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Indian Railway Finance Corporation (IRFC), the borrowing arm of Indian Railways, is likely to be listed in mid-March this year, said multiple sources in the know. For the present fiscal (2019-20), Railways’ borrowing target has been increased by almost ₹10,000 crore, an 18 per cent jump from the budgeted ₹55,471 crore.
For the next fiscal (2020-21) though, the market borrowing arm has a budgeted target to raise ₹58,000 crore, lower than the ₹65,471 crore in the present fiscal. The public sector enterprise filed its draft offer document for the initial public offer with SEBI in January this year.
From the over ₹65,000 crore that the IRFC is supposed to mobilise in fiscal 2019-20, more than half will (₹34,031 crore) will be spent by the Indian Railways for buying engines, coaches and wagons, while the remaining ₹31,440 crore has to be used for funding various projects.
Similarly, for financial year 2020-21, about ₹30,000 crore (almost 52 per cent) will be used for buying rolling stock like engines, coaches and wagons; and ₹28,000 crore will be used for funding projects.
In 2019, IRFC’s funds were used for buying or leasing 707 engines, 5,598 coaches and 9,069 wagons for the Railways.
For project funding, the IRFC is the agency that routes the long-term money from LIC to the Indian Railways. However, despite having a memorandum of understanding with LIC to raise ₹1.5 lakh crore over five years, the IRFC is unable to raise the entire project funds due to regulatory constraints.
IRDA guidelines
There are Insurance Regulatory and Development Authority of India guidelines that limit the extent of funds that LIC can lend to one organisation. This has prompted the IRFC to borrow shorter term funds from other agencies. This can lead to asset liability mismatch, according to IRFC’s draft document.
In fiscal 2019, IRFC funds were used to procure over 85 per cent of engines, almost 85 per cent of passenger coaches and over 79 per cent of freight wagons.
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