Derivative financial instruments

12 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company is exposed to the risk of rate fluctuations on its foreign currency assets and liabilities and on foreign currency denominated forecasted cash flows and interest rates. The Company has established risk management policies, including the use of derivative financial instruments to hedge foreign currency assets and liabilities, foreign currency denominated forecasted cash flows and interest rate risk. These derivative financial instruments are largely deliverable and non-deliverable forward foreign exchange contracts, treasury rate locks and interest rate swaps. The Company enters into these contracts with counterparties that are banks or other financial institutions, and the Company considers the risk of non-performance by such counterparties not to be material. The forward foreign exchange contracts and interest rate swaps mature during a period of up to 48 months and the forecasted transactions are expected to occur during the same periods.

The following table presents the aggregate notional principal amounts of outstanding derivative financial instruments together with the related balance sheet exposure:


	Notional principal amounts (note a)				Balance sheet exposure asset (liability) (note b)
	As of December 31, 2021		As of December 31, 2022		As of December 31, 2021		As of December 31, 2022
Foreign exchange forward contracts denominated in:
United States Dollars (sell) Indian Rupees (buy)	$	1,348,600	$	1,587,500	$	26,247	$	(25,581)
United States Dollars (sell) Mexican Peso (buy)	23,750		24,000		140		1,079
United States Dollars (sell) Philippines Peso (buy)	75,600		79,200		(2,215)		(828)
Euro (sell) United States Dollars (buy)	120,994		182,163		2,634		480
Singapore Dollars (buy) United States Dollars (sell)	3,655		50,956		65		166
Euro (sell) Romanian Leu (buy)	47,506		51,115		(233)		848
Japanese Yen (sell) Chinese Renminbi (buy)	10,440		8,185		202		(327)
United States Dollars (sell) Chinese Renminbi (buy)	45,000		41,000		120		605
Pound Sterling (sell) United States Dollars (buy)	49,031		32,594		545		1,113
United States Dollars (sell) Hungarian Font (buy)	39,000		12,000		(2,174)		828
Hungarian Font (Sell) Euro (buy)	2,828		—		(17)		—
Australian Dollars (sell) Indian Rupees (buy)	97,053		87,513		1,234		(452)
United States Dollars (Sell) Polish Zloty (buy)	—		24,000		—		1,372
Japanese Yen (sell) United States Dollars (buy)	—		10,000		—		(1,134)
Israeli Shekel (sell) United States Dollars (buy)	—		3,000		—		3
South African Rand (sell) United States Dollars (buy)	—		21,000		—		(1,652)
Interest rate swaps (floating to fixed)	460,135		432,248		(7,732)		6,350
					$	18,816	$	(17,130)

(a)Notional amounts are key elements of derivative financial instrument agreements but do not represent the amount exchanged by counterparties and do not measure the Company’s exposure to credit, foreign exchange, interest rate or other market risks. However, the amounts exchanged are based on the notional amounts and other provisions of the underlying derivative financial instrument agreements. Notional amounts are denominated in U.S. dollars.

(b)Balance sheet exposure is denominated in U.S. dollars and denotes the mark-to-market impact of the derivative financial instruments on the reporting date.

6. Derivative financial instruments (Continued)

FASB guidance on derivatives and hedging requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. In accordance with the FASB guidance on derivatives and hedging, the Company designates foreign exchange forward contracts, interest rate swaps and treasury rate locks as cash flow hedges. Foreign exchange forward contracts are entered into to cover the effects of future exchange rate variability on forecasted revenue and purchases of services, and interest rate swaps and treasury rate locks are entered into to cover interest rate fluctuation risk. In addition to this program, the Company uses derivative instruments that are not accounted for as hedges under the FASB guidance in order to hedge foreign exchange risks related to balance sheet items, such as receivables and intercompany borrowings, that are denominated in currencies other than the Company’s underlying functional currency.

The fair values of the Company’s derivative instruments and their location in the Company’s financial statements are summarized in the table below:


	Cash flow hedges				Non-designated
	As of December 31, 2021		As of December 31, 2022		As of December 31, 2021		As of December 31, 2022
Assets
Prepaid expenses and other current assets	$	16,064	$	17,531	$	3,130	$	2,151
Other assets	$	14,876	$	2,005	$	—	$	—
Liabilities
Accrued expenses and other current liabilities	$	11,408	$	23,662	$	1,090	$	11,495
Other liabilities	$	2,756	$	3,660	$	—	$	—

Cash flow hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain (loss) on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction is recognized in the consolidated statements of income. Gains (losses) on the derivatives, representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, are recognized in earnings as incurred.

The Company executed a treasury rate lock agreement for $350,000 in connection with future interest payments to be made on its senior notes issued by Genpact Luxembourg S.à r.l. (“Genpact Luxembourg”) and Genpact USA, Inc. (“Genpact USA”), both wholly-owned subsidiaries of the Company, in March 2021 (the “2021 Senior Notes”), and the treasury rate lock was designated as a cash flow hedge. The treasury rate lock agreement was terminated on March 23, 2021 and a deferred gain was recorded in accumulated other comprehensive income and is being amortized to interest expense over the life of the 2021 Senior Notes. The remaining gain to be amortized related to the treasury rate lock agreement as of December 31, 2022 was $530.

6. Derivative financial instruments (Continued)

In connection with cash flow hedges, the gains (losses) recorded as a component of other comprehensive income (loss) ("OCI"), and the related tax effects are summarized below:


	Year ended December 31,
	2020						2021						2022
	Before-Tax amount		Tax (Expense) or Benefit		Net of tax Amount		Before-Tax amount		Tax (Expense) or Benefit		Net of tax Amount		Before-Tax amount		Tax (Expense) or Benefit		Net of tax Amount
Opening balance	$	(4,126)	$	(1,466)	$	(5,592)	$	(10,921)	$	1,861	$	(9,060)	$	17,468	$	(3,404)	$	14,064
Net gains (losses) reclassified into statement of income on completion of hedged transactions	(6,171)		605		(5,566)		7,628		(1,836)		5,792		(6,815)		(413)		(7,228)
Changes in fair value of effective portion of outstanding derivatives, net	(12,966)		3,932		(9,034)		36,017		(7,101)		28,916		(31,538)		4,534		(27,004)
Gain (loss) on cash flow hedging derivatives, net	(6,795)		3,327		(3,468)		28,389		(5,265)		23,124		(24,723)		4,947		(19,776)
Closing balance	$	(10,921)	$	1,861	$	(9,060)	$	17,468	$	(3,404)	$	14,064	$	(7,255)	$	1,543	$	(5,712)

The gains or losses recognized in other comprehensive income (loss) and their effects on financial performance are summarized below:


Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) recognized in OCI on Derivatives (Effective Portion)						Location of Gain (Loss) reclassified from OCI into Statement of Income (Effective Portion)	Amount of Gain (Loss) reclassified from OCI into Statement of Income (Effective Portion)
	Year ended December 31,							Year ended December 31,
	2020		2021		2022			2020		2021		2022
Forward foreign exchange contracts	$	6,933	$	32,270	$	(44,873)	Revenue	$	4,432	$	1,354	$	3,586
Interest rate swaps	(19,899)		2,931		13,335		Cost of revenue	(4,553)		11,155		(8,668)
Treasury rate lock	—		816		—		Selling, general and administrative expenses	(1,266)		3,012		(1,148)
							Interest expense	(4,784)		(7,893)		(585)
	$	(12,966)	$	36,017	$	(31,538)		$	(6,171)	$	7,628	$	(6,815)

There were no gains (losses) recognized in the statement of income on the ineffective portion of derivatives and excluded from effectiveness testing for the years ended December 31, 2020, 2021 and 2022, respectively.

The Company had interest rate swaps under which the Company received floating rate payments based on the greater of LIBOR and the floor rate under the term loan under the Company's amended and restated credit agreement entered into in August 2018 (the "2018 Credit Agreement") and made payments based on a fixed rate. These interest rate swaps were designated as cash flow hedges. In December 2022, the Company entered into an amended and restated credit agreement (the "2022 Credit Agreement"), which replaced the 2018 Credit Agreement. Upon its entry into the 2022 Credit Agreement, the Company also modified its interest rate swaps. With the modification, the Company now has interest rate swaps under which it will (a) receive floating-rate payments based on the greater of Term SOFR and the floor rate under the term loan under the 2022 Credit Agreement and (b) make payments based on a fixed rate. The Company has elected the optional expedients and exceptions available under Reference Rate Reform Topic 848 and continues to designate its modified interest rate swaps as cash flow hedges.

6. Derivative financial instruments (Continued)

Non-designated Hedges


Derivatives not designated as hedging instruments	Location of Gain (Loss) recognized in Statement of Income on Derivatives	Amount of Gain (Loss) recognized in Statement of Income on Derivatives
		Year ended December 31,
		2020		2021		2022
Forward foreign exchange contracts (Note a)	Foreign exchange gains (losses), net	$	(8,055)	$	12,116	$	(29,499)
Forward foreign exchange contracts (Note b)	Foreign exchange gains (losses), net	3,963		—		—
		$	(4,092)	$	12,116	$	(29,499)

a)These forward foreign exchange contracts were entered into to hedge fluctuations in foreign exchange rates for recognized balance sheet items, such as receivables and intercompany borrowings, and were not originally designated as hedges under FASB guidance on derivatives and hedging. Realized gains (losses) and changes in the fair value of these derivatives are recorded in foreign exchange gains (losses), net in the consolidated statements of income.

b)These forward foreign exchange contracts were initially designated as cash flow hedges under ASC guidance on derivatives and hedging. These contracts were terminated because certain forecasted transactions were no longer expected to occur and therefore hedge accounting was no longer applied. Subsequently, the realized gains (losses) are recorded in foreign exchange gains (losses), net in the consolidated statements of income.