Arohan Annual Report FY 20-21

Valuation process and technique used to determine fair value Specific valuation techniques used to value financial instruments include: (A) Eligible portfolio loans valued by discounting the aggregate future cash flows (both principal and interest cash flows) with risk-adjusted discounting rate for the remaining portfolio tenor. The Company has considered the average valuation impact arrived using average lending rate of last quarter. (B) For unquoted equity instruments, the Company has used earning capitalisation method (fair value approach) discounted at a rate to reflect the risk involved in the business. (C) For mutual funds, the Company has used the net asset value (NAV) on the basis of the statement received from the investee party. (D) Fair value of instruments measured at amortised cost Fair value of instruments measured at amortised cost for which fair value is disclosed is as follows, these fair values are calculated using Level 2 inputs. The Company’s activities expose it to market risk, liquidity risk and credit risk. The Company’s board of directors has overall responsibility for the establishment and oversight of the Company risk management framework. The Company manages the risk basis policies approved by the board of directors. The board of directors provides written principles for overall risk management. This note explains the sources of risk which the entity is exposed to and how the entity manages the risk and the related impact in the financial statements Particulars As at 31 March 2021 As at 31 March 2020 Carrying value Fair value Carrying value Fair value Financial assets Cash and cash equivalents 115,801.75 115,801.75 68,858.31 68,858.31 Other bank balance 19,249.42 19,249.42 15,165.59 15,165.59 Trade receivables 113.67 113.67 500.26 500.26 Loans 392,590.53 395,536.85 23,056.43 22,924.28 Other financial assets 1,051.46 1,051.46 2,154.37 2,154.37 Total 528,806.83 531,753.15 109,734.96 109,602.81 Financial liabilities Debt securities 100,735.92 101,706.58 - - Borrowings (other than debt securities) 319,775.64 320,863.08 398,340.94 399,549.93 Subordinated liabilities 21,008.31 23,452.28 20,970.29 23,357.85 Other financial liabilities 6,701.39 6,701.39 9,031.80 9,031.80 Total 448,221.26 452,723.33 428,343.03 431,939.58 Note 41: Financial risk management Risk Management Risk Exposure arising from Measurement Risk management Credit risk Cash and cash equivalents (excluding cash on hand), other bank balances, investments, loans, trade receivables and other financial assets. Credit limit and ageing analysis Highly rated bank deposits and diversification of asset base and collaterals taken for assets Liquidity risk Borrowings, debt securities, subordinated liabilities, trade payables and other financial liabilities. Cash flow forecasts Committed borrowing and other credit facilities and sale of loan assets (whenever required) Market risk - interest rate Change in interest rate of variable rates borrowings, debt securities and subordinated liabilities. Sensitivity analysis Review of cost of funds and pricing disbursement Market risk - security price Investments in equity securities, mutual funds, certificate of deposits and commercial papers. Sensitivity analysis Diversification of portfolio, with focus on strategic investments Arohan Financial Services Limited Summary of significant accounting policies and other explanatory information for the year ended 31 March 2021 (Contd.) The respective carrying values of certain on-balance sheet financial instruments approximate their fair value. These financial instruments include cash on hand, balances with banks, receivables and certain other financial assets and liabilities. Carrying values were assumed to approximate fair values for these financial instruments as they are short-term in nature and their recorded amounts approximate fair values or are receivable or payable on demand. Annual Report | 2020-2021 164