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

343 MAHINDRA & MAHINDRA LTD. Integrated Annual Report 2021-22 – Loss given default is calculated based on discounted actual cash flow on past portfolio in default along with reversals. While the methodologies and assumptions applied in the impairment loss allowance calculations remained unchanged from those applied while preparing the financial statements for the year ended March 2020, estimates, assumptions and judgements specific to the impact of the COVID-19 pandemic and the associated support packages have been incorporated in the measurement of impairment loss allowance and recognised an overlay in the consolidated statement of profit and loss. The impairment loss allowance estimates are inherently uncertain and, as a result, actual results may differ from these estimates. Forward Looking Information In calculating the expected credit loss rates, the financial services business considers historical loss rates on portfolio over a period which covers most external factors like drought, government and policy changes etc. and these historical PDs are converted into forward looking PDs considering the agricultural and GDP growth estimates. Assessment of significant increase in credit risk When determining whether the risk of default has increased significantly since initial recognition, the financial services business considers both quantitative and qualitative information and analysis based on the business’s historical experience, including forward- looking information. The financial services business considers reasonable and supportable information that is relevant and available without undue cost and effort. The financial services business’s accounting policy is not to use the practical expedient that the financial assets with ‘low’ credit risk at the reporting date are deemed not to have had a significant increase in credit risk. As a result the financial services business monitors all financial assets and loan commitments that are subject to impairment for significant increase in credit risk. Definition of default The financial services business considers a financial asset to be in “default” and therefore Stage 3 (credit impaired) for ECL calculations when the borrower becomes 90 days past due on its contractual payments. Policy for write off of Loan Assets The gross carrying amount of a financial asset is written off when there is no realistic prospect of further recovery. This is generally the case when the financial services business determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write- off. However, financial assets that are written off could still be subject to enforcement activities under the recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss. In accordance with the regulatory expectation of the Reserve Bank of India to bring down the Net NPA ratio below 4% for the financial services subsidiary Mahindra and Mahindra Financial Services Limited (MMFSL), the net NPA (net Stage-3 assets) ratio stood at 3.36% as at 31 st March 2022 which is in line with regulatory expectation of the RBI. Impairment loss The expected credit loss allowance provision is determined as follows: Rupees crores Particulars Performing Loans - 12 month ECL Underperforming loans - 'lifetime ECL not credit impaired' Impaired loans - 'lifetime ECL credit impaired’ Total Gross Balance as at 31 st March, 2022 ...................................... 53,899.64 11,243.51 5,788.62 70,931.77 Expected credit loss rate . ......................................................... 0.99% 12.61% 52.86% Carrying amount as at 31 st March, 2022 (net of impairment provision). ................................................................................... 53,367.06 9,826.13 2,728.94 65,922.13 Gross Balance as at 31 st March, 2021 ...................................... 54,142.61 10,175.33 6,725.02 71,042.96 Expected credit loss rate . ......................................................... 0.88% 10.41% 52.94% Carrying amount as at 31 st March, 2021 (net of impairment provision) ................................................................................... 53,665.04 9,115.61 3,164.50 65,945.15 Level of Assessment - Aggregation Criteria The financial services business recognises the expected credit losses on a collective basis that takes into account comprehensive credit risk information and considers the economic and risk characteristics, pricing range and sector concentration. 36. Financial Instruments (contd.) (b) Credit Risk Management (contd.)