Related-party transactions below pre-pandemic levels, shows data

Listed companies may have cut back on their related-party transactions. 

The value of such transactions is lower than levels seen before the pandemic. 

Such transactions are reported on the balance sheet and the profit-and-loss statement. The value of related-party transactions (RPTs) as a proportion of balance sheet assets was 5.8 per cent in 2024-25 (FY25), compared to 6.5 per cent in FY19, according to a Business Standard analysis of 262 BSE 500 companies with comparable numbers from data provider Capitaline. The value of RPTs reported on the profit-and-loss statement was equivalent to 11.9 per cent of net sales in FY25 compared to 14.4 per cent in FY19. 

An RPT is a deal between connected entities. This can involve buying or selling of goods or raw materials among group companies. Some of this may be required for company operations. But it can also be used to benefit promoters at the cost of minority shareholders. Regulations of the Securities and Exchange Board of India (Sebi) require approval of such transactions beyond a threshold. The regulator came up with a consultation paper this month, easing the minimum threshold requirements at which such transactions would require shareholder approval. The move is expected to help companies with a large turnover that may otherwise require many onerous approvals. 

Greater institutionalisation and the changing nature of companies listing on the stock exchanges may have a role in future RPT trends, according to Shriram Subramanian, founder and managing director of domestic proxy advisor InGovern Research Services. Greater institutional shareholding with the rising assets of mutual funds may increase scrutiny and make promoters wary of potentially controversial transactions. Many of the newer companies coming to the market already have institutional shareholders who may be uncomfortable with such transactions. These new-age companies also tend to be standalone ventures, different from the web of enterprises and businesses seen in more traditional family-owned groups. 

“RPTs may be (fewer) because they don’t have group companies,” he said. 

Investors can keep an eye on excessive RPTs through disclosures and also watch for auditor qualifications, noted K Ramanathan, founder and chief executive officer, Spectrum Wealth. Companies are not required to reveal granular details beyond a point and it can be challenging to understand when RPTs are for genuine business reasons and when they mask impropriety. Large-value transactions can often be a red flag, suggested Ramanathan. 

“It is not healthy to have (such) related-party transactions especially within the promoter group,” he said. 

Some sectors have a greater share of such transactions relative to their business. They include steel, real estate, and pharmaceuticals. Many of them have also seen an increase in the value of such transactions relative to their assets as well as their net sales. The value of RPTs on the balance sheet of real estate is equivalent to nearly 17 per cent of their assets. The profit-and-loss statement shows RPT values are 20 per cent or more of net sales for more than one sector.