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Notes to Accounts of Rural Electrification Corporation Ltd.

Mar 31, 2016

1.1.1 Loan balance confirmations for 92.95% of total loan assets as at 31st March, 2016 have been received from the borrowers. Out of the remaining 7.05% loan assets amounting to Rs. 14,188 crore for which balance confirmations have not been received, 72.94% loans are secured by way of hypothecation of assets, 23.37% by way of Government Guarantee/ Loans to Government and 3.69% are unsecured loans.

1.1.2 Loan Assets also include amount financed by the Company as per the Scheme for Financial Restructuring of State Distribution Companies (Discoms).

1.1.3 Alaknanda Hydro Power Company Limited (AHPCL) Shrinagar HEP is located at Uttarakhand. Ministry of Finance, considering the natural disaster in June 2013 at Uttarakhand had taken a decision that Banks should announce a moratorium on repayment of loan and interest for a period of one year in respect of all project loans that are outstanding in Uttarakhand. Ministry of Power vide their letter dated 6th December, 2013 extended such benefit to AHPCL. Accordingly, REC sanctioned Funded Interest Term Loan (FITL) to AHPCL in June 2014.

RBI had issued circular dated 23rd January, 2014, the Norms on restructuring of advance by NBFCs, which inter-alia stated that "the unrealized income represented by FITL should have a corresponding credit in an account styled as Sundry Liabilities Account (Interest Capitalisation)". In response to applicability of above circular, REC represented vide letter dated 28th April, 2014 to RBI requesting among other that, "Hydro projects in Himalayan region and power projects affected by natural disaster may be kept outside the restructuring norms".

In response to the above request, RBI Vide letter dated 11th June, 2014, allowed that the Transmission & Distribution, Renovation & Modernization and Life Extension projects as also the Hydro projects in Himalayan region or affected by natural disaster (new loans and outstanding stock of loans as on March 31, 2014) may be regulated by the REC''s existing restructuring norms till March 31, 2017.

Hence, the Management was of the view that the above project of AHPCL, being a Hydro project in Himalayan region and affected by natural disaster is outside the preview of circular dated 23rd January, 2014 and shall continue to be governed by the existing REC''s existing prudential norms, which states, "In case of funding of interest in respect of NPAs, where the interest funded is recognized as income, the interest funded shall be fully provided for." As AHPCL is a standard asset in the books of REC, as such no provision on funded interest is required to be created.

Pending clarification from RBI for the above, instead of creating a corresponding Sundry Liabilities Account (Interest Capitalisation), during the year ended 31st March, 2015, 100% provision was created in the books of accounts for the FITL in respect of AHPCL forRs. 86.42 crores.

In response to the request, RBI, vide its letter No. DNBR.PD.CO.No. 123/03.10.001/2015-16 dated 17th July, 2015 has advised that FITL sanctioned to the said borrower will be exempted from provisions of RBI Restructuring Norms. Accordingly, the provision of Rs. 86.42 crores has been reversed and accounted for during the year ended 31st March, 2016.

1.1.4 M/s Teesta Urja Limited (TUL) is executing Hydro Electric Project in the North Eastern State of Sikkim. Substantial physical progress has been achieved in the project and as per the latest report of Lenders Independent Engineer, cumulative physical progress of the project is 96.59%.

The issues regarding infusion of equity into the project was resolved amongst the promoters and subsequently, the Share Purchase Agreement was executed on 6th August, 2015 amongst the shareholders of TUL to enable Sikkim Power Investment Corporation Limited (wholly owned company of Govt. of Sikkim) to increase its stake to 51% in TUL by way of infusion of equity and purchase of shares from other shareholders. Accordingly, the current shareholding of Sikkim Power Investment Corporation Limited in TUL is 51% and TUL has been recognised as Govt. of Sikkim undertaking.

During the year ended 31st March, 2015, some of the lenders including REC, adjusted their outstanding interest due on the basis of bilateral agreement with the company, against the loan sanctioned towards 2nd cost overrun to TUL. Accordingly, pending documentation, as on 31st March, 2015, an amount of Rs. 202.15 Crores was classified as unsecured loan. The disbursement made under 2nd cost overrun have since been secured by extending the charge on movable assets. The joint documentation between the lenders have concluded on 29th June, 2015 excluding PNB and Canara Bank, who are yet to join the documentation by deed of accession. Accordingly as on 31st March, 2016, the loan disbursements under 2nd cost overrun to the borrower has been classified as secured loan.

1.1.5 REC, as a lead lender had sanctioned Rs. 650 Crore as initial sanction to Corporate Power Limited for 540 MW Phase-I TPP at Chandwa, Jharkhand. The Debt is secured by way of combination of securities representing charge on all the Company''s present and future immovable properties, movables, all bank accounts, project documents, clearances, letter of credits, guarantees, insurance contracts and insurance proceeds etc., pledge of shares representing 51% of the total paid up equity share capital of the Company and Corporate Guarantee of Corporate Ispat and Alloys Limited (CIAL). Subsequently, REC, has sanctioned Rs. 196 Crore as additional loan towards funding of cost overrun. As at 31st March, 2016, the loan outstanding is Rs. 811.74 crores.

The progress of Phase-I of the Project (where REC is Lead) as per last available Lender Independent Engineer''s Report, is approximately 96%. However, the account has become NPA on 30th June, 2014. As on 31st March, 2016, the account of the borrower is classified as Doubtful asset. As per the Independent valuer''s report, the fair market value of Phase-I project assets is Rs. 1,401.94 Crores. Accordingly, 100% provision to the extent of loan not covered by the realizable value of the security amounting to Rs. 399.08 Crores and for the balance loan amount of Rs. 412.66 Crores, 20% provision amounting to Rs. 82.53 Crores is created in the books as per Significant Accounting Policy no 2.3(ii). As such, total provision created as on 31st March, 2016 is Rs.481.61 Crores.

Further, recall notice has been served to the borrower and Corporate guarantee of promoter Company, CIAL, has been invoked. Further, action as per SARFAESI Act has also been initiated. Lenders are in the process of filing Original Application (OA) in Debt Recovery Tribunal (DRT) for recovery of dues.

1.1.6 REC has sanctioned Rs. 1,150 Crore to Jas Infrastructure & Power Limited (JIPL) wherein total disbursement is Rs. 33.24 Crore till 31st March, 2016. As project has been delayed considerably, lenders are discussing the future strategy and exploring the various options for the implementation of the project.

The account has become NPA on 30th June, 2014. As on 31st March, 2016, the account of the borrower is classified as Doubtful asset. As per the Independent valuer''s report, the fair market value of project assets is valued at Rs. 180.17 Crores. Accordingly, 100% provision to the extent of loan not covered by the realizable value of the security amounting to Rs. 31.02 crore and for the balance loan amount of Rs. 2.22 crores, 20% provision amounting to Rs. 0.44 crore is created in the books as per Significant Accounting Policy No. 2.3(ii). As such, total provision created as on 31st March, 2016 is Rs. 31.46 Crore on total loan outstanding of Rs. 33.24 crore.

Further, recall notice has been served to the borrower and Personal guarantee of promoter has been invoked. Joint application for recovery of their dues is being filed by the lenders in DRT.

1.1.7 As at 31st March 2016, the dues of one of the borrowers amounting to Rs. 366.30 Crores were overdue for more than 6 months, thus, exceeding the time limit for classification of the borrower as ''Standard Asset''. However, the borrower had obtained an ad-interim order from Hon''ble High Court of Madras on 18th September, 2015 not to classify the account as NPA and the classification of the borrower has been retained as ''Standard Asset'' pending final decision of the Court. Accordingly, 10% provision as applicable for sub-standard loans on the loan outstanding Rs. 1,875.71 Crores has not been created and interest income of Rs. 366.30 Crores has also been recognized on accrual basis in accordance with the accounting policy of the Company for recognition of income on standard assets. However, since the account is currently into Restructured Standard Loan Assets category, a provision of 5% amounting to Rs. 93.79 Crores has been created in full in respect of the loan as against creating the same in phased manner in accordance with Significant Accounting Policy 2.3(iv).

1.1.8 REC had sanctionedRs.390 Crores to M/s Lanco Teesta Hydro Power Limited with ICICI Bank as Lead lender having initial project SCOD in May''12. However, due to equity crunch of promoters, geological surprises and poor rock strata, project couldn''t be commissioned till date. In order to revive the Project, which is stalled at present, change in ownership is an important imperative which ensures that additional resources are brought in by the new investor. Towards this end, change of ownership could be effectively considered under the recent RBI dispensation on Strategic Debt Restructuring (SDR) dated 8th June, 2015. In terms of SDR Regulations dated 8th June, 2015 issued by RBI, the Lenders'' consortium had decided to invoke the SDR in the lenders'' meet held on 24th July, 2015. Accordingly, REC, on 24th September, 2015, has approved the Strategic Debt Restructuring (SDR) package pursuant to RBI circular dated June 08, 2015, for conversion of Rs. 102 Crores out of REC''s outstanding loan into equity at face value of Rs. 10/- per share towards effecting the change in Management. Subsequently, on 20th October, 2015, necessary documentation has been carried out along with the signing of shareholder''s agreement and an amount of Rs. 102 Crores of REC''s sanction has been converted into equity on 20th October, 2015.

A provision of Rs. 3.96 crores has been made against the interest due that was converted into equity in terms of RBI guidelines. Further, as a matter of prudence, an additional provision amounting to Rs. 15.50 Crores on the residual loan outstanding of Rs. 236.80 Crores as at 31st March, 2016 has been made in terms of RBI Circular dated 25th Febraury, 2016. Income accrued & remaining unpaid as at 31st March, 2016 amounting to Rs.32.27 crores on the outstanding loan amount has not been recognised due to uncertainty in view of SDR implementation.

2.1 The Company has made public issue of Tax Free Bonds of face value of Rs.1,000/- each aggregating to Rs. 700 Crores during the financial year 2015-16 in addition to private placement of the Tax Free Bonds of Rs. 300 Crores. The bonds had been allotted in line with the prescribed guidelines and the issue proceeds have been utilised for the purposes as mentioned in the Offer document.

3.1 The Company has taken Office space, accommodations for staff and space for ERP Data Centre on lease. These are classified as operating lease. Lease payments in respect of Office space and data centre amounting to Rs. 5.25 Crores (Previous year Rs. 4.30 Crores) is shown under the head ''Other Expenses''. Lease payments in respect of accommodations for staff amounting to Rs.2.99 Crores (Previous year Rs. 2.50 Crores) form part of ''Employees Benefit Expense.'' Future lease payments in respect of these lease agreements are as under:

4. The Company is registered with the Reserve Bank of India (RBI) as a Non-Banking Financial Company (NBFC) since 1997- 98. As per notification No.DNBS(PD).CC No.12/02.01/99-2000 dated 13.1.2000 of RBI, Govt. companies as defined under Section 617 of the Companies Act, 1956 have been exempted from applicability of the provisions of Reserve Bank of India Act, 1934 relating to maintenance of liquid assets and creation of Reserve Funds and the Directions relating to acceptance of public deposits and Prudential Norms. The said notification is also applicable to REC, being a Govt. company as defined under Section 2 (45) of the Companies Act, 2013 (Section 617 of the erstwhile Companies Act, 1956). Accordingly, the Reserve Fund is not created.

Further, as per Para No. 1(3)(ii) of RBI''s Master Circular No. DNBR (PD) CC. No.043 / 03.10.119 / 2015-16 dated July 1, 2015, REC being a Government Company continues to be exempted from the applicability of "Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015". However, RBI, vide its letters dated 25th July, 2013 and 4th April, 2014, has conveyed to the Company to comply with the Prudential Norms of RBI by 31st March, 2016 and follow the instructions contained in RBI Circular dated January 23, 2014 issued vide Notification No. DNBS (PD) No. 271/ CGM (NSV)-2014 in respect of restructuring of assets. Later, RBI vide its letter dated 11th June, 2014 has allowed exemption to the Company from RBI restructuring norms till March 31, 2017 for Transmission & Distribution, Renovation & Modernisation and Life Extension projects and also the Hydro projects in Himalayan region or affected by natural disasters. Further for new project loans to generating companies restructured w.e.f 01st April, 2015, the provisioning requirement would be 5% and for stock of loans as on 31st March, 2015 of such projects, the provisioning shall commence with a provision of 2.75% w.e.f 31st March, 2015 and reaching 5% by 31st March, 2018.

5. RBI, vide its letter dated September 17, 2010 had categorized REC as an Infrastructure Finance Company (IFC) in terms of instructions contained in RBI Circular CC No.168 dated February 12, 2010. As an IFC, the total permissible exposure for lending in the private sector is 25% of owned funds in case of single borrower and 40% in case of a single group of borrowers and exposure for lending and investing taken together can be upto 30% and 50% of owned funds, respectively.

In respect of Central/State Government entities, RBI vide its letter DNBS.CO.ZMD-N. No. 4868/55.18.014/2013-14 dated 4th April, 2014 has exempted REC from RBI Prudential Exposure limits till 31st March, 2016. The Company has again represented to RBI for extension of above exemption till 31st March, 2022. The matter is under active consideration and the communication from RBI is expected to be received shortly. In view of the above, our maximum credit exposure limits to Central and State power Utilities continue to vary from 50% to 250% of owned funds, depending upon entity appraisal.

In respect of Private Sector entities, the Company''s credit exposure to single borrowers and group borrowers did not exceed the RBI prudential exposure limits as at 31st March, 2016 and 31st March, 2015.

6. CHANGES IN ACCOUNTING POLICIES

During the year ended 31st March, 2016, the Company had revised the accounting policy in respect of asset classification in line with RBI Guidelines. Further, the accounting policy for creation of allowance against Standard Loan assets has been modified to align it with the revised provisioning requirements for Standard Loans as per RBI Notification dated 10th November, 2014. Due to these changes in accounting policy, Profit before tax for the year ended 31st March, 2016 is lower by Rs. 87.87 Crores.

Further, minor modifications have been made in the Accounting Policy in respect of basis of preparation of financial statements, revenue recognition, intangible assets and cash fl ow statements. However, there is no financial impact of such modifications.

7. EXPOSURE RELATED DISCLOSURES

7.1 Exposure to Real Estate Sector

The Company has no exposure to real estate sector as at 31st March, 2016 (Previous year Nil).

8. The Company has not entered into any securitisation/ assignment transactions during the year ended 31st March, 2016 (Previous year Nil). Further, no assets have been sold to securitisation/ reconstruction company for asset reconstruction.

9. Considering the practical problems being faced by the borrowers in submission and adherance to the drawl schedule, the Company has revised the loan policy by waiving off the clause for requirement of Commitment Charges/ upfront fees for all ongoing as well as future projects of State Sector Generation and T&D projects including waiver of outstanding commitment charges of Rs. 8.83 Crores.

10. The National Electricity Fund (NEF), an interest subsidy scheme, has become operational during the year 2012-13. The scheme has been introduced by Govt. of India to promote the capital investment in the distribution sector. The scheme shall provide interest subsidy linked with reform measures, on the loans taken by public and private distribution power utilities for various capital works under Distribution sector. NEF would provide interest subsidy aggregating upto Rs. 8,466 Crores (including interest subsidy to the borrowers, service charges to the nodal agency, payments to independent evaluators and other incidental expenses) spread over 14 years for loan disbursement against projects approved during 2012-13 and 2013-14. REC has been nominated as Nodal Agency for operationalisation of the NEF scheme in entire country.

11. Government of India has launched Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) with the following components:

(i) Separation of agriculture and non-agriculture feeders facilitating judicious rostering of supply to agriculture & non-agriculture consumers in the rural areas;

(ii) Strengthening and augmentation of sub-transmission & distribution infrastructure in rural areas, including metering of distribution transformers/feeders/consumers

(iii) Rural Electrification, as per CCEA approval dated 01.08.2013 for completion of the targets laid down under RGGVY for 12th and 13th Plans by carrying forward the approved outlay for RGGVY to DDUGJY.

The components at (i) and (ii) of the above scheme will have an estimated outlay of Rs. 43,033 crore including budgetary support of Rs. 33,453 crore from Government of India during the entire implementation period. The scheme of RGGVY as approved by CCEA for continuation in 12th and 13th plan will get subsumed in this scheme as a separate Rural Electrification (RE) component. REC has been nominated as nodal agency for operationalization of this scheme.

12. In the opinion of the management, the current assets, loans and advances appearing in the balance sheet have a value equivalent to the amount stated therein if realized during the ordinary course of business and all known liabilities have been provided.

13. As per the information available with the Company, there have been no reported cases of delayed payments of the principal amount or interest due thereon to Micro, Small & Medium enterprises.

13.2 The Company has not entered into any exchange traded Interest Rate (IR) derivatives.

13.2 Disclosure on Risk Exposure in Derivatives

13.2.1 Qualitative Disclosures

REC has Risk Management Policy duly approved by the Board.The policy covers the currency risk of the company. This policy provides the guiding parameters within which the Company can take decisions for managing the Currency Risk that it is exposed to on account of foreign currency loan. The purpose of the policy is to provide a framework to the Company for management of its foreign currency risk.

Risk Management Structure

An Asset Liability Management Committee (ALCO) is currently functioning under the chairmanship of CMD, Director (Finance), Director (Technical), Executive Directors and General Managers from Finance and Operating Divisions as its members. ALCO monitors Foreign currency risk with exchange rate and interest rate managed through various derivative instruments.

Derivative transactions include forwards, interest rate swaps, cross currency swaps and currency and cross currency options to hedge assets and liabilities. These derivative transactions are done for hedging purpose and not for trading or speculative purpose. These are accounted for on accrual basis and are not marked to market.

Type of Risks Involved

(i) Credit Risk - Credit risk is the risk of loss due to counterparty''s failure to perform on an obligation to the Company.

(ii) Market Risk - Market risk is the risk of loss due to adverse changes in the market value (the price) of an instrument or portfolio of instruments. Such exposures occurs with respect to derivative instruments when changes occur in market factors such as underlying interest rates, exchange rates etc. or in the volitality of these factors.

(iii) Liquidity Risk - Liquidity risk is the risk of loss due to failure of the institution to meet its funding requirments or execute a transaction at a reasonable price. This may be market liquidity risk or funding liquidity risk.

(iv) Operational Risk - Operational risk is the risk of loss occuring as a result of inadequate system and control, deficiencies in information system, human error or a management failure. Derivative activities can pose challenging operational risk issue because of complexity of certain products and their continual evolution.

(v) Legal Risk - Legal risk is the risk of loss arising from contracts which are not legally enforceable or documented correctly.

(vi) Regulatory Risk - Regulatory risk is the risk of loss arising from failure to comply with regulatory or legal requirements.

14. RELATED PARTY DISCLOSURES :

(1) Key Managerial Personnel

Sh. Rajeev Sharma Chairman & Managing Director

Sh. Ajeet Kumar Agarwal Director (Finance)

Sh. P.J. Thakkar Director (Technical) (ceased w.e.f. 12.10.2015)

Sh. Sanjeev Kumar Gupta Director (Technical) (appointed w.e.f. 16.10.2015)

Sh. J.S. Amitabh GM & Company Secretary

(2) Other Related Parties

1. Subsidiary Companies

REC Transmission Projects Company Limited (RECTPCL) REC Power Distribution Company Limited (RECPDCL)

2. Wholly owned Subsidiaries of REC Transmission Projects Company Limited

Nellore Transmission Limited - Incorporated on 04.12.2012

Baira Siul Sarna Transmission Limited - Incorporated on 24.01.2013

Gadarwara (B) Transmission Limited - Incorporated on 30.07.2014 and transferred to Power Grid Corporation of India Limited (PGCIL) on 24.04.2015, substantially upon the terms and conditions as detailed in the Share Purchase Agreement executed between RECTPCL, Gadarwara (B) Transmission Limited and PGCIL.

Gadarwara (A) Transco Limited - Incorporated on 05.08.2014 and transferred to Power Grid Corporation of India Limited (PGCIL) on 24.04.2015, substantially upon the terms and conditions as detailed in the Share Purchase Agreement executed between RECTPCL, Gadarwara (A) Transco Limited and PGCIL.

Maheshwaram Transmission Limited - Incorporated on 14.08.2014 and transferred to Sterlite Grid 3 Limited (SGL) on 20.08.2015, substantially upon the terms and conditions as detailed in the Share Purchase Agreement executed between RECTPCL, Maheshwaram Transmission Limited and SGL.

Vemagiri II Transmission Limited - Incorporated on 06.04.2015 and transferred to Power Grid Corporation of India Limited (PGCIL) on 04.12.2015, substantially upon the terms and conditions as detailed in the Share Purchase Agreement executed between RECTPCL, Vemagiri II Transmission Limited and PGCIL.

Alipurduar Transmission Limited - Incorporated on 13.04.2015 and transferred to Kalpataru Power Transmission Limited (KPTL) on 06.01.2016, substantially upon the terms and conditions as detailed in the Share Purchase Agreement executed between RECTPCL, Alipurduar Transmission Limited and KPTL.

NER II Transmission Limited - Incorporated on 21.04.2015

NRSS XXXVI Transmission Limited - Incorporated on 18.08.2015

North Karanpura Transco Limited - Incorporated on 27.11.2015

Khargone Transmission Limited - Incorporated on 28.11.2015

Dinchang Transmission Limited - Incorporated on 02.12.2015

15. DISCLOSURES FOR EMPLOYEE BENEFITS AS REQUIRED UNDER AS 15:

(1) Defined Contribution Plans

A. Provident Fund

Company pays fixed contribution of Provident Fund at pre-determined rates to a separate trust which invests the funds in permitted securities. The trust fi xes the rate of interest on contribution to the members of the trust.

B. Defined Contribution Superannuation Scheme

The Company pays fixed contribution towards superannuation scheme at pre-determined rates to a separate trust which invests the funds with the Insurers. The Insurers fi x the rate of interest on the balance standing to the credit of the accounts of the members of the trust. When the pension becomes payable to the member, the Insurers shall appropriate the member''s accumulation towards various annuities, as opted for by the member.

Amount recognised as expenses towards defined contribution plans:

(2) Defined Benefit Plans - Post-Employment Benefits

A. Gratuity

The Company has a defined benefit gratuity plan. Every employee is entitled to gratuity as per the provisions of the Payment of Gratuity Act, 1972. The scheme is funded by the Company and is managed by separate trust. The liability of Gratuity is recognized on the basis of actuarial valuation.

B. Post Retirement Medical Facility (PRMF)

The Company has Post Retirement Medical Facility under which the entitled retired employees (including his/her spouse) are covered as per Company Rules. The expenditure is recognized in the Statement of Profit & Loss on the basis of actuarial valuation.

C. Other Defined Retirement Benefit (ODRB)

The Company has a scheme for settlement of the employee and their dependents at the time of superannuation at home town. The expenditure is recognized in the Statement of Profit & Loss on the basis of actuarial valuation. The summarized position of various defined benefits recognized in the Statement of Profit & Loss, Balance Sheet and the funded status is as under:

16. STATUS OF DOCUMENTATION SUBSEQUENT TO UNBUNDLING OF SEBS

Some of the erstwhile State Electricity Boards (SEBs) against whom loans were outstanding or on whose behalf guarantees were given, were restructured by the respective State Governments and new entities were formed in the past. Consequently, the liabilities of the erstwhile SEBs stand transferred to new entities. However, transfer agreements in the case of Chhattisgarh State Electricity Board (CSEB), Kerala State Electricity Board (KSEB) and Meghalaya State Electricity Board (MSEB) are yet to be executed amongst the Company, new entities and the State Governments.

Agreements in case of Tamil Nadu State Electricity Board have been executed based on the provisional provisions of the Tamil Nadu Electricity (Re-organisation and Reforms) Transfer Scheme, 2010. However, further transfer agreements in this regard shall be executed, if required, on finalization of the Transfer Scheme.

Status of Documentation Subsequent to Reorganisation of the State of Andhra Pradesh

Subsequent to the reorganisation of erstwhile State of Andhra Pradesh, the state of Telangana has been formed on 2nd June, 2014. However, the assets and liabilities are yet to be transferred to the respective power utilities through a formal Gazette Notification. Status of Documentation is as under:

(i) Where ever the loans have been sanctioned to erstwhile APCPDCL, APNPDCL and APGENCO prior to bifurcation and documentation has not been done, these schemes have been re-sanctioned in the name of newly formed utilities and documentation formalities completed and accordingly the charge has been registered with the Ministry of Corporate Affairs (MCA).

(ii) Where ever the loans sanctioned in the name of erstwhile APCPDCL, APNPDCL prior to bifurcation and documentation formalities completed and drawls have been made, in these schemes an undertaking has been obtained from the name changed / newly formed utility and disbursements have been made to the newly formed utility by changing the name of the borrower in the name of new / name changed utility.

(iii) Where ever the Loan is sanctioned in the name of erstwhile APCPDCL, APNPDCL prior to bifurcation and documentation formalities completed with Government Guarantee and drawls have been made, further documentation for these schemes shall be done on Gazette Notification.

(iv) Once the final transfer scheme is notified through Gazette Notification by Govt, duly indicating the transfer of assets and liabilities among the power utilities, action for execution of documentation formalities will be taken up in respect of all the outstanding loans with the new / name changed utilities. Till that time, the demand for payment of interest / principal is being segregated by the Utilities and the respective portions are being paid by Utilities in Telangana and Andhra Pradesh.

17. The Ministry of Power launched a scheme ''Ujwal DISCOM Assurance Yojana'' (UDAY) for achieving financial turnaround of the DISCOMs which are reeling under burden of heavy debt and losses. As per the OM dated 20th November, 2015 issued by MoP on the UDAY scheme, States shall take over 75% of the DISCOM debt as on 30th September, 2015 over 2 years - 50% to be taken over in FY 2015-16 and 25% in FY 2016-17.

The States of Uttar Pradesh, Rajasthan, Punjab, Haryana, Bihar and Chhattisgarh have signed MoU with MoP for participation in the scheme. The DISCOMs of Punjab, Uttar Pradesh and Chhattisgarh have pre-paid their outstanding loan amounting to Rs. 10,003.69 Crores out of which Rs. 1,214.14 crore was received in April 2016, as a result of takeover of their debt by the respective States under the scheme. An amount of Rs. 19,640.22 Crores is further expected to be prepaid by the DISCOMs during the financial year 2016-17.

18. The Company''s main business is to provide finance to power sector. Accordingly, the Company does not have more than one segment eligible for reporting in terms of Accounting Standard-17.

19. CAPITAL TO RISK-WEIGHTED ASSETS RATIO (CRAR)

Being an Infrastructure Finance Company (IFC), REC is required to maintain a Capital to Risk Weighted Assets Ratio (CRAR) of 15% (with a minimum Tier I Capital of 10%).

20. There are no Off-Balance Sheet SPVs sponsored by the Company, which need to be consolidated as per accounting norms.

21. No penalties have been levied on the Company by any regulator during the year ended 31st March, 2016 (Previous year Nil).

However, the Company has received a notice from National Stock Exchange of India Ltd. (NSE) vide its letter No. Fines/2015-16/45075 dated 5th October, 2015 and from BSE Ltd. (BSE) vide its letter No. LIST/COMP/49-Woman Dir/126/2015- 16 dated 6th October, 2015 in pursuance of SEBI Circular No. CIR/CFD/CMD/1/2015 dated April 8, 2015 for payment of fine of Rs. 1,42,000 and X 1,47,000 (inclusive of service tax) respectively for non-compliance of Clause 49(II)(A)(1) of the listing agreement regarding non-appointment of woman director on the Board as on 30th September, 2015.

The Company has requested the Stock Exchanges to waive the fine amounts since the power to appoint Woman Director/Independent Directors is vested with President of India through the administrative Ministry as per Articles of Association of the Company and the Board of Directors or the Company cannot appoint Woman Director/Independent Directors on the Board of the Company and there is no violation on the part of the Company in the appointment of Woman Director/Independent Directors. The reply of the Stock Exchanges is still awaited.

22. No complaints have been received by the Company from the borrowers under the Fair Practices Code during the year ended 31st March, 2016 (Previous year Nil).

23. Previous year figures have been reclassified/ regrouped to conform to the current classification.

24. Figures in Rupees have been rounded off to the nearest crores with two decimals, unless expressly stated.

The Significant Accounting Policies and Notes to Accounts 1 to 51 are an integral part of Balance Sheet and Statement of Profit & Loss.


Mar 31, 2015

1.1 The holders of the equity shares of the Company are entitled to receive dividends as and when declared by the Company and enjoy proportionate voting rights in case any resolution is put to vote. Further, the shareholders have all such rights, as may be available to a shareholder of a listed public company, under the Companies Act, 1956 (to the extent applicable), Companies Act, 2013 (to the extent notified), the terms of the listing agreements executed with the Stock Exchanges (i.e. National Stock Exchange of India Limited and BSE Limited), and Memorandum of Association and Articles of Association of the Company.

2.1 Additions in Securities Premium Account for the year ended 31st March, 2015 represent the premium of Nil (Previous Year Rs. 1.24 Crores) received on issue of Tax Free Bonds through private placement.

2.2 Debenture Redemption Reserve (DRR)

In accordance with provisions of Section 71(4) of the Companies Act, 2013 as further clarified by the Companies (Share Capital and Debentures) Rules, 2014 issued by Ministry of Corporate Affairs, Govt. of India, the company creates Debenture Redemption Reserve (DRR) upto 25% of the value of debentures issued through public issue as per present SEBI (Issue and Listing of Debt Securities) Regulations, 2008 during the maturity period of such debentures, and no DRR is required in the case of privately placed debentures. Accordingly, during the year, the company has created DRR amounting to Rs. 185.79 Crores (Previous year Rs. 185.79 Crores).

2.3 Foreign Currency Monetary Item Translation Difference Account

The company has opted towards an irrevocable option for amortising the foreign exchange fluctuation loss/gain on the long term foreign currency monetary items over the balance period of such items in accordance with Para 46A of Accounting Standard 11 ''The Effects of Changes in Foreign Exchange Rates''. Amount remaining to be amortised in ''Foreign Currency Monetary Item Translation Difference Account'' as on 31st March, 2015 is Rs. 335.46 Crores (Previous year Rs. 532.65 Crores).

2.4 Draw down from Reserves

An amount of Rs. 0.74 crores (net of tax Rs. 0.38 crores) has been adjusted in the retained earnings in respect of fixed assets, where the remaining useful life of such assets was Nil as at 1st April, 2014 in line with the provisions of the Schedule-II to the Companies Act, 2013.

3.1 Security Details of the Secured Borrowings

The Bond Series 77, 78, 79, 80, 81, 82, 83, 85, 86A, 86 B-III, 87-II, 87 A-III, 88, 90, 90 B-II, 90 C-II, 91-II, 92-II of Institutional Bonds and Series VIII of 54EC Capital Gain Tax Exemption Bonds are secured by a charge on (a) mortgage of Flat no. 640, Asiad Games Village, New Delhi and (b) pari passu charge on the receivables of our Company, both present and future, save and except receivables hypothecated to IL&FS Trust Company Limited on the basis of joint hypothecation agreement dated September 24, 2010 in favour of IDBI Trusteeship Services Ltd.

The Bond Series 116-I, 116-II, 117, 118, 119, 120, 121, 122 of Institutional Bonds are secured by a charge on first paripassu charge on the book debts of the issuer both present & future which are charged to other lenders / trustees and as may be agreed between the issuer and the trustee, pursuant to the terms of the Debenture /Bond Trust cum Hypothecation Deed with a minimum security cover of one time of the aggregate face value amount of the bonds outstanding at all times in favor of IDBI Trusteeship Services Ltd.

The Bond Series 123-I, 123-II, 123-IIIA, 123-IIIB, 123-IV, 124-I of Institutional Bonds are secured by way of first pari passu charge on the Specified Immovable Property and the book debts of the Issuer which are charged to other lender / trustee and as may be agreed between the Issuer and the Trustee, pursuant to the terms of the Bond Trust Deed with a minimum security cover of one time of the aggregate face value of amount of bonds outstanding at all times and amount of interest due thereon in favor of IDBI Trusteeship Services Ltd..

The Bond Series IX of 54EC Capital Gain Tax Exemption Bonds is secured by first pari passu charge on (a) mortgage of premises at Sub Plot No. 8, TPS No 2, FP No. 584P, situated at Village Subhanpura, Distt Vadodara and (b) hypothecation of receivables in favour of IDBI Trusteeship Services Ltd.

Tax Free Bonds issued during FY 2011-12 are secured by first pari passu charge on premises at Shop No. 12, Ground Floor, Block No. 35, Church Road, Mylapore, Chennai and hypothecation of receivables of Rs.4,998.66 Crores of MSEDCL in favour of IL&FS Trust Company Ltd.

Tax Free Bonds issued during FY 2012-13 are secured by first pari passu charge on (a) mortgage of premises at Sub Plot No. 8, TPS No 2, FP No. 584P, situated at Village Subhanpura, Distt Vadodara and (b) hypothecation of receivables in favour of SBICap Trustee Company Ltd.

Tax Free Bonds issued during FY 2013-14 are secured by first pari passu charge on the book debts (other than those that are exclusively charged/earmarked to lenders / other Trustees) of the Company in favour of SBICap Trustee Company Ltd.

The term loans are secured by a charge on the receivables of our Company, both present and future, save and except certain specific receivables hypothecated to IL&FS Trust Company Limited on the basis of joint hypothecation agreement dated September 24, 2010 in favour of IDBI Trusteeship Services Ltd.

3.2 Foreign Currency Borrowings have been raised at interest rates ranging from a spread of 117 bps to 220 bps over 6 Months'' USD/JPY LIBOR (London Inter Bank Offered Rate) except where rates have been stated above in Note No. 3.2.3.1.

3.3 Ratings assigned by credit rating agencies and migration of ratings during the year

Domestic and International Credit Rating

The domestic debt instruments of REC continue to enjoy "AAA" rating – the highest rating assigned by CRISIL, CARE, India Ratings & Research & ICRA-Credit Rating Agencies.

REC enjoys international credit rating equivalent to sovereign rating of India from International Credit Rating Agencies Moody''s and FITCH which is "Baa3" and "BBB-" respectively.

There has been no migration of ratings during the year.

4.1 The Company has no intention to make withdrawal from the special reserve created and maintained under section 36(1)(viii) of the Income Tax Act 1961. Hence, the special reserve created and maintained is not capable of being reversed and thus, it becomes a permanent difference as per Accounting Standard 22. Accordingly, the Company is not creating any deferred tax liability on the said reserve.

5.1 Subsidy Under Accelerated Generation & Supply Programme (AG&SP):

The Company is maintaining an Interest Subsidy Fund Account and was given AG&SP subsidy (for disbursement to the eligible borrowers) by Govt. of India at net present value calculated at indicative rates and year in accordance with 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 year and duration of repayment of the eligible schemes. The impact of difference between the indicative rate and year considered at the time of drawl and the actual can be ascertained only after the end of the respective schemes.

5.2 Government of India has appointed Rural Electrification Corporation Ltd. as a nodal agency for implementation of Deen Dayal Upadhyaya Gram Jyoti Yojna (DDUGJY). The funds received for disbursement to various agencies under the scheme are kept in a separate bank account. The undisbursed funds for the scheme (including the funds received under erstwhile RGGVY Scheme) including interest earned thereto are classified under "Undisbursed Subsidy/ grant" under the head "Other Current Liabilities".

During the year, interest earned of Rs. 61.78 Crores (Previous year Rs. 38.00 Crores) has been taken to DDUGJY Subsidy account. Further, during the year, an amount of Rs. 22.07 crores (Previous year Rs. 29.51 crores) has been refunded back to MoP out of the total interest on subsidy.

6.1.1 Loan balance confirmations for around 85% of total loan assets as on 31st March, 2015 have been received from the borrowers.

6.1.2 Loan Assets also include amount financed by the Company as per the Scheme for Financial Restructuring of State Distribution Companies (Discoms).

6.1.3 As at 31st March 2015, the dues of one of the borrowers were overdue for more than 6 months, thus, exceeding the time limit for classification of the borrower as ''Standard Asset''. Tariff order awarded by State Regulator in November 2013 and the concerned Appellate Tribunal in November 2014 for additional revenue in favour of the borrower had been challenged by the concerned Discom in Hon''ble Supreme Court. Since the matter was sub-judice in the Hon''ble Supreme Court, the borrower failed to pay the dues to the Company.

Hon''ble Supreme Court vide order dated 24th April 2015 quashed the appeal of the concerned discom and consequently, the State Regulator in its order dated 13th May, 2015 directed the Discom to pay the dues to the borrower at the earliest. Subsequently, the entire dues of the Company amounting to Rs. 54.15 crore have been cleared on 15th May 2015 i.e. before the date of signing of balance sheet. Therefore, in accordance with the provisions of Accounting Standard 4 (AS-4), ''Contingencies and Events Occurring after the Balance Sheet Date'', the classification of the borrower has been retained as ''Standard Asset''. Due to the treatment as specified above in compliance of AS-4, the Profit before Tax for the year 2014-15 is higher by Rs. 66.73 crores.

6.1.4 Alaknanda Hydro Power Company Limited (AHPCL) Shrinagar HEP is located at Uttarakhand. Ministry of Finance, considering the natural disaster in June 2013 at Uttarakhand had taken a decision that Banks should announce a moratorium on repayment of loan and interest for a period of one year in respect of all project loans that are outstanding in Uttarakhand. Ministry of Power vide their letter dated 6th December 2013 extended such benefit to AHPCL. Accordingly, REC sanctioned Funded Interest Term Loan (FITL) to AHPCL in June 2014.

RBI had issued circular dated 23rd January 2014, the Norms on restructuring of advance by NBFCs, which inter-alia stated that "the unrealized income represented by FITL should have a corresponding credit in an account styled as Sundry Liabilities Account (Interest Capitalisation)". In response to applicability of above circular, REC represented vide letter dated 28th April 2014 to RBI requesting among other that, "Hydro projects in Himalayan region and power projects affected by natural disaster may be kept outside the restructuring norms".

In response to the above request, RBI Vide letter dated 11th June 2014, allowed that the Transmission & Distribution, Renovation & Modernization and Life Extension projects as also the Hydro projects in Himalayan region or affected by natural disaster (new loans and outstanding stock of loans as on March 31, 2014) may be regulated by the REC''s existing restructuring norms till March 31, 2017.

The Company inferred about non creation of SLA for FITL and they can directly book the unrealized income represented by FITL as income without receiving the equivalent cash because of exemption from RBI guidelines dated 23rd January 2014 for provisioning of restructured Loans. Accordingly the Company has booked the unrealized income represented by FITL of AHPCL for Rs. 86.42 crore as income and referred the issue to RBI for clarification.

Pending clarification from RBI for the above, instead of creating a corresponding Sundry Liabilities Account (Interest Capitalisation), 100% allowance has been created in the books of accounts for the FITL in respect of AHPCL for Rs. 86.42 crores and the same shall be reviewed on receipt of clarification from RBI.

6.1.5 M/s Teesta Urja Limited (TUL) is executing Hydro Electric Project in the North Eastern State of Sikkim. Substantial physical progress has been achieved in the project and as per the latest report of Lenders Independent Engineer, cumulative physical progress of the project is 91.6%. TUL had fully tied up the project cost till 1st cost overrun. Accordingly, the charge on assets has been created as per the security documents carried out in consortium.

All the lenders, except one have sanctioned their proportionate shares towards debt requirement of 2nd cost overrun. In the meantime, the project faced issue of infusion of equity from its promoters. The issue regarding equity infusion was discussed in detail among stakeholders/ lenders of the company. As per the understanding in the meeting, Sikkim Power Investment Corporation Ltd. (SPICL) would take over the project with 51% equity from its current holding of 26% equity. The stake of all other promoters is therefore likely to come down on prorata basis to enable SPICL to have 51% equity. As such, the joint documentation for the 2nd cost overrun could not take place, pending execution of the proposed change in the management/ shareholding pattern.

Meanwhile, some of the lenders, including REC, adjusted their outstanding interest dues on the basis of bilateral agreement with the Company, against the loan sanctioned towards 2nd cost overrun to TUL. All the disbursements towards the 2nd cost overrun will be secured, once the joint documentation is executed and security created on project assets for the enhanced loan. Pending documentation, an amount of Rs. 202.15 crores has been classified as Unsecured.

6.1.6 REC, as a lead lender had sanctioned Rs. 650 Crore (Senior Debt: Rs. 555 Crore and Sub-Debt: Rs. 95 Crore) as initial sanction to Corporate Power Limited for 540 MW Phase-I TPP at Chandwa, Jharkhand. The Senior Debt of Rs. 555 Crore is secured by way of first charge on all the Company''s , present and future immovable properties, movables, all bank accounts, project documents, clearances, letter of credits, guarantees, insurance contracts and insurance proceeds etc. and pledge of shares representing 51% of the total paid up equity share capital of the Company. The Sub-Debt of Rs. 95 Crore is secured by second charge over the security given for Senior Debt and it is additionally secured by the Corporate Guarantee of Corporate Ispat and Alloys Limited (CIAL). Subsequently, REC, as lead lender, has sanctioned Rs. 196 Crore as additional loan towards funding of cost overrun.

The progress of Phase-I of the Project (where REC is Lead) as per last available Lender Independent Engineer''s Report, is approximately 96%. However, the account has become NPA on 30th June, 2014. As per REC Prudential Norms, a provision of 10% is required to be created on the Outstanding Loan amount. Accordingly, a provision of Rs. 81.17 Crore i.e. 10% of Rs. 811.74 Crores had been created on 30 June 2014. Lenders are exploring various options for the revival of the project including change in the management. Pending outcome of such efforts, as a matter of prudence, 100% allowance of Rs. 133.02 crore (for adjusted IDC amount) has been created in the books of accounts and for the balance loan amount of Rs. 678.72 crores, 10% allowance is created in the books as per REC Prudential Norms.

6.1.7 REC has sanctioned Rs. 1,150 Crore to Jas Infrastructure & Power Limited (JIPL). An expenditure of about Rs. 2,700 Cr has been incurred in the project, wherein REC''s disbursement is only Rs. 33.24 Crore. As project has been delayed considerably, lenders have constituted a Core- Committee to evaluate the further implementation strategy for the project, including change in management.

The account has become NPA on 30-06-2014. As per REC Prudential Norms, an allowance of 10% is required to be created on the outstanding loan amount. Accordingly, an allowance of Rs. 3.32 Cr i.e. 10% of Rs. 33.24 Crore been created on 30th June 2014. However, depending upon the further developments, REC may approach the lead lender for independent valuation of the project assets.

However, as a matter of prudence, 100% allowance of Rs. 2.29 crore (for adjusted IDC amount) for JIPL has been created in the accounts and for the balance loan amount of Rs. 30.95 crores, 10% allowance is created in the books as per REC Prudential Norms. The additional allowance shall be reviewed on the basis of outcome of the measures explained above.

7.1 The Company had made public issue of Tax Free Bonds of face value of Rs.1,000/- each aggregating to Rs. 4,500 Crores during the financial year 2013-14 in addition to private placement of the Tax Free Bonds of Rs. 1,500 Crores. The issue proceeds of Rs. 5.96 Crores remaining unutilised as on 31st March, 2014 have since been utilised for the purposes as mentioned in the Offer document.

8. CONTINGENT LIABILITIES AND COMMITMENTS :

8.1 Contingent Liabilities not provided for in respect of:

(Rs. in Crores)

Particulars As at As at 31.03.2015 31.03.2014

(A) Claims against the Company not acknowledged as debts 55.71 56.16

(B) Others

- Letters of Comfort 260.84 1,273.81

The amount referred to in ''A'' above includes Rs. 3.75 Crores (Previous year Rs. 5.24 Crores) is in respect of cases pending in various courts including arbitration cases and is dependent upon the outcome of settlement of court/arbitration cases and also includes Rs. 51.96 Crores (Previous year Rs. 50.92 Crores) against various demands raised by the Income Tax Department/ Service Tax Department including the cases pending in Delhi High Court/ Supreme Court.

9. The Company is registered with the Reserve Bank of India (RBI) as a Non-Banking Financial Company (NBFC) since 1997-98. As per notification No.DNBS(PD).CC No.12/02.01/99-2000 dated 13.1.2000 of RBI, Govt. companies as defined under Section 617 of the Companies Act, 1956 have been exempted from applicability of the provisions of Reserve Bank of India Act, 1934 relating to maintenance of liquid assets and creation of Reserve Funds and the Directions relating to acceptance of public deposits and Prudential Norms. The said notification is also applicable to REC, being a Govt. company as defined under Section 2 (45) of the Companies Act, 2013 (Section 617 of the erstwhile Companies Act, 1956). Accordingly, the Reserve Fund is not created.

Further, as per Para No. 1 (3) (iv) of RBI''s Master Circular No. DNBS (PD) CC No. 381/03.02.001/2014-15 dated July 1, 2014, REC being a Government Company continues to be exempted from the applicability of Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007. However, RBI, vide its letters dated 25th July, 2013 and 4th April, 2014, has conveyed to the Company to comply with the Prudential Norms of RBI by 31st March, 2016 and follow the instructions contained in RBI Circular dated January 23, 2014 issued vide Notification No. DNBS (PD) No. 271/ CGM (NSV)-2014 in respect of restructuring of assets. Later, RBI vide its letter dated 11th June, 2014 has allowed exemption to the Company from RBI restructuring norms till March 31, 2017 for Transmission & Distribution, Renovation & Modernisation and Life Extension projects and also the Hydro projects in Himalayan region or affected by natural disasters. Further for new project loans to generating companies restructured w.e.f 01st April 2015, the provisioning requirement would be 5% and for stock of loans as on 31st March 2015 of such projects, the provisioning shall commence with a provision of 2.75% w.e.f 31st March 2015 and reaching 5% by 31st March 2018.

10. RBI, vide its letter dated September 17, 2010 had categorized REC as an Infrastructure Finance Company (IFC) in terms of instructions contained in RBI Circular CC No.168 dated February 12, 2010. As an IFC, the total permissible exposure for lending in the private sector is 25% of owned funds in case of single borrower and 40% in case of a single group of borrowers and exposure for lending and investing taken together can be upto 30% and 50% of owned funds, respectively.

In respect of Private Sector entities, the Company''s credit exposure to single borrowers and group borrowers did not exceed the RBI prudential exposure limits as at 31st March, 2015 and 31st March 2014.

In respect of Central/State Government entities, RBI vide its letter DNBS.CO.ZMD-N. No. 4868/55.18.014/2013-14 dated 4th April, 2014 has exempted REC from RBI Prudential Exposure limits till 31st March, 2016. In view of the exemption granted by RBI, our maximum credit exposure limits to Central and State power Utilities vary from 50% to 250% of owned funds, depending upon entity appraisal.

11. CHANGES IN ACCOUNTING POLICIES

Consequent to the notification of Companies Act, 2013, modifications have been made in Significant Accounting Policy No. 1(a) and 7. Further, modifications have been made in Significant Accounting Policy No. 2, 6. However, there is no financial impact of such modifications.

The Company has also changed its Significant Accounting Policy 4.1 regarding depreciation on fixed assets in alignment with Schedule-II to the Companies Act, 2013 which has become applicable from 1st April, 2014. If the company had followed the earlier policy, profit before tax for the year would have been higher by Rs. 2.89 Crores.

Further, the accounting policy on Provisioning against Loans has been amended to create provision @ 2.75% on stock of restructured loans. Thus, during the year, a provision has been made amounting to Rs. 451.77 Crores (Previous year Nil) on qualifying loans(comprising of loans to Public sector Rs. 11,682.23 Crores and loans to Private sector Rs. 4,745.92 Crores). Due to this change in accounting policy , the profit before tax is lower by Rs. 410.70 Crores after considering the existing provision on standard loan assets on these restructured loans.

11.2 Unsecured Advances against Intangible Assets

There are no such advances outstanding as on 31st March, 2015 (Previous year Nil) for which intangible collaterals such as rights, licenses, authority, etc. are charged in favour of the Company in respect of projects financed by the Company.

12. The Company has not entered into any securitisation/ assignment transactions during the FY 2014-15. Further, no assets have been sold to securitisation/ reconstruction company for asset reconstruction.

13. In accordance with the provisions of AS 9 ''Revenue Recognition'', the commitment fee of Rs. 4.84 Crores (Previous year Rs. 3.90 Crores) is not recognised in the books of accounts on account of the uncertainity of the receipt involved due to change in the drawal schedule etc. by the borrowers.

14. The National Electricity Fund (NEF), an interest subsidy scheme, has become operational during the year 2012-13. The scheme has been introduced by Govt. of India to promote the capital investment in the distribution sector. The scheme shall provide interest subsidy linked with reform measures, on the loans taken by public and private distribution power utilities for various capital works under Distribution sector. NEF would provide interest subsidy aggregating to Rs. 8,466 Crores (including interest subsidy to the borrowers, service charges to the nodal agency, payments to independent evaluators and other incidental expenses) spread over 13 years for loan disbursement against projects approved during 2012-13 and 2013-14. REC has been nominated as Nodal Agency for operationalisation of the NEF scheme in entire country.

15. Government of India has launched Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) with the following components:

(i) Separation of agriculture and non-agriculture feeders facilitating judicious rostering of supply to agriculture & non-agriculture consumers in the rural areas;

(ii) Strengthening and augmentation of sub-transmission & distribution infrastructure in rural areas, including metering of distribution transformers/feeders/consumers

(iii) Rural electrification, as per CCEA approval dated 01.08.2013 for completion of the targets laid down under RGGVY for 12th and 13th Plans by carrying forward the approved outlay for RGGVY to DDUGJY.

The components at (i) and (ii) of the above scheme will have an estimated outlay of Rs. 43,033 crore including budgetary support of Rs. 33,453 crore from Government of India during the entire implementation period. The scheme of RGGVY as approved by CCEA for continuation in 12th and 13th plan will get subsumed in this scheme as a separate Rural Electrification (RE) component. REC has been nominated as nodal agency for operationalization of this scheme.

16. In the opinion of the management, the current assets, loans and advances appearing in the balance sheet have a value equivalent to the amount stated therein if realized during the ordinary course of business and all known liabilities have been provided.

17. As per the information available with the Company, there have been no reported cases of delayed payments of the principal amount or interest due thereon to Micro, Small & Medium enterprises.

17.1 The Company has not entered into any exchange traded Interest Rate (IR) derivatives.

17.2 Disclosure on Risk Exposure in Derivatives

17.2.1 Qualitative Disclosures

REC has Risk Management Policy duly approved by the Board.The policy covers the currency risk of the company. This policy provides the guiding parameters within which the Company can take decisions for managing the Currency Risk that it is exposed to on account of foreign currency loan. The purpose of the policy is to provide a framework to the Company for management of its foreign currency risk.

Risk Management Structure

An Asset Liability Management Committee (ALCO) is currently functioning under the chairmanship of CMD, Director (Finance), Director (Technical) and one Part-time Non Official Independent Director, Executive Directors and General Managers from Finance and Operating Divisions as its members. ALCO monitors Foreign currency risk with exchange rate and interest rate managed through various derivative instruments.

Derivative transactions include forwards, interest rate swaps, cross currency swaps and currency and cross currency options to hedge assets and liabilities. These derivative transactions are done for hedging purpose and not for trading or speculative purpose. These are accounted for on accrual basis and are not marked to market.

Type of Risks Involved

(i) Credit Risk - Credit risk is the risk of loss due to counterparty''s failure to perform on an obligation to the Company.

(ii) Market Risk - Market risk is the risk of loss due to adverse changes in the market value (the price) of an instrument or portfolio of instruments. Such exposures occurs with respect to derivative instruments when changes occur in market factors such as underlying interest rates, exchange rates etc or in the volatility of these factors.

(iii) Liquidity Risk - Liquidity risk is the risk of loss due to failure of the institution to meet its funding requirments or execute a transaction at a reasonable price. This may be market liquidity risk or funding liquidity risk.

(iv) Operational Risk - Operational risk is the risk of loss occuring as a result of inadequate system and control, deficiencies in information system, human error or a management failure. Derivative activities can pose challenging operational risk issue because of complexity of certain products and their continual evolution.

(v) Legal Risk - Legal risk is the risk of loss arising from contracts which are not legally enforceable or documented correctly.

(vi) Regulatory Risk - Regulatory risk is the risk of loss arising from failure to comply with regulatory or legal requirements.

18. RELATED PARTY DISCLOSURES:

(1) Key Managerial Personnel

Sh. Rajeev Sharma Chairman & Managing Director

Sh. Ajeet Kumar Agarwal Director (Finance)

Sh. P. J. Thakkar Director (Technical)

Sh. J. S. Amitabh GM & Company Secretary *

* Company Secretary has been designated as Key Managerial Personnel w.e.f. 1st April, 2014 in accordance with the provisions of the Companies Act, 2013.

(2) Other Related Parties

1. Subsidiary Companies

REC Transmission Projects Company Limited (RECTPCL)

REC Power Distribution Company Limited (RECPDCL)

2. Wholly owned Subsidiaries of REC Transmission Projects Company Limited

Nellore Transmission Limited - Incorporated on 04.12.2012

Baira Siul Sarna Transmission Limited - Incorporated on 24.01.2013

NRSS XXIX Transmission Limited- Incorporated on 29.07.2013 and transferred to Sterlite Display Technologies Private Limited (SDTPL), an investing affiliate of Sterlite Grid Limited, on 04.08.2014, substantially upon the terms and conditions as detailed in the Share Purchase Agreement executed between RECTPCL, NRSS XXIX Transmission Limited and SDTPL.

NRSS XXXI (A) Transmission Limited- Incorporated on 29.07.2013 and transferred to Power Grid Corporation of India Limited (PGCIL) on 12.05.2014, substantially upon the terms and conditions as detailed in the Share Purchase Agreement executed between RECTPCL, NRSS XXXI (A) Transmission Limited and PGCIL.

NRSS XXXI (B) Transmission Limited- Incorporated on 29.07.2013 and transferred to M/s Essel Infraprojects Limited (EIL) on 12.05.2014, substantially upon the terms and conditions as detailed in the Share Purchase Agreement executed between RECTPCL, NRSS XXXI (B) Transmission Limited and EIL.

Gadarwara (B) Transmission Limited - Incorporated on 30.07.2014 and transferred to Power Grid Corporation of India Limited (PGCIL) on 24.04.2015, substantially upon the terms and conditions as detailed in the Share Purchase Agreement executed between RECTPCL, Gadarwara (B) Transmission Limited and PGCIL.

Gadarwara (A) Transco Limited - Incorporated on 05.08.2014 and transferred to Power Grid Corporation of India Limited (PGCIL) on 24.04.2015, substantially upon the terms and conditions as detailed in the Share Purchase Agreement executed between RECTPCL, Gadarwara (A) Transco Limited and PGCIL.

Maheshwaram Transmission Limited - Incorporated on 14.08.2014

Vindhyachal Jabalpur Transmission Limited - Incorporated on 14.08.2014 and transferred to Power Grid Corporation of India Limited (PGCIL) on 26.02.2015, substantially upon the terms and conditions as detailed in the Share Purchase Agreement executed between Vindhyachal Jabalpur Transmission Limited and PGCIL.

19. DISCLOSURES FOR EMPLOYEE BENEFITS AS REQUIRED UNDER AS 15:

(1) Defined Contribution Plans

A. Provident Fund

Company pays fixed contribution of Provident Fund at pre-determined rates to a separate trust which invests the funds in permitted securities. The trust fixes the rate of interest on contribution to the members of the trust.

B. Defined Contribution Superannuation Scheme

The Company pays fixed contribution towards superannuation scheme at pre-determined rates to a separate trust which invests the funds with the Insurers. The Insurers fix the rate of interest on the balance standing to the credit of the accounts of the members of the trust. When the pension becomes payable to the member, the Insurers shall appropriate the member''s accumulation towards various annuities, as opted for by the member.

(2) Defined Benefit Plans - Post-Employment Benefits

A. Gratuity

The Company has a defined benefit gratuity plan. Every employee is entitled to gratuity as per the provisions of the Payment of Gratuity Act, 1972. The scheme is funded by the Company and is managed by separate trust. The liability of Gratuity is recognized on the basis of actuarial valuation.

B. Post Retirement Medical Facility (PRMF)

The Company has Post Retirement Medical Facility under which the entitled retired employees (including his/her spouse) are covered as per Company Rules. The expenditure is recognized in the Statement of Profit & Loss on the basis of actuarial valuation.

C. Other Defined Retirement Benefit (ODRB)

The Company has a scheme for settlement of the employee and their dependents at the time of superannuation at home town. The expenditure is recognized in the Statement of Profit & Loss on the basis of actuarial valuation.

The summarized position of various defined benefits recognized in the Statement of Profit & Loss, Balance Sheet and the funded status is as under:

20. STATUS OF DOCUMENTATION SUBSEQUENT TO UNBUNDLING OF SEBS

Some of the erstwhile State Electricity Boards (SEBs) against whom loans were outstanding or on whose behalf guarantees were given, were restructured by the respective State Governments and new entities were formed in the past. Consequently, the liabilities of the erstwhile SEBs stand transferred to new entities. However, transfer agreements in the case of Chhattisgarh State Electricity Board (CSEB), Kerala State Electricity Board (KSEB) and Meghalaya State Electricity Board (MSEB) are yet to be executed amongst the Company, new entities and the State Governments.

Agreements in case of Tamil Nadu State Electricity Board have been executed based on the provisional provisions of the Tamil Nadu Electricity (Re-organisation and Reforms) Transfer Scheme, 2010. However, further transfer agreements in this regard shall be executed, if required, on finalization of the Transfer Scheme.

Status of Documentation Subsequent to Reorganisation of the State of Andhra Pradesh

Subsequent to the reorganisation of erstwhile State of Andhra Pradesh, the state of Telangana has been formed on 2nd June, 2014. However, the assets and liabilities are yet to be transferred to the respective power utilities through a formal Gazette Notification.

Status of Documentation is as under:

(i) Where ever the loans have been sanctioned to erstwhile APCPDCL, APNPDCL and APGENCO prior to bifurcation and documentation has not been done, these schemes have been re-sanctioned in the name of newly formed utilities and documentation formalities completed and accordingly the charge has been registered with the Ministry of Corporate Affairs (MCA).

(ii) Where ever the loans sanctioned in the name of erstwhile APCPDCL, APNPDCL prior to bifurcation and documentation formalities completed and drawls have been made, in these schemes an undertaking has been obtained from the name changed / newly formed utility and disbursements have been made to the newly formed utility by changing the name of the borrower in the name of new / name changed utility.

(iii) Where ever the Loan is sanctioned in the name of erstwhile APCPDCL, APNPDCL prior to bifurcation and documentation formalities completed with Government Guarantee and drawls have been made, further documentation for these schemes shall be done on Gazette Notification.

(iv) Once the final transfer scheme is notified through Gazette Notification by Govt, duly indicating the transfer of assets and liabilities among the power utilities, action for execution of documentation formalities will be taken up in respect of all the outstanding loans with the new / name changed utilities. Till that time, the demand for payment of interest / principal is being segregated by the Utilities and the respective portions are being paid by Utilities in Telangana and Andhra Pradesh.

21. The Company''s main business is to provide finance to power sector. Accordingly, the Company does not have more than one segment eligible for reporting in terms of Accounting Standard-17.

22. There are no Off-Balance Sheet SPVs sponsored by the Company, which need to be consolidated as per accounting norms.

23. No penalties have been levied on the Company by any regulator during the financial year 2014-15 (Previous year Nil).

24. No complaints have been received by the Company from the borrowers under the Fair Practices Code during the financial year 2014-15 (Previous year Nil).

25. Previous year figures have been reclassified/ regrouped to conform to the current classification.

26. Figures in Rupees have been rounded off to the nearest crores with two decimals, unless expressly stated.

The Significant Accounting Policies and Notes to Accounts 1 to 49 are an integral part of Balance Sheet and Statement of Profit & Loss.


Mar 31, 2014

1. CONTINGENT LIABILITIES AND COMMITMENTS :

1.1 Contingent Liabilities not provided for in respect of:

(Rs. in Crores)

Particulars As at As at 31.03.2014 31.03.2013

A - Claims against the Company not acknowledged as debts 56.16 51.28

B - OTHERs

- Letters of Comfort 1,273.81 1,904.17

The amount referred to in ''A'' above includes Rs. 5.24 Crores (Previous year Rs. 5.17 Crores) is in respect of cases pending in various courts including arbitration cases and is dependent upon the outcome of settlement of court/arbitration cases and also includes Rs. 50.92 Crores (Previous year Rs. 46.11 Crores) against various demands raised by the Income Tax Department including the cases pending in Delhi High Court.

2. The Company is registered with the Reserve Bank of India (RBI) as a Non-Banking FINANCIAL Company (NBFC) since 1997-98. As per notifcation No.DNBS(PD).CC No.12/02.01/99-2000 dated 13.1.2000 of RBI, Govt. companies as Defined under Section 617 of the Companies Act, 1956 have been exempted from applicability of the provisions of Reserve Bank of India Act, 1934 relating to maintenance of liquid assets and creation of Reserve Funds and the Directions relating to acceptance of public deposits and prudential norms. The said notifcation is also applicable to REC, being a Govt. company conforming to Section 617 of the Companies Act, 1956. Further, as per Para No. 1 (3) (iv) of RBI''s Master Circular No. DNBS (PD) CC No. 333/03.02.001/2013-14 dated July 1, 2013, REC being a Government Company as Defined under section 617 of the Companies Act 1956 continues to be exempted from the applicability of Non-Banking FINANCIAL (Non- Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007. Moreover in view of the non- applicability of the provisions of Section 45 (I) C of the RBI Act 1934 regarding creation of Reserve Fund, the Reserve Fund is not created.

Further, RBI, vide its letter dated September 17, 2010 had categorized REC as an Infrastructure Finance Company (IFC) in terms of instructions contained in RBI Circular CC No.168 dated February 12, 2010. As an IFC, the total permissible exposure for lending in the private sector is 25% of owned funds in case of single borrower and 40% in case of a single group of borrowers and exposure for lending and investing taken together can be upto 30% and 50% of owned funds, respectively. REC is also required to maintain a Capital to Risk Weighted Assets Ratio (CRAR) of 15% (with a minimum Tier I Capital of 10%). Accordingly, the Prudential Norms were modifed with the approval of our Board on September 25, 2010. In view of the exemption granted by RBI, our maximum credit exposure limits to CENTRAL and State POWER Utilities vary from 50% to 250% of our net worth, depending upon entity appraisal.

3. On December 13, 2006, our Board of Directors approved Company''s Prudential Norms and amendments thereto were approved on February 21, 2009, September 25, 2010, May 28, 2013 and May 26, 2014. Some important features of these are given in the significant Accounting Policies also. However, in order to bring all "Systemically important" government-owned NBFCs within the framework of their prudential norms, RBI had advised our Company on December 12, 2006 to submit a ''road map''.

The Company submitted the road map to RBI through the Ministry of POWER and RBI , vide its letter dated June 29, 2010 had granted exemption to REC from its Prudential exposure Norms in respect of CENTRAL and State entities in the POWER sector, till March 31, 2012. In response to the Company''s submission for further extending the exemption period till at least the end of XII plan, forwarded to RBI by Ministry of POWER vide letter dated January 16, 2012, RBI, vide its letter dated April 4, 2012 had agreed to extend the exemption from adhering to RBI Prudential Norms till March 31, 2013, subject to furnishing a Roadmap upto June 30, 2012 for compliance with the RBI Prudential Norms as laid down in Non Banking FINANCIAL Companies (Non Deposit Accepting or Holding) Prudential Norms (Reserve Bank) Directions, 2007 as amended from time to time, within three years beginning April 1, 2013.

Accordingly, REC submitted the roadmap for compliance of the RBI Prudential Norms in phased manner w.e.f. 2012-13, vide letter dated 22nd June, 2012 to Ministry of POWER which was forwarded to RBI on 6th July, 2012. RBI, vide letter dated 25th July, 2013 has conveyed to REC that matters relating to restructuring/reschedulement/ renegotiation of assets and credit concentration norms are under consideration of the Bank and advised REC to take steps to comply with the prudential norms of RBI by 31st March, 2016. Subsequently, RBI vide letter dated April 4 2014, has exempted REC from credit concentration norms in respect of exposure to CENTRAL/ State Government entities till March 31 2016 and with regard to Restructuring of assets, REC has been advised that it may follow the instructions contained in RBI Circular DNBS.CO.PD.367/03.10.01/2013-14 dated January 23, 2014 issued vide Notifcation No. DNBS (PD) No. 271/ CGM (NSV)-2014 of the same date. Necessary steps would be taken by 31st March, 2016 in terms of RBI letters dated 04th April, 2012, 25th July, 2013 and 04th April, 2014. However, REC has taken up the matter with RBI and also through the Ministry of POWER, for suitable directions in this regard and necessary action shall be taken in subsequent years in the manner so advised by RBI.

4. The National Electricity Fund (NEF), an interest subsidy scheme, has become operational during the year 2012-13. The scheme has been introduced by Govt. of India to promote the capital investment in the DISTRIBUTION sector. The scheme shall provide interest subsidy linked with reform measures, on the LOANS taken by public and private DISTRIBUTION POWER utilities for various capital works under DISTRIBUTION sector. NEF would provide interest subsidy aggregating to Rs. 8,466 Crores (including interest subsidy to the borrowers, service charges to the nodal agency, payments to independent evaluators and OTHER incidental expenses) spread over 14 years for loan disbursement against projects approved during 2012-13 and 2013-14. REC has been nominated as Nodal Agency for operationalisation of the NEF scheme in entire country.

5. There has been shortfall (gross) in creation of Special Fund by some of the RE Cooperative Societies amounting to Rs. 5.86 Crores (Previous year Rs. 5.86 Crores).

6. Changes in Accounting POLICY

Modifications have been made in significant Accounting POLICY No. 1(a), 2.1a, 2.1e(1), 2.2 (i), 2.2(iv), 5, 6, 7 to make it more clarifcatory/ explicit. However, there is no financial impact of such modifications.

Further, the Company has changed its significant Accounting POLICY 2.3 (iv) regarding provision on Standard Assets which is now created at 0.25% of the outstanding standard assets as against creating it in a phased manner upto 31st March, 2015. If the company had followed the earlier POLICY, the profit after tax for the year ended March 31, 2014 would have been higher by Rs. 105.74 crore.

7. In the opinion of the management, the current assets, LOANS and advances appearing in the balance sheet have a value equivalent to the amount stated therein if realized during the ordinary course of BUSINESS and all known liabilities have been provided.

8. The Company has no outstanding liability towards Micro, Small and Medium undertakings.

9. As part of hedging strategy, the company has executed, in some cases, interest rate swaps from fixed rate of interest to foating rate of interest. The INR value of outstanding borrowing on which such swap has been exercised is Rs. 7,427.80 Crores (Previous year Rs. 7,211.80 Crores).

10. RELATED PARTY DISCLOSURES :

(1) Key Management Personnel

Sh. Rajeev Sharma Chairman & Managing Director (from 29.11.2011 A/N)

Sh. Ajeet Kumar Agarwal Director (Finance) (from 01.08.2012 F/N)

Sh. P.J. Thakkar Director (Technical) (from 02.05.2011 A/N)

(2) OTHER Related Parties

1. Subsidiary Companies

REC Transmission Projects Company Limited (RECTPCL) REC POWER DISTRIBUTION Company Limited (RECPDCL)

2. Wholly owned Subsidiaries of REC Transmission Projects Company Limited

Vizag Transmission Limited (VTL) - Incorporated on 30.11.2011 and transferred to POWER Grid Corporation of India Limited (PGCIL) on 30.08.2013, substantially upon the terms and conditions as detailed in the Share Purchase Agreement between RECTPCL, VTL and PGCIL

Kudgi Transmission Limited (KTL) - Incorporated on 27.11.2012 and transferred to L&T Infrastructure DEVELOPMENT Projects Limited (LTIDPL) on 30.08.2013, substantially upon the terms and conditions as detailed in the Share Purchase Agreement between RECTPCL, KTL and LTIDPL.

Unchahar Transmission Limited (UTL)- Incorporated on 17.12.2012 and transferred to POWER Grid Corporation of India Limited (PGCIL) on 24.03.2014, substantially upon the terms and conditions as detailed in the Share Purchase Agreement executed between RECTPCL, UTL and PGCIL.

Nellore Transmission Limited - Incorporated on 04.12.2012

Baira Siul Sarna Transmission Limited - Incorporated on 24.01.2013

NRSS XXIX Transmission Limited- Incorporated on 29.07.2013

NRSS XXXI (A) Transmission Limited- Incorporated on 29.07.2013 and transferred to POWER Grid Corporation of India Limited (PGCIL) on 12.05.2014, substantially upon the terms and conditions as detailed in the Share Purchase Agreement executed between RECTPCL, NRSS XXXI (A) Transmission Limited and PGCIL.

NRSS XXXI (B) Transmission Limited- Incorporated on 29.07.2013 and transferred to M/s Essel Infraprojects Limited (EIL) on 12.05.2014, substantially upon the terms and conditions as detailed in the Share Purchase Agreement executed between RECTPCL, NRSS XXXI (B) Transmission Limited and EIL.

11. The Company has adopted AS 15 (revised 2005) ''Employee benefits''. Defined employee benefit schemes are as follows:

A. Provident Fund

Company pays fixed contribution of Provident Fund at pre-determined rates to a separate trust which invests the funds in permitted securities. The trust fixes the rate of interest on contribution to the members of the trust. As per the management estimates, the fair value of the assets of the Provident fund including the returns of the assets thereof, as at 31.03.2014 is greater than the obligation under the Defined contribution plan.

B. Defined Contribution Superannuation Scheme

The Company pays fixed contribution towards superannuation scheme at pre-determined rates to a separate trust which invests the funds with the Insurers. The Insurers fix the rate of interest on the balance standing to the credit of the accounts of the members of the trust. When the pension becomes payable to the member, the Insurers shall appropriate the member''s accumulation towards various annuities, as opted for by the member. The expenditure is recognized in the Statement of profit & Loss on the basis of Defined contribution payable by the Company.

C. Gratuity

The Company has a Defined benefit gratuity plan. Every employee is entitled to gratuity as per the provisions of the Payment of Gratuity Act. The scheme is funded by the Company and is managed by separate trust. The liability of Gratuity is recognized on the basis of actuarial valuation.

D. Post Retirement Medical Facility (PRMF)

The Company has Post Retirement Medical Facility under which the entitled retired employees (including his/her spouse) are covered as per Company Rules. The expenditure is recognized in the Statement of profit & Loss on the basis of actuarial valuation.

E. Employees Family Economic Rehabilitation Scheme

The Company has a scheme to provide monetary benefit and support to the family of an employee in case of his/her permanent total disablement/ death if the same takes place while the employee is in service of the Company. The expenditure is recognized in the Statement of profit & Loss on the basis of actuarial valuation.

F. Scheme for Long Service Award to the Employees

The Company has a scheme for Long service Award to the employees on completion of milestones of continuous service of 10 years, 20 years and 30 years in the Company. The expenditure is recognized in the Statement of profit & Loss on the basis of actuarial valuation.

33. Some of the erstwhile State Electricity Boards (SEBs) against whom LOANS were outstanding or on whose behalf guarantees were given, were restructured by the respective State Governments and new entities were formed in the past. Consequently, the liabilities of the erstwhile SEBs stand transferred to new entities and transfer agreements in the case of Punjab State Electricity Board (PSEB), Himachal Pradesh State Electricity Board (HPSEB) and Chhattisgarh State Electricity Board (CSEB) are to be executed amongst the Company, new entities and the State Governments.

12. The Company''s main BUSINESS is to provide finance to POWER sector. Accordingly, the Company does not have more than one segment eligible for reporting in terms of Accounting Standard-17.

13. The Capital Adequacy Ratio of the Company as on 31.03.2014 is 19.35% (Previous year 17.71%).

14. The Company has no exposure to real estate sector as on 31.03.2014 (Previous year Nil).

15. Previous year fgures have been reclassified/ regrouped to conform to the current classifcation.

16. Figures in Rupees have been rounded off to the nearest crores with two decimals, unless expressly stated.

The significant Accounting Policies and Notes to Accounts 1 to 40 are an integral part of Balance Sheet and Statement of profit & Loss.


Mar 31, 2013

1.1 Security Details of the Secured Borrowings

The Bond Series 69 of Institutional Bonds is secured by a (a) mortgage of premises at 51 and 52/58-B, 5th floor, Mittal Tower, Block II, Backbay Scheme, Nariman Point, Colaba, Mumbai 400 005, Maharashtra, India and (b) a charge on the fixed and/ or current assets (book debts) of the Corporation in favour of IL&FS Trust Company Limited.

The Bond Series 73, 75 of Institutional Bonds are secured by a (a) mortgage of premises at 51 and 52/58-B, 5th floor, Mittal Tower, Block II, Backbay Scheme, Nariman Point, Colaba, Mumbai 400 005, Maharashtra, India and (b) pari passu charge on the receivables, both present and future, save and except receivables hypothecated to IL&FS Trust Company Limited on the basis of joint hypothecation agreement dated September 24, 2010 in favour of IDBI Trusteeship Services Ltd.

The Bond Series 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 86A, 86 B-II, 86 B-III, 87-I, 87-II, 87 A-II, 87 A-III, 87 C-III, 88, 89-II, 90, 90 A-II, 90 B-I, 90 B-II, 90 C-II, 91-II, 92-II, 93-II of Institutional Bonds and all 54EC Capital Gain Tax Exemption Bonds are secured by a charge on a (a) mortgage of Flat no. 640, Asiad Games Village, New Delhi 110 049, India and (b) pari passu charge on the receivables of our Company, both present and future, save and except receivables hypothecated to IL&FS Trust Company Limited on the basis of joint hypothecation agreement dated September 24, 2010 in favour of IDBI Trusteeship Services Ltd.

Tax Free Bonds (issued during FY 2011-12) are secured by first pari passu charge on premises at Shop No. 12, Ground Floor, Block No. 35, Church Road, Mylapore, Chennai and hypothecation of receivables of Rs. 4,998.66 crores of MSEDCL in favour of IL&FS Trust Company Ltd.

Tax Free Bonds (issued during FY 2012-13) are secured by first pari passu charge on (a) mortgage of premises at Sub Plot No. 8, TPS No 2, FP No. 584P, situated at Village Subhanpura, Distt Vadodara and (b) hypothecation of receivables in favour of SBICap Trustee Company Ltd.

All the term loans are secured by a charge on the receivables of our Company, both present and future, save and except certain specific receivables hypothecated to IL&FS Trust Company Limited on the basis of joint hypothecation agreement last updated on September 24, 2010.

1.2 54EC Capital Gain Tax Exemption Bonds are issued for a tenure of 3 years at interest rates of 6.00% to 6.25% payable annually. During the year, 54EC Capital Gain Tax Exemption Bonds Series VIII 2012-13 was issued with a 3 years'' tenor at interest rate of 6.00% payable annually. These bonds will be redeemed automatically at the end of lock-in period of 3 years.

3.1 The Company had made a public issue of Tax Free Bonds of face value of Rs. 1,000/- each aggregating to Rs. 3,000 crores during the financial year 2011-12. The bonds had been allotted on 27.03.2012 and the issue proceeds had been kept in designated Public Issue accounts. The issue proceeds have been utilised during the year for the purposes as mentioned in the Offer document.

The Company had made public issue of Tax Free Bonds of face value of Rs. 1,000/- each aggregating to Rs. 2,148.41 crores in two tranches during the financial year 2012-13 in addition to a private placement of the Tax Free Bond Issue of Rs. 500 crores. The bonds under public issue had been allotted in line with the prescribed guidelines and within Financial year 2012-13. The issue proceeds have been utilised for the purposes as mentioned in the Offer document except for Rs. 0.63 crores which is kept in designated public issue account pending its utilisation.

4.1 The Corporation has taken office space, accommodations for staff and space for ERP Data Centre on lease. These are classified as operating lease. Lease payments in respect of office space and data centre amounting to Rs. 2.39 crores (Previous year Rs. 2.38 crores) is shown under the head ''Other Expenses''. Lease payments in respect of accommodations for staff amounting to Rs. 1.57 crores (Previous year Rs. 1.27 crores) form part of ''Employees Benefit Expense.'' Future lease payments in respect of these lease agreements are as under:

5. Contingent Liabilities and Commitments :

5.1 Contingent Liabilities not provided for in respect of:

(Rs. in crores)

Particulars As at 31.03.2013 As at 31.03.2012

A-Claims against the Company not acknowledged as debts 51.28 59.84

B-Others

- Letters of Comfort 1,904.17 4,696.95

The amount referred to in ''A'' above includes Rs. 5.17 crores (Previous year Rs. 7.75 crores) which is pending in various courts including arbitration cases and is dependent upon the outcome of settlement of court/arbitration cases and also includes Rs. 46.11 crores (Previous year Rs. 52.09 crores) against various demands raised by the Income Tax Department including the cases pending in Delhi High Court.

6. The Corporation is registered with the Reserve Bank of India (RBI) as a Non-Banking Financial Company (NBFC) since 1997-98. As per notification No.DNBS(PD).CC No.12/D2.01/99-2000 dated 13.1.2000 of RBI, Govt. companies as defined under Section 617 of the Companies Act, 1956 have been exempted from applicability of the provisions of RBI Act 1934 relating to maintenance of liquid assets and creation of Reserve Funds and the Directions relating to acceptance of public deposits and prudential norms. The said notification is also applicable to REC, being a Govt. company conforming to Section 617 of the Companies Act, 1956. Further, as per Para No. 1 (3) (iv) of RBI''s Master Circular No. DNBS (PD) CC No. 279/03.02.001/2012-13 dated July 2, 2012, , REC being a Government Company as defined under section 617 of the Companies Act 1956 continues to be exempted from the applicability of Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007. Moreover in view of the non applicability of the provisions of Section 45 (I) C of the RBI Act 1934 regarding creation of Reserve Fund, the Reserve Fund is not created.

Further, RBI, vide its letter dated September 17, 2010 had categorized REC as an Infrastructure Finance Company (IFC) in terms of instructions contained in RBI Circular CC No.168 dated February 12, 2010. As an IFC, the total permissible exposure for lending in the private sector is 25% of owned funds in case of single borrower and 40% in case of a single group of borrowers and exposure for lending and investing taken together can be upto 30% and 50% of owned funds, respectively. REC is also required to maintain a Capital to Risk Weighted Assets Ratio (CRAR) of 15% (with a minimum Tier I Capital of 10%). Accordingly, the Prudential Norms were modified with the approval of our Board on September 25, 2010. In view of the exemption granted by RBI, our maximum credit exposure limits to Central and State power Utilities vary from 50% to 250% of our net worth, depending upon entity appraisal.

7. On December 13, 2006 our Board of Directors approved Corporation''s Prudential Norms and amendments thereto were approved on February 21, 2009 and September 25, 2010. Some important features of these are given in the Significant Accounting Policies also. However, in order to bring all "Systemically important" government-owned NBFCs within the framework of their prudential norms, RBI had advised our Corporation on December 12, 2006 to submit a ''road map''. The Corporation submitted the road map to RBI through the Ministry of Power and RBI , vide its letter dated June 29, 2010 had granted exemption to REC from Prudential exposure Norms in respect of Central and State entities in the power sector, till March 31, 2012. In response to the Corporation''s submission for further extending the exemption period till at least the end of XII plan, forwarded to RBI by Ministry of Power vide letter dated January 16, 2012, RBI, vide its letter dated April 4, 2012 had agreed to extend the exemption from adhering to RBI Prudential Norms till March 31, 2013, subject to furnishing a Roadmap upto June 30, 2012 for compliance with the RBI Prudential Norms as laid down in Non Banking Financial Companies (Non Deposit Accepting or Holding) Prudential Norms (Reserve Bank) Directions, 2007 as amended from time to time, within three years beginning April 1, 2013. Accordingly, REC submitted the roadmap for compliance of the RBI Prudential Norms in phased manner w.e.f. 2012-13, vide letter dated 22nd June, 2012 to Ministry of Power which was forwarded to RBI on 6th July, 2012. Later RBI sought clarifications which were submitted. The phased implementation would be effected on response on roadmap from RBI. In respect of the proposed amendments for the year 2012-13, there is no financial impact, if implemented. Since the matter is under consideration of RBI, the Company is unable to ascertain the likely impact of the same, if any, in the later year(s).

8. The National Electricity Fund (NEF), an interest subsidy scheme, has become operational during this year. The scheme has been introduced by Govt. of India to promote the capital investment in the distribution sector. The scheme shall provide interest subsidy linked with reform measures, on the loans taken by public and private distribution power utilities for various capital works under Distribution sector. NEF would provide interest subsidy aggregating to Rs. 8,466 crores (including interest subsidy to the borrowers, service charges to the nodal agency, payments to independent evaluators and other incidental expenses) spread over 14 years for loan disbursement schemes, sanctioned during the 2 years viz. 2012-13 and 2013-14. REC has been nominated as Nodal Agency for operationalisation of the NEF scheme in entire country.

9. Changes in Accounting Policy

Modifications have been made in Significant Accounting Policy No. 2, 2.1a, 2.3(ii)(a), 4.1, 5, 6, 10.2, 10.3, 13.2, 15 to make it more clarificatory/ explicit. However, there is no financial impact of such modifications.

Further, the Company has formulated a New Accounting Policy 2.3 (iv) to create a provision against standard assets in a phased manner so as to make it a minimum of 0.25% by the end of financial year 2014-15. The profit before tax for the year is lower by Rs. 105.68 crores due to this Accounting Policy.

10. There has been shortfall (gross) in creation of Special Fund by some of the RE Cooperative Societies amounting to Rs. 5.86 crores (Previous year Rs. 5.71 crores).

11. Income Tax as applicable in respect of Interest accrued on bonds which are freely tradeable / transferable is deducted at source at the time of actual payment of interest to the bond holders.

12. In the opinion of the management, the current assets, loans and advances appearing in the balance sheet have a value equivalent to the amount stated therein if realized during the ordinary course of business and all known liabilities have been provided.

13. The Corporation has no outstanding liability towards Micro, Small and Medium undertakings.

14. As part of hedging strategy, the company has executed, in some cases, interest rate swaps from fixed rate of interest to floating rate of interest. The INR value of outstanding borrowing on which such swap has been exercised is Rs. 7,211.80 crores (Previous year Rs. 7,150 crores).

15. Related Party Disclosures :

(1) Key Management Personnel

Sh. Rajeev Sharma Chairman & Managing Director (from 29.11.2011 A/N)

Sh. H.D. Khunteta Director (Finance) (till 31.07.2012 F/N)

Sh. Ajeet Kumar Agarwal Director (Finance) (from 01.08.2012 F/N)

Sh. P.J. Thakkar Director (Technical) (from 02.05.2011 A/N)

(2) Other Related Parties

1. Subsidiary Companies

REC Transmission Projects Company Limited (RECTPCL)

REC Power Distribution Company Limited (RECPDCL)

2. Wholly owned Subsidiaries of REC Transmission Projects Company Limited

Vemagiri Transmission System Limited (VTSL) - Incorporated on 21.04.2011 and transferred to Power Grid Corporation of India Limited (PGCIL) on 8.04.2012, substantially upon the terms and conditions as detailed in the Share Purchase Agreement executed between RECTPCL, VTSL and PGCIL)

Vizag Transmission Limited (VTL) - Incorporated on 30.11.2011

Kudgi Transmission Limited - Incorporated on 27.11.2012

Nellore Transmission Limited - Incorporated on 04.12.2012

Unchahar Transmission Limited - Incorporated on 17.12.2012

Baira Siul Sarna Transmission Limited - Incorporated on 24.01.2013

33. The Corporation has adopted AS 15 (revised 2005) ''Employees Benefit''. Defined employee benefit schemes are as follows:

A. Provident Fund

Corporation pays fixed contribution of Provident Fund at pre-determined rates to a separate trust which invests the funds in permitted securities. The trust fixes the rate of interest on contribution to the members of the trust. As per the management estimates, the fair value of the assets of the Provident fund including the returns of the assets thereof, as at 31.03.2013 is greater than the obligation under the defined contribution plan.

B. Defined Contribution Superannuation Scheme

Corporation pays fixed contribution towards superannuation scheme at pre-determined rates to a separate trust which invests the funds with the Insurers. The Insurers fix the rate of interest on the balance standing to the credit of the accounts of the members of the trust. When the pension becomes payable to the member, the Insurers shall appropriate the member''s accumulation towards various annuities, as opted for by the member. The expenditure is recognized in the Statement of Profit & Loss on the basis of defined contribution payable by the Corporation.

C. Gratuity

The Corporation has a defined benefit gratuity plan. Every employee is entitled to gratuity as per the provisions of the Payment of Gratuity Act. The scheme is funded by the Corporation and is managed by separate trust. The liability of Gratuity is recognized on the basis of actuarial valuation.

D. Post Retirement Medical Facility (PRMF)

The corporation has Post Retirement Medical Facility under which the entitled retired employees (including his/her spouse) are covered as per Corporation''s rule. The expenditure is recognized in the Statement of Profit & Loss on the basis of actuarial valuation.

E. Employees Family Economic Rehabilitation Scheme

The Corporation has a scheme to provide monetary benefit and support to the family of an employee in case of his/her permanent total disablement/ death if the same takes place while the employee is in service of the Corporation. The expenditure is recognized in the Statement of Profit & Loss on the basis of actuarial valuation.

F. Scheme for Long Service Award to the Employees

The Corporation has a scheme for Long service Award to the employees on completion of milestones of continuous service of 10 years, 20 years and 30 years in the corporation. The expenditure is recognized in the Statement of Profit & Loss on the basis of actuarial valuation.

G. Other Defined Retirement Benefit (ODRB)

The Corporation has a scheme for settlement of the employee and their dependents at the time of superannuation at home town. The expenditure is recognized in the Statement of Profit & Loss on the basis of actuarial valuation.

The summarized position of various defined benefits recognized in the Statement of Profit & Loss, Balance Sheet and the funded status are as under:

16. Some of the erstwhile State Electricity Boards (SEBs) against whom loans were outstanding or on whose behalf guarantees were given, were restructured by the respective State Governments and new entities were formed in the past. Consequently, the liabilities of the erstwhile SEBs stand transferred to new entities and transfer agreements in the case of Punjab State Electricity Board (PSEB), Himachal Pradesh State Electricity Board (HPSEB) and Chhattisgarh State Electricity Board (CSEB) are to be executed amongst the Corporation, new entities and the State Governments.

17. Repayment schedule in respect of certain Standard Assets were revised during the year on account of various reasons like extension of Commercial Operation Date etc. These loans continue to remain Standard Assets. The movement of all outstanding loans rescheduled by the Corporation till 31.03.2013 is as under:

18. The Corporation''s main business is to provide finance to power sector. Accordingly, the Corporation does not have more than one segment eligible for reporting in terms of Accounting Standard No.17 issued by the Institute of Chartered Accountants of India.

19. The Capital Adequacy Ratio of the Corporation as on 31.03.2013 is 17.71% (Previous year 16.00%).

20. The Company has no exposure to real estate sector as on 31.03.2013 (Previous year Nil).

21. Previous year figures have been reclassified/ regrouped to conform to the current classification.

22. Figures in Rupees have been rounded off to the nearest crores with two decimals, unless expressly stated.

The Significant Accounting Policies and Notes to Accounts 1 to 41 are an integral part of Balance Sheet and Statement of Profit & Loss.


Mar 31, 2012

1. On December 13, 2006, our Board of Directors approved Corporation's Prudential Norms and amendments thereto were approved on February 21, 2009 and September 25, 2010. However, in order to bring all "systemically important" government-owned NBFCs within the framework of the prudential norms, the RBI had advised our Corporation on December 12, 2006 to submit a 'road map' for compliance with various ele- ments of the regulations governing NBFCs. The Corporation submitted the road map to RBI through the Ministry of Power and RBI, vide its letter dated June 29, 2010 had granted exemption to REC from Prudential Exposure Norms in respect of Central and State entities in Power Sector till March 31, 2012. In response to the Corporation's submission for further extending the exemption period till atleast the end of XII plan, forwarded to RBI by Ministry of Power (MoP) vide letter dated January 16, 2012, RBI, vide its letter dated April 4, 2012 has agreed to extend the exemption from adhering to RBI Prudential Norms till March 31, 2013, subject to furnishing a Roadmap upto June 30, 2012 for compliance with the RBI Prudential Norms as laid down in Non Banking Financial Companies (Non Deposit Accepting or Holding) Prudential Norms (Reserve Bank) Directions, 2007 as amended from time to time, within three years beginning April 1, 2013.

Further, RBI, vide its letter dated September 17, 2010, had categorized REC as an Infrastructure Finance Company (IFC) in terms of instructions contained in RBI Circular CC No.168 dated February 12, 2010. As an IFC, the total permissible exposure for lending in the private sector would be 25% of owned funds in case of a single borrower and 40% in case of a single group of borrowers and exposure for lending and investing taken together can be upto 30% and 50% of owned funds, respectively. REC is also required to maintain a Capital to Risk Weighted Assets Ratio (CRAR) of 15% (with a minimum Tier I Capital of 10%). Accordingly, the Prudential Norms have been modified with the approval of our Board on September 25, 2010. In view of the exemption granted by RBI in respect of Central and State Entities in power sector, our maximum credit exposure limits to such Utilities varies from 50% to 250% of our net worth, depending upon entity appraisal and status of unbundling of the respective State Utilities.

2. The Corporation is registered with the Reserve Bank of India (RBI) as a Non-Banking Financial Company (NBFC) since 1997-98. As per notifica- tion No. DNBS (PD), CC No. 12/D2.01/99-2000 dated 13.1.2000 of RBI, Govt. Companies conforming to Section 617 of the Companies Act have been exempted from applicability of the provisions of RBI Act 1934 relating to maintenance of liquid assets and creation of Reserve Funds and the Directions relating to acceptance of public deposits and prudential norms. The said notification is also applicable to REC, being a Govt. Company conforming to Section 617 of the Companies Act, 1956. Moreover in view of the non applicability of the provisions of section 45 (I) C of the RBI Act, 1934 regarding creation of Reserve Fund, the Reserve Fund is not created.

3. Changes in Accounting Policy

3.1 The company has adopted to account for gain or loss on interest rate swaps on domestic borrowings on accrual basis in conformity to the Significant Accounting Policy 1.(a) as against the earlier accounting policy of adjusting the interest cost as on the settlement date. Due to this change in accounting policy, the profit for the year ended 31.03.2012 is higher by Rs. 2.42 Crores (net of taxes).

3.2 The company has changed its Significant Accounting Policy 14.1 w.e.f. 01.04.2011 with respect to the accounting treatment of foreign cur- rency translation differences in accordance with Para 46A of Accounting Standard 11 'The Effects of Changes in Foreign Exchange Rates' and has opted for amortising the foreign exchange fluctuation loss/(gain) on the long term foreign currency monetary items over the balance period of such items. Accordingly, the amortisation of foreign exchange fluctuation loss of Rs. 27.14 Crores is included under the head 'Foreign Currency Exchange Fluctuation Loss' in the Statement of Profit and Loss. Due to this change in accounting policy, the profit for the year ended 31.03.2012 is higher by Rs. 135.50 Crores (net of taxes).

3.3 Modifications have been made in Significant Accounting Policy No. 4.1 to make it more clarificatory/ explicit. However, there is no financial impact of such modification.

4. There has been shortfall (gross) in creation of Special Fund by some of the RE Cooperative Societies amounting to Rs. 5.71 Crores (Previous year Rs. 5.68 Crores) and the societies are pursued to create the required Special Fund.

5. Balance confirmation has been received from most of the borrowers of the Corporation.

6. Income Tax as applicable in respect of Interest accrued on bonds is deducted at source at the time of actual payment of interest to the bond holders since such bonds are freely transferable.

7. In terms of Accounting Policy No. 10.2, the balances in respect of Interest Warrants Accounts as on 31.03.2012 held in specified banks are Rs. 14.10 Crores (Previous year Rs. 23.76 Crores).

8. In the opinion of the management, the current assets, loans and advances appearing in the balance sheet have a value equivalent to the amount stated therein if realized during the ordinary course of business and all known liabilities have been provided.

9. Provision for impairment loss as required under Accounting Standard-28 'Impairment of Assets' is not necessary as in the opinion of manage- ment there is no impairment of the assets of the Corporation in terms of AS-28.

10. The Corporation has no outstanding liability towards Micro, Small and Medium undertakings.

11. As part of hedging strategy, the company has executed, in some cases, interest rate swaps from fixed rate of interest to floating rate of interest. The INR value of outstanding borrowing on which such swap has been exercised is Rs. 7,150.00 Crores. During the year ended 31.03.2012, the Corporation has reduced cost of borrowing to the extent of Rs. 20.03 Crores (Previous year Rs. 41.15 Crores) on account of these swap transactions linked to rupee borrowing.

12. The Corporation has adopted AS 15 (revised 2005) 'Employees Benefit'. Defined employee benefit schemes are as follows:

A. Provident Fund

Corporation pays fixed contribution of Provident Fund at pre-determined rates to a separate trust which invests the funds in permitted securi- ties. The trust fixes the rate of interest on contribution to the members of the trust. As per the management estimates, the fair value of the assets of the Provident fund including the returns of the assets thereof, as at 31.03.2012 is greater than the obligation under the defined contribution plan.

B. Defined Contribution Superannuation Scheme

Corporation pays fixed contribution towards superannuation scheme at pre-determined rates to a separate trust which invests the funds with an Insurer. The Insurer fixes the rate of interest on the balance standing to the credit of the accounts of the members of the trust. When the pension becomes payable to the member, the Insurer shall appropriate the member's accumulation towards various annuities, as opted for by the member. The expenditure is recognized in the Profit & Loss account on the basis of defined contribution payable by the Corporation.

C. Gratuity

The Corporation has a defined benefit gratuity plan. Every employee is entitled to gratuity as per the provisions of the Payment of Gratuity Act. The scheme is funded by the Corporation and is managed by separate trust. The liability of Gratuity is recognized on the basis of actuarial valuation.

D. Post Retirement Medical Facility (PRMF)

The corporation has Post Retirement Medical Facility under which the entitled retired employees (including his/her spouse) are covered as per Corporation's rule. The expenditure is recognized in the profit & loss account on the basis of actuarial valuation.

E. Employees Family Economic Rehabilitation Scheme

The Corporation has a scheme to provide monetary benefit and support to the family of an employee in case of his/her permanent total disablement/ death if the same takes place while the employee is in service of the Corporation. The expenditure is recognized in the Profit & Loss account on the basis of actuarial valuation.

F. Scheme for Long Service Award to the Employees

The Corporation has a scheme for Long service Award to the employees on completion of milestones of continuous service of 10 years, 20 years and 30 years in the corporation. The expenditure is recognized in the profit & loss account on the basis of actuarial valuation.

G. Other Defined Retirement Benefit (ODRB)

The Corporation has a scheme for settlement of the employee and their dependents at the time of superannuation at home town. The expenditure is recognized in the profit & loss account on the basis of actuarial valuation.

- The Expected Rate of Return on Assets over the accounting year is assumed rate of return.

- The Principle assumptions are the discount rate and salary growth rate. The discount rate is generally based on the market yields available on govt. bonds at the accounting date with a term that matches the liabilities and the salary Growth rate takes account of inflation, seniority, promotions and other relevant factors as long term basis. The above information is certified by the Actuary.

13. Some of the erstwhile State Electricity Boards (SEBs) against whom loans were outstanding or on whose behalf guarantees were given, were restructured by the respective State Governments and new entities were formed in the past. Consequently, the liabilities of the erstwhile SEBs stand transferred to new entities and transfer agreements in some of the cases are to be executed amongst the Corporation, new entities and the State Governments.

14. The Corporation's main business is to provide finance to power sector. Accordingly, the Corporation does not have more than one segment eligible for reporting in terms of Accounting Standard No.17 issued by the Institute of Chartered Accountants of India.

15. The Capital Adequacy Ratio of the Corporation as on 31.03.2012 is 16.00% (Previous year 19.09%).

16. The Company has no exposure to real estate sector as on 31.03.2012 (Previous year Nil).

17. The financial statements for the year ended March 31, 2011 had been prepared as per the then applicable, pre-revised Schedule VI to the Companies Act, 1956. Consequent to the notification of Revised Schedule VI under the Companies Act, 1956, the financial statements for the year ended 31.03.2012 have been prepared as per Revised Schedule VI. Accordingly, the previous year figures have also been reclassified to conform to this year's classification.

18. Figures in Rupees have been rounded off to the nearest crores with two decimals, unless expressly stated. The figures in rupees in financial statements for the financial year ended 31.03.2011 were rounded off to the nearest lakhs. Therefore, to make the figures comparable, the previous year figures in Rupees have also been rounded off to the nearest crore with rounding off adjustment, wherever required

 
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