In its bid to diversify its lending business beyond Indian Railways, Indian Railway Finance Corporation (IRFC) on Wednesday announced funding of two big projects in the power sector. The company has emerged as the lowest bidder to provide Rs 3,200 crore loan for Patratu Vidyut Utpadan Nigam Limited (PVUNL), a joint venture between NTPC and Jharkhand Bijli Vitran Nigam. Additionally, NTPC Renewable Energy, a wholly owned subsidiary of NTPC Green Energy, has accepted IRFC’s bid for Rs 7,500 crore to finance a Rupee term loan.
The cumulative funding of Rs 10,700 crore to these entities marks the diversification of IRFC beyond the Indian Railways. Till recently, nearly 100% of the IRFC funding has gone to national transporter for acquisition of rolling stocks and build project assets. However, the railways has stopped taking fresh funding from IRFC since FY24.
“The IRFC 2.0 is about diversifying and meeting the funding requirements of the entire logistics ecosystem with railways at the centre. We are willing finance activities in the ports sector, renewable power, tourism, and logistics park, etc. We have recently bagged funding for two projects, and there are more in the pipeline,” said Manoj K. Dubey, CMD and CEO of IRFC.
Dubey expects steady jump in both topline and bottomline going forward. For instance, the IRFC’s current margins stands at 35-40 basis points (bps). “In the space where we operate, other companies are earning huge margins of up to 200 bps. We are aiming to shift from 40 bps to 100-150 bps,” he said.
While increasing its net interest margins (NIMs), IRFC will continue to keep its borrowing cost low. “We are a zero NPA (non-performing assets) company. We have the option to raise funds through 54EC bonds which costs 5.25% annually. Then there are zero-coupon bonds which are available at 6.25%. Within the government bonds segment, we get the best rates because our balance sheet is clean. For us, the raw material is capital. We want to bring down the cost of capital to improve margins,” Dubey said.
Even as the IRFC management believes that its diversification presents huge opportunity, the company aims to remain risk-free. “We will be cherry picking projects for financing. At the same time, we want to develop project appraisal capabilities, especially those linked to the logistics sector, so that we can take quick decisions,” said Dubey.
Last year, IRFC told a parliamentary panel that the company has “developed a detailed credit policy duly approved by the board and is in the process of establishing a business development division with requisite skill set.”
Over the years, the state-run company has funded Indian railways with Rs 5.5 lakh crore for its various infrastructure projects. Despite no fresh funding to railways, IRFC has reported over 19% CAGR (compounded annual growth rate) growth in revenues over the past three years.