Indian Railway Finance Corp. is targeting a net interest margin of over 2% in the current financial year on the back of diversification into high-margin segments, according to Chairperson Manoj Dubey.
The financier to the Indian Railways is aiming for a minimum of Rs 30,000-crore loan disbursements in fiscal 2026, the managing director said in a conversation with NDTV Profit on Tuesday.
The railway public sector undertaking is strategically shifting toward non-railway infrastructure lending, specifically for the metro rail and rapid rail projects.
"The margins that we are going to get are quite higher than what we used to get from Indian Railways, which was 35 bps or 40 bps. We expect that our margins will be nearly three times what we used to get from the Railways," Dubey said.
"Our NIM is going to have a very steady rise from 1.4%, which we have right now. I'm expecting that by the end of the year, it should be more than 2% on a year-to-year basis," he added.
In FY24 and FY25, there was almost no disbursement to Indian Railways. In the last quarter of FY24, IRFC decided to pivot towards higher-margin lending opportunities in the broader railway ecosystem beyond directly funding Indian Railways, according to Dubey. "From next financial year onwards, any demand from the Railways is going to be icing on the cake for the company's portfolio."
Currently, non-railway assets constitute less than 1% of IRFC’s book, but Dubey anticipates a "steep rise" in their share, with each new loan enhancing the NIM.
The company's board has approved raising Rs 60,000 crore for FY26, with a minimum disbursement target of Rs 30,000 crore, equivalent in margin impact to Rs 90,000 crore of past railway loans due to higher yields. "Here, my margin will be more than 100 bps, compared to 0.4% or 40 bps in the past," he said.
The Rs 14,000-crore fund that IRFC mopped up in just four months of this calendar year is all non-railways, according to Dubey. "So, going forward, you will find that my books with non-railway assets per se will be having a steep rise and any improvement in non-railway assets will be having a direct bearing on (the) positivity of my NIM."
The diversification strategy targets rated, high-quality assets with negligible risk, maintaining IRFC's zero non-performing-asset status. Dubey outlined a focus on infrastructure sectors with backward or forward linkages to railways, including renewable and thermal power generation for railway use, ports, logistics and the rapidly growing metro railway ecosystem.
"Railways are central to infrastructure and we are targeting assets that support this ecosystem," he said, presenting IRFC as a substitute for bilateral loans in metro projects and a leader in public-private-partnership ventures.
According to the CMD, IRFC's competitive edge lies in its low cost of funds and minimal overheads. The company raised funds at 6.85% in recent bond issuances, leveraging instruments like 54EC bonds with a cost of fund of 5.25% and zero-coupon bonds with a cost of capital of 6.25%, alongside external commercial borrowings.
He said the company boasted an "abysmally low" overhead cost at less than 0.1% of revenue, compared to the nearest competitor's 0.8%. IRFC outbids not only non-banking financial companies but also banks in competitive request-for-proposal processes. This gives it the leverage to go beyond the Indian Railways to finance other areas in the railway ecosystem.
He underlined that funding for the Indian Railways comes from three sources: the government's budgetary support, extra budgetary resources, such as the ones provided by IRFC and public private partnerships.
Over the previous two financial years, the government's budgetary support was enough for the Railways not to come to the IRFC for raising funds. This is where IRFC "found a scope for coming out of serving railways as the only client and looking at the whole railway ecosystem".
"Nearly Rs 2.6 lakh crore is being spent by the Railways directly and we feel that nearly another Rs 2.5 lakh crore needs to be spent every year to cater to the whole railway ecosystem. We want to position ourselves as the leaders in that bracket," he added.
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