Indian Economic Overview
Despite concerns about an impending global recession, Indias economy
has reaffirmed its position as one of the worlds fastest growing major economies. Amid
several headwinds such as high inflation, escalating commodity prices and disruptions in
global trade due to ongoing geopolitical conflicts in Europe, the economy is projected to
have clocked a growth rate of 7.2% during FY231. The Government and the Reserve Bank of
India (RBI) have implemented several measures to address these headwinds and recent
decline in commodity prices suggest that these efforts have started to bear fruit in terms
of reining in inflation2.
India has emerged as the third-largest economy in terms of purchasing
power parity3.
In the Union Budget for FY24, the Government announced capex worth INR
10 lakh crores, which marked a substantial increase of 37.40% compared to the previous
year.4 This underscores the Governments focus on ramping up infrastructure development,
which acts as a tailwind to drive long-term economic growth. The Indian Railways received
the highest ever capital outlay of INR 2.40 lakh crores, which is further expected to
bolster Indias regional connectivity5.
Well-capitalised public sector banks in India have improved their
financial health, which has put them in a better position to boost credit supply. Despite
a slowdown in global economic activity, Indias performance indicators do not reflect this
trend, resulting in a sense of cautious optimism.
Outlook
Stronger prospects for manufacturing, services, agriculture and related
industries, enhanced business and consumer confidence, along with accelerated credit
expansion are expected to facilitate domestic consumption and investment. Backed by
underlying macroeconomic stability and favourable conditions for economic growth, India is
expected to remain the fastest-growing nation among the G-20 nations in the coming years.
Indias presidency of the G20 Summit in 2023 has also reinforced its global stature.6 The
Governments incentives to drive investment in infrastructure and productive capacity are
expected to have a multiplier impact, enhancing Indias potential for further growth and
employment generation.
Industry Scenario
Indian Railways 7
Indian Railways (IR) with its 4th largest network in the world, has
been the backbone of the transportation sector in India, carrying millions of passengers
and cargo from one part of the country to the other. Indian Railways has definitely
consolidated the roots of growth in the post pandemic scenario and now the path has been
set for moving ahead with positive momentum. IR is moving forward with a vision to become
a more efficient system, to be able to keep pace with the growth and compliment the
economic development of the nation.
Indian Railways with its more than 170 years of existence, is now
making transformative changes. The vision of Indian Railways is to provide safe,
efficient, affordable, customer focused and environmentally sustainable integrated
transportation solution(s) to the country.
IR aims to create a world class infrastructure at a sustainable cost,
built with the latest technologies. Marching further ahead in nations Amrit Kal period IR
vision towards 2047 entails development of 7000 km of High speed Rail Network by 2047
carrying a multitude of 10 billion passengers, expansion of Freight Corridors to 7800 km,
Elevated Corridors (with speed 200+ kmph) of 10,000 km, Vande Bharat trains connecting all
major cities, 1500+ Gati Shakti Cargo Terminals, Reduction in Operating Ratio to less than
70%, 100% Electrification of network, enhancing electric traction capacity (2 & 25
kVA) over 30,000 RKm, Elimination of all remaining level Crossings, Hyperloop
transportation on 2200 km, Station Development of more than 1200 stations, revamp of Ease
of handling and divisibility of cargo units capturing the growing container segment,
Manufacturing/ deployment of freight EMU for parcel/ e-commerce, coverage of entire
network with Kavach and enhanced usage of solar technology for energy needs. The Indian
Railways has set ambitious targets to contribute approximately 1.5% to the countrys GDP
by developing infrastructure that can support 45% of the modal freight share of the
economy.
In keeping with the Prime Ministers vision of ‘Make in India
Vande Bharat trains have been designed and built in India. In the fiscal 2023, 8 new Vande
Bharat trains were introduced over various parts of the Country, thereby making a total of
10 Vande Bharat trains on Indian Railways as on 31st March, 2023. The passenger experience
has seen a paradigm shift with the introduction of Vande Bharat semi high-speed trains.
The overall passenger segment has registered the highest ever revenue to the tune of RS.
63,000 crores. This is 23% higher than the previous high of RS. 51,067 crores in 2018-19.
Indian Railways achieved its highest ever freight loading of 1512.07 MT
in 2022-23 as compared to 1418.1 MT in 2021-22 There is a 6.63% increase in freight
loading over FY 2021-22. Freight loading is the dominant source of revenue for IR and
incremental loading has been continuously achieved in recent years. The freight earnings
have increased by 16% compared to the same period in the previous year.
The Gati Shakti NMP aims to promote synergy between sectors of
railways, shipping, roadways, telecommunications, pipelines etc. by avoiding unnecessary
duplication in infrastructure creation. In order to boost investment from industry in
development of additional terminals for handling rail cargos, a new Gati Shakti
Multi-Modal Cargo Terminal (GCT) policy was launched on 15 December, 2021.
Railway Electrification is another area where significant focus is
being given. IR achieved the highest ever commissioning of 6565 RKm of Railway
Electrification in Fiscal 23. This is in line with the Mission 100% Electrification by
December, 2023 and commitment of Indian Railways to contribute towards Energy Security,
saving of precious foreign reserves towards fuel bill and environment sustainability.
Indian Railways have introduced One Station One Product (OSOP) scheme
on pilot basis with the objective to provide opportunities for enhanced livelihood through
skill development to local artisans, potters, weavers/ handloom weavers, craftsmen etc,
through provision of sale outlets at railway stations across the country. The scheme is
envisaged to encourage individuals at the bottom of the pyramid, marginalized and weaker
sections and self help groups under this scheme to meet the objective.
Indian Railways are now poised to take transformational leap in the
Amrit Kaal of the post-Independence period and fulfill the vision of Viksit Bharat which
includes Modern, faster, available on demand passenger services and facilities, a
substantial share in freight cargo with ancillary services in logistics parks and domestic
industry driven rail infrastructure of highest standards. A record capex target of RS.
2.60 lakh cr in 2023-24 is targeted to initiate the necessary changes for this vision,
across the entire network. Achieving Indias commitment of net zero carbon by 2070 will
rest in part on more rail-bound passenger and cargo movement.
Company Overview
Indian Railway Finance Corporation (IRFC) was set up on 12th December
1986 as the dedicated funding arm of the Indian Railways for mobilizing funds from
domestic as well as overseas Capital Markets. IRFC is a Miniratna I and Schedule ‘A
Public Sector Enterprise under the administrative control of the Ministry of Railways,
Govt. of India. It is also registered as Systemically Important Non-Deposit taking
Non-Banking Financial Company (NBFC - ND-SI) and Infrastructure Finance Company (NBFC-
IFC) with Reserve Bank of India (RBI).
IRFC has played a significant role in its more than 35 years of
existence in supporting the expansion of the Indian Railways and related entities by
financing a significant proportion of its annual plan outlay.
The main objective of the company is to meet the predominant portion of
‘Extra Budgetary Resources (EBR) requirement of the Indian Railways through market
borrowings at the most competitive rates and terms. The Companys principal business
therefore is to borrow funds from the financial markets to finance the acquisition /
creation of assets which are then leased out to the Indian Railways. IRFCs constant
endeavour has been to diversify its borrowing portfolio in terms of instruments, markets
and investors which has led to the Company meeting the targeted borrowings year after
year, through issue of both taxable and tax- free bonds, term loan from banks/financial
institutions besides offshore borrowings, at competitive market rate. Its aim is to be one
of the leading Financial Service Companies in the country, for raising funds from the
capital market at competitive cost for Railway infrastructure augmentation, duly ensuring
that the Corporation makes optimum profits from its operations.
Operational Highlights
The total disbursement for FY 2022-23 was RS. 32,392.63 Crores
comprising of RS. 17,000 Crores for funding of Rolling Stock, RS. 15,392.63 Crores for
financing of Railway Projects under EBR- IF.
Borrowings during the year include Taxable Bonds worth RS. 21,558.70
crores (Previous year 19,847.90 crores), Rupee Term Loans of RS. 22,274.46 crores
(previous year RS. 42,900 Crores) and 54EC bonds of RS. 1,729.61 crores (previous year RS.
1,161.01 crores).
During the year, the Company constantly diversified its borrowing
portfolio to meet the target of borrowings mandated by MoR at the most competitive rates
and terms. In its endeavor towards diversification of its borrowing portfolio for the
first time, IRFC raised funds through structured term loan for tenor of 20 Years of RS.
4,000 crores from NABFID (National Bank for Financing of Infrastructural Development).
Company had received approval of Ministry of Finance for issue of 54EC
Capital Gain Bonds in October 2017, since then, Company is making all endeavors to
increase its market share in 54EC Bond market. In 2022-23, Company mobilized around RS.
1,729.61 crores througRs. 54EC Bond as against RS. 1,161.01 crores in 2021-22.
The weighted average cost of the pool of borrowings made by Company
during the year 2022-23 for rolling stock worked out to 7.51 % p.a (semi-annual) as
against 6.62% (semi-Annual) during the previous year 2021-22 and WACC for project assets
under EBR-IF worked out to 7.52% for FY 2022-23 as against 6.43% (semi-Annual) during the
previous year 2021-22. During the year under review RBI has hiked REPO rate from 4% to
6.50%.
Revenue from operations of Company has increased by RS. 3,593 crores
from RS. 20,298.27 crores in 2021-22 to RS. 23,891.28 crores in 2022-23, showing a growth
of 17.70%. Profit before Tax (PBT) of Company for the year ended 31st March 2023 was RS.
6,337.01 crores as compared to RS. 6,090.16 crores for the previous year, registering a
growth of 4.05%.
Company has not made any provision for tax in its books pursuant to its
decision to exercise the option of lower tax rate permitted u/s 115BAA of the Income Tax
Act, 1961, as introduced by the Taxation Laws (Amendment) Ordinance, 2019 dated 20th
September, 2019. The Companys taxable income was nil and it did not have to pay Minimum
Alternate Tax (MAT) with reference to its Book Profit. MAT payable u/s 115 JB was outside
the ambit of the Section 115 BAA. Thus, on adoption of Section 115 BAA of the Income Tax
Act, 1961, the Company was outside the scope and applicability of MAT provisions and there
was a zero-tax liability in the financial year 2022-23.
Profit After Tax for the year ending 31st March 2023 was RS. 6,337.01
crores as compared to RS. 6,089.84 crores for the previous year, registering a growth of
4.06%.
Financial Highlights
(Figures in Rs Crores)
Particulars |
FY 2022-23 |
FY 2021-22 |
YoY Change (in %) |
Revenue from Operations |
23,891.28 |
20,298.27 |
17.70 |
EBITDA |
23,795.37 |
20,179.42 |
17.92 |
PBT |
6,337.01 |
6,090.16 |
4.05 |
PAT |
6,337.01 |
6,089.84 |
4.06 |
Net Worth |
45,470.31 |
40,996.34 |
10.91 |
Key Ratios
The details of key financial ratios applicable and specific to the
Company are given below:
Particulars |
FY 2022-23 |
FY 2021-22 |
| Debt Equity Ratio (in times) |
9.21 |
9.47 |
| Operating Profit (in %) |
26.98 |
30.65 |
| PAT (in %) |
26.52 |
30.00 |
| Return on Net Worth (in %) |
13 .94 |
14.85 |
Human Resources
At IRFC we believe in a strong value system and best HR practices to
enhance and improve our capabilities and achieve organizational objectives.
As on 31st March 2023 total Manpower of the Company stood at 41. To
infuse fresh Manpower in the existing Manpower pool of the Company, 4 Executives and 3
Non-Executives were inducted in the Company during FY-2022-23 through Direct and Campus
Recruitment. Women constituted 19.51% of its total workforce as on 31st March, 2023.
Effective grievance redressal processes are also structured to keep the
trust, respect and confidence of our team intact. Company has put in place effective Human
Resource acquisition and maintenance function, which is benchmarked with best corporate
practices to meet the organizational need.
Company implements all directives and guidelines with regard to
reservation policy issued by Govt. of India. Liaison Officer has been appointed to look
into the matter of reservations and also the welfare and safeguard of SCs/STs/OBCs/ PwBD/
EWS employees. Liaison Officer also ensures that there is no discrimination on the basis
of Cast, Religion and disabilities amongst the employees. IRFC being a Lean Organization
has adopted "Open Door Policy" and every employee has been given sufficient
opportunity to meet and discuss his/her problem or grievance with the Management. SC/ST
constituted 21.95% of its total workforce as on 31st March, 2023.
In order to enhance the skills, capabilities and knowledge of
employees, a well-defined Training and Development Policy for below board level executives
and non-executives is in place. Employee training and development is an essential element
of the Companys strategy. During the year 2022-23, the Company imparted training to 20 of
its employees to various training programmes and workshops including inhouse trainings.
Companys Board of Directors consist of professionals with vast
experience and high level of expertise in their respective field and industry. It will be
endeavour of the Company that the whole time Directors and Non-Executive Directors attend
training programmes in order to keep themselves abreast with the latest development in the
area of finance, accounts etc. During the FY 2022-23 Non-Executive Directors have been
imparted training for 60 Hrs. cumulatively.
IRFC is an equal opportunity employer. Company provides equal growth
opportunities for the women in line with Govt. of India philosophy on the subject. Being a
lean organization, where Company has 41 employees, women representation has gone across
hierarchical levels. Women constituted 19.51% of its total workforce as on 31st March,
2023. As per Govt. of India directives and guidelines from time-to-time, IRFC ensures the
welfare of women employees.
Risk Management
Effective risk management is central to ensuring robust and healthy
finance for the Company. The company has a Board approved Comprehensive Risk Management
Policy covering Liquidity Risk, Credit Risk, IT & Operational Risk, Forex Risk etc. In
compliance with the RBI Guidelines, the Company has constituted Risk Management Committee
which comprises of Chairman & Managing Director (Addl. Charge) & Director
(Finance) and two Independent Directors. As per the extant RBI guidelines the Company has
a Chief Risk Officer (CRO) for overlooking the functions of risk management in the
Company.
As per the approved policy, the Company has constituted subcommittees
to Risk Management Committee: -
• For effective monitoring, control and mitigation of financial
risk arising due to mismatch in the Asset Liability position, Asset Liability Management
Committee (ALCO) is in place. ALCO is responsible for monitoring liquidity and market
risks.
• To assess and mitigate the foreign exchange fluctuation risk and
interest rate risk in External Commercial Borrowings, Forex Risk Management Committee is
in place.
• To assess and mitigate operational and IT risks of the
Corporation, IT & Operational Risk Management Committee is in place.
Minutes of the meetings of the above Sub-committee(s) along with the
action taken are placed before the Risk Management Committee and the proceedings of the
Risk Management Committee meetings are placed before the Board of Directors .
As our company is mostly funding for augmenting rail infrastructure by
way of a leasing approach to fund rolling stocks and project assets to Ministry of
Railways, it being sovereign entity, the credit risk is minimal. The Companys selective
forays into other areas in the form of loans to Rail Vikas Nigam Limited and IRCON
International Limited are suitably ringfenced, as the same has either the cash flows
originating from the Ministry of Railways or there is a repayment assurance by Ministry of
Railways.
As per Lease Agreement signed by IRFC with MOR every year, interest
rate fluctuations are passed on to MoR and the exposure of the Company to Interest Rate
Risk is low. The cash inflow of the Company is mostly predictable, shielding it
substantially against liquidity related issues.
Although the foreign exchange fluctuation risk is also passed through
to MOR, still Company has consistently been adopting prudent, efficient, and
cost-effective risk management strategies to cover Exchange Rate Variation risk on its
overseas borrowings.
Internal control systems and their adequacy
The Company has in place adequate internal control systems commensurate
with the nature and volume of its business to ensure statutory and regulatory compliances.
The Company has in place Accounts Manual, Manual for Procurement of Goods, Services and
Works and HR Manual. The Company has also implemented a policy for temporary placement of
surplus funds with the Banks in order to strengthen its cash management system.
In line with the RBI notification dated Feb 3, 2021, Risk Based
Internal Audit (RBIA) policy has been formulated and approved by the Board of Directors. A
detailed risk based internal audit plan (RBIAP) for financial year 2022-23 was also
approved by the Board as part of RBIA policy. The scope of RBIA is well defined and is
very exhaustive to take care of all functions and business of the Company depending upon
the risk assessment and control environment. Based on RBIA report, steps are taken at
regular intervals to further strengthen the existing systems and procedures. The
significant observations are discussed in the Audit Committee Meetings regularly. IRFC has
developed Comprehensive Risk Management Policy, Credit Policy, Information Technology
Policy and Information Security Policy.
The Statutory Auditors of the Company are appointed by Comptroller and
Auditor General (C&AG) of India, and the appointment is rotated periodically. Besides,
the accounts of the Company are subject to supplementary audit by the office of C&AG,
as required under the Companies Act. The C&AG also conducts propriety audit of the
Company.
Besides, as mandated under Companies Act, 2013, the Statutory Auditors
have certified as part of their Audit Report, the effectiveness of Internal Financial
Control over financial reporting.
Management Outlook
The outlook for IRFC in FY 2023-24 is centred around strengthening its
robust business model and fostering a strong relationship with the Ministry of Railways
(MoR). Over the years, the company has witnessed substantial growth in its business with
the
MoR with the cumulative funding to the railway sector crossing the RS.
5.50 lakh crores mark with Assets Under Management reaching RS. 4.66 lakh crores at the
end of March 2023.
To strengthen the business model, IRFC is taking steps towards business
diversification. The company is actively exploring projects for funding within the
sovereign space and government projects linked to Railways. IRFCs mandate allows it to
provide financial assistance to entities and projects with forward and backward linkages
with Railways.
Company has signed a Memorandum of Understanding (MoU) with RITES Ltd.
The MoU aims for identifying mutual areas of collaboration for expanding IRFCs role in
providing financial assistance to projects/ institutions that have got backward and or
forward linkages with Railways and by RITES providing assistance to IRFC in ascertaining
the financial & technical viability of projects, providing advisory & consultancy
services.
Company has also signed a Memorandum of Understanding (MoU) with India
Infrastructure Finance Company Ltd. (IIFCL), a Public Sector Enterprise under the Ministry
of Finance, to strengthen cooperation in financing railway infrastructure projects with
forward and backward linkages to Railways sector.
In line with Indias focus on infrastructure spending to reach its
target GDP of USD 5 trillion by FY25, IRFC is committed to raising funds from the
financial market at the most competitive rates and terms. The governments National
Infrastructure Pipeline (NIP) and PM Gatishakti initiative lay the groundwork for
comprehensive and integrated infrastructure development in the country. IRFC, as a premier
financial institution with a track record of NIL NPA and capability to mobilize large
funds from both domestic and offshore markets can play a significant role in supporting
Indias infrastructure sector, driving economic development and growth.
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