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REC Ltd.

BSE: 532955 | NSE: RECLTD |

Represents Equity.Intra - day transactions are permissible and normal trading is done in this category
Series: EQ | ISIN: INE020B01018 | SECTOR: Finance - Term Lending Institutions

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539,894
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Jul 28, 14:04
147.45 2.30 (1.58%)
Volume
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2,638,157
10-Day
3,065,377
30-Day
4,282,375
4,014,012
  • Prev. Close

    145.15

  • Open Price

    145.20

  • Bid Price (Qty.)

    147.40 (727)

  • Offer Price (Qty.)

    147.45 (5999)

Annual Report

For Year :
2019 2018 2017 2016 2015 2014 2013 2012 2011

Auditor's Report

INDEPENDENT AUDITORS'' REPORT

To, the Members of REC Limited (Formerly Rural Electrification Corporation Limited) Report on the Audit of Standalone Ind AS Financial Statements

Opinion

We have audited the standalone Ind AS financial statements of REC Limited (Formerly Rural Electrification Corporation Limited) (the Company) which comprise the balance sheet as at 31st March, 2019, and the statement of profit and loss (including other comprehensive income) and the statement of change in equity and the statement of cash flows for the year then ended and notes to the standalone Ind AS financial statements including a summary of significant accounting policies and other explanatory information.

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone Ind AS financial statements give the information required by the Companies Act, 2013, (the Act)in the manner so required and give a true & fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended ,(lnd AS) and other accounting principles generally accepted in India, of the state of the affairs of the Company as at 31st March 2019, and profit (including other comprehensive income) and changes in equity and its cash flow for the year ended on that date.

Basis for Opinion

We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Act. Our responsibilities under those Standards are further described in the Auditor''s Responsibilities for the Audit of the Standalone Ind AS Financial Statements section of our report. We are independent of the Company, in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the standalone Ind AS financial statements under the provisions of the Act and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone Ind AS financial statements of the current period. These matters were addressed in the context of our audit of the standalone Ind AS financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the following matters described below to be the key audit matters to be communicated in our report:

S. No.

Key Audit Matter

Auditor''s Response

1.

Impairment of Loan Assets - Expected Credit Loss

(Refer Note No. 44.1.3 to the Standalone Ind AS Financial Statements read with accounting policy No. 3.11)

The Company follows a ''three-stage'' model for impairment based on changes in credit quality since initial recognition as summarized below:

Stage 1 includes loan assets that have not had a significant increase in credit risk since initial recognition or that have low credit risk at the reporting date.

Stage 2 includes loan assets that have had a significant increase in credit risk since initial recognition but that do not have objective evidence of impairment.

Stage 3 includes loan assets that have objective evidence of impairment at the reporting date.

The Expected Credit Loss (ECL) is measured at 12-month ECL for Stage 1 loan assets and lifetime ECL for Stage 2 and Stage 3 loan assets. ECL is the product of the Probability of Default, Exposure at Default and Loss Given Default, defined as follows:

Our Audit Procedure:

We have obtained an understanding of the guidelines as specified in Ind AS 109 Financial Instruments, various regulatory updates and the Company''s internal instructions and procedures in respect of the expected credit loss on and adopted the following audit procedures:

Evaluation and testing of the key internal control mechanisms with respect to the loan assets monitoring, assessment of the loan impairment including testing of relevant data quality, and review of the real data entered

Verification/ review of the documentations, operations/ performance and monitoring of the loan asset accounts, on test check basis of the large and stressed loan assets, to ascertain any overdue, unsatisfactory conduct or weakness in any loan asset account.

Review of the reports of the internal audit and any other audit / inspection mechanisms to ascertain the loan assets having any adverse indication / comments, and review of the control mechanisms of the Company to ensure the proper classification of such loan assets and expected credit loss thereof.

S. No.

Key Audit Matter

Auditor''s Response

1.

Impairment of Loan Assets - Expected Credit Loss (contd.)

Our Audit Procedure:

Probability of Default (PD) - The PD represents the likelihood of a borrower defaulting on its financial obligation, either over the next 12 months (12 months PD), or over the remaining lifetime (Lifetime PD) of the obligation.

Loss Given Default (LGD) - LCD represents the Company''s expectation of the extent of loss on a defaulted exposure. LGD varies by type of counterparty, type, and preference of claim and availability of collateral or other credit support.

Further, where REC and PFC(Holding company) are in Consortium for Stage III Loan accounts, LGD is taken on the following basis:

In cases where either REC or PFC is a lead lender, LGD %

calculated by the lead lender is adopted.

In cases where neither REC nor PFC is lead lender, higher of the LGD % worked out by REC and PFC is adopted.

Exposure at Default (EAD) - EAD is based on the amount of outstanding exposure as on the assessment date on which ECL is computed including undisbursed amounts in respect of Letters of Comfort.

Key assumptions used in measurement of ECL

The Company considers the date of initial recognition as the base date from which significant increase in credit risk is determined.

Cost Overrun and time delay in commissioning is considered for computing credit rating for under construction projects

Turnover Cap and Parent support is considered for assigning final ratings

Since the Company has a right to cancel any sanctioned but undrawn limits to any of its borrowers, EAD is assumed to be outstanding balance as on the reporting date.

The assumptions underlying the expected credit loss are monitored and reviewed on an ongoing basis.

In the event of any improper application of assumptions mentioned as above the carrying value of loan assets could be materially misstated either individually or collectively and in view of the significance of the amount of loan assets in the standalone Ind AS Financial Statements i.e. 90.84% of total assets, the impairment of loan assets thereon has been considered as Key Audit Matter in our audit.

2.

Fair valuation of Derivative Financial Instruments

Our Audit Procedure:

(Refer Note No. 7 to the standalone Ind AS Financial Statements read with accounting policy No. 3.10)

REC Limited being NBFC-IFC has primary business of lending funds to power sector. For the same, REC raises the funds through the mix of various instruments such as Institutional Bonds, Capital Gain Exemption Bonds, Term Loans, Commercial Paper, Foreign Currency Term Loans/Bonds, FCNR(B), ODA Loans etc depending upon various maturities based on the annual market borrowing programme approved by Board of Directors of REC.

Assessing the design, implementation and operating effectiveness of management''s key internal controls over classification, valuation, and valuation models of derivative instruments.

Obtained details of various financial derivative contracts as outstanding/ pending for settlement as on March 31, 2019 from management.

Information Other than the Standalone Ind AS Financial Statements and Auditor''s Report thereon

The Company''s Board of Directors is responsible for the other information. The other information comprises the information included in Board''s Report and annexures to Board Report but does not include the standalone Ind AS financial statements and our auditor''s report thereon. The Board''s Report and annexures to Board''s Report is expected to be made available to us after the date of this auditor''s report.

Our opinion on the standalone Ind AS financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audit of the standalone Ind AS financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the standalone Ind AS financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

When we read the Board''s Report and annexures to the Board''s Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Management''s Responsibility for the Standalone Ind AS Financial Statements

The Company''s Board of Directors is responsible for the matters stated in Section 134(5) of the Act with respect to the preparation of these standalone Ind AS financial statements that give a true and fair view of the financial position, financial performance (including other comprehensive income), changes in equity and cash flows of the Company in accordance the Indian Accounting Standards prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended ,(lnd AS) and other accounting principles generally accepted in India. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone Ind AS financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the standalone Ind AS financial statements, management is responsible for assessing the Company''s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

The Board of Directors are responsible for overseeing the Company''s financial reporting process.

S. No.

Key Audit Matter

Auditor''s Response

2.

Fair valuation of Derivative Financial Instruments (Contd.)

Our Audit Procedure:

Further, in respect of foreign currency borrowings, REC is exposed to foreign exchange risk and interest rate risk arising from foreign currency transactions, primarily with respect to the US Dollar, EURO and JPY.

To mitigate the Company''s exposure to foreign currency risk and interest rate risk, non-INR cash flows are monitored and derivative contracts are entered into in accordance with the Company''s board approved risk management policies and RBI guidelines.

The derivatives are accounted for on fair value (mark to market) in the books of account as prescribed by Ind AS.

We identified assessing the fair value of derivatives as a key audit matter because of the degree of complexity involved in valuing certain derivative instruments.

We involved our team to review the management''s underlying assumptions in estimating the fair valuation arrived at for those financial derivative contracts and the possible outcome of the underlying contracts accruing any profit or loss to the company. Our team also considered general market practices and other underlying assumptions in arriving at such fair valuation of the financial derivative contracts as outstanding/ pending for settlement as on March 31 , 2019.

We also obtained counterparty confirmation (which in this case were mostly banks with whom such financial derivative contracts have been entered into and independently compared the valuation so arrived at by the contracting banks

Additionally, we considered the effect of such fair valuation (marked to market) being charged to the Statement of Profit and Loss of the company in the near future.

Assessing whether the financial statement disclosures appropriately reflect the Company''s exposure to derivatives valuation risks with reference to the requirements of the prevailing accounting standards and Reserve Bank of India Guidelines.

Auditor''s Responsibilities for the Audit of the Standalone Ind AS Financial Statements

Our objectives are to obtain reasonable assurance about whether the standalone Ind AS financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor''s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone Ind AS financial statements.

As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the standalone Ind AS financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal financial controls relevant to the audit in order to design audit procedure that are appropriate in the circumstances. Under section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the Company has adequate internal financial controls system in place and the operating effectiveness of such controls.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Conclude on the appropriateness of management''s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company''s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor''s report to the related disclosures in the standalone Ind AS financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor''s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the standalone Ind AS financial statements, including the disclosures, and whether the standalone Ind AS financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone Ind AS financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor''s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

As required by the Companies (Auditor''s Report) order, 2016 (the order), issued by the Central Government of India in terms of sub-section(11) of section 143 of the Act, we give in the Annexure-A, a statement on the matters specified in paragraph 3 and 4 of the Order, to the extent applicable.

We are enclosing our report in terms of Section 143(5) of the Act, on the basis of such checks of the books and records of the Company as we have considered appropriate and according to the information and explanation given to us, in Annexure-B on the direction issued by Comptroller and Auditor General of India.

As required by section 143(3) of the Act, we report that:

a) We have sought and 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 it appears from our examination of those books.

c) The Balance Sheet, the Statement of Profit and Loss (including other comprehensive income), the Statement of Changes in Equity and the Cash Flow Statement dealt with by this Report are in agreement with the books of account.

d) In our opinion, the aforesaid standalone Ind AS financial statements comply with the Accounting Standards specified under Section 133 of the Act read with relevant rules.

e) Vide Notification No. G.S.R. 463(E) dated 5 June, 2015 issued by Ministry of Corporate Affairs, Government Companies have been exempted from applicability of the provisions of Section 164(2) of the Companies Act, 2013.

f) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate report in Annexure-C;

g) With respect to the other matters to be included in the Auditor''s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

(i) The Company has disclosed the impact of pending litigations on its financial position in its standalone Ind AS financial statements - Refer Note 39.1 to the standalone Ind AS financial statements;

(ii) The Company does not have any long term contracts including derivative contracts for which there are any material foreseeable losses;

(iii) There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

For G.S.Mathur& Co.

For A.R. & Co.

Chartered Accountants

Chartered Accountants

Firm Regn No. 008744N

Firm Regn. No. 002744C

S.C. Choudhary

Anil Gaur

Partner

Partner

M. No. 082023

M. No.017546

Place: New Delhi

Date : 24 May 2019

ANNEXURE-A TO THE INDEPENDENT AUDITOR''S REPORT

Referred to in Paragraph under ''Report on Other Legal and Regulatory Requirements'' section of our report of even date on the accounts of REC Limited (formerly Rural Electrification Corporation Limited) for the Year ended on 31st March 2019

(i) (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets (Property, Plant and equipment).

(b) According to the information and explanations given to us, the Company has the policy of verifying the fixed assets (Property, Plant and equipment) in a phased manner. Discrepancies arising from such physical verification have been suitably accounted for in the books of accounts. In our opinion, the periodicity of physical verification is reasonable having regard to the size of the Company and the nature of its assets.

(c) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the title deeds of immovable properties are held in the name of the Company except for the following:

Particulars

No. of cases

Gross Block

Net Block

Remarks

Freehold Land

1

68.31

68.31

Conveyance Deed by Haryana Urban Development Authority is yet to be executed.

Building

1

4.59

2.20

Conveyance Deed by Standing Committee of Public Enterprises is yet to be executed.

(ii) The Company being Non-Banking Financial Company (NBFC), does not has any inventory; as such this clause is not applicable.

(iii) According to the information and explanations given to us, the Company has not granted any loans, secured or unsecured to any Companies, firms or other parties covered in register maintained under section 189 of the Companies Act, 2013. Accordingly, clause 3(iii)(a), (b) and (c) of the Order are not applicable.

(iv) In our opinion and according to information & explanations given to us with respect to the provisions of Section 185 of the Act, the Company has not granted any loan or guarantee in accordance with Section 185.

Further, in our opinion and according to information & explanations given to us, the Company, being a Non-Banking Financial Company (NBFC), is exempt from the provisions of Section 186 of the Act and the relevant rules in respect of loans and guarantees. In respect of the investments, the Company has complied with the provisions of section 186 (1) of the Act.

(v) According to the information and explanations given to us, the Company has not accepted any deposits from public to which the provisions of Sections 73 to 76 or any other relevant provisions of the Companies Act, 2013 and the Rules framed thereunder,.

(vi) To the best of our knowledge and as explained, the Central Government has not prescribed the maintenance of cost records for the services of the Company under Companies (Cost Records and Audit) Rules, 2014, prescribed by the Central Government under Section 148 of the Companies Act, 2013. Accordingly, this clause of the order is not applicable to the Company.

(vii) (a) The Company is generally regular in depositing undisputed statutory dues including provident fund, employees'' state insurance, income-tax, goods & service tax, cess and any other statutory dues to the appropriate authorities. There were no undisputed statutory dues in arrears as at 31st March, 2019 for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us, the disputed statutory dues aggregating to Rs.19.07 crores have not been deposited on account of matters pending before appropriate authorities as detailed below:

(Rs in Crores)

Name of Statute

Nature of Dues

Amount Disputed

Amount paid/ refund adjusted

Net Amount Unpaid

Period to which the amount relates

Forum where dispute is pending

Income Tax Act, 1961

Fringe Benefit Tax

0.48

0.48

AY 2008-09

Commissioner of Income Tax (Appeals), Delhi

(Rs in Crores)

* Rs 18.17 crore, though received by the Company as refund due to appeal effects of favorable decisions of various appellate forums, is however being considered as unpaid on account of further appeals made by the Income Tax Department to higher authorities.

(viii) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the Company has not defaulted in repayment of loans or borrowing to a financial institution, bank, government or dues to debenture holders as at the Balance Sheet date.

(ix) The Company did not raise any money by way of initial public offer or further public offer. Money raised by the Company by way of debt instruments and term loans during the year were applied for the purposes for which it was raised.

(x) During the course of our examination of the books and records of the Company, carried out in accordance with the generally accepted auditing practices in India and according to the information and explanations given to us, we have neither come across any instance of any material fraud by the Company or on the Company by its officers or employees, noticed or reported during the year, nor have we been informed of any such case by the Management.

(xi) According to the information and explanations given to us, Central Government has exempted the Government Companies from the provisions of Section 197. Accordingly, this clause of the Order is not applicable to the Company.

(xii) According to the information and explanations given to us, the Company is not a Nidhi Company. Accordingly, this clause of the Order is not applicable to the Company.

(xiii) According to the information and explanations given to us and on the basis of our examination of the records of the Company, transactions with the related parties are in compliance with section 177 and 188 of the Act where applicable and the necessary disclosures have been made in the standalone Ind AS financial statements etc., as required by the applicable accounting standards.

(xiv) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year.

Name of Statute

Nature of Dues

Amount Disputed

Amount paid/ refund adjusted

Net Amount Unpaid

Period to which the amount relates

Forum where dispute is pending

Income Tax Act, 1961

Income Tax and Interest

84.70

84.70

_

AY-2006-07

Commissioner of Income Tax (Appeals), Delhi

AY-2009-10

AY-2011-12

AY-2012-13

AY 2013-14

AY 2014-15

AY 2015-16

AY-2016-17

Income Tax Act, 1961

Income Tax and Interest

12.19

4.11

8.09*

AY 2008-09

Income Tax Appellate Tribunal, Delhi

AY 2012-13

Income Tax Act, 1961

Income Tax and Interest

2.01

0.67

1.33*

AY 2006-07

Delhi High Court

AY 2009-10

Income Tax Act, 1961

Income Tax and Interest

17.06

8.31

8.75*

AY 1999-00

Supreme Court

AY 2003-04

AY 2004-05

Income Tax Act, 1961

Tax Deducted at Source

0.06

0.06

FY 2007-08 to 2018-19

CPC, TDS

Chapter V of Finance Act, 1994

Service Tax, Penal Interest u/s 73(4A)

0.36

0.36

FY 2008-09 to FY 2011-12

CESTAT, Delhi

Total

116.86

97.79

19.07

(Rs in Crores)

(xv) According to the information and explanations given to us and based on our examination of the records of the Company, the Company has not entered into non-cash transactions with directors or persons connected with them. Accordingly, this clause of the Order is not applicable.

(xvi) According to the information and explanations given to us and based on our examination of the records of the Company, the Company, being a NBFC, is required to be registered under section 45-IA of the Reserve Bank of India Act, 1934. Consequent upon change of name of the Company from Rural Electrification Corporation Limited, to REC Limited, RBI has issued fresh certificate of reqistration bearinq no. 14.000011 dated 28th November 2018 with the name of REC Limited.

For G.S. Mathur & Co.

For A.R. & Co.

Chartered Accountants

Chartered Accountants

Firm Regn No. 008744N

Firm Regn. No. 002744C

S.C. Choudhary

Anil Gaur

Partner

Partner

M. No. 082023

M. No. 017546

Place: New Delhi

Date : 24 May 2019

ANNEXURE- B TO THE INDEPENDENT AUDITOR''S REPORT

Referred to in Paragraph under ''Report on Other Legal and Regulatory Requirements'' Section of Our Report of Even Date on the Accounts of REC Limited (formerly Rural Electrification Corporation Limited) for the Year ended on 31st March 2019

SI.

No.

Directions

Action Taken

Impact on Standalone Ind As Financial Statements

A.

Directions

1.

Whether the Company has system in place to process all the accounting transactions through IT system? If yes, the implications of processing of accounting transactions outside IT system on the integrity of the accounts along with the financial implications, if any, may be stated.

The Company has upgraded to ERP R12 version during the current year. All the accounting, including at Regional and State offices is done through the centralized ERP system.

No impact on the standalone Ind AS Financial Statements

2.

Whether there is any restructuring of an existing loan or cases of waiver/write off of debts /loans/interest etc. made by a lender to the Company due to the Company''s inability to repay the loan? If yes, the financial impact may be stated.

There has been no such case and the company has been servicing its debt and borrowings obligations.

No impact on the standalone Ind AS Financial Statements

3.

Whether funds received/receivable for specific schemes from central/ state agencies were properly accounted for/ utilized as per its term and conditions? List the cases of deviation.

The Company has not received any funds for specific schemes from central/state agencies for utilisation.

No impact on the standalone Ind AS Financial Statements

For G.S. Mathur& Co.

For A.R.& Co.

Chartered Accountants

Chartered Accountants

Firm Regn No. 008744N

Firm Regn. No. 002744C

S.C. Choudhary

Anil Gaur

Partner

Partner

M. No. 082023

M. No. 017546

Place: New Delhi

Date : 24 May 2019

ANNEXURE- C TO THE INDEPENDENT AUDITOR''S REPORT

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 (the Act)

We have audited the internal financial controls over financial reporting of REC Limited (formerly known as Rural Electrification Corporation Limited) the Company as of 31 March 2019 in conjunction with our audit of the standalone Ind AS financial statements of the Company for the year ended on that date.

Management''s Responsibility for Internal Financial Controls

The Company''s management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India (''ICAI''). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to Company''s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Act.

Auditors'' Responsibility

Our responsibility is to express an opinion on the Company''s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls over Financial Reporting (the Guidance Note) and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Act, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Control and, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the standalone Ind AS financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company''s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A Company''s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of standalone Ind AS financial statements for external purposes in accordance with generally accepted accounting principles. A Company''s internal financial control over financial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of standalone Ind AS financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company''s assets that could have a material effect on the standalone Ind AS financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion, the Company has, in all material aspects, an adequate internal financial controls system, except (i) strengthening of procedures for monitoring of utilization of funds disbursed to the borrowers, (ii) rotation of duties amongst some of the staff as per HR Policy to be implemented, over financial reporting and such internal financial controls over financial reporting were operating effectively as of 31 March 2019, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India.

We have considered the areas of improvement identified which needs further strengthening as reported above in determining the nature, timing, and extent of audit tests applied in our audit of the 31 March 2019 standalone Ind AS financial statements of the Company. However, these areas of improvement do not affect our opinion on the standalone Ind AS financial statements of the Company.

For G.S. Mathur & Co.

For A.R.& Co.

Chartered Accountants

Chartered Accountants

Firm Regn No. 008744N

Firm Regn. No. 002744C

S.C. Choudhary

Anil Gaur

Partner

Partner

M. No. 082023

M. No. 017546

Place: New Delhi

Date : 24 May 2019