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 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 – 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 –
 
 (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.