Presentation of Lease Receivables by PSU Financing Arm of Indian Railways

Facts of the case: A Public Sector Undertaking (PSU) dedicated to mobilizing funds for the Indian Railways, operating as a Non-Banking Financial Company (NBFC) under RBI, sought clarification on presenting ‘Lease Receivables’ in its financial statements.

Background: The PSU borrows funds for asset acquisition, leasing them to Indian Railways. Historically, ‘Lease Receivables’ were shown as part of ‘Receivables’ on the Balance Sheet per Ind AS 17/Ind AS 116 read with Division III to Schedule III to the Companies Act, 2013.

Queries Raised: Below queries were raised –

• Is the current presentation of ‘Lease Receivables’ as part of ‘Receivables’ appropriate?
• If not, what is the correct presentation?

Company’s Stand: The Corporation argued that, as per Ind AS 116, lease receivables should be shown as receivables to underscore its identity as a leasing company.

EAC Analysis:

• Division III of Schedule III to the Companies Act, 2013 mandates that ‘Lease Receivables’ should be shown under ‘Financial Assets’ à‘Loans’.
• Ind AS 116 aligns with this, requiring net investment in leases to be presented as a receivable.
• The Corporation’s primary role in financing asset acquisition for Indian Railways supports the classification of ‘Lease Receivables’ under ‘Loans’.

Guidance Note: As per the Guidance Note on Division III – Schedule III for NBFCs, ‘Leasing’ should be disclosed under ‘Loans’ in the notes.

Conclusion:

• Presenting ‘Lease Receivables’ as part of ‘Receivables’ does not align with Ind AS or the Companies Act.
• ‘Lease Receivables’ should be shown under ‘Loans’ under ‘Financial Assets’ on the Balance Sheet.
• Additional disclosure requirements, including maturity analysis per Ind AS 116, must be met.

Shruti Bawa, Audit Associate, SW