Revenue Recognition and Classification of Mortgage Guarantee Contracts Under IndAS Framework

This document explores the classification and revenue recognition of mortgage guarantee contracts under the Ind AS framework, focusing on compliance with Ind AS 109 and Ind AS 115. The Company, an NBFC providing First Loss Default Guarantees (FLDG) for retail housing loans, issues guarantees that are invoked upon a loan’s classification as a Non-Performing Asset (NPA) after 90 days of non-payment. These guarantees, capped at 20%-30% of the loan amount, require the issuer to reimburse lenders for actual losses incurred until foreclosure or the guarantee limit is reached.

The upfront, non-refundable fees collected for these guarantees are amortized over the guarantee period based on the proportion of outstanding loan obligations. The document discusses the alignment of these contracts with the definition of financial guarantees under Ind AS 109, covering initial and subsequent measurement requirements. Additionally, it analyzes revenue recognition under Ind AS 115, emphasizing the continuous nature of the service and recommending a method reflecting the reduction in loan obligations over time for accurate recognition. These insights ensure adherence to applicable Ind AS standards for accurate financial reporting.

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