1 BASIS FOR PREPARATION OF FINANCIAL STATEMENTS
 
 The Financial Statements have been prepared in accordance with
 historical cost convention on accrual basis in accordance with
 Generally Accepted Accounting Principles (GAAP) and Accounting
 Standards notified by the Companies (Accounting Standards) Rules, 2006
 and relevant provisions of the Companies Act, 1956.
 
 The preparation of Financial Statements requires the Management to make
 estimates and assumptions considered in the reported amounts of assets,
 liabilities (including contingent liabilities), revenues and expenses
 of the reporting period. The difference between the actual results and
 the estimates are recognized in the period in which the results are
 known and / or materialized.
 
 2 RECOGNITION OF INCOME / EXPENDITURE
 
 2.1 Income and expenses (except as stated below) are accounted for on
 accrual basis.
 
 2.1.1 Income on non-performing assets and assets stated in the proviso
 to paragraph 6.2, infra is recognized in the year of its receipt.
 However, any unrealized income recognized before the asset in question
 became non-performing asset or the income recognized in respect of
 assets as stated in the proviso to paragraph 6.2, infra which remained
 due but unpaid for a period more than six months is reversed.
 
 2.1.2 Income under the head carbon credit, is accounted for in the year
 in which it is received by the Company.
 
 2.2 Rebate on account of timely payment by borrowers is accounted for,
 on receipt of entire amount due on time.
 
 2.3 Discount / financial charges / interest on the commercial papers
 and zero coupon bonds (deep discount bonds) are amortized
 proportionately over the period of its tenure.
 
 2.4 Expenditure on issue of shares is charged to the securities premium
 account.
 
 2.5 Income from dividend is accounted for in the year of declaration of
 dividend.
 
 2.6 Recoveries in borrower accounts are appropriated as per the loan
 agreements.
 
 2.7 The Company raises demand for principal installments due, as per
 loan agreements. The repayment is adjusted against earliest
 disbursement, irrespective of the rate of interest being charged on
 various disbursements.
 
 2.8 Prior period expenses / income and prepaid expenses upto Rs. 5,000/-
 are charged to natural heads of account.
 
 2.9 (i) Nodal Agency Fees under Restructured Accelerated Power
 Development and Reforms Programme (R – APDRP) are accounted for @1% of
 the sanctioned project cost in three stages- 0.40% on sanction of the
 project, 0.30% on disbursement of the funds and remaining 0.30% after
 completion of the sanctioned project (for Part – A) and verification of
 AT&C loss of the project areas (for Part – B).
 
 (ii) Actual expenditure incurred for operationalising the R– APDRP are
 reimbursed by Ministry of Power, Government of India and is accounted
 for in the period in which the expenditure is so incurred.
 
 3.  FIXED ASSETS/DEPRECIATION
 
 3.1 Fixed assets are shown at historical cost less accumulated
 depreciation, except for the assets retired from active use and held
 for disposal, which are stated at lower of the book value or net
 realizable value.
 
 3.2 Additions to fixed assets are being capitalized on the basis of
 bills approved or estimated value of work done as per contracts in
 cases where final bills are yet to be received / approved.
 
 3.3 Depreciation on assets is provided on written down value method, in
 accordance with the rates prescribed in Schedule XIV of the Companies
 Act, 1956.
 
 3.4 Items of fixed assets acquired during the year costing up to Rs.
 5,000/- are fully depreciated.
 
 4 INTANGIBLE ASSETS / AMORTIZATION
 
 4.1 Intangible assets such as software are shown at the cost of
 acquisition, and amortization is done under straight-line method over
 the life of the assets estimated by the Company.
 
 5 INVESTMENTS
 
 5.1 Quoted current investments are valued scrip wise at lower of cost
 or fair value.
 
 5.2 Unquoted current investments are valued at lower of cost or fair
 value.
 
 5.3 Long term investments are valued at cost. Provision is made for
 diminution, other than temporary in the value of such investments.
 However, diminution in value is reversed, when there is rise in the
 value or if the reason for the reduction no longer exists.
 
 5.4 Investments in mutual funds / venture capital funds are valued at
 cost, less diminution, if any, other than temporary.  However,
 diminution in value is reversed, when there is rise in the value or if
 the reason for the reduction no longer exists.
 
 6 PROVISIONS/WRITE OFF AGAINST LOANS AND ADVANCES Prudential Norms
 
 6.1 PFC being a Government owned Non Banking Financial Company (NBFC)
 is exempt from the RBI directions relating to Prudential Norms. The
 Company, however, has formulated its own set of Prudential Norms with
 effect from 01.04.2003, which has been revised from time to time.
 
 In respect of private sector utilities, the Company applies RBI
 exposure norms, as advised by RBI, vide their letter of December, 2008.
 Further, RBI exempted PFC from its prudential exposure norms in respect
 of lending to State / Central entities in power sector till March,
 2012, vide their letter dated 18.03.2010.
 
 RBI has accorded the status of Infrastructure Finance company (IFC) to
 PFC, vide their letter dated 28.07.2010. Accordingly, PFC maintains
 CRAR as applicable to IFC.
 
 6.2 As per prudential norms approved by the Board of Directors and the
 Ministry of Power, an asset including a lease asset, in respect of
 which, interest, principal installment and / or other charges remain
 due but unpaid for a period of six months or more, a term loan
 inclusive of unpaid interest and other dues if any, when the principal
 installment and /or interest remains unpaid for a period of six months
 or more, any amount which remains due but unpaid for a period of six
 months or more under bill discounting scheme and any amount due on
 account of sale of assets or services rendered or reimbursement of
 expenses incurred which remains unpaid for a period of six months or
 more are classified as Non- Performing Assets (NPA).
 
 However, the following assets would not be classified as non-performing
 assets and the income on these loans is recognized on realisation
 basis.
 
 (i) Loans in respect of projects which are under implementation as per
 RBI Circular No. ref DBS.FID No. C-11/01.02.00/ 2001-02 dated February
 1, 2002 read with D.O. letter DBS FID No 1285/01.02.00/2001-02 dated
 May 14, 2002 and RBI letter No.DBOD.BP.No.7675/21.04.048/2008-09 dated
 11.11.2008 are classified in line with RBI guidelines for asset
 classification of Infrastructure projects, as applicable to banks from
 time to time.
 
 (ii) A facility which is backed by the Central / State Government
 guarantee or by the State Government undertaking for deduction from
 central plan allocation or a loan to State department , for a period
 not exceeding 12 months from the date from which Company''s dues have
 not been paid by the borrower.
 
 (iii) A loan disbursed to an integrated power entity which is
 bifurcated on account of division of states, the company shall follow
 the government order issued for division of assets and liabilities,
 unless the same is stayed by any court and the case is pending in the
 court.
 
 (iv) Non servicing of part of dues disputed by the borrower for a
 period not exceeding 12 months from the date from which the company''s
 dues have not been paid by the borrower. The disputed income shall be
 recognized only when it is actually realized. Any such disputed income
 already recognized in the books of accounts shall be reversed. Disputed
 dues means amount on account of financial charges like commitment
 charges , penal interest etc. and the disputed differential income on
 account of interest reset not serviced by the borrower due to certain
 issues remains unresolved. A dispute shall be acknowledged on case to
 case basis with the approval of the Board of Directors.
 
 6.3 NPA classification and provisioning norms for loans, other credits
 and lease assets are given as under (i) NPA for a period not exceeding
 18 months : Sub-standard asset
 
 (ii) NPA exceeding 18 months : Doubtful asset
 
 (iii) When an asset is identified as loss asset or assets remain
 doubtful asset exceeding 36 months, which ever is earlier : Loss asset
 
 6.4 Provision against NPAs is made at the rates indicated below: -
 
 (i) Sub-standard assets : 10%
 
 (ii) Doubtful assets:
 
 (a) Secured portion / facility including that guaranteed by the state /
 central government or by the state government undertaking for deduction
 from central plan allocation or loan to state department.
 
 Up to 1 year : 20%
 
 1 – 3 years : 30%
 
 More than 3 years : 100%
 
 (b) Unsecured : 100%
 
 (iii) Loss assets : 100%
 
 The entire loss assets shall be written off. In case, a loss asset is
 permitted to remain in the books for any reason, 100% of outstanding
 shall be provided for.
 
 For the purpose of assets classification and provisioning –
 
 (i) facilities granted to Government sector entities are considered
 loan-wise.
 
 (ii) facilities granted to Private sector entities are considered
 borrower -wise.
 
 (iii) facilities falling under paragraph 6.2 (i), supra, shall be
 classified in line with RBI guidelines for asset classification of
 infrastructure projects, as applicable to banks from time to time, but
 provisioning for such facilities shall be as per PFC Prudential Norms
 applicable from time to time.
 
 6.5 Restructuring, Reschedulement or Renegotiation of term(s) of loan:
 
 (i) PFC may, not more than once (in each of the following three
 stages), restructure or reschedule or renegotiate the terms of
 infrastructure loan agreement as per the policy framework laid down by
 the Board of Directors of the company under the following stages:
 
 a) Before commencement of commercial production
 
 b) After commencement of commercial production but before the asset has
 been classified as sub-standard;
 
 c) After the commencement of commercial production and the asset has
 been classified as sub-standard.
 
 Provided that in each of the above three stages, the restructuring and
 / or rescheduling and / or renegotiation of principal and / or of
 interest may take place, with or without sacrifice, as part of the
 restructuring or rescheduling or renegotiating package evolved.
 
 Provided further that in exceptional circumstance(s), for reasons to be
 recorded in writing, PFC may consider restructuring / reschedulement /
 renegotiation of terms of loan agreement second time before COD of the
 project with the approval of Board of Directors.
 
 Provided further that extension of repayment schedule before COD* of
 the project in respect of Government Sector Entities, without any
 sacrifice** of either principal or interest, will not be considered as
 restructuring / rescheduling / renegotiation for the purpose of
 applicability of this section.
 
 * Completion Date for projects where COD is not applicable.
 
 ** The term “sacrifice” shall mean waiver/reduction of principal and /
 or the interest dues and / or future applicable interest rate as a part
 of Restructuring / Reschedulement / Renegotiation package for the
 purpose of giving effect to the extant provision in respect of
 Government sector entities.
 
 (ii) Provision for shortfall in security of Restructured / Rescheduled
 / Renegotiated Loans:
 
 Where the asset is partly secured, a provision to the extent of
 shortfall in the security available, shall be made while restructuring
 and / or rescheduling and / or renegotiation of the loans, apart from
 the provision required on present value basis and as per prudential
 norms.
 
 (iii) Treatment of Restructured / Rescheduled / Renegotiated Standard
 Loan:
 
 The rescheduling or restructuring or renegotiation of the instalments
 of principal alone, at any of the aforesaid first two stages shall not
 cause a standard asset to be re-classified in the sub-standard
 category, if the project is re-examined and found to be viable by the
 Board of Directors of PFC or by a functionary at least one step senior
 to the functionary who sanctioned the initial loan for the project,
 within the policy framework laid down by the Board.
 
 Provided that rescheduling or renegotiation or restructuring of
 interest element at any of the foregoing first two stages shall not
 cause a standard asset to be downgraded to sub-standard category
 subject to the condition that the amount of interest foregone, if any,
 on account of adjustment in the element of interest as specified later,
 is either written off or 100 per cent provision is made there against.
 
 (iv) Treatment of Restructured / Rescheduled / Renegotiated
 sub-standard Asset:
 
 A sub-standard asset shall continue to remain in the same category in
 case of restructuring or rescheduling or renegotiation of the
 instalments of principal until the expiry of one year and the amount of
 interest foregone, if any, on account of adjustment, including
 adjustment by way of write off of the past interest dues, in the
 element of interest as specified later, shall be written off or 100 per
 cent provision made there against.
 
 (v) Adjustment of Interest:
 
 Where rescheduling or renegotiation or restructuring involves a
 reduction in the rate of interest, the interest adjustment shall be
 computed by taking the difference between the rate of interest as
 currently applicable to the loan (as adjusted for the risk rating
 applicable to the borrower) and the reduced rate and aggregating the
 present value (discounted at the rate currently applicable to
 infrastructure loan, adjusted for risk enhancement) of the future
 interest payable so stipulated in the restructuring or rescheduling or
 renegotiation proposal.
 
 (vi) Funded Interest:
 
 In the case of funding of interest in respect of NPAs, where the
 interest funded is recognized as income, the interest funded shall be
 fully provided for.
 
 (vii) Eligibility for Upgradation of Restructured / Rescheduled /
 Renegotiated Sub-standard Infrastructure loan:
 
 The sub-standard asset subjected to rescheduling and / or renegotiation
 and / or restructuring, whether in respect of instalments of principal
 amount, or interest amount, by whatever modality, shall not be upgraded
 to the standard category until expiry of one year of satisfactory
 performance under the restructuring and / or rescheduling and / or
 renegotiation terms.
 
 (viii) Reversal of Provision:
 
 Reversal of provision made for a restructured / rescheduled /
 renegotiated NPA towards principal is permitted when the account
 becomes a standard asset. The provision made in a restructured /
 rescheduled / renegotiated account towards interest sacrifice may be
 reversed every year (NPV of interest sacrifice for the respective year)
 on receipt of all repayment obligations for the respective year.
 
 (ix) Conversion of Debt into Equity:
 
 Where the amount due as interest is converted into equity or any other
 instrument, and income is recognized in consequence, full provision
 shall be made for the amount of income so recognized to offset the
 effect of such income recognition:
 
 Provided that no provision is required to be made, if the conversion of
 interest isinto equity which is quoted; Provided further that in such
 cases, interest income may be recognized at market value of equity, as
 on the date of conversion, not exceeding the amount of interest
 converted to equity.
 
 (x) Conversion of Debt into Debentures:
 
 Where principal amount and /or interest amount in respect of NPAs is
 converted into debentures, such debentures shall be treated as NPA, ab
 initio, in the same asset classification as was applicable to the loan
 just before conversion and provision shall be made as per norms.
 
 (xi) These norms shall be applicable to the loans which have been
 restructured and / or rescheduled and / or renegotiated and which are
 fully or partly secured standard / sub-standard asset.
 
 For the above paragraphs, Restructuring / Re-schedulement /
 Renegotiation shall cover terms of agreement relating to principal and
 interest.
 
 However, this section shall not be applicable to the following set of
 assets:
 
 a) A facility which is backed by Central / State Government Guarantee
 or by state government undertaking for deduction from central plan
 allocation or a loan to state department.
 
 b) Loans falling under paragraph 6.2(i).  7 FOREIGN EXCHANGE
 TRANSACTIONS:
 
 7.1 The following transactions are accounted for at the exchange rates
 prevailing on the date of the transaction as per Accounting Standard –
 11.
 
 (i) Expenses and income in foreign currency; and
 
 (ii) Amounts borrowed and lent in foreign currency.
 
 7.2 The following balances are translated in Indian Currency at the
 exchange rates prevailing on the date of closing of accounts as per
 Accounting Standard – 11.
 
 (i) Foreign currency loan liabilities.
 
 (ii) Funds kept in foreign currency account with banks abroad.
 
 (iii) Contingent liabilities in respect of guarantees given in foreign
 currency.
 
 (iv) Income earned abroad but not remitted / received in India.
 
 (v) Loans granted in foreign currency.
 
 (vi) Expenses and income accrued but not due on foreign currency loans
 / borrowing.
 
 7.3 Where the Company has entered into a forward contract or an
 instrument that is, in substance a forward contract, the difference
 between the forward rate and the exchange rate on the date of
 transaction is recognized as income or expense over the life of the
 contract, as per Accounting Standard – 11.
 
 7.4 In case of loan from KFW, Germany, exchange loss, if any, at the
 year-end is debited to Interest Differential Fund Account – KFW as per
 loan agreement.
 
 7.5 In accordance with the paragraph 46A of the Accounting Standards
 (AS) 11, the exchange differences on the long term foreign currency
 monetary items are amortized over their balance period.”
 
 8.  DERIVATIVE TRANSACTIONS
 
 8.1 Derivative transactions include forwards, interest rate swaps,
 currency swaps, and currency and cross currency options to hedge on
 balance sheet assets or liabilities.
 
 8.2 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.
 
 9 GRANTS FROM GOVERNMENT OF INDIA:
 
 9.1 Where grants are first disbursed to the grantee, the same are shown
 as amount recoverable from the Govt. of India and are squared up on
 receipt of amount.
 
 9.2 Where grants are received in advance from Govt. of India, the same
 are shown as current liabilities till the payments are released to the
 grantee.
 
 10 INTEREST SUBSIDY FUND
 
 10.1 Interest subsidy for eligible borrowers received from the Ministry
 of Power, Govt. of India under Accelerated Generation & Supply
 Programme (AG & SP) on net present value (NPV) basis is credited to
 Interest Subsidy Fund on receipt and is passed on to the borrowers over
 the eligible period of loan on respective dates of interest demands.
 Any excess / shortfall in the Interest Subsidy Fund is refunded or
 adjusted / charged off on completion of respective scheme.
 
 10.2 Interest Subsidy Fund is credited at the year-end with interest on
 the outstanding balance in the subsidy fund by debiting Profit & Loss
 account, at rates specified in the Scheme.
 
 11 R-APDRP FUND
 
 11.1 Amounts received from the Government of India under Re-structured
 Accelerated Power Development & Reforms Programme (R – APDRP) as a
 Nodal agency for on lending to eligible borrowers are back to back
 arrangements with no profit or loss arising to the Company.
 
 12 INCOME/RECEIPT/EXPENDITURE ON SUBSIDIARIES
 
 12.1 Expenditure incurred on the subsidiaries is debited to the account
 “Amount recoverable from concerned subsidiary”.
 
 12.2 Expenses in respect of man days (employees) are allocated to
 subsidiaries and administrative overheads are apportioned to
 subsidiaries on estimated basis. Direct expenses are booked to
 respective subsidiaries.
 
 12.3 Interest on amount recoverable from Subsidiaries is accounted for
 at the rate of interest applicable for project loan / scheme
 (generation) to state sector borrower (category A) as per the policy of
 the Company.
 
 12.4 Amounts received by subsidiaries as commitment advance from power
 procurers are parked with the Company as inter-corporate loans and
 interest is provided on unused portion of these loans at the mutually
 agreed interest rates.
 
 12.5 Request for Qualification (RFQ) document / Request for Proposal
 (RFP) document developed for subsidiaries (incorporated for UMPP) are
 provided to subsidiary companies at a price equivalent to sale proceeds
 of RFQ / RFP document received by the subsidiary companies from the
 prospective bidders. The same is accounted for as income of the company
 on receipt from subsidiary company.
 
 12.6 The Company incurs expenditure for development work in the UMPPs.
 The expenditure incurred is shown as amount recoverable from the
 respective subsidiaries set up for development of UMPPs. Provisioning /
 write off is considered to the extent not recoverable, when an UMPP is
 abandoned by the Ministry of Power, Government of India.
 
 13 EMPLOYEE BENEFITS
 
 13.1 Provident Fund, Gratuity and post retirement benefits
 
 Company''s contribution paid / payable during the financial year towards
 Provident Fund is charged in the Profit and Loss Account. The Company''s
 obligation towards gratuity to employees and post retirement benefits
 such as medical benefits, economic rehabilitation benefit, and
 settlement allowance after retirement are actuarially determined and
 provided for as per Accounting Standard – 15 (Revised).
 
 13.2 Other Employee Benefits
 
 The Company''s obligation towards sick leave, earned leave, service
 award scheme are actuarially determined and provided for, as per
 Accounting Standard – 15 (Revised)
 
 14 INCOME TAX
 
 14.1.  Income Tax comprising of current tax is determined in accordance
 with the applicable tax laws and deferred tax charge or credit
 (reflecting the tax effects of timing differences between accounting
 income and taxable income for the period) in accordance with Accounting
 Standard – 22 on Accounting for Taxes on Income.
 
 Deferred tax charge or credit and corresponding deferred tax
 liabilities or assets are recognized using tax rates that have been
 enacted or substantially established by the balance sheet date.
 Deferred Tax Assets are recognized and carried forward to the extent
 there is a reasonable certainty that sufficient future taxable income
 will be available against which such Deferred Tax Assets can be
 realized.
 
 14.2.  Since the Company has passed a Board resolution that it has no
 intention to make withdrawal from the Special Reserve created and
 maintained under section 36(1)(viii) of the Income Tax Act, 1961, the
 special reserve created and maintained is not capable of being reversed
 and thus it becomes a permanent difference. The Company does not create
 any deferred tax liability on the said reserve in accordance with the
 clarification of the Accounting Standard Board of the Institute of
 Chartered Accountants of India.
 
 15 CASH FLOW STATEMENT
 
 Cash flow statement is prepared in accordance with the indirect method
 prescribed in Accounting Standard – 3 on Cash Flow Statement.