Audit Report No 34 of 2017 contains the results of compliance audit of loans to Independent Power Producers (IPPs) by Rural Electrification Corporation Limited (REC) and Power Finance Corporation Limited (PFC) over the period 2013-14 to 2015-16.
Non-Performing Assets (NPAs) related to IPP loans, in both companies, increased sharply over the three years period ending 31st March 2016. At the end of 2015-16, total NPAs of `11762.61 crore for IPP loans was recognized in the books of accounts of REC and PFC, of which `10360.39 crore (86 per cent) were NPAs recognised during the three years ending 31st March 2016. Considering that REC and PFC had disbursed `47706.88 crore to IPPs during the same period, the NPA generation works out to a significant 21.72 per cent of the amount disbursed during 2013-14 to 2015-16.
Audit analysed the procedures adopted by REC and PFC for appraisal, sanction and disbursement of loans to IPPs during 2013-14 to 2015-16.
Audit noticed that REC and PFC did not conduct appropriate due diligence during credit appraisal and in the process assumed higher risks on the loan accounts. Both REC and PFC deviated from their internal guidelines and also did not conform to the Reserve Bank of India guidelines. REC and PFC also estimated a higher tariff at the time of appraisal of loan proposals.
There were also non-compliance of clauses of common loan agreements and undue adjustment of interest dues from loan accounts which resulted in deferring of recognition of the NPAs. There were alsocases of siphoning/diversion of funds by borrowers/promoters.