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REC Ltd.

BSE: 532955 Sector: Financials
NSE: RECLTD ISIN Code: INE020B01018
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OPEN 151.40
PREVIOUS CLOSE 151.40
VOLUME 108986
52-Week high 167.75
52-Week low 91.90
P/E 3.41
Mkt Cap.(Rs cr) 29,881
Buy Price 151.25
Buy Qty 248.00
Sell Price 151.45
Sell Qty 123.00
OPEN 151.40
CLOSE 151.40
VOLUME 108986
52-Week high 167.75
52-Week low 91.90
P/E 3.41
Mkt Cap.(Rs cr) 29,881
Buy Price 151.25
Buy Qty 248.00
Sell Price 151.45
Sell Qty 123.00

REC Ltd. (RECLTD) - Auditors Report

Company auditors report

To the Members of

REC Limited (Formerly Rural Electrification Corporation Limited)

Report on the Audit of Standalone Ind AS Financial Statements

Opinion

We have audited the standalone Ind AS financial statements of REC Limited (FormerlyRural Electrification Corporation Limited) ("the Company") which comprise thebalance sheet as at 31st March 2020 and the statement of profit and loss (includingother comprehensive income) and the statement of change in equity and the statement ofcash flows for the year then ended and notes to the standalone Ind AS financial statementsincluding a summary of significant accounting policies and other explanatory information(hereinafter referred to as "the Standalone Ind AS Financial Statements").

In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone Ind AS financial statements give the informationrequired by the Companies Act 2013 ("the Act")in the manner so required andgive a true & fair view in conformity with the accounting principles generallyaccepted in India of the state of the affairs of the Company as at 31st March 2020 andprofit (including other comprehensive income) and changes in equity and its cash flow forthe year ended on that date.

Basis for Opinion

We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Act. Our responsibilities under those Standards are furtherdescribed in the Auditor's Responsibilities for the Audit of the Standalone Ind ASFinancial Statements section of our report. We are independent of the Company inaccordance with the Code of Ethics issued by the Institute of Chartered Accountants ofIndia together with the ethical requirements that are relevant to our audit of thestandalone Ind AS financial statements under the provisions of the Act and the Rulesthereunder and we have fulfilled our other ethical responsibilities in accordance withthese requirements and the Code of Ethics. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of matter

1. We draw attention to Note No. 45.1.3 of the standalone Ind AS financial statementsregarding the provision of impairment allowance in respect of its loan assets andundisbursed Letters of Comfort based on the report provided by the credit rating agencyappointed by the company in this regard. The basis of determination of impairmentallowance which we have relied upon is arrived at by the agency considering theparameters which involve certain technicalities and professional expertise.

2. We draw attention to Note No. 47 of the standalone Ind AS financial statementsregarding the impact of COVID-19 pandemic on the Company. Management is of the view thatthere are no reasons to believe that the pandemic will have any significant impact on theability of the company to continue as a going concern. Nevertheless the impact in sightof evolvement of pandemic in future period is uncertain and could impact the impairmentallowance in future years.

Our opinion is not modified in respect of these matters.

Key Audit Matters

Key audit matters ("KAM") are those matters that in our professionaljudgment were of most significance in our audit of the standalone Ind AS financialstatements of the current period. These matters were addressed in the context of our auditof the standalone Ind AS financial statements as a whole and in forming our opinionthereon and we do not provide a separate opinion on these matters. We have determined thefollowing matters described below to be the key audit matters to be communicated in ourreport:

S. No. Key Audit Matter Auditor's Response
1. Impairment allowance of Loan Assets - We have applied following audit procedures in this regard
(Refer Note No. 45.1.3 to the Standalone Ind AS Financial Statements read with accounting policy No. 3.10) According to the provisions of Ind AS 109 "Financial Instruments" we have obtained the report of the third party and verified the criterion/framework with various regulatory updates alongwith Company's internal guidelines and procedures in respect of the impairment allowance.
The Company follows a Board approved methodology wherein assessment for allowance is carried out by an external agency for impairment based on certain criterion/framework classifying the assets into various stages depending upon credit risk and level of evidence of impairment.
S. No. Key Audit Matter Auditor's Response
1. Impairment allowance of Loan Assets - We have applied following audit procedures in this regard
Impairment allowance is measured as product of the Probability of Default Exposure at Default and Loss Given Default being the key parameters for assessing the impairment allowance. Verification of loan assets with respect to monitoring thereof for recovery/performance aspects and assessment of the loan impairment.
The key indicators underlying for assessment of impairment allowance are appraised on an ongoing basis by the management. Recoveries are verified applying the standard audit procedures. Loan balances are confirmed and quality of the borrower is evaluated and tested with key control parameters.
Further the management has adopted a methodology which in addition to the model adopted as above is further analyzed on case to case basis and wherever impairment impact need to be changed the same is considered in the financial statements. Assessment of performance of the loan assets is carried out on the basis of available documents comprising loan papers financial data valuation reports progress report periodical financial information information on public domain procedure applied by the management e.g. inspection of loans physical verification assessing borrower past records etc. Recoveries in the loan assets are verified to ascertain level of stress thereon and impact as impairment allowance on financial statement..
We have discussed with the management wherever underlying weakness is observed and management assessment is carried out in detail in such cases.
Since the company is an non banking finance company involved in business of financing and if any of the key parameter/criteria/assumptions mentioned as above is applied improperly it can result in impacting the carrying value of loan assets materially either individually or collectively. In view of the significance of the amount of loan assets in the standalone Ind AS Financial Statements i.e. 90.07% of total assets the impairment of loan assets thereon has been considered as Key Audit Matter in our audit. Components and calculations in the study for impairment allowance carried out by third party are relied upon by us and test checks are carried out for the same. Such components are credit rating of borrowers calculation of probability of default/loan given defaults etc. Our audit procedure in the same are limited in view of not sharing certain parameters of study being considered confidential by such third party.
Further the Management pursuing a board approved methodology reviews the impairment allowance in the report of the third party and modified the impairment on case to case basis. We have obtained a detailed analysis from the management for such modification. Our audit procedure in this regard is constrained by the management appraisal and we have relied upon the same.
Verification of Impairment reserve in terms of Income Recognition Assets classification and provisioning norms (IRACP) of Reserve Bank of India created in pursuance of RBI Notification No. DOR (NBFC).CC.PD. No.109/22.10.106/2019-20 dated 13th March 2020.
2. Fair valuation of Derivative Financial Instruments We have applied following audit procedure in this regard
(Refer Note No. 8 to the standalone Ind AS Financial Statements read with accounting policy No. 3.9) Discussing and understanding management's perception and studying policy of the company for risk management. Motive of derivative transactions are studies and observed underlying exposure is not more than the volume of derivatives.
To mitigate the Company's exposure to foreign currency risk and interest rate risk non-INR cash flows are monitored and derivative contracts are entered into in accordance with the Company's board approved risk management policies and RBI guidelines. Verification of fair value of derivative in terms of Ind AS 109
The derivatives are measured at fair value as per Ind AS 109.
S. No. Key Audit Matter Auditor's Response
2. Fair valuation of Derivative Financial Instruments
Testing the accuracy and completeness of derivative transactions.
Evaluation of management's key internal controls over classification valuation and valuation models of derivative instruments.
The Company has applied hedge accounting requirements as per Ind AS 109 'Financial Instruments' prospectively from 1st January 2020 wherein certain derivative contracts have been designated as hedging instruments in 'Cash flow hedge' relationships. These arrangements have been entered into to mitigate foreign currency exchange risk and interest rate risk arising from certain debt instruments denominated in foreign currency. Obtained details of various financial derivative contracts as outstanding/ pending for settlement as on 31st March 2020 from the Company.
Verification of underlying assumptions in estimating the fair valuation arrived at for those financial derivative contracts
Hedge accounting has resulted in significant impact on financial statements coupled with complexity of its accounting/assumptions and numerous parameters therein for establishing hedge relationship. Mark to market gain/ loss on these derivatives are recognised in the other comprehensive income. Reliance on reports evaluating the appropriateness of the valuation methodologies applied and testing the same on sample basis for the derivative instruments.
In view of facts of the matter we have identified it as a key audit matter. We also obtained confirmations from the banks with whom such financial derivative contracts have been entered into and independently compared the valuation so arrived at by the contracting banks.
Additionally we verified the accounting of gain/loss on mark to market basis in the other comprehensive income.
Assessing whether the financial statement disclosures appropriately reflect the Company's exposure to derivatives valuation risks with reference to the requirements of the prevailing accounting standards and Reserve Bank of India Guidelines.
3. Modified audit procedures carried out in light of COVID-19 outbreak We have applied following audit procedures in this regard
(Refer Note No. 47 to the standalone Ind AS Financial Statements)
The SARS-COV-2 virus responsible for Covid-19 continues to spread across the Globe including India which has resulted in a significant decline and volatility in global and Due to COVID-19 pandemic nation-wide lockdown and travel restrictions imposed by Central/ State Government/ local authorities during the period of closing of the financial year and period of our audit the company facilitated carrying out audit remotely as physical access was restricted.
Indian financial markets. It has also caused a significant disruption in the Global and Indian economic activities. On 11th March 2020 the Covid-19 outbreak was declared a global pandemic by the World Health Organisation (WHO). Wherever the physical access was not possible necessary records/ reports/ documents/ certificates were made available to us by the company through digital medium/ emails and other application softwares. To this extent the audit process was carried out on the basis of such documents reports and records made available to us which were relied upon by us as audit evidence for conducting the audit and reporting for the year under audit.
We modified out audit procedures as follows :
Due to COVID-19 pandemic nation-wide lockdown and travel restrictions imposed by Central/ State Government/ local authorities. The lockdown period has been over the period of closing activities of the financial year 2019-2020 and thereafter. It has also effected the period of our audit. Since the access to audit evidence in person/ physically was disrupted due to the unprecedented situation the audit had to be conducted with modified audit procedures. a. Carried out the verification of scanned copies of the documents certificates and the related records made available to us through emails.
We have identified such modified audit procedures as a key audit matter. b. Making inquiries and gathering necessary audit evidence through video conferencing dialogues and discussions over phone calls/ conference calls emails and other similar communication channels.
S. No. Key Audit Matter Auditor's Response
3. Modified audit procedures carried out in light of COVID-19 outbreak We have applied following audit procedures in this regard
c. Resolution of our audit observations telephonically/ through emails instead of a face to face interaction with the designated officials except during the finalisation of annual accounts.
d. The situation of lockdown due to pandemic may have impacted working/reporting etc of other professional e.g. third party agency submitting report of impairment allowance independent valuers internal auditors etc. and we have relied upon the same.
e. Certain information/explanations we have relied upon during our audit were provided to us through verbal assertions by the company.
f. In entire communication through various modes as mentioned hereinabove the records of the company which is confidential have been sent and though utmost care has been taken as explained to us by encrypting such data there are possibility of damage to such data in different ways. We have informed the company in this regard.

Information Other than the Standalone Ind AS Financial Statements and Auditor's Reportthereon

The Company's management and Board of Directors are responsible for the otherinformation. The other information comprises the Directors' report Corporate Governancereport Business responsibility report and Management Discussion and Analysis etc in theAnnual report but does not include the standalone Ind AS financial statements and ourreport thereon. Such other information is expected to be made available to us after thedate of this auditor's report.

Our opinion on the standalone Ind AS financial statements does not cover the otherinformation and we do not express any form of assurance conclusion thereon.

In connection with our audit of the standalone Ind AS financial statements ourresponsibility is to read the other information identified above when it becomes availableand in doing so consider whether the other information is materially inconsistent withthe standalone Ind AS financial statements or our knowledge obtained in the audit orotherwise appears to be materially misstated. When we read such other information if weconclude that there is a material misstatement therein we are required to communicate thematter to those charged with governance.

Management's Responsibility for the Standalone Ind AS Financial Statements

The Company's management and Board of Directors are responsible for the matters statedin Section 134(5) of the Act with respect to the preparation of these standalone Ind ASfinancial statements that give a true and fair view of the financial position financialperformance (including other comprehensive income) changes in equity and cash flows ofthe Company in accordance with the accounting principles generally accepted in Indiaincluding Indian Accounting Standards prescribed under section 133 of the Act read withthe Companies (Indian Accounting Standards) Rules 2015 as amended ("Ind AS").This responsibility also includes maintenance of adequate accounting records in accordancewith the provisions of the Act for safeguarding of the assets of the Company and forpreventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgments and estimates that are reasonable andprudent; and design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the standalone IndAS financial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.

In preparing the standalone Ind AS financial statements management and Board ofDirectors are responsible for assessing the Company's ability to continue as a goingconcern disclosing as applicable matters related to going concern and using the goingconcern basis of accounting unless management either intends to liquidate the Company orto cease operations or has no realistic alternative but to do so.

The Board of Directors is responsible for overseeing the Company's financial reportingprocess.

Auditor's Responsibilities for the Audit of the Standalone Ind AS Financial Statements

Our objectives are to obtain reasonable assurance about whether the standalone Ind ASfinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these standalone Ind AS financial statements.

As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the standalone Ind ASfinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.

• Obtain an understanding of internal financial controls relevant to the audit inorder to design audit procedure that are appropriate in the circumstances. Under section143(3)(i) of the Act we are also responsible for expressing our opinion on whether theCompany has adequate internal financial controls system in place and the operatingeffectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe standalone Ind AS financial statements or if such disclosures are inadequate tomodify our opinion. Our conclusions are based on the audit evidence obtained up to thedate of our auditor's report. However future events or conditions may cause the Companyto cease to continue as a going concern.

• Evaluate the overall presentation structure and content of the standalone IndAS financial statements including the disclosures and whether the standalone Ind ASfinancial statements represent the underlying transactions and events in a manner thatachieves fair presentation.

We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit subject toour audit procedures as referred in para 3 of key audit matters here in above.

We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.

From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the standalone Ind AS financialstatements of the current period and are therefore the key audit matters. We describethese matters in our auditor's report unless law or regulation precludes public disclosureabout the matter or when in extremely rare circumstances we determine that a mattershould not be communicated in our report because the adverse consequences of doing sowould reasonably be expected to outweigh the public interest benefits of suchcommunication.

Other Matters

The audited standalone Ind AS financial statements of the Company for the year ended31st March 2019 were audited by the then Statutory Auditors of the Company both of whomwere predecessor audit firms and they had expressed an unmodified opinion vide theirreports dated 24th May 2019 on such financial statements.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's Report) Order 2016 ("the order")issued by the Central Government of India in terms of sub-section(11) of section 143 ofthe Act and on the basis of such checks of the books and records of the company as weconsidered appropriate and according to the information and explanation given to us wegive in the Annexure-A a statement on the matters specified in paragraph 3 and 4 of theOrder to the extent applicable.

2. On the basis of information and explanations given to us by the company we areenclosing our report in Annexure-B on the directions/sub-directions issued by Comptrollerand Auditor General of India in terms of Section 143(5) of the Act.

3. As required by section 143(3) of the Act we report that:

a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit.

b) In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books.

c) The Balance Sheet the Statement of Profit and Loss (including other comprehensiveincome) the Statement of Changes in Equity and the Cash Flow Statement dealt with by thisReport are in agreement with the books of accounts.

d) In our opinion the aforesaid standalone Ind AS financial statements comply with theInd AS specified under Section 133 of the Act read with relevant rules.

e) Vide Notification No. G.S.R. 463(E) dated 5 June 2015 issued by Ministry ofCorporate Affairs Government Companies have been exempted from applicability of theprovisions of Section 164(2) of the Companies Act 2013.

f) With respect to the adequacy of the internal financial controls with reference tothe Standalone Ind AS Financial Statements of the Company and the operating effectivenessof such controls refer to our separate report in "Annexure-C";

g) Pursuant to Notification no. GSR463(E) dated dated 5th June 2015 issued by theMinistry of Corporate Affairs provisions of Section 197 of the Act are not applicable tothe government companies.

h) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us:

(i) The Company has disclosed the impact of pending litigations on its financialposition in its standalone Ind AS financial statements - Refer Note 40.1 to the standaloneInd AS financial statements;

(ii) The Company does not have any long term contracts including derivative contractsfor which there are any material foreseeable losses;

(iii) There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company.

M/s S.K. Mittal & Co. M/s O.P. Bagla & Co. LLP.
Chartered Accountants Chartered Accountants
ICAI Firm Registration: 001135N ICAI Firm Registration: 000018N/N500091
Name : Gaurav Mittal Name : Atul Aggarwal
Designation : Partner Designation : Partner
Membership Number : 099387 Membership Number : 092656
UDIN : 20099387AAAABK4718 UDIN : 20092656AAAADS1054
Place : New Delhi
Date : 17th June 2020

ANNEXURE-A TO THE INDEPENDENT AUDITOR'S REPORT

Referred to in Paragraph under 'Report on Other Legal and Regulatory Requirements'section of our report of even date on the accounts of REC Limited (formerly RuralElectrification Corporation Limited) for the Year ended on 31st March 2020

(i) (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets (Property Plant and equipment) .

(b) According to the information and explanations given to us the Company has thepolicy of verifying the fixed assets (Property Plant and equipment) in a phased manner.Discrepancies arising from such physical verification have been suitably accounted for inthe books of accounts. In our opinion the periodicity of physical verification isreasonable having regard to the size of the Company and the nature of its assets.

(c) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the title deeds of immovable properties areheld in the name of the Company except for the following:

(Rs in Crores)

Particulars No. of cases Gross Block Net Block Remarks
Freehold Land 1 68.31 68.31 Conveyance Deed by Haryana Urban Development Authority is yet to be executed.
Building 1 4.59 2.14 Conveyance Deed by Standing Committee of Public Enterprises is yet to be executed.

(ii) The Company being Non-Banking Financial Company (NBFC) does not has anyinventory; as such this clause is not applicable.

(iii) According to the information and explanations given to us the Company has notgranted any loans secured or unsecured to any Companies firms or other parties coveredin register maintained under section 189 of the Companies Act 2013. Accordingly clause3(iii)(a) (b) and (c) of the Order are not applicable.

(iv) In our opinion and according to information & explanations given to us withrespect to the provisions of Section 185 of the Act the Company has not granted any loanor guarantee in accordance with Section 185.

Further in our opinion and according to information & explanations given to usthe Company being a Non-Banking Financial Company (NBFC) is exempt from the provisionsof Section 186 of the Act and the relevant rules in respect of loans and guarantees. Inrespect of the investments the Company has complied with the provisions of section 186(1) of the Act.

(v) According to the information and explanations given to us the Company has notaccepted any deposits from public to which the provisions of Sections 73 to 76 or anyother relevant provisions of the Companies Act 2013 and the Rules framed thereunder.

(vi) We are of the knowledge and have been explained that being an NBFC company theCentral Government has not prescribed the maintenance of cost records for the services ofthe Company under Companies (Cost Records and Audit) Rules 2014 prescribed by theCentral Government under Section 148 of the Companies Act 2013. Accordingly this clauseof the order is not applicable to the Company.

(vii) (a) On the basis of our checks and audit procedures we are of the opinion thatthe Company is generally regular in depositing undisputed statutory dues includingprovident fund employees' state insurance income-tax goods & service tax cess andany other statutory dues to the appropriate authorities. There were no undisputedstatutory dues in arrears as at 31st March 2020 for a period of more than six months fromthe date they became payable.

(b) According to the information and explanations given to us and as certified by themanagement on which we have relied upon the dues of income tax as follows aggregating toRs 28.42 crores have not been deposited on account of dispute/ deposited under protest andthe matters are pending before appropriate authorities as detailed below:

Name of Statute Nature of Dues Amount Disputed Amount paid / refund adjusted Net Amount unpaid Period to which the amount relates Forum where dispute is pending
Income Tax Act 1961 Fringe Benefit Tax 0.48 0.40 0.08 2008-09 Commissioner of Income Tax (Appeals) Delhi
Income Tax Act 1961 Income Tax and interest 113.50 111.35 2.15 2010-112011-12 2012-132017-18 Commissioner of Income Tax (Appeals) Delhi
Income Tax Act 1961 Income Tax and interest 79.32 71.43 7.89 2013-14 201415 2015-16 2016-17 Income Tax Appellate Tribunal Delhi
Income Tax Act 1961 Income Tax and interest 8.52 3.59 4.93 1998-991999-00 2000-012006-07 2009-102010-11 2011-12 Delhi High Court
Income Tax Act 1961 Income Tax and interest 17.06 3.76 13.30 1999-002003-04 2004-05 Supreme Court
Income Tax Act 1961 TDS 0.07 - 0.07 CPC TDS
Total 218.95 190.53 28.42

* Rs. 26.13 Crore though received by the Company as refund/demand reduced to nil due toappeal effects of favorable decisions of various appellate forums is however beingconsidered as unpaid on account of further appeals made by the Income Tax Department tohigher authorities.

(viii) According to the information and explanations given to us and on the basis ofour examination of the records of the Company the Company has not defaulted in repaymentof loans or borrowing to a financial institution bank government or dues to debentureholders as at the Balance Sheet date.

(ix) The Company did not raise any money by way of initial public offer or furtherpublic offer. Money raised by the Company by way of debt instruments and term loans duringthe year were applied for the purposes for which it was raised.

(x) During the course of our examination of the books and records of the Companycarried out in accordance with the generally accepted auditing practices in India andaccording to the information and explanations given to us we have neither come across anyinstance of any material fraud by the Company or on the Company by its officers oremployees noticed or reported during the year nor have we been informed of any such caseby the Management.

(xi) According to the information and explanations given to us Central Government hasexempted the Government Companies from the provisions of Section 197. Accordingly thisclause of the Order is not applicable to the Company.

(xii) According to the information and explanations given to us the Company is not aNidhi Company. Accordingly this clause of the Order is not applicable to the Company.

(xiii) According to the information and explanations given to us and on the basis ofour examination of the records of the Company transactions with the related parties arein compliance with section 177 and 188 of the Act where applicable and the necessarydisclosures have been made in the standalone Ind AS financial statements etc. as requiredby the applicable accounting standards.

(xiv) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the Company has not made any preferentialallotment or private placement of shares or fully or partly convertible debentures duringthe year.

(xv) According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not entered into non-cashtransactions with directors or persons connected with them. Accordingly this clause ofthe Order is not applicable.

(xvi) We have been informed that the Company is registered as an non-banking financecompany under section 45-IA of the Reserve Bank of India Act 1934. The registrationnumber issued to the company is 14.000011.

M/s S.K. Mittal & Co. M/s O.P. Bagla & Co. LLP.
Chartered Accountants Chartered Accountants
ICAI Firm Registration: 001135N ICAI Firm Registration: 000018N/N500091
Name : Gaurav Mittal Name : Atul Aggarwal
Designation : Partner Designation : Partner
Membership Number : 099387 Membership Number : 092656
UDIN : 20099387AAAABK4718 UDIN : 20092656AAAADS1054
Place : New Delhi
Date : 17th June 2020

ANNEXURE-B TO THE INDEPENDENT AUDITOR'S REPORT

Referred to in Paragraph under 'Report on Other Legal and Regulatory Requirements'Section of Our Report of Even Date on the Accounts of REC Limited (formerly RuralElectrification Corporation Limited) for the Year ended on 31st March 2020

Sl. No. Directions Action Taken Impact on Standalone Ind As Financial Statements
A. Directions
1. Whether the Company has system in place to process all the accounting transactions through IT system Rs If yes the implications of processing of accounting transactions outside IT system on the integrity of the accounts along with the financial implications if any may be stated. The Company has ERP R12 version to process all the accounting transactions through IT system. All the accounting including at Regional and State offices is done through the centralized ERP system. No impact on the standalone Ind AS Financial Statements
2. Whether there is any restructuring of an existing loan or cases of waiver/write off of debts /loans/interest etc. made by a lender to the Company due to the Company's inability to repay the loan Rs If yes the financial impact may be stated. There has been no such case and the company has been regularly servicing its debt and borrowings obligations. No impact on the standalone Ind AS Financial Statements
3. Whether funds received/receivable for specific schemes from central/ state agencies were properly accounted for/ utilized as per its term and conditions Rs List the cases of deviation. The Company has not received any funds for specific schemes from central/ state agencies for utilization. No impact on the standalone Ind AS Financial Statements
M/s S.K. Mittal & Co. M/s O.P. Bagla & Co. LLP.
Chartered Accountants Chartered Accountants
ICAI Firm Registration: 001135N ICAI Firm Registration: 000018N/N500091
Name : Gaurav Mittal Name : Atul Aggarwal
Designation : Partner Designation : Partner
Membership Number : 099387 Membership Number : 092656
UDIN : 20099387AAAABK4718 UDIN : 20092656AAAADS1054
Place : New Delhi
Date : 17th June 2020

ANNEXURE-C TO THE INDEPENDENT AUDITOR'S REPORT

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 ("the Act")

We have audited the internal financial controls over financial reporting of REC Limited(formerly known as Rural Electrification Corporation Limited) the Company as of 31st March2020 in conjunction with our audit of the standalone Ind AS financial statements of theCompany for the year ended on that date.

Management's Responsibility for Internal Financial Controls

The Company's management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls over Financial Reportingissued by the Institute of Chartered Accountants of India (‘ICAI'). Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to Company's policies the safeguarding ofits assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Act.

Auditors' Responsibility

Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note on Audit of Internal Financial Controls over Financial Reporting(the "Guidance Note") and the Standards on Auditing issued by ICAI and deemedto be prescribed under section 143(10) of the Act to the extent applicable to an audit ofinternal financial controls both applicable to an audit of Internal Financial Controland both issued by the Institute of Chartered Accountants of India. Those Standards andthe Guidance Note require that we comply with ethical requirements and plan and performthe audit to obtain reasonable assurance about whether adequate internal financialcontrols over financial reporting was established and maintained and if such controlsoperated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgment including the assessment of the risks ofmaterial misstatement of the standalone Ind AS financial statements whether due to fraudor error.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls systemover financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A Company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of standalone Ind AS financial statements for external purposes in accordancewith generally accepted accounting principles. A Company's internal financial control overfinancial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the Company;

(2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of standalone Ind AS financial statements in accordance with generallyaccepted accounting principles and that receipts and expenditures of the Company arebeing made only in accordance with authorizations of management and directors of theCompany; and

(3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition use or disposition of the Company's assets that could have amaterial effect on the standalone Ind AS financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion the Company has in all material aspects an adequate internalfinancial controls system over financial reporting and such internal financial controlsover financial reporting were operating effectively as of 31 March 2020 based on theinternal control over financial reporting criteria established by the Company consideringthe essential components of internal control stated in the Guidance Note on Audit ofInternal Financial Controls over Financial Reporting issued by the Institute of CharteredAccountants of India.

We have considered the areas of improvement identified which needs furtherstrengthening as reported above in determining the nature timing and extent of audittests applied in our audit of the 31 March 2020 standalone Ind AS financial statements ofthe Company. However these areas of improvement do not affect our opinion on thestandalone Ind AS financial statements of the Company.

M/s S.K. Mittal & Co. M/s O.P. Bagla & Co. LLP.
Chartered Accountants Chartered Accountants
ICAI Firm Registration: 001135N ICAI Firm Registration: 000018N/N500091
Name : Gaurav Mittal Name : Atul Aggarwal
Designation : Partner Designation : Partner
Membership Number : 099387 Membership Number : 092656
UDIN : 20099387AAAABK4718 UDIN : 20092656AAAADS1054
Place : New Delhi
Date : 17th June 2020

NON-BANKING FINANCIAL COMPANIES AUDITORS' REPORT FOR THE YEAR ENDED 31st MARCH 2020

The Board of Directors

REC Limited (formerly Rural Electrification Corporation Limited)

Core-4 SCOPE Complex 7 Lodhi Road New Delhi - 110003

We have audited the accompanying standalone financial statements of REC Limited(formerly Rural Electrification Corporation Limited ("the Company") whichcomprise the Balance Sheet as at 31st March 2020 the Statement of Profit and Loss and theStatement of Cash Flows and the Statement of changes in equity for the year ended on thatdate and a summary of the significant accounting policies and other explanatoryinformation (hereinafter referred to as "the standalone financial statements").

As required by the "Non-Banking Financial Companies Auditor's Report (ReserveBank) Directions 2016" issued by Reserve Bank of India (RBI) vide notification no.DNBS.PPD.03/66.15.001/2016-17 dated 29th September 2016 on the matters specified in para3(A) and 3(C) of Chapter-II of the said Directions to the extent applicable to the companyand according to the information and explanations given to us for the purpose of audit wereport that:

1. The Company had been granted registration under section 45-IA of the Reserve Bank ofIndia Act 1934 on 10th February 1998 vide Certificate of Registration No. 14.000011. RBIissued further Certificate dated 17th September 2010 in lieu of earlier certificate havingcategorized REC Ltd as an Infrastructure Finance Company in terms of instructionscontained in RBI Circular CC No. 168 dated 12th February 2010. Consequent upon change ofname of the Company from Rural Electrification Corporation Limited to REC Limited RBI hasissued fresh certificate of registration bearing no. 14.000011 dated 28th November 2018with the name of REC Limited.

2. The company is entitled to continue to hold such registration in terms of its asset/income pattern as on 31st March 2020.

3. The Company is meeting the requirement of net owned funds applicable to anInfrastructure Finance Company as laid down in Master Direction-Non Banking FinancialCompany-Systemically Important Non Deposit taking Company and Deposit taking Company(Reserve Bank) Direction 2016 dated 1st September 2016.

4. The Board of Directors of the Company in its meeting held on 4th February 2020 haspassed resolution for non-acceptance of any public deposits for the year 2019-20.

5. The Company has not accepted any public deposits during the financial year 2019-20.

6. The financial statements of the Company for the year 2019-20 have been prepared inaccordance with recognition and measurement principles of Ind AS prescribed under section133 of the Companies Act 2013 read with relevant rules issued thereunder.

Accordingly the company is following board-approved methodology for computation ofImpairment allowance towards provisioning for its loan assets and classification thereof.In view of regulatory compliance of Companies Act 2013 for adoption of a mechanism forpreparation of financial statements the Company could not follow the Prudential normsrelating to income recognition accounting standards asset classification andprovisioning (IRACP norms) for Bad and Doubtful debts in terms of the directions 2016. Inthis regard in compliance of RBI Notification No. DOR(NBFC).CC.PD.No.109/22.10.106/2019-20 dated 13th March 2020 the Company has appropriatedthe difference between the impairment allowance under Ind AS 109 and the provisionsrequired under IRACP Norms (including standard asset provisioning) to the "ImpairmentReserve".

7. a) In our opinion the Capital Adequacy ratio as disclosed in the Return submittedto RBI in Form NBS-7 has been correctly arrived on the basis of provisional financialstatements and such ratio is in compliance with minimum CRAR prescribed by RBI.

b) As per information and explanation given to us the annual statement of capitalfunds risk assets/ exposure and risk asset ratio (NBS-7 return) as on 31st March 2020 hasbeen filed by company on 15th May 2020 on the basis of the provisional financial results.

M/s S.K. Mittal & Co. M/s O.P. Bagla & Co. LLP.
Chartered Accountants Chartered Accountants
ICAI Firm Registration: 001135N ICAI Firm Registration: 000018N/N500091
Name : Gaurav Mittal Name : Atul Aggarwal
Designation : Partner Designation : Partner
Membership Number : 099387 Membership Number : 092656
UDIN : 20099387AAAABK4718 UDIN : 20092656AAAADS1054
Place : New Delhi
Date : 17th June 2020

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