`

DRAFT SHELF PROSPECTUS Dated February 07, 2011

POWER FINANCE CORPORATION LIMITED (Incorporated on July 16, 1986 under the Companies Act, 1956 as a public limited company)

Registered Office and Corporate Office: Urja Nidhi, 1, Barakhamba Lane, Connaught Place, New Delhi 110 001, India. Tel: +91 11 2345 6000. Fax: +91 11 2341 2545.

Compliance Officer & Company Secretary: Mr. J.S. Amitabh, Tel: +91 11 2345 6740 Fax: +91 11 2345 6786. E-mail: pfcinfrabonds@pfcindia.com. Website: www.pfcindia.com.

PUBLIC ISSUE BY POWER FINANCE CORPORATION LIMITED (COMPANY OR ISSUER) OF LONG TERM INFRASTRUCTURE BONDS OF FACE VALUE OF ` 5000 EACH, IN THE NATURE OF UNSECURED, REDEEMABLE, NON-CONVERTIBLE DEBENTURES, HAVING BENEFITS UNDER SECTION 80CCF OF THE INCOME TAX ACT, 1961, AS AMENDED, (BONDS), UP TO ` 5,300 CRORES* (ISSUE). THE BONDS WILL BE ISSUED AT PAR IN ONE OR MORE TRANCHES UP TO ` 5300 CRORES*, ON THE TERMS AND CONDITIONS SET OUT IN THIS SHELF PROSPECTUS AND SEPERATE TRANCHE PROSPECTUSES FOR EACH SUCH TRANCHE. The Issue is being made under the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 (SEBI Debt Regulations). *The Issue shall not exceed 25% of the incremental infrastructure investment made by the Company during Fiscal 2010

GENERAL RISKS Investors are advised to read the Risk Factors carefully before taking an investment decision in relation to this Issue. For taking an investment decision, investors must rely on their own examination of the Issuer and the Issue, including the risks involved. Specific attention of the investors is invited to Risk Factors on page 8 .This document has not been and will not be approved by any regulatory authority in India, including the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), any registrar of companies or any stock exchange in India. The Bonds are subject to a statutory lock-in for a minimum period of five years from the Deemed Date of Allotment and no trading market would exist or be established for the Bonds for this period, despite the Bonds being listed.

ISSUERS ABSOLUTE RESPONSIBILITY The Issuer, having made all reasonable inquiries, accepts responsibility for and confirms that this Shelf Prospectus contains all information with regard to the Issuer and the Issue, which is material in the context of this Issue, that the information contained in this Shelf Prospectus is true and correct in all material respects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other material facts, the omission of which makes this Shelf Prospectus as a whole or any such information or the expression of any such opinions or intentions misleading in any material respect.

CREDIT RATING CRISIL Limited (CRISIL) has, by its letter no. SM/FSR/PFC/2010-11/1601 dated February 04, 2011 assigned a rating of AAA/Stable to the Bonds. Further, ICRA Limited has, by its letter no. D/RAT/2010-2011/P3/8 dated February 04, 2011, assigned a rating of LAAA to the Bonds. These ratings are not a recommendation to buy, sell or hold securities and investors should take their own decision. These ratings are subject to revision or withdrawal at any time by the assigning rating agency(ies) and should be evaluated independently of any other ratings. For the rationale for these ratings, see Annexure II.

PUBLIC COMMENTS The Draft Shelf Prospectus dated February 07, 2011 was filed with the Designated Stock Exchange, pursuant to the provisions of the SEBI Debt Regulations and was open for public comments for a period of seven Working Days, i.e., until 5 p.m. on February 17, 2011.

LISTING The Bonds are proposed to be listed on the Bombay Stock Exchange Limited (BSE). BSE have given its in-principle listing approval by its letter dated []. The Designated Stock Exchange for the Issue is BSE.

LEAD MANAGERS TO THE ISSUE REGISTRAR TO THE ISSUE DEBENTURE TRUSTEE FOR THE BONDHOLDERS

ICICI SECURITIES LIMITED ICICI Centre, H.T. Parekh Marg, Churchgate, Mumbai 400 020 Tel: +91 (22) 2288 2460/ 70; Fax: +91 (22) 2282 6580 Email: pfcbonds@icicisecurities.com Investor Grievance Email: customercare@icicisecurities.com Website: www.icicisecurities.com Contact person: Mr. Mahesh Natarajan Compliance Officer: Mr. Subir Saha

SEBI Registration No.: INM000011179

SBI CAPITAL MARKETS LIMITED 202, Maker Tower E, Cuffe Parade, Mumbai 400 005 Tel: +91 (22) 2217 8300; Fax: +91 (22) 2218 8332 Email: pfcbonds@sbicaps.com Investor Grievance Email: investor.relations@sbicaps.com Website: www.sbicaps.com Contact person: Mr. . Puneet Deshpande Compliance Officer: Mr. Bhaskar Chakraborty SEBI Registration No.: INM000003531

KARVY COMPUTERSHARE PRIVATE LIMITED

Karvy House 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad- 500 034, India Tel: +91-1600-3454001 Fax: +91-40-23431551 Email: pfc.ipo@karvy.com Investor Grievance Email: []@karvy.com Website: www.karvy.com Contact Person: Murali Krishna SEBI Registration No: INR000000221

GDA TRUSTEE & CONSULTANCY LTD. Shri Niwas Apte Road, 1202/29, Shivaji Nagar, Pune 411004 Tel: 91-20-25510401(3 lines) Fax: 91-20-25532567 Email: gdatm@vsnl.net Contact Person: Mr. Yogi

Website:[] SEBI Registration No: []

ISSUE PROGRAMME ISSUE OPENS ON ISSUE CLOSES ON

[] []

The subscription list for the Issue shall remain open for subscription during banking hours for the period indicated above, except that the Issue may close on such earlier date as may be decided by the board of directors of the Company. In the event of early closure of the subscription list of the Issue for any reason other than full subscription for the Bonds, the Company shall ensure that notice is provided to the prospective investors through newspaper advertisements at least three days prior to such earlier date of Issue closure.

mailto:iifcl.bonds@icicisecurities.commailto:customercare@icicisecurities.commailto:pfcbonds@sbicaps.commailto:investor.relations@sbicaps.commailto:pfc.ipo@karvy.com

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TABLE OF CONTENTS

SECTION I - GENERAL..................................................................................................................................... 2 DEFINITIONS AND ABBREVIATIONS............................................................................................................. 2 CERTAIN CONVENTIONS, USE OF FINANCIAL, INDUSTRY AND MARKET DATA AND CURRENCY OF PRESENTATON .................................................................................................................... 6 FORWARD LOOKING STATEMENTS .......................................................................................................... 8 SECTION II - RISK FACTORS......................................................................................................................... 9 SECTION III - INTRODUCTION ................................................................................................................... 23 THE ISSUE .......................................................................................................................................................... 23 SELECTED FINANCIAL INFORMATION....................................................................................................... 26 GENERAL INFORMATION............................................................................................................................ 36 CAPITAL STRUCTURE................................................................................................................................... 41 OBJECTS OF THE ISSUE ................................................................................................................................ 143 STATEMENT OF TAX BENEFITS.................................................................................................................. 144 SECTION IV - ABOUT THE COMPANY .................................................................................................... 147 INDUSTRY OVERVIEW.................................................................................................................................. 147 BUSINESS......................................................................................................................................................... 152 REGULATIONS AND POLICIES ................................................................................................................. 171 HISTORY AND CERTAIN CORPORATE MATTERS................................................................................... 177 MANAGEMENT .............................................................................................................................................. 184 STOCK MARKET DATA FOR OUR EQUITY SHARES/DEBENTURES .............................................. 197 FINANCIAL INDEBTEDNESS...................................................................................................................... 200 SECTION V LEGAL AND OTHER INFORMATION............................................................................. 217 OUTSTANDING LITIGATION AND MATERIAL DEVELOPMENTS ........................................................ 217 OTHER REGULATORY AND STATUTORY DISCLOSURES..................................................................... 222 SECTION VI ISSUE RELATED INFORMATION................................................................................... 225 ISSUE STRUCTURE......................................................................................................................................... 225 TERMS OF THE ISSUE.................................................................................................................................... 228 PROCEDURE FOR APPLICATION................................................................................................................. 248 SECTION VII - MAIN PROVISIONS OF ARTICLES OF ASSOCIATION OF THE COMPANY ...... 257 SECTION VIII OTHER INFORMATION................................................................................................. 274 MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION........................................................... 274 DECLARATION................................................................................................................................................ 276 Annexures Annexure I.........FINANCIAL STATEMENTS

Annexure IICREDIT RATINGS

Annexure IIISTOCK MARKET DATA FOR DEBENTURES

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SECTION I - GENERAL

DEFINITIONS AND ABBREVIATIONS This Draft Shelf Prospectus uses certain definitions and abbreviations which, unless the context indicates or implies otherwise, have the meaning as provided below. References to statutes, rules, regulations, guidelines and policies will be deemed to include all amendments and modifications notified thereto.

Company Related Terms

Term Description

Issuer, PFC, our Company, or the Company, or the Corporation

Power Finance Corporation Limited, a public limited company incorporated under the Companies Act, 1956.

We, or us, our or Group

Power Finance Corporation Limited and its Subsidiaries, PFC Consulting Ltd., Chhattisgarh Surguja Power Ltd., Coastal Karnataka Power Limited, Coastal Maharashtra Mega Power Limited, Orissa Integrated Power Limited, CoastalTamil Nadu Power Limited, Sakhigopal Integrated Power Company Limited,Ghogarpalli Integrated Power Company Limited, Tatiya Andhra Mega PowerLtd., Jabalpur Transmission Company Limited, Bhopal Dhule Transmission Company Limited.

Articles/ Articles of Association/AoA Articles of Association of our Company BDTCL Bhopal Dhule Transmission Company Limited PFCCL PFC Consulting Limited Board/ Board of Directors Board of Directors of our Company Equity Shares Equity Shares of our Company of face value ` 10 each JTCL Jabalpur Transmission Company Limited Memorandum/Memorandum of Association/MoA Memorandum of Association of our Company

Registered Office and Corporate Office

The registered office and corporate office of our Company, situated at Urjanidhi, 1, Barakhamba Lane, Connaught Place, New Delhi- 110 001

RoC Registrar of Companies, National Capital Territory of Delhi and Haryana Statutory Auditors/Auditors Raj Har Gopal & Co., Mehra Goel & C0., the statutory auditors of our CompanySubsidiaries PFC Consulting Ltd., Chhattisgarh Surguja Power Ltd., Coastal Karnataka

Power Limited, Coastal Maharashtra Mega Power Limited, Orissa Integrated Power Limited, Coastal Tamil Nadu Power Limited, Sakhigopal Integrated Power Company Limited, Ghogarpalli Integrated Power Company Limited, Tatiya Andhra Mega Power Ltd., Jabalpur Transmission Company Limited, Bhopal Dhule Transmission Company Limited.

Issue Related Terms

Term Description

Allotment/ Allot/ Allotted The Issue and allotment of the Bonds to the successful Applicants, pursuant to the Issue.

Allottee A successful Applicant to whom the Bonds are allotted pursuant to the Issue Applicant

A Resident Individual or an HUF who applies for issuance of Bonds pursuant to the terms of the prospectus and Application Form

Application Amount The aggregate value of the Bonds applied for, as indicated in the Application Form

Application Form

The form in terms of which the Applicant shall make an offer to subscribe to the Bonds and which will be considered as the application for Allotment of Bonds in terms of the prospectus

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Application Interest Interest paid on application money in a manner as more particularly detailed in Terms of the Issue on page 249

Banker(s) to the Issue/ Escrow Collection Bank(s)

The banks which are clearing members and registered with SEBI with whom the Escrow Account will be opened and in this case being []

Bond Certificate(s) Certificate issued to the Bondholder(s) pursuant to Allotment Bondholder(s)

Any person holding the Bonds and whose name appears on the beneficial owners list provided by the Depositories or whose name appears in the Register of Bondholders maintained by the Issuer

Bonds

Long term infrastructure bonds, in the nature of unsecured, redeemable, non- convertible debentures of the Company of face value of ` [*] each, having benefits under section 80CCF of the Income Tax Act

BSE Bombay Stock Exchange Limited Buyback Amount

The amount specified as buyback amount for the Bonds under Terms of the Issue on page 249

Term Description Buyback Date [] Buyback Intimation Period [] Consolidated Bond Certificate In case of rematerialized Bonds held in physical form, the certificate

issued by the Issuer to the Bondholder for the aggregate amount of the Bonds that are rematerialized and held by such Bondholder

CRISIL CRISIL Limited Debenture Trust Deed Trust deed to be entered into between the Debenture Trustee and the

Company, within three months from the Deemed Date of Allotment Debenture Trustee/ Trustee Trustee for the Bondholders in this case being GDA Trustee & Consultancy Ltd.

Deemed Date of Allotment The Deemed Date of Allotment shall be the date as may be determined

by the Board of the Company and notified to the Designated Stock Exchange Designated Date The date on which Application Amounts are transferred from the

Escrow Account to the Public Issue Account or the Refund Account, as appropriate, following which the Board of Directors shall Allot the Bonds to the successful Applicants, provided that the sums received in respect of the Issue will be kept in the Escrow Account up to this date

Designated Stock Exchange BSE Draft Shelf Prospectus This draft shelf prospectus dated February 07, 2011 filed by the Company

with the Designated Stock Exchange in accordance with the provisions of SEBI Debt Regulations for public comments

Escrow Account Account opened with the Escrow Collection Bank(s) and in whose favour the Applicants will issue cheques or drafts or remit the funds electronically, in respect of the Application Amount when submitting an Application

Escrow Agreement Agreement to be entered into by the Company, the Registrar to the Issue, the Lead Managers and the Escrow Collection Bank(s) for collection of the Application Amounts and where applicable, refunds of the amounts collected from the Applicants on the terms and conditions thereof

I-Sec ICICI Securities Limited ICRA ICRA Limited Issue Public issue of the Bonds, in one or more tranches, for an amount up to

`5300 crore, subject to not exceeding 25% of the incremental infrastructure investment made by the Company in Fiscal 2010

Issue Closing Date [] Issue Opening Date [] Issue Period The period between the Issue Opening Date and the Issue Closing Date inclusive

of both days, during which prospective Applicants may submit their Application Forms

Lead Managers ICICI Securities Limited and SBI Capital Markets Limited Lock-in Period Five years from the Deemed Date of Allotment Market Lot One Bond Notification Notification No. 77/2010/F.No.178/31/2010-SO(ITA-1) dated October 11,

2010 issued by the Central Board of Direct Taxes, MoF

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NSE National Stock Exchange of India Limited Public Issue Account An account opened with the Banker(s) to the Issue to receive monies from

the Escrow Accounts for the Issue on the Designated Date Record Date Date falling [] days prior to the date on which interest or the Maturity

Amount is due and payable Refund Account The account opened with the Refund Bank(s), from which refunds, if any, of the

whole or part of the Application Amount shall be made Refund Bank [] Refund Interest Interest paid on Application Amount in a manner as more particularly detailed in

Terms of the Issue Refund Interest on page 249

Term Description

Register of Bondholders

The register of Bondholders maintained by the Issuer in accordance with the provisions of the Companies Act and as more particularly detailed in Terms of the Issue Register of Bondholders on page []

Registrar Appointment Letter

Appointment letter dated [*] issued by the Company to the Registrar to the Issue, under the terms of which the Registrar has agreed to act as the Registrar to the Issue

Registrar to the Issue or Registrar Karvy Computershare Private Limited

Resident Individual An individual who is a person resident in India as defined under the Foreign Exchange Management Act, 1999

SBI Caps SBI Capital Markets Limited Series 1 Bonds The ` [*], [] percent, non-cumulative Bonds due [] Series 2 Bonds The ` [*], [] percent, cumulative Bonds due []

Series 3 Bonds The ` [*], [] percent, non-cumulative Bonds due [], with buyback facility

after expiry of the Lock-in Period

Series 4 Bonds The ` [*], [] percent, cumulative Bonds due [], with buyback facility after

expiry of the Lock-in Period Stock Exchanges BSE Trading Lot One Bond

Working Days

All days excluding Saturdays, Sundays or a public holiday in India or at any other payment centre notified in terms of the Negotiable Instruments Act, 1881

Conventional and General Terms or Abbreviations

Term/Abbreviation Description/ Full Form

Act/ Companies Act Companies Act, 1956 ADB Asian Development Bank AGM Annual General Meeting AS Accounting Standards as notified under Companies Act BSE Bombay Stock Exchange Limited NSE NNational Stock Exchange of India Limited CDSL Central Depository Services (India) Limited DoEA Department of Economic Affairs, Ministry of Finance, Government of India DoFS Department of Financial Services, Ministry of Finance, Government of India Depository(ies) CDSL and NSDL Depositories Act Depositories Act, 1996 DP/ Depository Participant Depository Participant as defined under the Depositories Act, 1996

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DRR Debenture Redemption Reserve DTC Direct Tax Code FDI Foreign Direct Investment FEMA Foreign Exchange Management Act, 1999 FII

Foreign Institutional Investor (as defined under the SEBI (Foreign Institutional Investors) Regulations, 1995), registered with the SEBI under applicable laws in India

FIMMDA Fixed Income Money Markets and Derivatives Association of India Financial Year/ Fiscal/ FY Period of 12 months ended March 31 of that particular year GDP Gross Domestic Product CRAR Capital to Risk Assets Ratio GoI or Government Government of India ICAI Institute of Chartered Accountants of India IFRS International Financial Reporting Standards Income Tax Act Income Tax Act, 1961

Term/Abbreviation Description/ Full Form India Republic of India Indian GAAP Generally accepted accounting principles followed in India IT Information technology LIBOR London Inter-Bank Offer Rate MoF Ministry of Finance, GoI MCA Ministry of Corporate Affairs, GoI NBFC Non Banking Finance Company, as defined under applicable RBI guidelines NECS National Electronic Clearing System NEFT National Electronic Fund Transfer NSDL National Securities Depository Limited NSE National Stock Exchange of India Limited p.a. Per annum PAN Permanent Account Number PAT Profit After Tax PFI Public Financial Institution, as defined under Section 4A of the Companies Act PMDO Pooled Municipal Debt Obligation PPP Public Private Partnership RBI Reserve Bank of India ` or Rupees or Indian Rupees The lawful currency of India RTGS Real Time Gross Settlement SARFAESI Securitisation and Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002 SEBI Securities and Exchange Board of India SEBI Act SEBI Act, 1992 SEBI Debt Regulations SEBI (Issue and Listing of Debt Securities) Regulations, 2008

Technical and Industry Related Terms

Term/Abbreviation Description/ Full Form

Yield Ratio of interest income to the daily average of interest earning assets

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CERTAIN CONVENTIONS, USE OF FINANCIAL, INDUSTRY AND MARKET DATA AND CURRENCY OF PRESENTATON

Certain Conventions All references in this Draft Shelf Prospectus to India are to the Republic of India and its territories and possessions. Financial Data Unless stated otherwise, the financial data in this Draft Shelf Prospectus is derived from (i) our audited standalone financial statements, prepared in accordance with Indian GAAP and the Companies Act for the six months ended September 30, 2010, Fiscal 2010, 2009, 2008, 2007 and 2006; and/or (ii) our consolidated financial statements, prepared in accordance with Indian GAAP and the Companies Act for the Fiscal 2010, 2009, 2008 and the six months ended September 30, 2010. In this Draft Shelf Prospectus, any discrepancies in any table between the total and the sums of the amounts listed are due to rounding off. All decimals have been rounded off to one decimal point. The current financial year of the Company commences on April 1 and ends on March 31 of the next year, so all references to particular financial year, fiscal year and Fiscal or FY, unless stated otherwise, are to the 12 months period ended on March 31 of that year. The degree to which the Indian GAAP financial statements included in this Draft Shelf Prospectus will provide meaningful information is entirely dependent on the readers level of familiarity with Indian accounting practices. Any reliance by persons not familiar with Indian accounting practices on the financial disclosures presented in this Draft Shelf Prospectus should accordingly be limited. Currency and Unit of Presentation In this Draft Shelf Prospectus, references to Rs., Indian Rupees, INR and Rupees are to the legal currency of India and references to US$, USD, and U.S. dollars are to the legal currency of the United States of America, references to Euro and are to the legal currency of the European Union and references to Yen and JPY are to the legal currency of Japan. Industry and Market Data Any industry and market data used in this Draft Shelf Prospectus consists of estimates based on data reports compiled by government bodies, professional organizations and analysts, data from other external sources and knowledge of the markets in which we compete. These publications generally state that the information contained therein has been obtained from publicly available documents from various sources believed to be reliable but it has not been independently verified by us or its accuracy and completeness is not guaranteed and its reliability cannot be assured. Although we believe the industry and market data used in this Draft Shelf Prospectus is reliable, it has not been independently verified by us. The data used in these sources may have been reclassified by us for purposes of presentation. Data from these sources may also not be comparable. The extent to which the industry and market data is presented in this Draft Shelf Prospectus is meaningful depends on the readers familiarity with and understanding of the methodologies used in compiling such data. There are no standard data gathering methodologies in the industry in which we conduct our business and methodologies and assumptions may vary widely among different market and industry sources. Exchange Rates The exchange rates (in Rs) of the US$, JPY and as for last five years and September 30, 2010 are provided below:

Source: SBI TT Selling rates

Currency 31-Mar-2006 31-Mar-2007 31-Mar-2008 31-Mar-2009 31-Mar-2010 30-Sep-2010 USD 44.86 43.77 40.11 51.45 45.58 45.35 JPY 0.383 0.3724 0.4029 0.5265 0.4900 0.5440 Euro 54.73 58.34 63.47 68.43 61.31 61.79

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FORWARD LOOKING STATEMENTS

Certain statements contained in this Draft Shelf Prospectus that are not statements of historical fact constitute forward-looking statements. Investors can generally identify forward-looking statements by terminology such as aim, anticipate, believe, continue, could, estimate, expect, intend, may, objective, plan, potential, project, pursue, shall, seek, should, will, would, or other words or phrases of similar import. Similarly, statements that describe our strategies, objectives, plans or goals are also forward-looking statements. All statements regarding our expected financial conditions, results of operations, business plans and prospects are forward-looking statements. These forward-looking statements include statements as to our business strategy, revenue and profitability, new business and other matters discussed in this Draft Shelf Prospectus that are not historical facts. All forward-looking statements are subject to risks, uncertainties and assumptions about us that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from our expectations include, among others:

growth prospects of the Indian infrastructure sector and related policy developments; general, political, economic, social and business conditions in Indian and other global markets; our ability to successfully implement our strategy, growth and expansion plans; competition in the Indian and international markets; availability of adequate debt and equity financing at reasonable terms; performance of the Indian debt and equity markets; changes in laws and regulations applicable to companies in India, including foreign exchange control regulations in

India; and other factors discussed in this Draft Shelf Prospectus, including under Risk Factor on page [].

Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed under Business on page []. The forward-looking statements contained in this Draft Shelf Prospectus are based on the beliefs of management, as well as the assumptions made by, and information currently available to, management. Although we believe that the expectations reflected in such forward-looking statements are reasonable at this time, we cannot assure investors that such expectations will prove to be correct. Given these uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements. If any of these risks and uncertainties materialize, or if any of our underlying assumptions prove to be incorrect, our actual results of operations or financial condition could differ materially from that described herein as anticipated, believed, estimated or expected. All subsequent forward-looking statements attributable to us are expressly qualified in their entirety by reference to these cautionary statements.

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SECTION II - RISK FACTORS

You should carefully consider all the information in this Draft Shelf Prospectus, including the risks and uncertainties described below, and under Business on page [] and Financial Statements, before making an investment in the Bonds. The risks and uncertainties described in this section are not the only risks that we currently face. Additional risks and uncertainties not known to us or that we currently believe to be immaterial may also have an adverse effect on our business, prospects, results of operations and financial condition. If any of the following or any other risks actually occur, our business, prospects, results of operations and financial condition could be adversely affected and the price of, and the value of your investment in the Bonds could decline and you may lose all or part of your investment.

The financial and other related implications of risks concerned, wherever quantifiable, have been disclosed in the risk factors mentioned below. However, there are certain risk factors where the effect is not quantifiable and hence has not been disclosed in such risk factors. The numbering of risk factors has been done to facilitate ease of reading and reference, and does not in any manner indicate the importance of one risk factor over another.

RISKS RELATING TO OUR BUSINESS AND INDUSTRY

1. We have significant exposure to certain borrowers and if these exposures become non-performing, the quality of our asset portfolio may be adversely affected.

We are a power sector specific public financial institution. This sector has a limited number of borrowers and our past and future exposure to these borrowers is anticipated to be large. In addition, many of these borrowers are public sector utilities that are loss making. As of September 30, 2010, our ten largest single borrowers in the aggregate accounted for 53.19 % of our total outstanding exposure. Any negative trends or financial difficulties particularly among our large borrowers could increase the level of non-performing assets in our portfolio and adversely affect our business and financial performance. For the foreseeable future, we expect to continue to have a significant concentration of loans to certain borrowers. Credit losses on our significant single borrowers and borrower group exposures could adversely affect our business and financial performance.

2. We may not be able to recover, or there may be a delay in recovering, the expected value from our securities and collaterals which may affect our financial condition.

We have granted certain loans to our borrowers where partial security has been created or disbursements have been made pending security or loans have been granted without security. As of September 30, 2010, out of our total loans outstanding of Rs. 87906.41 crore, Rs.53771.33 crore, or 61.17% of our outstanding loans are secured by charges on project assets, Rs. 15385.71, or 17.50% of our outstanding loans are unsecured but have a state government guarantee as collateral and Rs. 18749.37 crore, or 21.33% of our outstanding loans are unsecured. These unsecured loans include Rs. 4245.74 crore or 4.82% of our outstanding loans that have been issued to the NTPC and PGCIL. Although, legislation has been introduced, which may strengthen the rights of creditors for faster realization of collateral in the event of default, we cannot guarantee that we will be able to realize the full value of our collateral, on account of certain factors including delays due to the fact that certain loans have been granted by us as a part of consortium of lenders or delays in taking immediate action in bankruptcy foreclosure proceedings, stock market downturns and defects in the perfection of collateral and fraudulent transfers by borrowers. Further, in the event that a specialized regulatory agency gains jurisdiction over the borrower, actions on behalf of the creditors may be further delayed. Any failure to recover the expected value of collateral security could expose us to a potential loss. In addition, the RBI has devised a corporate debt restructuring system to put in place an institutional mechanism for timely and transparent restructuring of corporate debt. The applicable RBI guidelines envisage that in case of debts amounting to Rs. 720 crore and above, lenders holding more than 75% of such debt can decide to restructure the debt and such a decision would be binding on the remaining lenders. In situations where other lenders own more than 75% of the debt of a borrower, we could be required by the other lenders to agree to restructure the debt, regardless of our preferred method of settlement. Apart from the applicable RBI guidelines, we may be a part of a syndicate of lenders wherein the majority elects to pursue a different course of action than the course of action chosen by us. Any such unexpected loss could adversely affect our business and financial performance.

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3. Our borrowers insurance of assets may not be adequate to protect them against all potential losses to which they may be subject, which could affect our ability to recover the loan amounts due to us.

Under our loan agreements, where loans are extended on the basis of charge on assets, our borrowers are required to create a charge on their assets in our favour in the form of hypothecation or mortgage or both. In addition, terms and conditions of the loan agreements require our borrowers to maintain insurance against damage caused by any disasters including floods, fires and earthquakes or theft on their charged assets as collateral against the loan granted by us. However, in most cases our borrowers do not have the required insurance coverage, or they have not renewed the insurance policies or the amount of insurance coverage may be less than the replacement costs of all covered property and is therefore insufficient to cover all financial losses that our borrowers may suffer. In the event the assets charged in our favour are damaged, it may affect our ability to recover the loan amounts due to us. 4. We will be impacted by volatility in interest rates in our operations, which could cause our net interest margins to

decline and adversely affect our profitability.

We will be impacted by volatility in interest rates in our operations. Interest rates are highly sensitive due to many factors beyond our control, including the monetary policies of the RBI, deregulation of the financial sector in India, domestic and international economic and political conditions and other factors. Due to these factors, interest rates in India have historically experienced a relatively high degree of volatility. When interest rates decline, we are subject to greater re-pricing and prepayment risks as borrowers take advantage of the attractive interest rate environment. In periods of low interest rates and high competition among lenders, borrowers may seek to reduce their borrowing cost by asking lenders to re-price loans. If we are required to restructure loans, it could adversely affect our profitability. If borrowers prepay loans, the return on our capital may be impaired as any prepayment premium we receive may not fully compensate us for the costs of utilizing funds elsewhere. If interest rates rise we may have greater difficulty in maintaining a low effective cost of funds compared to our competitors, who may have access to lower cost funds. 5. Our interest income and profitability is dependant on the continued growth of our asset portfolio.

Our average net interest margin has increased from 3.98% in fiscal 2009-10, to 4.13% (Annualised) for six months ending September 30, 2010. 6. Our contingent liabilities could adversely affect our financial condition.

As of September 30, 2010, we have contingent liabilities of Rs. 5873.68 crore including non- funded contingent exposure of Rs. 476.09 crore in the form of guarantees and Rs. 5389.19 crore in the form of letters of comfort issued to borrowers banks in connection with letters of credit. These contingent non-funded exposures form 8.11% of our total exposure. Other contingent liabilities are Rs. 8.40 crore, which are claims against our Company. If these contingent liabilities were to fully materialize, our financial condition could be adversely affected. For further details on our contingent liabilities, see annexed Financial Statements beginning on page [] of this Draft Shelf Prospectus. 7. If the level of non-performing assets in our loan portfolio were to increase, our financial condition would be adversely

affected.

As of September 30, 2010, we had gross NPAs of Rs. 14.19 crores, which forms 0.016% of our loan assets against which we have made provision of Rs. 7.95 crores. The provisioning has been made in terms of prudential norms laid down internally by us. We are currently exempt from the RBI provisioning norms. If RBI provisioning norms were to become applicable to us our level of non-performing assets and provisions with respect thereto could be significantly higher. If we are not able to prevent increases in our level of non-performing assets, our business and our future financial performance could be adversely affected. 8. We currently engage in foreign currency borrowing and lending and we are likely to continue to do so in the future,

which will expose us to fluctuations in foreign exchange rates, which could adversely affect our financial condition.

As of September 30, 2010, we had foreign currency borrowings outstanding of US$ 541.73 million, Japanese Yen 22053.96 million and Euro 27.63 million, the total of which was equivalent to Rs. 3827.21 crores, or 5.20% of our total borrowings. We may continue to be involved in foreign currency borrowing and lending in the future, which will further expose us to fluctuations in foreign currency rates. Volatility in foreign exchange rates could adversely affect our business and financial performance. We are also affected by adverse movements in foreign exchange rates to the extent they impact our borrowers

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negatively, which may in turn impact the quality of our exposure to these borrowers. Foreign lenders may also impose conditions more onerous than domestic lenders 9. We are involved in a number of legal proceedings that, if determined against us, could adversely impact our business

and financial condition.

We are involved in a number of legal proceedings that, if determined against us, could adversely impact our business and financial condition.

We are involved in thirteen proceedings with the Income Tax Department that are currently before various judicial forums in India. These cases pertain to appeals we have filed in relation to demands raised on us by the Income Tax Department for various assessment years. We have deposited these demands with the Income Tax Department from time to time. However, we have also filed appeals against the demands. The total amount claimed by us against the Income Tax Department aggregates to Rs. 33.69 crores. If these cases are decided against us, we will not be able to recover this amount. However, in relation to cases pertaining to the assessment years 2000-2001, 2001-2002, 2005-2006 and 2006-2007, the Income Tax Department has appealed against the refunds of Rs. 50.36 crores granted to us in relation to the aforesaid assessment years. If these cases are decided against us, we shall have to pay these amounts to the Income Tax Department. In addition, we have filed two Original Applications (OA) before the Debts Recovery Tribunal, Delhi. against Bihar State Hydroelectric Power Corporation Limited (BSHPCL), now the matter has been referred to High Power Committee comprising of Cabinet Secretary & others. Being aggrieved of this BSHPCL has filed four set of appeals before Debts Recovery Appellate Tribunal against the order of the Debts Recovery Tribunal. The provisions for the same has already been entered in our financials, however the outcome of the same will not affect our financial results. A employee from the Corporation has filed a writ petition against us. For more details please refer OUTSTANDING LITIGATION AND MATERIAL DEVELOPMENTS on page 237. There are few cases under Consumer Dispute Redressal Forum and few miscellaneous cases which do not have any significant impact on the financial position of our company. For further details, see the section titled Outstanding Litigation and Material Developments beginning on page 237 of this Draft Shelf Prospectus.

10. We may incur shortfalls in the advance subsidy received under the Accelerated Generation and Supply Programme (AG&SP) of the GoI, which may affect our financial condition.

In fiscal 1998, the GoI started the AG&SP, a scheme for providing interest subsidies for various projects. We oversee and operate this scheme on behalf of the GoI. The scheme subsidises our normal lending rates on loans to state power utilities. The subsidy is paid in advance directly to us from the central government budget and is to be passed on to the borrowers against their interest liability arising in future under the AG&SP. We maintain an interest subsidy fund account on account of the subsidy claimed from the GoI at net present value which is calculated at certain pre-determined and indicative discount rates, irrespective of the actual repayment schedule, moratorium period and duration of repayment. The impact of the difference between the indicative discount rate and period considered at the time of drawal and the actual can be ascertained only after the end of the respective repayment period in relation to that particular loan. There might be instances where there is a shortfall or a surplus in the subsidy received from the GoI. In the event of there being a shortfall, we shall have to bear the difference, which may affect our financial condition. 11. If we are unable to manage our growth effectively, our business and financial results could be adversely affected.

Our business has grown since we began operations in March 1988. From March 31, 2006 to March 31, 2010, our disbursements increased at a compounded annual growth rate of 22%. We intend to continue to grow our business, which could place significant demands on our operational, credit, financial and other internal risk controls. It may also exert pressure on the adequacy of our capitalization, making management of asset quality increasingly important. Our asset growth will be primarily funded by the issuance of new debt. We may have difficulty in obtaining funding on attractive terms. Adverse developments in the Indian credit markets, such as the recent increase in interest rates, may significantly increase our debt service costs and the overall cost of our funds. Any inability to manage our growth effectively on favourable terms could have a material adverse effect on our business and financial performance. Because of our growth and the long gestation period for power sector investments, our historical financial statements may not be an accurate indicator of our future financial performance.

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12. We might not be able to develop or recover costs incurred on our Ultra Mega Power Projects and our failure to do so

may have an adverse effect on our profitability.

We are the nodal agency on the initiative of the GoI to facilitate development of UMPPs having a capacity of 4000 MW each and have incorporated eleven subsidiary companies to act as Special Purpose Vehicles (SPVs) for these projects. It is proposed to transfer these SPVs to successful bidders, through a tariff based international competitive bidding process, who will then implement these projects, on payment of development costs incurred by each company. These SPVs have been set up to facilitate the tie-up of inputs, linkages and clearances for these projects to facilitate development of the UMPPs. It is proposed that these SPVs shall undertake preliminary studies and shall obtain necessary clearances and tie-ups including water, land and power selling arrangements, prior to award of these projects to successful bidders. We have and are likely to continue to incur expenses in connection with these UMPPs on account of proposed pre-feasibility studies, establishment costs including costs on account of obtaining fuel linkages, water supply, clearances, acquisition of land, pre-bid conferences, advertisements and publicity. It may be possible that we are unable to develop these UMPPs on account of various factors including environmental problems, resistance by local residents or our inability to find a developer. Further, there might be instances where we may also not be able to fully recover our expenses from the successful bidder, which may result in financial loss to us and to that extent it would adversely affect our financial condition. 13. We may make equity investments in power sector in the future and such investments may not be recovered.

We may make equity investments in the power sector either directly or indirectly. As of September 30, 2010, our investments in equity and equity linked instruments were Rs. 30.56 crores. The value of these investments depends on the success and continued viability of these businesses. In addition to the project-specific risks described in the above risk factors, we have limited control over the operations or management of these businesses. Therefore, our ability to realize expected gains as a result of our equity interest in a business is highly dependent on factors outside our control. Write-offs or write-downs in respect of our equity investments may adversely affect our financial performance. 14. The GoI holds a majority of our Equity Shares and can therefore determine the outcome of shareholder voting and

influence our operations.

Our principal shareholder, GoI, holding 89.78% of our Equity Shares, exercises a significant degree of influence over us and will be able to control the outcome of any proposal that can be passed with a majority shareholder vote. In addition, the GoI significantly influences our operations through its various departments and policies. 15. We are subject to restrictive covenants under our credit facilities that could limit our flexibility in managing our

business.

There are restrictive covenants in the agreements we have entered into with certain banks and financial institutions for our short term borrowings, medium term borrowings, long term borrowings and bonds trust deeds. These restrictive covenants require us to maintain certain financial ratios and seek the prior permission of these banks/financial institutions for various activities, including, amongst others, selling, leasing, transferring or otherwise disposing of any part of our business or revenues, effecting any scheme of amalgamation or reconstitution, implementing a new scheme of expansion or taking up an allied line of business. Such restrictive covenants in our loan and bond documents may restrict our operations or ability to expand and may adversely affect our business. These restrictive covenants may also affect some of the rights of our shareholders, including the payment of the dividends in case of any default in debt to such lenders. For details of these restrictive covenants, see the section titled Financial Indebtedness beginning on page 219 of this Draft Shelf Prospectus. 16. Our success depends in large part upon our management team and skilled personnel and our ability to attract and

retain such persons.

Our future performance depends on the continued service of our management team and skilled personnel. We also face a continuous challenge to recruit and retain a sufficient number of suitably skilled personnel, particularly as we continue to grow. There is significant competition for management and other skilled personnel in our industry, and it may be difficult to attract and retain the personnel we need in the future. While, we have employee friendly policies including an incentive scheme to encourage employee retention, the loss of key personnel may have an adverse affect on our business, results of operations, financial condition and ability to grow. 17. Our trademark or logo has not been registered under the Trade Marks Act, 1999 and our failure to protect our

intellectual property rights may adversely affect our business.

We do not have a registered trademark over our name and logo under the Trade Marks Act, 1999 and consequently do not enjoy the statutory protections accorded to a registered trademark. Any failure to protect our intellectual property rights may adversely affect our business.

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18. The power sector financing industry is becoming increasingly competitive and our growth will depend on our ability to

compete effectively and maintain a low effective cost of funds.

We face increasing competition from public and private sector commercial banks in India and from other financial institutions that provide power sector finance products or services. Many of our competitors have greater and cheaper resources than we do. Competition in our industry depends on, among other things, the ongoing evolution of government policies relating to the industry, the entry of new participants into the industry and the extent to which there is consolidation among banks and financial institutions in India. Our ability to compete effectively is dependent on our ability to maintain a low effective cost of funds. Our borrowing costs have been competitive in the past initially due to the sizeable equity contribution by the GoI as a 100% owner, the availability of tax-free bonds, SLR bonds and loans guaranteed by the GoI and subsequently as a result of our strong credit ratings. With the growth of our business, we are increasingly reliant on funding from the debt capital markets and commercial borrowings. The market for such funds is competitive and our ability to obtain funds on acceptable terms will depend on various factors including our ability to maintain our credit ratings. If we are unable to access funds at an effective cost that is comparable to or lower than our competitors, we may not be able to offer competitive interest rates to our borrowers, which could adversely affect our business growth. 19. Power projects carry certain risks, which to the extent they materialize could adversely affect our business and

financial performance.

Our business mainly consists of lending to and providing advisory services to power sector projects in India. Power sector projects carry project-specific as well as general risks. These risks are generally out of our control and include:

political, regulatory, fiscal, monetary, legal actions and policies that may adversely affect the viability of projects to which we lend;

changes in government and regulatory policies relating to the power sector;

delays in the construction and operation of projects to which we lend;

adverse changes in demand for, or the price of, power generated or distributed by the projects to which we lend;

the willingness and ability of consumers to pay for the power produced by projects to which we lend;

shortages of, or adverse price developments for, raw materials and key inputs for power production such as coal and natural gas;

increased project costs due to environmental challenges and changes in environmental regulations;

potential defaults under financing arrangements of project companies and their equity investors;

failure of co-lenders with us under consortium lending arrangements to perform on their contractual obligations;

failure of third parties such as contractors, fuel suppliers, sub-contractors and others to perform on their contractual obligations in respect of projects to which we lend;

adverse developments in the overall economic environment in India;

adverse fluctuations in interest rates or currency exchange rates; and

economic, political and social instability or occurrences such as natural disasters, armed conflict and terrorist attacks, particularly where projects are located or in the markets they are intended to serve.

To the extent these or other risks relating to the power projects we finance materialize, the quality of our asset portfolio and our profitability may be adversely affected. 20. Negative trends in the Indian power sector or the Indian economy could adversely affect our business and financial

performance.

We were founded with the objective of extending finance to and promoting Indian power projects and related activities. For the foreseeable future, we expect to continue to be a sector specific public financial institution with a focus on the Indian power sector. Any negative trend or financial difficulty in the Indian power sector could adversely affect our business and financial performance. We believe that the further development of Indias power sector is dependent on regulatory framework, policies and

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procedures that facilitate and encourage private and public sector investment in the power sector. Many of these policies are evolving and their success will depend on whether they properly address the issues faced and are effectively implemented. Additionally, these policies will need continued support from stable and experienced regulatory regimes throughout India that not only stimulate and encourage the continued movement of capital into power development, but also lead to increased competition, appropriate allocation of risk, transparency and more efficient power supply and demand management to the end consumer. The allocation of capital and the continued growth of the power sector are also linked to the continued growth of the Indian economy. Since much of the power supply in India has historically been provided by the central and state governments at a relatively low charge to consumers, the growth of the power industry will be impacted by consumers income levels and the extent to which they would be willing to pay or can be induced to pay for power. If the central and state governments initiatives and regulations in the power sector do not proceed to improve the power sector as intended or if there is any downturn in the macroeconomic environment in India or in the power sector, our business and financial performance and the price of our Equity Shares could be adversely affected. 21. Material changes in the regulations that govern us and our borrowers could cause our business to suffer.

We are regulated by the Companies Act and some of our activities are subject to supervision and regulation by statutory authorities including the MoF, RBI, SEBI and Stock Exchanges. Additionally, our borrowers in the power sector are subject to supervision and regulation by the CERC and SERC. See the section titled Regulations and Policies in India beginning on page [] of this Draft Shelf Prospectus. Further, we are subject to changes in Indian law, as well as to changes in regulation and government policies and accounting principles. We also receive certain benefits and take advantage of certain exemptions available to our classification as a public financial institution under section 4A the Companies Act and as a NBFC under the RBI Act, 1934. The laws and regulations governing us could change in the future and any such changes could adversely affect our business, our future financial performance and the price of our Equity Shares, by requiring a restructuring of our activities, which may impact our results of operations. 22. We have certain cash credit facilities which can be recalled by our lenders at any time that may affect our financial

condition adversely.

We have certain cash credit facilities amounting to Rs. 1350 crores as on 30th September, 2010 which can be recalled by our respective lenders at any time. In the event any of our lenders recall the cash credit facilities, we may face adverse liquidity problems and our financial condition may get affected to the extent of the financial assistance recalled.

23. We are in process of executing a perpetual lease deed for our registered office premises and consequently do not have title to the premises at present.

In accordance with the Memorandum of Agreement dated February 5, 2002 entered into with NDMC, we were required to execute a perpetual lease deed with the NDMC after completion of construction of the building where our registered office is located. We are currently awaiting execution of the same, as a result of which, we presently do not hold title to the premises where our registered office is situated.

24. Our business and our industry are dependent on the policies and support of the Government of India which makes us susceptible to changes to such policies and the level of support we receive.

We are a GoI undertaking operating in a regulated industry. Our business and our industry are dependent, directly and indirectly, on the policies and support of the GoI in many significant ways, including with respect to the cost of our capital, the financial strength of our borrowers, the management and growth of our business and our industry and our overall profitability. Historically, we have been able to reduce our cost of capital and reliance on commercial borrowings because of various forms of assistance received from GoI. Currently, we receive tax concessions with respect to certain types of our bonds that enable us to price such bonds at a lower rate of interest than would otherwise be available to us. We also benefit from direct tax benefits provided by the GoI.

The GoI also impacts the nature of our business in a number of ways. In particular, the GoI establishes the schemes in which we and our borrowers participate. Like any other public sector undertaking, the GoI can also influence or determine key decisions about our Company, including with respect to dividends and the appointment of members of our Board.

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Additionally, the GoI may implement policies that are inconsistent with our business objectives. For example, although we intend to continue to diversify our asset portfolio and continue to increase generation-related lending activity, our lending capacity is not unlimited and the GoI could seek refocus of our lending capacity on transmission and distribution projects or rural areas.

Our borrowers are also significantly impacted by the policies and support of the GoI in a variety of ways, as the GoI regulates the industry in which our borrowers operate. For example, the GoI has established a number of schemes and provides incentives that provide benefits to power projects that have enhanced the financial viability of the projects and the financial position of our borrowers. Additionally, the GoI has in the past assisted us in procuring the repayment of our loans from our borrowers.

Furthermore, the growth of our business is dependent upon the continued growth of the power sector and the overall Indian economy, which are significantly impacted by the policies of the GoI. Changes in the policies of, or in the level of direct or indirect support to us provided by, the GoI in these or other areas could have a material adverse effect on our business, financial condition and results of operations.

25. Our ability to borrow from various banks may be restricted by changes in guidelines issued by the RBI imposing restrictions on banks in relation to their exposure on NBFCs, including us, that may adversely affect our growth and margins.

The RBI regulates on a continuous basis, the permitted exposure (both lending and investment, including off balance sheet exposures) that banks may hold with respect to NBFCs such as ourselves. Accordingly, banks may assume exposure limits of up to 15% of the bank's capital funds as per its last audited balance sheet for a NBFC engaged in businesses similar to our Company, provided the exposure in excess of 10%, is on account of funds on-lent by the NBFC to the infrastructure sector.

Presently, the ceiling on bank credit-linked to Net Owned Fund of NBFCs has been withdrawn in respect of all NBFCs registered with the RBI and engaged in principal business of loan and investment activities, among others. Accordingly, banks may extend need based working capital facilities as well as term loans to all such NBFCs.

Furthermore, the RBI has suggested that banks consider fixing internal limits for their aggregate exposure to all NBFCs and may formulate suitable loan policies with the approval of their boards of directors within the prudential guidelines and exposure norms prescribed by the RBI to extend various kinds of credit facilities to NBFCs subject to certain conditions.

Although we do not believe such exposure limits has had any adverse effects on our own liquidity, we believe that individual lenders from whom we currently borrow may not be able to continue to provide us funds.

As we grow our business and increase our borrowings we may face similar limitations with other lenders, which could impair our growth and interest margins and could therefore have a material adverse effect on our business, financial condition and results of operations.

26. We may fail to obtain certain regulatory approvals in the ordinary course of our business in a timely manner or at all, or to comply with the terms and conditions of our existing regulatory approvals and licenses which may have a material adverse effect on the continuity of our business and may impede our effective operations in the future.

We require certain regulatory approvals, sanctions, licenses, registrations and permissions (collectively, approvals) for operating our businesses. We may not receive or be able to renew such approvals in the time frames anticipated by us or at all, which could adversely affect our business. If we do not receive, renew or maintain the regulatory approvals required to operate our business it may have a material adverse effect on the continuity of our business and may impede our effective operations in the future. Additionally, any historical or future failure to comply with the terms and conditions of our existing regulatory or statutory approvals may cause us to lose or become unable to renew such approvals. For further details, see the section titled Other Regulatory and Statutory Disclosures on page 243 of the Draft Shelf Prospectus.

27. We are subject to stringent labour laws, thus making it difficult for us to maintain flexible human resource policies, which could have an adverse affect on our business, financial condition and results of operations.

India has stringent labour legislation that protects the interests of workers, including legislation that sets forth detailed procedures for employee removal and dispute resolution and imposes financial obligations on employers upon employee

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layoffs. This makes it difficult for us to maintain flexible human resource policies, discharge employees or downsize, which though not quantifiable, may adversely affect our business and profitability.

28. Some of the properties taken on lease by us may have certain irregularities in title, as a result of which our operations may be impaired.

We have taken on lease properties for the purposes of our branch offices and for residential purposes for our employees. Certain of these properties may not have been constructed or developed in accordance with local planning and building laws and other statutory requirements. In addition, there may be certain irregularities in title in relation to some of our owned/leased properties. For example, some of the agreements for such arrangements may not have been duly executed and/or adequately stamped or registered in the land records of the local authorities or the lease deeds have expired and have not yet been renewed. Our business may be adversely affected if we are unable to continue to utilize these properties as a result of any irregularity of title or otherwise.

29. We have not entered into any definitive arrangements to utilise the Net Proceeds towards the object of this Issue.

We intend to utilize the Net Proceeds to augment our capital base to meet the future capital requirements arising out of growth in our assets, primarily our loan and investment portfolio due to the growth of the Indian economy and the Indian power sector. Our Company has not entered into any definitive agreements for utilization of the Net Proceeds towards the object of this Issue. For further details in this regard, see the section titled Objects of the Issue on page 155 of the Draft Shelf Prospectus.

30. We may become liable for the acts or omissions of external consultants engaged by PFC Consulting Limited (PFCCL).

Our Companys wholly-owned subsidiary, PFCCL, provides consultancy services and may undertake execution and valuation of projects in the power distribution sector on behalf of its clients. For these purposes, PFCCL employs external consultants. In the event that any acts or omissions of these external consultants result in professional negligence or breach of contract, we could become liable to our clients or third parties for the acts or omissions of such external consultants which could have an adverse affect on our business, financial condition and results of operations.

31. Any Cross Default of financial indebtedness would trigger payment to all other borrowings made by the corporation thereby adversely affecting the liquidity position of the Company

PFC has given cross default covenant in few of its borrowings which means that if the company defaults in any of its obligation under its loan, the loan which has the cross default clause will also become payable even if there is no breach of covenant or default of payment on this loan. The risk may have impact on the liquidity in case of happening of such event.

32. Volatility in Foreign Exchange and unhedged foreign currency could adversely affect our financial conditions and results of operations and prices of our equity shares

The Company has put in place Currency Risk Management (CRM) policy to manage risks associated with foreign currency borrowings. The Company enters into hedging transactions to cover exchange rate and interest rate risk through various instruments like currency forward, option, principal swap, interest rate swap and forward rate agreements.

PFC currently engaged in borrowing from the foreign market in foreign currency. The enhanced level of borrowing will expose PFC to fluctuations in foreign exchange rates which may have adverse effects on financial results of the corporation. As on 30th September, 2010 PFCs outstanding foreign currency borrowing is 5. % approx. Although PFC has in place currency risk management policy to manage risk associated with foreign currency borrowing but there is no assurance that it will remain effective over a period of time. We expect PFC may be exposed to fluctuations in foreign currency rates with the increased foreign currency borrowings. Volatility in foreign exchange could adversely affect our financial conditions.

As on 30th September, 2010, PFC had entered into hedging transaction or lent on back-to-back basis to cover 12% of its foreign currency principal exposure.

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33. Significant differences exist between Indian GAAP and IFRS which may be material to investors assessment of our financial condition.

Significant differences exist between the present accounting standards and IFRS which could have a material effect on the financial results of the company. The Institute of Chartered Accountants of India, the accounting body that regulates the accounting firms in India has announced the conversion with IFRS with a fiscal period commencing April 1st 2013 for banks and financial institutions. As we transit to IFRS reporting we may encounter difficulties in implementing the same, there is no assurance that our adoption of IFRS will not adversely affect our reported results of operations or financial condition.

34. The impact of the introduction of Direct Tax Code Bill

The Honble Finance Minister has presented the Direct Tax Code Bill, 2010 (DTC Bill) on August 30, 2010, which is proposed to be effective from April 1, 2012. The DTC Bill is likely to be presented before the Indian Parliament. Accordingly, it is currently unclear what effect the Direct Tax Code would have on the financials of the Corporation.

35. There is a significant risk due to changes in Environment norms being followed for the thermal power projects with the corporations main focus for financing of thermal projects, it may pose problems in future.

With the adoption of norms provided for the climate conservation in line with the global parameters there may be risk for the environmental norms being followed for the thermal power projects which is the PFCs major focus in financing of the generation projects. This may pose a problem in the future sanctions/ disbursements and also the timely implementation of these Power Projects. Consequently any delay in implementation of these projects will have adverse impact on the financials of the Corporation.

36. As the Company adopts Information Technology the risk exists for the possibilities of IT frauds

With the computerization of the accounting, payroll, human resource systems and in other areas of PFC, there is every possibility of fraud related to hacking of internal systems, possibility of manual intervention which may lead to frauds.

RISKS RELATING TO THE INDIAN ECONOMY

We are an Indian company and all of our assets and customers are located in India. Consequently, our financial performance will be influenced by political, social and economic developments in India and in particular by the policies of the GoI.

1. A slowdown in economic growth in India could adversely impact our business.

We are dependent on prevailing economic conditions in India and our results of operations are significantly affected by factors influencing the Indian economy. Any slowdown in economic growth in India could adversely affect us, including our ability to grow our loan portfolio, the quality of our assets, and our ability to implement our strategy.

Any slowdown in the growth or negative growth of sectors where we have a relatively higher exposure could adversely impact our performance. Any such slowdown could adversely affect our business, prospects, results of operations and financial condition.

2. Significant shortages in the supply of crude oil, natural gas or coal could adversely affect the Indian economy and the power sector projects to which we have exposure, which could adversely affect us.

India imports approximately 75 % of its requirements of crude oil. Crude oil prices are volatile and are subject to a number of factors such as the level of global production and political factors such as war and other conflicts, particularly in the Middle East, where a substantial proportion of the worlds oil and natural gas reserves are located. Further, in June 2010, the GoI eliminated subsidies on certain petroleum products, and there have been recent media reports regarding the proposed deregulation of diesel and liquefied petroleum gas in the near future.

Any significant increase in oil prices could affect the Indian economy, including the power sector, and the Indian banking and financial system. High oil prices could also add to inflationary pressures in the Indian economy. Additionally, increases in oil prices may have a significant impact on the power sector and related industries in which we have substantial exposure. This could adversely affect our business including our ability to grow, the quality of our asset portfolio, our financial performance

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and our ability to implement our strategy.

In addition, natural gas is a significant input for power projects. India has experienced interruptions in the availability of natural gas, which has caused difficulties in these projects. Continued difficulties in obtaining reliable, timely supply of natural gas could adversely affect some of the projects we finance and could impact the quality of our asset portfolio and our financial performance. Prices of other key raw materials, for example steel, coal and cement, have also risen in recent years and if the prices of such raw materials approach levels that project developers deem unviable, this will result in a slowdown in the infrastructure sector and thereby reduce our business opportunities, our financial performance and our ability to implement our strategy. Continued shortages of fuel could adversely affect some of the projects we finance and could impact the quality of our asset portfolio and our financial performance.

3. Political instability or changes in the government could delay the liberalization of the Indian economy and adversely affect economic conditions in India generally, which could impact our financial results and prospects.

Since 1991, successive Indian governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector. Nevertheless, the role of the Indian central and state governments in the Indian economy as producers, consumers and regulators has remained significant. Although, the current government has announced policies and taken initiatives that support the economic liberalization policies, the rate of economic liberalization could change, and specific laws and policies affecting banking and finance companies, foreign investment and other matters affecting investment in our securities could change as well. Any major change in government policies might affect the growth of Indian economy and thereby our growth prospects. Additionally, as economic liberalization policies have been a major force in encouraging private funding of power sector development, any change in these policies could have a significant impact on power sector development, business and economic conditions in India, which could adversely affect our business and our future financial performance. 4. Difficulties faced by other financial institutions or the Indian financial sector generally could cause our business

to suffer.

We are exposed to the risks consequent to being part of the Indian financial sector. This sector in turn may be affected by financial difficulties and other problems faced by Indian financial institutions. Certain Indian financial institutions have experienced difficulties during recent years, and some co-operative banks have also faced serious financial and liquidity difficulties. Any major difficulty or instability experienced by the Indian financial sector could create adverse market perception, which in turn could adversely affect our business and financial performance.

5. Terrorist attacks, civil unrest and other acts of violence or war involving India and other countries could adversely affect the financial markets and our business.

Terrorist attacks and other acts of violence or war may negatively affect the Indian markets on which our Equity Shares trade and also adversely affect the worldwide financial markets. These acts may also result in a loss of business confidence, make travel and other services more difficult and ultimately adversely affect our business. In addition, any deterioration in relations between India and Pakistan might result in investor concern about stability in the region. India has also witnessed civil disturbances in recent years and it is possible that future civil unrest as well as other adverse social, economic and political events in India could have a negative impact on us. Such incidents could also create a greater perception that investment in Indian companies involves a higher degree of risk and could have an adverse impact on our business

6. Natural calamities could have a negative impact on the Indian economy and cause our business to suffer.

India has experienced natural calamities such as earthquakes, floods and drought in the recent past. The extent and severity of these natural disasters determine their impact on the Indian economy. In previous years, many parts of India received significantly less than normal rainfall. As a result, the agricultural sector recorded minimal growth. Prolonged spells of below normal rainfall in the country or other natural calamities could have a negative impact on the Indian economy, thereby affecting our business, prospects, results of operation and financial condition.

7. Any downgrading of our debt rating or Indias sovereign rating by a credit rating agency could have a negative impact on our business.

Any adverse revisions to our credit rating or Indias sovereign credit ratings for domestic and international debt by credit rating agencies may adversely impact our ability to raise additional financing, and the interest rates and other commercial terms at

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which such additional financing is available. This could have a material adverse effect on our business and financial performance, our ability to obtain financing for lending operations and the price of our Equity Shares.

8. The Indian and global financial sector is very competitive and the ability of banks and financial institutions to grow depends on their ability to compete effectively.

There is heavy competition among Indian public and private sector banks, foreign banks operating in India and financial institutions to lend to power sector. Some of these institutions are smaller and may be more flexible and better positioned to take advantage of market opportunities than big banks. In particular, private banks may have operational advantages in implementing new technologies, rationalizing branches and recruiting employees through incentive-based compensation. Additionally, both the Indian and global financial sector may experience further consolidation, resulting in fewer banks and financial institutions. The GoI has recently permitted foreign banks to set up wholly owned subsidiaries in India. It has also allowed takeovers of Indian banks by permitting foreign banks to acquire up to a 74 per cent stake in an existing private bank. These developments are likely to further increase competition and may stimulate consolidation in the Indian financial sector. These competitive pressures affect the Indian financial sector and our growth will depend in large part on our ability to respond in an effective and timely manner to these competitive pressures.

9. There may be other changes to the regulatory framework that could adversely affect us.

The statutory and regulatory framework for the Indian power sector has changed significantly in recent years and the impact of these changes is yet to be seen. The Electricity Act, 2003 (the Electricity Act) puts in place a framework for reforms in the sector, but in many areas the details and timing are yet to be determined. It is expected that many of these reforms will take time to be implemented. Furthermore, there could be additional changes in the areas of tariff and other policies, the unbundling of the State Power Utilities, restructuring of companies in the power sector, open access and parallel distribution, and licensing requirements for, and tax incentives applicable to companies in the power sector. In 2004, the GoI reviewed the Electricity Act. We presently do not know what the nature or extent of review in future will be, and cannot assure that such review will not have an adverse impact on our financial condition and results of operations. 10. Direct capital market access by our borrowers could adversely affect us.

The Indian capital markets are developing and maturing and, as such, there may be a shift in the pattern of power sector financing. Financially stronger state power utilities might source their fund requirement directly from the market. We have a large exposure to state power utilities and such changes may have an adverse impact on our business, financial condition and results of our operations.

11. Recent global economic conditions have been unprecedented and challenging and have had, and continue to have, an adverse effect on the Indian financial markets and the Indian economy in general, which has had, and may continue to have, a material adverse effect on our business, financial condition and results of operations.

Recent global market and economic conditions have been unprecedented and challenging with tighter credit conditions and recession in most major economies continuing into 2009.

Continued concerns about the systemic impact of potential long-term and wide-spread recession, energy costs, geopolitical issues, the availability and cost of credit, and the global housing and mortgage markets have contributed to increased market volatility and diminished expectations for western and emerging economies. In the second half of 2008, added concerns fuelled by the United States government conservatorship of the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, the declared bankruptcy of Lehman Brothers Holdings Inc., the United States government financial assistance to American International Group Inc., Citigroup Inc., Bank of America and other federal government interventions in the United States financial system led to increased market uncertainty and instability in both United States and international capital and credit markets. These conditions, combined with volatile oil prices, declining business and consumer confidence and increased unemployment, have contributed to volatility of unprecedented levels.

As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers. These factors have led to a decrease in spending by businesses and consumers alike and corresponding decreases in global infrastructure spending and commodity prices. Continued turbulence in the United States and international markets and economies and prolonged declines in business consumer spending may adversely affect our

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liquidity and financial condition, and the liquidity and financial condition of our customers, including our ability to refinance maturing liabilities and access the capital markets to meet liquidity needs.

These global market and economic conditions have had, and continue to have, an adverse effect on the Indian financial markets and the Indian economy in general, which may continue have a material adverse effect on our business and our financial performance.

RISKS RELATING TO THE BONDS

1. There has been no prior public market for the Bonds and it may not develop in the future, and the price of the Bonds may be volatile.

The Bonds have no established trading market. Moreover, the Bonds are subject to statutory lock-in for a minimum period of five years from the Deemed Date of Allotment and no trading market would exist or be established for the Bonds for the said period despite the Bonds being listed on BSE. Even after the expiry of the Lock-in Period, there can be no assurance that a public market for these Bonds would develop.

There can be no assurance that an active public market for the Bonds will develop or be sustained. The liquidity and market prices of the Bonds can be expected to vary with changes in market and economic conditions, our financial condition and prospects and other factors that generally influence market price of Bonds. Such fluctuations may significantly affect the liquidity and market price of the Bonds, which may trade at a discount to the price at which you purchase the Bonds.

2. The Bonds are classified as long term infrastructure bonds eligible for tax benefits under Section 80CCF of the Income Tax Act, up to an amount of ` 20,000, on subscription to the Bonds. In the event your investment in the Bonds exceeds ` 20,000 in any assessment year, you will be eligible for benefits under Section 80CCF of the Income Tax Act only for an amount up to ` 20,000.

The Bonds are classified as long term infrastructure bonds issued in terms of Section 80CCF of the Income Tax Act and the notification dated October 11, 2010, issued by the MoF. In accordance with Section 80CCF of the Income Tax Act, the amount, not exceeding ` 20,000, paid or deposited as subscription to long-term infrastructure bonds during the previous year relevant to the assessment year beginning April 1, 2011 shall be deducted in computing the taxable income of a resident individual or HUF. In the event any Applicant applies for the Bonds in excess of ` 20,000, the aforementioned tax benefit will be available to such Applicant only to the extent of ` 20,000. Subscription to Bonds for an additional amount or interest on the Bonds will not be eligible for deduction from taxable income. 3. The legal regime in respect of the issuance of long term infrastructure bonds with associated tax benefits has been

recently introduced and its implementation and efficiency are yet to be established. The legal regime in relation to the issuance of long term infrastructure bonds, with associated tax benefits on investment, was introduced in the Finance Bill of 2010. Pursuant to a notification dated October 11, 2010, the MoF, issued terms and conditions required for issuance of long term infrastructure bonds by the Company. We cannot assure you that the tax benefits offered for investment in such long term infrastructure bonds would be continued in the future. Further, we cannot assure you that any other company would be issuing such long term infrastructure bonds in the future and that a market for such bonds will develop or be sustained in the future. Further, there is no assurance as to whether the proposed tax changes to the income tax regime pursuant to the notification of the draft Direct Tax Code (DTC) may result in the extinguishment of benefits available under Section 80CCF of the Income Tax Act, thus restricting any similar issuances in the future and affecting the public market for the Bonds.

4. There is no guarantee that the Bonds issued pursuant to this Issue will be listed on BSE/NSE in a timely manner, or at all.

In accordance with Indian law and practice, permissions for listing and trading of the Bonds issued pursuant to this Issue will not be granted until after the Bonds have been issued and allotted. Approval for listing and trading will require all relevant documents authorising the issuing of Bonds to be submitted. There could be a failure or delay in listing the Bonds on the BSE/NSE. 5. You may not be able to recover, on a timely basis or at all, the full value of the outstanding amounts and/or the interest

accrued thereon in connection with the Bonds.

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Our ability to pay interest accrued on the Bonds and/or the principal amount outstanding from time to time i