Power Finance Corporation Ltd Management Discussions

Management Discussion & Analysis Report

The Management of the Company (PFC) is pleased to present its Report on Industry scenario including Companys performance during the FY 2025-26.

(A) INDUSTRY STRUCTURE AND DEVELOPMENT

India remained one of the fastest-growing major economies during FY 2025-26, supported by sustained public capital expenditure, improving industrial activity, infrastructure development and increasing electricity demand. Against this backdrop, the Indian power sector continued its growth trajectory during FY 2025-26, supported by sustained investments in generation capacity, transmission infrastructure, distribution reforms, and renewable energy development. The sector remains a key enabler of Indias economic growth, with increasing electricity demand driven by industrial expansion, urbanisation, digitalisation, and the transition towards cleaner sources of energy. Renewable energy has emerged as a major contributor to the countrys installed power capacity, reflecting Indias commitment to achieving its clean energy and net- zero objectives. Continued capacity additions in solar, wind, hydro, and energy storage systems, along with the modernisation of the national transmission network, have strengthened grid reliability and facilitated greater integration of renewable energy into the power system. Simultaneously, the implementation of smart metering, advanced digital technologies, and distribution sector reforms has enhanced operational efficiency, improved billing and collection mechanisms, and strengthened the financial sustainability of power utilities.

The Government of Indias continued emphasis on universal access to electricity, expansion of transmission infrastructure, energy efficiency initiatives, Green Energy Corridors, and the

Revamped Distribution Sector Scheme (RDSS) has created significant investment opportunities across the power value chain. These policy initiatives, coupled with the growing focus on battery energy storage systems, green hydrogen, electric mobility, and smart grid technologies, are expected to drive long-term capital expenditure in the sector.

These developments present substantial opportunities to support investments across generation, renewable energy, transmission, distribution, energy storage, and emerging clean energy technologies. The increasing participation of private sector developers, public sector utilities, and state-owned entities in large-scale infrastructure projects is expected to sustain strong demand for long-term project financing, refinancing, and innovative financial solutions. The Indian power sector is well positioned for sustained growth, supported by stable policy initiatives, increasing private investments, technological advancements, and rising electricity demand. The continued transition towards a resilient, low-carbon, and digitally enabled power ecosystem is expected to strengthen the sectors investment potential and reinforce its critical role in achieving Indias long-term economic and energy security objectives. As a leading infrastructure financing institution, the Company remains well positioned to capitalise on these opportunities by providing timely, innovative, and sustainable financing solutions that support the countrys energy transition and infrastructure development.

Key schemes and initiatives undertaken by the Government of India include:

Key Industry drivers

(i) Renewable Energy Expansion

The PM Surya Ghar: Muft Bijli Yojana (PM Surya Ghar), launched by the Ministry of New and Renewable Energy (MNRE) in February 2024, is a flagship initiative aimed at accelerating the adoption of rooftop solar systems across the residential sector. The scheme targets the installation of rooftop solar systems in one crore households by FY 2026-27, supporting Indias clean energy transition while promoting energy access, consumer savings, and distributed renewable energy generation.

The demand-driven scheme is available to all residential consumers with grid-connected electricity connections through a dedicated National Portal, providing a fully digital and transparent application process. To accelerate implementation, the Government has introduced several consumer-friendly reforms, including a fully online approval process, waiver of technical feasibility requirements for eligible consumers, automatic load enhancement up to 10 kW, and integration of net metering agreements within the application workflow. These measures have significantly simplified project execution and enhanced consumer participation.

PM-KUSUM continues to play a significant role in promoting decentralised renewable energy generation and enhancing energy security in the agricultural sector. The demand-driven scheme supports the deployment of solar power plants and solar- powered irrigation systems, reducing dependence on conventional energy sources, lowering irrigation costs for farmers, and advancing Indias renewable energy and climate goals. The scheme has benefited approximately 21.77 lakh farmers across the country by providing reliable, clean, and affordable energy for agricultural applications.

The continued expansion of PM-KUSUM is expected to drive investments in decentralised solar infrastructure, rural distribution networks, and agricultural energy systems. The scheme also presents significant financing opportunities for infrastructure finance institutions through funding of distributed renewable energy projects, solar pump installations, and associated rural energy infrastructure, while contributing to sustainable agricultural development and Indias broader clean energy transition.

The National Green Hydrogen Mission (NGHM), launched by the Government of India, is a strategic initiative aimed at establishing India as a global hub for the production, utilisation, and export of green hydrogen and its derivatives. The Mission supports the countrys long-term decarbonisation objectives and seeks to develop a competitive green hydrogen ecosystem by leveraging Indias expanding renewable energy capacity. India has set an ambitious target of achieving 5 million metric tonnes (MMT) of annual green hydrogen production capacity by 2030, positioning the sector as a key pillar of the countrys clean energy transition.

The National Green Hydrogen Mission is expected to catalyse substantial investments across the renewable energy, electrolyser manufacturing, storage, transportation, and industrial decarbonisation value chains. As large-scale commercial projects are developed, the Mission is likely to generate significant demand for long-term project financing and infrastructure investment, creating new growth opportunities for infrastructure financing institutions while supporting Indias transition to a low-carbon and energy-secure economy.

Indian Carbon Market-Carbon Credit Trading Scheme (CCTS): The Ministry of Power has operationalised the Indian Carbon Market through the Carbon Credit Trading Scheme (CCTS), creating a framework to incentivize greenhouse gas emission reductions and promote low-carbon investments. The scheme comprises both compliance and voluntary offset mechanisms, enabling industries to meet emission intensity targets while fostering the generation and trading of carbon credits. This initiative is expected to accelerate Indias transition to a low-carbon economy, strengthen climate action, and support the development of a robust domestic carbon market.

India targets 500 GW of non-fossil fuel power capacity by 2030, making Battery Energy Storage Systems (BESS) essential for integrating renewable energy and ensuring reliable electricity supply. The National Electricity Plan 2023 estimates a requirement of 208 GWh of BESS by 2030. To promote energy storage, the government has introduced policy reforms, financing support, market mechanisms, Viability Gap Funding (VGF) schemes for about 43 GWh of BESS, and a H18,100 crore PLI scheme for battery manufacturing. Currently, India has 798 MWh of operational BESS capacity and 35.8 GWh under construction, supporting the countrys clean energy transition and grid reliability goals.

Pump Storage Projects (PSP): India has an estimated pumped storage potential of about 258 GW, of which nearly 7 GW has been developed so far. To support the growing integration of renewable energy and enhance grid stability, the Government has set a target of adding 57 GW of pumped storage capacity by 2031-32. Of this, around 12 GW is under construction, while the remaining capacity is at various stages of development.

(ii) Transmission Infrastructure

• Green Energy Corridors & Inter-State Transmission System (ISTS): The Government of India continues to strengthen the national transmission network through the expansion of the Green Energy Corridors (GEC) and the Inter-State Transmission System (ISTS) to facilitate the large-scale integration of renewable energy into the national grid. These initiatives are critical to achieving the countrys target of over 500 GW of non-fossil fuel- based installed electricity capacity by 2030, while creating a robust transmission framework capable of supporting approximately 600 GW of renewable energy capacity by 2032.

The continued development of transmission infrastructure is expected to unlock substantial investment opportunities across the power sector by facilitating renewable energy integration, reducing transmission constraints, and improving the resilience of the national grid. For infrastructure financing institutions, the expansion of GEC and ISTS is expected to generate sustained demand for long-term financing of transmission projects, grid modernisation initiatives, renewable energy evacuation systems, and associated power infrastructure, supporting Indias transition to a secure, reliable, and low-carbon energy ecosystem.

(iii) Distribution Reforms

• Revamped Distribution Sector Scheme (RDSS) & Smart Metering:

The Revamped Distribution Sector Scheme (RDSS), launched by the Government of India in 2021, continues to be one of the most significant reform initiatives aimed at improving the operational efficiency, financial sustainability and service quality of power distribution utilities (DISCOMs). The scheme seeks to modernise the distribution network through infrastructure strengthening, digitalisation and smart metering, while improving the financial health of DISCOMs by reducing Aggregate Technical & Commercial (AT&C) losses and bridging the gap between the Average Cost of Supply (ACS) and Average Revenue Realised (ARR).

Key RDSS Highlights

Particulars	Status
Total Projects Sanctioned	RS.2.83 lakh crore
Distribution Infrastructure & Loss Reduction Works	H1.53 lakh crore
Smart Metering Projects	H1.31 lakh crore
Smart Meters Sanctioned	20.33 crore
Smart Meters Installed under RDSS	4.69 crore
Total Smart Meters Installed across Government Programmes	6.13 crore
National AT&C Losses	Reduced from 22.3% (FY 2020-21) to 15.04% (FY 2024-25)
Billing Efficiency	Improved from 84.08% to 87.59%
Collection Efficiency	Improved from 92.90% to 97.00%
Key Objectives	Reduce AT&C losses to 12-15%; eliminate ACS-ARR gap

The scheme encompasses comprehensive distribution reforms, including network modernisation, feeder segregation, High Voltage Distribution Systems (HVDS), Supervisory Control and Data Acquisition (SCADA), Distribution Management Systems (DMS) and large-scale deployment of Advanced Metering Infrastructure (AMI). Consumer-centric initiatives such as prepaid smart metering, rebates, check meters and simplified arrear recovery mechanisms have further accelerated smart meter adoption and improved billing efficiency.

Role of PFC and REC

Power Finance Corporation Limited (PFC) and REC Limited have been entrusted by the Government of India with the implementation and monitoring of RDSS under the oversight of Central and State-level Monitoring Committees. As nodal agencies, PFC and REC play a critical role in appraisal, sanction, monitoring and implementation of projects, thereby facilitating timely execution of distribution sector reforms and strengthening the financial and operational performance of DISCOMs.

Sectoral Impact and Outlook

The continued implementation of RDSS is expected to significantly enhance the financial viability of the distribution sector by improving operational efficiencies, reducing losses and strengthening the credit profile of DISCOMs. The scheme is also driving substantial investments in distribution infrastructure, digitalisation, smart metering and smart grid technologies, thereby creating sustained opportunities for long-term infrastructure financing. These developments are expected to support robust credit demand and provide significant business opportunities for financing institutions such as PFC.

• Late Payment Surcharge Rule, 2022 The Ministry of Power, vide Gazette Notification dated 3 June 2022, notified the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 to facilitate settlement of outstanding dues of Generating Companies, Inter-State Transmission Licensees, and Electricity Trading Licensees, thereby improving payment discipline across the power sector. Power Finance Corporation Limited (PFC) has been designated as the Nodal Agency for implementation, review, and monitoring of the Rules.

Further, the amendment notified by the Ministry of Power on 2 May 2025 extended the payment security mechanism under the LPS Rules to intra-state transmission licensees. This measure is expected to enhance payment assurance, encourage investment in transmission infrastructure, and support evacuation of power from the planned expansion of renewable energy capacity.

Industry Performance Generation

The year 2025-26 marked significant progress in Indias power generation sector, driven by capacity expansion, diversification of energy sources, and initiatives to strengthen energy security. During the year, India successfully met a peak power demand of 242.49 GW, while the national energy shortage declined to 0.03%, reflecting improvements in generation capacity, transmission infrastructure, and operational efficiency. The expansion of power generation capacity has enabled the country to meet rising electricity demand while advancing its transition toward a reliable, resilient, and sustainable energy system.

Installed Capacity

Indias installed power generation capacity witnessed robust growth during FY 2025-26, driven by accelerated additions in renewable energy and continued expansion of conventional generation. As of March 31, 2026, the countrys total installed power generation capacity reached 516.95 GW, comprising 233.49 GW (45.2%) from fossil fuel-based sources and 283.46 GW (54.8%) from non-fossil fuel sources, including 274.68 GW of renewable energy and 8.78 GW of nuclear power. This marks a significant milestone in Indias energy transition, with non-fossil sources accounting for more than half of the countrys installed electricity capacity.

During the year, India added a record 55.3 GW of non-fossil capacity, led by 44.61 GW of solar power and 6.05 GW of wind power. Solar energy remained the primary driver of capacity expansion, raising the countrys cumulative solar capacity to 150.26 GW, while wind capacity continued to grow steadily. These additions enabled India to meet rising electricity demand, successfully serving a peak demand of 242.49 GW during the year while maintaining a national energy shortage of only 0.03%.

The rapid expansion in installed capacity reflects sustained policy support, improved project implementation, enhanced transmission infrastructure, and growing private sector participation. India also achieved the milestone of 50% cumulative installed electricity capacity from non-fossil fuel sources in June 2025, five years ahead of its 2030 target under the Paris Agreement. The Government remains committed to further expanding capacity to achieve 500 GW of non-fossil electricity capacity by 2030, strengthening energy security while advancing the countrys transition to a reliable, resilient, and sustainable power system.

To sustain this momentum, the Government of India introduced several policy initiatives during the year, including a reduction in GST on renewable energy equipment, incentives for battery manufacturing, measures to strengthen domestic manufacturing, and new programmes promoting green hydrogen, geothermal

energy, bioenergy, and skill development. These initiatives reinforce the Governments commitment to achieving 500 GW of non-fossil electricity capacity by 2030, while advancing Indias transition towards a secure, sustainable, and low-carbon energy future.

Indias Power Generation Performance (April-March 2026 Prov.)

Category-wise	Target Generation during Current Year 2025-26 (Upto March 2026) (BU)	Generation during Current Year 2025-26 (Upto March 2026)* (BU)	Ach. w.r.t Target (%)	Generation during Previous Year 2024-25 (Upto March (BU)	Growth w.r.t. Previous Year Generation (%)	% of Total Generation
GENERATION FROM FOSSIL FUEL:
Coal	1,429.000	1,250.189	87.49	1,298.052	(3.69)	67.7
Gas	37.262	26.009	69.80	31.580	(17.64)	1.4
Lignite	37.000	30.323	81.95	32.995	(8.10)	1.6
Diesel	0.400	0.430	107.42	0.443	(2.93)	0.0
Total (Fossil Fuel):	1,503.662	1,306.951	86.92	1,363.069	(4.12)	70.8
GENERATION FROM NON-FOSSIL FUEL:
Generation from Renewable Sources (Including Hydro):
Wind	91.712	106.089	115.68	83.347	27.29	5.7
Solar	152.499	173.525	113.79	144.150	20.38	9.4
BioPower & others	30.789	29.199	94.84	27.512	6.13	1.6
Total: Solar, Wind & Other RE	275.000	275.813	112.30	255.009	21.10	16.7
Hydro	155.674	167.163	107.38	148.634	12.47	9.1
Bhutan Import	9.472	7.813	82.48	5.484	42.46	0.4
Total RE Generation (Incl. Hydro)	440.146	483.789	109.92	409.127	18.25	26.2
Nuclear	56.592	55.181	97.51	56.681	(2.65)	3.0
Total (Non-Fossil Fuel):	496.738	538.970	108.50	465.808	15.71	29.2
TOTAL GENERATION (FOSSIL FUEL & NON-FOSSIL FUEL):
Total Generation:	2,000.400	1,845.921	92.28	1,828.877	0.93	100.0

BU: Billion Units * Provisional

Source: Central Electricity Authority (CEA)-Monthly Generation Report, March 2026 (Provisional) https://cea.nic.in/

RE-Bundling

To ensure adequate availability of thermal power capacity and optimize fuel utilisation, reforms were undertaken for efficient allocation of coal resources and strengthening of generation assets. The Cabinet Committee on Economic Affairs approved the Revised SHAKTI (Scheme for Harnessing and Allocating Koyala Transparently in India) Policy in May 2025, streamlining coal allocation mechanisms for the power sector.

The revised framework consolidated the earlier provisions of the SHAKTI Policy into simplified windows, improving ease of doing business, enhancing operational flexibility and enabling more transparent coal linkage allocation. The reform supports optimal utilisation of thermal capacity, reduces dependence on imported coal and strengthens Indias long-term energy security.

Transmission

The transmission sector continued to expand with a focus on strengthening grid infrastructure, improving reliability and facilitating renewable energy evacuation. The Government finalised the National Electricity Plan for Transmission (2023-2032) to support future electricity demand, including a projected peak demand of 458 GW by 2032. The plan envisages an investment of approximately RS.9.16 lakh crore for development of transmission infrastructure.

Under the planned expansion, the transmission network is expected to increase from 4.98 lakh circuit kilometres (ckm) in November 2025 to 6.48 lakh ckm by 2032, while transformation capacity is projected to rise from 1,398 GVA to 2,345 GVA. Inter-regional transfer capacity is planned to increase from 120 GW to 168 GW, enabling efficient transfer of electricity across regions and supporting renewable energy integration.

During 2025-26, significant additions were made to the transmission system, including 6,511 ckm of transmission lines (220 kV and above), 1,00,368 MVA of transformation capacity and 1,600 MW of inter-regional transfer capacity. Renewable energy evacuation infrastructure was strengthened through approval of 25.8 GW of renewable energy-linked Inter-State Transmission System (ISTS) projects with an investment of around RS.38,849 crore.

Further, revised Right of Way (RoW) compensation guidelines were implemented to accelerate development of transmission corridors. The revised framework enhanced compensation linked to land value and introduced mechanisms for transparent assessment of market rates, supporting timely execution of transmission projects required for renewable energy expansion.

Distribution

The power distribution sector remained a key focus area during FY 2025-26, with continued reforms aimed at improving operational efficiency, reducing losses, and enhancing the financial sustainability of DISCOMs. These reforms centred on modernising distribution infrastructure, strengthening billing and revenue collection systems, expanding smart metering, and leveraging digital technologies to improve service delivery and consumer experience.

The reform measures yielded significant improvements in sector performance. AT&C losses declined from 22.3% in FY 2020-21 to 15.04% in FY 2025-26, reflecting better network management, enhanced energy accounting, and improved collection efficiency. Similarly, the gap between the Average Cost of Supply (ACS) and Average Revenue Realisation (ARR) narrowed substantially from H0.69 per kWh to H0.11 per kWh during the same period, indicating stronger financial discipline and improved operational performance of DISCOMs.

The sector also continued to advance the objective of universal, reliable, and quality electricity access. Investments in network strengthening, feeder augmentation, system modernisation, and consumer centric initiatives enhanced the reliability and availability of power supply, particularly in rural and underserved areas. The ongoing rollout of smart metering and digital service platforms further improved billing accuracy, operational transparency, and consumer convenience, supporting the broader objective of building a financially viable, efficient, and consumer-oriented power distribution ecosystem.

Overall sector outlook: The reforms and initiatives undertaken during 2025-26 have strengthened Indias power sector across the entire value chain- from generation capacity enhancement and renewable energy integration to transmission expansion, distribution reforms and digital transformation. These measures have improved reliability, affordability and sustainability of electricity supply, supporting Indias vision of becoming a secure and clean energy- driven economy.

(B) OPPORTUNITIES & THREATS Opportunities

Going forward, the rapid transformation of Indias power and energy sector presents significant growth opportunities for your Company. Rising investments in renewable energy, transmission infrastructure, energy storage, distribution reforms, and emerging technologies are expected to drive sustained demand for long-term project financing. These developments are aligned with the Governments vision of achieving 500 GW of non-fossil electricity capacity by 2030, creating substantial financing opportunities across the power and infrastructure value chain.

As one of Indias leading financial institutions in the power sector, your Company is well positioned to support this transition by financing both conventional and clean energy projects while continuing to play a pivotal role in the implementation of Government- led initiatives.

During FY 2025-26, PFC continued to capitalise on opportunities arising from Indias accelerating clean energy transition and sustained expansion of the power sector. A key milestone during the year was the growth of its renewable energy loan portfolio, which crossed the RS.90,000 crore mark for the first time. As on March 31, 2026, the renewable energy loan book stood at RS.90,135 crore, compared with RS.81,031 crore in the previous year, registering a year-on-year growth of approximately 11.2%. Renewable energy assets now account for 32% of PFCs total outstanding generation loan portfolio, supporting nearly 66 GW of installed renewable energy capacity across the country.

The Company also continued to strengthen its strategic positioning through initiatives aimed at diversifying its funding sources and enhancing its financial flexibility. The establishment of a subsidiary in GIFT CITY is expected to facilitate access to global capital markets, broaden the investor base, and enable the mobilisation of competitive long-term funds. This initiative is aligned with PFCs strategy of supporting Indias evolving energy and infrastructure financing requirements while maintaining a diversified and resilient funding profile.

Nuclear power funding by PFC: With India accelerating the development of nuclear capacity through multiple projects under construction and pre-project stages, nuclear energy is expected to play an increasingly significant role in ensuring reliable, low-carbon baseload power.

During FY 2025-26, PFC continued to support the Government of Indias objective of diversifying the countrys clean energy mix by extending its financing portfolio to include nuclear power projects. In a noteworthy achievement, your Company has demonstrated its commitment to supporting nuclear power in India by sanctioning financial assistance of RS.25,999.60 crore to Nuclear Power Corporation of India Limited (NPCIL) for setting up a nuclear power plant involving total estimated cost of RS.37,142.28 crore.

Infrastructure and Logistics: PFC continued to expand its support to the infrastructure and logistics sector during FY 2025-26, reflecting its commitment to financing critical infrastructure beyond the power sector. Loan assets under the infrastructure and logistics segment increased to RS.52,076 crore as on March 31, 2026, from RS.48,448 crore as on March 31, 2025, registering a growth of approximately 7.5%. The sector accounted for around 9% of the Companys total loan asset mix, underscoring PFCs strategic focus on financing infrastructure that enhances connectivity, strengthens logistics networks, and contributes to sustainable economic growth.

Going forward, the continued emphasis on renewable energy, transmission expansion, energy storage, green hydrogen, and power distribution reforms is expected to generate significant financing opportunities. Backed by a strong balance sheet, sectoral expertise, and a leadership position in infrastructure financing, your Company remains well placed to support Indias energy transition while delivering sustainable growth and long-term value to its stakeholders.

The long term business strategy of PFC

PFC aims to strengthen its leadership position as a premier financial institution in Indias Power and Infrastructure sector while actively supporting the countrys energy transition. Its long-term strategy is centered on sustainable growth, portfolio diversification, and alignment with national energy objectives, with a strong emphasis on financing cleaner and future-ready energy solutions.

PFCs long-term business strategy is anchored on the following five strategic pillars:

1. Business Growth & Market Leadership

• Preferred Lending Partner: Consolidate its position as the lender of choice in the Power, Energy, and Infrastructure sectors by financing solutions to government and private borrowers at reasonable costs.

• Diversified Growth: Expand the lending portfolio into new and emerging areas across the Power and Infrastructure sectors, adapting to evolving market

dynamics to capitalise on new opportunities that help reduce the cost of power to the end consumer and ensure the viability of emerging technologies.

• Grow lending by maintaining its share in conventional and non-conventional sectors while expanding the portfolio to emerging power and infrastructure sectors.

• Adapt a paradigm shift in account management and customer experience by providing differentiated services, innovative products, and re-imagining existing processes to cater to the changing customer mix.

2. Sustainability & Energy Transition: Net-Zero

Leadership

• Lead investments towards achieving Indias Net-Zero emissions goal by prioritising investments in green infrastructure projects.

• Leverage PFCs expertise to catalyse sustainable energy solutions aligned with global climate objectives.

• Position PFC as the focal agency for Net-Zero initiatives and pursue immediate dispensations in the interim to lower the cost of funds.

3. Funding & Financial Strength

• Optimise the cost of funds by increasing the share of 54EC bonds, institutionalising a dedicated team for sourcing MDB loans, re-imagining the hedging strategy, and fine-tuning the resource mobilisation process.

4. Sectoral Reforms and Innovation

• Spearhead transformative reforms in the Power, Energy, and Climate sectors by collaborating closely with the Government of India to implement policies and programmes for the power sector.

5. Organisational Excellence

• Re-align the organization in line with PFCs strategic objectives.

• Tap new talent resources and revamp the performance management system.

Threats, Risks & Concerns

PFC, being a leading financial institution in Indias power sector, is exposed to various financial, operational, and sector-specific risks arising from the evolving dynamics of the power and infrastructure industry. The ongoing energy transition, regulatory developments, and changing market conditions continue to present both challenges and uncertainties for the Corporation. Understanding and proactively managing these risks remain critical for ensuring sustainable growth and longterm financial stability.

The key threats, risks, and concerns faced by the Company include the following:

(C) SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE

The Company is primarily engaged in the business of providing financial assistance to the power and infrastructure sectors. Given the homogeneous nature of its operations, the Company does not have any separately identifiable or reportable business segments. All its activities are integrally linked to its core financing business, and therefore, segment reporting is not applicable.

(D) OUTLOOK

Power Finance Corporation (PFC) is a leading Government of India-owned Non-Banking Financial Company (NBFC) established in 1986 under the Ministry of Power. The company primarily finances projects across the power sector, including generation, transmission, distribution, renewable energy, and energy efficiency. Over the years, PFC has diversified its lending portfolio to include infrastructure sectors such as logistics, ports, urban infrastructure, and transportation. With a strong balance sheet, high credit ratings, and a significant role in supporting Indias energy transition and infrastructure development, PFC remains one of the countrys largest infrastructure financing institutions.

Pursuant to the announcement made in the Union Budget 2026-27 and subsequent approval of the Scheme of Merger by the Boards of Power Finance Corporation Limited (PFC) and REC Limited, REC Limited is proposed to be merged into PFC and their respective shareholders and creditors, under Sections 230 to 232 and other applicable provisions of the Companies Act, 2013. The Scheme shall become effective from the Effective Date, as defined under the scheme, upon completion of all prescribed formalities and approvals. As per the proposed scheme, shareholders of REC Limited will receive 88 equity shares of PFC for every 100 equity shares of REC held by them, subject to receipt of all statutory and regulatory approvals.

The proposed merger of Power Finance Corporation (PFC) and REC Limited marks a defining milestone in Indias infrastructure financing landscape, bringing together two of the countrys most prominent power sector lenders into a unified and stronger entity. This strategic consolidation is set to create a financial powerhouse with enhanced scale, deeper sectoral expertise, and improved operational efficiency. By combining their complementary strengths, the merged institution will be better positioned to accelerate investments across the power value chain and emerging infrastructure segments, while playing a pivotal role in supporting Indias energy transition and long-term development goals. The merger is expected to enhance operational efficiencies, strengthen the combined balance sheet, improve capital allocation, and generate long term value for shareholders through greater scale and synergies.

Your Company continues to play a pivotal role in supporting the Government of India in the formulation and implementation of key power sector policies and schemes. It has been actively associated as a nodal agency for the Revamped Distribution Sector Scheme (RDSS), aimed at improving the operational efficiency and financial viability of DISCOMs.

Earlier, the Company also served as a nodal agency for major initiatives such as the Integrated Power Development Scheme (IPDS), Restructured Accelerated Power Development and Reforms Programme (R-APDRP), Ujwal DISCOM Assurance Yojana (UDAY), and Ultra Mega Power Projects (UMPP), many of which have now been subsumed under subsequent reform-oriented programmes.

(E) INTERNAL CONTROL SYSTEM AND ITS ADEQUACY

M/s. ASA & Associates LLP, Chartered Accountants, appointed for testing adequacy and operative effectiveness of Internal financial control over financial reporting, has certified that the Company maintains an adequate system of internal financial controls, evaluates and makes an assessment of its adequacy and effectiveness in a satisfactory manner which takes care of requirements under Companies Act, 2013.

The Statutory Auditors of the Company, Thakur, Vaidyanath Aiyar & Co., Chartered Accountants and Mehra Goel & Co., Chartered Accountants, have issued their Report on Internal Financial Controls, confirming that the Company has, in all material respects, an adequate internal financial controls system over financial reporting. They have further stated that such internal financial controls over financial reporting were operating effectively as at March 31, 2026, based on the internal control over financial reporting criteria established by the Company, considering the essential components of internal control set out in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India.

The effectiveness of the Companys internal control environment is also reflected through its internationally recognised ISO certifications.

PFCs ISO certification reflects its commitment to stringent internal controls and credit review mechanisms. These processes effectively reduce defaults and foster strong stakeholder confidence.

(F) DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Your company continued to achieve healthy growth during FY 2025-26. The total income stood at RS.58,541.59 crore and the net profit earned was RS.20,051.34 crore.

Further, the Net Worth (share capital plus all reserves) of the company grew by 12.75% in FY 2025-26 to Rs.1,02,531.94 crore as compared to RS.90,936.87 crore in FY 2024-25. The gross loan assets recorded a growth of 6.81% to RS.5,80,115.30 crore as at March 31, 2026 from RS.5,43,120.41 crore as at March 31, 2025.

The Net Debt Equity Ratio improved to 4.75 times in FY 2025-26 as compared to 5.12 times in FY 2024-25. The Operating Margin % increased from 39.82% in FY 2024-25 to 42.28% in FY 2025-26 and the Net Profit Margin % increased from 32.66% in FY 2024-25 to 34.25% in FY 2025-26.

The financial statements of the Company have been prepared in compliance with the Indian Accounting Standards ("Ind AS") notified by the Ministry of Corporate Affairs under the Companies (Indian Accounting Standards) Rules, 2015, as amended, and applicable from April 1,2018.

During FY 2025-26, PFC continued to strengthen its ESG performance by advancing sustainable financing, promoting employee well-being and diversity through various engagement and welfare initiatives, and maintaining high standards of corporate governance. A detailed ESG Report is enclosed alongwith the Directors Report.

(G) ESG AT PFC

We are committed to lead by example in fostering a sustainable low-carbon economy & driving national growth by ensuring fair and sustainable financing solutions, while preserving the environment. At our core, we prioritize upholding unwavering integrity, maintaining stakeholders trust, and establishing transparency and accountability through robust corporate governance & risk management practices. We strive to make a meaningful impact not only for ourselves but also for our stakeholders. At the forefront of our corporate ethos is fostering a diverse, inclusive, and engaged workforce, as well as enabling the community through our CSR efforts.

(H) CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT (CSR&SD)

Your company has a CSR policy in place in line with Section 135 of the Companies Act, 2013 and the Companies(CSR) Rules, 2014and DPE. YourCompany through its Corporate Social Responsibility initiatives, aims to become a socially responsible corporate entity committed to improving the quality of life of the society at large.

Your Company has been implementing wide range of CSR activities in the field of Environment Sustainability, Healthcare, Education, PM Internship, Rural Development, contribution to Swachh Bharat Kosh etc.

(I) MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT

Human Resources Management FY 2025-26
Employee Engagement & Development	Diversity & Inclusion	Industrial Relations	Governance & Ethics
• National Sports Day	• Diversity & Equal opportunity	• Cordial & harmonious industrial relations	• Vigil Mechanism
• Health check-ups			• Whistle Blower Policy
• Sports tournaments	• Gol reservation guidelines	• No disputes	• Code of Conduct
• Blood donation		• No man-days lost	• Fraud Prevention
• Awareness programmes		• No complaints under WB/PoSH	• Fair Practices Code
• Physical & mental well-being

(J) RENEWABLE ENERGY: PFCS CONTRIBUTION

During the 2025-26 fiscal period, PFC emerged as a critical institutional engine driving Indias clean energy transition as a leading financiers of renewable energy projects. As at March 31,2026, the renewable energy loan portfolio stood at RS.90,135 crore, compared with RS.81,031 crore as at the end of the previous year, registering a year-on-year growth of approximately 11.2%. Renewable energy assets accounted for 32% of PFCs total outstanding generation loan portfolio, reflecting the Companys continued focus on supporting the transition towards a sustainable energy ecosystem. By the close of the 2025-26, PFCs funding footprint backed ~66 GW of non-fossil capacity, representing nearly 24-25% of Indias entire renewable energy infrastructure.

(K) KEY FINANCIAL RATIOS

The following illustrative images present the Companys key financial ratios for the year ended March 31, 2026. A detailed discussion and analysis of these financial ratios and the related financial performance are provided in the relevant sections of this Annual Report.

Debtors Turnover, Inventory Turnover, Interest Service Coverage ratio, Current Ratio are not applicable to the Company.

Cautionary Note

The "Management Discussion and Analysis" section may contain certain forward-looking statements, which are provided in accordance with applicable laws and regulations. These statements are based on current expectations and assumptions regarding future events and performance. However, actual outcomes may differ materially due to various known and unknown risks and uncertainties. Readers are advised not to place undue reliance on such forward-looking statements.