1.  We have audited the attached Balance Sheet of Power Finance
 Corporation Limited, New Delhi as at 31st March 2011, the Profit and
 Loss Account and also the Cash Flow Statement for the year ended on
 that date, annexed thereto. These financial statements are the
 responsibility of the Company''s management. Our responsibility is to
 express an opinion on these financial statements based on our audit.
 
 2.  We conducted our audit in accordance with auditing standards
 generally accepted in India. Those standards require that we plan and
 perform the audit to obtain reasonable assurance about whether the
 financial statements are free of material misstatement. An audit
 includes examining, on a test basis, evidence supporting the amounts
 and disclosures in the financial statements. An audit also includes
 assessing the accounting principles used and significant estimates
 made by the management, as well as evaluating the overall financial
 statement presentation. We believe that our audit provides a reasonable
 basis for our opinion.
 
 3.  As required by the Statement on the Companies (Auditors'' Report)
 Order, 2003 (as amended) issued by the Government of India in terms of
 Section 227 (4A) of the Companies Act, 1956, we enclose in the Annexure
 a statement on the matters specified in paragraphs 4 and 5 of the said
 Order.
 
 4.  Further to our comments referred to in paragraph 3 above, without
 qualifying our report attention is drawn to the Note no.  13(ii) in
 Schedule 17 regarding Accounting for Derivatives.
 
 5.  Further to above:
 
 (a) We have obtained all the information and explanations which to the
 best of our knowledge and belief were necessary for the purposes of our
 audit;
 
 (b) In our opinion, proper books of account, as required by law, have
 been kept by the Company, so far as appear from our examination of
 those books;
 
 (c) The Balance Sheet, Profit & Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of account;
 
 (d) In our opinion, the Balance Sheet, Profit & Loss Account and Cash
 Flow Statement dealt with by this report comply with the Accounting
 Standards referred to in Sub-Section (3C) of Section 211 of the
 Companies Act, 1956 .
 
 (e) The requirements of clause (g) of Sub-Section (1) of Section 274 of
 the Companies Act, 1956 relating to disqualification of directors are
 not applicable to the Company, being a Government Company, in terms of
 Notification No.G.S.R.829 (E), dated 21.10.2003 issued by Ministry of
 Finance, Department of Company Affairs.
 
 6.  In our opinion and to the best of our information and according to
 the explanations given to us, the said Accounts read with Accounting
 Policies and Notes thereon in Schedule No.17, give the information
 required by the Companies Act, 1956, in the manner so required, and
 give a true and fair view in conformity with the accounting principles
 generally accepted in India:
 
 (a) In case of Balance Sheet, of the state of affairs of the Company as
 at 31st March 2011 and
 
 (b) In case of Profit & Loss Account, of the Profit of the Company for
 the year ended on that date.
 
 (c) In case of Cash Flow Statement, of the cash flows for the year
 ended on that date.
 
 ANNEXURE TO AUDITOR''S REPORT
 (Referred to in Paragraph (3) of our report of even date)
 
 1.  (a) The Company has generally maintained proper records showing
 full particulars including quantitative details and situation of fixed
 assets on the basis of available information.
 
 (b) As explained to us, the management is carrying out the physical
 verification of fixed assets at the year end in a phased manner. In
 our opinion, the frequency of physical verification is reasonable
 having regard to the size of the Company and nature of its assets. As
 explained to us, no material discrepancies were noticed by the
 management on such physical verification.
 
 (c) The Company has not disposed off substantial parts of fixed assets
 during the year ended 31.03.2011 and the Going Concern status of the
 Company is not affected.
 
 2.  As the Company has not purchased / sold goods during the year ended
 31.03.2011 nor are there any stocks, requirement of reporting on
 physical verification of stocks or maintenance of inventory records
 does not arise.
 
 3.  As explained to us, the Company has not taken nor granted any
 loans, secured or unsecured to/from Companies, firms or other parties
 covered in the register maintained under Section 301 of the Companies
 Act, 1956. Accordingly clauses 4(iii) (a), (b), (c) and (d) of the
 Companies (Auditor''s Report ) Order, 2003 are not applicable to the
 Company.
 
 4.  Having regard to the nature of Company''s business and based on our
 scrutiny of Company''s records and the information and explanations
 received by us, we report that Company''s activities do not include
 purchase of inventory and sale of goods. In our opinion and according
 to the information and explanations given to us, there are adequate
 internal control procedures commensurate with the size of the Company
 and nature of its business with regards to purchase of fixed assets.
 During the course of our audit, we have not observed any continuing
 failure to correct major weaknesses in internal controls with regard to
 purchase of fixed assets.
 
 5.  Based on the audit procedures applied by us and the information and
 explanations provided by the management, we are of the opinion that
 there was no transaction during the year ended 31.03.2011 that need to
 be entered in the register maintained under Section 301 of the
 Companies Act 1956.
 
 6.  The Company has not accepted any deposits from the public.
 
 7.  In our opinion and according to the informations and explanations
 given to us, the Company has an internal audit system, which is
 commensurate with the size and nature of business of the Company.
 
 8.  The Company is non-banking financial company, the provisions under
 clause (d) of sub-section (1) of section 209 of the Companies Act, 1956
 pertaining to maintenance of cost records, does not apply.
 
 9.  In respect of statutory dues, on the basis of information and
 explanations given to us and on the basis of our examination of the
 records of the company, we report that:
 
 (a) The Company is generally regular in depositing with appropriate
 authorities undisputed statutory dues including Provident Fund,
 Investor Education and Protection Fund, Employees State Insurance,
 Income tax, Wealth tax, etc. as applicable to it and there is no
 undisputed amounts payable in respect of aforesaid dues outstanding for
 a period of more than six months as on 31st March 2011, as per the
 accounts of the company.
 
 (b) According to the records of the Company, there are no dues of
 Income tax / Wealth tax / Service tax, etc., which have not been
 deposited by the Company on account of any dispute, as per the accounts
 of the Company.
 
 10.  The Company has no accumulated losses at the end of year ended
 31.03.2011 and has not incurred any cash losses during the period
 covered by our audit and in the immediately preceding financial year.
 
 11.  Based on our audit procedures and according to the information and
 explanations given to us, we are of the opinion that the Company has
 not defaulted in repayment of dues to financial institutions, banks or
 debenture holders.
 
 12.  The Company has generally maintained adequate documents and
 records in respect of loans granted by it to various State Electricity
 Boards, State Generation Corporations, State Governments, CPSUs and
 Independent Power Producers.
 
 13.  The Company is neither a chit fund nor a nidhi / mutual benefit
 fund / society. Hence, the requirements of clause 4(xiii) of the
 ''Order'' do not apply to the Company.
 
 14.  As per records of the Company and according to the information and
 explanations provided by the management, the Company has been
 maintaining proper and timely records of the transactions and contracts
 for the dealings or trading in shares, securities, debentures and other
 investments. As per information and explanations provided we state
 that, all the Investments have been held by the Company in its own
 name.
 
 15.  The Company has given guarantees in connection with loans taken by
 others from banks or financial institutions. According to information &
 explanations given to us we are of the opinion that, the terms and
 conditions on the guarantee given are not prima-facie prejudicial to
 the interest of the Company.
 
 16.  According to the information and explanations given to us, the
 term loans obtained by the Company have generally been utilized for the
 purpose for which they were raised.
 
 17.  According to the information and explanations given to us and on
 an overall examination of the balance sheet of the Company, we are of
 the opinion that no funds raised on short-term basis that have been
 used for long-term investment by the Company.
 
 18.  According to the records of the Company and the information and
 explanations given to us, the Company has not made any preferential
 allotment of shares, to parties and Companies covered in the Register
 maintained under Section 301 of the Companies Act, 1956. Therefore the
 provisions of clause 4(xviii) of the Companies (Auditor''s Report )
 Order, 2003 are not applicable to the Company.
 
 19.  The company has during the year raised 4,70,722 number of long
 term infrastructure bonds of Rs. 5,000/- each aggregating Rs. 235.36
 Crore by public offer secured against the immovable property and
 receivables.
 
 20.  The company has during the year raised money by public issue of
 long term Infrastructure Bonds which were allotted on 31.03.2011. The
 company has disclosed in the Prospectus the proposed utilization of
 money raised.
 
 21.  Based upon the audit procedures performed and information and
 explanations given by the management, we report that no fraud on or by
 the Company has been noticed or reported during the course of our
 audit.
 
 For Raj Har Gopal & Co.                    For Mehra Goel & Co.
 
 Chartered Accountants                      Chartered Accountants
 
 Firm''s Regn. No. : 002074N                 Firm''s Regn No. : 0517N
 
 G.K.Gupta                                  R.K.Mehra
 
 Partner                                    Partner
 
 Membership No.: 081085                     Membership No.: 6102
 
 Place of Signature: New Delhi
 
 Date: 20.06.2011