WHAT DOES THIS COMPANY ACTUALLY PAY TO BORROW?
Everyone reaches for the same shortcut — finance costs divided by borrowings — and on an Ind AS statement it is wrong twice over. Finance costs carry interest on lease liabilities, unwinding of discount on provisions and bank charges; borrowings exclude leases entirely and include facilities that pay no interest at all. Divide one by the other and you get a rate that belongs to no loan the company has. Below are three ways to get a real one.
Open the borrowings note
It lists every facility separately — term loan, working-capital loan, commercial paper, deferred sales-tax loan, inter-corporate deposit — each with its own interest rate, its security and its repayment schedule. You do not have to infer the rate. It is printed.
The note number is beside "Borrowings" on the balance sheet. The Notes to Accounts screen shows it for your own statements.
Weight each rate by how much is outstanding
A ₹500 crore loan at 8% and a ₹50 crore loan at 12% do not average to 10%. The blended rate is (500×8 + 50×12) ÷ 550 = 8.36%. Leave out anything that carries no interest — that is exactly what makes the shortcut wrong.
Split the finance cost first
The finance-costs note breaks the charge into interest on borrowings, interest on lease liabilities, unwinding of discount and other costs. Only the first line is a borrowing rate. Enter that one, not the total.
And use only the debt that carries it
Exclude interest-free facilities — deferred sales-tax loans, security deposits, inter-corporate deposits from a parent at nil. Use the average of opening and closing balances, because the interest was paid across the year, not on the closing day.
When the company barely borrows, there is no rate to measure
Pidilite is the case: almost no borrowings, large lease liabilities, and any ratio you build comes out absurd. The answer is not a bigger number — it is to ask what this company would pay if it borrowed, from how comfortably it covers interest.
Interest coverage decides the spread
Coverage is EBIT ÷ interest expense. Damodaran's table maps it to a synthetic rating and a default spread over the risk-free rate. A company covering interest 20 times borrows near the government rate; one covering it twice does not.