Disclosures on financial instruments | Disclosures on financial instruments This section gives an overview of the significance of financial instruments for the Company and provides additional information on balance sheet items that contain financial instruments. The details of significant accounting policies, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognized, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the consolidated financial statements. (a) Financial assets and liabilities The following table presents the carrying amounts and fair value of each category of financial assets and liabilities as at March 31, 2019. Financial assets Cash and financial cost Investments - Investments - Investments - cost Derivatives Derivatives Total carrying value Total fair value Total value Total fair value (In millions) Cash and cash equivalents Rs. 215,598.0 Rs. — Rs. — Rs. — Rs. — Rs. — Rs. 215,598.0 Rs. 215,598.0 US$ 3,117.6 US$ 3,117.6 Short-term deposits 105,742.1 — — — — — 105,742.1 105,742.1 1,529.1 1,529.1 Finance receivables 336,246.9 — — — — — 336,246.9 334,290.5 4,862.2 4,833.9 Trade receivables 189,961.7 — — — — — 189,961.7 189,961.7 2,746.9 2,746.9 Other investments - non-current — 7,412.9 7,523.4 38.8 — — 14,975.1 14,975.1 216.8 216.8 Other investments - current — 9.2 11,919.0 77,455.1 — — 89,383.3 89,383.3 1,292.5 1,292.5 Other financial assets: - current 37,615.3 — — — 2,840.2 9,515.2 49,970.7 49,970.7 722.6 722.6 - non-current 23,054.6 — — — 5,219.4 3,892.0 32,166.0 32,166.0 465.1 465.1 Total Rs. 908,218.6 Rs. 7,422.1 Rs. 19,442.4 Rs. 77,493.9 Rs. 8,059.6 Rs. 13,407.2 Rs. 1,034,043.8 Rs. 1,032,087.4 US$ 14,952.8 US$ 14,924.5 Financial liabilities Derivatives Derivatives Other Total carrying Total fair Total carrying Total fair (In millions) Accounts payable Rs. — Rs. — Rs. 759,681.7 Rs. 759,681.7 Rs. 759,681.7 US$ 10,985.2 US$ 10,985.2 Acceptances — — 31,771.2 31,771.2 31,771.2 459.5 459.5 Short-term debt (excluding current portion of long-term debt) — — 201,502.6 201,502.6 201,502.6 2,913.8 2,913.8 Long-term debt (including current portion of long-term debt) (refer note below) — — 858,408.1 858,408.1 827,757.5 12,412.7 11,969.6 Other financial liabilities: - current 8,853.9 38,571.4 56,243.9 103,669.2 103,669.2 1,499.1 1,499.1 - non-current 1,959.0 24,665.4 2,864.4 29,488.8 29,488.8 426.4 426.4 Total Rs. 10,812.9 Rs. 63,236.8 Rs. 1,910,471.9 Rs. 1,984,521.6 Rs. 1,953,871.0 US$ 28,696.7 US$ 28,253.6 1 Includes USD denominated bonds designated as cash flow hedges against forecasted USD revenue amounting to Rs. 69,148.8 million (USD 1,000 million) 2 Inculdes Rs. 34,585.5 million designated as hedged item in fair value hedge relationship. This includes a loss of Rs. 445.6 million on account of fair value changes attributable to the hedged interest rate risk. The following table presents the carrying amounts and fair value of each category of financial assets and liabilities as at March 31, 2018. Financial assets Cash, and loans and receivables Available- for-sale financial assets Derivatives other than in relationship Derivatives in hedging Total carrying value Total fair value (In millions) Cash and cash equivalents Rs. 147,167.5 Rs. — Rs. — Rs. — Rs. 147,167.5 Rs. 147,167.5 Short-term deposits 193,615.7 — — — 193,615.7 193,615.7 Finance receivables 238,989.7 — — — 238,989.7 238,235.9 Trade receivables 198,933.0 — — — 198,933.0 198,933.0 Unquoted equity investments* — 2,036.9 — — 2,036.9 — Unquoted equity investments at fair value — 4,076.1 — — 4,076.1 4,076.1 Other investments 1,094.0 147,007.0 — — 148,101.0 148,101.0 Other financial assets: - current 33,682.3 — 13,931.8 10,829.5 58,443.6 58,443.6 - non-current 22,123.8 — 11,880.7 16,588.3 50,592.8 50,592.8 Total Rs. 835,606.0 Rs. 153,120.0 Rs. 25,812.5 Rs. 27,417.8 Rs. 1,041,956.3 Rs. 1,039,165.6 * The fair value in respect of the unquoted equity investments cannot be reliably measured. Financial liabilities Derivatives Derivatives in Other financial liabilities Total carrying Total fair value (In millions) Accounts payable Rs. — Rs. — Rs. 804,601.6 Rs. 804,601.6 Rs. 804,601.6 Acceptances — — 49,013.4 49,013.4 49,013.4 Short-term debt (excluding current portion of long-term debt) — — 167,948.5 167,948.5 167,948.5 Long-term debt (including current portion of long-term debt) (refer note below) — — 720,758.3 720,758.3 727,920.3 Other financial liabilities: - current 8,090.1 53,986.5 57,042.0 119,118.6 119,118.6 - non-current 1,395.1 23,106.9 3,385.4 27,887.4 27,887.4 Total Rs. 9,485.2 Rs. 77,093.4 Rs. 1,802,749.2 Rs. 1,889,327.8 Rs. 1,896,489.8 * Includes USD denominated bonds designated as cash flow hedges against forecasted USD revenue amounting to Rs.111,664.4 million (USD 1,700 million) The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Level 1 to Level 3, as described below. Quoted prices in an active market (Level 1): This level of hierarchy includes financial assets that are measured by reference to quoted prices (unadjusted) in active markets for identical assets or liabilities. This category consists quoted equity shares, quoted corporate debt instruments and mutual fund investments. Valuation techniques with observable inputs (Level 2): This level of hierarchy includes financial assets and liabilities, measured using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). This level of hierarchy includes Company’s over-the-counter Valuation techniques with significant unobservable inputs (Level 3): This level of hierarchy includes financial assets and liabilities measured using inputs that are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part, using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor based on available market data. The main items in this category are unquoted equity shares, measured at fair value through other comprehensive income. As at March 31, 2019 Level 1 Level 2 Level 3 Total (In millions) Financial assets measured at fair value Investments Rs. 19,481.9 Rs. — Rs. 7,382.6 Rs. 26,864.5 Derivative assets — 21,466.8 — 21,466.8 Total Rs. 19,481.9 Rs. 21,466.8 Rs. 7,382.6 Rs. 48,331.3 US$ 281.7 US$ 310.5 US$ 106.8 US$ 698.9 Financial liabilities measured at fair value Derivative liabilities Rs. — Rs. 74,049.7 Rs. — Rs. 74,049.7 Total Rs. — Rs. 74,049.7 Rs. — Rs. 74,049.7 US$ — US$ 1,070.7 US$ — US$ 1,070.7 As at March 31, 2018 Level 1 Level 2 Level 3 Total (In millions) Financial assets measured at fair value Available-for-sale Rs. 147,007.0 Rs. — Rs. — Rs. 147,007.0 Unquoted equity investments — — 4,076.1 4,076.1 Derivative assets — 53,230.3 — 53,230.3 Total Rs. 147,007.0 Rs. 53,230.3 Rs. 4,076.1 Rs. 204,313.4 Financial liabilities measured at fair value Derivative liabilities Rs. — Rs. 86,578.6 Rs. — Rs. 86,578.6 Total Rs. — Rs. 86,578.6 Rs. — Rs. 86,578.6 There have been no transfers between level 1 and level 2 for the period ended March 31, 2019 and 2018. The following table provides an analysis of fair value of financial instruments that are not measured at fair value on recurring basis, grouped into Level 1 to Level 3 categories: As at March 31, 2019 Level 1 Level 2 Level 3 Total (In millions) Financial assets not measured at fair value Finance receivables — — 334,290.5 334,290.5 Other investments 77,455.1 — 38.8 77,493.9 Total Rs. 77,455.1 Rs. — Rs. 334,329.3 Rs. 411,784.4 US$ 1,120.0 US$ — US$ 4,834.5 US$ 5,954.5 Financial liabilities not measured at fair value Short-term debt (excluding current portion of long-term debt) — 201,502.6 — 201,502.6 Long-term debt (including current portion of long-term debt) 352,851.5 474,906.0 — 827,757.5 Total Rs. 352,851.5 Rs. 676,408.6 Rs. — Rs. 1,029,260.1 US$ 5,102.3 US$ 9,781.2 US$ — US$ 14,883.5 As at March 31, 2018 Level 1 Level 2 Level 3 Total (In millions) Financial assets not measured at fair value Finance receivables — — 238,235.9 238,235.9 Other investments — 1,094.0 — 1,094.0 Total Rs. — Rs. 1,094.0 Rs. 238,235.9 Rs. 239,329.9 Financial liabilities not measured at fair value Short-term debt (excluding current portion of long-term — 167,948.5 — 167,948.5 Long-term debt (including current portion of long-term 399,497.0 328,423.3 — 727,920.3 Total Rs. 399,497.0 Rs. 496,371.8 Rs. — Rs. 895,868.8 Notes The short-term financial assets and liabilities are stated at amortized cost which is approximately equal to their fair value. Derivatives are fair valued using market observable rates and published prices together with forecast cash flow information where applicable. The fair value of finance receivables has been estimated by discounting expected cash flows using rates at which loans of similar credit quality and maturity would be made and internal assumptions such as expected credit losses and estimated collateral value for repossessed vehicles as at March 31, 2019 and 2018. Since unobservable inputs are applied, finance receivables are classified in Level 3. Equity are carried at their fair values, which are generally based on market price quotations. The fair value in respect of the unquoted equity investments are classified as Level 3 since unobservable inputs are applied. The fair value of borrowings which have a quoted market price in an active market is based on its market price and for other borrowings the fair value is estimated by discounting expected future cash flows, using a discount rate equivalent to the risk-free rate of return, adjusted for the credit spread considered by the lenders for instruments of similar maturity. Costs of certain unquoted equity instruments has been considered as an appropriate estimate of fair value because of a wide range of possible fair value measurements and cost represents the best estimate of fair value within that range. These investments in equity instruments are not held for trading. Instead, they are held for medium or long-term strategic purpose. Upon the application of IFRS 9, the Company has chosen to designate these investments in equity instruments as at FVTOCI as the management believe that this provides a more meaningful presentation for medium or long-term strategic investments, than reflecting changes in fair value immediately in profit or loss. Management uses its best judgment in estimating the fair value of its financial instruments. However, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented above are not necessarily indicative of all the amounts that the Company could have realized or paid in sale transactions as of respective dates. As such, the fair value of the financial instruments subsequent to the respective reporting dates may be different from the amounts reported at each year end. 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 realize 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, 2019: Gross Gross Net amount balance sheet Amounts subject to an Net amount Financial assets Financial Cash (In millions) Derivative financial instruments Rs. 21,466.8 Rs. — Rs. 21,466.8 Rs. (17,173.7 ) Rs. — Rs. 4,293.1 Trade receivables 191,052.4 (1,090.7 ) 189,961.7 — — 189,961.7 Cash and cash equivalents 254,334.7 (38,736.7 ) 215,598.0 — — 215,598.0 Total Rs. 466,853.9 Rs. (39,827.4 ) Rs. 427,026.5 Rs. (17,173.7 ) Rs. — Rs. 409,852.8 US$ 6,750.9 US$ (575.9 ) US$ 6,175.0 US$ (248.3 ) US$ — US$ 5,926.7 Financial liabilities Derivative financial instruments Rs. 74,049.7 Rs. — Rs. 74,049.7 Rs. (17,173.7 ) Rs. — Rs. 56,876.0 Accounts payable 760,772.4 (1,090.7 ) 759,681.7 — — 759,681.7 Loans from banks/financial institutions (short-term) 129,983.7 (38,736.7 ) 91,247.0 — — 91,247.0 Total Rs. 964,805.8 Rs. (39,827.4 ) Rs. 924,978.4 Rs. (17,173.7 ) Rs. — Rs. 907,804.7 US$ 13,951.3 US$ (575.9 ) US$ 13,375.4 US$ (248.3 ) US$ — US$ 13,127.1 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, 2018: Gross Gross Net amount in the balance sheet Amounts subject to an Net amount Financial assets Financial Cash (In millions) Derivative financial instruments Rs. 53,230.3 Rs. — Rs. 53,230.3 Rs. (49,058.2 ) Rs. — Rs. 4,172.1 Trade receivables 199,905.7 (972.7 ) 198,933.0 — — 198,933.0 Cash and cash equivalents 163,843.3 (16,675.8 ) 147,167.5 — — 147,167.5 Total Rs. 416,979.3 Rs. (17,648.5 ) Rs. 399,330.8 Rs. (49,058.2 ) Rs. — Rs. 350,272.6 Financial liabilities Derivative financial instruments Rs. 86,578.6 Rs. — Rs. 86,578.6 Rs. (49,058.2 ) Rs. — Rs. 37,520.4 Accounts payable 805,574.3 (972.7 ) 804,601.6 — — 804,601.6 Loans from banks/financial institutions (short-term) 77,948.8 (16,675.8 ) 61,273.0 — — 61,273.0 Total Rs. 970,101.7 Rs. (17,648.5 ) Rs. 952,453.2 Rs. (49,058.2 ) Rs. — Rs. 903,395.0 (b) Transfer of financial assets The Company transfers finance receivables in securitization transactions and direct assignments. In such transactions the Company surrenders control over the receivables, though it continues to act as an agent for the collection of receivables. In most of these transactions, the Company also provides credit enhancements to the transferee. Because of the existence of credit enhancements in such transactions, the Company continues to have the obligation to pay to the transferee, limited to the extent of credit enhancement, even if it does not collect the equivalent amounts from the original asset and continues to retain substantially all risks and rewards associated with the receivables, and hence, such transfer or assignment does not meet the derecognition criteria resulting into the transfer not being recorded as sale. Consequently, the proceeds received from the transfer are recorded as collateralized debt obligation. Further 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 and finance receivables along with the associated liabilities is as follows: As at March 31, 2019 2019 2018 Nature of Asset Carrying Carrying Carrying Carrying Carrying Carrying (In millions) Trade receivables US$ 149.2 US$ 149.2 Rs. 10,314.6 Rs. 10,314.6 Rs. 15,074.4 Rs. 15,074.4 Finance receivables US$ 438.7 US$ 440.7 Rs. 30,338.3 * Rs. 30,473.3 Rs. 13,069.1 * Rs. 13,205.8 * Net of provision of Rs. 380.3 million and Rs. 226.2 million as at March 31, 2019 and 2018, respectively. (c) Cash flow hedges The Group has a number of financial instruments in a hedging relationship. The Group uses both foreign currency forward and option contracts, cross currency interest rate swaps and other currency options to hedge changes in future cash flows as a result of foreign currency and interest rate risk arrising from sales and purchases and repayment of foreign currency bonds. The Group has also designated some of its U.S. dollar denominated bonds as hedging instruments in a cash flow hedging relationship to hedge the changes in future cash flows as a result of foreign currency risk arrising from future anticipated sales. The Group also has a number of foreign currency options and other currency options, which are entered into as an economic hedge of the financial risks of the Company. These contracts do not meet the hedge accounting criteria of IFRS 9, hence the change in fair value of these derivatives are recognized in the income statement. Options are designated on spot discounted basis. The time value of options are identified as cost of hedge. Changes in the time value of options are recognized in cost of hedge reserve. Changes in the spot intrinsic value of options is recognized in hedge reserve. Changes in fair value arising from own and counterparty credit risk in options and forward exchange contracts are considered ineffective in the hedge relationship and thus the change in fair value of forward exchange contracts attributable to changes in credit spread are recognized in the income statement. Cross currency basis spread was historically included in the hedging relationship. Cross currency basis spread arising from forward exchange contracts is identified as cost of hedge and accordingly changes in fair value attributable to this is recognized in cost of hedge reserve. Changes in fair value of foreign currency derivative and bonds, to the extent determined to be an effective hedge, is recognized in other comprehensive income and the ineffective portion of the fair value change is recognized in the income statement. The fair value gain/losses recorded in hedge reserve and cost of hedge reserve is recognized in the income statement when the forecasted transactions occur. The accumulated gain/losses in hedge reserve and cost of hedge reserve are expected to be recognized in the income statement during the years ending March 31, 2020 to 2024. Year ended March 31, 2019 2019 2018 2017 Fair value gain/(loss) of foreign currency derivative contracts recognized in hedging reserve and cost of hedge reserve US$ (1,171.2 ) Rs. (80,992.4 ) Rs. 94,016.9 Rs. (249,818.5 ) Fair value gain/(loss) of foreign currency bonds recognized in hedging reserve (136.3 ) (9,429.1 ) 12,435.2 (13,140.7 ) Fair value gain/(loss) of cross currency interest rate swaps entered for cash flow hedges of repayment of foreign currency denominated borrowings recognized in hedging reserve 6.4 446.0 (359.0 ) — Fair value gain/(loss) of interest rate swaps entered for cash flow hedges of payment of interest on borrowings that are benchmarked to libor (8.6 ) (595.7 ) — — Gain/(loss) recognized in hedging reserve and cost of hedge reserve US$ (1,309.7 ) (90,571.2 ) 106,093.1 (262,959.2 ) Gain/(loss) reclassified from Hedging reserve and recognized in ‘Revenue’ in the income statement on occurance of forecast sales US$ (1,150.0 ) Rs. (79,529.5 ) Rs. (118,767.0 ) Rs. (112,697.8 ) Gain/(loss) reclassified out of Hedging reserve and recorded in ‘Raw materials, components and consumables’ in the income statement when forecast purchases affect income statement — — 15,674.8 7,553.4 Gain/(loss) reclassified from Hedging reserve and recognized in ‘Foreign exchange (gain)/loss (net)’ in the income statement on account of forecast transactions no longer expected to occur (14.9 ) (1,033.4 ) 555.5 (3,673.1 ) Gain/(loss) reclassified from other components of equity to income statement US$ (1,164.9 ) Rs. (80,562.9 ) Rs. (102,536.7 ) Rs. (108,817.5 ) (d) Financial risk management In the course of its business, the Company is exposed primarily to fluctuations in foreign currency exchange rates, interest rates, equity prices, liquidity and credit risk, which may adversely impact the fair value of its financial instruments. The Company has a risk management policy which not only covers the foreign exchange risks but also other risks associated with the financial assets and liabilities such as interest rate risks and credit risks. The risk management policy is approved by the board of directors. The risk management framework aims to: • Create a stable business planning environment by reducing the impact of currency and interest rate fluctuations on the Company’s business plan. • Achieve greater predictability to earnings by determining the financial value of the expected earnings in advance. (i) Market risk Market risk is the risk of any loss in future earnings, in realizable fair values or in future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, equity price fluctuations, liquidity and other market changes. Future specific market movements cannot be normally predicted with reasonable accuracy. (i) – (a) Foreign currency exchange rate risk: The fluctuation in foreign currency exchange rates may have potential impact on the income statement and 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 respective consolidated entities. Considering the countries and economic environment in which the Company operates, its operations are subject to risks arising from fluctuations in exchange rates in those countries. The risks primarily relate to fluctuations in U.S. dollar, GBP, Chinese renminbi, Japanese yen, Singapore dollar and Euro, against the respective functional currencies of Tata Motors Limited and its subsidiaries. The Company, as per its risk management policy, uses foreign exchange and other derivative instruments primarily to hedge foreign exchange and interest rate exposure. Furthermore, any movement in the functional currencies of the various operations of the Company against major foreign currencies may impact the Company’s revenues from its international operations. Any weakening of the functional currency may impact the Company’s cost of imports and cost of borrowings and consequently may increase the cost of financing the Company’s capital expenditures. The Company evaluates the impact of foreign exchange rate fluctuations by assessing its exposure to exchange rate risks. It hedges a part of these risks by using derivative financial instruments in accordance with its risk management policies. The foreign exchange rate sensitivity is calculated for each currency by aggregation of the net foreign exchange rate exposure of a currency and a simultaneous parallel foreign exchange rates shift in the foreign exchange rates of each currency by 10%. The following analysis is based on the gross exposure as of the relevant balance sheet dates, which could affect the income statement. There is no exposure to the income statement on account of translation of financial statements of consolidated foreign entities. Furthermore, the exposure as indicated below is mitigated by some of the derivative contracts entered into by the Company as disclosed at clause (iv) below. The following table sets forth information relating to foreign currency exposure (other than risk arising from derivatives disclosed at clause (iv) below) as at March 31, 2019: U.S. dollar Euro Chinese GBP Japanese Others* Total (In millions) Financial assets Rs. 227,659.7 Rs. 125,940.9 Rs. 19,853.1 Rs. 16,006.7 Rs. 3,398.6 Rs. 27,184.6 420,043.6 Financial liabilities Rs. 390,892.0 Rs. 322,260.4 Rs. 38,501.1 Rs. 59,269.8 Rs. 4,405.9 Rs. 28,285.3 843,614.5 * Others mainly include currencies such as the Russian rouble, Singapore dollars, Swiss franc, Australian dollars, South African rand, Thai baht and Korean won. 10% appreciation/depreciation of the respective foreign currencies with respect to functional currency of the Company would result in decrease/increase in the Company’s net income before tax by approximately Rs. 42,004.4 million and Rs. 77,446.6 million for financial assets and financial liabilities, respectively for the year ended March 31, 2019 and decrease/increase in the Company’s other comprehensive income by approximately Rs.6,914.9 million in respect of financial liabilities designated in cash flow hedges for the year ended March 31, 2019. The following table set forth information relating to foreign currency exposure (other than risk arising from derivatives disclosed at clause (iv) below) as at March 31, 2018: U.S. dollar Euro Chinese GBP Japanese Others* Total (In millions) Financial assets Rs. 135,310.7 Rs. 128,171.7 Rs. 49,977.2 Rs. 15,115.0 Rs. 4,750.2 Rs. 41,652.4 374,977.2 Financial liabilities Rs. 369,091.0 Rs. 311,926.9 Rs. 53,989.1 Rs. 63,716.6 Rs. 5,456.5 Rs. 35,389.5 839,569.6 * Others mainly include currencies such as the Russian rouble, Singapore dollars, Swiss franc, Australian dollars, South African rand, Singapore dollars, Thai baht and Korean won. 10% appreciation/depreciation of the respective foreign currencies with respect to functional currency of the Company would result in decrease/increase in the Company’s net income before tax by approximately Rs. 37,497.7 million and Rs. 72,790.6 million for financial assets and financial liabilities, respectively for the year ended March 31, 2018 and decrease/increase in the Company’s other comprehensive income by approximately Rs. 11,166.4 million in respect of financial liabilities designated in cash flow hedges for the year ended March 31, 2018. The following table set forth information relating to foreign currency exposure (other than risk arising from derivatives disclosed at clause (iv) below) as at March 31, 2017: U.S. dollar Euro Chinese Japanese Others* Total (In millions) Financial assets Rs. 104,987.4 Rs. 98,624.2 Rs. 40,009.6 Rs. 1,279.8 Rs. 44,323.2 Rs. 289,224.2 Financial liabilities Rs. 375,478.7 Rs. 213,018.3 Rs. 33,991.9 Rs. 5,382.2 Rs. 29,392.5 Rs. 657,263.6 * Others mainly include currencies such as the Russian rouble, Swiss franc, Australian dollars, South African rand, Singapore Dollars, Thai baht and Korean won. 10% appreciation/depreciation of the respective foreign currencies with respect to functional currency of the Company would result in decrease/increase in the Company’s net income before tax by approximately Rs. 28,922.4 million and Rs. 58,201.0 million for financial assets and financial liabilities, respectively for the year ended March 31, 2017 and decrease/increase in the Company’s other comprehensive income before tax by approsimately 7,525.4 million in respect of financial liabilities designated in cash flow hedges for the year ended March 31, 2017. (Note: The impact is indicated on the income/loss before tax basis). (i) – (b) Interest rate risk Interest rate risk is measured by using the cash flow sensitivity for changes in variable interest rates. Any movement in the reference rates could have an impact on the Company’s cash flows as well as costs. The Company is subject to variable interest rates on some of its interest bearing liabilities. The Company’s interest rate exposure is mainly related to debt obligations. The Company also uses a mix of interest rate sensitive financial instruments to manage the liquidity and fund requirements for its day to day operations like short term non-convertible In its financing business, the Company enters into transactions with customers which primarily result in receivables at fixed rates. In order to manage this risk, the Company has a policy to match funding in terms of maturities and interest rates and also for certain part of the portfolio, the Company does not match funding with maturities, in order to take advantage of market opportunities. The Company also enters into arrangements of securitization of receivables in order to reduce the impact of interest rate movements. Further, the Company also enters in to interest rate swap contracts with banks to manage its interest rate risk. As at March 31, 2019, 2018 and 2017, financial liability of Rs. 302,786.3 million, Rs. 210,182.8 million and Rs. 189,283.6 million, respectively, was subject to variable interest rates. Increase/decrease of 100 basis points in interest rates at the balance sheet date would result in an impact (decrease/increase in case of net income) of Rs. 3,027.9 million, Rs. 2,101.8 million and Rs. 1,892.8 million on income for the years ended March 31, 2019, 2018 and 2017, respectively. The model assumes that interest rate changes are instantaneous parallel shifts in the yield curve. Although some assets and liabilities may have similar maturities or periods to re-pricing, The risk estimates provided assume a parallel shift of 100 basis points interest rate across all yield curves. This calculation also assumes that the change occurs at the balance sheet date and has been calculated based on risk exposures outstanding as at that date. The period end balances are not necessarily representative of the average debt outstanding during the period. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. (Note: The impact is indicated on the income/loss before tax basis). The Company uses cross currency interest rate swaps to hedge some of its exposure to interest rate arising from variable rate foreign currency denominated debt. The Company uses cross currency interest rate swaps to hedge some of its exposure to interest rate arising from variable rate foreign currency denominated debt. The Company and its subsidiaries also uses cross currency interest rate swaps to convert some of its foreign currency denominated fixed rate debt to floating rate debt. (i) – (c) Equity Price risk Equity Price Risk is related to the change in market reference price of the investments in equity securities. The fair value of some of the Company’s investments in equity securities exposes the Company to equity price risks. In general, these securities are not held for trading purposes. These investments are subject to changes in the market price of securities. The fair value of quoted equity securities measured at FVTOCI/available-for-sale available-for-sale The fair value of some of the Company’s investments in quoted equity securities measured at FVTPL as of March 31, 2019 and 2018, was Rs. 4,231.4 million and Rs. Nil , respectively. A 10% change in prices of these securities measured at FVTPL held as of March 31, 2019 and 2018, would result in an impact of Rs. 423.1 million and Rs. Nil on income statement, respectively. (Note: The impact is indicated on equity before consequential tax impact, if any). (ii) Credit risk Credit risk is the risk of financial loss arising from counterparty failure to repay or service debt according to the contractual terms or obligations. Credit risk encompasses both the direct risk of default and the risk of deterioration of creditworthiness as well as concentration risks. Financial instruments that are subject to concentrations of credit risk, principally consist of investments in debt instruments, trade receivables, finance receivables, loans and advances and derivative financial instruments. None of the financial instruments of the Company result in material concentrations of credit risks. Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk was Rs. 1,028,129.9 million as at March 31, 2019 and Rs. 1,035,065.2 million as at March 31, 2018, being the total of the carrying amount of balances with banks, short term deposits with banks, trade receivables, finance receivables, margin money and other financial assets excluding equity investments. Financial assets that are neither past due nor impaired None of the Company’s cash equivalents, including time deposits with banks, are past due or impaired. Regarding trade receivables and other receivables, and other loans or receivables that are neither impaired nor past due, there were no indications as at March 31, 2019, that defaults in payment obligations will occur. Credit quality of financial assets and impairment loss The aging of trade receivables and finance receivables as of balance sheet date is given below. The age analysis have been considered from the due date. As at March 31, 2019 2019 2019 2019 2019 2019 2018 2018 2018 Trade receivables Gross Allowance Net Gross Allowance Net Gross Allowance Net (In millions) Period (in months) Not due US$ 2,182.0 US$ (4.7 ) US$ 2,177.4 Rs.150,898.8 Rs. (324.1 ) Rs.150,574.7 Rs.159,519.0 Rs. (215.7 ) Rs.159,303.3 Overdue up to 3 months 449.5 (1.9 ) 447.6 31,086.5 (131.0 ) 30,955.5 32,819.4 (371.5 ) 32,447.9 Overdue 3-6 36.4 (2.7 ) 33.8 2,516.9 (1 |