Ministry of Railways - Indian Railway Finance Corporation Ltd.

Indian Railway Finance Corporation Ltd.
March, 2011
1

2
• Company Overview

IRFC Overview
• Indian Railway Finance Corp (“IRFC”) is a public limited company under the
Companies Act, 1956. It is the dedicated funding arm of the Ministry of Railways
(MoR), which is responsible for running the Railways. MoR relies heavily on IRFC
for its Extra Budgetary Resource needs to fund acquisition of its rolling stock, and
to a smaller extent, in a few other key areas. MoR is a strategically important part
of the Government.
• More than half of Indian Railways’ rolling stock fleet has so far been financed by
IRFC.
• IRFC enjoys legal ownership of the rolling stock assets, which are leased to MoR
for a period of up to 30 years on Financial Lease terms. MoR effectively uses and
maintains them throughout their life.
• Although an arrangement exists for IRFC’s debt payments being committed by the
MoR in case of difficulties experienced by the company, in its almost 24-year
history, IRFC has never had to resort to MoR’s extraordinary support for meeting
its debt obligations.
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• Through successful execution of its mandate to arrange lease finance for MoR
year-after-year, IRFC has been able to establish a respectable niche franchise and
has managed to sustain a strong financial performance track record.

Unique Character of IRFC
• In addition to IRFC being fully owned by the Government through the MoR, its
business is predominantly with the MoR, which remains its major client.
• The business of IRFC is critical to MoR as the company funds a significant
portion of its investment needs.
• Not only is the annual borrowing target of IRFC set by the Parliament of India
but MoR’s debt servicing obligation is also committed by the Parliament each
year.
• The Government has high stakes in good health of IRFC’s business and has
been extending all necessary support to it. The Government would require the
Company to steer its business operations entirely consistent with its obligations
towards MOR.
4

Organisational Structure
Board of Directors
Board of Directors
Chairman
( Samar Jha)
Chairman
(R. Sivadasan)
Managing Director
( (R. Kashyap) )
Director Finance
(vacant)
Director Finance
(Vacant)
G.G.M.
(Neera Khuntia)
G.M.
(Bonds) & Co. Secretary
G.M. G.M. (ECB)
(S. Radhakrishnan)
(ECB)
G.M. G.M. (Bonds)
(T.
(Accounts)
Behera)
Company Addl. Secy G.M. &.G.M. (TL)
(S.K.
(Admin.)
Ajmani)
Other Executives
Staff
&
Staff
5

Board of Directors
• IRFC’s Board comprises a sound mix of professional expertise and experience.
• Apart from the Chairman who is Financial Commissioner (Railways), and two
functional Directors, the Board of Directors also includes one nominee Director
from Ministry of Finance.
• Entirely in conformity with requirements under Listing Agreement, the
Company has two eminent experts in relevant areas as Independent Directors.
• The Company follows all applicable Corporate Governance Practices as
prescribed by the Department of Public Enterprises (DPE) for all the Central
Public Sector Enterprises (CPSEs), both in the form of mandatory
requirements and voluntary guidelines.
6

Relationship with the Government of India
• IRFC’s share capital has been wholly provided by the Government of India.
• Under the Companies Act, 1956 of India, IRFC is a "Government Company", since
not less than 51% of the paid-up share capital of IRFC is held by the Central
Government.
• Market borrowings to be done by IRFC and the payment of lease rentals by MoR to
IRFC form part of the Railway Budget which is approved by the Parliament of India.
• MoR considers IRFC as of high strategic importance for its critical role in capital
formation in Railways.
• Supporting such an understanding is the fact that MoR infused additional equity of
Rs.2.68 Billion, Rs.3 Billion and Rs. 2.91 Billion in March 2007, March 2009 and
November 2009 respectively. During the current year, a further sum of Rs. 5.11
Billion was infused. Consequently, MoR’s 100% holding of Company’s Shares now
stands at Rs. 16.02 Billion.
• The Chairman, Managing Director and Director Finance of IRFC are officials of the
MoR. Traditionally, the Financial Commissioner of the MoR has been the Chairman
of the Company.
7

Control of Various Regulators
• IRFC is a notified Public Financial Institution under Section 4A of the
Companies Act,1956 and is subject to relevant provisions of the Act.
• As a Government Undertaking, it is subject to guidelines of Department of
Public Enterprises.
• Accounts of IRFC are subject to audit by the Supreme Audit agency set up
under the Constitution - Comptroller & Auditor General (C & AG) of India.
Besides, C & AG also undertakes propriety Audit of the company which is a
valuable means of prudent external review of its business.
• Being a regular issuer of bonds in the Capital Market, the Company is required
to comply with the guidelines issued by the Securities Exchange Board of
India (SEBI).
• RBI approves IRFC’s proposals for borrowings from Overseas Market, and
exercises control as it deems fit for Public Financial Institutions such as IRFC.
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IRFC – Highlights of Performance
• IRFC has acquired position of considerable repute amongst financial
institutions and is the only such institution in the Railway Sector.
• IRFC has funded acquisition of assets valued at Rs. 601.63 Bn. (USD 13.08
Bn.) for MOR till end of March 2010 which is expected to reach a level of Rs.
690.05 Bn. (USD15.00 Bn.) at the end of the financial year 2010-11.
• The Company has been consistently paying dividend to its Shareholders and
has so far paid Rs.14.68 Billion (USD 319.13 Mio) on an equity base of
Rs.2.32 Billion (USD 50.43 Mio) which was enhanced to Rs. 5 Billion (USD
108.70 Mio) in March’2007, to Rs.8 Billion (USD 173.91 Mio) in March’2009
and further to Rs.10.91 Billion (USD 237.17 Mio) in November 2009. During
the current financial year, Rs. 5.11 Billion (USD 111.09 Mio) has taken place,
taking the total to Rs. 16.02 Billion (USD 348.26 Mio).
• Affairs of the Company are carried out by a lean team which has just 16
personnel performing executive and ministerial functions. Overhead to
Turnover ratio is 0.12%, which is perhaps the lowest for any company the
world over.
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IRFC – Highlights of Performance (contd.)
• Besides enjoying highest possible credit rating for its operations in domestic
market and rating identical to the Country rating for its overseas borrowings,
IRFC has been rated “Excellent” by the Government of India on eleven out of
twelve occasions, based on its performance in the last twelve years. It ranked
amongst Top Ten PSUs based on its performance during 2001-02, 2002-03,
2003-04 and 2004-05.
• IRFC has been successfully funding a significant part of Plan requirements of
MoR over the years at competitive rates. Cost of the funds raised by the
company during recent years compares well with cost of borrowing of
Government of India.
10

Total Plan outlay of Railways & IRFC’s Share
(Rs. Million)
Total Plan Outlay of IR during the year 1996-97 to 2011-12 : Rs. 3,435.18 Bn. ( USD 74.68 Bn. )
Funding by IRFC during the period 1996-97 to 2011-12 : Rs. 825.495 Bn. ( USD 17.95 Bn. )
Share of IRFC in Total Plan Outlay : 24.03%
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Credit Ratings
• IRFC maintains the highest possible ratings for an Indian issuer, reflecting its
sound financials and special status as a wholly-Government owned Public
Financial Institution:
Foreign Currency
Issuer Rating
Outlook
Moody's Baa3 Stable
Standard and Poor’s BBB- Stable
Fitch BBB- Stable
Japanese Credit Rating Agency BBB+ Stable
Domestic
Rating
Outlook
CRISIL AAA Stable
ICRA LAAA Stable
CARE AAA Stable
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13
• Leasing Arrangements with the
Ministry of Railways (“MoR”)

Leasing Activity
• As lessor, IRFC retains legal title to the assets leased under the terms of the
Standard Lease Agreement with MoR. This allows the company to obtain
depreciation benefit under tax law.
• The lease period is typically 30 years, comprising a primary component of 15 years
followed by a secondary period of 15 years. Full recovery of principal and interest is
effected during the primary lease period itself. After 30 years, assets may be sold to
the MoR for a nominal price.
• Each year, IRFC enters into a Standard Lease Agreement with MoR through which
lease rental in respect of assets acquired during the year is fixed. The IRR of the
lease includes a moderate mutually agreed mark-up over the average borrowing
cost of the company relevant to incremental assets acquired during the financial
year.
• IRFC runs essentially a risk free business, with foreign currency risk and interest
rate risk associated with its borrowings either transferred to MOR or hedged at
MOR’s cost.
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Lease Receivables
• IRFC’s cash flows from lease rentals are robust and stable, as evidenced by the
table below. Outstanding leased assets 1 are valued at INR 361.83 Billion (USD
7.87 Billion) on March 31, 2010. Gross value 2 was INR 562.76 Billion (USD
12.23 Billion).
Year INR Billion USD Billion
2010-11 51.41 1.12
2011-12 51.34 1.12
2012-13 51.34 1.12
2013-14 50.14 1.09
2014-15 48.95 1.06
2015-16 46.21 1.00
2016-17 43.70 0.95
2017-18 41.78 0.91
2018-19 39.04 0.85
After 1 April 2019 138.84 3.02
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1. Outstanding leased assets ( i.e. receivables ) depict the gross value net of capital recovery already effected on such
leased assets
2. Gross value is the original value / purchased cost of the assets leased, and excludes the value of Rs.19.70 Bn and
Rs.35.40 Bn representing the assets taken on lease for subleasing to MOR and assets pertaining to the Securitization
transaction respectively.

Assets Leased to MoR and Lease Rentals Received
Rs Million
700,000
Line
600,000
500,000
400,000
300,000
200,000
100,000
0
1987-88 1989-90 1991-92 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 2005-06 2007-08 2009-10
Assets Leased to MOR
Lease Rentals
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17
Asset Creation by IRFC and Cost-Benefit to MoR

IRFC Share in Indian Railways Rolling Stock
Position as on 31-03-2010
• More than half of Indian Railways’ rolling stock fleet is financed by IRFC.
Particulars Units Rs. Billion
Locomotives 5,060 246.43
Passenger Coaches 32,115 173.97
Freight Wagons 1,39,659 177.63
Cranes and Track Machines 85 3.60
Total 601.63
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19
• Financial Overview

Sources of Finance
• IRFC’s principal sources of funding are borrowings through issue of bonds,
term loans & external borrowings besides sums which are generated
internally from lease rentals received from MoR:
As on 31 March 2010
(INR Billion)
Total : Rs. 394.8 Billion ( USD 8.58 Billion )
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Summary of Key Financial Indicators
(INR Million)
For the year ended
31 March
2010
(USD)
2010 2009 2008 2007 2006
Total Income 757.38 34839.37 30247.81 26,247.90 22,840.60 20,196.90
Total Expenditure 585.98 26955.28 23670.94 19,864.40 16,723.20 15,157.10
Profit Before Tax 171.37 7882.86 6576.87 6,383.50 6,117.40 5,039.80
Net Profit
After Current Tax
141.99 6531.61 5827.10 5,660.30 5,436.10 4,612.70
Net Profit After Tax * 96.24 4426.91 1807.92 4,215.10 3,987.00 3,338.90
Share Capital 237.17 10910.00 8000.00 5,000.00 2,320.00 2,320.00
Reserves & Surplus
(Incld. DTL) *
1039.46 47815.02 42372.57 37,804.20 35,993.90 29,702.20
Total Loans 7306.21 336085.75 273887.10 240,985.70 217,941.70 199,160.70
Total Balance Sheet
Size
8582.84 394810.77 324259.67 283,789.80 256,255.50 231,183.00
* IRFC has decided to provide for Deferred Tax liability in line with AS-22 from fiscal 2005-06.
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Financial Engineering through Review of existing
debt portfolio - Last Eight Years
Savings over the balance life
• Financial Foreclosure of the Leases : Rs. 2.27 Bn
• Restructuring / Refinancing High Cost Loans : Rs. 8.36 Bn
• Exercise of Call Option on Bonds : Rs. 1.28 Bn
• Restructuring of High Cost Bonds : Rs. 0.37 Bn
• Restructuring / Refinancing ECBs : Rs. 0.51 Bn
-------------------------
Rs. 12.79 Bn
-------------------------
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Hedging Strategies - Prudent use of Financial
Derivatives
• IRFC follows the practice to appropriately hedge exchange rate and interest rate
risks on its forex debt portfolio.
• The Principal amount outstanding against the External commercial borrowings
involving bullet repayment at the end of 5/10 years is hedged through suitable
derivative products at an opportune time over the life of such borrowings.
• For Interest servicing in respect of External Commercial Borrowings and
repayment of principal amount against overseas borrowings with amortized
repayment structure, hedging philosophy is not to contract any derivative
products, mainly because the amortized structures offer a natural hedge.
• Interest rate swaps are contracted selectively on merits.
• Derivatives are prudently used as a tool for hedging the Forex and Interest Rate
Exposure.
• Derivatives are also used as a mechanism for structuring financial products to
achieve low cost funding.
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Prudent use of Financial Derivatives (contd.)
• Philosophy behind derivative transactions is to optimally contain the financial
risks and achieve low cost funding without exposing the company to undue risk.
• Timing is of essence, and it is IRFC’s experience that selecting the right time
for a derivative transaction can have very significant bearing on cost.
• Exotic and Complex derivative structures are avoided.
• Derivative portfolio is constantly monitored and the company keeps in
preparedness to ‘exit’ from the derivatives if the conditions are expected to
become grossly unfavorable.
• Decisions about timing, quantum of hedging and structure of hedge products
are preceded by constant monitoring of macro economic factors, financial
market movements and meticulous cost-benefit analysis. Expert external
advice is also sought.
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Achievement of objective
IRFC has been admirably discharging its responsibility as efficient funding arm of
Railways.
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Margin to IRFC 0.50% 0.55% 0.55% 0.53% 0.52% 0.51% 0.51%
Cost to IRFC 5.70% 5.55% 7.00% 8.22% 9.33% 8.98% 7.70%
Cost to MOR 6.20% 6.10% 7.55% 8.75% 9.85% 9.49% 8.21%
Cost to AAA Rated Entities 6.26% 6.78% 7.98% 9.06% 9.62% 9.72% 8.60%
Cost of Borrowing of GOI 5.71% 6.11% 7.34% 7.89% 8.12% 7.56% 7.23%
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Debt Servicing Profile of IRFC
IRFC’s debt servicing record is impeccable.
There has NEVER been any delay or default, despite large size of its portfolio.
Volume of Business during 2009-10 : INR 356.28 Billion / USD 7.75 Billion
Borrowing against assigned targets : INR 92.50 Billion / USD 2.01 Billion
Redemption of existing debt : INR 23.60 Billion / USD 0.51 Billion
Short Term Line of Credit ( STLC ) Availed : INR 105.10 Billion / USD 2.28 Billion
Repayment of STLC : INR 111.08 Billion / USD 2.41 Billion
Others .. .. .. : INR 24.00 Billion / USD 0.52 Billion
Number of Debt Transactions handled during 2009-10
Borrowings :
Domestic Bonds, Loans & Securitization : 16
Foreign Currency : 1
Total : 17
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Interest Servicing & Redemptions / Repayments :
Interest Servicing Repaid
Domestic Bonds & Loans : 115 24
Foreign Currency : 13 3
Total : 128 27

Debt Servicing Profile of IRFC ( Contd. )
• Foreign Currency Transactions in IRFC’s Portfolio :-
Yen denominated
Number : 2 Nos.
Value : JPY 29.718 Billion ( INR 11. 11 Billion )
US Dollar denominated
Number : 7 Nos.
Value : USD 722.849 Million ( INR 32.53 Billion )
Euro denominated
Number : 1 Nos.
Value : Euro 1.95 Million ( INR 0.12 Billion )
Total ( Outstanding )
INR 43.76 Billion (about USD One Billion)
Total Foreign Currency contracted : USD 2.1 Billion
Total Foreign Currency repaid : USD 1.1 Billion
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BUILDING
RAIL INFRASTRUCTURE
IN INDIA
*
CHALLENGES
&
OPPORTUNITIES
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Ministry of Railways

Indian Railways Network
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• For the public at large, the Indian
railway network is the principal
mode of transport, especially for
long distance travel of 500km
and above. Over 20 million
passengers are carried every
day by the Indian Railways to
more than 7,000 destinations. At
over 7.4 billion, in a year, Indian
Railways carry more than the
population of the whole World.
• The network is made up of
sixteen zones, which are further
broken down into fifty-nine
operating divisions.
C ountry Route Length (km s)
United States 194,731
Russia 87,157
China 73,002
India 63,465
Canada 49,422
G erm any 45,514
Ministry of Railways

Growing Traffic
• During the fiscal 2007-08, the Indian Railways carried 794 million tons of freight traffic, and
6.53 billion passenger-traffic.
• Improving upon this, during 2008-09, it carried 833.39 million ton of freight traffic (up 5% on
previous year) and 7.05 billion passenger traffic (up 8% on previous year) . Figures for 2009-
10 were 890 Million tones (+6.8%) and 7.38 Billion (+4.7%) respectively and those for 2010-11
are expected to be 924 Million tones (+3.8%) and 7.83% billion (+6.1%) respectively.
• In 2007-08, Freight traffic was the largest segment of Indian Railways operations with
earnings of INR 474.35 billion (US$ 10.31 billion) in the total gross revenue receipts of INR
717.20 billion (US$ 15.59 billion). For the year 2008-09 it grew to INR 534.33 billion (US$
11.61 billion) compared to total gross revenue receipts of INR 798.37 billion (US$ 17.35
billion). For the year 2009-10. Freight Traffic Receipts were INR 587.16 billion (US$ 12.74
billion) and Passenger & other Receipts at INR 295.65 billion (US$ 6.42 billion). Gross
Traffic Receipts are estimated at INR 948.40 billion (US$ 20.62 billion) for 2010-11.
Railways’
Earnings
INR Billion
30
Ministry of Railways

Net Revenue and Operating Ratio
Indian Railways is one of the few railways in the world which has an operating surplus
Net revenue for the year 2007-08 was INR 183.34 billion (US$ 3.98 billion), but came
down to INR 91.75 billion (US $ 1.99 billion) for 2008-09. For the year 2009-10, the net
revenue was at INR 55.44 billion (US$ 1.21 billion) – the downward trend mainly on
account of increase in operating expenses due to high fuel cost and on account of
impact of Sixth Pay Commission for Government employees and pensioners.
2010-11 is expected to end at INR 90.21 billion (US$ 1.96 billion). Similarly, the
Operating Ratio of 75.9% during 2007-08 went up to 90.5% in 2008-09, 95.3% for
2009-10, improving to 92.1% in 2010-11 and to 91.1% in 2011-12.
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Ministry of Railways

Drivers of Growth
• Intensive asset utilisation (track, wagons,
coaches, locos)
• Increase in axle load and improvement in turnround
of wagons
• Lowering of unit costs through higher volumes
• Focus on customers
• Differentiated strategy for social and commercial
operation
• Dynamic and market-driven tariff for freight and
premium passengers
• Reduction of tariffs in real terms
32
Ministry of Railways

Outlook for Future
• GDP growth likely to resume on upward trajectory
• Freight and Passenger traffic expected to keep pace
with renewed growth.
• Infrastructure needs to be in place to fully capitalize
on the opportunity
33
Ministry of Railways

Key Priorities
• Continued focus on customers and
thrust on operational improvement
• Rolling stock to match growth
• Targeted investment for augmentation of
capacity and removal of bottlenecks
• Harnessing new technology
• Policy & Institutions to catalyze and absorb
investments
34
Ministry of Railways

Vision 2015
• Doubling and port connectivity – 6,000 Kms.
• Gauge conversion- 12,000 Kms.
• Dedicated Freight Corridors-11,500 Kms.
• Up gradation of feeder routes of DFC- 15,000 Kms.
• Asset renewal/up gradation–All HDN routes
• Modernization of passenger and freight terminals
• Augmentation of manufacturing capacity of rolling stock.
• Approximate investment – Rs.3,500 Billion (provisional)
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Ministry of Railways

11 th Five Year Plan ( 2007-2012 )
• Investment targets Rs. 2,510 Billion
• To be financed as follows :-
Budgetary support - Rs. 860 Billion
Internal Generation - Rs. 900 Billion
Market borrowing - Rs. 750 Billion
Ministry of Railways
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Dedicated Freight Corridor
• Initially the Western and Eastern routes
2700 Kms (5000 kms of track)
approximate cost - Rs.220 Billion to Rs.300 Billion
• Subsequently other corridors
• Opportunity for innovations on design, construction and
maintenance to achieve optimal life cycle costs
• Opportunity for freight terminals, logistics parks and ICDs.
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Ministry of Railways

Growth of Railways:
Implications for IRFC
•Projected planned Rail sector development in India
demands increased capital investment.
•To meet the planned development, majority of the
market borrowing needs are to be met by IRFC
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Ministry of Railways

39
Thank You