The demand for accounting relief for the short-term foreign currency loans has been turned down by the centre stating that corporates would have to continue taking their forex losses on short-term foreign currency loans to the profit and loss account every quarter/year.
Corporate India has been demanding the accounting relief in respect of long-term foreign currency loans be extended to short-term foreign currency loans also, due to fluctuation losses on short-term foreign currency loans. Responding to industry chamber Assocham’s request for accounting relief on short-term foreign currency loans, the Corporate Affairs Ministry has conveyed that accounting relief provided in the Accounting Standard-11 are available only to long-term borrowings.
Further, the ministry insisted the management of every company to follow prudent risk management policies/practices to mitigate the foreign exchange risks by obtaining hedges under the conditions where the volatility in the exchange rates is probable. However, the industry submission has not convinced the Corporate Affairs Ministry, which is in no mood to provide any accounting relief for short-term foreign currency borrowings.
The Corporate Affairs Ministry had in December last year issued two notifications to provide relief for corporates that had sizeable long-term foreign currency loan exposure in their balance sheet, a huge respite for large corporate houses, such as Reliance Group and the Tatas as well as public sector majors, including Indian Oil Corporation and GAIL.
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