G-Sec Interest Rates Yield Chart (India) Actuarial Valuations: Defined Benefit Obligations 30th June 2023

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Discount Rate for Actuarial Valuation of Employee Benefit

  • As per Para 83 of IND AS 19/IAS 19 (Revised) & Para 78 of AS 15 (Revised), the rate used to discount post-employment benefit obligations (both funded and unfunded) should be determined by reference to market yields at the balance sheet date on government bonds

Discount rate Comparison Table as at 31st March 2018

Key Observations: 3 monthly reviews

  • He short-term interest rates reduced in the range of 1o basis point to 30 basis points whereas long term interest rate reduced in the range of 5 basis point to 10 basis point due to various factor such as the RBI’s decision on the repo rate and declining inflation.

Entities could expect liabilities to increase by 2.5% because of interest rate increase (assuming a 10-year term of obligation and a 25 basis points increase in interest rates)

 

About Discount Rate & Use in Actuarial Valuations

The  discount  rate  is  a  key  assumption  used  in  the  Actuarial valuation  of  employee  benefit  liabilities.  Actuarial  valuation primarily  finds  the  Present  value  of  the  liabilities  (or benefits), that  are  expected  to  be  paid  in  the  future.  For  this  purpose,  it  is  vital  to  use  the  appropriate  discount  rate.  The  various accounting  standards  have  prescribed,  for  the  purpose  of  Employee  Benefit  valuations,  the  basis  for  choosing  the discount  rate.  It  states  that  an  entity  should  use  the government  bond  yields  (or  corporate  bond  yields , where  applicable)  for  a  term  that  is  equivalent  to  the  maturity  term of  the  liabilities.  Because  of  the  aforesaid  Guidance,  the  year-on-year  movement  in  the  discount  rate  is  reflected  in  the  year-on-year  fluctuations  in  the  Company’s  Profit  and  Loss and  Balance  sheet.

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