Statement of Assets and Liabilities for last Five Years and Latest ...

i(ICRA Credit PerspectiveIndian Railway Finance Corporation LimitedSummary Rating RationaleParametersA Business Risk1 Business MixOverall CommentsIRFC's primary activity is to mobilise funds, on behalf of Indian Railways (IR), to providefinance to Railways to procure locomotives, passenger coaches. and wagons.IRFC loan book mainly comprised loans to Ministry of Railways (MaR), accounted for g7%of its loan portfolio as on March 31, 2012, and project finance loans to other MaR entitles.IRFC's loan repayment is made through budgetary allocation by MoR every year.2 Managementand SystemsIRFC has been raising funds at very competitive cost driven by its quasi sovereign statusand strong financial flexibility. IRFC onlends to MoR at predetermined IRRs; IRFC chargesan interest spread of around 50-60 bps over Its funding cost to MoRlRFC Is wholly owned subsidiary of MaR. The managing director of IRFC Is nominated byMaR.lRFC has a lean operating structure because of Its nature of business and entire lendingto MaR and MoR related entities.3 OperatingEnvironmentB Financial Risk1 ProfitabilitySlowdown in economic growth along with persistent high Interest rates has impacted assetquality and portfolio vulnerability of banks and other financial companies. The slowdown ineconomic activity could Impact operating performance of Indian Railways, however sameIs unlikely to have significant Impact on debt repayment capacity of Railways.IRFC enters into a tease agreement with MaR every year; the Interest spread of IRFC Isfixed (around 50-50 bps) and protected throughout the tenure of the loan under terms of thelease agreement. Interest rate and foreign currency risk is also transferred to MoR throughtease agreement.As for reported profitability, supported by adequate net Interest margins (NIMs), relativelylow operating expenses (being a lean operating structure entity) and superior asset quality(nil gross NPAs), the profitability (PBT/ATA) of IRFC has been adequate. However, highertax expenses have Impacted its retum on net on worth to some extent.2 LiquidityIRFC has a well matched asset liability profile given the tenure of Lease Agreements(weighted average tenure around 10 years) and the weighted average maturity of itsborrowings (around 8-12 years over last few years).The liquidity profile (ALM) of IRFC Is also strengthened by strong financial flexibility of IRFC.Moreover, as per lease agreement With MaR, IRFC can seek advance lease rentals fromMaR in case of need.3 Capitalisation4 Asset QualityGearing of IRFC has been around ten times (limit set by Its BoD) over last many years. Totalborrowings of IRFC increased significantly over last few years given sizeable increase Inborrowing programme {which Is fixed by MaR) however at the same MoR has infused capital(Rs.1 ,852 crore5 over last four years, 2008-09 to 2011-12) to enable IRFC to maintain gearing belowten times. Regulatory CRAR of IRFC stands at 195% as on March 31, 2012 as exposure toMoR attracts zero risk weight.Asset quality profile of IRFC is superior with nil gross and net NPAs as on March 31, 2012;the asset quality profile reflects very low credit risk given entire exposure to MoRand relatedentities.5Including share application money of Rs 250 crcre as on Mar-12 for which shares were allotted in 2012-1-=t