Corporate Treasury in India Today
by Muzammil Patel, Partner, and Rahul Murthi, Senior Manager, Deloitte Touche Tohmatsu India LLP
In 2016 we have already witnessed seismic global events that shed light on the uncertainties that treasurers have to navigate in global financial markets. India too has witnessed its fair share of events in 2016 – a new governor of the Reserve Bank of India (RBI), India’s central bank, who is expected to take office post September, a new Monetary Policy Committee, a landmark taxation bill that is nearing finalisation, convergence with IFRS accounting standards, relaxations in FDI norms and policies to further promote foreign investments in India.
These local developments coupled with global uncertainties have thrown up opportunities and challenges for CFOs and corporate treasurers in India. They have also opened up avenues for foreign investors and multinational corporations operating in India. With increased need to risk management and potential for greater flows, the spotlight on treasury operations has never been so bright.
The results of Deloitte’s 2015 India Corporate Treasury Survey show that some of the key concerns and challenges of corporate treasurers operating in India include difficulties in managing volatility in financial markets, dynamically aligning and adhering to changes in domestic and global regulations, managing cross-border exposures and minimising impact of treasury performance on the organisation’s financial results. In spite of these challenges, corporate treasurers in India appeared to be fairly content with the RBI’s stance in the current environment while accepting the impact on Taxation and Companies Act related laws on overall treasury management.
The article focuses on some of the more recent regulatory and market developments that have implications for the manner in which CFOs and corporate treasures manage risk and opportunities within the organisation and in financial markets.
Key regulatory and market developments
Converging towards the IFRS standards
The Ministry of Corporate Affairs (MCA) issued the Companies (Indian Accounting Standards) Rules, 2015 on February 2015 with the objective of bringing the accounting standards and practices in harmony with the IFRS standards.
Prior to the announcement, there were several difficulties of interpretation and clarification concerning the Indian GAAP – for example, there were key deficiencies in the scope and coverage of the accounting treatment for financial instruments and its divergence from the IFRS standards – which led to myriad challenges faced by global treasuries having significant Indian operations, with respect to measurement, accounting and reporting of exposures and treasury performance under various accounting standards. With the issuance of the Indian Accounting Standards or Ind-AS, the scope and methodology now brings greater convergence to the IFRS standards. Ind-AS is mandatory for companies having net worth of INR5bn (approximately USD75m) or more from April 1, 2016. See Figure 1:
Fig 1 - An illustration of the manner in which the Ind AS standards converge with the IFRS accounting standards
Source: Deloitte Report – Indian GAAP, IFRS and Ind AS – A Comparison