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
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
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
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 off 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
i. Facilities granted to State/Central Sector entities are considered
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
(i) Loss Assets – The entire asset shall be written off. 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 :-
(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.
4.1. Depreciation on assets is provided 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
4.3. Depreciation on assets purchased during the year up to Rs 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.
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 fair 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 (reflecting 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.
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.
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 to a separate
13.2 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 &
14. TRANSACTION IN FOREIGN CURRENCY
14.1 Foreign Currency transactions are initially recorded at the
exchange rate prevailing on the date of transaction.
In respect of accounting periods commencing on or after the 1st April,
2011 , the exchange differences arising on reporting of long-term
foreign currency monetary items (having a term of twelve months or more
at the date of origination) at RBI reference rates prevailing at the
end of each reporting period or where the RBI reference rate is not
available for any currency, the closing rate for the same date quoted
on Bloomberg, different from those at which they were initially
recorded during the period, or reported in previous financial
statements, are accumulated in a Foreign Currency Monetary Item
Translation Difference Account and amortized over the balance period
of such long term monetary item, by recognition as income or expense in
each of such periods.
Short-term foreign currency monetary items (having a term of less than
twelve months at the date of origination) are translated at RBI
reference rates prevailing at the end of each reporting period or where
the RBI reference rate is not available for any currency, the closing
rate for the same date quoted on Bloomberg. The resultant exchange
fluctuation is recognized as income or expense in each of such periods.
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.
16. DERIVATIVE TRANSACTIONS
16.1 Derivative transactions include forwards, interest rate swaps,
cross currency swaps and currency and cross currency options to hedge
assets and liabilities.
16.2 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.
17. Contingent Liabilities and Commitments :
17.1 Contingent Liabilities not provided for in respect of:
(Rs. in Crores)
Particulars As at 31.03.2012 As at 31.03.2011
A-Claims against the
Company not acknowledged
as debts 59.84 26.88
- Letters of Comfort 4,696.95 1,352.70
The amount referred to in ''A'' above includes Rs. 7.75 Crores (Previous
year Rs. 4.99 Crores) which is pending in various courts including
arbitration cases and is dependent upon the outcome of settlement of
court/arbitration cases and also includes Rs. 52.09 Crores (Previous year
Rs. 21.75 Crores) against various demands raised by the Income Tax
Department including the cases pending in Delhi High Court.