➢ Economic factors have rendered the G-Sec rates very volatile and a significant decrease is seen in the rates over the last year. G-sec rates have reduced on an average by 45 basis points when compared to March 2020 rates with a fall being seenfor the 10-year bonds by almost 80 basis points.
➢ Rates, however, have decreased on an average by approximately 15 basis pointswhen compared with September rates.Such decreases will contribute to an increase in the employee benefitsobligation for a 3-month period.
➢ The volatility has been heightened during the last few months due to theuncertainty of the economic impact of the pandemic in the medium and long term. Areduction in the rates will give rise to Actuarial Losses. We have seen some of theselosses be balanced with a dampening of salary increase expectations bycompanies. The net impact on obligation calculations is largely determined bythe gap between the salary growth rate and the discount rate. However, even asmall change when deciding assumptions should be done with carefulconsideration of the entity’s expectations and after discussion with the Actuaryand Auditor so that they reflect the best long-term estimates.
“Pandemic effecthas made the Discount Rate volatile withdownward bias.
The expected buoyancy in theeconomic activity post pandemic may see a rising tail”
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➢ The G-sec rates have reduced significantly during the lockdown, with major impact being seen for the tenure of 5 and 10 years.
➢ With the easing of the lockdown, G-Sec rates have shown a steady improvement.
➢ Rates for longer durations seem less volatile and have shown steady improvement since Unlock3.0 on account of the kick-starting of various economic activities.
➢ As a result of decreasing G-sec rates as at Dec 2020 compared with Dec 2019, a booked Actuarial Loss will be seen due to change in financial assumptions for IFRS reporting, if all other assumptions remain the same as last year.
Indian Accounting Standard 19 - https://indasaccess.icai.org/download/2019/asb0719/272/272asb-cias-2019-20-vol2-24.pdf
Accounting Standard 15 (R) - https://www.mca.gov.in/Ministry/notification/pdf/AS_15.pdf
Guidance issued by AASB amid Covid-19 - http://www.ka-pandit.com/assets/newsletter/A-Synopsis-of-the-Guidance-Issued-byAuditing-and-Assurance-Standards-Board-amid-Covid-19.pdf
Interest Rate Updates: -
September 2020 - https://www.ka-pandit.com/assets/newsletter/Interest_Rates_Updates_September_2020.pdf
June 2020 - http://www.ka-pandit.com/assets/newsletter/Interest-Rates-Updates-June-2020.pdf
March 2020 - http://www.ka-pandit.com/assets/newsletter/KAP_Update_Volatility_in_the_Interest_Rate-March_2020.pdf-March_2020.pdf
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