IRFC is exploring currency swap arrangements to convert part of its substantial foreign exchange exposure from US dollars to Swiss francs, as the state-owned railway financier seeks to mitigate rising borrowing costs and currency volatility risks.

Currency Risk Management Strategy

The company's foreign exchange exposure totals nearly $8 billion, with approximately 70% denominated in US dollars and 30% in Japanese yen. Chairman and Managing Director Manoj Kumar Dubey revealed that IRFC is in discussions with bankers to explore converting around $1 billion of its dollar-denominated loans to alternative currencies, particularly Swiss francs, where borrowing costs are significantly lower.

The move comes as dollar-denominated borrowing costs have risen to 8% from earlier levels of around 7%, while the Indian rupee has depreciated 6% against the US dollar over the past 12 months. However, the talks remain in a "very nascent stage," and the company has not disclosed the banks involved in these discussions.

Diversification Beyond Traditional Railway Financing

IRFC is simultaneously expanding its business model beyond its traditional role as the sole financier of Indian Railways projects. After recording zero disbursements to Indian Railways in FY24 and minimal disbursements in FY25, the company has pivoted toward railway-linked projects across other public sector undertakings and power generation projects with rail connectivity.

The diversification strategy includes:

• Metro rail project financing through co-lending structures with multilateral agencies
• Port infrastructure funding, including a recent memorandum of understanding with Jawaharlal Nehru Port Authority for the upcoming Vadhavan Port
• Power generation projects with rail linkages
• Refinancing existing infrastructure projects

Enhanced Profitability Through Business Model Shift

The transition from traditional railway financing to diversified infrastructure projects promises significantly improved margins for IRFC. Under the previous cost-plus model, the company earned only 40 basis points on rolling stock financing and 35 basis points on project finance, effectively capping profitability regardless of project efficiency.

Financial Performance and Growth Targets

IRFC has established ambitious growth targets while maintaining its track record of zero non-performing assets. The company disbursed ₹22,000 crore in the first nine months of the current fiscal year and has set a loan disbursement target of ₹30,000 crore for FY26.

The company's assets under management reached ₹4.75 lakh crore at the end of December, having grown by ₹15,000 crore in the December quarter alone. IRFC maintains a borrowing cost advantage of 15-25 basis points lower than its peers, while expanding its clientele to include NTPC and GAIL among others.

Dubey emphasized that the currency diversification strategy aims to rebalance the liability mix rather than eliminate foreign currency loans entirely, ensuring the company remains less vulnerable to sharp dollar-rupee movements while capitalizing on lower-cost funding opportunities in alternative currencies.

IRFC has announced an ambitious expansion strategy designed to significantly scale its operations and diversify its funding portfolio over the coming years. The railway financing major has set clear targets for growth and operational restructuring that could transform its business model.

Strategic AUM Expansion Plan

The company has outlined plans to grow its Assets Under Management (AUM) to over ₹5.00 lakh crore within a 3-5 year timeframe. This represents a substantial expansion from current levels and demonstrates the company's confidence in the railway sector's growth potential.

New Entity Funding Strategy

A key component of IRFC's growth strategy involves adding ₹3.00 lakh crore to its AUM through strategic funding of 20 new entities. Each of these entities is expected to receive funding of approximately ₹15,000.00 crore, indicating a systematic approach to expansion across multiple railway-related ventures.

Diversified Funding Portfolio by 2030

By 2030, IRFC plans to implement a strategic shift in its funding composition to optimize margins and reduce dependency on traditional sources. The company intends to restructure its funding portfolio with a clear division between different railway sector segments.

Margin Enhancement Opportunity

The strategic focus on the larger railway sector represents a significant opportunity for margin improvement. According to the company's projections, margins in the broader railway sector are approximately three times higher than current levels, making this diversification particularly attractive from a profitability perspective.

This comprehensive expansion and diversification strategy positions IRFC to capitalize on India's growing railway infrastructure needs while optimizing its revenue streams and operational efficiency across multiple segments of the railway ecosystem.