| 198 Annual Report | 2024-2025 Financials Arohan Financial Services Limited Notes to financial statements for the year ended March 31, 2025 (Contd.) (All amounts in ` lakhs unless otherwise stated) Note 43: Financial risk management Risk Management 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. 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. 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, security receipts and certificate of deposits. Sensitivity analysis Diversification of portfolio, with focus on strategic investments. In order to avoid excessive concentration of risk, the Company’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. A. Credit risk Credit risk is the risk that the Company will incur a loss because its customers or counterparties fail to discharge their contractual obligations. The Company’s exposure to credit risk is influenced mainly by cash and cash equivalents excluding cash in hand, other bank balances, investments, loan assets, trade receivables and other financial assets. The Company continuously monitors defaults of customers and other counterparties and incorporates this information into its credit risk controls. a) Financial assets that expose the entity to credit risk The following table provides information about the exposure to credit risk and expected credit loss for assets on finance. Cash and cash equivalents and bank balance other than cash and cash equivalents The Company holds cash and cash equivalents and bank balance of ₹67,339.80 lakhs at March 31, 2025 (March 31, 2024: ₹1,26,761.12 lakhs). This also includes earmarked funds as on March 31, 2025 of ₹167.96 lakhs (March 31, 2024: ₹345.44 lakhs) which does not possess any credit risk. The rest of cash and cash equivalents including fixed deposits are held with bank and financial institution counterparties with sound credit ratings.
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