OPERATIONS
To obtain a complete understanding of our Company, prospective investors should read the following discussion in conjunction with "Risk Factors", "Industry Overview", "Our Business", "Selected Statistical Information", and "Restated Financial Information" on pages 25, 115, 184, 257 and 275.
Unless otherwise indicated or the context otherwise requires, the financial information for Fiscals 2023, 2022- and 2021, included herein is derived from the Restated Financial Information, included in this Draft Red Herring Prospectus. For further information, see "Restated Financial Information" on page 275.
Our Fiscal year ends on March, 31 of each year. Accordingly, all references to a particular Fiscal are to the 12-month period ended March, 31 of that year.
The industry and market data used in this section has been sourced from the CRISIL Report prepared and released by CRISIL (appointed by our Company pursuant to an pursuant to addendum no. 3 dated June 14, 2023 to the agreement for services dated October 22, 2021) and commissioned by and paid for by us in connection with the Offer. Such information involves risks, uncertainties and numerous assumptions and is subject to change based on various factors, including those discussed in "Risk Factors 57. Certain sections of this Draft Red Herring Prospectus contain information from the report titled ‘Analysis of NBFC sector and select asset classes in India dated July 2023, ("CRISIL Report") which has been commissioned and paid for by us exclusively for the purpose of the Offer. The CRISIL Report, prepared and issued by CRISIL MI&A, a division of CRISIL, is not exhaustive and is based on certain assumptions and parameters / conditions and any reliance on such information for making an investment decision in the Offer is subject to inherent risks." on page 54 and "Certain Conventions, Presentation of Financial, Industry and Market Data and Currency of Presentation" on page 21. Unless otherwise indicated, all financial, operational, industry and other related information derived from the CRISIL Report and included herein with respect to any particular year refers to such information for the relevant fiscal year.
Certain non-GAAP financial measures and certain other statistical and operational information relating to our operations and financial performance have been included in this section and elsewhere in this Draft Red Herring Prospectus. For further details, see "Certain Conventions, Presentation of Financial, Industry and Market Data and Currency of Presentation" on page 21.
This discussion contains forward-looking statements that involve risks and uncertainties and reflects our current view with respect to future events and financial performance. Under no circumstances should the inclusion of such information herein be regarded as a representation, warranty or prediction with respect to the accuracy of the underlying assumptions by us or any other person, or that these results will be achieved or are likely to be achieved. Actual results may differ from those anticipated in these forward-looking statements as a result of factors such as those set forth under "Forward-looking Statements" and "Risk Factors" on pages 24 and 25, respectively. Prospective investors in the Equity Shares are cautioned not to place undue reliance on these forward-looking statements.
Overview
We are a retail focused NBFC promoted by The Federal Bank Limited. We have the second lowest cost of borrowing among the MSME, gold loan and MSME & gold loan peer set in India in Fiscal 2023. (Source: CRISIL Report) As on March 31, 2023, we had the third fastest AUM growth among NBFCs in the peer set in India with a three year CAGR of 33% between Fiscals 2020 and 2023. We are one among five private bank promoted NBFCs in India. (Source: CRISIL Report) We are the fastest growing gold loan NBFC in India among the peer set as of March 31, 2023. (Source: CRISIL Report) As on March 31, 2023, 85.98% of our total Loan Assets are secured against tangible assets, namely gold or customers property.
We are focused on catering to the micro, small and medium enterprises ("MSMEs") and the emerging self-employed individuals ("ESEIs") sector. According to the CRISIL Report, the ESEI and MSME segment is largely unaddressed by lending institutions in India. We believe that this segment provides us with a sizeable opportunity to rapidly grow and expand further. We have a well-tailored suite of products targeted to match our customers needs, which includes mortgage loans such as housing loans; small ticket loan against property ("LAP"); and medium ticket LAP, unsecured business loans, and gold loans. We had the third highest growth in disbursement among the peer set with a three year CAGR of 35% between Fiscals 2020 and 2023. (Source: CRISIL Report) Our mortgage loans, gold loans and our unsecured business loans had an AUM of 45,063.78 million, 29,860.46 million and 14,542.80 million, respectively as on March 31, 2023.
We have been rated "AA" by CARE for our non-convertible debentures ("NCDs") since 2022, and "AA-" by India Ratings and Research Private Limited for our NCDs and bank loans since 2018.We are promoted by Federal Bank, which, we believe, adds a degree of trust among our stakeholders. Federal Bank will continue to own more than 51% of our outstanding share capital post the completion of the Offer. We believe that our long operating history, track record, management expertise and the "Federal Bank" brand have enabled us to establish a competitive position in the markets we serve and create trust among our customers, lenders, regulators and investors. For further details in relation to our Promoter and Promoter Group, see "Our Promoter and Promoter Group" on page 251.
We are headquartered in Mumbai, Maharashtra. As of March 31, 2023, we are present in 16 states and union territories across India with a strong presence in Southern and Western regions of India. Based on the CRISIL Report, these states contribute more than 75% of Indias GDP as on March 31, 2022.As of March 31, 2023, we covered 191 districts in 16 states and union territories in India through 575 branches. Our branches are located in states, such as Andhra Pradesh (including Telangana) and Rajasthan, which have better asset quality than other states as of Fiscal 2023 (Source: CRISIL Report) Additionally, we have dedicated micro-sites on our website for each of our branches, which focus solely on customer engagement for our branch customers.
We also have a "Phygital" doorstep model, a combination of digital and physical initiatives, for providing customized services to our customers across all of our products. This also helps us to constantly remain in touch with our customers. Technology is the core building block of our underwriting model which combines electronic data and physical information and document collection. We have entered into an agreement in Fiscal 2020 with a service provider for records management, preservation of documents and related services, valid for period of five years. When we underwrite a loan, we collect various data points from the customer, including subjective and objective information. These are collected in digital and physical format. Subsequently, we spend time validating the data and analyzing the customers creditworthiness. Thereafter, the information is validated through various application programming interfaces ("APIs"), which are integrated in our loan origination system. Lastly, for our gold loan portfolio, the information is passed through the decision engine for final determination of sanctions of the loan amount. Our underwriting process has allowed us to manage defaults and NPAs across all our products in Fiscals 2023, 2022 and 2021. Our Gross NPA was 2.03%, 2.23% and 1.01% for Fiscals 2023, 2022 and 2021, respectively, and Net NPA was 1.59% 1.75% and 0.71% for Fiscals 2023, 2022 and 2021, respectively. For details in relation to the impact of COVID-19 on our NPAs, see "Risk Factors 25. The resurgence of the COVID-19 pandemic may affect our business and operations in the future." on page 40.
People are at the forefront of our organization. As on March 31, 2023, we have employed 3,570 personnel across our 575branches. For the last three consecutive years, we have been certified as a "Great Place to Work" by Great Place to Work Institute.
We seek to empower emerging India with easy access to loans. We believe we are filling a gap in the Indian financial services industry, by addressing our target customer segments loan requirements.
Significant Factors Affecting our Financial Condition and Results of Operations
A number of important factors, including the following affect our results of operation and financial condition:
Availability of cost-effective sources of capital
We have historically secured financing from diversified sources of capital from banks, financial institutions, mutual funds and other financial institutions, including term loans, proceeds from loans securitized, proceeds from the issuance of NCDs, proceeds from loans assigned and commercial papers, to meet our capital requirements. In addition, we have access to capital from our Promoter, Federal Bank. As a result, the availability of cost-effective funding sources affects our results of operations. The availability for funding as well as the overall cost of borrowing depends on many external factors, including developments in the Indian economy and its credit markets and, in particular, interest rate movements and the existence of adequate liquidity in the debt markets. Internal factors that affect availability of funding and our cost of borrowing include our credit ratings and available credit limits. See "-Credit Ratings" on page 391 as well as "Risk Factors 12. Any downgrade in our credit ratings could increase our borrowing costs, affect our ability to obtain financing, and adversely affect our business, results of operations and financial condition" on page 33. As of March 31, 2023, March 31, 2022 and March 31, 2021, our total borrowings were 71,358.23 million, 50,168.35 million and 43,280.92 million , respectively. Our average cost of borrowing was 7.77%, 7.44% and 8.30% in Fiscals 2023, 2022 and 2021, respectively. In addition, our cost of incremental borrowings, being new loans sanctioned in the relevant period, reduced from 8.36% in Fiscal 2021 to 7.02% in Fiscal 2022. It increased to 8.02% in Fiscal 2023 due to an increase in interest rates. The increase in interest rates was primarily attributable to an increase in the repo rate by the RBI. Our ability to continue to meet customer demand for new loans will depend primarily on our ability to borrow from various external sources on suitable terms and in a timely manner. Our funding sources are varied, as we believe that a diversified debt profile ensures that we are not overly dependent on any one type or source for funding. For further details in relation to our Promoter, see "Our Business Overview" and "Our Promoter and Promoter Group" on pages 184 and 251, and for further details in relation to our borrowings, see "Financial Indebtedness" on page 395.
Further, our ability to raise debt to meet our funding requirements is restricted by the limits prescribed under applicable regulations. For example, as per the Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016, as amended ("NBFC-ND-SI Directions"), NBFCs are required to have a Net Owned Fund ("NOF") of at least 20 million.
Volatility in borrowing and lending rates
Our results of operations depend substantially on our net interest income. Any change in interest rates would affect our interest income and our finance costs, and directly impact our results of operations because our core business is based on achieving a margin between the cost at which we can obtain funds and the yields we can achieve in extending loans. Our interest income constitutes the largest component of our revenue from operations. For Fiscals 2023, 2022 and 2021, our interest income as a percentage of our revenue from operations was 94.18%, 94.54% and 95.13% respectively.
Our finance costs represented 40.05%, 39.99% and 45.27% of our revenue from operations for Fiscals 2023, 2022 and 2021, respectively. Interest rates are sensitive and volatility in interest rates could be a result of many factors beyond our control, including the monetary policies of the RBI, deregulation of the financial services sector in India, domestic and international economic and political conditions and competition among various lending institutions in India. Moreover, interest rates in India are typically correlated with the inflation rate, and as the inflation rate increases, the RBI has historically sought to raise interest rates.See "Risk Factors 11. We are affected by volatility in interest rates for both our lending and treasury operations, which could cause our net interest income and net interest margin to vary and consequently affect our profitability" and "-Quantitative and Qualitative Analysis of Market Risks Market Risk" on page 33 and 392.
Credit quality and provisioning
Our ability to manage the credit quality of our loan portfolio, which we measure in part through non-performing assets ("NPA"), is a key driver of our results of operations. Credit quality is the outcome of the credit appraisal mechanism and recovery system followed by us. We classify NPAs in accordance with the NBFC-ND-SI Directions and applicable Ind AS rules. For further details of the composition of our loans across classification stages, as well as the provisioning thereof, see "Our Business Our Competitive Strengths Strong underwriting capability and presence in select customer segment combined with robust risk management capabilities focused on effective underwriting and collections" on page 188.
In addition, on account of our recent growth, a significant portion of our loan portfolio is relatively new and was disbursed during the last 36 months.We believe that the risk of delinquency in retail loans typically emerges 18 to 36 months from disbursement. As our loan portfolio matures or due to change in regulations, there may be a significant increase in the portion of our loans that are classified as NPAs. For example, RBI issued directions in 2014 which mandated a shorter time period for classifying assets as NPAs. Pursuant to such RBI directions, we decreased the time period for classifying our assets as NPAs from six months overdue to five months overdue in Fiscal 2016, four months overdue in Fiscal 2017 and three months overdue in Fiscal 2018. As a consequence, there was an increase in our Gross NPAs, and we had lost the regulatory arbitrage we enjoyed as against banks in relation to classification of assets as NPAs. Furthermore, on November 12, 2021, the RBI issued a circular which clarified that the classification of borrower accounts as special mention accounts or NPAs will be on a day-end position basis and accounts can only be upgraded from an NPA to a ‘standard asset after the clearance of all outstanding overdues (in other words, only if the entire arrears of interest and principal are paid by the borrower). This clarification by the RBI may cause a spike in NPAs in the near term, and increase stickiness of NPAs for NBFCs going forward, and consequently result in an increase in provisioning requirements, higher capital requirements and losses over time. As a result of this circular and the resultant increase in our NPAs, we breached our covenants on GNPA and NNPAs in our loan agreements with Federal Bank, HDFC Bank Limited and the Karur Vysya Bank Limited in Fiscal 2022. We have subsequently modified the relevant covenants in the agreements entered into with these lenders. For further details, see "Risk Factors 15. Our inability to meet our obligations, including financial and other covenants under our debt financing arrangements could adversely affect our business, results of operations and financial condition." and "-Significant developments occurring after March 31, 2023" on pages 34 and 393, respectively.
In August 2020, RBI introduced a restructuring scheme for corporates under stress due to the COVID-19 pandemic. Pursuant to the restructuring scheme, only those borrower accounts that were classified as ‘standard, but not in default for more than 30 days with any lending institution as on March 1, 2020, were eligible for resolution. In May 2021, RBI introduced a second restructuring scheme due to the onset of the "second wave" on COVID-19 pandemic. The second restructuring scheme was extended to small businesses for a loan amount of up to 250 million. It was applicable to those borrower accounts that were standard as of March 31, 2021 and that had not availed the benefit of the 1st restructuring scheme. In June 2021, the exposure limit for availing restructuring was enhanced from 250 million to 500 million, provided that the borrower accounts were not restructured in terms of the earlier schemes.
In line with the policies approved by our Board on September 25, 2020 and May 12, 2021, we restructured such loans based on borrowers requesting assistance and our Company approaching certain borrowers that showed early signs of over-due. The following table sets forth the details of our restructured loan portfolio as on March 31, 2023 and March 31, 2022:
Product wise restructured portfolio classified as standard (Gross loan book) |
As on | ||||||
| March 31, 2023 | March 31, 2022 | ||||||
Restructured Amount in million |
Total Gross Loan book in million |
Percentage % |
Restructured Amount in million |
Total Gross Loan book in million |
Percentage % |
||
| Gold loans | - | - | - | - |
- | - | |
| Medium ticket LAP | 1,210.03 | 20,033.10 | 6.04 | 1,451.51 |
13,113.60 | 11.07 | |
| Small ticket LAP | 455.44 | 13,925.20 | 3.27 | 511.91 |
9,229.89 | 5.55 | |
| Housing finance | 81.59 | 5,518.20 | 1.48 | 92.27 |
3,201.90 | 2.88 | |
| Business loans | 61.58 | 11,106.46 | 0.55 | 298.01 |
8,526.66 | 3.50 | |
| Others | - | 584.07 | - | 125.77 |
1,062.06 | 11.84 | |
Total |
1,808.64 |
51,167.03 | 3.53 |
2,479.47 |
35,134.11 | 7.06 |
|
The following table sets forth the LTV as on March 31, 2023 and March 31, 2022:
LTV |
As of | |
| March 31, 2023 | March 31, 2022 | |
(in percentages) |
||
| Gold loans | 72.33 | 73.19 |
| Medium ticket LAP | 51.78 | 49.53 |
| Small ticket LAP | 46.58 | 44.40 |
| Housing finance | 62.12 | 61.67 |
| Business loans | NA | NA |
| Others | NA | NA |
The following table sets forth the restructured portfolio provisioning as on March 31, 2023 and March 31, 2022:
Restructured Portfolio |
As of | |
Provisioning (%) |
March 31, 2023 | March 31, 2022 |
(in percentages) |
||
| Gold loans | ||
| Medium ticket LAP | 13.31 | 10.47 |
| Small ticket LAP | 13.49 | 12.11 |
| Housing finance | 15.78 | 15.45 |
| Business loans | 54.43 | 60.39 |
| Others | - | 51.83 |
Percentage (%) of total provision held to total |
14.87 | 19.09 |
restructured gross loan book (classified as standard) |
As of March 31, 2023 March 31, 2022 and March 31, 2021, our Stage 3 Loans were 1,645.03 million, 1,285.82 million and 468.08 million respectively, while our Stage 3 Loans to Total Gross Loan Book were 2.03%, 2.23% and 1.01% respectively. As of March 31, 2023, March 31, 2022 and March 31, 2021, our Stage 3 Loan Assets (Net) were 1,279.85 million, 1,002.09 million and 328.22 million , respectively, while our Stage 3 Loans (Net) to Total Net Loans were 1.59%, 1.75% and 0.71%, respectively.
Investment in technology
We are a technology driven company, which enables us to expand and scale our businesses and drive growth in revenue at lower incremental costs. We have invested 82.68 million, 128.40 million and 40.10 million in our information technology and digital systems, in Fiscals 2023, 2022 and 2021, respectively, constituting 0.70%, 1.48% and 0.58% of our revenue from operations during the same periods. We leverage our information technology platforms to drive economies of scale through increase in productivity, reduce turnaround time in processing and reduce transaction costs. For instance, we launched a web portal in Fiscal 2021, to provide customers self-service and the service is available at all times. Our ability to grow our customer base, improve customer experience and increase our revenues will depend, in part, on our ability to leverage technology. We plan to continue investing in technology and digitization, and to ensure that our information technology systems continue to help us with several functions, including loan origination, credit underwriting, risk management, collections, customer service and retention. We believe that such investments will help improve recoveries and reduce our operating expenses, our cost of customer acquisition and credit costs over time.
Expansion of branch network
As part of our growth strategy, we intend to expand our branch network through contiguous expansion in the regions in India where we have a presence and expand to adjacent geographies by evaluating areas with established credit culture. Our results of operations will be affected by our ability to manage operating expenses as we expand, in particular, our employee benefits expenses. As we have expanded our branch network, we have increased our employee headcount. As we further expand our branch network, we will need to increase headcount. For Fiscals 2023, 2022 and 2021, our employee benefits expenses were 2,476.04 million, 1,754.11 million and 1,315.90 million, respectively. Our employee benefit expenses were 20.38%, 19.85% and 18.86%, of our total revenue, respectively, for Fiscals 2023, 2022 and 2021.
However, as our operations expand, we also expect to derive benefits from economies of scale, which we believe will assist us in optimizing our operating expenses.
Government policy and regulations
We operate in a highly regulated industry, and we have to adhere to various laws, rules and regulations. Our financial condition, results of operations and continued growth also depend on stable government policies and regulations. We are required to comply with, among others, limits on borrowings, investments and interest rates, prudential norms for income recognition, asset classification, and norms for creation of special reserves as well as minimum capital adequacy requirements. The regulations applicable to us also address issues such as our conduct with customers and recovery practices, market conduct and foreign investment. Any significant change by the Government or the RBI in their various policy initiatives may affect the demand for our products and services. For instance, as per the NBFC-ND-SI Directions, NBFCs are required to have a NOF of at least 20.00 million. As of March 31, 2023, March 31, 2022 and March 31, 2021, our NOF was 12,279.30 million, 10,868.68 million and 8,043.26 million, respectively. For details in relation to our capital adequacy ratio, see "- Capital to risk-weighted assets ratio" on page 390. For further details, see "Key Regulations and Policies" on page 211.
General economic conditions in India
Our results of operations are affected by the general economic conditions prevalent in India, as well as the perception of those conditions and future economic prospects. Overall economic growth and an increase in GDP are likely to result in an increase in incomes and spending on business expansion in India, which may lead to an increase in demand for retail loans. Conversely, a slowdown in the Indian economy could adversely affect our business and our borrowers, especially if such a slowdown were to be continued and prolonged. Several factors beyond our control, such as developments in the Indian economy and domestic employment levels, conditions in the world economy, fluctuations in interest rates, movements in global commodity markets and exchange rates could have either a positive or an adverse impact on the quality of our Gross Loan Book. Any trends or events, which have a significant impact on the economic situation in India could have an adverse impact on our business.
The COVID-19 pandemic has had, and may continue to have, significant repercussions across local, national and global economies and financial markets. In the past, as a result of the implementation of lockdowns and other restrictive measures in response to the spread of the COVID-19 pandemic by the Government of India, the Indian economy, including the financial services sector, faced significant disruptions. This led to disruptions in our operations for certain periods, such as:
it led to a temporary closure of our offices and branches and caused a decline in general economic and business activity, which resulted in slowing down of disbursements of retail instalment loans by our Company; we disbursed retail instalment loans amounting to 33,125.76 million, 19,539.96 million, and 7,438.32 million for the Fiscals 2023, 2022, and 2021, respectively;
pursuant to circular dated April 7, 2021 on ‘Asset Classification and Income Recognition following the expiry of COVID-19 regulatory package issued by RBI, we granted moratorium to the loan instalments due during the period from March 1, 2020 to August 31, 2020 on the eligible loan accounts; the RBI also clarified that for all standard accounts as on February 29, 2020, moratorium period will be excluded from days past-due ("DPD") calculation for the purpose of asset classification under the norms on income recognition and asset classification. Moratorium was granted by us to 5,623 instalment loan customers for the period between March 1, 2020 and August 31, 2020; our customers who primarily belong to the low and middle income groups have less financial wherewithal than other borrowers and may default on their repayment obligations due to the hardships suffered during or as a result of the COVID-19 pandemic, and accordingly, this could lead to an increase in our NPAs and credit losses; restrictions on movement of people during the lockdown has adversely impacted our cash collections due to the inability of employees to make on-field visits; and we undertook a risk assessment of our credit exposure. In addition to the provision ( 292.30 million and 984.60 million as on March 31, 2021 and March 31, 2022, respectively) as required under the ECL model of our Company, we recorded additional provision overlay ( 455.80 million and 176.70 million as on March 31, 2021 and March 31, 2022, respectively) in the balance sheet, to reflect the deterioration in the macroeconomic outlook due to the impact of the COVID-19 pandemic.
For further details, see "Risk Factors 25. The resurgence of the COVID-19 pandemic may affect our business and operations in the future" on page 40.
Value of collateral
Our loan products include gold loans, loans against property and business loans to customers. Our gold loan products are secured by gold jewelry provided as collateral. For loans against property, the primary collateral is real estate. As on March 31, 2023,
85.98% of our total Loan Assets are secured against tangible assets, namely gold or customers property. As on March 31, 2023, more than 66.32% of our collateral for our medium ticket LAP and small ticket LAP is self-occupied residential property. We may face difficulties in recovering the amounts against gold jewelry and property collateral for various reasons such as economic downturn or sharp downward movement in the price of gold, defects in the quality of gold or wastage on melting gold jewelry into gold bars, difficulty in repossessing and liquidating property we hold as collateral against our loan against property product and challenges in title verification of the collateral provided by the customer. For further details in relation to the risks relating to recovery of collateral, see "Risk Factors 4. Our inability to adequately assess and recover the assessed or full value of collateral or amounts outstanding under defaulted loans in a timely manner, or at all, could adversely affect our business, results of operations and financial condition." on page 28.
Significant Accounting Policies
Critical accounting estimates and judgments
The preparation of the Restated Financial Information requires our management to make use of estimates and judgements. In view of the inherent uncertainties and a level of subjectivity involved in measurement of items, it is possible that the outcomes in the subsequent financial years could differ from those on which our managements estimates are based. Accounting estimates and judgements that are used for various line items in the Restated financial Information are as follows:
Effective Interest Rate (EIR) Method:
We recognize interest income / expense using a rate of return that represents the best estimate of a constant rate of return over the expected life of the loans given / taken. This estimation, by nature, requires an element of judgement regarding the expected behavior and life cycle of the instruments, as well as expected changes to other fee income/expense that are integral parts of the instrument.
Contingencies:
Provisions and liabilities are recognized in the period when it becomes probable that there will be a future outflow of funds resulting from past operations or events and the amount of cash outflow can be reliably estimated. The timing of recognition and quantification of the liability requires the application of judgement to existing facts and circumstances, which can be subject to change. The carrying amounts of provisions and liabilities are reviewed regularly and revised to take account of changing facts and circumstances.
Useful lives of property, plant and equipment and intangible assets:
Our management reviews the estimated useful lives and residual values of the assets annually in order to determine the amount of depreciation to be recorded during any reporting period. The useful lives and residual values are as per schedule II of the Companies Act, 2013 or are based on our historical experience with similar assets and taking into account anticipated technological changes, whichever is more appropriate.
Defined employee benefit obligation:
The cost of post-employment benefits is determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rates, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed annually.
Fair value measurement
When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be derived from active markets, they are determined using a variety of valuation technique that include the use of valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
Business model assessment
Classification and measurement of financial assets depends on the results of the solely payment of principal and interest and the business model test. We determine the business model at a level that reflects how groups of financial assets are managed together to achieve a particular business objective. This assessment includes judgment reflecting all relevant evidence including how the performance of the assets is evaluated and their performance measured, the risks that affect the performance of the assets and how these are managed and how the managers of the assets are compensated. We monitor financial assets measured at amortized cost or fair value through other comprehensive income that are derecognized prior to their maturity to understand the reason for their disposal and whether the reasons are consistent with the objective of the business for which the asset was held. Monitoring is part of our continuous assessment of whether the business model for which the remaining financial assets are held continues to be appropriate and if it is not appropriate whether there has been a change in business model and so a prospective change to the classification of those assets.
Income taxes
Significant judgments are involved in determining the provision for income taxes including judgment on whether tax positions are probable of being sustained in tax assessments. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable profits during the periods in which those temporary differences and tax loss carry forwards become deductible. We consider the expected reversal of deferred tax liabilities and projected future taxable income in making this assessment.
Expected credit losses on financial assets
The impairment provisions of financial assets and contract assets are based on assumptions about risk of default, expected recovery through liquidations of collateral, and expected timing of collection. We use judgment in making these assumptions and selecting the inputs to the impairment calculation, based on our past history of collections, customers creditworthiness, existing market conditions as well as forward looking estimates at the end of each reporting period.
Estimation of impairment allowance on financial assets affected by COVID-19 pandemic (relevant for financial year 2020-2021 and 2021-2022)
The COVID-19 pandemic has impacted most countries including India. The nationwide lockdown initiated by the Government of India in April-May 2020 substantially impacted economic activity. The easing of lockdown measures subsequently led to gradual improvement in economic activity and progress towards normalcy. RBI took various regulatory measures like moratorium on payment of dues, relief towards "Interest on interest" charged during March-August 2020 and allowing onetime restructuring to eligible borrowers ("OTR").
Further the second wave of COVID-19 pandemic in April-May 2021 led to re- imposition of localized /regional lockdown in various parts of the country, which led to substantial impact on economic activities. The second waive subsided from June 2021 onwards and there has been gradual lifting of lock downs and increase in economic activities. However, the uncertainty around the third wave of COVID-19 pandemic in future and its impact on the economic activities are not known. Accordingly, our results remain uncertain and dependent on future developments and actuals may differ from the estimates used in the preparation of Restated Financial Information on the reporting date.
Estimates and associated assumptions used for determining the impairment allowance on our financial assets, are based on historical experience and other emerging factors emanating from the COVID-19 pandemic which may also influence the expected credit loss. We have used the OTR scheme under the RBI resolution frame-work 1.0 and 2.0 and repayment moratorium on loans as early indicators suggesting higher flow rates and probability of default and accordingly accounted for commensurate expected credit loss. We believe that the factors considered are reasonable under the current circumstances and information available. However, the uncertainty caused by COVID-19 pandemic and related events could further influence the estimate of credit losses.
Leases
Ind AS 116 defines a lease term as the non-cancellable period for which the lessee has the right to use an underlying asset including optional periods, when an entity is reasonably certain to exercise an option to extend (or not to terminate) a lease. We consider all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option when determining the lease term. The option to extend the lease term are included in the lease term, if it is reasonably certain that the lessee will exercise the option. We reassess the option when significant events or changes in circumstances occur that are within the control of the lessee.
Changes in significant accounting policies
As on the date of the filing of this Draft Red Herring Prospectus, there are no changes in the significant accounting policies in the last three Fiscals.
Key Components of Income and Expenses
We report our income and expenditure in the following manner:
Total revenue
Total revenue from operations
Our total revenue from operations primarily comprises interest income, fee income and commission income and net gain on fair value changes (including treasury income). Interest income primarily includes interest on loans and income on direct assignment.
Other income
Our other income primarily comprises fees for provision of facilities and services, income from marketing services which primarily relates to our branding activities, liability no longer required written back, interest on income tax refunds, sublease income and miscellaneous income. Provision of facilities and services primarily comprise fees for display of third-party branding material on our website and branches. Miscellaneous income is the incremental amount that is recognized for distributing loan against property and housing loans for our Promoter, Federal Bank.
Expenses
Finance costs
Finance costs primarily comprises interest on borrowings (other than debt securities), interest on debt securities, interest on subordinated liabilities and interest on lease liability pertaining to leasehold branch premises and other interest expense in the nature of ancillary borrowing cost.
Fees and commission expenses
Fees and commission expenses primarily comprises expenses incurred in relation to earning of the distribution fee income.
Impairment on financial instruments and other receivables
Impairment on financial instruments and other receivables primarily comprises bad debts and write off, and provision for impairment loss allowance recognized on loans, investment and trade receivables and others.
Employee benefits expenses
Employee benefit expenses primarily comprise salaries and wages, contribution to provident and other funds, share based payments to employees and staff welfare expenses.
Depreciation, amortization and impairment
Depreciation, amortization and impairment expenses includes depreciation on property, plant and equipment, amortization of intangible assets and depreciation of right-of-use assets.
Other expenses
Other expenses primarily comprise legal and professional fees, housekeeping and security charges, goods and service tax expenses and repairs and maintenance others primarily constituting of repair expenses which are incurred at various branches.
Tax expenses
Our tax expenses primarily comprise current tax and deferred tax. Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the applicable tax rates and provisions of the applicable tax laws. Deferred tax liability or credit is recognized based on the difference between taxable profit and book profit due to the effect of timing differences. We measure our deferred tax based on the applicable tax rates and tax laws that have been enacted or substantively enacted by the relevant balance sheet date.
Other comprehensive income
Other comprehensive income / (loss) comprises (i) re-measurement gain / (losses) on defined benefit plans; and (ii) tax effect on (i) above.
Segment information
We have identified the business into three business segments, namely distribution segment, retail finance segment and wholesale finance segment. The Retail finance segment comprises gold loans, loan against property, MSE loan against property, business loans, personal loans and housing finance. The Distribution segment comprises distributing housing loans, personal car loans, personal loans, home equity mortgage loans and retail asset products end to end sourcing and sales for our Promoter, Federal Bank. Wholesale finance segment comprises construction finance to developersand loans to other NBFCs. We undertook the wholesale finance business prior to Fiscal 2021. We have since limited this business and have not made any fresh sanction. We have been servicing the existing loans as on the respective dates on and subsequent to Fiscal 2021. While we have reduced our exposure to the wholesale finance business and are not currently focusing on growing this business, we may opportunistically look to grow this business in the future.
Segment revenue is as follows:
Segments |
Retail Finance |
Distribution |
Wholesale Finance |
Total |
||||||||
| Fiscal
2023 |
Fiscal
2022 |
Fiscal
2021 |
Fiscal
2023 |
Fiscal
2022 |
Fiscal
2021 |
Fiscal
2023 |
Fiscal
2022 |
Fiscal
2021 |
Fiscal
2023 |
Fiscal
2022 |
Fiscal
2021 |
|
Segment Revenue |
11.147.91 | 8.158.16 | 6.361.75 | 340.7 | 260.27 | 237.60 | 31.9 | 130.31 | 396.18 | 11.520.51 | 8.548.73 | 6.995 5 3 |
Segment Expendituri |
8.083.2C | 6.339.30 | 5.207.33 | 325.58 | 247.97 | 224.60 | 126.57 | 227.90 | 377.55 | 8.53535 | 6.815.16 | 5.S0? - 8 |
Allocated Exnendtture (Net) |
736.53 | 342.91 | 53S.80 | - | 0.00 | 5.82 | 9.32 | 43.2C | 742.35 | 352.23 | 582.00 | |
Results |
2,328.18 | 1.475.95 | 615.62 | 15.12 | 1230 | 13.00 | (100.49) | (106.92) | (2437) | 2,242.81 | 1 381.34 | 604.05 |
unallocated Expenditur e (net o: reallocated ncome) |
295.33 | (S7.95) | 77.29 | |||||||||
Interest Income on FD & Income Tax Refund |
45.76 | 98 70 | 87.93 | |||||||||
Profit(Los s) before Tax |
- | - | - | 2,583.90 | 1 392.09 | 769.27 | ||||||
Exception.[Item |
- | - | - | - | 153.70 | - | - | |||||
IncomeTaxes |
- | - | - | - | - | - | - | 62S.87 | 357.50 | 152.4-i | ||
Profit for the year |
- | - | - | 1.801.33 | 1 034.57 | 616.83 | ||||||
Other information |
||||||||||||
Segment Assets |
89.654.3 | 64.586.15 | 51.976 7 4 | 47.62 | 40.08 | 32.90 | 659.98 | 496.67 | 2.65341 | 90.371.90 | 65.12:9
0 |
5663.
05 |
unallocated Assets |
33S.01 | 434.17 | - | |||||||||
Total Assets |
89.654.3 | 64.586.15 | 51 96- 4 | 47.62 | 40.08 | 32.90 | 669.98 | 496.67 | 2.653 41 | 90,709.91 | 65.55-0
7 |
54.663.
05 |
Segment Liabilities |
76.575.-i8 | 53.33681 | 43.133.1
1 |
48.35 | 36.40 | 11.70 | 529.3 | 64S.72 | 3.17090 | 77.153.13 | 5-1.021.8
9 |
45.515.
71 |
Equity & Reserves |
- | - | - | - | - | - | 13.556 78 | 11.535.1
8 |
8347 3 - | |||
Total Liabilities |
"6,575.48 | 53.336.81 | 43,133.1
1 |
48.35 | 36.40 | 11.70 | 529.3 | 648.72 | 3.1-0.90 | 90,709.91 | 65.55-0
7 |
54.663.
05 |
Capital Expenditur5 |
125.90 | 264.14 | 101.00 | 0.48 | 3.20 | - | - | 1.20 | 125.90 | 26461 | 105.40 | |
Unallocated Capital Expendttur5 |
- | - | - | - | - | - | 54.92 | - | 51.CO | |||
Deprectato: Amortizatioi |
415.81 | 135.22 | 81.22 | 068 | 1.09 | 0.35 | 2.35 | 0.01 | 1.41 | 41S.84 | 13631 | 82.99 |
imotannent :: Fixed Assets |
- | - | - | - | - | - | - | - | - | |||
unallocated Deprectatoi |
- | - | - | - | - | - | - | - | - | |||
Our Results of Operations
The following table sets forth select financial data from our restated statement of profit and loss for Fiscals 2023, 2022 and 2021 and we have expressed the components of select financial data as a percentage of total revenue for such years:
Particulars |
Fiscals | |||||
| 2023 | 2022 | 2021 | ||||
| ( in million) | (% of total revenue) | ( in million) | (% of total revenue) | ( in million) | (% of total revenue) | |
Revenue from operations |
||||||
| Interest income | 11,101.68 | 91.40% | 8,218.93 | 93.01% | 6,581.08 | 94.34% |
| Fee and commission income | 560.1 | 4.61% | 428.85 | 4.85% | 317.36 | 4.55% |
| Net gain on fair value changes | 126.22 | 1.04% | 45.37 | 0.51% | 19.81 | 0.28% |
Total revenue from operations |
11,788.00 | 97.05% | 8,693.15 | 98.38% | 6,918.25 | 99.18% |
Other Income |
358.80 | 2.95% | 143.22 | 1.62% | 57.41 | 0.82% |
Total Revenue |
12,146.80 | 100.00% | 8,836.37 | 100.00% | 6,975.66 | 100.00% |
Expenses |
||||||
| Finance costs | 4,721.50 | 38.87% | 3,476.52 | 39.34% | 3,131.91 | 44.90% |
| Fees and commission expenses | 232.82 | 1.92% | 147.02 | 1.66% | 120.37 | 1.73% |
| Impairment on financial instruments and other receivables | 489.04 | 4.03% | 838.78 | 9.49% | 712.22 | 10.21% |
| Employee benefit expenses | 2,476.04 | 20.38% | 1,754.11 | 19.85% | 1,315.90 | 18.86% |
| Depreciation, amortization and impairment | 418.70 | 3.45% | 366.97 | 4.15% | 272.69 | 3.91% |
| Other expenses | 1,224.80 | 10.08% | 860.88 | 9.74% | 653.29 | 9.37% |
Total expenses |
9,562.90 | 78.73% | 7,444.28 | 84.25% | 6,206.38 | 88.97% |
Profit before exceptional items and tax |
2,583.90 | 21.27% | 1,392.09 | 15.75% | 769.28 | 11.03% |
Exceptional Items |
153.70 | 1.27% | - | - | - | - |
Profit before tax |
2,430.20 | 20.01% | 1,392.09 | 15.75% | 769.28 | 11.03% |
Tax expenses: |
||||||
| Current tax | ||||||
| Current tax | 573.82 | 4.72% | 471.02 | 5.33% | 292.36 | 4.19% |
| Short / (Excess) provision for earlier years | - | 0.00% | - | 0.00% | - | 0.00% |
| Deferred tax | ||||||
| Deferred tax (net) | 55.05 | 0.45% | (113.52) | -(1.28%) | (139.92) | (2.01%) |
Profit/ (loss) for the period / year |
1,801.33 | 14.83% | 1,034.59 | 11.71% | 616.84 | 8.84% |
Other comprehensive income / (loss) |
123.85 | 1.02% | 6.84 | 0.08% | 3.30 | 0.05% |
Total comprehensive income / (loss) |
1925.18 | 15.85% | 1,041.43 | 11.79% | 620.14 | 8.89% |
Fiscal 2023 compared to Fiscal 2022
Total revenue
Our total revenue increased by 37.46% to 12,146.80 million for Fiscal 2023 from 8,836.37 million for Fiscal 2022. This increase was primarily due to an increase in revenue from operations.
Revenue from operations. Our revenue from operations increased by 35.60% to 11,788.00 million for Fiscal 2023 from
8,693.15 million for Fiscal 2022, primarily due to an increase in interest income to 11,101.68 million for Fiscal 2023 from 8,218.93 million for Fiscal 2022. This was primarily attributable to an increase in interest on loans to 10,346.30 million for Fiscal 2023 from 7,949.70 million for Fiscal 2022, due to growth in AUM which increased by 46.59% to 90,696.04 million as of March 31, 2023 from 61,872.05 million as of March 31, 2022. The growth in AUM was primarily due to an increase in small ticket LAP, housing loans and unsecured business loans. In addition, there was an increase in income on direct assignment to 605.88 million in Fiscal 2023 from 160.79 million in Fiscal 2022 due to an increase in the aggregate amount of loan transferred through assignment to 8,704.96 million in Fiscal 2023 from 2,721.57 million in Fiscal 2022.
Other income. Our other income increased by 150.52% to 358.80 million for Fiscal 2023 from 143.22 million for Fiscal
2022, primarily due to an increase in the fees for provision of facilities and services to 331.50 million for Fiscal 2023 from
137.52 million for Fiscal 2022. The increase is primarily attributable to an increase in our business activities in Fiscal 2023.
Expenses
Finance costs. The finance costs increased by 35.81% to 4,721.50 million for Fiscal 2023 from 3,476.52 million for Fiscal 2022, primarily due to an increase in interest on borrowings (other than debt securities) to 3,774.40 million for Fiscal 2023 from 2,709.77 million for Fiscal 2022 and an increase in interest on debt securities to 630.23 million for Fiscal 2023 from 533.32 million for Fiscal 2022. This was primarily attributable to an increase in average total borrowings to 60,763.29 million for Fiscal 2023 from 46,724.64 million for Fiscal 2022. The increase in average total borrowings was solely due to increase in borrowing volumes as we required additional capital due to growth in our AUM.
Fees and commission expenses. The fees and commission expenses increased by 58.36% to 232.82 million for Fiscal 2023 from 147.02 million for Fiscal 2022, primarily due to an increase in our commission and brokerage cost as a result of growth in our business activity during Fiscal 2023.
Impairment on financial instruments and other receivables. The impairment on financial instruments and other receivables decreased by 41.70% to 489.04 million for Fiscal 2023 from 838.78 million for Fiscal 2022. This was primarily due to a decrease in our impairment on loans to (56.88) million for Fiscal 2023 from 412.38 million for Fiscal 2022. We had taken a more conservation position and made impairment provisions in Fiscals 2021 and 2022 due to the COVID-19 pandemic. We normalized our impairment on loans in Fiscal 2023 and that primarily led to a decrease in impairment on loans.
Employee benefits expenses. The employee benefits expense increased by41.16% to 2,476.04 million for Fiscal 2023 from
1,754.11 million for Fiscal 2022, primarily due to an increase in salary and wages to 2,210.81 million for Fiscal 2023 from
1,588.52 million for Fiscal 2022. This was primarily attributable to an increase in the number of our employees as a result of growth in our business and annual increments given to our employees. Our number of employees increased to 3,570 employees as of March 31, 2023 from 2,855 employees as of March 31, 2022.
Depreciation, amortization and impairment. Our depreciation, amortization and impairment expense increased by 14.10% to 418.70 million for Fiscal 2023 from 366.97 million for Fiscal 2022, primarily due to an increase in the depreciation on property, plant and equipment, and increase in the depreciation on right of use assets. The increase was primarily attributable to an increase in our branches to 575 in Fiscal 2023 from 516 branches in Fiscal 2022.In addition, we purchased and installed various other assets such as additional video monitoring devices and security surveillance systems at our branches.
Other expense. Our other expenses increased by 42.27% to 1,224.80 million for Fiscal 2023 from 860.88 million for Fiscal 2022, primarily attributable to increased business activity in the Fiscal 2023, with an increase in:
legal and professional expenses to 332.41 million for Fiscal 2023 from 192.70 million for Fiscal 2022; technology cost to 234.84 million for Fiscal 2023 from 109.68 million for Fiscal 2022; travelling and conveyance expense to 128.27 million for Fiscal 2023 from 65.80 million for Fiscal 2022; and goods and service tax expenses to 170.46 million for Fiscal 2023 from 127.59 million for Fiscal 2022.
This was partially offset by a decrease in servicing fees MFI to (73.07) million for Fiscal 2023 from 36.07 million for
Fiscal 2022. This was primarily attributable to the underlying loans that were being serviced being written off and write back of provisions being done accordingly.
Exceptional Items
Our exceptional item aggregating to 153.70 million for Fiscal 2023, was primarily attributable to fees and expenses such as legal fees and auditors remuneration, incurred in connection with the proposed initial public offering that had been put on hold.
Tax expenses
Our tax expenses increased to 628.87 million for Fiscal 2023 from 357.50 million for Fiscal 2022. For Fiscal 2023, we primarily had a current tax expense of 573.82 million and a deferred tax expense of 55.05 million which was on account of deferred tax liabilities.For Fiscal 2022, we primarily had a current tax expense of 471.02 million and a deferred tax credit of
113.52 million which was on account of deferred tax assets created on certain items of deductible temporary differences. We had a higher tax expense in Fiscal 2023 due to an increase in our revenue from operations. Our effective tax rate (which represents the income tax expenses to profit before tax during the relevant year, expressed as a percentage) was 25.88% and 25.85% for the Fiscals 2023 and 2022, respectively.
Profit / (loss) for the period / year
For the reasons discussed above, our profit for the year increased by 74.11% to 1,801.33 million for Fiscal 2023 from 1,034.59 million for Fiscal 2022.
Other comprehensive income
Our other comprehensive income increased by 1710.67% to 123.85 million for Fiscal 2023 from 6.84 million for Fiscal 2022, primarily on account of classifying a portion of our loans as fair value through other comprehensive income ("FVOCI").
Total comprehensive income
Our total comprehensive income increased by 84.86% to 1,925.18 million for Fiscal 2023 from 1,041.43 million for Fiscal 2022.
Fiscal 2022 compared to Fiscal 2021
Total revenue
Our total revenue increased by 26.67% to 8,836.37 million for Fiscal 2022 from 6,975.66 million for Fiscal 2021. This increase was primarily due to an increase in revenue from operations.
Revenue from operations. Our revenue from operations increased by 25.66% to 8,693.15 million for Fiscal 2022 from
6,918.25 million for Fiscal 2021, primarily due to an increase in interest income to 8,218.93 million for Fiscal 2022 from
6,581.08 million for Fiscal 2021. This was primarily attributable to an increase in interest on loans to 7,949.70 million for Fiscal 2022 from 6,371.94 million for Fiscal 2021, due to growth in AUM which increased by 27.25% to 61,872.05 million as of March 31, 2022 from 48,624.31 million as of March 31, 2021. The growth in AUM was primarily due to an increase in small ticket LAP, housing loans and unsecured business loans.
Other income. Our other income increased by 149.47% to 143.22 million for Fiscal 2022 from 57.41 million for Fiscal
2021, primarily due to an increase in the fees for provision of facilities and services to 137.52 million for Fiscal 2022 from
44.42 million for Fiscal 2021. The increase is primarily attributable to an increase in our business activities in Fiscal 2022.
Expenses
Finance costs. The finance costs increased by 11.00% to 3,476.52 million for Fiscal 2022 from 3,131.91 million for Fiscal
2021, primarily due to an increase in interest on borrowings (other than debt securities) to 2,709.77 million for Fiscal 2022 from 2,564.88 million for Fiscal 2021 and an increase in interest on debt securities to 533.32 million for Fiscal 2022 from 328.81 million for Fiscal 2021. This was primarily attributable to an increase in average total borrowings to 46,724.64 million for Fiscal 2022 from 37,728.42 million for Fiscal 2021 as we required additional capital due to growth in our AUM.
It was also attributable to an increase in interest rates in Fiscal 2023 due to an increase in the repo rate by the RBI.
Fees and commission expenses. The fees and commission expenses increased by 22.14% to 147.02 million for Fiscal 2022 from 120.37 million for Fiscal 2021, primarily due to an increase in our commission and brokerage cost as a result of growth in our business activity during Fiscal 2022.
Impairment on financial instruments and other receivables. The impairment on financial instruments and other receivables increased by 17.77% to 838.78 million for Fiscal 2022 from 712.22 million for Fiscal 2021. This was primarily due to an increase in our bad debts- loan written off to 394.99 million for Fiscal 2022 from 290.41 million for Fiscal 2021.
Employee benefits expenses. The employee benefits expense increased by 33.30% to 1,754.11 million for Fiscal 2022 from
1,315.90 million for Fiscal 2021, primarily due to an increase in salary and wages to 1,588.52 million for Fiscal 2022 from
1,190.84 million for Fiscal 2021. The increase in salary and wages was due to an increase in the number of our employees as a result of growth in our business and annual increments given to our employees. Our number of employees increased to 2,855 employees as of March 31, 2022 from 2,125 employees as of March 31, 2021.
Depreciation, amortization and impairment. Our depreciation, amortization and impairment expense increased by 34.57% to 366.97 million for Fiscal 2022 from 272.69 million for Fiscal 2021, primarily due to an increase in the depreciation on property, plant and equipment, and increase in the depreciation on right of use assets. The increase was primarily attributable to the increase in branch premises to 516 branches in Fiscal 2022 from 359 branches in Fiscal 2021 and various other assets such as additional video monitoring devices and security surveillance systems purchased for use at our branches.
Other expense. Our other expenses increased by 31.78% to 860.88 million for Fiscal 2022 from 653.29 million for Fiscal 2021, primarily attributable to increased business activity in the second half of Fiscal 2022, post-relaxation of COVID-19 pandemic related measures, with an increase in:
legal and professional expenses to 192.70 million for Fiscal 2022 from 77.51 million for Fiscal 2021; technology cost to 109.68 million for Fiscal 2022 from 36.19 million for Fiscal 2021; travelling and conveyance expense to 65.80 million for Fiscal 2022 from 22.81 million for Fiscal 2021; goods and service tax expenses to 127.59 million for Fiscal 2022 from 95.40 million for Fiscal 2021.
This was partially offset by a decrease in servicing fees MFI to 36.07 million for Fiscal 2022 from 151.01 million for Fiscal 2021. This was primarily attributable to the underlying loans that were being serviced being written off and write back of provisions being done accordingly.
Tax expenses
Our tax expenses significantly increased to 357.50 million for Fiscal 2022 from 152.44 million for Fiscal 2021. For Fiscal
2022, we primarily had a current tax expense of 471.02 million and a deferred tax credit of 113.52 million which was on account of deferred tax assets created on certain items of deductible temporary differences. For Fiscal 2021, we primarily had a current tax expense of 292.36 million and a deferred tax credit of 139.92 million which was on account of deferred tax assets.Our effective tax rate (which represents the income tax expenses to profit before tax during the relevant year, expressed as a percentage) was 25.85% and 19.82% for the Fiscals 2022 and 2021, respectively.
Profit / (loss) for the period / year
For the reasons discussed above, our profit for the year increased by 67.72% to 1,034.59 million for Fiscal 2022 from 616.84 million for Fiscal 2021.
Other comprehensive income
Our other comprehensive income increased by 107.27% to 6.84 million for Fiscal 2022 from 3.30 million for Fiscal 2021, on account of remeasurement gain on defined benefit plans.
Total comprehensive income
Our total comprehensive income increased by 67.93% to 1,041.43 million for Fiscal 2022 from 620.14 million for Fiscal 2021.
Pre-provision operating profit
The pre-provision operating profit increased to 3,072.94 million in Fiscal 2023 from 2,230.87 million in Fiscal 2022, primarily due to an increase in Net Interest Income to 6,380.18 million in Fiscal 2023 from 4,742.41 million in Fiscal 2022 and increase in Operating Expenses to 4,352.36 million in Fiscal 2023 from 3,128.98 million in Fiscal 2022.
The pre provision operating profit increased to 2,230.87 million in Fiscal 2022 from 1,481.50 million in Fiscal 2021, primarily due to an increase in Net Interest Income to 4,742.41 million in Fiscal 2022 from 3,449.17 million in Fiscal 2021 and increase in Operating Expenses to 3,128.98 million in Fiscal 2022 from 2,362.25 million in Fiscal 2021
For reconciliation of pre-provision operating profit and Operating Expenses, see "Selected Statistical Information" on page 257.
Financial Position
Our net worth was 13,556.82 million, 11,535.18 million and 8,347.34 million as of March 31, 2023, March 31, 2022 and
March 31, 2021, respectively.
The increase in net worth as on March 31, 2023, March 31, 2022 and March 31, 2021 was on account of incremental equity infusion and profit for the year.
Assets
The following table sets forth the principal components of our assets as of March 31, 2023, March 31, 2022 and March 31, 2021:
Particulars |
As of March 31, | ||
| Fiscal 2023 | Fiscal 2022 | Fiscal 2021 | |
Financial assets |
|||
| Cash and cash equivalents | 939.57 | 659.63 | 5,260.32 |
| Bank balances other than cash and cash equivalents | 6.63 | 766.40 | 1,547.56 |
Receivables |
|||
| Trade receivables | 148.50 | 118.37 | 11.73 |
| Other receivables | 47.62 | 38.60 | 31.95 |
| Loans | 79,996.96 | 56,448.09 | 45,521.41 |
| Investments | 6,806.27 | 5,143.25 | 324.93 |
| Other financial assets | 644.51 | 117.70 | 135.29 |
Total financial assets |
88,590.06 | 63,292.04 | 52,833.19 |
Non-financial assets |
|||
| Current tax assets (net) | 119.72 | 119.22 | 98.59 |
Particulars |
As of March 31, | ||
| Fiscal 2023 | Fiscal 2022 | Fiscal 2021 | |
| Deferred tax assets (net) | 218.36 | 314.98 | 203.79 |
| Property, plant and equipment | 306.69 | 308.63 | 188.56 |
| Right of use assets | 1,119.40 | 1,196.97 | 1,118.48 |
| Capital work in progress | 5.22 | 6.56 | 9.63 |
| Other intangible assets | 32.01 | 30.64 | 23.14 |
| Other non-financial assets | 318.45 | 288.03 | 187.67 |
Total non-financial assets |
2119.85 | 2,265.03 | 1,829.86 |
Total Assets |
90,709.91 | 65,557.07 | 54,663.05 |
As of March 31, 2023, we had total assets of 90,709.91 million, compared to 65,557.07 million as of March 31, 2022 compared to 54,663.05 million as of March 31, 2021. The increase in our total assets was primarily on account of:
growth in the origination of our loans and loan portfolio. The growth was on account of increase in number of our branches and customers; and an increase in cash and cash equivalents, and other bank balances (other than cash and cash equivalents), due to an increase in borrowings.
Financial assets
Cash and cash equivalents
As of March 31, 2023, we had cash and cash equivalents of 939.57 million, compared to 659.63 million as of March 31,
2022. This increase was primarily due to an increase in our borrowings and to ensure compliance with our liquidity policy. As of March 31, 2022, we had cash and cash equivalents of 659.63 million, compared to 5,260.32 million as of March 31,
2021. Our cash and cash equivalents decreased primarily between March 31, 2021 and March 31, 2022 due to utilization of funds for onward lending to customers.
Bank balances
As of March 31, 2023, we had bank balances of 6.63 million, compared to 766.40 million as of March 31, 2022, compared to 1,547.56 million as of March 31, 2021. The variations in other bank balance were largely due to movements in fixed deposits with banks in line with our liquidity management requirements.
Receivables
As of March 31, 2023, we had receivables of 196.12 million, compared to 156.97 million as of March 31, 2022, compared to 43.68 million as of March 31, 2021. The variations in receivables between March 31, 2021 and March 31, 2023 was on account of actual pattern of invoice, accrual and collections. The variation in receivables between March 31, 2021 and March 31, 2022 was on account of increased business activity in the second half of Fiscal 2022, post-relaxation of COVID-19 pandemic related measures.
Loans
As March 31, 2023, we had loans of 79,996.96 million, compared to 56,448.09 million as of March 31, 2022, compared to 45,521.41 million as of March 31, 2021. Our loans increased between March 31, 2021 and March 31, 2023 primarily on account of growth in our loan portfolio. The growth was on account of increase in number of our branches and customers.
Investments
As of March 31, 2023, we had investments of 6,806.27 million, compared to 5,143.25 million as of March 31, 2022, compared to 324.93 million as of March 31, 2021. Investments primarily consist of investments in mutual funds and government securities. Our investments increased between March 31, 2021 and March 31, 2022 primarily on account of investment in mutual funds and government securities. Our investments increased between March 31, 2022 and March 31, 2023 primarily on account of investment in government securities.
Other financial assets
As of March 31, 2023, we had other financial assets of 644.51 million, compared to 117.70 million as of March 31, 2022, compared to 135.29 million as of March 31, 2021. The other financial assets primarily consist of security deposits related to our branches taken on lease and bank deposits with more than 12 months maturity.
Non-financial assets
Current tax assets (net)
As of March 31, 2023, we had current tax assets (net) of 119.72 million, compared to 119.22 million as of March 31, 2022, compared to 98.59 million as of March 31, 2021. The current tax assets (net) increased between March 31, 2021 and March 31, 2022 on account of advance tax paid and TDS deduction by third party.
Deferred tax assets (net)
As of March 31, 2023, we had deferred tax assets (net) of 218.36 million, compared to 314.98 million as of March 31, 2022, compared to 203.79 million as of March 31, 2021. The decrease between March 31, 2022 and March 31, 2023 was primarily due to an increase in interest income on direct assignment transactions, fair valuation gain of financial assets measured at FVOCI and reduced impairment allowance. The increase between March 31, 2021 and March 31, 2022 was primarily due to increased impairment allowance and provisions towards employee benefits (gratuity/leave encashment/bonus) and unamortized processing fees on borrowing/advances, which carry differential treatment from a tax perspective.
Property, plant and equipment
As of March 31, 2023, we had property, plant and equipment of 306.69 million, compared to 308.63 million as of March 31, 2022, compared to 188.56 million as of March 31, 2021. The decrease between March 31, 2022 and March 31, 2023 was primarily due to a lower number of branches opened in Fiscal 2023 as compared to Fiscal 2022. The increase between March 31, 2021 and March 31, 2022 was primarily due to increase in number of employees and branches. This led to additions of property, plant and equipment.
Right of use assets
As of March 31, 2023, we had right of use assets of 1,119.40 million, compared to 1,196.97 million as of March 31, 2022, compared to 1,118.48 million as of March 31, 2021. The decrease between March 31, 2022 and March 31, 2023 was primarily due to a lower number of branches opened in Fiscal 2023 as compared to Fiscal 2022. The increase between March 31, 2021 and March 31, 2022 was primarily on account of entering into additional leases in connection with our new branches.
Capital work in progress
As of March 31, 2023, we had capital work in progress of 5.22 million, compared to 6.56 million as of March 31, 2022, compared to 9.63 million as of March 31, 2021.
Other intangible assets
As of March 31, 2023, we had other intangible assets of 32.01 million, compared to 30.64 million as of March 31, 2022, compared to 23.14 million as of March 31, 2021. The increase in our intangible assets from March 31, 2021 to March 31, 2023 was primarily on account of capitalization of intangible assets being put to use.
Other non-financial assets
As of March 31, 2023, we had other non-financial assets of 318.45 million, compared to 288.03 million as of March 31, 2022, compared to 187.67 million as of March 31, 2021. Our other non-financial assets increased as on March 31, 2023 primarily on account of increase in advance to suppliers and increase in input tax credit (net). Our other non-financial assets increased from as on March 31, 2021 to March 31, 2022, primarily on account of increase in prepaid expenses such as software license cost, group insurance premium, annual maintenance contracts entered into for various information technology and office equipment branches. The increase in prepaid expenses was primarily due to an increase in the number of branches and employee headcount.
Liabilities and equity
Particulars |
As of March 31, | ||
| 2023 | 2022 | 2021 | |
Financial liabilities |
|||
Derivative financial instruments |
48.23 | - | - |
| Payable | |||
| Trade payables | |||
(i) total outstanding dues of micro enterprises and small enterprises |
- | - | 0.01 |
| (ii) total outstanding dues to creditors other than micro | 260.92 | 64.30 | 43.24 |
Particulars |
As of March 31, | ||
| 2023 | 2022 | 2021 | |
| enterprises and small enterprises | |||
| Other payables | |||
(i) total outstanding dues of micro enterprises and small enterprises |
- | - | - |
(ii) total outstanding dues of creditors other than micro enterprises and small enterprises |
- | - | - |
| Debt securities | 6,112.30 | 5,334.17 | 5,936.98 |
| Borrowings (other than debt securities) | 62,649.26 | 42,243.46 | 34,759.35 |
| Subordinated liabilities | 2,596.67 | 2,590.72 | 2,584.59 |
| Lease liability | 1,340.40 | 1,370.43 | 1,246.26 |
| Other financial liabilities | 3,507.89 | 2,109.67 | 1,581.11 |
Total financial liabilities |
76,515.67 | 53,712.75 | 46,151.54 |
Non-financial liabilities |
|||
| Current tax liabilities (net) | - | - | - |
| Provisions | 61.99 | 31.34 | 30.27 |
| Other non-financial liabilities | 575.43 | 277.80 | 133.90 |
Total non-financial liabilities |
637.42 | 309.14 | 164.17 |
Equity |
|||
| Equity share capital | 3,219.12 | 3,215.18 | 2,899.23 |
| Other equity | 10,337.70 | 8,320.00 | 5,448.11 |
Total equity |
13,556.82 | 11,535.18 | 8,347.34 |
Total liabilities and equity |
90,709.91 | 65,557.07 | 54,663.05 |
Financial liabilities
Derivative financial instruments
As of March 31, 2023, we had derivative financial instruments of 48.23 million. We did not have any derivative financial instruments as of March 31, 2022 and March 31, 2021.
Trade payables
As of March 31, 2023, we had trade payables of 260.92 million, compared to 64.30 million as of March 31, 2022 and
43.25 million as of March 31, 2021.
Debt securities
As of March 31, 2023, we had debt securities of 6,112.30 million, compared to 5,334.17 million as of March 31, 2022 and 5,936.98 million as of March 31, 2021. The increase in debt securities between March 31, 2021 and March 31, 2023 was primarily on account of issuance of debentures and commercial papers.
Borrowings (other than debt securities)
As of March 31, 2023, we had borrowings (other than debt securities) of 62,649.26 million, compared to 42,243.46 million as of March 31, 2022 and 34,759.35 million as of March 31, 2021. The increase in borrowings (other than debt securities) between March 31, 2021 and March 31, 2023 was primarily on account of increases in our borrowings through term loans.
Subordinated liabilities
As of March 31, 2023, we had subordinated liabilities of 2,596.67 million, compared to 2,590.72 million as of March 31,
2022 and 2,584.59 million as of March 31, 2021. The subordinated liabilities pertain to unsecured redeemable unsecured non-convertible debentures. These are in the nature of Tier II capital and are subordinate to other debenture holders and creditors of our Company.
Lease liabilities
As of March 31, 2023, we had lease liabilities of 1,340.40 million, compared to 1,370.43 million as of March 31, 2022 and 1,246.26 million as of March 31, 2021. The decrease in lease liabilities from March 31, 2022 to March 31, 2023 is on account of payment of lease rentals. The increase in lease liabilities from March 31, 2021 to March 31, 2022 is our account of entering into additional leases in connection with our new branches.
Other financial liabilities
As of March 31, 2023, we had other financial liabilities of 3,507.89 million, compared to 2,109.67 million as of March 31, 2022 and 1,581.11 million as of March 31, 2021. The increase in other financial liabilities from March 31, 2021 to March 31, 2023, was primarily on account of an increase in our book overdraft balance.
Non-financial liabilities
Provisions
As of March 31, 2023, we had provisions of 61.99 million, compared to 31.34 million as of March 31, 2022 and 30.27 million as of March 31, 2021. The increase in provisions from March 31, 2021 to March 31, 2023 was primarily on account of liability provision made for employee retirement benefits that are actuarial determined and provision for others, i.e. provision of gold that was burgled.
Other non-financial liabilities
As of March 31, 2023, we had other non-financial liabilities of 575.43 million, compared to 277.80 million as of March 31,
2022 and 133.90 million as of March 31, 2021. The increase in other financial liabilities from March 31, 2021 to March 31,
2023 was primarily on account of an increase in customer advances. These advances pertain to the advance equated monthly instalment paid by our customers and unidentified collections received from our customers as at the reporting date. Unidentified collections represent collections received in our bank account, that is not identifiable as at the reporting date due to lack of basic details such as customer number or loan account number.
Equity
As of March 31, 2023, our total equity was 13,556.82 million, representing 14.95% of our total assets. As of March 31, 2022, our total equity was 11,535.18 million, representing 17.60% of our total assets. As of March 31, 2021, our total equity was
8,347.34 million, representing 15.27% of our total assets. The increase in our total equity between March 31, 2021 and March 31, 2023, was primarily due to Equity infusions and an increase in our retained earnings. For further details in relation to equity infusions, see "Capital Structure Notes to the Capital Structure Share capital history of our Company" on page 78.
The increase in EPS for Fiscal 2023 as compared to Fiscal 2022 was primarily on account of increase in profit for Fiscal 2023. The increase in EPS for Fiscal 2022 as compared to Fiscal 2021 was primarily on account of increase in profit for Fiscal 2022.
Liquidity and Capital Resources
We have historically secured financing from diversified sources of capital from banks, financial institutions, mutual funds and other domestic and foreign financial institutions, including term loans, proceeds from loans securitized, proceeds from the issuance of NCDs and proceeds from loans assigned, to meet our capital requirements. As of March 31, 2023, March 31, 2022 and March 31, 2021, our total borrowings were 71,358.23 million, 50,168.35 million and 43,280.92 million, respectively.
We actively manage our liquidity and capital position by raising funds periodically. We regularly monitor our capital levels to ensure that we are able to satisfy the requirements for loan disbursements and maturity of our liabilities. All our loan agreements contain a number of covenants including financial covenants. For details, see "Financial Indebtedness" and "Risk Factors 15. Our inability to meet our obligations, including financial and other covenants under our debt financing arrangements could adversely affect our business, results of operations and financial condition." on pages 395 and 34, respectively.
For more information about our liquidity management, see "Our Business" beginning on page 184.
Cash flows
The following table sets forth our cash flows and cash and cash equivalents for the period indicated:
Particulars |
Fiscals | ||
| 2023 | 2022 | 2021 | |
| Net cash generated from / (used in) Operating Activities | (14,740.01) | (5,778.93) | (3,712.30) |
| Net cash generated from / (used in) Investing Activities | (1,295.28) | (4,169.20) | (705.24) |
| Net cash generated from / (used in) Financing Activities | 16,315.23 | 5,347.44 | 8,255.00 |
Net increase / (decrease) in cash and cash equivalents |
279.94 | (4,600.69) | 3,837.46 |
| Cash and cash equivalents at the beginning of the period/year | 659.63 | 5,260.32 | 1,422.86 |
Closing balance of cash and cash equivalents |
939.57 | 659.63 | 5,260.32 |
For further details in relation to the cash flows, see "Restated Financial Information Restated Cash Flow Statement" on page
283.
Operating activities
Net cash flows used in operating activities was 14,740.01 million for Fiscal 2023. While our net profit before tax was
2,430.20 million, we had an operating profit before working capital changes of 7,581.89 million. This increase was primarily due to finance costs of 4,721.50 million and impairment of financial instruments of 489.03 million. Our changes in working capital for Fiscal 2023 primarily consisted of an increase in loans of 23,568.24 million on account of increased loan disbursals to our customers.
Net cash flows used in operating activities was 5,778.93 million for Fiscal 2022. While our net profit before tax was 1392.09 million, we had an operating profit before working capital changes of 5,924.55 million. This increase was primarily due to finance costs of 3,476.52 million and impairment of financial instruments of 838.78 million. Our changes in working capital for Fiscal 2022 primarily consisted of an increase in loans of 11,703.85 million on account of increased loan disbursals to our customers.
Net cash flows used in operating activities was 3,712.30 million for Fiscal 2021. While our net profit before tax was 769.28 million, we had an operating profit before working capital changes of 4,703.40 million. This increase was primarily due to finance costs of 3,131.91 million and impairment of financial instruments of 712.22 million. Our changes in working capital for Fiscal 2021 primarily consisted of an increase in loans of 8,858.25 million on account of increased loan disbursals to our customers.
Investing activities
Net cash flows used in investing activities was 1,295.28 million for Fiscal 2023, primarily due to investment in mutual fund of 83,795.81 million and investment in government securities of 10,720.91 million, which was primarily offset by redemption of mutual fund of 84,752.69 million, redemption of fixed deposit of 7,646.50 million and redemption of government securities of 8,253.20 million.
Net cash flows used in investing activities was 4,169.20 million for Fiscal 2022, primarily due to investment in mutual fund of 39,338.03 million and investment in fixed deposit of 11,455.53 million, which was partially offset by redemption of mutual fund of 38,602.60 million and redemption of fixed deposit of 12,220.53 million.
Net cash flows used in investing activities was 704.24 million for Fiscal 2021, primarily due to investment in mutual fund of 26,912.80 million and investment in fixed deposit of 10,038.69 million. These cash outflows were partially offset by redemption of mutual fund of 26,982.65 million and redemption of fixed deposit of 9,241.29 million.
Financing activities
Net cash flows generated from financing activities was 16,315.23 million for Fiscal 2023, primarily due to borrowings availed (net) of 20,367.75 million and debt securities availed of 8,350.00 million. This was partially offset by borrowings repaid of 243,830.21 million.
Net cash flows generated from financing activities was 5,347.44 million for Fiscal 2022, primarily due to borrowings availed of 18,500.00 million. This was partially offset by borrowings repaid of 11,000.99 million.
Net cash flows generated from financing activities was 8,255.00 million for Fiscal 2021, primarily due to borrowings availed of 12,580.00 million and debt securities availed of 9,975.00 million and subordinated borrowing of 2,499.90 million. This was partially offset by borrowings repaid of 8,905.20 million and debt securities repaid of 5,435.30 million.
Financial Indebtedness
As of March 31, 2023, our total borrowings were 71,358.23 million. Our Company has issued non-convertible debentures which are listed on the debt segment of BSE. The following table sets forth certain information relating to outstanding indebtedness as of March 31, 2023, and our repayment obligations in the periods indicated:
Particulars |
Payment due by period | ||||
| Total | Less than one | 1-3 years | 3-5 years | More than 5 years | |
| year | |||||
| Debt securities | 6,112.30 | 4,073.93 | - | 2,000.00 | 38.37 |
| Borrowings (other than debt securities) | 62,649.26 | 22,276.08 | 28,654.44 | 10,425.41 | 1,293.33 |
| Subordinate liabilities | 2,596.67 | 124.09 | - | 2,472.58 | - |
Particulars |
Payment due by period | ||||
| Total | Less than one year | 1-3 years | 3-5 years | More than 5 years | |
Total |
71,358.23 | 26,474.10 | 28,654.44 | 14,898.00 | 1,331.69 |
For further details of our total borrowings as of March 31, 2023, see "Financial Indebtedness" on page 395.
Capital and other commitments
As of March 31, 2023, we had capital commitments - estimated amount of contracts remaining to be executed on capital account and not provided for of 20.48 million and other commitments - loans sanctioned to borrowers pending disbursement of
646.72 million.
Securitization arrangements
During Fiscal 2021, we securitized assets worth 203.90 million. We had no securitization arrangement Fiscals 2022 and 2023.
Assignment transactions
During the Fiscals 2023, 2022 and 2021, we assigned assets worth 8,704.96 million, 2,721.57 million and 1,342.47 million, respectively.
Contingent liabilities and commitments
The table sets forth our contingent liabilities as per Ind AS 37 as at March 31, 2023:
Contingent liabilities |
As at March 31, 2023 |
| Disputed income taxes | 4.60 |
| Other sums contingently liable for - As per Payment of Bonus Act, | 2.30 |
| 1979 | |
Total |
6.90 |
For details in relation to our contingent liabilities as at March 31, 2023, see "Restated Financial Information Note 51 Contingent Liabilities (to the extent not provided for)" beginning on page 368.
Off-balance sheet commitments and arrangements
Except as disclosed above in "-Securitization Arrangements" and "-Assignment Transactions", we do not have any off-balance sheet arrangements, derivative instruments, swap transactions or relationships with affiliates or other unconsolidated entities or financial partnerships that would have been established for the purpose of facilitating off-balance sheet arrangements.
Capital Expenditure
For the Fiscal 2023, we added property, plant and equipment of 135.37 million, primarily for office equipment, lease improvements, furniture and fixtures and computer equipment.
For the Fiscal 2022, we added property, plant and equipment of 241.76 million, primarily for office equipment, lease improvements, furniture and fixtures and computer equipment.
For the Fiscal 2021, we added property, plant and equipment of 91.41 million, primarily for office equipment, lease improvements, furniture and fixtures and computer equipment.
Capital to risk-weighted assets ratio
The following table sets forth certain details of our CRAR derived from our Restated Financial Information, as of the dates indicated:
Particulars |
As of | ||
| March 31, 2023 | March 31, 2022 | March 31, 2021 | |
| CRAR (%) | 17.94% | 23.04% | 23.52% |
| CRAR Tier I capital (%) | 15.09% | 18.38% | 17.10% |
| Capital adequacy ratio Tier II capital (%) | 2.85% | 4.65% | 6.42% |
The increase in the CRAR from March 31, 2021 to March 31, 2022 was primarily on account of infusion of equity capital. The decrease in the CRAR from March 31, 2022 to March 31, 2023 was primarily on account of growth in loan and advances.
For further details in relation to CRAR, see "Risk Factors 20. Our inability to maintain our capital adequacy ratio could adversely affect our business, results of operations and our financial performance" on page 37.
Total borrowing /Equity Ratio
Our total borrowing/equity ratio was 5.26 as of March 31, 2023, 4.35 as of March 31, 2022 and 5.18 as of March 31, 2021. The increase in the total borrowing / equity ratio from March 31, 2022 to March 31, 2023 was primarily on account of increase in borrowings. The decrease in the total borrowing/enquiry ratio from March 31, 2021 to March 31, 2022 was primarily an account of increase in equity share capital.
"Total borrowing" represents the aggregate of debt securities, borrowings (other than debt securities) and subordinated liabilities.
"Equity" represents the aggregate of share capital and other equity.
Credit Ratings
Our current credit ratings are set forth below:
Rating Agency |
Instrument |
Credit Ratings |
| CARE | Non-convertible debentures | AA/stable |
CARE |
Long-term / Short-term bank facilities |
AA/stable, A1+ |
| CARE | Long-term instruments | AA/stable |
| Subordinated debt | ||
| India Rating and Research Private Ltd. | Bank loans | AA-/positive |
| India Rating and Research Private Ltd. | Non-convertible debentures | AA-/positive |
| India Rating and Research Private Ltd. | NCDs Subordinated debt | AA-/positive |
| CRISIL | Commercial paper | A1+ |
| ICRA Limited | Commercial paper | A1+ |
Related party transactions
We have engaged in the past, and may engage in the future, in transactions with related parties. For details of our related party transactions, see "Other Financial Information Related Party Transactions" on page 370.
Quantitative and Qualitative Analysis of Market Risks
We are exposed to various types of market risks during the normal course of business. For further details, see "Risk Factors" on page 25:
We have exposure to the following risks:
Credit risk
Credit risk is the risk of financial loss to us if a customer or counter party for financial instruments fails to meet its contractual obligation and arises principally from our placements and balances with other banks, loans to customers, government securities and other financial assets. The Risk Management Committee reviews and approves loan product programs on an ongoing basis. These product programs outline the framework of any credit financial product being offered by us. Within the framework, credit policies are incorporated to manage, among other things, the sourcing of proposals, channels of business acquisition, process of underwriting, information systems involved, verification, documentation, disbursement procedures, portfolio quality triggers, recover mechanism and NPA management.
For further details, see "Restated Financial Information 44. Risk Management" and "Our Business Description of our business and operations Risk Management Framework" on pages 337 and 205, respectively.
Liquidity risk
Liquidity risk is the risk that we will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk arises because of the possibility that we might be unable to meet our payment obligations when they fall due, as a result of mismatches in the timing of cash flows. We maintain liquidity buffers sufficient to meet all our near-term obligations. The liquidity buffers are maintained by a combination of liquid assets (such as cash and cash equivalent, liquid investments in callable FDs and overnight / liquid mutual funds) and undrawn committed credit lines.
For further details, see "Restated Financial Information 44. Risk Management" and "Our Business Description of our business and operations Risk Management Framework" on pages 337 and 205, respectively.
Market risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as gold prices (relevant to lending against gold business of our Company), interest rates, foreign currency rates.
Gold price fluctuation risk the Risk Management Committee does a periodic review of the gold price movement and its trends and its impact on the gold loan margins in present condition as well as under stress scenario.
Interest rate risk: interest rate risk is the risk of change in market interest rates which might adversely affect our profitability.
Foreign currency rate fluctuation risk: we are exposed to risk in fluctuation of foreign currency rates as we have borrowings in foreign currency.
For further details, see "Restated Financial Information 44. Risk Management" and "Our Business Description of our Business and Operations Risk Management Framework" on pages 337 and 205, respectively.
Auditors Qualifications and Emphasis of Matters
There are no auditor qualifications which have not been given effect to in the Restated Financial Information.
The following sets forth the emphasis of matter included in the audit reports of our Statutory Auditors on our standalone financial statements for the periods indicated:
Fiscal 2021
The Statutory Auditor has drawn attention to a specified note to the standalone Ind AS financial statements which describes the fact that the business risk in relation to the COVID-19 pandemic to remain elevated. Our Company has recorded a total additional provision overlay of 455.80 million to reflect deterioration in the macroeconomic outlook. The extent to which the COVID-19 pandemic would impact our Companys financial performance would depend on future developments, which are highly uncertain. The impact may be different from that estimated as at the approval of the Ind AS financial statements and we will continue to closely monitor any material changes to future economic conditions.
Unusual or infrequent events or transactions
Except as described in this Draft Red Herring Prospectus, to our knowledge, there have been no unusual or infrequent events or transactions that have in the past or may in the future affect our business operations or future financial performance.
Known trends or uncertainties
Our business has been subject, and we expect it to continue to be subject, to significant economic changes arising from the trends identified above in "-Significant Factors Affecting our Financial Condition and Results of Operations" above and the uncertainties described in "Risk Factors" on page 25. To our knowledge, except as disclosed in this Draft Red Herring Prospectus, there are no known factors which we expect to have a material adverse effect on our income.
Future relationship between cost and revenue
Other than as described in "Risk Factors" and "Our Business" on pages 25 and 184, respectively, and this section, to our knowledge there are no known factors that may adversely affect the future relationship between cost and revenue.
Working Capital
We believe that our working capital is sufficient for our Companys present requirements.
Competitive conditions
We operate in a competitive environment. Please refer to "Risk Factors", "Industry Overview" and "Our Business" on pages
25, 115 and 184, for further information on our industry and competition.
Seasonality and cyclicality of business
Our business is not seasonal in nature. For further details, see "-Significant Factors Affecting our Financial Condition and
Results of Operations" on page 372.
Extent to which material increases in net sales or revenue are due to increased sales volume, introduction of new products or services or increased sales prices
Changes in revenue in the last three Fiscals are as described in "Managements Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2023 compared to Fiscal 2022" and "Managements Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2022 compared to Fiscal 2021" above on pages 381 and 383, respectively.
Significant dependence on single or few customers
We do not believe our business is dependent on any single or a few customers as on the date of this Draft Red Herring
Prospectus. For further details, see "Risk Factors 5. We derive a significant portion of our assets under management from our gold loan products and the loss of business in relation to such gold loan products could adversely affect our business and prospects." on page 29.
New products or business segments
Except as disclosed in "Our Business" on page 184, and products that we announce in the ordinary course of business, we have not announced and do not expect to announce in the near future any new products or business segments.
Significant developments occurring after March 31, 2023
Except as set out in this Draft Red Herring Prospectus and "Risk Factors 6. We have a huge concentration of loans to emerging self-employed individuals ("ESEI") and micro, small and medium enterprises ("MSME") and the risk of non-payment or default by our borrowers may adversely affect our business, results of operations and financial condition." on page 29, to our knowledge, no circumstances have arisen since the date of the last financial statements as disclosed in this Draft Red Herring Prospectus which materially or adversely affect or are likely to affect out operations or profitability, or the value of our assets or our ability to pay our material liabilities within the next 12 months.
Recent accounting pronouncements
As on the date of this Draft Red Herring Prospectus, there are no recent accounting pronouncements, which, we believe, would have a material effect on our financial condition or results of operations.
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