Indian Railway Finance Corporation (IRFC) is trying to keep its cost of borrowing below the G-sec rates, said its chairman and managing director Manoj Kumar Dubey on Wednesday. He said that even though the current borrowing cost is below G-sec rate – 10-year bond yield is 6.73% – it is a target that the rail PSU has set for itself as the company plans to raise substantial funds in FY27.
Recently, IRFC board has approved massive fund-raising plan of Rs 70,000 crore for FY27. The company said that these funds will help meet the requirements of Indian Railways, disbursement for diversification under IRFC 2.0, committed liabilities, refinancing of existing loans and for other general corporate purposes.
“For infrastructure projects, the most important raw material is cheap finance. By having access to the cheapest finance, everything can be built up in a smart way,” Dubey said. Broadly, IRFC’s borrowing mix includes 50% bonds, 25% external commercial borrowings (ECBs) and 25% term loans. Last year, the PSU had set a target to raise Rs 60,000 crore, with a target to disburse Rs 30,000 crore. Dubey told FE that the remaining amount goes into refinancing where the company do cost optimisation by replacing “higher” cost borrowings with “cheaper” options.
“Nearly 50 to 60% of total borrowing goes to the real disbursement, and 40% goes to internal adjustments,” Dubey said on the sidelines of FICCI Infrastructure Conclave 2026.
A recent case in point is IRFC executing a Rs 9,821-crore loan agreement to refinance the Dedicated Freight Corridor Corporation of India’s (DFCCIL’s) existing foreign currency debt with the World Bank. This move allowed DFCCIL to save an estimated Rs 2,700 in interest costs over the loan tenure while also replacing forex exposure with IRFC’s rupee financing.
IRFC 2.0
IRFC has substantially increased its lending over the past two years (see table xxx) as it has pivoted from being dependent on a single client (Indian Railways) for nearly 38 years to a multi-client system lending to sectors – power, ports and renewable energy, logistics – which have forward and backward linkages to the railways.
Diversification has also resulted in better margins for IRFC because in case of traditional lending to the Ministry of Railways, which is considered safe, the company earns a margin of 35-40 basis points (bps) over its cost of funds. In non-railway lending, this margin goes up to over 100 bps.
Yield Arbitrage
“If we are lending Rs 30,000 crore to the broader ecosystem, the yields are akin to lending Rs 1 lakh crore to the railways. That is the whole game,” Dubey said.
IRFC is now looking at funding the roads sector, especially projects worth over Rs 2,000 crore. “We have already crossed the lending target for FY26. The cumulative sanctions have crossed Rs 80,000 crore for the current fiscal. These are projects where we have signed the agreements and the borrowers typically have three years to use this sanctioned amount. Now, we are taking a good look at the road sector,” Dubey said.