3.19 Provisions, Contingent Liabilities and Contingent Assets

Provisions are recognized when the Company has a present legal
or constructive obligation as a result of a past event; it is probable
that an outflow of economic resources will be required from the
Company and amounts can be estimated reliably. Timing or amount
of the outflow may still be uncertain. Provisions are measured at the
estimated expenditure required to settle the present obligation,
based on the most reliable evidence available at the reporting date,
including the risks and uncertainties associated with the present
obligation. Provisions are discounted to their present values, where
the time value of money is material.

A contingent liability is disclosed for:

Possible obligations which will be confirmed only by future events
not wholly within the control of the Company or

Ý Present obligations arising from past events where it is not
probable that an outflow of resources will be required to settle the
obligation or a reliable estimate of the amount of the obligation
cannot be made.

In those cases, where the outflow of economic resources as a result of
present obligations is considered improbable or remote, no liability is
recognized or disclosure is made.

Any reimbursement that the Company can be virtually certain to
collect from a third party concerning the obligation (such as from
insurance) is recognized as a separate asset. However, this asset may
not exceed the amount of the related provision.

Contingent assets are not recognized. However, when the inflow of
economic benefits is probable, the related asset is disclosed.

3.20 Fair value measurement

The Company measures financial instruments, such as derivatives at
fair value at each reporting date.

Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement
is based on the presumption that the transaction to sell the asset or
transfer the liability takes place either:

Ý In the principal market for the asset or liability, or

Ý In the absence of a principal market, in the most advantageous
market for the asset or liability

The principal or the most advantageous market must be accessible by
the Company.

The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, including assumptions about risk, assuming that
market participants act in their economic best interest. A fair value
measurement of a non-financial asset takes into account a market

participant's ability to generate economic benefits by using the
asset in its highest and best use or by selling it to another market
participant that would use the asset in its highest and best use.

The Company uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to measure
fair value, maximizing the use of relevant observable inputs and
minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed
in the standalone financial statements are categorized within the fair
value hierarchy, described as follows, based on the lowest level input
that is material to the fair value measurement as a whole:

Ý Level 1 - Quoted (unadjusted) market prices in active markets for
identical assets or liabilities.

Ý Level 2 - Valuation techniques for which the lowest level input that
is material to the fair value measurement is directly or indirectly
observable.

Ý Level 3 - Valuation techniques for which the lowest level input that
is material to the fair value measurement is unobservable.

For assets and liabilities that are recognized in the standalone financial
statements regularly, the Company determines whether transfers
have occurred between levels in the hierarchy by re-assessing
categorization (based on the lowest level input that is material to
the fair value measurement as a whole) at the end of each reporting
period.

3.21 Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount
is reported in the balance sheet if there is a currently enforceable
legal right to offset the recognised amounts and there is an intention
to settle on a net basis, to realise the assets and settle the liabilities
simultaneously.

3.22 Business Combination under Common Control

A business combination, if any, involving entities or businesses
under common control is a business combination in which all of the
combining entities or businesses are ultimately controlled by the
same party or parties both before and after the business combination
and that control is not transitory.

Business combinations involving entities or businesses under
common control are accounted for using the pooling of interest
method as follows:

Ý The assets and liabilities of the combining entities are reflected at
their carrying amounts.

Ý No adjustments are made to reflect fair values, or recognize new
assets or liabilities. Adjustments are made only to harmonise
material accounting policies.

Ý The financial information in the standalone financial statements in
respect of prior periods is restated as if the business combination
has occurred from the beginning of the preceding period in the
standalone financial statements, irrespective of the actual date of
the combination.

The balance of the retained earnings appearing in the standalone
financial statements of the transferor is aggregated with the
corresponding balance appearing in the standalone financial
statements of the transferee. The identity of the reserves is preserved
and the reserves of the transferor become the reserves of the
transferee.

The difference, if any, between the amounts recorded as share capital
issued plus any additional consideration in the form of cash or other
assets and the amount of share capital of the transferor is transferred
to capital reserve and is presented separately from other capital
reserves.

3.23 Expenditure on issue of shares

Expenditure on issue of shares, if any, is charged to the securities
premium account.

4. Implementation of New/ Modified Standards

During the year, the Ministry of Corporate Affairs (MCA) has made
amendments to the existing standards. The Company has analysed
the impact of these amendments which is not material to the
Company. MCA has also notified the amendments to Ind AS-1, which
is effective for annual reporting periods beginning on or after 1 April
2026. The company would need to adopt these amendments to the
standards, when they become effective. Further, MCA has not issued
any new Ind-AS applicable to the company.

5. Material management judgment in applying accounting
policies and estimation of uncertainty

The preparation of the Company's standalone financial statements
requires management to make judgments, estimates, and
assumptions that affect the reported amounts of revenues, expenses,
assets and liabilities, and the related disclosures. The estimates and
underlying assumptions are based on historical experience & other
relevant factors and are reviewed on an ongoing basis. Actual results
may differ from these estimates.

Changes in accounting estimates- Such changes, if any, are
recognised in the period in which the estimate is revised if the
revision affects only that period or in the period of the revision &
future periods if it affects both current & future periods.

Material management judgments

Recognition of deferred tax assets/ liability - The extent to which
deferred tax assets can be recognized is based on an assessment of the
probability of the future taxable income against which the deferred
tax assets can be utilized. Further, the Company Management has no
intention to make withdrawal from the Special Reserve created and
maintained under Section 36(1)(viii) of the Income tax Act, 1961 and
thus, the special reserve created and maintained is not capable of
being reversed. Hence, the company does not create any deferred tax
liability on the said reserve.

Evaluation of indicators for impairment of assets - The evaluation
of the applicability of indicators of impairment of assets requires
assessment of several external and internal factors which could result
in deterioration of recoverable amount of the assets.

Non recognition of Interest Income on Credit Impaired Loans-

As a matter of prudence, income on credit impaired loan assets is
recognised as and when received or on accrual basis when expected
realisation is higher than the loan amount outstanding.

Material estimates

Useful lives of depreciable/amortizable assets - Management
reviews its estimate of the useful lives of depreciable/amortizable
assets at each reporting date, based on the expected utility of the
assets. Uncertainties in these estimates relate to technical and
economic obsolescence that may change the utility of assets.

Defined benefit obligation (DBO) - Management's estimate of
the DBO is based on a number of underlying assumptions such as
standard rates of inflation, mortality, discount rate and anticipation of
future salary increases. Variation in these assumptions may materially
impact the DBO amount and the annual defined benefit expenses.

Fair value measurements - Management applies valuation
techniques to determine the fair value of financial instruments (where
active market quotes are not available). This involves developing
estimates and assumptions consistent with how market participants
would price the instrument. In estimating the fair value of an asset or
a liability, the Company uses market-observable data to the extent
it is available. In case of non-availability of market-observable data,
Level 2 & Level 3 hierarchy is used for fair valuation.

Income Taxes - Material estimates are involved in determining the
provision for income taxes, including amount expected to be paid/
recovered for uncertain tax positions and also in respect of expected
future profitability to assess deferred tax asset.

Expected Credit Loss ('ECL') - The measurement of an expected
credit loss allowance for financial assets measured at amortized cost
requires the use of complex models and significant assumptions
about future economic conditions and credit behavior (e.g., likelihood
of customers defaulting and resulting losses). The Company makes
significant judgments about the following while assessing expected
credit loss to estimate ECL:

Determining criteria for a significant increase in credit risk;

Ý Establishing the number and relative weightings of forward¬
looking scenarios for each type of product/ market and the
associated ECL; and

Ý Establishing groups of similar financial assets to measure ECL.

Ý Estimating the probability of default and loss given default
(estimates of recoverable amounts in case of default)

10.3 In terms of the settlement under Insolvency and Bankruptcy Code (IBC) proceedings/ One Time Settlement (OTS)/ Restructuring/Techincal-write off,

the Company has written off loans amounting to ?3,794.43 crore (Previous Year ?2,484.54 crore). The details of write-offs are as below:

(i) During the current year

(a) Pursuant to Restructuring Agreement executed on 24^th March 2025 and implementation of the same during the current financial year, in respect
of TRN Energy Private Limited under RBI Circular "Prudential Framework for Resolution of Stressed Assets"dated 7^th June 2019, the company has
restructured outstanding loan amount of ?1,504.07 crore for ?1,112.07 crore and written off an amount of ?392.00 crore with corresponding
reversal of ECL of ?272.00 crore.

(b) Pursuant to the Resolution Plan approved under IBC proceedings executed on 10^th December 2025 in respect of Bhadreshwar Vidyut Private
Limited, the company has written off an amount of ?709.78 crore after appropriating cash recoveries of ?283.18 crore with corresponding
reversal of ECL of ?59.54 crore.

(c) Pursuant to the One Time Settlement executed on 10^th March 2026 in respect of Bhavnagar Biomass Power Projects Private Limited, the company
has recovered entire principal amount of ?13.77 crore with corresponding reversal of ECL of ?2.75 crore.

(d) Pursuant to the Resolution Plan approved under IBC proceedings executed on 25^th February 2026 in respect of Sinnar Thermal Power Limited,
the company has written off an amount of ?1,295.07 crore after appropriating cash recoveries of ?1,036.26 crore with corresponding reversal
of ECL of ?569.99 crore.

(e) In accordance with Company's policy on technical write off, five loan assets with total amount of ?1,397.58 crore in respect of Ind-Barath Power
(Madras) Limited, Jas Infrastructure Capital Private Limited, Konaseema Gas Power Limited, Lanco Vidarbah Thermal Power Limited and Shree
Maheshwar Hydel PCL have been technically written off.

(ii) During the previous year

(a) Pursuant to the Resolution Plan approved under IBC proceedings executed on 6^th September 2024 in respect of Lanco Amarkantak Power
Limited, the company has written off an amount of ?1,378.10 crore after appropriating recoveries of ?836.11 crore (Cash of ?721.34 crore and
Other Financial Asset in the form of Recoverable of ?114.77 crore) with corresponding reversal of ECL of ?1,406.47 crore.

(b) Pursuant to the One Time Settlement executed on 21^st October 2024 in respect of Lynx India Limited, the company has written off an amount
of ?0.94 crore after appropriating cash recoveries of ?1.02 crore with corresponding reversal of ECL of ?1.96 crore.

(c) Pursuant to the Resolution Plan approved under IBC proceedings executed on 2^nd December 2024 in respect of Nagai Power Private Limited, the
company has written off an amount of ?371.50 crore after appropriating recoveries of ?189.49 crore (Cash of ?59.05 crore and Other Financial
Asset in the form of Recoverable of ?130.43 crore) with corresponding reversal of ECL of ?398.79 crore.

(d) Pursuant to Resolution Agreement (through Debt assigned to ARC) executed on 27^th February 2025 in respect of Corporate Power Limited
under RBI Circular "Prudential Framework for Resolution of Stressed Assets"dated 7^th June 2019, the company has written off an amount of
?734.00 crore after appropriating the cash recoveries of ?63.00 crore with corresponding reversal of ECL of ?797.00 crore.

(e) Pursuant to the Resolution Plan approved under IBC proceedings executed on 6^th March 2025 in respect of KSK Mahanadi Power Company
Limited, the company has recovered the entire outstanding loan of ?2,596.36 crore and ?976.46 crore on account of ovedue interest after
appropriating the cash recoveries of ?3,572.82 crore with corresponding reversal of ECL of ?1,361.09 crore.

11.4 In terms of settlements under Insolvency and Bankruptcy Code (IBC) proceedings/ One Time Settlement (OTS)/ Restructuring, the Company has
received the following Investments:

(i) During the current year:

(a) Pursuant to Restructuring Agreement in respect of TRN Energy Private Limited, the Company has been alloted 10,00,68,661 no. of equity shares
having face value of ?10/- each, 3,92,00,000 no. of 0.01% Optionally-Convertible Debentures- Series A having face value of ?100/- each and
3,74,46,000 no. of 0.01% Optionally-Convertible Debentures-Series B having face value of ?100/- each.

(b) Pursuant to the Resolution Plan approved under IBC proceedings in respect of Bhadreshwar Vidyut Private Limited, the Company was alloted
66,11,47,610 no. of equity shares having face value of ?0.10/- each which have been derecognised pursuant to cash settlement under the
resolution plan.

(c) Pursuant to IBC procedings in respect of KSK Mahanadi Ltd, the company has been allotted 2287 no. equity shares having face value of Rs.10/
each.

(ii) During the previous year:

(a) Pursuant to the Resolution Plan approved under IBC proceedings in respect of KSK Mahanadi Power Company Limited, IDBI Trusteeship Services
Limited has been alloted 17,567 no. of equity shares having face value of ?10/- each on 22^nd April 2025 in favour of Equity Holder Financial
Creditors. The share of the Company out of these equity shares is 13.019%.

Refer note 10.3 for further details.

11.5 The Company has elected an irrevocable option to designate some of the equity instruments at FVOCI (Fair Value through Other Comprehensive
Income). The Company's operation comprises of only one business segment i.e. providing financial assistance to power, logistic and infrastructure
sector. Thus, in order to isolate Standalone Statement of Profit and Loss from price fluctuations of these instruments, management believes that this
provides a more meaningful presentation, rather than classifying them at FVTPL (Fair Value through Profit & Loss).

11.6 The Board of Directors of the Company has approved a proposal for incorporation of a Wholly Owned Subsidiary (WOS) for dealing in permissible
activities as a Finance Company in International Financial Service Centre (IFSC), Gujarat International Finance Tec-City ("GIFT”), Gandhinagar,
Gujarat. The Finance Company will be deemed as a non-resident entity under extant FEMA regulations and will be governed by unified regulator i.e
International Financial Services Centres Authority (IFSCA). The Reserve Bank of India vide its letter dated 3^rd May 2024, has accorded "No-Objection
Certificate” (NOC) to set up the proposed entity. The Company is yet to receive the requisite approval of the Ministry of Power, Government of India to
incorporate the proposed entity.

21.4 Foreign Currency Borrowings in Note No. 21.1(iii) and (iv) have been raised at variable interest rates ranging from a spread of 13 bps to 210 bps
(previous year 13 bps to 210 bps) over external benchmarks including Overnight SOFR (Secured Overnight Financing Rate), 3/6 Months' Term SOFR,
SORA (Singapore Overnight Rate Average), TONAR (Tokyo Overnight Average Rate), 3/6 Months' EURIBOR (Euro Inter Bank Offered Rate) and Credit
Adjustment Spread (CAS) as applicable on transition of loans to new benchmark rates, except for the cases where rate has been mentioned.

21.5 The Company has not borrowed any loans from banks or financial institutions on the basis of security of current assets.

21.6 Security Details of Secured Debt Securities and Borrowings

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

Tax Free Bonds issued during FY 2011-12 are secured by first pari passu charge on premises at Shop No. 12, Ground Floor, Block No. 35, Church Road,
Mylapore, Chennai and hypothecation of receivables of ?4,998.66 crore of Maharashtra State Electricity Distribution Company Limited in favour of
Vistra ITCL (India) Limited. (formerly known as IL&FS Trust Company Limited).

Tax Free Bonds issued during FY 2013-14 are secured by first pari passu charge on the book debts (other than those that are exclusively charged/
earmarked to lenders / other Trustees) of the Company in favour of SBICAP Trustee Company Limited.

Tax Free Bonds issued during FY 2012-13 & 2015-16 are secured by first pari passu charge on (a) mortgage of premises at Sub Plot No. 8, TPS No 2,
FP No. 584P, situated at Village Subhanpura, Distt Vadodara and (b) hypothecation of receivables (other than those that are exclusively charged/
earmarked to lenders / other Trustees) in favour of SBICAP Trustee Company Limited.

The Bond Series XV, XVI, XVII, XVIII and XIX of 54EC Capital Gain Tax Exemption Bonds are secured by first pari passu charge on hypothecation of loan
assets (other than those that are exclusively charged/ earmarked to lenders / other Trustees) in favour of SBICAP Trustee Company Limited.

Refer Note No. 10 and 16.2 for the carrying value of loan assets and Property, Plant and Equipment (PPE) pledged as security.

21.7 No charges or satisfaction are yet to be registered with Registrar of Companies (ROC) beyond the respective statutory date.

22. Subordinated Liabilities

The Company has categorised all subordinated liabilities at amortised cost in accordance with the requirements of Ind AS 109.

23.1 Unpaid dividends, unpaid principal and interest on bonds include the amounts which have either not been claimed by the investors or
are on hold pending formalities pursuant to investors' claims etc. The amount due to be transferred to Investor Education and Protection
Fund (IEPF) as at 31^st March 2026 is ?1.06 crore (?0.83 crore as at 31^st March 2025) which has been transferred within the prescribed time limit.
Further, Unpaid Dividend also includes an amount of Nil (previous year ?947.96 crore) pertaining to Interim Dividend declared by the company for
which balance has been transfered in earmarked bank account but yet to be paid to the shareholders.

23.2 Status of Subsidy Under Accelerated Generation & Supply Programme (AG&SP):

The Company is maintaining an Interest Subsidy Fund Account and was given AG&SP subsidy (for disbursement to the eligible borrowers) by
Government of India at net present value calculated at indicative rates and year in accordance with GOI's letter vide D.O.No. 32024/17/97-PFC dated
23.09.1997 and O.M.No.32024/23/2001-PFC dated 07.03.2003 irrespective of the actual repayment schedule, moratorium year and duration of
repayment of the eligible schemes.

26.2 Allotment of Bonus Shares during the year and during preceding five years

During the current year and preceding five years, no bonus shares were issued by the Company except in the FY 2022-23, when the Company had
allotted 65,83,06,000 Equity Shares of ?10 each as fully paid up by way of bonus shares in the ratio of 1 (One) equity share for every 3 (Three) equity
share outstanding on the record date i.e. 18^th August 2022 by capitalising ?658.30 crore out of the sum standing to the credit of 'Securities Premium
Account'.

26.3 The Company has neither issued any equity shares pursuant to contracts without payment being received in cash nor has there been any buy-back
of shares in the current year and five years immediately preceding the balance sheet date.

26.4 Rights, Preferences and Restrictions attached to Equity shares

The holders of the equity shares of the Company are entitled to receive dividends as and when declared by the Company and enjoy proportionate
voting rights in case any resolution is put to vote. Further, the shareholders have all such rights, as may be available to a shareholder of a listed public
company, under the Companies Act, 2013 and rules made thereunder, Companies Act, 1956 (to the extent applicable), SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015 and Memorandum of Association and Articles of Association of the Company.

27.3 The Company had issued Perpetual Debt Instruments of face value of ?10 lakhs each, with no maturity and callable only at the option of the Company
after 10 years. The claims of the holders of the securities shall be (a) Superior to the claims of the holders of the equity shares issued by the Company;
and (b) Subordinated to the claims of all other creditors of the Company. The instruments carry a step up provision if not called after 10 years. The
payment of Coupons may be cancelled or suspended at the discretion of the Company. The coupon of the securities is not cumulative except where
the Company shall not be liable to pay coupon and may defer the payment of coupon, if (i) The Capital to Risk Assets Ratio ("CRAR”) of the Issuer
is below the minimum regulatory requirement prescribed by RBI; or (ii) the impact of such payment results in CRAR of the Issuer falling below or
remaining below the minimum regulatory requirement prescribed by RBI.

As these securities are perpetual in nature and the Company does not have any redemption obligation and discretion on payment of coupon, these
have been classified as equity. Further, the periodic coupon payments are accordingly adjusted with retained earnings.

28.1 Drawdown/ Transfer from Reserves: Pursuant to regulatory guidelines and utilisation of reserves created for specific purposes, the Company has
transferred the following amounts from different reserves to General Reserve:

(i) During the financial year 2025-26

?841.80 crore from Reserve for Bad & Doubtful Debts under Section 36(1)(viia)(c) of the Income Tax Act, 1961 on account of actual write-offs on
loan assets and other recoverables.

(ii) During the financial year 2024-25

?687.76 crore from Reserve for Bad & Doubtful Debts under Section 36(1)(viia)(c) of the Income Tax Act, 1961 on account of actual write-offs on
loan assets and other recoverables.

28.2 Special Reserve created u/s 36(1) (viii) of the Income Tax Act, 1961

Special Reserve created u/s 36(1) (viii) of the Income Tax Act, 1961 is maintained by the Company 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.

The amount referred to in 'A' above are in respect of cases pending in various courts and is dependent upon the verdict of the court.

The amount referred to in B(i) above are against the various demands raised by Income Tax Department. The company is contesting these demands
and the management believes that its position will likely be upheld in the appellate process.

The amount referred to in B(ii) above are against the appeal filed by Income Tax Department in High Court against the relief allowed to the Company
at ITAT level.

The amount referred to in B(iii) above includes ?17.89 crore towards the GST refund appeal filed by the company. Apart from this, ?14.76 crore is on
account of demand raised by GST Department which the company is contesting and management believes that its position will likely be upheld in
the appellate process.

Against the total of taxation demands of ?68.09 crore (previous year ?229.42 crore) as referred in B(i)/(ii)/(iii) above, Company has paid or adjudicating
authority has adjusted ?19.61 crore (previous year ?163.91 crore) under protest and remaining ?48.48 crore (previous year ?65.51 crore) is unpaid as
on 31^st March, 2026.

The amount referred to in D(i) above represent arbitration matters (a) between the contractor and PMC appointed by the company and (b) between
company and Chelsea West Architects, PLLC. The claim is being contested by the PMC and company believes that its position will likely be upheld in
the arbitration process. The amount includes interest @ 12% p.a. on ?8.80 crore and 18% p.a. on ?317.38 crore on the claim amount till 31^st March,
2026.

The amount referred to in D(ii) above represents the fine imposed by National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) of ?0.60 crore
(previous year ?0.18 crore), inclusive of GST, for non-compliance on the Corporate Governance requirement of SEBI (Listing Obligation & Disclosure
Requirements) Regulations, 2015 regarding the position/quorum requirement of Board/Committee, due to inadequate number of independent
Directors.

The Company has requested the Stock Exchanges to waive the fine since the power to appoint Independent Directors is vested with President of
India through the administrative Ministry as per Articles of Association of the Company and the Board of Directors of the Company cannot appoint
Independent Directors on the Board of the Company. As such, there is no violation on the part of the Company in the appointment of Independent
Directors. The Company is hopeful of favorable outcome of its request to the Stock Exchanges in line with the earlier waivers of fine by NSE and BSE
for similar reasons after complying with the requirement.

46. Implementation of Government of India Schemes

46.1 Rooftop Solar Program (RTS)

PM-Surya Ghar: Muft Bijli Yojana was launched by Government of India on 29.02.2024 for installation of Rooftop Solar (RTS) in one crore households
with the financial outlay of ?75,021 crore (including central financial assistance of Rs 65,700 crore) and is to be implemented till FY 2026-27. The
scheme aims to install rooftop solar systems in 1 crore residential households, providing free or low-cost electricity of up to 300 units per month. It
targets the generation of 1,000 billion units of renewable electricity from the installed capacity, which is expected to reduce carbon dioxide equivalent
emissions by 720 million tons over the 25-year lifespan of these rooftop solar projects. This initiative supports India's commitment to its Nationally
Determined Contributions (NDCs) under the UNFCCC by aiming to achieve 30 GW of rooftop solar capacity in the residential sector by FY 2026-27.

46.2 Revamped Distribution Sector Scheme (RDSS)

Government of India has approved the Revamped Distribution Sector Scheme (RDSS) to help DISCOMs improve their operational efficiencies and
financial sustainability by providing result-linked financial assistance to them so as to strengthen supply infrastructure on meeting pre-qualifying
criteria and achieving basic minimum benchmarks. The scheme has an outlay of ?3,03,758 crore over 7 years i.e. FY 2021-22 to FY 2027-28 including
an estimated Government Budgetary Support (GBS) of ?97,631 crore.

Components of the scheme are :

Part A - Financial support for Prepaid Smart Metering & System Metering and up-gradation of the Distribution Infrastructure.

Part B - Training & Capacity Building and other Enabling & Supporting Activities.

46.3 National Electricity Fund (NEF)

The National Electricity Fund (NEF), an interest subsidy scheme, has become operational since FY 2012-13. The scheme has been introduced by the
Government of India to promote capital investment in the distribution sector. The scheme provides interest subsidy linked with reform measures,
on the loans taken by public and private distribution power utilities for various capital works in the Distribution sector. NEF would provide interest
subsidy aggregating up to ?8,466 crore (including interest subsidy to the borrowers, Service Charges to the Nodal Agency, payments to Independent
Evaluators and other incidental expenses) spread over 14 years for loan disbursement against projects approved during 2012-13 and 2013-14. REC
has been nominated as the Nodal Agency for operationalization of NEF scheme across the country.

47. Capital Management

The Company manages its capital to ensure that it will continue as going concern while maximizing the return to stakeholders. The capital structure
of the Company consists of the equity and the long-term borrowings made by the Company.

Management assesses the Company's capital requirements in order to maintain an efficient overall financing structure while avoiding excessive
leverage. The Company manages the capital structure and raises funds through the suitable instruments, in light of the dynamic business environment
and liquidity position within the sector. Further, with regard to capital restructuring, the Company is also guided, inter-alia, by revised 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. The Company has
complied with all externally imposed capital requirements.

Dividend Distribution Policy

Board of Directors monitors the dividend pay-out to the shareholders of the Company. Dividend distribution policy of the Company focuses on
various factors including but not limited to the present & future capital requirements, profits earned during the financial year, Capital to Risk-weighted
Assets Ratio (CRAR), cost of raising funds from alternate sources, cash flow position, net worth of the Company, additional investments in subsidiaries/
associates of the Company and applicable taxes if any, subject to the applicable circulars/ guidelines issued by RBI, DIPAM etc. as applicable from time
to time.

As per the extant guidelines issued by DIPAM, Government of India, the Company is required to pay a minimum annual dividend of 30% of PAT.
Though the Company endeavors to declare the dividend as per these guidelines, the Company may propose lower dividend after analysis of various
financial parameters, cash flow position and funds required for future growth.

Other Policies

The Company has also adopted various policies for the management of the Company which inter-alia include Comprehensive Risk Management
Policy, Whistle Blower Policy, Code of Conduct for Regulating, Monitoring & Reporting of Trading by Designated Persons & their Immediate Relatives
and for Fair Disclosure, Fraud Risk Management policy, The Code of Business Conduct and Ethics for Board Members and Senior Management, Fair
Practices Code, Internal Guidelines on Corporate Governance, Policy on 'fit & proper' criteria of Directors, Policy on diversity and skills of the Board,
criteria for appointing senior management personnel and remuneration to Directors, KMPs and other employees etc.

48. Capital to Risk-weighted Assets Ratio and Liquidity Coverage Ratio

The Company is complying with the Capital Adequacy requirements as per the master directions/ circulars/ guidelines prescribed by the RBI, amended
from time to time. Being an NBFC and Infrastructure Finance Company (NBFC-IFC), REC is required to maintain a Capital Adequacy Ratio or Capital
to Risk Weighted Assets Ratio (CRAR) of 15% (with a minimum Tier I Capital of 10%), computed by dividing company's Tier-I and Tier-II capital by Risk
Weighted Assets.

In order to avoid excessive concentrations of risk, the Company's policies and procedures include specific guidelines to focus on maintaining a
diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly.

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. Pursuant to RBI notification DNBR (PD) CC.NO/.099/03.10.001/2018-19 dated 16^th May, 2019 to augment
risk management practices in the Company, the Board has also appointed a Chief Risk Officer (CRO) who is involved in the process of identification,
measurement and mitigation of risks. The risk management approach i.e. Company's objectives, policies and processes for measuring and managing
each of above risk is set out in the subsequent paragraphs.

RBI vide its Master Direction-RBI/2023-24/107 DoS.CO.CSITEG/SEC.7/31.01.015/2023-24 dated 7^th November, 2023 on Information Technology
Governance, Risk, Controls and Assurance Practice, has mandated the appointment of Chief Information Security Officer (CISO) . The Company has
accordingly, appointed the CISO in compliance of the RBI Directions.

49.1 Credit Risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company's
exposure to credit risk is influenced mainly by cash and cash equivalents, bank balances (other than cash and cash equivalents), investments, loan
assets, trade receivables and other financial assets measured at amortised cost. The Company continuously monitors defaults of customers and other
counterparties and incorporates this information into its credit risk controls.

49. Financial Risk Management

The Company's board of directors has overall responsibility for the establishment and oversight of the Company risk management framework. The
Company has a Integrated Risk Management Policy, which covers, inter-alia, Credit Risk, Liquidity Risk, Market Risk, Operational Risk and Other risk of
the organization. The Company's risk management policies are guided by well-defined systems & processes appropriate for various risk categories,
independent risk oversight and periodic monitoring. A Board Level Risk Management Committee (RMC) has also been constituted under the
chairmanship of Chairman & Managing Director, whose main function is to identify and monitor various risks of the organization and to suggest
actions for mitigation of the same.

This note explains the sources of risk which the entity is exposed to and how the entity manages the risk and the related impact in the financial
statements.

Cash and Cash Equivalents and Bank Balances

Credit risk related to cash and cash equivalents and bank deposits is managed by parking funds in investment grade rated instruments and highly rated
banks and also diversifying the deposit base by investing in different instruments/ banks across the country.

Loans

Credit risk related to borrowers are mitigated through adequate security arrangements for the loans by way of hypothecation of future project loan
assets, receivables, inventories or any other assets, Government Guarantees, Corporate guarantees etc. and additionally Collaterals wherever required. The
Company closely monitors the credit-worthiness of the promoters through well-defined entity appraisal guidelines that are configured from systematic
institutional and project appraisal process analysis to assess the credit risk and define credit limits of borrower, thereby, limiting the credit risk to pre¬
calculated amounts. These processes include a detailed appraisal methodology, identification of risks and suitable structuring and credit risk mitigation
measures in form of pre-disbursement conditions.

Investment in Government Securities (G-SEC), State Development loans and Debt Securities

Credit risk related to investment in High Quality Liquid Assets (HQLAs) is managed by investment in Government Securities, State Development Loans and
PSU Bonds with sound financial health and also diversifying the investment portfolio in different maturity/sector and monitoring the financial health on
regular basis.

Investment in Securities issued by Borrower entities at the time of Loan Settlement/ Resolution

The company received various securities issued by borrower entities as a part of the settlement/ resolution plan duly approved by the Company or the
Consortium of Lenders, as applicable and in case of resolutions under Insolvency & Bankruptcy Code 2016, approved by Committee of Creditors and
National Company Law Tribunal (NCLT) of the competent jurisdiction. Credit risk related to these securities is managed by monitoring the recoverability of
such amounts continuously.

Trade and Other Receivables

Trade and Other Receivables measured at amortized cost includes the fee income and training programme fee at REC Institute of Power Management &
Training Center. Credit risk related to such receivables is managed by monitoring the recoverability of amounts continuously.

Other Financial Assets

Other financial assets measured at amortized cost includes loans and advances to employees and subsidiary, security deposits and other amounts
recoverable, including from Government of India. Credit risk related to these other financial assets is managed by monitoring the recoverability of such
amounts continuously.

49.1.2 Expected Credit Losses (ECL) for financial assets other than loans and investment

Company provides for expected credit losses on financial assets other than loans/investments by assessing individual financial instruments for expectation
of any credit losses:

- For cash and cash equivalents and bank balances (other than cash and cash equivalents) - Since the Company deals with only high-rated banks and
financial institutions for banking operations and the liquid funds category in the debt funds with consistent track record for short term investment of
surplus funds, credit risk in respect of cash and cash equivalents, other bank balances and bank deposits is evaluated as very low.

- For trade and other receivables - Credit risk is evaluated based on Company's knowledge of the credit worthiness and on the basis of recoverability of
receivables from those parties.

- For other financial assets - Credit risk is evaluated based on Company's knowledge of the credit worthiness of those parties and loss allowance is
measured for 12 month expected credit losses upon initial recognition and provide for lifetime expected credit losses upon significant increase in credit
risk.

49.1.3 Expected Credit Loss for investment

In case of Investments, securities with a rating equal to or higher than (BBB-) and DPD of less than 30 days are considered to have a low credit risk and
hence will form a part of Stage 1 assets. Likewise, securities with DPD beyond 30 days (and upto 90 days) or if the rating of the instrument falls below the
lowest investment grade i.e., (BBB-), an investment is considered to have experienced a significant increase in credit risk and is classified as a Stage 2 asset.
An investment is classified as credit-impaired or Stage 3 asset when the issuer company defaulted on discharging its contractual payment obligation for a
period beyond 90 days "OR” the rating of the borrower company downgraded to junk status/defaulted or the company has filed for bankruptcy.

- For Investment in G-Sec, State Development loans and Debt Securities - Considering that the investments are in debt securities including Governemnet
Securities/ minimum investment grade rated Government/ Private Companies, credit risk is considered low.

- For Investment in Securities issued by Borrower entities at the time of Loan Settlement/ Resolution - Credit risk is evaluated on the basis of
recoverability of such securities. Wherever medium or high risk evaluated on such investments, suitable ECL allowance is provided.

49.1.4 Expected Credit Loss for loans

For risk management reporting purposes, the Company considers and consolidates following elements of credit risk:

Credit default risk: The risk of loss arising from a debtor / issuer being unlikely to pay its obligations in full more than 90 days past due on any material

credit obligation; default risk may impact all credit-sensitive transactions, including loans and securities.

Concentration risk: The risk associated with any single exposure or group of exposures with the potential to produce large enough losses to threaten

Company's core operations.

(A) Credit Risk Management

The credit risk is managed at different levels including at appraisal, disbursements and post disbursement monitoring. The Company has "Integrated
Rating Guidelines" and "Comprehensive Risk Management Policy". To mitigate credit risk, the company follows systematic institutional and project
appraisal process to assess the credit risk. These processes include a detailed appraisal methodology, identification of risks and suitable structuring
and credit risk mitigation measures. Further, on periodic basis, the loan assets are reviewed and categorized as High/Moderate/Low based on ECL
methodology. The process for Credit Risk Management are as under:

(i) The Company has "Integrated Rating Guidelines" covering credit assessment, risk grading, collateral requirements, reporting, monitoring of end
utilisation of funds etc. Further, independent Lender legal counsels are appointed to ensure effective documentation and mitigation of legal
risk

(ii) For all existing private sector projects, where the Company is Lead Financial Institution, the Company engages Lender's Independent Engineers
(LIE), Lender's Financial Advisors (LFA) and Lender's Insurance Advisors (LIA), which are independent agencies who act on behalf of various
lenders and consortium members. LIE conducts periodic site visits and submits reports on progress status of the project, after discussion
with borrower and inspection/ review of relevant documents. LFA submit the statements of fund flow and utilization of funds in the project
periodically. In cases where the Company is not the lead Financial Institution, the tasks related to LIE and LFA services are being coordinated
with the lead lender.

The Company also endeavors to appoint a separate Project Management Agency (PMA) for new projects being financed, which subsumes the
entire works of LIE /Project Management Consultant (PMC), LFA and LIA for better coordination among the agencies. PMA is stationed at project
site to closely monitor various day to day project execution activities including monitoring of project progress, review of EPC/non-EPC contracts
& invoices, fund utilization and insurance for the project. PMA also verifies the bills of original equipment manufacturer/ supplier, composite
works contractor and give its recommendation for disbursement. Initial due diligence is also be performed by PMA taking the sanctity of
technical and financial parameters including original project cost & COD.

Concurrent Auditors/Agencies for Specialized monitoring/Cash Flow monitoring agencies are being appointed by REC/Lenders on case to case
basis for effective monitoring of Trust & Retention Account (TRA) for stressed projects.

(iii) The Company has an authorisation structure for the approval and renewal of credit facilities. Authorisation limits have been established
commensurating with the size of business proposal at CMD/Executive Committee/Loan Committee/ Board of Directors based on the
recommendation of Screening Committee, as appropriate.

(iv) The Company has developed risk grading structure to categorise its exposures according to the degree of risk of default by charging appropriate
interest rates and security package.

(v) Regular reports on the credit quality of loan portfolios are provided to Risk Management Committee and Board, which may require appropriate
corrective action to be taken.

(vi) External agencies are appointed from time to time to review the guidelines, policy and existing practices being followed by business units along
with providing the specialist skills to promote best practice throughout the Company for management of credit risk.

(vii) Individual and Group Credit Exposures are assessed against designated limits, before facilities are committed to borrowers by the business unit
concerned. Sanction of additional facilities are also subject to the same review process.

(viii) The Company continuously monitors delays and/ or default of borrowers & other counterparties and their recoverability. On occurrence of
default in the borrower's account, the Company initiates necessary steps to cure the default 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., monitoring of the TRA account, 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), sale of the exposures to other entities/
investors and other recovery mechanisms including invocation of guarantees/ securities to recover the dues.

(B) Credit risk Measurement

The impairment loss allowance on loan assets is provided as per Ind AS 109 in accordance with a board-approved policy, which measures the credit
risk on the basis of key financial and operational parameters to assess improvement/ deterioration in credit quality. Management overlays to the
model output, if any, are duly documented and approved by the Audit Committee. The evaluation of Expected Credit Loss (ECL) is undertaken by an
independent agency, ICRA Analytics Limited (formerly ICRA Online Limited).

The Company has an internal system of grading for State Governments, Public Sector Undertakings and State Power Utilities. However, for State
Distribution Companies (DISCOMs), the Company adopts the ratings by the Ministry of Power as and when they are updated. These ratings are
mapped with external rating grades published by various credit rating agencies as part of rating transition matrix. For private borrowers, the Company
uses the external rating as published by various credit rating agencies, or proxy risk score in case such rating is not available. The proxy risk score
model considers following parameters :

Quantitative factors

Debt/ EBITDA (30% weightage)

Return on Capital Employed (15% weightage)

Interest Coverage (25% weightage)

Gearing (Debt/Equity) (30% weightage)

Qualitative Factors

Quarter wise Operational Parameters like PPA, PLF, ACS - ARR Gap, LAF, CUF etc.

Actual Default dates
Status of the Project

(C) Measurement of Expected Credit Loss (ECL)

Ind AS 109 outlines a "three stage" model for impairment based on changes in credit quality since initial recognition as summarised below:

- A financial instrument that is not credit impaired on initial recognition and whose credit risk has not increased significantly since initial recognition
is classified as "Stage 1".

- If a significant increase in credit risk since initial recognition is identified, the financial instrument is moved to "Stage 2" but is not yet deemed to be
credit impaired.

- If a financial instrument is credit impaired, it is moved to "Stage 3".

- Financial instrument in Stage 1 have their ECL measured at an amount equal to expected credit loss that results from default events possible within
the next 12 months. Instruments in Stage 2 or Stage 3 criteria have their ECL measured on lifetime basis.

(D) Significant Increase in Credit Risk (SICR)

The Company considers a financial instrument to have experienced a significant increase in credit risk in following cases:
For all category of borrowers: -

i. When on any financial instrument if the payment is more than 30 days past due on its contractual payments,

ii. Stage 1 loan asset is undergoing restructuring, until one year of regular payments as per restructuring plan,

iii. Rating/Grading downgraded in rating family of borrower by two or more notches (even if the borrower is in Stage 1 on DPD basis)

Additional factors for private sector borrowers: -

i. Downgrade in the credit rating of borrower to 'C -',

ii. Delay in the date of commencement of commercial operation of project by more than 3 years.

(E) Definition of default and credit-impaired assets

The Company defines a financial instrument as in default, which is fully aligned with the definition of credit-impaired, when the loan account is more
than 90 days past due on its contractual payments or or any such period allowed by the company in line with circular issued by the Reserve Bank of
India.

(F) Measuring ECL - explanation of inputs, assumptions and estimation techniques

Expected credit losses are the product of the probability of default (PD), exposure at default (EAD) and loss given default (LGD), defined as follows:

- PD represents the likelihood of the borrower defaulting on its obligation either over next 12 months or over the remaining lifetime of the instrument.

- EAD represents the amounts, including the principal outstanding (along with Credit Conversation Factor (CCF) applied undrawn portion thereof),
interest accrued, interest overdue on financial asset and outstanding Letters of Comfort/Letter of Undertaking that the Company expects to be
owed at the time of default.

- LGD represents the Company's expectation of loss given that a default occurs. LGD is expressed in percentage and it shows the proportion of the
amount that will actually be lost post recoveries in case of a default.

Determination of Probability of Default (PD)

The Company has analysed the available average annual rating transition matrices published by Credit Rating Agencies to arrive at annual transition
matrix-based PD. This annual transition matrix PD was extrapolated to arrive at the lifetime probability of default of various rating grades by loan
tenure / maturity profile i.e. lifetime PD.

For State Distribution Companies (DISCOMs), the Company adopts the ratings by the Ministry of Power as and when they are updated. MoP and
external rating agencies use different rating nomenclatures. Therefore, both nomenclatures are mapped to convey the same result in terms of credit
risk, ensuring consistency and accuracy in PD assignment.

Loss Given Default (LGD) computation model

Based on the historical trend, research and industry benchmarking the Company has constructed a LGD model. Factors reviewed in the LGD model
include Project cost per unit, PPA status, FSA status etc. Based on internal research the company has benchmarked these factors for Thermal,
Renewable in Private Sector. In case of Private sector borrowers, the realizable value of the assets were arrived using suitable assumptions, including
valuation reports carried out by the company, outcome of the resolution process etc., to arrive at LGD. For State Government and Public sector
projects, the Company has factored in the state support and assumed that the State/Central governments would step in to repay debt obligations of
the state utilities as witnessed in the past.

(G) Key assumptions used in measurement of ECL

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

(I) Collateral and other credit enhancements

The Company employs a range of policies and practices to mitigate credit risk. The most common of these is accepting collateral for funds disbursed.
The Company has internal policies on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans
and advances are:

- Mortgage of Immovable properties

- Hypothecation of Moveable property

- Assignment of project contract documents

- Pledge of instruments through which promoters' contribution is infused in the project

- Pledge of Promoter Shareholding

- Corporate and personal Guarantee of Promoters

(J) Loss allowance

The loss allowance recognized in the period is impacted by a variety of factors, as described below:

- Transfers between Stage 1 and Stages 2 or 3 due to financial instruments experiencing significant increases (or decreases) of credit risk or becoming
credit-impaired in the period, and the consequent "step up” (or "step down”) between 12-month and Lifetime ECL

- Additional allowances for new financial instruments recognised during the period, as well as releases for financial instruments de-recognised in the
period

- Impact on the measurement of ECL due to changes in PDs, EADs and LGDs in the period, arising from regular refreshing of inputs to models

- Financial assets derecognised during the period and write-offs of allowances related to assets that were written off during the period

The following tables explain the changes in the loan assets (including undisbursed Letters of Comfort) and the corresponding ECL allowance between
the beginning and the end of the reporting period:

(O) In accordance with Reserve Bank of India (Non-Banking Financial Companies - Financial Statements: Presentation and Disclosures) Directions, 2025,
had the loans otherwise required to be classified as NPA as per IRACP norms been considered, Gross NPA to Gross Loans ratio would have been 2.19%
(previous year 3.62%) and Net NPA to Net Loans would have been 1.92% (previous year 2.56%) as at 31^st March 2026.

(P) Write off policy

The Company writes off financial assets, in whole or in part, as directed by the order of the Judicial Authority or when it has exhausted all practical
recovery efforts and has concluded 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.

(Q) Techincal write off

The Company has a board approved Technical Write off policy in compliance of the RBI circular on "Resolution of Stressed Assets Direction 2025"
dated 28 November 2025. Technical Write offs are the Stage-III loans assets which remains outstanding at borrowers' loan account level but are

(X) There has been no divergence in Asset Classification and Provisioning assessed during last annual inspection conducted by the RBI for the FY 2024-25
vis-a-vis as reported by the company (Nil for FY 2023-24).

49.2 Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled
by delivering cash or another financial asset. The Company's approach to managing liquidity is to ensure as far as possible, that it will have sufficient
liquidity to meet its liabilities when they are due.

The Company manages its liquidity risk through a mix of strategies, including forward-looking resource mobilization based on projected disbursements
and maturing obligations. The Company has put in place an effective Asset Liability Management System and has also constituted an Asset Liability
Management Committee ("ALCO”) which monitors the liquidity risk with the help of liquidity gap analysis. Further, the Company has implemented a
Board-approved Contingency Funding Plan ("CFP”), which provides a structured framework of early warning indicators, alternative funding sources
and escalation procedures to manage liquidity under severe stress scenarios, in line with the applicable regulatory guidelines.

The Company maintains adequate bank balances, short term investments that are readily convertible into cash and adequate borrowing and
overdraft facilities by continuously monitoring the forecast and actual cash flows and, wherever required, may use measures envisaged under the
CFP to supplement routine liquidity management under stressed conditions.

(v) Refer Note 49.2 for institutional set-up for management of liquidity risk in the Company.

(vi) Liquidity Coverage Ratio (LCR)

Reserve Bank of India, vide its 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 (LCR) by Non-Deposit taking NBFCs with asset size of ?5,000 crore or
more. These guidelines of RBI aims to ensure that Company has an adequate stock of unencumbered High-Quality Liquid Assets (HQLA) that can be
converted into cash easily and immediately to meet its liquidity needs for a 30 calendar day time horizon under a significantly severe liquidity stress
scenario.

The LCR is represented by:

_The Stock of High-Quality Liquid Assets_

Total Net Cash Outflows over the next 30 calendar days

where,

(i) Total net cash outflows is defined as the total expected cash outflows minus total expected cash inflows for the next 30 calendar days, where
the cash flows are assigned a predefined stress percentage, as prescribed by RBI.

(ii) High Quality Liquid Assets (HQLA) means liquid assets that can be readily sold or immediately converted into cash at little or no loss of value or
used as collateral to obtain funds in a range of stress scenarios.

The LCR requirement is binding on NBFCs from December 1,2020.

At Present, HQLA investments are held in INR in the form of Government Securities(G-Sec)/ State Development Loans (SDLs) Securities and majorily
AAA/AA Corporate Bonds. Management is of the view that Company has sufficient liquidity cover to meet its likely future short-term requirements.

49.3 Market Risk - Currency Risk

The Company is exposed to foreign currency risk from various foreign currency debt securities and borrowings primarily denominated in USD, EUR,
JPY and SGD. The Company has a risk management policy which aims to manage the foreign currency risk arising from its borrowings denominated
in a currency other than the functional currency of the Company. The Company uses combination of foreign currency options structures, forward
contracts and cross currency swap to hedge its exposure to foreign currency risk.

An Asset Liability Management Committee (ALCO) is currently functioning under the chairmanship of Chairman and Managing Director (CMD) with
Functional Directors, Chief Risk Officer (CRO) and Executive Directors from Finance and Operating Divisions as its members. ALCO monitors Foreign
currency risk with exchange rate and interest rate managed through various derivative instruments. The Company enters into various derivative
transactions to cover exchange rate through various instruments like foreign currency forwards contracts, currency options, principal only swap
and forward rate agreements. The company has also entered into cross currency swaps in EUR, JPY and CHF to manage risks associated with foreign
currency borrowings. The derivative transactions done by the Company are for hedging purpose and not for trading or speculative purpose.

49.4 Market Risk - Interest Rate Risk

Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in interest rates. Interest rates are
dynamic and dependent on various internal and external factors including but not limited to RBI policy changes and liquidity in the market. Some of
the borrowings of the Company are exposed to interest rate risk with floating interest rates linked to external benchmarks such as EURIBOR, Overnight
SOFR, Term SOFR, SORA, TONA, T-Bills, Repo Rate etc. The Company manages its interest rate risk through various derivative contracts like interest rate
swap contracts, forward interest rate contracts to minimize the risk of fluctuation in interest rates. The Company also uses cross currency interest rate
swaps as a cost-reduction strategy to benefit from the interest differentials in different currencies.

The Company also uses Interest Rate Swaps to manage fair value risk on interest rate borrowings to mitigate the interest rate sensitivity mismatch.
Through such swaps, the fixed rate borrowings amounting to ?11,995.70 crore as on 31^st March 2026 (Previous year ?13,955.70 Crore) have been
converted into floating rate borrowings through the use of MIBOR-linked Overnight Indexed Swaps.

The Company's lending portfolio carries interest at semi-fixed rate i.e. fixed rate of interest with 1/3/6/12/36/60/120 months reset option with the
borrower. The Company reviews its lending rates periodically based on prevailing market conditions, borrowing cost, yield, spread, competitors' rates,
sanctions and disbursements etc. In order to manage pre-payment risks, the Company charges pre-payment premium from borrowers in case of pre¬
payment of loan. The interest rate risk is managed by the analysis of interest rate sensitivity gap statements and by evaluating the creation of assets
and liabilities with a mix of fixed and floating interest rates.

49.5 Hedge accounting

The Company designates certain derivatives as hedging instruments in respect of foreign currency risk and interest rate risk in cash flow hedges. For
option contracts, the Company designates only the intrinsic value of option contracts as a hedged item by excluding the time value of the option.
The changes in the fair value of the aligned time value of the option are recognised in Other Comprehensive Income and accumulated in the cost of
hedging reserve. The time value of the options at the inception of the hedging relationship is reclassified to Profit or Loss on a straight-line basis.

Hedge ineffectiveness 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:

(i) For cross currency swaps and interest rate swaps 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.

(ii) For other interest rate swaps (in cases of late designation), the Company uses dollar offset method using a hypothetical derivatives, dollar offset
method is a quantitative method that consists of comparing the change in fair value or cash flows of the hedging instrument with the change
in fair value or cash flows of the hedged item attributable to the hedged risk.

(iii) For option structures, the Company analyses the behaviour of the hedging instrument and hedged item using regression analysis based dollar
offset method.

The Company has established a hedge ratio of 1:1 for the hedging relationships as the underlying risk and notional amount of the hedging instruments
are identical to the hedged items.

50.4 Refer Note No. 49.3 and 49.4 for Qualitative disclosures on Derivatives and Note No. 49.5 for disclosures related to Hedge
Accounting.

51. RBI (Non-Banking Financial Companies - Registration, Exemptions and Framework for Scale Based Regulation) Directions,
2025 for NBFCs

RBI has introduced Scale Based Framework (SBR) for NBFCs effective from 01^st October, 2022, categorising NBFCs in four layers based on their size,
activity, and perceived risk. RBI has subsequently issued "RBI (Non-Banking Financial Companies - Registration, Exemptions and Framework for Scale
Based Regulation) Directions on November 28, 2025. The Company being a government company, is categorised as NBFC - Middle Layer and is
subject to the guidelines / regulation as applicable for NBFC-Middle Layer.

52. Disclosure of frauds reported during the Year

RBI has introduced RBI (Fraud Risk Management in NBFCs) Direction, 2024 effective from 15^th July, 2024. There were Nil cases of frauds (Previous year
Nil) reported during the year.

53. Exposure Related Disclosures

RBI, vide its letter dated 17^th September 2010 had categorized REC Limited as an Infrastructure Finance Company (IFC) in terms of instructions
contained in RBI Circular DNBS.PD.CC.NO.168/03.02.089/2009-10 dated 12^th February 2010. As an IFC, the total permissible exposure for lending
and investing is 30% of Tier-I capital in case of a single borrower and 50% in case of a single group of borrowers, respectively. The exposure w.r.t
outstanding loans to its borrowers as on date is within the prescribed norms.

53.1 Exposure to Real Estate Sector

The Company has no direct or indirect exposure to real estate sector as at 31^st March 2026 (As at 31^st March 2025 Nil).

Valuation Techniques for fair value disclosures (Level 1, Level 2 and Level 3)

(A) Investment in Quoted Equity /Invit Investments - Level 1 - Investment in listed equity instruments of NHPC Limited, RattanIndia Power Limited and
Units of Raajmarg Infra Investment Trust-2026 Invit are measured at their readily available quoted price in the market.

(B) Derivative Financial Instruments - Level 2 - The fair value has been determined on the basis of mark to market value provided by the banks that
have contracted to hedge the underlying risk. Such valuation is calculated using market observable inputs including forward exchange rates, interest
rates corresponding to the maturity of the contract and implied volatilities.

(C) Investment in Perpetual Bond - Level 2 - The Company had made investments in perpetual bonds of Canara Bank, UCO Bank and Punjab National
Bank which are quoted on NSE/BSE. The Company get the active market transactions (trading data) for these bonds available with NSE/BSE and
valued these perpetual bonds based on trading price as well as by using Yield to Maturity rate(s) available with FIMMDA and rating of the investee
banks.

(D) Investment in Unquoted Equity of Universal Commodity Exchange Limited (UCX) - Level 3 - Investment in unquoted equity shares of UCX is
classified as Level 3. It has been carried at Nil value by the Company due to the company specific reasons. UCX was shut down in 2014, thereby,
ceasing to exist as a going concern.

(E) Investment in Unquoted Equity of Energy Efficiency Services Limited (EESL) - Level 3 - Investment in unquoted equity shares of EESL is classified
as Level 3. EESL ceases to be a Joint Venture (JV) with effect from September 01,2021. During the current financial year, investment made by Company
in Energy Efficiency Services Limited (EESL) has been valued at Net Asset Value method against the Comparable Companies Multiple method, due to
factors affecting the operational performance of EESL.

(F) Investment in Unquoted Equity of Jhabua Power Limited (JPL), JSW Energy (Utkal) Limited (JSWEUL), KSK Mahanadi Limited and TRN Energy
Private Limited - Level 3 - Investment in unquoted equity shares of JPL and IBEUL are classified as Level 3. The company has been alloted equity
shares of the borrower companies pursuant to their respective resolution plans. The management decided to value these equity shares on the basis
of valuation from independent valuer which have considered Market Multiple Method of valuation i.e. the valuation technique covered in IND AS 113.

(G) Investment in Unquoted Preference Shares - Level 3 - Investment in unquoted OCCRPS of RattanIndia Power Limited (RIPL) are classified as Level
3. The company has been alloted OCCRPS of the borrower company pursuant to One Time Settlement arrangement executed on 23^rd December 2019.
The fair value has been taken as Nil as future cash flows are uncertain in such instruments. Any change in expectation of future cash flow is adjusted
to reflect change in fair value of the investment.

(H) Investment in Optionally Convertible Debentures of R.K.M PowerGen Private Limited - Level 3 - Investment in unquoted Optionally Convertible
Debentures (OCDs) of R.K.M PowerGen Private Limited are classified as Level 3, which have been alloted to the Company upon implementation of
restructuring plan with the borrower. The fair value has been taken as Nil as such debentures are unsustainable in nature and future cash flows are
uncertain. Any change in expectation of future cash flow is adjusted to reflect change in fair value of the investment.

(I) Investment in Optionally Convertible Debentures of Dans Energy Private Limited - Level 3 - Investment in unquoted Optionally Convertible
Debentures (OCDs) of Dans Energy Private Limited are classified as Level 3, which have been alloted to the Company upon implementation of
restructuring plan with the borrower. The fair value has been taken as Nil as such debentures are unsustainable in nature and future cash flows are
uncertain. Any change in expectation of future cash flow is adjusted to reflect change in fair value of the investment.

(J) Investment in Optionally Convertible Debentures (OCD) Series A / B of TRN Energy Private Limited- Level 3 - Investment in unquoted Optionally
Convertible Debentures (OCD) Series A / B of TRN Energy Private Limited are classified as Level 3, which have been alloted to the Company upon
implementation of restructuring plan with the borrower. The fair value has been taken as Nil as such debentures are unsustainable in nature and
future cash flows are uncertain. Any change in expectation of future cash flow is adjusted to reflect change in fair value of the investment.

54.2 Reconciliation of Financial Instruments measured at Fair Value through Level 3 inputs

The following table shows the reconciliation of the opening and closing amounts of Level 3 financial assets and liabilities measured at fair value:

Valuation methodologies of financial instruments not measured at fair value

Below are the methodologies and assumptions used to determine fair values for the above financial instruments which are not recorded and measured at
fair value in the Company's financial statements. These fair values were calculated for disclosure purposes only. The below methodologies and assumptions
relate only to the instruments in the above tables:

Financial assets and liabilities

For financial assets and financial liabilities that have a short-term maturity (less than twelve months), the carrying amounts, which are net of impairment, are
a reasonable approximation of their fair value. Such instruments include: cash and cash equivalents, bank balances other than cash and cash equivalents,
contract assets and contract liability without a specific maturity.

Loans and advances to customers

Fair values of loan assets are calculated using a portfolio-based approach, grouping loans as far as possible into homogenous groups based on similar
characteristics. The Company then calculates and extrapolates the fair value to the entire portfolio, using discounted cash flow models that incorporate
interest rate estimates considering all significant characteristics of the loans. Where such information is not available, the Company uses historical experience
and other information used in its collective impairment models.

Financial assets at amortised cost

The fair values of debt securities measured at amortised cost are estimated using a discounted cash flow model based on contractual cash flows using
actual or estimated yields and discounting by yields incorporating the counterparties' credit risk.

Issued debt

The fair values of the Company fixed interest-bearing debt securities, borrowings and subordinated liabilities are determined by applying discounted
cash flows ('DCF') method, using discount rate that reflects the issuer's borrowing rate as at the end of the reporting period. The own non-performance
risk as at 31^st March 2026 was assessed to be insignificant.

Investment in Government Securities (G-SEC) and State Development Loan (SDL)

The Company has made investments in G-SEC and SDL in order to maintain sufficient High Quality Liquid Assets and pledging as Initial Margin as per RBI
guidelines. The Company has computed the fair value using discounted cash flow (DCF) method i.e adding the accrued interest from last coupon date to
the reporting date.

Investment in PSU Bonds

The Company has made investments in PSU Bonds in order to maintain sufficient High Quality Liquid Assets and pledging as Initial Margin as per RBI
guidelines. The company has computed fair value using market inputs i.e., Yield of G-Sec bonds for similar remaining maturity or credit rating wise spread
for PSUs for remaining maturity as per industry practice.

Investments in securities issued by Borrower entities at the time of Loan Settlement/ Resolution

The fair value has been derived by present value technique by discounting future cash flows at interest rate applicable to the borrowers. Any change in
expectation of future cash flow is adjusted to reflect change in fair value of the investment.

All other debt securities, borrowings and subordinated liabilities availed by the Company are variable rate facilities which are subject to changes
in underlying Interest rate indices. Further, the credit spread on these facilities are subject to change with changes in Company creditworthiness. The
management believes that the current rate of interest on these loans are in close approximation from market rates applicable to the Company. Therefore,
the management estimates that the fair value of these borrowings are approximate to their respective carrying values.

Investments Property

The Company obtains independent valuations for its investment properties annually. The fair values of investment property are determined by an
independent registered valuer and the valuation technique adopted is Income approach.

Notes to Accounts

55. There are no Micro and Small Enterprises, to whom the Company owes dues, which are outstanding for more than 45 days as at 31^st March 2026
(previous year Nil). 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 identified on the basis of information available with the Company.

57. Disclosures in respect of Ind AS 116 'Leases'

During the year ended 31^st March, 2026, the expenses relating to short-term leases are ?16.41 crore (previous year ?12.44 Crore). The total cash
outflow towards all leases, including Right-of-Use Assets is ?16.41 crore (previous year ?12.44 Crore).

58. Disclosures for Employee Benefits as required under Ind AS 19 'Employee Benefits':

58.1 Defined Contribution Plans

A. Defined Contribution Superannuation Scheme

The Company pays fixed contribution towards superannuation scheme at pre-determined rates to NPS Trust which invests the funds in the permitted
securities. The balance with the NPS Trust/ separate trust includes the monthly contributions in the members' account along with the accumulated
returns. When the pension becomes payable to the member, the amount standing to the credit of the member is appropriated towards the member's
accumulation and annuities, as opted for by the member.

The Company has recognised an expense of ?9.61 crore (previous year ?11.08 crore) towards defined contribution plans.

58.2 Defined Benefit Plans - Post-Employment Benefits

A. Provident Fund

The Company pays fixed contribution of Provident Fund at pre-determined rates to a separate registered trust which invests the funds in permitted
securities. The trust declares the rate of interest on contribution to the members based upon the returns earned on its investments during the year,
subject to minimum interest rate specified by Employees' Provident Fund Organisation. Any shortfall in the specified interest rate and returns earned
on investments of the trust, for payment of interest to members, is to be compensated by the Company. The Company's obligation towards provident
fund is determined and provided for on the basis of actuarial valuation as per IND AS 19 on Employee Benefits. The details of the fair value of plan
assets and obligations are as under :

58.2.1 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) Asset volatility

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 and macro-economic factors.

(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 market yields at the
end of the reporting period. A decrease in discount rate will increase present values of defined benefit obligations, although this will be partially
offset by an increase in the value of the plans' investments.

(iii) Longevity 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 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) Employee Turnover/ Withdrawl risk

The present value of the defined benefit plan liability is calculated by reference to the expected withdrawl rate in the future. As such, if the actual
withdrawal rate in the future turns out to be more or less than expected then it may result in increase in the plan's liability.

58.2.2 Plan Assets

The fair value of plan assets at the end of reporting period for each category, are as follows:

58.3 Other Long-term Employee Benefits

58.3.1 Earned Leave and Half Pay 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, while there is
no limit for accumulation of half pay leave. Total expenses amounting to ?5.26 crore (Previous year ?10.85 crore) have been made towards these
employee benefits and debited to the Statement of Profit and Loss on the basis of actuarial valuation.

58.3.2 Other employee benefits

Expenses towards long service award and settlement allowance amounting to ?0.21 crore (previous year ?1.27 crore) have been debited to the
Statement of Profit and Loss on the basis of actuarial valuation.

58.4 Employee benefits including Gratuity, PRMF, 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.

58.5 The Company is managing all the superannuation schemes i.e Contributory Provident Fund (CPF), Gratuity, Pension and Post-Superannuation /
Retirement Medical Benefits (PSMB/PRMB) within the overall limit, as prescribed by Department of Public Enterprises (DPE) from time to time.

58.6 Central Government has issued four separate notifications in the Official Gazette dated 21^st November 2025 announcing implementation of four
Labour Codes, viz., the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety,
Health and Working Conditions Code, 2020. Following the implementation of the these labour codes, the Central Government has pre-published
the draft rules on 31^st December 2025 under the respective Labour Codes, for public comment and the final rules are expected to be notified in due
course.

There is no material impact from the enactment of New Labour Codes, 2025 on the financial statement of the Company in the current year (previous
year N/A). Also, the Company continues to monitor the finalisation of Central/State Rules and clarifications from Government on other aspects of the
Labour Codes and would provide appropriate accounting effect as required based on future developments.

59. Status of Documentation Subsequent to Unbundling of SEBs/Utilities

Some of the erstwhile State Electricity Boards (SEBs) against whom loans were outstanding or on whose behalf guarantees were given, were
restructured by the respective State Governments and new entities were formed in the past. Consequently, the liabilities of the erstwhile SEBs stand
transferred to new entities.

Status of Documentation Subsequent to Reorganisation of the State of Jammu & Kashmir

After the bifurcation of the State of Jammu & Kashmir into two Union Territories (UTs) - Jammu & Kashmir UT and Ladakh UT, the existing entities
pertaining to the erstwhile state of J&K have been restructured vide unbundling order dated 23^rd October 2019. The addendums to the agreements
with new restructured departments are yet to be executed. Pending the execution of such documentation, the existing loans for Generation, T&D and
Government schemes are being serviced / repaid in line with the existing loan agreements.

Status of Documentation Subsequent to Reorganisation of the State of Andhra Pradesh

Subsequent to the reorganisation of erstwhile State of Andhra Pradesh, the state of Telangana has been formed on 2^nd June 2014. However, the assets
and liabilities are yet to be transferred to the respective power utilities through a formal Gazette Notification.

Status of Documentation is as under:

(i) Wherever the loans have been sanctioned to erstwhile APCPDCL, APNPDCL and APGENCO prior to bifurcation and documentation has not
been done, these schemes have been re-sanctioned in the name of newly formed utilities and documentation formalities completed and
accordingly the charge has been registered with the Ministry of Corporate Affairs (MCA).

(ii) Wherever the loans sanctioned in the name of erstwhile APCPDCL, APNPDCL prior to bifurcation and documentation formalities completed and
drawls have been made, in these schemes an undertaking has been obtained from the name changed / newly formed utility and disbursements
have been made to the newly formed utility by changing the name of the borrower in the name of new / name changed utility.

(iii) Wherever the Loan is sanctioned in the name of erstwhile APCPDCL, APNPDCL prior to bifurcation and documentation formalities completed
with Government Guarantee and drawls have been made, further documentation for these schemes shall be done on Gazette Notification.

(iv) Once the final transfer scheme is notified through Gazette Notification by Government, 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 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.

Status of Documentation Subsequent to Trifurcation of TANGEDCO

Government of Tamil Nadu vide G.O.No.6 & G.O.No 7 dated 24^th January, 2024 ordered the trifurcation of TANGEDCO into 3 entities i.e. (i) the existing
company TANGEDCO would be renamed as Tamil Nadu Power Distribution Corporation Limited (TNPDCL) and continue to carry on distribution
business (ii) Formation of Tamil Nadu Power Generation Company Limited (TNPGCL) for carrying out thermal & gas power generation business and

(iii) Tamil Nadu Green Energy Corporation Limited (TNGECL) to carry out the green power generation business. Pursuant thereto, the two new entities
viz. TNPGCL and TNGECL were formed on 09^th February, 2024 and 10^th February, 2024 respectively.

Further Government of Tamil Nadu in exercise of powers conferred by Section 131 and 133 of the Electricity Act, 2003 (Central Act 36 of 2003)
notified Tamil Nadu Electricity Restructuring And Transfer Scheme, 2024 vide G.O. (MS) No.32 Energy (B2) Department dated 6^th March, 2024,

64. Previous year figures have been reclassified/ regrouped to conform to the current classification.

65. There are no Off-Balance Sheet SPVs sponsored by the Company, which need to be consolidated as per accounting norms.

66. The Company does not have any Overseas Assets in the form of Joint Ventures/Subsidiaries abroad.

67. The disclosures as required under Reserve Bank of India (Non-Banking Financial Companies - Financial Statements: Presentation and Disclosures)
Directions, 2025 have been made in Note No. 3, 8, 10, 11,22.1,27, 28.1,45, 48, 49, 49.1.4 (M), 49.1.4 (N), 49.1.4 (O), 49.1.4 (P), 49.1.4 (Q), 49.1.4 (R), 49.1.4
(S), 49.1.4 (T), 49.1.4 (U), 49.1.4 (V), 49.1.4 (W), 49.1.4 (X), 49.2.2, 49.2.4, 49.3, 50, 51,52, 53, 56, 60, 61,62, 65, 66, 68, 70.

68. The appointment of Independent Directors is done by the Government of India. These standalone financial statements for the year ended
31^st March, 2026 have been approved by the Board of Directors of the Company on the recommendation of the Audit Committee constituted
without independent directors required under the Companies Act,2013.

69.1 No penalties have been levied on the company by any regulator during the year ended 31^st March 2026 (previous year Nil)
However, during the year, the Company has received notices from the National Stock Exchange of India Ltd. (NSE) and BSE Ltd. (BSE) imposing a
total fine of ?0.60 crore (previous year ?0.18 crore) (inclusive of GST) for non-compliance on the corporate governance requirements of SEBI (Listing
Obligations & Disclosure Requirements) Regulations, 2015 regarding the position/quorum requirements of Board/ Committees, due to inadequate
number of Independent Directors.

The Company has requested the Stock Exchanges to waive the fine since there is no violation on the part of the Company in the appointment of
Independent Directors. The Company is hopeful of favorable outcome of its request to the Stock Exchanges in line with the earlier waivers of fine by
BSE & NSE after complying with the requirement.

69.2 No complaints have been received by the Company from the customers or Offices of Ombudsman during the year ended 31^st March 2026 (previous
year Nil).

70. The Company does not have any transactions with the companies struck off u/s 248 of Companies Act, 2013 during the year ended 31^st March 2026
(previous year Nil).

71. Figures in Rupees have been rounded off to the nearest crore with two decimals, unless expressly stated.

The Notes to Accounts 1 to 71 are an integral part of the Standalone Financial Statements.