New Delhi: Indian Railway Finance Corp (IRFC) is reworking its foreign-currency borrowing mix, exploring a plan to swap part of its dollar-denominated loans into Swiss francs to limit foreign exchange losses and lower funding costs amid a free fall in the rupee against the greenback. The move reflects how the government's rail financier, which has nearly $8 billion in overseas exposure, is responding to currency volatility even as it reshapes its business beyond funding the Indian Railways.
Nearly 70% of IRFC’s forex loans are dollar-denominated and a 6% fall in the Indian rupee against the US currency over the last 12 months has prompted the company to explore these steps, chairman and managing director Manoj Kumar Dubey told Mint.
“My exposure is nearly $8 billion… Of this, nearly 30% is yen-denominated and 70% is in dollars,” Dubey said in an interview.
“We are exploring whether some part of the dollar book can be swapped into Swiss franc because the cost there is much lower," Dubey said. "If something comes out and plans materialize, maybe we will be looking at nearly a $1 billion conversion.”
Borrowing costs
The cost of dollar-denominated borrowings is now touching 8%, he said, adding that the number was earlier around 7%, he said.
The company is in discussions with bankers to convert part of its dollar book into alternative currencies or rupee-linked structures to lower its interest cost and currency risk. He, however, did not name the banks, and said the talks were in a “very nascent stage”.
Dubey clarified that the idea is not to eliminate foreign currency loans, but to rebalance the liability mix, so that IRFC is less exposed to dollar-rupee volatility.
“We don't want to be overtly dependent on one currency. The effort is to diversify our currency exposure, so that sharp movements in the dollar do not hurt us,” the chairman said.
The outcome of such a rejig in the currency mix may, however, not necessarily be positive for the company.
“Currency selection to reduce interest cost can have unpredictable outcomes. In the past, the INR has depreciated more against Swiss franc as compared to the US dollar,” said Kuljit Singh, partner and national infrastructure leader at EY India, a consultancy major. "Further, there is a general perception that USD (dollar) may weaken in future, which may create further unintended surprises in interest cost for Indian borrowers looking to switch currencies."
As it reviews its liabilities and assets, IRFC is also looking at refinancing of metro rail and rail-linked projects. “We are also having a plan in a big way to see to it that we become a domestic option for all metro railways,” Dubey said.
IRFC is working on a co-lending structure with multilateral agencies, Dubey said, without sharing the names.
Metro rail projects have so far relied mainly on multilateral agencies and foreign currency loans, he said. “If a PPP (public-private partnerships) metro line is to be taken over by the state government, they either go to a bilateral agency or they look for some domestic (funding option). We want to say we are here. We are open to it (funding),” Dubey said.
Government guarantees will be needed for this, as metro systems are not profitable, the chairman said.
IRFC, which has relied on funding rolling stock requirements and projects of the Indian Railways—its sole client—for nearly 40 years, has zero bad loans or non-performing assets (NPAs).
The financier is already on a co-lending structure with multilateral agencies. “We will fund the rolling stock part… and multilaterals will take care of the infra part,” he said.
The template for this strategy is the refinancing of the Dedicated Freight Corridor Corp. of India Ltd (DFCCIL). “We did one big refinancing of nearly ₹10,000 crore,” he said. DFCCIL replaced a dollar loan with a rupee loan from IRFC, saving ₹2,700 crore over the loan tenure.
Diversification drive
For decades, IRFC existed only to fund the Indian Railways. That changed after the government began funding railway capex directly. “In FY24, (we had) zero disbursements to the Indian Railways… In FY25 also, there was almost no disbursement.”
IRFC's diversification drive took off in FY25, with the company tapping into railway-linked projects across other public sector undertakings and subsequently expanding into financing power generation (genco) projects with rail linkages.
It recently signed a memorandum of understanding with the Jawaharlal Nehru Port Authority for funding its upcoming Vadhavan Port, off-Mumbai. IRFC's clientele includes NTPC, Gaiil, among others.
IRFC expects its earnings to improve as it moves to non-railway project funding.
The company earlier operated under a cost-plus model, earning 40 basis points on rolling stock and 35 basis points on project finance, which effectively capped its profitability. This meant if the company financed ₹1,000 crore of rolling stock, it would earn only 0.4%, or ₹4 crore, no matter how efficiently the project performed. “Now, in the diversified book, returns are much higher. Here, we are seated to make a margin of 100-150 basis points,” Dubey said.
IRFC's overall borrowing cost is 15–25 bps lower than its peers, Dubey said.
The company has a loan disbursement target of ₹30,000 crore for FY26 and for the “next few years”, said the chairman. In April-December, the first nine months of this fiscal year, IRFC has disbursed ₹22,000 crore. The company's assets under management (AUM) were at ₹4.75 lakh crore at the end of December, having risen ₹15,000 crore in the December quarter alone.