18.16 The Company has not received any fund which are material either individually or in the aggregate from any person(s) or entity(ies), including foreign entities ("Funding Parties"), with the understanding, whether recorded in writing or otherwise, that the company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
The Company has issued Perpetual Debt Instruments (PDI) of H 475 crore during the year having face value of H 1 crore
each, with no maturity and callable only at the option of the Company after minimum 10 years with prior approval of RBI.
The claims of the holders of the PDI are:
(a) Superior to the claims of the holders of the equity shares issued by the Company and perpetual non-cumulative
preference shares, if any, of the Company; and
(b) Subordinated to the claims of all other creditors of the Company (but pari-passu inter se the holders of the PDIs).
The Company may defer the payment of Coupon, if:
(i) The capital to risk assets ratio ("CRAR") of the Company is below the minimum regulatory requirement prescribed by RBI; or
(ii) the impact of such payment results in CRAR of the Company falling below or remaining below the minimum regulatory requirement prescribed by RBI. Further, it also has certain unique features which, inter-alia, grant PFC, in consultation with RBI a discretion in terms of writing down the principal/interest, to skip interest payments, to make an early recall etc. without commensurate right for investors to legal recourse, even if such actions might result in potential loss to investors. As these securities are perpetual in nature and claim of PDI holders is subordinate to claim of all other creditors and further as the Company does not have an unconditional right not to pay the coupon, these have been classified under subordinated liabilities.
23.1 Rights, preferences and restriction attached to equity shares
The Company had issued equity shares having par value of H10 per share. The holders of the equity shares are entitled to receive dividends as declared from time to time and are entitled to voting rights proportionate to their shareholding at the meeting of the shareholders.
23.4 Shares reserved for issue under options and contract/commitment for the sale of shares or disinvestment, including the terms and amount: Nil
23.5 During the period of last 5 years, the Company has issued 66,00,20,352 equity shares of H 10/- each as bonus shares in the ratio of 1:4 during FY 2023-24 and has not bought back any shares.
23.6 Terms of any securities convertible into equity shares issued along with the earliest date of conversion in descending order starting from the farthest such date: Nil
23.7 Calls unpaid (showing aggregate value of calls unpaid by directors and officers): Nil
23.8 Forfeited shares (amount originally paid up): Nil
23.9 Refer Note 39 for Capital Management.
24.1 Nature, purpose and movement of reserves:
(i) Securities Premium:
It represents amount of premium received on issue of equity share capital net of expense incurred on issue of equity shares. This amount can be utilised in accordance with the provisions of the Companies Act, 2013.
(iii) Special Reserve created u/s 45-IC of Reserve Bank of India Act, 1934:
It represents transfer from retained earning @ 20 % of net profit after tax for the year as disclosed in profit and loss account and before any dividend is declared. No appropriation is allowed to be made from the reserve fund except for the purpose as may be specified by the Reserve Bank of India (RBI) from time to time and further, any such appropriation is also required to be reported to the RBI within 21 days from the date of such withdrawal.
(iv) Reserve for Bad & doubtful debts u/s 36(1)(viia)(c) of Income-Tax Act,1961:
It has been created to enable the Company to avail income tax deduction. The reserve so maintained is primarily utilised for adjustment of actual bad debts or part thereof. As per section 36(1)(viia)(c) of Income Tax Act, 1961, the Company is eligible to avail deduction in respect of any provision/reserve made for bad and doubtful debts, not exceeding five percent of the total income as per Income Tax Act.
It is maintained in order to enable the Company to avail tax benefits. As per section 36(1)(viii) of the Income Tax Act, 1961, the company is eligible for deduction not exceeding 20% of profit derived from long term finance activity, provided such amount is transferred and maintained in special reserve account.
2025
6.21
5.45
0.08
(vi) Interest Differential Reserve - KFW Loan:
It represents difference between the interest due and interest paid on KFW loan as per the loan agreement. Exchange gain/loss upon re-statement of loan balance, in accordance with the terms of the foreign currency borrowing from KFW, is adjusted against this reserve. The Company is not required to repay the unadjusted balance in the reserve after complete repayment of KFW Loan. Any unadjusted balance in the reserve after complete repayment of KFW Loan shall be used for further lending by the Company after consulting with KFW.
(vii) General Reserve:
General Reserve includes the amounts appropriated from the profits of the Company before declaration of dividend (as was required under erstwhile Companies Act, 1956). It also includes the amount transferred from Statutory Reserves on utilisation/reversal of such Reserves. Further the Company appropriates profit to General Reserve in order to avail full eligible deduction of Special Reserve under Section 36(1)(viii) of the Income Tax Act, 1961.
It is created where the impairment allowance under Ind AS 109 is lower than the provisioning required under Income Recognition, Asset Classification and Provisioning (IRACP) norms issued by RBI, to the extent of the difference. No withdrawals shall be permitted from this reserve without prior permission from the Department of Supervision of the Reserve Bank. Refer Note 40.1.7 for further details.
(x) Reserve for Equity Instruments through Other Comprehensive Income:
The Company elected to recognise changes in the fair value of certain investment in equity instruments through other comprehensive income. It represents cumulative gains and losses arising on the revaluation of equity instruments measured at fair value through other comprehensive income. When the asset is derecognized, amounts in the reserve are subsequently transferred to retained earnings and not to standalone statement of profit and loss. Dividends on such investments are recognized in statement of profit & loss unless the dividend clearly represents a recovery of part of the cost of the investment.
During the current year ended 31.03.2026, an amount of H 3,076.69 crores (Previous year H 3,002.78 crore) has been paid to Government of India as dividend (being proportionate share in final dividend for the FY 24-25 and interim dividend for the FY 25-26 ).
(ii) Events occurring after Balance Sheet date:
Board of Directors in its meeting held on 13.05.2026 has proposed final dividend @ 39.50% on the paid up equity share capital i.e. H 3.95/- per equity share of H 10/- each for the FY 2025-26 subject to approval of shareholders in ensuing Annual General Meeting.
(iii) The dividend paid/proposed is in compliance with the provisions of section 123 of Companies Act 2013, as applicable
35. CORPORATE SOCIAL RESPONSIBILITY
In accordance with the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 notified w.e.f. 22.01.2021, any unspent amount pursuant to any ongoing project shall be transferred to unspent CSR Account in any scheduled bank within a period of thirty days from the end of the financial year, to be utilised within a period of three financial years from the date of such transfer, after which any unspent CSR amount, if any shall be transferred to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year. Any unspent CSR amount, other than for any ongoing project, shall be transferred to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year. Further, if the company spends an amount in excess of the requirement under statute, the excess amount may be carried forward and set off in three succeeding financial years against the amount to be spent.
As the notification was made effective during FY 2020-21, the Company complied with the amended provisions of Section 135 of the Companies Act, 2013 with effect from the FY 2020-21. Accordingly, the unspent CSR amount upto 31.03.2020 would continue to be dealt with in accordance with the pre-amendment framework.
35.2 Unspent CSR amount of H 253.51 crore (Previous year H 81.92 crore) pertains to multi-year (ongoing) projects where payment is made in tranches upon achievement of milestone. Accordingly, the said amount has been deposited in unspent CSR Account with scheduled bank as per requirements of Section 135(6) of Companies Act, 2013. The cumulative amount of unspent CSR expense as on 31.03.2026 is H 449.59 crore (previous year H 267.06 crore).
39. CAPITAL MANAGEMENT
The Company maintains a capital base that is adequate to support the Company's risk profile, regulatory and business needs. The Company sources funds from domestic and international financial markets, inter-alia leading to diverse investor base and optimised cost of capital. Refer Note 17, 18 and 19 for details w.r.t. sources of funds and refer Standalone Statement of Changes in Equity for details w.r.t. Equity.
As contained in Reserve Bank of India (Non-Banking Financial Companies - Prudential Norms on Capital Adequacy) Directions, 2025, as amended from time to time, the Company is required to maintain a capital ratio consisting of Tier I and Tier II capital which shall not be less than 15% of its aggregate risk weighted assets on-balance sheet and of risk adjusted value of off-balance sheet items. Out of this, Tier I capital shall not be less than 10%. The Company regularly monitors the maintenance of prescribed levels of Capital to Risk Weighted Assets Ratio (CRAR). Further, with regard to capital restructuring, the Company is also guided, inter alia, by guidelines on "Capital Restructuring of Central Public Sector Enterprises" issued by Department of Investment and Public Asset Management (DIPAM), Ministry of Finance, Department of Public Enterprises in respect of issue of bonus shares, dividend distribution, buy back of equity shares etc.
39.3 Dividend Distribution Policy
The Company has a well-defined dividend distribution policy. Dividend distribution policy focuses on various factors including but not limited to GoI guidelines, RBI circulars/guidelines, future capital expenditure plans, profits earned during the financial year, cost of raising funds from alternate sources, cash flow position and applicable taxes if any, subject to the guidelines as applicable from time to time.
Being a Central Public Sector Enterprise, the Company is required to comply with the guidelines on "Capital Restructuring of Central Public Sector Enterprises" issued by DIPAM, Govt. of India. As per DIPAM Guidelines, every CPSE would pay minimum annual dividend of 30% of PAT or 4% of the net-worth, whichever is higher subject to the limit, if any, under any extant legal provision. Financial sector CPSEs like NBFCs (applicable to PFC) may pay minimum annual dividend of 30% of PAT subject to the limit, if any, under any extant legal provisions.
Further, DIPAM advised that CPSEs may consider paying interim dividend every quarter after quarterly results, or at least twice a year. Further, all listed CPSEs should consider paying at least 90% of projected annual dividend, in one or more instalments, as interim dividend.
However, the Company may also consider various internal factors which inter-alia includes net-worth and capacity to borrow, CAPEX/business expansion needs; additional investments in subsidiaries/associates of the Company etc. The detailed Dividend Distribution Policy is available on the Company's website. For details of dividend paid/ recommended during the year, refer Note 24.2.
40. FINANCIAL RISK MANAGEMENT
The Company is exposed to several risks which are inherent to the environment that it operates in. The Company is into business of extending financial assistance to power, logistics and infrastructure sector. The principal risks which are inherent with the Company's business model and from its use of financial instruments include credit risk, liquidity risk and market risk (currency risk, interest rate risk and price risk).
The following table broadly explains sources of risks which the Company is exposed to and how it manages the same and related impact in the financial statements:
For managing these risks, the Company has put in place an integrated enterprise-wide risk management mechanism to ensure that these risks are monitored carefully and managed efficiently. In order to augment risk management practices in the Company, the Company has a Chief Risk Officer (CRO) who is involved in the process of identification, measurement and mitigation of risks. The Company also has a Board level Risk Management Committee (BLRMC), whose main function is to monitor management of risks in the company and to make recommendations to the Board of Directors for taking up various risk management activities. The Chief Risk Officer (CRO) is a permanent invitee to all the meetings of Risk Management Committee. The risk management approach i.e., Company's objectives, policies and processes for identifying, measuring and managing each of above risk is set out in the subsequent paragraphs.
(a) Credit risk on cash and cash equivalents and other bank balances is limited as these are held with scheduled commercial public sector banks, high rated private sector banks and mutual fund houses, which meets the empanelment criteria as set out in the Company's policy. The Company has also set exposure limits for deployment of funds in various types of instruments with respective banks/mutual fund houses.
For investments, the Company manages its exposure to credit risk by periodically monitoring such investments, and applying the appropriate valuation techniques to arrive at the carrying value. The Company carries an impairment loss allowance of H 73.39 crore on its investments as at 31.03.2026 (as at 31.03.2025 H 72.95 crore).
(b) Credit risk on other financial assets and trade receivables is evaluated based on Company's knowledge of the credit worthiness of those parties and managed by monitoring the recoverability of such amounts. The Company carries an impairment loss allowance of H 22.57 crore on its other financial assets and trade receivables as at 31.03.2026 (as at 31.03.2025 H 29.90 crore).
(c) The Company is exposed to credit risk primarily through its lending operations. The same is explained in the paragraphs below.
40.1.1 Credit Risk Management for Lending Operations
The Company has put in place key policies and processes for managing credit risk, which include formulating credit policies, guiding the Company's appetite for credit risk exposures, undertaking reviews & objective assessment of credit risk, and monitoring performance and management of portfolios. All the procedures and processes of the Company are ISO 9001:2015 certified.
The credit risk management covers two key areas, i.e., project appraisal & project monitoring. The Company selects the borrowers in accordance with the Company's approved credit policy, which inter alia, defines factors to be considered for rating of the borrower/project. The Company's customer selection procedure assesses viability of project along with that of its promoting entity. Rate of interest and maximum admissible exposure is, inter alia, based on internal rating awarded by the Company.
(i) Appraisal of Projects
The Company follows a systematic, institutional project appraisal process to assess the credit risk before financing any project.
(a) Appraisal for Private Sector Projects
For private sector projects, a two-stage appraisal process is followed. Initially a preliminary appraisal is carried out in order to decide the prima facie preparedness of the project to be taken up for detailed appraisal. Detailed appraisal is carried out for those projects shortlisted on the basis of preliminary appraisal.
The Company along with evaluation of project viability also assesses the ability of its promoter(s) to contribute equity and complete the project. The Company follows an integrated rating methodology whereby Integrated Rating (IR) is calculated using the weighted average of the scores of the project grading and promoter grading. Based on the IR of the project, terms and conditions (including security package, interest rate and debt-equity ratio) are stipulated.
(b) Appraisal for State Sector Projects
State sector projects are taken up for detailed appraisal to determine, inter-alia, if they are techno economically/financially sound and compatible with integrated power development & expansion plans of the State.
The Company classifies state power generation utilities into various risk rating grades based on the evaluation of utility's performance against specific parameters covering operational and financial performance. With regards to transmission utilities, the Company adopts the categorisation of its subsidiary RECL as per its policy. With regard to State Power Distribution utilities including integrated utilities, the Company's categorisation policy provides for adoption of Ministry of Power's (MoP's) Integrated Ratings by aligning such ratings/grading with that of Company's rating structure. The categorization of Borrowers in the Logistics and Non-Power Infrastructure sector is carried out considering the strengths and weaknesses of the project.
Such categories/ratings are used to determine security requirements and pricing of loans given to the State Sector Borrowers. The Company also has a mechanism in place for monitoring the exposure to borrowers.
The detailed project appraisal involves technical and financial appraisal covering various aspects such as project inputs, statutory and non-statutory clearances, contracts, implementation plan, project linkages, financial modelling/projections, calculation of returns, sensitivity analysis etc.
After detailed analysis indicated above, the overall viability of the project and entity is assessed and various conditions in the form of pre-commitment, pre-disbursement and other conditions are stipulated so as to ensure tying up of funds (debt and equity both), all physical inputs, appropriateness of all the contracts, compliance of conditions precedent in agreements/contracts/statutory and non- statutory clearances related to the project etc. and in general to ensure bankability of the project & protection of the interest of the Company as a lender for timely servicing of debt. The Company has an authorisation/delegation structure for the approval of credit facilities commensurating with the size of the loan."
(ii) Security and Covenants
The Company stipulates a package of security measures/covenants to mitigate risks during the construction and post COD (commercial operation date) stage of the project. Based on the risk appetite and appraisal of the project, the Company adopts a combination of the following measures:
(a) Primary Security -Charge on Project Assets and/or State Government Guarantees
(b) Collateral Securities - Corporate guarantee, Personal guarantee of promoters, Pledge of shares, Charge on assets/revenues of group/other companies
(c) Payment Security Mechanism - Escrow Account/Letter of Credit, Trust and Retention Account (TRA)
(d) Other covenants - Assignment of all project contracts, documents, insurance policies in favour of the Company, Upfront equity requirement, Debt Service Reserve Account (DSRA), Debt Equity ratio, shareholders' agreements, financial closure, etc.
(iii) Project Monitoring
The Company has comprehensive project/loan monitoring guidelines that captures aspects relating to monitoring, tracking of project construction, implementation, identifies risks where intervention is required to minimize the time/cost overruns/consequent slippages in disbursements and including progress of commissioned projects.
For State sector projects, monitoring is being carried out on the basis of project progress details obtained regularly from borrowers, site visits, discussions with the borrowers, information/reports available on Central Electricity Authority's (CEA) website etc.
For private sector, where the Company is Lead Financial Institution (FI), the Company engages Lenders' Engineers (LEs)/Project Management Agency (PMA) (a single entity, thereby facilitating better coordination of project monitoring activities)/Lenders' Financial Advisors (LFAs), which are independent agencies to act on behalf of various lenders/consortium members. The PMA/LEs conduct periodic site visits, review relevant documents, discusses with the borrowers and submit its reports on progress of the project. LFAs submit the statements of fund flow and utilization of funds in the project periodically. In cases the Company is not the lead FI, the tasks related to PMA/LEs and LFAs services are coordinated with the concerned lead lender.
Also, the consolidated periodic progress report of certain projects is prepared comprising important observations/ issues viz. areas of concern, reasons for delay, issues affecting project construction/implementation etc. and is reviewed by the Company on a regular basis.
The Company continuously monitors delays and/or default of borrowers and their recoverability. On occurrence of default in the borrower's account, the Company initiates necessary steps which may involve action(s) including, but not limited to, Special Mention Account (SMA) reporting to RBI, credit information reporting to Central Repository of Information on Large Credits (CRILC) etc., regularization of the account by recovering all over dues, invocation of guarantees/securities to recover the dues, conversion of loan into equity as per loan agreement, restructuring of loan account, formulating resolution plan with the borrower, change in ownership, Corporate Insolvency Resolution Process (CIRP) under IBC -2016, sale of the exposures to other entities/investors, other recovery mechanisms like referring the case for legal action before Debt Recovery Tribunal (DRT), SARFAESI, etc. and other actions as specified under regulatory/legal framework.
40.1.2 Credit Risk Measurement - Impairment Assessment for Lending Operations
(i) Staging of loans
Ind-AS 109 outlines a three staged model for measurement of impairment based on changes in credit risk since initial recognition. For classification of its borrowers into various stages, the Company uses the following basis:
• A financial asset that is not credit impaired on initial recognition is classified in 'Stage 1'.
• If a significant increase in credit risk (SICR) is identified, the financial asset is moved to 'Stage 2'.
An assessment of whether credit risk has increased significantly since initial recognition is performed at each reporting date by considering the change in the risk of default occurring over the remaining life of the financial assets. In accordance with Ind AS 109 'Financial Instruments', the Company has applied rebuttable presumption that considers more than 30 days past due (DPD) as a parameter for determining significant increase in credit risk. Also, in case of state sector borrowers, deterioration in the internal rating family of the borrower by 2 or more notches is considered to determine significant increase in credit risk. In case of private sector borrowers, other factors like downgradation in external credit rating to 'C-', restructuring resulting in asset downgradation as per IRACP norms, delay in commissioning of project for more than 4 years are also considered. In case of inventment, apart from DPD, if the rating of the instrument falls below the lowest investment grade (i.e., BBB-), it is considered to have experienced a significant increase in credit risk.
• If the financial asset is credit-impaired, it is moved to 'Stage 3' category.
In case of Stage 3 financial assets, after implementation of the resolution plan, the financial asset is upgraded and classified as Stage 2 for four quarters from the date of implementation of resolution plan.
In case of Stage-3 assets, where there is change in ownership either through NCLT or otherwise, such asset shall be upgraded to Stage-1 immediately after implementation of the resolution plan.
(ii) Default
In accordance with Ind AS 109 'Financial Instruments', the Company considers the rebuttable presumption to define a financial asset as in default, i.e. when the loan account is more than 90 days past due on its contractual payments. Credit impaired financial assets are aligned with the definition of default. Investment(s) is considered to be credit impaired when apart from DPD, the rating of the issuer company is downgraded to junk status/ default, or when the company files for bankruptcy.
The Company recognises impairment loss allowance for the financial assets in accordance with a Board-approved expected credit loss (ECL) policy. ECL is measured on either a 12 month or lifetime basis depending on whether there is significant increase in credit risk since initial recognition. ECL is the product of Probability of default (PD), Loss Given Default (LGD) and Exposure at Default (EAD). The Company has appointed an independent agency, ICRA Analytics , for assessment of ECL in accordance with Ind AS 109 'Financial Instruments'. The brief methodology of computation of ECL is as follows:
(a) Probability of default (PD)
PD is an estimate of the likelihood of default over a given time horizon. It is estimated as at a point in time. For assessing 12-month PD, probability of a loan defaulting in next 12 months is ascertained and similarly for assessing lifetime PD, probability of a loan defaulting in its remaining lifetime is ascertained.
For Stage 1 accounts, 12 months PD is used.
For Stage 2 (significantly increased credit risk accounts), Lifetime PD is used.
For Stage 3 (credit impaired accounts), 100% PD is taken."
12-month PD: In case of State Sector borrowers, for the purpose of PD calculation, the risk rating grades of the utilities are considered. For Gencos/Transcos/Others, PFC's internal rating grades have been considered. For Discoms/Power Department borrowers, PFC has adopted the MoP ratings. The ratings as above are mapped with the standard external rating benchmarks. The PD factor associated with the mapped external rating as given in the PD transition matrix published by various Credit Rating Agencies (CRAs) are used for PD calculation.
In case of Private sector borrowers, the latest external rating as published by various Credit Rating Agencies have been referred to compute PD using the PD transition matrix published by various CRAs . If external rating is not available, the PD has been computed through Proxy Risk Scoring Model on a 10-point scale with 1 suggesting minimum risk and 10 suggesting the highest risk. The said model uses the Quantitative financial ratios like Gearing ratio (Debt/Equity), Return on Capital Employed, Interest Coverage ratio, Debt to EBITDA ratio and qualitative factors like PLF, ACS/ARR ratio or LAF to arrive at the final Risk score. The financial risk score obtained have been mapped to external rating benchmarks. This mapped rating has been referred to compute PD associated with the rating using the PD transition matrix published by various CRAs.
For Lifetime PD: Markov Chain Model is used to compute Lifetime PDs of the rating grade.
In case of Investments, the external rating of the instrument as published by various credit rating agencies is referred to arrive at PD. In case of non-availability of external rating, the rating to be used for assigning PD is restricted to (BBB-) i.e. lowest investment grade.
(b) Loss Given Default (LGD)
LGD is the loss factor which the Company may experience in case the default occurs.
For State sector borrowers, the exposure is bifurcated into guaranteed and non guaranteed portion. Flat LGD is applied to the exposure amount which is guaranteed by the State. For non guaranteed portion, the company considers the credit worthiness of the states on various parameters while estimating the LGD. For estimating the credit worthiness of the state, parameters like State GDP per capita, Fiscal deficit/GDP ratio, Proportion of infra and developmental expenditure and Proportion on Revenue Expenditure on Energy Sector, etc. are used as key inputs. The state utilities are bifurcated into Low, Medium and High-risk category. Moreover, for non-guaranteed portfolio of State Sector borrowers, additional stress factors are considered in the estimation of LGD based on their respective rating groups to account for the likelihood of default owing to borrower's adverse financial conditions or inability to repay. Thus, the company derives the realizable value of the assets by considering stress factor(s) based on financial health of the state and rating of the borrower. In case of Private sector borrowers, LGD is assessed considering various factors related to the project to arrive at realisable value of the plant such as generation capacity, project cost per MW, percentage completion of the plant, and book value of the assets, cost incurred and other relevant information. A stress factor is also applied as a haircut to arrive at the realisable value.
For investments, LGD is assessed based on the type and characteristics of the underlying security.
(c) Exposure at Default (EAD)
Exposure at Default is the outstanding exposure on which ECL is computed. EAD includes outstanding principal (including Credit Conversation Factor (CCF) applied undrawn commitment thereof) and interest accrued and interest overdues on financial assets that the Company expects to be owed in the event of default in respect of the loan. As per Note 6.1.(ii) , income on credit impaired assets is recognised as and when received or on accrual basis when expected realisation is higher than the loan amount outstanding, therefore, the same is not used in computation of Exposure at default. Also, undrawn commitment is not considered for stage 3 accounts.
(d) 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.
(e) The calculation of ECL incorporates forward-looking information. Further, the independent agency appointed to assist the Company in ECL assessment also consider the forward-looking information in the determination of the impairment allowance to be assigned to the borrower, by taking into consideration various project operational parameters, project financial ratios, possibility of stressed and favourable economic conditions etc. Further, the independent agency also considers additional macroeconomic parameters like Installed Generating Capacity Utilities YoY Change, Index of Industrial Production (IIP) Capital Goods Growth Rate, Index of Industrial Production (IIP) electricity Year on Year (YoY) growth rate, Money supply YoY growth rate, Gross Domestic Products (GDP) growth rate, Coal Based Thermal Electricity Gross Generation YoY Growth rate among others etc. to arrive at a weighted shock factor to the base PD term structure for ECL computation so as to reflect the right risk assessment of the utilities.
40.1.3 Credit risk analysis for Lending Operations (i) Exposure to credit risk
For loans recognized in the balance sheet, the gross exposure to credit risk equals their carrying amount. Refer Note 11 'Loans' for Company's exposure to credit risk arising from loans.
For financial guarantee issued, the maximum exposure to credit risk is the maximum amount that the Company would have to pay if the guarantees are called upon. For irrevocable loan commitments, the maximum exposure to credit risk is the full amount of the commitment facilities. Refer Note 46 for exposure of Guarantee and Outstanding Disbursement Commitments.
Credit concentration risk refers to risk associated with large credit/investment exposure to a single company or a group of companies based on its ownership, sector, region etc. that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions, with the potential to adversely affect lender's core operations.
Loans to state sector are well diversified as these are extended to multiple entities under the control of various State Governments and Central Government. The Company considers that these loans have a low credit risk in comparison to lending to private sector mainly due to low default/loss history in state sector and availability of government guarantee in certain loans. Presence of Government interest in these projects also lowers the risk of non-recoverability of dues.
Further, the Company has a lending portfolio comprising of loans to generation, renewable, transmission, distribution, power projects & other infrastructure projects spread across diverse geographical areas.
40.1.4 Write off of Loan Assets
The company writes off loan assets in whole or in part in line with its write off policy, when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include ceasure of enforcement activity or where the Company's recovery method is foreclosing on collateral and the value of collateral is such that there is no reasonable expectation of recovery in full. The waiver/write off is done in whole or in part as per the restructuring/settlement/resolution process.
40.1.5 Policy on sales out of amortised cost business model portfolio
The Company does not resort to the sale of financial assets, in ordinary course of business. However, the Company has an approved policy that it may proceed for resolution of stressed assets by either restructuring, change of ownership, settlement or otherwise. The assets are then assessed for derecognition as per Ind AS 109 'Financial Instruments'.
40.1.6 There are no accounts with overdues beyond 90 days but not treated as credit impaired (previous year Nil).
Liquidity risk is the risk that the Company doesn't have sufficient financial resources to meet its obligations as and when they fall due. The risk arises from the mismatches in the timing of the cash flows which are inherent in all financing operations and can be affected by a range of company specific and market wide events.
In order to effectively manage liquidity risk, the Company endeavours to maintain sufficient cash flows to cover maturing liabilities without incurring unacceptable losses or risking damage to the Company's reputation and also endeavours to maintain a diversified fund base by raising resources through different funding instruments. The adequacy of the Company's liquidity position is determined keeping in view the current liquidity position , anticipated future funding needs, present and future earning capacity and available sources of funds.
The Company manages its day to day liquidity to ensure that the company has sufficient liquidity to meet its financial obligation as & when due. The long term liquidity is managed keeping in view the long term fund position and the market factors. This is in line with the Board approved framework and breaches, if any, are to be reported as per approved framework. The Company has never defaulted in servicing of its borrowings.
Further, for overall liquidity monitoring and supervision, the Company has an Asset Liability Committee (ALCO) headed by Director (Finance). The ALCO tracks the liquidity risk by analysing the maturity or cash flow mismatches of its financial assets and liabilities. The mismatches are analysed by way of liquidity statements prescribed by RBI, wherein the cumulative surplus or deficit of funds is arrived at by distributing the cash flows against outstanding financial assets and financial liabilities according to the maturity ladder.
(ii) Foreign currency risk monitoring and management
The Company has put in place a Board approved "Policy for Management of Risks on Foreign Currency Borrowings" to manage and hedge risks associated with foreign currency borrowings which prescribes the structure and organization for management of associated risks.
The Company enters into various derivative transactions viz. principal only swaps, options and forward contracts for hedging the exchange rate risk. As per extant policy, a system for reporting and monitoring of risks is in place wherein Committee for Management of Risks on Foreign Currency Borrowings, consisting of senior executives of the Company, monitors the foreign currency exchange rate. These derivative transactions are done for hedging purpose and not for trading or speculative purpose. The policy lays down the appropriate systems and controls to identify, measure and monitors, the currency risk for reporting to the Management.
40.4.1 Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in interest rates. The impact may be beneficial or adverse depending on the direction of change in interest rates and whether assets or liabilities re-price faster.
(i) Interest rate risk is managed with the objective to control market risk exposure while optimizing the return.
The Asset Liability Committee (ALCO) tracks the interest rate risk through the gap analysis i.e. by analysing the mismatches between Rate Sensitive Assets and Rate Sensitive Liabilities. For gap analysis, the interest rate sensitivity statement prescribed by RBI is used, wherein the gap is measured between the Rate Sensitive Assets and Rate Sensitive Liabilities which are distributed based on the maturity date or the re-pricing date whichever is earlier.
Further, for managing the interest rate risk, the Company reviews its interest rates periodically based on prevailing market conditions, borrowing cost, yield, spread, competitors' rates, etc. The asset mix is managed by the Company through its interest rate & credit policies which inter-alia covers aspects like reset periods; repayment periods, prepayment premium etc. The liabilities are managed keeping in view factors like cost, market appetite, timing, market scenario, ALM gap position etc. The Company also enters into various derivatives transactions like interest rate swaps, cross-currency interest rate swaps to hedge its interest rate risk.
(ii) Interest Rate Sensitivity Analysis
As per RBI Guidelines, Earning at Risk (EaR) is an important focal point for interest risk management. For Interest Rate Sensitivity analysis, the impact of movement of interest rates has been measured on the Earning at Risk derived from the gap statements. The impact has been worked out considering 25 basis upward/downward shocks to interest rates over a one-year period, assuming a constant balance sheet. The analysis shows that if rates are increased/ decreased by 25 bps, the impact on EaR will be ( /-) H 230.36 crore. (As at 31.03.2025 ( /-) H 213.56 crore).
The analysis assumes that the Rate Sensitive Assets and Rate Sensitive Liabilities are being re-priced at the same time. Further, the analysis considers the earliest/first re-pricing date of the Rate Sensitive Assets and Rate Sensitive Liabilities.
Note: A 25 basis point increase or decrease represents management's assessment of the reasonably possible change in interest rates.
40.5 Market Risk - Price risk
(i) The Company is exposed to price risks arising from investments in listed equity shares. Refer Note 12 'Investments' for Company's exposure to the same.
41. HEDGE ACCOUNTING
The hedging instruments which meets the qualifying criteria for hedge accounting are designated as cash flow hedge. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in Other Comprehensive Income. The change in intrinsic value of hedging instruments is recognized in 'Effective Portion of Cash Flow Hedges'. The amounts recognized in such reserve are reclassified to the Statement of Profit or Loss when the hedged item affects profit or loss. Further, the change in fair value of the time value of a hedging instruments is recognized in 'Cost of Hedging Reserve'. The amounts recognized in such reserve are amortized to the Statement of Profit and Loss on a systematic basis.
(i) Hedge Effectiveness
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument. The Company applies the following effectiveness testing strategies:
a) For derivatives other than options that exactly match the terms of the hedged item, the economic relationship and hedge effectiveness are based on the qualitative factors using critical terms match method (where principal terms of the hedging instrument and the hedged item are same).
b) For option structures, the Company analyses the relationship of changes in value of the hedging instrument and hedged item using regression analysis.
(vi) Fair Value Hedge
At March 31,2026, Company has outstanding interest rate swap agreements of H 30,037.40 crores (Previous year -H 30,036.90 crores) wherein the Company receives a fixed rate of interest and pays interest at a variable rate on the notional amount. Such agreements are being used to hedge the exposure to the changes in fair value of fixed rate borrowings.
There is an economic relationship between the hedged item and the hedging instrument as the terms of the interest rate swap match the terms of the fixed rate loan (i.e., notional amount, maturity, payment and reset dates). As such, a hedge ratio of 1:1 for the hedging relationships has been established as the underlying risk of the interest rate swap is identical to the hedged risk component.
Above transactions with the Government related entities cover transactions that are significant individually and collectively. The Company has also entered into other transactions such as telephone expenses, lease rental and deposits etc. with other CPSUs. They are insignificant individually & collectively and hence not disclosed. All the transactions have been carried out on market terms.
43.6 Major terms and conditions of transactions with related parties
(i) Transactions with related parties are made on terms equivalent to those that prevail in arm's length transactions.
(ii) The remuneration to Key Managerial Personnel is in line with the HR policies of the Company.
(iii) Advances given to Directors/KMPs have specified terms/period of repayment and are in line with the HR Policies of the Company.
(iv) The Company makes advances to its associate companies which are incorporated as SPVs to meet the preliminary expenditure. Such advances carry interest rates at the rate applicable to Term Loans as per the Company's policy.
(v) The interest and/or dividend paid to the Trusts and Key Managerial Personnel are on account of their investments in the debt securities and/or equity shares of the Company and the interest and/or dividend paid on such securities is uniformly applicable to all the holders.
(vi) Outstanding balances of group companies at the year-end are unsecured except loan given to PFCCL amounting to H6.60 crore.
44. EMPLOYEE BENEFITS 44.1 Defined contribution plans:
(a) Pension
The Company pays fixed contribution to National Pension Scheme (NPS) for its pension obligation towards employees at pre-determined rates into the Tier-I NPS Accounts (Pension Accounts) of the employees.
An amount of H 8.18 crore (previous year H6.92 crore) for the year is recognized as expense in the Standalone Statement of Profit and Loss on account of the Company's contribution to the defined contribution plans.
44.2 Defined benefit plans:
(a) Provident Fund
The Company pays fixed contribution on account of provident fund at prescribed rates to a separate trust, which invests the funds in permitted securities. Accordingly, the fund is a defined contribution plan. However, considering that the fund trust has to ensure a minimum rate of return to the members as specified by GoI and shortfall, if any needs to be compensated by the Company, the Company treats the provident fund trust as defined benefit plan for accounting purposes. As per the actuarial valuation, the fund has adequate corpus for meeting its obligation, therefore no further provision is considered necessary and there is no impact of above on the profit of the Company.
(b) Gratuity
(1) The Company has a defined gratuity scheme which is managed by a separate trust. Every employee who has rendered continuous service of five years or more is entitled to gratuity at 15 days salary for each completed year of service subject to a maximum of H 0.25 crore on superannuation, resignation, termination, disablement or on death, considering the provisions of the Payment of Gratuity Act, 1972, as amended. The liability for the same is recognised on the basis of actuarial valuation.
(c) Post-Retirement Medical Scheme (PRMS)
The Company has a Post-Retirement Medical Scheme (PRMS) to provide medical facilities to superannuated employees, dependent family members of superannuated and deceased employees. The liability for PRMS is recognised on the basis of acturial valuation.
This scheme is managed by a separate trust. The trust has to ensure adequate corpus for meeting the medical expenditure incurred by the eligible employees/family members. However, any short fall has to be compensated by the Company. Based on acturial valuation, it is estimated that no liability will arise in this regard in the near future and hence, no further provision is considered necessary.
(e) Risk exposure
Through its defined benefit plans, the Company is exposed to a number of risks, the most significant of which are detailed below:
i) Investment risk
Most of the plan asset investments are in government securities, other fixed income securities with high rating grades and mutual funds. The fair value of these assets is subject to volatility due to change in interest rates and other market & macro-economic factors. There is also a risk of asset liability mismatch i.e. the cash flow for plan assets does not match with cash flow for plan liabilities.
ii) Changes in discount rate
The present value of defined benefit plan liabilities is calculated using a discount rate which is determined by reference to government bonds' yields at the end of the reporting period. A decrease (increase) in discount rate will increase (decrease) present values of plan liabilities, although this will be partially offset by an increase in the value of the plans' investments.
iii) Mortality rate risk
The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan's liability.
iv) Salary escalation risk
The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the plan's liability.
v) Turnover rate/Withdrawal rate of employee
If the actual employee withdrawal rate in the future turns out to be more or less than expected then it may result in increase/decrease in the liability.
44.3 Other long-term employee benefits
(a) Leave
The Company provides for earned leave benefit and half-pay leave benefit to the credit of the employees, which accrues on half-yearly basis at 15 days and 10 days respectively. A maximum of 300 days of earned leave can be accumulated at any point of time during the service. There is no limit for accumulation of half pay leave. On separation after 10 years of service or on superannuation, earned leave plus half pay leave taken together can be encashed subject to a maximum of 300 days. However, there is no restriction on the number of years of service for encashment of earned leave on separation from the service. Provision based on actuarial valuation amounting to H 5.70 crore (previous year H 13.36 crore) for the year has been made at the year end in the Standalone Statement of Profit and Loss.
(b) Other employee benefits
Provision for settlement allowance and long service awards amounting to H 17.68 crore for the year (previous year H 17.66 crore) has been made on the basis of actuarial valuation in the Standalone Statement of Profit and Loss.
44.4 Employee benefits (including Gratuity, PRMS, Terminal Benefits, leave encashment and other employee benefits) in respect of Company's employees working in its wholly-owned subsidiary on deputation/secondment basis are being allocated based on a fixed percentage of employee cost.
45. LEASES
The Company has recognised a Right of Use Asset and Lease Liability with respect to leasehold land being used as office premises.
45.3 During the year 2025-26, the expenses relating to short-term/low value leases amounting to H 21.91crore (Previous year H 19.56 crore) has been charged to Standalone Statement of Profit and Loss. Included in the amount above are leases pertaining to residential accommodation of employees, space for official use, hiring of EDP equipment & other office equipment etc. These leases are usually renewable on mutually agreed terms and are cancellable.
45.4 The total cash outflow towards all leases, including Right-of-Use Assets is H21.81 crore. (Previous year H 19.51 crore)
47. There are no Micro and Small Enterprises, to whom the Company owes dues, which are outstanding for more than 45 days as at 31.03.2026 (Nil as at 31.03.2025). This information as required to be disclosed under the Micro, Small and Medium Enterprises Development Act, 2006 has been determined to the extent the status of such parties could be identified on the basis of information provided by the parties.
48. The Company's operations comprise of only one business segment - lending to power, logistics and infrastructure sector. Hence, there is no other reportable business/geographical segment as per Ind AS 108 "Operating Segments".
49. MODIFICATIONS IN THE MATERIAL ACCOUNTING POLICY INFORMATION:
No modifications have been carried out in the standalone material accounting policy information during the year except the following:
(a) Note 5.3.1 (iii): Undrawn commitments and Investments (other than equity) are also subjected to Impairment as per RBI directions and accordingly has been included in the policy.
(b) The following accounting estimates have been modified:
Note No. 5.5(v): Considering rapid technological obsolescence and based upon industry practice, the cell phones have been expensed off in the year of purchase as against existing useful life of two years.
Note No. 5.5(viii): Threshold for depreciating an asset fully in the year of purchase has been increased from H 5000/-fixed long ago to H 10,000/- considering inflation. Further to maintain parity, assets having WDV upto H 10,000/- as at the begining of the year, have been fully depreciated.
Had the above modifications not carried out , the profit before tax for the year would have been higher by H 139.97 crore.
51. GOVERNMENT OF INDIA(GOI) SCHEMES BEING IMPLEMENTED BY THE COMPANY Revamped Distribution Sector Scheme (RDSS)
The Company is a designated Nodal Agency for operationalization and implementation of Revamped Distribution Sector Scheme (RDSS). The role of Nodal Agency, inter-alia, includes transfer onward the GoI funds received from Ministry of Power to project implementing agencies i.e. State Power Distribution Utilities/Power Departments as per the Scheme guidelines issued by Ministry of Power. The release of the funds under GoI Scheme is being done through Treasury Single Account (TSA) system of RBI, as per the office memorandum issued by Ministry of Finance, GoI dated 09th March 2022.This ensures that GoI funds under RDSS are released to project implementing agencies 'Just in time' directly from the Consolidated Fund of India (CFI).
This Scheme was launched by GoI in July, 2021 to improve the operational efficiencies and financial sustainability of DISCOMs, by providing reform linked financial assistance to DISCOMs. It is a Reform based and result linked Distribution sector scheme. PFC along with REC is the nodal agency for operationalization of the scheme. The implementation period of the Scheme is 5 Years (FY 2021-22 to FY 2025-26). In order to ensure achievement of Scheme objectives and to facilitate the completion of remaining Scheme components, MoP vide OM dated 16.07.2025 has extended the Sunset date of RDSS Scheme by 02 years upto 31.03.2028.The key objectives of the scheme is to:
i) Improve the quality, reliability and affordability of power supply to consumers through a financially sustainable and operationally efficient distribution sector.
ii) Reduce AT&C losses to pan-India levels of 12-15%.
iii) Reduce ACS-ARR gap to zero.
The Scheme has an outlay of H 3,03,758 crore with an estimated gross budgetary support of H 97,631 crore from the GoI. The amount of GoI grant administered by PFC to the eligible entities (net of funds lapsed/surrendered by power utilities) during FY 2025-26 is H6,805.55 crore (previous year H 4,897.09 crore) and the cumulative grant administered (net of funds lapsed/surrendered by power utilities) till 31.03.2026 is H 15,010.87 crore (till 31.03.2025 is H 8,205.32 crore).
The Company is eligible for nodal agency fee at the rate of 0.50% of the sum total of the gross budgetary component of the various projects approved by Monitoring Committee. The total amount of nodal agency fee income from this scheme for FY 2025-26 stands at H 40.33 crore. (Previous year H 51.19 crore)
Further, no amount of GoI grant remained undisbursed in the TSA A/c of PFC as on 31.03.2026 and 31.03.2025.
52. (a) Status of documentation subsequent to reorganization of the State of Jammu & Kashmir
After the bifurcation of the State of Jammu & Kashmir into two Union territories- Jammu & Kashmir UT and Ladakh UT , the existing entities pertaining to the erstwhile state of Jammu & Kashmir have been restructured vide unbundling order dated 23.10.19. The addendums to the agreements with new restructured departments are yet to be executed. Pending the execution of such documents, the existing loans are being serviced/repaid in line with the existing loan agreement.
(b) Status of documentation subsequent to reorganization of the State of Andhra Pradesh
Subsequent to the reorganization of erstwhile Andhra Pradesh, the State of Telangana has been formed on 02.06.2014. However, the assets and liabilities are yet to be transferred to the respective power utilities through a formal gazette notification except for assets and liabilities of TSSPDCL which have been transferred to APSPDCL for R-APDRP loans only amounting to H 8.95 crore.
Once the final transfer scheme is notified through Gazette Notification by Govt. duly indicating the transfer of assets and liabilities among the power utilities, action for execution of documentation formalities will be taken up in respect of all the outstanding loans (except for above R-APDRP loans) with the new/name changed utilities. Till that time, the demand for payment of interest/principal is being segregated by the utilities and the respective portions are being paid by utilities in Telangana and Andhra Pradesh.
53. DISCLOSURES AS REQUIRED UNDER RESERVE BANK OF INDIA (NON-BANKING FINANCIAL COMPANIES - FINANCIAL STATEMENTS: PRESENTATION AND DISCLOSURES) DIRECTIONS,
2025, AND RESERVE BANK OF INDIA (NON-BANKING FINANCIAL COMPANIES - ASSET LIABILITY MANAGEMENT) DIRECTIONS, 2025, AS AMENDED FROM TIME TO TIME.
Being a Government owned NBFC the Company is subject to guidelines as prescribed under RBI (Non-Banking Financial Companies - Financial Statements: Presentation and Disclosures) Directions, 2025, as amended and applicable for the NBFC-ML (Middle Layer).
53.24.1 Reserve Bank of India (Non-Banking Financial Companies - Asset Liability Management) Directions, 2025, as amended from time to time, has stipulated maintaining of Liquidity Coverage Ratio by nonddeposit taking NBFCs with asset size of more than H 5,000 crore. The guidelines aim to maintain a liquidity buffer in terms of LCR by ensuring that they have sufficient High Quality Liquid Asset (HQLA) to survive any acute liquidity stress scenario lasting for next 30 days. As per the guideline, LCR is represented by Stock of HighdQuality Liquid Assets (HQLA) divided by Total Net Cash Outflows (stressed outflow less stressed inflows) over the next 30 calendar days. HQLA are defined by RBI as the liquid assets that can be readily sold or immediately convertible into cash at little/no loss of value or can be used as collateral to obtain funds in stress situations.
The HQLA is being maintained by the company as balance with Banks in Current Account and eligible securities.
The Company is maintaining LCR in INR only; hence there is no currency mismatch.
54 DISCLOSURE OF PENALTIES IMPOSED BY REGULATORS DURING THE YEAR:
NSE and BSE have levied fine on the Company for non-compliance in regard to composition of the Board of Directors.
The Company in its reply to NSE and BSE has stated that being a Central Public Sector Undertaking and in terms of Article 86 of Articles of Association of the Company, the Directors on the Board of the Company are appointed by President of India through Ministry of Power, Government of India and had requested both the exchanges to waive the above said penalty. Revert on the matter is awaited.
The Company had also taken up the matter with Ministry of Power to expedite the process of appointment of balance number of Independent Directors. However, after recent appointment of Independent Directors in the Company, the composition of Board of Directors is in compliance with the provisions of SEBI (LODR) Regulations, 2015 as on the date of signing of Financial Statements.Presently no penalty is outstanding as on 31.03.2026.
55 During the year, the company does not have any transactions with the struck off companies except for equity shares held by eleven companies as on 31.03.2026, which are individually not material and thus have not been reported.
56 A proposal to restructure Power Finance Corporation Limited (PFC) and REC Limited (REC) was announced in the Union Budget on 1st February 2026 with the objective of achieving scale and efficiency among Public Sector NBFCs. Pursuant to the above announcement, the Boards of PFC and REC, at their respective meetings held on 6th February 2026, accorded in-principle approval for restructuring in the form of a merger of PFC and REC, while ensuring that the merged entity continues to remain as a "Government Company" under the Companies Act, 2013 and other applicable laws.
57 The disclosures as required under Master Direction-Reserve Bank of India (Non-Banking Financial Companies -Financial Statements: Presentation and Disclosures) Directions, 2025,as amended from time to time have been made in Note 1,2,5,6.1,9.1 to 9.4, 11.3,12.2,13.1,39.1,39.2, 40.1.3(iii), 40.1.3(vi), 40.1.3(vii), 40.1.5, 40.1.6, 40.1.7, 40.3, 40.4, 43,46, 49, and 53.
(a) Debt to Equity ratio = Net Debt/(Equity Share Capital Other Equity Non-Controlling Interest). Net debt = Principal outstanding of {Debt Securities Borrowings (other than debt securities) Subordinated Liabilities} less cash and cash equivalents.
(b) Net worth = Equity Share Capital Other Equity.
(c) Total debt to Total assets = Principal outstanding of {Debt Securities Borrowings (other than debt securities) Subordinated Liabilities}/Total assets.
(d) Operating Margin = (Profit before Tax - Other Income)/Total Revenue from operations.
(e) Net profit margin = Net profit After Tax/Total Income.
(f) Gross Credit Impaired Assets Ratio = Gross Credit Impaired Assets/Gross Loan Assets.
(g) Net Credit Impaired Assets Ratio = Net Credit Impaired Assets/Gross Loan Assets.
(h) CRAR = Total Capital Fund (Tier 1 Capital Tier 2 Capital)/Risk weighted assets, calculated as per Reserve Bank of India (Non-Banking Financial Companies - Prudential Norms, on Capital Adequacy) Directions, 2025, as amended.
(i) Debt service coverage ratio, Interest service coverage ratio, Current ratio, Long term debt to working capital, Bad debts to Account receivable ratio, Current Liability Ratio, Debtors turnover, Inventory turnover ratio are not applicable to the Company.
59 Figures of the previous year have been regrouped/reclassified wherever necessary, in order to make them comparable with the current year figures.
60 Figures have been rounded off to the nearest crore of rupees with two decimals. Further, figures in 0.00 represent value less than H50,000/-.
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