Accounting Policies of REC Ltd. Company
Mar 31, 2023
1. Company Overview
REC Limited ("REC" or the "Company") was incorporated in the year 1969. The Company is domiciled in India and is limited by shares, having its registered office and principal place of business at Core-4, SCOPE Complex, 7, Lodhi Road, New Delhi-110003, India. The books of accounts are maintained at the Corporate Office situated at Plot no. I-4, Sector-29, Gurugram, Haryana, in addition to the registered office of the Company. The Company has offices spread across the country, mainly in the State Capitals and one training center at Hyderabad.
The Company is a Government of India Enterprise engaged in extending financial assistance across the power sector value chain and is a Systemically Important (Non-Deposit Accepting or Holding) Non-Banking Finance Company (NBFC) registered with Reserve Bank of India (RBI). Being an NBFC, the company is regulated by Reserve Bank of India.
The company has been accorded with the status of a ''Maharatna'' Central Public Sector Enterprise by the Department of Public Enterprises, under the Ministry of Finance.
REC is a leading Infrastructure Finance Company in India and the principal products of REC are interest-bearing loans to State Electricity Boards, State Power utilities/State Power Departments and Private sector for all segments of Power infrastructure.
The shares of the Company are listed on National Stock Exchange of India Limited and BSE Limited. Further, various debt securities of the Company are also listed on the Stock Exchanges
2. Statement of Compliance and Basis of Preparation
These Standalone Financial Statements comply with Ind AS notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended), applicable provisions of the Companies Act, 2013 and other applicable regulatory norms / guidelines including those issued by RBI.
The financial statements for the year ended 31st March 2023 were authorized and approved for issue by the Board of Directors on 17th May 2023.
3. Significant Accounting Policies
The significant accounting policies applied in preparation of the financial statements are as given below:
3.1 Basis of Preparation and Measurement
The financial statements have been prepared on going concern basis following accrual system of accounting on historical cost basis except for certain financial assets and financial liabilities which are measured at fair values as explained in relevant accounting policies. These policies have been applied consistently for all the periods presented in the financial statements.
Functional and presentation currency
The financial statements are presented in Indian Rupee (''INR'') which is also the functional currency of the Company.
Interest income
Interest income is recognized on time proportion basis taking into account the amount outstanding and rate applicable.
Unless otherwise specified, the recoveries from the borrowers are appropriated in the order of (i) costs and expenses of REC
(ii) delayed and penal interest including interest tax, if any
(iii) overdue interest including interest tax, if any and (iv) repayment of principal; the oldest being adjusted first, except for credit impaired loans and recalled loans, where principal amount is appropriated only after the complete recovery of other costs, expenses, delayed and penal interest and overdue interest including interest tax, if any. The recoveries under One Time Settlement (OTS)/ Insolvency and Bankruptcy Code (IBC) proceedings are appropriated first towards the principal outstanding and remaining recovery thereafter, towards interest and other charges, if any.
For financial assets measured at amortized cost, interest income is recorded using the effective interest rate (EIR), i.e. the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial assets.
Interest on financial assets subsequently measured at fair value through profit and loss is recognized on an accrual basis in accordance with the terms of the respective contract and is disclosed separately under the head interest income.
Interest income on credit-impaired loan assets, unless realized, is not being recognised as a matter of prudence, pending the outcome of resolutions of stressed assets.
Rebate on account of timely payment of interest by borrowers is recognized on receipt of entire interest amount due in time, in accordance with the terms of the respective contract and is netted against the corresponding interest income.
Income from Government schemes
Income of agency fee on Government schemes is recognized on accrual basis based on the services rendered.
Dividend income
Income from dividend on shares of corporate bodies and units of mutual funds is taken into account on accrual basis when right to receive payment is established.
Provided that in case of final dividend, the right to receive payment shall be considered as established only upon approval of the dividend by the shareholders in the Annual General Meeting.
Dividend on financial assets subsequently measured at fair value through profit and loss is recognised separately under the head ''Dividend Income''.
Other services
Fees/ charges on loan assets, other than those considered an adjustment to EIR, are accounted for on accrual basis. Prepayment premium is accounted for by the Company in the year of receipt.
Borrowing costs consist of interest and other costs that the Company incurred in connection with the borrowing of funds. Borrowing costs that are directly attributable to the acquisition and/or construction of a qualifying asset, till the time such qualifying asset becomes ready for its intended use, are capitalized. A qualifying asset is one that necessarily takes a substantial period to get ready for its intended use.
All other borrowing costs are charged to the Statement of Profit and Loss on an accrual basis as per the effective interest rate method.
Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the period.
To calculate diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
3.5 Foreign Currency Translation
Foreign currency transactions and balances
Foreign currency transactions are translated into the functional currency of the Company using the exchange rates prevailing on the date of the transaction.
Foreign exchange gains and losses resulting from the settlement of such transactions and the re-measurement of monetary items denominated in foreign currency at period-end exchange rates are recognized in the Statement of Profit or Loss. However, for the long-term monetary items recognized in the financial statements before 1st April 2018, such gains and losses are accumulated in a "Foreign Currency Monetary Item Translation Difference Account"and amortized over the balance period of such long term monetary item, by recognition as income or expense in each of such periods.
Non-monetary items are not retranslated at period-end and are measured at historical cost (translated using the exchange rates at the transaction date).
3.6 Property, Plant and Equipment (PPE)
Recognition and initial measurement Land
Land held for use is initially recognized at cost. For land, as no finite useful life can be determined, related carrying amounts are not amortized.
Land also includes land treated as a Right of Use asset under lease agreement earlier classified as finance lease and is amortized over the lease term.
PPE other than land is initially recognized at acquisition cost or construction cost, including any costs directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Company''s management.
Subsequent costs are included in the asset''s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company beyond one year. Maintenance or servicing costs of PPE are recognized in the Statement of Profit and Loss as incurred.
Subsequent measurement (depreciation method, useful lives, residual value, and impairment)
PPE are subsequently measured at cost less accumulated depreciation and impairment losses. Depreciation on PPE is provided on the straight-line method over the useful life of the assets as prescribed under Part ''C'' of Schedule II of the Companies Act, 2013.
Depreciation on assets purchased/sold during the year is charged for the full month if the asset is in use for more than 15 days. Depreciation on assets purchased during the year up to ''5,000/- is provided @ 100%.
The residual values, useful lives, and method of depreciation are reviewed at the end of each financial year. PPE other than land is tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
De-recognition
An item of PPE and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of an item of PPE is determined as the difference between the net disposal proceeds and the carrying amount of the asset and is recognized in the Statement of Profit and Loss.
Capital Work-in-Progress
The cost of PPE under construction at the reporting date is disclosed as ''Capital work-in-progress''The cost comprises purchase price, borrowing cost if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebates are deducted in arriving at the purchase price. Advances paid for the acquisition/ construction of PPE which are outstanding at the balance sheet date are classified under ''Capital Advances.''
Recognition and initial measurement
Intangible assets are initially measured at cost. Such assets are recognized where it is probable that the future economic benefits attributable to the assets will flow to the company.
Subsequent measurement (amortization method, useful lives and residual value)
All intangible assets with finite useful life are amortized on a straight line basis over the estimated useful lives, and a possible impairment is assessed if there is an indication that the intangible asset may be impaired. Residual values and useful lives for all intangible assets are reviewed at each reporting date. Changes, if any, are accounted for as changes in accounting estimates. Management estimates the useful life of intangible assets to be five years.
Intangible Assets under Development
Expenditure incurred which are eligible for capitalization under intangible assets is carried as ''Intangible assets under development'' till they are ready for their intended use. Advances paid for the acquisition/ development of intangible assets which are outstanding at the balance sheet date are classified under ''Capital Advances''
Derecognition of Intangible Assets
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset are recognized in the Statement of Profit and Loss when the asset is derecognized.
Right-of-use asset and related lease liability in connection with all former operating leases are recognised except for those identified as short-term or low-value lease.
An assessment at contract inception is made whether a contract is, or contains, a lease. A lease is defined as ''a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration''
To apply this definition, the contract is assessed for three key evaluations which are whether:
- the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available
- right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract
- right to direct the use of the identified asset throughout the period of use and right to direct ''how and for what purpose'' the asset is used throughout the period of use.
At lease commencement date, a right-of-use asset and a lease liability is recognized on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).
The right-of-use assets are depreciated on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The right-of-use asset is also assessed for impairment when such indicators exist.
At the commencement date, the lease liability is measured at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Company''s incremental borrowing rate.
Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised.
Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.
When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.
Assets are classified as Held for Sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and the sale is highly probable. A sale is considered as highly probable when such assets have been decided to be sold by the Company; are available for
immediate sale in their present condition; are being actively marketed for sale at a price and the sale has been agreed or is expected to be concluded within one year of the date of classification. Such assets are measured at lower of carrying amount or fair value less selling costs.
Assets held for sale are presented separately from other assets in the Balance Sheet and are not depreciated or amortised while they are classified as held for sale.
A Financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Initial recognition and measurement
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities is described below.
Classification and subsequent measurement of financial assets
For the purpose of subsequent measurement, financial assets are classified into the following categories upon initial recognition:
⢠Amortized cost
⢠Financial assets at fair value through profit or loss
(FVTPL)
⢠Financial assets at fair value through other
comprehensive income (FVOCI)
⢠Investments in equity shares of subsidiaries and joint ventures (carried at cost in accordance with Ind AS 27)
All financial assets except for those at FVTPL or at FVOCI are subject to review for impairment at least at each reporting date to identify whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied to each category of financial assets, which are described below.
Amortized cost
A financial asset is measured at amortized cost using Effective Interest Rate (EIR) if both of the following conditions are met:
a) the financial asset is held within a business model whose objective is to hold financial assets to collect contractual cash flows; and
b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Impairment allowance (expected credit loss) is recognized on financial assets carried at amortized cost.
Modification of cash flows
When the contractual cash flows of a financial asset are renegotiated or otherwise modified, and the renegotiation or modification does not result in derecognition of that financial asset, the Company recalculates the gross carrying amount of the financial asset and recognizes a modification gain or loss in profit or loss. The gross carrying amount of the financial asset shall be recalculated as the present value of the renegotiated or modified contractual cash flows that are discounted at the financial asset''s original effective interest rate. Any costs or fees incurred adjust the carrying amount of the modified financial asset and are amortized over the remaining term of the modified financial asset.
Financial assets at FVTPL
Financial assets at FVTPL include financial assets that either do not meet the criteria for amortized cost classification or are equity instruments held for trading or that meet certain conditions and are designated at FVTPL upon initial recognition. All derivative financial instruments also fall into this category, except for those designated and effective as hedging instruments, for which the hedge accounting requirements may apply. Assets in this category are measured at fair value with gains or losses recognized in profit or loss. The fair values of financial assets in this category are determined by reference to active market transactions or using a valuation technique where no active market exists.
Embedded derivatives
An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, foreign exchange rate, or other variable, provided that, in the case of a non-financial variable, it is not specific to a party to the contract.
Derivatives embedded in all host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts or if the embedded derivative feature leverages the exposure and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss, unless designated as effective hedging instruments.
Financial assets at FVOCI
FVOCI financial assets comprise of equity instruments measured at fair value. An equity investment classified as FVOCI is initially measured at fair value plus transaction costs. Gains and losses are recognized in Other Comprehensive
Income (OCI) and reported within the FVOCI reserve within equity, except for dividend income, which is recognized in profit or loss. There is no recycling of such gains and losses from OCI to Statement of Profit & Loss, even on the derecognition of the investment. However, the Company may transfer the same within equity.
De-recognition of financial assets
De-recognition of financial assets due to a substantial modification of terms and conditions
The Company derecognizes a financial asset, such as a loan to a customer, when the terms and conditions have been renegotiated to the extent that, substantially, it becomes a new loan, with the difference recognized as a derecognition gain or loss, to the extent that an impairment loss has not already been recorded.
De-recognition of financial assets other than due to substantial modification
Financial assets (or where applicable, a part of financial asset or part of a group of similar financial assets) are derecognized (i.e. removed from the Company''s balance sheet) when the contractual rights to receive the cash flows from the financial asset have expired, or when the financial asset and substantially all the risks and rewards are transferred. The Company also derecognizes the financial asset if it has both transferred the financial asset and the transfer qualifies for derecognition.
Classification and subsequent measurement of financial liabilities
Financial liabilities are measured subsequently at amortized cost using the effective interest method, except for financial liabilities held for trading or designated at FVTPL, that are carried subsequently at fair value with gains or losses recognized in profit or loss. All host contracts which are in nature of a financial liability and separated from embedded derivative are measured at amortised cost using the effective interest method.
Derecognition of financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or canceled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss.
Hedge accounting
To qualify for hedge accounting, the hedging relationship must meet all of the following requirements:
- there is an economic relationship between the hedged item and the hedging instrument
- the effect of credit risk does not dominate the value changes that result from that economic relationship
- the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Company actually hedges and the quantity of the hedging instrument that the Company actually uses to hedge that quantity of hedged item.
All derivative financial instruments designated under hedge accounting are recognised initially at fair value and reported subsequently at fair value at each reporting date. To the extent that the hedge is effective, changes in the fair value of derivatives designated as hedging instruments in cash flow hedges are recognised in other comprehensive income and included within the cash flow hedge reserve in equity. Any ineffectiveness in the hedge relationship is recognised immediately in profit or loss.
At the time the hedged item affects profit or loss, any gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss and presented as a reclassification adjustment within other comprehensive income.
At the inception of each hedging relationship, the Company formally designates and documents the hedge relationship, in accordance with the Company''s risk management objective and strategies. The documentation includes identification of the hedged item, hedging instrument, the nature of risk(s) being hedged, the hedge ratio and how the hedging relationship meets the hedging effectiveness requirements.
Fair Value Hedges
In line with the recognition of change in the fair value of the hedging instruments in the Statement of Profit & Loss, the change in the fair value of the hedged item attributable to the risk hedged is recognised in the Statement of Profit and Loss. Such changes are made to the carrying amount of the hedged item and are adjusted in Effective Interest Rate in the period when the hedging instrument ceases to exit. If the hedged item is derecognised, the unamortised fair value is recognised immediately in Statement of Profit and Loss.
3.11 Impairment of financial assets
Loan assets
The Company follows a ''three-stage'' model for impairment in the form of Expected Credit Loss (ECL) based on changes in credit quality since initial recognition as summarised below:
⢠Stage 1 includes loan assets that have not had a significant increase in credit risk since initial recognition or that have low credit risk at the reporting date.
⢠Stage 2 includes loan assets that have had a significant increase in credit risk since initial recognition but that do not have objective evidence of impairment.
⢠Stage 3 includes loan assets that have objective evidence of impairment at the reporting date.
The Expected Credit Loss (ECL) is measured at 12-month ECL for Stage 1 loan assets and lifetime ECL for Stage 2 and Stage 3 loan assets. ECL is the product of the Probability of Default, Exposure at Default and Loss Given Default, defined as follows:
Probability of Default (PD) - The PD represents the likelihood of the borrower defaulting on its obligation either over next 12 months or over the remaining lifetime of the instrument.
Loss Given Default (LGD) - LGD represents the Company''s expectation of loss given that a default occurs. LGD is expressed in percentage and it shows the proportion of the amount that will actually be lost post recoveries in case of a default.
Exposure at Default (EAD) - EAD represents the amounts, including the principal outstanding, interest accrued and outstanding Letters of Comfort that the Company expects to be owed at the time of default.
Forward- looking economic information is included in determining the 12-month and lifetime PD, EAD and LGD. The assumptions underlying the expected credit loss are monitored and reviewed on an ongoing basis.
Financial assets other than Loans
In respect of its other financial assets, the Company assesses if the credit risk on those financial assets has increased significantly since initial recognition. If the credit risk has not increased significantly since initial recognition, the Company measures the loss allowance at an amount equal to 12-month expected credit losses, else at an amount equal to the lifetime expected credit losses.
To make that assessment, the Company compares the risk of a default occurring on the financial asset as at the balance sheet date with the risk of a default occurring on the financial asset as at the date of initial recognition. The Company also considers reasonable and supportable information, that is available without undue cost or effort that is indicative of significant increases in credit risk since initial recognition. The Company assumes that the credit risk on a financial asset has not increased significantly since initial recognition if the financial asset is determined to have low credit risk at the balance sheet date.
Write-offs
Financial assets are written off either partially or in their entirety only when the Company has stopped pursuing the recovery or as directed by the order of the Judicial Authority.
3.12 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments (original maturity less than three months) that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
3.13 Dividend and Other Payments to holders of Instruments classified as Equity
Proposed dividends and interim dividends payable to the shareholders are recognized as changes in equity in the period in which they are approved by the shareholders and the Board of Directors respectively. Liability for the payments to the holders of instruments classified as equity are recognized in the period when such payments are authorized for payment by the Company.
3.14 Material prior period errors
Material prior period errors are corrected retrospectively by restating the comparative amounts for the prior periods presented in which the error occurred. If the error occurred before the earliest period presented, the opening balances of assets, liabilities and equity for the earliest period presented, are restated.
A prepaid expense up to ''1,00,000/- is recognized as expense upon initial recognition.
Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax. It is recognized in Statement of Profit and Loss, except when it relates to an item that is recognised in OCI or directly in equity, in which case, the tax is also recognised in OCI or directly in equity.
Current tax is determined as the tax payable in respect of taxable income for the year, using tax rates enacted or substantively enacted and as applicable at the reporting date, and any adjustments to tax payable in respect of previous years.
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable income. Deferred tax on temporary differences associated with investments in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Company and it is probable that reversal will not occur in the foreseeable future.
Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realization, provided those rates are enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority.
Deferred tax liability is recognized for all taxable temporary differences. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is
probable that future taxable profits will be available against which the deductible temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Changes in deferred tax assets or liabilities are recognized as a component of tax income or expense in profit or loss, except where they relate to items that are recognized in other comprehensive income or directly in equity, in which case the related deferred tax is also recognized in other comprehensive income or equity, respectively.
3.17 Employee benefitsShort-term employee benefits
Short-term employee benefits including salaries, short term compensated absences (such as a paid annual leave) where the absences are expected to occur within twelve months after the end of the period in which the employees render the related service, profit sharing and bonuses payable within twelve months after the end of the period in which the employees render the related services and non-monetary benefits for current employees are estimated and measured on an undiscounted basis.
Post-employment benefit plans are classified into defined benefits plans and defined contribution plans as under:
Defined contribution plan
A defined contribution plan is a plan under which the Company pays fixed contributions in respect of the employees into a separate fund. The Company has no legal or constructive obligations to pay further contributions after its payment of the fixed contribution. The contributions made by the Company towards defined contribution plans are charged to the profit or loss in the period to which the contributions relate.
Defined benefit plan
The Company has an obligation towards gratuity, Post Retirement Medical Facility (PRMF) and Other Defined Retirement Benefit (ODRB) which are being considered as defined benefit plans covering eligible employees. Under the defined benefit plans, the amount that an employee will receive on retirement is defined by reference to the employee''s length of service, final salary, and other defined parameters. The legal obligation for any benefits remains with the Company, even if plan assets for funding the defined benefit plan have been set aside.
The Company''s obligation towards defined benefit plans is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. The liability recognized in the statement of financial position for defined benefit plans is the present value of the Defined Benefit Obligation (DBO)
at the reporting date less the fair value of plan assets. Management estimates the DBO annually with the assistance of independent actuaries.
Actuarial gains/losses resulting from re-measurements of the liability/asset are included in Other Comprehensive Income.
Other long-term employee benefits:
Liability in respect of compensated absences becoming due or expected to be availed more than one-year after the balance sheet date is estimated on the basis of actuarial valuation performed by an independent actuary using the projected unit credit method.
Actuarial gains and losses arising from past experience and changes in actuarial assumptions are charged to statement of profit and loss in the period in which such gains or losses are determined.
Loan to employees at concessional rate
Loans given to employees at concessional rate are initially recognized at fair value and subsequently measured at amortised cost. The difference between the initial fair value of such loans and transaction value is recognised as deferred employee benefits, which is amortised on a straight-line basis over the expected remaining period of the Loan. In case of change in expected remaining period of the Loan, the unamortised deferred employee benefits on the date of change is amortised over the updated expected remaining period of the loan on a prospective basis.
3.18 Provisions, Contingent Liabilities, and Contingent Assets
Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event; it is probable that an outflow of economic resources will be required from the Company and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Provisions are discounted to their present values, where the time value of money is material.
A contingent liability is disclosed for:
⢠Possible obligations which will be confirmed only by future events not wholly within the control of the Company or
⢠Present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made.
In those cases, where the outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is recognized or disclosure is made.
Any reimbursement that the Company can be virtually certain to collect from a third party concerning the obligation (such as from insurance) is recognized as a separate asset. However, this asset may not exceed the amount of the related provision.
Contingent assets are not recognized. However, when the inflow of economic benefits is probable, the related asset is disclosed.
The Company measures financial instruments, such as derivatives at fair value at each reporting date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
⢠In the principal market for the asset or liability, or
⢠In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant''s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
⢠Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
⢠Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
⢠Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognized in the financial statements regularly, the Company determines whether
transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
3.20 Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
3.21 Business Combination under Common Control
A business combination, if any, involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination and that control is not transitory.
Business combinations involving entities or businesses under common control are accounted for using the pooling of interest method as follows:
⢠The assets and liabilities of the combining entities are reflected at their carrying amounts.
⢠No adjustments are made to reflect fair values, or recognize new assets or liabilities. Adjustments are made only to harmonise significant accounting policies.
⢠The financial information in the financial statements in respect of prior periods is restated as if the business combination has occurred from the beginning of the preceding period in the financial statements, irrespective of the actual date of the combination.
The balance of the retained earnings appearing in the financial statements of the transferor is aggregated with the corresponding balance appearing in the financial statements of the transferee. The identity of the reserves is preserved and the reserves of the transferor become the reserves of the transferee.
The difference, if any, between the amounts recorded as share capital issued plus any additional consideration in the form of cash or other assets and the amount of share capital of the transferor is transferred to capital reserve and is presented separately from other capital reserves.
3.22 Expenditure on issue of shares
Expenditure on issue of shares, if any, is charged to the securities premium account.
4. Implementation of New/ Modified Standards
During the year, the Ministry of Corporate Affairs (MCA) has issued amendments to certain Ind-AS. The Company has analysed the impact of these amendments which is not material to the Company. Further, MCA has not issued any new Ind-AS applicable to the company.
5. Significant management judgment in applying accounting policies and estimation of uncertainty
The preparation of the Company''s financial statements requires management to make judgments, estimates, and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the related disclosures. The estimates and underlying assumptions are based on historical experience & other relevant factors and are reviewed on an ongoing basis. Actual results may differ from these estimates.
Changes in accounting estimates- Such changes, if any, are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision & future periods if it affects both current & future periods.
Significant management judgments
Recognition of deferred tax assets/ liability - The extent to which deferred tax assets can be recognized is based on an assessment of the probability of the future taxable income against which the deferred tax assets can be utilized. Further, the Company Management has no intention to make withdrawal from the Special Reserve created and maintained under section 36(1)(viii) of the Income tax Act, 1961 and thus, the special reserve created and maintained is not capable of being reversed. Hence, the company does not create any deferred tax liability on the said reserve.
Evaluation of indicators for impairment of assets - The
evaluation of the applicability of indicators of impairment of assets requires assessment of several external and internal factors which could result in deterioration of recoverable amount of the assets.
Non recognition of Interest Income on Credit Impaired Loans - Interest income on credit-impaired loan assets is not being recognised as a matter of prudence, pending the outcome of resolutions of stressed assets.
Significant estimates
Useful lives of depreciable/amortizable assets - Management reviews its estimate of the useful lives of depreciable/ amortizable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates
relate to technical and economic obsolescence that may change the utility of assets.
Defined benefit obligation (DBO) - Management''s estimate of the DBO is based on a number of underlying assumptions such as standard rates of inflation, mortality, discount rate and anticipation of future salary increases. Variation in these assumptions may significantly impact the DBO amount and the annual defined benefit expenses.
Fair value measurements - Management applies valuation techniques to determine the fair value of financial instruments (where active market quotes are not available). This involves developing estimates and assumptions consistent with how market participants would price the instrument. In estimating the fair value of an asset or a liability, the Company uses market-observable data to the extent it is available. In case of non-availability of market-observable data, Level 2 & Level 3 hierarchy is used for fair valuation.
Income Taxes - Significant estimates are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions and also in respect of expected future profitability to assess deferred tax asset.
Expected Credit Loss (''ECL'') - The measurement of an expected credit loss allowance for financial assets measured at amortized cost requires the use of complex models and significant assumptions about future economic conditions and credit behavior (e.g., likelihood of customers defaulting and resulting losses). The Company makes significant judgments about the following while assessing expected credit loss to estimate ECL:
⢠Determining criteria for a significant increase in credit risk;
⢠Establishing the number and relative weightings of forward-looking scenarios for each type of product/ market and the associated ECL; and
⢠Establishing groups of similar financial assets to measure ECL.
⢠Estimating the probability of default and loss given default (estimates of recoverable amounts in case of default)
Mar 31, 2022
1. Company Overview
REC Limited ("REC" or the "Company") was incorporated in the year 1969. The Company is domiciled in India and is limited by shares, having its registered office and principal place of business at Core-4, SCOPE Complex, 7, Lodhi Road, New Delhi-110003, India. The books of accounts and financial statements are maintained at the Corporate Office situated at Plot no. I-4, Sector-29, Gurugram, Haryana, in addition to the registered office of the Company. The Company has offices spread across the country, mainly in the State Capitals and one training center at Hyderabad.
The Company is a Government Company engaged in extending financial assistance across the power sector value chain and is a Systemically Important (Non-Deposit Accepting or Holding) Non-Banking Finance Company (NBFC) registered with Reserve Bank of India (RBI).
REC is a leading Infrastructure Finance Company in India and the principal products of REC are interest-bearing loans to State Electricity Boards, State Power utilities/State Power Departments and Private sector for all segments of Power infrastructure.
The shares of the Company are listed on National Stock Exchange of India Limited and BSE Limited. Further, various debt securities of the Company are also listed on the Stock Exchanges
2. Statement of Compliance and Basis of Preparation
These Standalone Financial Statements comply with Ind AS notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended), applicable provisions of the Companies Act, 2013 and other applicable regulatory norms / guidelines.
The financial statements for the year ended 31st March 2022 were authorized and approved for issue by the Board of Directors on 13th May 2022.
3. Significant Accounting Policies
The significant accounting policies applied in preparation of the financial statements are as given below:
3.1 Basis of Preparation and Measurement
The financial statements have been prepared on going concern basis following accrual system of accounting on historical cost basis except for certain financial assets and financial liabilities which are measured at fair values as explained in relevant accounting policies. These policies have been applied consistently for all the periods presented in the financial statements.
Functional and presentation currency
The financial statements are presented in Indian Rupee (''INR'') which is also the functional currency of the Company.
Interest income
Interest income is recognized on time proportion basis taking into account the amount outstanding and rate applicable.
Unless otherwise specified, the recoveries from the borrowers are appropriated in the order of (i) costs and expenses of REC
(ii) delayed and penal interest including interest tax, if any
(iii) overdue interest including interest tax, if any and (iv) repayment of principal; the oldest being adjusted first, except for credit impaired loans and recalled loans, where principal amount is appropriated only after the complete recovery of other costs, expenses, delayed and penal interest and overdue interest including interest tax, if any. The recoveries under One Time Settlement (OTS)/ Insolvency and Bankruptcy Code (IBC) proceedings are appropriated first towards the principal outstanding and remaining recovery thereafter, towards interest and other charges, if any.
For financial assets measured at amortized cost, interest income is recorded using the effective interest rate (EIR), i.e. the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial assets.
Interest on financial assets subsequently measured at fair value through profit and loss is recognized on an accrual basis in accordance with the terms of the respective contract and is disclosed separately under the head interest income.
Interest income on credit-impaired loan assets is not being recognised as a matter of prudence, pending the outcome of resolutions of stressed assets.
Rebate on account of timely payment of interest by borrowers is recognized on receipt of entire interest amount due in time, in accordance with the terms of the respective contract and is netted against the corresponding interest income.
Income from Government schemes
Income of agency fee on Government schemes is recognized on accrual basis based on the services rendered.
Dividend income
Income from dividend on shares of corporate bodies and units of mutual funds is taken into account on accrual basis when right to receive payment is established.
Provided that in case of final dividend, the right to receive payment shall be considered as established only upon approval of the dividend by the shareholders in the Annual General Meeting.
Dividend on financial assets subsequently measured at fair value through profit and loss is recognised separately under the head ''Dividend Income.
Other services
Fees/ charges on loan assets, other than those considered an
adjustment to EIR, are accounted for on accrual basis. Prepayment premium is accounted for by the Company in the year of receipt.
Borrowing costs consist of interest and other costs that the Company incurred in connection with the borrowing of funds. Borrowing costs that are directly attributable to the acquisition and/ or construction of a qualifying asset, till the time such qualifying asset becomes ready for its intended use, are capitalized. A qualifying asset is one that necessarily takes a substantial period to get ready for its intended use.
All other borrowing costs are charged to the Statement of Profit and Loss on an accrual basis as per the effective interest rate method.
Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the period.
To calculate diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
3.5 Foreign Currency Translation
Foreign currency transactions and balances
Foreign currency transactions are translated into the functional currency of the Company using the exchange rates prevailing on the date of the transaction.
Foreign exchange gains and losses resulting from the settlement of such transactions and the re-measurement of monetary items denominated in foreign currency at period-end exchange rates are recognized in the Statement of Profit or Loss. However, for the long-term monetary items recognized in the financial statements before 1 April 2018, such gains and losses are accumulated in a "Foreign Currency Monetary Item Translation Difference Account"and amortized over the balance period of such long term monetary item, by recognition as income or expense in each of such periods.
Non-monetary items are not retranslated at period-end and are measured at historical cost (translated using the exchange rates at the transaction date).
3.6 Property, Plant and Equipment (PPE)
Recognition and initial measurement Land
Land held for use is initially recognized at cost. For land, as no finite useful life can be determined, related carrying amounts are not depreciated.
Land also includes land treated as a Right of Use asset under lease agreement earlier classified as finance lease and is amortised over the lease term.
PPE other than land is initially recognized at acquisition cost or construction cost, including any costs directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Company''s management.
Subsequent costs are included in the asset''s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company beyond one year. Maintenance or servicing costs of PPE are recognized in the Statement of Profit and Loss as incurred.
Subsequent measurement (depreciation method, useful lives, residual value, and impairment)
PPE are subsequently measured at cost less accumulated depreciation and impairment losses. Depreciation on PPE is provided on the straight-line method over the useful life of the assets as prescribed under Part ''C'' of Schedule II of the Companies Act, 2013.
Depreciation on assets purchased/sold during the year is charged for the full month if the asset is in use for more than 15 days. Depreciation on assets purchased during the year up to ''5,000/- is provided @ 100%.
The residual values, useful lives, and method of depreciation are reviewed at the end of each financial year. PPE other than land is tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
De-recognition
An item of PPE and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of an item of PPE is determined as the difference between the net disposal proceeds and the carrying amount of the asset and is recognized in the Statement of Profit and Loss.
Capital Work-in-Progress
The cost of PPE under construction at the reporting date is disclosed as ''Capital work-in-progress.'' The cost comprises purchase price, borrowing cost if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebates are deducted in arriving at the purchase price. Advances paid for the acquisition/ construction of PPE which are outstanding at the balance sheet date are classified under ''Capital Advances.''
Recognition and initial measurement
Intangible assets mainly comprise of computer software which is initially measured at cost. Such assets are recognized where it is probable that the future economic benefits attributable to the assets will flow to the company.
Subsequent measurement (amortization method, useful lives and residual value)
All intangible assets with finite useful life are amortized on a straight line basis over the estimated useful lives, and a possible impairment is assessed if there is an indication that the intangible asset may be impaired. Residual values and useful lives for all intangible assets are reviewed at each reporting date. Changes, if any, are accounted for as changes in accounting estimates. Management estimates the useful life of intangible assets to be five years.
Intangible Assets under Development
Expenditure incurred which are eligible for capitalization under intangible assets is carried as ''Intangible assets under development'' till they are ready for their intended use. Advances paid for the acquisition/ development of intangible assets which are outstanding at the balance sheet date are classified under ''Capital Advances''
Derecognition of Intangible Assets
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset are recognized in the Statement of Profit and Loss when the asset is derecognized.
Assets are classified as Held for Sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and the sale is highly probable. A sale is considered as highly probable when such assets have been decided to be sold by the Company; are available for immediate sale in their present condition; are being actively marketed for sale at a price and the sale has been agreed or is expected to be concluded within one year of the date of classification. Such assets are measured at lower of carrying amount or fair value less selling costs.
Assets held for sale are presented separately from other assets in the Balance Sheet and are not depreciated or amortised while they are classified as held for sale.
Investment properties are the assets which have undetermined future use. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, the investment properties are stated at cost less accumulated
depreciation. The cost comprises purchase price, borrowing cost if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebates are deducted in arriving at the purchase price.
Subsequent costs are included in the asset''s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company beyond one year. All other repair and maintenance costs are recognized in the Statement of Profit and Loss as incurred.
Subsequent measurement (depreciation and useful lives)
The Company only has land as an investment property, which is not depreciated.
De-recognition
An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognized.
A Financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Initial recognition and measurement
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities is described below.
Classification and subsequent measurement of financial assets
For the purpose of subsequent measurement, financial assets are classified into the following categories upon initial recognition:
⢠Amortized cost
⢠Financial assets at fair value through profit or loss
(FVTPL)
⢠Financial assets at fair value through other
comprehensive income (FVOCI)
⢠Investments in equity shares of subsidiaries and joint ventures (carried at cost in accordance with Ind AS 27)
All financial assets except for those at FVTPL or equity instruments at FVOCI are subject to review for impairment at least at each reporting date to identify whether there is
any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied to each category of financial assets, which are described below.
Amortized cost
A financial asset is measured at amortized cost using Effective Interest Rate (EIR) if both of the following conditions are met:
a) the financial asset is held within a business model whose objective is to hold financial assets to collect contractual cash flows; and
b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A loss allowance for expected credit losses is recognized on financial assets carried at amortized cost.
Modification of cash flows
When the contractual cash flows of a financial asset are renegotiated or otherwise modified, and the renegotiation or modification does not result in derecognition of that financial asset, the Company recalculates the gross carrying amount of the financial asset and recognizes a modification gain or loss in profit or loss. The gross carrying amount of the financial asset shall be recalculated as the present value of the renegotiated or modified contractual cash flows that are discounted at the financial asset''s original effective interest rate. Any costs or fees incurred adjust the carrying amount of the modified financial asset and are amortized over the remaining term of the modified financial asset.
Financial assets at FVTPL
Financial assets at FVTPL include financial assets that are either do not meet the criteria for amortized cost classification or are equity instruments held for trading or that meet certain conditions and are designated at FVTPL upon initial recognition. All derivative financial instruments also fall into this category, except for those designated and effective as hedging instruments, for which the hedge accounting requirements may apply. Assets in this category are measured at fair value with gains or losses recognized in profit or loss. The fair values of financial assets in this category are determined by reference to active market transactions or using a valuation technique where no active market exists.
Embedded derivatives
An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, foreign exchange rate, or other variable, provided that, in the case of a non-financial variable, it is not specific to a party to the
contract.
Derivatives embedded in all host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts or if the embedded derivative feature leverages the exposure and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss, unless designated as effective hedging instruments.
Financial assets at FVOCI
FVOCI financial assets comprise of equity instruments measured at fair value. An equity investment classified as FVOCI is initially measured at fair value plus transaction costs. Gains and losses are recognized in Other Comprehensive Income (OCI) and reported within the FVOCI reserve within equity, except for dividend income, which is recognized in profit or loss. There is no recycling of such gains and losses from OCI to Statement of Profit & Loss, even on the derecognition of the investment. However, the Company may transfer the same within equity.
De-recognition of financial assets
De-recognition of financial assets due to a substantial modification of terms and conditions
The Company derecognizes a financial asset, such as a loan to a customer, when the terms and conditions have been renegotiated to the extent that, substantially, it becomes a new loan, with the difference recognized as a derecognition gain or loss, to the extent that an impairment loss has not already been recorded.
De-recognition of financial assets other than due to substantial modification
Financial assets (or where applicable, a part of financial asset or part of a group of similar financial assets) are derecognized (i.e. removed from the Company''s balance sheet) when the contractual rights to receive the cash flows from the financial asset have expired, or when the financial asset and substantially all the risks and rewards are transferred. The Company also derecognizes the financial asset if it has both transferred the financial asset and the transfer qualifies for derecognition.
Classification and subsequent measurement of financial liabilities
Financial liabilities are measured subsequently at amortized cost using the effective interest method, except for financial liabilities held for trading or designated at FVTPL, that are carried subsequently at fair value with gains or losses recognized in profit or loss. All host contracts which are in nature of a financial liability and separated from embedded derivative are measured at amortised cost using the effective interest method.
Derecognition of financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or canceled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss.
Hedge accounting
To qualify for hedge accounting, the hedging relationship must meet all of the following requirements:
- there is an economic relationship between the hedged item and the hedging instrument
- the effect of credit risk does not dominate the value changes that result from that economic relationship
- the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Company actually hedges and the quantity of the hedging instrument that the Company actually uses to hedge that quantity of hedged item.
All derivative financial instruments designated under hedge accounting are recognised initially at fair value and reported subsequently at fair value at each reporting date. To the extent that the hedge is effective, changes in the fair value of derivatives designated as hedging instruments in cash flow hedges are recognised in other comprehensive income and included within the cash flow hedge reserve in equity. Any ineffectiveness in the hedge relationship is recognised immediately in profit or loss.
At the time the hedged item affects profit or loss, any gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss and presented as a reclassification adjustment within other comprehensive income.
At the inception of each hedging relationship, the Company formally designates and documents the hedge relationship, in accordance with the Company''s risk management objective and strategies. The documentation includes identification of the hedged item, hedging instrument, the nature of risk(s) being hedged, the hedge ratio and how the hedging relationship meets the hedging effectiveness requirements.
Fair Value Hedges
In line with the recognition of change in the fair value of the hedging instruments in the Statement of Profit & Loss, the change in the fair value of the hedged item attributable to the risk hedged is recognised in the Statement of Profit and Loss. Such changes are made to the carrying amount of the hedged item and are adjusted in Effective Interest Rate in the period when the hedging instrument ceases to exit. If the
hedged item is derecognised, the unamortised fair value is recognised immediately in Statement of Profit and Loss.
3.11 Impairment of financial assets
Loan assets
The Company follows a ''three-stage'' model for impairment in the form of Expected Credit Loss (ECL) based on changes in credit quality since initial recognition as summarised below:
⢠Stage 1 includes loan assets that have not had a significant increase in credit risk since initial recognition or that have low credit risk at the reporting date.
⢠Stage 2 includes loan assets that have had a significant increase in credit risk since initial recognition but that do not have objective evidence of impairment.
⢠Stage 3 includes loan assets that have objective evidence of impairment at the reporting date.
The Expected Credit Loss (ECL) is measured at 12-month ECL for Stage 1 loan assets and lifetime ECL for Stage 2 and Stage 3 loan assets. ECL is the product of the Probability of Default, Exposure at Default and Loss Given Default, defined as follows:
Probability of Default (PD) - The PD represents the likelihood of the borrower defaulting on its obligation either over next 12 months or over the remaining lifetime of the instrument.
Loss Given Default (LGD) - LGD represents the Company''s expectation of loss given that a default occurs. LGD is expressed in percentage and it shows the proportion of the amount that will actually be lost post recoveries in case of a default.
Exposure at Default (EAD) - EAD represents the amounts, including the principal outstanding, interest accrued and outstanding Letters of Comfort that the Company expects to be owed at the time of default.
Forward-looking economic information is included in determining the 12-month and lifetime PD, EAD and LGD. The assumptions underlying the expected credit loss are monitored and reviewed on an ongoing basis.
Financial assets other than Loans
In respect of its other financial assets, the Company assesses if the credit risk on those financial assets has increased significantly since initial recognition. If the credit risk has not increased significantly since initial recognition, the Company measures the loss allowance at an amount equal to 12-month expected credit losses, else at an amount equal to the lifetime expected credit losses.
To make that assessment, the Company compares the risk of a default occurring on the financial asset as at the balance sheet date with the risk of a default occurring on the financial asset as at the date of initial recognition. The Company also considers reasonable and supportable information, that is available without undue cost or effort that is indicative of
significant increases in credit risk since initial recognition. The Company assumes that the credit risk on a financial asset has not increased significantly since initial recognition if the financial asset is determined to have low credit risk at the balance sheet date.
Write-offs
Financial assets are written off either partially or in their entirety only when the Company has stopped pursuing the recovery or as directed by the order of the Judicial Authority.
3.12 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments (original maturity less than three months) that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
3.13 Dividend and Other Payments to holders of Instruments classified as Equity
Proposed dividends and interim dividends payable to the shareholders are recognized as changes in equity in the period in which they are approved by the shareholders and the Board of Directors respectively. Liability for the payments to the holders of instruments classified as equity are recognized in the period when such payments are authorized for payment by the Company.
3.14 Material prior period errors
Material prior period errors are corrected retrospectively by restating the comparative amounts for the prior periods presented in which the error occurred. If the error occurred before the earliest period presented, the opening balances of assets, liabilities and equity for the earliest period presented, are restated.
A prepaid expense upto '' 1,00,000/- is recognized as expense upon initial recognition.
Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax. It is recognized in Statement of Profit and Loss, except when it relates to an item that is recognised in OCI or directly in equity, in which case, the tax is also recognised in OCI or directly in equity.
Current tax is determined as the tax payable in respect of taxable income for the year, using tax rates enacted or substantively enacted and as applicable at the reporting date, and any adjustments to tax payable in respect of previous years.
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable income. Deferred tax on temporary differences associated with investments in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Company and it is probable that reversal will not occur in the foreseeable future.
Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realization, provided those rates are enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority.
Deferred tax liability is recognized for all taxable temporary differences. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that future taxable profits will be available against which the deductible temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Changes in deferred tax assets or liabilities are recognized as a component of tax income or expense in profit or loss, except where they relate to items that are recognized in other comprehensive income or directly in equity, in which case the related deferred tax is also recognized in other comprehensive income or equity, respectively.
3.17 Employee benefits
Short-term employee benefits
Short-term employee benefits including salaries, short term compensated absences (such as a paid annual leave) where the absences are expected to occur within twelve months after the end of the period in which the employees render the related service, profit sharing and bonuses payable within twelve months after the end of the period in which the employees render the related services and non-monetary benefits for current employees are estimated and measured on an undiscounted basis.
Post-employment benefit plans are classified into defined benefits plans and defined contribution plans as under:
Defined contribution plan
A defined contribution plan is a plan under which the Company pays fixed contributions in respect of the employees into a separate fund. The Company has no legal or constructive obligations to pay further contributions after its payment of the fixed contribution. The contributions made by the Company towards defined contribution plans are charged to the profit or loss in the period to which the contributions relate.
Defined benefit plan
The Company has an obligation towards gratuity, Post Retirement Medical Facility (PRMF) and Other Defined Retirement Benefit (ODRB) which are being considered as defined benefit plans covering eligible employees. Under the defined benefit plans, the amount that an employee will receive on retirement is defined by reference to the employee''s length of service, final salary, and other defined parameters. The legal obligation for any benefits remains with the Company, even if plan assets for funding the defined benefit plan have been set aside.
The Company''s obligation towards defined benefit plans is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. The liability recognized in the statement of financial position for defined benefit plans is the present value of the Defined Benefit Obligation (DBO) at the reporting date less the fair value of plan assets. Management estimates the DBO annually with the assistance of independent actuaries.
Actuarial gains/losses resulting from re-measurements of the liability/asset are included in Other Comprehensive Income.
Other long-term employee benefits:
Liability in respect of compensated absences becoming due or expected to be availed more than one-year after the balance sheet date is estimated on the basis of actuarial valuation performed by an independent actuary using the projected unit credit method.
Actuarial gains and losses arising from past experience and changes in actuarial assumptions are charged to statement of profit and loss in the period in which such gains or losses are determined.
Loan to employees at concessional rate
Loans given to employees at concessional rate are initially recognized at fair value and subsequently measured at amortised cost. The difference between the initial fair value of such loans and transaction value is recognised as deferred employee benefits, which is amortised on a straight-line basis over the expected remaining period of the Loan. In case of change in expected remaining period of the Loan, the unamortised deferred employee benefits on the date of change is amortised over the updated expected remaining period of the loan on a prospective basis.
1.18 Provisions, Contingent Liabilities, and Contingent Assets
Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event; it is probable that an outflow of economic resources will be required from the Company and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. Provisions are measured at the estimated
expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Provisions are discounted to their present values, where the time value of money is material.
A contingent liability is disclosed for:
⢠Possible obligations which will be confirmed only by future events not wholly within the control of the Company or
⢠Present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made.
In those cases, where the outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is recognized or disclosure is made.
Any reimbursement that the Company can be virtually certain to collect from a third party concerning the obligation (such as from insurance) is recognized as a separate asset. However, this asset may not exceed the amount of the related provision.
Contingent assets are not recognized. However, when the inflow of economic benefits is probable, the related asset is disclosed.
The Company measures financial instruments, such as derivatives at fair value at each reporting date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
⢠In the principal market for the asset or liability, or
⢠In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant''s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are
available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
⢠Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
⢠Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
⢠Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognized in the financial statements regularly, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
3.20 Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
3.21 Business Combination under Common Control
A business combination, if any, involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination and that control is not transitory.
Business combinations involving entities or businesses under common control are accounted for using the pooling of interest method as follows:
⢠The assets and liabilities of the combining entities are reflected at their carrying amounts.
⢠No adjustments are made to reflect fair values, or recognize new assets or liabilities. Adjustments are made only to harmonise significant accounting policies.
⢠The financial information in the financial statements in respect of prior periods is restated as if the business combination has occurred from the beginning of the preceding period in the financial statements, irrespective of the actual date of the combination
The balance of the retained earnings appearing in the financial statements of the transferor is aggregated with the
corresponding balance appearing in the financial statements of the transferee. The identity of the reserves is preserved and the reserves of the transferor become the reserves of the transferee
The difference, if any, between the amounts recorded as share capital issued plus any additional consideration in the form of cash or other assets and the amount of share capital of the transferor is transferred to capital reserve and is presented separately from other capital reserves.
3.22 Expenditure on issue of shares
Expenditure on issue of shares, if any, is charged to the securities premium account
4. Implementation of New/ Modified Standards
During the year, the Ministry of Corporate Affairs (MCA) has issued amendments to certain Ind AS. The Company has analysed the impact of these amendments which is not material to the Company.
5. Significant management judgment in applying accounting policies and estimation of uncertainty
The preparation of the Company''s financial statements requires management to make judgments, estimates, and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the related disclosures. Actual results may differ from these estimates.
Significant management judgments
Recognition of deferred tax assets/ liability - The extent to which deferred tax assets can be recognized is based on an assessment of the probability of the future taxable income against which the deferred tax assets can be utilized. Further, the Company Management has no intention to make withdrawal from the Special Reserve created and maintained under section 36(1)(viii) of the Income tax Act, 1961 and thus, the special reserve created and maintained is not capable of being reversed. Hence, the company does not create any deferred tax liability on the said reserve.
Evaluation of indicators for impairment of assets - The
evaluation of the applicability of indicators of impairment of assets requires assessment of several external and internal factors which could result in deterioration of recoverable amount of the assets.
Non recognition of Interest Income on Credit Impaired Loans - Interest income on credit-impaired loan assets is not being recognised as a matter of prudence, pending the outcome of resolutions of stressed assets.
Significant estimates
Impact of Covid-19 Outbreak - The Company has considered the possible impacts of COVID-19 in preparation of these financial statements, including but not limited to its assessment of, liquidity and going concern assumption,
recoverable values of its financial and non-financial assets, impact on revenue recognition and impact on effectiveness of its hedges. The Company has carried out this assessment based on available internal and external sources of information upto the date of approval of these standalone financial statements and believes that the impact of COVID-19 is not material to these financial statements and expects to recover the carrying amount of its assets. The impact of COVID-19 on the standalone financial statements may differ from that estimated as at the date of approval of these standalone financial statements owing to the nature and duration of COVID-19. The extent to which the Covid-19 pandemic will impact the Company will depend on future developments, which are uncertain, including, among other things, any new information concerning the severity of the Covid-19 pandemic and any further action by the Govt. or the Company to contain its spread or mitigate its impact.
Useful lives of depreciable/amortizable assets -
Management reviews its estimate of the useful lives of depreciable/amortizable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technical and economic obsolescence that may change the utility of assets.
Defined benefit obligation (DBO) - Management''s estimate of the DBO is based on a number of underlying assumptions such as standard rates of inflation, mortality, discount rate and anticipation of future salary increases. Variation in these assumptions may significantly impact the DBO amount and the annual defined benefit expenses.
Fair value measurements - Management applies valuation techniques to determine the fair value of financial instruments
(where active market quotes are not available). This involves developing estimates and assumptions consistent with how market participants would price the instrument. In estimating the fair value of an asset or a liability, the Company uses market-observable data to the extent it is available. In case of non-availability of market-observable data, Level 2 & Level 3 hierarchy is used for fair valuation.
Income Taxes - Significant estimates are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions and also in respect of expected future profitability to assess deferred tax asset.
Expected Credit Loss (''ECL'') - The measurement of an expected credit loss allowance for financial assets measured at amortized cost requires the use of complex models and significant assumptions about future economic conditions and credit behavior (e.g., likelihood of customers defaulting and resulting losses). The Company makes significant judgments about the following while assessing expected credit loss to estimate ECL:
⢠Determining criteria for a significant increase in credit risk;
⢠Establishing the number and relative weightings of forward-looking scenarios for each type of product/ market and the associated ECL; and
⢠Establishing groups of similar financial assets to measure ECL.
⢠Estimating the probability of default and loss given default (estimates of recoverable amounts in case of default)
Mar 31, 2021
1. Â Â Â Company Overview
REC Limited (âRECâ or the âCompanyâ) was incorporated in the year 1969. The Company is domiciled in India and is limited by shares, having its registered office and principal place of business at Core-4, SCOPE Complex, 7, Lodhi Road, New Delhi-110003, India. The books of accounts and financial statements are maintained at Plot no. I-4, Sector-29, Gurugram, Haryana, in addition to the registered office of the Company. The Company has offices spread across the country, mainly in the State Capitals and one training center at Hyderabad.
The Company is a Government Company engaged in extending financial assistance across the power sector value chain and is a Systemically Important (Non-Deposit Accepting or Holding) Non-Banking Finance Company (NBFC) registered with Reserve Bank of India (RBI).
REC is a leading public Infrastructure Finance Company in India and the principal products of REC are interest-bearing loans to State Electricity Boards, State Power utilities/State Power Departments and Private sector for all segments of Power infrastructure.
The shares of the Company are listed on National Stock Exchange of India Limited and BSE Limited. Further, various debt securities of the Company are also listed on the Stock Exchanges.
2. Â Â Â Statement of Compliance and Basis of Preparation
These Standalone Financial Statements comply with Ind AS notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended), applicable provisions of the Companies Act, 2013 and other applicable regulatory norms / guidelines.
The financial statements for the period ended 31st March 2021 were authorized and approved for issue by the Board of Directors on 28th May 2021.
These standalone financial statements have been prepared on going concern basis following accrual system of accounting and are in accordance with the Indian Accounting Standards (referred to as âInd ASâ) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended), applicable provisions of the Companies Act, 2013 and other applicable regulatory norms/ guidelines.
3. Â Â Â Significant Accounting Policies
The significant accounting policies applied in preparation of the financial statements are as given below:
3.1 Â Â Â Basis of Preparation and Measurement
The financial statements have been prepared on historical cost basis except for certain financial assets and financial liabilities which are measured at fair values as explained in relevant accounting policies. These policies have been applied consistently for all the periods presented in the financial statements.
Functional and presentation currency
The financial statements are presented in Indian Rupee ('INR') which is also the functional currency of the Company.
Interest income
Interest income is recognized on time proportion basis taking into account the amount outstanding and rate applicable.
Unless otherwise specified, the recoveries from the borrowers are appropriated in the order of (i) costs and expenses of REC (ii) delayed and penal interest including interest tax, if any (iii) overdue interest including interest tax, if any and (iv) repayment of principal; the oldest being adjusted first, except for credit impaired loans and recalled loans, where principal amount is appropriated only after the complete recovery of other costs, expenses, delayed and penal interest and overdue interest including interest tax, if any. The recovery under One Time Settlement (OTS)/ Insolvency and Bankruptcy Code (IBC) proceedings is appropriated first towards the principal outstanding and remaining recovery thereafter, towards interest and other charges, if any.
For all financial assets measured at amortized cost, interest income is recorded using the effective interest rate (EIR), i.e. the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial assets.
Interest on financial assets subsequently measured at fair value through profit and loss is recognized on an accrual basis in accordance with the terms of the respective contract and is disclosed separately under the head interest income.
Rebate on account of timely payment of interest by borrowers is recognized on receipt of entire interest amount due in time, in accordance with the terms of the respective contract and is netted against the corresponding interest income.
Income from Government schemes
Income of agency fee on Government schemes is recognized on accrual basis based on the services rendered.
Dividend income
Income from dividend on shares of corporate bodies and units of mutual funds is taken into account on accrual basis when REC's right to receive payment is established.
Provided that in case of final dividend, the right to receive payment shall be considered as established only upon approval of the dividend by the shareholders in the Annual General Meeting.
Dividend on financial assets subsequently measured at fair value through profit and loss is recognised separately under the head 'Dividend Income'.
Other services
Fees/ charges on loan assets, other than those considered an adjustment to EIR, are accounted for on accrual basis. Prepayment premium is accounted for by the Company in the year of receipt.
Borrowing costs consist of interest and other costs that the Company incurred in connection with the borrowing of funds. Borrowing costs that are directly attributable to the acquisition and/ or construction of a qualifying asset, till the time such a qualifying asset becomes ready for its intended use sale, are capitalized. A qualifying asset is one that necessarily takes a substantial period to get ready for its intended use.
All other borrowing costs are charged to the Statement of Profit and Loss on an accrual basis as per the effective interest rate method.
Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the period.
To calculate diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
3.5 Â Â Â Foreign Currency Translation
Foreign currency transactions and balances
Foreign currency transactions are translated into the functional currency of the Company using the exchange rates prevailing on the date of the transaction.
Foreign exchange gains and losses resulting from the settlement of such transactions and the re-measurement of monetary items denominated in foreign currency at period-end exchange rates are recognized in the Statement of Profit or Loss. However, for the long-term monetary items recognized in the financial statements before 1 April 2018, such gains and losses are accumulated in a âForeign Currency Monetary Item Translation Difference Accountâ and amortized over the balance period of such long term monetary item, by recognition as income or expense in each of such periods.
Non-monetary items are not retranslated at period-end and are measured at historical cost (translated using the exchange rates at the transaction date).
Recognition and initial measurement
Intangible assets mainly comprise of computer software which is initially measured at cost. Such assets are recognized where it is probable that the future economic benefits attributable to the assets will flow to the company.
Subsequent measurement (amortization method, useful lives and residual value)
All intangible assets with finite useful life are amortized on a straight line basis over the estimated useful lives, and a possible impairment is assessed if there is an indication that the intangible asset may be impaired. Residual values and useful lives for all intangible assets are reviewed at each reporting date. Changes, if any, are accounted for as changes in accounting estimates. Management estimates the useful life of intangible assets to be five years.
Intangible Assets under Development
Expenditure incurred which are eligible for capitalization under intangible assets is carried as 'Intangible assets under development' till they are ready for their intended use. Advances paid for the acquisition/ development of intangible assets which are outstanding at the balance sheet date are classified under 'Capital Advances'.
Derecognition of Intangible Assets
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset are recognized in the Statement of Profit and Loss when the asset is derecognized.
3.7 Property, Plant and Equipment (PPE)
Recognition and initial measurement Land
Land held for use is initially recognized at cost. For land, as no finite useful life can be determined, related carrying amounts are not depreciated.
Land also includes land treated as a Right of Use asset under lease agreement earlier classified as finance lease and is amortised over the lease term.
PPE other than land is initially recognized at acquisition cost or construction cost, including any costs directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Company's management.
Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company beyond one year. Maintenance or servicing costs of PPE are recognized in the Statement of Profit and Loss as incurred.
Subsequent measurement (depreciation method, useful lives, residual value, and impairment)
PPE are subsequently measured at cost less accumulated depreciation and impairment losses. Depreciation on PPE is provided on the straight-line method over the useful life of the assets as prescribed under Part 'C' of Schedule II of the Companies Act, 2013.
Depreciation on assets purchased/sold during the year is charged for the full month if the asset is in use for more than 15 days, instead of charging the same on pro-rata basis from the date of purchase/sale. Depreciation on assets purchased during the year up to Rs. 5,000/- is provided @ 100%.
The residual values, useful lives, and method of depreciation are reviewed at the end of each financial year. PPE other than land is tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
De-recognition
An item of PPE and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of an item of PPE is determined as the difference between the net disposal proceeds and the carrying amount of the asset and is recognized in the Statement of Profit and Loss.
Capital Work-in-Progress
The cost of PPE under construction at the reporting date is disclosed as 'Capital work-in-progress.' The cost comprises purchase price, borrowing cost if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebates are deducted in arriving at the purchase price. Advances paid for the acquisition/ construction of PPE which are outstanding at the balance sheet date are classified under 'Capital Advances.'
Investment properties are the assets which have undetermined future use. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, the investment properties are stated at cost less accumulated depreciation. The cost comprises purchase price, borrowing cost if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebates are deducted in arriving at the purchase price.
Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company beyond one year. All other repair and maintenance costs are recognized in the Statement of Profit and Loss as incurred.
Subsequent measurement (depreciation and useful lives)
The Company only has land as an investment property, which is not depreciated.
De-recognition
An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognized.
3.9 Â Â Â Financial Instruments
A Financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Initial recognition and measurement
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities is described below.
Classification and subsequent measurement of financial assets
For the purpose of subsequent measurement, financial assets are classified into the following categories upon initial recognition:
⢠   Amortized cost
⢠   Financial assets at fair value through profit or loss (FVTPL)
⢠   Financial assets at fair value through other comprehensive income (FVOCI)
⢠   Investments in equity shares of subsidiaries and joint ventures (carried at cost in accordance with Ind AS 27)
All financial assets except for those at FVTPL or equity instruments at FVOCI are subject to review for impairment at least at each reporting date to identify whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied to each category of financial assets, which are described below.
Amortized cost
A financial asset is measured at amortized cost using Effective Interest Rate (EIR) if both of the following conditions are met:
a)    the financial asset is held within a business model whose objective is to hold financial assets to collect contractual cash flows; and
b)    the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A loss allowance for expected credit losses is recognized on financial assets carried at amortized cost.
Modification of cash flows
When the contractual cash flows of a financial asset are renegotiated or otherwise modified, and the renegotiation or modification does not result in derecognition of that financial asset, the Company recalculates the gross carrying amount of the financial asset and recognizes a modification gain or loss in profit or loss. The gross carrying amount of the financial asset shall be recalculated as the present value of the renegotiated or modified contractual cash flows that are discounted at the financial asset's original effective interest rate. Any costs or fees incurred adjust the carrying amount of the modified financial asset and are amortized over the remaining term of the modified financial asset.
Financial assets at FVTPL
Financial assets at FVTPL include financial assets that are either do not meet the criteria for amortized cost classification or are equity instruments held for trading or that meet certain conditions and are designated at FVTPL upon initial recognition. All derivative financial instruments also fall into this category, except for those designated and effective as hedging instruments, for which the hedge accounting requirements may apply. Assets in this category are measured at fair value with gains or losses recognized in profit or loss. The fair values of financial assets in this category are determined by reference to active market transactions or using a valuation technique where no active market exists.
Embedded derivatives
An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, foreign exchange rate, or other variable, provided that, in the case of a non-financial variable, it is not specific to a party to the contract.
Derivatives embedded in all host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts or if the embedded derivative feature leverages the exposure and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss, unless designated as effective hedging instruments.
Financial assets at FVOCI
FVOCI financial assets comprise of equity instruments measured at fair value. An equity investment classified as FVOCI is initially measured at fair value plus transaction costs. Gains and losses are recognized in other comprehensive income and reported within the FVOCI reserve within equity, except for dividend income, which is recognized in profit or loss. There is no recycling of such gains and losses from OCI to Statement of Profit & Loss, even on the derecognition of the investment. However, the Company may transfer the same within equity.
De-recognition of financial assets
De-recognition of financial assets due to a substantial modification of terms and conditions
The Company derecognizes a financial asset, such as a loan to a customer, when the terms and conditions have been renegotiated to the extent that, substantially, it becomes a new loan, with the difference recognized as a derecognition gain or loss, to the extent that an impairment loss has not already been recorded.
De-recognition of financial assets other than due to substantial modification
Financial assets (or where applicable, a part of financial asset or part of a group of similar financial assets) are derecognized (i.e. removed from the Company's balance sheet) when the contractual rights to receive the cash flows from the financial asset have expired, or when the financial asset and substantially all the risks and rewards are transferred. The Company also derecognizes the financial asset if it has both transferred the financial asset and the transfer qualifies for derecognition.
Classification and subsequent measurement of financial liabilities
Financial liabilities are measured subsequently at amortized cost using the effective interest method, except for financial liabilities held for trading or designated at FVTPL, that are carried subsequently at fair value with gains or losses recognized in profit or loss. All host contracts which are in nature of a financial liability and separated from embedded derivative are measured at amortised cost using the effective interest method.
Derecognition of financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or canceled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss.
Hedge accounting
To qualify for hedge accounting, the hedging relationship must meet all of the following requirements:
- Â Â Â there is an economic relationship between the hedged item and the hedging instrument
- the effect of credit risk does not dominate the value changes that result from that economic relationship
- the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Company actually hedges and the quantity of the hedging instrument that the Company actually uses to hedge that quantity of hedged item.
All derivative financial instruments designated under hedge accounting are recognised initially at fair value and reported subsequently at fair value at each reporting date. To the extent that the hedge is effective, changes in the fair value of derivatives designated as hedging instruments in cash flow hedges are recognised in other comprehensive income and included within the cash flow hedge reserve in equity. Any ineffectiveness in the hedge relationship is recognised immediately in profit or loss.
At the time the hedged item affects profit or loss, any gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss and presented as a reclassification adjustment within other comprehensive income.
At the inception of each hedging relationship, the Company formally designates and documents the hedge relationship, in accordance with the Company's risk management objective and strategies. The documentation includes identification of the hedged item, hedging instrument, the nature of risk(s) being hedged, the hedge ratio and how the hedging relationship meets the hedging effectiveness requirements.
3.10 Â Â Â Impairment of financial assets
Loan assets
The Company follows a 'three-stage' model for impairment based on changes in credit quality since initial recognition as summarised below:
⢠   Stage 1 includes loan assets that have not had a significant increase in credit risk since initial recognition or that have low credit risk at the reporting date.
⢠   Stage 2 includes loan assets that have had a significant increase in credit risk since initial recognition but that do not have objective evidence of impairment.
⢠   Stage 3 includes loan assets that have objective evidence of impairment at the reporting date.
The Expected Credit Loss (ECL) is measured at 12-month ECL for Stage 1 loan assets and lifetime ECL for Stage 2 and Stage 3 loan assets. ECL is the product of the Probability of Default, Exposure at Default and Loss Given Default, defined as follows:
Probability of Default (PD) -Â The PD represents the likelihood of the borrower defaulting on its obligation either over next 12 months or over the remaining lifetime of the instrument.
Loss Given Default (LGD)Â - LGD represents the Company's expectation of loss given that a default occurs. LGD is expressed in percentage and it shows the proportion of the amount that will actually be lost post recoveries in case of a default.
Exposure at Default (EAD)Â - EAD represents the amounts, including the principal outstanding, interest accrued and outstanding Letters of Comfort that the Company expects to be owed at the time of default.
Forward-looking economic information is included in determining the 12-month and lifetime PD, EAD and LGD. The assumptions underlying the expected credit loss are monitored and reviewed on an ongoing basis.
Financial assets other than Loans
In respect of its other financial assets, the Company assesses if the credit risk on those financial assets has increased significantly since initial recognition. If the credit risk has not increased significantly since initial recognition, the Company measures the loss allowance at an amount equal to 12-month expected credit losses, else at an amount equal to the lifetime expected credit losses.
To make that assessment, the Company compares the risk of a default occurring on the financial asset as at the balance sheet date with the risk of a default occurring on the financial asset as at the date of initial recognition. The Company also considers reasonable and supportable information, that is available without undue cost or effort that is indicative of significant increases in credit risk since initial recognition. The Company assumes that the credit risk on a financial asset has not increased significantly since initial recognition if the financial asset is determined to have low credit risk at the balance sheet date.
Write-offs
Financial assets are written off either partially or in their entirety only when the Company has stopped pursuing the recovery.
3.11 Â Â Â Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments (original maturity less than three months) that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
3.12 Â Â Â Dividend and Other Payments to holders of Instruments classified as Equity
Proposed dividends and interim dividends payable to the shareholders are recognized as changes in equity in the period in which they are approved by the shareholders and the Board of Directors respectively. Liability for the payments to the holders of instruments classified as equity are recognized in the period when such payments are authorized for payment by the Company.
3.13 Â Â Â Material prior period errors
Material prior period errors are corrected retrospectively by restating the comparative amounts for the prior periods presented in which the error occurred. If the error occurred before the earliest period presented, the opening balances of assets, liabilities and equity for the earliest period presented, are restated.
A prepaid expense up to Rs. ' 1,00,000/- is recognized as expense upon initial recognition.
Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax. It is recognized in Statement of Profit and Loss, except when it relates to an item that is recognised in OCI or directly in equity, in which case, the tax is also recognised in OCI or directly in equity.
Current tax is determined as the tax payable in respect of taxable income for the year, using tax rates enacted or substantively enacted and as applicable at the reporting date, and any adjustments to tax payable in respect of previous years.
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable income. Deferred tax on temporary differences associated with investments in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Company and it is probable that reversal will not occur in the foreseeable future.
Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realization, provided those rates are enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority.
Deferred tax liability is recognized for all taxable temporary differences. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that future taxable profits will be available against which the deductible temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Changes in deferred tax assets or liabilities are recognized as a component of tax income or expense in profit or loss, except where they relate to items that are recognized in other comprehensive income or directly in equity, in which case the related deferred tax is also recognized in other comprehensive income or equity, respectively.
3.16    Employee benefits Short-term employee benefits
Short-term employee benefits including salaries, short term compensated absences (such as a paid annual leave) where the absences are expected to occur within twelve months after the end of the period in which the employees render the related service, profit sharing and bonuses payable within twelve months after the end of the period in which the employees render the related services and non-monetary benefits for current employees are estimated and measured on an undiscounted basis.
Post-employment benefit plans are classified into defined benefits plans and defined contribution plans as under:
Defined contribution plan
A defined contribution plan is a plan under which the Company pays fixed contributions in respect of the employees into a separate fund. The Company has no legal or constructive obligations to pay further contributions after its payment of the fixed contribution. The contributions made by the Company towards defined contribution plans are charged to the profit or loss in the period to which the contributions relate.
Defined benefit plan
The Company has an obligation towards gratuity, Post Retirement Medical Facility (PRMF) and Other Defined Retirement Benefit (ODRB) which are being considered as defined benefit plans covering eligible employees. Under the defined benefit
plans, the amount that an employee will receive on retirement is defined by reference to the employee's length of service, final salary, and other defined parameters. The legal obligation for any benefits remains with the Company, even if plan assets for funding the defined benefit plan have been set aside.
The Company's obligation towards defined benefit plans is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. The liability recognized in the statement of financial position for defined benefit plans is the present value of the Defined Benefit Obligation (DBO) at the reporting date less the fair value of plan assets. Management estimates the DBO annually with the assistance of independent actuaries.
Actuarial gains/losses resulting from re-measurements of the liability/asset are included in Other Comprehensive Income. Other long-term employee benefits:
Liability in respect of compensated absences becoming due or expected to be availed more than one-year after the balance sheet date is estimated on the basis of actuarial valuation performed by an independent actuary using the projected unit credit method.
Actuarial gains and losses arising from past experience and changes in actuarial assumptions are charged to statement of profit and loss in the period in which such gains or losses are determined.
Loan to employees at concessional rate
Loans given to employees at concessional rate are initially recognized at fair value and subsequently measured at amortised cost. The difference between the initial fair value of such loans and transaction value is recognised as deferred employee cost, which is amortised on a straight-line basis over the expected remaining period of the Loan. In case of change in expected remaining period of the Loan, the unamortised deferred employee cost on the date of change is amortised over the updated expected remaining period of the loan on a prospective basis.
3.17 Â Â Â Provisions, Contingent Liabilities, and Contingent Assets
Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event; it is probable that an outflow of economic resources will be required from the Company and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Provisions are discounted to their present values, where the time value of money is material.
A contingent liability is disclosed for:
⢠   Possible obligations which will be confirmed only by future events not wholly within the control of the Company or
⢠   Present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made.
In those cases, where the outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is recognized or disclosure is made.
Any reimbursement that the Company can be virtually certain to collect from a third party concerning the obligation (such as from insurance) is recognized as a separate asset. However, this asset may not exceed the amount of the related provision.
Contingent assets are not recognized. However, when the inflow of economic benefits is probable, the related asset is disclosed.
3.18 Â Â Â Fair value measurement
The Company measures financial instruments, such as derivatives at fair value at each reporting date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
⢠   In the principal market for the asset or liability, or
⢠   In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by
using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
⢠   Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
⢠   Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
⢠   Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognized in the financial statements regularly, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
3.19 Â Â Â Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
3.20 Â Â Â Non-current assets held for sale
Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and the sale is highly probable. A sale is considered as highly probable when such assets have been decided to be sold by the Company; are available for immediate sale in their present condition; are being actively marketed for sale at a price and the sale has been agreed or is expected to be concluded within one year of the date of classification. Such non-current assets are measured at lower of carrying amount or fair value less selling costs.
Non-current assets held for sale are presented separately from other assets in the Balance Sheet and are not depreciated or amortised while they are classified as held for sale.
4. Â Â Â Implementation of New/ Modified Standards
During the year, the Ministry of Corporate Affairs (MCA) has issued amendments to certain Ind AS. The Company has analysed the impact of these amendments which is not material to the Company, except for the amendment to Ind AS 107 and Ind AS 109 with respect to Interest rate benchmark reform. It aims to modify some specific hedge accounting requirements to provide relief from the potential effects of uncertainty caused by the interest rate benchmark (IBOR) reform. Further details on Interest Rate Benchmark Reform and its impact on the Company are available in the financial statements.
5. Â Â Â Significant management judgment in applying accounting policies and estimation of uncertainty
The preparation of the Company's financial statements requires management to make judgments, estimates, and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the related disclosures. Actual results may differ from these estimates.
Significant management judgments
Recognition of deferred tax assets/ liability - The extent to which deferred tax assets can be recognized is based on an assessment of the probability of the future taxable income against which the deferred tax assets can be utilized. Further, the Company Management has no intention to make withdrawal from the Special Reserve created and maintained under section 36(1)(viii) of the Income tax Act, 1961 and thus, the special reserve created and maintained is not capable of being reversed. Hence, the company does not create any deferred tax liability on the said reserve.
Evaluation of indicators for impairment of assets - The evaluation of the applicability of indicators of impairment of assets requires assessment of several external and internal factors which could result in deterioration of recoverable amount of the assets.
Non recognition of Interest Income on Credit Impaired Loans -Â Interest income on credit-impaired loan assets is not being recognised as a matter of prudence, pending the outcome of resolutions of stressed assets.
Significant estimates
Impact of Covid-19 Outbreak - The Company has considered the possible impacts of COVID-19 in preparation of these financial statements, including but not limited to its assessment of, liquidity and going concern assumption, recoverable values of its financial and non-financial assets, impact on revenue recognition and impact on effectiveness of its hedges. The Company has carried out this assessment based on available internal and external sources of information upto the date of approval of these standalone financial statements and believes that the impact of COVID-19 is not material to these financial statements and expects to recover the carrying amount of its assets. The impact of COVID-19 on the standalone financial statements may differ from that estimated as at the date of approval of these standalone financial statements owing to the nature and duration of COVID-19. The extent to which the Covid-19 pandemic will impact the Company will depend on future developments, which are uncertain, including, among other things, any new information concerning the severity of the Covid-19 pandemic and any further action by the Govt. or the Company to contain its spread or mitigate its impact.
Useful lives of depreciable/amortizable assets - Management reviews its estimate of the useful lives of depreciable/ amortizable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technical and economic obsolescence that may change the utility of assets.
Defined benefit obligation (DBO) - Management's estimate of the DBO is based on a number of underlying assumptions such as standard rates of inflation, mortality, discount rate and anticipation of future salary increases. Variation in these assumptions may significantly impact the DBO amount and the annual defined benefit expenses.
Fair value measurements - Management applies valuation techniques to determine the fair value of financial instruments (where active market quotes are not available). This involves developing estimates and assumptions consistent with how market participants would price the instrument. In estimating the fair value of an asset or a liability, the Company uses market-observable data to the extent it is available. In case of non-availability of market-observable data, Level 2 & Level 3 hierarchy is used for fair valuation.
Income Taxes -Â Significant estimates are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions and also in respect of expected future profitability to assess deferred tax asset.
Expected Credit Loss (âECL') - The measurement of an expected credit loss allowance for financial assets measured at amortized cost requires the use of complex models and significant assumptions about future economic conditions and credit behavior (e.g., likelihood of customers defaulting and resulting losses). The Company makes significant judgments about the following while assessing expected credit loss to estimate ECL:
⢠   Determining criteria for a significant increase in credit risk;
⢠   Establishing the number and relative weightings of forward-looking scenarios for each type of product/ market and the associated ECL; and
⢠   Establishing groups of similar financial assets to measure ECL.
⢠   Estimating the probability of default and loss given default (estimates of recoverable amounts in case of default)
Mar 31, 2018
1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS.
(a) Accounting Convention:- The financial statements are prepared under the historical cost convention on accrual basis and in accordance with generally accepted accounting principles and accounting standards as applicable under Section 133 of the Companies Act, 2013 read with MCA General Circular No. 15/2013 dated 13 September 2013. The financial statements adhere to the relevant presentational requirements of the Companies Act, 2013.
(b) Use of Estimates:- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumption that affect the reported amounts of assets and liabilities and disclosure thereof at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Difference between the actual results and estimates are recognized in the period in which results materialize.
2. INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVISIONING.
The Company is following regulatory norms/ guidelines as prescribed by Reserve Bank of India (RBI) from time to time. The salient features in respect of Income Recognition, Asset classification and Provisioning are as under:
2.1. Income Recognition
a. Income on Non Performing Assets is recognized as and when received and appropriated. Any such income recognized before the asset becomes non-performing and remaining unrealized is reversed.
Unless otherwise agreed, the recoveries from the borrowers are appropriated in the order of (i) costs and expenses of REC (ii) penal interest including interest tax, if any (iii) overdue interest including interest tax, if any and (iv) repayment of principal, the oldest being adjusted first.
In respect of standard loans including those whose terms are renegotiated/rescheduled/ restructured and retained as Standard Loans, income is recognized on accrual basis.
b. Income of agency fee on Government schemes is recognized on accrual basis on the basis of the services rendered.
c. Income under the head processing fee, upfront fee, lead fee, fees/ charges received under the mutatis-mutandis clause and pre-payment premium is accounted for in the year in which it is received by the company.
d. Income from investments
(1) Income from dividend on shares of corporate bodies and units of mutual funds shall be taken into account on accrual basis when RECâs right to receive payment is established.
Provided that in case of final dividend, right to receive payment shall be considered as established only upon approval of the dividend by the shareholders in Annual General Meeting.
(2) Income from bonds and debentures of corporate bodies and from Government securities/bonds shall be taken into account on accrual basis.
Provided that the interest rate on these instruments is pre-determined and interest is serviced regularly and is not in arrears.
(3) Income on securities of corporate bodies or public sector undertakings, the payment of interest and repayment of principal of which have been guaranteed by Central Government or a State Government shall be taken into account on accrual basis.
2.2 Assets Classification
Loans and advances are classified as standard assets and non- performing assets, based on the guidelines issued by the RBI.
(1) Standard Assets: âStandard assetâmeans an asset which is not an NPA and in respect of which no default in repayment of principal or payment of interest is perceived and which does not disclose any problem or carry more than normal risk attached to the business.
(2) Non performing Assets (NPA): A Loan asset shall become NPA:-
(a) if interest and/ or instalment of principal remains overdue for a period of 3 months or more.
(b) In case of under implementation Generation Projects other than Hydro projects in Himalayan region or affected by natural disasters, the loan Asset shall also be classified as NPA if it fails to commence commercial operations within 2 years or upto 3/4 years (subject to certain conditions) from the original DCCO as the case may be depending upon the reasons of such delay.
(c) For the purpose of classification of assets into standard, sub-standard, doubtful and loss categories, facilities shall be classified borrower wise with the following exception:
Government Sector loans, where cash flows from each project are separately identifiable and applied to the same project, REC shall classify such loans on project wise basis.
NPAs are classified into Sub-Standard, Doubtful and Loss Assets, based on the following criteria.
(i) Sub-Standard Assets: âSub-standard assetâmeans an asset which has been classified as non-performing asset for a period not exceeding 12 months for the financial year ending 31 March 2018 and thereafter.
An asset which has been renegotiated or rescheduled or restructured shall be a sub-standard asset or continue to remain in the same category in which it was prior to its renegotiation or re-schedulement or restructuring, as a doubtful asset or a loss asset as the case may be. Such asset may be upgraded only when all the outstanding loan/ facilities in the account perform satisfactorily during the period up to one year from the commencement of the first payment of interest or principal whichever is later on the credit facility with longest period of moratorium under the terms of restructuring package. Necessary provision is required to be made as applicable to such asset till it is upgraded.
(ii) Doubtful Assets: Doubtful asset means an asset which remains a substandard asset for a period exceeding 12 months for the financial year ending 31 March 2018 and thereafter.
(iii) Loss Assets: Loss asset means -
a) An asset which has been identified as loss asset by REC or its internal or external auditor or by RBI, to the extent it is not written off by REC, and
b) An asset which is adversely affected by a potential threat of non-recoverability due to either erosion in the value of security or non availability of security or due to any fraudulent act or omission on the part of the borrower.
2.3 Provisioning against Loans
The provisioning requirement in respect of loans, advances and other credit facilities including bills purchased and discounted shall be as under:
(i) Loss assets - The entire asset shall be written off. If the assets are permitted to remain in the books for any reason, 100% of the outstanding shall be provided for:
(ii) Doubtful assets -
(a) 100% provision to the extent to which the advance is not covered by the realizable value of the security to which REC has a valid recourse shall be made. The realizable value is to be estimated on a realistic basis; Loans covered by Central/State Govt. guarantee or loans to any State Govt. shall be treated as secured;
(b) In addition to item(a) above, depending upon the period for which the asset has remained doubtful, provision to the extent of 20% to 50% of the secured portion (i.e. estimated realizable value of the outstanding) shall be made on the following basis :-
(iii) Sub-standard assets - A provision of 10% shall be made.
(iv) Standard assets - Provision in respect of Standard Assets is made as below:
2.4 Treatment of Provisions held
The provisions in respect of Non Performing Assets (NPAs) is reversed only after the complete recovery of the outstanding/ regularization of the account.
2.5 For restructured/ rescheduled assets, provisions are made in accordance the guidelines (subject to specific relaxations) issued by RBI, which requires that the difference between the fair value of the loan assets before and after restructuring is provided for, in addition to provision for the respective loan assets.
3. FIXED ASSETS
Fixed Assets are shown at historical cost less accumulated depreciation. The cost includes any cost attributable of bringing the assets to its working condition for its intended use.
4. DEPRECIATION
4.1. Depreciation on assets is provided on straight-line method in accordance with the useful lives prescribed under Schedule II to the Companies Act, 2013.
4.2. Depreciation on assets purchased / sold during the year is charged for the full month if the asset is in use for more than 15 days, instead of charging the same on pro-rata basis from the date of purchase/sale.
4.3. Depreciation on assets purchased during the year up to Rs.5,000/- is provided @ 100%.
4.4. Leasehold land is amortized over the lease period.
5. INTANGIBLE ASSETS
An Intangible Asset is recognized where it is probable that the future economic benefits attributable to the assets will flow to the company. The depreciable amount of an intangible asset is allocated on straight line basis over the best estimate of its useful life. Management estimates useful life of intangible assets to be 5 years.
6. INVESTMENTS
Long term investments are carried at cost. However, provision for diminution is made to recognise a decline, other than temporary, in the value of the investments, such reduction being determined and made for each investment individually. Quoted current investments are carried individually at the cost or market value whichever is lower. Unquoted current investments are carried individually at the cost or fair value whichever is lower.
7. CURRENT TAX AND DEFERRED TAX
Income Tax expense comprises current Income Tax (Amount of tax for the period determined in accordance with the income tax law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period) is determined in accordance with Accounting Standard- 22. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognized using the tax rates that have been enacted or substantially established by the Balance Sheet date. Deferred Tax Assets are recognized and carry forward to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such Deferred Tax Assets can be realized.
8. IMPAIRMENT OF ASSETS
At each balance sheet date, the Company reviews the carrying amounts of its fixed assets to determine whether there is any indication that those assets suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of impairment loss. Recoverable amount is the higher of assets net selling prices and value in use.
9. PROVISIONS
A provision is recognized when the company has a present obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation and reliable estimate of amount of the obligation can be made. Provisions are determined based on management estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current management estimates.
10. BOND / DEBT ISSUE
10.1. Expenditure on raising of funds by way of bonds is charged to revenue in the year of issue of such bonds.
10.2. The Corporation discharges its obligation towards payment of principal and interest relating to bonds by depositing the amount in the designated Bank Accounts. Accordingly, the payments are treated as final payments and these amounts are not exhibited in the books till the validity of the instruments but reconciliation thereof is carried out.
10.3. Expenditure incurred on raising of funds is charged to the Statement of Profit & Loss in the year in which it is incurred except the arrangement fee paid on the raising of External Commercial Borrowings, discount/ interest on the Commercial Papers/ Reg-S-Bonds (External Commercial Borrowings), which is amortized proportionately over the period of its tenure.
11. CASH FLOW STATEMENT
11.1. Cash flows are reported using the indirect method, whereby profit before tax is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from regular operating, financing and investing activities of the Company are segregated.
11.2. Cash comprises cash on hand, demand deposits with banks, imprest with postal authorities and cheques / drafts / pay orders in hand. The Company considers cash equivalents as all short term balances (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
12. PRIOR PERIOD/ PREPAID ADJUSTMENTS
12.1. Considering the nature of business, interest income/expenditure for the earlier years ascertained and determined during the year is accounted for in the year in which it is so ascertained/determined.
12.2. Other items not exceeding Rs.5,00,000/- in each case are accounted for under natural heads of account.
13. EMPLOYEES BENEFITS
13.1 The liability for employees benefit in respect of Gratuity ascertained on actuarial valuation is provided and funded to a separate trust.
13.2 Post employment and other long term employee benefits are recognized as an expense in the Statement of Profit & Loss for the year in which the employee has rendered services. The expense is recognized at the present value of the amounts payable determined using actuarial valuation techniques. Actuarial gains and losses in respect of post employment and other long term benefits are charged to the Statement of Profit & Loss.
14. TRANSACTION IN FOREIGN CURRENCY
Foreign Currency transactions are initially recorded at the exchange rate prevailing on the date of transaction.
In respect of accounting periods commencing on or after the 1st April, 2011, the exchange differences arising on reporting of long-term foreign currency monetary items (having a term of twelve months or more at the date of origination) at RBI reference rates prevailing at the end of each reporting period or where the RBI reference rate is not available for any currency, the closing rate for the same date quoted on Bloomberg, different from those at which they were initially recorded during the period, or reported in previous financial statements, are accumulated in a âForeign Currency Monetary Item Translation Difference Accountâ and amortized over the balance period of such long term monetary item, by recognition as income or expense in each of such periods.
Short-term foreign currency monetary items (having a term of less than twelve months at the date of origination) are translated at RBI reference rates prevailing at the end of each reporting period or where the RBI reference rate is not available for any currency, the closing rate for the same date quoted on Bloomberg. The resultant exchange fluctuation is recognized as income or expense in each of such periods.
15. GRANTS/FUNDS FROM GOVERNMENT
Un-disbursed funds of grant received for further disbursements are classified as current liabilities. Interest wherever earned on such funds is credited to respective grant account.
16. DERIVATIVE TRANSACTIONS
16.1 Derivative transactions include forwards, interest rate swaps, cross currency swaps and currency and cross currency options to hedge assets and liabilities.
16.2 These derivative transactions are done for hedging purpose and not for trading or speculative purpose.
Derivative contracts in the nature of foreign exchange forward contracts are accounted for as per Accounting Standard 11 âThe Effects of Changes in Foreign Exchange Ratesâ. These foreign exchange contract are carried net of receivables and payables in asset or liability.
Other derivative contracts such as interest rate swaps etc. are accounted for as per Guidance Note on Accounting for Derivative Contracts issued by the Institute of Chartered Accountants of India. These are carried at fair value and changes in the fair value being recognized in the statement of Profit & Loss.
16.3 Any one-time hedging premium paid on derivative transactions shall be amortized over the tenor of such derivative contract.
Mar 31, 2017
SIGNIFICANT ACCOUNTING POLICIES
1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS.
(a) Accounting Convention: - The financial statements are prepared under the historical cost convention on accrual basis and in accordance with generally accepted accounting principles and accounting standards as applicable under Section 133 of the Companies Act, 2013 read with mCa General Circular No. 15/2013 dated 13 September 2013. The financial statements adhere to the relevant presentational requirements of the Companies Act, 2013.
(b) Use of Estimates: - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumption that affect the reported amounts of assets and liabilities and disclosure thereof at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Difference between the actual results and estimates are recognized in the period in which results materialize.
2. INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVISIONING.
The Company is following regulatory norms/ guidelines as prescribed by Reserve Bank of India (RBI) from time to time. However, RBI has allowed certain specific relaxations in respect of non-applicability of reduced period for NPA recognition in case of loans sanctioned on or before 31 March 2015 and exemption for certain projects from applicability of Restructuring norms of RBI and allowed the Company to continue to be regulated by the existing REC''s prudential norms. The salient features in respect of Income Recognition, Asset classification and Provisioning are as under:
2.1. Income Recognition
a. Income on Non Performing Assets is recognized as and when received and appropriated. Any such income recognized before the asset becomes non-performing and remaining unrealized is reversed.
Unless otherwise agreed, the recoveries from the borrowers are appropriated in the order of (i) costs and expenses of REC (ii) penal interest including interest tax, if any (iii) overdue interest including interest tax, if any and (iv) repayment of principal, the oldest being adjusted first.
In respect of standard loans including those whose terms are renegotiated/rescheduled/ restructured and retained as Standard Loans, income is recognized on accrual basis.
b. Income of fee of DDUGJY Schemes is recognized on the basis of the services rendered and amount of fee sanctioned by the Ministry of Power.
c. Income of service charges of NEF (Interest Subsidy) Scheme is recognized on the basis of the services rendered and amount of service charges sanctioned by the Ministry of Power.
d. Income under the head processing fee, upfront fee, lead fee, fees/ charges received under the mutatis-mutandis clause and pre-payment premium is accounted for in the year in which it is received by the company.
e. Income from investments
(1) Income from dividend on shares of corporate bodies and units of mutual funds shall be taken into account on accrual basis when REC''s right to receive payment is established.
Provided that in case of final dividend, right to receive payment shall be considered as established only upon approval of the dividend by the shareholders in Annual General Meeting.
(2) Income from bonds and debentures of corporate bodies and from Government securities/bonds shall be taken into account on accrual basis.
Provided that the interest rate on these instruments is pre-determined and interest is serviced regularly and is not in arrears.
(3) Income on securities of corporate bodies or public sector undertakings, the payment of interest and repayment of principal of which have been guaranteed by Central Government or a State Government shall be taken into account on accrual basis.
2.2 Assets Classification
Loans and advances are classified as standard assets and non- performing assets, based on the guidelines issued by the RBI.
(1) Standard Assets: ''Standard asset'' means an asset which is not an NPA and in respect of which no default in repayment of principal or payment of interest is perceived and which does not disclose any problem or carry more than normal risk attached to the business.
In view of relaxation given by RBI vide letter dated June 11th, 2015, for Transmission & Distribution, Renovation & Modernization and Life Extension projects and also the Hydro projects in Himalayan region or affected by natural disasters, the rescheduling or restructuring or renegotiation of a standard infrastructure loan asset shall not cause it to be reclassified if the revised project is found to be viable by the competent authority.
(2) Nonperforming Assets (NpA): A Loan asset shall become NPA:-
(a) if interest and/ or installment of principal remains overdue for a period of two quarters or more.
The above period of two quarters shall be 5 months for the financial year ending 31 March 2016, 4 months for the financial year ending 31 March 2017 and 3 months for the financial year ending 31 March 2018 and thereafter. However, RBI vide letter dated 5 October 2015 has permitted that the existing loans of the company i.e. loans sanctioned on or before 31 March 2015 are permitted to be regulated under the REC''s existing asset classification norms (180 days) till 31 March 2017.
(b) In case of under implementation Generation Projects other than Hydro projects in Himalayan region or affected by natural disasters, the loan Asset shall also be classified as NPA if it fails to commence commercial operations within 2 years or up to 3/4 years (subject to certain conditions) from the original DCCO as the case may be depending upon the reasons of such delay.
(c) For the purpose of classification of assets into standard, sub-standard, doubtful and loss categories, facilities shall be classified borrower wise with the following exception:
Government Sector loans, where cash flows from each project are separately identifiable and applied to the same project, REC shall classify such loans on project wise basis.
NPAs are classified into Sub-Standard, Doubtful and Loss Assets, based on the following criteria.
(i) Sub-Standard Assets: ''Sub-standard asset'' means an asset which has been classified as non-performing asset for a period not exceeding 16 months'' for the financial year ending 31 March 2016; ''not exceeding 14 months'' for the financial year ending 31 March 2017; and ''not exceeding 12 months'' for the financial year ending 31 March 2018 and thereafter.
An asset which has been renegotiated or rescheduled or restructured shall be a sub-standard asset or continue to remain in the same category in which it was prior to its renegotiation or re-schedulement or restructuring, as a doubtful asset or a loss asset as the case may be. Such asset may be upgraded only when all the outstanding loan/ facilities in the account perform satisfactorily during the period up to one year from the commencement of the first payment of interest or principal whichever is later on the credit facility with longest period of moratorium under the terms of restructuring package. Necessary provision is required to be made as applicable to such asset till it is upgraded.
(ii) Doubtful Assets: Doubtful asset means an asset which remains a substandard asset for a period ''exceeding 16 months'' for the financial year ended 31 March 2016; ''exceeding 14 months'' for the financial year ending 31 March 2017 and ''exceeding 12 months'' for the financial year ending 31 March 2018 and thereafter.
(iii) Loss Assets: Loss asset means -
a) An asset which has been identified as loss asset by REC or its internal or external auditor or by RBI, to the extent it is not written off by REC, and
b) An asset which is adversely affected by a potential threat of non-recoverability due to either erosion in the value of security or non availability of security or due to any fraudulent act or omission on the part of the borrower.
2.3 provisioning against Loans
The provisioning requirement in respect of loans, advances and other credit facilities including bills purchased and discounted shall be as under:
(i) Loss assets - The entire asset shall be written off. If the assets are permitted to remain in the books for any reason, 100% of the outstanding shall be provided for:
(ii) Doubtful assets -
(a) 100% provision to the extent to which the advance is not covered by the realizable value of the security to which REC has a valid recourse shall be made. The realizable value is to be estimated on a realistic basis; Loans covered by Central/State Govt. guarantee or loans to any State Govt. shall be treated as secured;
2.4 Treatment of provisions held
The provisions in respect of Non Performing Assets (NPAs) is reversed only after the complete recovery of the outstanding/ regularization of the account.
2.5 For restructured/ rescheduled assets, provisions are made in accordance the guidelines (subject to specific relaxations) issued by RBI, which requires that the difference between the fair value of the loan assets before and after restructuring is provided for, in addition to provision for the respective loan assets.
3. FIXED ASSETS.
Fixed Assets are shown at historical cost less accumulated depreciation. The cost includes any cost attributable of bringing the assets to its working condition for its intended use.
4. depreciation.
4.1. Depreciation on assets is provided on straight-line method in accordance with the useful lives prescribed under Schedule II to the Companies Act, 2013.
4.2. Depreciation on assets purchased / sold during the year is charged for the full month if the asset is in use for more than 15 days, instead of charging the same on pro-rata basis from the date of purchase/sale.
4.3. Depreciation on assets purchased during the year up to '' 5,000/- is provided @ 100%.
4.4. Leasehold land is amortized over the lease period.
5. INTANGIBLE ASSETS.
An Intangible Asset is recognized where it is probable that the future economic benefits attributable to the assets will flow to the company. The depreciable amount of an intangible asset is allocated on straight line basis over the best estimate of its useful life. Management estimates useful life of intangible assets to be 5 years.
6. INVESTMENTS.
Long term investments are carried at cost. However, provision for diminution is made to recognize a decline, other than temporary, in the value of the investments, such reduction being determined and made for each investment individually. Quoted current investments are carried individually at the cost or market value whichever is lower. Unquoted current investments are carried individually at the cost or fair value whichever is lower.
7. CURRENT TAX AND DEFERRED TAX.
Income Tax expense comprises current Income Tax (Amount of tax for the period determined in accordance with the income tax law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period) is determined in accordance with Accounting Standard- 22. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognized using the tax rates that have been enacted or substantially established by the Balance Sheet date. Deferred Tax Assets are recognized and carry forward to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such Deferred Tax Assets can be realized.
8. impairment of assets.
At each balance sheet date, the Company reviews the carrying amounts of its fixed assets to determine whether there is any indication that those assets suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of impairment loss. Recoverable amount is the higher of assets net selling prices and value in use.
9. provisions
A provision is recognized when the company has a present obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation and reliable estimate of amount of the obligation can be made. Provisions are determined based on management estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current management estimates.
10. BOND / DEBT ISSUE.
10.1. Expenditure on raising of funds by way of bonds is charged to revenue in the year of issue of such bonds.
10.2. The Corporation discharges its obligation towards payment of principal and interest relating to bonds by depositing the amount in the designated Bank Accounts. Accordingly, the payments are treated as final payments and these amounts are not exhibited in the books till the validity of the instruments but reconciliation thereof is carried out.
10.3. Expenditure incurred on raising of funds is charged to the Statement of Profit & Loss in the year in which it is incurred except the discount/interest on the Commercial Papers/ Reg-S-Bonds (External Commercial Borrowings), which is amortized proportionately over the period of its tenure.
11. CASH FLOW STATEMENT
11.1. Cash flows are reported using the indirect method, whereby profit before tax is adjusted for the effects of transactions of a noncash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from regular operating, financing and investing activities of the Company are segregated.
11.2. Cash comprises cash on hand, demand deposits with banks, imprest with postal authorities and cheques / drafts / pay orders in hand. The Company considers cash equivalents as all short term balances (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
12. prior period/ prepaid adjustments
12.1. Considering the nature of business, interest income/expenditure for the earlier years ascertained and determined during the year is accounted for in the year in which it is so ascertained/determined.
12.2. Other items not exceeding Rs, 5,00,000/- in each case are accounted for under natural heads of account.
13. employees benefits
13.1 The liability for employees benefit in respect of Gratuity ascertained on actuarial valuation is provided and funded to a separate trust.
13.2 Post employment and other long term employee benefits are recognized as an expense in the Statement of Profit & Loss for the year in which the employee has rendered services. The expense is recognized at the present value of the amounts payable determined using actuarial valuation techniques. Actuarial gains and losses in respect of post employment and other long term benefits are charged to the Statement of Profit & Loss.
14. TRANSACTION IN FOREIGN CURRENCY
Foreign Currency transactions are initially recorded at the exchange rate prevailing on the date of transaction.
In respect of accounting periods commencing on or after the 1st April, 2011, the exchange differences arising on reporting of long-term foreign currency monetary items (having a term of twelve months or more at the date of origination) at RBI reference rates prevailing at the end of each reporting period or where the RBI reference rate is not available for any currency, the closing rate for the same date quoted on Bloomberg, different from those at which they were initially recorded during the period, or reported in previous financial statements, are accumulated in a âForeign Currency Monetary Item Translation Difference Accountâ and amortized over the balance period of such long term monetary item, by recognition as income or expense in each of such periods.
Short-term foreign currency monetary items (having a term of less than twelve months at the date of origination) are translated at RBI reference rates prevailing at the end of each reporting period or where the RBI reference rate is not available for any currency, the closing rate for the same date quoted on Bloomberg. The resultant exchange fluctuation is recognized as income or expense in each of such periods.
15. GRANTS/FUNDS FROM GOVERNMENT
Un-disbursed funds of grant received for further disbursements are classified as current liabilities. Interest wherever earned on such funds is credited to respective grant account.
16. DERIVATIVE TRANSACTIONS
16.1 Derivative transactions include forwards, interest rate swaps, cross currency swaps and currency and cross currency options to hedge assets and liabilities.
16.2 These derivative transactions are done for hedging purpose and not for trading or speculative purpose.
Derivative contracts in the nature of foreign exchange forward contracts are accounted for as per Accounting Standard 11 âThe Effects of Changes in Foreign Exchange Ratesâ. These foreign exchange contract are carried net of receivables and payables in asset or liability.
Other derivative contracts such as interest rate swaps etc. are accounted for as per Guidance Note on Accounting for Derivative Contracts issued by the Institute of Chartered Accountants of India. These are carried at fair value and changes in the fair value being recognized in the statement of Profit & Loss.
The shareholders of the Company in Annual General Meeting (AGM) held on 21 September 2016 inter-alia approved the increase in Authorized Capital of the Company from Rs, 1,200 crores to Rs, 5,000 crores and issue of Bonus shares in the ratio of 1:1 (i.e. one bonus equity share of Rs, 10/- each for every one fully paid up Equity Share of Rs, 10/- each), to the shareholders by capitalizing existing reserves by a sum of Rs, 987.46 Crores. Accordingly, 98,74,59,000 bonus shares were issued & allotted on 30 September 2016.
1.2 Allotment of Bonus Shares during the year and during preceding five years
The Company has allotted 98,74,59,000 Equity Shares as fully paid up by way of bonus shares during FY 2016-17.
1.3 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, 2013 and rules made there under, Companies Act, 1956 (to the extent applicable), SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Memorandum of Association and Articles of Association of the Company.
During the financial year 2016-17, the President of India acting through Ministry of Power, Government of India divested/sold 2,51,33,733 equity shares i.e. 1.28 % of total paid up capital of the Company on 25 January 2017 and 98,97,155 equity shares i.e. 0.50% of total paid up capital of the Company on 22 March 2017 through Off-market sale of shares under the Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF). Accordingly, as on 31 March 2017, the President of India holds 58.86 % of the paid up equity share capital of the Company.
During the previous year, the Company had made a provision for the dividend declared by the Board of Directors as per the requirements of pre-revised Accounting Standard 4 ''Contingencies and Events Occurring After the Balance Sheet Date''. However, as per the requirements of Revised AS 4 as amended vide the Companies (Accounting Standards) Amendment Rules, 2016, the Company is not required to provide for dividend proposed by the Board of Directors for the year ended 31 March 2017. Consequently, no provision has been made in respect of the aforesaid dividend. Had the Company continued with creation of provision of proposed dividend, as at Balance Sheet date, the figure of ''Reserves & Surplus'' would have been lower by Rs, 629.89 Crores and ''Short term Provisions'' would have been higher by the same amount (including dividend distribution tax of Rs, 106.54 crores). Further, the previous year figures have been adjusted in view of the bonus issue in the current year to make the figures comparable (Refer Note 1.1).
3. Long-Term Debt
Non-current portion of the long term debt has been classified as ''Long-term borrowings'' and the current portion of the long term debt has been classified as âCurrent Maturities of Long-term debt'' in Note-8 ''Other Current Liabilities''.
3.3 Security Details of the Secured Borrowings
The Bond Series 82, 83, 85, 86A, 86 B-III, 87-II, 87 A-III, 88, 90, 90 B-II, 90 C-II, 91-II and 92-II of Institutional 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 Vistra ITCL (India) Ltd. (formerly known as IL&FS Trust Company Ltd.) on the basis of joint hypothecation agreement dated 24 September 2010 in favour of IDBI Trusteeship Services Ltd.
The Bond Series 116-II, 117, 118, 119 and 122 of Institutional Bonds are secured by a charge on first pari passu 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-IIIA, 123-IIIB and 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 (other than those that are exclusively charged/earmarked to lenders / other Trustees) 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 Vistra ITCL (India) Ltd. (formerly known as IL&FS Trust 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 Bond Series X of 54EC Capital Gain Tax Exemption Bonds and Tax Free Bonds issued during FY 2012-13 & 2015-16 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 (other than those that are exclusively charged/ earmarked to lenders / other Trustees) 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.
3.4 Foreign Currency Borrowings have been raised at interest rates ranging from a spread of 65 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. 3.2.2.1.
3.5 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 âAAAâ 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 âBaa3â and âBBB-â respectively.
There has been no migration of ratings during the year.
3.7 During the year, the Company has come across an instance of fraudulent encashment through forged documents of money invested by one of the investors in 54EC Capital Gains tax Exemption Bonds by some impersonator. The Company has lodged complaint with the Police against the unknown person and the officials of the Registrar and Transfer Agent (R&TA). Accordingly, an amount of Rs, 0.59 Crore has been shown recoverable from the RTA in the books of accounts and the matter has been duly reported to the Reserve Bank of India (RBI). Further, as a precautionary measure, the services of the existing RTA have been discontinued and new RTA has been appointed.
8.1 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.
8.2 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 âUndisbursed Subsidy/ grantâ under the head âOther Current Liabilitiesâ.
During the year, interest earned of Rs, 24.84 Crores (Previous year Rs, 39.15 Crores) has been taken to DDUGJY Subsidy account. Further, during the year, an amount of Rs, 40.78 crores (Previous year Rs, 71.66 crores) has been refunded back to MoP out of the total interest on subsidy.
* The number of bonds and the amount of the investment in current portion represents the investments maturing within the next 12 months and the balance is the non-current portion.
10.1 Investments include Rs, 6.15 Crores (Previous year Rs, 6.15 Crores) representing company''s contribution in the units of ''Small is Beautiful (SIB ) Venture Capital fund'' promoted by KSK Energy Ventures Limited.
11.2.1 Loan balance confirmations for 86% of total loan assets as at 31 March 2017 have been received from the borrowers. Out of the remaining 14% loan assets amounting to '' 28,474 crore for which balance confirmations have not been received, 82% loans are secured by way of hypothecation of assets, 13% by way of Government Guarantee/ Loans to Government and 5% are unsecured loans.
11.2.2 Loan Assets also include amount financed by the Company as per the Scheme for Financial Restructuring of State Distribution Companies (Discoms).
11.2.3 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, had sanctioned Rs, 196 Crore as additional loan towards funding of cost overrun. As at 31 March 2017, 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 30 June 2014. As at 31 March 2017, the account of the borrower is classified as Doubtful asset. As per the Independent valuer''s report, the realizable sale value of Phase-I & Phase-II project assets is Rs, 1,424.35 Crores. Accordingly, 100% provision to the extent of loan not covered by the realizable value of the security amounting to Rs, 587.47 Crores and for the balance loan amount of Rs, 224.27 Crores, 30% provision amounting to Rs, 67.29 Crores is created in the books as per Significant Accounting Policy no 2.3(ii). As such, total provision created as on 31 March 2017 is Rs, 654.75 Crores.
Recall notice has been served to the borrower and Corporate guarantee of promoter Company, CIAL, has been invoked. REC and ARCIL have filled winding up petition before the Calcutta High Court against CIAL. Meanwhile CIAL moved to Board of Industrial and Financial Reconstruction (BIFR), pursuant thereto, Hon''ble High Court abated the winding up petition. Lenders are exploring various options for the revival of the project including change in the management. With the consent of lenders, ARCIL has initiated the proceedings under SARFAESI Act. ARCIL has taken the possession of the Project site and deployed security for protection of the project. Lenders have also filed joint Original Application (OA) before Debt Recovery Tribunal (DRT), Calcutta for recovery of dues.
11.2.4 REC has sanctioned Rs, 1,150 Crore to Jas Infrastructure & Power Limited (JIPL) wherein total disbursement is Rs, 33.24 Crores till 31 March 2017. The account has become NPA on 30 June 2014. As at 31 March 2017, the account of the borrower is classified as Doubtful asset. As per the Independent valuer''s report, the realizable sale value of project assets is valued at Rs, 143.35 Crores. Accordingly, 100% provision to the extent of loan not covered by the realizable value of the security amounting to Rs, 31.48 crore and for the balance loan amount of Rs, 1.77 crores, 30% provision amounting to Rs, 0.53 crores is created in the books as per Significant Accounting Policy No. 2.3(ii). As such, total provision created as at 31 March 2017 is Rs, 32.01 Crores on total loan outstanding of Rs, 33.24 Crores.
Lenders have already initiated recovery. Recall notice has been served to the borrower and Personal guarantee of promoter has been invoked. Original Application has been filed by the REC in DRT for recovery of dues. Further, action as per SARFAESI Act is being explored by Lenders.
11.2.5 As at 31 March 2017, 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''. However, the borrower had obtained an ad-interim order from Hon''ble High Court of Madras on 18 September 2015 not to classify the account as NPA. In view of the same, 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 '' 2,301.99 Crores has not been created. Based on the decision taken by lenders in the JLF subsequent to the court order, the accrued interest of Rs, 426.09 crores (Rs, 88.79 cr pertaining to Financial year 2016-17) has been adjusted through disbursement of loan as per the terms of sanction and the income recognized accordingly.
However, since the account is currently into Restructured Standard Loan Assets category, a provision of 5% amounting to Rs, 115.10 Crores had 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). Apart from this, as a matter of prudence, an additional provision amounting to Rs, 103.59 Crores has been created @ 4.50% of the loan over and above 5% provision. Accordingly, as on 31 March 2017, the total provision of Rs, 218.69 Crores stands created against the project and unrealized income of Rs, 271.78 Crores has also not been recognized. An application has been filed by REC for vacation of stay order issued by Hon''ble High Court of Madras.
11.2.6 REC had sanctioned Rs, 390 Crores to M/s Lanco Teesta Hydro Power Limited with ICICI Bank as Lead lender having initial project SCOD in May 2012. 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 8 June 2015. In terms of SDR Regulations dated 8 June 2015 issued by RBI, the Lenders'' consortium had decided to invoke the SDR in the lenders'' meet held on 24 July 2015. Accordingly, REC, on 24 September 2015, approved the Strategic Debt Restructuring (SDR) package pursuant to RBI circular dated 8 June 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 20 October 2015, necessary documentation had been carried out along with the signing of shareholder''s agreement and an amount of Rs, 102 Crores of REC''s sanction had been converted into equity on 20 October 2015. As per SDR scheme, asset classification shall remain standard up to 18 months from 24 July 2015 i.e. 23 January 2017 within this timeline a suitable investor has to be identified and the exercise of change in management shall have to be completed failing which the asset classification will be as per the extant IRAC norms, assuming the aforesaid ''stand-still'' in asset classification had not been given. As no investor had been identified till 23 January 2017, the asset classification has now been downgraded to Doubtful Category with provision created @ 20% of the outstanding loan. Further, in view of the Management, there has been no decline in the fair value of the investment in equity shares of the Company on the basis of the latest available audited financial statements of the Company for the FY 2016-17. Accordingly, no provision is being made in respect of the investment in the equity shares.
11.2.7 REC has extended a loan of Rs, 217 Crores (Outstanding loan amount as at 31 March 2017 - Rs, 198.16 Crores) to Gati Infrastructure Private Limited for the implementation of 2X55 MW HEP in Sikkim with IDFC as Lead lender. Project achieved COD on 18 May 2013 and is operational since then. However, since the Company is selling its entire power under short term arrangements, lower revenue realization is causing stress on project cash flows. Lenders have invoked the implementation of Strategic Debt Restructuring (SDR)/ outside SDR with Reference Date as 5 December 2016 under the prevailing RBI norms. The process under SDR / outside SDR is in progress.
11.2.8 REC has given a loan to M/s Ind Barath Power (Madras) Limited (IBPML) under consortium lending with PFC being the lead lender, wherein the loan outstanding as at 31 March 2017 is Rs, 416.21 Crores. The total disbursement towards IBPML by three consortium lenders was Rs, 947.71 crore. Out of this, Rs, 573.99 cr. kept as FDs, were utilized by the borrower from TRA for other than the project purposes. The account has become NPA on 31 December 2016. As at 31 March 2017, the account of the borrower is classified as Sub-standard asset. Accordingly, 10% provision amounting to Rs, 41.62 Crores has been created in the books as per Significant Accounting Policy No. 2.3(iii). Further, considering the physical progress in the project, an additional provision amounting to Rs, 83.24 Crores has been made during the year 2016-17 in respect of the loan as a matter of prudence. The provisioning of the account shall be reviewed during the year 2017-18 on the basis of latest valuation report and financials.
11.2.9 REC sanctioned a loan of Rs, 750 crore to M/s Lanco Vidharbha Thermal Power Limited (LVTPL), promoted by Lanco Group, for setting up of 1320 MW (2x660 MW) thermal power project at Mandwa, district Wardha, Maharashtra. The loan outstanding as at 31 March 2017 is Rs, 539.56 Crores. As at 31 March 2017, the account of the borrower is classified as Restructured Standard asset. Accordingly, 4.25% provision amounting to Rs, 22.93 Crores has been created in the books as per Significant Accounting Policy No. 2.3(iv). Further, considering the physical progress in the project, an additional provision amounting to Rs, 60 Crores has been made during the year 2016-17 in respect of the loan as a matter of prudence.
11.2.10 One of the borrowers with an outstanding loan amount of Rs, 2,143.38 Crores as at 31 March 2017 has expressed his intention to prepay its loan. Further, the borrower has already prepaid more than 40% of the outstanding loan before the Balance sheet date and has further intimated his intention to prepay the balance loan within the FY 2017-18. Accordingly, the loan outstanding has been considered as ''Current'' in terms of Schedule Ill to the Companies Act, 2013.
Further, Short-term Deposits with Scheduled Banks include Rs, 23.20 Crores (Previous year Rs, 2.41 Crores) earmarked towards DDUGJY and other grants. Figure in (B) Others - Term Deposits with Scheduled Banks includes deposits for Rs, 1.98 Crores (Previous year Rs, 0.36 Crores) made and earmarked in compliance of Court orders.
The pay revision of the employees of the Company is due w.e.f.1 January 2017. Pending final notification of the revised Pay Scales and other benefits by the Govt. of India, an estimated provision of Rs, 14.59 crores has been created during the year towards pay revision arrears as per the recommendations of 3rd Pay Revision Committee constituted by the Department of Public Enterprises (DPE), Govt. of India. This provision is inclusive of the provision created for non-executive employees for whom arrears have also been considered in line with these recommendations. Actuarial valuation of employees benefits has also been carried out on the basis of proposed pay scales.
Pursuant to the approval of the shareholders, the Company had allotted bonus shares in the ratio of one equity share of Rs, 10/each for one existing equity share of Rs, 10/- each on 30 September 2016. Accordingly, Earnings Per Share (EPS) (basic and diluted) have been restated for the previous periods presented in accordance with the provisions of AS-20.
Mar 31, 2015
1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS.
(a) Accounting Convention: - The financial statements are prepared
under the historical cost convention on accrual basis and in accordance
with generally accepted accounting principles and accounting standards
as applicable under Section 133 of the Companies Act, 2013 read with
General Circular No. 15/2013 dated 13th September 2013. The financial
statements adhere to the relevant presentational requirement of the
Companies Act, 2013.
(b) Use of Estimates: - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumption that affect the reported
amounts of assets and liabilities and disclosure thereof at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
these estimates. Difference between the actual results and estimates
are recognized in the period in which results materialize.
2. INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVISIONING.
The Corporation has formulated its own detailed Prudential Norms.
Accounting is done in accordance with these Prudential Norms of REC and
the salient features of the same for Income Recognition, Asset
classification and Provisioning are as under in the Paras 2.1a, 2.1f,
2.2, 2.3 and 2.4:
2.1. Income Recognition
a. Income on Non Performing Assets where interest/ principal has
become overdue for two quarters or more is recognized as and when
received and appropriated. Any such income recognized before the asset
becomes non-performing and remaining unrealized is reversed.
Unless otherwise agreed, the recoveries from the borrowers are
appropriated in the order of (i) costs and expenses of REC (ii) penal
interest including interest tax, if any (iii) overdue interest
including interest tax, if any and (iv) repayment of principal, the
oldest being adjusted first.
In respect of standard loans including those whose terms are
renegotiated/rescheduled/ restructured and retained as Standard Loans,
income is recognized on accrual basis.
In respect of loans (Non Performing Assets), income is recognized on
accrual basis when it is reasonably expected that there is no
uncertainty of receipt of dues from the borrowers and there has been
satisfactory performance under the renegotiated or rescheduled or
restructured terms until the expiry of one year of satisfactory
performance under the renegotiated or rescheduled or restructured
terms.
b. Income of agency charges of RGGVY Schemes is recognized on the
basis of the services rendered and amount sanctioned by the Ministry of
Power.
c. Income of agency charges of DDUGJY Schemes is recognized on the
basis of the services rendered and amount sanctioned by the Ministry of
Power.
d. Income of service charges of NEF (Interest Subsidy) Scheme is
recognized on the basis of the services rendered and amount of service
charges sanctioned by the Ministry of Power.
e. Income under the head processing fee, upfront fee, lead fee, fees/
charges received under the mutatis-mutandis clause and pre- payment
premium is accounted for in the year in which it is received by the
company.
f. Income from investments
(1) Income from dividend on shares of corporate bodies and units of
mutual funds shall be taken into account on accrual basis when REC''s
right to receive payment is established.
(2) Income from bonds and debentures of corporate bodies and from
Government securities/bonds shall be taken into account on accrual
basis.
Provided that the interest rate on these instruments is pre-determined
and interest is serviced regularly and is not in arrears.
(3) Income on securities of corporate bodies or public sector
undertakings, the payment of interest and repayment of principal of
which have been guaranteed by Central Government or a State Government
shall be taken into account on accrual basis.
2.2 Assets Classification
Loans and advances and any other form of credit are classified into the
following classes, namely:
(i) Standard Assets: ''Standard asset'' means an asset which is not an
NPA and in respect of which no default in repayment of principal or
payment of interest is perceived and which does not disclose any
problem or carry more than normal risk attached to the business.
The rescheduling or restructuring or renegotiation of a standard
infrastructure loan asset shall not cause it to be reclassified if the
revised project is found to be viable by the competent authority.
(ii) Sub-Standard Assets: ''Sub-standard asset'' means:
(a) an asset which has been classified as non-performing asset for a
period not exceeding 18 months;
(b) an asset where the terms of the agreement regarding interest and /
or principal have been renegotiated or rescheduled or restructured,
until the expiry of one year of satisfactory performance under the
renegotiated or rescheduled or restructured terms.
(iii) Doubtful Assets: Doubtful asset means an asset which remains a
substandard asset for a period exceeding 18 months.
(iv) Loss Assets: Loss asset means Â
a) An asset which has been identified as loss asset by REC to the
extent it is not written off by REC or the asset remains doubtful for a
period exceeding 5 years, whichever is earlier.
b) An asset which is adversely affected by a potential threat of
non-recoverability due to either erosion in the value of security or
non availability of security or due to any fraudulent act or omission
on the part of the borrower.
For the purpose of classification of assets into standard,
sub-standard, doubtful and loss categories, facilities shall be
classified borrower wise with the following exception:
Government Sector loans, where cash flows from each project are
separately identifiable and applied to the same project, REC shall
classify such loans on project wise basis.
2.3 Provisioning against Loans
The provisioning requirement in respect of loans, advances and other
credit facilities including bills purchased and discounted shall be as
under:
(i) Loss assets - The entire asset shall be written off. If the assets
are permitted to remain in the books for any reason, 100% of the
outstanding shall be provided for:
(ii) Doubtful assets -
(a) 100% provision to the extent to which the advance is not covered by
the realizable value of the security to which REC has a valid recourse
shall be made. The realizable value is to be estimated on a realistic
basis; Loans covered by Central/State Govt. guarantee or loans to any
State Govt. shall be treated as secured;
(b) In addition to item(a) above, depending upon the period for which
the asset has remained doubtful, provision to the extent of 20% to 50%
of the secured portion (i.e. estimated realizable value of the
outstanding) shall be made on the following basis:- Period for which
the asset has been considered as doubtful % of provision Up to one year
20% 1 to 3 years 30% More than 3 years 50%
(iii) Sub-standard assets - A provision of 10% shall be made.
An asset which has been renegotiated or rescheduled or restructured
shall be a sub-standard asset or continue to remain in the same
category in which it was prior to its renegotiation or re-schedulement
or restructuring, as a doubtful asset or a loss asset as the case may
be. Necessary provision is required to be made as applicable to such
asset till it is upgraded.
(iv) Standard assets - Provision in respect of Standard Assets is made
as below:
Particulars Provisioning Requirement
For Restructured Loans other than under Transmission & Distribution, In
respect of the stock of outstanding loans as on 31st Renovation &
Modernisation and Life Extension projects as also the March, 2015,
provisioning requirement shall be as below: hydro projects in Himalayan
region or affected by natural disasters, if the original DCCO
prescribed at the time of financial closure is extended beyond 2 years
and upto:
a. 4 years in case the reason for extension of DCCO is arbitration ·
2.75% with effect from 31st March, 2015 proceedings or a court case.
b. 3 years in case the reason for extension of DCCO is beyond the ·
3.50% with effect from 31st March, 2016 control of promoters (other
than court cases).
· 4.25% with effect from 31st March, 2017
· 5.00% with effect from 31st March, 2018. In respect of new projects
loans restructured with effect from 1st April, 2015, the provisioning
requirement would be 5.00% from the date of such restructuring till the
revised DCCO or 2 years from the date of restructuring whichever is
later.
For Standard Assets other than specified above 0.25% of the outstanding
loan amount
2.4 Treatment of Provisions held
The provisions in respect of Non Performing Assets (NPAs) is reversed
only after the complete recovery of the outstanding/ regularization of
the account.
3. FIXED ASSETS.
Fixed Assets are shown at historical cost less accumulated
depreciation. The cost includes any cost attributable of bringing the
assets to its working condition for its intended use.
4. DEPRECIATION.
4.1. Depreciation on assets is provided on straight-line method in
accordance with the useful lives prescribed under Schedule II to the
Companies Act, 2013.
4.2. Depreciation on assets purchased / sold during the year is
charged for the full month if the asset is in use for more than 15
days, instead of charging the same on pro-rata basis from the date of
purchase/sale.
4.3. Depreciation on assets purchased during the year up to Rs.
5,000/- is provided @ 100%.
4.4. Leasehold land is amortized over the lease period.
5. INTANGIBLE ASSETS.
An Intangible Asset is recognized where it is probable that the future
economic benefits attributable to the assets will flow to the company.
The depreciable amount of an intangible asset is allocated on a
systematic basis over the best estimate of its useful life.
6. INVESTMENTS.
Long term investments are carried at cost. However, provision for
diminution is made to recognise a decline, other than temporary, in the
value of the investments, such reduction being determined and made for
each investment individually. Quoted current investments are carried
individually at the cost or market value whichever is lower. Unquoted
current investments are carried individually at the cost or fair value
whichever is lower.
7. CURRENT TAX AND DEFERRED TAX.
Income Tax expense comprises current Income Tax (Amount of tax for the
period determined in accordance with the income tax law) and deferred
tax charge or credit (reflecting the tax effects of timing differences
between accounting income and taxable income for the period) is
determined in accordance with Accounting Standard- 22. The deferred tax
charge or credit and the corresponding deferred tax liabilities or
assets are recognized using the tax rates that have been enacted or
substantially established by the Balance Sheet date. Deferred Tax
Assets are recognized and carry forward to the extent that there is a
reasonable certainty that sufficient future taxable income will be
available against which such Deferred Tax Assets can be realized.
8. IMPAIRMENT OF ASSETS.
At each balance sheet date, the Company reviews the carrying amounts of
its fixed assets to determine whether there is any indication that
those assets suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to
determine the extent of impairment loss. Recoverable amount is the
higher of assets net selling prices and value in use.
9. PROVISIONS
A provision is recognized when the company has a present obligation as
a result of past event and it is probable that an outflow of resources
will be required to settle the obligation and reliable estimate of
amount of the obligation can be made. Provisions are determined based
on management estimate required to settle the obligation at the Balance
Sheet date. These are reviewed at each Balance Sheet date and adjusted
to reflect the current management estimates.
10. BOND / DEBT ISSUE.
10.1. Expenditure on raising of funds by way of bonds is charged to
revenue in the year of issue of such bonds.
10.2. The Corporation discharges its obligation towards payment of
principal and interest relating to bonds by depositing the amount in
the designated Bank Accounts. Accordingly, the payments are treated as
final payments and these amounts are not exhibited in the books till
the validity of the instruments but reconciliation thereof is carried
out.
10.3. Expenditure incurred on raising of funds is charged to the
Statement of Profit & Loss in the year in which it is incurred except
the discount/ interest on the Commercial Papers/ Reg-S-Bonds (External
Commercial Borrowings), which is amortized proportionately over the
period of its tenure.
11. CASH FLOW STATEMENT
Cash flows are reported using the indirect method, whereby profit
before tax is adjusted for the effects of transactions of a non-cash
nature and any deferrals or accruals of past or future cash receipts or
payments. The cash flows from regular operating, financing and
investing activities of the Company are segregated.
12. PRIOR PERIOD/ PREPAID ADJUSTMENTS
12.1. Considering the nature of business, interest income/expenditure
for the earlier years ascertained and determined during the year is
accounted for in the year in which it is so ascertained/determined.
12.2. Other items not exceeding Rs. 5,00,000/- in each case are
accounted for under natural heads of account.
13. EMPLOYEES BENEFITS
13.1. The liability for employees benefit in respect of Gratuity
ascertained on actuarial valuation is provided and funded to a separate
trust.
13.2. Post employment and other long term employee benefits are
recognized as an expense in the Statement of Profit & Loss for the year
in which the employee has rendered services. The expense is recognized
at the present value of the amounts payable determined using actuarial
valuation techniques. Actuarial gains and losses in respect of post
employment and other long term benefits are charged to the Statement of
Profit & Loss.
14. TRANSACTION IN FOREIGN CURRENCY
14.1. Foreign Currency transactions are initially recorded at the
exchange rate prevailing on the date of transaction.
In respect of accounting periods commencing on or after the 1st April,
2011, the exchange differences arising on reporting of long-term
foreign currency monetary items (having a term of twelve months or more
at the date of origination) at RBI reference rates prevailing at the
end of each reporting period or where the RBI reference rate is not
available for any currency, the closing rate for the same date quoted
on Bloomberg, different from those at which they were initially
recorded during the period, or reported in previous financial
statements, are accumulated in a "Foreign Currency Monetary Item
Translation Difference Account" and amortized over the balance period
of such long term monetary item, by recognition as income or expense in
each of such periods.
Short-term foreign currency monetary items (having a term of less than
twelve months at the date of origination) are translated at RBI
reference rates prevailing at the end of each reporting period or where
the RBI reference rate is not available for any currency, the closing
rate for the same date quoted on Bloomberg. The resultant exchange
fluctuation is recognized as income or expense in each of such periods.
14.2. The portion of Foreign Currency loans swapped into Indian rupees
is stated at the rate fixed in the swap transaction, and not translated
at the year end rate.
15. GRANTS/FUNDS FROM GOVERNMENT
Un-disbursed funds of grant received for further disbursements are
classified as current liabilities. Interest wherever earned on such
funds is credited to respective grant account.
16. DERIVATIVE TRANSACTIONS
16.1. Derivative transactions include forwards, interest rate swaps,
cross currency swaps and currency and cross currency options to hedge
assets and liabilities.
16.2. 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.
Mar 31, 2014
1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS.
(a) Accounting Convention: - The financial statements are prepared under
the historical cost convention on accrual basis and in accordance with
generally accepted accounting principles and accounting standards as
notifed under Section 211(3C) of the Companies Act, 1956. The financial
statements adhere to the relevant presentational requirement of the
Companies Act, 1956.
(b) Use of Estimates: - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumption that affect the reported
amounts of assets and liabilities and disclosure thereof at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
these estimates. Difference between the actual results and estimates
are recognized in the period in which results materialize.
2. REVENUE RECOGNITION.
The Corporation has formulated its own detailed Prudential Norms.
Accounting is done in accordance with these Prudential Norms of REC and
the salient features of the same for Income Recognition, Asset
classifcation and Provisioning are as under in the Paras 2.1a, 2.1e,
2.2 and 2.3:
2.1. Income Recognition
a. Income on Non Performing Assets where interest/ principal has
become overdue for two quarters or more is recognized as and when
received and appropriated. Any such income recognized before the asset
becomes non-performing and remaining unrealized is reversed.
Unless OTHERwise agreed, the recoveries from the borrowers are
appropriated in the order of (i) costs and expenses of REC (ii) penal
interest including interest tax, if any (iii) overdue interest
including interest tax, if any and (iv) repayment of principal, the
oldest being adjusted first.
In respect of standard LOANS including those whose terms are
renegotiated/rescheduled/ restructured and retained as Standard LOANS,
income is recognized on accrual basis.
In respect of LOANS (Non Performing Assets), income is recognized on
accrual basis when it is reasonably expected that there is no
uncertainty of receipt of dues from the borrowers and there has been
satisfactory performance under the renegotiated or rescheduled or
restructured terms until the expiry of one year of satisfactory
performance under the renegotiated or rescheduled or restructured
terms.
b. Income of agency charges of RGGVY Schemes is recognized on the
basis of the services rendered and amount sanctioned by the Ministry of
POWER.
c. Income of service charges of NEF (Interest Subsidy) Scheme is
recognized on the basis of the services rendered and amount of service
charges sanctioned by the Ministry of POWER.
d. Income under the head processing fee, upfront fee, lead fee, fees/
charges received under the mutatis-mutandis clause and pre- payment
premium is accounted for in the year in which it is received by the
company.
e. Income from investments
(1) Income from dividend on shares of corporate bodies and units of
mutual funds shall be taken into account on accrual basis when REC''s
right to receive payment is established.
(2) Income from bonds and debentures of corporate bodies and from
Government securities/bonds shall be taken into account on accrual
basis:
Provided that the interest rate on these instruments is pre-determined
and interest is serviced regularly and is not in arrears.
(3) Income on securities of corporate bodies or public sector
undertakings, the payment of interest and repayment of principal of
which have been guaranteed by CENTRAL Government or a State Government
shall be taken into account on accrual basis.
2.2 Assets Classifcation
LOANS and advances and any OTHER form of credit are classifed into the
following classes, namely:
(i) Standard Assets: ''Standard assets'' means an asset which is not an
NPA and in respect of which no default in repayment of principal or
payment of interest is perceived and which does not disclose any
problem or carry more than normal risk attached to the BUSINESS.
The rescheduling or restructuring or renegotiation of a standard
infrastructure loan asset shall not cause it to be reclassified if the
revised project is found to be viable by the competent authority.
(ii) Sub-Standard Assets: ''Sub-standard asset'' means:
(a) an asset which has been classifed as non-performing asset for a
period not exceeding 18 months;
(b) an asset where the terms of the agreement regarding interest and /
or principal have been renegotiated or rescheduled or restructured,
until the expiry of one year of satisfactory performance under the
renegotiated or rescheduled or restructured terms.
(iii) Doubtful Assets: Doubtful asset means an asset which remains a
substandard asset for a period exceeding 18 months.
(iv) Loss Assets: Loss assets means -
a) An asset which has been identified as loss asset by REC to the extent
it is not written off by REC or the asset remains doubtful for a period
exceeding 5 years, whichever is earlier.
b) An asset which is adversely affected by a potential threat of
non-recoverability due to either erosion in the value of security or
non availability of security or due to any fraudulent act or omission
on the part of the borrower.
For the purpose of classifcation of assets into standard, sub-standard,
doubtful and loss categories, facilities shall be classifed borrower
wise with the following exception:
Government Sector LOANS, where cash flows from each project are
separately identifable and applied to the same project, REC shall
classify such LOANS on project wise basis.
2.3 Provisioning against LOANS
The provisioning requirement in respect of LOANS, advances and OTHER
credit facilities including bills purchased and discounted shall be as
under:
(i) Loss Assets - The entire asset shall be written off. If the assets
are permitted to remain in the books for any reason, 100% of the
outstanding shall be provided for:
(ii) Doubtful assets -
(a) 100% provision to the extent to which the advance is not covered by
the realizable value of the security to which REC has a valid recourse
shall be made. The realizable value is to be estimated on a realistic
basis; LOANS covered by CENTRAL/State Govt. guarantee or LOANS to any
State Govt. shall be treated as secured;
(b) In addition to item(a) above, depending upon the period for which
the asset has remained doubtful, provision to the extent of 20% to 50%
of the secured portion (i.e. estimated realizable value of the
outstanding) shall be made on the following basis :-
(iii) Sub-standard assets - A provision of 10% shall be made.
An asset which has been renegotiated or rescheduled or restructured
shall be a sub-standard asset or continue to remain in the same
category in which it was prior to its renegotiation or re-schedulement
or restructuring, as a doubtful asset or a loss asset as the case may
be. Necessary provision is required to be made as applicable to such
asset till it is upgraded.
(iv) Standard assets - Provision in respect of Standard Assets is made
@ 0.25% of the outstanding standard assets.
2.4 Treatment of Provisions held
The provisions in respect of Non Performing Assets (NPAs) is reversed
only after the complete recovery of the outstanding/ regularization of
the account.
3. FIXED ASSETS.
Fixed Assets are shown at historical cost less accumulated
depreciation. The cost includes any cost attributable of bringing the
assets to its working condition for its intended use.
4. DEPRECIATION.
4.1. Depreciation on assets is provided on straight-line method at the
rates prescribed under Schedule XIV to the Companies Act, 1956.
4.2. Depreciation on assets purchased / sold during the year is
charged for the full month if the asset is in use for more than 15
days, instead of charging the same on pro-rata basis from the date of
purchase/sale.
4.3. Depreciation on assets purchased during the year up to Rs. 5,000/-
is provided @ 100%.
4.4. Leasehold land is amortized over the lease period.
5. INTANGIBLE ASSETS.
An Intangible Assets is recognized where it is probable that the FUTURE
economic benefits attributable to the assets will fow to the company.
The depreciable amount of an intangible asset is allocated on a
systematic basis over the best estimate of its useful life.
6. INVESTMENTS.
Long term investments are carried at cost. However, provision for
diminution is made to recognise a decline, OTHER than temporary, in the
value of the investments, such reduction being determined and made for
each investment individually. Current investments are carried
individually at the cost or fair value whichever is lower.
7. CURRENT TAX AND DEFERRED TAX.
Income Tax expenses comprises current Income Tax (Amount of tax for the
period determined in accordance with the income tax law) and deferred
tax charge or credit (refecting the tax effects of timing differences
between accounting income and taxable income for the period) is
determined in accordance with Accounting Standard- 22 as notifed under
Section 211(3C) of the Companies Act, 1956. The deferred tax charge or
credit and the corresponding deferred tax liabilities or assets are
recognized using the tax rates that have been enacted or substantially
established by the Balance Sheet date. Deferred Tax Assets are
recognized and carry forward to the extent that there is a reasonable
certainty that suffcient FUTURE taxable income will be available
against which such Deferred Tax Assets can be realized.
8. IMPAIRMENT OF ASSETS.
At each balance sheet date, the Company reviews the carrying amounts of
its fixed assets to determine whether there is any indication that those
assets suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the
extent of impairment loss. Recoverable amount is the higher of assets
net selling prices and value in use.
9. PROVISIONS
A provision is recognized when the company has a present obligation as
a result of past event and it is probable that an outflow of RESOURCEs
will be required to settle the obligation and reliable estimate of
amount of the obligation can be made. Provisions are determined based
on management estimate required to settle the obligation at the Balance
Sheet date. These are reviewed at each Balance Sheet date and adjusted
to refect the current management estimates.
10. BOND / DEBT ISSUE.
10.1. Expenditure on raising of funds by way of bonds is charged to
revenue in the year of issue of such bonds.
10.2. The Corporation discharges its obligation towards payment of
principal and interest relating to bonds by depositing the amount in
the designated Bank Accounts. Accordingly, the payments are treated as
final payments and these amounts are not exhibited in the books till the
validity of the instruments but reconciliation thereof is carried out.
10.3. Expenditure incurred on raising of funds is charged to the
Statement of profit & Loss in the year in which it is incurred except
the discount/ interest on the Commercial Papers/ Reg-S-Bonds (External
Commercial Borrowings), which is amortized proportionately over the
period of its tenure.
11. CASH FLOW STATEMENT
Cash flows are reported using the indirect method, whereby profit before
tax is adjusted for the effects of transactions of a non-cash nature
and any deferrals or accruals of past or FUTURE cash receipts or
payments. The cash flows from regular operating, fnancing and investing
activities of the Company are segregated.
12. PRIOR PERIOD/ PREPAID ADJUSTMENTS
12.1. Considering the nature of BUSINESS, interest income/expenditure
for the earlier years ascertained and determined during the year is
accounted for in the year in which it is so ascertained/determined.
12.2. OTHER items not exceeding Rs. 5,00,000/- in each case are
accounted for under natural heads of account.
13. EMPLOYEES BENEFITS
13.1 The liability for employees benefit in respect of Gratuity is
ascertained on actuarial valuation is provided and funded to a separate
trust.
13.2 Post employment and OTHER long term employee benefits are
recognized as an expense in the Statement of profit & Loss for the year
in which the employees has rendered services. The expense is recognized
at the present value of the amounts payable determined using actuarial
valuation techniques. Actuarial gains and losses in respect of post
employment and OTHER long term benefits are charged to the Statement of
profit & Loss.
14. TRANSACTION IN FOREIGN CURRENCY
14.1 Foreign Currency transactions are initially recorded at the
exchange rate prevailing on the date of transaction.
In respect of accounting periods commencing on or after the 1st April,
2011, the exchange differences arising on reporting of long-term
foreign currency monetary items (having a term of twelve months or more
at the date of origination) at RBI reference rates prevailing at the
end of each reporting period or where the RBI reference rate is not
available for any currency, the closing rate for the same date quoted
on Bloomberg, different from those at which they were initially
recorded during the period, or reported in previous financial
statements, are accumulated in a "Foreign Currency Monetary Item
Translation Difference Account" and amortized over the balance period
of such long term monetary item, by recognition as income or expense in
each of such periods.
Short-term foreign currency monetary items (having a term of less than
twelve months at the date of origination) are translated at RBI
reference rates prevailing at the end of each reporting period or where
the RBI reference rate is not available for any currency, the closing
rate for the same date quoted on Bloomberg. The resultant exchange
fuctuation is recognized as income or expense in each of such periods.
14.2 The portion of Foreign Currency LOANS swapped into Indian rupees
is stated at the rate fixed in the swap transaction, and not translated
at the year end rate.
15. GRANTS/FUNDS FROM GOVERNMENT
Un-disbursed funds of grant received for further disbursements are
classifed as current liabilities. Interest wherever earned on such
funds is credited to respective grant account.
16. DERIVATIVE TRANSACTIONS
16.1 Derivative transactions include forwards, interest rate swaps,
cross currency swaps and currency and cross currency options to hedge
assets and liabilities.
16.2 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.
1.1 The shareholders 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
notifed), the terms of the listing agreements executed with the Stock
Exchanges (NSE Ltd. and BSE Ltd.), and our Memorandum of Association
and Articles of Association.
2.1 Additions in Securities Premium Account for the year ended 31st
March, 2014 represent the premium of Rs. 1.24 Crores (Previous year Rs.
0.05 Crores) received on issue of Tax Free Bonds through private
placement.
2.2 Debenture Redemption Reserve (DRR)
In accordance with provisions of Section 117C of the Companies Act,
1956 as further clarifed by Circular No. 4/2013 dated 11.02.2013 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. 46.20 Crores).
2.3 Foreign Currency Monetary Item Translation Difference Account
The company has opted towards an irrevocable option for amortising the
foreign exchange fuctuation 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'' is Rs. 532.65 Crores
(Previous year Rs. 160.28 Crores).
3. LONG-TERM DEBT
Non-current portion of the long term debt has been classifed as
''Long-term borrowings'' and the current portion of the long term debt
has been classifed as "Current Maturities of Long-term debt'' in Note-8
''OTHER Current Liabilities''.
3.3 Security Details of the Secured Borrowings
The Bond Series 73, 75 of Institutional Bonds are secured by a (a)
mortgage of premises at 51 and 52/58-B, 5th foor, 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, 85, 86A, 86 B-III, 87-II,
87 A-II, 87 A-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 Series VIII of 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.
The Bond Series 116-I, 116-II, 117, 118, 119, 120, 121 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 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.
3.4 Foreign Currency Borrowings have been raised at interest rates
ranging from a spread of 129 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.
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 AS-22 as notifed under Section 211(3C) of the Companies Act,
1956. Accordingly, the Company is not creating any deferred tax
liability on the said reserve.
6.1 Reserve Bank of India had permitted the Company to create provision
of 0.25% on ''Standard Assets'' in a phased manner upto 31st March, 2015.
During the previous year, the company had provided Rs. 105.68 Crores and
balance amount of Rs. 264.70 Crores is provided in full so as to make it
equal to 0.25% of the outstanding Standard Assets in the current year
2013-14 itself.
8.1 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.
8.2 Government of India has appointed RURAL ELECTRIFICATION Corporation
Ltd. as a nodal agency for IMPLEMENTATION of Rajiv GANDHI Gramin
VIDYUTIKARAN Yojna (RGGVY). 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 interest earned thereto
are classifed under "Undisbursed Subsidy/ grant" under the head "OTHER
Current Liabilities.
During the year, interest earned of Rs. 38.00 Crores (Previous year Rs.
20.02 Crores) has been taken to RGGVY Subsidy account. Further, during
the year, an amount of Rs. 29.51 crores (Previous year Rs. 98.92 Crores)
has been refunded back to MoP out of the total interest on subsidy.
Mar 31, 2013
1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS.
(a) Accounting Convention: - The financial statements are prepared
under the historical cost convention on accrual basis and in accordance
with generally accepted accounting principles and applicable accounting
standards in India. The financial statements adhere to the relevant
presentational requirement of the Companies Act, 1956.
(b) Use of Estimates: - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumption that affect the reported
amounts of assets and liabilities and disclosure thereof at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
these estimates. Difference between the actual results and estimates
are recognized in the period in which results materialize.
2. REVENUE RECOGNITION.
The Corporation has formulated its own detailed Prudential Norms.
Accounting is done in accordance with these Prudential Norms of REC and
the salient features of the same for Income Recognition, Asset
classification and Provisioning are as under in the Paras 2.1a, 2.1e,
2.2 and 2.3:
2.1. Income Recognition
a. Income on Non Performing Assets where interest/ principal has
become overdue for two quarters or more is recognized as and when
received and appropriated. Any such income recognized before the asset
becomes non-performing and remaining unrealized is reversed.
Unless otherwise agreed, the recoveries from the borrowers are
appropriated in the order of (i) costs and expenses of REC (ii) penal
interest including interest tax, if any (iii) overdue interest
including interest tax, if any and (iv) repayment of principal, the
oldest being adjusted first.
In respect of loans (Non Performing Assets) whose terms are
renegotiated/ rescheduled/ restructured, income is recognized on
accrual basis when it is reasonably expected that there is no
uncertainty of receipt of dues from the borrowers and a legally binding
Memorandum of Agreement has been executed and there has been
satisfactory performance under the renegotiated or rescheduled or
restructured terms till a period of at least one year from the
effective date of the corresponding MOU.
b. Income of agency charges of RGGVY Schemes is recognized on the
basis of the services rendered and amount sanctioned by the Ministry of
Power.
c. Income of service charges of NEF (Interest Subsidy) Scheme is
recognized on the basis of the services rendered and amount of service
charges sanctioned by the Ministry of Power.
d. Income under the head processing fee, upfront fee, lead fee, fees/
charges received under the mutatis-mutandis clause and pre- payment
premium is accounted for in the year in which it is received by the
company.
e. Income from investments
(1) Income from dividend on shares of corporate bodies and units of
mutual funds shall be taken into account on cash basis:
Provided that the income from dividend on shares of corporate bodies
may be taken into account on accrual basis when such dividend has been
declared by the corporate body in its annual general meeting and
REC''s right to receive payment is established.
(2) Income from bonds and debentures of corporate bodies and from
Government securities/bonds shall be taken into account on accrual
basis:
Provided that the interest rate on these instruments is pre-determined
and interest is serviced regularly and is not in arrears.
(3) Income on securities of corporate bodies or public sector
undertakings, the payment of interest and repayment of principal of
which have been guaranteed by Central Government or a State Government
shall be taken into account on accrual basis.
2.2 Assets Classification
Loans and advances and any other form of credit are classified into the
following classes, namely:
(i) Standard Assets: ''Standard assets'' means an asset which is not
an NPA and in respect of which no default in repayment of principal or
payment of interest is perceived and which does not disclose any
problem or carry more than normal risk attached to the business.
(ii) Sub-Standard Assets: ''Sub-standard asset'' means:
(a) an asset which has been classified as non-performing asset for a
period not exceeding 18 months;
(b) an asset where the terms of the agreement regarding interest and /
or principal have been renegotiated or rescheduled or restructured,
until the expiry of one year of satisfactory performance under the
renegotiated or rescheduled or restructured terms.
(c) The rescheduling or restructuring or renegotiation of a standard
infrastructure loan asset shall not cause it to be reclassified if the
revised project is found to be viable by the competent authority.
(iii) Doubtful Assets: Doubtful asset means an asset which remains a
substandard asset for a period exceeding 18 months.
(iv) Loss Assets: Loss assets means -
a) An asset which has been identified as loss asset by REC to the
extent it is not written off by REC or the asset remains doubtful for a
period exceeding 5 years, whichever is earlier.
b) An asset which is adversely affected by a potential threat of
non-recoverability due to either erosion in the value of security or
non availability of security or due to any fraudulent act or omission
on the part of the borrower.
For the purpose of application of Prudential Norms and provisioning
Norms,
i. Facilities granted to State/Central Sector entities are considered
loan wise.
ii. Facilities granted to other entities are considered borrower wise.
2.3 Provisioning against Loans
The provisioning requirement in respect of loans, advances and other
credit facilities including bills purchased and discounted shall be as
under:
(i) Loss Assets - The entire asset shall be written off. If the assets
are permitted to remain in the books for any reason, 100% of the
outstanding shall be provided for:
(ii) Doubtful assets -
(a) 100% provision to the extent to which the advance is not covered by
the realizable value of the security to which REC has a valid recourse
shall be made. The realizable value is to be estimated on a realistic
basis; Loans covered by Central/State Govt. guarantee or loans to any
State Govt. shall be treated as secured;
(b) In addition to item(a) above, depending upon the period for which
the asset has remained doubtful, provision to the extent of 20% to 50%
of the secured portion (i.e. estimated realizable value of the
outstanding) shall be made on the following basis :-
(iii) Sub-standard assets - A provision of 10% shall be made.
An asset which has been renegotiated or rescheduled or restructured
shall be a sub-standard asset or continue to remain in the same
category in which it was prior to its renegotiation or re-schedulement
or restructuring, as a doubtful asset or a loss asset as the case may
be. Necessary provision is required to be made as applicable to such
asset till it is upgraded.
(iv) Standard assets - Provision in respect of Standard Assets shall be
made as may be decided by the Corporation in order to bring it to a
minimum of 0.25% upto 31st March, 2015.
3. FIXED ASSETS
Fixed Assets are shown at historical cost less accumulated
depreciation. The cost includes any cost attributable of bringing the
assets to its working condition for its intended use.
4. DEPRECIATION
4.1. Depreciation on assets is provided on straight-line method at the
rates prescribed under Schedule XIV to the Companies Act, 1956.
4.2. Depreciation on assets purchased / sold during the year is charged
for the full month if the asset is in use for more than 15 days,
instead of charging the same on pro-rata basis from the date of
purchase/sale.
4.3. Depreciation on assets purchased during the year up to Rs. 5,000/-
is provided @ 100%.
4.4. Leasehold land is amortized over the lease period.
5. INTANGIBLE ASSETS
An Intangible Assets is recognized where it is probable that the future
economic benefits attributable to the assets will flow to the company.
The depreciable amount of an intangible asset is allocated on a
systematic basis over the best estimate of its useful life. Management
estimates useful life of intangible assets to be 5 years.
6. INVESTMENTS
Long term investments are carried at cost. However, provision for
diminution is made to recognise a decline, other than temporary, in the
value of the investments, such reduction being determined and made for
each investment individually. Current investments are carried at the
cost or fair value whichever is lower.
7. CURRENT TAX AND DEFERRED TAX
Income Tax expenses comprises current Income Tax (Amount of tax for the
period determined in accordance with the income tax law) and deferred
tax charge or credit (reflecting the tax effects of timing differences
between accounting income and taxable income for the period) is
determined in accordance with Accounting Standard- 22 of the Institute
of Chartered Accountants of India. The deferred tax charge or credit
and the corresponding deferred tax liabilities or assets are recognized
using the tax rates that have been enacted or substantially established
by the Balance Sheet date. Deferred Tax Assets are recognized and carry
forward to the extent that there is a reasonable certainty that
sufficient future taxable income will be available against which such
Deferred Tax Assets can be realized.
8. IMPAIRMENT OF ASSETS.
At each balance sheet date, the Company reviews the carrying amounts of
its fixed assets to determine whether there is any indication that
those assets suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to
determine the extent of impairment loss. Recoverable amount is the
higher of assets net selling prices and value in use.
9. PROVISIONS
A provision is recognized when the company has a present obligation as
a result of past event and it is probable that an outflow of resources
will be required to settle the obligation and reliable estimate of
amount of the obligation can be made. Provisions are determined based
on management estimate required to settle the obligation at the Balance
Sheet date. These are reviewed at each Balance Sheet date and adjusted
to reflect the current management estimates.
10. BOND / DEBT ISSUE
10.1. Expenditure on raising of funds by way of bonds is charged to
revenue in the year of issue of such bonds.
10.2. The Corporation discharges its obligation towards payment of
principal and interest relating to bonds by depositing the amount in
the designated Bank Accounts. Accordingly, the payments are treated as
final payments and these amounts are not exhibited in the books till
the validity of the instruments but reconciliation thereof is carried
out.
10.3. Expenditure incurred on raising of funds is charged to the
Statement of Profit & Loss in the year in which it is incurred except
the discount/interest on the Commercial Papers/ Reg-S-Bonds (External
Commercial Borrowings), which is amortized proportionately over the
period of its tenure.
11. CASH FLOW STATEMENT
Cash flows are reported using the indirect method, whereby profit
before tax is adjusted for the effects of transactions of a non-cash
nature and any deferrals or accruals of past or future cash receipts or
payments. The cash flows from regular operating, financing and
investing activities of the Company are segregated.
12. PRIOR PERIOD/ PREPAID ADJUSTMENTS
12.1. Considering the nature of business, interest income/expenditure
for the earlier years ascertained and determined during the year is
accounted for in the year in which it is so ascertained/determined.
12.2. Other items not exceeding Rs. 5,00,000/- in each case are
accounted for under natural heads of account.
13. EMPLOYEES BENEFITS
13.1 The liability for employees benefit in respect of Gratuity is
ascertained on actuarial valuation is provided and funded to a separate
trust.
13.2 Post employment and other long term employee benefits are
recognized as an expense in the Statement of Profit & Loss for the year
in which the employees has rendered services. The expense is recognized
at the present value of the amounts payable determined using actuarial
valuation techniques. Actuarial gains and losses in respect of post
employment and other long term benefits are charged to the Statement of
Profit & Loss.
14. TRANSACTION IN FOREIGN CURRENCY
14.1 Foreign Currency transactions are initially recorded at the
exchange rate prevailing on the date of transaction.
In respect of accounting periods commencing on or after the 1st April,
2011, the exchange differences arising on reporting of long-term
foreign currency monetary items (having a term of twelve months or more
at the date of origination) at RBI reference rates prevailing at the
end of each reporting period or where the RBI reference rate is not
available for any currency, the closing rate for the same date quoted
on Bloomberg, different from those at which they were initially
recorded during the period, or reported in previous financial
statements, are accumulated in a "Foreign Currency Monetary Item
Translation Difference Account" and amortized over the balance period
of such long term monetary item, by recognition as income or expense in
each of such periods.
Short-term foreign currency monetary items (having a term of less than
twelve months at the date of origination) are translated at RBI
reference rates prevailing at the end of each reporting period or where
the RBI reference rate is not available for any currency, the closing
rate for the same date quoted on Bloomberg. The resultant exchange
fluctuation is recognized as income or expense in each of such periods.
14.2 The portion of Foreign Currency loans swapped into Indian rupees
is stated at the rate fixed in the swap transaction, and not translated
at the year end rate.
15. GRANTS/FUNDS FROM GOVERNMENT
Un-disbursed funds of grant received for further disbursements are
classified as current liabilities. Interest wherever earned on such
funds is credited to respective grant account.
16. DERIVATIVE TRANSACTIONS
16.1 Derivative transactions include forwards, interest rate swaps,
cross currency swaps and currency and cross currency options to hedge
assets and liabilities.
16.2 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.
Mar 31, 2012
1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
(a) Accounting Convention: The financial statements are prepared under
the historical cost convention on accrual basis and in accordance with
generally accepted accounting principles and applicable accounting
standard in India. The financial statements adhere to the relevant
presentational requirement of the Companies Act, 1956.
(b) Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumption that affect the reported
amounts of assets and liabilities and disclosure thereof at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
these estimates. Difference between the actual results and estimates
are recognized in the period in which results materialize.
2. REVENUE RECOGNITION.
The Corporation has formulated its own detailed Prudential Norms.
Accounting is done in accordance with these Prudential Norms of REC and
the salient features of the same for Income Recognition, Asset
classification and Provisioning are as under:
2.1. Income Recognition
a. Income on Non Performing Assets where interest/ principal has
become overdue for two quarters or more is recognized as and when
received and appropriated. Any such income recognized before the asset
becomes non-performing and remaining unrealized is reversed.
Unless otherwise agreed, the recoveries from the borrowers are
appropriated in the order of (i) costs and expenses of REC (ii) penal
interest including interest tax, if any (iii) overdue interest
including interest tax, if any and (iv) repayment of principal, the
oldest being adjusted first.
In respect of loans whose terms are renegotiated / rescheduled /
restructured, income is recognized on accrual basis when it is
reasonably expected that there is no uncertainty of receipt of dues
from the borrowers and a legally binding Memorandum of Agreement has
been executed and there has been satisfactory performance under the
renegotiated or rescheduled or restructured terms till a period of at
least one year from the effective date of the corresponding MOU.
b. Income of agency charges on RGGVY Schemes is recognized on the
basis of the services rendered and amount sanctioned by the Ministry of
Power.
c. Income under the head processing fee, upfront fee, lead fee, fees/
charges received under the mutatis-mutandis clause and pre- payment
premium is accounted for in the year in which it is received by the
company.
d. Income from investments:
(1) Income from dividend on shares of corporate bodies and units of
mutual funds shall be taken into account on cash basis:
Provided that the income from dividend on shares of corporate bodies
may be taken into account on accrual basis when such dividend has been
declared by the corporate body in its annual general meeting and REC's
right to receive payment is established.
(2) Income from bonds and debentures of corporate bodies and from
Government securities/bonds shall be taken into account on accrual
basis:
Provided that the interest rate on these instruments is pre-determined
and interest is serviced regularly and is not in arrears.
(3) Income on securities of corporate bodies or public sector
undertakings, the payment of interest and repayment of principal of
which have been guaranteed by Central Government or a State Government
shall be taken into account on accrual basis.
2.2 Assets Classification
Loans and advances and any other form of credit are classified into the
following classes, namely:
(i) Standard Assets: 'Standard assets' means an asset which is not an
NPA and in respect of which no default in repayment of principal or
payment of interest is perceived and which does not disclose any
problem or carry more than normal risk attached to the business.
(ii) Sub-Standard Assets: 'Sub-standard asset' means:
(a) an asset which has been classified as non-performing asset for a
period not exceeding 18 months;
(b) an asset where the terms of the agreement regarding interest and /
or principal have been renegotiated or rescheduled or restructured,
until the expiry of one year of satisfactory performance under the
renegotiated or rescheduled or restructured terms.
(c) The rescheduling or restructuring or renegotiation of a standard
infrastructure loan asset shall not cause it to be reclassified if the
revised project is found to be viable by the competent authority.
(iii) Doubtful Assets: Doubtful asset means an asset which remains a
substandard asset for a period exceeding 18 months.
(iv) Loss Assets: Loss assets means -
a) An asset which has been identified as loss asset by REC to the
extent it is not written off by REC or the asset remains doubtful for a
period exceeding 5 years, whichever is earlier.
b) An asset which is adversely affected by a potential threat of
non-recoverability due to either erosion in the value of security or
non availability of security or due to any fraudulent act or omission
on the part of the borrower.
For the purpose of application of Prudential Norms and provisioning
Norms,
i. Facilities granted to State/Central Sector entities are considered
loan wise.
ii. Facilities granted to other entities are considered borrower wise.
2.3 Provisioning against Loans
The provisioning requirement in respect of loans, advances and other
credit facilities including bills purchased and discounted shall be as
under:
(i) Loss Assets à The entire asset shall be written off. If the assets
are permitted to remain in the books for any reason, 100% of the
outstanding shall be provided for:
(ii) Doubtful assets Ã
(a) 100% provision to the extent to which the advance is not covered by
the realizable value of the security to which REC has a valid recourse
shall be made. The realizable value is to be estimated on a realistic
basis; Loans covered by Central/State Govt. guarantee or State Govt.
Undertaking for deduction from Central Plan Allocation or loans to any
State Govt. shall be treated as secured;
(b) In addition to item(a) above, depending upon the period for which
the asset has remained doubtful, provision to the extent of 20% to 50%
of the secured portion (i.e. estimated realizable value of the
outstanding) shall be made on the following basis :-
(iii) Sub-standard assets - A provision of 10% shall be made.
An asset which has been renegotiated or rescheduled or restructured
shall be a sub-standard asset or continue to remain in the same
category in which it was prior to its renegotiation or re-schedulement
or restructuring, as a doubtful asset or a loss asset as the case may
be. Necessary provision is required to be made as applicable to such
asset till it is upgraded.
3. FIXED ASSETS
Fixed Assets are shown at historical cost less accumulated
depreciation. The cost includes any cost attributable of bringing the
assets to its working condition for its intended use.
4. DEPRECIATION
4.1. Depreciation on assets is provided on straight-line method at the
rates prescribed under Schedule XIV to the Companies Act, 1956. In
terms of option available under the Companies Act, 1956, depreciation
on assets capitalized prior to 16.12.93 is charged at the rates then
prevailing on the straight-line method.
4.2. Depreciation on assets purchased / sold during the year is
charged for the full month if the asset is in use for more than 15
days, instead of charging the same on pro-rata basis from the date of
purchase/sale.
4.3. Depreciation on assets purchased during the year up to Rs 5,000/-
is provided @ 100%.
4.4. Leasehold land is amortized over the lease period.
5. INTANGIBLE ASSETS
An Intangible Assets is recognized where it is probable that the future
economic benefits attributable to the assets will flow to the company.
These Assets are amortized over a period of 5 years.
6. INVESTMENTS
Long term investments are carried at cost less provisions, if any
(except mutual funds which are valued at NAV) for diminutions in the
value of such investment. Current investments are carried at the cost
or fair value whichever is lower.
7. CURRENT TAX AND DEFERRED TAX
Income Tax expenses comprises current Income Tax (Amount of tax for the
period determined in accordance with the income tax law) and deferred
tax charge or credit (reflecting the tax effects of timing differences
between accounting income and taxable income for the period) is
determined in accordance with Accounting Standard- 22 of the Institute
of Chartered Accountants of India. The deferred tax charge or credit
and the corresponding deferred tax liabilities or assets are recognized
using the tax rates that have been enacted or substantially established
by the Balance Sheet date. Deferred Tax Assets are recognized and carry
forward to the extent that there is a reasonable certainty that
sufficient future taxable income will be available against which such
Deferred Tax Assets can be realized.
8. IMPAIRMENT OF ASSETS
At each balance sheet date, the Company reviews the carrying amounts of
its fixed assets to determine whether there is any indication that
those assets suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to
determine the extent of impairment loss. Recoverable amount is the
higher of assets net selling prices and value in use.
9. PROVISIONS
A provision is recognized when the company has a present obligation as
a result of past event and it is probable that an outflow of resources
will be required to settle the obligation and reliable estimate of
amount of the obligation can be made. Provisions are determined based
on management estimate required to settle the obligation at the Balance
Sheet date. These are reviewed at each Balance Sheet date and adjusted
to reflect the current management estimates.
10. BOND / DEBT ISSUE
10.1. Expenditure on raising of funds by way of bonds is charged to
revenue in the year of issue of such bonds.
10.2. The Corporation discharges its obligation towards payment of
interest warrants relating to bonds by depositing the amount in the
designated Interest Warrant Bank Accounts. Accordingly, the payments
are treated as final payments and these designated accounts are not
exhibited in the books but reconciliation thereof is carried out.
10.3. Expenditure incurred on raising of funds is charged to the
Profit and Loss Account in the year in which it is incurred except the
discount/ interest on the Commercial Papers/ Reg-S-Bonds (External
Commercial Borrowings), which is amortized proportionately over the
period of its tenure.
11. CASH FLOW STATEMENT
Cash flows are reported using the indirect method, whereby profit
before tax is adjusted for the effects of transactions of a non-cash
nature and any deferrals or accruals of past or future cash receipts or
payments. The cash flows from regular operating, financing and
investing activities of the Company are segregated.
12. PRIOR PERIOD/ PREPAID ADJUSTMENTS
12.1. Considering the nature of business, interest income/expenditure
for the earlier years ascertained and determined during the year is
accounted for in the year in which it is so ascertained/determined.
12.2. Other items not exceeding Rs. 5,00,000/- in each case are
accounted for under natural heads of account.
13. EMPLOYEES BENEFITS
13.1 The liability for employees benefit in respect of Gratuity is
ascertained on actuarial valuation is provided and funded to a separate
trust.
13.2 Post employment and other long term employee benefits are
recognized as an expense in the profit and loss account for the year in
which the employees has rendered services. The expense is recognized at
the present value of the amounts payable determined using actuarial
valuation techniques. Actuarial gains and losses in respect of post
employment and other long term benefits are charged to the profit &
loss account.
14. TRANSACTION IN FOREIGN CURRENCY
14.1 Foreign Currency transactions are initially recorded at the
exchange rate prevailing on the date of transaction.
In respect of accounting periods commencing on or after the 1st April,
2011 , the exchange differences arising on reporting of long-term
foreign currency monetary items (having a term of twelve months or more
at the date of origination) at RBI reference rates prevailing at the
end of each reporting period or where the RBI reference rate is not
available for any currency, the closing rate for the same date quoted
on Bloomberg, different from those at which they were initially
recorded during the period, or reported in previous financial
statements, are accumulated in a "Foreign Currency Monetary Item
Translation Difference Account" and amortized over the balance period
of such long term monetary item, by recognition as income or expense in
each of such periods.
Short-term foreign currency monetary items (having a term of less than
twelve months at the date of origination) are translated at RBI
reference rates prevailing at the end of each reporting period or where
the RBI reference rate is not available for any currency, the closing
rate for the same date quoted on Bloomberg. The resultant exchange
fluctuation is recognized as income or expense in each of such periods.
14.2 The portion of Foreign Currency loans swapped into Indian rupees
is stated at the rate fixed in the swap transaction, and not translated
at the year end rate.
15. GRANTS/FUNDS FROM GOVERNMENT
Un-disbursed funds of grant received for further disbursements are
classified as current liabilities. Interest wherever earned on such
funds is either credited to respective grant account if terms of the
grant so requires or to "other income".
16. DERIVATIVE TRANSACTIONS
16.1 Derivative transactions include forwards, interest rate swaps,
cross currency swaps and currency and cross currency options to hedge
assets and liabilities.
16.2 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.
17. Contingent Liabilities and Commitments :
17.1 Contingent Liabilities not provided for in respect of:
(Rs. in Crores)
Particulars As at 31.03.2012 As at 31.03.2011
A-Claims against the
Company not acknowledged
as debts 59.84 26.88
B-Others
- Letters of Comfort 4,696.95 1,352.70
The amount referred to in 'A' above includes Rs. 7.75 Crores (Previous
year Rs. 4.99 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. 52.09 Crores (Previous year
Rs. 21.75 Crores) against various demands raised by the Income Tax
Department including the cases pending in Delhi High Court.
Mar 31, 2011
1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
(a) accounting Convention: - The financial statements are prepared under
the historical cost convention on accrual basis and in accordance with
generally accepted accounting principles and applicable accounting
standard in India. The financial statements adhere to the relevant
presentational requirement of the Companies Act, 1956.
(b) use of estimates: - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumption that affect the reported
amounts of assets and liabilities and disclosure thereof at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
these estimates. Difference between the actual results and estimates are
recognized in the period in which results materialize.
2. REVENUE RECOGNITION
The Corporation has formulated its own detailed Prudential Norms.
Accounting is done in accordance with these Prudential Norms of REC and
the salient features of the same for Income Recognition, Asset
classification and Provisioning are as under:
2.1. Income Recognition
a. Income on Non Performing Assets where interest/ principal has
become overdue for two quarters or more is recognized as and when
received and appropriated. Any such income recognized before the asset
becomes non- performing and remaining unrealized is reversed.
Unless otherwise agreed, the recoveries from the borrowers are
appropriated in the order of (i) costs and expenses of REC (ii) penal
interest including interest tax, if any (iii) overdue interest
including interest tax, if any and (iv) repayment of principal, the
oldest being adjusted first.
In respect of loans whose terms are renegotiated / rescheduled /
restructured, income is recognized on accrual basis when it is
reasonably expected that there is no uncertainty of receipt of dues
from the borrowers and a legally binding Memorandum of Agreement has
been executed and there has been satisfactory performance under the
renegotiated or rescheduled or restructured terms till a period of at
least one year from the effective date of the corresponding MOU.
b. Income of agency charges on RGGVY Schemes is recognized on the
basis of the services rendered and amount sanctioned by the Ministry of
Power.
c. Income under the head processing fee, upfront fee, lead fee, fees/
charges received under the mutatis-mutandis
clause and pre-payment premium is accounted for in the year in which it
is received by the company.
d. Income From Investments
(1) Income from dividend on shares of corporate bodies and units of
mutual funds shall be taken into account on cash basis:
Provided that the income from dividend on shares of corporate bodies
may be taken into account on accrual basis when such dividend has been
declared by the corporate body in its annual general meeting and REC's
right to receive payment is established.
(2) Income from bonds and debentures of corporate bodies and from
Government securities/bonds shall be taken into account on accrual
basis:
Provided that the interest rate on these instruments is pre-determined
and interest is serviced regularly and is not in arrears.
(3) Income on securities of corporate bodies or public sector
undertakings, the payment of interest and repayment of principal of
which have been guaranteed by Central Government or a State Government
shall be taken into account on accrual basis.
2.2 Assets Classification
Loans and advances and any other form of credit are classified into the
following classes, namely:
(i) standard assets: ÃStandard assets' means an asset which is not an
NPA and in respect of which no default in repayment of principal or
payment of interest is perceived and which does not disclose any
problem or carry more than normal risk attached to the business.
(ii) sub-standard assets: ÃSub-standard asset' means:
(a) an asset which has been classified as non-performing asset for a
period not exceeding 18 months;
(b) an asset where the terms of the agreement regarding interest and /
or principal have been renegotiated or rescheduled or restructured,
until the expiry of one year of satisfactory performance under the
renegotiated or rescheduled or restructured terms.
(c) The rescheduling or restructuring or renegotiation of a standard
infrastructure loan asset shall not cause it to be reclassified if the
revised project is found to be viable by the competent authority.
(iii) doubtful assets: Doubtful asset means an asset which remains a
substandard asset for a period exceeding 18 months.
(iv) loss assets: Loss assets means Ã
a) An asset which has been identified as loss asset by REC to the extent
it is not written of by REC or the asset remains doubtful for a period
exceeding 5 years, whichever is earlier.
b) An asset which is adversely affected by a potential threat of
non-recoverability due to either erosion in the value of security or
non availability of security or due to any fraudulent act or omission
on the part of the borrower.
For the purpose of application of Prudential Norms and provisioning
Norms,
i. Facilities granted to State/Central Sector entities are considered
loan wise.
ii. Facilities granted to other entities are considered borrower wise.
2.3 Provisioning Against Loans
The provisioning requirement in respect of loans, advances and other
credit facilities including bills purchased and discounted shall be as
under:
(i) loss assets à The entire asset shall be written of. If the assets
are permitted to remain in the books for any reason, 100% of the
outstanding shall be provided for:
(ii) doubtful assets Ã
(a) 100% provision to the extent to which the advance is not covered by
the realizable value of the security to which REC has a valid recourse
shall be made. The realizable value is to be estimated on a realistic
basis; Loans covered by Central/State Govt. guarantee or State Govt.
Undertaking for deduction from Central Plan Allocation or loans to any
State Govt. shall be treated as secured;
(b) In addition to item(a) above, depending upon the period for which
the asset has remained doubtful, provision to the extent of 20% to 50%
of the secured portion (i.e. estimated realizable value of the
outstanding) shall be made on the following basis :-
Period for which the asset has
been considered as doubtful % of provision
Up to one year 20%
1 to 3 years 30%
More than 3 years 50%
(iii) Sub-standard assets - A provision of 10%
shall be made
An asset which has been renegotiated or rescheduled or restructured
shall be a sub-standard asset or continue to remain in the same
category in which it was prior to its renegotiation or re-schedulement
or restructuring, as a doubtful asset or a loss asset as the case may
be. Necessary provision is required to be made as applicable to such
asset till it is upgraded.
3. FIXED ASSETS
Fixed Assets are shown at historical cost less accumulated
depreciation. The cost includes any cost attributable of bringing the
assets to its working condition for its intended use.
4. DEPRECIATION
4.1. Depreciation on assets is provided on pro rata basis on straight-
line method at the rates prescribed under Schedule XIV to the Companies
Act, 1956. In terms of option available under the Companies Act, 1956,
depreciation on assets capitalized prior to 16.12.93 is charged at the
rates then prevailing on the straight-line method.
4.2. Depreciation on assets purchased / sold during the year is
charged for the full month if the asset is in use for more than 15
days, instead of charging the same on pro-rata basis from the date of
purchase/sale.
4.3. Depreciation on assets purchased during the year up toRs.5,000/- is
provided @ 100%.
4.4. Leasehold land is amortized over the lease period.
5. INTANGIBLE ASSETS
An Intangible Assets is recognized where it is probable that the future
economic benefits attributable to the assets will flow to the company.
These Assets are amortized over a period of 5 years.
6. INVESTMENTS
Long term investments are carried at cost less provisions, if any
(except mutual funds which are valued at NAV) for diminutions in the
value of such investment. Current investments are carried at the cost
or affair value whichever is lower.
7. CURRENT TAX AND DEFERRED TAX
Income Tax expenses comprises current Income Tax (Amount of tax for the
period determined in accordance with the income tax law) and deferred
tax charge or credit (reffecting the tax effects of timing differences
between accounting income and taxable income for the period) is
determined in accordance with Accounting Standard- 22 of the Institute
of Chartered Accountants of India. The deferred tax charge or credit
and the corresponding deferred tax liabilities or assets are recognized
using the tax rates that have been enacted or substantially established
by the Balance Sheet date. Deferred Tax Assets are recognized and carry
forward to the extent that there is a reasonable certainty that
sufficient future taxable income will be available against which such
Deferred Tax Assets can be realized.
8. IMPAIRMENT OF ASSETS
At each balance sheet date, the Company reviews the carrying amounts of
its fixed assets to determine whether there is any indication that those
assets suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the
extent of impairment loss. Recoverable amount is the higher of assets
net selling prices and value in use.
9. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
A provision is recognized when the company has a present obligation as
a result of past event and it is probable that an outflow of resources
will be required to settle the obligation and reliable estimate of
amount of the obligation can be made. Provisions are determined based
on management estimate required to settle the obligation at the Balance
Sheet date. These are reviewed at each Balance Sheet date and adjusted
to reflect the current management estimates.
10. BOND / DEBT ISSUE
10.1. Expenditure on raising of funds by way of bonds is charged to
revenue in the year of issue of such bonds.
10.2. The Corporation discharges its obligation towards payment of
interest warrants relating to bonds by depositing the amount in the
designated Interest Warrant Bank Accounts. Accordingly, the payments
are treated as final payments and these designated accounts are not
exhibited in the books but reconciliation thereof is carried out.
10.3. Expenditure incurred on raising of funds is charged to the Profit
and Loss Account in the year in which it is incurred except the
discount/interest on the Commercial Papers/ Reg- S-Bonds (External
Commercial Borrowings), which is amortized proportionately over the
period of its tenure.
10.4 Gain or loss on Interest rate swaps on domestic borrowing is
adjusted against the interest cost as on the settlement date.
11. CASH FLOW STATEMENT
Cash flows are reported using the indirect method, whereby profit before
tax is adjusted for the effects of transactions of a non-cash nature and
any deferrals or accruals of past or future cash receipts or payments.
The cash flows from regular operating, financing and investing activities
of the Company are segregated.
12. PRIOR PERIOD/ PREPAID ADJUSTMENTS
12.1. Considering the nature of business, interest income/
expenditure for the earlier years ascertained and determined during the
year is accounted for in the year in which it is so
ascertained/determined.
12.2. Other items not exceeding Rs.5,00,000/- in each case are accounted
for under natural heads of account.
13. EMPLOYEES BENEFITS
13.1. The liability for employees benefit in respect of Gratuity is
ascertained on actuarial valuation is provided and funded separately.
13.2. Short term employee benefits are recognized as an expense at the
undiscounted amount in the profit and loss account of the year in which
the related services is rendered.
13.3. Post employment and other long term employee benefits are
recognized as an expense in the profit and loss account for the year in
which the employees has rendered services. The expense is recognized at
the present value of the amounts payable determined using actuarial
valuation techniques. Actuarial gains and losses in respect of post
employment and other long term benefits are charged to the profit & loss
account.
14. TRANSACTION IN FOREIGN CURRENCY
14.1. Foreign Currency transactions are initially recorded at the
exchange rate prevailing on the date of transaction. Foreign Currency
loans/liabilities are translated/ converted with reference to the rates
of exchange ruling at year end and the resultant exchange fluctuation is
charged to Profit & Loss account.
14.2. The portion of Foreign Currency loans swapped into Indian rupees
is stated at the rate fixed in the swap transaction, and not translated
at the year end rate.
15. GRANTS/FUNDS FROM GOVERNMENT
Un-disbursed funds of grant received for further disbursements are
classified as current liabilities. Interest wherever earned on such
funds is either credited to respective grant account if terms of the
grant so requires or to "other income".
Mar 31, 2010
1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
(a) Accounting Convention: - The financial statements are prepared
under the historical cost convention on accrual basis and in accordance
with generally accepted accounting principles and applicable accounting
standard in India. The financial statements adhere to the relevant
presentational requirement of the Companies Act, 1956.
(b) Use of Estimates: - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumption that affect the reported
amounts of assets and liabilities and disclosure thereof at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
these estimates. Difference between the actual results and estimates
are recognized in the period in which results materialize.
2. REVENUE RECOGNITION
The Corporation has formulated its own detailed Prudential Norms which
are broadly based on the Prudential Norms prescribed by RBI for NBFCs.
Accounting is done in accordance with these Prudential Norms of REC and
the salient features of the same for Income Recognition, Asset
classification and Provisioning are as under:
2.1. Income Recognition
a. Income on Non Performing Assets where interest/ principal has
become overdue for two quarters or more is recognized as and when
received and appropriated. Any such income recognized before the asset
becomes non-performing and remaining unrealized is reversed.
Unless otherwise agreed, the recoveries from the borrowers are
appropriated in the order of (i) costs and expenses of REC (ii) penal
interest including interest tax, if any (iii) overdue interest
including interest tax, if any, and (iv) repayment of principal, the
oldest being adjusted first.
In respect of loans whose terms are renegotiated / rescheduled /
restructured, income is recognized on accrual basis when it is
reasonably expected that there is no uncertainty of receipt of dues
from the borrowers and a legally binding Memorandum of Agreement has
been executed and there has been satisfactory performance under the
renegotiated or rescheduled or restructured terms till a period of at
least one year from the effective date of the corresponding MOU.
b. Income of Agency Charges on RGGVY Schemes is recognized on the
basis of the services rendered and amount sanctioned by the Ministry of
Power.
c. Income from investments
(1) Income from dividend on shares of corporate bodies and units of
mutual funds shall be taken into account on cash basis:
Provided that the income from dividend on shares of corporate bodies
may be taken into account on accrual basis when such dividend has been
declared by the corporate body in its annual general meeting and RECs
right to receive payment is established.
(2) Income from bonds and debentures of corporate bodies and from
Government securities/bonds shall be taken into account on accrual
basis:
Provided that the interest rate on these instruments is pre- determined
and interest is serviced regularly and is not in arrears.
(3) Income on securities of corporate bodies or public sector
undertakings, the payment of interest and repayment of principal of
which have been guaranteed by Central Government or a State Government
shall be taken into account on accrual basis.
2.2 Assets Classification
Loans and advances and any other form of credit are classified into the
following classes, namely:
(i) Standard Assets: ÃStandard assets means an asset which is not an
NPA and in respect of which no default in repayment of principal or
payment of interest is perceived and which does not disclose any
problem or carry more than normal risk attached to the business, or a
deemed standard asset which is defined below;
and
Ãa deemed standard asset means
A facility made to a state utility against state government undertaking
for deduction from central plan allocation for making payment to REC
against its unpaid dues.
(ii) Sub-Standard Assets: ÃSub-standard asset means:
(a) an asset which has been classified as non-performing asset for a
period not exceeding 18 months;
(b) an asset where the terms of the agreement regarding interest and /
or principal have been renegotiated or rescheduled or restructured,
until the expiry of one year of satisfactory performance under the
renegotiated or rescheduled or restructured terms.
(c) The rescheduling or restructuring or renegotiation of a standard
infrastructure loan asset shall not cause it to be reclassified if the
revised project is found to be viable by the competent authority.
(iii) Doubtful Assets: Doubtful asset means an asset which remains a
substandard asset for a period exceeding 18 months.
(iv) Loss Assets: Loss assets means Ã
a) An asset which has been identified as loss asset by REC to the
extent it is not written off by REC or the asset remains doubtful for a
period exceeding 5 years, whichever is earlier.
b) An asset which is adversely affected by a potential threat of
non-recoverability due to either erosion in the value of security or
non availability of security or due to any fraudulent act or omission
on the part of the borrower.
For the purpose of application of Prudential Norms and provisioning
Norms,
i. Facilities granted to State/Central Sector entities are considered
loan wise.
ii. Facilities granted to other entities are considered borrower wise.
2.3 Provisioning against Loans
The provisioning requirement in respect of loans, advances and other
credit facilities including bills purchased and discounted shall be as
under:
(i) Loss Assets à The entire asset shall be written off. If the assets
are permitted to remain in the books for any reason, 100% of the
outstanding shall be provided for:
(ii) Doubtful assets Ã
(a) 100% provision to the extent to which the advance is not covered by
the realizable value of the security to which REC has a valid recourse
shall be made. The realizable value is to be estimated on a realistic
basis; Loans covered by Central/ State Govt. guarantee or State Govt.
Undertaking for deduction from Central Plan Allocation or loans to any
State Govt. shall be treated as secured;
(b) In addition to item(a) above, depending upon the period for which
the asset has remained doubtful, provision to the extent of 20% to 50%
of the secured portion (i.e. estimated realizable value of the
outstanding) shall be made on the following basis :-
Period for which the asset has been % of provision
considered as doubtful
Up to one year 20%
1 to 3 years 30%
More than 3 years 50%
(iii) Sub-standard assets - A provision of 10% shall be made.
An asset which has been renegotiated or rescheduled or restructured
shall be a sub-standard asset or continue to remain in the same
category in which it was prior to its renegotiation or re-schedulement
or restructuring, as a doubtful asset or a loss asset as the case may
be. Necessary provision is required to be made as applicable to such
asset till it is upgraded.
3. FIXED ASSETS
Fixed Assets are shown at historical cost less accumulated
depreciation. The cost includes any cost attributable of bringing the
assets to its working condition for its intended use.
4. DEPRECIATION
4.1. Depreciation on assets is provided on pro rata basis on
straight-line method at the rates prescribed under Schedule XIV to the
Companies Act, 1956. In terms of option available under the Companies
Act, 1956, depreciation on assets capitalized prior to 16.12.93 is
charged at the rates then prevailing on the straight-line method.
4.2. Depreciation on assets purchased / sold during the year is
charged for the full month if the asset is in use for more than
15 days, instead of charging the same on pro-rata basis from the date
of purchase/sale.
4.3. Depreciation on assets purchased during the year up to Rs 5,000/-
is provided @ 100%.
4.4. Leasehold land is amortized over the lease period.
5. INTANGIBLE ASSETS
An Intangible Assets is recognized where it is probable that the future
economic benefits attributable to the assets will flow to the company.
These Assets are amortized over a period of 5 years.
6. INVESTMENTS
Long term investments are carried at cost less provisions, if any
(except mutual funds which are valued at NAV) for diminutions in the
value of such investment. Current investments are carried at the cost
or fair value whichever is lower.
7. CURRENT TAX AND DEFERRED TAX
Income Tax expenses comprises current Income Tax (Amount of tax for the
period determined in accordance with the income tax law) and deferred
tax charge or credit (reflecting the tax effects of timing differences
between accounting income and taxable income for the period) is
determined in accordance with Accounting Standard- 22 of the Institute
of Chartered Accountants of India. The deferred tax charge or credit
and the corresponding deferred tax liabilities or assets are recognized
using the tax rates that have been enacted or substantially established
by the Balance Sheet date. Deferred Tax Assets are recognized and carry
forward to the extent that there is a reasonable certainty that
sufficient future taxable income will be available against which such
Deferred Tax Assets can be realized.
8. IMPAIRMENT OF ASSETS
At each balance sheet date, the Company reviews the carrying amounts of
its fixed assets to determine whether there is any indication that
those assets suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to
determine the extent of impairment loss. Recoverable amount is the
higher of assets net selling prices and value in use.
9. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
A provision is recognized when the company has a present obligation as
a result of past event and it is probable that an outflow of resources
will be required to settle the obligation and reliable estimate of
amount of the obligation can be made. Provisions are determined based
on management estimate required to settle the obligation at the Balance
Sheet date. These are reviewed at each Balance Sheet date and adjusted
to reflect the current management estimates.
10. BOND / DEBT ISSUE
10.1. Expenditure on rising of funds by way of bonds is charged to
revenue in the year of issue of such bonds.
10.2. The Corporation discharges its obligation towards payment of
interest warrants relating to bonds by depositing the amount in the
designated Interest Warrant Bank Accounts. Accordingly, the payments
are treated as final payments and these designated accounts are not
exhibited in the books but reconciliation thereof is carried out.
10.3. Expenditure incurred on raising of funds is charged to the Profit
and Loss Account in the year in which it is incurred except the
discount/interest on the Commercial Papers, which are amortized
proportionately over the period of its tenure.
10.4 Gain or loss on Interest rate swaps on domestic borrowing is
adjusted against the interest cost as on the settlement date.
11. CASH FLOW STATEMENT
Cash flows are reported using the indirect method, whereby profit
before tax is adjusted for the effects of transactions of a non-cash
nature and any deferrals or accruals of past or future cash receipts or
payments. The cash flows from regular operating, financing and
investing activities of the Company are segregated.
12. PRIOR PERIOD/ PREPAID ADJUSTMENTS
12.1. Considering the nature of business, interest income/ expenditure
for the earlier years ascertained and determined during the year is
accounted for in the year in which it is so ascertained/determined.
12.2. Other items not exceeding Rs.5,00,000/- in each case are
accounted for under natural heads of account.
13. EMPLOYEES BENEFITS
13.1. The liability for employees benefit in respect of Gratuity is
ascertained on actuarial valuation is provided and funded separately.
13.2 Short term employee benefits are recognized as an expense at the
undiscounted amount in the profit and loss account of the year in which
the related services is rendered.
13.3 Post employment and other long term employee benefits are
recognized as an expense in the profit and loss account for the year in
which the employees has rendered services. The expense is recognized at
the present value of the amounts payable determined using actuarial
valuation techniques. Actuarial gains and losses in respect of post
employment and other long term benefits are charged to the profit &
loss account.
14. TRANSACTION IN FOREIGN CURRENCY
14.1 Foreign Currency transactions are initially recorded at the
exchange rate prevailing on the date of transaction. Foreign Currency
loans/liabilities are translated/ converted with reference to the rates
of exchange ruling at year end and the resultant exchange fluctuation
is charged to Profit & Loss account.
14.2 The portion of Foreign Currency loans swapped into Indian rupees
is stated at the rate fixed in the swap transaction, and not translated
at the year end rate.
15. GRANTS/FUNDS FROM GOVERNMENT
Un-disbursed funds of grant received for further disbursements are
classified as current liabilities. Interest wherever earned on such
funds is either credited to respective grant account if terms of the
grant so requires or to "other income".
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