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 Fee for advisory and professional services for developing Ultra
 Mega Power Projects is accounted for on transfer of the project to the
 successful bidder.
 
 2.1.3 Premium on interest restructuring is accounted for in the year in
 which the restructuring is approved.
 
 2.1.4 Premium on premature repayment of loan is accounted for in the
 year in which it is received by the Company.
 
 2.1.5 Rebate on account of timely payment by borrowers is accounted
 for, on receipt of entire amount due on time.
 
 2.1.6 Income under the head carbon credit, upfront fees, lead manager
 fees, facility agent fees, security agent fee and service charges etc.
 on loans is accounted for in the year in which it is received by the
 Company.
 
 2.1.7 The discount / financial charges / interest on the commercial
 papers and zero coupon bonds (deep discount bonds) are amortized
 proportionately over the period of its tenure.
 
 2.1.8 Expenditure on issue of shares is charged off to the share
 premium received on the issue of shares.
 
 2.2 Lease rental is accounted for on accrual basis. Income from Lease
 Rentals in respect of leases prior to 01.04.2001 is recognized on the
 basis of implicit interest rate, in the lease, in accordance with
 Guidance Note on Accounting for Leases issued by the Institute of
 Chartered Accountants of India. Leases effected from 01.04.2001 are
 accounted for in accordance with Accounting Standard – 19 on Leases.
 
 2.3 Income from dividend is accounted for in the year of declaration of
 dividend.
 
 2.4 Recoveries in borrower accounts are appropriated as per the loan
 agreements.
 
 2.5 The Company is raising demand of installments due as per loan
 agreements. The repayment is adjusted against earliest disbursement
 irrespective of the rate of interest being charged on various
 disbursements.
 
 2.6 Prior period expenses / income and prepaid expenses upto Rs.5,000/-
 are charged to natural heads of account.
 
 2.7 (i) Nodal Agency Fees under Restructured Accelerated Power
 Development and Reforms Programme (R – APDRP) is accounted for @1% of
 the sanctioned project cost in three steps- 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) The actual expenditure incurred for operationalising the R– APDRP
 are reimbursable from Ministry of Power, Government of India and
 accounted for in the period so incurred.
 
 3.  FIXED ASSETS / DEPRECIATION
 
 3.1 Fixed assets are shown at historical cost less accumulated
 depreciation, except 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 other than leased assets is provided on
 written down value method, in accordance with the rates prescribed in
 Schedule XIV of the Companies Act, 1956.
 
 3.4 Depreciation on assets leased prior to 01.04.2001 is provided for
 on straight line method at the rates prescribed under the Schedule XIV
 to the Companies Act, 1956 or over the primary balance period of lease
 of assets, whichever is higher. The value of the net block so arrived
 at is further adjusted by balance in the lease equalization account.
 The assets leased after 01.04.2001 are not required to be depreciated
 as per Accounting Standard – 19.
 
 3.5 Items of fixed assets acquired during the year costing up to
 Rs.5,000/- are fully depreciated.
 
 4.  INTANGIBLE ASSETS / AMORTIZATION
 
 Intangible assets such as software are shown at cost of acquisition and
 amortization is done under straight-line method over 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 fund / venture capital fund 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 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 its letter dated 18.03.2010.
 
 RBI has accorded the status of Infrastructure Finance company (IFC) to
 PFC, vide its 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 installments of loan, interest 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 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
 receipt 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 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.
 
 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 ever the Company has entered into a forward contract or an
 instrument that is, in substance a forward exchange contract, the
 difference between the forward rate and exchange rate on the date of
 transaction is recognized as income or expenses 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.
 
 8 GRANTS FROM GOVERNMENT OF INDIA:
 
 8.1 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.
 
 8.2 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.
 
 9 INTEREST SUBSIDY FUND
 
 9.1 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 at the completion of respective scheme.
 
 9.2 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.
 
 10 R-APDRP FUND
 
 10.1 Loans 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.
 
 11 INCOME / RECEIPT / EXPENDITURE ON SUBSIDIARIES
 
 11.1 Expenditure incurred on the subsidiaries is debited to the account
 Amount recoverable from concerned subsidiary.
 
 11.2 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.
 
 11.3 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.
 
 11.4 Amounts received by subsidiaries as commitment advance from power
 procurers are parked with the Company as inter- corporate loan and
 interest is provided on unused portion of these loans at the mutually
 agreed interest rates.
 
 11.5 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.
 
 11.6 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.
 
 12 EMPLOYEE BENEFITS
 
 12.1 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).
 
 12.2 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)
 
 13 INCOME TAX
 
 13.1 Income Tax comprising of current tax is determined in accordance
 with the applicable tax laws and deferred tax charge or credit (refl
 ecting 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 of the Institute of
 Chartered Accounts of India.
 
 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.
 
 13.2. 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.
 
 14 CASH FLOW STATEMENT
 
 Cash fl ow statement is prepared in accordance with the indirect method
 prescribed in Accounting Standard – 3 on Cash Flow Statement.