MAHINDRA & MAHINDRA LTD. | Integrated Annual Report 2022-23

366 MAHINDRA & MAHINDRA LTD. Integrated Annual Report 2022-23 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 except for personal loans, where the Group has an early recognition norm of classification in to stage 3 on the basis of overdue more than 30 days past due. 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. 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, 2023 ................................................................ 77,070.75 5,999.23 4,493.92 87,563.90 Expected credit loss rate .................................................................................................... 0.78% 10.39% 53.54% Carrying amount as at 31 st March, 2023 (net of impairment provision)........................................................................................................................................... 76,471.20 5,375.67 2,087.77 83,934.64 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 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. Reconciliation of loss allowance provision for Retail and SME loans Rupees crores Particulars 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Balance as at 1 st April, 2021 ........................................................................................... 477.57 1059.72 3,560.52 5,097.81 — Transferred to/from 12 months ECL.......................................................................... 376.09 (138.74) (237.35) — — Transferred to/from lifetime ECL not credit impaired.................................... 10.58 103.03 (113.61) — — Transferred to/from lifetime ECL credit impaired............................................. (3.97) (121.27) 125.24 — Business combination during the year........................................................................... 1.45 0.83 1.99 4.27 Loans that have been derecognised during the year.......................................... (72.34) (348.92) (861.82) (1,283.08) New loans originated during the year............................................................................ 237.59 496.51 292.57 1,026.67 Write-offs............................................................................................................................................. (0.04) (5.76) (942.02) (947.82) Net remeasurement of loss allowance.......................................................................... (494.35) 371.98 1,234.16 1,111.79 Balance as at 31 st March, 2022 ..................................................................................... 532.58 1,417.38 3,059.68 5,009.64 36. Financial Instruments (contd.) (b) Credit Risk Management (contd.)