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
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
2.5 Income from dividend is accounted for in the year of declaration of
2.6 Recoveries in borrower accounts are appropriated as per the loan
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
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
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
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.
5.1 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
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
(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
(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
(ii) facilities granted to Private sector entities are considered
(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
(iii) Treatment of Restructured / Rescheduled / Renegotiated Standard
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
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
(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
(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
However, this section shall not be applicable to the following set of
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
7.1 The following transactions are accounted for at the exchange rates
prevailing on the date of the transaction as per Accounting Standard –
(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
(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
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
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
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
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
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
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.