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Directors Report of Power Finance Corporation Ltd.

Mar 31, 2015

Dear Members,

The Directors are pleased to present the 29th Annual Report on the performance of your company for the financial year ended March 31, 2015 along with Audited Financial Statements including Consolidated Financial Statements, Auditor's Report, Secretarial Auditor's Report & Report of Comptroller and Auditor General of India.

1.0 FINANCIAL HIGHLIGHTS

(a) PROFITABILITY

(Rs. in crore)

Particulars 2014-15 2013-14

Profit Before Tax 8378.23 7558.31

Less: Provision for Income Tax (-) 2502.42 (-) 2075.81 (current year)

Less: Provision for Income Tax (-) 0.46 (-) 10.32 (earlier years)

Less: Deferred Tax Liability 83.98 (-) 54.43

Profit After Tax 5959.33 5417.75

Transfer towards provision for Bad & 387.49 321.43 Doubtful Debts u/s 36(1) (viia) (c) of Income Tax Act, 1961

Transfer to Special Reserve created 1850.10 1464.74 and maintained u/s 36(1) (viii) of Income Tax Act, 1961

Debenture Redemption Reserve 310.20 271.23

Interim Dividend 1122.04 1161.64

Proposed Final Dividend 79.20 26.40

Corporate Dividend Tax paid on 224.10 197.41 Interim Dividend

Corporate Dividend Tax on Proposed 16.12 4.49

Final Dividend

Transfer to General Reserve 596.00 542.00

Balance carried to Balance Sheet 1374.08 1428.41

(b) LENDING OPERATIONS (excluding RAPDRP/IPDS)

(Rs. in crore)

Particulars 2014-15 2013-14

Sanction 60784 60729

Disbursement 44691 47162

(c) INTEGRATED POWER DEVELOPMENT SCHEME (IPDS) OPERATIONS (R-APDRP scheme subsumed in)

(Rs. in crore)

Particulars 2014-15 2013-14

Sanctioned project cost 4407 (including 4331 3252 of IPDS)

Disbursement 1571 (including 640 (Claims processed/released) 50 of IPDS)

2.0 FINANCIAL PERFORMANCE

2.1 REVENUE

The total income achieved by your Company during the FY 2014-15 was Rs. 24,906.80 crore registering growth of 16.73% over the total income of Rs. 21,337.60 crore earned during FY 2013-14. Operating income for the year increased from Rs. 21,322.56 crore to Rs. 24,861.32 crore registering a growth of 16.60%.

2.2 EXPENSES

The total expenditure during FY 2014-15 amounted to Rs. 16,528.57 crore as against total expenditure of Rs. 13,779.29 crore in FY 2013- 14. Finance cost including bond issue expenses incurred during FY 2014-15 amounted to Rs. 15,469.58 crore as against the corresponding expenses of Rs. 13,078.82 crore in FY 2013-14. This constituted 93.59% of total expenses in FY 2014-15 as compared to 94.92% during last fiscal. Employee Benefit expenses and Administrative expenses were 0.55% and 0.29% respectively of Finance Cost and 0.52% and 0.27% respectively of total expenses.

2.3 PROFIT

During the FY 2014-15, your Company earned a net profit of Rs. 5,959.33 crore viz-a-viz Rs. 5,417.75 crore for the FY 2013-14 registering an increase of 10%.

2.4 SHARE CAPITAL

As on March 31,2015, the paid-up share capital of your Company was Rs. 1,320.04 crore consisting of 1,32,00,40,704 equity shares of Rs. 10 each of which the Government of India holds 72.80% of the paid-up capital.

2.5 DIVIDEND

Your Directors have recommended a final dividend of Rs. 0.60 per equity share in addition to an interim dividend of Rs. 8.50 per equity share on paid up equity share capital of Rs. 1,320.04 crore, which was paid in March 2015. The total dividend for the FY 2014-15 thus aggregates to Rs. 9.10 per equity share as against Rs. 9.00 per equity share paid for the previous year. The final dividend will be paid after your approval at the Annual General Meeting. The total dividend pay-out for the FY 2014-15 will thus amount to Rs. 1,201.24 crore representing 20.16% of the profit after tax as against a dividend pay-out of Rs. 1188.04 crore representing 21.93% of the profit after tax in the previous year.

3.0 LENDING OPERATIONS

Your Company sanctioned loans amounting to Rs. 60,784 crore during the FY 2014-15 to State, Central, Private and Joint Sector entities. An amount of Rs. 44,691 crore was disbursed during the same period. With this as on March 31,2015, the cumulative sanctions amount to Rs. 4,87,716 crore and cumulative disbursements amount to Rs. 3,45,969 crore.

In addition to above, projects worth Rs. 4,407 crore were sanctioned under IPDS scheme (with R-APDRP subsumed under it) during FY 2014-15. An amount of Rs. 1,571 crore were disbursed during the same period. With this, cumulative sanctions amount to Rs. 42,496 crore and cumulative disbursements amount to Rs. 8,931 crore under IPDS scheme (with R-APDRP subsumed under it).

3.1 Financial Assistance (Excluding R-APDRP/IPDS)

3.1.1 Sector-wise

(Rs. in crore)

2014-15

Category Sanctions Disbursements

State Sector 35105 31964

Central Sector 3577 1084

Private Sector 17016 9496

Joint Sector 5086 2147

Total 60784 44691

Cumulative upto March, 2015

Category Sanctions Disbursements

State Sector 340971 249705

Central Sector 36928 32734

Private Sector 86444 46565

Joint Sector 23373 16965

Total 487716 345969

3.1.2 Discipline-wise (Rs. in crore)

2014-15

Category Sanctions Disbursements

Thermal Generation 22842 20954

Hydro Generation 5751 1637

Wind, Solar, Bagasse and Biomass 989 607

Renovation, Modernization and Uprat- 1735 968 ing of Thermal & Hydro Power Stations

Transmission 3821 3063

Distribution 325 695

Counterpart Funding for R-APDRP Part B

Short Term Loans 4234 4292

Transitional Finance 12289 11339

Funding of Regulatory Assets 6805 500

Buyers Line of Credit 1221 232

Others* 55 105

Total 60784 44691

Cumulative upto March, 2015

Category Sanctions Disbursements

Thermal Generation 258897 179389

Hydro Generation 49892 31022

Wind, Solar, Bagasse and Biomass 3914 2663

Renovation, Modernization and Uprat- 12329 8919 ing of Thermal & Hydro Power Stations

Transmission 44101 26248

Distribution 17777 13919

Counterpart Funding for R-APDRP Part B

Short Term Loans 44536 44060

Transitional Finance 34857 31497

Funding of Regulatory Assets 7905 1600

Buyers Line of Credit 2261 1176

Others* 5618 4452

Total 487716 345969

* Others include Decentralized Distribution Management, Project Settlement, Pre Investment Fund, Technical Assistance Project, Medium Term Loan, Equipment Manufacturing Loan, Loan for Redemption of bond, Loan for Asset Acquisition, Bill Discounting, Studies, Purchase of power through PXI, Computerization, Loan Against Receivables etc.

3.2 Financial Assistance under IPDS

(Rs. in crore)

2014-15

Sanctioned Disbursements Category project cost (Claims processed)

R-APDRP

Part A (IT) 124 356

Part A (SCADA) (-)45 40

Part B 1076 1125

Total 1155 1521

IPDS

IPDS 3252 50

Total 4407 1571

Cumulative upto March, 2015

Sanctioned Disbursements Category project cost Processed)

R-APDRP

Part A (IT) 5472 2826

Part A (SCADA) 1556 455

Part B 32216 5600

Total 39244 8881

IPDS

IPDS 3252 50

Total 42496 8931

4.0 REALISATION

Your Company gives utmost priority to the realisation of its dues towards principal, interest etc. Out of Rs. 41,343.53 crore to be recovered towards principal, interest etc. under rupee term loans, bill discounting, working capital, lease financing, foreign currency loan, loans for equipment financing and guarantee fee, an amount of Rs. 39,747.61 crore was actually realised representing an overall recovery rate of 96.14% (previous year 97.68%). This overall recovery rate has been consistently maintained at 96-99% for over past decade.

In terms of Prudential Norms, as applicable, the provisioning on Non Performing Loan Assets has been increased by an amount of Rs. 231.16 crore during the year. The Company has made a total provision of Rs. 473.46 crore towards Non-Performing Assets (NPA) against Loan Assets in its Annual Accounts upto the year 2014- 15. After making provision on NPA, the level of net Non- Performing Assets (NPA) has been recorded at Rs. 1890.17 crore which is 0.87% to the Total Loan Assets as on March 31,2015.

In addition to above, your company has also made a provision of Rs. 486.57 crore and Rs. 564.44 crore on Standard Assets and Restructured Standard Assets respectively as on March 31, 2015, which would strengthen PFC's balance sheet by providing a buffer provisioning and inspire higher levels of confidence amongst investors, regulators and other stakeholders in your company.

5.0 RESTRUCTURED LOANS

The details of loans restructured during the FY 2014-15 are as follows:

(Rs. in crore)

Particular

No. of Borrowers Standard Loans Restructured Amount Outstanding

No. of Borrowers Sub-Standard Loans Restructured Amount Outstanding

No. of Borrowers Doubtful Loans Restructured Amount Outstanding

No. of Borrowers Total Amount Outstanding

Particular FY 2014-15 FY 2013-14

6 5 Standard Loans Restructured 7082.71 3955.36

1 1 Sub-Standard Loans Restructured 386.23 27.20

- 1 Doubtful Loans Restructured - 414.97

7 7 Total 7468.94 4397.53

6.0 BORROWINGS

Your Company is a non-deposit taking NBFC, and thus has not accepted any public deposits during the FY 2014-15.

6.1 BORROWINGS FROM DOMESTIC MARKET

Your Company mobilized funds amounting to Rs. 55,928.29 crore from the domestic market during FY 2014-15 as against Rs. 45,220.06 crore mobilized during FY 2013-14 comprising of Rs. 46,920 crore through issue of unsecured taxable bonds in the nature of debentures and Rs. 9,008.29 crore by issue of Commercial Paper.

6.2 EXTERNAL BORROWINGS

During the FY 2014-15, your company raised External Commercial Borrowing (ECB) of USD 700 million through Syndicated Loan as per the following details:

Amount S.No Particulars (Rs. crore)

1 Syndicated Loan USD 250 million (SLN 16) 1549.24

2 Syndicated Loan USD 150 million (SLN 17) 932.89

3 Syndicated Loan USD 150 million (SLN 17) 932.89

4 Syndicated Loan USD 150 million (SLN 17) 932.89

Total 4347.92

Date of Date of Fixed/ S.No Period drawl Maturity Floating

1 5 years Floating

2 March 26, 66 months Floating

3 March 26 72 months Mar°h 26 Floating

4 March 26, 78 months September Floating

6.3 CASH CREDIT/ OVERDRAFT FACILITIES

For day to day operations, your company continued to follow prudent strategies for optimum utilization of fund based resources. To hedge any financial liquidity bottlenecks, ample credit lines to the tune of Rs. 9,555 crore were sanctioned as on March 31, 2015 by various scheduled commercial banks to the company for short term funding which do not bear any commitment charges towards unutilized limits.

7.0 PARTICULARS REGARDING CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS & OUTGO

7.1 CONSERVATION OF ENERGY/ TECHNOLOGY ABSORPTION

There are no significant particulars, relating to conservation of energy and technology absorption as your Company does not own any manufacturing facility.

7.2 FOREIGN EXCHANGE EARNINGS AND OUTGO

The Foreign exchange outgo aggregating Rs. 326.17 crore was made on account of debt servicing, financial & other charges and training expenses.

The Foreign exchange earnings for the FY 2014-15 were nil.

8.0 CREDIT RATING

International

During the FY 2014-15, the international credit rating agencies Moody's, Fitch and Standard and Poor's have given to your company, long term currency issuer ratings of Baa3, BBB- and BBB- respectively, which are at par with sovereign rating for India.

Domestic

Ratings assigned by domestic rating agencies during FY 2014-15, for your Company's long term domestic borrowing programme (including bank loans) were the highest rating of CRISIL AAA, ICRA AAA and CARE AAA by CRISIL, ICRA and CARE respectively. The Company's short term domestic borrowing programme (including bank loans) was awarded the highest rating of CRISIL A1 , ICRA A1 and cArE A1 by CRISIL, ICRA and CARE respectively.

9.0 RISK MANAGEMENT

9.1 ASSET LIABILITY MANAGEMENT

Your Company has put in place an effective Asset Liability Management System and constituted an Asset Liability Management Committee (ALCO) headed by Director (Finance). ALCO monitors risks related to liquidity & interest rate and also monitors implementation of decisions taken in the ALCO meetings. The Asset Liability Management framework includes periodic analysis of long term liquidity profile of asset receipts and debt service obligations. Such analysis is made every month in yearly buckets for the next 10 years and is used for critical decisions regarding the time, volume and maturity profile of the borrowings, creation of new assets and mix of assets and liabilities in terms of time period (short, medium and long-term). While the liquidity risk is being monitored with the help of liquidity gap analysis, the interest rate risk is managed by analysis of interest rate sensitivity gap statements, evaluation of Earning at Risk (EaR) on change of interest rate and creation of assets and liabilities with the mix of fixed and floating interest rates.

The maturity profile of certain items of assets and liabilities as at March 31,2015 is set out below:

(Rs. in crore)

Maturity pattern of certain items of Assets and Liabilities based on Audited Balance Sheet as on March 31,2015

Particulars 2015-16 2016-17 2017-18

Rupee Loan Assets 15,794 17,589 19,088

Foreign Currency Assets 39 33 5

Investments 504 0 0

Foreign Currency Liabilities 2,051 1,930 1,154

Rupee Liabilities 23,565 20,380 21,324 (Bonds RTL STL)

Particulars Beyond 2018-19 2019-20 2019-20 Rupee Loan Assets 19,544 20,616 1,24,571 Foreign Currency Assets 0 92 144 Investments 0 0 347 Foreign Currency Liabilities 19 1,596 2,981 Rupee Liabilities

(Bonds RTL STL) 20,491 20,224 72,417

Particulars Total

Rupee Loan Assets 2,17,202

Foreign Currency Assets 313

Investments 851

Foreign Currency Liabilities 9,731

Rupee Liabilities 1,78,401 (Bonds RTL STL)

9.2 FOREIGN CURRENCY RISK MANAGEMENT

Your Company has put in place Currency Risk Management (CRM) policy to manage risks associated with foreign currency borrowings. The Company enters into hedging transactions to cover exchange rate and interest rate risk through various instruments like currency forward, option, principal swap and forward rate agreements.

As on March 31,2015, the total foreign currency liabilities are USD 1272.70 million, JPY 24,208.80 million and Euro 18.96 million. On an overall basis, the currency exchange rate risk is covered to the extent of 10% through hedging instruments and lending in foreign currency.

9.3 INTEGRATED ENTERPRISE WIDE RISK MANAGEMENT

Your Company has put in place a mechanism to ensure that the risks are monitored carefully and managed efficiently. In this regard, your company had constituted the Risk Management Committee of Directors to monitor various risks, examine risk management policies & practices and initiate action for mitigation of risks arising in the operations. To facilitate this, the Company had put in place an Integrated Enterprise - Wide Risk Management Policy (IRM Policy).

The Company has identified 21 risks (8 quantifiable risks and 13 non quantifiable risks) which may have an impact on profitability/revenues of the Company. In order to implement IRM policy, the Risk Management Committee of Directors constitutes Risk Management Compliance Committee and a separate unit for monitoring of the identified risks. The unit continuously monitors the risks from time to time and ensures that the risks are being mitigated on time.

10.0 ULTRA MEGA POWER PROJECTS (UMPPs) AND INDEPENDENT TRANSMISSION PROJECTS (ITPs)

10.1 UMPPs

Your Company has been designated as the 'Nodal Agency' by Ministry of Power (MoP), Government of India, for development of Ultra Mega Power Projects (UMPPs), with a capacity of about 4,000 MW each. Sixteen such UMPPs have been identified to be located at Madhya Pradesh (Sasan), Gujarat (Mundra), Andhra Pradesh (Krishnapatnam), Jharkhand (Tilaiya), Chhattisgarh (Surguja), Karnataka, Maharashtra (Munge), Tamil Nadu (Cheyyur), Odisha (Sundargarh), Bihar, Uttar Pradesh, 2 Additional UMPPs in Odisha and 2nd UMPP in Tamil Nadu, Gujarat and Jharkhand (Deoghar).

UMPP is the initiative of Government of India with Ministry of Power as the 'facilitator' for the development of these UMPPs while Central Electricity Authority (CEA) is the 'Technical Partner'. Till March 31, 2015, 15 Special Purpose Vehicles (SPVs) were established by the Company for UMPPs, out of these, 13 SPVs were incorporated to undertake preliminary site investigation activities necessary for conducting the bidding process for the projects. These SPVs shall be transferred to successful bidder(s) selected through Tariff Based International Competitive Bidding Process for implementation and operation. Two additional SPVs were incorporated by PFC for holding the land for Cheyyur UMPP and for holding the land and coal blocks for Odisha UMPP. These SPVs would be transferred to the respective procurers of power from these projects.

Out of these 13 SPVs, 4 SPVs have been transferred to the successful bidders as indicated below:

S.No Name of SPV Successful Bidder

1 Coastal Gujarat Power Ltd. The Tata Power Company Ltd.

2 Sasan Power Ltd. Reliance Power Ltd.

3 Coastal Andhra Power Ltd. Reliance Power Ltd.

4 Jharkhand Integrated Power Ltd. Reliance Power Ltd.

S.No Date of Transfer

1 April 22, 2007

2 August 7, 2007

3 January 29, 2008

4 August 7, 2009

During the year, the bidding process for Odisha and Cheyyur UMPPs was suspended to be initiated after Standard Bidding Documents (SBDs) are revised by MoP.

10.2 ITPs

Ministry of Power has also initiated Tariff Based Competitive Bidding Process for development and strengthening of Transmission system through private sector participation.

The objective of this initiative is to develop transmission capacities in India and to bring in the potential investors after developing such projects to a stage having preliminary survey work, identification of route, preparation of survey report, initiation of process of land acquisition for sub-stations, if any, initiation of process of seeking forest clearance, if required etc.

Till March 31,2015, 18 Special Purpose Vehicles (SPVs), 2 by PFC and other 16 by PFC Consulting Limited were established as wholly owned subsidiaries for ITPs. Out of these 18 SPVs, Bokaro- Kodarma Maithon Transmission Company Limited was liquidated in December 2010 and 8 SPVs were transferred to the successful bidders till last fiscal. During the FY 2014-15, PFCCL has transferred DGEN Transmission Company Limited to the successful bidder Instalaciones Inabensa, S.A., Spain.

During the year, the bidding process for Tanda Transmission Company Limited (TTCL) for the transmission project "ATS for Tanda Expansion TPS (2X660 MW)" was re-initiated in October 2014.

During the year, Ministry of Power appointed PFC Consulting Limited as Bid Process Coordinator (BPC) for six new Independent Transmission Projects to be implemented through Tariff Based Competitive Bidding Process. PFC Consulting Limited incorporated following SPVs as its wholly owned subsidiaries for these projects and initiated bidding process as per following details and SPVs for the remaining 2 projects are being incorporated:

S.No. Project Name

1 Northern Region System Strengthening Scheme - XXXV

2 System strengthening for IPPs in Chhattisgarh and other generation projects in Western Region

3. Additional System Strengthening For Sipat STPS

4. Additional System Strengthening Scheme for Chhattisgarh IPPs

5. Additional Inter-Regional AC link for import into Southern Region i.e. Warora-Warangal and Chilakaluripeta-Hyderabad-Kurnool 765 kV link

6. Common Transmission System for Phase-II . Generation Projects in Odisha and immediate Evacuation System for OPGC (1320 MW) Project in Odisha

S.No. SPV Date of Incorporation

1 Mohindergarh-Bhiwani December 23, 2014 Transmission Limited

2 Chhattisgarh-WR Transmission December 24, 2014 Limited

3. Sipat Transmission Limited December 23, 2014

4. Raipur-Rajnandgaon-Warora Transmission Limited December 23, 2014

5. Warora-Kurnool Transmission April 20, 2015 Limited

6. Odisha Generation Phase - II April 17, 2015 Transmission Limited

Bidding process is underway for the above projects and is likely to be completed in FY 2015-16.

The bidding process for the Ballabhgarh-GN Transmission Company Limited (BGNTCL), SPV for the transmission project "Northern Region System Strengthening Scheme - XXXIII" is kept in abeyance on the advise of CEA due to issues related to dispute in the PPA between NPCL and Essar Power (Jharkhand) in case of BGNTCL.

11.0 INTEGRATED POWER DEVELOPMENT SCHEME (with RESTRUCTURED ACCELERATED POWER DEVELOPMENT AND REFORM PROGRAMME (R-APDRP) subsumed in)

Ministry of Power, Government of India has launched a reforms programme namely, Integrated Power Development Scheme (IPDS) in December, 2014 aiming at:

(i) 24x7 power supply for consumers

(ii) Reduction of AT&C losses &

(iii) Providing access to all urban households

Erstwhile, R-APDRP scheme has been subsumed in newly launched IPDS scheme.

As a part of R-APDRP, for the first time, Information Technology (IT) is being deployed in identified 1,412 towns of the country for establishment of accurate, reliable & sustainable baseline data, business process automation, carrying out energy audit for identifying AT&C losses and better consumer services etc. in the power distribution sector.

Also under Part-A, projects for Supervisory Control and Data Acquisition (SCADA) System/ Distribution Management System (DMS) is being established in big towns in the country (72 towns) for real time operation and control of Distribution Network for improvement of efficiency, quality and reliability of power supply.

Further, under Part-B, projects for Distribution Strengthening and Improvement are being implemented in over 1,259 towns of the country. The main focus of the scheme is reduction of AT&C losses to 15% or below.

Your Company, as nodal agency, has contributed significantly in implementation of RAPDRP programme during the FY 2014-15. The company cumulatively upto FY 2014-15 sanctioned, Part-A (IT) schemes of all eligible 1,412 towns, Part-A (SCADA) schemes for 72 towns and Part-B schemes for 1259 towns. During the year, your company sanctioned '1,155 crore of projects. The cumulative sanction under R-APDRP is Rs. 39,244 crore as on March 31,2015.

Your company has also disbursed an amount of Rs. 1,521 crore (claims processed) upto March 31,2015 to the state utilities. The cumulative disbursement under R-APDRP is Rs. 8,881 crore (claims processed) as on March 31,2015.

With the measures taken so far, as on March 31, 2015, Data Centers in cumulatively 19 States have been commissioned. Further, 861 towns have gone live in 23 states in which all business process software modules are functional and energy audit reports are being derived from the system.

During the year, for implementation of Part-B projects of R-APDRP, utilities have tied up counterpart funding amounting to Rs. 873 crore. With this, cumulative counterpart funding tied up amounts to Rs. 15,727 crore of which Rs. 4,497 crore is from PFC. Implementation work has commenced cumulatively in 1108 towns, to strengthen & improve distribution system and reduce AT&C losses to 15% or below.

During the year, utilities have also appointed SCADA Implementing Agencies in 12 states for implementation of projects in 47 towns. Overall, SCADA Implementing Agencies have been appointed in 18 states for 69 towns.

For capacity building and to recognize the need and to keep pace with technology, contemporary knowledge and skill, your company imparted training on various themes to personnel of Power Utilities for 8,550 man days against MoU target of 6,000 man days.

The reduction in AT&C losses are likely to be visible in R-APDRP towns in the utilities in next one to five years with establishment of IT system and Part-B completion in various towns coupled with administrative and other measures. Thus, your company shall be contributing largely in improvement of financial health of Distribution utilities which shall consequently improve health of Transmission and Generation Power Utilities, resulting in improvement of quality of assets of your company for such borrowers in the State Power Sector.

12.0 INITIATIVES TOWARDS REFORMS AND RESTRUCTURING

Your Company has been assisting the State Power Utilities in their sustainable reform and restructuring program. During the year, your company has disbursed an amount of Rs. 50 lakh towards grant for reform related studies to Bihar State Power Holding Company Limited (BSPHCL).

PFC has also been encouraging its clients to take IT initiatives for overall operational and managerial improvement. During the year, an amount of Rs. 3.58 crore has been sanctioned and Rs. 3.84 crore disbursed for computerization schemes of State Power Utilities (other than computerization schemes covered under R-APDRP).

CATEGORISATION OF UTILITIES

For purposes of funding, your company classifies State Power Utilities into A , A, B and C categories. The categorization (biannually) of State Power Generation and Transmission utilities is arrived based on the evaluation of utility's performance against specific parameters covering operational & financial performance including regulatory environment, generation of audited accounts, etc. With regards to State Power Distribution utilities (including SEBs / utilities with integrated operations), your company's categorization policy provides for adoption of MoP's Integrated Ratings. The categorization enables your company to determine credit exposure limits and pricing of loans to the state power utilities. In April, 2015, 105 utilities were categorized, 28 as "A ", 47 as "A", 23 as "B" and 7 as "C".

Quarterly and Annual Report of State Power Utilities

Your company is releasing one page research report on the performance of each of the State Power Utilities (SPUs) on a quarterly basis. The report contains key operational and financial performance parameters, reform status, status of implementation of Electricity Act 2003 and areas of concern. The report is forwarded to the stakeholders in the power sector. The Report is a useful tool in flagging the key issues/areas of concern to be reviewed by the SPUs for taking mid-term corrective measures for the overall improvement of the sector.

During the FY 2014-15, your company has issued performance reports for the quarter January-March 2014, April-June 2014, July- September 2014 & October-December 2014 covering 41, 41,43 and 40 utilities respectively.

During FY 2014-15, your company also submitted to MoP, the 11th edition of the 'Report on the Performance of State Power Utilities (SPUs)' for the years 2010-11 to 2012-13 covering 96 utilities. The Report is a comprehensive study of the performance of the SPUs on key financial and operational parameters like profitability, gap between average cost of supply and average realization (Rs. /kwh), net worth, capital employed, receivables, payables, capacity (MW), generation (Mkwh), AT&C losses (%) etc. and consumption pattern of the sector at utility, state, regional and national level. The 12th edition of the Report for the years 2011-12 to 2013-14 is under finalization.

During the year, your company also prepared the Strategic Analysis Report for State Distribution Utilities to present the overall picture of the Distribution sector in each state.

13.0 POLICY INITIATIVES

Your company constantly reviews and revises its lending policies/guidelines/products to suitably align these with market conditions as also with its corporate objectives. Your company also introduces new lending policies/guidelines/products to meet the dynamic business requirement.

During the year, your company introduced various new policies/guidelines/products like Takeout Financing to enable the participation of other lenders with no appetite for long tenure loans and to facilitate down selling of your company's underwritten loan portfolio. In addition a scheme for newly formed Gencos / Transco / Discoms incorporated out of bifurcation/reorganization of State was introduced for meeting the temporary liquidity crunch being faced by the Gencos/Transco/Discoms during its initial years.

In order to increase your company's loan portfolio and to address the problem of power sector, the company also reviewed its policies/guidelines/products with respect to cost overrun funding to private sector projects; Buyer's Line of Credit and Repayment period of project loans.

The interest rates in respect of term loan and short term loan were reviewed and revised periodically during the financial year. Further, in order to address the ALM problem, differential interest rates have been introduced for 5 year reset and 10 year reset option.

The financial charges/fees were also reviewed and modified from time to time. Further, fees for few products have been introduced.

14.0 FACILITATION SERVICES

The Facilitation Group (FG) has been set up to expand PFC's financing business beyond its traditional products into new areas of Forward & Backward linkages to the Power sector. The Facilitation Group (FG) is also mandated to explore the opportunities of expanding PFC's business in new geographies.

As a pro-active step for facilitating the availability of finance for projects, your company has evolved a scheme for financing of projects in the area of Fuel Sources Development & Distribution (FSD&D).

Your Company has entered into Memorandums of Understandings (MoUs) with leading PSUs for providing assistance in appraising projects by utilising their expertise and experience.

* Central Mine Planning and Design Institute Ltd. (CMPDIL) for the appraisal of projects related to development of coal block/ mines associated with power projects.

* National Institute of Technology (NIOT) for the appraisal of marine terminal for handling the fuel associated with power sector

MoU with RITES Ltd. for appraisal of projects related to transportation of fuel for power projects is in advance stage of finalization. Your company has also received applications for financing of projects related to coal block allocated through e-auction by Ministry of Coal, Govt. of India.

Also, financial assistance for setting up/ expansion of equipment manufacturing capacity for power sector etc. is extended by your company under the 'Equipment Manufacturing (EM) Scheme for Power Sector'.

15.0 RENEWABLE ENERGY AND CLEAN DEVELOPMENT MECHANISM (RE&CDM)

Your company provides financial support to Renewable Energy Generation projects like wind farms, small hydro projects, bio-mass projects and solar projects and also energy saving projects in the form of higher exposure and special rate of interest in State and Private sectors.

During the FY 2014-15, loans amounting to Rs. 1,065 crore with total capacity of 346 MW were sanctioned for State and Private sectors. Your company has also disbursed around Rs. 607 crore during the financial year. In addition, a loan of Rs. 24.40 crore has also been sanctioned to APSPDCL under energy saving project for setting up of 3000 solar pumps in AP.

As on March 31,2015, your company has cumulatively supported a total generation capacity of 1672 MW, extending financial assistance of Rs. 5,265 crore and disbursed Rs. 3,681 crore to all kinds of renewable energy projects with an aggregate project cost of Rs. 11,065 crore.

16.0 PROMOTION OF POWER TRADING THROUGH POWER EXCHANGE

In the FY 2008-09, the Central Electricity Regulatory Commission had granted its permission to set up power exchanges in the country. As on date, 2 power exchanges, namely, Power Exchange India Ltd. (PXIL) and Indian Energy Exchange Ltd. (IEX) are in operation. These power exchanges have a nationwide presence in the form of electronic exchange for trading in power. The trading through power exchanges have certainly lent an impetus for power sector development since it acts as an open and transparent mechanism for buyers and sellers and provides investment signal to the prospective investors. Further with the presence of these exchanges, the available resources shall be used optimally.

Your company has contributed Rs. 3.22 crore (being 6.64% of paid up equity upto March 31,2015) towards equity contribution in Power Exchange India Ltd., promoted by NSE and NCDEX.

17.0 EQUITY FINANCING

Equity investment business is generally considered as a logical extension of debt business. Your Company is endeavoring to make a mark in the area of equity investment to capitalize on its vast domain knowledge & experience. Your company aims to leverage its financial strength, large debt providing capability and power sector expertise to invest in equity of suitable power projects. Over a period of time, your company proposes to build an equity portfolio of power assets which could provide consistent gains in the form of dividend and/or capital appreciation. PFC has obtained consent of RBI to invest in equity of power projects ranging between 0.5% and 5% of its own net worth in a single company. Presently, "Equity Policy", paving way for PFC to take equity stakes in power projects, is being revisited to make it more flexible and customer friendly before evaluating equity proposals.

18.0 PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS UNDER SECTION 186 OF COMPANIES ACT, 2013

Your Company being a Non-Banking Financial Company engaged in business of financing companies is exempt from the relevant provisions of Sec.186 of the Companies Act, 2013.

19.0 SUBSIDIARIES

To focus on additional business in the areas of consultancy, renewable energy, consortium lending, equity financing, etc. following wholly owned subsidiaries have been incorporated by your Company, as on date:

(i) PFC Consulting Limited

(ii) PFC Green Energy Limited

(iii) PFC Capital Advisory Services Limited

(iv) Power Equity Capital Advisors Private Limited

The Board of Directors of the Company in its meeting held on May 28, 2015 approved the Merger of PFC Capital Advisory Services Ltd. (PFCCAS) with PFC Consulting Ltd. (PfCCL). It is envisaged that the area of operations of PFCCAS (Debt Syndication, Debenture Trustee, Strategy/ Financial Advisory) can complement the area of operations of PFCCL (Reform Advisory, Tariff Bid Process Advisory, Communication Services etc.) providing synergy in the merger of PFCCL and PFCCAS. The process to seek regulatory approvals for the merger has been initiated.

Further, your Company is designated by Ministry of Power, Government of India as the 'nodal agency' for facilitating development of Ultra Mega Power Projects and its wholly owned subsidiary i.e. PFC Consulting Limited is the 'Bid Process Coordinator' for Independent transmission projects. As on date, for the said purpose, the following Special Purpose Vehicles (SPVs) have been incorporated as subsidiaries/deemed subsidiaries of the Company:

(i) Chhattisgarh Surguja Power Limited (Previously known as Akaltara Power Ltd.)

(ii) Coastal Karnataka Power Limited

(iii) Coastal Maharashtra Mega Power Limited

(iv) Coastal Tamil Nadu Power Limited

(v) Orissa Integrated Power Limited

(vi) Sakhigopal Integrated Power Company Limited

(vii) Ghogarpalli Integrated Power Company Limited

(viii) Tatiya Andhra Mega Power Limited

(ix) Deoghar Mega Power Limited

(x) Cheyyur Infra Limited

(xi) Odisha Infrapower Limited

(xii) Deoghar Infra Limited - Incorporated on June 30, 2015

(xiii) Bihar Infrapower Limited - Incorporated on June 30, 2015

(xiv) Bihar Mega Power Limited - Incorporated on July 9, 2015

(xv) Tanda Transmission Company Limited (a wholly owned subsidiary of PFC Consulting Limited)

(xvi) Ballabhgarh-GN Transmission Company Limited (a wholly owned subsidiary of PFC Consulting Limited)

(xvii) Sipat Transmission Limited (a wholly owned subsidiary of PFC Consulting Limited) - Incorporated on December 23, 2014

(xviii) Raipur-Rajnandgaon-Warora Transmission Limited (a wholly owned subsidiary of PFC Consulting Limited) - Incorporated on December 23, 2014

(xix) Mohindergarh- Bhiwani Transmission Limited (a wholly owned subsidiary of PFC Consulting Limited) - Incorporated on December 23, 2014

(xx) Chhattisgarh-WR Transmission Limited (a wholly owned subsidiary of PFC Consulting Limited) - Incorporated on December 24, 2014

(xxi) South-Central East Delhi Power Transmission Limited (a wholly owned subsidiary of PFC Consulting Limited) - Incorporated on February 18, 2015

(xxii) Odisha Generation Phase - II Transmission Limited (a wholly owned subsidiary of PFC Consulting Limited) - Incorporated on April 17, 2015

(xxiii) Warora-Kurnool Transmission Limited (a wholly owned subsidiary of PFC Consulting Limited) - Incorporated on April 20, 2015

Further, during the FY 2014-15, DGEN Transmission Company Limited, a wholly owned subsidiary of PFC Consulting Limited was transferred and thus ceased to be a subsidiary.

19.1 PFC CONSULTING LIMITED

Your Company had been offering consultancy support to the Power Sector through its Consultancy Services Group (CSG) since October 1999. Leveraging the experience of the CSG Unit and appreciating the growth in the services offered by the Group and recognizing the potential of such services in reforming Power Sector, your Company decided to organize these services under a distinct dedicated business entity. Accordingly, PFC Consulting Limited (PFCCL) was incorporated in the form of a wholly owned subsidiary on March 25, 2008, to provide it with requisite autonomy in functions and flexibility in operations. PFCCL is mandated to promote, organize and carry out consultancy services to the Power Sector and is also undertaking the work related to the development of UMPPs and ITPs. PFCCL has been nominated as the 'Bid Process Coordinator' for selection of developer for the Independent Transmission Projects (ITPs) by Ministry of Power, GoI.

The Services offered by PFCCL are broadly in the following areas:

* Advisory services on issues emanating from implementation of Electricity Act 2003 like reform, restructuring, regulatory etc.

* Tariff based competitive bidding as per the Guidelines issued by MoP, GoI for various segments of Power Sector

* Project-structuring/ planning/ development/ specific studies, implementation monitoring, efficiency improvement projects

* Communication, information dissemination and feedback

* Preparation of organization performance improvement plans

* Contract related services for power sector

* Financial management, resource mobilization, accounting systems etc.

* Coal block development

* Renewable and non-conventional energy project development

* Distribution system strengthening, IPDS and DDUGJY etc.

Till date, consultancy services have been rendered to 51 clients spread across 23 States/UTs by PFCCL. The total number of assignments undertaken as on date is 93.

Further, during the FY 2014-15, the total income of PFCCL was Rs. 49.40 crore vis-a-vis Rs. 55.19 crore in the previous FY 2013-14 and the net profit earned by PFCCL during FY 2014-15 was Rs. 21.70 crore as against the corresponding net profit of Rs. 26.96 crore last fiscal

19.2 PFC GREEN ENERGY LIMITED

PFC GEL was incorporated on March 30, 2011 as a wholly owned subsidiary of your company to extend finance and financial services to promote green (renewable and non-conventional) sources of energy. As on March 31,2015, PFC GEL had an authorized share capital of Rs. 1200 crore and paid-up share capital of Rs. 300 crore comprising of 10 crore Equity Shares of Rs. 10/- each and 20 crore Fully Convertible Preference Shares of Rs. 10/- each.

The financial assistance sanctioned by PFC GEL during the FY 2014-15 would help capacity creation of about 173 MW from renewable energy sources. During FY 2014-15, the Company made sanction and disbursement of Rs. 554.78 crore and Rs. 71.67 crore respectively. Out of the total sanction of Rs. 554.78 crore, 44% (Rs. 246.11 crore) was sanctioned towards the state sector project and 56% (Rs. 308.67 crore) was sanctioned towards private sector projects. Cumulatively, the sanctions and disbursements by the Company till March 31, 2015 is Rs. 806.85 crore and Rs. 97.13 crore respectively. The Company continues to diversify its portfolio across the renewable energy technologies and has a healthy composition across wind, solar & small hydro sectors.

The total income achieved by the Company during the FY 2014-15 is Rs. 33.65 crore and earned a net profit of Rs. 18.91 crore.

PFC GEL has taken steps to increase its business in the Renewable energy sector and it has signed a MoU with IREDA (Indian Renewable Energy Development Agency Ltd.) and with ( PTC Financial Services Limited) on May 21,2014 and September 10, 2014 respectively to jointly finance renewable energy projects.

For the FY 2015-16, PFC GEL has signed a Memorandum of Undertaking with PFC with sanction and disbursement targets of Rs. 800 crore and Rs. 275 crore respectively after deliberations with MoU Task Force constituted under the auspices of Department of Public Enterprises.

During the FY 2014-15, PFC GEL has been conferred with 'Sourya Urja Puraskar 2014' of 'Innovative Sourya Urja Financier of the Year' for the year 2013-14.

Since the company is dedicated for renewable energy projects such as wind, solar, biomass, hydro etc. it is envisaged to mobilize dedicated green funds available in the market. With the flow of funds dedicated for the green energy, the company shall be in the position to provide loans at competitive interest rates in future.

19.3 PFC CAPITAL ADVISORY SERVICES LIMITED

PFC Capital Advisory Services Limited (PFCCAS) was incorporated as a wholly owned subsidiary of your company on July 18, 2011 to focus on sectoral requirements for financial advisory services, including syndication services. The Company is also involved with the activities related to Power Lenders' Club, an exclusive set of Banks & FIs financing power projects under a consortium arrangement under the aegis of PFC. The authorised capital of the Company is '1 crore and the paid up share capital of the Company is Rs. 0.10 crore.

Presently PFCCAS is active in debt syndication services and is carrying out down selling of project loans underwritten by your company and is handling business proposals across various domains in power sector i.e. thermal, hydro and wind etc.

During FY 2014-15, PFCCAS has arranged sanction of loans of Rs. 1,266 crore out of loans underwritten by PFC while the new assignments for debt syndication services were Rs. 8,435 crore. During the year, PFCCAS was registered with SEBI to act as a Debenture Trustee (Registration Number IND000000551) and has issued special edition on Newsletter covering insights on power sector in March 2015.

During the year, total income of PFCCAS was Rs. 4.85 crore with net profit of the company is Rs. 1.85 crore from syndication services.

PFCCAS has initiated steps to diversify its portfolio of services and is looking at business opportunities in equity funding advisory services in power sector. The company had also filed application for grant of Certificate of Registration as Investment Advisor from SEBI and the same has been granted in August 2015.

Further, Board of Directors of PFC in its meeting held on May 28, 2015 approved the merger of PFC Capital Advisory Services Ltd. (PFCCAS) with PFC Consulting Ltd. (PFCCL) subject to regulatory and other compliances.

19.4 POWER EQUITY CAPITAL ADVISORS PRIVATE LIMITED

Power Equity Capital Advisors Private Limited (PECAP), the wholly owned subsidiary of your company has not been able to transact any business due to lack of business proposals even after its acquisition by PFC and accordingly approval has been sought from MoP for dissolving and getting the name of the Company struck off from the records of Registrar of Companies, which is awaited.

20.0 JOINT VENTURES, ASSOCIATE COMPANIES AND OTHER MAJOR INVESTMENTS

20.1 NATIONAL POWER EXCHANGE LIMITED (NPEX)

In order to promote short term trading through power exchange, your company had promoted National Power Exchange Ltd (NPEX), jointly with NTPC, NHPC and TCS during 2008-09. Your company has contributed Rs. 2.19 crore (being 16.66% of paid up equity upto March 31,2015) towards equity contribution. NTPC and NHPC had expressed their intention to exit from JV Company and based on the recommendations of the Group of Promoters (GoP) of NPEX in March 2014, the Board of Directors of NPEX has decided for voluntary winding up of NPEX. The process of winding up of NPEX is in process.

20.2 ENERGY EFFICIENCY SERVICES LIMITED

Energy Efficiency Services Limited (EESL) was incorporated on December 10, 2009. EESL was jointly promoted by Power Grid, NTPC, REC and PFC with 25% equity stake each for implementation of Energy Efficiency projects in India and abroad. It is the main implementation arms of the National Mission on Enhanced Energy Efficiency (NMEEE). During the FY 2015-16, PFC has contributed '25 crore as additional equity contribution in EESL. EESL has reported profit after tax of Rs. 9.06 crore for the year.

20.3 PTC INDIA LIMITED

PTC India Limited (PTC) was jointly promoted by Power Grid, NTPC, NHPC and PFC. Your Company has invested Rs. 12 crore in PTC which is 4.05% of PTC's total equity. PTC is the leading provider of power trading solutions in India, a Government of India initiated public-private partnership, whose primary focus is to develop a commercially vibrant power market in the country. During the year, PTC maintained its leadership position with trading volumes at 37137 MUs. PTC has reported profit after tax of Rs. 203.10 crore for the year.

20.4 POWER EXCHANGE INDIA LIMITED

Power Exchange India Limited (PXIL) is India's first institutionally promoted Power Exchange that provides innovative and credible solutions to transform the Indian Power Markets. PXIL, provides Nation-wide, electronic Exchange for trading of power and handles power trading and transmission clearance, simultaneously, it provides transparent, neutral and efficient electronic platform. PXIL offers various products such as Day Ahead, Day Ahead Contingency, Any Day, Intra Day and Weekly Contracts. PXIL provides trading platform for Renewable Energy Certificates. Your Company has made an equity investment of Rs. 3.22 crore in exchange (being 6.64% of PXIL's paid up equity share capital as on March 31,2015).

21.0 MEMORANDUM OF UNDERSTANDING WITH GOVT. OF INDIA

Your Company has been consistently accorded 'Excellent' Rating by Government of India since FY 1993-94 except for FY 2004-05. For the FY 2014-15, your company has achieved all the MoU targets and has obtained maximum MoU score of '1.00' for the second consecutive year.

22.0 PRESIDENTIAL DIRECTIVES

The Company has not received any Presidential directives during FY 2014-15.

23.0 CORPORATE SOCIAL RESPONSIBILITY

Your Company has implemented its CSR and Sustainability Policy with all its earnest and zeal. The aim of the CSR & Sustainability Policy is to ensure that the Company becomes a socially responsible corporate entity committed to improving the quality of life of the society at large. To oversee the activities of CSR, the company has in place a Board level CSR&SD Committee of Directors headed by an Independent Director.

For the FY 2014-15, the Board had approved the CSR budget of Rs. 117.49 crore based on 2% of the average stand-alone PBT as per Companies Act 2013 excluding dividend received from other companies covered under and complying with Section 135 of the Act in line with Rule 2(f) (ii) of Companies (CSR Policy) Rules 2014. During the FY 2014-15, projects worth Rs. 304.10 crore (inclusive of Rs. 1.78 crore on account of CSR administrative expenses incurred in FY 2014-15) were sanctioned and your company implemented wide range of activities in the field of Solar energy, Sanitation, Skill Development etc. in various states.

Due to the gestation period involved in the sanctioned projects, the Company has disbursed Rs. 51.68 crore (inclusive of Rs. 1.78 crore on account of CSR administrative expenses incurred in FY 2014-15) out of the available sanctions and the remaining budget will be utilized/disbursed based on the progress achieved for completion of the projects. Further it is not out of place to mention that as per the DPE guidelines, the CSR Budget is non-lapsable and carried forward to the next year. So the entire budget will be utilized for CSR activities.

The CSR Report under Companies (CSR Policy), Rules is annexed herewith.

24.0 HRD INITIATIVES LEARNING & DEVELOPMENT

Your company attaches great importance to the employee development and their competency. Your company reviews the need for learning as an ongoing process and provides opportunity to keep the employees abreast with latest trend in their respective functional areas. Additionally to keep pace with competition, senior executives are given exposure in advance management techniques through premier management Institutes in India and abroad. In order to achieve this, the Company has an annual training plan to assess the various training needs. Necessary professional skills are also imparted across all levels of employees through customized training interventions.

During the year 2014-15, your company organized 26 in-house programs. A total of 1691 mandays were achieved during the period under review of which 1053 were through in-house programs and 638 were through nominations to open programmes organized by other training institutes.

HUMAN RESOURCE MANAGEMENT

Your company lays great emphasis on upgrading the skills of its Human Resources. It benchmarks its practices with the best practices being followed in the other Public Sector Companies. This, apart from other strategic interventions, lead to an effective management of Human Resources thereby ensuring a high level of productivity.

Your company regularly interacts with the employee representatives to ensure cordial and harmonious employee employer relations. Due to the positive work culture in the organization, no mandays were lost during the period under review.

WELFARE MEASURES

Your Company follows best management practices to ensure welfare of its employees through a process of inclusive growth & development. Your company follows open door policy and absolute accessibility to top management thereby facilitating the growth of the organization. Employee commitment is high due to various employee welfare measures that are best in the sector including various welfare policy measures such as comprehensive insurance, medical facilities and other amenities which has resulted in team spirit and healthy work atmosphere. Your company is one of the very few organizations in forming Contributory Post Retirement Medical Fund Trust to address the needs of retired employees. Besides this, your company also organized various health camps during the year for the welfare of the employees. Your company also organized sports events to build team spirit and cohesive work culture.

RESERVATION OF POSTS FOR SC/ST/OBC/EX-SERVICEMEN AND PHYSICALLY HANDICAPPED PERSONS IN THE SERVICES OF COMPANY

Your Company as a part of its social responsibility makes all-out efforts to ensure compliance of the Directives and Guidelines issued by the Govt. for the reservation to be allowed for SC/ST/OBC/Persons with Disabilities. The steps taken include due reservations and relaxation as applicable under the various directives.

In the year 2014-15, total 22 new employees were recruited out of which 18.18% are SC(4) and 27.27% are OBC(6).

REPRESENTATION OF WOMEN EMPLOYEES

Your Company provides equal growth opportunities for its women employees and the Company can take pride in saying that certain critical functions are headed by women employees. There is no discrimination of employees on the basis of gender. Women employees represent 19.78 % of the total work force.

During the FY 2014-15, no case has been filed under the "Sexual Harassment of Women at Work Place (Prevention, Prohibition and Redressal) Act 2013".

25.0 DIRECTORS' RESPONSIBILITY STATEMENT

As required under Section 134(5) of the Companies Act, 2013, it is confirmed that:

(a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

(b) such accounting policies have been selected, applied consistently and judgments & estimates made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;

(c) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of Companies Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

(d) the accounts have been prepared on a going concern basis;

(e) the company has laid down internal financial controls to be followed and that such internal financial controls are adequate and are operating effectively.

(f) the company has devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

26.0 STATUTORYAUDITORS

M/s. N.K. Bhargava & Co., Chartered Accountants and M/s K. B. Chandna & Co., Chartered Accountants were appointed as Joint Statutory Auditors of the Company for the FY 2014-15 by the Comptroller & Auditor General of India.

The Joint Statutory Auditors have audited the accounts of the Company for the FY 2014-15 and have given their report without any qualification. The copy of the audit report is annexed herewith.

SECRETARIAL AUDITOR

M/s. Agarwal S. & Associates, Company Secretaries was appointed as the Secretarial Auditor of the Company for the FY 2014-15 by the Board of Directors of the Company.

The observations of the Secretarial Auditor and reply of the management for the FY 2014-15 along with copy of the audit report is annexed herewith.

27.0 COMMENTS OF COMPTROLLER & AUDITOR GENERAL OF INDIA

The Comptroller and Auditor General of India (C&AG) has mentioned that on the basis of audit, nothing significant has come to their knowledge which would give rise to any comment upon or supplement to Statutory Auditors' report. The copy of the report of C&AG is annexed herewith.

28.0 DETAILS OF ADEQUACY OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO THE FINANCIAL STATEMENTS

The Internal Auditor of the Company i.e. M/s HDSG & Associates, Chartered Accountants quarterly certifies on the adequacy of internal financial controls with reference to the financial statements of the Company.

Further, the statutory auditors of the Company i.e. M/s. N.K. Bhargava & Co., Chartered Accountants and M/s K. B. Chandna & Co., Chartered Accountants in their Report have also opinioned that there is adequate internal control system commensurate with the size of the company and nature of its business with regard to purchase of fixed assets and services rendered by the company.

29.0 PARTICULARS OF REMUNERATION U/S 197(12) OF THE COMPANIES ACT, 2013 READ WITH RULE 5 OF COMPANIES (APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL) RULES, 2014

Pursuant to provisions of Section 197(12) of the Companies Act, 2013 read with Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement of the particulars of remuneration is annexed herewith.

30.0 DEBENTURE TRUSTEES

The Details of Debenture Trustees appointed by the company for the different series of Bonds issued by your company, are annexed herewith.

31.0 REDEMPTION AND STATUS OF UNCLAIMED AMOUNTS Bonds

The unclaimed/unpaid balance amount of bonds (principal and interest) as on March 31,2015 was Rs. 6.39 crore. Further, an amount of Rs. 1.26 crore is lying with 'Payee Banks' and hence not shown as liability in the Books of Accounts.

Equity

The unclaimed balance amount of dividend (equity) and application money received and due for refund (FPO) as on March 31,2015 was Rs. 1.32 crore and Rs. 0.038 crore respectively. The unclaimed amount of Rs. 4,97,903 and Rs. 10,90,197 under "Unclaimed & Unpaid Dividend of the Company" has been transferred to Investor Education and Protection Fund (IEPF) in the month of November, 2014 and April, 2015 respectively. The detail of investors' (whose refund is due) is available on PFC's website and IEPF website of Ministry of Corporate Affairs.

32.0 EMPLOYEES STOCK OPTIONS PLAN (ESOP)

Stock Options have been recognized world over as an effective instrument to attract and retain the talent in the organization and to align the interest of employees with those of the organization. Stock Options provide an opportunity to employees to share the growth of the Company and create long term wealth. They also promote the culture of employee ownership in the company.

The Department of Public Enterprises (DPE), Ministry of Heavy Industries & Public Enterprises, Govt. of India, through its directions on pay revision had also made it mandatory for all the Central Public Sector Enterprises (CPSEs) to formulate an Employee Stock Option Plan (ESOP) and pay 10% to 25% of the Performance Related Pay (PRP) of the employees in the form of ESOPs. In accordance with these directions of the DPE, the Board of Directors of your company had formulated an Employee Stock Option Plan titled as 'PFC-ESOP 2010'. Shareholders had also approved this Employee Stock Option Plan in their 24thAnnual General Meeting held on September 21,2010. Subsequently, the Board of Directors had decided that 25% of the PRP of the employees should be given in the form of ESOPs. However, later in view of a clarification issued by DPE, the Company started giving an option to the employees to receive full PRP amount in cash or to receive part of PRP amount in cash and part of PRP in the form of grant of ESOPs.

The disclosure in respect of the ESOP scheme pursuant to Clause 12 of SEBI (Employees' Stock Option Scheme and Employees' Stock Purchase Scheme) Guidelines, 1999 is annexed herewith.

33.0 VIGILANCE

During the FY 2014-15, the Vigilance Unit functioned as an effective tool of positive management in your company with the thrust being on "Preventive Vigilance". This aspect was emphasized by conducting periodic and surprise inspections of various units and by issuing effective guidelines to streamline systems with the aim of eliminating loopholes and ensuring transparency in day-to-day operations, minimizing scope for misuse. Vigilance Unit undertook the review of Operational Manuals of various activities of the Company. The Review of Coordinator's Manual of PFCCL is in process of finalization. The publication of a Quarterly Newsletter on Vigilance activities 'Prahari' was launched to appraise employees about the ongoing Vigilance activities. An updated "Vigilance Handbook" of the Company was also published. The Vigilance Unit's working was computerized through the development of in- house software, the Vigilance Monitoring System. In addition, detailed investigations were carried out in several cases of registered complaints.

The performance of Vigilance Unit was reviewed by the Central Vigilance Commission (CVC), Ministry of Power, Board of Directors and CMD of PFC in addition to regular reviews undertaken by the CVO, PFC as per the prescribed norms.

In accordance with the directives of Central Vigilance Commission the Vigilance Awareness Week was observed from October 27, 2014 to November 1,2014 in the Head Office and Regional offices of the Company. During the Vigilance Awareness Week, a one day workshop on "Leveraging Technology to Combat Corruption" was organized for the employees of the Company. Interactive sessions were organized with prominent faculty members on varied subjects like personal values and ethics and dealing with day to day situations involving ethical dilemmas faced while working in the organization.

A Slogan Writing Competition, an Essay Writing Competition as well as a Pictorial Theme Representation Competition were organized on themes relating to "Technology and Citizen: Improving Accountability", "Role of Technology in Combating Corruption" and "Combating Corruption-Technology as an Enabler" respectively with the aim of involving employees and encouraging them to come forward with innovative ideas on combating corruption.

34.0 OFFICIAL LANGUAGE

Your company was awarded the first prize in Public Sector Category of the 'Indira Gandhi Rajbhasha Puraskar' for the FY 2013-14 by Rajbhasha Vibhag, Grih Mantralay for its concerted efforts made in implementation of official language policy. CMD, PFC received the prestigious award from President of India, Sh. Pranab Mukherjee. Your company also won the first prize of 'Best Hindi Promotion In- House Journal" from Sh. Oomen Chandy, Hon'ble Chief Minister of Kerala.

During the year, Drafting and Evidence Sub-Committee of the Committee of Parliament on Official Language held discussion with the Chairmen of Town Official Language Implementation Committee (TOLIC) including PFC. Second Sub-Committee of Parliament on Official Language Committee held the inspection of Regional Offices and appreciated the work being done in Hindi. Officials from Ministry of Power and Department of Official Language under Ministry of Home Affairs conducted the inspection of PFC Head Office. To ensure the effective implementation of Official Language Policy in the Company, internal inspections in the form of personal contact programme were conducted. Meetings of the Official Language Implementation Committee were organised in each quarter to review and find out solutions for better implementation of Official Language Policy under the chairmanship of CMD, PFC. Departmental Hindi meetings were also organized at Unit level.

During the year, a Rajbhasha Sammelan was organized at Chennai wherein 50 officials of various PSUs of TOLIC, Chennai participated. Further, Hindi Day and Month were celebrated on September 14 and from September 14 to October 13, 2014 respectively. During the Hindi Month, various competitions, like Vartani Shodhan, Mook Prahelika (Dumb Charades), Shabd Vyuh Bhedan, Chitrabhivyakti, Navras Abhivyakti, Hindi Bhasha Gyan Pratiyogita (for senior level officers) were organized. In all, 207 employees participated in these competitions. During the year, six Hindi workshops were organized for 140 executives (including senior executives) and non-executives of the Company with a view to improve their efficiency in doing their day to day official work in Hindi. Three Hindi Sangoshthi on different topics related to Rajbhasha Hindi were organized wherein 93 employees participated.

35.0 RIGHT TO INFORMATION ACT

The Right to Information Act, 2005 is a powerful tool to usher in public probity and empower citizens. It also endeavors to promote transparency and accountability in the working of the Government, to contain corruption and to enhance people's participation in the democratic process by making the citizens informed about the activities of the Government. Under the Act, it is believed that an informed citizen is better equipped to keep necessary vigil on the instruments of governance and make the government more accountable. The main objective of the Right to Information Act, 2005, is to ensure greater and more effective access to information and to maintain transparency and improve accountability in the working of the public departments both Central and State. The information seekers, have, subject to few exceptions, an overriding right under the Act, to get information lying in the possession of the Public Authorities.

Your company has implemented the Right to Information Act, 2005 to provide information to the citizens of India and also to maintain accountability and transparency in the working of the company. The Company has designated a Public Information Officer (PIO) and Appellate Authority at its registered office for effective implementation of the RTI Act.

During the FY 2014-15, all 102 applications received under the RTI Act, were duly processed and replied to. In compliance with Section 4 of the RTI Act, requisite disclosures have been updated and hosted on PFC website. Your company has also complied with the directions of Central Information Commission (CIC) regarding filing of online Quarterly/Annual Return for the FY 2014-2015.

SUOMOTO DISCLOSURES UNDER SECTION 4 OF THE RTI ACT 2005

During FY 2014-15, in order to strengthen compliance of the provisions of disclosures as contained in Section 4 of the RTI Act, 2005, Department of Personnel & Training (DoPT) vide its OM No. 1/6/2011-IR dated 15.04.2013 issued guidelines on the following :-

(i) Suomoto disclosure of more items under Section 4;

(ii) Guidelines for digital publication of proactive disclosure under Section 4;

(iii) Guidelines for certain clauses of Section 4(1)(b) to make disclosure more effective;

(iv) Compliance mechanism for suo moto disclosure (proactive disclosure) under RTI Act, 2005.

In compliance of the aforesaid guidelines, your company has placed the requisite information on the website of the company.

36.0 GRIEVANCE REDRESSAL

Your Company has separate grievance redressal systems for dealing with the grievances of the employees, its customers and the public at large. The systems are duly notified and are easily accessible. A designated Nodal Officer is responsible to ensure quick redressal of grievances within the permissible time frame. The company also has a notified Citizen's Charter to ensure transparency in its work activities. This Charter is available on the website of the Company to facilitate easy access.

37.0 DETAILS OF SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS IMPACTING THE GOING CONCERN STATUS AND COMPANY'S OPERATIONS IN FUTURE

No significant and material orders were passed by any regulator or court or tribunal impacting the going concern status and company's operations during the FY 2014-15.

38.0 DETAILS OF PROCUREMENT FROM MSEs

The details of the procurements made from Micro and Small Enterprises (MSEs) during the FY 2014-15 and the targets for FY 2015-16 as required to be disclosed under Micro, Small and Medium Enterprises Development Act, 2006 is as under:

S.No. Particulars

I Total annual procurement (in value)

II Total value of goods and services procured from MSEs (including MSEs owned by SC/ST entrepreneurs)*

III Total value of goods and services procured from only MSEs owned by SC/ST entrepreneurs**

IV %age of procurement from MSEs (including MSEs owned by SC/ ST entrepreneurs) out of total procurement

V %age of procurement from only MSEs owned by SC/ST entrepreneurs out of total procurement

VI Total number of vendor development programmes for MSEs

VII Confirmation of uploading annual MSE procurement profile on your website by hyperlink of same

S.No. FY 2014-15 Target for FY 2015-16

I Rs. 4,99,64,348 Rs. 6,00,00,000

II Rs. 77,73,890 Rs. 1,20,00,000

III - Rs. 24,00,000**

IV 15.56% 20%

V - 4%

VI 3 vendors half yearly 3 Vendor development half yearly

VII Annual Procurement Plan uploaded at http://www.pfcindia. com/WhatsNewDetail.aspx?wtsid=290

* Procurement value includes the purchase from MSME, KB, NCCF, DCCWS Ltd., Handicraft Emporiums and Central Cottage Industries.

** Subject to availability of the product through MSME SC/ST Agency.

39.0 STATUTORY AND OTHER INFORMATION

Information required to be furnished as per the Companies Act, 2013, Listing Agreement with Stock exchanges, DPE's Guidelines on Corporate Governance for CPSEs etc. is annexed to this report as follows:

Particulars Annexure

Particulars of employees u/s 197(12) of the Companies Act, 2013 read with Rule 5 of Companies (Appointment and A Remuneration of Managerial Personnel) Rules, 2014

Details of Debenture Trustees B

Extract of Annual Return (MGT-9) C

Annual Report on CSR Activities D

ESOP details E

Disclosure of particulars of contracts/arrangements entered into by the company with related parties (AOC-2) F

Management Discussion and Analysis Report G

Report on Corporate Governance H

Business Responsibility Report I

Secretarial Audit Report J

40.0 ACKNOWLEDGEMENT

The Board of Directors acknowledge and place on record their appreciation for the guidance, co-operation and encouragement extended to the Company by the Government of India, Ministry of Power, Ministry of Finance, Ministry of Corporate Affairs, Reserve Bank of India, Department of Public Enterprises, Securities and Exchange Board of India, National Stock Exchange of India Limited, Bombay Stock Exchange Limited and other concerned Government departments/agencies at the Central and State level as well as various domestic and international financial institutions/banks, agencies etc.

The Board also conveys its gratitude to the shareholders, various International and Indian Banks/Multilateral agencies/financial Institutions/ credit rating agencies for the continued trust and for the confidence reposed by them in PFC. Your Directors would also like to convey their gratitude to the clients and customers for their unwavering trust and support.

The Company is also thankful to the Comptroller & Auditor General of India and the Statutory Auditors for their constructive suggestions and co-operation.

Your Directors also recognize and appreciate the untiring efforts and contributions made by the employees to ensure excellent all round performance of your Company.

For and on behalf of the Board of Directors

(M. K. Goel) Place : New Delhi Chairman & Managing Director Dated : August 21, 2015 DIN No. 00239813


Mar 31, 2014

Dear Members,

On behalf of Board of Directors, I have pleasure in presenting 28th Annual Report on the performance of your company for the financial year ended March 31, 2014 along with Audited Statements of Accounts, Auditor''s Report & review of accounts by the Comptroller and Auditor General of India.

1.0 FINANCIAL HIGHLIGHTS

(a) PROFITABILITY (Rs. in crore)

Particulars 2013-14 2012-13

Profit Before Tax 7558.31 5967.04 Less: Provision for Income Tax (current year) (-) 2075.81 (-) 1543.57 Less: Provision for Income Tax (earlier years) (-) 10.32 128.49 Less: Deferred Tax Liability (-) 54.43 (-) 132.36 Profit After Tax 5417.75 4419.60 Transfer to CSR and SD Reserve 0.00 18.85 Transfer towards provision for Bad & Doubtful Debts u/s 36(1) (viia) (c) of Income Tax Act, 1961 321.43 250.40 Transfer to Special Reserve created and maintained u/s 36(1) (viii) of Income Tax Act, 1961 1464.74 1155.90 Debenture Redemption Reserve 271.23 219.06 interim Dividend 1161.64 792.01 Proposed Final Dividend 26.40 132.00 Corporate Dividend Tax paid on interim Dividend 197.41 128.48 Corporate Dividend Tax on Proposed Final Dividend 4.49 22.43 Transfer to General Reserve 542.00 442.00 Balance carried to Balance Sheet 1428.41 1258.47

(b) LENDING OPERATIONS (Rs. in crore) Particulars 2013-14 2012-13

Sanction 60729 75147 Disbursement 47162 45151

(c) R-APDRP OPERATIONS (Rs. in crore) Particulars 2013-14 2012-13

Sanctioned project cost 4331 3728 Disbursement 640 1217

2.0 FINANCIAL PERFORMANCE

2.1 REVENUE

The total income achieved by your Company during the FY 2013-14 was Rs.21,537.46 crore registering growth of 24.69% over the total income of Rs.17,272.55 crore earned during FY 2012-13. Operating income for the year increased from Rs.17,266.14 crore to Rs. 21,522.42 crore registering a growth of 24.65%. Interest income including lease income for the FY 2013-14 was at Rs. 20,978.71 crore against Rs.16,922.91 crore in FY 2012-13.

2.2 EXPENSES

The total expenditure during FY 2013-14 amounted to Rs.13.979.15 crore as against total expenditure of Rs.11,305.51 crore in FY 2012-13, Interest, finance and other charges including bond issue expenses incurred during FY 2013-14 amounted to Rs.13.278.68 crore in FY 2013-14 as against the corresponding expenses of Rs.11,088.41 crore in FY 2012-13. This constituted 94.99% of total expenses in FY 2013-14 as compared to 98.08% during last fiscal. Employee Benefit expenses and other expenses were 0.57% and 0.60% respectively of total expenses as against 0.72% and 0.37% respectively during the previous year. Total Employee Benefit expenses and other expenses during FY 2013-14 constituted 0.09% of the Net Loan Assets of your company.

2.3 PROFIT

During the FY 2013-14, your Company earned a net profit of 75,417.75 crore viz-a-viz Rs.4,419.60 crore for the FY 2012-13 registering an increase of 22.58%.

2.4 SHARE CAPITAL

As on April 1, 2013 the paid-up share capital of your Company was Rs.1,320.02 crore consisting of 132,00,15,011 equity shares of Rs.10 each of which the Government of India held 73.72% of the paid-up capital. During the FY 2013-14, Government of India set up a fund namely Goldman Sachs CPSE Exchange Traded Scheme (“GS CPSE BeES") launched by Goldman Sachs Asset Management (India) Private Limited (AMC). In March 2014, Government of India, Ministry of Power, acting through Department of Disinvestment, has disinvested 1,21,06,076 equity shares of face value of Rs.10/- each to the said fund. After disinvestment, the holding of Government of India in the paid up equity share capital of the Company has come down to 72.80%.

Further, during the FY 2013-14, 25,693 equity shares having face value of Rs.10 each, were allotted to the employees under the Company''s Employee Stock Option Plan titled as “PFC-ESOP 2010. Consequent to this allotment, the paid-up equity share capital of the Company stands increased to Rs.1,320.04 crore consisting of 1,32,00,40,704 equity shares of Rs.10 each as on March 31, 2014.

2.5 DIVIDEND

Your Directors have recommended a final dividend of 70.20 per equity share in addition to an interim dividend of Rs.8.80 per equity share on paid up equity share capital of Rs.1,320.04 crore, which was paid in Feb 2014. The total dividend for the FY 2013-14 thus aggregates to Rs. 9.00 per equity share as against Rs.7.00 per equity share paid for the previous year. The final dividend will be paid after your approval at the Annual General Meeting. The total dividend pay-out for the FY 2013-14 will thus amount to Rs.1,188.04 crore representing 21.93% of the profits after tax as against a dividend pay-out of Rs.924.01 crore representing 20.91%of the profits aftertax in the previous year.

2.6 ISSUE OF TAX FREE BONDS

Your company mobilized resources to the tune of Rs.3875.90 crore by public issue of Tax Free Bonds Tranche-I from October 14, 2013 till November 5, 2013 in six series i.e. Series 1A, 1B, 2A, 2B, 3A and 3B bearing interest rate of 8.18% for 10 years, 8.43% for 10 years, 8.54% for 15 years, 8.79% for 15 years, 8.67% for 20 years and 8,92% for 20 years respectively. The date of allotment of said public issue of Tax Free Bonds listed on Bombay Stock Exchange {BSE) was November 16, 2013. The funds raised from the said public issue were utilized towards lending purposes and debt servicing.

Your company also mobilized resources to the tune of Rs.1,124.10 crore by Private Placement of Tax Free Bonds issue in the month of August, 2013 in one series i.e. Series 107 (A&B) 3.1 Financial Assistance (Excluding R-APDRP) bearing interest rate of 8.01% p.a. and 8.46% p.a. for 10 years and 15 years respectively. The date of allotment of the said Private placement of Tax Free Bond was August 30, 2013. These bonds have been listed on National Stock Exchange (NSE) and subsequently on Bombay Stock Exchange (BSE),

3.0 LENDING OPERATIONS

Your Company issued sanctions of loans amounting to Rs.60,729 crore during the FY 2013-14 to State, Central. Private and Joint Sector entities. An amount of Rs.47,162 crore was disbursed to State, Central, Private and Joint Sector entities during the same period. With this, as on March 31, 2014, cumulative sanctions amount to Rs.4,57,315 crore and cumulative disbursements amount to Rs.3,01,278 crore.

In addition to above, projects worth 74,331 crore were sanctioned under R-APDRP scheme during FY 2013-14 and Rs.640 crore were disbursed. With this as on March 31, 2014, cumulative sanctions amount to Rs.38,089 crore under R-APDRP scheme and cumulative disbursements amount to Rs.7,360 crore.

3.1.1 Sector-wise (Rs. in crore) 2013-14 Cumulative upto March, 2014 Category Sanctions Disbursements Sanctions Disbursements

State Sector 46161 32790 332064 217740 Central Sector 500 919 34033 31650 Private Sector 13010 11259 72931 37069 Joint Sector 1058 2194 18287 14819

Total 60729 47162 457315 301278

3.1.2 Discipline-wise (Rs. in crore) 2013-14 Cumulative upto March, 2014

Category Sanctions Disbursements Sanctions Disbursements

Thermal Generation 29352 26320 254934 158433 Hydro Generation 10581 4389 47247 29386 Wind, Solar, Bagasse and Biomass 757 420 3142 2057 Renovation and Modernization of Thermal Power Stations 1238 428 8964 6787 Renovation & Uprating of Hydro Power Projects 277 83 1845 1163 Transmission 3208 2046 41772 23185 Distribution 4400 993 20308 13224 Short Term Loans 3927 2678 42691 39768 Counterpart Funding for R-APDRP Part B 599 709 4912 724 Transitional Finance 4381 7341 22569 20159 Others* 2009 1755 8931 6392

Total 60729 47162 457315 301278

* Others Include Decentralized Management, Project Settlement, Pre Investment Fund, Technical Assistance Project, Medium Term Loan, Buyers Line of Credit, Equipment Manufacturing Loan, Loan for Asset Acquisition, Bill Discounting, Studies, Loan for Redemption of bonds, Purchase of power through PXI, Computerization, Funding of Regulatory Assets, Loan Against Receivables etc.

3.1.3 Product-wise (Rs. in crore)

2013-14 Cumulative upto March, 2014 Category Sanctions Disbursements Sanctions Disbursements

Term Loans 47855 36053 380376 234514 Short Term Loans 3927 2678 42691 39768 Transitional Finance 4381 7341 22569 20159 Grants 1 2 72 57 Others** 4565 1088 11607 6780

Total 60729 47162 457315 301278

** Others include Leasing, Debt Refinancing, Bridge Loan, Loan to Equipment Manufacturers, Buyers Line of Credit, Bill Discounting, Purchase of power through PXI etc.

3.2 Financial Assistance under R-APDRP (Rs. in crore)

2013-14 Cumulative upto March, 2014 Category Sanctioned Disbursements Sanctioned Disbursements project cost project cost

Part A (IT) 115 427 5348 2470 Part A (SCADA) 131 3 1601 415 Part 8 4085 210 31140 4475

Total 4331 6.40 38089 7360

3.3 GENERATION PROJECTS

3.3.1 THERMAL PROJECTS

Thermal Power generation comprises a major proportion of India''s total installed capacity. During the FY 2013-14, the Company has sanctioned loans amounting to Rs.29,352 crore and disbursed an amount of Rs.26,320 crore. The cumulative financial support provided by the Company for thermal generation schemes is Rs.2,54,934 crore out of which Rs.1,58,433 crore has been disbursed till March 31, 2014.

The major thermal generation projects sanctioned by your Company during the year are: APGENCO''s Kakatiya Stage III TPP (800 MW) & Ramagundem TPP (660 MW), MPPGCL''s Satpura TPP Extension (660 MW), SEPC Power Pvt. Ltd.''s coal based TPP at Tuticorin (525 MW) and Trishakti Power Private Ltd.''s coal based TPP at Barabanki (250 MW).

3.3.2 HYDRO PROJECTS

Hydro generation capacity in the country needs significant augmentation for overall systems to have optima! energy mix. During the FY 2013-14, loans amounting to Rs. 10,581 crore were sanctioned and an amount of Rs.4,389 crore was disbursed by your company. The cumulative financial support provided by the Company for hydro generation scheme is Rs.47,247 crore out of which Rs.29,386 crore has been disbursed till March 31, 2014.

3.4 RENOVATION, MODERNISATION AND LIFE EXTENSION

3.4.1 THERMAL PROJECTS

During the FY 2013-14, loans worth Rs.1,238 crore were sanctioned for R&M and life extension of thermal power plants and an amount of Rs. 7 428 crore was disbursed. Cumulatively, an amount of 7 8,964 crore has been sanctioned and 7 6,787 crore stands disbursed till March 31,2014,

3.4.2 HYDRO PROJECTS

During the FY 2013-14, loans worth Rs.277 crore ware sanctioned for R&M of Hydro power projects and an amount of 783 crore was disbursed. Cumulatively, an amount of Rs.1,845 crore has been sanctioned and Rs.1,163 crore stands disbursed till March 31,2014.

3.5 TRANSITIONAL LOANS

Your Company has formulated Broad Guidelines for Transitional Financing to Discoms for supplementing the Financial Restructuring Scheme approved by Government of India by providing funding towards the yearly cash gap as per Financial Restructuring Plan (FRP). The objective is to provide financial support to meet the temporary liquidity crunch being faced by the Discoms and to enable these Discoms to bring financial turnaround over a specified period. Your Company has sanctioned transitional loans of 722,569 crore to various Discoms in the states of Punjab, Haryana, Uttar Pradesh, Rajasthan and Tamil Nadu against which an amount of Rs.20,159 crore has already been disbursed by the company as on March 31,2014, Further, out of the total loan disbursed to Uttar Pradesh, your company has subscribed to the bonds of up Power Corporation Ltd. for an amount of Rs.1,171 crore as perthe FRP.

4.0 REALISATION

Your Company gives utmost priority to the realisation of its dues towards principal, interest etc. Out of Rs.39,674.86 chore to be recovered towards principal, interest etc. under rupee term loans, bill discounting, working capital, lease financing, foreign currency loan, loans for equipment financing and guarantee fee, an amount of Rs.38,753.94 chore was actually realised representing an overall recovery rate of 97.68% (previous year 99.15%). This overall recovery rate has been consistently maintained at 96-99% for over past decade. Your company has achieved recovery rate of 98.17% in respect of principal amount due during the year.

In terms of Prudential Norms, as applicable, the provisioning on Non Performing Loan Assets has been increased by an amount of Rs.121 crore during the year. The Company has made a total provision of Rs. 242 crore towards Non-Performing Assets (NPA) against Loan Assets in its Annual Accounts upto the year 2013-14. After making provision on NPA, the level of net Non-Performing Assets (NPA) has been recorded at Rs.985 crore which is 0.52% to the Total Loan Assets as on March 31,2014.

In addition to above, the company has also made a provision of 7469.42 crore on standard assets outstanding as on March 31, 2014, which woukl strengthen PFC''s balance sheet by providing a buffer provisioning and inspire higher levels of confidence amongst investors, regulators and other stake holders in your company.

5.0 RESTRUCTERED LOANS

The details of loans restructured during the FY 2013-14 are as follows: (Rs. in crore) Particular FY 2013-14 FY 2012-13

Standard Loans Restructured No. of Borrowers 5 7 Amount Outstanding 3955.3 3699.84

Sub-Standard Loans Restructured No. of Borrowers 1 1 Amount Outstanding 27.20 325.00

Doubtful Loans Restructured No. of Borrowers 1 - Amount Outstanding 414.97 -

Total No. of Borrowers 7 8 Amount Outstanding 4397.53 4024.84

6.0 BORROWINGS

6.1 BORROWINGS FROM DOMESTIC MARKET

Your Company mobilized funds amounting to Rs. 45,220.06 crore from the domestic market during FY 2013-14 as against Rs.37,751,21 crore mobilized during FY 2012-13 comprising of Rs.28,574 crore through issue of unsecured/secured taxable/Tax free bonds in the nature of debentures, Rs.14,614 crore by way of long/medium term loans from Banks/FIs, and Rs. 2,032.06 crore by issue of Commercial Paper and Short term Loans.

6.2 EXTERNAL BORROWIN GS

During the FY 2013-14, your Company could not raise foreign currency loan due to the global economic siowdown, unfavourable market conditions and the unavailability of funds at a competitive rate.

6.3 CASH CREDIT/OVERDRAFT FACILITIES

For day to day operations, your company continued to follow prudent strategies for optimum utilization of fund based resources. To hedge any financial liquidity bottlenecks, ample credit lines to the tune of Rs.4850 crore were maintained with various scheduled commercial banks for short term funding which do not bear any commitment charges towards unutilized limits.

7.0 FOREIGN EXCHANGE EARNINGS AND OUTGO

The Foreign exchange outgo aggregating Rs.259.52 crore was made on account of debt servicing, financial & other charges and training expenses.

The Foreign exchange earnings for the FY 2013-14 were nil.

8.0 CREDIT RATING

Domestic

Ratings assigned by domestic rating agencies during FY 2013-14, for Company''s long term domestic borrowing programme (including bank loans) were the highest rating of CRISIL AAA, ICRA AAA and CARE AAA by CRISIL, ICRA and CARE respectively. The Company''s short term domestic borrowing programme (including bank loans) was awarded the highest rating of CRISIL A1 , ICRAA1 and CARE A1 by CRISIL, ICRAand CARE respectively.

International

During the FY 2013-14, the international credit rating agencies Moody''s, Fitch and Standard and Poor''s have given to the company, long term currency issuer ratings of Baa3, 888- and 888- respectively, which are at par with sovereign rating for India.

9.0 RISK MANAGEMENT

9.1 ASSET LIABILITY MANAGEMENT

Your Company has put in place an effective Asset Liability Management System and constituted an Asset Liability Management Committee (ALCO) headed by Director (Finance). ALCO monitors risks related to liquidity & interest rate and also monitors implementation of decisions taken in the ALCO meetings. The Asset Liability Management framework includes periodic analysis of long term liquidity profile of asset receipts and debt service obligations. Such analysis is made every month in yearly buckets for the next 10 years and is used for critical decisions regarding the time, volume and maturity of profile of the borrowings, creation of new assets and mix of assets and liabilities in terms of time period (short, medium and long-term). While the liquidity risk is being monitored with the help of liquidity gap analysis, the interest rate risk is managed by analysis of interest rate sensitivity gap statements, evaluation of Earning at Risk (EaR) on change of interest rate and creation of assets and liabilities with the mix of fixed floating interest rates.

The maturity profile of major Its ms of assets and liabilities as at March 31, 2014 Is set our below: (Rs. in crore)

Maturity pattern of certain Items of Assets and Liabilities based on Audited Balance Sheet as on March 31, 2014

Particulars 2014-15 2015-16 2016-17 2017-18 2018-19 Beyond Total 2018-19

Rupee Loan Assets 13749 15496 17377 17711 17424 106890 188647

Foreign Currency Assets 43 46 46 23 22 166 348

Investments 0 0 0 0 0 352 352

Foreign Currency Liabilities 3699 1988 1930 1110 21 178 8926

Rupee Liabilities (Bonds RTL STL) 17425 21902 17439 14705 18322 60902 150695

9.2 FOREIGN CURRENCY RISK MANAGEMENT

Your Company has put in place Currency Risk Management (CRM) policy to manage risks associated with foreign currency borrowings. The Company enters into hedging transactions to cover exchange rate and interest rate risk through various instruments like currency forward, option, principal swap, interest rate swap and forward rate agreements.

As on March 31, 2014, the total foreign currency liabilities were USD 999.13 million, JPY 41,643.20 million and Euro 20.87 million. On an overall basis, the currency exchange rate risk is covered to the extent of 18% through hedging instruments and lending in foreign currency.

9.3 INTEGRATED ENTERPRISE WIDE RISK MANAGEMENT

Your Company has put in place a mechanism to ensure that the risks are monitored carefully and managed efficiently, in this regard, your company had constituted the Risk Management Committee of Directors to monitor various risks, examine risk management policies & practices and initiate action for mitigation of risks arising in the operations. To facilitate this, the Company had put in place an Integrated Enterprise - Wide Risk Management Policy (IRM Policy).

The Company has identified 26 risks (11 quantifiable risks and 15 non quantifiable risks) which may have an impact on profitability/business of the Company. In order to implement IRM policy, the Risk Management Committee of Directors constitutes Risk Management Compliance Committee and a separate unit for monitoring of the identified risks. The unit continuously monitors the risks from time to time and ensures that the risks are being mitigated on time.

10.0 ULTRA MEGA POWER PROJECTS (UMPPs) AND INDEPENDENT TRANSMISSION PROJECTS (TPs)

10.1 UMPPs

Your Company has been designated as the ‘Nodal Agency'' by Ministry of Power (MoP), Government of India, for development of Ultra Mega Power Projects (UMPPs), with a capacity of about 4,000 MW each. Sixteen such UMPPs were identified to be located at Madhya Pradesh (Sasan), Gujarat (Mundra), Andhra Pradesh (Krishnapatnam), Jharkhand (Tilaiya), Chhattisgarii (Surguja), Karnataka, Maharashtra (Munge), Tamil Nadu (Cheyyur), Odisha (Sundargarh), 2 Additional UMPPs in Odisha and 2nd UMPP in Andhra Pradesh (Prakasam), Tamil Nadu, Gujarat, Jharkhand (Deoghar) and Bihar,

UMPP is the initiative of Government of India with Ministry of Power as the ''facilitator'' for the development of these UMPPs while Central Electricity Authority (CEA) is the Technical Partner''. Till March 2014, 15 Special Purpose Vehicles (SPVs) were established by the Company for UMPPs, out of these, 13 SPVs were incorporated to undertake preliminary site investigation activities necessary for conducting the bidding process for the projects. These SPVs shall be transferred to successful bklder(s) selected through Tariff Based International Competitive Bidding Process for implementation and operation.

Out of these 13 SPVs, 4 SPVs have been transferred to the successful bidders as indicated below:

S. Name of SPV Successful Bidder Date of Transfer No. 1 Coastal Gujarat Power Ltd. The Tata Power Company April 22, 2007 Ltd.

2 Sasan Power Ltd. Reliance Power Ltd. August 7,2007

3 Coastal Andhra Power Ltd. Reliance Power Ltd. January 29,2008

4 Jharkhand Integrated Reliance Power Ltd. August 7,2009 Power Ltd.

The remaining two SPVs were incorporated during the FY 2013-14 by PFC for holding the land for Cheyyur UMPP and for holding the land and cool blocks for Odessa UMPP, These SPVs would be transferred to the respective procurers of power from these projects.

During the year, the RfQ for Odisha and Chattisgarh UMPPs based on the existing Standard Bidding Documents (S8Ds) were annulled on the direction of Ministry of Power, The revised S&Ds were issued by MOP In September, 2013. Accordingly, the bidding process for two UMPPs viz. Cheyyur and Odisha UMPPs were initiated during the year on the basis of these revised SBDs. Further, the RfQ for Chhattisgarh UMPP will be issued afresh on the revised (S8Ds) on clearance of coal blocks allocated to the project or allocation of new coal blocks. Further, the Government of Andhra Pradesh decided not to proceed further with the 2nd UMPP in Andhra Pradesh and in view of the same, it was decided by the Ministry of Power for the ciosure of the Project. Action has been initiated to wind up the SPV / strike off name of SPV from the records of Registrar of Companies{ROC).

10.2 ITPs

Ministry of Power has also initiated Tariff Based Competitive Bidding Process for development and strengthening of Transmission system through private sector participation.

The objective of this initiative is to develop transmission capacities in India and to bring in the potential investors after developing such projects to a stage having preliminary survey work, identification of route, preparation of survey report, initiation of process of land acquisition for sub-stations, if any, initiation of process of seeking forest clearance, if required etc.

Till March 2014,12 Special Purpose Vehicles (SPVs), 2 by PFC and other 10 by PFC Consulting Limited were established as wholly owned subsidiaries for TPs. Out of these 12 SPVs, Bokaro-Kodarma Maithon Transmission Company Limited was liquidated in December 2010 and 4 SPVs were transferred to the successful bidders till March 31, 2013. During the FY 2013-14, PFCCL has transferred the following 4 more SPVs to successful bidders:

S. Name of SPV Successful Bidder Date of Transfer No. 1 Patran Transmission Techno Electric and November l3,20l3 Company Ltd Engineering Company Ltd

2 Purulia & Kharagpur Sterlite Grid Ltd December 9,2013 Transmission Company Ltd

3 Oarbhanga-Motihari Essel Infraprojects Ltd December 10,2013 Transmission Company Ltd

4 RAPP Transmission Sterlite Grid Ltd March 12,2014 Company Ltd

Out of the remaining 3 SPVs for TPs, the bidding process for the Independent Transmission Project viz. Transmission Project Associated with DGEN TPS (1200MW) of Torrent Power Ltd. was completed during the year and the Letter of Intent was issued to the successful bidder on May 19,2014.

During the year. Ministry of Power appointed PFC Consulting Limited as Sid Process Coordinator (BPC) for two new Independent Transmission Projects to be implemented through Tariff Based Competitive Bidding Process, PFC Consulting Limited incorporated following 2 SPVs as its wholly owned subsidiaries for these projects;

(i) Tanda Transmission Company Limited (TTCL) for the transmission project "ATS for Tanda Expansion TPS (2X680 MW)"

(ii) Ballabhgarh-GN Transmission Company Limited (8GNTCL), SPV for the transmission project "Northern Region System Strengthening Scheme - XXXIII"

The bidding process for the above two SPVs is kept in abeyance on the advise of CEA due to issues related to award of EPC contract and acquisition of land for Tanda Expansion TPS in case of TTCL and dispute in the PPA between NPCL and Essar Power (Jharkhand) in case of BGNTCL.

11.0 RESTRUCTURED ACCELERATED POWER DEVELOPMENT AND REFORM PROGRAMME (R-APDRP)

As a part of R-APDRP, for the first time. Information Technology (IT) is being deployed in identified 1,412 towns of the country for establishment of accurate, reliable & sustainable base line data, business process automation, carrying out energy audit for identifying AT&C losses and better consumer services etc. in the power distribution sector.

Also under Part-A, projects for Supervisory Control and Data Acquisition (SCADA) System/ Distribution Management System (DMS) is being established in big towns in the country (about 72 towns envisaged) for real time operation and control of Distribution Network for improvement of efficiency, quality and reliability of power supply.

Further, under Part-B, projects for Distribution Strengthening and Improvement are being implemented in over 1,240 towns of the country. The main focus of the scheme is reduction of AT&C losses to 15% or below.

Your Company, as nodal agency, has contributed significantly in implementation of RAPDRP programme during the FY 2013-14. The company cumulatively upto FY 2013-14 sanctioned, Part-A(IT) schemes of all eligible 1,412 towns, Part-A(SCADA) schemes for all envisaged 72 towns and Part-8 schemes for 1,244 towns out of envisaged 1,250 towns. During the year, your company sanctioned Rs.4,331 chore of projects. The cumulative sanction under R-APDRP Is Rs. 38,089 crore as on March 31, 2014.

Your company has also disbursed the entire amount of Rs.640 crore released by Ministry of Power (MoP) during the FY 2013-14 upto March 31, 2014 to the state utilities. The cumulative disbursement under R-APDRP is Rs.7,360 crore as on March 31,2014.

With the measures taken so far, as on March 31,2014, Data Centers in cumulatively 17 States have been commissioned. Further, 509 towns have gone live in 17 states in which, all business process software modules are functional and energy audit reports are being derived from the system.

During the year, for implementation of Part-6 projects of R-APDRP, utilities have tied up counterpart funding amounting to Rs.389 chore. With this, cumulative counterpart funding tied up amounts to Rs.14,854 crore of which Rs.3,780 chore is from MFC. Implementation work has commenced cumulatively in 1049 towns, to strengthen & improve distribution system and reduce AT&C losses to 15% or below.

During the year, utilities have also appointed SCADA Implementing Agencies in 6 states for implementation of projects in 22 towns. Overall, SCADA Implementing Agencies have been appointed in 15 states for 63 towns.

For capacity building and to recognize the need and to keep pace with technology, contemporary knowledge and skill, your company imparted training on various themes to personnel of Power Utilities for 25,800 man days against MoU target of6,000 man days.

Cumulatively, as on March 311 2014, 1,372 towns have been ringfenced & baseline AT&C tosses have been established in 1,251 towns.

The reduction in AT&C losses are likely to be visible in R-APDRP towns in the utilities in next one to five years with establishment of IT system and Part-8 completion in various towns coupled with administrative and other measures. Thus, your company shall be contributing largely in improvement of financial health of Distribution utilities which shall consequently improve health of Transmission and Generation Power Utilities, resulting in improvement of quality of assets of your company for such borrowers in the State Power Sector.

12.0 EXTERN ALLY AIDED PROJECTS

Government of India and the Government of the Federal Republic of Germany in the Indo-German Annual Negotiations held in New Delhi in July, 2013 had decided to cancel the Loan and Financing Agreement for Line of Credit of Euro 100.56 million from KFW to finance six RM&U of Hydro Electric Projects (HEPs) of Uttrakhand Jal Vidyut Nigam Ltd. (UJVNL). Consequently, the Loan and Financing Agreement for the aforesaid line of credit was cancelled in December, 2013.

13.0 IN ITI ATI VE S TOWARDS REFORMS AND RESTRUCTURING

Your Company has been assisting the State Power Utilities in their reform and restructuring programs. During the year, your company has sanctioned grant of 71 crone to Bihar State Power Holding Company Limited (BSPHCL)for taking reform process ahead.

The changing environment has necessitated the power utilities to be more responsive to market requirements by enhancing efficiency through introducing latest technologies as part of ongoing IT initiatives. During the year, an amount of 77.11 crore was disbursed for computerization schemes of State Power Utilities (other than computerization schemes covered under R-APDRP).

CATEGORISATION OF UTILIT1ES

For purposes of funding, your company classifies State Power Utilities into A , A, B and C categories. The categorisation (biannually) of State Power Generation and Transmission utilities is arrived based on the evaluation of utility''s performance against specific parameters covering operational & financial performance including regulatory environment, audited accounts, etc. With regards to State Power Distribution utilities (including SEBs / utilities with integrated operations), your companies categorisation policy provides for adoption of Integrated Ratings of Ministry of Power, The categorisation enables your company to determine credit exposure limits and pricing of loans to the state power utilities. As on May 30, 2014,101 utilities were categorised, 26 as "A ''p 42 as “A”, 25 as “B” and 8 as “C*.

Quarterly and Annual Report of State Power Utilities

Your company is releasing one page research report on the performance of each of the State Power Utilities (SPUs) on a quarterly basis. The report is acknowledged as a useful effort by the SPUs as they can compare performance of their utility vis-d-vis other utilities for taking mid-term objective measures for the overall improvement of the sector. The report contains key operational and financial parameters, reform status, status of implementation of Electricity Act 2003, areas of concern etc. The report is forwarded to the stakeholders in the power sector such as the SPUs and Power Secretaries of the States.

During the FY 2013-14, your company has issued performance reports for the quarter January-March 2013, April-June 2013, July-September 2013 & October- December 2013 covering 42 utilities each.

During FY 2013-14, your company also released 10th edition of the ''Report on the Performance of State Power Utilities (SPUs)'' for the years 2009-10 to 2011-12 covering 91 utilities. The Report is an integral part of your companies constant endeavor towards tracking the performance of State Power Sectors by analyzing financial and operational performance e.g. profitability, gap between average cost of supply and average realization (7 /kwh), net worth, capital employed, receivables, payables, capacity (MW), generation (Mkwh), AT&C losses (%) etc at utility, state, regional and national level. The Report provides a reliable database and helps in determining the results associated with the reforms in the sector and is also recognized by various stakeholders as a useful source of information regarding the state power sector.

The Report for the years 2010-11 to 2012-13 covering 77 utilities has been prepared and submitted to Ministry of Power as per the targets set in the MoU. The final Report (11th) on the performance of all SPUs for the period 2010- 11 to 2012-13 has been finalized,

14.0 POLICY INITIATIVES

Your company constantly reviews and revises its lending policies/guidelines/products to suitably align these with the dynamic market conditions as also with its corporate objectives. Your company also introduces new lending pollcies/guideiines/products to meet the ever changing business requirement.

During the year, your Company introduced various new policies/guidelines/products like Policy for Refinancing of Debt of Commissioned Projects along with Additional Corporate Loan for New/ Expansion/Acquisition of Projects, Policy for Financial Assistance to Distribution Franchisees and Option of Flexi-Line of Credit under Rupee Short Temn Loan Scheme for Government Sector Borrowers.

Your Company also reviewed its policies / guidelines / products with respect to Scheme for Extending Credit Facility for Purchase of Power through Power Exchange, Funding Grid Connected Solar PV Private Sector Power Generation Projects, Guidelines for giving Financing Proposals in Support of Bid for Projects Promoted by Government Sector / Private Sector AAA rated companies, etc. with a viewto make the same more borrower friendly.

Ouring the FY 2013-14, provision against Standard Assets has been accelerated by one year for bringing it to 0.25% as on March 31, 2014. After this provisioning, PFC''s Prudential Norms will be in alignment with RBI''s Prudential Norms for NBFC-ND with reference to Provisioning for Standard Assets as on March 31,2014.

The interest rates in respect of term loan and short term loan were reviewed and revised periodically during the financial year. The financial charges/fees were also reviewed and modified. Further, guarantee fee and other financial charges for issuance of Guarantee for Credit Enhancement has been introduced.

In spite of growing competition in the market as well as concerns on interest rates on account of factors like increase in RSI key policy rates, inflation prevailing in the financial year etc., your Company could balance its objectives of business growth and profitability.

15.0 FACILITATION SERVICES

The Facilitation Group (FG) has been set up to expand PFC''s financing business beyond its traditional products into new areas of Forward & Backward linkages to the Power sector. The Facilitation Group (FG) is also mandated to explore the opportunities of expanding PFC''s business in new geographies.Towards this end as a pro-active step for facilitating the availability of finance for projects, your company has evolved ''Fuel Sources Development & its Distribution (FSO&D) Scheme'' for financing of projects in these areas. Also, financial assistance for setting up/ expansion of equipment manufacturing capacity for power sector etc. is extended by your company under the ''Equipment Manufacturing (EM) Scheme for Power Sector'',

16.0 RENEWABLE ENERGY AND CLEAN DEVELOPMENT MECHANISM (RE&CDM)

The future scenario of power from renewable sources is bright due to ever-increasing high cost of hydrocarbon. The increasing dependence on renewable sources of energy, given the global movement to reduce green house gases and shift to non-fossil fuel sources, has created a lot of business opportunities in power sector.

Your company assigns priority to renewable energy projects like wind farms, small hydro projects, bio-mass projects and solar projects in the form of higher exposure and special rale of interest. In order to give a thrust to the funding of projects in the Renewable Energy Sector, your company is having a Strategic Business Unit i.e. Renewable Energy & Clean Development Mechanism (RE & CDM) Unit for handling its renewable energy portfolio for giving focused attention in the development of Renewable Energy sector. These projects are funded at a lower interest rate than conventional projects in order to encourage renewable energy projects.

Your company is also providing financial support to Renewable Energy Generation projects in State and Private sectors. During the FY 2013-14, seven loans amounting to Rs.845.87 crore for projects of total capacity of 246.5 MW were sanctioned for State and Private sectors. Your company has also disbursed around Rs.457 crore during the financial year.

As on March 31, 2014, your company has cumulatively supported a total generation capacity of 1412 MW extending financial assistance of Rs.4,409 crore and disbursed Rs.3,074 crore to all kinds of renewable energy projects with an aggregate project cost of Rs. 8,927 crore.

17.0 PROMOTION OF POWER TRADING THROUGH POWER EXCHANGE

In the FY 2008-09, the Central Electricity Regulatory Commission had granted its permission to set up power exchanges in the country. As on date, 2 power exchanges, namely, Power Exchange India Ltd. (PXIL) and Indian Energy Exchange Ltd. (IEX) are in operation. These power exchanges have a nationwide presence in the form of electronic exchange for trading in power. The trading through power exchanges have certainly lent an impetus for power sector development since it acts as an open and transparent mechanism for buyers and sellers and provides investment signal to the prospective Investors. Further with the presence of these exchanges, the available resources shall be used optimally.

Your company has con tributed Rs.3.22 crore (bei ng 6.93% of paid up equity upto March 31, 2014) towards equity contribution in Power Exchange India Ltd., promoted by NSEand NCOEX,

18.0 EQUTYFINANCING

Equity investment business is generally considered as a logical extension of debt business. Your Company is endeavoring to make a mark in the area of equity investment to capitalize on its vast domain knowledge & experience attained during it''s over 25 years of operations. Your company aims to leverage its financial strength, large debt providing capability and power sector expertise to invest in equity of suitable power projects. Over a period of time, your company proposes to build an equity portfolio of power assets which could provide consistent gains in the form of dividend and/or capital appreciation. PFC has obtained consent of RBI to invest in equity of power projects ranging between 0.5% and 5% of its own net worth in a single company. Presently, "Equity Policy", paving way for PFC to take equity stakes in power projects, is being revisited to make it more flexible and customer friendly before evaluating equity proposals.

19.0 SUBSIDIARIES

To focus on additional business in the areas of consultancy, renewable energy, consortium lending, equity financing, etc. following wholly owned subsidiaries have been incofporated by your Company, as on date:

(I) PFC Consulting Limited

(ii) PFC Green Energy Limited

(iii) PFC Capital Advisory Services Limited

(iv) Power Equity Capital Advisors Private Limited

Further, your Company is designated by Ministry of Power, Government of India as the nodal agency for facilitating development of Ultra Mega Power Projects and its wholly owned subsidiary i.e. PFC Consulting Limited is the ''Bid Process Coordinator'' for Independent transmission projects. As on date, the following Special Purpose Vehicles (SPVs) have been incorporated as subsidiaries/deemed subsidiaries of the Company:

(i) Chhattisgarh Surguja Power Limited (Previously known as Akaltara Power Ltd.)

(ii) Coastal Karnataka Power Limited

(iii) Coastal Maharashtra Mega Power Limited

(iv) Coastal Tamil Nadu Power Limited

(v) Orissa Integrated PowerUmited

(vi) Sakhigopal Integrated Power Company Limited

(vii) Ghogarpalli Integrated Power Company Limited

(viii) TATRA Andhra Mega Power Limited

(ix) deodar Mega Power Umited

(x) Cheyyur Infra Limited

(xi) Odisha Infrapower Limited

(xii) DGEN Transmission Company Limited (a wholly owned subsidiary of PFC Consulting Limited)

(xiii) Tanda Transmission Company Limited (a wholly owned subsidiary of PFC Consulting Limited)

(xiv) Ballabhgarh-GN Transmission Company Limited (a wholly owned subsidiary of PFC Consulting Limited)

19.1 PFC CONSULTING LIMITED

Your Company had been offering consultancy support to the Power Sector through its Consultancy Services Group (CSG) since October 1999. Leveraging the experience of the CSG Unit and appreciating the growth in the services offered by the Group and recognizing the potential of such services in the reforming Power Sector, your Company decided to organize these services under a distinct dedicated business entity. Accordingly, PFC Consulting Limited (PFCCL) was incorporated in the form of a wholly owned subsidiary on March 25, 2008, to provide It with requisite autonomy in functions and flexibility in operations. PFCCL is mandated to promote, organize and carry out consultancy services to the Power Sector and is also undertaking the work related to the development of UMPPs and ITPs. PFCCL has been nominated as the ''Bid Process Coordinator* for selection of developer for the Independent Transmission Projects (ITPs) by Ministry of Power, Gol.

The Services offered by PFCCL are broadly in the following areas;

* Advisory services on issues emanating from implementation of Electricity Act, 2003 like reform, restructuring, regulatory etc.

* Tariff based competitive bidding as per the Guidelines issued by MoP, Gol for various segments of Power Sector

* Project-structuring/ planning/ development/ specific studies, implementation monitoring, efficiency improvement projects

* Communication, information dissemination and feedback

* Preparation of organization performance improvement plans

* Con tract related services for power sector

* Financial management, resource mobilization, accounting systems etc,

* Coal block development

* Renewable and non-conventional energy project development

Till date, consultancy services have been rendered to 43 clients spread across 21 States/UTs by PFCCL. The total number of assignments undertaken as on date is 80.

During the FY 2013-14, the total income of PFCCL was 755.19 crore vis-S-vts 736.49 crore in the previous FY 2012-13. The net profit earned by PFCCL during FY 2013 14 was Rs.26.96 crore as against the corresponding net profit of Rs.16.38 crore last fiscal.

19.2 PFC GREEN ENERGY LIMITED

PFC Green Energy Limited (PFC GEL), was incorporated on March 30, 2011 as a wholly owned subsidiary of the company to extend finance and financial services to promote green (renewable and non-conventional) sources of energy. As on March 31, 2014, PFC GEL had an authorized share capital of Rs.1200 crore and paid up share capital of Rs.300 chore comprising of 10 crore equity shares of Rs.10/- each and 20 crore Fully Convertible Preference Shares of Rs.10/- each. During the year, the company increased its paid up share capital from Rs.109.99 crore (as on March 31,2013) to Rs.300 crore (as on March 31,2014).

PFC GEL made a significant progress in financing Renewable Energy Sector in its first full year of operation with a sanction of 7 304 crore of debt during 2013-14 for the development of 55 MW of renewable projects. In terms of disbursement, PFCGEL disbursed Rs.25.4 crore during the FY 2013-14. PFC GEL has been assigned the highest credit rating of SMERAAAA(IR) by SMERA Ratings Private Limited.

PFC GEL has taken steps to increase its business in the Renewable energy sector and has signed a MoU with Indian Renewable Energy Development Agency Ltd. (IREDA) on May 21, 2014 to jointly finance renewable energy projects.

For the FY 2014-15, PFC GEL has signed a Memorandum of Understanding with your company, with sanction and disbursement targets of Rs.500 chore and Rs.210 crore respectively after deliberations with MOU Task Force constituted under the auspices of Department of Public Enterprises.

Since the company is dedicated for renewable energy projects such as wind, solar, biomass, hydro etc., it is expecting to mobilize dedicated green funds available in the market. During the FY 2013-14, the company has been approached by various foreign/ Indian funding agencies for providing funds for green energy sector. With the flow of funds dedicated for the green energy, the company shall be in a position to provide loans at competitive interest rates in future.

19.3 PFC CAPITAL ADVISORY SERVICES LIMITED

PFC Capital Advisory Services Limited (PFCCAS) was incorporated as a wholly owned subsidiary of your company on July 18, 2011 to focus on sectoral requirements for financial advisory services, including syndication services. The Company is also involved with the activities related to Power Lenders'' Club, an exclusive set of Banks & FIs financing power projects under a consortium arrangement under the aegis of PFC. The authorised capital of the Company is 71 crore and the paid up share capital of the Company is Rs.0,10 crore.

Presently PFCCAS is active in debt syndication services and is carrying out down selling of project loans underwritten by your company. It is handling syndication proposals across various domains in power sector i.e. thermal, hydro and wind.

During FY 2013-14, PFCCAS has arranged sanction of loans of Rs.1,060 crore out of loans underwritten by PFC, During the year, total income of PFCCAS was Rs.6.29 crore with net profit increasing to Rs. 3.03 crore from Rs.0,85 crore in FY 2012-13.

PFCCAS has initiated steps to diversify its portfolio of services. The company has also filed application for grant of Certificate of Registration as Debenture Trustee from SEBI and the same is under process,

19.4 POWER EQUITY CAPITAL ADVISORS PRIVATE LIMITED

Power Equity Capital Advisors private limited (PECAP), the wholly owned subsidiary of your company has not been able to transact any business due to lack of business proposals even after Its acquisition by PFC and accordingly approval has been sought from MoP for dissolving and getting the name of the Company struck off from the records of Registrar of Companies under the provisions of Section 560 of the Companies Act, 1956, which is awaited.

20.0 JOINT VENTURES AND ASSOCIATE COMPANIES

20.1 NATIONAL POWER EXCHANGE LIMITED

In order to promote short term trading through power exchange, your company had promoted National Power Exchange Ltd (NPEX), jointly with NTPC, NHPC and TCS during 2008-09. Your company has contributed Rs.2.19 crore (being 16.66% of paid up equity upto March 31, 2014) towards equity contribution. NTPC and NHPC had expressed their intention to exit from JV Company and based on the recommendations of the Group of Promoters (GoP) of NPEX in March 2014, the Board of Directors of N PEX has decided for voluntary winding up of N PEX.

20.2 PTC INDIA LIMITED

PTC India Limited (PTC) was jointly promoted by Power Grid, NTPC, NHPC and PFC. Your Company has invested Rs.12 crore in PTC which is 4.05% of PTC''s total equity. PTC is the leading provider of power trading solutions in India, a Government of India initiated public-private partnership, whose primary focus is to develop a commercially vibrant power market in the country. Ouring the year, PTC maintained its leadership position with trading volumes at 358U. PTC has reported profit after tax of Rs. 251 crore for the year.

20.3 ENERGY EFFICIENCY SERVICES LIMITED

Energy Efficiency Services Limited (EESL) was incorporated on December 10, 2009. EESL was jointly promoted by Power Grid, NTPC, REC and PFC with 25% equity stake each for implementation of Energy Efficiency projects in India and abroad. It is the main implementation arm of the National Mission on Enhanced Energy Efficiency (NMEEE). EESL has reported profit after tax of Rs. 3.35 crore for the year.

21.0 MEMORANDUM OF UNDERSTANDING WITH GOVT. OF INDIA

Your Company has been consistently accorded ''Excellent'' Rating by Government of India since FY 1993-94 except for FY 2004-05. For the FY 2013-14, your company has achieved all the MoU targets and is likely to be accorded ''Excellent'' rating.

22.0 PRESIDENTIAL DIRECTIVES

The Company has not received any Presidential directives during FY 2013-14.

23.0 CORPORATE SOCIAL RESPONSIBILITY

CSR being the cornerstone of its operations your company discharges its social responsibility obligations as a part of its growth philosophy. It has been your Company''s endeavour to act as a responsible Corporate citizen committed to improving the welfare of the society through inclusive growth aimed at empowerment of communities through skill development, environment protection through promotion of renewable energy, development of underprivileged sections of the society through hygiene and sanitation programmes etc.

In order to give a concrete, speedy and meaningful direction to the above initiatives, your company has constituted a Board level CSR Committee of Directors headed by an Independent Director.

With a view to addressing the domains of socio-economic issues at national level, your Company has dubbed its CSR&SD activities and formulated a new CSR&SD Policy in line with the Guidelines issued by Department of Public Enterprises, Govt. of India.

Your company has entered into an MOU with Govt, of India for spending during the FY 2013-14,1% of the Profit after Tax (PAT) of FY 2012-13 on CSR&SO activities. Accordingly, your company had earmarked Rs.44.38 chore for CSR&SD initiatives during the FY 2013-14. However, PFC had sanctioned projects/ activities worth Rs.70.21 crore during FY 2013-14 alone and disbursed Rs.46.52 crore which included projects sanctioned in FY 2013-14, FY 2012-13 and FY 2011-12 under CSR&SD activities. The funds were mainly disbursed for implementing a wide range of social interventions in the field of Skill Development, Renewable Energy, providing relief & rehabilitation to the victims of Natural Calamities etc. in various states.

24.0 EMPLOYEES STOCK OPTIONS PLAN (ESOP)

Stock Options have been recognized world over as an effective instrument to attract and retain the talent in the organization and to align the inierest of employees with those of the organization. Stock Options provide an opportunity to employees to share the growth of the Company and create long term wealth. They also promote the culture of employee ownership in the company.

The Department of Public Enterprises (OPE), Ministry of Heavy Industries & Public Enterprises, Govt, of India, through its directions on pay revision had also made it mandatory for aJI the Central Public Sector Enterprises (CPSEs) to formulate an Employee Stock Option Plan (ESOP) and pay 10% to 25% of the Performance Related Pay (PRP) of the employees in the form of ESOPs. In accordance with the said directions of the DPE, the Board of Directors of your company had formulated an Employee Stock Option Plan titled as ‘PFC-ESOP 2010'' which was also approved by the Shareholders in their 24th Annual General Meeting held on September 21,2010. Subsequently, the Board of Directors had decided that 25% of the PRP of the employees should be given in the form ofESOPs.

For FY 2009-10, out of 87,888 Options granted during the FY 2011-12, your company had allotted 83,306 equity shares during previous financial year. During FY 2013-14, 4,255 equity shares have been allotted upon exercise of the stock options by the employees. The Options can be exercised within a period of two years from the date of vesting i.e. July 29,2012 by paying Rs.10/-per option. Thus, the remaining options are due to lapse if not exercised by the employees by the end of the said period.

For FY 2010-11, 92,964 options had been granted during the FY 2012-13 to the eligible employees. However, out of the 92,964 options granted, 69,954 options have been settled in cash and 1,572 options have been cancelled during previous financial year. The remaining 21,438 equity shares have been allotted upon exercise of the stock options by the employees during FY 2013-14.

The disclosure in respect of the ESOP scheme pursuant to Clause 12 of SEBI (Employees''Stock Option Scheme and Employees'' Stock Purchase Scheme) Guidelines, 1999 is annexed herewith.

25.0 HRD INITIATIVES LEARNING & DEVELOPMENT

Your company attaches great importance to the employee development and their Competency. Your company reviews the need for learning as an on going process and provide opportunity to keep the employees abreast with latest trend in their respective functional areas. Additionally to keep pace with competition, senior executives are given exposure in advanoe management techniques through premier management Institutes in India and abroad. In order to achieve this, the Company has an annual training plan to assess the various training needs. Necessary professional skills are also imparted across all levels of employees through customized training interventions.

During the year 2013-14, PFC organized 18 in-house programs. A total of 1659 mandays were achieved during the period under review. Your company imparted training in the area of Leadership Development & Team Building.

26.0 HUMAN RESOURCE MANAGEMENT

Your company lays great emphasis on upgrading the skills of its Human Resources. It benchmarks its practices with the best practices being followed in the other Public Sector Companies. This, apart from other strategic interventions, lead to an effective management of Human Resources thereby ensuring a high level of productivity.

Your company regularly interacts with the employee representatives to ensure cordial and harmonious employee employer relations. Due to the positive work culture in the organization, no mandays were lost during the period under review.

27.0 WELFARE MEASURES

Your Company follows best management practices to ensure welfare of its employees through a process of inclusive growth & development. Your company follows open door policy and absolute accessibility to top management thereby facilitating the growth of the organization. Employee commitment is high due to various employee welfare measures that are best in the sector including various welfare policy measures such as comprehensive insurance, medical facilities and other amenities which has resulted in team sprit and healthy work atmosphere. Your company is one of the very few organizations in forming Contributory Post Retirement Medical Fund Trust to address the needs of retired employees. Besides this, your company also organized various health camps during the year for the welfare of the employees. Your company also organized sport events to build team spirit and cohesive work culture.

28.0RESERVATION OF POSTS FOR SC/ST/OBC/EX- SERVICEMEN AND PHYSICALLY HANDICAPPED PERSONS IN THE SERVICES OF COMPANY

Your Company as a part of its social responsibility makes all-out efforts to ensure compliance of the Directives and Guidelines issued by the Govt, for the reservation to be allowed for SC/ST/CHBC/Persons with Disabilities. The steps taken indude due reservations and relaxation as applicable under the various directives.

In the FY 2013-14, total 30 new employees were recruited out of which 10% are SC (3), 3.3% are ST (1), Nil % are FWD (0) aid 36.7% are OBC (11).

29.0 REPRESENTATION OF WOMEN EMPLOYEES

Your Company provides equal growth opportunities for its women employees and the Company can take pride in saying that critical functions are haded by women employees. There is no discrimination of employees on the basis of gender. Women employees represent 19.73% of the total work force.

During the FY 2013-14, no case has been filed under the Sexual Harassment of Women at Work Place (Prevention, Prohibition and Redressa!)Act2013*.

30.0 DIRECTORS'' RESPONSIBILLTY STATEMENT

As required under Section 217(2AA) of the Companies Act, 1956, your Directors confirm that:

* In the preparation of the annual accounts for the FY 2013-14, the applicable accounting standards had been followed;

* The Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of FY 2013-14 and of the profit of the Company for that period;

* The Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provision of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

* The Directors had prepared the Annual Accounts for FY 2013-14 on a going concern basis.

31.0 AUDITORS

M/s. N.K. Bhargava & Co., Chartered Accountants and M/s K. 8. Chandna & Co., Chartered Accountants were appointed as Joint Statutory Auditors of the Company for the FY 2013-14 by the Comptroller & Auditor Genera! of India.

The Joint Statutory Auditors have audited the accounts of the Company for the FY 2013-14 and have given their audit report without any qualification. The copy of the audit report is annexed herewith.

32.0 COMMENTS OF COMPTROLLER & AUDITOR GENERAL OF INDIA

The Comptroller and Auditor General of India (C&AG) has mentioned that on the basis of audit, nothing significant has come to their knowledge which would give rise to any comment upon or suppliment to Statutory Auditors'' report under section 619(4) of the Companies Act, 1956. The copy of the report of C&AG is annexed herewith.

33.0 PARTICULARS OF EMPLOYEES U/S 217 (2A) OF THE COMPANIES ACT, 1956

Pursuant to provisions of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended from time to time, a statement of the particulars of employees who were in receipt of remuneration exceeding 760 Lakh per annum or 75 Lakh per month and above, is annexed herewith.

34.0 DEBENTURE TRUSTEES

The details of Debenture Trustees appointed by the company for the different series of Bonds issued by your company, are annexed herewith.

35.0 REDEMPTION AND STATUS OF UNCLAIMED AMOUNTS

Bonds

The unclaimed balance amount of bonds (principal and interest) as on March 31, 2014 was Rs.6.50 crore. No amount is liable to be transferred to Investor Education Protection Fund as 7 years have not elapsed since the date of redemption.

Equity

The unclaimed balance amount of dividend (equity) and application money received and due for refund (FPO) as on March 31, 2014 was Rs.1.45 crore and Rs.0.04 crore respectively. During the FY 2013-14, the unclaimed amount of Rs.11,89,630 under "Application money received and due for refund (IPO)" has been transferred to Investor Education and Protection Fund (IEPF) in the month of March. 2014. The detail of investors'' (whose refund is due) is available on PFC''s website and IEPF webstte of MInistry of Corporate Affairs.

36.0 VIGILANCE

During the FY 2013-14, the Vtgilance Unit functioned as an effective tool of management, the thrust being on preventive vigilance. This aspect was emphasized by conducting periodic & surprise inspections of various units and by issuing effective guidelines to streamline systems with the aim of eliminating gaps and ensuring transparency in day to day operations. Information technology was used as an effective tool for providing on-line services to all the stakeholders and to enhance organizational efficiency. Vigilance Unit also undertook the review of operational manuals of various activities of the Company. A number of comprehensive manuals on different areas of company''s activities have already been notified after review and some other manuals are in process of finalization. Detailed investigations were also carried out in respect of registered complaints during this period.

In accordance with the directives of CVC, Vigilance Awareness week was observed from October 26, 2013 to November 2, 2013 in the head office and regional offices of the Company. As part of a sequence of events during the Vigilance Awareness Week*, a one day workshop on "Sustaining an Organization''s Ethical Vision" was organized for the employees of your company. In the programme, interactive sessions were organised with prominent (acuity members on varied subjects like personal values and ethics and how to deal with day to day situations involving ethical dilemmas faced during working in an organization.

In compliance with the instructions of CVC, sensitive posts in the Company were identified afresh and the concerned officers were rotated. Agreed lists were finalized in respect of corporate office at Delhi and regional offices at Mumbai and Chennai in consultation with the CBI. Prescribed periodical statistical returns were sent to CVC, CBI, and MOP on time.

The Vigilance Unit worked for systematic improvements with a viewto bring about greater transparency, objectivity and accountability thereby contributing to the overall efficiency and effective ness of the organization.

37.0 OFFICIAL LANGUAGE

The FY 2013-14 had been a remarkable year of achievements for your company in the area of Official Language. Several awards and accolades were conferred upon the company like, ''Narakas Rajbhasha Shield (Vishesh Protsahan Puraskar)'' for Rajbhasha Implementation, ''Narakas Pratiyoglta Samman Trophy1 by Town Official Language Implementation Committee (TOUC). ''Karyalay Oeep Shield" by Rajbhasha Sansthan for significant contribution in use of Hindi. ''Rajbhasha Shiromani Shield 2014'' for Excellent implementation of Official Langauge, ''Rajbhasha Manishi Shield'' to DGM (Rajbhasha) for encouraging use of Rajbhasha by Bharatiya Bhasha Aivam Sanskrtiti Sansthan. One of our employees won first prize in Inter PSU Debate Competition held under the aegis of TOUC.

The meetings of the Official Language Implementation Committee were organised in each quarter to review and improve implementation of Official Language Policy. Hindi website of your company was updated regularly. Twelve Hindi workshops were organized wherein 242 executives and non executives were trained and special thrust was laid on use of Unicode. Annual Report of the Company was published in bilingual form. Company''s Quarterly magazine ''UtjaDeepti'' was published regularly.

To create a Hindi oriented environment, the Company celebrated Hindi Day on September 14, 2013 and Hindi Month from September 14, 2013 to October 15, 2013. Various competitions, like Nara/Slogan lekhan, Vartanishodhan, Sansmaran, Bhav Pallavan, Kaiiani Buno and Mook Prahelika were organized. In all, 216 employees participated in these competitions. An inter PSU competition i.e. ''Chitra (Maukhik) Abhivyakti Pratiyoglta'' was also conducted under the aegis of TOLIC wherein employees of 25 various Public Sector Undertakings participated. During the Vigilance Awareness Week'', three competitions were organised in Hindi, slogans were displayed in Hindi and SMS sent in Hindi.

During the year, Inspection of PFC Head Office was carried out by Second Sub Committee of Parliamentary Committee on Official Language. Officials of Ministry of Power also conducted the inspections of Head Office at New Delhi, Regional Office (South) at Chennai as well as Regional Office (West) at Mumbai.

38.0 RIGHT TO INFORMATION ACT

Information is an integral part of our life to upgrade ourselves on various issues which may either have a direct or indirect influence on our day to day life. Without information, it would not be possible to exercise our valuable fundamental right of ''Freedom of Speech and Expression'' as guaranteed under Article 19(1) (a) of the Indian Constitution. Every democratic country attributes much importance to the freedom of speech and expression and in order to exercise such right more effectively and efficiently. The people of the Country are entitled to know about the functioning for the welfare of the people and development of the country. The main objective of the Right to Information Act, 2005, is to ensure greater and more effective access to information and to maintain transparency and improve accountability in the working of the public departments both Central and State .The information seekers, have, subject to few exceptions, an overriding right under the Act, to get information lying in the possession of the PublicAuthorities.

Your company has implemented the Right to Information Act, 2005 to provide information to the citizens of India and also to maintain accountability and transparency in the working of the company. The Company has designated a Public Information Officer (PIO), an Appellate Authority and a Transparency Officer at its registered office for effective implementation of the RTI Act.

During the FY 2013-14, all 89 applications received under the RTI Act, were duty processed and replied to. In compliance with Section 4 of the RTI Act, requisite disclosures have been updated and hosted on PFC website. Your company has also complied with the directions of Centra! Information Commission (CIC) regarding filing of online Quarterly/Annual Return for the FY 2013-2014.

SUOMOTO DISCLOSURES UNDER SECTION 4 0F THE RTI ACT 2005

During FY 2013-14, in order to strengthen compliance of the provisions of disclosures as contained in Section 4 of the RTI Act, 2005, Department of Personnel & Training (DoPT) vide its OM No. 1/6/2011-IR dated 15.04.2013 issued guidelines on the following

(i) Suomoto disclosure of more items under Section 4;

(ii) Guidelines for digital publication of proactive disclosure under Section 4;

(iii) Guidelines for certain clauses of Section 4(1)(b) to make disclosure more effective;

(iv) Compliance mechanism for suomoto disclosure (proactive disclosure) under RTI Act, 2005.

In compliance of the aforesaid guidelines, your company has placed the requisite information on the website of the company.

39.0 GRIEVANCE REDRESSAL

Your Company has separate Grievance Redressal Systems for dealing with the grievances of the employees, its customers and the public at large. The systems are duly notified and are easiy accessible. Adesignated Nodal Officer is responsible to ensure quick redressal of grievances within the permissible time frame. The company atso has a notified Citizen''s Charter to ensure transparency in its work activities. This Charter te available on the website of the Company to facilitate easy access.

40.0 DETAILS OF PROCUREMENT FROM MSEs

The details of the procurements made from Micro and Small Enterprises (MSEs) during the FY 2013-14 and the targets for FY 2014-15 as required to be disclosed under Micro, Small and Medium Enterprises Development Act, 2006 is as under:

S. Particulars Achievements of Target for No. FY 2013-14 FY 2014-15

I Total annual procurement (in value) Rs.311,89,453 Rs. 330,00,000

II Total value of goods and services Rs.73,54,663* Rs.66,00,000 procured from MSEs (including MSEs owned by SC/ST entrepreneurs)

III Total value of goods and services - 13,20,000** procured from only MSEs owned by SC/ST entrepreneurs

IV %age of procurement from MSEs 23.5% 20% (including MSEs owned by SC/ST entrepreneurs) out of total procurement

V %age of procurement from only MSEs - - owned by SC/ST entrepreneurs out of total procurement

VI Total number of vendor development - One Vendor programmes for MSEs development half yearly

VII Confirmation of uploading annual MSE - Annual pro- procurement profile on your website by curement plan hyperlink of same uploaded at www.pfcindia.com

* Procurement value includes the purchase from MSME. KB, NCCf, DCCWS Ltd., Handicraft Emporiums and Central Cottage Industries.

** Subject to availability of the product through MSME SC/ST Agency,

41.0 POSTAL BALLOT

During May-June, 2014, your company conducted Postal Ballot seeking approval of the shareholders on the following proposals by passing special resolutions:

(a) Raising of resources through private placement of non-convertible debentures pursuant to the provisions of Section 42 of the Companies Act 2013 read with Rule 14 of Companies (Prospectus and allotment of securities) Rules, 2014,

(b) Enhancement of the borrowing power for the purpose of business of the company pursuant to the provisions of Section 180 (1) (c) of the Companies Act, 2013 read with the applicable rules.

(c) Authorization to the Board of Directors for mortgaging and/or creating charge on the assets of the company for securing borrowings for the purpose of business of the company pursuant to the provisions of Section 180 (1) (a) of the Companies Act, 2013 read with the applicable rules.

All the above proposals were passed by the shareholders with requisite majority and the result of the Postal ballot was announced on June 20,2014.

42.0 BOARD OF DIRECTORS

Following are the changes in Board of Directors of your company since April 1,2013:

* Shri M. K. Goel, Director (Commercial) assumed the additional charge of Chairman and Managing Director vice Shri Satnam Singh w.e.f. September 13,2013.

* Shri Vijay Mohan Kaul assumed the charge of Non Official Part Time (Independent) Director on the Board of PFC w.e.f, June 24,2013,

* Shri Yogesh Chand Garg assumed the charge of Non Official Part Time (Independent) Director on the Board of PFC w.e.f, August 22,2013.

* Shri Ajit Prasad, Non Official Part Time (Independent) Director relinquished the charge of Director of the Company consequent upon compl etion of h is ten u re w. e .f. October 8,2013.

* Shri Krishna Mohan Sahni, Non Official Part Time (Independent) Director relinquished the charge of Director of the Company consequent upon completion of his tenure w.e.f. December 31,2013.

The Board placed on record its deep appreciation for the commendable contributions made by Shri Satnam Singh, Shri Ajit Prasad and Shri Krishna Mohan Sahni in the deliberations of Board and its committees during their association with the Company.

The Board also welcomes Shri Vijay Mohan Kaul and Shri Yogesh Chand Garg and expresses confidence that the Company shall immensely benefit from their rich and varied experience.

43.0 ACKNOWLEDGEMENT

The Board of Directors acknowledge and place on record their appreciation for the guidance, co-operation and encouragement extended to the Company by the Government of India, Ministry of Power, Ministry of Finance, Ministry of Corporate Affairs, Reserve Bank of India, Department of Public Enterprises, Securities and Exchange Board of India, National Stock Exchange of India Limited, Bombay Stock Exchange Limited and other concerned Government departments/agencies at the Central and State level as well as from various domestic and international financial institutions/banks, agencies etc.

The Board also conveys its gratitude to the shareholders, various International and Indian Banks/Multilateral agencies/financial Institutions/ credit rating agencies for the continued trust and for the confidence reposed by them in PFC. Your Directors would also like to convey their gratitude to the clients and customers for their unwavering trust and support.

The Company is also thankful to the Comptroller & Auditor Genera! of India and the Statutory Auditors for their constructive suggestions and co-operation.

Your Directors also recognize and appreciate the untiring efforts and contributions made by the employees to ensure excellent all round performance of your Company.

For and on behalf of the Board of Directors

(M. K. Goel) Chairman & Managing Director

Place : New Delhi Dated : 25/08/2014


Mar 31, 2013

To The Members of Power Finance Corporation Limited

The behalf of Board of Directors, I have pleasure in presenting 27th Annual Report on the performance of your company for the financial year ended March 31, 2013 along with Audited Statements of Accounts, Auditor''s Report & review of accounts by the Comptroller and Auditor General of India.

1. FINANCIAL HIGHLIGHTS

(a) PROFITABILITY

(Rs. in crore)

Particulars 2012-13 2011-12

Profit Before Tax 5967.04 4104.25

Provision for Income Tax (current year) (-) 1543.57 (-) 1070.87

Provision for Income Tax (earlier years) 128.49 2.82

Provision for Deferred Tax Liability (-) 132.36 (-) 4.46

Profit After Tax 4419.60 3031.74

Appropriations of Profit after Tax:

Reserve for Bad & Doubtful Debts u/s 36(1) 250.40 173.73 (viia) (c) of Income Tax Act, 1961

Special Reserve created and maintained u/s 1155.90 776.20 36(1) (viii) of Income Tax Act, 1961

Debenture Redemption Reserve 219.06 55.73

CSR Reserve 18.36 0.00

SD Reserve 0.49 0.00

General Reserve 442.00 304.00

Interim Dividend 792.01 659.97

Proposed Final Dividend 132.00 132.00

Corporate Dividend Tax paid on Interim 128.48 107.06 Dividend

Proposed Corporate Dividend Tax on Final 22.43 21.41 Dividend

Balance carried to Balance Sheet 1258.47 801.64

(b) LENDING OPERATIONS

(Rs. in crore)

Particulars 2012-13 2011-12

Sanction 75147 59429

Disbursement 45151 39818

(c) R-APDRP OPERATIONS

(Rs. in crore)

Particulars 2012-13 2011-12

Sanctioned project cost 3728 9595

Disbursement 1217 1600

2.0 FINANCIAL PERFORMANCE

2.1 REVENUE

The highest ever total income achieved by your company during the FY 2012-13 was Rs.17,272.55 crore registering an increase of 33% over the total income of Rs.13,037.11 crore achieved last fiscal. Operating income for the current year increased from Rs.13,014.85 crore to Rs.17,260.27 crore registering an increase of 33% over last fiscal. Interest income including lease income for the year increased from Rs.12,621.06 crore to Rs.16,917.04 crore.

2.2 EXPENSES

The total expenditure for the FY 2012-13 amounted to Rs.11,305.51 crore as against expenditure of Rs.8,932.86 crore during last fiscal. Interest, finance and other charges including bond issue expenses incurred during FY 2012- 13 amounted to Rs.11,088.41 crore as against Rs.8,661.55 crore in the previous year. These expenses constituted 98% of total expenditure in the FY 2012-13 as compared to 97% in the previous year. Employee Benefit and other administrative expenses for the FY 2012-13 reduced from 1.39% of total expenses during last fiscal to 1.23% of total expenses. Further, these Employee Benefit and other administrative expenses amounted to 0.09% of the Loan assets in the FY 2012-13 as against 0.10% of loan assets last fiscal.

2.3 PROFIT

During the FY 2012-13, your Company earned its highest ever net profit of Rs.4,419.60 crore registering a growth of 46% over the net profit of Rs.3,031.74 crore earned by your company during FY 2011-12.

2.4 SHARE CAPITAL

As on April 1, 2012, the paid-up share capital of the Company was Rs.1,319.93 crore comprising of 1,31,99,31,705 equity shares of face value Rs.10 each. During FY 2012-13, 83,306 equity shares of face value Rs.10/- each were allotted to the employees under the Company''s Employee Stock Option Scheme i.e. PFC ESOP 2010. Consequent to this allotment, the paid-up equity share capital of the Company stands increased to Rs.1,320.02 crore comprising of 1,32,00,15,011 equity shares of face value Rs.10 each as on March 31, 2013.

Further, the Board of Directors in its meeting held on July 15, 2013 has allotted 21,820 equity shares of face value of Rs.10 each. Consequent to this allotment, the paid-up equity share capital of the Company stands increased to Rs.1,320.04 crore comprising of 1,32,00,36,831 equity shares of face value Rs.10 each.

2.5 DIVIDEND

Your Directors have recommended a final dividend of Rs.1 per equity share in addition to an interim dividend of Rs.6 per equity share paid on February 13, 2013.

The total dividend for the FY 2012-13 thus aggregates to Rs.7 per equity share as against Rs.6 per equity share paid for the previous year. The final dividend will be paid after approval at the Annual General Meeting. The total dividend pay-out for the year 2012-13 amounts to Rs.924.01 crore as against a dividend pay-out of Rs.791.97 crore in the preceding year.

2.6 ISSUE OF TAX FREE BONDS

Your company came out with the public issue of Tax Free Bonds Tranche-I from December 14, 2012 till December 27, 2012 in two series i.e. Series 1 & 2. The interest rate of Series 1 was 7.19% and of Series 2 was 7.36%. An additional interest of 0.50% p.a. has been made available to the original allottees under retail category for bonds of both the series. The company mobilized resources to the tune of Rs.699.75 crore in both the series from the market. The date of allotment of said public issue of Tax Free Bonds was January 4, 2013. These bonds have been listed on Bombay Stock Exchange (BSE). The funds raised from the above said issue were utilized towards lending purposes and working capital requirements.

Your Company also came out with the Public issue of Tax free Bonds Tranche-II from February 18, 2013 till March 19, 2013 in two series i.e. Series 1 & 2. The interest rate of Series 1 was 6.88% and of Series 2 was 7.04%. An additional interest of 0.50% p.a. has been made available to the original allottees under retail category for bonds of both the series. The Company mobilized resources to the tune of Rs.165.37 crore in both the series from the market. The date of allotment of said public issue of Tax Free Bonds was March 28, 2013. These bonds have also been listed on Bombay Stock Exchange (BSE) w.e.f. April 10, 2013. The funds raised from the above said issue will be utilized towards lending purposes, debt servicing and working capital requirements.

Your Company also came out with the Private placement of Tax free Bonds issue in the month of November, 2012 in two series i.e. Series 94 (A&B) & Series 95 (A&B). The interest rate of Series 94 (A&B) for 10 years and 15 years was 7.21% p.a. and 7.38% p.a. respectively and of Series 95 (A&B) for 10 years and 15 years were 7.22% p.a. and 7.38% p.a. respectively. The Company mobilized resources to the tune of Rs.410 crore in both the series. The date of allotment of these Private placements of Tax Free Bonds series 94 & 95 (A&B) was November 15, 2012 and November 29, 2012 respectively. These bonds are listed on National Stock Exchange (NSE).

3.0 LENDING OPERATIONS

Your Company issued its highest ever sanctions of loans amounting to Rs.75,147 crore during the FY 2012-13 to State, Central and Private Sector entities. In addition to above, projects worth Rs.3,728 crore were sanctioned under R-APDRP scheme during 2012-13. With this, cumulative sanctions amount to Rs.9,52,979 crore including Rs.35,143 crore under R-APDRP scheme.

An amount of Rs.45,151 crore was disbursed to State, Central, Private and Joint Sector entities during the FY 2012-13 in addition to disbursement of Rs.1,217 crore under R-APDRP scheme. With this the cumulative disbursements amount to Rs.2,60,836 crore including cumulative disbursements of Rs.6,720 crore under R-APDRP scheme.

3.1 Financial Assistance

3.1.1 Sector-wise

(Rs. in crore)

2012-13 Cumulative upto March, 2013 Category Sanctions Disbursements Sanctions Disbursements

State Sector 55410 34781 294970 184950

Central Sector 474 1577 33665 30731

Private Sector 19263 6731 71972 25810

Joint Sector - 2062 17229 12625

Total 75147 45151 417836 254116

3.1.2 Discipline-wise

(Rs. in crore)

2012-13 Cumulative upto March, 2013 Category Sanctions Disbursements Sanctions Disbursements

Thermal Generation 31546 22743 239544 132162

Hydro Generation 4484 1952 37669 24997

Wind, Solar, Bagasse and Biomass 2240 417 4089 1589

Renovation and Modernization of Thermal Power Stations 13 462 7753 6360

Renovation & Uprating of Hydro Power Projects 69 7 1615 1080

Transmission 8278 2033 39801 21138

Distribution 460 1265 16192 12231

Short Term Loans 4760 3120 38880 37090

Counterpart funding for R-APDRP Part B 890 15 4666 15

Transitional Finance 18188 12818 18188 12818

Others* 4219 319 9439 4636

Total 75147 45151 417836 254116

* Others include Decentralized Management, Project Settlement, Pre Investment Fund, Technical Assistance Project, Medium Term Loan, Buyers Line of Credit, Equipment Manufacturing Loan, Loan for Asset Acquisition, Bill Discounting, Studies, Loan for Redemption of bonds, Purchase of power through PXI, Loan for Promoter''s Equity, Computerization, Fuel Sources Development, funding of Regulatory assets, Loan against receivables etc.

3.1.3 Product-wise

(Rs. in crore)

2012-13 Cumulative upto March, 2013 Category Sanctions Disbursements Sanctions Disbursements

Term Loans 51468 28933 353355 198461

Short Term Loans 4760 3120 38880 37090

Leasing - - 1043 795

Grants - 1 73 55

Transitional Finance 18188 12818 18188 12818

Others ** 731 279 6297 4897

Total 75147 45151 417836 254116

** Others include Debt Refinancing, Bridge Loan, Loan to Equipment Manufacturers, Buyers Line of Credit, Bill Discounting, Purchase of power through PXI etc.

3.2 Financial Assistance under R-APDRP

(Rs. in crore)

2012-13 Cumulative upto March, 2013 Category Sanctions Disbursements Sanctions Disbursements Project cost project cost

Part A (IT) 47 282 5243 2043

Part A (SCADA) 27 111 1470 412

Part B 3654 824 28430 4265

Total 3728 1217 35143 6720

3.3 GENERATION PROJECTS

3.3.1 THERMAL PROJECTS

Thermal Power generation comprises a major proportion of India''s total installed capacity. During the FY 2012-13, the Company has sanctioned loans amounting to Rs.31,546 crore and disbursed an amount of Rs.22,743 crore for thermal power projects. The cumulative financial support provided by the Company for thermal generation schemes is Rs.2,40,644 crore out of which Rs.1,32,162 crore has been disbursed till March 31, 2013.

The major thermal generation projects sanctioned by your Company during the year include: OBRA-C Extension TPS (2x660 MW), Bellary TPS (1x700 MW), SDSTPS Unit III at Krishnapatnam (1x800 MW), 2x660MW TPS at Angul Distt, Odisha, 5x270 MW phase-II TPP at Nasik.

3.3.2 HYDRO PROJECTS

Hydro generation capacity in the country needs significant augmentation for overall systems to have optimal energy mix. During the FY 2012- 13, loans amounting to Rs.4,484 crore were sanctioned and an amount of Rs.1,952 crore was disbursed by your company. The cumulative financial support provided by the Company for hydro generation scheme is Rs.37,669 crore out of which Rs.24,997 crore has been disbursed till March 31, 2013.

3.4 RENOVATION, MODERNISATION AND LIFE EXTENSION

3.4.1 THERMAL PROJECTS

During the FY 2012-13, loans worth Rs.13 crore were sanctioned for R&M and life extension of thermal power plants and an amount of Rs.462 crore was disbursed. Cumulatively, an amount of Rs.7,753 crore has been sanctioned and Rs.6,360 crore stands disbursed till March 31, 2013.

3.4.2 HYDRO PROJECTS

During the FY 2012-13, loans worth Rs.69 crore were sanctioned for R&M of Hydro power projects and an amount of Rs.7 crore was disbursed. Cumulatively, an amount of Rs.1,615 crore has been sanctioned and Rs.1,080 crore stands disbursed till March 31, 2013.

3.5 TRANSITIONAL LOANS

In August 2012, your company formulated Broad Guidelines for "Transitional Financing to Discoms for supplementing the Financial Restructuring Scheme approved by GoI" by providing funding towards the yearly cash gap as per Financial Restructuring Plan (FRP). The objective is to provide financial support to meet the temporary liquidity crunch being faced by the Discoms and to enable these Discoms to bring financial turnaround over a specified period. While formulating the scheme, terms and conditions were stipulated to enable the Distribution companies to convert into a financially stable entity which will pave the way for further sustainable investment in power sector. Your Company has already sanctioned transitional loans of Rs.18,188 crore to various Discoms in the states of Punjab, Haryana, Uttar Pradesh, Rajasthan and Tamil Nadu. Further, an amount of Rs.12,818 crore has already been disbursed under these loans as on March 31, 2013.

4.0 REALISATION

Your Company gives utmost priority to the realisation of its dues towards principal, interest etc. Out of Rs.31,158.72 crore to be recovered towards principal, interest etc. under rupee term loans, bill discounting, working capital, lease financing, foreign currency loan, loans for equipment financing and guarantee fee, an amount of Rs.30,894.97 crore was actually realised. This works out to an overall recovery rate of 99.15% (previous year 98.91%). The overall recovery rate has been consistently maintained at 96-99% for past decade. Your company has achieved recovery rate of 99.39% in respect of principal amount due during the year.

In terms of Prudential Norms applicable, the provisioning on Non Performing Loan Assets has been reduced by an amount of Rs.22.39 crore during the year. The Company has made a total provision amounting to Rs.121.48 crore for Non-Performing Assets (NPA) against Loan Assets in its Annual Accounts upto the year 2012- 13. After making provision on NPA, the level of net Non-Performing Assets (NPA) has been recorded at Rs.1,013.04 crore which is 0.63% to the Total Loan Assets as on March 31, 2013.

In addition to above, the company has also made a provision of Rs.132.79 crore on standard assets outstanding as on March 31, 2013, which would strengthen PFC''s balance sheet by providing a buffer provisioning and inspire higher levels of confidence amongst investors, regulators and other stakeholders in your company.

5.0 RESTRUCTERED LOANS

The details of loans restructured during the FY 2012-13 are as follows:

Particular FY 2012-13 FY 2011-12

Standard Loans Restructured No. of Borrowers 7 4

Amount Outstanding 3699.84 2868.46

Sub-Standard Loans Restructured No. of Borrowers 1 1

Amount Outstanding 325.00 227.61

Doubtful Loans Restructured No. of Borrowers - -

Amount Outstanding - -

Total No. of Borrowers 8 5

Amount Outstanding 4024.84 3096.07

* The restructured loan amount includes Rs. 3,735.57 crore wherein the first repayment date was extended due to delayed commissioning of the respective project.

6.0 BORROWINGS

6.1 BORROWINGS FROM DOMESTIC MARKET

Your Company mobilized funds amounting to Rs.37,751.21 crore from the domestic market during FY 2012-13 as against Rs.36,318.57 crore mobilized during FY 2011-12 comprising of Rs.31,142.01 crore through issue of unsecured/secured taxable/Tax free bonds in the nature of debentures, Rs.1,700 crore by way of long/medium term loans from Banks/FIs, and Rs.4,909.20 crore by issue of Commercial Paper and Short Term Loans.

6.2 EXTERNAL BORROWINGS

During the FY 2012-13, your company raised External Commercial Borrowing (ECB) of USD 500 million through syndicated loans as detailed here in below:

Amount (USD in Million) Rate of Interest Tenor of the Loan (Years) Average Tenor (Years)

250 6 month LIBOR 175 bps 3 3

250 6 month LIBOR 145 bps 4 3

6.3 CASH CREDIT/ OVERDRAFT FACILITIES

For day to day operations, your company continued to follow prudent strategies for optimum utilization of fund based resources. To hedge any financial liquidity bottlenecks, ample credit lines to the tune of Rs.8,339.93 crore were maintained with various scheduled commercial banks for short term funding which do not bear any commitment charges towards unutilized limits. The said limits have been utilized to the extent of Rs.2,959.22 crore as on March 31, 2013.

7.0 CREDIT RATINGS Domestic

During the FY 2012-13, your Company''s long term domestic borrowing programme (including bank loans) was awarded the highest rating of CRISIL AAA, ICRA AAA and CARE AAA by CRISIL, ICRA and CARE respectively. The Company''s short term domestic borrowing programme (including bank loans) was awarded the highest rating of CRISIL A1 , ICRA A1 and CARE A1 by CRISIL, ICRA and CARE respectively.

International

During the FY 2012-13, the international credit rating agencies Moody''s, Fitch and Standard and Poor''s have given long term currency issuer ratings of Baa3, BBB- and BBB- respectively to your company, which are at par with sovereign rating for India.

8.0 RISK MANAGEMENT

8.1 ASSET LIABILITY MANAGEMENT

Your Company has put in place an effective Asset Liability Management System and constituted an Asset Liability Management Committee (ALCO) headed by Director (Finance). ALCO monitors risks related to liquidity and interest rate and also monitors implementation of decisions taken in the ALCO meetings. The Asset Liability Management framework includes periodic analysis of long term liquidity profile of asset receipts and debt service obligations. Such analysis is made every month in yearly buckets for the next 10 years, and is used for critical decisions regarding the time, volume and maturity of profile of the borrowings, creation of new assets and mix of assets and liabilities in terms of time period (short, medium and long-term). While the liquidity risk is being monitored with the help of liquidity gap analysis, the interest rate risk is managed by analysis of interest rate sensitivity gap statements, evaluation of Earning at Risk (EaR) on change of interest rate and creation of assets and liabilities with the mix of fixed floating interest rates.

8.2 FOREIGN CURRENCY RISK MANAGEMENT

Your Company has put in place Currency Risk Management (CRM) policy to manage risks associated with foreign currency borrowings. The Company enters into hedging transactions to cover exchange rate and interest rate risk through various instruments like currency forward, option, principal swap, interest rate swap and forward rate agreements.

As on March 31, 2013, the total foreign currency liabilities were USD 1040.30 million, JPY 41,643.20 million and Euro 22.80 million. On an overall basis, the currency exchange rate risk is covered to the extent of 15% through hedging instruments and lending in foreign currency.

8.3 INTEGRATED ENTERPRISE WIDE RISK MANAGEMENT

Your Company has put in place a mechanism to ensure that the risks are monitored carefully and managed efficiently. In this regard, your company had constituted the Risk Management Committee of Directors to monitor various risks, examine risk management policies & practices and initiate action for mitigation of risks arising in the operations. To facilitate this, the Company had put in place an Integrated Enterprise - Wide Risk Management Policy (IRM Policy).

The Company has identified 26 risks (11 quantifiable risks and 15 non quantifiable risks) which may have an impact on profitability/business of the Company. In order to implement IRM policy, the Risk Management Committee of Directors constitutes Risk Management Compliance Committee and a separate unit namely CRM (erstwhile CRA unit) for monitoring of the identified risks. CRM unit continuously monitors the risks from time to time and ensures that the risks are being mitigated on time.

9.0 ULTRA MEGA POWER PROJECTS (UMPPs) AND INDEPENDENT TRANSMISSION PROJECTS (ITPs)

9.1 UMPPs

UMPP is the initiative of Government of India with Ministry of Power as the ''facilitator'' for the development of these UMPPs while Central Electricity Authority (CEA) is the ''Technical Partner''. Your Company has been designated as the ''Nodal Agency'' for development of Ultra Mega Power Projects (UMPPs), with a capacity of about 4,000 MW each. Sixteen (16) such UMPPs were identified to be located at Madhya Pradesh (Sasan), Gujarat (Mundra), Andhra Pradesh (Krishnapatnam), Jharkhand (Tilaiya), Chhattisgarh (Surguja), Karnataka, Maharashtra (Munge), Tamil Nadu (Cheyyur), Odisha (Sundargarh), 2 Additional UMPPs in Odisha and 2nd UMPPs in Andhra Pradesh (Prakasam), Tamil Nadu, Gujarat and Jharkhand (Deoghar) and Bihar. So far, 13 Special Purpose Vehicles (SPVs) have been established by the Company for UMPPs to undertake preliminary site investigation activities necessary for conducting the bidding process for these projects. These SPVs shall be transferred to successful bidder(s) selected through Tariff Based International Competitive Bidding Process for implementation and operation.

Four (4) SPVs have been transferred to the successful bidders as indicated below:

S. Successful Date of No. Name of S P V Bidder Transfer

1 Coastal Gujarat The Tata Power April 22, Power Ltd. Company Ltd. 2007

2 Sasan Power Ltd. Reliance Power August 7, Ltd. 2007

3 Coastal Andhra Reliance Power January Power Ltd. Ltd. 29, 2008

4 Jharkhand Reliance Power August 7, Integrated Power Ltd. 2009 Ltd.

Out of the remaining nine (9) SPVs namely Chhattisgarh Surguja Power Limited (Previously known as Akaltara Power Ltd.), Coastal Karnataka Power Limited, Coastal Maharashtra Mega Power Limited, Coastal Tamil Nadu Power Limited, Orissa Integrated Power Limited, Sakhigopal Integrated Power Company Limited, Ghogarpalli Integrated Power Company Limited, Tatiya Andhra Mega Power Limited and Deoghar Mega Power Limited, Request for Qualification (RfQ) for Chhattisgarh UMPP was issued in March, 2010 and RfQ for Odisha UMPP was issued in June, 2010. The last date for submission of response to RfQ for Chhattisgarh UMPP has been extended several times on the advice of MoP due to forest related issues concerning coal blocks and is now October 3, 2013. Responses for RfQ for Odisha UMPP were received on August 1, 2011. RfP for this project would be issued once revised standard bid document (SBDs) to be followed are notified by Ministry of Power.

9.2 ITPs

Ministry of Power has also initiated Tariff Based Competitive Bidding Process for development and strengthening of Transmission system through private sector participation.

The objective of this initiative is to develop transmission capacities in India and to bring in the potential investors, after developing such projects to a stage having completed preliminary survey work, identification of route, preparation of survey report, initiation of process of land acquisition for sub-stations, if any, initiation of process of seeking forest clearance, if required and to conduct bidding process etc.

So far nine (9) Special Purpose Vehicles (SPVs), two (2) by PFC and other seven (7) (including four (4) in the year under report) by PFC Consulting Limited, the wholly owned subsidiary of your company, have been established for ITPs. Out of these nine (9) SPVs, four (4) SPVs have been transferred to the successful bidders as detailed here in below:

S. Successful Date of No. Name of S P V Bidder Transfer

1 East North Sterlite March 31, Interconnections Technologies 2010 Company Limited (ENICL) Limited

2 Jabalpur Transmission Sterlite Transmission March 31, Company Limited (JTCL) Projects Private 2011 Limited

3 Bhopal Dhule Sterlite Transmission March 31, Transmission Company Projects Private 2011 Limited (BDTCL) Limited

4 Nagapattinam-Madhugiri Power Grid March 29, Transmission Company Corporation of 2012 Limited (NMTCL), India Limited Package A (POWERGRID)

The bidding process for the independent transmission project viz. ''Transmission Project associated with DGEN TPS (1200MW) of Torrent Power Limited and Interconnection between Srinagar and Tehri'' was re- initiated during the year since the scope of project was revised where under the transmission scheme associated with Interconnection between Srinagar and Tehri was deleted. The said transmission project with the revised scope was re-notified by Ministry of Power and the name of the SPV incorporated for the said transmission project was changed from "DGEN & Uttrakhand Transmission Company Limited" to "DGEN Transmission Company Limited".

During the year, Ministry of Power appointed PFC Consulting Limited, the wholly owned subsidiary of your company, as Bid Process Coordinator (BPC) for four (4) new Independent Transmission Projects to be implemented through Tariff Based Competitive Bidding Process. During the year under report, PFC Consulting Limited incorporated following four (4) SPVs as its wholly owned Subsidiaries

(i) Patran Transmission Company Limited, SPV established for Transmission System for Patran 400 kv S/S

(ii) RAPP Transmission Company Limited, SPV established for Part ATS of RAPP U-7&8 in Rajasthan

(iii) Darbhanga-Motihari Transmission Company Limited, SPV established for Eastern Region System Strengthening Scheme - VI

(iv) Purulia & Kharagpur Transmission Company Limited, SPV established for Eastern Region System Strengthening Scheme - VII.

The bidding processes for these Independent Transmission Projects are under progress.

Further, PFCCL has also been appointed as ''Bid Process Cordinator'' by MoP, GoI, to undertake work on 2 new Independent Transmission Project viz. "Northern Region System Strengthening Scheme-XXXIII" "ATS for Tanda Expansion TPS (2x660MW)" in June 2013. Incorporation of SPVs for the said two ITPs is in progress.

10.0 RESTRUCTURED ACCELERATED POWER DEVELOPMENT AND REFORM PROGRAMME (R-APDRP)

As a part of R-APDRP, for the first time, Information Technology (IT) is being deployed in identified 1,402 towns of the country for establishment of accurate, reliable & sustainable baseline data, business process automation, carrying out energy audit for identifying AT&C losses and better consumer services etc. in the power distribution sector.

Also under Part-A, projects for Supervisory Control and Data Acquisition (SCADA) System/ Distribution Management System (DMS) is being established in big towns in the country (67 towns envisaged) for real time operation and control of Distribution Network for improvement of efficiency, quality and reliability of power supply.

Further, under Part-B, projects for Distribution Strengthening and Improvement are being implemented in over 1,100 towns of the country. The main focus of the scheme is reduction of AT&C losses to 15% or below.

Your Company, as nodal agency, has contributed significantly during the year in implementation of R-APDRP programme during the FY 2012-13. Your company has cumulatively sanctioned, Part-A(IT) schemes of all eligible 1,402 towns, Part-A (SCADA) schemes for 65 towns out of 67 envisaged towns and Part-B schemes for 1,171 towns out of envisaged 1,200 towns till March 31, 2013. During the year, your company sanctioned Rs.3,728 crore of projects against the MoU targets of Rs.1,084 crore set for R-APDRP. The cumulative sanction under R-APDRP is Rs.35,143 crore as on March 31, 2013.

Your company has also disbursed the entire amount of Rs.1,217 crore released by Ministry of Power (MoP) under R-APDRP during the FY 2012-13 to the state utilities. The cumulative disbursement under R-APDRP is Rs.6,720 crore as on March 31, 2013.

With the measures taken so far, as on March 31, 2013, Data Centers in cumulatively 15 States have been commissioned. Further, 170 towns have gone live in seven states, namely, Andhra Pradesh (24), Gujarat (43), Karnataka (10), Maharashtra (16), Madhya Pradesh (45), Uttarakhand (2) & West Bengal (30). In such towns, all business process software modules are functional and energy audit reports are being derived from the system. During the year, for implementation of Part-B projects of R-APDRP, utilities have tied up counterpart funding amounting to Rs.5,901 crore. With this, cumulative counterpart funding tied up amounts to Rs.14,665 crore of which Rs.4,666 crore is from PFC. Implementation work has commenced cumulatively in 822 towns, to strengthen & improve distribution system and reduce AT&C losses to 15% or below.

For capacity building and to recognize the need and to keep pace with technology, contemporary knowledge and skill, your company imparted training on various themes to 16,457 personnel of Power Utilities against MoU target of 8,000 personnel.

Cumulatively, as on March 31, 2013, 1356 towns have been ring fenced & baseline AT&C losses have been established in 1014 towns.

The reduction in AT&C losses are likely to be visible in R-APDRP towns in the utilities in next one to five years with establishment of IT system and Part-B completion in various towns coupled with administrative and other measures. Thus, your company shall be contributing largely in improvement of financial health of Distribution utilities which shall consequently improve health of Transmission and Generation Power Utilities, resulting in improvement of quality of assets of your company for such borrowers in the State Power Sector.

11.0 EXTERNALLY AIDED PROJECTS

Your Company has a Line of Credit of Euro 100.56 million from KfW to finance renovation modernization and upgradation (RM&U) of Hydro Electric Projects (HEPs) which envisaged financing RM&U schemes of six HEPs of Uttrakhand Jal Vidyut Nigam Ltd. (UJVNL). Out of six projects, Notice for Inviting Tenders (NIT) has already been issued for the Kulhal, Dhakrani and Dhalipur projects. Upon request by UJVNL in FY 2012-13, it has been agreed that Line of Credit would cover only those three projects for which NIT has been issued. Subsequently, UJVNL has shown inclination to close the loan as the repayment schedule and other conditions of KW loan are not favorable to them. Further course of action in the matter is being examined by your company.

12.0 INITIATIVE TOWARDS REFORMS AND RESTRUCTURING

Your Company has been assisting the State Power Utilities (SPUs) in their reform and restructuring program. During the year, your company disbursed an amount of Rs.1 crore to Bihar State Electricity Board (BSEB) for Reform & Restructuring assignment. Government of Bihar vide their Notification dated October 30, 2012 have unbundled BSEB as per the provisions of the Electricity Act, 2003.

The changing environment has necessitated the power utilities to be more responsive to market requirements by way of enhancing efficiency by introducing latest technologies as part of ongoing IT initiatives. During the year, an amount of Rs.163 crore has been sanctioned and Rs.9 crore disbursed for computerization schemes of State Power Utilities in addition to the computerization schemes covered under R-APDRP.

Categorization of Utilities

Your Company classifies State Power Utilities, its principal borrowers, into A , A, B and C categories. The categorization is based on the pre-determined parameters including operational & financial performance of the utilities. The categorization enables the company to determine credit exposure limits and pricing of loans to the state power utilities. This categorization is carried out biannually. As on March 31, 2013, out of 101 utilities categorized, 29 were categorized as "A ", 29 as "A", 28 as "B" and 15 as "C".

The Company is also stipulating appropriate conditions relating to implementation of reforms and improvement of performance while sanctioning financial assistance to the said State Power Utilities based on their appraisal.

The Ministry of Power in July 2012 formulated an Integrated Rating Methodology covering the State Power Distribution Utilities. The main objective of the integrated rating system for the state distribution utilities is to develop a mechanism for incentivising/dis-incentivising the distribution entities in order to improve their operational and financial performance, evaluate all utilities in power distribution sector on the basis of current levels of performance as well as on relative improvements in performance achieved on a year to year basis, facilitate realistic assessment by Banks/FIs and enable funding with appropriate loan covenants and serve as a guiding factor for Govt. of India''s assistance to the state power distribution sector under various initiatives.

The Integrated Rating framework covers all state distribution utilities (including SEBs/utilities with integrated operations) except state power departments. The integrated ratings shall be carried out on an annual basis by independent credit rating agencies.

Your Company has been nominated by MoP as the nodal agency for coordinating the activities relating to integrated rating of state distribution utilities by independent credit rating agencies.

The first Integrated Rating exercise covering all the 39 state distribution utilities was carried out by ICRA and CARE and the same were declared on March 19, 2013. Quarterly and Annual Report of State Power Utilities

Your Company is compiling brief research report on the performance of each of the state power utilities (SPUs) on a quarterly basis. The report is acknowledged as a useful effort from the SPUs as they can compare performance of their utility vis-a-vis other utilities and take mid term corrective measures for the overall improvement of the sector. The report contains key operational and financial parameters, reforms status, the status of implementation of Electricity Act 2003, areas of concern and conditions for improvement of performance etc. The report is sent to the stakeholders in the Power Sector such as the SPUs and Power Secretaries of the States.

During the FY 2012-13, your company issued performance reports for the quarters January-March 2012 covering 42 utilities, April-June 2012 for 41 utilities and for July- September 2012 and October-December 2012 covering 42 utilities each.

In addition, during FY 2012-13, your Company released 9th edition of its report on the performance of SPUs for the years 2008-09 to 2010-11 covering 93 utilities. The report is an integral part of your Company''s constant endeavour towards analyzing the performance of State Power Sectors in the areas of financial and operational performance e.g. profitability, gap between average cost of supply and average realization (Rs./kwh), net worth, capital employed, receivables, payables, capacity (MW), generation (Mkwh), AT&C losses (%) etc. at utility, state, regional and national level. The report provides a reliable database and helps in determining the results associated with the reforms in the sector and is also recognized by various stakeholders as a useful source of information regarding the state power sector. The Report for the years 2009-10 to 2011-12 covering 77 utilities has been prepared and submitted to Ministry of Power as per the targets set in MoU. The final report (10th) on the performance of all SPUs for the period 2009-10 to 2011-12 is under finalization.

13.0 POLICY INITIATIVES

Your Company constantly reviews and revises its lending & operational policies/ procedures to suitably align these with market requirements as also with its corporate objectives and introduces new policies/products to meet the dynamic business requirements.

During the year, your company introduced various new policies/ schemes/ guidelines like transitional financing to discoms, funding grid connected solar thermal private sector power generation projects, underwriting of debt, investment in equity of power projects and guarantee for credit enhancement etc.

Your company also reviewed its policy guidelines for Rupee Short Term Loan (STL), Buyer''s Line of Credit, issue/ extension of Letter of Comfort for opening of Letter of Credit (LC) under term loan sanctions, levy of commitment charges/upfront fee, with a view to make the same more borrower friendly.

The interest rates in respect of term loan and short term loan were reviewed and revised periodically during the financial year. The financial charges/fees were also reviewed and modified. Further, advisory fee and revalidation fee payable by investee company in case of PFC''s Equity Investment commitment and fees for underwriting of debt have been introduced.

In spite of growing competition in the market as well as concerns on interest rates on account of factors like high inflation levels, tight liquidity in the market etc., PFC judiciously balance its objectives of business growth and profitability.

14.0 PRIVATE EQUITY FUND

In order to exhibit persistent growth and to enter new areas of business so as to keep pace with market developments, your company has decided to enter Private Equity business. Your Company plans to shortly launch a private equity fund for the power sector along with Tata Capital Limited (TCL) to facilitate flow of institutional funds in equity of power projects leading to faster financial closure of such projects and thus enabling accelerated capacity addition in the sector. The fund would enable your company to take an indirect exposure to equity assets in addition to earning other income (through fee based earnings of the Asset Management Company (AMC). The fund is proposed to be registered as an Alternate Investment Fund (AIF) under SEBI''s AIF regulations. TCL and your company have signed the ''Head of Terms" (containing major terms and conditions) on the basis of which a Joint Venture Agreement will be signed by the parties.

15.0 FACILITATION SERVICES

The Facilitation Group (FG) has been set up to expand PFC''s financing business beyond its traditional products into new areas of Forward & Backward linkages to the Power sector like Fuel Sources Development, setting up of Equipment Manufacturing facilities, Nuclear Power Projects, among others. The Facilitation Group (FG) is also mandated to explore the opportunities of expanding PFC''s business in new geographies like Hydel projects in Bhutan & Nepal, JVs in Sri Lanka etc.

The ambitious capacity addition programme of Government of India envisaged for XII Plan requires augmentation of country''s equipment manufacturing capacity in all the spheres of power sector viz., Generation, Transmission and Distribution. Also existing thermal power projects (coal & gas based) are already facing shortage of fuel (coal & gas) and based on current projections of demand and supply of fuel, the gap is likely to widen and there is need to enhance fuel supply so as to ensure efficient utilization of existing capacity as well as proposed/expected capacity addition in future. Considering these aspects, GoI has already initiated steps including the allocation of various coal blocks/mines to both State Sector as well as private sector entities to develop and produce coal for power sector. The port facilities are also being enhanced to facilitate more import of coal, gas and oil. These developments offer an opportunity to your company for venturing into these areas e.g., financing of development/ expansion of fuel supply sources (Coal, Gas & Oil) and its distribution (rail network, pipelines, ports, jetties etc), equipment manufacturing etc.

Fuel Sources Development & Distribution (FSD&D) Scheme

As a pro-active step for facilitating the availability of finance for these projects, your company has evolved a Scheme for financing of projects in the area of Fuel Sources Development & its Distribution (FSD&D) for Power Projects. The objective of the scheme is to provide financial assistance for development/expansion of fuel supply sources and its distribution for Power Sector; covering development/expansion of Coal Blocks/mines, Coal Bed Methane, Coal Washeries, Coal Beneficiation Projects, Re-gasification & Liquefaction Projects, etc. and Development/expansion of Coal/Oil/Gas transportation facilities including ports/jetties for import of coal/oil/gas, gas pipelines etc.

Equipment Manufacturing (EM) Scheme for Power Sector

Concurrently, a scheme for financing of projects in the area of Equipment Manufacturing (EM) for Power Sector has also been introduced. The objective of this scheme is to provide financial assistance for setting up/expansion of equipment manufacturing capacity for power sector; covering of main plant equipments, balance of plant equipments, Transmission & Distribution equipments, non-conventional energy sources, nuclear power plants'' equipments and other relevant projects such as projects aimed at Demand Side Management (DSM) etc.

16.0 DIVERSIFICATION IN BANKING SECTOR

Your Company is exploring the possibility to acquire a substantial stake in a Public Sector Bank. In this regard, your company has sought consent of the Ministry of Power for your company''s diversification into banking sector.

17.0 RENEWABLE ENERGY AND CLEAN DEVELOPMENT MECHANISM (RE&CDM)

With rapid economic growth, the prospect of new demand being served by fossil fuels poses a serious concern for future global emissions, as well as India''s energy security. In response to these challenges, the Indian government has formulated various plans/incentives to increase the share of renewable energy sources through ambitious plan of capacity addition, in excess of 20,000 MW in 12th Plan, in particular, the Jawaharlal Nehru National Solar Mission (JNNSM) has set a target of installing 22 GW (22,000 MW) of solar power capacity by 2022. In order to facilitate achieving this ambitious target, state regulators have set Renewable Purchase Obligations (RPOs) for both solar and non-solar category, which will increase each year.

Considering the emerging prospects in the development and financing of renewable energy sector, your company has set up a wholly owned subsidiary exclusively for funding renewable energy sector. While there is separate subsidiary for financing of renewable energy projects, your Company still continues to fund larger renewable energy projects and has a dedicated Renewable Energy Group to focus and accelerate the development of business in the Renewable Energy Sector which include Wind, Biomass, Small Hydro, Solar etc. The company offers special interest rates for Renewable Energy Generation Projects and is considering funding all types of Renewable Energy Projects.

Your Company has sanctioned Rs.2,313 crore and made disbursement of Rs.461 crore in its renewable portfolio, supporting a capacity of 612 MW, during the FY 2012-13.

As of March 31, 2013, your company has cumulatively supported a total generation capacity of 1,674 MW, extending financial assistance of Rs.5,373 crore and disbursed Rs.2,616 crore to all kinds of renewable energy projects with an aggregate project cost of Rs.13,000 crore.

18.0 PROMOTION OF POWER TRADING THROUGH POWER EXCHANGE

In the FY 2008-09, the Central Electricity Regulatory Commission had granted its permission to set up power exchanges in the country. As on date two power exchanges, namely, Power Exchange India Ltd. (PXIL) and Indian Energy Exchange Ltd. (IEX) are in operation. These power exchanges have a nationwide presence in the form of electronic exchange for trading in power. The trading through power exchanges have certainly lent an impetus for power sector development since it acts as an open and transparent mechanism for buyers and sellers and provides investment signal to the prospective investors. Further with the presence of these exchanges, the available resources shall be used optimally.

Your company has also contributed Rs.2.80 crore (being 6.08% of paid up equity upto March 31, 2013) towards equity contribution in Power Exchange India Ltd., promoted by NSE and NCDEX.

Further, your company has promoted National Power Exchange Ltd (NPEX), jointly with NTPC, NHPC and TCS. Your company has contributed Rs.2.19 crore (being 16.66% of paid up equity upto March 31, 2013) towards equity contribution. This exchange is yet to start its commercial operations.

19.0 EQUITY FINANCING

Equity investment business is generally considered as a logical extension of debt business. Your Company is endeavoring to make a mark in the area of equity investment so as to capitalize on its vast domain experience, attained during it''s over 25 years of operations in power sector debt financing. PFC aims to leverage its financial strength, large debt providing capability and power sector expertise to invest in equity of attractive power projects. Over a period of time, your company proposes to build an equity portfolio of power assets which could provide consistent gains in the form of dividend and/or capital appreciation. The Board of Directors of your company has approved a policy for investment in equity of power projects, as per which, your company may look at investments ranging between 0.5% to 5% of its own net worth in a single company. The company has started the appraisal of a few proposals for investment in equity.

20.0 SUBSIDIARIES

To focus on additional business in the areas of consultancy, renewable energy, consortium lending, equity financing, etc. following wholly owned subsidiaries have been incorporated by your Company, as on date:

(i) PFC Consulting Limited

(ii) PFC Green Energy Limited

(iii) PFC Capital Advisory Services Limited

(iv) Power Equity Capital Advisors Private Limited Further, your Company is designated by Ministry of Power, Government of India as the nodal agency for facilitating development of Ultra Mega Power Projects and its wholly owned subsidiary i.e. PFC Consulting Limited is the ''Bid Process Coordinator'' for Independent transmission projects. As on date, the following Special Purpose Vehicles (SPVs) have been incorporated as subsidiaries/ deemed subsidiary of the Company:

(i) Chhattisgarh Surguja Power Limited (Previously known as Akaltara Power Ltd.)

(ii) Coastal Karnataka Power Limited

(iii) Coastal Maharashtra Mega Power Limited

(iv) Coastal Tamil Nadu Power Limited

(v) Orissa Integrated Power Limited

(vi) Sakhigopal Integrated Power Company Limited

(vii) Ghogarpalli Integrated Power Company Limited

(viii) Tatiya Andhra Mega Power Limited

(ix) Deoghar Mega Power Limited

(x) DGEN Transmission Company Limited

(a wholly owned subsidiary of PFC Consulting Limited)

(xi) Patran Transmission Company Limited

(a wholly owned subsidiary of PFC Consulting Limited)

(xii) RAPP Transmission Company Limited

(a wholly owned subsidiary of PFC Consulting Limited)

(xiii) Darbhanga-Motihari Transmission Company Limited

(a wholly owned subsidiary of PFC Consulting Limited)

(xiv) Purulia & Kharagpur Transmission Company Limited (a wholly owned subsidiary of PFC Consulting Limited)

21.1 PFC CONSULTING LIMITED

Background

Aiming to provide professional consultancy support to the Power Sector and recognizing the potential of such services in the reforming Power Sector, your company incorporated PFC Consulting Limited (PFCCL) as a wholly owned subsidiary of your company on March 25, 2008, in order to give it requisite autonomy in functions and flexibility in operations. PFCCL is mandated to promote, organize and carry out consultancy services to the Power Sector and is also undertaking the work related to the development of UMPPs and ITPs. PFCCL has been nominated as the ''Bid Process Coordinator'' for selection of developer for the Independent Transmission Projects (ITPs) by Ministry of Power, GoI.

Range of Services Offered

The Services being offered by PFCCL are broadly in the following areas:

- Procurement of Power by Distribution Licensees through Tariff based competitive bidding

- Implementation of Govt. of India initiatives like UMPPs, ITPs etc.

- Assignments from State Power Utilities, Licensees/ IPPs, State Govt., PSUs & SERCs

- Renewable and Non-Conventional Energy Schemes

- Coal Block JVs and selection of developers for Coal Blocks and linked Power Projects

- Project Advisory including Selection of EPC Contractor

- Reform, Restructuring and Regulatory Aspects

- Capacity Building and Human Resource Development

- Preparation of DPRs and Project Management Consultancy for projects including projects covered under R-APDRP

- Strategic Studies for Power Sector

Client Base

Till date, consultancy services have been rendered to 42 clients spread across 21 States/UTs namely Andhra Pradesh, Assam, Bihar, Chhattisgarh, Delhi, Haryana, Himachal Pradesh, Jammu & Kashmir, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Meghalaya, Odisha, Puducherry, Punjab, Rajasthan, Tripura, Uttar Pradesh and West Bengal. The profile of clients is as below:

Clients Nos.

State Utilities 21

Licensees/ IPPs 7

Public Sector Undertakings 6

State Governments 4

Regulatory Commissions 3

Central Govt. departments/Ministries 1

Total 42

During the FY 2012-13, the total income of PFCCL is Rs.36.49 crore and net profit is Rs.16.38 crore.

A dedicated website of PFCCL, ''www.pfcclindia.com'', was launched in July, 2012 to provide a much needed platform for external interface and to reach out to present and prospective clients through internet. This website also provides snapshot of the operations of PFCCL as also displays all notifications related to ITPs (for which PFCCL has been nominated as Bid Process Coordinator) and other tenders etc.

PFCCL has signed an MoU with Central Mine Planning & Design Institute Limited (CMPDI) for jointly providing comprehensive consultancy solutions for the power projects involving coal mine related activities to various clients in Power Sector.

PFCCL is moving towards tapping the opportunities available in technical consulting domain by envisaging a Joint Venture (JV) with a consulting organisation having international experience of providing consulting solutions in Thermal Generation segment of Power Sector. In this regard Global Expression of Interest (EoI) were invited from consulting organisations having expertise in the area. EoIs have been received and are being scrutinized for finalizing the eventual JV partner.

21.2 PFC GREEN ENERGY LIMITED

During the FY 2012-13, PFC Green Energy Limited (PFC GEL) received its certificate of registration to function as a Non Banking Financial Company (NBFC) from the Reserve Bank of India on October 1, 2012. With the receipt of the NBFC status, the Company has commenced its business operations in March 2013 and further it has also made its first sanction of a term loan to a small hydro project of 6 MW. The company is getting geared up to take up further sanction of loans & is targeting to have substantial market share in the renewable energy sector in the coming years.

Since the Company is dedicated for renewable energy projects such as wind, solar, bio mass, hydro etc., it is expected to mobilise dedicated green funds available in the market. During the FY 2012-13, the company has been approached by various foreign funding agencies for providing funds for renewable energy sector. With the flow of funds dedicated for green energy, the company is in a position to provide more loans at competitive interest rates in future.

At present PFC GEL has an authorised share capital of Rs.1200 crore and during the year the paid up capital has been increased from Rs.4.99 crore to Rs.109.99 crore. During the first quarter of 2013-14, PFC GEL has further increased the paid-up share capital from Rs.109.99 crore to Rs.177.99 crore comprising of 3.95 crore equity shares of Rs.10/- each and 13.84 crore Fully Convertible Preference Sharesa of Rs.10/- each.

21.3 PFC CAPITAL ADVISORY SERVICES LIMITED Background

Your Company has a presence in debt syndication business since August 2008 and is well known for its strong appraisal capabilities. The Company is also managing the Power Lenders'' Club, an exclusive set of Banks & FIs financing power projects under a consortium arrangement. In line with the above, PFC Capital Advisory Services Ltd. (PFCCAS) was incorporated as a wholly owned subsidiary of your company on July 18, 2011 to focus on sectoral requirements for financial advisory services, including syndication services. The company obtained the Certificate of Commencement of Business on September 2, 2011 and has started its operations.

Services offered

PFCCAS is presently focusing on debt syndication services for power sector. The various activities/ services under debt syndication are as follows:

- Identification of Lenders,

- Preparation of IM/ Term Sheets,

- Approach Lenders and facilitate Due Diligence by Lenders,

- Assistance in Documentation.

Presently, the company is handling syndication proposals in various types of power generation projects, such as thermal, hydro, wind and solar.

Other than the above, the company is looking at business opportunities in advisory in line with its area of competence such as:

- Preparation of project profiles, project reports, pre- investment studies etc.

- Act as lead manager on behalf of banks, institutions etc. in respect of project assignments and to act as adviser in the management of undertakings, businesses etc.

- Consultancy in investment and capital markets

- Advice on restructuring, business strategy, financial policies and long term planning in the areas of power, energy and infrastructure.

- Fund raising, Currency Risk Management, Project Appraisal and Modeling.

21.4 POWER EQUITY CAPITAL ADVISORS PRIVATE LIMITED

An advisory company namely Power Equity Capital Advisors Private Limited (PECAP) was incorporated to provide advisory services related to equity investments in Indian power sector, where your Company held 30% stake and the remaining being held by individuals. However, being largely owned by individuals, the company was not able to transact any business as it was unable to provide the requisite comfort to its clients. Therefore, in order to provide the requisite comfort to the clients and to substantially improve the possibility of PECAP to do meaningful business, the Board of Directors of PFC in February, 2011 approved a proposal for acquiring 100% stake in PECAP and accordingly on October 11, 2011 the balance 70% stake held by individuals was transferred to PFC, making PECAP a wholly owned subsidiary of PFC.

Your Company has sought an approval from Ministry of Power (MoP) for dissolving and getting the name of the Company struck off from the records of Registrar of Companies under the provisions of Section 560 of the Companies Act, 1956. Such approval from MoP is awaited.

22.0 JOINT VENTURES AND ASSOCIATE COMPANIES

22.1 NATIONAL POWER EXCHANGE LIMITED

In order to promote short term trading through power exchange, your company has promoted National Power Exchange Ltd (NPEX), jointly with NTPC, NHPC and TCS and has contributed Rs.2.19 crore (being 16.66% of paid up equity of NPEX upto March 31, 2013) towards equity contribution. This exchange is yet to start its commercial operations. Recently, NTPC and NHPC have expressed their intention to exit from JV Company. A final decision on the exit of NTPC and NHPC is yet to be taken by other promoter companies.

22.2 PTC INDIA LIMITED

PTC India Limited (PTC) was jointly promoted by Power Grid Corporation of India Limited (POWERGRID), NTPC, NHPC and PFC. Your Company has invested Rs.12 crore which is 4.07% of total equity of PTC. PTC is the leading provider of power trading solutions in India. Government of India initiated public-private partnership, whose primary focus is to develop a commercially vibrant power market in the country.

22.3 ENERGY EFFICIENCY SERVICES LIMITED

Energy Efficiency Services Limited (EESL) was incorporated on December 10, 2009. EESL was jointly promoted by Power Grid Corporation of India Limited (POWERGRID), NTPC, REC and PFC with equal equity participation of Rs.25 crore each for implementation of Energy Efficiency projects in India and abroad. EESL would be one of the main implementation arms of the National Mission on Enhanced Energy Efficiency (NMEEE), which is one of the eight National Missions announced by the Hon''ble Prime Minister as a part of "National Action Plan on Climate Change".

23.0 MEMORANDUM OF UNDERSTANDING WITH GOVT. OF INDIA

Your Company has been consistently accorded ''Excellent'' Rating by Government of India since FY 1993-94 except for FY 2004-05. For the FY 2012-13, your Company is likely to be accorded ''Excellent'' rating.

24.0 PRESIDENTIAL DIRECTIVES

The Company has not received any Presidential directives during the FY 2012-13.

25.0 CORPORATE SOCIAL RESPONSIBILITY (CSR) AND SUSTAINABLE DEVELOPMENT (SD) ACTIVITIES

25.1 CSR

Your company has implemented its CSR policy with all its earnest and zeal. The aim of the CSR policy of your company is to become a socially responsible corporate entity contributing towards improving the quality of life of the society at large. The CSR activities of the company have been planned in such a way that its benefits should reach upto the village level and deprived sections of the society in all corners of India. To oversee the activities of CSR, the company has in place a Board level CSR Committee of Directors headed by an Independent Director.

The company had entered into a MoU with Govt. of India for spending 0.5% of PAT towards CSR activities as part of its Corporate Social Responsibilities.

The company had allocated Rs.15.29 crore for CSR initiatives in the FY 2012-13. However PFC had sanctioned projects/ activities worth Rs.19.34 crore in FY 2012-13 and disbursed Rs.16.09 crore for the projects sanctioned in FY 2012-13 & FY 2011-12. During the year PFC had implemented wide range of activities in the field of Solar energy, Skill Development, Relief to the victims of Natural Calamities in various states etc.

Your company sanctioned a project for construction of 100 Toilet-cum-bathroom facilities for the cloud burst victims at Leh which was implemented through Hindustan Prefab Ltd., Rs.0.26 crore sanctioned for Solar lantern distribution to shepherds in Kargil (J&K) through Kargil Renewal Energy Development Agency (KREDA). Your Company also sanctioned Rs.3.79 crore for Skill Development Programme for SC/ST/OBC/Women & EWS of society (1400 persons) which were implemented by Construction Industry Development Council, Larsen & Toubro Construction Skill Training Institute, Indo German Institute of Advanced Technology ITI, Guwahati. PFC had allocated Rs.3.50 crore for Project of Adopting entire colony constructed for flood victims of Rajoli Village of Waddepally Mandal in Andhra Pradesh for providing street lighting using Solar Power LED lights through AP Housing Corporation Ltd, Rs.0.22 crore for Financial assistance for project to distribute the appliances for the benefit of the Persons with Disabilities (PwD) through Artificial Limbs Manufacturing Corporation of India (ALIMCO) in NCR of Delhi and Maharashtra.

Your Company had also sanctioned Rs.3.80 crore for Street Lighting/ High Mast Light for Kargil Town and District Headquarters (J&K) through Jammu & Kashmir Power Development Department (JKPDD), Rs.2.04 crore for Project for Installation of solar home lighting systems on the looms of prestigious Chanderi Saree weavers through Madhya Pradesh Urja Vikas Nigam Ltd (MPUVNL), Rs.3.77 crore for Project for Supply, Installation and Commissioning of SPV Power Plants with aggregate capacity of 245 KW in the schools of Punjab through Punjab Energy Development Agency (PEDA) and Rs.0.05 crore for Impact assessment studies of various projects that were completed in FY 2010-11 and FY 2011-12. All the initiatives under CSR activities were reported to National CSR Hub.

25.2 SD

The aim of PFC''s Sustainable Development Policy is to ensure that the Corporation becomes a socially responsible corporate entity by finding ways to develop social, financial and environmental resources that meet the needs of the present without compromising the ability of future generations to meet their own needs.

Your Company has entered into an MoU with Government of India for spending Rs.50 lakh plus 0.1% of Profit After Tax (consolidated) exceeding Rs.100 crore of the previous year towards Sustainable Development activities for FY 2012-13. During the year PFC had formulated Sustainable Development policy and reconstituted the earlier Board level CSR Committee as CSR&SD Committee of Directors headed by an Independent Director to oversee the activities of CSR as well as Sustainable Development. During the FY 2012-13, PFC had allocated Rs.3.46 crore for SD initiatives. However, PFC sanctioned projects/activities worth Rs.4.32 crore in FY 2012-13 and disbursed Rs.3.47 crore in the FY 2012-13.

During the year, PFC had allocated funds for various activities related to Waste Management, Energy Management, afforestation etc. PFC sanctioned Rs.0.43 crore to Hindustan Prefab Ltd. for Project for construction of Sanitary toilets in Shillong, Meghalaya, Rs.3.29 crore through The Energy and Resource Institute (TERI) for Project for Providing Clean Lighting and ICT Services in identified schools in Meghalaya, AP and Orissa through Solar energy and Rs.0.28 crore for Providing Solar water heating and Solar Steam generating cooking systems in Rajiv Gandhi Navodaya Vidyalaya in Uttarakhand. PFC has also sanctioned Rs.0.24 crore for Afforestation activity in New Delhi for planting 3,400 number of trees in Budha Jayanti Park through CPWD, PFC had also spent Rs.0.02 crore towards training on Sustainable Development activities for PFC employees and Rs.0.07 crore for installation of energy efficient LED lamps in PFC premises.

26.0 EMPLOYEES STOCK OPTIONS PLAN (ESOP)

Stock Options have been recognized world over as an effective instrument to attract and retain the talent in the organization and to align the interest of employees with those of the organization. Stock Options provide an opportunity to employees to share the growth of the Company and create long term wealth. They also promote the culture of employee ownership in the company.

The Department of Public Enterprises (DPE), Ministry of Heavy Industries & Public Enterprises, Govt. of India, through its directions on pay revision had also made it mandatory for all the Central Public Sector Enterprises (CPSEs) to formulate an Employee Stock Option Plan (ESOP) and pay 10% to 25% of the Performance Related Pay (PRP) of the employees in the form of ESOPs. In accordance with these directions of the DPE, the Board of Directors of your company had formulated an Employee Stock Option Plan titled as ''PFC-ESOP 2010''. Shareholders had also approved this Employee Stock Option Plan in their 24thAnnual General Meeting held on September 21, 2010. Subsequently, the Board of Directors had decided that 25% of the PRP of the employees should be given in the form of ESOPs.

During the FY 2012-13, the Company has granted 92,964 options for the FY 2010-11, convertible into equal number of equity shares to the eligible employees under PFC- ESOP 2010 Scheme. These options have vested with the employees on April 30, 2013 and shall be exercisable by them within two years from the date of vesting by paying Rs.10/-(face value per equity share) as exercise price.

However, in view of a clarification issued by DPE, the Board of Directors of Power Finance Corporation Limited in its Meeting held on November 9, 2012 had approved modification in PFC''s Employee Stock Option Scheme i.e. PFC- ESOP 2010 by making it optional.

During the year, 71,526 options granted under PFC- ESOP 2010 Scheme for the FY 2010-11 were cancelled including 69,954 options having been settled in cash consequent upon employees excersing the option under the above modified scheme. Further, for the FY 2009-10, out of 87,888 Options granted during the FY 2011-12, the company has allotted 83,306 equity shares during the current year upon exercise of the stock options by the employees of the Company.

The disclosure in respect of the ESOP scheme pursuant to Clause 12 of SEBI (Employees'' Stock Option Scheme and Employees'' Stock Purchase Scheme) Guidelines, 1999 is annexed herewith.

27.0 HRD INITIATIVES TRAINING & DEVELOPMENT

In the field of Human Resource Development, your company stresses on the need to continuously upgrade the competencies of its employees and equip them to keep abreast of latest developments in the sector. The Company operates in a knowledge intensive business and is committed to enhancing these skills of its employees. In order to achieve this, the Company has an annual training plan to assess the various training needs. Necessary professional skills are also imparted across all levels of employees through customized training interventions.

Employee Training

During the year 2012-13, your company organized 26 in-house programs. A total of 1,416 mandays were achieved during the period under review of which 957 were through in-house programs and 459 were through nominations to open programmes organized by other training institutes.

28.0 HUMAN RESOURCE MANAGEMENT

Your Company lays great emphasis on upgrading the skills of its Human Resource. It benchmarks its practices with the best practices being followed in the corporate world. This, apart from other strategic interventions, lead to an effective management of Human Resource thereby ensuring high level of productivity. Your Company enjoys a very cordial and harmonious relationship with its employees. There were no man-days lost during the year under review.

29.0 WELFARE MEASURES

Your Company follows good management practices to ensure welfare of its employees through a process of inclusive growth & development. The Company follows an open door policy whereby the employees can access the top management thereby contributing in the management and growth of the company. Commitment of the workforce is ensured through an effective package of welfare measures which include comprehensive insurance, medical facilities and other amenities which in turn lead to a healthy workforce.

During the FY 2012-13, various camps in association with eminent hospitals/institutes were organized by your company for its employees which included comprehensive eye check up, health check up, ENT checkup, health talks etc. A blood donation camp in association with Lions Club International was also organized.

30.0 RESERVATION OF POSTS FOR SC/ST/OBC/EX- SERVICEMEN AND PHYSICALLY HANDICAPPED PERSONS IN THE SERVICES OF COMPANY

Your Company as a part of its social responsibility makes all-out efforts to ensure compliance of the Directives and Guidelines issued by the Government for the reservation to be allowed for SC/ST/OBC/Persons with disabilities. The steps taken include due reservations and relaxation as applicable under the various directives.

In the year 2012-13, total 58 new employees were recruited, of which 13.8% are SC (8), 6.9% are ST (4), 5.2% are PWD (3) and 29.3% are OBC (17).

31.0 REPRESENTATION OF WOMEN EMPLOYEES

Your Company provides equal growth opportunities for its women employees and today the Company can boast of women heading certain critical functional areas. There is no discrimination of employees on the basis of gender. The women employees represent 20.14% of the total work force.

32.0 DIRECTORS'' RESPONSIBILITY STATEMENT

As required under Section 217(2AA) of the Companies Act, 1956, your Directors confirm that:

- In the preparation of the annual accounts for the FY 2012-13, the applicable accounting standards had been followed;

- Accounting policies selected were applied consistently, judgments and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of March 31, 2013 and of the profit of the Company for the year ended on that date;

- Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provision of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

- Annual Accounts for FY 2012-13 have been prepared on a going concern basis.

33.0 AUDITORS

M/s. Raj Har Gopal & Co., Chartered Accountants and M/s. N. K. Bhargava & Co., Chartered Accountants were appointed as Joint Statutory Auditors of the Company for the FY 2012-2013 by the Comptroller & Auditor General of India.

The Joint Statutory Auditors have audited the accounts of the Company for the FY 2012-13 and have given their audit report without any qualification. The copy of the audit report is annexed herewith.

34.0 COMMENTS OF COMPTROLLER & AUDITOR GENERAL OF INDIA

The Comptroller and Auditor General of India has mentioned that on the basis of audit, nothing significant has come to their knowledge which would give rise to any comment upon or supplement to Statutory Auditors'' Report under Section 619(4) of the Companies Act, 1956. The copy of the report of C&AG is annexed herewith.

35.0 FOREIGN EXCHANGE EARNINGS AND OUTGO

During the FY 2012-13, the foreign exchange outgo aggregating Rs.262.90 crore was made on account of debt servicing, financial & other charges, travelling and training expenses. Earning in foreign currency is nil.

36.0 PARTICULARS OF EMPLOYEES U/S 217 (2A) OF THE COMPANIES ACT, 1956

During the year 2012-13, the details of the employees who were in receipt of gross remuneration in excess of Rs.60 Lakh per annum or Rs.5 Lakh per month and above, is annexed herewith.

37.0 DEBENTURE TRUSTEES

The Debenture Trustees appointed by the company for the different series of Bonds are annexed herewith.

38.0 REDEMPTION AND STATUS OF UNCLAIMED AMOUNTS REGARDING BONDS

The unclaimed balance amount of bonds (principal and interest) as on March 31, 2013 was Rs.7.92 crore (previous year Rs.8.82 crore). No amount is liable to be transferred to Investor Education Protection Fund as 7 years have not elapsed since the date of redemption.

39.0 VIGILANCE

During the FY 2012-13, the Vigilance unit functioned as an effective tool of management, the thrust being on preventive vigilance. This aspect was emphasized by conducting periodic & surprise inspections of various units and by issuing effective guidelines to streamline systems with the aim of eliminating gaps and ensuring transparency in day to day operations. Vigilance Unit also undertook the review of operational manuals of various activities of the Company. A number of comprehensive manuals on different areas of company''s activities have already been notified after review and some other manuals are in process of finalization. Detailed investigations were carried out in respect of registered complaints during this period.

In accordance with the directives of CVC, Vigilance Awareness Week was observed from October 29, 2012 to November 3, 2012 in the head office and regional offices of the Company. As part of a sequence of events during the ''Vigilance Awareness Week'' a one day workshop on "Business and Corporate Governance with special emphasis on procurement" was organized for the employees in the company. In order to educate and increase vigilance awareness among the employees, three workshops were held viz. "Provisions of RTI Act", "Public Interest Disclosure and Protection of Informers Resolution" and "Conduct, Discipline & Appeal Rules" during the year 2012-13.

In compliance to the instructions of CVC, the sensitive posts in the Company were identified afresh and the concerned officers were rotated. Agreed lists were finalized in consultation with the CBI. Prescribed periodical statistical returns were sent to CVC, CBI, MoP on time.

Thus, the vigilance unit endeavoured for systematic improvements with a view to bring about greater transparency, objectivity and accountability thereby contributing to the overall efficiency and effectiveness of the organization.

40.0 OFFICIAL LANGUAGE

In PFC it is believed that success is the sum of small efforts, repeated day in and day out and it is best reflected in your company while working in Hindi. Year 2012-13 had been yet another year of success with continuous efforts of all employees in the area of Official Language Policy implementation. Meetings of Official Language Implementation Committee were organized regularly where at progress of implementation of official language policy in your company was reviewed, suggestions were made and implemented to achieve the annual targets.

During the period under review, six workshops were organized for 145 executives. Special thrust was given to organize workshops for senior officials. Workshops were also organized for Senior Managers, Nodal Officers and newly joined officers, to sensitize them of their duties for implementation of official language policy and to guide them to make progressive use of Hindi in their day to day work.

Your company spent 50% of total amount spent on advertisements, on publishing of advertisements in Hindi and other regional languages and 56% of total expenditure on purchase of books was incurred on purchase of Hindi books.

Internal inspections of 17 units and both the regional offices were conducted. Officers of Rajbhasha Vibhag also conducted the inspection of Head office and the Parliamentary Committee on Official Language conducted the inspection of Regional Office at Chennai of the company and appreciated the steps taken.

Hindi month was observed from September 14, 2012 to October 13, 2012. During the month, several competitions like, Vartani shodhan, Chitrabhivyhakti, Quiz, Katha Vistaran, Sansmaran lekhan, Antyakshari, Kavya Goshthi etc. were organized.

PFC''s website is in bilingual form. Annual Report of PFC and its 12 subsidiaries was published in Bilingual. PFC''s quarterly magazine ''Urja Deepti'' was published on regular intervals.

41.0 RIGHT TO INFORMATION ACT

Information is an integral part of our life to upgrade ourselves on various issues which may either have a direct or indirect influence on our day to day life. Without information, it would not be possible to exercise our valuable fundamental right of ''Freedom of Speech and Expression'' as guaranteed under Article 19(1)(a) of the Indian Constitution. Every democratic country attributes much importance to the freedom of speech and expression and in order to exercise such right more effectively and efficiently. The people of the country are entitled to know about the functioning for the welfare of the people and development of the country. The main objective of the Right to Information Act, 2005, is to ensure greater and more effective access to information and to maintain transparency and improve accountability in the working of the public departments both Central and State.

Your company has implemented the Right to Information Act, 2005 to provide information to the citizens of India and also to maintain accountability and transparency in the working of the company. The Company has designated a Public Information Officer (PIO), an Appellate Authority and also one Transparency Officer at its registered office for effective implementation of the RTI Act.

During the FY 2012-2013, all 108 applications received under the RTI Act, were duly processed and replied to. In compliance with Section 4 of the RTI Act, requisit disclosures have been updated and hosted on PFC website. Your company has also complied with the directions of Central Information Commission (CIC) regarding filing of online Quarterly/Annual Return for the FY 2012-2013.

42.0 GLOBAL COMPACT

Your Company is a socially conscious organization and fully endorses the nine principles of Global Compact enunciated by the United Nations Organisation (UNO) which encompass areas of human rights, environmental protection and labour rights. These principles of Global Compact are embedded in various organizational policies of the Company thereby facilitating their implementation in a natural way. Your Company has been an active participant in various endeavors of the Global Compact.

Your Company lays special emphasis on medical facilities and health care for its employees and their families whereby they can avail best health care facilities. In pursuit of making the Company a learning organization it also supports integrated learning of its employees through a variety of measures. Other aspects like promotion of sports, cultural heritage, community development etc. are also given due importance in our working by organizing various events etc. and also by providing sponsorship support on relevant occasions.

43.0 GRIEVANCE REDRESSAL

Your Company has Grievance Redressal Systems for dealing with the grievances of the employees, its customers and the public at large. The systems are duly notified and are easily accessible. A designated Nodal Officer is responsible to ensure quick redressal of grievances within the permissible time frame. The company also has a notified Citizen''s Charter to ensure transparency in its work activities. This Charter is available on the website of the Company to facilitate easy access.

44.0 BOARD OF DIRECTORS

Following are the changes in Board of Directors of your company since April 1, 2012:

- Shri A. K. Agarwal assumed the charge of Director (Projects) w.e.f. July 13, 2012

- Shri B. N. Sharma, Joint Secretary, Ministry of Power took over as Government Nominee Director vice Shri Devender Singh w.e.f. August 28, 2012.

- Shri P. Murali Mohana Rao, Non Official Part Time (Independent) Director and Shri Ravindra H. Dholakia,

Non Official Part Time (Independent) Director ceased to be the Directors of the Company consequent upon completion of their tenure w.e.f. December 21, 2012.

- Shri S.C. Gupta, Non Official Part Time (Independent) Director ceased to be the Director of the Company consequent upon completion of his tenure w.e.f. February 24, 2013.

- Shri J.N. Prasanna Kumar took over the charge as Non Official Part Time (Independent) Director w.e.f. December 22, 2012.

- Shri Vijay Mohan Kaul took over the charge as an Non Official Part Time (Independent) Director w.e.f. June 24, 2013.

The Board placed on record its deep appreciation for the commendable contributions made by Shri Devender Singh, Shri P. Murali Mohana Rao, Shri Ravindra H. Dholakia and Shri S.C. Gupta in the deliberations of Board and its committees during their association with the Company. The Board also welcomes Shri B. N. Sharma, Shri J.N. Prasanna Kumar, Shri Vijay Mohan Kaul & Shri A. K. Agarwal and expresses confidence that the Company shall immensely benefit from their rich and varied experience.

46.0 STATUTORY AND OTHER INFORMATION

Information required to be furnished as per the Companies Act, 1956, Listing Agreement with Stock exchanges, Guidelines on Corporate Governance for CPSEs etc. is annexed to this report as follows:

Particulars Annexure

Management Discussion and Analysis I Report

Report on Corporate Governance II

Business Responsibility Report III

Non-Banking Financial Companies Audi- IV tors'' certificate

Statement pursuant to Section 212 of V the Companies Act, 1956

47.0 ACKNOWLEDGEMENT

The Board of Directors acknowledge and place on record their appreciation for the guidance, co-operation and encouragement extended to the Company by the Government of India, Ministry of Power, Ministry of Finance, Ministry of Corporate Affairs, Reserve Bank of India, Department of Public Enterprises, Securities and Exchange Board of India, National Stock Exchange of India Limited, Bombay Stock Exchange Limited and other concerned Government departments/agencies at the Central and State level as well as from various domestic and international financial institutions/banks, agencies etc.

The Board also conveys its gratitude to the shareholders, various International and Indian Banks/Multilateral agencies/financial Institutions/ credit rating agencies for the continued trust and for the confidence reposed by them in PFC. Your Directors would also like to convey their gratitude to the clients and customers for their unwavering trust and support.

The Company is also thankful to the Comptroller & Auditor General of India and the Statutory Auditors for their constructive suggestions and co-operation.

We would also like to place on record our appreciation for the untiring efforts and contributions made by the employees to ensure excellent all round performance of the Company.

For and on behalf of the Board of Directors

(Satnam Singh)

Chairman & Managing Director

Place : New Delhi

Dated : 21.08.2013

 
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