MAHINDRA & MAHINDRA LTD. | Integrated Annual Report 2021-22

342 COMPANY OVERVIEW BOARD’S REPORT MANAGEMENT DISCUSSION AND ANALYSIS CORPORATE GOVERNANCE BUSINESS RESPONSIBILITY REPORT STANDALONE ACCOUNTS CONSOLIDATED ACCOUNTS Trade Advances Rupees crores Particulars 2022 2021 Gross carrying amount of trade advances Less than 60 days past due............................................................................................................................... 1,682.21 1,113.33 61-90 days past due. ......................................................................................................................................... 64.55 22.57 Impaired (more than 90 days).......................................................................................................................... 60.66 59.08 Total Gross carrying value as at reporting date ........................................................................................... 1,807.42 1,194.98 Inputs considered in the ECL model In assessing the impairment of loans assets under Expected Credit Loss (ECL) Model, the loan assets have been segmented into three stages. The three stages reflect the general pattern of credit deterioration of a financial instrument. The differences in accounting between stages, relate to the recognition of expected credit losses and the calculation and presentation of interest revenue. The financial services business categorises loan assets into stages based on the days past due status: — Stage 1: 0-30 days past due — Stage 2: 31-89 days past due — Stage 3: 90 days and above RBI COVID-19 Resolution Framework Assessment of loan modifications on credit risk: In response to the economic fall-out on account of Covid-19 pandemic, the RBI on 6 August, 2020 announced resolution plan framework vide circular no. RBI/2020-21/16 DOR.No. BP.BC/3/21.04.048/2020-21 for personal loan customers. Further owing to the second wave of the Pandemic in India, RBI on5May, 2021announcedresolutionframework2.0videcircularNo. RBI/2021-22/32DOR.STR.REC.12/21.04.048/2021-22. Loan modifications executed under both these schemes have not been classified as renegotiated as they are as a result of market-wide customer relief programme and not borrower-specific. The financial service business in the Group has implemented resolution plans under the resolution framework 2.0 for loans amounting to Rs. 4,335.94 crore, which have an outstanding balance of Rs. 3,967.59 crores as of 31 st March 2022. The financial services business continues to monitor the recoverability of loans granted in accordance with these circulars and is continuing to carry the required overlays over and above the model provisioning based on the repayment behaviour on these loan accounts. Impact of COVID-19 During the previous year, in accordance with the Board approved moratorium policy read with the Reserve Bank of India (RBI) guidelines dated 27 March 2020, 17 April 2020 and 23 May 2020 relating to ‘COVID-19 - Regulatory Package’, the financial service business in the Group had granted moratorium up to six months on the payment of instalments which became due between 1 March 2020 and 31 August 2020 to all eligible borrowers. This relaxation did not automatically trigger a significant increase in credit risk. The Group, in the previous year, continued to recognize interest income during the moratorium period. The outbreak of COVID-19 led to nationwide lockdown from March 2020, which gradually phased out over the next few months basis the local level spread of the pandemic. The nation was impacted by the second wave of the pandemic in the first half of the fiscal year 2022 which again slowed down the economic activities to a limited extent. Despite the successful roll out of vaccines around the world, a varying degree of uncertainty remained through out the year ended 31 st March 2022. This was caused by new variants of COVID -19, varying vaccine effectiveness and the need for reimposing of government - imposed restrictions. This uncertainty is reflected in the financial services business assessment of impairment loss allowance on its loans which are subject to a number of management judgements and estimates. In relation to COVID-19, judgements and assumptions include the extent and duration of the pandemic, the changes in the macro economic outlook and its associated impact on the impairment calculations. Assumptions considered in the ECL model The financial services business has made the following assumptions in the ECL Model: – “Loss given default” (LGD) is common for all three stages and is based on loss in past portfolio. Actual cashflows are discounted with average rate for arriving loss rate. Effective interest rate (EIR) has been taken as discount rate for all retail loans. – “Probability of default” (PD) is applied on Stage 1 and Stage 2 on portfolio basis and for Stage 3 PD is 100%. This is calculated as an average of the last 60 months yearly average. Estimation Technique The financial services business has applied the following estimation technique in its ECL model: “Probability of Default” (PD) is applied on Stage 1 and Stage 2 on portfolio basis and for Stage 3 PD at 100%. This is calculated as an average of the last 60 months yearly movement of default rates and future adjustment for macro economic factor such as agriculture and change in GDP are considered most relevant in determining the PD. The Group assigns probability to these factors in order to determine the impact of such factors on PD. 36. Financial Instruments (contd.) (b) Credit Risk Management (contd.)