Annual Report English.pmd - Indian Railway Finance Corporation Ltd.

Market Borrowings during 2004-05Despite hardening of interest rates, your Company has achieved an incremental weighted average costof 5.54% for the year 2004-2005 through judicious borrowings and raised Rs.2,887.92 crore. An openingbalance of Rs.131.77 crore existed with the Ministry of Railways out of funds remitted in the previous yearwith weighted average cost of 5.70%. The overall weighted average cost of funds for the year worked outto 5.55% p.a. Including the opening balance available with the Ministry, the Company made available tothem a sum of Rs.2,968.48 crore during 2004-05 in fulfilment of the revised borrowing target set by theMinistry. The original borrowing target as conveyed by the Ministry in the beginning of the financial yearwas Rs.3,400 crore. The borrowings during the year comprised Rs.860 crore of domestic loans; Rs.736.80crore of taxable bonds, Syndicated foreign currency Loan of USD 100 Million (Rs.444.55 crore); JPYPrivate Placement Bonds 2.65 Bn (Rs.111.63 crore) and EURO Yen Bonds 13 Bn (Rs.539.60 crore).Besides, an amount of Rs.195.34 crore was raised through Securitisation of future lease receivables fromthe Ministry of Railways. The weighted average tenor of all borrowings during the year was close to 8years.Lease Arrangement with the Ministry of Railways for 2004-05As you are aware, the Lease arrangement between your Company and the Ministry of Railways is governedby a standard lease agreement. For the incremental borrowing pertaining to 2004-05, lease rentals havebeen fixed at Rs. 49.82 per thousand per half-year (PTPH) over a primary lease tenor of 15 years. Thecost to Ministry of Railways (IRR) is 6.10% p.a.Resource Mobilisation for 2005-06The Ministry of Railways has decided that for manufacture / procurement of Rolling Stock assets of differenttypes viz. Electric & Diesel Locomotives, Wagons, Coaches etc, during 2005-06, assets of estimatedvalue of Rs.3,400 crore would be funded through extra budgetary resources to be provided by IRFC.Besides, the Ministry has also assigned to your Company the task of raising debt finance for Rail VikasNigam Ltd.During the current fiscal 2005-06, your Company has already mobilised Rs.1,850 crore at competitiverates and terms despite the hardening of interest rates and tightening of liquidity. Your Company is confidentof achieving the target of borrowing set by the Ministry of Railways.Report on Corporate GovernanceReport on Corporate governance is enclosed as Annexure ‘I’ forming part of this report.Compliance with Accounting Standards(A) Accounting Standard (AS)-17Your Company is in the business of leasing and financing. As such, there are no separate reportablebusiness segments as per Accounting Standard (AS)-17 on ‘Segment Reporting’ issued by the ICAI.(B) Accounting Standard (AS)-19ICAI has made Accounting Standard (AS)–19 ‘Leases’ mandatory with effect from 1-4-2001. In accordancewith AS-19, the rolling stock assets given on finance lease are not capitalised in the books of the lessorand are instead recognised in its books as lease receivable at an amount equal to the net investment inthe Leased assets. Application of AS-19 has been made optional for earlier years. Your Company haschosen to adopt the accounting treatment provided therein in respect of all the assets leased since itsinception. Accordingly, all leased assets shown as fixed assets (net of accumulated depreciation andlease adjustment account) as at 31 st March, 2001 have been transferred to Lease Receivable Account.For the year under review, as per AS-19, the finance income is recognized in the Profit & Loss Accountand the capital recovery portion of lease rentals is treated as repayment of principal i.e. net investment inthe leased assets.7