Ind AS 32 governs how financial instruments appear on the balance sheet — crucially, the classification of an instrument as debt or equity, and when financial assets and liabilities can be offset. Ind AS 107 governs what you tell investors about your financial instrument risks in the notes. Together, they shape the disclosures that investors, analysts, and credit rating agencies rely on to assess a company's financial risk profile. The classification question under Ind AS 32 carries enormous consequences — debt inflates leverage ratios and triggers covenants; equity does not.
Ind AS 32: Debt vs Equity — The Classification Framework
The central question of Ind AS 32: should a financial instrument (or its components) be classified as a financial liability (debt) or as equity? The answer is based on the economic substance, not the legal form — and is determined by whether the issuer has an unconditional right to avoid delivering cash or another financial asset.
Financial Liability (Debt)
- Contractual obligation to deliver cash or another financial asset
- Mandatory payments (interest, principal) — issuer cannot avoid
- Redeemable preference shares (mandatory redemption) = DEBT
- Puttable instruments where holder can demand cash = DEBT
- Financial guarantee contracts = DEBT
Equity
- Residual interest after deducting liabilities; no obligation to deliver cash
- Ordinary shares — issuer pays dividends at discretion
- Irredeemable preference shares (no mandatory redemption, discretionary dividends) = EQUITY
- Permanent capital instruments
- Options/warrants to issue fixed number of own shares for fixed cash = EQUITY
⚠The Redeemable Preference Share Problem: Under Ind AS 32, Compulsorily Redeemable Preference Shares (CRPS) are classified as financial liabilities (debt) — NOT equity. Dividends on CRPS are treated as finance costs in P&L, not distributions. This significantly increases the debt-to-equity ratio and reduces reported earnings for companies with CRPS in their capital structure. Many Indian companies restructured their CRPS before Ind AS adoption.
The test:
- Does the instrument include a contractual obligation to deliver cash or another financial asset? → If yes: Financial Liability
- Will it be settled in a variable number of the entity's own equity instruments? → If yes: Financial Liability (the entity's own shares become a commodity)
- Will it be settled by issuing a fixed number of own shares for a fixed amount of cash? → Equity
Compound Financial Instruments: Splitting Debt & Equity
Compound instruments contain both a liability component and an equity component. The most common example: Convertible Debentures / Optionally Convertible Debentures (OCDs).
A convertible bond has two components:
- Liability component: The obligation to pay coupons and, if not converted, the principal (present value of these cash flows)
- Equity component: The option to convert — value of the conversion right (residual after deducting liability component)
Accounting Treatment
Bifurcation of a ₹100 crore, 5-year OCD at 6% coupon, market rate 10%
PV of coupons: ₹6 crore × PVIFA(10%, 5yr) = ₹6 × 3.7908
= ₹22.74 crore
PV of principal: ₹100 crore × PVIF(10%, 5yr) = ₹100 × 0.6209
= ₹62.09 crore
Liability Component
= ₹84.83 crore
Equity Component (residual) = ₹100 – ₹84.83
= ₹15.17 crore
Journal Entry at Issuance
Dr Bank (proceeds)
₹100,00,00,000
Cr Financial Liability (OCD — debt component)
₹84,83,00,000
Cr Other Equity (conversion option)
₹15,17,00,000
The liability component is then carried at amortised cost using the effective interest rate (10%) — creating interest expense of 10% of carrying value each year (higher than the 6% coupon paid in cash), with the difference accreted to the liability until it reaches ₹100 crore at maturity.
Treasury Shares & Own Equity Instruments
When an entity buys back its own shares (treasury shares), those shares must be deducted from equity — they are NOT recognised as a financial asset. The cost of treasury shares is shown as a deduction from equity (Other Equity). Any gain or loss on sale of treasury shares goes directly to equity — never to P&L. This is a major departure from intuition (many assume share buybacks create P&L gains/losses).
Offsetting Financial Assets and Liabilities
A financial asset and a financial liability shall be offset and presented as a net amount only when BOTH:
- The entity has a legally enforceable right to set off the amounts, AND
- The entity intends to settle on a net basis, or realise the asset and settle the liability simultaneously
Both conditions must be met simultaneously — meeting only one is not sufficient. This is relevant for banks (netting of customer deposits vs loans), derivative master netting agreements, and inter-company balances.
Ind AS 107: Risk Disclosure Framework Overview
Ind AS 107 requires companies to disclose information enabling users to evaluate the nature and extent of financial instrument risks, and how those risks are managed. Required disclosures cover:
| Risk Category | Ind AS 107 Requirement |
|---|
| Credit Risk | Maximum exposure; collateral; credit quality analysis; ECL reconciliation; concentration of risk |
| Liquidity Risk | Maturity analysis of financial liabilities; contractual undiscounted cash flows by bucket |
| Market Risk — Interest Rate | Sensitivity analysis (parallel shift in rates); impact on P&L and OCI |
| Market Risk — Currency | Sensitivity analysis (currency movements); hedged vs unhedged exposure breakdown |
| Market Risk — Price | Sensitivity for equity price risk and commodity price risk (where applicable) |
Ind AS 107 also requires qualitative disclosures: descriptions of risk management objectives, policies, processes for measuring and managing each risk.
Credit Risk Disclosures
Credit risk disclosures under Ind AS 107 must include:
- Maximum exposure to credit risk — without taking into account any collateral held (gross carrying amount of financial assets)
- Collateral and credit enhancements: Description of collateral held (property, guarantees, CDS) and its fair value
- Credit quality analysis: Distribution of credit exposure by credit quality grades (investment grade, non-investment grade, Stage 1/2/3 under ECL)
- ECL reconciliation: Opening balance → New originations → Changes in risk → Write-offs → Closing balance (for each stage)
- Concentration of credit risk: Geographic, sector, or counterparty concentrations where significant
- Collateral obtained during the period: Nature and carrying amount of assets obtained through enforcement of collateral
Liquidity Risk Disclosures
The core Ind AS 107 liquidity risk disclosure is a maturity analysis of financial liabilities showing contractual undiscounted cash flows in time buckets:
| Maturity Bucket | Borrowings | Trade Payables | Lease Liabilities | Derivative Liabilities | Total |
|---|
| On demand / <1 month | XXX | XXX | XXX | XXX | XXX |
| 1–3 months | XXX | XXX | XXX | XXX | XXX |
| 3–12 months | XXX | XXX | XXX | XXX | XXX |
| 1–5 years | XXX | — | XXX | XXX | XXX |
| >5 years | XXX | — | XXX | — | XXX |
Note: the amounts in this table are contractual undiscounted cash flows — including future interest — so they exceed the carrying amount of borrowings on the balance sheet. Companies often include a reconciliation to the balance sheet carrying amounts.
Qualitative disclosures must accompany: undrawn committed credit facilities available, description of how liquidity risk is managed, material liquidity concentrations.
Market Risk: Interest Rate, Currency & Price Sensitivity
Interest Rate Sensitivity
A common format: "A 50 basis point increase in interest rates, with all other variables constant, would [increase/decrease] profit before tax by ₹X crore and OCI by ₹Y crore." The sensitivity applies to:
- Floating rate borrowings: higher rates → higher interest cost → lower profit
- Fixed rate instruments carried at fair value through P&L: rate increase → lower fair value → fair value loss
- Hedge accounting instruments: sensitivity of fair value and cash flow hedges
Currency Risk Sensitivity
"A 5% appreciation of the USD against INR, with all other variables constant, would impact profit before tax by ₹X crore." Unhedged USD receivables → currency appreciation = gain; unhedged USD payables → appreciation = loss.
Case Study: HDFC Bank — Credit Risk & ECL Disclosures
🏭 HDFC Bank: Ind AS 107 Credit Risk Disclosures
HDFC Bank Limited | Ind AS 107 Application | FY 2024–25
HDFC Bank (post-merger with HDFC Ltd in July 2023) is India's largest private bank with ~₹26 lakh crore in total assets. Its Ind AS 107 credit risk disclosures are the most comprehensive in Indian banking:
| Credit Risk Metric | FY25 (Approx.) | Ind AS 107 Requirement |
|---|
| Gross NPA Ratio | 1.24% | Disclosed as credit quality metric; ECL Stage 3 assets |
| Net NPA Ratio | 0.35% | After deducting ECL provisions |
| ECL Provision Coverage | ~72% | Stage 3 ECL / Stage 3 gross exposure |
| Stage 1 Exposure (12-month ECL) | ~93% of loan book | Performing; PD × LGD × EAD over 12 months |
| Stage 2 Exposure (Lifetime ECL) | ~4.5% of loan book | Significant credit deterioration |
| Stage 3 Exposure (Credit-Impaired) | ~1.5% of loan book | Default; lifetime ECL; individual assessment |
Maximum Credit Exposure (FY25)
~₹23 lakh crore (gross loans + contingent)
Total ECL Provisions
~₹35,000 crore
Key Concentration Risk
Infrastructure (22%), Retail/Housing (31%), MSME (9%)
Collateral (for secured loans)
Property (~60%), Financial assets (~25%), Other
HDFC Bank's ECL model uses PD (Probability of Default), LGD (Loss Given Default), and EAD (Exposure at Default) calibrated separately for each portfolio segment. The staging criteria: 30+ DPD (Days Past Due) triggers Stage 2; 90+ DPD triggers Stage 3. Macro-economic overlay adjusts for GDP growth and unemployment scenarios.
Case Study: Bajaj Finance — Liquidity Risk Disclosures
💰 Bajaj Finance: Asset-Liability Management Under Ind AS 107
Bajaj Finance Limited | Ind AS 107 Application | FY 2024–25
Bajaj Finance (India's largest NBFC by market cap) has a unique liquidity risk profile — primarily lending at 3–5 year tenures while borrowing at 1–3 year tenures (ALM mismatch). Ind AS 107 liquidity disclosures are critical for its stakeholders.
AUM (FY25)
~₹3.97 lakh crore
|
Borrowing Mix
NCDs (42%), Bank Term Loans (30%), CP/ST (15%), Others (13%)
ALM Gap (<1 year)
Typically negative (liabilities > assets maturing)
Liquidity Buffer
~₹15,000 crore undrawn credit lines + ₹8,000 crore liquid investments
Bajaj Finance's maturity analysis under Ind AS 107 shows significant short-term contractual outflows (NCDs maturing, CP repayments) which it manages through: (1) diverse lender base — 70+ banking relationships, (2) undrawn revolving credit facilities, (3) securitisation capacity, (4) liquidity coverage ratio maintained above regulatory minimum. The ALM disclosure helps investors understand refinancing risk — a key risk for any NBFC.
Case Study: Reliance Industries — FX Risk & Hedging Disclosures
🏭 Reliance Industries: Currency Risk Management
Reliance Industries Limited | Ind AS 107 Application | FY 2024–25
RIL has significant foreign currency exposure — USD-denominated borrowings (~$20+ billion), USD-denominated revenues (exports, O2C business), and capital expenditure in USD (Jio 5G equipment, refinery upgrades). Ind AS 107 requires comprehensive FX risk disclosures.
| FX Exposure | Nature | Hedging Treatment (Ind AS 109) | Ind AS 107 Disclosure |
|---|
| USD-denominated bonds (issued abroad) | Cash outflow risk — USD appreciation increases INR repayment | Cash flow hedge — forward contracts / cross-currency swaps | Sensitivity: 5% USD appreciation = ~₹8,000 crore impact (partially offset by hedges) |
| USD export revenue (O2C) | Natural hedge against USD borrowings | Natural hedge — partially reduces hedging need | Disclosed as natural hedge offset |
| Net unhedged USD exposure | Residual FX risk | Unhedged — absorbed by balance sheet | Sensitivity: 5% USD movement = ₹X crore P&L impact |
Total Foreign Currency Borrowings
~₹1.8 lakh crore (USD, JPY, EUR)
Hedging Ratio
~70–80% of forex borrowings hedged
Hedge Types
Cross-currency interest rate swaps, forwards, options
Cash Flow Hedge Reserve (OCI)
~₹3,000–5,000 crore (effective hedge gains/losses)
Comparison: Ind AS 32/107 vs Old IGAAP
Old IGAAP (AS 11 / AS 30-32)
- Redeemable preference shares classified as equity (legal form)
- Convertible debentures not bifurcated — all shown as liability
- No comprehensive risk disclosure standard equivalent to Ind AS 107
- Limited ECL disclosures; mostly incurred-loss provisioning
- Sensitivity analysis disclosures were minimal or voluntary
Ind AS 32 / 107
- CRPS classified as financial liability (economic substance)
- Compound instruments bifurcated; equity component in Other Equity
- Comprehensive mandatory risk disclosure — credit, liquidity, market
- ECL disclosures by stage; reconciliation of loss allowance
- Quantitative sensitivity analysis mandatory for all material risk types
✓ Ind AS 107 Summary Checklist — What Analysts Look For:
- Stage-wise ECL breakdown and provision coverage (for banks/NBFCs)
- Maturity ladder — short-term refinancing concentrations
- Undrawn credit facilities as liquidity buffer
- FX sensitivity — unhedged exposure quantum
- Interest rate sensitivity — impact of 50bp rate change
- Whether CRPS / preference shares are classified as debt or equity
- Convertible instrument bifurcation — debt and equity components
Accounting Standards · Ind AS
Ind AS 32 & 107: Financial Instruments — Presentation & Disclosures
Finin2min Research Desk·June 2026·15 min readICAI / MCAInd AS Series
StandardInd AS 32 & 107Ind AS 32 & 107: Financial Instruments — Presentation & DisclosuresMCA Notification ↗
Ind AS 32 governs how financial instruments appear on the balance sheet — crucially, the classification of an instrument as debt or equity, and when financial assets and liabilities can be offset. Ind AS 107 governs what you tell investors about your financial instrument risks in the notes. Together, they shape the disclosures that investors, analysts, and credit rating agencies rely on to assess a company's financial risk profile. The classification question under Ind AS 32 carries enormous consequences — debt inflates leverage ratios and triggers covenants; equity does not.
Ind AS 32: Debt vs Equity — The Classification Framework
The central question of Ind AS 32: should a financial instrument (or its components) be classified as a financial liability (debt) or as equity? The answer is based on the economic substance, not the legal form — and is determined by whether the issuer has an unconditional right to avoid delivering cash or another financial asset.
Financial Liability (Debt)
- Contractual obligation to deliver cash or another financial asset
- Mandatory payments (interest, principal) — issuer cannot avoid
- Redeemable preference shares (mandatory redemption) = DEBT
- Puttable instruments where holder can demand cash = DEBT
- Financial guarantee contracts = DEBT
Equity
- Residual interest after deducting liabilities; no obligation to deliver cash
- Ordinary shares — issuer pays dividends at discretion
- Irredeemable preference shares (no mandatory redemption, discretionary dividends) = EQUITY
- Permanent capital instruments
- Options/warrants to issue fixed number of own shares for fixed cash = EQUITY
⚠The Redeemable Preference Share Problem: Under Ind AS 32, Compulsorily Redeemable Preference Shares (CRPS) are classified as financial liabilities (debt) — NOT equity. Dividends on CRPS are treated as finance costs in P&L, not distributions. This significantly increases the debt-to-equity ratio and reduces reported earnings for companies with CRPS in their capital structure. Many Indian companies restructured their CRPS before Ind AS adoption.
The test:
- Does the instrument include a contractual obligation to deliver cash or another financial asset? → If yes: Financial Liability
- Will it be settled in a variable number of the entity's own equity instruments? → If yes: Financial Liability (the entity's own shares become a commodity)
- Will it be settled by issuing a fixed number of own shares for a fixed amount of cash? → Equity
Compound Financial Instruments: Splitting Debt & Equity
Compound instruments contain both a liability component and an equity component. The most common example: Convertible Debentures / Optionally Convertible Debentures (OCDs).
A convertible bond has two components:
- Liability component: The obligation to pay coupons and, if not converted, the principal (present value of these cash flows)
- Equity component: The option to convert — value of the conversion right (residual after deducting liability component)
Accounting Treatment
Bifurcation of a ₹100 crore, 5-year OCD at 6% coupon, market rate 10%
PV of coupons: ₹6 crore × PVIFA(10%, 5yr) = ₹6 × 3.7908
= ₹22.74 crore
PV of principal: ₹100 crore × PVIF(10%, 5yr) = ₹100 × 0.6209
= ₹62.09 crore
Liability Component
= ₹84.83 crore
Equity Component (residual) = ₹100 – ₹84.83
= ₹15.17 crore
Journal Entry at Issuance
Dr Bank (proceeds)
₹100,00,00,000
Cr Financial Liability (OCD — debt component)
₹84,83,00,000
Cr Other Equity (conversion option)
₹15,17,00,000
The liability component is then carried at amortised cost using the effective interest rate (10%) — creating interest expense of 10% of carrying value each year (higher than the 6% coupon paid in cash), with the difference accreted to the liability until it reaches ₹100 crore at maturity.
Treasury Shares & Own Equity Instruments
When an entity buys back its own shares (treasury shares), those shares must be deducted from equity — they are NOT recognised as a financial asset. The cost of treasury shares is shown as a deduction from equity (Other Equity). Any gain or loss on sale of treasury shares goes directly to equity — never to P&L. This is a major departure from intuition (many assume share buybacks create P&L gains/losses).
Offsetting Financial Assets and Liabilities
A financial asset and a financial liability shall be offset and presented as a net amount only when BOTH:
- The entity has a legally enforceable right to set off the amounts, AND
- The entity intends to settle on a net basis, or realise the asset and settle the liability simultaneously
Both conditions must be met simultaneously — meeting only one is not sufficient. This is relevant for banks (netting of customer deposits vs loans), derivative master netting agreements, and inter-company balances.
Ind AS 107: Risk Disclosure Framework Overview
Ind AS 107 requires companies to disclose information enabling users to evaluate the nature and extent of financial instrument risks, and how those risks are managed. Required disclosures cover:
| Risk Category | Ind AS 107 Requirement |
|---|
| Credit Risk | Maximum exposure; collateral; credit quality analysis; ECL reconciliation; concentration of risk |
| Liquidity Risk | Maturity analysis of financial liabilities; contractual undiscounted cash flows by bucket |
| Market Risk — Interest Rate | Sensitivity analysis (parallel shift in rates); impact on P&L and OCI |
| Market Risk — Currency | Sensitivity analysis (currency movements); hedged vs unhedged exposure breakdown |
| Market Risk — Price | Sensitivity for equity price risk and commodity price risk (where applicable) |
Ind AS 107 also requires qualitative disclosures: descriptions of risk management objectives, policies, processes for measuring and managing each risk.
Credit Risk Disclosures
Credit risk disclosures under Ind AS 107 must include:
- Maximum exposure to credit risk — without taking into account any collateral held (gross carrying amount of financial assets)
- Collateral and credit enhancements: Description of collateral held (property, guarantees, CDS) and its fair value
- Credit quality analysis: Distribution of credit exposure by credit quality grades (investment grade, non-investment grade, Stage 1/2/3 under ECL)
- ECL reconciliation: Opening balance → New originations → Changes in risk → Write-offs → Closing balance (for each stage)
- Concentration of credit risk: Geographic, sector, or counterparty concentrations where significant
- Collateral obtained during the period: Nature and carrying amount of assets obtained through enforcement of collateral
Liquidity Risk Disclosures
The core Ind AS 107 liquidity risk disclosure is a maturity analysis of financial liabilities showing contractual undiscounted cash flows in time buckets:
| Maturity Bucket | Borrowings | Trade Payables | Lease Liabilities | Derivative Liabilities | Total |
|---|
| On demand / <1 month | XXX | XXX | XXX | XXX | XXX |
| 1–3 months | XXX | XXX | XXX | XXX | XXX |
| 3–12 months | XXX | XXX | XXX | XXX | XXX |
| 1–5 years | XXX | — | XXX | XXX | XXX |
| >5 years | XXX | — | XXX | — | XXX |
Note: the amounts in this table are contractual undiscounted cash flows — including future interest — so they exceed the carrying amount of borrowings on the balance sheet. Companies often include a reconciliation to the balance sheet carrying amounts.
Qualitative disclosures must accompany: undrawn committed credit facilities available, description of how liquidity risk is managed, material liquidity concentrations.
Market Risk: Interest Rate, Currency & Price Sensitivity
Interest Rate Sensitivity
A common format: "A 50 basis point increase in interest rates, with all other variables constant, would [increase/decrease] profit before tax by ₹X crore and OCI by ₹Y crore." The sensitivity applies to:
- Floating rate borrowings: higher rates → higher interest cost → lower profit
- Fixed rate instruments carried at fair value through P&L: rate increase → lower fair value → fair value loss
- Hedge accounting instruments: sensitivity of fair value and cash flow hedges
Currency Risk Sensitivity
"A 5% appreciation of the USD against INR, with all other variables constant, would impact profit before tax by ₹X crore." Unhedged USD receivables → currency appreciation = gain; unhedged USD payables → appreciation = loss.
Case Study: HDFC Bank — Credit Risk & ECL Disclosures
🏭 HDFC Bank: Ind AS 107 Credit Risk Disclosures
HDFC Bank Limited | Ind AS 107 Application | FY 2024–25
HDFC Bank (post-merger with HDFC Ltd in July 2023) is India's largest private bank with ~₹26 lakh crore in total assets. Its Ind AS 107 credit risk disclosures are the most comprehensive in Indian banking:
| Credit Risk Metric | FY25 (Approx.) | Ind AS 107 Requirement |
|---|
| Gross NPA Ratio | 1.24% | Disclosed as credit quality metric; ECL Stage 3 assets |
| Net NPA Ratio | 0.35% | After deducting ECL provisions |
| ECL Provision Coverage | ~72% | Stage 3 ECL / Stage 3 gross exposure |
| Stage 1 Exposure (12-month ECL) | ~93% of loan book | Performing; PD × LGD × EAD over 12 months |
| Stage 2 Exposure (Lifetime ECL) | ~4.5% of loan book | Significant credit deterioration |
| Stage 3 Exposure (Credit-Impaired) | ~1.5% of loan book | Default; lifetime ECL; individual assessment |
Maximum Credit Exposure (FY25)
~₹23 lakh crore (gross loans + contingent)
Total ECL Provisions
~₹35,000 crore
Key Concentration Risk
Infrastructure (22%), Retail/Housing (31%), MSME (9%)
Collateral (for secured loans)
Property (~60%), Financial assets (~25%), Other
HDFC Bank's ECL model uses PD (Probability of Default), LGD (Loss Given Default), and EAD (Exposure at Default) calibrated separately for each portfolio segment. The staging criteria: 30+ DPD (Days Past Due) triggers Stage 2; 90+ DPD triggers Stage 3. Macro-economic overlay adjusts for GDP growth and unemployment scenarios.
Case Study: Bajaj Finance — Liquidity Risk Disclosures
💰 Bajaj Finance: Asset-Liability Management Under Ind AS 107
Bajaj Finance Limited | Ind AS 107 Application | FY 2024–25
Bajaj Finance (India's largest NBFC by market cap) has a unique liquidity risk profile — primarily lending at 3–5 year tenures while borrowing at 1–3 year tenures (ALM mismatch). Ind AS 107 liquidity disclosures are critical for its stakeholders.
AUM (FY25)
~₹3.97 lakh crore
|
Borrowing Mix
NCDs (42%), Bank Term Loans (30%), CP/ST (15%), Others (13%)
ALM Gap (<1 year)
Typically negative (liabilities > assets maturing)
Liquidity Buffer
~₹15,000 crore undrawn credit lines + ₹8,000 crore liquid investments
Bajaj Finance's maturity analysis under Ind AS 107 shows significant short-term contractual outflows (NCDs maturing, CP repayments) which it manages through: (1) diverse lender base — 70+ banking relationships, (2) undrawn revolving credit facilities, (3) securitisation capacity, (4) liquidity coverage ratio maintained above regulatory minimum. The ALM disclosure helps investors understand refinancing risk — a key risk for any NBFC.
Case Study: Reliance Industries — FX Risk & Hedging Disclosures
🏭 Reliance Industries: Currency Risk Management
Reliance Industries Limited | Ind AS 107 Application | FY 2024–25
RIL has significant foreign currency exposure — USD-denominated borrowings (~$20+ billion), USD-denominated revenues (exports, O2C business), and capital expenditure in USD (Jio 5G equipment, refinery upgrades). Ind AS 107 requires comprehensive FX risk disclosures.
| FX Exposure | Nature | Hedging Treatment (Ind AS 109) | Ind AS 107 Disclosure |
|---|
| USD-denominated bonds (issued abroad) | Cash outflow risk — USD appreciation increases INR repayment | Cash flow hedge — forward contracts / cross-currency swaps | Sensitivity: 5% USD appreciation = ~₹8,000 crore impact (partially offset by hedges) |
| USD export revenue (O2C) | Natural hedge against USD borrowings | Natural hedge — partially reduces hedging need | Disclosed as natural hedge offset |
| Net unhedged USD exposure | Residual FX risk | Unhedged — absorbed by balance sheet | Sensitivity: 5% USD movement = ₹X crore P&L impact |
Total Foreign Currency Borrowings
~₹1.8 lakh crore (USD, JPY, EUR)
Hedging Ratio
~70–80% of forex borrowings hedged
Hedge Types
Cross-currency interest rate swaps, forwards, options
Cash Flow Hedge Reserve (OCI)
~₹3,000–5,000 crore (effective hedge gains/losses)
Comparison: Ind AS 32/107 vs Old IGAAP
Old IGAAP (AS 11 / AS 30-32)
- Redeemable preference shares classified as equity (legal form)
- Convertible debentures not bifurcated — all shown as liability
- No comprehensive risk disclosure standard equivalent to Ind AS 107
- Limited ECL disclosures; mostly incurred-loss provisioning
- Sensitivity analysis disclosures were minimal or voluntary
Ind AS 32 / 107
- CRPS classified as financial liability (economic substance)
- Compound instruments bifurcated; equity component in Other Equity
- Comprehensive mandatory risk disclosure — credit, liquidity, market
- ECL disclosures by stage; reconciliation of loss allowance
- Quantitative sensitivity analysis mandatory for all material risk types
✓ Ind AS 107 Summary Checklist — What Analysts Look For:
- Stage-wise ECL breakdown and provision coverage (for banks/NBFCs)
- Maturity ladder — short-term refinancing concentrations
- Undrawn credit facilities as liquidity buffer
- FX sensitivity — unhedged exposure quantum
- Interest rate sensitivity — impact of 50bp rate change
- Whether CRPS / preference shares are classified as debt or equity
- Convertible instrument bifurcation — debt and equity components
Frequently Asked Questions
Under Ind AS 32, are optionally convertible debentures (OCDs) classified as debt or equity? ▼
OCDs must be bifurcated into debt and equity components — the liability component (PV of mandatory cash flows — coupons if any, and principal if the holder doesn't convert) is classified as a financial liability, and the equity component (the conversion option value — the residual) is classified as equity. The bifurcation uses the 'residual' approach: first measure the liability component at fair value (PV of cash flows discounted at market rate for similar non-convertible instrument), then the equity component is the difference between total proceeds and the liability component. This applies regardless of whether conversion is at the option of the holder or the issuer.
What is the difference between Ind AS 32 and Ind AS 107? ▼
Ind AS 32 deals with presentation — how financial instruments are classified and presented on the balance sheet (as debt vs equity, gross vs net). Ind AS 107 deals with disclosures — what information about financial instrument risks must be provided in the notes to financial statements. Ind AS 109 deals with recognition and measurement (how financial instruments are initially recognised, classified into FVTPL/FVOCI/amortised cost, and measured subsequently including ECL). Together, 32, 107, and 109 form the complete Ind AS financial instruments framework (equivalent to IFRS 9, 7, and 32).
What is the significance of the liquidity risk maturity analysis under Ind AS 107 for NBFCs? ▼
For NBFCs, the maturity analysis is among the most critical disclosures because it reveals asset-liability mismatches (ALM) — the mismatch between when their loans mature (assets) and when their borrowings fall due (liabilities). A significant negative ALM gap in the 0–1 year bucket (more liabilities maturing than assets) creates refinancing risk. The IL&FS crisis (2018) and DHFL collapse (2019) demonstrated how quickly NBFCs can face liquidity crises when wholesale funding dries up. Investors and regulators now scrutinise the maturity analysis to assess a NBFC's vulnerability to liquidity stress — making Ind AS 107 disclosures a key risk monitoring tool.