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

ICRA Credit PerspectiveIndian Railway Finance Corporation limitedAdequate profitability profile, favourable lease agreement to protect againstinterest, foreign exchange and liquidity riskIRFC raise funds and on lend to MoR with a Interest spread of around 50-60 bps. The lease agreement for2011-12 Is signed at an IRR of 9.35% against its incremental cost of funds of 8.85% thus secures anInterest spread of 0.5%, In line with spreads of earlier years (45~60 bps). Interest spread of IRFC remainprotected during the tenure of borrowings as per the !ease agreement, however, marginal tenure mismatchbetween assets and liabilities profile exposes IRFC to Interest rate risk In an increasing Interest ratescenario while the proportion of such mismatches is small. Net interest margins (NIMs) of IRFC have beenstable at around 2% over last many years. Profitability profile of IRFC Is also supported by lower operatingexpenses and zero credit provisioning. Operating expenses of IRFC are very low compare to otherinstitutions due to Its lean structure and lending operations restricted to only one borrower (MaR). Further,IRFC's asset quality Is superior with nil gross and net NPAs as on March 31, 2012 thus zero creditprovisioning. However, IRFC does not create standard asset provisioning as it is exempt from prudentialguidelines for NBFCs. Further, while profitability (PBT/ATA of 1.9% in 2011-12) of IRFC Is adequate, itsreturn on net worth is Impacted to some extent by higher Income tax expenses (tax/PBT of 53% in FY 2012and 46% in FY 2011) as IRFC pays tax under MAT as well as create provision for deferred tax liability.Profit after tax of IRFC declined by 1% in FY 2012 toRs 481 crore; return on average net worth was at9.9% during FY 2012.Further, to lower Its cost of funds, IRFC mobllises funds through foreign currency loans which accountedfor around 17% of its total borrowings as on Mar-12. Foreign exchange risk attached to these borrowingsmostly is either hedged through currency swaps or passed on to MoR through escalation clause in leaseagreement. However, there is some foreign exchange risk attached to a small proportion of borrowingswhich has neither been hedged nor passed on to MoR. ICRA has taken note of such open positron Inforeign currency borrowings, however considering the IRFC's strong net worth and small proportion ofthese borrowings, ICRA does not expect credit profile of IRFC to undergo a change due to these openpositions.Company ProfileIncorporated in 1g86 by the Ministry of Railways (MoR), Government of India, IRFC Is a wholly ownedPublic Sector Undertaking. Its primary activity is to mobilise funds on behalf of Indian Railways (IR) tofinance its procurement of Locomotives, Passenger Coaches & Wagons. Apart from providing finance toMoR, IRFC has also provided loans to two MoR agencies namely Rail Vikas Nigam Limited (RVNL) andRalltel Corporation of India. IRFC Is registered as Infrastructure Finance Company-NBFC (IFC·NBFC) withReserve Bank of India.In 2011-12, IRFC reported a profit after tax of Rs. 481 crore on a total asset base of Rs 60,589 crore asagainst profit after tax of Rs. 485 crore on a total asset base of Rs.46,690 crore during 2010-11. fRFC'sasset quality continues to superior ·with nJI gross and net NPAs as on March 31 , 2012. Capital adequacy ofIRFC is very strong at 195% as on March 31, 2012. In 01 2012-13 IRFC reported profit after tax of Rs.158crore compared with profit after tax of Rs.1 04 crore during same period last year.September 2012