REC Ltd. - Quarterly/Annual Result Disclosures and Notes dated 31 Mar 2018

1.The above financial results for the quarter/ year ended 31st March 2018 were reviewed by the Audit Committee at the meeting held on 28th May 2018 and approved and taken on record by the Board of Directors at the meeting held on 28th May 2018.



2.These results have been audited by the Statutory Auditors of the Company.



3.The audited accounts of the subsidiary companies (REC Transmission Projects Company Limited and REC Power Distribution Company Limited) and unaudited accounts of joint venture (Energy Efficiency Services Limited) have been consolidated in accordance with the Accounting Standard-21 'Consolidated Financial Statements' and Accounting Standard-27 'Financial Reporting of Interests in Joint Ventures'.



4.Changes in Accounting Policies during the period :

(a)During the quarter ended 30th June 2017, the Company had revised the accounting policy for amortization of one time arrangement fee incurred in raising of foreign currency borrowings and premium paid towards hedging contracts over the period of such borrowings/ contracts. Due to this change in accounting policy, profit before tax for the quarter and year ended 31st March 2018 is higher by Rs.166.25 Crores and Rs.220.75 Crores respectively.

(b)During the quarter ended 30th September 2017, the policy for recognising the agency fee on Government schemes had been changed to recognise such income on accrual basis. Due to this change in accounting policy, profit before tax for the quarter and year ended 31st March 2018 is higher by Rs.92.52 Crores and Rs.136.45 Crores respectively.

(c)Since the validity of certain exemptions given by RBI had expired during the current year in respect of classification of loan assets, the Company has modified the accounting policy in respect of asset classification and provisioning to bring it in line with RBI Master Directions. Due to this change in accounting policy, profit before tax for the quarter and year ended 31st March 2018 is lower by Rs.146.09 Crores.



5.The company has opted for amortising the foreign exchange fluctuation loss/ gain on the long term foreign currency monetary items over the balance period of such items. The balance in 'Foreign Currency Monetary Item Translation Difference Account' remaining to be amortised as at 31st March 2018 is Rs.63.10 Crores [As at 31st December 2017 Rs.89.54 Crores (gain)].



6.RBI, vide its letters dated 25th July 2013 and 4th April 2014, had conveyed to the Company to comply with the Prudential Norms of RBI by 31st March, 2016 and follow the instructions contained in RBI Circular dated 23 January 2014 issued vide Notification No. DNBS (PD) No. 271/ CGM (NSV)-2014 in respect of restructuring of assets. Later, RBI vide its letter dated 11th June 2014 had allowed exemption to the Company from RBI restructuring norms till 31st March 2017 for Transmission & Distribution, Renovation & Modernisation and Life Extension projects and also the Hydro projects in Himalayan region or affected by natural disasters. Further, for project loans to Generating Companies restructured w.e.f. 01/04/2015, the provisioning requirement would be 5% and for stock of loans as on 31/03/2015 of such projects, the provisioning shall commence with a provision of 2.75% w.e.f. 31/03/2015 and reaching 5% by 31/03/2018.



In accordance with clarification from RBI vide email dated 10 August 17, T&D, R&M and life extension projects as also the hydro projects in Himalayan region or affected by natural disaster will be regulated by RBI restructuring norms with effect from 1st April 2017.



Further, in response to the Company's letter dated 13 May 2016, RBI vide its letter No. DNBR.PD.CO.No. 2184/03.10.001/2015-16 dated 16 June 2016, has exempted REC, from applicability of RBI's concentration of Credit/Investment norms, in respect of its exposure to Central/ State Government entities up to 31 March 2022.



During the current quarter, state sector projects upgraded from Restructured Standard Assets category to Standard Assets category has resulted in net reversal of provision of Rs.338.00 crores. Further, an additional provision amounting to Rs.8.29 Crores has been created on qualifying restructured loans (comprising of loans to Public Sector Rs.1,532.57 crores and loans to Private Sector Rs.4,757.55 crores). The total provision held as on 31st March 2018 against such restructured loans amounts to Rs.463.95 crores.



7.As at 31st March 2018, the dues of one of the borrowers were overdue for more than 3 months, thus, exceeding the time limit for classification of the borrower as ‘Standard Asset’. However, the borrower had obtained an ad-interim order from Hon’ble High Court of Madras on 18th September 2015 not to classify the account as NPA. In view of the same, the classification of the borrower has been retained as ’Restructured Standard Asset’ pending final decision of the Court. REC has filed an Application before High Court, Madras for dismissal of the Writ Petition and vacation of stay order.

However, as a matter of prudence, an additional provision had been created during the financial year 2016-17 @ 4.50% over and above 5.00% provision in respect of the loan, making a total of 9.50% amounting to ` 218.69 crores and the same continues to be maintained. Further, during the quarter and year ended 31st March 2018, the interest income of ` 102.20 Crores and ` 382.35 Crores respectively has not been recognised in the books of accounts.



8.Reserve Bank of India (RBI) vide Notification No. DBR.No.BP.BC.101/21.04.048/2017-18 dated 12th February 2018 issued a Revised Framework for Resolution of Stressed Asset, which superseded the existing guidelines on CDR/ SDR/ Change in ownership outside SDR, Flexible Structuring of Existing Long Term Project Loans (5/25 Scheme) and S4A scheme. While the notification is applicable to all Scheduled Commercial Banks (excluding Regional Rural Banks (RRB)) and all-India Financial Institutions (Exim Bank, NABARD, NHB and SIDBI), the guidelines per se are not applicable to the Company, being NBFC-IFC. However, as a matter of prudence, REC has also followed these guidelines and classified loans amounting to Rs.9,591.39 crores as NPAs as at 31st March 2018.

In view of the above, for the current quarter, Provisions and Contingencies are higher and consequently Profit Before tax is lower by Rs.359.24 crores, making a total provision of Rs.959.14 crores against such loans.



9.The domestic debt instruments of REC continue to enjoy “AAA” rating – the highest rating assigned by CRISIL, CARE, India Ratings & Research & ICRA-Credit Rating Agencies. Further, the Company enjoys international credit rating of “Baa3” and “BBB-” from International Credit Rating Agencies Moody’s and FITCH respectively.



10.The Company paid an interim dividend of Rs.7.40 per Equity Share (on face value of Rs.10/- each) in the month of February 2018. Further, the Board of Directors has recommended final dividend of Rs.1.75 per share (on face value of Rs.10/- each) for the year 2017-18, subject to approval of the Shareholders in the ensuing Annual General Meeting. The total dividend (including interim dividend) for the financial year 2017-18 is Rs.9.15 per share (on face value of Rs.10/- each).



11.The Company's main business is to provide finance to power sector. Accordingly, the company does not have more than one segment eligible for reporting in terms of Accounting Standard-17 'Segment Reporting'.



12.The Company has raised US$ 300 million 10-year US Dollars denominated bonds in March 2018 to finance power infrastructure sector in India within the ambit of applicable ECB Guidelines and the amount has been utilized for the aforementioned purpose.



13.Details of previous due dates for the payment of interest/ repayment of principal along with next due date for the payment of interest/ principal in respect of listed non-convertible debt securities have beeen annexed herewith this statement as Annexure-A in terms of the requirements of Regulation 52(4) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.



14.In view of Ministry of Power’s Office Memorandum dated 30th August, 2017 and to have better operational efficiency and to reap the benefits of higher capital base & pooled resources, it was decided to merge two unlisted wholly owned subsidiary companies of Rural Electrification Corporation Limited i.e. REC Power Distribution Company Limited (RECPDCL) and REC Transmission Projects Company Limited (RECTPCL) into one single entity. Accordingly, as per provisions of the Companies Act, 2013 and Rules made thereunder, after the approval of Board of Directors, shareholders, creditors of respective companies and approval of Holding company i.e. REC, an application has been filed with the Ministry of Corporate Affairs (MCA) on 27th March, 2018 for sanction of Scheme of Arrangement for amalgamation of RECTPCL (Transferor Company) with RECPDCL (Transferee Company) and approval of the same is awaited.



15.The Company has not issued any redeemable preference shares till date.



16.For all the secured bonds issued by the Company and outstanding as at 31st March 2018, 100% security cover has been maintained by way of mortgage on certain immovable properties and/or charge on the receivables of the Company.



17.Previous periods/year's figures have been regrouped/rearranged wherever necessary. Figures of last quarter are the balancing figures between audited figures in respect of the full financial year and the published year to date figures upto the third quarter of the relevant financial year.