We've had no NPAs, plan to keep it that way: Amitabh Banerjee, CMD, IRFC

In a Q&A, Banerjee says the company is unlikely to change its model of leasing to Indian Railways, but is open to financing private projects that have forward or backward linkages with railways

While it may have just been listed on stock exchanges, the Indian Railway Finance Corporation (IRFC) is unlikely to change its business model of financial leasing to the Indian Railways, says the firm's chairman and managing director Amitabh Banerjee. However, the company is open to financing private projects that have forward or backward linkages with railways, Banerjee tells Vinay Umarji. On Friday, IRFC listed overseas bonds worth $750 million under its $4 billion global medium term notes (GMTN) programme on global securities market of India International Exchange at the International Financial Services Centre (IFSC) at GIFT City. Edited excerpts:

Post listing, is there a plan to change the company's business model of lending to Indian Railways?

The government disinvestment has been only 5 per cent and fresh issuance of shares is 10 per cent. So practically, it is tantamount to 14 per cent of government holding which has been diluted. As of now, 86 per cent of share capital is held by the government of India. And as per the Sebi regulations, in course of three years, we shall be offloading another 11 per cent to make it 75 per cent. As far as the business model or any relationship between the Government of India and IRFC is concerned, it will absolutely remain the same. We will still be the extended borrowing arm of Ministry of Railways. We will still be rated at par with sovereign as far as international rating agencies are concerned. We are rated based on our financial strength and sovereign happens to be a major client of IRFC. About 97.75 per cent of the total AUM, or Rs 2.78 trillion, is with the Indian Railways and the remaining 2.25 per cent is with special purpose vehicles (SPVs) of Indian Railways, that too towards development of railway infrastructure. 

We're into financial leasing. So we acquire assets of the Ministry of Railways and hold them in our books. We are the owners of these assets which can be rolling stocks as well as the infrastructure assets like electrification and tracks. We lease them to the Railways for 30 years, after which they are transferred to the Ministry of Railways for a token. This is our business model and it will remain the same. 

What, according to you, are the reasons for the way the IPO performed?

First, we are unlocking value created over the last 14 years. Second, one of the main aims of the present government is to democratise the ownership structure of public sector undertakings (PSUs) and allow people to have a share in them. At Rs 4,633 crore, this is one of the biggest IPOs that India has had among PSUs in recent times. For the first time, India has gone with the anchor investor route, with 30 per cent of the issue size being bought by anchor investors such as Nippon MFI, HDFC MFI, Singapore government and Invesco. This portion was oversubscribed. In all the segments, there was oversubscription. Also, generally QIPs take the lead but here retail took the lead by oversubscribing on the first day, followed by QIPs. 

This shows that public has reposed faith in an organisation with it hadn't had any direct relationship. This shows IRFC's market standing with the public is good.    

Are you open to financing private rail projects?

The Railways is one of the four strategic sectors so it may not be privatised, except for certain parts such as operation of high speed trains on certain routes. Some of the private players looking at it have approached us for financing the rolling stock because of the low-cost funding. So we are absolutely open to it. As such, our memorandum of association permits us to finance to any sector that has got forward or backward linkage with the Indian Railways. including ports and logistics if it has to do with connectivity and freight. Of course, since the past few years our major client has been the Government of India. In the near future this will largely remain the same because of the ambitious National Rail Plan in which our mandate is huge. However, depending on the viability of those projects, we are open to private lending because we havenot had any non-performing assets (NPAs) and we plan to keep it that way. We have to be very circumspect (with private sector lending). These projects will have to be very well protected and ring fenced. Only then will we go for them. 

What portion of Indian Railways' borrowings comes from IRFC and how will it change in future?

Our AUM has been growing at a compounded annual growth rate (CAGR) of 27 per cent the past 3-4 years. We disbursed Rs 71,000 crore last year which was 48 per cent of the total capex outlay. This year it will be Rs 1.13 trillion out of a total capex outlay of Rs 1.61 trillion of the Indian Railways, which is more than 70 per cent of the outlay. Next year, we have been given an initial mandate of Rs 65,000 crore. Last year, the mandate was Rs 58,000 crore, and grew eventually. We don't know what the final disbursement will be next year. So even if the proportion to outlay doesn't grow we believe it will be maintained because of the ambitious National Rail Plan in place. 

The Indian Railway caters to only 50 km per million population as compared to 567 km in Russia, 500 km in the US, and more than 400 km in France. So there is still so much scope for capacity augmentation of Indian Railways, which will have to be enabled by 2030 to cater to traffic until 2050 under National Rail Plan. 

Is Indian Railways too dependent on borrowings?

Budgetary grant, known as gross budgetary support (GBS), has a limited portion. They have to extend it on a proportionate basis. Rs 1.07758 trillion is totally off-budget of which IRFC's portion is more than Rs 65000 crore, with the rest coming from PPP projects and other SPVs with state governments. So more than 60 per cent of the off-budget requirement is being contributed by IRFC towards funding the capex requirement of Indian Railways. 

As we move forward, it is expected that the extra budgetary resources (EBR) requirement will be very substantial because of fiscal constraints. That is the reason that the role and relevance of IRFC will increase. The Indian Railway is not too dependent on borrowings because they have to take recourse. What is the other way out? If we are not financing and the Government of India raises sovereign bonds then, it would get reflected immediately on the government's balance sheet at one-go unlike in case of IRFC when the liability is spread out across 15 years. That is the beauty of financial leasing model which the government can leverage it to its advantage and the immediate affect on its balance sheet is less.