deepti report (2)

8/6/2019 Deepti Report (2)

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ACKNOWLEDGEMENT

It is an honor bestowed upon me to express my profound sense of gratitude to the management of Power Finance Corporation (PFC) for allowing me to undertake my summer training in thisesteemed organization.

This to place on record the invaluable help rendered by Mr. Surendra Arora (Senior Manager Recovery Department) And Mr. Satish Kumar (Senior Accountant - my supervisor) for their incessant guidance and constructive criticismthroughout in the past one month of training, which helped meto put a better effort into the project.

During the course of preparation of this project report, I had anopportunity to avail suggestions from many individuals whohelped me in reviewing the report also. I wish to thank all of them for their kind help as and when needed by me.

Above all, I am thankful to almighty without whose blessingsanything would be done.


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EXECUTIVE SUMMARY

Power Finance Corporation deals with the finance to the power sector in India. PFC committed to complete the mission POWER TO ALL UPTO 2012. The process is prevalent in Power Finance Corporation Limited right from its inception.

The project starts with an introduction and overview of the power sector stating its dismal state of affairs, how the government tried to counter the above problems by inviting the IPPs (Independent Power Projects) and relaxing the norms of entry in the power sector. It further goes to state the overall

working capacity of Power Finance Corporation (PFC) and its financial analysis. The project also undertakes a detailed analysis of the process in the Recoverys department and the

possible modes of changing the work from the function wise set up to the process wise set up.


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CONTENTS

Overview On PFC.

Important Procedures.

Loan Recovery.

Repayment Period of Loan.

Financial Products.

Drafting of a Demand Notice.

Recommendations and Suggestions.

Financial Report.

Bibliography.


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OVERVIEW OF PFC

Government of India established Power FinanceCorporation (PFC) in July 1986, as a development

financial institution for the power sector. It endeavors tooperate as a commercial entity, earning an adequate returnon its capital, maintaining a healthy portfolio of loans and has a strong financial base to enable it to borrow on

attractive terms.

In the initial years the focus was on the state utilities, primarily to meet their financial needs and to bridge the gap in the SEBs capital plan outlays. PFC prioritized itsefforts into four main areas. Foremost on the list wasrenovation and modernization of thermal power plants. The

second important area was transmission and distribution

wherein PFC started funding systems improvement schemes such as transformers, distributors etc. Thirdly it financed those generation projects, which are at the last stages of completion and are languishing for want of funds. Thenmost importantly, the institutional development of theborrowers through the Operational and Financial Action

Plan (OFAP) that PFC jointly evolved with stage power utilities and concerned state governments and also monitored their implementation.


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MISSION PFCs mission is to endure as a pivotal development financial institution in the power sector committed tointegrate development of power and its associated sectors bychannelising resources and providing financial, technological and managerial services for enduring development of economic, reliable and efficient systems and institutions

OBEJECTIVEThe initiative of the Ministry Of Power, Government of

India, to set up a developmental financial institution paid off in form of PFC. The main reason behind setting up a

separate institution was the projects, which were earlier

funded by government of India, should be funded by a separate institution which could raise its own money and has its own obligations to pay the money back. PFC used to fund projects coming under various schemes. To name a

few, they are: -

Setting up of thermal and hydel generation plants. Helping the states in setting up a transmission network. Helping the states in going in for distribution. Initiating the renovation and modernization programmes

in the states. Helping the IPPs to come up with new proposals. System improvement and energy conversation schemes.


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PFC provides long-term and short-term financial assistance and tries to meet the divergent requirementsof its borrowers.

TYPES OF BORROWERS

PFC is mainly into giving services in form of loans and advices to the following set of borrowers

State Utilities and Electricity Department

Municipal Run Power Utilities

Center Sector Power Utilities with or without state participation

Joint Sector Organization

Private Sector Organization

Cooperative and Other Societies in power sector


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Important terms of Recovery:

Moratorium & Repayment Period:The moratorium & repayment period would be determined keepingin view the following factors:

1. Commissioning period and type of project.2. Benefit to be derived from the project.

3. Overall repayment obligation of PFC in respect ofresourceamobilized.

Defaults:If follower is not complying with the conditions of the loanagreement or has not effectively utilized the assistance for thepurpose sanctioned or progress in implementation is notsatisfactory, PFC shall have absolute discretion to suspend thedisbursement or alter/cancel/call back the loan. It may also takerecourse to remedial action.

Institutional Development:PFC recognizes the immediate need for efficient improvement inarea of operations of the state power utilities. It also desires to

have satisfactory implementation of Action Plans. It would like tohave institutional strengthening, reforms and restructuring ofstate power sector in order to make it commercially viable.


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MORATORIUM PERIOD:Moratorium period for repayment of various categories of loans

would be six months after the scheduled date of commercialoperation of the project of schemes and for the payment ofinterest would also de six months after the disbursement .

REPAYMENT PERIOD:Repayment period shall be determined keeping in view paybackperiod and credit worthiness of the borrower and it will beregulated as decided by the corporation from time to time.

UPFRONT FEE:The central/state/municipal bodies shall pay to pfc upfront feeof 1% of the loan amount sanction on or before the execution ofMOA. Private power utilities shall pay to PFC upfront fee of1.05% of the loan amount sanctioned on or before the executionof MOA.

MOBILIZATION OF RESOURCES:PFC will mobilize its resources from various sources and in a costeffective manner. The sources of funds for PFC can includeequity, debt issue or public deposit.


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BY PROCESSES:- These are the process, which are carried alongwith the main process of disbursement and recoveries. They are underlinedas follows:-

Rescheduling of loan:- Rescheduling of loan isundertaken at he request of the borrower as he may feel it would forhim to carry on with the current cycle. The rescheduling of loan willhelp in fixing up the equated monthly installments. The defaults asking

for such rescheduling of loan may generally be called as chronicdefaulter. The process is given below:

1. Receiving requests.2. Rescheduling model finalization.3. Making calculations.4. Loan balance fixation.5. Getting approval.6. Making correspondence

7. Reaching an agreement.8 .Implementation.

Delayed payment :- There is a peculiar process to beundertaken in case of delayed payments where the borrower delayshis payments. Delayed payments include the penal interest calculationwith the interest rate currently. If a defaulter has defaulted foe

more than 60 days then a warning note is sent and if exceeds 90 daysthen a suspension notice is being sent to him. Due follow up areundertaken in form of making telephones, sending faxes and circulars.The step by step process undertaken is as follows-

1. Calculation of dues liabilities as per terms and condition.2. Follow up activity.


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Premature payments:- The borrower who wants tomake payments before the schedule often undertakes such payments.

For premature payments a formal request from the borrower is mustand calculation has to be done as per the factor. The process is asfollows:-

1. Request from borrower and approval request to competent authority.2. Calculations and its approval3. Communication to the borrower4. Borrower acceptance and payments.5. Updating of loan balances.

Interest subsidy:- It is given in case of borrower ofSEB and AG&SP. The process is as follows:-

1. Preparation of claim for ministry of power approval.2. Follow up for receipt of subsidy.3. Refund of interest subsidy to borrowers.4. Preparation of quarterly interest subsidy account report.5. Accounting of interest subsidy account report.6. Accounting of interest subsidy utilization.

7. Finalization of yearly interest subsidy account.8. Raising of interest tax demand, if any on subsidy portion.

Report generation:- Is also an important task to beundertaken by disbursement and recoveries. Such reports arenecessary it helps in knowing the exact status as on a particular date.Reports are mainly generated under 4 broad heads-

1. Monthly disbursement report----scheme wise.2. Corporate planning report.3. Default report.4. Exposure report.


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Other important task:- These are some of the taskto be fulfilled along with the above process though on a timely basis-

1. Loan balance conformation from the borrower:-It is done on a yearly basiswhen the balances are confirmed with the borrower.

2. Advance tax details:-are prepared and forwarded to the accountdepartment whenever installments are due.

3. Interaction for auditing confirmation regarding the journal and trialbalance verification.

4. Maintenance of loan ledger.

LOAN RECOVERY

PROCESS IN RECOVERIES

The process to be undertaken in the recoveries department is as follows:-

DATA ENTRY AND PROCESSING


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It takes into account all the data entries to bemade into the system and undertaking the

processing activities. This has already been takencare of earlier at the time of sanctions and executions. The only part left out is the taking out the projection statement borrower-wise.

PREPARING AND SENDING DEMAND NOTES

After taking into account the above details demand notes are prepared and sent to the borrowers as

formal note and reminding the borrower that his

installment is due (copy attached). DEMAND AMOUNT RECEIVED

At this stage the demanded amount is received and in case there is an excess payment. It is the first communicated and then sent back and a data entryis made for the same.

APPROPRIATION OF AMOUNT PAID BY THE BORROWER

The money paid by the Borrower shall be appropriated in the following order:

o Costs, charges, expenses, losses, applicable taxes,

statutory duties and other moneys.o Interest on costs, charges, expenses, losses, applicable

taxes, statutory duties and other moneys

o Penal Interest.


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o Commitment Charges.

o Interest/Interest Tax

o Repayment of principal in the order of the occurrenceof the dues, and lastly,

o Prepayment of principal.

OTHER TASK

These are the processes which are carried on along withthe main process of disbursements and recoveries. They areunderlined as follows:-

REARRANGEMENT PLAN FOR PAYMENT OF DEFAULTED DUES

The process in rescheduling of loans is undertaken at the requests of the borrowers as he may feel it would bedifficult for him to carry on with the current cycle. Thereschedulement of loan will help in fixing up the equated monthly installments (E.M.I.). The defaulters asking for

such reschedulement of loan may generally be called aschronic defaulter. The process is given below-

o On the basis of request from borrow, rearrangement plan for payment of defaulted dues are planned.


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o This involves upto date calculation of all amounts dueincluding penal interest/interest on penal interest.

o Preparing a plan for monthly liquidation of the duesover a period.

o Insisting for Escrow Account security to avoid defaultsof payments under re-arrangement plan.

DELAYED PAYMENT

There is a peculiar process to be undertaken in case of delayed payment, where the borrower delays his payment.

Delayed payment includes the penal interest calculationwith the interest rate of 2.00% currently. If the borrower makes the default in making the payment of penal interest, then he will be charged with interest on penal interest.

The penal interest charged from Borrowers shall be subject to the rebate of different rates, provided therepayment of dues is received in the following manner:

1. In case the payment is received within one

month of the date on which the repaymentsbecome due, 50% of the penal interest due from the date of default till the date of receipt, shall be allowed as rebate.


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2. In case the payment is received within twomonths of the date on which the repaymentsbecome due, 30% of the penal interest due

from the date of default till the date of receipt shall be allowed as rebate.

3. In case the payment is received within threemonths of the date on which the repaymentsbecome due, 10% of the penal interest due

from the date of default till the date of receipt, shall be allowed as rebate. AND,

4. No rebate shall be given in penal interest incase of default of over three months.

PREMATURE PAYMENTS

Such payments are often undertaken by the borrower who wants to make payment before the schedule. For

premature payments a formal request from the borrower is must and calculation has to be undertaken as per the

factor. The process is as followed.

Request from borrower and approval, Request toCompetent Authority.

Calculation and its Approval. Communication to the borrower. Borrower acceptance and payment. Revised calculation if payment after due date. Updating of Loan Balances.

INTEREST SUBSIDY


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It is given in case of borrowers of the SEB undertaking the various reforms as given by Government of Indiaand the scheme is called as Accelerated Generation and

Supply Programme (A.G.S.P.). The process followed under this case is as follows:-

Preparations of monthly claim to Ministry Of Power. Follow-up for Receipt of Subsidy. Refund of Interest Subsidy to Borrowers. Preparation of quarterly Interest Subsidy Account

report. Accounting to Interest Subsidy utilization. Finalization of yearly Interest Subsidy account. Raising of Interest Tax Demand on Subsidy portion.

OTHER IMPORTANT TASKS

These are some of the task to be fulfilled along with theabove processes though on a timely basis. These are:-

Loan Balance Confirmation for the Borrower. It is done on a yearly basis when the balances areconfirmed with the borrower. Advance Tax Details. These are prepared and

forwarded to the accounts department whenever theinstallment is due.


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Interaction for auditing regarding the journal and trial balance verification.

Maintenance of Loan Ledger.

After looking at the process currently being undertakenin PFC. The organization structure shows that projects and

I.D.A. departments are divided regionally while Loan Disbursements and Recoveries department is divided functionally in form of disbursements and recoveriesalthough when it is dealing with the same set of customersas being dealt by projects and I.D.A.. Thus this type of organization structure does not result in cross-divisional

talks as far as Loan Disbursements and Recoveries areconcerned.

FINANCIAL CHARGES

Financial charges such as interest and other chargesincluding upfront fee, penal interest, etc. shall be levied asapplicable to other term loans. The option of payment of commitment charges shall not be applicable for refinancing.

Similarly, management fee and other charges as applicableto existing guarantees may be recovered from the


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borrowers. However, the processing fee may not be charged in such cases.

Besides, the borrower shall be liable to pay other charges,if any, levied on PFC by nay statutory authority upon

sanction of its loan.

Interest Rates On All Disbursements

(I) The Corporation has revisedinterest rates on all disbursementsmade/to be made onorAfter 03.03.2007 as follows:a) Interest Rates with 3 / 10 year reset provision for RTLhave been revisedupward by 75 bps across the board from their existing level.

b) Short Term Loan (STL) Rate has been revised upward by225 bps from itsexisting level. The STL interest shall be paid on monthlybasis.

The applicable interest rates w.e.f. 03.03.2007 for variouscategories/schemes are givenat Annexure - I.

(II) Notes to above rates :-

1. As per PFCs policy, the interest rate prevailing on thedate of disbursement shall be applicable. The revised interestrates as indicated at Para (I) above will be applicable on all


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disbursement made on or after 3rd March 2007 irrespectiveof date of sanction of loans.2. The revised interest rates for Category C State SectorBorrowers and Non-Reforming State Sector Borrowers shallcontinue to be higher by 0.50% than those of ReformingState Sector Borrowers as notified at Annexure-I.3. Interest rates for Transmission, Distribution and R&MSchemes under ADB Loan II to State Sector Utilities shallcontinue to be 0.25% lower than the applicable interest rates.4. The above rates (except the interest rates indicated for

private sector borrowers for project rupee term loans & for

lease finance scheme, and for all borrowers under Direct discounting of bills) are effective interest rates afterrebate/incentive of 0.25% (presently applicable) for timelypayment of dues, unless indicated or intimated otherwise.5. Interest rates for Private Sector Discoms under grade Ashall be same as that of Reforming State Sector Discoms incase they provide Escrow coverage.6. In case of interest rate with reset after 3 / 10 years,

the Corporation shall have the right of interest reset after3 / 10 years beginning with the date of first disbursement.Interest reset, if exercised by the Corporation, shall applyfrom the standard due date immediately following the end of3rd / 10th year period.7. The Large Loans are defined as under:(i) For State/Central Sector Borrowers : - Loans forConventional Generation Projects where the sanction amount is

Rs.700 crores & above.(ii) For Private Sector Borrowers: - Loans for ConventionalGeneration Projects where the sanction amount is Rs.500crores & above.


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The sanction amount shall include both fund and non-fundbased support by PFC and both RTL & FCL. However, thespecial rates shall apply only for RTL.8. (a) In case of State/Central Sector Borrowers, a further0.25% reduction in interest rate on project rupee term loansfor generation projects (other than Large Loans) andinfrastructure projects with forward/backward linkage will beallowed on all disbursement made/to be made on or after13.05.2004, from the date of commissioning of the first unitfor generation projects.(b) In case of Private Sector Borrowers, a further 0.25% /

0.50% (as applicable) reduction in applicable interest rate willbe allowed for existing and new project Rupee Term Loans(both stand alone and consortium loans) for generationprojects (other than Large Loans) and infrastructure projectswith forward/backward linkage on outstanding loanamount/disbursement to be made, from the standard due dateimmediately following the date of COD or 13.05.2004,whichever is later.

This benefit shall be given irrespective of extent ofdisbursement under the loan at that point of time.(c) In case of Large Loans (both State/Central sector andPrivate sector borrowers), a reduction in interest rate by0.25% / 0.50% (as applicable) shall be allowed on alldisbursement made/to be made on or after 13.05.2004 orfrom the date of commissioning of first unit of generation(for State/Central Sector) or C.O.D of project (for Private

Sector), as the casemay be, whichever is later. Further, the reduction in rate(where the reduction is due to commissioning/COD of project)shall bemade from the date of receipt of intimation in PFC in regardto commissioning (for State/Central Sector Borrowers) or COD


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(for Private Sector Borrowers) of project or the actual dateof commissioning/COD of project, whichever is later; providedthat if intimation is received within 5 (FIVE) working daysfrom actual commissioning /COD of the project,the reduction shall be given w.e.f. the date of commissioningor COD, as the case may be. In all the above cases thereduction shall be applicable from the date, the existingpayment-default, if any, under any facility extended by PFC,are cleared by the borrower or the eligibility dates as givenabove, whichever is later.9. In case of Direct Discounting of Bills for Seller, the

existing policy of the Corporation to charge 0.5% interestover and above the normal rates indicated above, if the Billsare not co-accepted/guaranteed by banks and where thepurchase of equipment is by any SEBs/SGCs/CentralGenerating or Transmission company or govt. undertaking uptoan aggregate disbursement amount of Rs. 50 crores onsecurity of escrow account, iscontinued. Since in case of Direct Discounting of Bills for

Seller, the line of credit is available to the seller, theapplicable rate of interest shall be determined on the basis ofcategory of seller of equipment/materials. Similarly in thecase of Direct Discounting of Bills for Buyers, the line ofcredit being available to the buyer, the applicable rate ofinterest shall be determined on the basis of category ofbuyer of equipment/materials.10. A volume discount of 25 bps on applicable interest rate

can be offered in case of loans for Distribution andTransmission schemes on future sanctions, if the disbursementunder these schemes reaches the target amount within thespecified period. The minimum disbursement amount to beconsidered for offering this discount is Rs. 700 crores in caseof Discoms and Transco and Rs. 1,000 crores for an


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integrated SEB for the combined disbursement forDistribution and Transmission Schemes. For this purposeborrowers shall be required to sign a MoU with PFC,committing to draw required amount within a period of 2 yearsfrom the date of signing of MoU. The Transmission /Distribution loans sanctioned after the signing of MoU withPFC would be eligible for the benefit under this policy. Thediscount shall be passed on to the borrowers only on theinterest due on or after drawal of Rs. 700 crores / 1000crores as applicable. The total disbursement made during thespecified period shall be eligible for discount of 25 bps from

the applicable rate till it is repaid. In case of DistributionSchemes to be coveredunder the scheme, one of the following security options shallbe considered:-First Charge on a separate identified circle / First pari-passucharge on total assets of a Discom / Pledge of Equity Shares.11. Identified CPSUs are NTPC, NLC, DVC, NHPC, NPCIL,PGCIL, SJVNL or any other entity as identified by the

Corporation from time to time.12. All interest rates (except STL rate) are on quarterlybasis. In case of EMI, the interest rates shall be applicablefor the purpose of calculation of interest under EMIinstallment.13. In case of STL, the interest shall be paid on monthlybasis.

Guarantee AND SECURITY

The loan shall be guaranteed fully, unconditionally and irrevocably either by the State Government or by the State

Bank of India, or any of its subsidiaries or the


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Nationalized Banks in respect of repayment of principal, payment of interest/service charges, and payment of commitment of charges, penal interest, if any. The StateGovernment or any of the Banks, as aforesaid, shall execute the Guarantee Deed, Guarantee Bond in the form

prescribed by the Corporation for the purpose.

The Borrower shall procure irrevocable and unconditional personal guarantees, inferior of lender for the duerepayment of the Loans and the payment of all interest and other monies by the Borrower in the form prescribed bythe Lender and to be delivered to the Lender before any

part of the Loan is advanced. The Borrower shall not payany guarantee commission to said Guarantors.

CHARGE ON ASSETSThe loan together with all interest (including penal interest), costs, expenses, and other monies whatsoever

stipulated in the Memorandum of Agreement shall be secured by:

Way of mortgage in favour of the Corporation in a form satisfactory to the same of all the Borrowers immovable properties or other assets, as per details enclosed regarding both present and future.

The Borrower shall make out good marketable title to its properties to the satisfaction of the Corporation and complywith all such formalities as may be necessary or required

for the said purpose.

Way of hypothecation in favour of the Corporation of all the Borrowers movable assets (save and except book depts.), including movable machinery, its spares, toolsand accessories, fuel stock, spares and material at project


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site, present and future, save prior charges created and/or to be created:-

--- in favor of the Borrowers Banker, onthe Borrowers stocks of raw materials,

semi-finished and finished goodsconsumable stores and such other movableas may be agreed to by the Corporation for

securing the borrowings for working capital requirements in the ordinary course of business, and

--- on specific items of machinery as permitted by the Corporation purchased or to be purchased by the Borrower under thedeferred payments facilities granted to the

Borrower to the extent of Rs. --- decided by the Corporation.

CREATION OF ADDITIONAL SECURITY

The borrower undertakes that if, at any time during the subsistence of this agreement, the Corporation is of the


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opinion that the security provided by the Borrower hasbecome inadequate to cover the balance of the Loansthen the Borrower shall provide and furnish to theCorporation to cover such deficiency.

REGISTRATION OF CHARGE

The Borrower shall have the particulars of chargesregistered with the Registrar of Companies (ROC) as per the Companies Act with in stipulated time, and shall submit a certificate from the ROC certifying the registration of charge.

The Borrower shall have the particulars of chargeregistered with the Sub-registrar of assurances in case of

English Mortgage wherever executed.

The Borrower shall enhance/open an escrow account for

the entire pendency of the loan to the satisfaction of PFC.

SECURITY


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1. The Loans together with all interest, liquidated damages, front end fee, premia on payment or onredemption, costs, expenses and other monies including any increase as a result of devaluation revaluation

function in the foreign currencies involved payment whatsoever stipulated in this agreement shall be

secured by, A first mortgage and charge in favor of the Security Trustee in a form satisfactory to the Lender of all the Borrowers immovable propertiesboth present and future.

A first registered mortgage and charge in favor

of the Security Trustee on all its immovable properties in Maharashtra, and all its intangibleassets both present and future and a charge over all project contracts, insurance proceeds and bank accounts, and

A first charge by way of hypothecation in favor of the Security Trustee of all the Borrowersmovables, (save and all except book depts.)

including movable machinery, its spares, tools and accessories, present and future, subject to prior charges created and/or to be created in favor of the working capital Lenders of the Borrowers

stock of raw materials, semi-finished goods,consumable stores, book depts. and such other movables as may be agreed by the Lead

Institution.

2. The Borrower shall make out a good and marketabletitle to its properties to the satisfaction of the Lender and comply with all such formalities as may benecessary or required for the said purpose.


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LOAN RECOVERY

PROCESS IN RECOVERIES

The process to be undertaken in the recoveries department is as follows:-

DATA ENTRY AND PROCESSING

It takes into account all the data entries to bemade into the system and undertaking the

processing activities. This has already been takencare of earlier at the time of sanctions and executions. The only part left out is the taking out the projection statement borrower-wise.

PREPARING AND SENDING DEMAND NOTES

After taking into account the above details demand notes are prepared and sent to the borrowers as

formal note and reminding the borrower that hisinstallment is due (copy attached).

DEMAND AMOUNT RECEIVED

At this stage the demanded amount is received and in case there is an excess payment. It is the first communicated and then sent back and a data entryis made for the same.

BY PROCESSES


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These are the processes which are carried on along withthe main process of disbursements and recoveries. They areunderlined as follows:-

REARRANGEMENT PLAN FOR PAYMENT OF DEFAULTED DUES

The process in rescheduling of loans is undertaken at the requests of the borrowers as he may feel it would bedifficult for him to carry on with the current cycle. Thereschedulement of loan will help in fixing up the equated monthly installments (E.M.I.). The defaulters asking for

such reschedulement of loan may generally be called aschronic defaulter. The process is given below-

o On the basis of request from borrow, rearrangement plan for payment of defaulted dues are planned.

o This involves upto date calculation of all amounts dueincluding penal interest/interest on penal interest.

o Preparing a plan for monthly liquidation of the duesover a period.

o Insisting for Escrow Account security to avoid defaultsof payments under re-arrangement plan.


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DELAYED PAYMENT

There is a peculiar process to be undertaken in case of delayed payment, where the borrower delays his payment.

Delayed payment includes the penal interest calculationwith the interest rate of 2.00% currently. If the borrower makes the default in making the payment of penal interest, then he will be charged with interest on penal interest.

The penal interest charged from Borrowers shall be subject to the rebate of different rates, provided therepayment of dues is received in the following manner:

5. In case the payment is received within onemonth of the date on which the repaymentsbecome due, 50% of the penal interest due

from the date of default till the date of receipt, shall be allowed as rebate.

6. In case the payment is received within two

months of the date on which the repaymentsbecome due, 30% of the penal interest due

from the date of default till the date of receipt shall be allowed as rebate.

7. In case the payment is received within threemonths of the date on which the repaymentsbecome due, 10% of the penal interest due

from the date of default till the date of receipt, shall be allowed as rebate. AND,

8. No rebate shall be given in penal interest incase of default of over three months.


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PREMATURE PAYMENTS

Such payments are often undertaken by the borrower who wants to make payment before the schedule. For

premature payments a formal request from the borrower is must and calculation has to be undertaken as per the

factor. The process is as followed.

Request from borrower and approval, Request toCompetent Authority.

Calculation and its Approval. Communication to the borrower. Borrower acceptance and payment. Revised calculation if payment after due date. Updating of Loan Balances.

INTEREST SUBSIDY

It is given in case of borrowers of the SEB undertaking

the various reforms as given by Government of Indiaand the scheme is called as Accelerated Generation and Supply Programme (A.G.S.P.). The process followed under this case is as follows:-

Preparations of monthly claim to Ministry Of Power. Follow-up for Receipt of Subsidy. Refund of Interest Subsidy to Borrowers.

Preparation of quarterly Interest Subsidy Account report. Accounting to Interest Subsidy utilization. Finalization of yearly Interest Subsidy account. Raising of Interest Tax Demand on Subsidy portion.


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APPROPRIATION OF AMOUNT PAID BY

THE BORROWERThe money paid by the Borrower shall be appropriated in the following order:

o Costs, charges, expenses, losses, applicable taxes, statutory duties and other moneys.

o Interest on costs, charges, expenses, losses, applicabletaxes, statutory duties and other moneys

o Penal Interest.

o Commitment Charges.

o Interest/Interest Tax

o Repayment of principal in the order of the occurrenceof the dues, and lastly,

o Prepayment of principal.


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OTHER IMPORTANT TASKS These are some of the task to be fulfilled along with theabove processes though on a timely basis. These are:-

Loan Balance Confirmation for the Borrower. It is done on a yearly basis when the balances areconfirmed with the borrower. Advance Tax Details. The are prepared and

forwarded to the accounts department whenever theinstallment is due. Interaction for auditing regarding the journal and trial balance verification.

Maintenance of Loan Ledger.

After looking at the process currently being undertakenin PFC. The organization structure shows that projects and

I.D.A. departments are divided regionally while Loan Disbursements and Recoveries department is divided functionally in form of disbursements and recoveriesalthough when it is dealing with the same set of customersas being dealt by projects and I.D.A.. Thus this type of organization structure does not result in cross-divisional talks as far as Loan Disbursements and Recoveries areconcerned.


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REBATE

As per PFC policy for rebate, the borrowers who pay their dues on respective due dates are charged interest @ 0.25%lower than the applicable rate. Further, even if a borrower remits the full due amount on or before the respective duedate, in case there outstanding dues from the sameborrower on account of an earlier due date in any of the

facilities such as STL, RTL, FCL etc. then the borrower

will not be eligible for 0.25% rebate in respect of current timely payment.

LOAN RECOVERY

Loan recovery is made on stipulated dates as per the terms

and conditions of agreement of respective loans.

RECOVERY INVOLVES Preparation, checking and issuing demand notices along

with outstanding dues in advance to borrowers including penal interest and interest on interest.

Monitoring receipts against the notices.

Preparing Bank Receipt Vouchers for all the receipts.

Follow-up with defaulters for realizing the dues.

Activate the remedial steps for realizing the dues.


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REMEDIAL STEPS INVOLVE: If the defaulter has defaulted by more than 60 days thena warning notice is sent to him and if it exceeds to 90days then a suspension notice is being sent to him. Due

follow ups are undertaken in form of making telephones, sending faxes and circulars.

Issue of letter of warning of suspension of loandisbursement and sanctions.

Suspension of loan disbursement and sanction till

the defaulted dues are realized. Invocation of Escrow Account - Initiating legal action in case of default. This

involves :o Invocation of State Government Guaranteeo Issue of Legal Notices

Approaching Ministry of Power for appropriation from Central Plan Allocation.

REARRANGEMENT PLAN FOR PAYMENT OFDEFAULTED DUES

On the basis of request from borrower,rearrangement plan for payment of defaulted duesare planned.

This involves upto date calculation of all amountsdue including penal interest/interest on penal interest.

Preparing a plan for monthly liquidation of thedues over a period.


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Insisting for Escrow Account security to avoid defaults of payments under re-arrangement plan.

IMPORTANT DOCUMENTS INVOLVED INLOAN ACCOUNTING AND RECOVERY

1. Loan sanction letter, loan documents and loan drawl schedule accepted in the document.

2. Loan subsidiary ledger.3. Bank Payment Vouchers.4. Bank Receipt Vouchers.

5. Demand Notice for Principal, Interest, Other Charges and Interest Tax.6. Demand Notices for Penal Interest and Interest on

Interest.7. Recovery Register.8. Receipt advices of monies (given by Banking

Department).9. Notice of Warning of suspension.

10. Notice of deferment of warning of suspension.11. Notice of suspension.12. Notice of Invocation under Escrow Account.

REPORTS

Statement of monthly realization and cumulativerealizations (required by Corporate Planning

Department).

Monthly report on outstanding dues (Popularlyknown as Monthly Default Report).


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Monthly Statement of Income accrued but not due(required by Account Department for Balance Sheet

purpose).

CONFIRMATION OF BALANCES

Loan Account-wise balance is drawn up and the statement is sent to every borrower for confirmation of balances ason that date on yearly basis.

FUTURE PROJECTION OF RAEALIZATION

With the data base with us, it is possible to project realizations (Principal, Interest and Other charges) ondifferent matrices like:

Loan Account-wise for a given period. Borrower-wise for a given period. Due-date-wise for a given period.

These projections are useful for Budget Section for preparingAnnual Action Plan and other long term plans.

These projections are useful for Project Division and Loan Execution Division for determining amounts required for establishing Escrow Account.


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RECOVERY UNIT:A. scope of work:

(a) Executives: 1. Follow up for the recovery of dues.2. Correspondence with the borrowers, ministers/state

govts.etc.3. Handling the cases of the respective borrowers who fall in

defaults in terms of the respective loan agreement andprocess the other action for the recovery of dues and toprotect the interest of the corporation.

4. Corporation with all the auditors like statutory auditors,govt.auditors, non current auditors and others.

5. Prepration of replies to queries raisd by various auditors.6. Development in the existing computer system.7. Intiate action for warning /suspension as per loan

agreement.8. Interest restruction of the loan.9. Processing the loan for premature payments.

10. Reschedulement of loans.11. Prepration of agenda notes.12. Prepration of information for parliament question.13. Co-ordinate the policy issue relating to recovery.14. Compilation of information relating to classificaton of

assessts as per the prudential norms.15. Prepration of details for MIS purpose.16. Bifurcation of loan liabilities on restructuring of the SEB


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under reform process.17. Compilation of foreign currency loan statement.18. Finalisation of accounts on monthly basis including passing

of accounts closing enteries.i.e, accural enteries onmonthly basis,notes to account,income


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(c) Issuing authority(d) Dae of expiry.(e) Major conditions, if any.(f) Maturity schedule.

(ii) Details of major securities.(iii) Status of limitation period.

RECOVERY MECHANISM:-

Our recovery mechanism is characterized by the followingfeatures that ensure timely and efficient recovery from ourborrowers:

Long standing and well establishedrelationship with the borrowers;Intensive follow up;Timely payments rebate; andSuspension of further disbursement andsanction in case of default.

The timely payment rebate is allowed to state sector andcentral sector borrowers. The above measures ensures thatclient pay our dues on time. In spite of the above, if there isdefault error account in case of state sector borrowers andaccess reserve in the trust and retention account in case ofprivate sector borrowers, we look to recover on the securitiesgranted over the loan.

The effect of the strong recovery mechanism is reflected inthe following table, which outlines the amount of loaninstallments, including interest, which were overdue as ofMarch 31 for the last five fiscal years:


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REPAYMENT PERIOD OF LOAN

The borrower shall repay the loan amount within thebalance repayment period available. However, the maximumrepayment period allowed for PFC loan shall be regulated as per OPS. For projects which are already fullycommissioned, the repayment of loan shall start immediatelyon the next standard due date from the date of disbursement i.e. no moratorium for repayment for loan

shall be given in these cases. For partially completed projects, moratorium will be as per applicable PFC policy. However even in the latter case, if the repayment of theearlier loan had already begun, PFC repayment shall alsobegin on the next standard due date without anymoratorium.

The interest payment/guarantee fee would begin immediatelyon the next standard due date after disbursement of loanamount/issue of guarantees. The standard due dates shall be on quarterly basis as applicable for term loan/guarantee.

However, in case of consortium financing wherein a certainmoratorium period and first repayment date has alreadybeen agreed upon between consortium members, PFC mayagree for the same after reviewing the situation in totality.


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Revised policy on calculation of premium on premature repayment and debt restructuring of rupeeterm loan.

Eligibility: -This policy shall be applicable for rupee term loans sanctioned to all the borrowers of the corporation unless the term of loan provide otherwise.Where the loans are sanctioned under consortium the provision of respective loan agreements shall prevail.

Procedure for calculation of premium: -The corporation shall charge a premium from the borrowers who opt for premature payment of loan. The premium shall be determined as under:

(a) For pre-mature repayments after 5years from the date of first disbursement under the loan:

The amount of premium shall be the present discounted value of cash

flow (half yearly or quarterly) of the differential interest between the interest to be earned (after rebate) in the absence of repayment request and the interest amount calculated at the current interest rate (after rebate) applicable to corresponding category of scheme over the balance period of loan maturity. The differential interest shall be discounted at the minimum interest rate applicable to state sector borrowers for non-thermal scheme without 10(23g) benefit but after


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rebate for timely payments of dues (at present 10.5%p.a.). However, for differential interest calculation the benefit of 10(23g) will be considered, as applicable, along with timely payment rebate.

(b) For pre-mature repayments in lessthan 5 years from the date of first disbursement under the loan: -

The amount of premium shall be the present discounted value of cash

flow(half yearly or quarterly) of the differential interest between the interest to be earned(after rebate) in the absence of repayment request and the interest amount calculated at the current interest rate (after rebate) applicable to corresponding category of scheme over the balance period of loan maturity. The differential interest shall be discounted at the minimum interest rate applicable to state sector borrowers for non- thermal scheme without 10(23G) benefit but after rebate for timely payments of dues (at present 10.5%p.a). However, for differential calculation the benefit of 10(23G) will be considered, as applicable, along

with the timely rebate.

The premium so calculated shall be increased by the actual amount of benefit already passed on to the borrower by PFC by way of reduction in interest rate for covering the project u/s 10(23G) of Income Tax Act,1961.

Where the corporation has agreed to the pre-payment of loan amount and a demand is raised (by LRD unit) to the borrowers for payment of outstanding

amount including premium as payable under this policy, borrower shall have to clear all the dues within stipulated period Till the dues are cleared the corporation shall continue to raise the demands on due date as per loan agreement.Where the borrow remits the amount without intimating and consent, the corporation shall appropriate such receipts as per loan agreements.


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On the receipts of proposal of pre-mature payments of loan from the borrower, the corporation shall not consider any further disbursement under the relevant loan till the proposal is accepted. On accepting the premature closure of loans the balance undisbursed loan amount, if any, shall

stand cancelled automatically.

In no case the loans covered under AG&SP may be accepted for premature repayments of loan due to implications of subsidy involved in such cases.Pre-payment of a part of loan may not be accepted.

Debt restructuring with PFC:

PFC shall also consider the cases where the borrower requests PFC to restructure the high interest rate loans by paying the premium to PFC in these loans and thereafter continuing with PFC at current applicable rate of interest in the same category of projects. In such cases the premium will be calculated and discount of 50% will be allowed on the amount so calculated.Once the premium is paid by the borrower upto a cut off date, an amendment to the sanction letter will be issued for continuation of loan at the current applicable rate of interest from this cut off date.

In such cases, the corporation may consider further disbursement under the relevant loan.

The loan covered under AG&SP may be considered.

Restructuring of part of the loan may be considered.

Where the borrower prepays loans due to non-acceptance of reset higher interest rate after the interval of 5 years from the first disbursement of loan, no premium shall be recovered from the borrower.

Any other fresh amount etc. payable by the corporation to any third party including Tax Authorities as the result of premature repayment of loan shall be recovered from the borrower. However, any tax liability arisen on amount of withdrawal of benefit u/s 36(1)(8) of Income Tax Act, 1961 shall be borne by the corporation.


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In order to regulate the quantum, the debt restructuring of rupees term loans shall be accepted as under:

Where the borrower requests to PFC prepayments of loans, which havealready been restructured, the corporation may agree to accept prepaymentof such earlier restructured term loans provided the borrower agree torefund the amount of rebate given by the corporation on debt restructuringof such loans.

This revised policy supersedes the earlier policy on premature repayment ofloan approved by the board.

Maximum ceiling on acceptance of debtrestructuring in a financial year (per borrower)

Where borrower has only oneloan.

Rs.100.00 crs.

Other loan above. For debt restructuring: 20% of the outstandingrupee term loans of concerned borrower.

The rupee loan outstanding amount shall be seenin the beginning of the month in which theapplication for debt restructuring is received.


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Range of Financial Products

Fund Based

Project Term Loan (Rupee and Foreign Currency)Short Term LoanShort/Medium Term Loan to Equipment Manufacturers Direct Discounting of Bills Scheme - For Buyers Direct Discounting of Bills Scheme - For SellersLease Financing SchemeBuyer's Line of CreditDebt Refinancing SchemeAsset acquisition SchemeProject Rupee Bridge Loan SchemeLine of Credit for Import of CoalAssistance for Studies/Consultancies/Training

Non-fund Based Guarantee
http://www.pfcindia.com/termloan.pdfhttp://www.pfcindia.com/shorttermloan.pdfhttp://www.pfcindia.com/equipment_manufacturers.pdfhttp://www.pfcindia.com/directdiscounting_buyers.pdfhttp://www.pfcindia.com/directdiscounting_sellers.pdfhttp://www.pfcindia.com/lease_finance.pdfhttp://www.pfcindia.com/loc_buyers.pdfhttp://www.pfcindia.com/debt_refinancing.pdfhttp://www.pfcindia.com/asset_acquisition.pdfhttp://www.pfcindia.com/bridgeloan_state.pdfhttp://www.pfcindia.com/loc_import_coal.pdfhttp://www.pfcindia.com/studies_assistance.pdfhttp://www.pfcindia.com/guarantee_assistance.pdfhttp://www.pfcindia.com/termloan.pdfhttp://www.pfcindia.com/shorttermloan.pdfhttp://www.pfcindia.com/equipment_manufacturers.pdfhttp://www.pfcindia.com/directdiscounting_buyers.pdfhttp://www.pfcindia.com/directdiscounting_sellers.pdfhttp://www.pfcindia.com/lease_finance.pdfhttp://www.pfcindia.com/loc_buyers.pdfhttp://www.pfcindia.com/debt_refinancing.pdfhttp://www.pfcindia.com/asset_acquisition.pdfhttp://www.pfcindia.com/bridgeloan_state.pdfhttp://www.pfcindia.com/loc_import_coal.pdfhttp://www.pfcindia.com/studies_assistance.pdfhttp://www.pfcindia.com/guarantee_assistance.pdf


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Lending OperationsSanctions & Disbursements for the respective years are as under:

(Rs. in Millions)

Financial Year

2002-03 2003-04 2004-05 2005-06 2006-07Sanctions 140,019 164,719 185,728 225,018 311,457

Disbursement 73,406 89,742 94,091 116,809 140,550


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Statements of profits:

The statements of restarted profits of our company for the financial years ended March 31,2002,2003,2004,2005 and 2006. Are set out below.

(Rs. inmillion)

Year ended 31 st March2002 2003 2004 2005 2006

INCOME:

Operating income 21,046.83

26,408.73

28,220.79

28,377.47

30,205.10

Other income. 25.61 131.89 38.39 69.98 20.26

Total income. 21,072.44

26,540.62

28,259.18

28,447.45

30225.36

Expenditure:

Interest and other charges. 10141.28 12,404.56

14219.89 16032.35 18,648.97

Upfront fees and issue expenses 52.51 63.84 13.99 72.00 76.75

Personal and administrationexpenses

277.04 383.55 372.76 446.27 485.20

Depreciation 415.21 414.93 409.12 13..51 13.94

Amortization charges-Intangibleassets.

0.00 0.00 0.13 0.24 0.25


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Provision for contingencies. 351.82 (223.00) 5.65 228.20 (144.02)

Provision for decline in value of investments.

0.00 0.00 0.00 3.30 1.81

Total expenditure 11,237.86

13043.88 15021.54 16795.87 19082.90

Profits before tax and extra ordinaryitems

983,4.58 134,96.74

13,237.64

11,651.58

11,142.46

Less: Provision for taxation 1,879.16 2,570.64 2,661.02 2,091.30 1,923.34

Less: Deferred tax liability 954.83 168,5.10 1,575.91 1,799.52 714.82

Less: Provision for fringe benefittax.

0.00 0.00 0.00 0.00 8.09

Profits after tax &before extraordinary items-(A)

7,000.59 9,241.00 9,000.71 7,760.76 8,496.21

Extra ordinary items:

Interest restructuring premium 0.00 1,291.99 1,882.91 2117.83 1,050.51

Exchange loss (-)/gain (458.00) 56.55 (401.08) 252.09 470.09

Total extra ordinary items. (458.00) 1,348.54 1,481.83 2,369.92 1,520.60

Less: Taxes on extra ordinary items. (87.51) 256.85 297.88 425.37 262.48

Extra ordinary items.(net of taxes)-(B)

(370.49) 1,091.69 1,183.95 1,944.55 1,258.12


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Profits after tax available for appropriation- (A)+(B)

6,630.10 10,332.69

10,184.66

9,705.31 9,754.33


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RECOMMANDATIONS AND SUGGESTIONS

100% recovery is not possible for any institution due tomany factors which are beyond the control of theinstitution. However, at the time of appraisal of schemesevery care should be taken to see the viability of the

project finance by PFC. Because this will ultimatelydetermine the recovery rate of the PFC.


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BIBLIOGRAPHY Annual Report 2005-2006

Internet sites :

1. www.pfcindia.com

2. www.rbi.com
http://www.pfcindia.com/http://www.rbi.com/http://www.pfcindia.com/http://www.rbi.com/

deepti report (2)

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