MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with our "Restated Financial Information" on page 337. Our Restated Financial Information as of, and for the years ended, March 31, 2021, 2022, 2023 and for the three months ended June 30,2023 have been prepared and presented in accordance with Ind AS. Ind AS differs in certain significant respects from IFRS, U.S. GAAP and other accounting principles with which prospective investors may be familiar in other countries. We have not attempted to quantify the impact of U.S. GAAP or IFRS on the financial data included in this Draft Red Herring Prospectus, nor do we provide a reconciliation of our financial statements to those of U.S. GAAP or IFRS. U.S. GAAP and IFRS differ in significant respects from Ind AS. Accordingly, the degree to which the Ind AS financial statements, which are restated as per the SEBI ICDR Regulations included in this Draft Red Herring Prospectus, will provide meaningful information is entirely dependent on the readers level of familiarity with Indian accounting practices.
This Draft Red Herring Prospectus may include forward-looking statements that involve risks and uncertainties, and our actual financial performance may materially vary from the conditions contemplated in such forward- looking statements as a result of various factors, including those described below and elsewhere in this Draft Red Herring Prospectus. For further information, see "Forward-Looking Statements" and "Risk Factors" on pages
23 and 34, respectively. The restated consolidated financial information for Fiscal 2021 is not directly comparable with the restated standalone financial information for Fiscals 2022, 2023 and the three months ended June 30, 2023 since we did not have an associate in such subsequent periods. Our holding in our associate, which was terminated on March 26, 2022, amounted to 0.002% of our total assets as of March 31, 2021. Unless otherwise indicated or the context otherwise requires, the Restated Financial Information included in this Draft Red Herring Prospectus for Fiscals 2022, 2023 and for the three months ended June 30, 2023 is derived from our restated standalone financial information, and the financial information for Fiscal 2021 is derived from our restated consolidated financial information. For further information, see "Restated Financial Information" on page 337. Unless the context otherwise requires, and in connection with Fiscal 2021, in this section, references to "we", "us", "our", "the Company", or "our Company" refer to Indian Renewable Energy Development Agency Limited on a standalone basis.
Our Companys Fiscal commences on April 1 and ends on March 31 of the immediately subsequent year, and references to a particular Fiscal are to the 12 months ended March 31 of that year.
Unless otherwise indicated, industry and market data used in this section has been derived from the report titled "Industry Research Report on Renewable Energy, Green Technologies and Power-focused NBFCs" dated September 2023 (the "CARE Report") prepared and issued by CARE Advisory Research & Training Limited. The CARE Report has been prepared exclusively for the purpose of understanding the industry in connection with the Offer and is commissioned by our Company pursuant to mandate letter dated June 9, 2023, and paid for by the BRLMs in equal proportion. Unless otherwise indicated, financial, operational, industry and other related information derived from the CARE Report and included herein with respect to any particular year refers to such information for the relevant calendar year. A copy of the CARE Report is available on the website of our Company at https://www.ireda.in/home. For more information, see "Risk Factors – Industry information included in this Draft Red Herring Prospectus has been derived from an industry report prepared CARE Advisory Research & Training Limited exclusively commissioned by us in connection with the Offer and paid for by the BRLMs for such purpose" on page 60. Also see, "Certain Conventions, Use of Financial Information, Industry and Market Data and Currency of Presentation – Industry and Market Data" on page 20.
Overview
We are a wholly owned Government of India ("GoI") enterprise under the administrative control of the Ministry of New and Renewable Energy (the "MNRE"). Our Company was notified as a "Public Financial Institution" ("PFI") under Section 4A of the Companies Act, 1956 by the Department of Company Affairs, Ministry of Law, Justice and Company Affairs, Government of India on October 17, 1995 and is registered with the Reserve Bank of India (the "RBI") as a Systemically Important Non-Deposit-taking Non-Banking Finance Company (a "NBFC- ND-SI"), with Infrastructure Finance Company ("IFC") status. We were also conferred with the Mini Ratna (Category I) status in June 2015 by the Department of Public Enterprises. Since Fiscal 2021, we have consistently been rated ‘Excellent by the MNRE in course of evaluation of our performance in achieving key targets.
We are a financial institution with over 36 years of experience in the business of promoting, developing and extending financial assistance for new and renewable energy ("RE") projects, and energy efficiency and conservation ("EEC") projects. We provide a comprehensive range of financial products and related services,
from project conceptualisation to post-commissioning, for RE projects and other value chain activities, such as equipment manufacturing and transmission.
As of June 30, 2023, we had a diversified portfolio of Term Loans Outstanding, amounting to ?472,066.63 million, as set forth in "Competitive Strengths - Track record of growth, geared towards high quality assets, diversified asset book and stable profitability" on page 243. We have consistently demonstrated strong growth and business performance while maintaining healthy asset quality, evidenced by the following key highlights:
?18,924.51 million in Fiscal 2021, 2022, 2023 and the three months ended June 30, 2023, respectively;
We have financed projects across multiple RE sectors such as solar power, wind power, hydro power, transmission, biomass including bagasse and industrial co-generation, waste-to-energy, ethanol, compressed biogas, hybrid RE, EEC and green-mobility. We also offer financial products and schemes for new and emerging RE technologies such as, biofuel, green hydrogen and its derivatives, battery energy storage systems, fuel cells, and hybrid RE projects.
We offer a comprehensive suite of financial products and services including various fund-based and non fund- based products.
Some of our key fund-based products for RE developers are long-term, medium-term and short-term loans (for projects, manufacturing and equipment financing), top-up loans, bridge loans, takeover financing, and loans against securitization of future cashflows. We also provide line of credit to other NBFCs for on-lending to RE and EEC projects. In addition, we provide loans to government entities and also provide financing schemes for RE suppliers, manufacturers and contractors.
Our non fund-based products include letter of comfort, letter of undertaking, payment on order instruments and guarantee assistance schemes. Further, we provide consulting services on techno-commercial issues relating to the RE sector.
We have been established as an integral part of, and have played a strategic role in the GoIs initiatives for the promotion and development of the RE sector in India. We are directly involved in implementing several significant schemes launched by the MNRE. We were the fund handling agency for the Credit Linked Capital Subsidy Scheme. Further, we have been designated as the Central Nodal Agency for the National Bioenergy Programme (Phase I) for the Scheme to Support Manufacturing of Briquettes and Pellets and Promotion of Biomass (non- bagasse) based co-generation in Industries and the Programme on Energy from Urban, Industrial, Agricultural Waste/ Residues. We are also the implementing agency for the Central Public Sector Undertaking (Government Producer Scheme) (Phase 2 Tranche III), Generation Based Incentive Scheme as well as the Rooftop, PV and Small Solar Generation Programme and the National Programme on High Efficiency Solar PV Modules under the Production Linked Incentive Scheme (Tranche I).
In Fiscal 2023 and the three months ended June 30, 2023, our total loans sanctioned of ?325,866.06 million and
?18,924.51 million respectively included ?276,869.79 million and ?14,934.51 million of term loans for RE and EEC projects, ?8,491.76 million and ?1,500.00 million of short-term loans to RE developers and ?1,520.00 million and ?2,490.00 million of lines of credit. We have a geographically diversified portfolio, with Term Loans Outstanding across 23 States and five Union Territories across India, as of June 30, 2023.
We have a secured asset base, and 92.42% of our Term Loans Outstanding as of June 30, 2023, has security cover. We have been rated highly by credit rating agencies and as of the date of this Draft Red Herring Prospectus, India Ratings had rated our debt instruments AAA (Stable), ICRA has rated our Bonds ICRA AAA (Stable) and Acuite has rated our bank loans Acuite AAA Stable. For further information, see "– Our Credit Ratings" on page 268.
In addition to our financial products and services, we also have our own 50 MW Solar Photovoltaic Project at Kasaragod Solar Park in the State of Kerala. The project generates power which is injected into the grid of Kerala State Electricity Board. The project was fully commissioned in September 2017. In Fiscal 2021, 2022, 2023, and the three months ended June 30, 2023 our 50 MW Solar Photovoltaic Project generated revenue of ?274.17 million, ?284.90 million, ?269.04 million and ?76.56 million, respectively.
Our key financial and operational parameters as of, and or the years ended, March 31, 2021, 2022, 2023 and the three months ended June 30, 2023, are set forth below.
|
Particulars |
As of / For the Year Ended March 31, |
As of/ For the Three Months Ended June 30, 2023* |
||
2021 |
2022 |
2023 |
||
|
million, except percentages and ratios |
||||
| Total Income | 26,577.44 | 28,741.55 | 34,830.44 | 11,434.99 |
| Profit after tax | 3,463.81 | 6,335.28 | 8,646.28 | 2,945.82 |
| Net interest income(1) | 9,922.15 | 11,280.44 | 13,237.65 | 3,830.00 |
| Net worth | 29,956.00 | 52,681.13 | 59,351.69 | 62,904.02 |
| Term Loans Outstanding | 278,539.21 | 339,306.06 | 470,755.21 | 472,066.63 |
| Term Loans Outstanding/ Average Term Loans Outstanding(2) | 1.08 | 1.10 | 1.16 | 1.00 |
| Total assets/ Average Term Loans Outstanding(2) | 1.18 | 1.19 | 1.25 | 1.09 |
| Total borrowings | 240,000.04 | 276,130.72 | 401,652.80 | 399,417.33 |
| Profitability ratios: | ||||
| Spread(3) | 3.26% | 2.81% | 2.21% | 0.56% |
| Net interest margin(4) | 3.93% | 3.75% | 3.32% | 0.83% |
| Total Debt to net worth (5) | 8.01 | 5.24 | 6.77 | 6.35 |
| Average yield on average interest earning assets(6) | 10.44% | 9.17% | 8.63% | 2.46% |
| Average cost of borrowings(7) | 7.15% | 6.33% | 6.23% | 1.90% |
| Cost to income ratio(8) | 78.57% | 70.99% | 67.29% | 61.56% |
| ROA(9) | 1.20% | 1.89% | 1.98% | 0.58% |
| ROE(10) | 12.56% | 15.33% | 15.44% | 4.82% |
| Regulatory capital ratios: | ||||
| CRAR(11) | 17.12% | 21.22% | 18.82% | 19.95% |
| Asset quality ratios: | ||||
| Provision coverage ratio(12) | 38.14% | 41.45% | 49.25% | 48.68% |
| Gross NPAs (%)(13) | 8.77% | 5.21% | 3.21% | 3.08% |
| Net NPAs (%)(14) | 5.61% | 3.12% | 1.66% | 1.61% |
| EPS (basic)(15) | 4.41 | 8.03 | 3.78 | 1.29 |
| EPS (diluted)(16) | 4.41 | 8.03 | 3.78 | 1.29 |
* Figures for the three months ended June 30, 2023 have not been annualised. Notes:
Factors affecting our Results of Operations and Financial Condition
The following is a discussion of certain factors that have had, and we expect will continue to have, a significant effect on our liquidity, capital resources and results of operations.
Interest Rate Volatility
Our business is dependent on interest earned from our lending operations, which was ?25,268.78 million,
?26,996.91 million, ?32,891.43 million and ?11,283.18 million and contributed 95.08%, 93.93%, 94.43% and 98.67% of our total income in Fiscal 2021, 2022, 2023, and in the three months ended June 30, 2023 respectively. Our business also is affected by the interest rates at which we borrow from other banks and financial institutions (which are sometimes variable) or the rates at which we issue bonds. Our total finance cost (excluding exchange rate fluctuation gain or loss) for Fiscal 2021, 2022, 2023 and the three months ended June 30, 2023 was ?15,702.62 million, ?15,872.51 million, ?20,884.38 million and ?7,637.38 million, respectively, and comprised 59.15%, 55.50%, 59.98% and 66.81% of our revenue from operations in the respective periods. Accordingly, we are affected by volatility in interest rates in our borrowing and lending operations.
Interest rates are highly sensitive to many factors beyond our control, including the monetary policies of the RBI, deregulation of the financial sector in India, domestic and international economic and political conditions and other factors. Furthermore, the rise in inflation and consequent fluctuation in interest rates, repo rates (the rates at which the RBI lends to commercial banks) and reverse repo rates (the rates at which the RBI borrows from commercial banks) has led to revision in the interest rates on loans provided by banks and financial institutions. Due to these factors, interest rates in India have experienced a relatively high degree of volatility. Further, our borrowings comprise of foreign currency loans which include both fixed rate and floating rate loans. As of June 30, 2023, 60.70% of our borrowings (including debt securities), respectively, were at fixed rates while the remaining were at floating rates (i.e., linked to the repo, SOFR, EURIBOR, LIBOR and other market benchmarks.). The floating rate loans are impacted by foreign exchange fluctuation and changes in the interest rate scenario in the international market, such as the impact on Secured Overnight Financing Rate ("SOFR") and Euro Interbank Offered Rate ("EURIBOR").
Our Net Interest Margins are determined by the cost of our funding relative to the pricing of our loan products. Our results of operations depend substantially on our Net Interest Income and our ability to maintain and improve our Net Interest Margin. Our Net Interest Margin was 3.93%, 3.75%, 3.32% and 0.83% (on an unannualized basis) in Fiscal 2021, 2022, 2023 and the three months ended June 30, 2023, respectively.
The cost of our funding and the pricing of our loan products are determined by a number of factors, many of which are beyond our control. If we suffer a decline in net interest margins, we would be required to increase our lending rate in order to maintain our profitability. In case we are not able to do so we may suffer reduced profitability or losses if our net interest margins were to decrease, which may adversely affect our business, results of operations and financial condition.
Our domestic borrowings from bonds are on fixed interest rate basis and range in tenure from three to 20 years. Some domestic term loans from banks and financial institutions are availed on fixed rate basis for a tenure of up to three years. Most of our foreign currency borrowings from international financial institutions are also on fixed rate basis and range in tenure between 12 years to 40 years. Our borrowings on fixed rate basis amounted to
79.86%, 76.95%, 62.51% and 60.70% of our total borrowings as of March 31, 2021, 2022, 2023 and as of June 30, 2023, respectively. Although our loan sanctions typically contain an interest reset clause, in the event such reset does not serve to benefit us, or set off, the extent of the interest rate fluctuation, or if we are not able to pass on the increased cost of borrowing to our own borrowers, our net interest income and net interest margin could be adversely impacted.
When interest rates decline, we may be subject to greater repricing and prepayment risks. During periods of low interest rates and high competition among lenders, borrowers may seek to reduce their borrowing costs by asking lenders to reprice loans. When assets are repriced, the spread on loans, which is the difference between the average yield on loans and the average cost of funds, could be affected. If we reprice loans, our financial results may be adversely affected in the period in which the repricing occurs. To the extent that our borrowers prepay loans, the return on our capital may be impaired as any prepayment premium we receive may not fully compensate us for the redeployment of such funds elsewhere. When interest rates increase, we may be unable to pass on such increase to the borrowers in full by increasing the corresponding lending interest rates and increase in the interest rate on reset may also result in the borrowers prepayment of such loans. Such prepaid loan amounts may not be immediately redeployed by us which may result in loss of interest income.
Our results of operations are also dependent on other factors including factors that are indirectly related to the prevailing interest rate and lending environment, including disbursement and repayment schedules for our loans, the terms of such loans including interest rate reset terms. We review our lending rates periodically based on prevailing market conditions, borrowing cost, yield, spread, competitors rates, and business growth considerations. In addition, the value of any interest rate hedging instruments we may enter into may be affected by changes in interest rates and by changes in foreign exchange rates.
Availability of cost-effective funding sources and ability to raise capital
Our borrowings primarily include bonds and term loans obtained from various domestic banks (short term and long term) and multilateral and bilateral institutions. We have long-term relationships with various banks and financial institutions which provides ease of access to funding from such institutions. Our quality loan portfolio, stringent credit appraisal and risk management processes and stable credit history have resulted in improved credit status with our lenders over the years, thereby enabling us to reduce our cost of borrowings from banks and other financial institutions. Our credit status with our lenders is determined primarily by our NPAs. As of March 31, 2021, 2022, 2023 and June 30, 2023, our total borrowings were ?240,000.04 million, ?276,130.72 million,
?401,652.80 million and ?399,417.33 million, respectively. Our finance costs are dependent on various external factors, including Indian and global credit markets and in particular, interest rate movements and adequate liquidity in the debt markets. Our ability to price our products depends on our cost of capital. Our average cost of funds raised in Fiscal 2021, 2022, 2023 and the three months ended June 30, 2023, was 7.15%, 6.33%, 6.23% and 1.90%, respectively, which we believe is competitive but our ability to compete effectively will remain dependent on our timely access to, and the costs associated with raising capital and our ability to maintain a low, effective cost of funds in the future that is comparable or lower than that of our competitors.
As of June 30, 2023, our single largest funding source, Japan International Cooperation Agency (JICA), for
?31,968.01 million, has a tenor of 30 years and accounted for 8.00% of our total funding. We are significantly dependent upon funding from the bond markets and commercial borrowings in the form of term loans and long- term borrowing facilities. We are particularly vulnerable in this regard given the growth of our business in recent years. The market for such funds is competitive and our ability to obtain funds on acceptable terms, or at all is subject to various factors beyond our control. Many of our competitors may have greater and cheaper sources of funding than we do. Further, many of our competitors may have larger resources or balance sheet strength than us and may have access to considerable financing resources. In addition, since we are a non-deposit taking NBFC, we may have restricted access to funds in comparison to banks and deposit taking NBFCs.
Our ability to borrow on acceptable terms and at competitive rates depends on various factors including, our credit ratings, our capital adequacy ratios, foreign exchange rates and volatility in interest and exchange rates, the regulatory environment, liquidity in the markets, policy initiatives in India, developments in the international markets affecting the Indian economy and the perception of investors, and our current and future results of operations and financial condition.
A major factor that determines interest rates on our borrowings is our credit ratings. Our external credit ratings assess our overall financial capacity to pay our obligations and are reflective of our ability to meet financial commitments as they become due. Rating agencies may reduce, or indicate their intention to reduce, the ratings at any time, which may in turn require us to avail of borrowings at higher rates of interest. In addition, due to our
nature and tenure of the borrowings, it may not be possible for us to pre-pay the existing borrowings by incurring additional indebtedness without payment of penalty and interest. While we have generally been able to pass any increased cost of funds onto our customers, we may not be able to do so in the future. If our products are not competitively priced, there is a risk of our borrowers taking loans from other lenders. Accordingly, the unavailability of borrowings at commercially acceptable terms, or at all, may adversely affect our capacity to lend in the future and would therefore have an adverse effect on our results of operations and financial condition.
Regulation of Non-deposit taking NBFCs
We are an NBFC-ND-SI with IFC status and our results of operations and financial condition are, and will continue to be impacted by, the regulation of non-deposit taking NBFCs by the RBI. Any change in regulation of non-deposit taking NBFCs may have a significant impact on our revenues, expenses, profitability and financial parameters.
Being a non-banking financing company wholly-owned by the Government, until Fiscal 2018 we were exempt from prudential norms as prescribed by the RBI, and we made provisioning in terms of prudential norms as approved by our Board of Directors and the relevant ministry. In Fiscal 2019, the RBI withdrew the exemptions from their prudential norms which were previously available to all Government NBFC-ND-SI vide their circular, dated May 31, 2018. In addition, RBI circular dated May 31, 2018 provided new CRAR requirements for GoI- owned NBFCs, which was 13% by March 31, 2021 and 15% by March 31, 2022. Our CRAR was 17.12%, 21.22%,
18.82% and 19.95% as of March 31, 2021, 2022, 2023 and June 30, 2023, respectively.
The RBI has not provided for any ceiling on interest rates that can be charged by non-deposit taking NBFCs. Accordingly, our interest rates are set by a designated committee as authorised by Board of Directors in accordance with market factors and RBI policy. Our financial performance and results of operations are affected significantly by changes in regulations by the RBI.
NPAs, Provisioning and Write offs
Our ability to manage the credit quality of our loans, which we measure in part through NPAs, 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 regulatory guidelines. As the number of our loans that become NPAs increase, the quality of our loan portfolio decreases. In accordance with the Master Direction for NBFC-ND-SI, 2016 as updated, we are required to classify loans that are over 90 days past due as NPAs. Set forth below are details of our asset quality ratios, as well as provisions for Gross NPAs, as of each of the corresponding periods:
|
Particulars |
As of/ For the Year Ended March 31, |
As of/ For the Three Months Ended June 30, 2023 |
||
|
2021 |
2022 |
2023 |
||
| Gross NPA(1) (? million) | 24,415.53 | 17,682.54 | 15,133.54 | 14,557.64 |
| Gross NPA ratio(2) (%) | 8.77% | 5.21% | 3.21% | 3.08% |
| Net NPA(3) (? million) | 15,102.24 | 10,353.90 | 7,680.24 | 7,471.17 |
| Net NPA ratio(4) (%) | 5.61% | 3.12% | 1.66% | 1.61% |
| Provision Coverage Ratio(5) (%) | 38.14% | 41.45% | 49.25% | 48.68% |
Our Restated Financial Information included in this Draft Red Herring Prospectus have been prepared under Ind AS. Ind AS requires us to compute impairment on our financial assets. We follow a three stage model for impairment of loan assets carried at amortised cost based on changes in credit quality since initial recognition.
Expected credit loss ("ECL") is the product of the (i) Probability of Default (representing the likelihood of a borrower defaulting on its financial obligation, either over the next 12 months, or over the remaining lifetime of the obligation), (ii) Exposure at Default (based on the amount of outstanding exposure as on the assessment date on which ECL is computed), and (iii) Loss Given Default (representing our Companys expectation of the extent
of loss on a defaulted exposure, and which varies by type of counterparty, type, and preference of claim and availability of collateral or other credit support).
Provision for expected credit losses
| Stage |
Category |
Description of category |
Basis for recognition of expected credit loss provision |
|||
|
Loans |
||||||
| Stage-1 | Standard Assets | Assets where counter party has strong capacity to
meet the obligations and where risk of default is negligible or nil / regularly paying assets |
12 month ECL | |||
| Stage-2 | Loans increased risk |
with credit |
Assets where there has been a significant increase in credit risk since initial recognition. | Lifetime losses | expected | credit |
| Stage-3 | Loans- (NPA) | Impaired | Assets where there is high probability of default and
written off assets where there is low expectation of recovery |
Lifetime losses | expected | credit |
We may experience increases in our net NPAs and gross NPAs due to increase in credit problems in RE projects which may be affected by factors including project delays, rise in the price of material for power generation, delay in payments from DISCOMS, force majeure events, regulatory and tariff related issues, technology and generation related issues and change in RE-related business scenarios.
To reduce our NPAs, we have a dedicated review and monitoring mechanism in place to monitor project loans throughout the lifecycle of the project. Our post-disbursement monitoring mechanism is structured to proactively set off potential default triggers based on regular review of key parameters including debt service coverage ratio, balance/transaction review for trust and retention accounts and debt service reserve accounts, plant load factor of projects, validity/coverage of insurance for projects, compliance with security coverage, and any significant changes in the guarantors net worth. For further information on our resolution and recovery strategies, see "Our Business – Competitive Strengths – Comprehensive data based credit appraisal process and risk-based pricing, with efficient post-disbursement project monitoring and recovery processes" and "Our Business – Business Operations – Credit Risk" on pages 248 and 271, respectively.
Eligible Incentives and Tax Benefits, Including to the Renewable Energy Sector
We are a public financial institution and our business is almost entirely concentrated within RE sector borrowers. 100% of our loan book is dedicated towards RE financing. Accordingly, our results and operations and financial condition are dependent on the success and growth of the Indian RE sector. The viability of the RE sector is linked to a favourable policy framework and the related fiscal and financial incentives available thereunder. We provide finance towards promotion and development of renewable sources of energy and energy efficiency projects.
We currently receive tax benefits by virtue of our status as a public financial institution, which has enabled us to reduce our effective tax rate. These tax benefits include the creation of a special reserve under Section 36(1)(viii) of the Income Tax Act and provision for bad and doubtful debts under Section 36(1)(viia)(c) of the Income Tax Act. For further details, see "Statement of Special Tax Benefits" on page 122.
The availability of such tax benefits is in line with proviso under the Income Tax Act, 1961. Any change or amendment to this by the GoI may have an impact on our income tax outgo and exemption. For further information, see "Risk Factors - Our business is entirely concentrated in, and dependent on, the Indian RE sector, which in general has many challenges and effective addressing of these risks are key to the growth of the sector. If risks in the sector are not managed effectively, the sector growth will suffer, and our business and operations will in turn will also be adversely affected" and "Key Regulations and Policies in India" on pages 39 and 279, respectively.
Project Lending
We generally provide short, medium and long term loans to borrowers for utilization in a particular project on the basis that the cash flows from the project, will service the repayment of principal amounts as well as payment of interest to us.
RE projects carry project specific as well as general risks, many of which are beyond our control, including:
The long-term profitability of power sector projects is also dependent on the efficiency of their operation and maintenance of their assets. Operational disruptions could adversely affect the cash flows available from these projects. In addition, the cost of repairing or replacing damaged assets could be considerable. Repeated or prolonged interruption may result in a permanent loss of customers, substantial litigation or penalties and/or regulatory or contractual non-compliance. For further information, see "Risk Factors – Projects and schemes for generating electricity and energy through renewable sources like solar, wind, hydro, biomass, waste-to-energy and new and emerging technologies have inherent risks and, to the extent they materialize, could adversely affect our business, results of operations and financial condition" on page 37.
If our borrowers fail to make payments of interest or principal in a timely manner it may also affect the asset classification as per the terms of applicable prudential norms and consequently, we may be unable to recognize revenue from these loans on an accrual basis and may also have to undertake additional provisioning in accordance with applicable prudential norms.
Borrowers Cash Flows
The power off-take from the RE projects is largely through long-term power purchase agreements with central agencies as well as state DISCOMs, and in a few cases, private off-takers (in the case of open access and group captive projects. The weak financial health of DISCOMs remains the biggest challenge for the Indian power sector. (Source: CARE Report) Financial issues faced by DISCOMs may result in delayed payments to the RE power generators and irregular payment cycles of our RE project borrowers. Apart from this the business performance of private off takers may also impact the timely payment of our dues. This may affect the repayment capability of our borrowers and in turn may adversely affect our results of operations and financial condition.
If our borrowers are unable to manage their cash flow and other financial risks applicable to such borrowers due to risks of non-payment or delayed payment by the DISCOMs or private off takers, our NPAs could increase which would also adversely affect our results of operations and financial condition.
We generally implement security and quasi-security arrangements in relation to our term loans. We take security by way of a mortgage on project land and buildings and hypothecation of project assets including plant and machinery. In addition, we often take an additional security through a charge on asset such as pledges of shares held by promoters, personal guarantees and corporate guarantees. The value of primary security and collateral may not be adequate to recover losses in case of non-performance and such security may be challenging to liquidate as project specific assets may include of civil structures.
We also use trust and retention account arrangements to provide us with payment security. The trust and retention account arrangements are effective in the event that revenue from the end users or other receipts, as applicable, is received by our borrowers and deposited in the relevant escrow accounts or trust and retention accounts. There
may be instances of non-enforcement of trust and retention accounts by bankers, resulting in default in payments by the borrower. Although we monitor the flow into the trust and retention accounts, in certain instances we may not have any arrangement in place to ensure that such revenue is received or deposited in such accounts and the effectiveness of the trust and retention account arrangements is limited to that extent. For further information, see "Risk Factors - The escrow account mechanism and the trust and retention account arrangements implemented by us as a quasi-security mechanism in connection with payment obligations of our borrowers may not be effective, which could adversely affect our results of operations and financial condition" on page 50. Further, force majeure/unexpected events such as the COVID-19 pandemic create liquidity risks due to disruptions in the capital markets and changes in interest rates, as well as supply chain risks due to the disruption in the supply of materials and price increases in material. Such outbreaks may impact our borrowers, their business, results of operations and financial condition which in turn could impact their repayment of interest and principal on their borrowings from us and could also increase our NPAs in certain cases. While we usually obtain a commitment from off-takers that the revenue from the projects will be deposited in the trust and retention account or escrow account only, there may be instances of failure of this mechanism. If end users do not make payments to our borrowers, the trust and retention account arrangements will not be effective in ensuring the timely repayment of our loans, which may adversely affect our results of operations and financial condition.
Foreign Exchange and Hedging
As of March 31, 2021, 2022, 2023 and June 30, 2023, we had foreign currency borrowings of ?103,180.09 million,
?104,320.31 million, ?101,329.27 million and ?97,977.42 million, which comprises 42.99%, 37.78%, 25.23% and 24.53% of our total borrowings, respectively. We may seek to obtain additional foreign currency borrowings in the future. We are therefore affected by adverse movements in foreign exchange rates. In the past, the rupee has depreciated against currencies such as US$, Euro and Japanese Yen and such depreciation has been significantly volatile. If the Rupee depreciates against the currencies in which we borrow in, it will result in a higher outflow in relation to the foreign currency denominated loans. Although we have hedged our foreign currency loan in accordance with our foreign exchange and derivatives risk management policy, our hedges may not cover sufficiently, or at all, an increase in foreign currency loans resulting from the depreciation of the rupee against such currencies to the extent of open exposures.
We currently hold, and have in the past held, derivative contracts, principal only swaps, including forward exchange contracts and interest rate swaps. We believe that these forward exchange contracts, and cross currency swaps, have the effect of reducing the volatility of exchange difference of foreign currency exposure and interest rate risk. If, in the future, foreign exchange rates or interest rates move contrary to our expectations, or if our risk management procedures prove to be inadequate, we could incur derivative-related or other charges and opportunity losses independent of the relative strength of our business, which could affect our results of operations and financial condition.
Presentation of Financial Information, Basis of Consolidation and Restatement
Our Restated Financial Information has been compiled by the management from our audited consolidated financial statements as at and for the fiscal year ended March 31, 2021 and our Companys audited standalone financial statements as at and for the years ended, March 31, 2022, March 31, 2023 and as at and for the three months ended June 30, 2023. Our Restated Financial Information for Fiscal 2021 present the consolidated accounts of (i) our Company and (ii) our associate, M.P. Windfarms Limited. Our Restated Financial Information for Fiscal 2022, 2023 and the three months ended June 30, 2023 present our standalone accounts of our Company.
Our Restated Financial Information has been prepared as of, and for, the fiscal years ended March 31, 2021, March 31, 2022 and March 31, 2023 and the three months ended June 30, 2023 in accordance with Ind AS, applicable provisions of the Companies Act and restated in accordance with the SEBI ICDR Regulations. The Restated Financial Information has been prepared to comply in all material respects with the requirements of Section 26 of Companies Act, 2013, the relevant provisions of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, and the Guidance Note on Reports in Company Prospectuses (Revised 2019) issued by the Institute of Chartered Accountants of India, each as amended from time to time.
Indian accounting standards (Ind AS)
We currently prepare our financial statements under Ind AS, and our Restated Financial Information has been prepared under Ind AS.
The Companies (Indian Accounting Standards) Rules, 2015 ("IAS Rules"), enacted alternatives to Indian GAAP
that are intended to align Indian GAAP further with IFRS. The IAS Rules provide that the financial statements of the companies to which they apply shall be prepared and audited in accordance with Ind AS. Ind AS is different in many respects from Indian GAAP under which our historical accounts before April 1, 2018 were prepared. All NBFCs having a net worth of more than ?5,000.00 million were required to mandatorily adopt Ind AS for the accounting period beginning from April 1, 2018, with comparatives for the period ending on March 31, 2017. We began preparing our financial statements under Ind AS beginning from April 1, 2018.
Material Accounting Policy Information
The preparation of our financial information requires selecting accounting policies and making estimates and assumptions that affect items reported in the profit and loss account, balance sheet, changes in equity and cash flow statements and notes to the financial information. The determination of these accounting policies is fundamental to our results of operations and financial condition, and such determination requires management to make subjective and complex judgements about matters that are inherently uncertain based on information and data that may change in future periods. As a result, determinations regarding these items necessarily involve the use of assumptions and subjective judgements as to future events and are subject to change, and the use of different assumptions or data could produce materially different results.
The Restated Financial Information are presented in Indian Rupee which is the functional currency of the primary economic environment in which our Company operates, values being rounded in millions to the nearest two decimals, except when stated otherwise.
Significant management judgments
Recognition of deferred tax assets/ liability – The extent to which deferred tax assets can be recognized is based on an assessment of the probability of the future taxable income against which the deferred tax assets can be utilized. Further, our management has no intention to make withdrawal from the special reserve created and maintained under Section 36(1)(viii) of the Income tax Act, 1961. Thus, the special reserve created and maintained is not capable of being reversed. Hence, our Company does not create any deferred tax liability on the said reserve.
Evaluation of indicators for impairment of assets – The evaluation of the applicability of indicators of impairment of assets requires assessment of several external and internal factors which could result in deterioration of the recoverable amount of the assets.
Non-recognition of interest income on Credit Impaired Loans - Interest income on credit-impaired loan assets is not being recognized as a matter of prudence, pending the outcome of resolutions of stressed assets.
Materiality of prior period item
Prior period items which are not material are not corrected retrospectively through restatement of comparative amounts and are accounted for in the current year.
Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the Restated Financial Information. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The combination of size and nature of the items are the determining factor.
Significant estimates
Useful lives of depreciable/amortizable assets – Our management estimates the useful lives of depreciable/ amortizable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technical and economic obsolescence that may change the utility of assets.
Defined benefit obligation ("DBO") – Our managements estimate of the DBO is based on a number of underlying assumptions such as standard rates of inflation, mortality, discount rate and anticipation of future salary increases. Variation in these assumptions may significantly impact the DBO amount and the annual defined benefit expenses.
Fair value measurements – Our management applies valuation techniques to determine the fair value of financial instruments (where active market quotes are not available). This involves developing estimates and assumptions consistent with how market participants would price the instrument. In estimating the fair value of an asset or a
liability, our Company uses market observable data to the extent it is available. In case of non-availability of market-observable data, Level 2 and Level 3 hierarchy is used for fair valuation.
Income Taxes – Significant estimates are involved in determining the provision for income taxes, including amount expected to be paid or recovered for uncertain tax positions and in respect of expected future profitability to assess deferred tax asset.
Expected Credit Loss (‘ECL) – The measurement of an ECL allowance for financial assets measured at amortized cost requires the use of complex models and significant assumptions about future economic conditions and credit behavior (for instance, likelihood of customers defaulting and resulting losses). Our Company makes significant judgments about the following while assessing expected credit loss to estimate ECL:
Provisions - The timing of recognition and quantification of the liability (including litigations) 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.
Property, Plant and Equipment ("PPE")
Tangible Assets
The PPE (tangible assets) is initially recognized at cost.
The cost of an item of PPE comprises its purchase price, including import duties, non-refundable taxes, after deducting trade discounts and rebates, borrowing cost if capitalization criteria are met and any cost directly attributable in bringing the asset to the location and condition necessary for it to be ready for its intended use. Stores and spares which meet the recognition criteria of PPE are capitalized and added in the carrying amount of the underlying asset.
Our Company has adopted the cost model of subsequent recognition to measure the PPE. Consequently, all PPE are carried at its cost less accumulated depreciation and accumulated impairment losses, if any.
De-recognition
An item of PPE is derecognized on disposal, or when no future economic benefits are expected from use. Gains or losses arising from de-recognition of a PPE, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in the statement of profit and loss when the asset is derecognized.
Capital Work-in-Progress
The cost of PPE under construction at the reporting date is disclosed as ‘capital work-in-progress. The cost comprises purchase price, import duties, non-refundable taxes, after deducting trade discounts and rebates, borrowing cost if capitalization criteria are met and any cost directly attributable in bringing the asset to the location and condition necessary for it to be ready for its intended use. Advances paid for the acquisition/ construction of PPE which are outstanding at the balance sheet date are classified under ‘capital advances.
Intangible Assets and Amortization
Intangible assets are initially measured at cost. The cost comprises purchase price, import duties, non-refundable taxes, after deducting trade discounts and rebates, borrowing cost if capitalization criteria are met and any cost
directly attributable in bringing the asset to the condition necessary for it to be ready for its intended use. Such assets are recognized where it is probable that the future economic benefits attributable to the assets will flow to our Company.
All intangible assets with finite useful life are subsequently recognized at cost model. These intangible assets are carried subsequently at its cost less accumulated amortization and accumulated impairment loss if any.
Intangible Assets under Development
Expenditure incurred which are eligible for capitalization under intangible assets is carried as ‘intangible assets under development till they are ready for their intended use.
Derecognition
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use. Gains or losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset are recognized in the statement of profit and loss when the asset is derecognized.
Depreciation and Amortization
Depreciation on tangible PPE is provided in accordance with the manner and useful life as specified in Schedule
–II of the Companies Act 2013, on written down basis, except for the assets mentioned below:
Useful life of assets as per Schedule II:
| Asset Description | Estimated Useful Life | Residual Value as a % of original cost |
| Building |
60 years |
5% |
| Computers and Data Processing Units | ||
| - Laptops / Computers |
3 years |
5% |
| - Servers |
6 years |
5% |
| Office Equipment |
5 years |
5% |
| Furniture and Fixtures |
10 years |
5% |
| Vehicles |
8 years |
5% |
| Intangible Assets |
5 years |
0% |
Useful life of assets as per CERC order
| Asset Description | Estimated Useful Life | Residual Value as a % of original cost |
| Solar Plant |
25 years |
10% |
Government Grant / Assistance
Our Company may receive government grants that require compliance with certain conditions related to our Companys operating activities or are provided to our Company by way of financial assistance on the basis of certain qualifying criteria.
Government grants are recognized when there is reasonable assurance that the grant will be received and our Company will be able to comply with the conditions attached to them. These grants are classified as grants relating to assets and revenue based on the nature of the grant.
Government grants with a condition to purchase, construct or otherwise acquire long term assets are initially recognized as deferred income. Once recognized as deferred income, such grants are recognized in the statement of profit and loss on a systematic basis over the useful life of the asset. Changes in estimates are recognized prospectively over the remaining life of the asset.
Grant related to subsidy are deferred and recognized in the statement of profit and loss over the period that the related costs, for which it is intended to compensate, are expensed.
Grant-in-aid for financing projects in specified sectors of New and Renewable Sources of Energy is treated and accounted as deferred income.
The expenditure incurred under Technical Assistance Programme is accounted for as recoverable and shown under the head ‘Other Financial Assets. The assistance reimbursed from multilateral/ bilateral agencies is credited to the said account.
Leases
As a lessee
Our Company assesses at contract inception whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, our Company assesses whether: (i) the contract involves the use of an identified asset; (ii) our Company has substantially all of the economic benefits from use of the asset through the period of the lease, and (iii) our Company has the right to direct the use of the asset.
Our Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. Our Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
Right-of-use assets
Our Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the estimated useful life of the assets.
Lease liabilities
At the commencement date of the lease, our Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in- substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. Our Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. The incremental borrowing rate is the State Bank of India MCLR rate for the period of the loan if the loan is up to three years. For a period, greater than three years, State Bank of India MCLR rate for three years may be taken.
Short-term leases and leases of low-value assets
Lease payments on short-term leases (which has a lease term of up to 12 months) and leases of low value assets (asset value up to ?1,000,000) are recognized as expense over the lease term. Lease term is determined by taking non-cancellable period of a lease, together with both: (i) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and (ii) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.
As a lessor
When our Company acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. To classify each lease, our Company makes an overall assessment of whether the lease transfers substantially all the risk and rewards incidental to the ownership of the underlying asset. If this is the case, then the lease is a finance lease, if not, then it is an operating lease. As part of the assessment, our Company considers certain indicators such as whether the lease is for the major part of the economic life of the asset. If an arrangement contains lease and non-lease components, our Company applies Ind AS 115 ‘Revenue from contract with customers to allocate the consideration in the contract. Our Company recognizes lease payments received under operating lease as income on a straight-line basis over the lease term as part of ‘Revenue from operations.
Investments in Subsidiary, Associates and Joint Venture
Our Company accounts investment in subsidiary, joint ventures and associates at cost. An entity controlled by our Company is considered as a subsidiary of our Company. Investments in subsidiary company outside India are translated at the rate of exchange prevailing on the date of acquisition.
Investments where our Company has significant influence are classified as associates. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement is classified as a joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.
Impairment Loss on Investment in Associate or joint Venture
If there is an indication of impairment in respect of entitys investment in associate or joint venture, the carrying value of the investment is tested for impairment by comparing the recoverable amount with its carrying value and any resulting impairment loss is charged against the carrying value of investment in associate or joint venture.
Impairment of Non-Financial Asset
Our Company assesses at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, our Company estimates the assets recoverable amount. An assets recoverable amount is the higher of an assets or cash-generating units ("CGU") fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or Companys assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used.
Cash and cash equivalents
Cash comprises cash in hand, cash at bank including debit balance in bank overdraft, if any, demand deposits with banks, commercial papers and foreign currency deposits. Cash equivalents are short term deposits (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.
Borrowing costs
General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying asset are capitalized up to the date when the asset is ready for its intended use after netting off any income earned on temporary investment of such funds.
To the extent that our Company borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization are determined by applying a capitalization rate to the expenditures on that asset.
Other borrowing costs are expensed in the period in which they are incurred.
Foreign currency transactions
Transactions in currencies other than the functional currency are recognized at the rates of exchange prevailing at the dates of the transactions.
At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Foreign exchange gains and losses resulting from the settlement of such transactions and the re-measurement of monetary items denominated in foreign currency at period-end exchange rates are recognized in the statement of profit and loss.
Foreign Currency Monetary Item Translation Reserve Account ("FCMITR") represents unamortized foreign exchange gain/loss on long-term foreign currency borrowings that are amortized over the tenure of the respective borrowing. We have adopted exemption of Para D13AA of Ind AS 101, according to which we may continue the policy adopted for accounting for exchange differences arising from translation of long-term foreign currency monetary items recognized in the financial statements for the period ending immediately before the beginning of the first Ind AS financial reporting period as per the previous GAAP. Accordingly, all transactions in foreign currency are recorded at the exchange rate prevailing at the date of the transaction. The exchange differences arising on reporting of long-term foreign currency monetary items outstanding as on March 31, 2018, at rate prevailing at the end of each reporting period, different from those at which they were initially recorded during the period, or reported in previous financial statements, are accumulated in FCMITR Account, and amortized over the balance period of such long-term monetary item, by recognition as income or expense in each of such period. Long-term foreign currency monetary items are those which have a term of twelve months or more at the date of origination.
Short-term foreign currency monetary items (having a term of less than twelve months at the date of origination) are translated at rates prevailing at the end of each reporting period. The resultant exchange fluctuation is recognized as income or expense in each of such periods.
As per Para 27 of Ind AS 21, exchange difference on monetary items that qualify as hedging instruments in cash flow hedge are recognized in other comprehensive income to the extent hedge is effective. Accordingly, we recognize the exchange difference due to translation of foreign currency loans at the exchange rate prevailing on reporting date in cash flow hedge reserve.
Earnings per Share
The basic earnings per share is computed by dividing the net profit after tax by the weighted average number of equity shares outstanding during the year.
Diluted earnings per share is computed by dividing adjusted net profit after tax by the aggregate of weighted average number of equity shares and dilutive potential equity shares outstanding during the year. The number of equity shares and potentially dilutive equity shares are adjusted for share splits, reverse share splits and bonus shares, as appropriate.
Provisions
A provision is recognized when our Company has a present obligation (legal or constructive) as a result of past events and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made.
Contingent liabilities
Contingent liabilities are not recognized but disclosed in notes when our Company has (i) a possible obligation due to past events and existence of the obligation depends upon occurrence or non-occurrence of future events not wholly within the control of our Company, or (ii) present obligations arising from past events where it is not
probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made.
Contingent liabilities are assessed continuously to determine whether outflow of economic resources have become probable. If the outflow becomes probably, then relative provision is recognized in the financial statements.
Contingent Assets
Contingent assets are not recognized but disclosed in notes which usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic benefits.
Contingent assets are assessed continuously to determine whether inflow of economic benefits becomes virtually certain, then such assets and the relative income will be recognized in the financial statements.
Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The Chairman and Managing Director of our Company has been identified as the chief operating decision maker.
Material prior period errors
Material prior period errors are corrected retrospectively by restating the comparative amounts for the prior periods presented in which the error occurred. If the error occurred before the earliest period presented, the opening balances of assets, liabilities and equity for the earliest period presented, are restated unless it is impracticable, in which case, the comparative information is adjusted to apply the accounting policy prospectively from the earliest date practicable.
Taxation
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘profit before tax as reported in the statement of profit and loss /other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. Our Companys current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Current tax is recognized in the statement of profit and loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current tax is also recognized in other comprehensive income or directly in equity respectively. Where current tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
Deferred tax
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding amounts used for taxation purpose.
Deferred tax liabilities are generally recognized for all taxable temporary differences.
Deferred tax assets are generally recognized only to the extent that it is probable that future taxable profits will be available against which the assets can be utilized. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Current and deferred tax are recognized in the statement of profit and loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively.
Investment Property
Investment properties are properties held to earn rentals and/or for capital appreciation (including property under
construction for such purposes). Investment properties are measured initially at cost, including import duties, non- refundable taxes, after deducting trade discounts and rebates, borrowing cost if capitalization criteria are met and any cost directly attributable in bringing the asset to the location and condition necessary for it to be ready for its intended use.
After initial recognition, our Company measures investment property by using cost model.
An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on de recognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit and loss in the period in which the property is derecognized.
Investment properties are depreciated in accordance to the class of asset that it belongs and the life of the asset shall be as conceived for the same class of asset at our Company.
Though investment property is measured using cost model, the fair value of investment property is disclosed in the notes.
Employee Benefits
Short-term employee benefits
Short-term employee benefits including salaries, short term compensated absences (such as a paid annual leave) where the absences are expected to occur within twelve months after the end of the period in which the employees render the related service, profit sharing and bonuses payable within twelve months after the end of the period in which the employees render the related services and non-monetary benefits for current employees are estimated and measured on an undiscounted basis.
Post-employment benefit plans are classified into defined benefits plans and defined contribution plans as under:
Defined contribution plan
A defined contribution plan is a plan under which our Company pays fixed contributions in respect of the employees into a separate fund. Our Company has no legal or constructive obligations to pay further contributions after its payment of the fixed contribution. The contributions made by our Company towards defined contribution plans are charged to the statement of profit and loss in the period to which the contributions relate.
Defined benefit plan
Our Company has an obligation towards gratuity, Post-Retirement Medical Benefit and Other Defined Retirement Benefit, which are being considered as defined benefit plans covering eligible employees. Under the defined benefit plans, the amount that an employee will receive on retirement is defined by reference to the employees length of service, final salary, and other defined parameters. The legal obligation for any benefits remains with our Company, even if plan assets for funding the defined benefit plan have been set aside.
Our Companys obligation towards defined benefit plans is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. The liability recognized in the statement of financial position for defined benefit plans is the present value of the Defined Benefit Obligation ("DBO") at the reporting date less the fair value of plan assets. Our management estimates the DBO annually with the assistance of independent actuaries. Actuarial gains/losses resulting from re-measurements of the liability/asset are included in other comprehensive income. The liability for retirement benefits of employees in respect of provident fund, benevolent fund, superannuation fund and gratuity is funded with separate trusts.
Our Companys contribution to provident fund / superannuation fund is remitted to separate trusts established for this purpose based on a fixed percentage of the eligible employees salary and debited to the statement of profit and loss.
Other long-term employee benefits:
Liability in respect of compensated absences becoming due or expected to be availed more than one year after the balance sheet date is estimated on the basis of actuarial valuation performed by an independent actuary using the projected unit credit method.
Actuarial gains and losses arising from past experience and changes in actuarial assumptions are charged to statement of profit and loss in the period in which such gains or losses are determined.
Financial instruments
Initial recognition and measurement
Financial assets and financial liabilities are recognized when our Company becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss. Subsequent measurement of financial assets and financial liabilities is described below.
Classification and subsequent measurement of financial assets
For the purpose of subsequent measurement, financial assets are classified into the following categories upon initial recognition: (i) Amortized cost; (ii) Financial assets at fair value through profit or loss ("FVTPL"); and Financial assets at fair value through other comprehensive income ("FVOCI").
All financial assets except for those at FVTPL or equity instruments at FVOCI are subject to review for impairment at least at each reporting date to identify whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied to each category of financial assets, which are described below.
Loan at Amortised Cost
Loans (financial asset) are measured at amortized cost using Effective Interest Rate if both of the following conditions are met: (i) The financial asset is held within a business model whose objective is to hold financial assets to collect contractual cash flows; and (ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A loss allowance for expected credit losses is recognized on financial assets carried at amortized cost.
Financial assets at Fair Value through Profit or Loss
Financial assets at FVTPL include all derivative financial instruments except for those designated and effective as hedging instruments, for which the hedge accounting requirements are being applied. Assets in this category are measured at fair value with gains or losses recognized in the statement of profit and loss. The fair values of financial assets in this category are determined by reference to active market transactions or using a valuation technique where no active market exists.
Financial assets at Fair Value through Other Comprehensive Income (FVOCI)
Financial assets at FVOCI comprise of equity instruments measured at fair value. An equity investment classified as FVOCI is initially measured at fair value plus transaction costs. Gains and losses are recognized in other comprehensive income and reported within the FVOCI reserve within equity, except for dividend income, which is recognized in profit or loss. There is no recycling of such gains and losses from OCI to Statement of Profit & Loss, even on the derecognition of the investment. However, the Company may transfer the same within equity.
De-recognition of financial assets
Financial assets (or where applicable, a part of financial asset or part of a group of similar financial assets) are derecognized (i.e. removed from our Companys balance sheet) when the contractual rights to receive the cash flows from the financial asset have expired, or when the financial asset and substantially all the risks and rewards are transferred. Our Company also derecognizes the financial asset if it has both transferred the financial asset and
the transfer qualifies for de-recognition.
Classification and subsequent measurement of financial liabilities
Financial liabilities are measured subsequently at amortized cost using the effective interest method, except for derivative financial liabilities which are carried at FVTPL, subsequently at fair value with gains or losses recognized in the statement of profit and loss.
De-recognition of financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit and loss.
Derivative financial instruments
Our Company is exposed to foreign currency fluctuations on foreign currency assets and liabilities. Our Company limits the effect of foreign exchange rate fluctuations by following established risk management policies including the use of derivatives.
Our Company use Derivative instrument includes principal swap, cross currency and interest rate swap, forwards, interest rate swaps, currency and cross currency options, structured product, among others, to hedge foreign currency assets and liabilities.
Derivatives are recognized and measured at fair value. Attributable transaction costs are recognized in statement of profit and loss as cost.
De-recognition of Financial asset:
Financial assets are derecognized when the contractual right to receive cash flows from the financial assets expires, or transfers the contractual rights to receive the cash flows from the asset.
Hedge Accounting
Derivative financial instruments are accounted for at FVTPL except for derivatives designated as hedging instruments in cash flow hedge relationships, which require a specific accounting treatment. To qualify for hedge accounting, the hedging relationship must meet all of the following requirements: (i) there is an economic relationship between the hedged item and the hedging instrument; (ii) the effect of credit risk does not dominate the value changes that result from that economic relationship; and (iii) the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item.
Our Company has designated mostly derivative contracts as hedging instruments in cash flow hedge relationships. These arrangements have been entered into to mitigate foreign currency exchange risk and interest rate risk arising against which debt instruments denominated in foreign currency.
Cash Flow hedging is done to protect cash flow positions of our Company from changes in exchange rate fluctuations and to bring variability in cash flow to fixed ones.
Our Company enters into hedging instruments in accordance with policies as approved by the Board of Directors; provide written principles which are consistent with the risk management strategy/policies of our Company.
All derivative financial instruments used for hedge accounting are recognized initially at fair value and reported subsequently at fair value in the balance sheet.
The hedge instruments are designated and documented as hedges at the inception of the contract. The effectiveness of hedge instruments is assessed and measured at inception and on an on-going basis. The effective portion of change in the fair value as assessed based on mark to market valuation provided by respective banks/third party
valuation of the designated hedging instrument is recognized in other comprehensive income as ‘Cash Flow Hedge Reserve. The ineffective portion is recognized immediately in the statement of profit and loss as and when it occurs.
At the time the hedged item affects profit or loss, any gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss and presented as a reclassification adjustment within other comprehensive income.
If the hedging relationship no longer meets the criteria for hedge accounting, then hedge accounting is discontinued prospectively. If the hedging instrument expires or sold, terminated or exercised, the cumulative gain or loss on the hedging instrument recognized in Cash Flow Hedge Reserve remains in Cash Flow Hedge Reserve till the period the hedge was effective. The cumulative gain or loss previously recognized in the Cash Flow Hedge Reserve is transferred to the statement of profit and loss upon the occurrence of the underlying transaction.
Impairment
Impairment of financial assets
Loan assets
Our Company follows a ‘three-stage model for impairment of loan asset carried at amortized cost based on changes in credit quality since initial recognition as summarized below:
Stage-1 includes loan assets that have not had a significant increase in credit risk since initial recognition or that has low credit risk at the reporting date.
Stage-2 includes loan assets that have had a significant increase in credit risk since initial recognition but that do not have objective evidence of impairment.
Stage-3 includes loan assets that have objective evidence of impairment at the reporting date.
The ECL is measured at 12-month ECL for Stage-1 loan assets and lifetime ECL for Stage-2 and Stage-3 loan assets. ECL is the product of the Probability of Default, Exposure at Default and Loss Given Default, defined as follows:
Probability of Default ("PD") - The PD represents the likelihood of a borrower defaulting on its financial obligation, either over the next 12 months (12 months PD), or over the remaining lifetime of the obligation.
Loss Given Default ("LGD") – LGD represents the Companys expectation of the extent of loss on a defaulted exposure. LGD varies by type of counterparty, type, and preference of claim and availability of collateral or other credit support.
Exposure at Default ("EAD") – EAD is based on the amount of outstanding exposure as on the assessment date on which ECL is computed.
Forward-looking economic information is included in determining the 12-month and lifetime PD, EAD and LGD. The assumptions underlying the expected credit loss are monitored and reviewed on an on-going basis.
Financial Instruments other than Loans consist of: (i) Financial assets include cash and cash equivalents, trade receivables, unbilled revenues, finance lease receivables, employee and other advances; and (ii) Financial liabilities include borrowings, bank overdrafts, trade payables.
Non-derivative financial instruments other than loans are recognized initially at fair value including any directly attributable transaction costs. Financial assets are derecognized when substantial risks and rewards of ownership of the financial asset have been transferred. In cases where substantial risks and rewards of ownership of the financial assets are neither transferred nor retained, financial assets are derecognized only when our Company has not retained control over the financial asset.
Subsequent to initial recognition, they are measured as prescribed below:
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents include cash in hand, at bank, demand
deposits with banks, cash credit, fixed deposits and foreign currency deposits, net of outstanding bank overdrafts that are repayable on demand and are considered part of our Companys cash management system. In the statement of financial position, bank overdrafts are presented under borrowings.
Trade Receivable
Our Company follows simplified approach for recognition of impairment loss allowance on trade receivables. The application of simplified approach does not require our Company to track changes in credit risk. Rather, we recognize impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition. Our Company determines impairment loss allowance based on individual assessment of receivables, historically observed default rates over the expected life of the trade receivables and is adjusted for forward- looking estimates.
Other payables
Other payables are initially recognized at fair value, and subsequently carried at amortized cost using the effective interest method. For these financial instruments, the carrying amounts approximate fair value due to the short- term maturity of these instruments.
Dividend
Proposed dividends and interim dividends payable to the shareholders are recognized as changes in equity in the period in which they are approved by the Board of Directors and in the shareholders meeting respectively.
Fair Value Measurement and Disclosure
Our Company measures financial instruments, such as derivatives at fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: (i) In the principal market for the asset or liability, or (ii) In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by our Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participants ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
Our Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
For assets and liabilities that are recognized in the financial statements regularly, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Revenue Recognition
Interest income
Interest income is accounted on all financial assets (except where we are not recognizing interest income on credit impaired financial assets) measured at amortized cost. Interest income is recognized using the Effective Interest Rate ("EIR") method in line with Ind AS 109, Financial Instruments. The EIR is the rate that exactly discounts estimated future cash receipts through expected life of the financial asset to that assets net carrying amount on initial recognition. The EIR is calculated by taking into account transactions costs and fees that are an integral part of the EIR in line with Ind AS 109. Interest income on credit impaired assets is recognized on receipt basis.
Rebate on account of timely payment of interest by borrowers is recognized on receipt of the entire interest amount due in time, in accordance with the terms of the respective contract and is netted against the corresponding interest income.
Unless otherwise specified, the recoveries from the borrowers are appropriated in the order of (i) incidental charges (ii) penal interest (iii) overdue interest, and (iv) repayment of principal; the oldest being adjusted first. The recovery under One Time Settlement, Insolvency and Bankruptcy Code proceedings is appropriated first towards the principal outstanding and remaining recovery thereafter, towards interest and other charges, if any.
Other Revenue
Revenue (other than for those items to which Ind AS 109 Financial Instruments are applicable) are recognized as per Ind AS 115 - Revenue from contracts with customers outlines a single comprehensive model of accounting for revenue arising from contracts with customers. The Company recognizes revenue from contracts with customers based on the principle laid down in Ind AS 115 - Revenue from contracts with customers.
Revenue from contract with customers is recognized to the extent it is probable that the economic benefits will flow to the Company and the revenue and costs, if applicable, can be measured reliably. Revenue is measured at the transaction price agreed under the Contract. Transaction price excludes amounts collected on behalf of third parties (e.g., taxes collected on behalf of government) and includes/adjusted for variable consideration like rebates, discounts, only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Revenue from solar plant
Income from solar plant is recognized when the performance obligation are satisfied over time. Rebate given is disclosed as a deduction from the amount of gross revenue.
Revenue from Fee and Commission
Fees and commission are recognized on a point in time basis when probability of collecting such fees is established.
Revenue from Implementation of Government Schemes and Projects
The company besides its own activities also acts as implementing agency on behalf of various government / non- government organizations on the basis of Memorandum of Understanding ("MoU") entered into between the company and such organization. The details of such activities are disclosed by the way of notes to the financial statements.
Wherever any funds are received under trust on the basis of such MoUs entered, the same is not included in cash and cash equivalents and any income including interest income generated out of such funds belonging to such organizations is not accounted as revenue of the company.
Service charges earned from such schemes implemented by the company are recognized at a point in time basis when certainty of collecting such service charges is established.
Expense
Expenses are accounted for on accrual basis. Prepaid expenses up to ?500,000 per item are charged to the
statement of profit and Loss, as and when incurred, adjusted or received.
Financial Performance Indicators and Non-GAAP Financial Measures
Certain financial indicators and ratios to measure and analyse our financial performance and financial condition ("Non-GAAP Measures"), presented in this Draft Red Herring Prospectus are a supplemental measure of our performance and liquidity that is not required by, or presented in accordance with, Ind AS, Indian GAAP, IFRS, US GAAP or any other GAAP. Further, these Non-GAAP Measures are not a measurement of our financial performance or liquidity under Ind AS, Indian GAAP, IFRS, US GAAP or any other GAAP and should not be considered in isolation or construed as an alternative to cash flows, profit/ (loss) for the years/ period or any other measure of financial performance or as an indicator of our operating performance, liquidity, profitability or cash flows generated by operating, investing or financing activities derived in accordance with Ind AS, Indian GAAP, IFRS, US GAAP or any other GAAP. In addition, Non-GAAP measures are widely used in our industry, they may not be comparable to similar financial indicators and ratios used by other companies engaged in the financial services industry in India and are not standardised terms, hence a direct comparison of these Non-GAAP Measures between companies may not be possible. Other companies may calculate these Non-GAAP Measures differently from us, limiting its usefulness as a comparative measure. Further, these Non-GAAP Measures have limitations as analytical tools, and should not be considered in isolation from, or as a substitute for, analysis of our historical performance, as reported and presented in our Restated Financial Information. Although such Non-GAAP Measures are not a measure of performance calculated in accordance with applicable accounting standards, our Companys management believes that they are useful to an investor in evaluating us as they are widely used measures to evaluate a companys operating performance.
Principal Components of Statement of Profit and Loss
Revenue
Revenue from Operations
Our revenue from operations comprises the following:
Interest income: Our interest income comprises interest on (a) interest on loans from lending operations; (b) interest income on investments, comprising interest on GoI securities and interest on commercial papers; (c) interest on deposits with banks, comprising short term deposits in INR and in foreign currency; (d) other interest income; and (e) differential interest, which is charged on prepayment of loans.
Fees and commission income: Fees and commission income comprises (a) business service fees (including fee- based income, consultancy fees and guarantee commission); and (b) service charges (including charges from various funds, incentives and projects).
Net gain/(loss) on fair value changes on derivatives: Net gain/(loss) on fair value changes comprise fair value changes on derivative cover taken on foreign currency loans and fair value changes other than those arising on account of accrued interest income and expenses.
Other operating income: Our other operating income comprises (a) revenue from solar plant operations at our 50MW Kasaragod Solar Plant in the state of Kerala; (b) profit from sale of investments; and (iii) recovery from bad debts written off.
Other Income
Our other income comprises (a) excess provisions written back; (b) interest on staff loans; (c) profit on the sale of property, plant and equipment; (d) profit on sale of investment in associate; (e) rental income; and (f) others.
Expenses
Finance Costs
Finance costs primarily include (a) interest on borrowings; (b) interest on debt securities; (c) interest on subordinated liabilities; (d) other borrowing cost, including commitment fees and guarantee fees; (e) transaction costs on borrowings, which are costs incurred on the issue of securities or the initial costs on availing lines of credit or bank facility; and (f) interest on lease liability.
Net translation/transaction exchange loss/ gain
Net translation/transaction exchange loss or gains comprise (a) our net translation of foreign currency exchange loss or gain; and (b) amortisation of Foreign Currency Monetary Item Translation Reserve (FCMITR).
Impairment on financial assets
Impairment on financial assets includes impairment on our loans measured at amortised cost.
Employee Benefit Expenses
Employee benefit expenses includes (a) salaries and wages; (b) contributions to provident fund and other funds;
Depreciation, Amortisation and Impairment
Depreciation, amortisation and impairment expense includes (a) the depreciation on property, plant and equipment, including buildings, computers, furniture and fixtures, leasehold improvements, office equipment, vehicles, solar plant (building and plant and equipment); (b) amortization on intangible assets including software;
Other Expenses
Other expenses primarily include (a) rent, taxes and energy costs, (b) repairs and maintenance expenses, (c) communication costs, (d) printing and stationery expenses, (e) advertisement and publicity expenses, (f) directors fees, allowances and expenses, (g) auditors fees and expenses, (h) legal and professional charges, (i) insurance costs, (j) bad debts, (k) credit rating expenses, (l) losses on the sale of fixed assets, and (m) other expenses.
Corporate Social Responsibility Expenses
Corporate social responsibility expenses comprises the amounts utilised towards our corporate social responsibility obligations as required under the Companies Act, 2013.
Results of Operations
The table below sets forth certain information with respect to our results of operations on a consolidated basis for Fiscal 2021 and on a standalone basis for Fiscals 2022, 2023 and the three months ended June 30, 2023.
(in ? million, except percentages)
|
Profit and Loss Account |
Fiscal |
Three months ended June 30, 2023 |
||||||
|
2021 |
2022 |
2023 |
||||||
| (? million) | % of Total Income |
(? million) | % of Total Income |
(? million) | % of Total Income |
(? million) | % of Total Income |
|
| Income: | ||||||||
| Revenue from Operations | ||||||||
| Interest income | 25,643.3
8 |
96.49% | 27,132.2
1 |
94.40% | 33,738.2
7 |
96.86% | 11,327.2
7 |
99.06% |
| Fees and commission income | 337.73 | 1.27% | 1,063.86 | 3.70% | 373.33 | 1.07% | 102.57 | 0.90% |
| Net gain/(loss) on fair value changes on derivatives | (124.73) | (0.47)% | (14.73) | (0.05)% | 124.28 | 0.36% | (121.15) | (1.06)% |
| Other operating income | 691.74 | 2.60% | 417.65 | 1.45% | 583.87 | 1.68% | 123.38 | 1.08% |
| Total Revenue from Operations | 26,548.1
2 |
99.89% | 28,598.9
9 |
99.50% | 34,819.7
5 |
99.97% | 11,432.0
7 |
99.97% |
| Other Income | 29.32 | 0.11% | 142.56 | 0.50% | 10.70 | 0.03% | 2.92 | 0.03% |
| Total Income | 26,577.4
4 |
100.00% | 28,741.5
5 |
100.00% | 34,830.4
5 |
100.00% | 11,434.9
9 |
100.00% |
| Expenses: | ||||||||
| Finance Cost | 15,702.6
2 |
59.08% | 15,872.5
1 |
55.22% | 20,884.3
8 |
59.96% | 7,637.38 | 66.79% |
| Net translation/transaction | 698.47 | 2.63% | 458.90 | 1.60% | 240.26 | 0.69% | (27.37) | (0.24)% |
Three Months Ended June 30, 2023 Total income
Our total income was ?11,434.99 million for the three months ended June 30, 2023.
Revenue from operations
Our revenue from operations were ?11,432.07 million for the three months ended June 30, 2023, primarily comprising the following:
Interest Income
In the three months ended June 30, 2023, we earned interest income of ?11,327.27 million. This was primarily attributable to interest on loans (net) of ?11,058.70 million and differential interest of ?224.48 million.
Fees and commission income
In the three months ended June 30, 2023, we earned fees and commission income of ?102.57 million, primarily owing to total business fees of ?64.60 million, and service charges for government scheme implementation of
?37.97 million.
Net gain/(loss) on fair value changes on derivatives
Our net (loss) on fair value changes on derivatives was ?(121.15) million in the three months ended June 30, 2023, on account of fair value changes on derivative cover taken for foreign currency loans.
Other operating income
Our other operating income in the three months ended June 30, 2023 was ?123.38 million, primarily on account of revenue from solar power plant of ?76.56 million and recovery of bad debts of ?46.82 million.
Other income
Our other income was ?2.92 million for the three months ended June 30, 2023.
Expenses
Our total expenses were ?7,039.61 million for the three months ended June 30, 2023, which primarily comprised the following.
Finance costs
In the three months ended June 30, 2023, our finance costs were ?7,637.38 million, which primarily comprised interest on borrowings of ?4,854.53 million, interest on debt securities of ?2,101.10 million, other borrowing cost of ?549.24 million and interest on subordinated liabilities ?130.85 million. This period witnessed increase in interest rates in both domestic and international financial markets. Our borrowings comprise ?97,977.42 million of foreign currency borrowings, of which 36.33% is on floating interest rate. Further, of our total domestic borrowing of ?301,439.91 million, 40.27% is based on floating interest rate. Our finance costs in this period are attributable to increase in interest rates on our borrowings in line with progressive repo rate increases by the RBI, G-Sec rates, T-bill rates, international benchmarks such as the Secured Overnight Financing Rate, London Interbank Offer Rate and Euro Interbank Offered Rate.
Net translation/transaction exchange loss/gain
Our net translation/transaction exchange gains were ?27.37 million in the three months ended June 30, 2023 primarily due to favourable movement in the interest rate of Japanese Yen between March 2023 and June 2023.
Impairment on financial assets
Our impairment on financial assets was ?(974.38) million, primarily due to loans upgradation and recovery.
Employee benefits expense
Our employee benefits expense was ?119.29 million for the three months ended June 30, 2023, primarily comprising salaries and wages of ?96.54 million.
Depreciation and amortization expense
Our depreciation and amortization expense was ?58.91 million for the three months ended June 30, 2023, primarily comprising depreciation on property, plant and equipment of ?53.77 million.
Other expenses
Our other expenses was ?221.60 million for the three months ended June 30, 2023, primarily comprising legal and professional charges of ?68.69 million, advertisement and publicity expenses of ?44.07 million, rent, taxes and power of ?37.79 million, repairs and maintenance expenses of ?28.08 million and other expenses of ?29.81 million.
Profit before Tax
For the reasons discussed above, profit before tax was ?4,395.38 million for the three months ended June 30, 2023.
Tax expenses
Our tax expense was ?1,449.56 million for the three months ended June 30, 2023. In this period, we had an income tax expense of ?1,201.98 million and deferred tax of ?247.58 million.
Profit after tax
Our profit after tax was ?2,945.82 million for the three months ended June 30, 2023.
Fiscal 2023 Compared to Fiscal 2022
Income
Our total income, comprising revenue from operations and other income, increased by 21.19% from ?28,741.55 million in Fiscal 2022 to ?34,830.44 million in Fiscal 2023, primarily due to higher interest income owing to increase in our financial assets (owing to our lending activity) during Fiscal 2023.
The table below sets forth details in relation to our income for Fiscal 2022 and Fiscal 2023.
(in ? million, except percentages)
|
Income |
Fiscal 2022 |
Fiscal 2023 |
Percentage Change |
| Revenue from Operations | |||
| Interest income | 27,132.21 | 33,738.27 | 24.35% |
| Fees and commission income | 1,063.86 | 373.33 | (64.91)% |
| Net gain/(loss) on fair value changes on derivatives | (14.73) | 124.28 | 943.72% |
| Other operating income | 417.65 | 583.87 | 39.80% |
| Total Revenue from Operations | 28,598.99 | 34,819.75 | 21.75% |
| Other Income | 142.56 | 10.70 | (92.49)% |
| Total Income | 28,741.55 | 34,830.44 | 21.19% |
Revenue from Operations
Our revenue from operations increased by 21.75% from ?28,598.99 million in Fiscal 2022 to ?34,819.75 million in Fiscal 2023 for the reasons described below.
Interest income
Our interest income increased by 24.35% from ?27,132.21 million in Fiscal 2022 to ?33,738.27 million in Fiscal 2023 primarily due to the growth of our Term Loans Outstanding in Fiscal 2023.
Fees and commission income
Our fees and commission income decreased by 64.91% from ?1,063.86 million in Fiscal 2022 to ?373.33 million in Fiscal 2023. This decrease was due to the fact that fees and commission income in Fiscal 2022 included one- time income from application processing fee and success fee from the PLI scheme and the Central Public Sector Undertaking Scheme.
Net gain/(loss) on fair value changes on derivatives
Our net gain/ (loss) on fair value changes on derivatives increased from ?(14.73 million) in Fiscal 2022 to net gain of ?124.28 million in Fiscal 2023 primarily due to the mark to market valuation on derivative instruments undertaken by us for hedging foreign currency loans.
Other operating income
Other operating income increased by 39.80% from ?417.65 million in Fiscal 2022 to ?583.87 million in Fiscal 2023, primarily due to increase in the quantum of bad debts recovered from ?113.89 million in Fiscal 2022 to
?314.83 million in Fiscal 2023. This was owing to measures taken by us to improve our recovery and monitoring mechanism, resulting in higher recovery from bad debts. As a result, we were able to close or upgrade 18 non- performing project loan accounts in Fiscal 2023, with recovery of ?2,024.30 million. This resulted in improvement in our GNPA from ?17,682.54 million, or 5.21% of Term Loans Outstanding as of March 31, 2022 to ?15,133.54 million, or 3.21% of Term Loans Outstanding as of March 31, 2023, and in NNPA from ?10,353.90 million or 3.12% of Term Loans Outstanding as of March 31, 2022 to ?7,680.24 million or 1.66% of Term Loans Outstanding as of March 31, 2023
Other Income
Our other income decreased by 92.49% from ?142.56 million in Fiscal 2022 to ?10.70 million in Fiscal 2023 since in Fiscal 2022, we had a one-time recovery of liquidated damages from an EPC consultant who we had engaged in connection with our 50 MW solar power plant in Kasargod, Kerala.
Expenses
Our total expenses increased by 14.87% from ?20,403.15 million in Fiscal 2022 to ?23,437.96 million in Fiscal 2023 for the reasons described below.
Finance Costs
Our finance costs increased by 31.58% from ?15,872.51 million in Fiscal 2022 to ?20,884.38 million in Fiscal 2023.
The table below sets forth details in relation to our finance costs for Fiscal 2022 and Fiscal 2023.
(in ? million, except percentages)
|
Finance Costs |
Fiscal 2022 |
Fiscal 2023 |
Percentage Change |
| Interest on borrowings | 7,033.29 | 11,888.04 | 69.03% |
| Interest on debt securities | 7,168.18 | 7,467.00 | 4.17% |
| Interest on subordinated liabilities | 525.45 | 525.45 | 0.00% |
| Other borrowings costs | 1,115.18 | 982.45 | (11.90)% |
| Transaction cost on borrowings | 29.74 | 17.62 | (40.75)% |
| Interest on lease liability | 0.67 | 3.82 | 470.15% |
| Total Finance Cost | 15,872.51 | 20,884.38 | 31.58% |
Our interest on borrowings increased by 69.03% from ?7,033.29 million in Fiscal 2022 to ?11,888.04 million in Fiscal 2023. This was primarily due to our disbursement for Fiscal 2023 being significantly higher, at ?216,392.07 million, compared to ?160,708.22 million in Fiscal 2022, which required higher fund raising through long term bonds and term loans from banks and financial institutions. We had availed borrowings of ?401,652.80 million as of March 31, 2023, compared to ?276,130.72 million as of March 31, 2022. In Fiscal 2023, we raised funds amounting to ?168,244.00 million, compared to ?58,105.30 million in Fiscal 2022, which resulted in higher interest of borrowings, in addition to interest rates demonstrating upward movement in Fiscal 2023.
Our interest on debt securities increased by 4.17% from ?7,168.18 million in Fiscal 2022 to ?7,467.00 million in Fiscal 2023 primarily due to additional fund through new bond issuances amounting to ?38,634.00 million in Fiscal 2023.
Our other borrowing costs decreased by 11.90% from ?1,115.18 million in Fiscal 2022 to ?982.45 million in Fiscal 2023 primarily due to reduction in GoI guarantee fees payment amount, owing to the partial repayments of foreign currency loans guaranteed by the GoI.
Our transaction costs decreased by 40.75% from ?29.74 million in Fiscal 2022 to ?17.62 million in Fiscal 2023 primarily due to amortisation of transaction cost incurred on the issuance of bonds.
Net translation/transaction exchange loss/gain
Our net translation/transaction exchange losses decreased by 47.64% from ?458.90 million in Fiscal 2022 to
?240.26 million in Fiscal 2023 primarily due to favourable exchange fluctuations on foreign currency loans and repayment of foreign currency borrowings on that basis.
Impairment on financial assets
Our impairment on financial assets decreased by 62.99% from ?1,798.98 million in Fiscal 2022 to ?665.79 million in Fiscal 2023 primarily due to improvement in asset quality. Our Gross NPAs decreased from ?17,682.54 million in as of March 31, 2022 to ?15,133.54 million as of March 31, 2023. As of March 31, 2022, Stage-1 loans comprised 86.91% of our Term Loans Outstanding, an improvement compared to 93.34% as of March 31, 2023. Further, as of March 31, 2022, Stage-2 loans comprised 7.88% of our Term Loans Outstanding while they were 3.44% as of March 31, 2023.
Employee Benefit Expenses
Our employee benefit expenses increased by 7.27% from ?588.18 million in Fiscal 2022 to ?630.93 million in Fiscal 2023 primarily due to periodic increase in salary of our employees, which is linked to the annual increments and promotions, as well as increase in dearness allowance rates.
Depreciation, amortization and impairment
Our depreciation and amortization expenses remained relatively stable, at ?232.43 million in Fiscal 2022, compared to ?234.98 million in Fiscal 2023.
Other Expenses
Our other expenses decreased by 47.54% from ?1,357.10 million in Fiscal 2022 to ?711.88 million in Fiscal 2023 primarily due to reduction in rent, taxes and power from ?876.88 million in Fiscal 2022 to ?148.13 million in Fiscal 2023 as Fiscal 2022 included one-time provision for demand for service tax and GST on guarantee commission payable to the GoI.
Profit before tax
Our profit before tax increased by 36.63% from ?8,338.40 million in Fiscal 2022 to ?11,392.49 million in Fiscal 2023 for the reasons described above.
Tax Expenses
Our tax expenses increased by 37.10% from ?2,003.13 million in Fiscal 2022 to ?2,746.21 million in Fiscal 2023 primarily due to increase in profit and adjustment of deferred tax.
The table below sets forth details in relation to our tax expenses for Fiscal 2022 and Fiscal 2023.
(in ? million, except percentages)
|
Tax Expenses |
Fiscal 2022 |
Fiscal 2023 |
Percentage Change |
| Income tax | 3,111.96 | 2,531.73 | (18.65)% |
| Deferred tax | (1,108.84) | 214.48 | (119.34)% |
| Total Tax Expenses | 2,003.12 | 2,746.21 | 37.10% |
Profit for the period
For the reasons discussed above, our profit for the period increased by 36.48% from ?6,335.28 million in Fiscal 2022 to ?8,646.28 million in Fiscal 2023.
Other Comprehensive Income
Our other comprehensive income increased by 50.21% from ?(777.97) million in Fiscal 2022 to ?(387.37) million in Fiscal 2023 primarily due to variation in mark to market valuation of the derivative hedge instruments undertaken by us to hedge our foreign currency borrowings, which are independently valued by a registered valuer. Exchange rate fluctuation on the foreign currency borrowings as well as change in interest rates had a corresponding impact on tax, based on the effective tax rate.
Total Comprehensive Income
For the reasons discussed above, our total comprehensive income for the period increased by 48.61% from
?5,557.31 million in Fiscal 2022 to ?8,258.91 million in Fiscal 2023.
Fiscal 2022 Compared to Fiscal 2021
Income
Our total income, comprising revenue from operations and other income, increased by 8.14% from ?26,577.44 million in Fiscal 2021 to ?28,741.55 million in Fiscal 2022 primarily due to higher interest income from the growth in our financial assets during Fiscal 2022.
The table below sets forth details in relation to our income for Fiscal 2021 and Fiscal 2022.
(in ? million, except percentages)
|
Income |
Fiscal 2021 |
Fiscal 2022 |
Percent Change |
| Revenue from Operations | |||
| Interest income | 25,643.38 | 27,132.21 | 5.81% |
| Fees and commission income | 337.73 | 1,063.86 | 215.00% |
| Net gain/(loss) on fair value changes on derivatives | (124.73) | (14.73) | 88.19% |
| Other operating income | 691.74 | 417.65 | (39.62)% |
| Total Revenue from Operations | 26,548.12 | 28,598.99 | 7.73% |
| Other Income | 29.32 | 142.56 | 386.22% |
| Total Income | 26,577.44 | 28,741.55 | 8.14% |
Revenue from Operations
Our revenue from operations increased by 7.73% from ?26,548.12 million in Fiscal 2021 to ?28,598.99 million in Fiscal 2022 for the reasons described below.
Interest income
Our interest income increased by 5.81% from ?25,643.38 million in Fiscal 2021 to ?27,132.21 million in Fiscal 2022 primarily due to the growth of our Term Loans Outstanding in Fiscal 2022.
?339,306.06 million as of March 31, 2022, driven significantly by increased lending to solar projects, state utilities and hydro power projects.
Fees and commission income
Our fees and commission income increased by 215.00% from ?337.73 million in Fiscal 2021 to ?1,063.86 million in Fiscal 2022 primarily due to one-time application fee income from PLI and Central Public Sector Undertaking scheme in Fiscal 2022 being managed on behalf of the MNRE.
Net gain/(loss) on fair value changes on derivatives
Our net gain/ (loss) on fair value changes on derivatives decreased from ?(124.73 million) in Fiscal 2021 to
?(14.73 million) in Fiscal 2022 primarily due to mark to market valuations on derivative hedge instruments and exchange rate fluctuations.
Other operating income
Our other operating income decreased by 39.62% from ?691.74 million in Fiscal 2021 to ?417.65 million in Fiscal 2022, primarily owing to a decrease in bad debts recovered from ?417.57 million in Fiscal 2021 to ?113.89 million in Fiscal 2022. This was partially offset by an increase in revenue from solar operations by 3.91% from ?274.17 million in Fiscal 2021 to ?284.90 million in Fiscal 2022 primarily due to increase in power generation.
Other Income
Our other income increased by 386.22% from ?29.32 million in Fiscal 2021 to ?142.56 million in Fiscal 2022 primarily due to recovery of liquidated damages from an EPC consultant whom we had previously appointed with respect to our 50 MW solar power plant.
Expenses
Our total expenses decreased by 2.29% from ?20,882.28 million in Fiscal 2021 to ?20,403.15 million in Fiscal 2022 for the reasons described below.
Finance Costs
Our finance costs increased by 1.08% from ?15,702.62 million in Fiscal 2021 to ?15,872.51 million in Fiscal 2022 for the reasons described below.
The table below sets forth details in relation to our finance costs for Fiscal 2021 and Fiscal 2022.
(in ? million, except percentages)
|
Finance Costs |
Fiscal 2021 |
Fiscal 2022 |
Percentage Change |
| Interest on borrowings | 6,676.17 | 7,033.29 | 5.35% |
| Interest on debt securities | 7,229.64 | 7,168.18 | (0.85)% |
| Interest on subordinated liabilities | 486.22 | 525.45 | 8.07% |
| Other borrowings costs | 1,282.19 | 1,115.18 | (13.03)% |
| Transaction cost on borrowings | 27.61 | 29.74 | 7.71% |
| Interest on lease liability | 0.79 | 0.67 | (15.19)% |
| Total Finance Cost | 15,702.62 | 15,872.51 | 1.08% |
Our interest on borrowings increased by 5.35% from ?6,676.17 million in Fiscal 2021 to ?7,033.29 million in Fiscal 2022 primarily due to higher interest rates and increase in quantum of borrowings to meet our disbursement requirements.
Our interest on debt securities decreased by 0.85% from ?7,229.64 million in Fiscal 2021 to ?7,168.18 million in Fiscal 2022 primarily due to redemption of bonds.
Our interest on subordinated liabilities increased by 8.07% from ?486.22 million in Fiscal 2021 to ?525.45 million in Fiscal 2022 primarily due to fresh issuance of subordinated debt for ?5,000 million.
Our other borrowing costs decreased by 13.03% from ?1,282.19 million in Fiscal 2021 to ?1,115.18 million in Fiscal 2022 primarily due to reduction in guarantee fees on account of partial repayment of a sovereign guarantee foreign currency loan.
Our transaction costs increased by 7.71% from ?27.61 million in Fiscal 2021 to ?29.74 million in Fiscal 2022 primarily due to amortisation of transaction costs.
Net translation/transaction exchange loss/gain
Our net translation/transaction exchange losses decreased by 34.30% from ?698.47 million in Fiscal 2021 to
?458.90 million in Fiscal 2022 primarily due to favourable exchange rate movement and repayment of foreign currency loans.
Impairment on financial instruments
Our impairment on financial instruments decreased by 47.34% from ?3,416.45 million in Fiscal 2021 to ?1,798.98
million in Fiscal 2022 primarily due to upgradation of certain loan accounts from Stage-3 to Stage-1 (NPA to Standard) assets.
Employee Benefit Expenses
Our employee benefit expenses increased by 24.19% from ?473.60 million in Fiscal 2021 to ?588.18 million in Fiscal 2022 primarily due to periodic increase in salaries and dearness allowances.
Depreciation, amortization and impairment
Our depreciation and amortization expenses increased marginally by 2.51% from ?226.74 million in Fiscal 2021 to ?232.43 million in Fiscal 2022 in the ordinary course of business.
Other Expenses
Our other expenses increased from ?200.24 million in Fiscal 2021 to ?1,357.10 million in Fiscal 2022 primarily due to a one-time expense on service tax and GST on guarantee commission paid to the GoI.
Profit before tax
Our profit before tax increased by 46.41% from ?5,695.16 million in Fiscal 2021 to ?8,338.40 million in Fiscal 2022 for the reasons described above.
Tax Expenses
Our tax expenses decreased by 10.22% from ?2,231.10 million in Fiscal 2021 to ?2,003.12 million in Fiscal 2022 primarily due to deferred tax assets arising in respect of provision for indirect tax liability and others on guarantee commission and impairment provisions.
The table below sets forth details in relation to our tax expenses for Fiscal 2021 and Fiscal 2022.
(amounts in ?millions, except percentages)
|
Tax Expenses |
Fiscal 2021 |
Fiscal 2022 |
Percent Change |
| Current tax | 2,916.23 | 3,111.96 | 6.71% |
| Deferred tax | (685.13) | (1,108.84) | 61.84% |
| Total Tax Expenses | 2,231.10 | 2,003.12 | (10.22)% |
Profit for the period
For the reasons discussed above, our profit for the period increased by 82.90% from ?3,463.81 million in Fiscal 2021 to ?6,335.28 million in Fiscal 2022.
Other Comprehensive Income
Our other comprehensive income increased by 68.53% from ?(2,472.35 million) in Fiscal 2021 to ?(777.97 million) in Fiscal 2022 primarily due to variation in mark to market valuation of the derivative hedge instruments undertaken by us to hedge our foreign currency borrowings, which are independently valued by a registered valuer. Exchange rate fluctuation on the foreign currency borrowings as well as change in interest rates had a corresponding impact on tax, based on the effective tax rate.
Total Comprehensive Income
For the reasons discussed above, our total comprehensive income for the period increased from ?991.46 million in Fiscal 2021 to ?5,557.31 million in Fiscal 2022.
Liquidity and Capital Resources
Our primary liquidity requirements have been, and will continue to be, for providing loans to customers, meeting our working capital requirements and repaying our borrowings. Surplus funds, if any, are invested in accordance with our investment policy. We actively monitor our liquidity position to meet our customers requirements, while also meeting our lenders requirements, and factoring in debt service requirements, operating expenses, statutory payments and other foreseeable payments.
Pursuant to the RBI circular dated November 4, 2019, on ‘Liquidity Risk Management Framework for Non- Banking Financial Companies and Core Investment Companies, all non-deposit taking NBFCs with asset size of
?100 billion and above, and all deposit taking NBFCs irrespective of their asset size, are required to maintain a liquidity buffer in terms of liquidity coverage ratio which will promote resilience of NBFCs to potential liquidity disruptions by ensuring that they have sufficient high quality liquid asset to survive any acute liquidity stress scenario lasting for 30 days. The liquidity coverage ratio requirement is binding on NBFCs from December 1, 2020 with the minimum high quality liquid assets to be held being 50% of the liquidity coverage ratio, progressively reaching up to the required level of 100% by December 1, 2024, in accordance with the time-line prescribed below:
|
As of December 1, 2021 |
As of December 1, 2022 |
As of December 1, 2023 |
As of December 1, 2024 |
||
| Regulatory requirement |
Our LCR |
Regulatory requirement |
Our LCR |
Regulatory requirement |
Regulatory requirement |
| 60% |
552.00% |
70% |
1,194.00% |
85% |
100.00% |
We have met our liquidity needs primarily from our borrowings (including issuance of bonds) and to a lesser extent from our cash flows from operations. As on March 31, 2023, we had ?19,300.00 million of unutilised short term loans tied up with banks and ?80,491.08 million of unutilised term loan facilities tied up with banks and financial institutions, in both rupee and foreign currency.
We maintain diverse sources of funding to facilitate flexibility in meeting our liquidity requirements. Our borrowings primarily include bonds issued in both the Indian domestic market and international markets, term loans obtained from various domestic and international financial institutions. Our total finance cost (excluding exchange rate fluctuation gain or loss) for Fiscal 2021, 2022, 2023 and the three months ended June 30, 2023 was
?15,702.62 million, ?15,872.51 million, ?20,884.38 million and ?7,637.38 million, respectively, and comprised 59.15%, 55.50%, 59.98% and 66.81% of our revenue from operations in the respective periods. For further information, see "Financial Indebtedness" and "Our Business – Our Sources of Funding" on pages 564 and 265, respectively.
We expect to meet our working capital needs and liquidity requirements for the next 12 months from the cash flows from our borrowings and from operations.
Capital Adequacy
The table below sets out our capital to risk-weighted assets ratio as of March 31, 2021, 2022 and 2023 and June 30, 2023.
(in ? million, except percentages)
|
As of/ For the year ended March 31, |
Three months ended June 30 | |||
2021 |
2022 |
2023 |
2023 |
|
| Paid up capital | 7,846.00 | 22,846.00 | 22,846.00 | 22,846.00 |
| Reserve and surplus | 22,110.00 | 29,835.13 | 36,505.69 | 40,058.02 |
| Tier 1 Capital | 27,840.78 | 48,145.15 | 54,895.62 | 59,975.09 |
| Tier 2 Capital | 9,095.32 | 9,911.78 | 10,860.62 | 9,698.25 |
| Total Capital | 36,936.10 | 58,056.93 | 65,756.24 | 69,673.34 |
| Tier 1 Capital Adequacy Ratio % | 12.91% | 17.60% | 15.71% | 17.17% |
| Tier 2 Capital Adequacy Ratio % | 4.21% | 3.62% | 3.11% | 2.78% |
| Capital adequacy ratio ( CRAR) % | 17.12% | 21.22% | 18.82% | 19.95% |
Summary of Cash flows
As of March 31, 2023, we had cash and cash equivalents (as per our restated cash flow statement) of ?1,385.31 million. Cash and cash equivalents primarily consist of cash on hand and balances with banks in current accounts and fixed deposits with banks (original maturity less than three months). As our business involves borrowing funds and on-lending such funds to our customers in the form of loan products, we may experience timing differences between receipt of funds and on- lending of such funds. These timing differences result in on-going, but temporary cash balances on our books. Our Asset Liability Committee plays an active role in monitoring and managing these asset-liability mismatches.
The table below sets forth selected information from our statements of cash flows in the periods indicated below.
(amounts in ? million)
|
For the year ended March 31, |
Three months ended June 30, 2023 | |||
2021 |
2022 |
2023 |
||
| Cash flow from operating activities | (32,591.40) | (52,541.18) | (123,430.79) | 4,097.68 |
| Cash flow from investing activities | (20.98) | (1,071.21) | (172.09) | (27.14) |
| Cash flow from financing activities | 24,411.78 | 52,713.96 | 123,676.43 | (190.53) |
| Net increase/(decrease) in cash and cash equivalents | (8,200.61) | (898.43) | 73.56 | 3,880.01 |
| Cash and cash equivalents at the beginning of the period | 10,410.78 | 2,210.18 | 1,311.75 | 1,385.30 |
| Cash and cash equivalents at the end of the period | 2,210.18 | 1,311.75 | 1,385.31 | 5,265.31 |
Note: Cash flow from operating activities primarily comprises cash generation from operating activities which also includes outflow on account of term loans given to the borrowers.
Operating Activities
Three months ended June 30, 2023
Net cash flows generating from operating activities was ?4,097.68 million for the three months ended June 30, 2023. While our profit before tax was ?4,395.38 million, we had an operating profit before changes in operating assets/ liabilities of ?3,339.03 million. This decrease was primarily due to impairment of financial instruments of
?974.38 million and net gain on fair value change on derivatives of ?121.15 million. Our changes in operating assets/ liabilities for Fiscal 2023 primarily consisted of a decrease in bank balances other than cash and cash equivalents of ?3,521.41 million, loan of ?1,527.12 million and an increase in other financial liability of ?4,329.22 million.
Fiscal 2023
Net cash flows used in operating activities was ?123,430.79 million for Fiscal 2023. While our profit before tax was ?11,392.49 million, we had an operating profit before changes in operating assets/ liabilities of ?13,423.19 million. This increase was primarily due to addition of non-cash items such as depreciation and amortization expenses of ?234.98 million, impairment of financial assets of ?665.79 million and effective interest rate on loans of ?646.81 million. Our changes in operating assets/ liabilities for Fiscal 2023 primarily consisted of an increase in loans of ?131,329.92 million on account of increased loan disbursals to our customers.
Fiscal 2022
Net cash flows used in operating activities was ?52,541.18 million for Fiscal 2022. While our profit before tax was ?8,338.40 million, we had an operating profit before changes in operating assets/ liabilities of ?12,211.01 million. This increase was primarily due to addition of non-cash items such as depreciation and amortization expenses of ?232.43 million, impairment of financial assets of ?1,798.98 million and effective interest rate on loans of ?296.78 million, while our provision for indirect tax and others was ?741.11 million. Our changes in operating assets/ liabilities for Fiscal 2022 primarily consisted of an increase in loans of ?61,269.02 million on account of increased loan disbursals to our customers.
Fiscal 2021
Net cash flows used in operating activities was ?32,591.40 million for Fiscal 2021. While our profit before tax was ?5,695.16 million, we had an operating profit before changes in operating assets/ liabilities of ?10,332.34 million. This change was primarily due to impairment of financial assets of ?3,416.45 million, net translation/ transaction exchange loss of ?698.47 million and depreciation and amortization expenses of ?226.74 million. Our changes in operating assets/ liabilities for Fiscal 2021 primarily consisted of an increase in loans of ?41,476.30 million on account of increased loan disbursals to our customers.
Investing Activities
Three months ended June 30, 2023
Net cash used in investing activities was ?27.14 million in the three months ended June 30, 2023, primarily on account of advance for capital expenditure/ capital work in progress of ?13.01 million and purchase of property,
plant and equipment of ?14.71 million.
Fiscal 2023
Net cash used in investing activities was ?172.09 million in Fiscal 2023, primarily on account of advance for capital expenditure/ capital work in progress of ?109.31 million owing to the expenses incurred on our office in Chennai and on our solar power project in Kasargod. Further, this was also on account of purchase of property, plant and equipment of ?46.27 million, comprising purchase of computers and vehicles for operations, among others.
Fiscal 2022
Net cash used in investing activities was ?1,071.21 million in Fiscal 2022, primarily on account of investment in securities of ?990.28 million and purchase of property, plant and equipment of ?50.18 million.
Fiscal 2021
Net cash used in investing activities was ?20.98 million in Fiscal 2021, primarily on account of purchase of property, plant and equipment of ?19.49 million.
Financing Activities
Three months ended June 30, 2023
Net cash used in financing activities was ?190.53 million in the three months ended June 30, 2023 on account of issue of debt securities net of redemption of ?2,999.89 million, which was partially offset by repayment of loans other than debt securities (net of repayments) of ?2,810.61 million.
Fiscal 2023
Net cash generated from financing activities was ?123,676.43 million in Fiscal 2023 on account of raising of loans other than debt securities of ?107,551.15 million and issue of debt securities (net of redemption) of ?16,127.81 million.
Fiscal 2022
Net cash generated from financing activities was ?52,713.97 million in Fiscal 2022 on account of raising of loans other than debt securities of ?36,662.09 million and equity contribution of ?15,000.00 million, which was owing to GoI infusion of funds.
Fiscal 2021
Net cash generated from financing activities was ?24,411.78 million in Fiscal 2021 on account of raising of loans other than debt securities of ?20,917.76 million and raising of subordinated liabilities (net of redemption) of
?5,000.00 million.
Financial Condition
The table below sets forth details in relation to our net assets as of the dates indicated below.
(in ? million)
|
As of March 31, |
As of June 30, 2023 | |||
|
2021 |
2022 |
2023 |
||
| Total assets (A) | 302,933.91 | 367,084.05 | 504,469.83 | 512,083.57 |
| Total liabilities (B) | 272,977.91 | 314,402.92 | 445,118.14 | 449,179.55 |
| Net assets (A-B) | 29,956.00 | 52,681.13 | 59,351.69 | 62,904.02 |
Assets
The table below sets forth details in relation to the principal components of our assets as of the dates indicated below.
(in ? million)
|
Assets |
As of March 31, |
As of June 30, 2023 | ||
|
2021 |
2022 |
2023 |
||
| Financial Assets: | ||||
| (a) Cash and cash equivalents | 2,210.18 | 1,311.75 | 1,385.31 | 5,265.31 |
| (b) Bank balances other than (a) above | 3,822.92 | 3,955.19 | 8,162.39 | 11,683.82 |
| (c) Derivative financial instruments | 4,030.90 | 3,983.30 | 5,740.52 | 4,398.11 |
| (d) Trade Receivables | 29.70 | 45.27 | 49.14 | 39.25 |
| (e) Loans | 269,056.43 | 331,744.48 | 462,269.24 | 464,173.53 |
| (f) Investments | - | 992.68 | 993.03 | 993.12 |
| (g) Other financial assets | 227.95 | 318.20 | 318.06 | 289.31 |
| Total Financial Assets: | 279,378.08 | 342,350.87 | 478,917.69 | 486,842.45 |
| Non-Financial Assets | ||||
| (a) Current tax assets (net) | 1,084.60 | 1,298.45 | 1,439.24 | 1,621.10 |
| (b) Deferred tax assets (net) | 2,109.92 | 3,220.59 | 3,010.02 | 2,762.67 |
| (c) Investment property | 0.43 | 0.36 | 0.30 | 0.28 |
| (d) Plant, property and equipment | 2,463.78 | 2,301.07 | 2,128.43 | 2,084.93 |
| (e) Capital work-in- progress | 0.09 | 1,283.33 | 1,392.63 | 112.84 |
| (f) Right of use asset | 196.18 | 176.53 | 158.58 | 1,446.26 |
| (g) Intangible assets under development | - | 31.12 | 48.56 | 48.56 |
| (h) Intangible assets | 1.06 | 0.45 | 0.14 | 0.13 |
| (i) Other non-financial assets | 17,694.43 | 16,421.28 | 17,374.24 | 17,164.35 |
| (j) Investment accounting using equity method | 5.34 | - | - | - |
| Total Non-Financial Assets | 23,555.83 | 24,733.18 | 25,552.14 | 25,241.12 |
| Total Assets | 302,933.91 | 367,084.05 | 504,469.83 | 512,083.57 |
Financial assets
Our financial assets comprise (a) cash and cash equivalents, (b) bank balances other than (a), (c) derivative financial instruments, (d) trade receivables, (e) loans, (f) investments, and (g) other financial assets.
Our financial assets increased by 22.54% from ?279,378.08 million as of March 31, 2021 to ?342,350.87 million as of March 31, 2022. Our financial assets increased further, by 39.89% from ?342,350.87 million as of March 31, 2022 to ?478,917.69 million as of March 31, 2023, and by 1.65% thereafter to ?486,842.45 million as of June 30, 2023. This increase is primarily due to an increase in our annual disbursement, reflecting an increase in our Term Loans Outstanding.
Cash and cash equivalents: Our cash and cash equivalents decreased by 40.65% from ?2,210.18 million as of March 31, 2021 to ?1,311.75 million as of March 31, 2022, primarily due to decrease in balance in current accounts with banks and cooperation with various banks with regard to overdraft and short term loan facilities. Our cash and cash equivalents subsequently increased by 5.61% from ?1,311.75 million as of March 31, 2022 to
?1,385.31 million as of March 31, 2023. Cash and cash equivalents increased to ?5,265.31 million as of June 30, 2023, primarily due to increase in foreign currency deposits and repayments received from borrowers.
Bank balances: Our bank balances increased by 3.46% from ?3,822.92 million as of March 31, 2021 to ?3,955.19 million as of March 31, 2022 primarily due to increase in period end balance of MNRE related accounts. Our bank balances increased further to ?8,162.39 million as of March 31, 2023 and ?11,683.82 million as of June 30, 2023, primarily due to increase in period end balances of MNRE related accounts.
Derivative financial instruments: Our derivative financial instruments decreased by 1.18% from ?4,030.90 million as of March 31, 2021 to ?3,983.30 million as of March 31, 2022 primarily due to change in marked to market valuations of hedging deals undertaken to hedge the underlying exposure. Our derivative financial instruments
increased by 44.11% from ?3,983.30 million as of March 31, 2022 to ?5,740.52 million as of March 31, 2023 primarily due to change in mark to market valuations of derivative hedge instruments undertaken to hedge the underlying exposure. Subsequently, derivative financial instruments decreased by 23.38% to ?4,398.11 million as of June 30, 2023 owing to change in mark to market valuations of derivative hedge instruments undertaken to hedge the underlying exposure.
Loans: Our loans increased by 23.30% from ?269,056.43 million as of March 31, 2021 to ?331,744.48 million as of March 31, 2022 primarily due to increase in disbursements. Our loans increased further by 39.34% from
?331,744.48 million as of March 31, 2022 to ?462,269.24 million as of March 31, 2023 and further by 0.41% to
?464,173.53 million as of June 30, 2023, primarily due to an increase in our annual disbursement, which further reflects an increase in our Term Loans Outstanding.
Investments: Our investments increased from nil as of March 31, 2021 to ?992.68 million as of March 31, 2022 primarily due to investments of funds in GoI securities for maintenance of LCR as prescribed by the RBI. Our investments increased marginally from ?992.68 million as of March 31, 2022, to ?993.03 million as of March 31, 2023 and to ?993.12 million as of June 30, 2023.
Other financial assets: Our financial assets increased by 39.59% from ?227.95 million as of March 31, 2021 to
?318.20 million as of March 31, 2022 primarily due to advances to employees and receivables from the GEF MNRE UNIDO project. Our other financial assets remained relatively stable, at ?318.06 million as of March 31, 2023. Other financial assets subsequently decreased to ?289.31 million as of June 30, 2023 owing to reduction in the quantum of interest accrued but not due, on investment in GoI securities.
Non-financial assets
Our non-financial assets comprise (a) current tax assets (net), (b) deferred tax assets (net), (c) investment property,
Our non-financial assets increased by 5.00% from ?23,555.83 million as of March 31, 2021 to ?24,733.18 million as of March 31, 2022, and further to ?25,552.14 million as of March 31, 2023 primarily owing to increase in capital work in progress by ?109.30 million and increase in prepaid expenses by ?849.79 million due to guaranteed commission paid in advance to the GoI. Non-financial assets decreased by 1.22% to ?25,241.12 million as of June 30, 2023.
Liabilities and Equity
The table below sets forth details in relation to the principal components of our liabilities and equity as of the dates indicated below.
(in ? million)
|
Liabilities and Equity |
As of March 31, |
As of June 30, 2023 | ||
|
2021 |
2022 |
2023 |
||
| Liabilities | ||||
| Financial liabilities | ||||
| (a) Derivative financial instruments | 918.32 | 1,825.75 | 1,514.68 | 2,906.74 |
| (b) Payables | ||||
|
(I) Trade Payables |
||||
|
(i) total outstanding dues of micro enterprises and small enterprises |
4.35 | 6.23 | 2.53 | 0.32 |
|
(ii) total outstanding dues of creditors other than micro enterprises and small enterprises |
216.60 | 41.42 | 42.33 | 330.93 |
| (c) Debt Securities | 91,202.61 | 92,291.38 | 108,432.83 | 105,433.36 |
| (d) Borrowings (Other than Debt Securities) | 142,305.51 | 177,346.74 | 286,726.64 | 287,490.44 |
| (e) Subordinated Liabilities | 6,491.92 | 6,492.60 | 6,493.33 | 6,493.53 |
| (f) Other financial liabilities | 8,630.25 | 8,360.04 | 13,354.34 | 18,173.70 |
| Total financial liabilities | 249,769.56 | 286,364.16 | 416,566.67 | 420,829.02 |
|
Liabilities and Equity |
As of March 31, |
As of June 30, 2023 | ||
|
2021 |
2022 |
2023 |
||
| (a) Provisions | 6,024.59 | 10,559.66 | 11,181.58 | 10,587.51 |
| (b) Other non-financial liabilities | 17,183.76 | 17,479.10 | 17,369.89 | 17,763.02 |
| Total non-financial liabilities | 23,208.35 | 28,038.76 | 28,551.47 | 28,350.53 |
| Equity | ||||
| (a) Equity Share Capital | 7,846.00 | 22,846.00 | 22,846.00 | 22,846.00 |
| (b) Other Equity | 22,110.00 | 29,835.13 | 36,505.69 | 40,058.02 |
| Total Equity | 29,956.00 | 52,681.13 | 59,351.69 | 62,904.02 |
| Total liabilities and equity | 302,933.91 | 367,084.05 | 504,469.83 | 512,083.57 |
Financial liabilities
Our financial liabilities comprise (a) derivative financial instruments, (b) payables, (c) debt securities, (d) borrowings (other than debt securities), (e) subordinated liabilities, and (f) other financial liabilities.
Our financial liabilities increased by 14.65% from ?249,769.56 million as of March 31, 2021 to ?286,364.16 million as of March 31, 2022. Our financial liabilities increased further by 45.47% to ?416,566.67 million as of March 31, 2023, and further to ?420,829.02 million as of June 30, 2023. The increase was primarily due to fund raising done during the year through the issuance of bonds and raising term loans from banks and financial institutions in order to meet our disbursement requirements.
Derivative financial instruments: Our derivative financial instruments increased by 98.81% from ?918.32 million as of March 31, 2021 to ?1,825.75 million as of March 31, 2022 primarily due to change in mark to market valuation of derivative hedge instruments. Our derivative financial instruments subsequently decreased by 17.04% to ?1,514.68 million as of March 31, 2023 primarily due to changes in mark to market valuation of hedge instruments. Derivative financial instruments increased by 91.90% to ?2,906.74 million as of June 30, 2023 on account of changes in mark to market valuation of hedge instruments.
Payables: Our payables include trade payables outstanding from (i) micro enterprises and small enterprises and
?220.95 million as of March 31, 2021 to ?47.65 million as of March 31, 2022 primarily due to payment of ?162.50 million to a major creditor related to capital expenditure. Our payables decreased further to ?44.86 million as of March 31, 2023 due to payment to creditors. Subsequently, our payables increased to ?331.25 million as of June 30, 2023 owing to provision of additional guarantee fee payable to the GoI.
Debt securities: Our debt securities increased by 1.19% from ?91,202.61 million as of March 31, 2021 to
?92,291.38 million as of March 31, 2022 primarily due to issuance of unsecured taxable bonds. Our debt securities further increased by 17.49% to ?108,432.83 million as of March 31, 2023 due to issuance of taxable bonds. Debt securities decreased by 2.77% to ?105,433.36 million as of June 30, 2023 primarily due to redemption of one series of Bonds amounting to ?3,000.00 million.
Borrowings: Our borrowings (other than debt securities) increased by 24.62% from ?142,305.51 million as of March 31, 2021 to ?177,346.74 million as of March 31, 2022 primarily due to an increase in borrowings in light of funds raised by means of loans from banks and financial institutions to meet our disbursement requirement of
?160,708.22 million in Fiscal 2022. Our borrowings (other than debt securities) increased by 61.68% to
?286,726.64 million as of March 31, 2023 primarily due to funds raised from banks and financial institutions to meet our disbursement requirement of ?216,392.07 million in Fiscal 2023. Borrowings (other than debt securities) increased by 0.27% to ?287,490.44 million as of June 30, 2023, in line with our disbursement requirement.
Subordinated liabilities: Our subordinated liabilities increased nominally by 0.01% from ?6,491.92 million as of March 31, 2021 to ?6,492.60 million as of March 31, 2022. Our subordinated liabilities increased further to
?6,493.33 million as of March 31, 2023 due to amortisation of transaction cost as per Ind AS and was ?6,493.53 million as of June 30, 2023
Other financial liabilities: Our other financial liabilities decreased by 3.13% from ?8,630.25 million as of March 31, 2021 to ?8,360.04 million as of March 31, 2022 primarily due to release of GBI incentives pertaining to the borrowers. Our other financial liabilities increased subsequently by 59.74% to ?13,354.34 million as of March 31, 2023 and was ?18,173.70 million as of June 30, 2023, primarily due to funds received for various MNRE schemes.
Non-financial liabilities
Our non-financial liabilities includes (a) provisions, and (b) other non-financial liabilities.
Our non-financial liabilities increased by 1.72% from ?17,183.76 million as of March 31, 2021 to ?17,479.10 million as of March 31, 2022 primarily due to impairment provisioning in respect of Stage-1 and Stage-2 accounts. Our non-financial liabilities decreased by 0.62% to ?17,369.89 million as of March 31, 2023 primarily owing to impairment provisioning in respect of Stage-1 and Stage-2 accounts. Subsequently, our non-financial liabilities increased by 2.26 % to ?17,763.02 million as of June 30, 2023 primarily due to increase in equivalent liability on interest capitalisation.
Equity
Our equity includes (a) equity share capital and (b) other equity.
Our equity increased by 75.86% from ?29,956.00 million as of March 31, 2021 to ?52,681.13 million as of March 31, 2022 primarily due to an equity infusion of ?15,000 million from the GoI and increase in profits. Our equity increased by 12.66% to ?59,351.69 million as of March 31, 2023 and further to ?62,904.02 million as of June 30, 2023, primarily due to retained earnings for the period.
Quantitative Disclosure
Our Companys activities expose us to market risk, liquidity risk, interest rate risk, foreign currency risk and credit risk. For further information on our risk management measures, see "Our Business – Risk Management" beginning on page 270.
Credit Risk
Credit risk is the inherent risk in lending operations and arises from lowering of the credit quality of borrowers and the risk of default in repayments by borrowers. A robust credit appraisal system is in place for appraisal of projects in order to assess credit risk.
Our appraisal process assesses key parameters spanning sponsor support, borrower creditworthiness and history, technological specifications/performance of the project, working capital funding arrangement, offtake agreement, and other statutory compliances, among others.
Each loan proposal under consideration is graded using our proprietary Credit Risk Rating System, which captures risk-based data points. In addition, every credit appraisal undergoes an independent financial concurrence to validate the project viability model, compliances and other relevant documentation. Based on the recommendations of the screening committee and financial concurrence, the final appraisal agenda with detailed terms and conditions is put up for approval before the sanctioning authority.
We limit our sectoral exposures to create sustainable debt. Further, we measure, monitor and manage credit risk at an individual borrower level and at the portfolio level. We have strengthened our credit risk management framework by adhering to RBI mandated prudential norms on provisioning of stressed assets and have adopted a stringent approach towards provisioning. We follow a three-stage model for impairment losses based on changes in credit quality since initial recognition, as determined in accordance with Ind AS 109.
We attempt to mitigate credit risk related to borrowers by receiving security from borrowers. Loans are secured by (i) hypothecation of assets, (ii) mortgage of property, (iii) trust and retention accounts, (iv) bank guarantees, company guarantees or personal guarantees, (v) assignment of receivables or rights, (vi) pledge of shares, (vii) undertaking to create a security.
An assessment of whether credit risk has increased significantly since initial recognition is performed at each reporting date by considering the change in the risk of default occurring over the remaining life of the financial instrument. In determining whether the risk of default has increased significantly since initial recognition, we consider more than 30 days overdue as a parameter.
Liquidity Risk
Liquidity risk is the inability to meet short term and long term liabilities as and when they become due. Liquidity is monitored by liquidity gap analysis. The liquidity risk is managed by a number of strategies such as short term
and long term resource raising based on projected disbursement and maturity profile.
We monitor forecast of liquidity position and cash and cash equivalents on the basis of expected cash flows (including interest income and interest expense). We have an Asset Liability Committee to ensure that we appropriately manage risks relating to liquidity, currency, interest rates, and asset-liability mismatch. We maintain satisfactory levels of liquidity to ensure that we have sufficient funds to meet our commitments. We consistently monitor liquidity risks through liquidity gap analysis. We also maintain high-quality liquid assets in the form of investment in GoI securities. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due.
Our Asset Liability Management Policy aims to align risk management with overall strategic objectives, articulate current interest rate view and determine pricing, mix and maturity profile of assets and liabilities.
Market Risk
Market risk is the possibility of loss mainly due to fluctuation in interest rates and foreign currency exchange rates. To mitigate the lending interest rate risk, we have a committee which periodically reviews its lending rates based on market conditions, ongoing interest rates of the peers and incremental cost of borrowings.
Our borrowings comprise of both floating rate and fixed rate borrowings linked to benchmark rates, as applicable. For the foreign currency borrowings, we mitigate the risk due to floating interest rate by entering into hedging arrangements. Further, we periodically monitor the floating rate-linked portfolio.
The foreign exchange borrowings from overseas lending agencies exposes us to foreign currency exchange rate movement risk. As of March 31, 2023, our outstanding foreign currency borrowings from multilateral and bilateral institutions was ?101,329.27 million. These loans have a typical maturity period ranging from 12 years to 40 years from the date of disbursement and bear a fixed and floating interest rate.
As per our internal policy, we mitigate the foreign currency exchange rate risk by undertaking various derivative instruments to hedge the risk such as principal-only swaps, currency and interest rate swaps (derivatives transactions), forward contracts, among others. These derivative contracts carried at fair value, have varying maturities depending upon the underlying contract requirement and our risk management strategy.
As of June 30, 2023, we had foreign currency borrowings of ?97,977.42 million. We may seek to obtain additional foreign currency borrowings in the future. As of June 30, 2023, ?48,540.03 million (approximately 49.54% of our total foreign currency borrowings outstanding) was denominated in U.S. dollars, ?17,469.38 million (approximately 17.83% of our total foreign currency borrowings outstanding) was denominated in Euros and
?31,968.01 million (approximately 32.63% of our total outstanding foreign currency borrowings outstanding) was denominated in Japanese Yen.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Our exposure to the risk of changes in market interest rates relates to the long- term foreign currency loans and domestic bank loans with floating interest rates. To manage interest rate volatility, against our bank borrowings linked to repo rates, we attempt to extend term loans linked to similar benchmarks. We manage our foreign currency interest rate risk according to our Board approved Foreign Currency and Derivative Risk Management Policy. Changes in interest rates could affect the interest we charge on our loans differently from the interest we pay on our borrowings because of different maturity periods applicable to our loans and borrowings and also because interest-earning assets tend to re-price more quickly than interest-bearing liabilities. Accordingly, we have an internal committee for reviewing and taking decisions on foreign currency borrowing. We borrow funds on both fixed and floating rates. Our loan products comprise fixed and floating interest rate loans. As of June 30, 2023, our total borrowings were ?399,417.33 million, of which ?242,437.48 million or 60.70% of our total borrowings had a fixed rate of interest. If we are unable to match our lending portfolio with our borrowings, we would be exposed to interest rate and liquidity risks as a result of lending to customers at interest rates and in amounts and for periods that may differ from our funding sources. For further information, see "Risk Factors - Volatility in interest rates could adversely affect our business, net interest income and net interest margin, which in turn would adversely affect our business, results of operations and financial condition" on page 35.
We have established a committee for fixing interest rates and reviewing interest rate risks. We review our lending
rates periodically based on prevailing market conditions, borrowing cost, yield, spread, competitors rates, sanctions and disbursements.
For further information, see "Note 38(38). Financial Risk Management" in "Financial Information – Notes to Restated Financial Information" on page 444.
Financial Indebtedness
The following table sets forth certain information relating to outstanding indebtedness as of June 30, 2023 and our repayment obligations in the periods indicated:
|
Payment due by period* |
|||||
| Total |
Less than one year |
1-3 years |
3-5 years |
More than 5 years |
|
|
(? million) |
|||||
| Total Borrowings |
399,441.05 |
84,994.45 |
124,900.24 |
60,859.96 |
128,686.40 |
*Maturity patterns have been shown excluding Ind AS transaction cost.
Capital Commitments
Our capital commitments as of March 31, 2021, March 31, 2022, March 31, 2023 and as of June 30, 2023 are set forth below.
(in ? million)
| Capital Commitments: |
As of March 31, |
As of June 30, 2023 |
||
|
2021 |
2022 |
2023 |
||
| Estimated amount of contracts remaining to be executed on capital account | 92.34 | 68.28 | 129.95 | 48.48 |
| Total | 92.34 | 68.28 | 129.95 | 48.48 |
Contingent Liabilities
The details of our contingent liabilities that have not been provided for in the relevant periods are as follows:
|
Particulars |
As of March 31, 2021 |
As of March 31, 2022 |
As of March 31, 2023 |
As of June 30, 2023 |
|
(in ? million) |
||||
|
a) Claims against the Company not acknowledged as debt |
||||
|
i) Taxation demands: |
||||
|
Income Tax cases(1) |
2,121.20 | 2,121.21 | 2,377.65 | 2,236.63 |
|
Service Tax cases and Goods and Service Tax cases(2) |
- | 1,999.39 | 2,149.25 | 2,339.17 |
|
ii) Others |
27.47 | 30.36 | 34.87 | 39.15 |
| b) Guarantees excluding financial guarantees | ||||
|
i) Guarantees |
5,490.00 | 6,680.38 | 4,861.14 | 2,341.14 |
|
ii) Letter of comfort/ payment order instrument issued and outstanding |
5,001.00 | 7,857.92 | 13,665.42 | 9,455.50 |
|
c) Other money for which the Company is contingently liable |
||||
|
i) Property tax in respect of office building at India Habitat Centre (Refer Note 38(27) |
Undeterminable |
|||
Notes:
This includes income tax cases for Assessment Year 1998-1999 to Assessment Year 2002-2003, which were referred back on the direction of the Honble High Court of Delhi to the Honble ITAT and Honble ITAT to the Assessing Officer and income tax cases for Assessment Year 2003-2004 to Assessment Year 2009-2010 which were referred back on the direction of Honble ITAT to the Assessing Officer. The Assessing Officer had not passed the order on these cases within the statutory time limit prescribed under the Income Tax Act. Earlier, our Company had deposited the taxes under protest on the basis of demand raised for the aforementioned Assessment Years.
In view of the foregoing, the demands paid over and above the tax payable as per returns filed became refundable. Accordingly, during Fiscal 2019, a writ petition has been filed with Honble High Court to issue the necessary directions to the department to grant the refund for the aforementioned years. The Honble High Court at Delhi had passed an interim order as under– "In the meanwhile, the respondents are permitted to proceed and complete the assessment orders and not give effect to it or take any coercive action." The final decision in the matter
is still pending.
The Company has received of Notice of Demand/Order from the Commissioner, Adjudication, Central Tax, GST Delhi East vide order no GST-15/Adju/DE/IREDA/71/2017-18/3706-08 dated March 15, 2022 creating demands on IREDA amounting to ?1,170.91 million (excluding applicable interest) for Fiscal 2013 to Fiscal 2016. Although we contend that the entire demand is barred by limitation, we have provided for
?119.31 million including interest on conservative basis. Based on law and facts in the matter, service tax demand (including interest) for the quarter ended June 30, 2023 is ?2,186.61 million (for the year ended March 31, 2023 is ?2,149.25 million, for the year ended March 31, 2022: ?1,999.39 million, and for the year ended March 31, 2021: ? nil) has been disclosed as contingent liability.
Further, since our Company is a GoI enterprise, no mala fide intention can be attributed to us and thus, extended period of limitation ought not to be invoked based on certain decisions of Honble Supreme Court in such cases and hence the penalty has not been considered for disclosure as a contingent liability. Our Company has filed an appeal with CESTAT, New Delhi on June 15, 2022 in the matter.
Our Company has also received order no. DE/NP/R-174/GST/ADC(NR)/005/2022-23 dated February 28, 2023 from the office of Additional Commissioner, Adjudication, Central Tax, GST Delhi East on recovery of GST on Guarantee Fee Paid to the GoI under reverse charge basis for the period from July 1, 2017 to July 26, 2018 raising a demand of ?152.51 million towards tax, ?152.56 million towards penalty and applicable interest thereon. While our Company has filed an appeal against the same before the Commissioner of Central Goods and Service Tax (Appeals – I), New Delhi on June 1, 2023, requisite provision towards the tax and interest thereon amounting to ?269.66 million has already been made in the books of accounts and ?152.56 million has been disclosed as contingent liability.
For further details of our contingent liabilities as of March 31, 2021, March 31, 2022 and March 31, 2023, see "Note 38 – Disclosure in respect of Indian Accounting Standard (Ind AS) - 37 "Provisions, Contingent Liabilities and Contingent Assets" in "Financial Information – Notes to Restated Financial Information" on page 406.
Related Party Transactions
We enter into various transactions with related parties in the ordinary course of business. These transactions principally include remuneration to KMPs and Directors, repayment of loans availed from the GoI and interest thereon, and disbursement of loans to other GoI-controlled entities.
Set forth below are details of our related party transactions in the corresponding periods:
|
Related Party Transactions |
Fiscal 2021 |
Fiscal 2022 |
Fiscal 2023 |
Three months ended June 30, 2023 |
|
(? million, except percentages) |
||||
| Related party transactions with KMP | ||||
| Compensation and Loans to KMPs | 23.62 | 33.11 | 29.84 | 6.49 |
| Percentage of Total Income | 0.09% | 0.12% | 0.09% | 0.06% |
| Related party transactions with GoI and GoI entities | ||||
| Capital Disbursements | - | 449.80 | 15,913.50 | - |
| % of Term Loan Outstanding | - | 0.13% | 3.38% | - |
| Capital Repayments | 148.16 | 241.92 | 264.47 | 165.40 |
| % of Term Loan Outstanding | 0.05% | 0.07% | 0.06% | 0.04% |
| Revenue Expenditure | 1,208.43 | 1,019.24 | 926.17 | 223.81 |
| % of Total Income | 4.55% | 3.55% | 2.66% | 1.96% |
| Grand Total GOI and GOI entities | 1,356.59 | 1,710.96 | 17,104.14 | 389.21 |
For further information relating to our related party transactions, see "Note 38(10) – Disclosure in respect of Indian Accounting Standard (Ind AS) - 24 "Related Party Disclosures" in "Financial Information – Notes to Restated Financial Information" on on page 416.
Segment Reporting
Our Company operates in two segments – (i) financing activities in the renewable energy and energy efficiency sector, and (ii) generation of power through solar plant operations at Kasargod, Kerala. Our major revenue is derived from the segment of financing activities in the renewable energy and energy efficiency sector. The other operating segment is not a reportable segment. We operate in India, hence we are considered to operate only in
domestic segment, and as such there is a single business/ geographical segment for the purpose of segment reporting. For further information, see "Note 9 – Disclosure in respect of Indian Accounting Standard (Ind AS) - 108 "Operating Segments" in "Financial Information –Notes to Restated Financial Information" on on page 415.
Seasonality
Generally, the RE projects we finance are seasonal in nature, wherein the projects witness peak seasons and lean seasons across all segments of the RE sector. As a result of these factors, our business may be subject to fluctuations in operating results and cash flows during any quarter or interim financial period, and consequently, such results cannot be used as an indication of our annual results, and they cannot be relied upon as an indicator of our future performance.
Off-Balance Sheet Commitments Arrangements
Except as described in this Draft Red Herring Prospectus, 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.
Known Trends or Uncertainties
Our business has been impacted, and we expect will continue to be impacted, by the trends identified above in "Managements Discussion and Analysis of Financial Condition and Results of Operations — Factors affecting our Results of Operations and Financial Condition" on page 522 and the uncertainties described in the section "Risk Factors" beginning on page 34. To our knowledge, except as discussed in this Draft Red Herring Prospectus, there are no known trends or uncertainties that have or had or are expected to have a material adverse impact on our revenues or income.
Unusual or Infrequent Events or Transactions
Except as described in this Draft Red Herring Prospectus, there have been no other events or transactions to the best of our knowledge that may be described as "unusual" or "infrequent", or any unusual changes of income, changes in accounting policies and discretionary reduction of expenses that have taken place in the last three Fiscals.
Significant Economic Changes that Materially Affected or are Likely to Affect Income from Continuing Operations
Except as described in this Draft Red Herring Prospectus, there have been no significant economic changes that have taken place in the last three Fiscals that have materially affected or are likely to affect income from operations.
Summary of Audit Matters and Emphasis of Matters and Observations in our Statutory Auditors Reports
Set forth below are the matters of emphasis in the Statutory Auditors reports on the audited consolidated financial statements of our Company as at and for the year ended March 31, 2021 and on the audited standalone financial statements of our Company as at and for the years ended March 31, 2022, 2023 and for the three months ended June 30, 2023, and our Companys responses thereto:
Emphasis of Matters |
Steps taken or to be taken by our Company to address the Matter |
| Fiscal 2021 | |
As described in Note 38 (41) to the Restated Standalone and Consolidated Financial Statements, the extent to which the COVID-19 pandemic including the current "second wave" will have impact on the Parent and its associate Companys financial performance is dependent on ongoing as well as future developments, which are highly uncertain and potential impact thereof is not ascertainable at this point in time. Our opinion is not modified in respect of the above matter. |
The emphasis of matter is a statement of fact. Our Company has regularly monitored the impact of COVID-19 on the financial performance and has considered the possible effects of the same for determining the recoverability of carrying amounts of financial and non- financial assets. |
| Fiscal 2022 | |
Emphasis of Matters |
Steps taken or to be taken by our Company to address the Matter |
|
1. As described in Note 38 (44) to the Financial Statements of the Company has classified certain accounts required to be classified as stage III /Non-Performing Assets (NPA) as stage II / Standard aggregating to ?9,187.92 million in terms of interim order of Honble High Court of Andhra Pradesh. The statutory disclosures have been made accordingly. However, as a matter of prudence, interest income on such accounts becoming NPA in terms of prudential norms of Reserve Bank of India ("RBI") has been recognized on collection basis and allowance for impairment loss has been made in accounts accordingly. |
The emphasis of matter is a statement of fact. Our Company has made adequate provision for the said accounts as per the Expected Credit Loss model, in line with Ind AS 109. |
|
2. As described in Note 38 (41) to the Financial Statements, the extent to which the COVID-19 pandemic including the recent surge in infections will have impact on Companys financial performance is dependent on ongoing as well as future developments, which are highly uncertain and potential impact thereof is not ascertainable at this point in time. |
The emphasis of matter is a statement of fact. Our Company has regularly monitored the impact of COVID-19 on the financial performance and has considered the possible effects of the same for determining the recoverability of carrying amounts of financial and non- financial assets. |
|
3. As described in Note No.38 (26) to the Financial Statements, during the year, the Company has liquidated its Investment in Associate Company, M/s M.P. Windfarms Limited. Accordingly, no consolidated Financial Results are required to be presented by the Company. Our opinion is not modified in respect of above matters. |
The emphasis of matter is a statement of fact. The accounting, presentation and disclosure for the said liquidation of the associate was done in line with Ind AS 28 on ‘Investments in Associates and Joint Ventures. |
| Fiscal 2023 | |
|
1. As described in Note 38 (43) to the Financial Statements, the Company has classified certain accounts required to be classified as stage III /Non-Performing Assets (NPA) as stage II / Standard aggregating to ?8,931.29 million in terms of interim order of Honble High Court of Andhra Pradesh. The statutory disclosures have been made accordingly. However, as a matter of prudence, interest income on such accounts becoming NPA in terms of prudential norms of Reserve Bank of India ("RBI") has been recognized on collection basis and allowance for impairment loss has been made in accounts accordingly. |
The emphasis of matter is a statement of fact. Our Company has made adequate provision for the said accounts as per the Expected Credit Loss model, in line with Ind AS 109. |
|
2. As described in Note 38 (41) to the Financial Statements, the Company has considered possible effects from COVID-19 pandemic on Companys financial performance including the recoverability of carrying amounts of financial and non- financial assets. Our opinion is not modified in respect of above matters. |
The emphasis of matter is a statement of fact. Our Company has regularly monitored the impact of COVID-19 on the financial performance and has considered the possible effects of the same for determining the recoverability of carrying amounts of financial and non- financial assets. |
| Three months ended June 30, 2023 | |
The company has classified certain accounts required to be classified as Stage III / Non Performing Assets (NPA) as stage II / Standard aggregating to ?8,878.87 million in terms of interim order of Honble High Court of Andhra Pradesh. The statutory disclosures have been made accordingly. However, as a matter of prudence, interest income on such accounts becoming NPA in terms of prudential norms of RBl has been recognized on collection basis and allowance for impairment loss has been made in accounts accordingly. Our opinion is not modified in respect of above matters. |
The emphasis of matter is a statement of fact. Our Company has made adequate provision for the said accounts as per the Expected Credit Loss model, in line with Ind AS 109. |
Significant Developments after June 30, 2023
Other than otherwise disclosed below and in this Draft Red Herring Prospectus, there have not arisen any circumstances since June 30, 2023 which materially and adversely affect or are likely to affect the trading of our Companys Equity Shares, our profitability, the value of our assets, or our ability to pay our liabilities within the next 12 months:
Issuance of securities as follows:
| Sr. No. |
Description of Security | Listed on Stock Exchange s |
Date of Issue |
Rate of Interes t (per annum ) |
Number of securitie s |
Face value (?) |
Total amount (? in million ) |
Maturit y Date |
ISIN |
| 1. | Unsecured, Redeemable , non- cumulative, taxable, non- convertible bonds in the nature of debentures | NSE, BSE | Augus t 11, 2023 | 7.63% | 100,000 | 100,00 0 | 10,000 | August 11, 2033 | INE202E0812 8 |
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