00 and 430.50 per warrant respectively upon receipt of RS.3 per warrant , with a right exercisable by the warrant holder to convert each warrant with one equity share of the Company of face value RS.10/- each at a premium of RS.318.00 and RS.420.50 as the case may be, any time before the expiry of 5 years from the date of allotment or the filing of red herring prospectus with SEBI in accordance with applicable laws or any other year specified by Board, whichever is earlier, of the said convertible warrants.

During the financial year 2018-19, the Company has converted 360,000 and 440,000 convertible warrants into the equity shares at a Issue Price of RS.328.00 and 430.50 per warrant respectively.

9(a) Loan origination income included in Interest income on Loan is disclosed net of the direct incremental costs of RS.2,687.17 lakh for year ended March 31, 2019 (P.Y. RS.1,656.08 lakh) associated with the origination of the underlying loans.

Gratuity and other post-employment benefit plans

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service is eligible for gratuity on cessation of employment and it is computed at 15 days salary (last drawn salary) for each completed year of service subject to such limit as prescribed by The Payment of Gratuity Act, 1972 as amended from time to time.

The following tables summarize the components of net benefits expense recognized in the statement of profit and loss and the funded status and amounts recognized in the balance sheet for the respective plans.

Statement of profit and loss

Net employee benefit expense recognized in the employee cost

The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

Other Benefits

The Company has provided for compensatory leaves which can be availed and not encashed as per policy of the Company as present value obligation of the benefit at related current service cost measured using the Projected Unit Credit Method on the basis of an actuarial valuation.

10 Stock options

I The Company has formulated various share-based payment schemes for its employees (Plan I), management team (Plan II) and directors (Plan III). Details of all grants in operation during the Year ended March 31, 2019 are as given below:

Note:

A. During year ended March 31, 2018, pursuant to the the Board approval dated January 25, 2018, all options granted under Management team 2016 (ESOP 2016 II) plan were vested with immediate effect with no further conditions attached to them.

B. During Year ended March 31, 2019, pursuant to the the Board approval dated June 08, 2018, last three tranches of options related to fixed vesting (2,15,724 options) and 25% of performance options (89,886 options) granted under Directors 2016 (ESOP 2016 III) plan were vested on June 30, 2018 subject to lock in conditions as prescribed in stock plan.

II. Computation of fair value of options granted during the Year ended March 31, 2019

Nil options granted during the Year ended March 31, 2019

Computation of fair value of options granted during year ended March 31, 2018

Plan I : The weighted average fair value of stock options granted during the year was RS.153.51 (Plan I (b)).

The Black-Scholes Model has been used for computing the weighted average fair value considering the following:

The expected life of the share options is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a year similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome.

11. Hedging activities and derivatives

Derivatives not designated as hedging instruments

The Company uses foreign currency denominated borrowings and Cross Currency Swaps to manage some of its transaction exposures. The Cross Currency Swaps are not designated as cash flow hedges and are entered into for years of generally 34 to 36 months.

12. First-time adoption of Ind AS

These financial statements, for the year ended 31 March 2019, are the first financial statements the Company has prepared in accordance with Ind AS. For years up to and including the year ended 31 March 2018, the Company prepared its financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013, read together with paragrapRs.7 of the Companies (Accounts) Rules, 2014 (Indian GAAP or previous GAAP).

Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for years ending on 31 March 2019, together with the comparative year data as at and for the year ended 31 March 2018, as described in the summary of significant accounting policies. In preparing these financial statements, the Company’s opening balance sheet was prepared as at 1 April 2017, the Company’s date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements, including the balance sheet as at 1 April 2017 and the financial statements as at and for the year ended 31 March 2018.

Exemptions applied

Ind AS 101 allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions/exceptions:

Use of Estimates

The estimates at April 1, 2017, March 31, 2018 and March 31, 2019 are consistent with those made for the same dates in accordance with Indian GAAP apart from the following adjustments, where application of Indian GAAP did not require estimation:

- Fair valuation of financials instruments carried at FVTPL

- Impairment of financial assets based on Expected Credit Loss (ECL) model

- Determination of discounted value for financial instruments carried at amortized cost

The estimates used by the Company to present these amounts in accordance with Ind AS reflect conditions at April 1, 2017 the date of transition to Ind AS, and as of March 31, 2018.

Mandatory exemptions :

Classification and measurement of financial assets

The Company has classified the financial assets in accordance with Ind AS 109 on the basis of facts and circumstances that exist at the date of transition to Ind AS.

Impairment of financial assets

The Company has applied the exception related impairment of financial assets given in Ind AS 101. It has used reasonable and supportable information that is available without undue cost or effort to determine the credit risk at the date that financial assets were initially recognized and compared that to the credit risk as at April 1, 2017.

De-recognition of financial assets and liabilities

The Company has elected to apply the de-recognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS, except for securitisation deals since the information needed to apply Ind AS 109 was available at the time of initially accounting for these securitisation deals.

Optional exemptions :

Arrangements containing a lease:

Appendix C to Ind AS 17 requires an entity to assess whether a contract or arrangement contains a lease. In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. However, the Company has used Ind AS 101 exemption and assessed all arrangements based for embedded leases based on conditions in place as at the date of transition.

Fair value measurement of financial assets or financial liabilities

The Company has elected to apply Ind AS 109 to day one gain or loss provisions prospectively to transactions occurring on or after the date of transition to Ind AS.

12a Footnotes to the reconciliation of equity as at April 01, 2017 and March 31, 2018 and profit or loss for the Year ended March 31, 2018.

i Loans and advances

(i) Under Indian GAAP, the Company has created provision for loans and advances based on the Guidelines on prudential norms issued by National Housing Bank. Under Ind AS, impairment allowance has been determined based on Expected Loss model (ECL). Due to ECL model, the Company impaired its loans and advances by RS.817.30 lakh as on March 31, 2018 (RS.754.40 lakh as on April 01, 2017) as against Provision made under Indian GAAP by RS.1,273.85 lakh as on March 31, 2018 (RS.1,261.48 lakh as on April 01, 2017). In addition, ECL on undisbursed loan commitment has also been determined as per Ind AS for RS.47.39 lakh as on March 31, 2018 (RS.33.95 lakh as on April 01, 2017). The differential impact has been adjusted in Profit and loss during the year.

(ii) Under Indian GAAP, transaction costs incurred in connection with loans and advances are amortised upfront and charged to profit or loss for the year. Under Ind AS, transaction costs are included in the initial recognition amount of financial asset measured at amortised cost and charged to profit or loss using the effective interest method.

(iii) The Company has securtised certain assets and under Indian GAAP, it has derecognised those assets in the books. However, as per Ind AS, the Company has not transferred substantially all the risks and rewards, the asset has been re-recognised, and the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

(iv) Under Indian GAAP, the Company has transferred certain assets to asset reconstruction company which has been de-recognised from the loan portfolio of the Company. Under Ind AS, the the Company has re-recognised the assets and also recognised an associated liability to the extent of the rights and obligations retained by the Company.

ii Other financial assets

Under Ind AS, with respect to Assignment deals, Company has created an Interest only strip receivable amounting to RS.10,679.52 lakh as on March 31, 2018 (RS.6,682.22 lakh as on April 01, 2017) with corresponding credit to Proft and loss for the year, which has been computed by discounting Excess Interest Spread (EIS) to present value. Necessary adjustment with respect to credit risk has also been made.

iii Share based payments

Under Indian GAAP, the Company recognised only the intrinsic value for the share based payments plans as an expense. Ind AS requires the fair value of the share options to be determined using an appropriate pricing model recognised over the vesting year. An additional expense of RS.4,205.12 lakh has been recognised in profit or loss for the year ended March 31, 2018. Share options totalling RS.19.44 lakh which were granted before and still not vested at 1 April 2017, have been recognised as a separate component of equity in SBP reserve against retained earnings at 1 April 2017.

iv Borrowings, Debt securities and Subordinate liabilities

Under Indian GAAP, transaction costs incurred in connection with borrowings, debt securities and subordinate liabilities are amortised upfront and charged to profit or loss for the year. Under Ind AS, transaction costs are included in the initial recognition amount of financial liability and charged to profit or loss using the effective interest method.

v Cross Currency Swaps (CCS) not designated as hedging instruments

Under the previous GAAP, the Company has considered the critical terms of the CCS and those of the principal term loan are same, based on the internal assessment carried out by the management, the net impact of the marked to market valuation of the CCS, net of gain/loss on the underlying loan, is not expected to be material and accordingly no adjustment has been made in the financial statements.

Under Ind AS, derivative which are not designated as hedging instruments are fair valued with resulting changes being recognised in Retained earnings/profit or loss.

vi Deferred tax

Indian GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the year. Ind AS 12 requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The application of Ind AS 12 approach has resulted in recognition of deferred tax on new temporary differences which was not required under Indian GAAP.

In addition, the various transitional adjustments lead to temporary differences. According to the accounting policies, the Group has to account for such differences. Deferred tax adjustments are recognised in correlation to the underlying transaction either in retained earnings or a separate component of equity. The net impact on deferred tax liabilities is of negative of RS.40.65 lakh as on March 31, 2018

Ind AS does not require the creation of DTL on the amount transferred to the Special Reserve. Accordingly, DTL created on special reserve as at March 31, 2017 is reversed and the charge through the Statement of Profit and Loss Account in earlier years is also reversed.

vii Remeasurements of post employement benefit plans

Under Ind AS, remeasurements i.e. actuarial gain and losses on the net defined liability are recognised in other comprehensive income instead of profit or loss. Under the previous GAAP, these measurements were forming part of the profit or loss for the year. Though there is no imapct on the total equity as at March 31, 2018.

viii Other comprehensive income

Under Indian GAAP, the Company has not presented other comprehensive income (OCI) separately. Hence, it has reconciled Indian GAAP profit or loss to profit or loss as per Ind AS. Further, Indian GAAP profit or loss is reconciled to total comprehensive income as per Ind AS.

ix Statement of cash flows

The transition from Indian GAAP to Ind AS has not had a material impact on the statement of cash flows.

x Figures under previous GAAP have been regrouped/ reclassified for Ind AS purpose wherever applicable.

13. Segment information

The Company has only one reportable business segment, i.e. lending to borrowers, which have similar nature of products and services, type/class of customers and the nature of the regulatory environment (which is banking), risks and returns for the purpose of Ind AS 108 on ‘Segment Reporting’ specified under section 133 of the Companies Act 2013, read with Rule 7 of the Companies (Accounts] Rules, 2014 . Accordingly, the amounts appearing in the financial statements relate to the Company’s single business segment.

The Company has been granted Certificate of Registration (No. 08.0095.11) to commence/carry on the business as a housing finance company without accepting public deposits by National Housing Bank on August 04, 2011 and got a revised Certificate of Registration (02.0104.13) after conversion of Company from a private limited company to a public limited company on February 08, 2013. Further, the name of our company was changed to AAVAS FINANCIERS LIMITED, pursuant to a Shareholders resolution passed at the EOGM held on February 23, 2017. A fresh certificate of incorporation consequent to such change of name was issued on March 29, 2017 by the Registrar of companies, Jaipur and subsequently the revised certificate of Registration (No.04.0151.17) was issued on April 19, 2017 by National Housing Bank.

14. Related party

a. Names of related parties identified in accordance with Ind AS -24 “Related Party Disclosures” (with whom there were transactions during the current year/previous year)

1. Entities where control exists:

Holding Company

Lake District Holdings Limited - (Upto 8th June 2018)

Shareholders having Substantial interest

Lake District Holdings Limited - (From 8th June 2018)

Partners Group ESCL Limited - (upto 4th October 2018)

Wholly owned Subsidiary Company

Aavas Finserv Limited - (From 30th November 2017)

2. Key Management Personnel

Mr. Krishan Kant Rathi Chairperson and Independent Director

Mr. Sushil Kumar Agarwal Whole Time Director and Chief Executive Officer

Mrs. Kalpana Iyer Independent Director

Mr. Sandeep Tandon Independent Director (From 27th July, 2017)

Mr. Ramachandra Kasargod Kamath Non-Executive Nominee Director

Mr. Vivek Vig Non-Executive Nominee Director

Mr. Ghanshyam Rawat Chief Financial Officer

Mr. Sharad Pathak Company Secretary & Compliance Officer

3. Enterprises under significant influence of the Key Management Personnel

Aavas foundation (From 26th March 2019)

4. Relatives of Key Managerial Personnel

Mrs. Veenakumari Tandon (Mother of Mr. Sandeep Tandon)

15. Details of dues to micro and small enterprises as defined under the MSMED Act, 2006

There are no amounts that need to be disclosed in accordance with the Micro Small and Medium Enterprise Development Act, 2006 (the ‘MSMED’) pertaining to micro or small enterprises. for the year ended March 31, 2019 (no supplier has intimated the Company about its status as micro or small enterprises or its registration with the appropriate authority under MSMED)

16. The Company’s pending litigations comprise of claims against the Company primarily by the customers. The Company has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed the contingent liabilities where applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have a material adverse effect on its financial statements of the Company as at March 31, 2019.

17. Commitments and contingencies

a The Company has taken various premises under operating lease. The future minimum lease payments are given below:

b Capital and other commitments:

Refer note 4(iii) for undisbursed commitment relating to loans.

c There are no Contingent Liability as on March 31, 2019 (March 31, 2018 H Nil and April 01, 2017 H Nil)

d There are numerous interpretative issues relating to the Supreme Court (SC) judgement on PF dated 28th February, 2019. As a matter of caution, the Company has made a provision on a prospective basis from the date of the SC order. The Company will update its provision, on receiving further clarity on the subject.

18. CSR expenses

Operating expenses include 131.64 lakh for the Year ended March 31, 2019 (P.Y. RS.64.25 lakh) towards Corporate Social Responsibility (CSR), in accordance with Companies Act, 2013. Gross Amount required to be spent by the Company during the year is RS.176.43 lakh. (P.Y. RS.100.20 lakh).

19. Fair values

Set out below, is a comparison by class of the carrying amounts and fair value of the Company’s financial instruments, other than those with carrying amounts that are reasonable approximations of fair values:

Valuation techniques

The management assessed that cash and cash equivalents, investments, other financial assets, trade payables, derivative financial instruments, and other financial liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:

Loans - The fair value of fixed rate loans are determined by discounting expected future contractual cash flows using current market interest rates charged to similar ctegories of new loans. The fair value of floating rate loans are deemed to be equivalent to the carrying value.

Assets held for sale - Real estate properties are valued on the basis of a well progressed sale process with price quotes from real estate agents. Further, real estate properties upto RS.1,000.00 lakh are classified as level 2 in below on the basis of a well progressed sale process with price quotes from real estate agents.

Borrowings - The fair value of certain fixed rate borrowings is determined by discounting expected future contractual cash flows using current market interest rates charged for similar new loans. The fair value of floating rate borrowings are deemed to be equivalent to the carrying value.

20. Fair value hierarchy

The following table provides the fair value measurement hierarchy of the Company’s assets and liabilities.

20.1 There have been no transfers between Level 1, Level 2 and Level 3 for the year ended March 31, 2019, March 31, 2018 and April 1, 2017.

21. Transfer of Financial assets

Transfers of financial assets that are not derecognised in their entirety Securitisation:

The Company uses securitisations as a source of finance. Such transactions generally result in the transfer of contractual cash flows from portfolios of financial assets to holders of issued debt securities. Securitisation has resulted in the continued recognition of the securitised assets.

The table below outlines the carrying amounts and fair values of all financial assets transferred that are not derecognised in their entirety and associated liabilities.

The carrying amount of above assets and liabilities is a reasonable approximation of fair value.

Assignment Deal:

During the year ended March 31, 2019, the Company has sold some loans and advances measured at amortised cost as per assignment deals, as a source of finance. As per the terms of these deals, since substantial risk and rewards related to these assets were transferred to the buyer, the assets have been decognised from the Company’s balance sheet.

The management has evaluated the impact of assignment transactions done during the year for its business model. Based on the future business plan, the Company business model remains to hold the assets for collecting contractual cash flows.

The table below summarises the carrying amount of the derecognised financial assets measured at amortised cost and the gain on derecognition, per type of asset.

Other transfers:

During the year the Company has transferred certain assets amounting to H Nil (P.Y. RS.249.71 lakh) to an asset reconstruction Company. These assets have been de-recognised from the loan portfolio of the Company to the extent of cash consideration received. The Company continues to act as a servicer for the portfolio of such assets. There was no gain recorded from the assets transferred.

22. Capital management:

For the purpose of the Company’s capital management, capital includes issued equity capital, share premium and all other equity reserves attributable to the equity holders of the Company net of intangible assets. The primary objective of the Company’s capital management is safety and security of share capital and maximize the shareholder value.

The Company manages its capital structure in light of changes in economic conditions and the requirements of the financial covenants. The Company monitors capital using a gearing ratio, which is total debt divided by net worth. The Company’s policy is to keep the gearing ratio at reasonable level of 6-8 times in imminent year while the Housing Finance Companies (National Housing Bank) Directions, 2010 (the “NHB Directions”) currently permits HFCs to borrow up to 16 times of their net owned funds (“NOF”). The Company includes with in debt, its all interest bearing loans and borrowings.

In order to achieve this overall objective, the Company’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest-bearing loans and borrowing in the current year.

23. Financial risk management objectives and policies

The Company’s Principal financial liabilities comprise loans and borrowings. The main purpose of these financial liabilities is to finance the Company’s operations. At the other hand company’s Principal financial assets include loans and cash and cash equivalents that derive directly from its operations.

As a lending institution, Company is exposed to various risks that are related to lending business and operating environment. The Principal Objective in Company ‘s risk management processes is to measure and monitor the various risks that Company is subject to and to follow policies and procedures to address such risks. Company ‘s risk management framework is driven by Board and its subcommittees including the Audit Committee, the Asset Liability Management Committee and the Risk Management Committee. Company gives due importance to prudent lending practices and have implemented suitable measures for risk mitigation, which include verification of credit history from credit information bureaus, personal verification of a customer’s business and residence, technical and legal verifications, conservative loan to value, and required term cover for insurance. The major types of risk Company face in businesses are liquidity risk, credit risk, interest rate risk.

(A) Liquidity risk

Liquidity Risk refers to the risk that the Company can not meet its financial obligations. The objective of Liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirement. The unavailability of adequate amount of funds at optimum cost and co-terminus tenure to repay the financial liabilities and further growth of business resultantly may face an Asset Liability Management (ALM) mismatch caused by a difference in the maturity profile of Company assets and liabilities. This risk may arise from the unexpected increase in the cost of funding an asset portfolio at the appropriate maturity and the risk of being unable to liquidate a position in a timely manner and at a reasonable price. The Company manages liquidity risk by maintaining adequate cash reserves and undrwan credit facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

The Company has given cash collateral for the securitisation transactions and do not expect any net cash outflow and hence guarantees given for securitisation transactions have not been shown as part of below table. Further, undisbursed loan amount being cancellable in nature are not disclosed as part of below mentioned maturity profile.

The table below summarises the maturity profile of the undiscounted cash flows of the Company’s financial liabilities.

(B) Credit risk

Credit Risk arises from the risk of loss that may occur from the default of Company’s customers under loan agreements. Customer defaults and inadequate collateral may lead to higher NPAs. Company address credit risks by using a set of credit norms and policies, which are approved by Board and backed by analytics and technology. Company has implemented a structured and standardized credit approval process, including customer selection criteria, comprehensive credit risk assessment and cash flow analysis, which encompasses analysis of relevant quantitative and qualitative information to ascertain the credit worthiness of a potential customer. Actual credit exposures, credit limits and asset quality are regularly monitored and analysied at various levels. Company has created a robust credit assessment and underwriting practice that enables to fairly price credit risks.

The Company has created more than 60 templates of customer profiles through its experience over the years, with risk assessment measures for each geography in which it operates. The Company continuously seek to develop and update such profiles in order to identify and source reliable customers and improve efficiencies. The Company also conduct an analysis of the existing cash flow of customer’s business to assess their repayment abilities. The Company has implemented a four prong system of credit assessment comprising underwriting, legal assessments, technical assessments and a risk containment unit.

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk was RS.488,637.25 lakh and RS.344,838.64 lakh as of March 31, 2019 and March 31, 2018 respectively, being the total of the carrying amount of Loan assets and EIS receivable.

(C) Analysis of risk concentration

The Company’s concentrations of risk are managed based on Loan to value (LTV) segregation as well as geographical spread. The following tables stratify credit exposures from housing and other loans to customers by range of loan-to-value (LTV) ratio .LTV is calculated as the ratio of gross amount of the loan - or the amount committed for loan commitments - to the value of the collateral. The value of the collateral for housing and other loans is based on collateral value at origination.

(D) Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market factors. Such changes in the values of financial instruments may result from changes in the interest rates, credit, liquidity and other market changes. The Company’s exposure to market risk is primarily on account of interest rate risk.

(I) Interest Rate Risk:-

The Company is subject to interest rate risk, primarily since it lends to customers at rates and for maturity years that may differ from funding sources. Interest rates are highly sensitive to many factors beyond control, including the monetary policies of of the Reserve Bank of India, deregulation of the financial sector in India, domestic and international economic and political conditions, inflation and other factors. In order to manage interest rate risk, the Company seek to optimize borrowing profile between short-term and long-term loans. The Company adopts funding strategies to ensure diversified resource-raising options to minimize cost and maximize stability of funds. Assets and liabilities are categorized into various time buckets based on their maturities and Asset Liability Management Committee supervise an interest rate sensitivity report periodically for assessment of interest rate risks.

Due to the very nature of housing finance, the Company is exposed to moderate to higher Interest Rate Risk. This risk has a major impact on the balance sheet as well as the income statement of the Company. Interest Rate Risk arises due to:

i) Changes in Regulatory or Market Conditions affecting the interest rates

ii) Short term volatility

iii) Prepayment risk translating into a reinvestment risk

iv) Real interest rate risk

In short run, change in interest rate affects Company’s earnings (measured by NII or NIM) and in long run it affects Market Value of Equity (MVE) or net worth. It is essential for the Company to not only quantify the interest rate risk but also to manage it proactively. The Company mitigates its interest rate risk by keeping a balanced portfolio of fixed and variable rate loans and borrowings. Further Company carries out Earnings at risk analysis and maturity gap analysis at quarterly intervals to quantify the risk.

Interest Rate sensitivity

The following table demonstrates the sensitivity to a reasonably possible change in interest rates (all other variables being constant) of the Company’s statement of profit and loss:

(II) Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign currency rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primary to the foreign currency borrowings taken from bank.

(E) Operational risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and system or from external events. Operational risk is associated with human error, system failures and inadequate procedures and controls. It is the risk of loss arising from the potential that inadequate information system; technology failures, breaches in internal controls, fraud, unforeseen catastrophes, or other operational problems may result in unexpected losses or reputation problems. Operational risk exists in all products and business activities.

The Company recognizes that operational risk event types that have the potential to result in substantial losses includes Internal fraud, External fraud, employment practices and workplace safety, clients, products and business practices, business disruption and system failures, damage to physical assets, and finally execution, delivery and process management.

The Company cannot expect to eliminate all operational risks, but it endeavours to manage these risks through a control framework and by monitoring and responding to potential risks. Controls include effective segregation of duties, access, authorisation and reconciliation procedures, staff education and assessment processes, such as the use of internal audit.

24. Additional information required in terms of Housing Finance Companies - Corporate Governance (National Housing Bank) Directions, 2018 NHB(ND)/DRS/REG/MC-07/2018, 02 July, 2018 have been prepared on the basis of previous GAAP pursuant to the NHB circular no. NHB (ND)/DRS/Policy Circular No.89/2017-18 dated June 14, 2018 is given in Annexure 1, which have been presented solely based on the information compiled by the Management.

25. Previous year figures have been regrouped/ reclassified wherever applicable.

A.4 Derivatives

1) The Company has no transactions/exposure in derivatives in the current and previous year.

2) The Company has no unhedged foreign currency exposure on March 31, 2019 (P.Y. H Nil)

b. Exposure to Capital Market

The Company has no exposure to capital market directly or indirectly in the current and previous year.

c. Details of financing of parent company products

There is no financing of parent company products.

d. Details of Single Borrower Limit (SGL) / Group Borrower Limit (GBL) exceeded by the HFC

The Company has not exceeded the Single Borrower Limit and Group Borrower Limit as prescribed by NHB.

e. Unsecured Advances

The Company has not financed any unsecured advances against intangible securities such as rights, licenses, authority etc as collateral security.

A.8 Registration obtained from other Financial sector regulators

The Company has not obtained registration from other Financial sector regulators

A.9 Disclosure of penalties imposed by NHB and other regulators

NHB has not imposed any penalty on the Company during the year.

A.10 Ratings assigned by credit rating agencies and migration of ratings during the year:

During the year, CARE has upgraded Long term rating to AA-/ Stable from A / Positive and reaffirmed highest short term rating of A1 to the Company. ICRA has upgraded our long term ratings from A / Stable to A / Positive and reaffirmed highest short term rating of A1 to the Company

A.12 Draw Down from Reserves

There has been no draw down from reserves during the year ended March 31, 2019 (P.Y. H Nil)

A.15 Overseas Assets

The Company does not have any overseas assets.

A.16 Off-Balance Sheet SPVs sponsored (which are required to be consolidated as per accounting Norms)

The Company does not have any off balance sheet Special Purpose Vehicle (SPV) which are required to be consolidated as per accounting norms.

*Complaints uploaded on NHB-GRIDS, where company provides redressal to customer from their end. All complaints at NHB GRIDS Portal have been redressed by the Company but 7 complaints are pending to be closed by NHB-GRIDS.

Source : Dion Global Solutions Limited
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