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Notes to Accounts of Power Finance Corporation Ltd.

Mar 31, 2015

1. The Company is a Government Company engaged in extending financial assistance to power sector and is a Non-Banking Finance Company registered with RBI as an Infrastructure Finance Company.

2. Contingent liabilities:

(A) The details are as follows: (Rs. in crore)

S. Particulars No.

(i) Default guarantees issued in foreign currency - US $ 0.74 million (as on 31.03.2014 US $ 4.14 million)

(ii) Guarantees issued in domestic currency

(iii) Claims against the Company not acknowledged as debts

(iv) Outstanding disbursement commitments to the borrowers by way of Letter of Comfort against loans sanctioned

S. As on As on No. 31.03.2015 31.03.2014

(i) 4.69 25.07

(ii) 262.84 299.20

(iii) 0.04 0.04

(iv) 787.32 2,274.96

Total 1,054.89 2,599.27

(B) Additional demands raised by the Income Tax Department totaling to Rs. 64.41 crore (as on 31.03.2014 Rs. 49.87 crore) of earlier years are being contested. Further, the Income Tax Department has filed appeals against the relief allowed by appellate authorities to the Company aggregating to Rs. 85.47 crore (as on 31.03.2014 Rs. 79.26 crore). The same are being contested. The Management does not consider it necessary to make provision, as the probability of tax liability devolving on the Company is negligible.

3. Additional demands raised by the Income Tax Department (net of relief granted by Appellate Authorities) aggregating to Rs. 78.50 crore for Assessment Years 2001-02 to 2012-13 (as on 31.03.2014 Rs. 55.10 crore for Assessment Years 2001-02 to 2011-12) have been provided for and are being contested by the Company.

4. Estimated amount of contract remaining to be executed on account of capital contracts, not provided for, is Rs. 0.33 crore (as on 31.03.2014 Nil).

5. Ministry of Corporate Affairs (MoCA), Government of India, vide its Circular No. 6/3/2001 - CL.V dated 18.04.2002 prescribed adequacy of Debenture Redemption Reserve (DRR) as 50% of the value of debentures issued through public issue; subsequently, the MoCA through its Circular No. 11/02/2012-CL-V(A) dated 11.02.2013 modified the adequacy of DRR to 25%. In this regard, the Company has requested the MoCA for clarification, which is awaited.

Meanwhile, The Companies (Share Capital and Debentures) Rules, 2014, with effect from 01.04.2014, also stated that for NBFCs registered with the RBI under Section 45-IA of the RBI (Amendment) Act, 1997, the adequacy of DRR will be 25% of the value of debentures issued through public issue as per present SEBI (Issue and Listing of Debt Securities) Regulations, 2008, and no DRR is required in the case of privately placed debentures.

In view of above, the Company is creating DRR for public issue of bonds / debentures @ 50% for the issues for which prospectuses had been filed before 11.02.2013 and @ 25% for the subsequent public issues.

6.(A) Transactions with related parties

Managerial remuneration of KMP for the year ended 31.03.2015 is Rs. 2.50 crore (previous year ended 31.03.2014 Rs. 2.30 crore).

(i) The financial statements are consolidated as per Accounting Standard 21 - Consolidated Financial Statements and Accounting Standard 27 - Financial Reporting of Interests in Joint Ventures.

(ii) The subsidiary companies were incorporated as SPVs under the mandate from the Government of India for development of Ultra-Mega Power Projects (UMPPs) with the intention to hand over the same to successful bidders on completion of the bidding process. The financial statements of these subsidiaries are not consolidated, in accordance with paragraph 11 of Accounting Standard-21.

(iii) Board of Directors of the Company, in its 322nd meeting held on 14th August, 2014, decided for winding up Tatiya Andhra Mega Power Limited, subject to approval of Ministry of Power, Government of India.

(iv) The Group of Promoters (GoP) of National Power Exchange Limited (NPEL), comprising of NTPC, NHPC, TCS and PFC in their meeting dated 21.03.2014 decided to recommend voluntary winding up of NPEL to the Board of NPEL. The Board of Directors of PFC in their meeting held on 14th August, 2014 had approved the recommendation of the GoP. The voluntary winding up of NPEL is under process.

The Company as on 31.03.2015 has an investment of Rs. 2.19 crore (as on 31.03.2014 Rs. 2.19 crore) in the equity share capital of NPEL against which a provision for diminution in value amounting to Rs. 1.06 crore (previous year Nil) has been made during the current year.

(v) To firms / companies in which directors are interest : Nil

(vi) Where there is no repayment schedule or repayment beyond seven years : Nil

(vii) Where no interest or interest as per Section 186 of the Companies Act, 2013 : Nil

B. Investment by the loanee in the shares of PFC / Subsidiaries : Nil

7. Investment made in equity shares of Coal India Ltd.:

During the year, the Company has subscribed to 1,39,64,530 fully paid equity shares of Coal India Limited (CIL) of face value of Rs. 10/- per share under Offer for Sale route. The shares have been subscribed at a cost of Rs. 358.58/- per share aggregating to Rs. 500.74 crore.

8. Interest Differential Fund (IDF) - KFW

The agreement between KFW and the Company provides that the IDF belongs to the borrowers solely and will be used to cover the exchange risk variations under this loan and any excess will be used in accordance with the agreement. The balance in the IDF fund has been kept under separate account head titled as Interest Differential Fund - KFW and shown as a liability. The total fund accumulated as on 31.03.2015 is Rs. 58.38 crore (as on 31.03.2014 Rs. 54.63 crore), after transferring exchange difference of Rs. 14.11 crore (as on 31.03.2014 Rs. 16.56 crore).

9.(i) The Company had sanctioned an amount of Rs. 88.90 crore in the year 2004 as finance lease for financing wind turbine generator (commissioned on 19.07.2004). The sanction was reduced to Rs. 88.85 crore in December 2006. The gross investment stood at the level of Rs. 1.78 crore as on 31.03.2015 (Rs. 4.21 crore as on 31.03.2014). The lease rent is to be recovered within a period of 15 Years, starting from 19.07.2004, which comprises of 10 years as a primary period and 5 years as a secondary period. Secondary period is in force with effect from 19.07.2014.

(ii) The Company had sanctioned an amount of Rs. 98.44 crore in the year 2004 as finance lease for financing wind turbine generator (commissioned on 18.5.2004). The gross investment stood at Rs. 4.43 crore as on 31.03.2015 (Rs. 22.53 crore as on 31.03.2014). The lease rent is to be recovered within a period of 20 years, starting from 18.05.2004, which comprises of 10 years as a primary period and a maximum of another 10 years as a secondary period. Secondary period is in force with effect from 01.04.2014.

(iii) The Company had sanctioned an amount of Rs. 93.51 crore in the year 2004 as finance lease for financing wind turbine generator (commissioned on 09.06.2005). The gross investment stood at Rs. 7.62 crore as on 31.03.2015 (Rs. 1.96 crore as on 31.03.2014). The lease rent is to be recovered within a period of 19 years 11 months, starting from 09.06.2005, which comprises of 10 years as a primary period and a maximum of 9 years and 11 months as a secondary period.

(iv) The Company had sanctioned an amount of Rs. 228.94 crore in the year 2008 as finance lease for financing wind turbine generator (commissioned on 18.05.2011). The gross investment stood at Rs. 379.12 crore as on 31.03.2015 (Rs. 404.82 crore as on 31.03.2014). The lease rent is to be recovered within a period of 25 years, starting from 01.01.2012, which comprises of 18 years as a primary period and a maximum of 7 years as a secondary period.

10. Subsidy under Accelerated Generation & Supply Programme (AG&SP):

(i) The Company claimed subsidy from Govt. of India at net present value calculated at indicative interest rates in accordance with the GOI's letter vide D.O.No.32024 / 17 / 97 - PFC dated 23.09.1997 and O.M.No.32024 / 23 / 2001 - PFC dated 07.03.2003, irrespective of the actual repayment schedule, moratorium period and duration of repayment. The amount of interest subsidy received and to be passed on to the borrower is retained as Interest Subsidy Fund Account. The impact of difference between the indicative rate and period considered at the time of claims and at the time of actual disbursement can be ascertained only after the end of the respective schemes. However, on the basis of the projections made for each project (based upon certain assumptions that these would remain same over the projected period of each loan / project), the Company estimated the net excess amount of Rs. 7.02 crore and Rs. 61.32 crore as on 31.03.2015 (Rs. 6.32 crore and Rs. 74.53 crore as on 31.03.2014) for IX and X Plan, respectively under AG&SP schemes, and there is no shortfall. This net excess amount is worked out on overall basis and not on individual basis and may vary due to change in assumptions, if any, during the projected period such as changes in moratorium period, repayment period, loan restructuring, pre-payment, interest rate reset etc. Any excess / shortfall in the interest subsidy fund will be refunded or adjusted / charged off on completion of the respective scheme.

11. The Company had exercised the option under para 46A of the AS-11 - 'The Effects of Changes in Foreign Exchange Rates', to amortize the exchange differences on the long term foreign currency monetary items over their tenure. Consequently, as on 31.03.2015 the debit balance under Foreign Currency Monetary Item Translation Difference Account (FCMITDA) amounting to Rs. 380.56 crore (as on 31.03.2014 Rs. 709.21 crore) is shown on the "Equity and Liabilities" side of the balance sheet under the head "Reserve and Surplus", as a separate line item.

12. Implementation of GoI Scheme:

(A) Re-structured Accelerated Power Development and Reforms Programme (R - APDRP):

(i) The Company is the Nodal Agency for operationalisation and associated service for implementation of the R - APDRP under which projects are being taken up in two parts. Part - A includes the projects for establishment of baseline data and IT applications for energy accounting as well as IT based customer care centers. Part - B includes regular distribution strengthening projects. GoI provides 100% loan for Part A and up to 25% (up to 90% for special category States) loan for Part - B. Balance funds for Part - B projects can be raised by the utilities from PFC / REC / multi-lateral institutions and / or own resources. The loans under Part A- along with interest thereon are convertible into grant as per applicable guidelines. Similarly, up to 50% (up to 90% for special category states) of the loan against Part -B project would be convertible in to grant as per applicable guidelines. Enabling activities of the programme are covered under Part - C.

Amounts received from the Government of India under R - APDRP as a Nodal agency for on-lending to eligible borrowers are back to back arrangements with no profit or loss arising to the Company. The amount on-lended but not converted in to grants as per applicable guidelines will become payable along with interest to the GoI on receipt from the borrowers.

(ii) In line with the R - APDRP scheme approved by MoP, GoI , vide Office Memorandum No. 14 / 03 / 2008 - APDRP dated 20th August, 2010, till 31.03.2013, Nodal Agency Fees under R - APDRP had been accounted for @ 1% of the sanctioned project cost in three stages - 0.40% on sanction of the project, 0.30% on disbursement of the funds and remaining 0.30% after completion of the sanctioned project (for Part - A) and verification of AT&C loss of the project areas (for Part - B). Further, actual expenditure, including expenditure allocable on account of PFC manpower, incurred for operationalising the R- APDRP were reimbursed / reimbursable by Ministry of Power, Government of India. As per Office Memorandum No. 14 / 03 / 2008 - APDRP dated 20th August, 2010 of the MoP, GoI, the total amount receivable against the nodal agency fee plus the reimbursement of actual expenditure will not exceed Rs. 850 crore or 1.7 % of the likely outlay under Part A & B of R - APDRP, whichever is less.

Ministry of Power (MoP) vide letter dated 15.07.2013 informed that as per Department of Expenditure (DoE), Nodal Agency Fee for R-APDRP scheme for 12th Plan may be restricted to 0.5% of the sanctioned project cost or actual expenditure, whichever is less.

Pursuant to various correspondence with MoP, GoI a revised proposal was submitted to MoP, GoI vide letter dated 26.12.2014, wherein Company agreed to restrict its claims only to reimbursements of actual expenditure in line with norms indicated by Department of Expenditure (DoE) through MoP communication dated 15.07.2013 excluding Company's own manpower (Salary only) / administrative charges during XII / XIII Plan under R-APDRP. MoP vide letter dated 05.01.2015 directed the Company to intimate its final claim based on revised proposal of the Company. The Company, vide letter dated 02.02.2015, submitted its claim including balance claim pertaining to XIth plan and claim for the period from 01.04.2012 to 31.12.2014 (earlier shown as other expenses of the Company) which has been approved by MoP vide its letter dated 31.03.2015

Accordingly, the Company has reversed Nodal Agency Fee for R-APDRP scheme for XIIth Plan (upto FY 2013-14) amounting to Rs. 35.86 crore and has not recognized the fee pertaining to the current year.

(B) Integrated Power Development Scheme (IPDS)

Govt. of India (GoI) has launched IPDS for the Urban areas with the (i) Strengthening of Sub-transmission and Distribution network in urban areas including provisioning of solar panels on Govt. buildings including Net-metering, (ii) Metering of feeders / distribution transformers / consumers in urban areas and (iii) IT enablement of distribution sector and strengthening of distribution network, as per CCEA approval dated 21.06.2013 for completion of the targets laid down under R-APDRP for XIIth and XIIIth Plans by subsuming R-APDRP in IPDS and carrying forward the approved outlay for R-APDRP to IPDS.

As per guidelines, approved by IPDS Monitoring Committee, constituted by Ministry of Power (MoP), GoI, the company has been designated as the Nodal Agency for operationalization and implementation of the scheme under the overall guidance of the MoP. The role of the Nodal agency is mentioned in IPDS scheme which inter-alia includes administration of GoI grant to the eligible utilities which can be recalled / pre closed subject to certain conditions mentioned in the IPDS guidelines.

The Company will be eligible for 0.5% of the total project cost approved by Monitoring Committee or award cost, whichever is lower, as nodal agency fee to be claimed / accrued as under:

i. 1st installment: 40% of the nodal agency fee (i.e. 40% of 0.5% of approved project cost) in the financial years in which the projects are approved by the Monitoring Committee under IPDS.

ii. 2nd installment: 30% of the nodal agency fee (i.e. 30% of 0.5% of approved project cost) on award of approved projects.

iii. 3rd installment: 20% of the nodal agency fee (i.e. 20% of 0.5% of approved project cost) after one year of claiming 2nd installment.

13. The Company has been creating provision @ 0.25% of the outstanding standard loan assets excluding outstanding restructured standard loan assets on which separate provision has been started during the year. As on 31.03.2015, the Standard Asset provision stands at Rs. 486.57crore (Rs. 469.42 crore as on 31.03.2014).

14. The Company being a Government owned Non-Banking Financial Company is exempt from the RBI directions relating to Prudential Norms. RBI has directed the Company, vide its letter dated 25.07.2013, to take steps to comply with RBI's Prudential Norms by 31.03.2016. Further, RBI vide its letter dated 03.04.2014 has allowed exemption from credit concentration norms in respect of exposure to Central / State Government entities till 31.03.2016.

The Company follows its own prudential norms approved by the Ministry of Power (MoP), Govt.of India (GoI) (including revisions approved by BoD in its meeting held on 09.03.2015 subject to the approval of MoP) which inter-alia includes norms for Restructuring / Reschedulement / Renegotiation (R/R/R) of loans which allows (i) two times restructuring before COD, (ii) exemption to the loans having central / state government guarantee and loans to government department, and (iii) dispensation not to consider extension of repayment schedule without sacrifice as restructuring for government sector borrowers. For R/R/R norms, RBI has advised the Company to follow the instructions contained in RBI circular DNBS.CO.PD.No. 367/03.10.01/2013- 14 dated 23.01.2014, vide its letter dated 03.04.2014 inter-alia allowing maximum period of delay in DCCO for which a loan can be restructured. The matter regarding applicability of RBI's R/R/R norms was taken up with RBI. In this regard, RBI vide its letter dated 11.06.2014 has allowed exemption from application of its restructuring norms for Transmission & Distribution, Renovation & Modernization and Life Extension projects and also the hydro projects in Himalayan region or affected by natural disasters for a period of 3 years i.e. till 31.03.2017. Further, for new project loans to generating companies restructured w.e.f. 01.04.2015, the provisioning requirement would be 5% and for stock of such outstanding loans as on 31.03.2015 to all generating companies, the provisioning shall commence with a provision of 2.75% with effect from 31.03.2015 and reaching 5% by 31.03.2018. This provision is in addition to the provision for diminution in fair value.

The Company vide its letter dated 03.07.2014 has communicated the manner of its implementation to RBI, further reiterated vide Company's letter dated 27.11.2014, inter-alia stating that all new project loans sanctioned with effect from 01.04.2015 to generating companies would be regulated by RBI norms on R/R/R. RBI vide its letter dated 04.02.2015 has informed that the Company's request is under examination.

Pending decision by RBI regarding implementation of R/R/R norms, the Company is following its own norms read with the manner of implementation as stated above.

Accordingly, the Accounting policy related to Prudential Norms on R/R/R has been amended during the year ended 31.03.2015 which inter-alia requires provision @ 2.75% on restructured standard assets. Thus, during the year ended 31.03.2015 a provision has been made amounting to Rs. 564.44 crore, on qualifying loans. As on 31.03.2015, these loans comprise of private sector loan Rs. 20,524.91 crore and Govt. Sector loan Nil. Consequently, profit for the year ended 31.03.2015 has been reduced by Rs. 513.12 crore, after considering the existing provision on standard loan assets on these restructured loans.

15. Provision for shortfall in security of Restructured/Rescheduled/Renegotiated (R/R/R)Loans:

The Restructured Standard Assets as on 31.03.2015 includes 3 loan assets amounting to Rs. 2,753.50 crore, classified as unsecured. These loans carry adequate security as on 31.03.2015 in form of charge on assets etc., but require completion of full security creation process as per the sanction terms. Hence, these are classified as unsecured. As these loans carry adequate security coverage as on 31.03.2015, there is no short fall in security. Provision on these R/R/R assets has been created @2.75% and no further provision for any shortfall in security is required.

16. The Company has no outstanding liability towards Micro, Small and Medium Enterprises.

17. Leasehold land is not amortized, as it is a perpetual lease.

18. Disclosures as per Accounting Standard -15 :-

A. Provident fund

The Company pays fixed contribution to provident fund at prescribed rates to a separate trust, which invests the funds in permitted securities. The contribution to the fund for the period is recognized as expense and is charged to the statement of profit and loss. The trust to ensure a minimum rate of return to the members as specified by GoI. However, any short fall for payment of interest to members as per specified rate of return has to be compensated by the Company. The Company estimates that no liability will take place in this regard in the near future and hence no further provision is considered necessary.

B. Gratuity

The Company has a defined gratuity scheme and is managed by a separate trust. The provision for the same has been made on actuarial valuation based upon total number of years of service rendered by an employee subject to a maximum amount of Rs. 10 lakh.

C. Pension

The Company has a defined contribution pension scheme which is in line with guidelines of the Department of Public Enterprise (DPE) and is managed by a separate trust. Employer contribution to the fund has been contributed on monthly basis. Pension is payable to the employees of the Company as per the scheme.

D. Post Retirement Medical Scheme (PRMS)

The Company has Post-Retirement Medical Scheme (PRMS), under which retired employees and their dependent family member are provided with medical facilities in empanelled hospitals. They can also avail reimbursement of out-patient treatment subject to a ceiling fixed by the Company.

E. Terminal Benefits

Terminal benefits include settlement in home town for employees & their dependents.

F. Leave

The Company provides for earned leave benefit and half-pay leave benefit to the credit of the employees, which accrue on half yearly basis @ 15 days and 10 days, respectively. A maximum of 300 days of earned leave can be accumulated at any point of time during the service. There is no limit for accumulation of half pay leave. Earned leave is en-cashable during the service; while half pay leave is not en-cashable during the service or on separation / superannuation before 10 years. On separation after 10 years of service or on superannuation, earned leave plus half pay leave together can be en-cashed subject to a maximum of 300 days. However, there is no restriction in the number of years of service for earned leave encashment on separation from the service.

The above mentioned schemes (D, E and F) are unfunded and are recognized on the basis of actuarial valuation.

The summarised position of various defined benefits recognized for 31.03.2015 in the statement of profit and loss account, balance sheet are as under {Figures in brackets ( ) are for 31.03.2014}

i) One percent increase / decrease in the inflation rate would impact liability for medical cost of PRMS, as under:-

Cost increase by 1% Rs. 2.09 crore

Cost decrease by 1% Rs. (2.19) crore

ii) During the year, the Company has provided liability towards contribution to the Gratuity Trust of Rs. 0.21 crore, to PRMS of Rs. 3.63 crore, to leave Rs. 5.06 crore and to pension Nil (during the year ended 31.03.2014 towards contribution to the Gratuity Trust of Rs. 0.86 crore, to PRMS of Rs. 2.75 crore, to leave Rs. 6.17 crore and to pension Rs. Nil crore). Above amount includes Rs. 0.02 crore (as on 31.03.2014 Rs. 0.07 crore), Rs. 0.42 crore (as on 31.03.2014 Rs. 0.58 crore) and Rs. 0.34 crore (as on 31.03.2014 Rs. 0.11 crore) for gratuity, leave and PRMS respectively allocated to subsidiary companies.

G. Other Employee Benefits:-

During the year, provision of Rs. 0.01 crore (during the year ended 31.03.2014 Rs. -0.05 crore) has been made for Economic Rehabilitation Scheme (ERS) for Employees and provision of Rs. 0.92 crore has been made for Long Service Award (LSA) for employees (during the year ended 31.03.2014 Rs. 0.74 crore) on the basis of actuarial valuation made at the end of the year by charging / crediting the statement of profit and loss.

H. Till FY 2013-14, the employee benefits (viz. Gratuity, PRMS, Terminal Benefits, Leave encashment and other employee benefits) in respect of Company's employees working in PFCCAS, PFC GEL and PFCCL on deputation / secondment basis were being allocated on actuarial basis and recognized as recoverable (from these subsidiaries) by the Company. During the FY 2014-15, the practice has been changed with effect from 01.01.2007, whereby amount recoverable from subsidiaries, on account of above stated employee benefits, has been mutually worked out at a fixed percentage of employee cost.

19. Pursuant to the requirements of the Companies Act 2013, followed by clarification from Department of Public Enterprises (DPE), the Company amended its CSR and Sustainability policy during the year. Accordingly, during the year, a CSR provision amounting to Rs. 117.49 crore (previous year Rs. 63.23 crore including reversal of CSR and SD reserve amounting to Rs. 18.85 crore as on 31.03.2013) has been made at the rate 2% of the average net Profit Before Tax (PBT) of the Company earned during the three immediately preceding financial years. During the FY 2014-15, an amount of Rs. 49.90 crore (previous year Rs. 46.52 crore) has been disbursed against CSR activities.

As on 31.03.2015, the CSR and SD provisions stands at Rs. 114.30 crore(previous year Rs. 32.33 crore) after adjusting an amount of Rs. 35.52 crore (previous year Rs. 30.90 crore) during the year on account of CSR claims.

20. Disclosure as per Accounting Standard - 1 on 'Disclosure of Accounting Policies.

During the FY ended 31.03.2015, following changes in Part - B- Significant accounting policies have been made:

(i) Policy no. 1, Basis for Preparation of Financial Statements, has been aligned with the Companies Act, 2013. There is no financial impact due to this change.

(ii) Policy no. 2.7, regarding adjustment of repayment against earliest disbursement is deleted since the same is covered under Policy no. 2.6. There is no financial impact due to this change.

(iii) Policy no. 3.3, Fixed assets / Depreciation, has been aligned with the Companies Act, 2013. There is no financial impact due to this change. The financial impact on account of change in estimate has been disclosed at note 35.

(iv) Policy no. 4.1, Intangible Assets / Amortization, has been aligned with the presentation followed by the Company. There is no financial impact due to this change.

(v) Policy no. 5, Investments, has been modified to bring in more clarity. There is no financial impact due to this change.

(vi) Policy no. 6.4.(ii)(a) has been modified to avoid overlapping with policy no. 6.3.(iii). There is no financial impact due to this change.

(vii) Policy no. 6.7.(i), Restructuring, Reschedulement or Renegotiation of term(s) of loan, has been aligned with the changes in the Prudential Norms of the Company. There is no financial impact due to this change.

(viii) Policy no. 6.7.(vii), Eligibility for Upgradation of Restructured / Rescheduled / Renegotiated Sub-standard Infrastructure loan, has been aligned with the changes in the Prudential Norms of the Company. There is no financial impact due to this change.

ix) Policy no. 6.7.(xii), regarding provisioning on Restructured / Rescheduled / Renegotiated standard asset, has been added to align with the changes in the Prudential Norms of the Company. The financial impact has been disclosed at note18 supra.

x) Policy no. 9, Accounting of Government of India Schemes, has been amended to align with the nature of transaction governed under the policy related to GoI schemes such as R-APDRP, IPDS. There is no financial impact due to this change.

(xi) Policy no. 11, R-APDRP Fund, has been deleted since the same is covered under amended Policy no. 9. There is no financial impact due to this change.

(xii) Policy no. 12.5, regarding income on development of Request for Qualification (RFQ) document / Request for Proposal (RFP) document, has been deleted since the same is no more relevant. There is no financial impact due to this change.

(xiii) Policy no. 16, Cash and Cash Equivalents, has been added to bring in more clarity. There is no financial impact due to this change.

21. (A) Interim Dividend

The Board of Directors in their 330th meeting held on 27.02.2015 declared interim dividend at the rate of 85% i.e. Rs. 8.50/- per equity share of Rs. 10/- each amounting to Rs. 1,122.04 crore for the FY 2014-15.

22. The Company got registered with Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) in April, 2012 for filing and registering the records of equitable mortgages created in its favour, in the web portal of CERSAI. On facing the practical difficulties, the Company has since then continuously taken up the matter with CERSAI and RBI.

The Company vide letter dated 24.12.2014 has also requested Department of Financial Services to exempt the Company from reporting of equitable mortgage transactions contemplated under Section 23 of SARFAESI Act, 2002. The Company vide letter dated 05.01.2015 has also sought RBI's intervention in the matter. The response in this regard is still awaited.

Meanwhile, the Company vide letter dated 19.02.2015 has again requested CERSAI to remove the practical difficulties in entering the data in the web portal of CERSAI. The response is still awaited.

23. As required under Section 205C of the Companies Act, 1956, Rs. 0.21 crore (Previous Year Rs. Nil) became due and was transferred to the Investor Education and Protection Fund (IEPF) during the FY ended 31.03.2015. However, an amount of Rs. 0.56 crore (Previous Year Rs. 0.56 crore) remains unpaid pending completion of transfer formalities by the claimants.

24. During the year, the Company has sent letters seeking confirmation of balances as on 31.12.2014 to the borrowers and confirmation from all the borrowers (except one case which is sub-judice) have been received.

25. Effective from 1st April 2014, depreciation on assets is provided on original cost of the asset reduced by its residual value estimated from time to time, as per written down value method, over the useful lives of the assets as per Companies Act, 2013. In respect of life expired assets, an amount of Rs. 1.92 crore (net of deferred tax) has been charged to retained earnings as per Companies Act, 2013.

26. The Company does not have more than one reportable segment in terms of Accounting Standard-17 on Segment Reporting.

27. Previous year's figures have been re-grouped / re-arranged, wherever practicable to make them comparable.

28. Figures have been rounded off to the nearest crore of rupees with two decimals.

29(A) Disclosures related to Securitisation

I. The Company has not entered into any securitization transaction during the year and there is no exposure on account of securitisation as on 31.03.2015 (Previous year Nil).

II. The Company has not sold any financial assets to Securitisation / Reconstruction Company for asset construction during the year ended 31.03.2015 (Previous Year Nil).

III. The Company has not undertaken any assignment transaction during the year ended 31.03.2015 (Previous Year Nil).

IV. The Company has neither purchased nor sold any non-performing financial assets during the year ended 31.03.2015 (Previous Year Nil)

V. Unsecured Advances

Total amount of advances for which intangible securities such as charge over the rights, licenses, authority etc. has been taken is Nil as on 31.03.2015 (As on 31.03.2014 Nil).

(B) Registration obtained from other financial sector regulators

The Company is a Government Company and is registered with RBI as NBFC-ND-IFC (Non-Banking Finance Company - Non Deposit Accepting - Infrastructure Finance Company).

(C) Disclosure of Penalties imposed by RBI and other regulators

During the year ended 31.03.2015, no penalty has been imposed on the Company by SEBI and RBI (Previous Year Nil).

(D) Net Profit or Loss for the period, prior period items and changes in accounting policies

Reference may be made to Part A-18 and C-29 of notes to accounts regarding prior period items and changes in accounting policies respectively.

(E) Circumstances in which revenue recognition has been postponed pending the resolution of significant uncertainties Reference may be made to note Part B - 2.1 of Significant Accounting Policy.

(F) The Company is preparing Consolidated Financial Statements in accordance with Accounting Standard - 21. Reference may be made to Part C - 8 (A) of notes to accounts in this regard.


Mar 31, 2014

1. SHARE CAPITAL

Under the Company stock, option plan titled as PFC-ESOP 2010, the Remuneration Committee and there meeting held on 23rd December, 2011 had given the approval for FY 2009-10 for grant of 88,040 options, effective from 29th July, 2011 and in their meeting held on 30th April 2012 had given as approval for FY 2010-11 for the grant of 92,964 options, effective from 30th April, 2012 to regular employees of the Company through PFC Employees Welfare Trust at a price of Rs.176.05/- per option for FY 2009-10 and Rs.180.75/- per option FY 2010-11, exclusive of the face value of Rs.10/- per share, convertible into equivalent number of equity shares of Rs.10/- each on payment of Rs.10/- per share.

For FY 2009-10, out of 88,040 options, 87,888 options has been granted, 83,306 equity shares have been alloted during the previous financial year and 4,255 equity shares during the current year upon exercising the stock option under the scheme. For FY 2010-11, out of 92,964 options granted, 69,964 options have been settled in cash and 1,572 options have been cancelled during the previous financial year and alloted 21,438 equity shares during the current year upon exercising the stock option under the scheme.

2. Additional demands raised by the income Tax Department totaling to Rs. 49.87 crore (as on 31.03.2013 Rs. 55.93 crore) of earlier years are being contested. Further, the Income Tax Department has filed appeals before ITAT against the orders of CIT (A) allowing relief to the Company totaling to Rs. 79.26 crore (as on 31.03.2013 Rs. 67.96 crore). The same are being contested. The Management does not consider it necessary to make provision, as the probability of tax liability devolving on the Company is negligible.

3. Additional demands raised by the Income Tax Department (net of relief granted by Appellate Authorities) amounting to Rs. 55.10 crore for Assessment Years 2001 -02 to 2011 -12 have been provided for and are being contested by the Company.

4. Ministry of Corporate Affairs (MoCA), Government of India, vide its Circular No. 6/3/2001 -CL.V dated 16.04.2002 prescribed adequacy of Debenture Redemption Reserve (DRR) as 50% of the value of debentures issued through public issue; subsequently, the MoCA through its circular No. 11/02/2012-CL-V(A) dated 11.02.2013 modified the adequacy of DRR to 25%.

In this regard, the Company has requested the MoCA for clarification, which is awaited. Pending receipt of clarification, the Company is creating DRR for public issue of bonds / debentures @ 50% for the issues for which prospectuses had been filed before 11.02.2013 and @ 25% for the subsequent public issues.

5. i. Investment in "Small is Beautiful" Fund: -

The Company has outstanding investment of Rs. 7.68 crore (as on 31.03.2013 Rs. 7.68 crore) in units of Small is Beautiful Fund. The face value of the Fund is Rs.10 per unit. The NAV as on 31.03.2014 is Rs. 9.70 per unit (Rs. 9.77 per unit as on 31.03.2013). As investment in Small is Beautiful Fund is long term investment, the fluctuation in NAV in the current scenario is considered as temporary.

ii. Investment in equity (unquoted) in Power Exchange India Umlted:-

Power Exchange India Ltd. (PXIL) has been promoted by National Stock Exchange (NSE) and National Commodity and Derivatives Exchange Limited (NCDEX). The authorized share capital is Rs. 100 crore consisting of 8 crore equity shares of Rs.10/- each and 2 crore preference shares of Rs. 10/- each as on 31.03.2014. The paid up equity share capital of PXIL is Rs. 46.47 crore, as on 31.03.2014. The Company has subscribed Rs. 3,22 crore (Rs. 2.80 crore as on 31.03.2013) of the paid up capital of PXIL.

6. Interest Differential Fund (IDF)-KFW

The agreement between KFW and PFC provides that the IDF belongs to the borrowers solely and will be used to cover the exchange risk variations under this loan and any excess will be used in accordance with the agreement. The balance in the IDF fund has been kept under separate account head titled as Interest Differential Fund - KFW and shown as a liability. The total fund accumulated as on 31.03.2014 is Rs. 54.63 crore (as on 31.03.2013 Rs. 54.73 crore), after transferring exchange difference of Rs. 16.56 crore (as on 31.03.2013 Rs. 15.21 crore).

6.i. The Company had sanctioned an amount of Rs. 88.90 crore in the year 2004 as finance lease for financing wind turbine generator (commissioned on 19.07.2004). The sanction was reduced to Rs. 88.85 crore in December 2006. The gross investment stood at the level of Rs. 4.21 crore as on 31.03.2014. The lease rent is to be recovered within a period of 15 Years, starting from 19.07.2004, which comprises of 10 years as a primary period and 5 years as a secondary period.

ii. The Company had sanctioned an amount of Rs. 98.44 crore in the year 2004 as finance lease for financing wind turbine generator (commissioned on 18-05-2004). The gross investment stood at Rs. 22.53 crore as on 31.03.2014. The lease rent is to be recovered within a period of 20 years, starting from 18.05.2004, which comprises of 10 years as a primary period and a maximum of another 10 years as a secondary period.

iii. The Company had sanctioned an amount of 7 93.51 crore in the year 2004 as finance lease for financing wind turbine generator (commissioned on 09.06.2005). The gross investment stood at Rs. 1.96 crore as on 31.03.2014. The lease rent is to be recovered within a period of 19 years 11 months, starting from 09.06.2005, which comprises of 10 years as a primary period and a maximum of 9 years and 11 months as a secondary period.

iv. The Company had sanctioned an amount of Rs. 228.94 crore in the year 2008 as finance lease for financing wind turbine generator (commissioned on 18,05.2004). The gross investment stood at Rs. 404.82 crore as on 31.03.2014, The lease rent is to be recovered within a period of 25 years, starting from 01.01.2012. which comprises of 18 years as a primary period and a maximum of 7 years as a secondary period.

7. Operating Lease:

The Company''s operating leases consists:-

Premises for offices and for residential use of employees are lease arrangements, and are usually renewable on mutually agreed terms, and are cancellable. Rent for residential accommodation of employees include Rs. 4.19 crore (during year ended 31.03.2013 Rs. 3.84 crore) towards lease payments, net of recoveries in respect of premises for residential use of employees. Lease payments in respect of premises for employees are shown as rent for residential accommodation of employees in Note Part A 16 - Employee Benefit Expenses. Lease payments in respect of premises for offices are shown as office rent in Note Part A 17-Other Expenses.

8. Subsidy under Accelerated Generation & Supply Programme (AG & SP):

The Company claimed subsidy from Govt. of India at net present value calculated at indicative interest rates in accordance with the GOI''s letter vide D.O.No.32024 / 17 / 97 - PFC dated 23.09.1997 and O.M.No.32024 / 23 / 2001 - PFC dated 07.03.2003, irrespective of the actual repayment schedule, moratorium period and duration of repayment. The amount of interest subsidy received and to be passed on to the borrower is retained as Interest Subsidy Fund Account. The impact of difference between the indicative rate and period considered at the time of claims and at the time of actual disbursement can be ascertained only after the end of the respective schemes. However on the basis of the projections made for each project (based upon certain assumptions that these would remain same over the projected period of each loan / project), the Company estimated the net excess amount of Rs. 6.32 crore and Rs. 74.53 crore as at 31.03.2014 for IX and X Plan, respectively under AG&SP schemes, and there is no shortfall. This net excess amount is worked out on overall basis and not on individual basis and may vary due to change in assumptions. If any, during the projected period such as changes in moratorium period, repayment period, loan restructuring, pre-payment, interest rate reset etc. Any excess/shortfall in the interest subsidy fund will be refunded or adjusted / charged off on completion of the respective scheme.

9. The Company had exercised the option under para 46A of the AS-11 - The Effects of Changes in Foreign Exchange Rates'', to amortize the exchange differences on the long term foreign currency monetary items over their tenure. Consequently, as on 31.03.2014 the balance under Foreign Currency Monetary item Translation Difference Account (FCMITDA) is Rs. 709.21 crore (as on 31.03.2013 Rs.477.97 crore) and shown on the “Equity and Liabilities'' side of the balance sheet under the head “Reserve and Surplus”, as a separate line item.

10. (i) The Company has been designated as the Nodal Agency for operationalisation and associated service for implementation of the Re structured Accelerated Power Development and Reforms Programme (R - APDRP) during XI Plan by the Ministry of Power, Government of India (GOI) under its overall guidance. Further, MoP vide order dated 06.07.2013 had agreed to continue R-APDRP in XII / XIII Plan, inter-alia including extension of Part-A projects completion period from 3 to 5 years.

Projects under the scheme are being taken up in two parts. Part-A includes the projects for establishment of baseline data and IT applications for energy accounting as well as IT based customer care centers. Part - B includes regular distribution strengthening projects. Gol provides 100% loan for Part A and up to 25% (up to 90% for special category States) loan for Part - B. Balance funds for Part-8 projects can be raised by the utilities from PFC / REC / multi-lateral institutions and / or own resources. The loans under Part A- along with interest thereon are convertible into grant as per R-APDRP guidelines. Similarly, up to 50% (up to 90% for special category states) of the loan against Part-B project would be convertible in to grant as per R - APDRP guidelines. Enabling activities of the programme are covered under Part-C.

The loans under R - APDRP are routed through the Company for disbursement to the eligible utilities. The a mount so disbursed but not converted in to grants as per R - APDRP guidelines will be repaid along with interest to the Gol on receipt from the borrowers.

(ii) As per Office Memorandum No. 14 /03 / 2008-APDRP dated 20th August, 2010 of the MoP, Gol, the total amount receivable against the nodal agency fee plus the reimbursement of actual expenditure will not exceed Rs. 850 crore or 1.7 % of the likely outlay under Part A & B of R-APDRP, which ever is less.

(iii) In line with the R-APDRP scheme approved by MoP, Gol, vide Office Memorandum No. 14 / 03/2008-APDRP dated 20th August, 2010, till 31.03.2013, Nodal Agency Fees under R - APDRP had been accounted for @ 1% of the sanctioned project cost in three stages - 0.40% on sanction of the project, 0.30% on disbursement of the funds and remaining 0.30% after completion of the sanctioned project (for Part-A) and verification of AT&C loss of the project areas (for Part - B), Further, actual expenditure, including expenditure allocable on account of PFC manpower, incurred for operationalising the R- APDRP were reimbursed / reimbursable by Ministry of Power, Government of India.

Ministry of Power (MoP) vide letter dated 15.07.2013 informed that as per Department of Expenditure (DoE), Nodal Agency Fee for R-APDRP scheme for 12th plan may be restricted to 0.5% of the sanctioned project cost or actual expenditure, whichever is less.

It was also indicated in the MoP letter dated 15.07.2013 that proposal for any higher nodal agency fee may be considered, if agreed by the DoE. Accordingly, the Company has submitted a proposal to MoP (vide our letter dated 22.08.2013) for consideration of Nodal Agency Fee @ 0.50% on R-APDRP sanctions and reimbursement of actual expenditure incurred under R-APDRP (excluding PFC manpower expenditure), from 12th plan onward. The proposal is under consideration by MoP, Gol, Pending finalization, nodal agency fee / reimbursement of expenditure for 12th plan has been accounted for during the year (with effect from 01.04.2012) on provisional basis as indicated by DoE through MoP communication dated 15.07.2013. Accordingly, nodal agency fee income amounting to Rs. 18.50 crore (Rs.18.43 crore for FY 2013-14 and Rs. 0.07 crore for FY 2012-13) has been recognised during the year. Further, Rs. 42.59 crore on account of expenditure allocable to R-APDRP has been accounted for separately and appearing under Note Part-A-17-other expenses (including Rs. 21.81 crore of FY 2012-13 earlier booked as recoverable from MoP, Gol).

11.1. The Company has been creating provision for standard assets in phases with effect from FY 2012-13, in three years period @ of 0.0833% p.a. in order to bring it to 0.25% on 31st March, 2015 in line with the accounting policy introduced during the financial year 2012-13, Further, RBI vide its letter dated 25-07-2013 has directed that provision may be made @ 0.25% ab-initio for all new assets. Accordingly, the Company has changed its accounting policy to create provision @ 0.25% for all new standard assets created in the current year, while finalisation of half yearly financial statements as at 30.09.2013. The Board of Directors'' in its meeting dated 27.03.2014 decided to accelerate the provisioning for Standard Assets, so as to bring it to 0.25% as on 31.03.2014 instead of on 31.03.2015. Therefore, the accounting policy has again been changed, during the quarter ended as at 31.03.2014, with effect from 01.04.2013 to create provision for standard assets @0.25% of the outstanding as the end of the financial year. As on 31.03.2014, the Standard Asset provision stands at Rs. 469.42 crore (Rs.132.79 crore as on 31.03.2013). Due to this change in accounting policy, the profit for the year ended 31.03.2014 has decreased by Rs. 156.47 crore,

11.2 The Company being a Government owned Non-Ban king Financial Company is exempt from the RBI directions relating to Prudential Norms. The Company, however, formulated its own set of Prudential Norms with effect from 01.04.2003, which are revised from time to time. Ministry of Power (MoP), Government of India (Gol) initially accorded its approval to the Prudential Norms of the Company vide letter dated 19.04.2007 and thereafter extended validity of the same for subsequent financial years. The prudential norms applicable for financial year 2013-14 are approved by MoP, Gol, vide its letter dated 23.05.2012 as per which the Prudential Norms as applicable to the Company upto 31,03.2012 will continue to be applicable up to 31.03.2013 or till further orders.

Further, RBI vide its notification dated 12.12.2006 proposed to bring all deposit taking and systemically important government owned NBFCs under the RBI''s direction on Prudential Norms from a date to be decided later and advised Government companies to submit a roadmap for compliance with various elements of the NBFCs regulation in consultation with Government. Accordingly, PFC has been submitting roadmaps as advised by RBI from time to time on the basis of which exemption was granted by RBI upto FY 2012-13.

In response to the Road Map and subsequent correspondence, RSI vide its letter dated 25.07.2013 advised on certain issues relating to Provisioning of Standard assets, etc. and informed that the matters relating to the Restructuring / Reschedulement/ Renegotiation (R/R/R) of assets and the credit concentration norms are under its consideration and it will revert back in due course, RBI has also advised the Company to take steps to comply with RBI Prudential Norms by 31.03.2016. The Company has informed to RSI its implementation strategy for the above directions of RBI vide letter dated 07.10.2013 wherein for matter relating to the R/R/R of assets and the credit concentration norms, it has been informed that the Company shall continue to follow its extant norms for these matters till further directions from RSI.

Now, RBI vide letter dated 3rd April, 2014 has allowed the exemption from credit concentration norms in respect of exposure to Central / State Government entities till 31.03.2016 and for the matter relating to R/R/R, RBI has advised the Company to follow the instructions contained in RBI circular DNBS.CO.PD.No. 367/03.10.01/2013-14 dated 23.01.2014. In this regard the Company vide letter dated 25.04.2014 has submitted an implementation strategy to comply with RBI directions on R/R/R of assets for the consideration of RBI and also stated that PFC will follow the restructuring provisions contained in its extant prudential norms till such time RBI may issue further instructions in this respect. MoP, Gol, vide its letter dated 15.05.2014 has also requested RSI to consider the implementation strategy as communicated by the Company. The response from RBI is awaited. Since the Company is following norms relating to R/R/R duly approved by MoP, Gol, the management is of the view that RBI norms on R/R/R are not applicable to the Company for the financial year 2013-14.

In-case of specific provision in the loan agreement for a rate other than SBI TT selling rate, the rate has been taken as prescribed in the respective loan agreement.

12.1 The Company has made the public issue of 75,00,000 tax free bonds (secured) with an option to re tain oversubscription upto 3,87,59,000 bonds at the face value of Rs. 1,000/- each during the current financial year and has mobilized Rs. 3875.90 crore. The security has been created on 14-Nov-2013 and bonds have been allotted on 16-Nov-2013. The bonds have been listed in the BSE on 19-Nov- 2013. The proceeds of the bond issue have been utilized for the purpose mentioned in the offer document.

12.2 During the financial year 2013-14, Government of India (Gol) has set up a fund called Goldman Sachs CPSE Exchange Traded Scheme (“GS CPSE BeES") launched by Goldman Sachs Asset Management (India) Private Limited (AMC). Accordingly, 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 by selling it to the AMC. After disinvestment, the holding of Government of India in the paid up equity share capital of the Company has come down to 72.80% (As on 31.03.2013, 73.72%).

13.1 Disclosures as per Accounting Standard-15:-

A. Provident fund

The Company pays fixed contribution to provident fund at prescribed rates to a separate trust, which invests the funds in permitted securities. The contribution to the fund for the period is recognized as expense and is charged to the statement of profit and loss. The trust to ensure a minimum rate of return to the members as specified by Gol. However, any short fall for payment of interest to members as per specified rate of return has to be compensated by the Company. The Company estimates that no liability will take place in this regard in the near future and hence no further provision is considered necessary.

B. Gratuity

The Company has a defined gratuity scheme and is managed by a separate trust. The provision for the same has been made on actuarial valuation based upon total number of years of service rendered by the employee subject to a maximum amount of Rs. 10 lakh.

C. Pension

The Company has a defined contribution pension scheme which is in line with guidelines of the Department of Public Enterprise (DPE) and is managed by a separate trust. Employer contribution to the fund has been contributed on monthly basis. Pension is payable to the employee of the corporation as per the scheme.

D. Post Retirement Medical Scheme (PRMS)

The Company has Post-Retirement Medical Scheme (PRMS), under which retired employees and their dependent family member are provided with medical facilities in empanelled hospitals. They can also avail reimbursement of out-patient treatment subject to a ceiling fixed by the Company.

E. Terminal Benefits

Terminal benefits include settlement in home town for employees & their dependents.

F. Leave

The Company provides for earned leave benefit and half-pay leave benefit to the credit of the employees, which accrue on half yearly basis @ 15 days and 10 days, respectively. A maximum of 300 days of earned leave can be accumulated at any point of time during the service. There is no limit for accumulation of half pay leave. Earned leave is en-cashable during the service, while half pay leave is not en-cashable during the service or on separation/superannuation before 10 years. On separation after 10 years of service or on superannuation, earned leave plus half pay leave together can be en-cashed subject to a maximum of 300 days.

14. The Company has formulated a Corporate Social Responsibility & Sustainable Development (CSR & SD) policy In line with the guidelines issued by the Ministry of Heavy Industries and Public Enterprises (Department of Public Enterprises) from time to time. As per the CSR policy approved by the Company in October 2013, a minimum of 1% of the consolidated profit after tax of the previous period will be allocated every financial year for CSR & SD activities. Any unspent / unutilized CSR & SD allocation of a particular year will be carried forward to the following years and will have to be spent within the next 2 financial years, failing which it would be transferred to Sustainable Development fund to be created separately.

As there is an obligation under the policy to spend the amount allocated for CSR & SD activities within a specified time, in line with AS 29, the allocation for CSR & SO activities for the current year has been provided for by charging to profits; the CSR and SO reserves as on 31.03.2013 amounting to Rs.18.85 crore have also been reversed and provided for by charging to profits. As on 31.03.2014, the CSR and SD provision stands at Rs.32.33 crore after adjusting for the amount spent.

15. (i) During the year, the Company has sent letters seeking confirmation of balances as on 31.12.2013 to the borrowers and confirmation from all the borrowers have been received.

(ii) There are no unpaid / unclaimed bonds, interests on bonds and dividends, which are over 7 years as on 31.03.2014 (previous period Rs. Nil). However, an amount of Rs. 0.56 crore (previous year Rs. 0.56 crore) remaining unpaid pending completion of transfer formalities by the claimants.


Mar 31, 2013

1. The Company is a government company engaged in extending financial assistance to power sector.

2. Contingent liabilities:

(a) (Rs. in crore)

S. No Particulars Amount as on 31.03.2013 Amount as on 31.03.2012

1. Default guarantees issued in foreign currency - 41.34 56.40 US $ 7.54 million (as on 31.03.2012 US $ 10.94 million)

2. Guarantees issued in domestic currency 335.57 371.93

3. Claims against the Company not acknowledged 0.04 0.00 as debts

4. Outstanding disbursement commitments to the 4,247.61 5,730.38 borrowers by way of Letter of Comfort against loans sanctioned

Total 4,624.56 6,158.71

(b) Additional demands raised by the Income Tax Department totaling to Rs. 55.93 crore (as on 31.03.2012 Rs. 40.01 crore) of earlier years are being contested. Further, the Income Tax Department has filed appeals before ITAT against the orders of CIT(A) allowing relief totaling to Rs. 67.96 crore (as on 31.03.2012 Rs. 65.03 crore). The same are being contested. The Management does not consider it necessary to make provision, as the probability of tax liability devolving on the Company is negligible.

3. Estimated amount of contract remaining to be executed on account of capital contracts, not provided for, is Nil crore (as on 31.03.2012 Rs. 0.57 crore).

4. Additional demands raised by the Income Tax Department (net of relief granted by Appellate Authorities) amounting to Rs. 31.24 crore for Assessment Years 2001-02 to 2010-11 have been provided for and are being contested by the Company.

5. In line with circular No. 6 / 3 / 2001 - CL.V dated 18.04.2002 of the Government of India, then Ministry of Law, Justice Company Affairs, and Department of Company Affairs, the Company had been creating till FY 2011-12, Debenture Redemption Reserve (DRR) upto 50% of the value of, debentures issued through public issue, over the maturity period of such debentures and no DRR in case of privately placed debentures.

In recent circular no 11/02/2012-CL-V(A) dated 11.02.2013, MoCA (Ministry of Corporate Affairs) has prescribed that adequacy of DRR will be 25% of the value of debentures issued through public issue and no DRR is required in the case of privately placed debentures.

In this regard, the Company has requested the MoCA for clarification, which is awaited. Pending receipt of clarification, the Company has created and maintained DRR in line with the circular dated 18.04.2002.

6.1 (i) Investment in "Small is Beautiful" Fund: -

The Company has outstanding investment of Rs. 7.68 crore (as on 31.03.2012 Rs. 7.83 crore) in units of Small is Beautiful Fund. The face value of the Fund is Rs. 10 per unit. The NAV as on 31.03.2012 was Rs. 10.33 per unit and as on 31.03.2013 is Rs. 9.77 per unit. As investment in Small is Beautiful Fund is long term investment, the fluctuation in NAV in the current scenario is considered as temporary.

(ii) Investment in equity (unquoted) in Power Exchange India Limited:-

Power Exchange India Ltd. (PXIL) has been promoted by National Stock Exchange (NSE) and National Commodity and Derivatives Exchange Limited (NCDEX). The authorized share capital is Rs. 100 crore consisting of 80 crore equity shares of Rs. 10/- each and 20 crore preference shares of Rs. 10/- each as on 31.03.2013. The paid up equity share capital of PXIL is Rs. 46.05 crore, as on 31.03.2013. The Company has subscribed Rs. 2.80 crore of the paid up capital of PXIL.

7. Interest Differential Fund (IDF) - KFW

The agreement between KFW and PFC provides that the IDF belongs to the borrowers solely and will be used to cover the exchange risk variations under this loan and any excess will be used in accordance with the agreement. The balance in the IDF fund has been kept under separate account head titled as Interest Differential Fund - KFW and shown as a liability. The total fund accumulated as on 31.03.2013 is Rs. 54.73 crore (as on 31.03.2012 Rs. 52.01crore), after transferring exchange difference of Rs. 15.21 crore (as on 31.03.2012 Rs. 15.66 crore).

8. (a) Asset under finance lease after 01.04.2001:

(i) The gross investment in the leased assets and the present value of the minimum value receivable at the balance sheet date and the value of unearned financial income are given in the table below:

The future lease rentals are given below:-

9. Subsidy under Accelerated Generation & Supply Programme (AG&SP) :

(i) The Company claimed subsidy from Govt. of India at net present value calculated at indicative interest rates in accordance with the GOI''s letter vide D.O.No.32024 / 17 / 97 - PFC dated 23.09.1997 and O.M.No.32024 / 23 / 2001 - PFC dated 07.03.2003, irrespective of the actual repayment schedule, moratorium period and duration of repayment. The amount of interest subsidy received and to be passed on to the borrower is retained as Interest Subsidy Fund Account. The impact of difference between the indicative rate and period considered at the time of claims and at the time of actual disbursement can be ascertained only after the end of the respective schemes. However on the basis of the projections made for each project (based upon certain assumptions that these would remain same over the projected period of each loan / project), the Company estimated the net excess amount of Rs. 5.69 crore and Rs. 68.30 crore as at 31.03.2013 for IX and X Plan, respectively under AG&SP schemes, and there is no shortfall. This net excess amount is worked out on overall basis and not on individual basis and may vary due to change in assumptions, if any, during the projected period such as changes in moratorium period, repayment period, loan restructuring, pre-payment, interest rate reset etc. Any excess / shortfall in the interest subsidy fund will be refunded or adjusted / charged off on completion of the respective scheme.

(ii) The balance under the head Interest Subsidy Fund shown as liability, represents the amount of subsidy received from Ministry of Power, Govt. of India which is to be passed on to the borrowers against their interest liability arising in future, under Accelerated Generation & Supply Programme (AG&SP), which comprises of the following : -

10. The Company had exercised the option under para 46A of the amended AS-11 ''The Effects of Changes in Foreign Exchange Rates'' to amortize the exchange differences on the long term foreign currency monetary items over their tenure. Consequently, as on 31.03.2013, Rs. 477.97 crore (as on 31.03.2012 Rs. 515.41 crore) has been carried forward in the Foreign Currency Monetary Item Translation Difference Account (FCMITDA) and shown on the asset side of the balance sheet, as a separate line item.

As per the recent announcement dated 30.03.2013 of the ICAI, the debit or credit balance in FCMITDA should be shown on the "Equity and Liabilities" side of the balance sheet under the head "Reserve and Surplus", as a separate line item.

The Company has requested (vide letter dated 09.05.2013) for clarification from the Government of India, Ministry of Corporate Affairs (MoCA) on the applicability of ICAI announcement. The clarification is awaited.

Pending receipt of clarification from the MoCA, the FCMITDA is continued to be shown on the asset side of the balance sheet, as a separate line item, in line with presentation made in previous year.

11. (i) The Company has been designated as the Nodal Agency for operationalisation and associated service for implementation of the Re-structured Accelerated Power Development and Reforms Programme (R - APDRP) during XI Plan by the Ministry of Power, Government of India (GOI) under its overall guidance.

Projects under the scheme are being taken up in two parts. Part - A includes the projects for establishment of baseline data and IT applications for energy accounting as well as IT based customer care centers. Part - B includes regular distribution strengthening projects. GoI provides 100% loan for Part A and up to 25% (up to 90% for special category States) loan for Part - B. Balance funds for Part - B projects can be raised by the utilities from PFC / REC / multi-lateral institutions and / or own resources. The loans under Part - A alongwith interest thereon is convertible into grant as per R - APDRP guidelines. Similarly, upto 50% (up to 90% for special category states) of the loan against Part -B project would be convertible in to grant as per R - APDRP guidelines. Enabling activities of the programe are covered under Part - C.

The loans under R - APDRP are routed through the Company for disbursement to the eligible utilities. The amount so disbursed but not converted in to grants as per R - APDRP guidelines will be repaid along with interest to the GoI on receipt from the borrowers.

12. The net deferred tax liabilities of Rs. 219.79 crore (as on 31.03.2012 Rs. 87.43 crore) have been computed as per Accounting Standard 22 Accounting for Taxes on Income.

13. The Company has no outstanding liability towards Micro, Small and Medium enterprises.

14. Leasehold land is not amortized, as it is a perpetual lease.

In-case of specific provision in the loan agreement for a rate other than SBI TT selling rate, the rate has been taken as prescribed in the respective loan agreement.

15.1 The Company has made the public issue of 69,97,468 tax free bonds (secured) tranche - I at the face value of Rs. 1,000 each during the current financial year and has mobilized Rs. 699.75 crore. The security has been created on 03-Jan- 2013 and bonds have been allotted on 04-Jan-2013. The bonds have been listed in the BSE on 10-Jan-2013. The proceeds of the bond issue have been utilized for the purpose mentioned in the offer document.

15.2 The Company has made public issue of 16,53,680 tax free bonds (secured) tranche - II at the face value of Rs. 1,000 each during the current financial year and has mobilized Rs. 165.37 crore. The Bonds have been allotted on 28-Mar-2013 and have been listed in the BSE on 03-April-2013. The security has been created in April 2013. As on 31.03.2013, the proceeds of the bond issue were in Public Issue Account of the escrow collection banker. Subsequent to listing and security creation, the bonds issue proceeds have been transferred in April 2013 by the escrow collection banker to the regular current account of the Company and the Company has utilized the proceeds in April 2013 for the purpose mentioned in the offer document.

16. Disclosures as per Accounting Standard -15 :-

A. Provident fund

The Company pays fixed contribution to provident fund at prescribed rates to a separate trust, which invests the funds in permitted securities. The contribution to the fund for the period is recognized as expense and is charged to the statement of profit and loss account. The obligation of the Company is to make such fixed contribution and to ensure a minimum rate of return to the members as specified by GoI. Any short fall for payment of interest to members as per specified rate of return has to be compensated by the Company. The Company estimates that no liability will take place in this regard in the near future and hence no further provision is considered necessary.

B. Gratuity

The Company has a defined gratuity scheme and is managed by a separate trust. The provision for the same has been made on actuarial valuation based upon total number of years of service rendered by the employee subject to a maximum amount of Rs.10 lakh.

C. Pension

The Company has a defined contribution pension scheme introduced in line with guidelines of the Department of Public Enterprise (DPE) and is managed by a separate trust. Employer contribution to the fund has been contributed on monthly basis. Pension is payable to the employee of the corporation as per the scheme.

D. Post Retirement Medical Scheme (PRMS)

The Company has Post-Retirement Medical Scheme (PRMS), under which retired employees and their dependent family member are provided with medical facilities in empanelled hospitals. They can also avail reimbursement of out-patient treatment subject to a ceiling fixed by the Company.

E. Terminal Benefits

Terminal benefits include settlement in home town for employees & their dependents.

F. Leave

The Company provides for earned leave benefit and half-pay leave to the credit of the employees, which accrue on half yearly basis @ 15 days and 10 days, respectively. Maximum of 300 days of earned leave can be accumulated during the service of an employee which can be availed or encashed. There is no limit in accumulation of half pay leave during the service. However, at the time of separation / superannuation, half pay leave and earned leave can be encashed subject to limit of 300 days. The liability for the same is recognized, based on actuarial valuation.

The above mentioned schemes (D, E and F) are unfunded and are recognized on the basis of actuarial valuation.

The summarised position of various defined benefits recognized in the statement of profit and loss account, balance sheet are as under {Figures in brackets ( ) represents to as on 31.03.2012}

17.1 The Company has formulated a Corporate Social Responsibility (CSR) policy in line with the guidelines issued by the Ministry of Heavy Industries and Public Enterprises (Department of Public Enterprises) vide Office Memorandum F.No.15(3)/2007 -DPE(GM)-GL-99 dated 09.04.2010.

As per the CSR policy of the Company, a minimum of 0.5% of the consolidated profit after tax of the previous year will be allocated every financial year for CSR Activities, and Company was creating CSR provision for this purpose up to FY 2011-12.

Now, the Expert Advisory Committee of the Institute of Chartered Accountants of India (ICAI) has given opinion that unspent expenditure on CSR activities should not be recognized as provision, but a reserve may be created as an appropriation of profits.

Accordingly, CSR provision of Rs. 16.39 crore (amount unspent as at 01.04.2012) has been reversed to the credit of the statement of profit & loss through prior period account, and CSR reserve of Rs. 18.36 crore has been created as appropriation of profit, the details of which are as under:

17.2 The Company has formulated a Sustainable Development (SD) policy in line with the guidelines issued by the Ministry of Heavy Industries and Public Enterprises (Department of Public Enterprises) vide Office Memorandum No.3(9)/2010 -DPE(MoU) dated 23.09.2011.

As per the SD policy approved by the Company, a minimum of Rs. 50 lakh plus 0.1% of profit after tax (consolidated) exceeding Rs. 100 crore of the previous year will be allocated every financial year for SD Projects/ Activities. The unspent amount of Rs. 0.49 crore has been appropriated from profits as SD reserve.

18. Board of Directors in its meeting held on 09.11.2012 amended the prudential norms of the Company, subject to approval of Ministry of Power, and accorded approval to create provision on standard assets in phases with effect from FY 2012-13 in 3 year period (i.e. 0.0833% p.a.), in order to bring it to 0.25% by 31.03.2015.

Accordingly, the Company has amended the accounting policy to this effect and has made provision of Rs. 132.79 crore for the FY ended 31.03.2013.

If the company had followed the earlier policy, the net profit for the FY ended 31.03.2013 would have been higher by Rs. 132.79 crore (net of taxes).

The approval for the change in prudential norms by the Ministry of Power, Government of India is under process.

19. (i) During the year, the Company has sent letters seeking confirmation of balances as on 31.12.2012 to the borrowers and confirmation from all, except from two borrowers, have been received.

(ii) There are no unpaid / unclaimed bonds, interests on bonds and dividends, which are over 7 years as on 31.03.2013 (previous period Rs. Nil). However, an amount of Rs. 0.56 crore (previous year Rs. 0.47 crore) remaining unpaid pending completion of transfer formalities by the claimants.

20. The Company has no exposure to real estate sector as on 31.03.2013.

21. The Company does not have more than one reportable segment in terms of Accounting Standard 17 on Segment Reporting.

22. Previous year''s figures have been re-grouped / re-arranged, wherever practicable to make them comparable.

23. Figures have been rounded off to the nearest crore of rupees with two decimals.

Notes at Part A (1 to 18), Part B and Part C form an integral part of Balance Sheet and Statement of Profit & Loss.


Mar 31, 2012

1. The Company is a government company engaged in extending financial assistance to power sector.

2. Contingent liabilities:

(i) Default guarantees issued by the Company in foreign currency :

a) EURO Nil million equivalents Rs. Nil crore (as on 31.03.2011 EURO 0.355 million equivalents to Rs. 2.27 crore).

b) US $ 10.94 million equivalent to Rs. 56.40 crore (as on 31.03.2011 US $ 14.34 million equivalent to Rs. 64.75 crore). (ii) Default guarantee issued by the Company in Indian Rupee Rs. 371.93 crore (as on 31.03.2011 Rs. 400.00 crore).

(iii) Bank guarantee issued by the Company in Indian Rupee Rs. 135.32 crore (as on 31.03.2011 Rs. 50.04 crore).

(iv) Additional demands raised by the Income Tax Department of Rs. 2.55 crore, Rs. 4.51 crore, Rs. 0.36 crore, Rs. 9.24 crore, Rs. 7.44 crore, Rs. 4.67 crore and Rs. 11.24 crore for Assessment Years 2000-01, 2001-02, 2002-03, 2005-06, 2007-08, 2008-09 and 2009-10 respectively are being contested. Further, the Income Tax Department has filed appeals before ITAT against the orders of CIT (A) allowing relief of Rs. 22.22 crore, Rs. 21.13 crore and Rs. 21.68 crore for AYs 2004-05 to 2006-07, respectively. The same are being contested. The Management does not consider it necessary to make any provision, as the probability of any tax liability devolving on the Company is negligible.

(v) Claims against the Company not acknowledged as debts are Rs. Nil crore (as on 31.03.2011 Rs. 7.80 crore).

(vi) Outstanding disbursement commitments to the borrowers by way of Letter of Comfort issued against loans sanctioned is Rs. 5,730.38 crore as on 31.03.2012 (as on 31.03.2011 Rs. 5,758.02 crore).

3. Estimated amount of contract remaining to be executed on account of capital contracts, not provided for, is Rs. 0.57 crore (as on 31.03.2011 Rs. 3.70 crore).

4. Additional demands raised by the Income Tax Department (net of relief granted by Appellate Authorities) amounting to Rs. 29.76 crore for Assessment Years 2001-02 to 2009-10 were provided for and are being contested by the Company.

5. The Company creates Debenture Redemption Reserve (DRR) upto 50% of the value of bonds / debentures issued through public issue, during the maturity period of such bonds / debentures.

The Company is not required to create Debenture redemption reserve in case of privately placed debentures as per circular No. 6 / 3 / 2001 – CL.V dated 18.04.2002 of the Government of India, Ministry of Law, Justice Company Affairs, and Department of Company Affairs. .

The Company is not required to maintain reserve fund under section 45 – I C of the Reserve Bank of India Act, 1934 by transferring 20 % of its net profits, as it is exempted by RBI, vide RBI letter dated 24.01.2000.

6 (i) Investment in “Small is Beautiful” Fund: -

The Company has outstanding investment of Rs. 7.83 crore (as on 31.03.2011 Rs. 8.73 crore) in units of Small is Beautiful Fund.The face value of the Fund is Rs. 10 per unit. The NAV as on 31.03.2011 was Rs. 10.08 per unit and as on 31.03.2012 is Rs. 10.33 per unit. As investment in Small is Beautiful Fund is long term investment, the fluctuation in NAV in the current scenario is considered as temporary.

(ii) Investment in equity (unquoted) in Power Exchange India Limited:- Power Exchange India Ltd. (PXIL) has been promoted by National Stock Exchange (NSE) and National Commodity and Derivatives Exchange Limited (NCDEX). The authorized share capital is Rs. 100 crore as on 31.03.2012. The paid up capital of PXIL is Rs. 41.05 crore, as on 31.03.2012. The Company has subscribed Rs. 2.80 crore of the paid up capital of PXIL.

7. Interest Differential Fund (IDF)– KFW

The agreement between KFW and PFC provides that the IDF belongs to the borrowers solely and will be used to cover the exchange risk variations under this loan and any excess will be used in accordance with the agreement. The balance in the IDF fund has been kept under separate account head titled as Interest Differential Fund – KFW and shown as a liability. The total fund accumulated as on 31.03.2012 is Rs. 52.01 crore (as on 31.03.2011 Rs. 49.01 crore), after adjusting the exchange loss of Rs. 0.98 crore (as on 31.03.2011 Rs. 15.74 crore).

8. Subsidy under Accelerated Generation & Supply Programme (AG&SP):

(i) The Company claimed subsidy from Govt. of India at net present value calculated at indicative interest rates in accordance with the GOI's letter vide D.O.No.32024 / 17 / 97 – PFC dated 23.09.1997 and O.M.No.32024 / 23 / 2001 – PFC dated 07.03.2003, irrespective of the actual repayment schedule, moratorium period and duration of repayment. The amount of interest subsidy received and to be passed on to the borrower is retained as Interest Subsidy Fund Account. The impact of difference between the indicative rate and period considered at the time of claims and at the time of actual disbursement can be ascertained only after the end of the respective schemes. However on the basis of the projections made for each project (based upon certain assumptions that these would remain same over the projected period of each loan / project), the Company estimated the net excess amount of Rs. 5.12 crore and Rs. 249.91 crore as at 31.03.2012 for IX and X Plan, respectively under AG&SP schemes, and there is no shortfall. This net excess amount is worked out on overall basis and not on individual basis and may vary due to change in assumptions, if any, during the projected period such as changes in moratorium period, repayment period, loan restructuring, pre-payment, interest rate reset etc. Any excess / shortfall in the interest subsidy fund will be refunded or adjusted / charged off on completion of the respective scheme.

9. Pursuant to the notification GSRNo.914 (E) dated 29.12.2011 issued by the Government of India, Ministry of Corporate Affairs amending Accounting Standard (AS) 11 – The Effects of Changes in Foreign Exchange Rates, the Company has exercised the option under 46A of the amended AS11 and changed the accounting policy to amortize the exchange differences on the long term foreign currency monetary items over the tenure. Consequently, as on 31.03.2012, Rs. 515.41crore has been carried forward in the Foreign Exchange Monetary Item Translation Difference Account

Had the Company followed the earlier practice of accounting of exchange differences, the net profit for the year ended 31.03.2012 would have been lower by Rs. 352.53 crore (net of taxes).

10. (i) The Company has been designated as the Nodal Agency for operationalisation and associated service for implementation of the Re-structured Accelerated Power Development and Reforms Programme (R – APDRP) during XI Plan by the MoP, GoI under it's overall guidance.

Projects under the scheme are being taken up in two parts. Part – A includes the projects for establishment of baseline data and IT applications for energy accounting as well as IT based customer care centers. Part – B includes regular distribution strengthening projects.GoI provides 100% loan for Part A and up to 25% (up to 90% for special category States) loan for Part – B. Balance funds for Part – B projects can be raised by the utilities from PFC / REC / multi-lateral institutions and / or own resources. The loans under Part – A alongwith interest thereon is convertible into grant as per R – APDRP guidelines. Similarly, upto 50% (up to 90% for special category states) of the loan against Part –B project would be convertible in to grant as per R – APDRP guidelines. Enabling activities of the programe are covered under Part – C.

The loans under R – APDRP are routed through the Company for disbursement to the eligible utilities. The amount so disbursed but not converted in to grants as per R – APDRP guidelines will be repaid along with interest to the GoI on receipt from the borrowers.

11. The net deferred tax liabilities of Rs. 87.43 crore (as on 31.03.2011 Rs. 82.97 crore) have been computed as per Accounting Standard 22 Accounting for Taxes on Income.

12. The Company has no outstanding liability towards Micro, Small and Medium enterprises.

13. Leasehold land is not amortized, as it is a perpetual lease.

14. During the period, the Company has made Follow on Public Offer (FPO) through book building process of 22,95,53,340 number of equity shares of Rs. 10/- each. The FPO comprised of fresh issue of 17,21,65,005 equity shares of Rs. 10/- each by the Company and an offer for sale of 5,73,88,335 equity shares of Rs. 10/- each by the President of India acting through the Ministry of Power, Government of India. The equity shares have been priced at Rs. 203.00 per equity share for qualified institutional bidders and non-institutional bidders and at Rs. 192.85 per equity shares (5% of discount on Rs. 203.00) for retail individual bidders and eligible employees. The Company has raised Rs. 3,433.65 crore from issue of fresh shares to the public. Post issue, the holding of Government of India in the paid up equity share capital of the Company has come down from 89.78% to 73.72%.The equity shares offered to the public including equity shares offered for sale by the Government of India have been allotted on 24.05.2011 and have been listed in the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) on 27.05.2011. Accordingly, issued and paid up share capital has increased from Rs. 1,147.77 crore to Rs. 1,319.93 crore and an amount of Rs. 3,241.57 crore (net of issue expenses of Rs. 19.91) has been taken to securities Premium Reserve. The proceeds of the issue (net of issue expenses) have been utilized fully for the purpose mentioned in the offer document.

15. (i) The Company has made a public issue of 4,70,722 number of infrastructure bonds (secured) at the face value of Rs. 5,000/- each aggregating to Rs. 235.36 crore. The bonds have been allotted on 31.03.2011 and have been listed in the Bombay Stock Exchange (BSE) on 11.04.2011. The proceeds of the bond issue have been utilized for the purpose mentioned in the offer document.

(ii) The Company has made a public issue of 1,91,284 number of infrastructure bonds (secured) at the face value of Rs. 5,000/- each aggregating to Rs. 95.64 crore during the current year. The bonds have been allotted on 21.11.2011 and have been listed in the Bombay Stock Exchange (BSE) on 02.12.2011. The proceeds of the bond issue have been utilized for the purpose mentioned in the offer document.

(iii) The Company has made public issue of 4,03,31,300 number of tax free bonds (secured) at the face value of Rs. 1,000 each aggregating to Rs. 4,033.13 crore during the current financial year. The Bonds have been allotted on 01.02.2012 and have been listed in the BSE on 14.02.2012. The proceeds of the bond issue have been utilized for the purpose mentioned in the offer document.

16. Disclosures as per Accounting Standard –15 :- A. Provident fund

The Company pays fixed contribution to provident fund at prescribed rates to a separate trust, which invests the funds in permitted securities. The contribution to the fund for the period is recognized as expense and is charged to the profit and loss account.The obligation of the Company is to make such fixed contribution and to ensure a minimum rate of return to the members as specified by GoI. Any short fall for payment of interest to members as per specified rate of return has to be compensated by the Company. The Company estimates that no liability will take place in this regard in the near future and hence no further provision is considered necessary.

B. Gratuity

The Company has a defined gratuity scheme and is managed by a separate trust. The provision for the same has been made on actuarial valuation based upon total number of years of service rendered by the employee subject to a maximum amount of Rs. 10 lakh.

C. Post Retirement Medical Scheme (PRMS)

The Company has Post-Retirement Medical Scheme (PRMS), under which retired employees and the dependent family member share provided medical facilities in empanelled hospitals.They can also avail of reimbursement of out-patient treatment subject to a ceiling fixed by the Company.

D. Terminal Benefits

Terminal benefits include settlement in home town for employees & their dependents.

E. Leave

The Company provides for earned leave benefit and half-pay leave to the credit of the employees, which accrue on half yearly basis @ 15 days and 10 days, respectively. 75% of the earned leave is encashable while in service and a maximum of 300 days earned leave can be accumulated, which is encashable on superannuation / separation. Half pay leave is encashable on separation after 10 years of service or at the time of superannuation subject to a maximum of 300 days. The liability for the same is recognized, based on actuarial valuation.

The above mentioned schemes (C, D and E) are unfunded and are recognized on the basis of actuarial valuation.

The summarised position of various defined benefits recognized in the profit and loss account, balance sheet are as under {Figures in brackets ( ) represents to as on 31.03.2011}

v) One percent increase / decrease in the inflation rate would impact liability for medical cost of PRMS, as under:-

Cost increase by 1% Rs. 0.09 crore

Cost decrease by 1% Rs. 0.05 crore

vi) During the period, the Company has provided liability towards contribution to the Gratuity Trust of Rs. 0.64 crore, to PRMS of Rs. 1.50 crore, to leave Rs. 3.34 crore and to pension Rs. 2.54 crore (during the FY ended 31.03.2011 towards contribution to the Gratuity Trust of Rs. 1.79 crore, to PRMS of Rs. 0.92 crore, to leave Rs. 3.34 crore and to pension Rs. 2.28 crore).

F. Other Employee Benefits:-

During the period, provision of Rs. (0.01) crore (during the FY ended 31.03.2011 Rs. (0.03) crore) has been made for Economic Rehabilitation Scheme for Employees and provision of Rs. 0.58 crores has been made for Long Service Award for Employees (during the FY ended 31.03.2011 Rs. 0.65 crore) on the basis of actuarial valuation made at the end of the year by charging/ crediting the profit and loss account.

17. The Company has formulated a Corporate Social Responsibility (CSR) policy in line with the Guidelines on Corporate Social Responsibility for Central Public Sector Enterprises issued by the Ministry of Heavy Industries and Public Enterprises (Department of Public Enterprises) vide Office Memorandum F.No.15(3)/2007 -DPE(GM)-GL-99 dated 09.04.2010.

As per the CSR policy approved by the Company, a minimum of 0.5% of the profit after tax of the previous year will be allocated every financial year for CSR Activities. Accordingly, an amount of Rs. 13.24 crore was provided for during the year ended 31.03.2012 (previous year Rs. 11.89 crore).

As at 31.03.2012, an amount of Rs. 32.22 crore has been sanctioned by the Company against CSR expenditure for various projects out of which an amount of Rs. 21.33 crore has been disbursed till 31.03.2012.

18. The Company has been paying income tax on perquisite to employees in earlier years and till current year. Pursuant to a decision by the Company, the income tax paid for the current year only has been recovered from the employees.

19. (i) Income on account of premium on premature repayment of loan, Income under the head, upfront fees, lead manager fees, facility agent fees, security agent fee and service charges etc. on loans was earlier accounted for in the year in which it was received by the Company. The Company has changed the accounting policy of recognition of all such income from cash basis to accrual basis in the financial year 2011-12.

Due to change in the accounting policy this year, the income on account of the above for the year is higher by Rs. 0.23 crore. ( Rs. 0.23 crore relates to the year 2010-11 and received in 2011-12)

(ii) Accounting policy under para 6 regarding Provision has been realigned to prudential norms / interpretation of prudential norms of the Company. Since the amendment is realignment / clarificatory in nature, there is no financial impact.

20. (i) During the year, the Company has sent letters seeking confirmation of balances as on 31.12.2011 to the borrowers.

However, confirmations in a few cases were yet to be received.

(ii) Some of the designated bank accounts opened for making interest payment to bondholders / debenture holders have outstanding balance of Rs. 0.47 crore are subject to reconciliation / confirmation.

(iii) There are no unpaid / unclaimed bonds, interests on bonds and dividends, which are over 7 years as on 31.03.2012 (previous year Rs. Nil).

21. The Company has no exposure to real estate sector as on 31.03.2012.

22. The Company does not have more than one reportable segment in terms of Accounting Standard No. 17 on Segment Reporting.

23. Previous year's figures have been re-grouped / re-arranged, wherever practicable to make them comparable.

24. Figures have been rounded off to the nearest crore of rupees with two decimals.

Notes at Part A (A 1 to A 18), Part B and Part C form an integral part of Balance Sheet and Statement of Profit & Loss.


Mar 31, 2011

1. The Company is a government company engaged in extending financial assistance to power sector.

2. Contingent liabilities:

(i) Default guarantees issued by the Company in foreign currency :

a) EURO 0.355 million equivalents to Rs. 2.27 crore (previous year EURO 0.710 million equivalents to Rs. 4.35 crore).

b) US $ 14.34 million equivalent to Rs. 64.75 crore (previous year US $ 17.745 million equivalent to Rs. 80.88 crore).

(ii) Default guarantee issued by the Company in Indian Rupee: Rs. 400 crore (previous year Rs. 400.00 crore).

(iii) Bank guarantee issued by the Company in Indian Rupee: Rs. 50.04 crore (previous year Rs 0.04 crore).

(iv) The additional demand raised by Income Tax Department of Rs. 9.24 crore, Rs 0.57crore , Rs. 0.03 crore and Rs. 4.48 crore. for Assessment Years 2005-06, 2006-07, 2007-08 and 2008-09 respectively are being contested. The management does not consider it necessary to make any provision, as the probability of outfl ow of resources is negligible.

(v) Claims against the Company not acknowledged as debts are Rs. 7.80 crore (previous year Rs. 7.80 crore).

(vi) Outstanding disbursement commitments to the borrowers by way of Letter of Comfort issued against loans sanctioned, Rs. 5,758.02 crore as at 31.03.2011 (previous year Rs. 3,414.21 crore).

3. Estimated amount of contract remaining to be executed on account of capital contracts, not provided for, is Rs. 3.70 crore (previous year Rs. 4.26 crore).

4. Additional demands raised by the Income Tax Department (net of relief granted by Appellate Authorities) amounting to Rs. 22.58 crore for Assessment Year 2001-02 to 2008-09 were paid, provided for and are being contested.

5. A project under implementation having principal outstanding of Rs. 700.00 crore (previous year Rs. 325.00 crore) has been considered as standard asset in terms of RBI circular No. DBS.FID.No.C – 11 / 01.02.00 / 2001-02 dated 01.02.2002 read with D.O. letter DBS.FID No.1285 / 01.02.00 / 2001-02 dated 14.05.2002 (thereby treating the asset as standard till June, 2008), RBI letter no. DBOD, BP.No.7675 / 21.04.048 / 2008-09 dated 11.11.2008 (which inter-alia advised that the date of commencement of commercial operation (DCCO) be treated as 31.03.2009), RBI circular no. DBOD. BP. BC. 85 / 21.04.048 / 2009 -10 dated 31.03.2010 and RBI letter no. DBOD. No. BP. No. 11505 / 21.04.048 / 2010-11 dated- 21.01.2011. (which inter-alia enables that the said asset can be retained as standard asset, if the DCCO is re-fixed within the period of 3 years from the commercial operation of 31.03.2009 provided the change in DCCO is due to reasons beyond control of the promoter and subject to compliance of certain provisions).

Accordingly, in terms of the RBI circular no. DBOD. No. BP. BC. 85 / 21.04.048 / 2009 -10 dated 31.03.2010, the Company has made a provision of Rs. 2.80 crore at the rate of 0.40% of the outstanding amount of Rs. 700 crore during the year. However, the Company recognizes interest on this loan on receipt basis in terms of the accounting policy and as per prudential norms approved by the MoP.

The Company has approved and finalized amendments to the Financial Realignment Plan (FRP).As per FRP, the Project Company is to issue Zero Coupon Bonds (ZCB) (towards interest outstanding for the period from 01.10.2001 to 31.10.2005) valuing Rs. 103.87 crore. During the FY 2010-11, an amount of Rs. 120.81 crore ( including the dues of previous year of Rs. 23.12 crore and the guarantee fee of Rs. 4.60 crore for the current year) became due on the loan as per FRP, out of which Rs. 74.74 crore were received and accounted for as per the accounting policy. The balance of Rs. 46.07 crore being interest and guarantee fee due up to 31.03.2011 and Rs.103.87 crore against ZCB have not been recognized, as per the accounting policy.

6. During the year, one borrower had made premature repayment of loan of Rs. 497.92 crore with payment of Rs. 10.99 crore towards prepayment premium. As per the terms and conditions of the loans / prepayment policy of the company, the demand for balance prepayment premium of Rs. 10.79 crores was sent to the borrower, which they have disputed and have not paid. Hence the same has not been accounted for.

7. Interest Subsidy of Rs. 17.65 crore under Accelerated Generation & Supply Programme (AG&SP) along with interest upto 31st March, 2011 amounting to Rs.26.78 crore (previous year Rs. 24.67 crore), became recoverable in respect of one project, as the project was not completed till 31.03.2007 and the subsidy was withdrawn by the MoP. The amount of Rs. 26.78 crore (previous year Rs.24.67 crore) is payable to the MoP on receipt from the borrower.

8. The company creates Debenture Redemption Reserve (DRR) upto 50% of the value of bonds / debentures issued through public issue, during the maturity period of such bonds / debentures. Accordingly, during the year the company has created DRR amounting to Rs. 0.06 crore (previous year Nil) on account of public issue of long term infrastructure bonds.

The Company is not required to create Debenture redemption reserve in case of privately placed debentures as per circular No. 6 / 3 / 2001 – CL.V dated 18.04.2002 of the Government of India, Ministry of Law, Justice Company Affairs, Department of Company Affairs.

The Company is not required to maintain reserve fund under section 45 – I C of the Reserve Bank of India Act, 1934 by transferring 20 percent of its net Profits, as it is exempted by RBI, vide RBI letter dated 24.01.2000.

9.1 Related party disclosures: Key managerial personnel:

Name of the key managerial personnel

Shri Satnam Singh, CMD (with effect from 01.08.2008)

Shri M K Goel, Director (with effect from 27.07.2007)

Shri Rajeev Sharma, Director (with effect from 09.03.2009)

Shri R. Nagarajan, Director (with effect from 31.07.2009)

Subsidiary company

Shri N D Tyagi, CEO of PFC Consulting Limited.

Joint Ventures entities

Shri R. S. Sharma, Chairman of Energy efficiency Services Limited

Shri I. J. Kapoor, Chairman of National Power Exchange Limited

9.2 Power Finance Corporation Green Energy Ltd. (PFCGEL) has been incorporated as a wholly owned subsidiary of the Company to extend finance and financial services to promote green (renewable and non-conventional sources of) energy with authorized share capital of Rs. 1200.00 crores and subscribed share capital of Rs. 0.05 crores. The certificate of commencement of business is awaited. The subsidiary's financial statement is not consolidated, as the first financial year of the subsidiary has been decided by its Board of directors to be for the period from 30.03.2011 to 31.03.2012.

9.3 (i) Investment in "Small is Beautiful" Fund: -

The Company has outstanding investment of Rs. 8.73 crore (previous year Rs. 12.08 crore) in units of Small is Beautiful Fund. The face value of the Fund is Rs. 10 per unit. The NAV as on 31.03.2010 was Rs. 9.80 per unit and as on 31.03.2011 is Rs. 10.08 per unit. As investment in Small is Beautiful Fund is long term investment, the fl uctuation in NAV in the current scenario is considered as temporary. (ii) Investment in equity (unquoted) in Power Exchange India Limited:- Power Exchange India Ltd. (PXIL) has been promoted by National Stock Exchange (NSE) and National Commodity and Derivatives Exchange Limited (NCDEX). The authorized capital has been enhanced from Rs. 50 crore to Rs. 100 crore in September 2010. The paid up capital of PXIL is Rs. 40.00 crore, as on 31.03.2011. The Company has subscribed Rs. 1.75 crore of the paid up capital of PXIL.

10. Interest Differential Fund (IDF) – KFW

The agreement between KFW and PFC provides that the IDF belongs to the borrowers solely and will be used to cover the exchange risk variations under this loan and any excess will be used in accordance with the agreement. The balance in the IDF fund has been kept under separate account head titled as Interest Differential Fund – KFW and shown as a liability. The total fund accumulated as on 31.03.2011 is Rs. 49.01 crore (previous year Rs. 47.60 crore) after adjusting the translation loss of Rs. 15.74 crore (previous year Rs. 13.73 crore).

11. The Company borrows money in foreign currency to finance power projects. In the opinion of the Company, AS 16 – Borrowing costs is applicable where funds are borrowed for acquisition of qualifying asset. The Company does not have any qualifying asset as per AS 16 and hence the foreign exchange gain / loss have been recognized in the Profit & Loss A/c as per AS 11 – The Effects of Changes in Foreign Exchange Rates.

(ii) The company enters into derivative contracts for mitigating exchange rate risk in foreign currency liabilities and interest rate risk in foreign currency and rupee liabilities. Paragraphs 36 and 39 of the AS 11 states that in respect of forward exchange contracts not intended for trading or speculative purpose, the forward premium / discount be amortised over the life of such contracts and the forward exchange contracts intended for trading or speculative purpose be marked to market. The derivatives entered into by the company are in the nature of hedging and not in the nature of speculative or trading. The derivatives in the nature of forwards are dealt with in accordance with AS 11.

The Institute of Chartered Accountants of India (ICAI) had issued an announcement dated 29th March, 2008 regarding accounting for derivatives which gives companies an option either to account for losses, if any, on derivatives based on mark to market valuation or to adopt the principles enunciated in the Accounting Standard (AS) 30 on 'Financial Instruments: Recognition and Measurements'. The Company has not adopted AS 30, nor accounted for mark to market losses for other derivatives outstanding as at 31st March 2011, as the ICAI, vide their announcement dated 11th February 2011, have stated, inter-alia, that AS - 30 is not presently mandatory and that it is not expected to continue in its present form, and hence the announcement prior to the date of 11th February, 2011, in the management's view, does not hold good.

ii) The Company had sanctioned an amount of Rs. 88.90 crore in the year 2004 as finance lease for financing wind turbine generator (commissioned on 19.07.2004) which was reduced to Rs. 88.85 crore in December 2006. The gross investment stood at the level of Rs. 46.01 crore as on 31.03.2011. The lease rent is to be recovered within a period of 15 Years, starting from 19.07.2004, which comprises of 10 years as a primary period and 5 years as a secondary period.

(iii) The Company had sanctioned an amount of Rs. 98.44 crore in the year 2004 as finance lease for financing wind turbine generator (commissioned on 18.5.2004). The gross investment stood at Rs. 48.33 crore as on 31.03.2011. The lease rent is to be recovered within a period of 20 years, starting from 18.05.2004, which comprises of 10 years as a primary period and maximum of another 10 years as a secondary period.

(iv) The Company had sanctioned an amount of Rs.93.51 crore in the year 2004 as finance lease for financing wind turbine generator (commissioned on 09.06.2005). The gross investment stood at Rs. 65.60 crore as on 31.03.2011. The lease rent is to be recovered within a period of 19 years 11 months, starting from 09.06.2005, which comprises of 10 years as a primary period and maximum of 9 years and 11 months as a secondary period.

(v) The Company had sanctioned an amount of Rs.228.94 crore in the year 2008 as finance lease for financing wind turbine generator. The gross investment stood at Rs. 381.25 crore as on 31.03.2011. The lease rent is to be recovered within a period of 20 years, starting from 31.10.2010, which comprises of 12 years as a primary period and maximum of 8 years as a secondary period.

b) Operating Lease:

The Company's operating leases consists:- Premises for offices and for residential use of employees are lease arrangements, and are usually renewable on mutually agreed terms, and are cancellable. Rent for residential accommodation of employees include Rs. 6.89 crore (previous year Rs. 4.06 crore) towards lease payments, net of recoveries in respect of premises for residential use of employees. Lease payments in respect of premises for employees are shown as rent for residential accommodation of employees in Schedule 14 – Personnel, Administration and Other Expenses. Lease payments in respect of premises for offices are shown as office rent in Schedule 14 – Personnel, Administration and Other Expenses.

12. Subsidy under Accelerated Generation & Supply Programme (AG&SP):

(i) The Company claims subsidy from Govt. of India at net present value calculated at indicative interest rates in accordance with the GOI's letter vide D.O.No.32024 / 17 / 97 – PFC dated 23.09.1997 and O.M.No.32024 / 23 / 2001 – PFC dated 07.03.2003, irrespective of the actual repayment schedule, moratorium period and duration of repayment. The amount of interest subsidy received and to be passed on to the borrower is retained as Interest Subsidy Fund Account. The impact of difference between the indicative rate and period considered at the time of claims and at the time of actual disbursement can be ascertained only after the end of the respective schemes. However on the basis of the projections made for each project (based upon certain assumptions that these would remain same over the projected period of each loan / project), the Company estimated the net excess amount of Rs. 35.31 crore and Rs. 229.43 crore (excluding an amount of Rs. 17.65 crore recoverable from Irrigation Department of Government of Maharashtra) as at 31.03.2011 for IX and X plan respectively under AG&SP schemes and there is no shortfall. This net excess amount is worked out on overall basis and not on individual basis and may vary due to change in assumptions, if any, during the projected period such as changes in moratorium period, repayment period, loan restructuring, pre payment, interest rate reset etc. Any excess / shortfall in the interest subsidy fund will be refunded or adjusted / charged off at the completion of the respective scheme.

13. (i) The Company has been designated as the Nodal Agency for operationalisation and associated service for implementation of the Re-structured Accelerated Power Development and Reforms Programme (R – APDRP) during XI plan by the MoP, GoI under it's overall guidance.

Projects under the scheme are being taken up in two parts. Part – A includes the projects for establishment of baseline data and IT applications for energy accounting as well as IT based customer care centers. Part – B includes regular distribution strengthening projects. GoI provides 100% loan for Part A and up to 25% (up to 90% for special category States) loan for Part – B. Balance funds for Part – B projects can be raised by the utilities from PFC / REC / multi-lateral institutions and / or own resources. The loans under Part – A alongwith interest thereon is convertible into grant as per R – APDRP guidelines. Similarly, upto 50% (up to 90% for special category states) of the loan against Part –B project would be convertible in to grant as per R – APDRP guidelines. Enabling activities of the programe is covered under Part – C.

The loans under R – APDRP are routed through the Company for disbursement to the eligible utilities. The amount so disbursed but not converted in to grants as per R – APDRP guidelines will be repaid along with interest to the GoI on receipt from the borrowers.

ii) Pending finalization of norms for payment of nodal agency fee, etc. the accounting policy therefore was held in abeyance in 2009-10 and fee etc. had not been accounted for in 2009-10. On finalization of norms by MoP, GoI, vide office Memorandum No. 14 / 03 / 2008 – APDRP dated 20th August, 2010, the Company has recognised in the books of accounts, during the year ended 31.03.2011, nodal agency fee income Rs. 89.62 crore (previous year NIL) in respect of sanctions and disbursements done in 2008-09, 2009-10 and 2010-11.

(iii) During the year ended 31.03.2011, the Company has recognized Rs. 39.20 crore as amount reimbursed / reimbursable from the Ministry of Power, Govt. of India, towards the actual expenditure incurred in FY 2008-09, 2009-10 and in 2010-11 on various activities for operationalising the programme.

14. The net deferred tax liabilities of Rs. 82.97 crore (previous year Rs. 46.95 crore) have been computed as per Accounting Standard 22 Accounting for Taxes on Income.

15. The Company has no outstanding liability towards Micro, Small and Medium enterprises.

16. The value of lease hold land aggregating to Rs. 37.87 crore (previous year Rs. 38.33 crore) comprises of Rs. 31.83 crore (previous year Rs. 31.83 crore) paid towards cost of land to Land and Development office (L&DO), Ministry of Urban Affairs, Govt. of India, stamp duty of Rs. 2.01 crore (previous year Rs.2.47 crore) and capitalization of ground rent of Rs.4.03 crore (previous year Rs. 4.03 crore) up to the date of completion of building. The Land and Development office have executed the perpetual lease deed on 23.03.2011. The registration of the perpetual lease deed is under process.

Leasehold land is not amortized, as it is a perpetual lease.

17. Disclosures as per Accounting Standard –15 :-

A. PROVIDENT FUND

The Company pays fixed contribution to provident fund at prescribed rates to a separate trust, which invests the funds in permitted securities. The contribution to the fund for the period is recognized as expense and is charged to the Profit and loss account. The obligation of the Company is to make such fixed contribution and to ensure a minimum rate of return to the members as specified by GoI. Any short fall for payment of interest to members as per specified rate of return has to be compensated by the Company. The Company estimates that no liability will take place in this regard in the near future and hence no further provision is considered necessary.

B. GRATUITY

The Company has a defined gratuity scheme and is managed by a separate trust. The provision for the same has been made on actuarial valuation based upon total number of years of service rendered by the employee subject to a maximum amount of Rs.10 lakh.

C. POST RETIREMENT MEDICAL SCHEME (PRMS)

The Company has Post-Retirement Medical Scheme (PRMS), under which retired employees and the dependent family members are provided medical facilities in empanelled hospitals. They can also avail of reimbursement of out-patient treatment subject to a ceiling fixed by the Company.

D. TERMINAL BENEFITS

Terminal benefits include settlement in home town for employees & their dependents.

E. LEAVE

The Company provides for earned leave benefit and half-pay leave to the credit of the employees, which accrue on half yearly basis @ 15 days and 10 days, respectively. 75% of the earned leave is encashable while in service and a maximum of 300 days earned leave can be accumulated, which is encashable on superannuation / separation. Half pay leave is encashable on separation after 10 years of service or at the time of superannuation subject to a maximum of 300 days. The liability for the same is recognized, based on actuarial valuation.

The above mentioned schemes (C, D and E) are unfunded and are recognized on the basis of actuarial valuation.

The summarised position of various defined benefits recognized in the Profit and loss account, balance sheet are as under {Figures in brackets ( ) represents to previous year}

v) One percent increase / decrease in the Inflation rate would impact liability for medical cost of PRMS, as under:-

Cost increase by 1% Rs. 0.14 crore

Cost decrease by 1% Rs. 0.11 crore

vi) During the year, the Company has provided liability towards contribution to the Gratuity Trust of Rs. 1.79 crore, to PRMS of Rs. 0.92 crore, to leave Rs. 3.34 crore and to pension Rs. 2.28 crore. (previous year towards contribution to the Gratuity Trust of Rs.2.76 crore, to PRMS of Rs.3.09 crore, to leave Rs.7.36 crore and to pension Rs.1.78 crore).

E. OTHER EMPLOYEE BENEFITS:-

During the year, provision of Rs. - 0.03 crore (previous Year Rs. 0.04 crore) has been made for Economic Rehabilitation Scheme for Employees and provision of Rs. 0.65 crores has been made for Long Service Award for Employees (Previous year Rs. 0.01 crore reversed) on the basis of actuarial valuation made at the year end by charging / crediting the Profit and loss account.

18. (i) During the year, the Company has sent letters seeking confi rmation of balances as on 31.12.2010 to the borrowers. However, confi rmations in few cases were yet to be received.

(ii) Some of the designated bank accounts opened for making interest payment to bondholders / debenture holders have outstanding balance of Rs. 0.50 crore are subject to reconciliation / confirmation.

Reserve for bad and doubtful debts u/s 36 (i) (viia) (c) of Income Tax Act, 1961 is considered as part of Tier II Capital, as advised by RBI, vide their letter No. DNBS.CO.PD.No. 6774 / 03-10-01 / 2009 – 10 dated 17.06.2010.

19. The Company has no exposure to real estate sector as on 31.03.2011.

20. The Company does not have more than one reportable segment in terms of Accounting Standard No. 17 on Segment Reporting.

21. Previous year's figures have been re-grouped / re-arranged, wherever practicable, to make them comparable with the current period.

22. Figures have been rounded off to the nearest crore of rupees with two decimals.

23. Balance Sheet abstract and Company's General Business profile as per Part IV of Schedule VI of the Companies Act, 1956 is enclosed as Appendix.


Mar 31, 2010

1. Contingent liabilities: (i) Default Guarantees issued by the Company in foreign currency :

a) EURO 0.710 million equivalents to Rs. 4.35 crore (previous year EURO 1.066 million equivalent to Rs. 7.29 crore).

b) US$ 17.745 million equivalent to Rs. 80.88 crore (previous year US$ 21.145 million equivalent to Rs. 108.79 crore).

(ii) Default Guarantee issued by the Company in Indian Rupee: Rs. 400.00 crore, (previous year Rs. 400.00 crore).

(iii) Bank Guarantee issued by the Company in Indian Rupee: Rs. 0.04.crore, (previous year Rs. 0.04 crore).

(iv) Outstanding disbursement commitments to the borrowers for Letter of Comforts issued against the loans sanctioned Rs. 3414.21 crore (Previous year Rs. 394.88 crore).

(v) (a) The additional demand raised by Income Tax Department of Rs. 44.23 crore and Rs. 1.38 crore for Assessment Year 2006-07 & 2007-08, respectively were paid and are being contested. The management does not consider it necessary to make any provision as the probability of outflow of resources is negligible.

(b) CIT(A) has granted refund of Rs. 2.97 crore for Assessment Year 1996-97 and Rs. 0.73 crore for Assessment Year 2001-02 against which the Income Tax department has filed appeals before ITAT and are pending, as Income tax department has not yet received permission of the Committee of Disputes (COD).

(c) The Income tax department has filed appeals before Delhi High Court against its own order and the order of ITAT granting refund of Rs. 0.36 crore & Rs. 0.31 crore for Assessment Year 2001-02 & 2002-03. The Income tax department. has not yet obtained the CODs permission.

(vi) Claim not acknowledged as debts are Rs. 7.80 crore (previous year Rs. 7.80 crore).

(vii) Estimated amounts of contracts remaining to be executed on account of capital contracts is Rs. 4.26 crores (Previous Year Rs. Nil).

2. The additional demands raised by Income Tax Department (net of relief granted by Appellate Authorities) of Rs. 0.26 crore for Assessment Year 1996-97, Rs. 3.22 crore for Assessment Year 2000-01, Rs. 5.34 crore for Assessment Year 2001-02, Rs. 4.74 crore for Assessment Year 2002-03, Rs. 4.24crore for Assessment Year 2003-04, Rs. 3.21 crore for Assessment Year 2004-05 and Rs. 23.64 crore for Assessment Year 2005-06 were paid and provided for and are being contested.

3. The Government of India, Ministry of Power, under section 58(4) of the Madhya Pradesh Reorganization Act, 2000 (MPRA) issued an order No 42/8/2000-R&R dated 12.04.2001 through which assets, transfer rights, liabilities, undertaking etc, of erstwhile Madhya Pradesh Electricity Board (MPEB) were passed on to the successor boards namely MPSEB and CSEB after bifurcation of state of Madhya Pradesh. Subsequently, the GOI, Ministry of Power through the Gazette of India Extraordinary-MoP, New Delhi notification dated 04.11.2004 had decided to divide the liability and assets of erstwhile MPEB into MPSEB & CSEB in the ratio of fixed assets of 90:10 respectively. Consequent upon this, CSEB has informed that though it has been clearing the dues of the Company based on the acquired liability of erstwhile MPEB at Rs.110.64 crore, it has requested the Company to align the dues in line with MoP order to Rs. 105.23 crore. Nevertheless, the Company will receive the full amount of principal payment either from CSEB or MPSEB. Further, PFC has taken up the matter with MoP and has requested MoP to review and revise the order on a plea that PFCs loans are project specific and the amount disbursed actually goes into the creation of the assets on such projects are not to be allocated in the manner as suggested by MoP in the new order. The decision of MoP is awaited.

4. (i) A project under implementation having principal outstanding of Rs 325.00 crores (previous year Rs. 297.98 crore) has been considered as Standard Asset in terms of RBI Circular No. DBS.FID.No.C-11/01.02.00/ 2001-02 dated 1.02.2002 read with D.O. letter DBS.FID No.1285/ 01.02.00/2001-02 dated 14.05.2002 thereby treating the asset as standard till June, 2008, and RBI vide letter no. DBOD, BP.No.7675/ 21.04.048/ 2008-09 dated 11.11.2008 which advised that the date of commencement of commercial operation should be 31.03.2009 (instead of the deemed date of completion of the project i.e. June 2006 as fixed by an independent group setup by RBI), as decided at the time of actual financial closure of the project in September 2006. Based on above, read with RBI Master Circular DBOD No. BP. BC.3 / 21.04.141/ 2009-10 dated 01.07.2009, the asset may be treated as standard asset not exceeding two years from the date of completion of the project (i.e. 2 years from 31.3.2009). However, the company recognizes the interest on this loan on receipt basis in terms of the Accounting Policy and as per prudential norms approved by Ministry of Power.

Further, the Company has approved and finalized the amendments to the Financial Realignment Plan (FRP), inter-alia, determining the scheduled project Commercial Operation Date (COD) as 01.01.2011. Financial Realignment Plan (FRP) has been accepted by the Project Management and is under implementation.

As per FRP, the Project Company will issue Zero Coupon Bonds (ZCB) (towards interest outstanding for the period from 01.10.2001 to 31.10.2005) valuing Rs. 103.87 crore (excluding waiver of interest, penal interest etc. amounting to Rs. 8.64 crore). During the year, the amount of Rs. 54.93 crores (including the dues of previous year of Rs. 8.72 crore and the guarantee fee for current year of Rs. 4.64 crores) became due on the loan as per FRP, out of which Rs. 31.81 crores were received and accounted for as per accounting policy. The balance of Rs. 23.12 crores being interest and other charges due as on 31.03.2010 and Rs. 103.87 crore against ZCB have not been recognized as per accounting policy.

(ii) One gas based power project, having Principal outstanding of Rs. 401.96 crore could not be commissioned on the scheduled commissioning date (September 2006) due to non availability of gas. Resultantly the company made an intermim reschedulement of the loan account on 07.03.2007, followed by final reshedulement on 03.12.2007 in line with the reshedulement done by lead bank as per which replyment of the principal was to commence from 15.10.2009. As the bottleneck of the non availability of gas continued, the lead Bank again restructured/rescheduled the loan account (in line with the lenders meetings dated 12.02.2009) and classified it as standard asset under special regulatory treatment, in accordance with RBI circular DBOD No. BP.BC.84/21.04.048/2008-09 dated 14.11.2008. The company being one of the consortium member of the lenders also resheduled the loan account on 11.05.2009 and accordingly classified as Standard Asset.

5. During the year, two borrowers had made premature repayment of their loan without prepayment premium including service tax amounting to Rs. 6.75 crores. As per the terms and condition of loan / policy, the demand for prepayment premium has been sent to the borrowers, which they have disputed and not paid so far and thus has not been accounted for. One borrower has made part pre mature repayment of Rs. 131.21 crores (principal- Rs. 125 crores and pre payment premium / interest etc. Rs. 6.21 crores). As per the terms of Loan Agreement, the pre-mature repayment can be made only on the interest payment due date. Since the payment is made before the interest payment date, the Company demanded interest upto interest due date. This is disputed by the borrower. Hence the same has not been accounted for.

6. (i)Assets of Rs. 14.38 crore (Previous year Rs. 15.43 crore) were classified as Non Performing Assets in terms of prudential norms of the Company. Accordingly, a provision of Rs. 8.14 crore is held in the accounts (previous year Rs. 8.97 crore). (ii) Interest Subsidy under AG&SP (including interest upto 31st March, 2010) amounting to Rs. 24.67 crores (previous year Rs. 98.90 crores), became recoverable in respect of one project (previous year two projects) and is yet to be recovered. It became recoverable, as the project was not completed till 31.03.2007 and the subsidy was withdrawn by Ministry of Power. The interest subsidy of Rs. 24.67 crore (previous year Rs. 95.71 crore) is payable to the Ministry of Power and will be paid on its receipt.

7. The Company discontinued interest rate restructuring policy w.e.f. December 2005. However, the loans which were restructured with 3 year reset (after 3 years the loan shall carry original interest rate i.e. the rate before interest restructuring). The borrower was given option to seek further restructuring after 3 years on payment of 50% premium being NPV of difference between original interest rate and Current interest rate for the entire remaining period of Loan. Accordingly the Company has done interest restructuring amounting to Rs. Nil (previous year Rs. 703.35 crore). An amount of Rs. Nil (previous year Rs. 8.95 crore) has been received and credited to Profit and Loss Account as Interest Restructuring Premium (Refer schedule 10).

8. The Company is not required to create Bond Redemption Reserve in respect of bonds by virtue of the Department of Company Affairs Circular of 18.04.2002 according to which the financial institutions within the meaning of Section 4A of the Companies Act 1956 were not required to create Bond Redemption Reserve in case of privately placed debentures.The Company is not required to maintain Reserve Fund under Section 45-IC of the Reserve Bank of India Act, 1934 by transferring 20 percent of its net profits, as it is exempted by RBI vide its letter dated 24.01.2000.

9.1 Related Party Disclosures: Key Managerial Personnel:

Name of the Key Managerial Personnel

Shri Satnam Singh, CMD (w.e.f. 01.08.2008)

Shri M K Goel, Director (w.e.f. 27.07.2007)

Shri Rajeev Sharma, Director (w.e.f. 09.03.2009)

Shri R. Nagarajan, Director (w.e.f. 31.07.2009)

10.The Company has made investments in equity (unquoted) of - “National Power Exchange Limited” and “Energy Efficiency Services Ltd”.

National Power Exchange Limited (NPEL)

PFC, NTPC, NHPC and TCS have jointly promoted ‘National Power Exchange Limited. The National Power Exchange Ltd (NPEL) will carry out the business of providing platform for trading of power through an organized exchange. The Company has since made the investment of Rs 0.83 crore upto 31st March 2010. NPEL has not commenced its operation.

Energy Efficiency Services Limited (EESL)

Energy Efficiency Services Limited has been jointly promoted by NTPC, PFC, PGCIL and REC with equal participation in equity capital for implementing Energy Efficiency Projects. At the time of incorporation, the authorized equity capital of EESL was Rs.10 crores and paid up equity capital was Rs.2.50 crores. The companys share in paid up equity capital was Rs. 0.63 crore (25% of paid up capital) comprising of 625,000 equity shares of Rs. 10 each. The authorized share capital of EESL has been enhanced to Rs. 190 crore during the Financial Year ended 31-03-2010. EESL has commenced its operations.

10.1(i) Investment in “Small is Beautiful” Fund: -

The Company had outstanding investment Rs. 12.08 crore (previous year Rs.14.47 crore) in units of “Small is Beautiful” Fund. Against this, a sum of Rs. 0.145 crore has been received as dividend during the year. The NAV of the Units of the Fund was Rs. 9.80 per unit of Rs. 10 (face value) as on 31.03.2010. The diminution/ increase (-) in value of NAV amounting to Rs. -1.08 crore (Previous year Rs. 1.32 crore) has been accounted for during the year.

(ii) Investment in equity (unquoted) in Power Exchange India Limited (PXI)

Power Exchange India Ltd. has been promoted by NSE and NCDEX. The authorized capital has been enhanced from Rs. 25 crore to Rs. 50 crore during the financial year ending 31.03.2010. The paid up capital of PXI was Rs. 34.34 crores, as on 31.03.2010. The Company has subscribed Rs. 1.75 crore of the paid up capital consisting of 17,50,000 equity shares of Rs. 10 each into the equity capital of PXI. PXI has commenced its operations.

11. Interest Differential Fund (IDF) – KFW

The agreement between KFW and PFC provides that the IDF belongs to the borrowers solely and will be used to cover the exchange risk variations under this Loan and any excess will be used in accordance with the agreement. The balance in the IDF fund has been kept under separate account head titled as Interest Differential Fund-KFW and shown as a liability. The total fund accumulated as on 31.03.2010 is Rs. 47.60 crore (previous year Rs. 34.19 crore) after adjusting the translation loss of Rs. 13.73 crore (previous year Rs. 24.12 crore).

12. During the current year, exchange gain (net) of Rs. 103.84 crore (previous year exchange loss of Rs. 252.53. crore) on foreign currency assets and liabilities comprising of translation gain of Rs. 92.51 crore (previous year translation loss of Rs. 235.66 crores) and actual gain of Rs. 11.33 crore (previous year actual loss of Rs. 16.87 crores) has been recognised in Profit & Loss account as per Accounting Standard 11.

13. The company was having outstanding forward foreign exchange contracts and principal only swaps (POS) against the Foreign Currency Loan liabilities as per details given hereunder:- i) Forward contracts to cover exchange rate risk in USD/INR leg. : US$ 13.9795 million

ii) Forward contracts to cover exchange rate risk in USD/JPY leg. : 1JPY 454 million

iii) Forward contracts to cover EURO/USD leg. : Euro 0.9662 million

14. (a) Asset under finance lease after 01.04.2001

(i) The Gross investment in the leased assets and the present value of the minimum value receivable at the balance sheet date has been given in the table below with the description as total of future minimum lease payments and present value of the lease payments amounting to Rs. 205.01 crore and Rs. 160.63 crore respectively. The reconciliation of these figures has also been indicated under the head “unearned finance charges” with an amount of Rs. 44.38 crore.

The future lease rentals are given below:-

(ii) The Company had sanctioned an amount of Rs. 88.90 crore in the year 2004 as finance lease for financing Wind Turbine Generator (commissioned on 19.07.2004) which was reduced to Rs. 88.85 crore in December 2006. The Gross Investment stood at the level of Rs. 59.95 crore as on 31.3.2010. The lease rent is to be recovered within a period of 15 Years, which comprises of 10 years as a primary period and 5 years as a secondary period.

(iii) The Company had sanctioned an amount of Rs. 98.44 crore in the year 2004 as finance lease for financing Wind Turbine Generator (commissioned on 18.5.2004). The Gross Investment stood at Rs. 63.79 crore as on 31.3.2010. The lease rent is to be recovered within a period of 20 years, which comprises of 10 years as a primary period and maximum of another 10 years as a secondary period.

(iv) The Company had sanctioned an amount of Rs. 93.51 crore in the year 2004 as finance lease for financing Wind Turbine Generator (commissioned on 09.06.2005). The Gross Investment stood at Rs. 81.27 crore as on 31.3.2010. The lease rent is to be recovered within a period of 19 years 11 months which comprises of 10 years as a primary period and maximum of 9 years and 11 months as a secondary period.

b) Operating Leases:

The Companys operating leases consists:- Premises for residential use of employees and offices which are leasing arrangements usually renewable on mutually agreed terms but are not non-cancellable. Rent for residential accommodation of employees include Rs. 4.06 crore (Previous year Rs. 1.83 crore) towards lease payments, net of recoveries in respect of premises for residential use of employees. Lease payments in respect of premises for employees are shown as Rent for Residential Accommodation of employees in Schedule 14- Personnel, Administration and Other Expenses. Lease payments in respect of premises for offices are shown as Office Rent in Schedule 14- Personnel, Administration and Other Expenses.

15 Subsidy under Accelerated Generation & Supply Programme (AG&SP):

The Company is claiming subsidy from Govt. of India at Net Present Value calculated at indicative interest rates in accordance with GOIs letter vide D.O.No.32024/17/97-PFC dated 23.09.1997 and O.M.No.32024/23/2001-PFC dated 07.03.2003 irrespective of the actual repayment schedule, moratorium period and duration of repayment. The amount of interest subsidy received and to be passed on to the borrower is retained as Interest Subsidy Fund Account. The impact of difference between the indicative rate and period considered at the time of claims and at the time of actual disbursement can be ascertained only after the end of the respective schemes. However on the basis of the projections made for each project (based upon the certain assumptions that these will remain same over the projected period of each loan / project), the Company estimated the net excess amount of Rs. 166.25 crore and Rs. 209.97 crore (excluding recoverable amount of Rs. 17.65 crore from Irrigation Department of Government of Maharashtra which is subject to decision of Ministry of Power) as at 31/03/2010 for IX & X plan respectively under AG&SP schemes. This net excess amount is worked out on overall basis and not on individual basis & may vary due to change in assumptions, if any during the projected period such as changes in moratorium period , repayment period , loan restructuring , pre payment, interest rate reset etc. However during the year, the Company has refunded an amount of Rs. 150 Crores as estimated net excess amount lying against IX plan on the directions of MoP and balance amount of excess, if any, will be refunded/ adjusted as per further directions of MoP.

16. One borrower – Chattishgarh State Electricity Board (CSEB) has been unbundled into four power utilities on 1st January 2009. However, the Government of Chattishgarh is yet to issue the final notification / order for division of asset and liabilities among all the successor power utilities from the date of unbundling of CSEB. Loan Transfer Agreement shall be executed after issue of the said final order by the Govt. of Chhattisgarh. Pending transfer of loans to respective successor power utilities, the loan liabilities are outstanding in the name of CSEB.

17. (i) The Company has been appointed as the ‘Nodal Agency for the operationalisation and implementation of Re-structured

Accelerated Power Development and Reforms Programme (R-APDRP), under the overall guidance of the Ministry of Power (MoP), Government of India (GOI).

Projects under the scheme are being taken up in Two Parts. Part-A includes the projects for establishment of baseline data and IT applications for energy accounting / auditing as well as IT based consumer service centers. Part-B includes regular distribution strengthening projects. GoI provide 100% loan for Part A and 25% (90% for special category States) loan for Part B.

The Loans under R-APDRP are being routed through the Company for disbursement to the borrowers. The amount so disbursed along with accrued interest will be paid to Government of India ( GOI) on receipt from the borrowers.

18. The Company had started creating deferred tax liability on special reserve created and maintained under Section 36(1) (viii) of Income Act, 1961, as per the opinion of Expert Advisory Committee of ICAI in Financial Year 2004-05. Based upon the clarification received from the Accounting Standard Board of Institute of Chartered Accountants of India (ICAI) vide letter dated 02.06.2009 and as explained in Policy No.13.2, the Company had stopped creating DTL on special reserve created and maintained from Financial Year 2008-09. Further, during the financial year 2008-09 the Company reversed the Deferred Tax Liability (DTL) created in earlier years on special reserve created and maintained under Income Tax Act. The reversal of DTL was done by crediting revenue reserve by Rs. 745.14 crore for Financial Year 1997-98 to Financial Year 2003-04 (as DTL was created by debiting revenue reserve), crediting Profit and Loss Account by Rs. 483.24 crores for Financial Year 2004-05 to Financial Year 2007-08 (as DTL was created by debiting Profit and Loss Account for these years) and by debiting DTL by Rs. 1228.38 crores.

Further, DTL on the Special Reserve created and maintained under Section 36(1) (viii) of Income Act, 1961 for the current year amounting to Rs. 157.93 crore ( Previous year Rs. 133.28 crore) has not been created as per paragraph 13.2 of Accounting Policy.

19. The Company has no outstanding liability towards Micro, Small and Medium enterprises.

20. The value of lease hold land aggregating to Rs. 38.33 crore (previous year Rs. 38.33 crore) comprises of amount of Rs. 31.83 crore (previous year Rs. 31.83 crore) paid towards cost of land to Land and Development Office (L&DO), Ministry of Urban Affairs, Govt. of India, stamp duty liability of Rs. 2.47 crore (previous year Rs. 2.47 crore) and capitalization of ground rent up to the date of completion of building of Rs. 4.03 crore ( previous year Rs. 4.03 crore). In accordance with Memorandum of Agreement (MOA) executed with L&DO, the lease deed is yet to be signed. Pending execution of perpetual lease deed, (which does not have limited useful life) the value of leasehold land is not amortized and / or no provision for depreciation has been made on the said leasehold land.

21. Disclosures as per Accounting Standard-15:-

A. Provident Fund

The Company pays fixed contribution to Provident Fund at prescribed rates to a separate trust, which invests the funds in permitted securities. The contribution to the fund for the period is recognized as expense and is charged to the profit and loss account. The obligation of the Company is to make such fixed contribution and to ensure a minimum rate of return to the members as specified by GOI. Any short fall for payment of interest to members as per specified rate of return has to be compensated by the Company. The Company estimates that no liability will take place in this regard in the near future and hence no further provision is considered necessary.

B. Gratuity

The company has a defined gratuity scheme and is managed by a separate trust. The provision for the same has been made on actuarial valuation based upon total number of years of service rendered by the employee subject to a maximum amount of Rs. 10 lakh.

C. Post Retirement Medical Scheme (PRMS)

The Company has Post-Retirement Medical Scheme (PRMS), under which retired employee and the dependent family members are provided medical facilities in empanelled hospitals. They can also avail reimbursement of Out-Patient treatment subject to a ceiling fixed by the Company.

D. Terminal Benefits

Terminal benefits include settlement in home town for employees & dependents.

E. Leave

The Company provides for earned leave benefit and half-pay leave to the credit of the employees which accrue on half yearly basis @ 15 days and 10 days respectively. 75% of the earned leave is encashable while in service and maximum of 300 days earned leave can be accumulated which is encashable on superannuation/ separation. Half pay leave is encashable on separation after 10 years of service or at the time of superannuation subject to a maximum of 300 days. The liability for the same is recognized based on actuarial valuation.

The above mentioned schemes (C, D and E) are unfunded and are recognized on the basis of actuarial valuation.

The summarised position of various defined benefits recognized in the profit and loss account, balance sheet are as under {Figures in brackets ( ) represents to previous year}

E. Other Employee Benefits:- During the year, provision of Rs.0.04 crore (previous Year Rs. 1.88 crore) has been made for Economic Rehabilitation Scheme for Employees and provision of Rs. 0.01 crore has been reversed for Long Service Award for Employees (Previous year Rs. 0.27 crore made) on the basis of actuarial valuation made at the year end by charging/crediting the profit and loss account.

22. (i) During the year, the Company has sent letters seeking confirmation of balances as on 31-12-2009 to borrowers. The balance confirmation is received from all the borrowers confirming 99.99% of the total outstanding balance amount sought for confirmation. Some of the balances of debtors, creditors and loan and advances are subject to confirmation / reconciliation / adjustments, if any.

(ii) Some of the designated bank accounts opened for making interest payment to bondholders/ debenture holders have outstanding balance of Rs. 0.61 crore (remaining unpaid for more than 9 months) are subject to reconciliation/ confirmation.

23. The pay revision of non executives (including non-unionized supervisors) of the company is due w.e.f. 01.01.2007. Pending implementation of pay revision, a provision of Rs. 1.57 crore (previous year Rs. 4.77 crore both for executives and non- executives) for the year has been made towards wage revision on an estimated basis in line with office memorandum issued by DPE.

24. The Company does not have more than one reportable segment in terms of Accounting Standard No. 17 on Segment Reporting.

25. Previous years figures have been re-grouped / re-arranged, wherever practicable, to make them comparable with the current year.

26. Figures have been rounded off to the nearest lakh of rupees.

27. Balance Sheet abstract and Companys General Business Profile as per Part IV of Schedule VI of the Companies Act, 1956 is enclosed as Appendix.

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