Mandatory Accounting Standards (Ind AS) — Extracts from Published Accounts |380| Hedges of foreign currency risk and derivative financial instruments The Company has established risk management policies to hedge the volatility arising from exchange rate fluctuations in respect of firm commitments and highly probable forecast transactions, through foreign exchange forward and options contracts. The proportion of forecast transactions that are to be hedged is decided based on the size of the forecast transaction and market conditions. As the counterparty for such transactions are highly rated banks, the risk of their non-performance is considered to be insignificant. The Company uses derivatives to hedge its exposure to changes in movement in foreign currency. Where such derivatives are not designated under hedge accounting, changes in the fair value of such hedges are recognised in the Statement of Profit and Loss. The Company may also designate certain hedges, usually for large transactions, as a cash flow hedge under hedge accounting, with the objective of shielding the exposure from variability in cash flows. The currency, amount and tenure of such hedges are generally matched to the underlying transaction(s). Changes in the fair value of the effective portion of cash flow hedges are recognised as cash flow hedging reserve in Other Comprehensive Income. While the probability of such hedges becoming ineffective is very low, the ineffective portion, if any, is immediately recognised in the Statement of Profit and Loss. The movement in the cash flow hedging reserve in respect of designated cash flow hedges is summarised below: (` in Crore) Particulars 2017 2016 At the beginning of the year 6.42 7.94 Add: Changes in the fair value of effective portion of matured cash flow hedges during the year (3.29) (11.15) Add: Changes in fair value of effective portion of outstanding cash flow hedges (17.38) 9.26 Less: Amounts transferred to the Statement of Profit and Loss on occurrence of forecast hedge transactions during the year 21.71 0.43 Less: Amounts transferred to the Statement of Profit and Loss due to cash flows no longer expected to occur 0.52 – Less: Amounts transferred to initial cost of non-financial assets (16.65) – Less: Net gain / (loss) transferred to the Statement of Profit and Loss on ineffectiveness – – (Less) /Add: Deferred tax 9.10 0.80 At the end of the year (10.73) 6.42 Of the above, balances remaining in cash flow hedge reserve for matured hedging relationships 0.64 0.38 Once the hedged transaction materialises, the amount accumulated in the cash flow hedging reserve will be included in the initial cost of the non-financial hedged item on its initial recognition or reclassified to profit or loss, as applicable, in the anticipated timeframes given below: (` in Crore) Outstanding balance in Cash Flow Hedge Reserve to be subsequently recycled from OCI As at 31st March, 2017 As at 31st March, 2016 As at 1st April, 2015 Within one year (10.62) 4.95 7.03 Between one and three years (0.11) 1.47 0.91 Total (10.73) 6.42 7.94 Foreign Currency Sensitivity For every percentage point change in the underlying exchange rate of the outstanding foreign currency denominated assets and liabilities, including derivative contracts, holding all other variables constant, the profit before tax for the year ended 31st March, 2017 would change by ` (0.24) Crore (2016 - ` 4.55 Crore)
|381| Chap. 16 – Ind AS 32-107-109-113 and pre-tax total equity as at 31st March, 2017 would change by ` 1.11 Crore [2016 - ` (0.72) Crore; 2015 - ` (4.80) Crore]. Credit Risk Company’s deployment in debt instruments are primarily in fixed deposits with highly rated banks and companies; bonds issued by government institutions, public sector undertakings and certificate of deposits issued by highly rated banks. Of this, investments that are held at amortised cost stood at ` 8705.47 Crores (2016 - ` 11009.16 Crores; 2015 - ` 7552.33 Crores). With respect to the Company’s investing activities, counter parties are shortlisted and exposure limits determined on the basis of their credit rating (by independent agencies), financial statements and other relevant information. As these counter parties are Government institutions, public sector undertakings with investment grade credit ratings and taking into account the experience of the Company over time, the counter party risk attached to such assets is considered to be insignificant. The Company’s customer base is large and diverse limiting the risk arising out of credit concentration. Further, credit is extended in business interest in accordance with guidelines issued centrally and businessspecific credit policies that are consistent with such guidelines. Exceptions are managed and approved by appropriate authorities, after due consideration of the counterparty’s credentials and financial capacity, trade practices and prevailing business and economic conditions. The Company’s exposure to trade receivables on the reporting date, net of expected loss provisions, stood at ` 2207.50 Crores (2016 – ` 1686.35 Crores, 2015 - ` 1722.40 Crores). The Company’s historical experience of collecting receivables and the level of default indicate that credit risk is low and generally uniform across markets; consequently, trade receivables are considered to be a single class of financial assets. All overdue customer balances are evaluated taking into account the age of the dues, specific credit circumstances, the track record of the counterparty etc. Loss allowances and impairment is recognised, where considered appropriate by responsible management. The movement of the expected loss provision (allowance for bad and doubtful loans and receivables etc.) made by the Company are as under: (` in Crore) Particular Expected Loss Provision As at 31st March, 2017 As at 31st March, 2016 Opening Balance 80.68 102.32 Add: Provisions made (net) 26.89 (21.18) Less: Utilisation for impairment / de-recognition 1.41 0.46 Effects of foreign exchange fluctuation – – Closing Balance 106.16 80.68 11. LARSEN & TOUBRO LIMITED CONSOLIDATED FINANCIAL STATEMENTS ACCOUNTING POLICIES D. Impairment of financial assets: The Group recognises impairment loss on trade receivables using expected credit loss model which involves use of a provision matrix constructed on the basis of historical credit loss experience as permitted under Ind AS 109. In respect of financial services business, the Group applies a separate model of the expected credit loss for recognising impairment loss on financial assets measured at amortised cost, debt instruments at FVTOCI, lease receivables, trade receivables and other contractual rights to receive cash or other financial asset, and financial guarantees not designated as at FVTPL as follows:
Mandatory Accounting Standards (Ind AS) — Extracts from Published Accounts |382| • Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive (i.e. all cash shortfalls), discounted at the original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impaired financial assets). The Group estimates cash flows by considering all contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) through the expected life of that financial instrument. • The Group measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. If the credit risk on a financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses. 12-month expected credit losses are portion of the lifetime expected credit losses and represent the lifetime cash shortfalls that will result if default occurs within the 12 months after the reporting date and thus, are not cash shortfalls that are predicted over the next 12 months. • When making the assessment of whether there has been a significant increase in credit risk since initial recognition, the Group uses the change in the risk of a default occurring over the expected life of the financial instrument instead of the change in the amount of expected credit losses. To make that assessment, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition. Consolidated Financial Statements Disclosures (c) Credit risk management (i) Financial services business Financial services business has a risk management framework that monitors and ensures that the business lines operate within the defined risk appetite and risk tolerance levels as defined by the senior management. Risk Management function is closely involved in management and control of credit risk, portfolio monitoring, market risks including liquidity risk and operational risks. The credit risk function independently evaluates proposals based on well-established sector specific internal frameworks, in order to identify, mitigate and allocate risks as well as to enable risk-based pricing of assets. Regulatory and process risks are identified, mitigated and managed by a separate group. Risk management policies are made under the guidance of Risk Management Committee and are approved by Board of Directors. (ii) Other than financial services business The Group’s customer profile include public sector enterprises, state owned companies and large private corporates. Accordingly, the Group’s customer credit risk is low. The Group’s average project execution cycle is around 24 to 36 months. General payment terms include mobilisation advance, monthly progress payments with a credit period ranging from 45 to 90 days and certain retention money to be released at the end of the project. In some cases retentions are substituted with bank/corporate guarantees. The Group has a detailed review mechanism of overdue customer receivables at various levels within organisation to ensure proper attention and focus for realisation.
|383| Chap. 16 – Ind AS 32-107-109-113 (iii) Reconciliation of loss allowance provision for financial services business - Loans (` in Crore) Particulars Loss allowance measured at lifetime ECL Loss allowance measured at 12-month ECL Financial assets for which credit risk has increased significantly and credit not impaired Financial assets for which credit risk has increased significantly and credit impaired Loss allowance as on 1-4-2015 259.40 450.58 472.19 Provision on new financial assets 176.20 24.56 12.67 Transferred to and from 12-month ECL to lifetime ECL 37.00 (55.94) 18.94 Higher/(lower) provision on existing financial assets (212.60) 37.18 147.38 Loss allowance as on 31-3-2016 260.00 456.38 651.18 Provision on new financial assets 151.89 5.14 27.08 Transferred to and from 12-month ECL to lifetime ECL 76.18 (112.09) 35.91 Higher/(lower) provision on existing financial assets (145.03) 161.78 920.45 Loss allowance as on 31-3-2017 343.04 511.21 1634.62 (iv) Amounts written off (` in Crore) Particulars 2016-17 2015-16 Amount of financial assets written off during the period but still enforceable 44.50 104.33 (v) Reconciliation of allowance for doubtful debts on trade receivables (other than financial services business) ` in crore Particulars 2016-17 2015-16 Opening balance 1961.09 1311.52 Changes in loss allowance (Provision for doubtful debts): Loss allowance based on ECL 335.38 353.25 Additional provision 306.43 327.38 Write off as bad debts (137.61) (31.06) Closing balance [reported under Note 13] 2465.29 1961.09 (c) Items of income, expenses, gains or losses related to financial instruments (` in Crore) Sr. No. Particulars 2016-17 2015-16 I. Net gains/(losses) on financial assets and financial liabilities measured at fair value through Profit or Loss and amortised cost: A. Mandatorily measured at fair value through Profit or Loss: (i) Gains/(losses) on fair valuation or sale of investment (81.96) (71.83) (ii) Gains/(losses) on fair valuation or settlement of forward contracts not designated as cash flow hedges 77.33 (1.78) (iii) Gains/(losses) on fair valuation or settlement of embedded derivative contracts not designated as cash flow hedges (36.27) (3.20) Sub-total (A) (40.90) (76.81)
Mandatory Accounting Standards (Ind AS) — Extracts from Published Accounts |384| (` in Crore) Sr. No. Particulars 2016-17 2015-16 B. Financial assets measured at amortised cost: (i) Exchange difference gains/(losses) on revaluation or settlement of items denominated in foreign currency (trade receivables, loans given etc.) (291.96) 336.66 (ii) (Allowance)/reversal for ECL during the year (1509.17) (472.97 (iii) Provision for doubtful debts (other than ECL) [net] (287.61) (320.89) (iv) Bad debts written off [net] (376.31) (259.01) Sub-total (B) (2465.05) (716.21) C. Financial liabilities measured at amortised cost: (i) Exchange difference gains/(losses) on revaluation or settlement of items denominated in foreign currency (trade payables, borrowing availed etc.) 276.69 (906.59) (ii) Unclaimed credit balances written back 132.89 60.67 Sub-total (C) 409.58 (845.92) Total [I] = (A+B+C) (2096.37) (1638.94) II. Net gains/(losses) on financial assets and financial liabilities measured at fair value through Other Comprehensive Income: A. Financial assets measured at fair value through Other Comprehensive Income: (i) Gains recognised in Other Comprehensive Income: 1. Gains/(losses) on fair valuation or sale of government securities, bonds, debentures etc. 107.67 (29.81) 2. Gains/(losses) on fair valuation or settlement of forward contracts designated as cash flow hedges 348.54 94.54 3. Gains/(losses) on fair valuation or settlement of embedded derivative contracts designated as cash flow hedges (90.05) 14.40 Sub-total (i) 366.16 79.13 Less: (ii) Gains reclassified to Profit or Loss from Other Comprehensive Income: 1. On Government securities, bonds, debentures etc. upon sale 112.99 (27.28) 2. On forward contracts upon hedged future cash flows affecting the Profit or Loss or related assets or liabilities (39.86) 554.54 3. On embedded derivative contracts upon hedged future cash flows affecting the Profit or Loss or related assets or liabilities (37.64) (38.88) Sub-total (ii) 35.49 488.73 Net gains recognised in Other Comprehensive Income [II]=[(i)-(ii)] 330.67 (409.60) B. Allowance/(reversal) for ECL recognised during the year in the Statement of Profit and Loss (50.45) (18.04) Total [II] = (A+B) 280.22 (427.64) III. Interest and Other income/expense: A. Dividend Income: (i) Dividend income from investments measured at FVTPL 748.63 196.12 B. Interest Income: (i) Financial assets measured at amortised cost 7126.62 6908.92 (ii) Financial assets measured at fair value through Other Comprehensive Income 834.75 403.04 (iii) Financial assets measured at fair value through Profit or Loss 118.15 1.59 Sub-total (B) 8079.52 7313.55
|385| Chap. 16 – Ind AS 32-107-109-113 (` in Crore) Sr. No. Particulars 2016-17 2015-16 C. Interest expense: (i) Financial liabilities measured at fair value through Other Comprehensive Income (401.21) (528.20) (ii) Financial liabilities measured at amortised cost (6209.77) (5997.66) (iii) Financial liabilities measured at fair value through Profit or Loss 5.69 (27.85) Sub-total (C) (6605.29) (6553.71) D. Fee income: Financial assets that are not at fair value through profit or loss 227.87 86.02 Total [III] =(A+B+C+D) 2450.73 1041.98 (h) Sensitivity disclosure for level 3 fair value measurements. Particulars Fair value as at Significant unobservable inputs Sensitivity As at 31-3-2017 As at 31-3-2016 As at 1-4-2015 ` crore Equity shares 695.26 442.69 195.93 Risk spread 2017: Increase/decrease of 5% in the fair value would result in impact on profit or loss by ` 19.45 crore 2016: Increase/decrease in the fair value by 5% would result in impact on profit or loss by ` 11.46 crore 55.94 55.94 55.94 1. Lease realisation: Net realisation per month ` 30 per sq/ft. 2. Capitalisation rate 12% 1% change in net realisation would result in +/- ` 0.38 crore 25 bps change in capitalisation rate would result in +/- ` 0.78 crore Preference shares 70.88 157.62 222.72 Expected yield 2017: Increase/decrease in the fair value by 5% would result in impact on profit or loss by ` 3.27 crore 2016: Increase/decrease in the fair value by 5% would result in impact on profit or loss by ` 6.10 crore Debt instruments 2191.81 858.17 625.09 Expected yield 2017: Increase/decrease in the fair value by 0.25% would result in impact on profit or loss or other comprehensive income by ` 3.16 crore 2016: Increase/decrease in the fair value by 0.25% would result in impact on profit or loss or other comprehensive income by ` 1.02 crore Loans 11203.09 5372.28 2155.17 Expected yield 2017: Increase/decrease in the fair value by 0.25% would result in impact on profit or loss or other comprehensive income by ` 18.31 crore 2016: Increase/decrease in the fair value by 0.25% would result in impact on profit or loss or other comprehensive income by ` 8.78 crore
Mandatory Accounting Standards (Ind AS) — Extracts from Published Accounts |386| Particulars Fair value as at Significant unobservable inputs Sensitivity As at 31-3-2017 As at 31-3-2016 As at 1-4-2015 ` crore Other investments 617.13 229.30 244.04 Expected yield 2017: Increase/decrease in the fair value by 5% would result in impact on profit or loss by ` 20.18 crore 2016: Increase/decrease in the fair value by 5% would result in impact on profit or loss by ` 7.50 crore 12. NTPC LIMITED STANDALONE FINANCIAL STATEMENTS Disclosures Note 65. Financial Risk Management The Company’s principal financial liabilities comprise loans and borrowings in foreign as well as domestic currency, trade payables and other payables. The main purpose of these financial liabilities is to finance the Company’s operations. The Company’s principal financial assets include borrowings, trade & other receivables, and cash and short-term deposits that derive directly from its operations. The Company also holds equity investments and enter into derivative contracts such as forward contracts, options and swaps. Derivatives are used exclusively for hedging purposes and not as trading or speculative instruments. The Company is exposed to the following risks from its use of financial instruments: - Credit risk - Liquidity risk - Market risk This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk. Risk Exposure arising from Measurement Management Credit Risk Trade receivables, derivative financial instruments, financial assets measured at amortised cost and cash & cash equivalents. Ageing analysis Credit ratings Credit limits, letters of credit and diversification of bank deposits. Liquidity risk Borrowings and other liabilities Rolling cash flows forecast Availability of committed credit lines and borrowing facilities Market risk – foreign currency risk - Future commercial transactions - Recognised financial assets and liabilities not denominated in Indian rupee (`) Cash flow forecasting Forward foreign exchange contracts Foreign currency options Currency & interest rate swaps and principal only swaps Market risk – interest rate risk Long-term borrowings at variable rates Sensitivity analysis Different kinds of loan arrangements with varied terms (eg. fixed, floating, rupee, foreign currency, etc.) Risk management framework The Company’s activities make it susceptible to various risks. The Company has taken adequate measures to address such concerns by developing adequate systems and practices.
|387| Chap. 16 – Ind AS 32-107-109-113 In order to institutionalize the risk management in the Company, an elaborate Enterprise Risk Management (ERM) framework has been developed. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. As a part of the implementation of ERM framework, a ‘Risk Management Committee (RMC)’ with functional directors as its members has been entrusted with the responsibility to identify and review the risks, formulate action plans and strategies to mitigate risks on short term as well as long term basis. The RMC meets every quarter to deliberate on strategies. Risks are regularly monitored through reporting of key performance indicators. Outcomes of RMC are submitted for information of the Board of Directors. Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations resulting in a financial loss to the Company. Credit risk arises principally from trade receivables, loans & advances, cash & cash equivalents and deposits with banks and financial institutions. Trade receivables The Company primarily sells electricity to bulk customers comprising mainly state utilities owned by State Governments. The Company has a robust payment security mechanism in the form of Letters of Credit (LC) backed by the Tri-Partite Agreement (TPA). The TPA were signed among the Govt. of India, RBI and the individual State Governments subsequent to the issuance of the One Time Settlement Scheme of SEBs dues during 2001-02 by the GOI, which was valid till October 2016. Govt of India has approved the extension of these TPAs for another period of 10 years. Most of the States have signed these TPAs and signing is in progress for the balance states. CERC Tariff Regulations allow payment against monthly bill towards energy charges within a period of sixty days from the date of bill and levy of surcharge @ 18% p.a. on delayed payment beyond sixty days. A default occurs when in the view of management there is no significant possibility of recovery of receivables after considering all available options for recovery. As per the provisions of the TPA, the customers are required to establish LC covering 105% of the average monthly billing of the Company for last 12 months. The TPA also provided that if there is any default in payment of current dues by any State Utility the outstanding dues can be deducted from the State’s RBI account and paid to the concerned CPSU. There is also provision of regulation of power by the Company in case of non-payment of dues and non-establishment of LC. These payment security mechanisms have served the Company well over the years. The Company has not experienced any significant impairment losses in respect of trade receivables in the past years. Since the Company has its power stations as well as customers spread over various states of India, geographically there is no concentration of credit risk. Investments The Company limits its exposure to credit risk by investing in only Government of India Securities, State Government Securities and other counterparties have a high credit rating. The management actively monitors the interest rate and maturity period of these investments. The Company does not expect the counterparty to fail to meet its obligations, and has not experienced any significant impairment losses in respect of any of the investments. Loans The Company has given loans to employees, subsidiaries and other parties. Loans to the employee are secured against the mortgage of the house properties and hypothecation of vehicles for which such loans have been given in line with the policies of the Company. The loan provided to group companies are collectible in full and risk of default is negligible. Loan to APIIC is secured by a guarantee given by the Government of Andhra Pradesh vide GO dated 3 April 2003.
Mandatory Accounting Standards (Ind AS) — Extracts from Published Accounts |388| Cash and cash equivalents The Company held cash and cash equivalents of ` 157.12 crore (31 March 2016: ` 1,372.40 crore, 1 April 2015: ` 280.65 crore). The cash and cash equivalents are held with banks with high rating. Deposits with banks and financial institutions The Company held deposits with banks and financial institutions of ` 2,773.37 crore (31 March 2016: ` 3,088.38 crore, 1 April 2015: ` 12,994.35 crore). In order to manage the risk, Company places deposits with only high rated banks/ institutions. (i) Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: (` in Crore) Particulars 31 March 2017 31 March 2016 1 April 2015 Financial assets for which loss allowance is measured using 12 months Expected Credit Losses (ECL) Non-current investments 113.48 79.60 98.48 Non-current loans 530.59 440.93 468.46 Other non-current financial assets 1,164.26 1,022.19 981.48 Current investments - 378.72 1,983.34 Cash and cash equivalents 157.12 1,372.40 280.65 Bank balances other than cash and cash equivallents 2,773.37 3,088.38 12,994.35 Current loans 236.92 251.78 272.63 Other current financial assets 6,053.32 5,246.03 2,930.38 11,029.06 11,880.03 20,009.77 Financial assets for which loss allowance is measured using Life time Expected Credit Losses (ECL) Trade receivables 8,173.51 7,803.40 7,604.37 Total 19,202.57 19,683.43 27,614.14 (ii) Provision for expected credit losses (a) Financial assets for which loss allowance is measured using 12 month expected credit losses The Company has assets where the counter-parties have sufficient capacity to meet the obligations and where the risk of default is very low. Accordingly, no loss allowance for impairment has been recognised. (b) Financial assets for which loss allowance is measured using life time expected credit losses The Company has customers (State government utilities) with capacity to meet the obligations and therefore the risk of default is negligible or nil. Further, management believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historical payment behaviour and extensive analysis of customer credit risk. Hence, no impairment loss has been recognised during the reporting periods in respect of trade receivables. (iii) Ageing analysis of trade receivables The ageing analysis of the trade receivables is as below: (` in Crore) Ageing Not due 0-30 days past due 31-60 days past due 61-90 days past due 91-120 days past due More than 120 days past due Total Gross carrying amount as 31.3.2017 6,620.03 600.79 244.61 386.85 160.11 161.12 8,173.51
|389| Chap. 16 – Ind AS 32-107-109-113 (` in Crore) Ageing Not due 0-30 days past due 31-60 days past due 61-90 days past due 91-120 days past due More than 120 days past due Total Gross carrying amount as 31.3.2016 6,581.25 806.24 164.22 108.44 126.59 16.66 7,803.40 Gross carrying amount as 01.4.2015 7,002.36 246.40 137.65 128.02 3.90 86.04 7,604.37 (iv) Reconciliation of impairment loss provisions The movement in the allowance for impairment in respect of financial assets during the year was as follows: (` in Crore) Particulars Trade receivables Advances Claims recoverable Total Balance as at 1 April 2015 0.20 0.04 0.62 0.86 Impairment loss recognised - - - - Amounts written off - - 0.08 0.08 Balance as at 31 March 2016 0.20 0.04 0.54 0.78 Impairment loss recognised - - - - Amounts written off - - 0.42 0.42 Balance as at 31 March, 2017 0.20 0.04 0.12 0.36 Based on historic default rates, the Company believes that no impairment allowance is necessary in respect of any other assets as the amounts are insignificant. 13. RELIANCE INDUSTRIES LIMITED (RIL) Derivative financial instruments and Hedge Accounting The Company uses various derivative financial instruments such as interest rate swaps, currency swaps, forwards & options and commodity contracts to mitigate the risk of changes in interest rates, exchange rates and commodity prices. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are also subsequently measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to Statement of Profit and Loss, except for the effective portion of cash flow hedges which is recognised in Other Comprehensive Income and later to Statement of Profit and Loss when the hedged item affects profit or loss or treated as basis adjustment if a hedged forecast transaction subsequently results in the recognition of a non-financial assets or non-financial liability. Hedges that meet the criteria for hedge accounting are accounted for as follows: a) Cash flow hedge The Company designates derivative contracts or non-derivative financial assets / liabilities as hedging instruments to mitigate the risk of movement in interest rates and foreign exchange rates for foreign exchange exposure on highly probable future cash flows attributable to a recognised asset or liability or forecast cash transactions. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in the cash flow hedging reserve being part of other comprehensive income. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the Statement of Profit and Loss. If the hedging relationship no longer meets the criteria for hedge accounting, then hedge accounting is discontinued prospectively. If the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the hedging instrument recognized in cash flow hedging reserve till the period the hedge was effective remains in cash flow hedging reserve
Mandatory Accounting Standards (Ind AS) — Extracts from Published Accounts |390| until the underlying transaction occurs. The cumulative gain or loss previously recognized in the cash flow hedging reserve is transferred to the Statement of Profit and Loss upon the occurrence of the underlying transaction. If the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow hedging reserve is reclassified in the Statement of Profit and Loss. b) Fair value hedge The Company designates derivative contracts or non-derivative financial assets / liabilities as hedging instruments to mitigate the risk of change in fair value of hedged item due to movement in interest rates, foreign exchange rates and commodity prices. Changes in the fair value of hedging instruments and hedged items that are designated and qualify as fair value hedges are recorded in the Statement of Profit and Loss. If the hedging relationship no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to Statement of Profit and Loss over the period of maturity. Derecognition of financial instruments The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition under Ind AS 109. A financial liability (or a part of a financial liability) is derecognized from the Company’s Balance Sheet when the obligation specified in the contract is discharged or cancelled or expires. STANDALONE FINANCIAL STATEMENTS Disclosures Note 34: Financial Instruments Valuation All financial instruments are initially recognized and subsequently re-measured at fair value as described below: (a) The fair value of investment in quoted Equity Shares, Bonds, Government Securities, Treasury Bills and Mutual Funds is measured at quoted price or NAV. (b) The fair value of Interest Rate Swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. (c) The fair value of Forward Foreign Exchange contracts and Currency Swaps is determined using forward exchange rates and yield curves at the balance sheet date. (d) The fair value of Foreign Currency Option contracts is determined using the Black Scholes valuation model. (e) Commodity derivative contracts are valued using readily available information in markets and quotations from exchange, brokers and price index developers (f) The fair value of the remaining financial instruments is determined using discounted cash flow analysis. (g) All foreign currency denominated assets and liabilities are translated using exchange rate at reporting date. Foreign Currency Risk The following table shows foreign currency exposures in USD, EUR and JPY on financial instruments at the end of the reporting period. The exposure to foreign currency for all other currencies are not material.
|391| Chap. 16 – Ind AS 32-107-109-113 (` in Crore) Foreign Currency Exposure Particulars As at 31st March, 2017 As at 31st March, 2016 As at 1st April, 2015 USD EUR JPY USD EUR JPY USD EUR JPY Loans 92,922 8,498 1,673 92,714 6,873 2,110 88,521 3,900 2,411 Trade and Other Payables 59,017 1,545 70 44,908 5,389 674 37,375 2,093 513 Trade and Other Receivables (6,281) (55) 565 (2,321) (2,230) (196) (5,596) (2,833) (166) Derivatives - Forwards & Futures (47,854) (9,136) (1,702) (23,684) (10,140) (2,591) 30,455 (3,352) (2,370) - Currency Swap 1,015 - - 1,438 - - 1,356 - - - Options 1,076 - - 2,366 - - 1,950 - - Net Exposure 99,895 852 606 1,15,421 (108) (3) 1,54,061 (192) 388 The net exposures have natural hedges in the form of future foreign currency earnings and earnings linked to foreign currency for which the company may follow hedge accounting. Sensitivity analysis of 1% change in exchange rate at the end of reporting period net of hedges (` in Crore) Foreign Currency Sensitivity Particulars As at 31st March, 2017 As at 31st March, 2016 USD EUR JPY USD EUR JPY 1% Depreciation in INR Impact on Equity 8 5 - (830) 27 4 Impact on P&L (309) (14) (6) (302) (26) (4) Total (301) (9) (6) (1,132) 1 - 1% Appreciation in INR Impact on Equity (8) (5) - 830 (27) (4) Impact on P&L 309 14 6 302 26 4 Total 301 9 6 1,132 (1) - Commodity Price Risk Commodity price risk arises due to fluctuation in prices of crude oil, other feed stock and products. The company has a risk management framework aimed at prudently managing the risk arising from the volatility in commodity prices and freight costs. The company’s commodity risk is managed centrally through well-established trading operations and control processes. In accordance with the risk management policy, the Company enters into various transactions using derivatives and uses Over the Counter (OTC) as well as Exchange Traded Futures, Options and Swap contracts to hedge its commodity and freight exposure.
Mandatory Accounting Standards (Ind AS) — Extracts from Published Accounts |392| Disclosure of effects of hedge accounting A. Fair Value Hedge Hedging Instrument (` in Crore) Type of Hedge and Risks Nominal Value Quantity (Kbbl) Carrying amount Changes in FV Hedge Maturity Date Line Item in Balance Sheet Assets Liabilities Foreign currency risk Foreign currency risk component - Borrowings 34,101 - - 32,511 1,590 Apr. 2017 to Mar. 2018 Non Current LiabilitiesBorrowings Commodity price risk Derivative Contracts 18,966 2,34,585 366 11 355 Apr. 2017 to Dec. 2020 Other Financial Assets/ Liabilities Hedging Item (` in Crore) Type of Hedge and Risks Carrying amount Changes in FV Line Item in Balance Sheet Assets Liabilities Foreign currency risk Export Firm Commitments - 1,590 1,590 Current Liabilities - Other Financial Liabilities Commodity price risk Firm Commitments for purchase of feedstock and freight 3 250 247 Other Current Assets/Liabilities Firm Commitments for sale of products - 116 116 Other Current Liabilities Inventories 4,149 - (8) Inventories B. Cash Flow Hedge Hedging Instrument (` in Crore) Type of Hedge and Risks Nominal Value Carrying amount Changes in FV Hedge Maturity Date Line Item in Balance Sheet Assets Liabilities Foreign currency risk Foreign currency risk Component - Borrowings 37,221 - 35,485 1,736 Apr. 2017 to Mar. 2018 Non Current LiabilitiesBorrowings
|393| Chap. 16 – Ind AS 32-107-109-113 Hedging Items (` in Crore) Type of Hedge and Risks Nominal Value Changes in FV Hedge Reserve Line Item in Balance Sheet Foreign currency risk Highly Probable Exports 37,221 1,736 1,736 Other Equities 14. TATA GLOBAL BEVERAGES LIMITED CONSOLIDATED FINANCIAL STATEMENTS ACCOUNTING POLICIES STANDALONE FINANCIAL STATEMENTS Measurement of fair values The basis of measurement in respect to each class of financial asset/ liability is disclosed in Note 2(k) of the Consolidated Financial Statement. The fair value of liquid mutual funds and long-term equity investment is based on quoted price. Fair values of certain non-current investment are valued based on discounted cash flow/book value/EBITDA multiple approach. Derivative financial instruments are valued based on Black-Scholes-Merton approach/Dollar offset principles. Gross Financial Liabilities i) Under the shareholders’ agreement between the Group and the European Bank for Reconstruction and Development (“EBRD”), EBRD has invested during 2009 in a 35% stake in the subsidiary, Kahutara Holdings Limited. Under the shareholders’ agreement, the Group has the option, without the consent of EBRD to purchase the remaining 35% shareholding as from August 2018 based on an agreed formula. Similarly EBRD has the right, without the consent of the Group, to sell to the Group the remaining 35% stake in the particular subsidiary as from August 2017 based on an agreed formula. The agreed formula is estimated by management to approximate the fair value of the shares to be acquired through these options. As a result, the values of these derivatives are estimated by the management not to be significant and are shown at nil carrying amounts as at March 31, 2017 (2016: nil). ii) The Holding Company had entered into a put option agreement with International Finance Corporation (IFC) in relation to its investment in Amalgamated Plantations Private Limited (APPL) under which IFC could exercise a put option by April 29, 2016, with an obligation on the Company to purchase a maximum of 300 Lakhs shares. This option was not exercised by IFC. Price Risk Commodity Price risk The Group is exposed to fluctuations in price of certain commodities mainly tea and coffee. Mismatch in demand and supply, adverse weather conditions, market expectations etc, which can lead to price fluctuations. The Group manages these fluctuations by actively managing the sourcing of tea, distribution of source of supply, private purchases and alternate blending strategies without impacting the quality of the blend. Further, the Group uses coffee futures and option contracts for US coffee operations, to reduce the price risk associated with forecasted purchases of coffee beans. The Group enters into coffee futures based on market price and anticipated production requirements. These coffee futures have been designated as cash flow hedges and the unrealized gain / (loss) or fair value is recorded in Other Comprehensive Income (OCI). The Group also enters into various call and put option contract to protect the price. The fair value of the unsettled contracts is recorded in other current assets
Mandatory Accounting Standards (Ind AS) — Extracts from Published Accounts |394| or other current liabilities. The realised and unrealised gains and losses on these contracts are included in Statement of Profit and Loss as a part of Cost of Materials Consumed. Outstanding position for various commodity derivatives financial instruments: (` in Crores) Commodity Futures & Options 2017 2016 Notional Value in USD Mn Equivalent Amount in ` in Crores* Notional Value in USD Mn Equivalent Amount in ` in Crores* a) Coffee Futures 37.57 243.62 18.19 120.55 b) Coffee Options 3.78 24.52 4.46 29.55 * converted at the year-end exchange rate 15. TATA MOTORS LIMITED STANDALONE FINANCIAL STATEMENTS Disclosures Offsetting Certain financial assets and financial liabilities are subject to offsetting where there is currently a legally enforceable right to set off recognized amounts and the Company intends to either settle on a net basis, or to realise the asset and settle the liability, simultaneously. Certain derivative financial assets and financial liabilities are subject to master netting arrangements, whereby in the case of insolvency, derivative financial assets and financial liabilities will be settled on a net basis. The following table discloses the amounts that have been offset, in arriving at the balance sheet presentation and the amounts that are available for offset only under certain conditions as at March 31, 2017: (` in crore) Gross amount recognized Gross amount recognized as set off in the balance sheet Net amount presented in the balance sheet Amounts subject to an enforceable master netting arrangement Net amount after offsetting Financial instruments Cash collateral Financial assets (a) Derivative financial instruments 291.11 - 291.11 (6.07) - 285.04 (b) Trade receivables 2,209.19 (81.19) 2,128.00 - - 2,128.00 (c) Loans and advances-current 272.07 (40.72) 231.35 - - 231.35 Total 2,772.37 (121.91) 2,650.46 (6.07) - 2,644.39 Financial liabilities (a) Derivative financial instruments 9.93 - 9.93 (6.07) - 3.86 (b) Trade payables 7,137.12 (121.91) 7,015.21 - - 7,015.21 Total 7,147.05 (121.91) 7,025.14 (6.07) - 7,019.07
|395| Chap. 16 – Ind AS 32-107-109-113 The following table discloses the amounts that have been offset, in arriving at the balance sheet presentation and the amounts that are available for offset only under certain conditions as at March 31, 2016: (` in crore) Gross amount recognized Gross amount recognized as set off in the balance sheet Net amount presented in the balance sheet Amounts subject to an enforceable master netting arrangement Net amount after offsetting Financial instruments Cash collateral Financial assets (a) Derivative financial instruments 159.71 - 159.71 (4.58) - 155.13 (b) Trade receivables 2,117.13 (71.55) 2,045.58 - - 2,045.58 (c) Loans and advances-current 529.27 (44.83) 484.44 - - 484.44 Total 2,806.11 (116.38) 2,689.73 (4.58) - 2,685.15 Financial liabilities (a) Derivative financial instruments 6.95 - 6.95 (4.58) - 2.37 (b) Accounts payable 5,257.55 (116.38) 5,141.17 - - 5,141.17 Total 5,264.50 (116.38) 5,148.12 (4.58) - 5,143.54 (` in crore) Gross amount recognized Gross amount recognized as set off in the balance sheet Net amount presented in the balance sheet Amounts subject to an enforceable master netting arrangement Net amount after offsetting Financial instruments Cash collateral Financial assets (a) Derivative financial instruments 94.25 - 94.25 (9.52) - 84.73 (b) Trade receivables 1,582.37 (133.98) 1,448.39 - - 1,448.39 (c) Loans and advances-current 393.56 (50.98) 342.58 - - 342.58 Total 2,070.18 (184.96) 1,885.22 (9.52) - 1,875.70 Financial liabilities (a) Derivative financial instruments 27.84 - 27.84 (9.52) - 18.32 (b) Trade payables 5,185.14 (184.96) 5,000.18 - - 5,000.18 Total 5,212.98 (184.96) 5,028.02 (9.52) - 5,018.50 (b) Transfer of financial assets The Company transfers certain trade receivables under the debt factoring arrangements. These do not qualify for derecognition, due to the recourse arrangement in place. Consequently the proceeds received from transfer are recorded as loans from banks / financial institutions and classified under short-term borrowings. The carrying amount of trade receivables along with the associated liabilities is as follows: (` in crore) As at March 31, As at April 1, 2017 2016 2015 Nature of Asset Carrying amount of asset sold Carrying amount of associated liabilities Carrying amount of asset sold Carrying amount of associated liabilities Carrying amount of asset sold Carrying amount of associated liabilities Trade receivables - - 224.04 224.04 234.63 234.63
Mandatory Accounting Standards (Ind AS) — Extracts from Published Accounts |396| 16. VEDANTA LIMITED STANDALONE FINANCIAL STATEMENTS ACCOUNTING POLICIES Disclosures C. Risk management framework The Company’s businesses are subject to several risks and uncertainties including financial risks. The Company’s documented risk management polices act as an effective tool in mitigating the various financial risks to which the business is exposed to in the course of the daily operations. The risk management policies cover areas such as liquidity risk, commodity price risk, foreign exchange risk, interest rate risk, counterparty and concentration of credit risk and capital management. Risks are identified through a formal risk management programme with active involvement of senior management personnel and business managers at both corporate and division level. Each operating division has in place risk management processes which are in line with the Company’s policy. Each significant risk has a designated ‘owner’ within the Company at an appropriate senior level. The potential financial impact of the risk and its likelihood of a negative outcome are regularly updated. The risk management process is co-ordinated by the Management Assurance function and is regularly reviewed by the Company’s Audit Committee. The Audit Committee is aided by the CFO Committee and the Risk Management Committee, which meets regularly to review risks as well as the progress against the planned actions. Key business decisions are discussed at the meetings of the CFO Committee and Executive Committee. The overall internal control environment and risk management programme including financial risk management is reviewed by the Audit Committee on behalf of the Board. The risk management framework aims to: - improve financial risk awareness and risk transparency - identify, control and monitor key risks - identify risk accumulations - provide management with reliable information on the Company’s risk situation - improve financial returns Treasury management Treasury management focuses on liability management, capital protection, liquidity maintenance and yield maximisation. The treasury policies are approved by the Committee of the Board. Daily treasury operations of the Company are managed by the finance team within the framework of the Company’s treasury policies. Long-term fund raising including strategic treasury initiatives are handled by a central team. A monthly reporting system exists to inform senior management of investments, debt, currency, commodity and interest rate derivatives. The Company has a strong system of internal control which enables effective monitoring of adherence to Company’s policies. The internal control measures are supplemented by regular internal audits. The investment portfolio at the Company is independently reviewed by CRISIL Limited and it has been rated as “Very Good” meaning highest safety. The investments are made keeping in mind safety, liquidity and yield maximisation. The Company uses derivative instruments to manage the exposure in foreign currency exchange rates, interest rates and commodity prices. The Company does not acquire or issue derivative financial instruments for trading or speculative purposes. The Company does not enter into complex derivative transactions to manage the treasury and commodity risks. Both treasury and commodities derivative transactions are
|397| Chap. 16 – Ind AS 32-107-109-113 normally in the form of forward contracts, interest rate and currency swaps and these are in line with the Company’s policies. Commodity price risk The Company is exposed to the movement of base metal commodity prices on the London Metal Exchange. Any decline in the prices of the base metals that the Company produces and sells will have an immediate and direct impact on the profitability of the business. As a general policy, the Company aims to sell the products at prevailing market prices. The commodity price risk in import of Copper Concentrate and Alumina is hedged on back-to back basis ensuring no price risk for the business. Hedging is used primarily as a risk management tool and, in some cases, to secure future cash flows in cases of high volatility by entering into forward contracts or similar instruments. The hedging activities are subject to strict limits set out by the Board and to a strictly defined internal control and monitoring mechanism. Decisions relating to hedging of commodities are taken at the Executive Committee level, basis clearly laid down guidelines. Whilst the Company aims to achieve average LME prices for a month or a year, average realised prices may not necessarily reflect the LME price movements because of a variety of reasons such as uneven sales during the year and timing of shipments. Financial instruments with commodity price risk are entered into in relation to following activities: Economic hedging of prices realised on commodity contracts • Cash flow hedging of revenues, forecasted highly probable transactions Aluminium The requirement of the primary raw material, alumina, is partly met from own sources and the rest is purchased primarily on negotiated price terms. Sales prices are linked to the LME prices. At present the Company on selective basis hedges the aluminium content in outsourced alumina to protect its margins. The Company also enters into hedging arrangements for its aluminium sales to realise average month of sale LME prices. Copper The Company’s custom smelting copper operations at Tuticorin is benefited by a natural hedge except to the extent of a possible mismatch in quotational periods between the purchase of concentrate and the sale of finished copper. The Company’s policy on custom smelting is to generate margins from Treatment charges /Refining charges (TC/RC), improving operational efficiencies, minimising conversion cost, generating a premium over LME on sale of finished copper, sale of by-products and from achieving import parity on domestic sales. Hence, mismatches in quotational periods are managed to ensure that the gains or losses are minimised. The Company hedges this variability of LME prices through forward contracts and tries to make the LME price a pass-through cost between purchases of copper concentrate and sales of finished products, both of which are linked to the LME price. TC/RCs are a major source of income for the Indian copper smelting operations. Fluctuations in TC/RCs are influenced by factors including demand and supply conditions prevailing in the market for mine output. The Company’s copper business has a strategy of securing a majority of its concentrate feed requirement under long-term contracts with mines. Iron ore The Company sells its Iron Ore production from Goa on the prevailing market prices and from Karnataka through e-auction route as mandated by State Government of Karnataka in India. Oil and Gas The prices of various crude oils are based upon the price of the key physical benchmark crude oil such as Dated Brent, West Texas Intermediate, and Dubai/Oman etc. The crude oil prices move based upon market
Mandatory Accounting Standards (Ind AS) — Extracts from Published Accounts |398| factors like supply and demand. The regional producers price their crude basis these benchmark crude with a premium or discount over the benchmark based upon quality differential and competitiveness of various grades. Natural gas markets are evolving differently in important geographical markets. There is no single global market for natural gas. This could be owing to difficulties in large-scale transportation over long distances as compared to crude oil. Globally, there are three main regional hubs for pricing of natural gas, which are USA (Henry Hub Prices), UK (NBP Price) and Japan (imported gas price, mostly linked to crude oil). Set out below is the impact of 10% increase in LME prices on pre-tax profit/(loss) for the year and pre-tax equity as a result of changes in value of the Company’s commodity financial instruments: (` in Crore) March 31, 2017 Total exposure Effect on pre-tax profit/(loss) of a 10% increase in the LME Effect on pre-tax equity of a 10% increase in the LME Copper (2,805.40) (280.54) - March 31, 2016 Total exposure Effect on pre-tax profit/(loss) of a 10% increase in the LME Effect on pre-tax equity of a 10% increase in the LME Copper (45.49) (4.55) - The above sensitivities are based on volumes, costs, exchange rates and other variables and provide the estimated impact of a change in LME prices on profit and equity assuming that all other variables remain constant. A 10% decrease in LME prices would have an equal and opposite effect on the Company’s financial instruments. Financial risk The Company’s Board approved financial risk policies comprise liquidity, currency, interest rate and counterparty risk. The Company does not engage in speculative treasury activity but seeks to manage risk and optimize interest and commodity pricing through proven financial instruments. (a) Liquidity The Company requires funds both for short-term operational needs as well as for long-term investment programmes mainly in growth projects. The Company generates sufficient cash flows from the current operations which together with the available cash and cash equivalents and short-term investments provide liquidity both in the short-term as well as in the longterm. The Company has been rated by CRISIL Limited (CRISIL) and India Ratings and Research Private Limited (India Rating) for its capital market issuance in the form of CPs and NCDs and for its banking facilities in line with Basel II norms. CRISIL upgraded the ratings for the Company’s longterm bank facilities and its Non-Convertible Debentures (NCD) programme to CRISIL AA/Stable Outlook from CRISIL AA-/Negative at the beginning of FY2017. The revision happened in three steps in September 2016 – Change in Outlook from Negative to Stable with AArating; February 2017 – change in Outlook from Stable to Positive with AA- rating and April 2017 – Upgrade of Ratings from CRISIL AA-/Positive outlook to CRISIL AA/Stable Outlook. The Company has the highest short term rating on its working capital and Commercial Paper Programme at CRISIL A1+. The agency expects that the ramp-up of aluminium, iron ore and power capacities; and stable commodity prices shall aid higher cash flow generation and leverage reduction for the company in near to medium term. Also, the agency shall be guided by extent and timeline for reduction in gross debt for further positive rating action. India Ratings has revised the outlook on the Company’s ratings from IND AA/Negative to IND AA/Stable on account of improved financial metrics and completion of the merger with Cairn.
|399| Chap. 16 – Ind AS 32-107-109-113 The Company remains committed to maintaining a healthy liquidity, gearing ratio, deleveraging and strengthening the balance sheet. The maturity profile of the Company’s financial liabilities based on the remaining period from the date of balance sheet to the contractual maturity date is given in the table below. The figures reflect the contractual undiscounted cash obligation of the Company. As at March 31, 2017 (` in Crore) Payments due by year <1 year 1-3 years 3-5 years >5 years Total Borrowings * 24,699.86 10,482.86 13,180.17 3,406.33 51,769.22 Derivative financial liabilities 561.35 - - - 561.35 Trade Payables and other financial liabilities ** 31,877.88 3,141.69 - 198.19 35,217.76 Total 57,139.09 13,624.55 13,180.17 3,604.52 87,548.33 As at March 31, 2016 (` in Crore) Payments due by year <1 year 1-3 Years 3-5 Years > 5 Years Total Borrowings * 13,171.46 15,325.30 8,777.19 5,167.80 42,441.75 Derivative financial liabilities 370.88 - - - 370.88 Trade Payables and other financial liabilities ** 55,276.18 - 1.71 197.19 55,475.08 Total 68,818.52 15,325.30 8,778.90 5,364.99 98,287.71 As at April 01, 2015 (` in Crore) Payments due by year <1 year 1-3 Years 3-5 Years > 5 Years Total Borrowings * 10,037.54 9,736.29 9,598.16 9,898.35 39,270.34 Derivative financial liabilities 191.89 - - - 191.89 Trade Payables and other financial liabilities ** 20,640.45 33,139.60 202.59 - Total 30,869.88 42,875.89 9,800.75 9,898.35 93,444.87 *Includes Non-current borrowings, current borrowings, current maturities of non-current borrowings and committed interest payments. **Includes both Non-current and current financial liabilities, excludes current maturities of non-current borrowings and derivatives and committed interest payments on borrowings. The Company had access to following funding facilities: As at March 31, 2017 (` in Crore) Funding facilities Total Facility Drawn Undrawn Less than 1 year 19,775.97 14,370.82 5,405.15 1-2 years 187.50 187.50 - Above 2 years 1,251.38 1,251.38 - Total 21,214.84 15,809.70 5,405.15 As at March 31, 2016 (` in Crore) Funding facilities Total Facility Drawn Undrawn Less than 1 year 48,492.48 41,953.06 6,539.42 1-2 years 1,000.00 1,000.00 - Above 2 years - - - Total 49,492.48 42,953.06 6,539.42 As at April 1, 2015 (` in Crore) Funding facilities Total Facility Drawn Undrawn Less than 1 year 35,171.06 29,049.22 6,121.84 1-2 years - - - Above 2 years - - - Total 35,171.06 29,049.22 6,121.84
Mandatory Accounting Standards (Ind AS) — Extracts from Published Accounts |400| Collateral The Company has pledged a part of its trade receivables and cash and cash equivalents in order to fulfill the collateral requirements for the financial facilities in place. The counterparties have an obligation to return the securities to the Company. There are no other significant terms and conditions associated with the use of collateral. b) Foreign exchange risk Fluctuations in foreign currency exchange rates may have an impact on profit or loss, the statement of change in equity, where any transaction references more than one currency or where assets/liabilities are denominated in a currency other than the functional currency of the Company. Exposures on foreign currency loans are managed through a hedging policy, which is reviewed periodically to ensure that the results from fluctuating currency exchange rates are appropriately managed. The Company strives to achieve asset liability offset of foreign currency exposures and only the net position is hedged. The Company uses forward exchange contracts, currency swaps and other derivatives to hedge the effects of movements in exchange rates on foreign currency denominated assets and liabilities. The sources of foreign exchange risk are outstanding amounts payable for imported raw materials, capital goods and other supplies as well as financing transactions and loans denominated in foreign currencies. The Company is also exposed to foreign exchange risk on its exports and foreign exchange risk on its net investment in foreign operations. Most of these transactions are denominated in US dollar The policy of the Company is to determine on a regular basis what portion of the foreign exchange risk on financing transactions and loans are to be hedged through forward exchange contracts and other instruments. Short-term net exposures are hedged progressively based on their maturity. A more conservative approach has been adopted for project expenditures to avoid budget overruns. Longer term exposures, except part of net investment in foreign operations exposures, are normally unhedged. However all new long-term borrowing exposures are being hedged. The hedge mechanisms are reviewed periodically to ensure that the risk from fluctuating currency exchange rates is appropriately managed. The following analysis is based on the gross exposure as at the reporting date which could affect the profit or loss or other comprehensive income. The exposure summarised below is mitigated by some of the derivative contracts entered into by the Company as disclosed under the section on “Derivative financial instruments”. (` in Crore) Currency As at March 31, 2017 As at March 31, 2016 As at April 01, 2015 Financial Asset Financial liability Financial Asset Financial liability Financial Asset Financial liability INR 1,530.89 1,986.45 2,658.89 1,731.49 1,775.18 1,105.14 Euro 18.97 207.87 20.66 159.27 14.15 235.76 USD 725.10 21,830.22 688.45 51,705.24 737.21 51,509.65 Others 88.68 15.20 114.74 73.27 42.09 100.32 The Company’s exposure to foreign currency arises where the Company holds monetary assets and liabilities denominated in a currency different from the functional currency of the business, with US dollar being the major nonfunctional currency for businesses other than oil & gas and INR for oil & gas business. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rate, liquidity and other market changes. The results of Company’s operations may be affected largely by fluctuations in the exchange rates between the US dollar, Euro and INR against the respective functional currencies. The foreign exchange rate sensitivity is calculated by the aggregation of the net foreign exchange rate exposure with a simultaneous parallel foreign exchange rates shift in the currencies by 10% against the functional currency of the respective businesses.
|401| Chap. 16 – Ind AS 32-107-109-113 Set out below is the impact of a 10% strengthening in the INR on pre-tax profit/(loss) and pre-tax equity arising as a result of the revaluation of the Company’s foreign currency financial assets/liabilities: March 31, 2017 (` in Crore) Effect of 10% strengthening of INR on pre-tax profit/(loss) Effect of 10% strengthening of INR on pre-tax equity USD 2,092.29 (18.22) INR 45.56 - EURO 11.80 (7.09) March 31, 2016 (` in Crore) Effect of 10% strengthening of INR on pre-tax profit/(loss) Effect of 10% strengthening of INR on pre-tax equity USD 4,898.19 (203.49) INR (92.74) - EURO 13.86 - A 10% weakening of INR would have an equal and opposite effect on the Company’s financial statements. (c) Interest rate risk The Company is exposed to interest rate risk on short-term and long-term floating rate instruments and on the refinancing of fixed rate debt. The Company’s policy is to maintain a balance of fixed and floating interest rate borrowings and the proportion of fixed and floating rate debt is determined by current market interest rates. The borrowings of the Company are principally denominated in Indian Rupees and US dollars with mix of fixed and floating rates of interest. The US dollar debt is split between fixed and floating rates (linked to US dollar LIBOR) and the Indian Rupee debt is principally at fixed interest rates. The Company has a policy of selectively using interest rate swaps, option contracts and other derivative instruments to manage its exposure to interest rate movements. These exposures are reviewed by appropriate levels of management on a monthly basis. The Company invests cash and current financial asset investments in shortterm deposits and debt mutual funds, some of which generate a tax-free return, to achieve the Company’s goal of maintaining liquidity, carrying manageable risk and achieving satisfactory returns. Floating rate financial assets are largely mutual fund investments which have debt securities as underlying assets. The returns from these financial assets are linked to market interest rate movements; however the counterparty invests in the agreed securities with known maturity tenure and return and hence has manageable risk. Additionally, the investments portfolio is independently reviewed by CRISIL Limited, and our investment portfolio has been rated as “Very Good” meaning highest safety. The exposure of the Company’s financial assets as at March 31, 2017 to interest rate risk is as follows: (` in Crore) As at March 31, 2017 Total Floating rate financial assets Fixed rate financial assets Non-interest bearing financial assets Financial Assets 33,178.79 15,824.79 5,241.34 12,112.66 The exposure of the Company’s financial liabilities as at March 31, 2017 to interest rate risk is as follows: (` in Crore) As at March 31, 2016 Total Floating rate Financial liabilities Fixed rate financial liabilities Non-interest bearing financial liabilities Financial Liabilities 79,379.57 31,387.56 31,590.31 16,401.70
Mandatory Accounting Standards (Ind AS) — Extracts from Published Accounts |402| The exposure of the Company’s financial assets as at March 31, 2016 to interest rate risk is as follows: (` in Crore) As at March 31, 2016 Total Floating rate financial assets Fixed rate financial assets Non-interest bearing financial assets Financial Assets 35,602.72 10,697.75 12,105.79 12,799.18 The exposure of the Company’s financial liabilities as at March 31, 2016 to interest rate risk is as follows: (` in Crore) As at March 31, 2016 Total Floating rate Financial liabilities Fixed rate financial liabilities Non-interest bearing financial liabilities Financial Liabilities 89,313.76 15,642.81 26,941.27 46,729.68 The exposure of the Company’s financial assets as at to interest rate risk is as follows: (` in Crore) As at April 01, 2015 Total Floating rate financial assets Fixed rate financial assets Non-interest bearing financial assets Financial Assets 22,253.68 10,705.55 4,139.18 7,408.96 The exposure of the Company’s financial liabilities as at April 1, 2015 to interest rate risk is as follows: (` in Crore) As at April 01, 2015 Total Floating rate Financial liabilities Fixed rate financial liabilities Non-interest bearing financial liabilities Financial Liabilities 83,431.26 19,294.28 18,708.53 45,428.45 The table below illustrates the impact of a 0.5% to 2.0% increase in interest rates on interest on financial assets/liabilities (net) assuming that the changes occur at the reporting date and has been calculated based on risk exposure outstanding as of date. The year end balances are not necessarily representative of the average debt outstanding during the year. This analysis also assumes that all other variables, in particular foreign currency rates, remain constant. (` in Crore) Increase in interest rates Effect on pre-tax profit/(loss) during the year ended 31 March 2017 Effect on pre-tax profit/(loss) during the year ended 31 March 2016 0.50% (77.81) (24.73) 1.00% (155.63) (49.45) 2.00% (311.26) (98.90 A 10% reduction in interest rates would have an equal and opposite effect on the Company’s financial statements. (d) Counterparty and concentration of credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company is exposed to credit risk for trade receivables, cash and cash equivalents, investments, other bank balances, loans, other financial assets, financial guarantees and derivative financial instruments. Credit risk on receivables is limited as almost all credit sales are against letters of credit and guarantees of banks of national standing.
|403| Chap. 16 – Ind AS 32-107-109-113 Moreover, given the diverse nature of the Company’s businesses trade receivables are spread over a number of customers with no significant concentration of credit risk. No single customer accounted for 10% or more of the trade receivables in any of the years presented. The history of trade receivables shows a negligible provision for bad and doubtful debts.Therefore, the Company does not expect any material risk on account of nonperformance by any of the Company’s counterparties. For current investments, counterparty limits are in place to limit the amount of credit exposure to any one counterparty. This, therefore, results in diversification of credit risk for Company’s mutual fund and bond investments. For derivative and financial instruments, the Company attempts to limit the credit risk by only dealing with reputable banks and financial institutions. The carrying value of the financial assets represents the maximum credit exposure. The Company’s maximum exposure to credit risk is ` 33,178.79 Crore, ` 35,453.24 Crore and ` 22,104.09 Crore as at March 31, 2017, March 31, 2016 and April 01, 2015 respectively. The maximum credit exposure on financial guarantees given by the Company for various financial facilities is described in Note 51 on “Contingent liabilities and commitments”. None of the Company’s cash and cash equivalents, including time deposits with banks, are past due or impaired. Regarding trade receivables, loans and other financial assets (both current and non-current), there were no indications as at March 31, 2017, that defaults in payment obligations will occur except as described in Note 11 and 15 on allowance for impairment of trade receivables and other financial assets. Of the year end trade receivables, loans and other financial assets, balance the following were past due but not impaired as at March 31, 2017, March 31, 2016 and April 01, 2015: (` in Crore) Particulars As at March 31, 2017 As at March 31, 2016 As at April 01, 2015 Neither impaired nor past due 9,058.61 8,057.94 1,445.01 Past due but not impaired Due less than 1 month 307.79 237.73 764.01 Due between 1–3 months 126.01 89.84 199.66 Due between 3–12 months 1,609.06 3,710.27 4,343.04 Due greater than 12 months 917.93 623.39 282.49 Total 12,019.40 12,719.17 7,034.21 Receivables are deemed to be past due or impaired with reference to the Company’s normal terms and conditions of business. These terms and conditions are determined on a case to case basis with reference to the customer’s credit quality and prevailing market conditions. Receivables that are classified as ‘past due’ in the above tables are those that have not been settled within the terms and conditions that have been agreed with that customer. The Company based on past experiences does not expect any material loss on its receivables and hence no provision is deemed necessary on account of ECL. The credit quality of the Company’s customers is monitored on an ongoing basis and assessed for impairment where indicators of such impairment exist. The Company uses simplified approach for impairment of financial assets. If credit risk has not increased significantly, 12-month expected credit loss is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime expected credit loss is used. The solvency of the debtor and their ability to repay the receivable is considered in assessing receivables for impairment. Where receivables have been impaired, the Company actively seeks to recover the amounts in question and enforce compliance with credit terms.
Mandatory Accounting Standards (Ind AS) — Extracts from Published Accounts |404| The above balances include receivables of ` 893.34 Crore (Net of provisions) as at March 31, 2017 (March 31, 2016: ` 779.56 Crore and April 01, 2015 : ` 837.01 Crore) relating to amounts held back by a customer in the power segment, owing to certain disputes relating to computation of tariffs and differential revenue recognised with respect to tariffs pending finalisation by the state electricity regulatory commission. Basis legal advice received on the matter, the management considers these to be fully recoverable. ll