I R F C Management Discussions

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.


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)


FY 2022-23 FY 2021-22 YoY Change (in %)

Revenue from Operations

23,891.28 20,298.27 17.70


23,795.37 20,179.42 17.92


6,337.01 6,090.16 4.05


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:


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.