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NOTES TO ACCOUNTS

Indiabulls Housing Finance Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 18317.27 Cr. P/BV 1.11 Book Value (₹) 385.48
52 Week High/Low (₹) 1189/379 FV/ML 2/1 P/E(X) 4.48
Bookclosure 28/08/2019 EPS (₹) 95.67 Div Yield (%) 9.34
Year End :2019-03 

7. Inputs to the ECL model for forward looking economic scenarios

The internal rating model also provides for calibration to reflect changes in macroeconomic parameters and industry specific factors.

8. Collateral

The company is in the business of extending secured loans mainly backed by mortgage of property (residential or commercial).

In addition to the above mentioned collateral, the Company holds other types of collateral and credit enhancements, such as cross-collateralization on other assets of the borrower, share pledge, guarantees of parent/holding companies, personal guarantees of promoters/proprietors, hypothecation of receivables via escrow account, hypothecation of receivables in other bank accounts etc.

In its normal course of business, the Company does not physically repossess properties or other assets, but recovery efforts are made on delinquent loans through on-rolls collection executives, along with legal means to recover due loan repayments. Once contractual loan repayments are more than 90 days past due, repossession of property may be initiated under the provisions of the SARFAESI Act 2002. Re-possessed property is disposed of in the manner prescribed in the SARFAESI act to recover outstanding debt.

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

(1) As at March 31, 2019, the Company holds 100% of the Equity Share capital of India bulls Insurance Advisors Limited and India bulls Capital Services Limited, these are considered as strategic and long term in nature and are held at a cost of Rs. 0.05 Crore and Rs. 5.00 Crore respectively. Based on the audited financials of these companies, as at March 31, 2019, there has been an erosion in the value of investment made in these companies as the operations in this company have not yet commenced/are in the process of being set up. During the financial year 2016-17 provision of Rs. 5.05 Crore for diminution in the carrying value was made for these companies in the books of accounts.

(2) During the year 2017-18, the Company has sold its entire investment in India bulls Life Insurance Company Limited for a consideration of Rs. 0.05 Crore.

(3) On December 13, 2010 the Erstwhile Holding Company (IBFSL) had sold 26% shares held by it in Indian Commodity Exchange Limited (ICEX) to Reliance Exchange Next Limited (R-Next) for a total consideration of Rs. 47.35 Crore against a proportionate cost of Rs. 26.00 Crore. As a result thereof, the stake of IBFSL in ICEX has been reduced from 40% to 14% and the same has been reclassified as a long term investment from the earlier classification of being an Associate. MMTC filed a petition before the National Company Law Tribunal(NCLT)(Earlier known as Company Law Board)) against ICEX, R-Next and IBFSL alleging that the transfer is null and void in terms of the Shareholders Agreement in view of the Forward Markets Commission (FMC) guidelines. IBFSL contends that such view of MMTC is based on the old FMC guidelines and without considering the amended FMC Guidelines dated June 17, 2010 wherein the transfer norms were relaxed. IBFSL had filed its objections on maintainability of the petition which is pending adjudication before the CLB.

(4) During the financial year 2016-17, the Company has invested Rs. 7.00 Crore by subscribing to 7,000,000 Equity Shares of face value Rs. 5 per share, issued by Indian Commodity Exchange Limited through Rights issue. During the current financial year the Company has sold 5,000,000 shares of Indian Commodity exchange for total consideration of Rs. 3.00 Crore.

(5) During the financial year 2015-16, the Company has invested Rs. 663.31 Crore in OakNorth Holdings Limited by subscribing to 818,615 of face value of GBP 0.59 per share for 39.76% stake. OakNorth Bank- a licensed UK commercial bank is a wholly owned subsidiary of OakNorth Holdings Limited. As at March 31, 2017 the Company had a stake of 38.73%. During the year 2017-18 the Company has sold 277,000 shares from its stake in Acorn OakNorth Holdings Limited for Rs. 767.78 Crore and recorded a gross gain on sale of investment of Rs. 543.33 Crore in other comprehensive income.

(6) During the current financial year, the Company has invested Rs. 2,725.05 Crore (2017-18 Rs. 250.00 Crore, 2016-17 Rs. Nil) by subscribing to 164,727,923 (2017-18 17,745,113, 2016-17 Nil) Equity Shares of face value Rs. 10 per share, issued by India bulls Commercial Credit Limited.

(7) During the current financial year, the Company has invested Rs. Nil (2017-18 Rs. 100.00 Crore, 2016-17 Rs. Nil) by subscribing to Nil (2017-18 100,000,000, 2016-17 Nil) Equity Shares of face value Rs. 10 per share, issued by India bulls Asset Management Company Limited.

(8) During the current financial year, the Company converted its Investment in preference shares of India bulls Commercial Credit Limited of Rs. 202.50 Crore in to equity shares of India bulls Commercial Credit Limited having face value of Rs. 10 per share at Rs. 80 per equity share fully paid (including securities premium of Rs. 70 per share). The same has been converted at cost at which the same was invested.

(a) An amount of Nil and Nil was due and outstanding to suppliers as at the end of the accounting year on account of Principal and Interest respectively.

(b) No interest was paid during the year in terms of section 16 of the Micro, Small and Medium Enterprises Development Act, 2006 and no amount was paid to the supplier beyond the appointed day.

(c) No amount of interest is due and payable for the period of delay in making payment but without adding the interest specified under the Micro, Small and Medium Enterprises Development Act, 2006.

(d) No interest was accrued and unpaid at the end of the accounting year.

(e) No further interest remaining due and payable even in the succeeding years for the purpose of disallowance of a deductible expenditure under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006.

The above information regarding Micro, Small and Medium Enterprises has been determined to the extent such parties have been identified on the basis of information available with the Company. This has been relied upon by the Auditors.

* Redeemable Non-Convertible Debentures are secured against Immovable Property/Other financial Assets and pool of Current and Future Loan Receivables of the Company (Including Investments).

* Secured by hypothecation of Loan Receivables (Current and Future)/Other financial Assets/Cash and Cash Equivalents of the Company (including investments).

i) As at March 31, 2019 2,593,852 (March 31, 2018 2,597,042, March 31, 2017 3,199,409) GDR’s were outstanding and were eligible for conversion into Equity Shares. The Company does not have information with respect to holders of these GDR’s. Holders of Global Depository Receipts (GDRs) will be entitled to receive dividends, subject to the terms of the Deposit Agreement, to the same extent as the holders of Equity Shares, less the fees and expenses payable under such Deposit Agreement and any Indian tax applicable to such dividends. Holders of GDRs will not have voting rights with respect to the Deposited Shares. The GDRs may not be transferred to any person located in India including Indian residents or ineligible investors except as permitted by Indian laws and regulations.

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.

ii) Employees Stock Options Schemes:

Grants During the Year:

The Compensation Committee constituted by the Board of Directors of the Company has, at its meeting held on March 09, 2019, granted, 10,000,000 Stock Options representing an equal number of equity shares of face value of Rs. 2 each at an exercise price of Rs. 702, being the then latest available closing market price on the National Stock Exchange of India Ltd. as on March 8, 2019. These options vest with effect from the first vesting date i.e. March 10, 2020, and thereafter on each vesting date as per the vesting schedule provided in the Scheme.

The other disclosures in respect of the ESOS/ESOP Schemes are as under:-

1. Securities premium reserve is used to record the premium on issue of shares. The reserve can be utilised only for limited purposes such as issuance of bonus shares in accordance with the provisions of the Companies Act, 2013.

2. This pertains to reserve created under section 36(1)(viii) of the Income Tax Act, 1961, by the Erstwhile Holding Company India bulls Financial Services Limited, which has been transferred to the Company under the Scheme of Arrangement during the year ended March 31, 2013.

3. Under the erstwhile Companies Act 1956, general reserve was created through an annual transfer of net income at a specified percentage in accordance with applicable regulations. The purpose of these transfers was to ensure that if a dividend distribution in a given year is more than 10% of the paid-up capital of the Company for that year, then the total dividend distribution is less than the total distributable results for that year. Consequent to introduction of Companies Act 2013, the requirement to mandatorily transfer a specified percentage of the net profit to general reserve has been withdrawn. However, the amount previously transferred to the general reserve can be utilized only in accordance with the specific requirements of Companies Act, 2013.

4. In terms of Section 29C of the National Housing Bank (“NHB”) Act, 1987, the Company is required to transfer at least 20% of its Profit after tax to a Reserve Fund before any dividend is declared. Transfer to a Reserve Fund in terms of Section 36(1)(viii) of the Income Tax Act, 1961 is also considered as an eligible transfer as transfer to Special Reserve under Section 29C of the National Housing Bank (“NHB”) Act, 1987. The Company has transferred an amount of Rs. 387.00 Crore (Previous Year Rs. 440.00 Crore) to reserve created in terms of Section 36(1)(viii) of the Income Tax Act, 1961 termed as “Reserve (III)” and also transferred an amount of Rs. 358.85 Crore (Previous Year Rs. 273.30 Crore) to the Reserve in terms of Section 29C of the National Housing Bank (“NHB”) Act, 1987 as at the year end. Further an additional amount of Rs. 300.00 Crore (Previous Year Rs. 150.00 Crore) has been set apart by way of transfer to Additional Reserve Fund in excess of the statutory minimum requirement as specified under Section 29C pursuant to Circular no. NHB(ND)/DRS/Pol-No. 03/2004-05 dated August 26, 2004 issued by the National Housing Bank. The additional amount so transferred may be utilized in the future for any business purpose.

6. This pertains to reserve created under section 45-IC of the Reserve Bank of India Act 1934, by the Erstwhile Holding Company India bulls Financial Services Limited, which has been transferred to the Company under the Scheme of Arrangement during the year ended March 31, 2013.

7. The Companies Act 2013 requires companies that issue debentures to create a debenture redemption reserve from annual profits until such debentures are redeemed. The Company is required to transfer a specified percentage (as provided in the Companies Act, 2013) of the outstanding redeemable debentures to debenture redemption reserve. The amounts credited to the debenture redemption reserve may not be utilised except to redeem debentures. On redemption of debentures, the amount may be transferred from debenture redemption reserve to retained earnings.

3.4.3 A. Qualitative Disclosure:-

The Company’s activities expose it to the financial risks of changes in foreign exchange rates and interest rates. The Company uses derivate contracts such as foreign exchange forward, cross currency contracts, interest rate swaps, foreign currency futures, options and swaps to hedge its exposure to movements in foreign exchange and interest rates. The use of these derivative contracts reduce the risk or cost to the Company and the Company does not use those for trading or speculation purposes.

The Company uses hedging instruments that are governed by the policies of the Company which are approved by the Board of Directors, which provide written principles on the use of such financial derivatives consistent with the risk management strategy of the Company. The Board constituted Risk Management Committee (RMC) of the company manages risk on the company’s derivative portfolio. The officials authorized by the board to enter into derivative transactions for the company are kept separate from the authorized signatories to confirm the derivative transactions. All derivative transactions that are entered into by the company are reported to the board, and the mark-to-market on its portfolio is monitored regularly by the senior management. The company uses Bloomberg to monitor and value its derivative portfolio to ascertain its hedge effectiveness vis-a-vis the underlying.

To hedge its risks on the principal and/or interest amount for foreign currency borrowings on its balance sheet, the company has currently used cross currency derivatives, forwards and principal only swaps. Additionally, the company has entered into Interest Rate Swaps (IRS) to hedge its basis risk on fixed rate borrowings and LIBOR risk on its foreign currency borrowings.

Derivative financial instruments are initially measured at fair value on the contract date and are subsequently remeasured to fair value at each reporting date. Derivatives are classified as assets when the fair value is positive (positive marked to market value) or as liabilities when the fair value is negative (negative marked to market value). Derivative assets and liabilities are recognized on the balance sheet at fair value. Fair value of derivatives is ascertained from the mark to market and accrual values received from the counter-party banks. These values are cross checked against the valuations done internally on Bloomberg. Changes in the fair value of derivatives other than those designated as hedges are recognized in the Statement of Profit and Loss.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, no longer qualifies for hedge accounting or the Company chooses to end the hedging relationship.

(1) Employee Benefits - Provident Fund, ESIC, Gratuity and Compensated Absences disclosures as per Indian Accounting Standard (Ind AS) 19 - Employee Benefits:

Contributions are made to Government Provident Fund and Family Pension Fund, ESIC and other statutory funds which cover all eligible employees under applicable Acts. Both the employees and the Company make predetermined contributions to the Provident Fund and ESIC. The contributions are normally based on a certain proportion of the employee’s salary. The Company has recognized an amount of Rs. 10.88 Crore (Previous year Rs. 9.77 Crore) in the Statement of Profit and Loss towards Employers contribution for the above mentioned funds.

Provision for unfunded Gratuity and Compensated Absences for all employees is based upon actuarial valuations carried out at the end of every financial year. Major drivers in actuarial assumptions, typically, are years of service and employee compensation. Pursuant to the issuance of the Indian Accounting Standard (Ind AS) 19 on ‘Employee Benefits’, commitments are actuarially determined using the ‘Projected Unit Credit’ Method. Gains and losses on changes in actuarial assumptions are accounted for in the Statement of Profit and Loss.

(34) CONTINGENT LIABILITY AND COMMITMENTS

(a) Demand pending u/s 143(3) of the Income Tax Act,1961

i) For Rs. 1.23 Crore with respect to FY 2008-09 (Previous Year Rs. 1.23 Crore) against disallowances under Income Tax Act,1961,against which appeal is pending before Supreme Court.

ii) For Rs.1.27 Crore with respect to FY 2010-11 (Previous Year Rs. 1.27 Crore) against disallowances under Income Tax Act,1961, against which the department has filed appeal before High Court.

iii) For Rs. 0.05 Crore with respect to FY 2010-11 (Previous Year Rs. Nil) against disallowances under Income Tax Act,1961 against which appeal is pending before CIT (Appeal).

iv) For Rs. 0.00 Crore with respect to FY 2011-12 (Previous Year Rs. Nil) against disallowances under Income Tax Act,1961 against which appeal is pending before CIT (Appeal).

v) For Rs. 0.19 Crore with respect to FY 2012-13 (Previous Year Rs. 0.08 Crore) against disallowances under Income Tax Act,1961 against which appeal is pending before CIT (Appeal).

vi) For Rs. 14.16 Crore with respect to FY 2013-14 (Previous Year Rs. Nil) against disallowances under Income Tax Act,1961 against which appeal is pending before CIT (Appeal).

vii) For Rs. 13.81 Crore with respect to FY 2014-15 (Previous Year Rs. Nil) against disallowances under Income Tax Act,1961 against which appeal is pending before CIT (Appeal).

viii) For Rs 20.54 Crore with respect to FY 2015-16 (Previous Year Rs. Nil) against disallowances under Income Tax Act,1961 against which appeal is pending before CIT (Appeal).

ix) For Rs. 48.66 Crore with respect to FY 2016-17 (Previous Year Rs. Nil) against disallowances under Income Tax Act,1961 against which appeal is pending before CIT (Appeal).

x) For Rs. 0.05 Crore with respect to FY 2010-11 (Previous Year Rs. Nil) against disallowances under Income Tax Act,1961 against which appeal is pending before CIT (Appeal).

xi) For Rs. 12.03 Crore with respect to FY 2011-12 (Previous Year Rs. Nil) against disallowances under Income Tax Act,1961 against which appeal is pending before CIT (Appeal).

(b) i) Demand pending u/s of 25, 55, 56 & 61 of The Rajasthan Value Added Tax Act, 2003 for Rs. 1.45 Crore (Including interest & Penalty) with respect to FY 2007-08 to FY 2012-13 (Previous Year Rs. 1.45 Crore) against which appeal was pending before Rajasthan High Court. The Company has paid tax along with interest for Rs. 0.62 Crore (Previous Year Rs. 0.62 Crore) under protest. Further the company has deposited Rs. 0.21 Crore on May 30, 2016. Further,the company has opted for New Amnesty Scheme 2016 and accordingly deposited 25% of the disputed demand amount and withdrawn appeal before the Hon’ble High Court.

(c) Corporate counter guarantees outstanding in respect of assignment agreements entered by the Company with different assignees as at March 31, 2019 is Rs. 40.02 Crore (Previous Year Rs. 40.02 Crore) against which collateral deposit of Rs. 6.44 Crore (Previous Year Rs. 6.44 Crore) for the year ended March 31, 2019 is being provided to the assignees by the Company in the form of Fixed Deposit Receipts. The Company does not anticipate any losses on account of the said corporate guarantees, in the event of the rights under guarantee being exercised by the assignees.

(d) The Company in the ordinary course of business, has various cases pending in different courts, however, the management does not expect any unfavorable outcome resulting in material adverse effect on the financial position of the Company.

(e) Capital commitments for acquisition of fixed assets at various branches as at the yearend (net of capital advances paid) Rs. 19.06 Crore (Previous Year Rs. 70.50 Crore).

(f) Corporate guarantees provided to Unique Identification Authority of India for Aadhaar verification of loan applications for Rs. 0.25 Crore (Previous Year Rs. 0.25 Crore).

(g) Bank guarantees provided against court case for Rs. 0.03 Crore (Previous Year Rs. 1.39 Crore).

(h) Corporate guarantees provided to NABARD for loan taken by India bulls Commercial Credit Limited for Rs. 2,015.00 Crore (Previous Year Rs. Nil).

(35) SEGMENT REPORTING:

The Company’s main business is financing by way of loans for purchase or construction of residential houses, commercial real estate and certain other purposes in India. All other activities of the Company revolve around the main business. Accordingly, there are no separate reportable segments as per IND-AS 108 dealing with Operating Segment.

(36) Disclosures in respect of Related Parties as per Indian Accounting Standard (Ind AS) - 24 ‘Related Party Disclosures’. (a) Detail of related party

Nature of relationship Related party

India bulls Commercial Credit Limited (formerly India bulls Infrastructure Credit Limited)

India bulls Insurance Advisors Limited

India bulls Life Insurance Company Limited(tilDecember 8 2017)

India bulls Capital Services Limited

India bulls Infrastructure Credit Limited

India bulls Collection Agency Limited

Ibulls Sales Limited

India bulls Advisory Services Limited

India bulls Asset Holding Company Limited

Subsidiary Companies India bulls Asset Management Company Limited

India bulls Trustee Company Limited

India bulls Holdings Limited

India bulls Venture Capital Management Company Limited (Subsidiary of India bulls Holdings Limited)

India bulls Venture Capital Trustee Company Limited(tilMarch 8 2019) (Subsidiary of India bulls Holdings Limited)

India bulls Asset Management (Mauritius)

(Subsidiary of India bulls Commercial Credit Limited)

Nilgiri Financial Consultants Limited

(Subsidiary of India bulls Insurance Advisors Limited)

Acorn OakNorth Holdings Limited (Previously known as OakNorth Associate Company TT T. .

Holdings Limited)

Mr. Sameer Gehlaut, Chairman & Executive Director Mr. Gagan Banga, Vice Chairman, Managing Director & CEO Mr. Ashwini Omprakash Kumar, Deputy Managing Director Mr. Ajit Kumar Mittal, Executive Director Mr. Sachin Chaudhary, Executive Director Dr. K.C. Chakrabarty, Independent Director Key Management Personnel Mrs. Manjari Kacker, Non Executive Director

Justice Bhisheshwar Prasad Singh, Independent Director Mr. Shamsher Singh Ahlawat, Independent Director Mr. Prem Prakash Mirdha, Independent Director Brig. Labh Singh Sitara, Independent Director Justice Gyan Sudha Misra, Independent Director Mr. Subhash Sheoratan Mundra, Independent Director

(38) EARNINGS PER EQUITY SHARE

Earnings Per Equity Share (EPS) as per Indian Accounting Standard (Ind AS)-33 “Earnings Per Share”:

The basic earnings per share is computed by dividing the net profit attributable to Equity Shareholders for the year by the weighted average number of Equity Shares outstanding during the year. Diluted earnings per share are computed using the weighted average number of Equity Shares and also the weighted average number of Equity Shares that could have been issued on the conversion of all dilutive potential Equity Shares. The dilutive potential Equity Shares are adjusted for the proceeds receivable, had the shares been actually issued at fair value.

Dilutive potential Equity Shares are deemed converted as of the beginning of the year, unless they have been issued at a later date. The number of Equity Shares and potential diluted Equity Shares are adjusted for potential dilutive effect of Employee Stock Option Plan as appropriate.

(39) In respect of amounts as mentioned under Section 124 of the Companies Act, 2013, there were no dues (Previous Year Rs. Nil) required to be credited to the Investor Education and Protection Fund as on March 31, 2019.

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

The Company has not exceeded the limits for SGL/GBL

xii) Disclosure of Penalties imposed by NHB and other regulators

An amount of Rs. 5,000 (Previous Year Rs. Nil) has been levied as penalty by National Housing Bank in terms of provisions of paragraph 29(5) of the Housing Finance Companies(NHB) Directions, 2010 on account of Non classification of investment in associates under Capital Market Exposure as on March 31, 2017. Although, our capital market exposure would have been well below the prescribed limit, we hadn’t classified our investment in Oaknorth Bank of UK and ICEX, as the same was investment in associates and strategic in nature. Nevertheless, we classified the same under capital market exposure effective 1st April 2017. The breach, if any, was only in letter rather than in spirit.

During the current financial year, the company sold Rs. 371.97 Crore (previous year Rs. 212.31 Crore] of loan assets to IB ARC. The transactions are conducted at an arm’s length and is supported by independent, external valuations, and recovery rating by a SEBI registered credit rating agency. Out of the total loan assets sold till date, Rs. 254.75 Crore (previous year Rs. 88.37 Crore) was recovered by IB ARC during the current financial year. Thus, to date, Rs. 343.12 Crore have been recovered representing 58.7% of the total loan assets of Rs. 584.28 Crore sold to IB ARC to date.

(43) The Board at their meeting held on April 5, 2019 had approved the Scheme of amalgamation between India bulls Housing Finance Limited and The Lakshmi Vilas Bank Limited under Sections 230 to 232 and other applicable provisions of the Companies Act, 2013, as amended, Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, as amended and other rules and regulations framed there under. The Scheme is subject to the receipt of approval from the Reserve Bank of India (“RBI”), Other Regulatory approvals and all other applicable compliances.

(44) Fair value measurement

44.1 Valuation principles

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, regardless of whether that price is directly observable or estimated using a valuation technique.

In order to show how fair values have been derived, financial instruments are classified based on a hierarchy of valuation techniques

44.2 Valuation governance

The Company’s process to determine fair values is part of its periodic financial close process. The Audit Committee exercises the overall supervision over the methodology and models to determine the fair value as part of its overall monitoring of financial close process and controls. The responsibility of ongoing measurement resides with business units. Once submitted, fair value estimates are also reviewed and challenged by the Risk and Finance functions.

44.4 Valuation techniques Government debt securities

Government securities are financial instruments issued by Central and State Governments. Fair value of these instruments is derived based on the indicative quotes of price and are classified under level 2.

Debenture and Bonds, Commercial Papers, Certificate of Deposits

Fair value of these instruments is derived based on the indicative quotes of price and yields prevailing in the market as at reporting date and are classified as Level 2.

Equity instruments

Equity instruments in non-listed entities are initially recognized at transaction price and re-measured and valued on a case-by-case and classified as Level 2. Fair value is the price of recent transaction as there has not been a significant lapse of time since the last transaction took place.

Mutual Funds

Open ended mutual funds are valued at NAV declared by respective fund house and are classified under Level 2. Interest rate swaps, Currency swaps and Forward rate contracts

The fair value of Interest rate swaps is calculated as the present value of estimated cash flows based on observable yield curves. The fair value of Forward foreign exchange contracts and currency swaps is determined using observable foreign exchange rates and yield curves at the balance sheet date.

44.5 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.

44.6 Fair value of financial instruments not measured at fair value

Set out below is a comparison, by class, of the carrying amounts and fair values of the Company’s financial instruments that are not carried at fair value in the financial statements. This table does not include the fair values of non-financial assets and non-financial liabilities.

44.7 Valuation methodologies of financial instruments not measured at fair value

Below are the methodologies and assumptions used to determine fair values for the above financial instruments which are not recorded and measured at fair value in the company’s financial statements. These fair values were calculated for disclosure purposes only. The below methodologies and assumptions relate only to the instruments in the above tables.

Debt Securities & Subordinated liabilities

These includes Subordinated debt, secured debentures, unsecured debentures. The fair values of such liabilities are estimated using a discounted cash flow model based on contractual cash flows using actual or estimated yields and discounting by yields incorporating the credit risk. These instrument are classified in Level 2.

Investments - at amortized cost

These includes Government Securities and Corporate Bonds which are held for maturity. Fair value of these instruments is derived based on the indicative quotes of price and are classified under level 2.

Assets and Liabilities other than above

The carrying value of assets and liabilities other than investments at amortized cost, debt securities and subordinated liabilities represents a reasonable approximation of fair value.

(45) TRANSFERS OF FINANCIAL ASSETS

Transfers of financial assets that are not derecognized in their entirety

Securitizations: The company uses securitizations as a source of finance. Such transaction resulted in the transfer of contractual cash flows from portfolios of financial assets to holders of issued debt securities. Such deals resulted in continued recognition of the securitized assets since the company retains substantial risks and rewards.

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

The carrying amount of above assets and liabilities is a reasonable approximation of fair value Transfers of financial assets that are derecognized in their entirety

The Company has elected to apply the derecognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS. Thus, Pre-transition securitization deals continues to be derecognized in their entirety.

The table below outlines details for each type of continued involvement relating to transferred assets derecognized in their entirety.

Assignment Deals

During the period ended 31st March 2019, the Company has sold some loans and advances measured at amortized cost as per assignment deals, as a source of finance. As per the terms of deal, since the derecognition criteria as per IND AS 109, including transfer of substantially all the risks and rewards relating to assets being transferred to the buyer being met, the assets have been derecognized.

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

The table below summarizes the carrying amount of the derecognized financial assets measured at amortized cost and the gain/(loss) on derecognition, per type of asset.

Since the company transferred the above financial asset in a transfer that qualified for derecognition in its entirety therefore the whole of the interest spread (over the expected life of the asset) is recognized on the date of derecognition itself as interest-only strip receivable (“Receivables on assignment of loan”) and correspondingly recognized as profit on derecognition of financial asset.

(46) 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. The primary objective of the Company’s capital management is to maximize the shareholder value. The Company monitors capital using a capital adequacy ratio as prescribed by the NHB guidelines. Refer note 41(1)(i) for details.

(47) Risk Management Introduction and risk profile

India bulls Housing Finance Ltd. (IBHFL) is a housing finance company in India and is regulated by the National Housing Bank (NHB). In view of the intrinsic nature of operations, the company is exposed to a variety of risks, which can be broadly classified as credit risk, market risk, liquidity risk and operational risk. It is also subject to various regulatory risks.

Risk management structure and policies

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 is the potential for loss to an entity arising from either its inability to meet its obligations or to fund increases in assets as they fall due without incurring unacceptable cost or losses.

The Company manages liquidity risk by maintaining sufficient cash and cash equivalents (including marketable securities) to meet its obligations at all times. It also ensures having access to funding through an adequate amount of committed credit lines. The Company’s treasury department is responsible for liquidity and funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management and the management regularly monitors the position of cash and cash equivalents vis-a-vis projections. Assessment of maturity profiles of financial assets and financial liabilities including debt financing plans and maintenance of Balance Sheet liquidity ratios are considered while reviewing the liquidity position.

The table below summarizes the maturity profile of the undiscounted cash flows of the company’s financial liabilities. In FY2018-19 ‘Up to one month borrowings from banks and others’ includes repo borrowings of Rs. 1,462.92 Crores with specific collateral of investments in government securities:

(B) Credit Risk

Credit Risk arises from the potential that an obligor is either unwilling to perform on an obligation or its ability to perform such obligation is impaired resulting in economic loss to the company. IBHFL’s Credit Risk Management framework is categorized into following main components:

- Board and senior management oversight

- Organization structure

- Systems and procedures for identification, acceptance, measurement, monitoring and controlling risks.

It is the overall responsibility of the board appointed Risk Management Committee to approve the company’s credit risk strategy and lending policies relating to credit risk and its management. The policies are based on the company’s overall business strategy and the same is reviewed periodically.

The Board of Directors constituted Risk Management Committee keeps an active watch on emerging risks the company is exposed to. The Risk Management Committee (“RMC”) defines loan sanctioning authorities, including process of vetting by credit committees for various types/values of loans. The RMC approves credit policies, reviews regulatory requirements, and also periodically reviews large ticket loans and overdue accounts from this pool.

The Risk Management Committee approves the ‘Credit Authority Matrix’ that defines the credit approval hierarchy and the approving authority for each group of approving managers/committees in the hierarchy.

To maintain credit discipline and to enunciate credit risk management and control process there is a separate Risk Management department independent of loan origination function. The Risk Management department performs the function of Credit policy formulation, credit limit setting, monitoring of credit exceptions/exposures and review/ monitoring of documentation.

Derivative financial Instruments

Credit risk arising from derivative financial instruments is, at any time, limited to those with positive fair values, as recorded on the balance sheet. With gross-settled derivatives, the company is also exposed to a settlement risk, being the risk that the company honours its obligation, but the counterparty fails to deliver the counter value.

Analysis of risk concentration

The Company’s concentrations of risk for loans are managed by counterparty and type of loan (i.e. Housing and Non Housing as defined by NHB). Housing and Non housing loans are given to both individual and corporate borrowers. The table below shows the concentration of risk by type of loan

(C) Market Risk

Market Risk is the risk that the value of on and off-balance sheet positions of a financial institution will be adversely affected by movements in market rates or prices such as interest rates, foreign exchange rates, equity prices, credit spreads and/or commodity prices resulting in a loss to earnings and capital.

Financial institutions may be exposed to Market Risk in variety of ways. Market risk exposure may be explicit in portfolios of securities/equities and instruments that are actively traded. Conversely it may be implicit such as interest rate risk due to mismatch of loans and deposits. Besides, market risk may also arise from activities categorized as off-balance sheet item. Therefore market risk is potential for loss resulting from adverse movement in market risk factors such as interest rates, forex rates, equity and commodity prices.

The Company’s exposure to market risk is primarily on account of interest rate risk and Foreign exchange risk.

(i) Interest Rate Risk:-

Interest rate risk arises when there is a mismatch between positions, which are subject to interest rate adjustment within a specified period. The company’s lending, funding and investment activities give rise to interest rate risk. The immediate impact of variation in interest rate is on the company’s net interest income, while a long term impact is on the company’s net worth since the economic value of the assets, liabilities and off-balance sheet exposures are affected. While assessing interest rate risks, signals given to the market by RBI and government departments from time to time and the financial industry’s reaction to them shall be continuously monitored.

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:

*The impact of borrowings is after considering the impact on derivatives contracts entered to hedge the interest rate fluctuation on borrowings

(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 banks through the FCNR route and External Commercial Borrowings (ECB).

The Company follows a conservative policy of hedging its foreign currency exposure through Forwards and/or Currency Swaps in such a manner that it has fixed determinate outflows in its function currency and as such there would be no significant impact of movement in foreign currency rates on the company’s profit before tax (PBT) and equity.

(iii) Equity Price Risk

Equity price risk is the risk that the fair value of equities decreases as the result of changes in the level of equity indices and individual stocks. The non-trading equity price risk exposure arises from equity securities classified as FVOCI. A 10 per cent increase in the value of the company’s FVOCI equities at March 31, 2019 would have increased equity by Rs. 280.58 Crore (March 31, 2018: Rs. 285.40 Crore). An equivalent decrease would have resulted in an equivalent but opposite impact.

(D) 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.

IBHFL 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 endeavors’ to manage these risks through a control framework and by monitoring and responding to potential risks. Controls include effective segregation of duties, access, authorization and reconciliation procedures, staff education and assessment processes, such as the use of internal audit.

(48) First-time adoption of Ind AS

These financial statements, for the year ended March 31, 2019, are the first financial statements the Company and have been prepared in accordance with Ind AS. For periods up to and including the year ended March 31, 2018, the Company prepared its financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 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 periods ending on March31, 2019, together with the comparative period data as at and for the year ended March 31, 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 April 1, 2017 and the financial statements as at and for the year ended March 31, 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:

Estimates

The estimates at April 1, 2017 and at March 31, 2018 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 and FVOCI

- 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.

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

Deemed cost-Previous GAAP carrying amount: (PPE and Intangible Assets)

Since there is no change in the functional currency, the Company has elected to continue with the carrying value for all of its PPE, Intangible assets and Investment Properties as recognized in its Indian GAAP financial as deemed cost at the transition date.

Investments in subsidiaries, jointly controlled entities and associates in separate financial statements

In the preparation of separate financial statements, the company has opted to account for its investments in subsidiaries at Previous GAAP carrying amount at the transition date. In case of Investments in Associates, the Company opted to measure it at FVOCI in accordance with Ind AS 109.

Share based payments

The company has opted not to apply Ind AS 102 Share-based payment to equity instruments that vested before date of transition to Ind AS.

1. EIR on loans and borrowings

Under Indian GAAP, loan processing fees received in connection with loan portfolio is recognized upfront and credited to profit or loss for the period. Under Ind AS, loan processing fee is credited to profit and loss using the effective interest rate method. The unamortized portion of loan processing fee is adjusted from the loan portfolio.

For Borrowings Under Indian GAAP, transaction costs incurred in connection with borrowings are amortized upfront and charged to profit or loss for the period. 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.

2. Investments

Under Indian GAAP, the Company accounted for long term investments at cost less provision for other than temporary diminution in the value of investments. Under Ind AS, IBHFL has designated long term Equity investments as FVOCI investments. Ind AS requires FVOCI investments to be measured at fair value. At the date of transition to Ind AS, difference between the instruments fair value and Indian GAAP carrying amount has been recognized as a separate component of equity, in the FVOCI reserve, net of related deferred taxes.

Under Indian GAAP, the company accounted for Short term investments in quoted bonds and debentures as investment measured at cost or market value whichever is less. Under Ind AS, the company has classified such investments as FVTPL investments and are measured at fair value. Difference between the instruments Fair value and Indian GAAP carrying amount has been adjusted in retained earnings/statement of Profit and loss.

3. Expected Credit Loss on loans & advances

Under the Ind AS, allowance is provided on the loans given to customers on the basis of percentage obtained by evaluating the loss of the previous years. 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. In addition, ECL on off balance sheet has also been determined as per Ind AS). The differential impact has been adjusted in Retained earnings/Profit and loss during the year. Under Indian GAAP Loans & Advances were presented net of provision for NPA and Provision against standard asset were presented under provisions. However, under Ind AS financial assets measured at amortized cost (majorly loans) are presented net of provision for expected credit losses.

4. Interest income under Assignment arrangement, derecognized

The company transferred the loan portfolio in a transfer that qualified for derecognition in its entirety therefore under Ind AS the whole of the interest spread (over the expected life of the asset) is recognized on the date of derecognition itself as interest-only strip receivable (“Receivables on assignment of loan”) and correspondingly recognized as profit on derecognition of financial asset.

5. Defined benefit obligations

Both under Indian GAAP and Ind AS, the Company recognized costs related to its post-employment defined benefit plan on an actuarial basis. Under Indian GAAP, the entire cost, including actuarial gains and losses, are charged to profit or loss. Under Ind AS, remeasurements [comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets excluding amounts included in net interest on the net defined benefit liability] are recognized immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI.

6. Share-based payments

Under Indian GAAP, the Company recognized 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 recognized over the vesting period.

7. Derivatives

Under Ind AS, the Company measures the derivative instruments at fair value.

8. 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 profit or loss as per Ind AS. Further, Indian GAAP profit or loss is reconciled to total comprehensive income as per Ind AS.

9. 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 period. 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, IBHFL has to account for such differences. Deferred tax adjustments are recognized in correlation to the underlying transaction either in retained earnings or a separate component of equity.

(10) The Company has complied with the NHB Directions, 2010 including Prudential Norms and as amended from time to time. The disclosures as prescribed by NHB vide its circular No. NHB.HFC.CG-DIR.1/MD&CEO/2016 dated February 9, 2017 are prepared as per previous GAAP.

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