IRFC is a dedicated financing arm of the Ministry of Railways. Its sole objective is to raise money from the market to part finance the plan outlay of Indian Railways. The money so made available is used for acquisition of rolling stock assets and for meeting other developmental needs of the Indian Railways.
The borrowing programme of IRFC is guided by the requirements projected by Ministry of Railways. The company has successfully met the targeted borrowings year after year, through issue of both taxable and tax-free Bonds, term loans from banks/financial institutions and through off shore borrowings. IRFC also makes use of innovative financial instruments to diversify the debt portfolio and to minimize the cost. Its contribution to infrastructure build-up in Railways is very significant. Till 31st March, 2012, Rolling Stock assets – Locomotives, Coaches and Wagons – valued at Rs. 82,447 crore have been added to the asset base of the Indian Railways with funding assistance from IRFC.
The primary objective of IRFC (Indian Railway Finance Corporation Ltd.) is to act as a financing arm for the Indian Railways.
The development of the Company’s business is dependent on the MoR’s (Ministry of Railways) strategy concerning the growth of the Indian Railways. The MoR is responsible for the acquisition of rolling stock and for the improvement, expansion and maintenance of the railway infrastructure.
The Company is responsible only for raising the finance necessary for the acquisition of rolling stock ordered by the MoR. The Company’s principal business therefore is borrowing funds from the commercial markets to finance the acquisition of new rolling stock which is then leased to the Indian Railways.
Lease rentals represent the Company’s capital recovery plus the cost plus a net interest margin.
A part of the funds so raised are also utilised for funding bankable projects (i.e. such projects or proposals that have sufficient collateral, future cash flows and high probability of success) approved by the MoR and which are executed by Rail Vikas Nigam Limited (“RVNL”).
Similar to core lease transactions, the interest charged by the Company is on a cost plus margin basis.
In addition, the Company had also disbursed loans to other MoR agencies like Railtel Corporation of India Limited (“RailTel”), Konkan Railway Corporation Limited, Rail Land Development Authority and Pipavav Rail Corporation Limited.