Discount Rate is one of the key actuarial assumptions used in employee benefits valuation and is based on the market yields on Government bonds as on balance sheet date with the term matching to expected future service of the Company. We refer to FIMMDA website for taking discount rates. G-sec rates are also published on FBIL website https://www.fbil.org.in/#/home.
Actuarial calculations involve cash-flow projections for each employee right up to retirement age. Discount rate is used to discount the expected future cash flows to arrive at the present value of obligation of employee benefit plans.
Government bond yields are impacted by various factors like short-term interest rates, economic policy uncertainty, foreign exchange reserves, GDP growth rate and oil prices. In the last quarter government bond yields remained fairly stable even after election-triggered market movements. The 10-year bond rate is 7.2% for the current period which was at the same level during March 2024. The below graph shows the comparison of yields at different dates.
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