Moneycontrol Be a Pro
Get App
SENSEX NIFTY
Moneycontrol.com India | Notes to Account > Miscellaneous > Notes to Account from ICICI Securities Ltd. - BSE: 541179, NSE: ISEC
YOU ARE HERE > MONEYCONTROL > MARKETS > MISCELLANEOUS > NOTES TO ACCOUNTS - ICICI Securities Ltd.

ICICI Securities Ltd.

BSE: 541179|NSE: ISEC|ISIN: INE763G01038|SECTOR: Miscellaneous
SET ALERT
|
ADD TO PORTFOLIO
|
WATCHLIST
LIVE
BSE
Dec 13, 16:00
354.90
-0.3 (-0.08%)
VOLUME 6,501
LIVE
NSE
Dec 13, 15:59
355.05
-0.4 (-0.11%)
VOLUME 106,041
Mar 18
Notes to Accounts Year End : Mar '19

1. approach on exemptions under ind as 101 first time adoption of Indian accounting standards

First time adoption of Ind AS

For reporting periods up to and including the year ended March 31, 2018, the Company prepared its financial statements in accordance with Indian GAAP The Company has prepared its financial statements in accordance with Ind AS prescribed under section 133 of the Act and other accounting principles generally accepted in India and as notified by Ministry of Corporate Affairs with the transition date being April 1, 2017. The impact of transition has been provided in the Opening Reserves as at April 1, 2017.

In preparing these financial statements, the Company has opted to avail the choices available for certain transitional provisions within Ind AS 101, ''First time adoption of Indian Accounting Standards'', which offers exemption from applying specified Ind AS retrospectively. The most significant of these provisions are in the following areas:

i. Business combinations

The Company has elected not to apply Ind AS 103- Business Combinations, retrospectively to past business combinations that occurred before April 1, 2017 (transition date).

ii. Deemed cost for property, plant and equipment and intangible assets

The Company has elected to continue with the carrying value for all of its property, plant and equipment and intangible assets as measured as per the previous GAAP and used that as its deemed cost as at the date of transition.

iii. Classification and measurement of financial assets

At the transition date, the Company assessed the conditions for classification of financial assets and accordingly classified its financial assets at either amortized cost, fair value through other comprehensive income or fair value through profit and loss account, as appropriate, under the provisions of Ind AS 109, ''Financial Instruments''.

iv. Share based payment transactions

The parent of the Company has issued share options to the eligible employees of the Company. The Company has elected not to apply recognition and measurement requirements under Ind AS 102 for share based payments for the options vested before the transition date. Options which remain unvested on the date of transition will be fair valued and entire cost till the transition date will be recorded through retained earnings and through the statement of profit and loss thereafter.

v. De-recognition of financial assets

The Company has elected to not recognize financial assets or financial liabilities which were de-recognized in accordance with its previous GAAP as a result of transactions that occurred before the transition date.

vi. Revenue from contracts with customers

The Company has availed the following practical expedients in applying the standard retrospectively:

a. For completed contracts within the same annual reporting period, no restatement has been done;

b. For completed contracts that have variable consideration, the Company has used the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods; and

c. For all reporting periods presented before the beginning of the first Ind AS reporting period, no disclosures of the amount of transaction price allocated to the remaining performance obligations have been done.

vii. Investments in subsidiaries

The financial statements prepared are separate financial statements. The Company has elected to measure investment in subsidiaries at deemed cost (previous GAAP carrying amount) as per Ind AS 27.

C. Reconciliation of Statement of Cash flows

There were no material differences between the Statement of Cash Flows presented under Ind AS and the Previous GAAP

Notes to the reconciliations. (a) Valuation of debt and equity securities:

Under Indian GAAP, investments that are acquired with the intention of holding them for not more than one year from the date on which such investments are made, are considered as current investment and shown as securities for trade. Investments acquired with the intention of holding for more than one year from the date on which such investments are made are classified as long-term investments. The securities held as securities for trade is carried at cost or market value, determined on an individual investment basis, whichever is lower. Accordingly, only mark-to-market losses on securities held as securities for trade is recognized in the statement of profit and loss while gains are ignored. Long term investments are carried at acquisition cost after providing for diminution in value, if such diminution is other than of a temporary nature. As per Ind AS, all financial assets have to be classified at ''amortized cost'', ''fair value through other comprehensive income'' or ''fair value through profit and loss''. These classifications are based on the business model test and the contractual cash flow test. Under Indian GAAP, unrealized gains were not accounted in the books. Under Ind AS, unrealized gains have been accounted in the statement of profit and loss.

This has resulted in an increase in retained earnings in April 2017 and March 2018 of Rs,27.7 million and Rs,29.7 million respectively and an increase in the net profit for the year ended March 2018 of Rs,2.0 million.

(b) Effective Interest rate on borrowings

Under Indian GAAP, expenses incurred on the issue of commercial paper were expensed when incurred. Under Ind AS, the interest is calculated on effective interest rate basis. This has resulted in an increase in net profit of Rs,0.1 million for the year ended March 31, 2018 and an increase in the retained earnings of Rs,0.8 million in April 2017 and Rs,0.9 million in March 2018.

(c) Accounting for compensation costs:

Under Indian GAAP, the Company did not account for the ESOPs granted by the parent to its employees. Under Ind AS, the Company has accounted for the unvested portion of the ESOP''s granted to its employees by the parent on the transition date in its statement of profit and loss.

Under Indian GAAP, actuarial gains/losses are recognized on the balance sheet of the enterprise in the year in which they arise through suitable credit/debit in the statement of profit and loss of the year. Under Ind AS, remeasurements of the net defined benefit liability which comprise of actuarial gains/losses and the return on plan assets are recognized in Other Comprehensive Income. The amount lying in the Other Comprehensive Income never recycles back to income statement. Both of these have resulted in a net decrease in the net profit of Rs,50.3 million for the year ended March 31, 2018. There is no net worth impact on accounting for the options granted at fair value.

(d) Lease rent escalation:

Under Indian GAAP, lease payments under an operating lease are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern of the users benefit. Under Ind AS, lease payments under an operating lease are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term unless (a) another systematic basis is more representative of the time pattern of the user''s benefit; or (b) the payments to the lessor are structured to increase in line with expected general inflation for cost increases. The Company has accounted for the lease payments without considering the straight lining effect over the lease term.

This has resulted in an increase in retained earnings of Rs,174.2 million in April 2017 and Rs,206.4 in March 2018 and a credit to the statement of profit and loss of Rs,32.2 million for the year ended March 31, 2018.

(e) Impairment of financial assets:

Under Indian GAAP, the Company recognized impairment on loans and trade receivables based on the ageing of the due balance. Under Ind AS, the Company applies the expected credit loss model (ECL) for measurement and recognition of impairment loss. The loans are categorized into three stages and the 12 month or lifetime expected loss as applicable is calculated. The Company recognizes lifetime expected credit loss for trade receivables. The Company considers outstanding for more than 90 days for calculation of expected credit loss.

This has resulted in a reduction in the retained earnings by Rs,10.2 million and Rs,4.6 million in April 2017 and March 2018 respectively and a credit in the statement of profit and loss of Rs,5.6 million for the year ended March 31, 2018.

(f) Accounting for revenue:

Under Ind AS, the Company has considered the revenue in case of its investment banking and training fee income on completion of the performance obligation as required in the Ind AS 115. This has resulted in a decrease in retained earnings by Rs,5.0 million and Rs,15.5 million in April 2017 and March 2018 respectively and a debit in the statement of profit and loss of Rs,10.5 million for the year ended March 31, 2018.

(g) Accounting for security deposits:

Under Indian GAAP, the security deposits given were accounted on the transaction price. Ind AS requires such assets to be recognized at present value. This has led to a decrease in the value of the security deposits on the date of transition which was adjusted in the retained earnings. The excess of the principal amount of the deposit over its fair value shall be recognized as rent expense which shall be amortized to profit or loss on a straight-line basis over the lease term, partially set off by the notional interest income recognized on such deposit. The increase in interest income is known as unwinding of interest accounted under other income.

The above transition has impacted a decrease in retained earnings by Rs,7.2 million and Rs,11.1 million in April 2017 and March 2018 respectively and a debit in the statement of profit and loss of Rs,3.9 million for the year ended March 31, 2018.

(h) Deferred tax asset/liability

The transitional Ind AS adjustments has led to temporary differences in the tax and accordingly deferred tax impact on these adjustments has been accounted.

2. related party disclosures

As per Indian Accounting Standard on related party disclosures (Ind AS 24), the names of the related parties of the Company are as follows:

A. Related party where control exists irrespective whether transactions have occurred or not

Holding Company : ICICI Bank Limited

Subsidiary Companies : ICICI Securities Holding Inc.

ICICI Securities Inc. (Step down Subsidiary)

B. other related parties where transactions have occurred during the year

a. Fellow Subsidiaries:

I CICI Securities Primary Dealership Limited; ICICI Prudential Life Insurance Company Limited; ICICI Lombard General Insurance Company Limited; ICICI Prudential Asset Management Company Limited; ICICI Home Finance Company Limited; ICICI Venture Funds Management Company Limited.

b. ICICI Securities Employees Group Gratuity Fund

c. Directors and Key Management personnel of the Company

i) Vinod Kumar Dhall - Chairman (wef October 19, 2018)

ii) Ashvin Parekh - Independent Director

iii) Subrata Mukherji - Independent Director

iv) Vijayalakshmi Iyer - Independent Director

v) Anup Bagchi - Director (wef October 11, 2018)

vi) Shilpa Kumar - Managing Director and CEO

vii) Ajay Saraf - Executive Director

viii) Chanda Kochhar - Chairperson (till October 5, 2018)

ix) Vishakha Mulye - Director (till October 5, 2018)

d. Key Management personnel of parent

i) Sandeep Bakhshi - Managing Director and CEO of ICICI Bank Limited

(wef October 15, 2018)

ii) Vijay Chandok - Executive Director of ICICI Bank Limited

iii) Anup Bagchi - Executive Director of ICICI Bank Limited

iv) Vishakha Mulye - Executive Director of ICICI Bank Limited

v) Dileep Choksi - Executive Director of ICICI Bank Limited

vi) Chanda Kochhar - Managing Director and CEO of ICICI Bank Limited

(till October 5, 2018)

vii) N. S. Kannan - Executive Director of ICICI Bank Limited

viii) Mahendra Sharma - Non-Executive Director of ICICI Bank Limited

(till June 30, 2018)

e. Relatives of Key Management personnel

i) Sarika Saraf - Spouse of Mr. Ajay Saraf

ii) Ayuj Saraf - Son of Mr. Ajay Saraf

iii) Avantica Saraf - Daughter of Mr. Ajay Saraf

iv) Animesh Bagchi - Father of Mr. Anup Bagchi

v) Shishir Bagchi - Brother of Mr. Anup Bagchi

vi) Arun Bagchi - Brothers of Mr. Anup Bagchi

vii) Poornima Choksi - Spouse of Mr. Dileep Choksi

viii) Udayan Choksi - Son of Mr. Dileep Choksi

ix) Mona Bakhshi - Spouse of Mr. Sandeep Bakhshi

x) Shivam Bakhshi - Son of Mr. Sandeep Bakhshi

xi) Esha Bakhshi - Daughter of Mr. Sandeep Bakhshi

xii) Minal Bakhshi - Daughter of Mr. Sandeep Bakhshi

xiii) Ashwin Pradhan - Son in-law of Mr. Sandeep Bakhshi

xiv) Puneet Sharma - Son of Mr. Mahendra Sharma

xv) Purva Sharma - Daughter in-law of Mr. Mahendra Sharma

xvi) Abhilash Mana - Son in-law of Mr. Tushaar Shah

f. Entity controlled or jointly controlled by KMp of ICICI Bank: ICICI Foundation for Inclusive Growth

The following transactions were carried out with the related parties in the ordinary course of business.

1 Excludes an amount of Rs,4.1 million (March 31, 2018: Rs,3.5 million), received as premium by ICICI Prudential Life Insurance Company Limited from customers of the Company under the Group Insurance Policy. The premium is paid by the customers directly to ICICI Prudential Life Insurance Company Limited.

2 Excludes an amount of Rs,34.4 million (March 31, 2018: Rs,27.7 million) received towards reimbursement of claims submitted by the employees under group health insurance policy.

3 Includes final dividend for Financial Year 2018 and interim dividend for Financial Year 2019.

4 The Company has a credit facility of Rs,5,900.0 million (March 31, 2018: Rs,6,000.0 million) from ICICI Bank Limited. The balance outstanding as on March 31, 2019 is Nil (March 31, 2018: Nil).

The Company has contributed Rs,35.0 million (March 31, 2018: Nil) to ICICI Securities Group Gratuity Fund during the year.

The Company has contributed Rs,88.8 million (March 31, 2018: Rs,86.8 million) to ICICI Foundation for contribution towards CSR.

*As the liabilities for gratuity and leave compensation are provided on an actuarial basis for the Company as a whole, the amounts pertaining to the key management personnel is not included above.

The compensation paid includes bonus paid, long term incentives paid and contribution to provident fund.

The Directors have received share options of ICICI Bank Limited and ICICI Securities Limited. The cost of the options granted to the Directors for the year ended March 31, 2019 is Rs,53.0 million.

The Company has paid Rs,0.5 million (Previous year Rs,0.5 million) to the relative of director towards scholarship under employee benefit policy. Also, the Company has received brokerage amounting to Rs,2.1 million (Previous year Rs,0.1 million) from the key management personnel and Rs,0.1 million (Previous year '' Nil) from relatives of the key management personnel.

During the year ended March 31, 2019, the Company paid dividend amounting to Rs,0.2 million (Previous year ''Nil) to its KMPs and their relatives who are shareholders. This dividend includes final dividend for Financial Year 2018 and interim dividend for Financial Year 2019.

During the year the Company has paid Rs,3.5 million (Previous year Rs,3.1 million) sitting fees to the Directors of the Company. The Company also provided for commission for Financial Year 2019 amounting to Rs,3.0 million (Previous year Rs,2.0 million) to the Independent Directors of the Company.

3. Recent Judgment on provident fund

There has been a Supreme Court (SC) judgment dated February 28, 2019, relating to components of salary structure that need to be taken into account while computing the contribution to provident fund under the EPF Act. There are interpretative aspects related to the Judgment including the effective date of application. The Company will continue to assess any further developments in this matter for the implications on financial statements, if any.

Note:

i. It is not practicable for the Company to estimate the timings of cash outflows, if any, in respect of the above pending resolution of the respective proceedings as it is determinable only on receipt of judgments/decisions pending with various forums/authorities.

ii. The Company''s pending litigations comprise of claims against the Company pertaining to proceedings pending with Income Tax, Sales tax/VAT, Service tax and other authorities. The Company has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed as contingent liabilities where applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have a materially adverse effect on its financial results.

iii. The Company does not expect any reimbursements in respect of the above contingent liabilities.

4. CAPITAL COMMITMENTS

Estimated amount of contracts remaining to be executed on capital account and not provided for is Rs,45.8 million (March 31, 2018: Rs,17.3 million).

5. micro and small enterprises

There are no micro, small and medium enterprises, to which company owes dues, as at March 31, 2019. This information is required to be disclosed under the Micro, Small and Medium Enterprises Development Act, 2006 that has been determined to the extent such parties have been identified on the basis of information available with the Company.

6. LEASE

The Company''s significant leasing arrangements are in respect of operating leases for premises which are renewable on mutual consent at agreed terms. Certain agreements provide for cancellation by either party or certain agreements contains clause for escalation and renewal of agreements. The non-cancellable operating lease agreements are ranging for a period 3 to 7 years. There are sub-lease agreements which are renewable on mutual consent at agreed terms. The aggregate lease rentals payable are charged to the statement of profit and loss. The Company has also obtained office equipment and furniture and fixtures on operating lease. The lease period for these also range from 3 to 5 years.

There are no restrictions placed upon the lessee by entering into these leases (e.g., such as those concerning dividends, additional debt and further leasing).

7. SHARE BASED PAYMENTS

A. Employees Stock option Scheme, 2017 (ESoS- 2017)

The Company has formulated the ICICI Securities Limited - Employees Stock Option Scheme, 2017 (ESOS-2017). This scheme envisaged grant of share options to eligible employees to enhance employee motivation, to enable employees to participate in the long term growth and financial success of the Company and to act as a retention mechanism, by enabling employee participation in the business as an active stakeholder to usher in an ''owner-manager'' culture.

The Members of the Company had, at the Extra-ordinary General Meeting held on December 8, 2017, approved the ICICI Securities Limited - Employees Stock Option Scheme, 2017 (ESOS- 2017) Scheme. Pursuant to Regulation 12 of the SEBI Regulations, the Company could not make any fresh grant which involved allotment or transfer of shares to its employees under any scheme formulated prior to its initial public offer and listing of its equity shares, unless such scheme is ratified by the shareholders of the Company. The equity shares of the Company were listed on National Stock Exchange of India Limited and BSE Limited with effect from April 4, 2018 and accordingly, the Scheme along with some amendments, was ratified by the shareholders of the Company at the Annual General Meeting held on August 30, 2018. The amendments were done to align the Scheme to ICICI Group norms and market practice. No grants had been made under the Scheme before its ratification.

The scheme is compliant with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014. Pursuant to SEBI (Share Based Employee Benefits) Regulations, 2014, options are granted by the Board Governance, Remuneration & Nomination Committee (BGRNC) and approved by the Board.

Eligibility as defined in the scheme ESOS - 2017 means (i) permanent employee of the Company who has been working in India or outside India, or (ii) a director of the Company whether a whole time director or not but excluding an independent director, or (iii) employees of the Subsidiaries of the Company (the ''Subsidiaries''), or (iv) employees of the Holding Company of the Company (the ''Holding Company''). Under this scheme, the maximum number of options granted to any eligible employee/director in a financial year shall not, except with the approval of the Board of Directors of ICICI Securities Limited, exceed 0.10% of the issued shares of the Company at the time of grant of options and the aggregate of all such options granted to the eligible employees shall not exceed 5% of the aggregate of the number of issued shares of the Company, from time to time, on the date(s) of grant of option(s). The options granted but not vested and the options vested but not exercised in accordance with this Scheme or the Award Confirmation or the Vesting Confirmation shall terminate and the shares covered by such terminated options shall become available for future grant under this Scheme.

The period for volatility has to be adequate to represent a consistent trend in price movements. The Company was listed on April 4, 2018. Hence, due to insufficiency of data, the Company has considered market prices of peer companies for calculating volatility.

During the year, Rs,4.1 million was charged to the profit and loss account in respect of equity-settled share-based payment transactions (March 2018: '' Nil).

B. ICICI Bank Employee Stock option Scheme

During the year, Rs,60.7 million was charged to the profit and loss account in respect of equity-settled share-based payment transactions (March 2018: Rs,75.0 million). This expense, which was computed from the fair values of the share-based payment transactions when granted, arose under employee share options made in accordance with the reward structure of ICICI Bank Limited.

The details of the options granted to eligible employees of the Company by ICICI Bank Limited are as follows:

In terms of the ESOS of the Parent Bank, the options are granted to eligible employees and Directors of the Bank and its subsidiaries. As per the ESOS, as amended, the maximum number of options granted to any eligible employees/Directors in a financial year shall not exceed 0.05% of the Parent Bank''s issued equity shares at the time of the grant of the options and aggregate of all such options shall not exceed 10% of the aggregate number of the Parent Bank''s issued equity shares on the date(s) of the grant of options in line with SEBI Regulations.

Options granted prior to March 2014, vested in a graded manner over a four-year period with 20%, 20%, 30% and 30% of the grants vesting in each year, commencing from the end of 12 months from the date of grant. Options granted after March 2014, vest in a graded manner over a three-year period with 30%, 30% and 40% of the grant vesting in each year, commencing from the end of 12 months from the date of grant.

In April 2016, the Parent bank modified the exercise period from 10 years from the date of grant or five years from the date of vesting, whichever is later, to 10 years from the date of vesting of options. In June 2017, the exercise period was further modified by the Parent Bank to not exceed 10 years from the date of vesting of options as may be determined by the Board Governance, Remuneration & Nomination Committee of the Parent Bank to be applicable for future grants. In May 2018, exercise period was further modified by the Parent Bank to not exceed 5 years from the date of vesting of options as may be determined by the Board Governance, Remuneration & Nomination Committee of the Parent Bank to be applicable for future grants.

8. EMPLOYEE BENEFITS

Gratuity

Governance of the plan:

The Company has setup an income tax approved irrevocable trust fund to finance the plan liability. The trustees of the trust fund are responsible for the overall governance of the plan.

funding arrangements and policy:

The money contributed by the Company to the fund to finance the liabilities of the plan has to be invested. The trustees of the plan have outsourced the investment management of the fund to an insurance company. The insurance company in turn manages these funds as per the mandate provided to them by the trustees and the asset allocation which is within the permissible limits prescribed in the insurance regulations. Due to the restrictions in the type of investments that can be held by the fund, it is not possible to explicitly follow an asset-liability matching strategy to manage risk actively. There is no compulsion on the part of the Company to fully pre fund the liability of the Plan. Company''s philosophy is to fund the benefits based on its own liquidity and tax position as well as level of underfunding of the plan. The expected contribution payable to the plan next year is INR 20,000,000.

The weighted average duration to the payment of these cash flows is 5.97 years

The Company has made a provision towards gratuity for its employees of the Oman Branch amounting to Rs,3.1 million (Previous year Rs,4.6 million)

Compensated Absence

The liability towards compensated absences for the year ended March 31, 2019 is based on actuarial valuation carried out by using the projected unit credit method.

Interest rate assumption in case of subsidiary is 2.25% (Previous year 2.20%)

9. revenue from contracts with customers

The Company is engaged in the business of retail and institutional broking, distribution of financial products and investment banking. In accordance with Ind AS 115, Revenue from Contracts with Customers, the revenue is accounted in the following manner for each head: -

A) Brokerage income:

The Company provides trade execution and settlement services to the customers in retail and institutional segment. There is only one performance obligation of execution of the trade and settlement of the transaction which is satisfied at a point in time. The brokerage charged is the transaction price and is recognized as revenue on trade date basis. Related receivables are generally recovered in a period of 2 days as per the settlement cycle. Amount not recovered and which remain overdue for a period exceeding 90 days, are provided for.

B) Income from service:

Income from service consists of income from distribution of financial products and income from investment banking activities (advisory income).

1) Distribution of financial products:

The Company distributes various financial products and other services to the customers on behalf of third party i.e. the Company acts as an intermediary for distribution of financial products and services. The Company executes contracts with the Principal, viz AMC''s, Mutual Funds, Bank, Insurance Company etc. to procure customers for its products. As a consideration, the Company earns commission income from the third parties for the distribution of their financial products. The commission is accounted net of claw back if any, due to non-fulfillment of contract by the customer with the principal. The customer obtains control of the service on the date when customer enters into a contract with principal and hence subscription or contract date is considered as the point in time when the performance obligation has been satisfied. In case of continuing services, the same are recognized over a period of time.

The Company also conducts

a. education training programs

b. Provide financial planning services to its customers.

The Company recognizes the revenue on completion of the performance obligation either on point in time or over a period of time, as the case may be.

In case of third party financial products, transaction price is determined as per contract and mutual terms agreed between the parties. The commission is a percentage of transaction value.

The distribution fee earned from the following products contributed to a major proportion of overall fee earned from distribution of financial products in Financial Year 2019 :

i. Mutual funds

ii. Life insurance policies

iii. Portfolio management products

2) Advisory income:

The Company provides investment banking services to its customers and earns revenue in the form of advisory fees on issue management services, mergers and acquisitions, debt syndication, sale of business etc.

In case of these advisory transactions, the performance obligation and its transaction price is enumerated in contract with the customer. For arrangements with a fixed term, the Company may commit to deliver services in the future. Revenue associated with these remaining performance obligations typically depends on the occurrence of future events or underlying asset values, and is not recognized until the outcome of those events or values are known. In case of contracts, which have a component of success fee or variable fee, the same is considered in the transaction price when the uncertainty regarding the consideration is resolved.

The Company has used practical expedient and have not disclosed the amount of remaining performance obligations since its contract with customers have duration of less than one year.

Contract Liability relates to payments received in advance of performance under the contract. Contract Liabilities are recognized as revenue on completing the performance obligation.

10. FINANCIAL INSTRUMENTS

Refer to financial instruments by category table below for the disclosure on carrying value and fair value of financial assets and liabilities. For financial assets and liabilities maturing within one year from the Balance Sheet date and which are not carried at fair value, the carrying amounts approximate fair value due to the short maturity of these instruments.

Fair value hierarchy:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e., an exit price), regardless of whether that price is directly observable or estimated using a valuation technique.

The investments included in level 1 of fair value hierarchy have been valued using quoted prices for instruments in an active market. The investments included in level 2 of fair value hierarchy have been valued using valuation techniques based on observable market data. The investments included in Level 3 of fair value hierarchy have been valued using the income approach and break-up value to arrive at their fair value. There is no movement from between Level 1, Level 2 and Level 3. There is no change in Inputs use for measuring Level 3 fair value.

Financial assets subject to offsetting, netting arrangements

Exchange settlement obligations (disclosed as a part of trade receivable) are subject to netting as the Company intends to settle it on a net basis. The table below presents the gross balances of asset and liability.

There are no instruments which are eligible for netting and not netted off.

Financial risk management Risk management framework

The Company has established a comprehensive system for risk management and internal controls for all its businesses to manage the risks that it is exposed to. The objective of its risk management framework is to ensure that various risks are identified, measured and mitigated and also that policies, procedures and standards are established to address these risks and ensure a systematic response in the case of crystallization of such risks.

The Company has exposure to the following risk arising from financial instruments:

a) Credit risk

b) Liquidity risk

c) Market risk

The Company has established various policies with respect to such risks which set forth limits, mitigation strategies and internal controls to be implemented by the three lines of defiance approach provided below. The Board oversees the Company''s risk management and has constituted a Risk Management Committee (RMC), which frames and reviews risk management processes and controls.

The risk management system features a three lines of defiance approach:

1. The first line of defiance comprises its operational departments, which assume primary responsibility for their own risks and operate within the limits stipulated in various policies approved by the Board or by committees constituted by the Board.

2. The second line of defiance comprises specialized departments such as risk management and compliance. They employ specialized methods to identify and assess risks faced by the operational departments and provide them with specialized risk management tools and methods, facilitate and monitor the implementation of effective risk management practices, develop monitoring tools for risk management, internal control and compliance, report risk related information and promote the adoption of appropriate risk prevention measures.

3. The third line of defiance comprises the internal audit department and external audit functions. They monitor and conduct periodic evaluations of the risk management, internal control and compliance activities to ensure the adequacy of risk controls and appropriate risk governance, and provide the Board with comprehensive feedback.

a) Credit risk:

It is risk of financial loss that the Company will incur a loss because its customer or counterparty to financial instruments fails to meet its contractual obligation.

The Company''s financial assets comprise of Cash and bank balance, Securities for trade, Trade receivables, Loans, Investments and Other financial assets which comprise mainly of deposits and unbilled revenues.

The maximum exposure to credit risk at the reporting date is primarily from Company''s trade receivable and loans.

Following provides exposure to credit risk for trade receivables and loans:

Trade Receivables: The Company has followed simplified method of ECL in case of Trade receivables and the Company recognises lifetime expected losses for all trade receivables that do not constitute a financing transaction. At each reporting date, the Company assesses the impairment requirements.

Based on the industry practices and business environment in which the entity operates, management considers that the trade receivables are in default if the payment is 90 days overdue. Out of the total trade receivables of Rs,4,916.3 million (previous year Rs,3,218.9 million) Rs,149.6 million (previous year Rs,120.8 million) are overdue for a period in excess of 90 days. Probability of default (PD) on this balance is considered at 100% and treated as credit impaired.

Loans: Loans comprise of margin trade funding and ESOP funding for which a staged approach is followed for determination of ECL.

Stage 1: All Open positions in the MTF and ESOP loan book are considered as stage 1 assets for computation of expected credit loss. Exposure at default (EAD) for stage 1 assets is computed considering different scenarios of market movements based on an analysis of historical price movements of the index and macroeconomic environment.

Stage 2: Exposures under stage 2 include dues upto 30 days pertaining to principal amount on closed positions and interest on all open positions of MTF and ESOP loan book.

Stage 3: Exposures under stage 3 include dues past 30 days pertaining to principal amount on closed positions and interest on all open positions of MTF and ESOP loan book.

Based on historical data, the company assigns PD to stage 1 and stage 2 and applies it to the EAD to compute the ECL. For Stage 3 assets PD is considered as 100%

Following table provides information about exposure to credit risk and ECL on Loan

other financial assets considered to have a low credit risk:

Credit risk on cash and cash equivalents is limited as we generally invest in deposits with banks with high credit ratings assigned by international and domestic credit rating agencies. Investments comprise of Quoted Equity instruments, Bonds, Mutual Funds and Commercial papers which are market traceable. Other financial assets include deposits for assets acquired on lease and with qualified clearing counterparties and exchanges as per the prescribed statutory limits.

b) Liquidity risk

Liquidity represents the ability of the Company to generate sufficient cash flow to meet its financial obligations on time, both in normal and in stressed conditions, without having to liquidate assets or raise funds at unfavorable terms thus compromising its earnings and capital.

Liquidity risk is the risk that the Company may not be able to generate sufficient cash flow at reasonable cost to meet expected and / or unexpected claims. It arises in the funding of lending, trading and investment activities and in the management of trading positions.

The Company aims to maintain the level of its cash and cash equivalents and other highly marketable investments at an amount in excess of expected cash outflow on financial liabilities.

Funds required for short period is taken care by borrowings through issuing Commercial paper and utilizing overdraft facility from ICICI Bank

The table below summarizes the maturity profile of the undiscounted cash flows of the Company''s financial assets and liabilities as at April 1, 2017.

c) Market risk

Market risk arises when movements in market factors (foreign exchange rates, interest rates, credit spreads and equity prices) impact the Company''s income or the market value of its portfolios. The Company, in its course of business, is exposed to market risk due to change in equity prices, interest rates and foreign exchange rates. The objective of market risk management is to maintain an acceptable level of market risk exposure while aiming to maximize returns. The Company classifies exposures to market risk into either trading or non-trading portfolios. Both the portfolios are managed using the following sensitivity analyses:

i) Equity Price Risk

ii) Interest Rate Risk

iii) Currency Risk

i) Equity price Risk

The Company''s exposure to equity price risk arises primarily on account of its proprietary positions and on account of margin-based positions of its clients in equity cash and derivative segments.

The Company''s equity price risk is managed in accordance with its Corporate Risk and Investment Policy (CRIP) approved by its Risk Management Committee. The CRIP specifies exposure limits and risk limits for the proprietary desk of the Company and stipulates risk-based margin requirements for margin-based trading in equity cash and derivative segment by its clients.

The below sensitivity depicts a scenario where a 10% movement in equity prices, everything else remaining constant, would result in an exchange obligation for both Traded and Non-traded (client) positions and their impact on statement of profit and loss account considering that the entire shortfall would be made good by the Company.

ii) Interest Rate Risk

The Company''s exposure to interest rate risk arises primarily on account of its proprietary positions and on account of margin based positions of its clients in exchange traded interest rate derivatives on government securities.

The Company''s interest rate risk is managed in accordance with its CRIP approved by its Risk Management Committee. The CRIP specifies exposure limits and risk limits for the proprietary desk of the Company and stipulates risk-based margin requirements for margin based trading in interest rate derivatives by its clients.

As at March 31, 2019 and March 31, 2018 a parallel shift of 2.50% in the yield curve would result in the following impact on the statement of profit and loss.

The non-traded Financial Assets and liabilities are fixed rate instruments and are valued at amortized cost. Any shifts in yield curve will not impact their carrying amount and will therefore not have any impact on the Company''s statement of profit and loss.

iii) Foreign Exchange Risk/Currency Risk

The Company''s exposure to currency risk arises primarily on account of its proprietary positions and on account of margin positions of its clients in exchange traded currency derivatives.

The fluctuations in foreign currency may also affect statement of profit and loss, other comprehensive income and equity as the Company also operates in US and Singapore through its subsidiaries.

The Company''s currency risk is managed in accordance with its CRIP, approved by its Risk Management Committee. The CRIP specifies gross open position limit and risk limits for the proprietary desk of the Company and stipulates risk-based margin requirements for margin based trading in currency derivatives by its clients.

As at March 31, 2019 and March 31, 2018, an appreciation/depreciation of 15% of Indian Rupee against all the currencies would result in the following impact on the statement of profit and loss.

The table below indicates the currencies to which the Company had significant exposure at the end of the reported periods for the non-traded component. The analysis calculates the effect of a reasonably possible movement of the currency rate against the INR (all other variables being constant) on the statement of profit and loss.

11. RECENT ACCOUNTING PRONOUNCEMENTS

Ministry of Corporate Affairs (MCA), through Companies (Indian Accounting Standards) Amendment Rules, 2019 and Companies (Indian Accounting Standards) Second Amendment Rules, has notified the following new and amendments to Ind ASs which the Group has not applied as they are effective from April 1, 2019:

Ind AS 116 Leases:

Ind AS 116 will replace the existing leases standard, Ind AS 17 Leases. Ind AS 116 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. It introduces a single, on-balance sheet lessee accounting model for lessees. A lessee recognizes right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. The standard also contains enhanced disclosure requirements for lessees. Ind AS 116 substantially carries forward the less or accounting requirements in Ind AS 17.

The Company will adopt Ind AS 116, effective annual reporting period beginning April 1, 2019. The Company will apply the standard to its leases, retrospectively, with the cumulative effect of initially applying the standard, recognized on the date of initial application (April 1, 2019). Accordingly, the Company will not restate comparative information, instead, the cumulative effect of initially applying this Standard will be recognized as an adjustment to the opening balance of retained earnings as on April 1, 2019. On that date, the Company will recognize a lease liability measured at the present value of the remaining lease payments. The right-of-use asset is recognized at its carrying amount as if the standard had been applied since the commencement date, but discounted using the lessee''s incremental borrowing rate as at April 1, 2019. In accordance with the standard, the Company will elect not to apply the requirements of Ind AS 116 to short-term leases and leases for which the underlying asset is of low value.

On transition, the Company will be using the practical expedient provided the standard and therefore, will not reassess whether a contract, is or contains a lease, at the date of initial application.

The Company is in the process of completing a detailed assessment of the impact on its financials.

Ind AS 12 Income taxes (amendments relating to income tax consequences of dividend and uncertainty over income tax treatments)

The amendment relating to income tax consequences of dividend clarify that an entity shall recognize the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events. The Company does not expect any impact from this pronouncement.

The amendment to Appendix C of Ind AS 12 specifies that the amendment is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under Ind AS 12. It outlines the following: (1) the entity has to use judgment, to determine whether each tax treatment should be considered separately or whether some can be considered together. The decision should be based on the approach which provides better predictions of the resolution of the uncertainty (2) the entity is to assume that the taxation authority will have full knowledge of all relevant information while examining any amount (3) entity has to consider the probability of the relevant taxation authority accepting the tax treatment and the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates would depend upon the probability. The Company does not expect any significant impact from this pronouncement.

Ind AS 13 - Prepayment Features with Negative Compensation

The amendments relate to the existing requirements in Ind AS 109 regarding termination rights in order to allow measurement at amortized cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments. The Company does not expect this amendment to have any significant impact on its financial statements.

Ind AS 14 - Plan Amendment, Curtailment or Settlement

The amendments clarify that if a plan amendment, curtailment or settlement occurs, it is mandatory that the current service cost and the net interest for the period after the re-measurement are determined using the assumptions used for the remeasurement. In addition, amendments have been included to clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. The Company does not expect this amendment to have any significant impact on its financial statements.

Ind AS 15 - Borrowing Costs

The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalization rate on general borrowings. The Company does not expect any significant impact from this amendment.

Ind AS 16 - Long-term Interests in Associates and Joint Ventures

The amendments clarify that an entity applies Ind AS 109 Financial Instruments, to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. The Company does not currently have any long-term interests in associates and joint ventures.

Ind AS 17 - Business Combinations and Ind AS 111 - Joint Arrangements

The amendments to Ind AS 103 relating to re-measurement clarify that when an entity obtains control of a business that is a joint operation, it re-measures previously held interests in that business. The amendments to Ind AS 111 clarify that when an entity obtains joint control of a business that is a joint operation, the entity does not re-measure previously held interests in that business. The Company does not have any control / joint control of a business that is a joint operation.

18. EVENTS AFTER REPORTING DATE

There have been no events after the reporting date that require disclosure in these financial statements.

Source : Dion Global Solutions Limited
Quick Links for icicisecuritiesltd
Explore Moneycontrol
Stocks     A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z | Others
Mutual Funds     A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.