(a) 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) in India, which comprise applicable statutory provisions, relevant provisions of the Companies Act, 1956 and 2013, applicable regulatory norms/guidelines prescribed by the Reserve Bank of India (RBI), Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI), and prevailing practices.
(b) USE OF ESTIMATES
The preparation of Financial Statements requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as on the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates.
SIGNIFICANT ACCOUNTING POLICIES
2. RECOGNITION OF INCOME/EXPENDITURE
2.1 Income and expenses (except as stated below) are accounted for on accrual basis.
2.1.1 In accordance with the prudential norms which are applicable to the Company, income on non-performing assets is recognized in the year of its receipt and any unrealized income recognized in respect of such assets 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.
2.1.3 In accordance with the prudential norms which are applicable to the Company, income from dividend on shares of corporate bodies and units of mutual funds are taken into account on cash basis. Provided that the income from dividend on shares of corporate bodies is taken into account on accrual basis when such dividend has been declared by the corporate body in its annual general meeting and the right to receive payment is established.
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 account.
2.5 In accordance with the prudential norms which are applicable to the Company, income from bonds and debentures of corporate bodies is 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.
2.6 Recoveries in borrower accounts are appropriated as per the loan agreements.
2.7 Prepaid expenses up to ''''5,000/- are charged to natural heads of account.
3. TANGIBLE ASSETS/DEPRECIATION
3.1 Tangible 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 realizable value.
3.2 Additions to tangible 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 tangible assets is provided on, original cost of the asset reduced by its residual value estimated from time to time, as per written down value method, over the useful lives of the assets as prescribed in Schedule II to the Companies Act, 2013 except for Cell Phone where useful life has been taken as 2 years as estimated by the Company.
3.4 Items of tangible assets acquired during the year costing up to ''''5,000/- are fully depreciated.
4. INTANGIBLE ASSETS / AMORTIZATION
4.1 1ntangible assets such as software are shown at the cost of acquisition less accumulated amortization, and amortization is done under straight-line method over the life of the assets estimated by the Company as 5 years.
5.1 In accordance with the prudential norms which are applicable to the Company, quoted current investments are valued category-wise, at lower of cost or market value.
5.2 Unquoted Equity shares held in a borrower company, on account of conversion of loan asset classified as non-performing asset, are considered as current investments and such Equity Shares are valued at Rupee One. Depreciation in value in these Equity shares is not set off against the appreciation in any other securities held under the ‘current investment'''' category.
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.
6. ASSET CLASSIFICATION AND PROVISIONS
6.1 BASIS OF ASSET CLASSIFICATION :
Loans & other credits and lease assets are classified into the following classes, namely:
6.1.1 Standard Assets: Standard asset means an asset 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) The classification of project loans as a sub-standard asset is also done as per the RBI norms for restructured advances.
(iii) A lease asset, in respect of which installment / rental remains over due for a period of six months or more, has been classified as non-performing asset. However, with effect from 31.03.2018, a lease asset will be classified as NPA if it remains overdue for a period of 3 months or more.
6.2.2 Provision on Standard Assets is made as per RBI norms whereby the Company is required to enhance provision in a phased manner from 0.30% on 31.03.2016 to 0.35% by 31.03.2017 and 0.40% by 31.03.2018.
6.2.3 Provision on hire purchase and lease assets is as per para 13(2) of the “Non-Banking Financial Company - Systemically 1mportant Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016" as amended from time to time.
6.3 PROVISIONING AGAINST RESTRUCTURED LOANS
6.3.1 For the following cases, the provisioning against Restructured Standard Assets is made as per RBI norms, including provision on diminution in fair value:
a) new project loans to generating companies restructured w.e.f. 01.04.2015, where provisioning is at the rate of 5%.
b) all loans to generating companies categorized as restructured as per RBI restructuring norms other than (a) above (as per RB1 in case of stock of outstanding restructured loan, the provisioning has to be increased in a phased manner i.e. commencing with a provision of 2.75% with effect from 31.03.2015 and shall reach 3.5% by 31.03.2016, 4.25% by 31.03.2017 and 5% by 31.03.2018).
6.3.2 RBI has exempted the Company from application of RBI restructuring norms for project loans to Transmission & Distribution, Renovation & Modernization and Life Extension projects and also the hydro projects in Himalayan region or affected by natural disasters for a period of 3 years i.e. till 31.03.2017. Accordingly, where facilities to such projects is partly secured, a provision to the extent of shortfall in the security available, is made while restructuring and/or rescheduling and/or renegotiation of the loans apart from the provision required on present value basis.
6.4 For the purpose of asset classification and NPA provisioning, facilities granted to Government Sector and Private Sector Entities are considered borrower-wise, other than Government Sector loans which are considered on project-wise basis provided cash flows from each project are separately identifiable and applied to the same project.
Further, in case of a Government Sector account, if the project has not commenced commercial operation within the date of commencement of commercial operation (DCCO) envisaged at the time of financial closure (or revised DCCO within the permissible thresholds as given in RBI Norms for restructured advances), the classification is done project-wise instead of borrower-wise (till 31.03.2022 as exempted by RBI).
7. FOREIGN CURRENCY TRANSACTIONS
7.1 The following transactions are accounted for at the exchange rates prevailing on the date of the transaction as per Accounting
(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 currency.
(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/borrowing.
7.3 In case of loan from KFW, Germany, exchange difference is transferred to Interest Differential Fund Account - KFW as per loan agreement.
7.4 In accordance with the paragraph 46A of the Accounting Standard (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.
8.3 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.
8.4 Derivative contracts not covered by Accounting Standard 11 and covered under Guidance Note on Accounting for Derivative Contracts issued by 1CA1 are measured at fair value with changes in fair value being recognized in the statement of profit and loss.
9. ACCOUNTING OF GOVERNMENT OF INDIA (GOI) SCHEMES
9.1 The Company acts as a channelizing / nodal agency for pass-through of loans / grants / subsidies to beneficiaries under various schemes of the Govt. of India. The Company receives the amount on such account and disburses it to the eligible entities in accordance with the relevant schemes.
9.1.1 Where funds are received in advance from Govt. of India, the same are shown as current liabilities till the payments are released to the beneficiary.
9.1.2 The income on account of fee etc. arising from implementation of such GoI schemes is accounted for in accordance with the respective scheme / GoI directives as applicable.
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 statement of Profit & Loss, at rates specified in the Scheme.
11. INCOME/RECEIPT/EXPENDITURE ON SUBSIDIARIES
11.1 Expenditure incurred on the subsidiaries is debited to the account “Amount recoverable from concerned subsidiary".
11.2 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 respective subsidiaries.
11.3 Interest on amount recoverable from subsidiaries (promoted as SPVs for Ultra Mega Power Projects) 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 the Company.
11.4 Amounts received by subsidiaries as commitment advance from power procurers are parked with the Company as interoperate loans and interest is provided on unused portion of these loans at the mutually agreed interest rates.
11.5 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.
12. EMPLOYEE BENEFITS
12.1 PROVIDENT FUND, GRATUITY, PENSION FUND AND POST RETIREMENT BENEFITS
Company''''s contribution paid / payable during the financial year towards provident fund and pension fund are charged in the statement of Profit and Loss. 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.
12.2 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.
13. INCOME TAX
13.1 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 substantively enacted 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 realized.
13.2 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.