Arohan Annual Report FY 20-21

Arohan Financial Services Limited Summary of significant accounting policies and other explanatory information for the year ended 31 March 2021 (Contd.) Legal and operational risk Legal risk Legal risk is the risk relating to losses due to legal or regulatory action that invalidates or otherwise precludes performance by the end user or its counterparty under the terms of the contract or related netting agreements. The Company has developed preventive controls and formalised procedures to identify legal risks so that potential losses arising from non-adherence to laws and regulations, negative publicity, etc. are significantly reduced. As at 31 March 2020, there are no material legal cases pending against the Company. Based on the opinion of the Company’s legal advisors, the management believes that no substantial liability is likely to arise from these cases. Operational risk Operational risk framework is designed to cover all functions and verticals towards identifying the key risks in the underlying processes. The framework, at its core, has the following elements: 1. Documented Operational Risk Management Policy. 2. Well defined Governance Structure. 3. Use of Identification and Monitoring tools such as Loss Data Capture, Key Risk Indicators, BRisk Operation Grading of branches every quarter. 4. Standardised reporting templates, reporting structure and frequency. The Company has adopted the internationally accepted 3-lines of defense approach to operational risk management. First line – Field Operations, Central Operation & Product function, Credit and Internal Control & Quality vertical exercise & also evaluate internal compliance and thereby lay down/calibrates processes & policies for further improvement. Thus, the approach is “bottom-up”, ensuring acceptance of findings and faster adoption of corrective actions, if any, to ensure mitigation of perceived risks. Second line – Independent risk management vertical supports the first line in providing deep analytics insights, influencing risk mitigation strategies and provides oversight through regular monitoring. All key risks are presented to the Risk Management Committee on a quarterly basis. Third line – Internal Audit conducts periodic risk-based audits of all functions and process to provide an independent assurance to the Audit Committee. Note 42: Capital management The Company’s capital management objectives are - to ensure the Company’s ability to continue as a going concern - to comply with externally imposed capital requirement and maintain strong credit ratings - to provide an adequate return to shareholders Management assesses the Company’s capital requirements in order to maintain an efficient overall financing structure while avoiding excessive leverage. This takes into account the subordination levels of the Company’s various classes of debt. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. Particulars Year ended 31 March 2021 Year ended 31 March 2020 Net debt 441,519.87 419,311.23 Total equity 95,863.53 96,263.04 Net debt to equity ratio 4.61 4.36 Note 43: Maturity analysis of assets and liabilities The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled. Annual Report | 2020-2021 170