IRFC raises ₹3,000 crore via 5-year bonds at record 6.65% cut-off

Strong demand, easing inflation, and RBI's expected rate cuts help IRFC raise ₹3,000 crore through five-year bonds at the lowest ever cut-off yield of 6.65 per cent

State-owned Indian Railway Finance Corporation (IRFC), the financing arm of the Indian Railways, on Friday raised ₹3,000 crore from the domestic debt capital market through bonds maturing in five years at a record low rate of 6.65 per cent, sources said.

 

Strong demand for shorter-tenor paper, expectations of another 25 basis point (bp) rate cut by the Reserve Bank of India (RBI), and ample liquidity have led to the low yield for IRFC’s five-year paper, according to market participants.

 

“IRFC's five-year bond issuance, priced at 6.65 per cent, with a spread of 65-70 bps over comparable sovereign securities, witnessed strong demand, with subscriptions exceeding three times the accepted amount of ₹3,000 crore. The credit spread is reasonable, considering IRFC's AAA rating and the Navratna status,” said a market participant.

 

“IRFC’s pricing at just 70 bps above government securities (g-secs), tighter than the usual 80 bps for AAA public-sector undertakings (PSUs), was driven by strong demand, hopes of another rate cut, and easing liquidity. With inflation easing, the RBI’s expected 25 bp rate cut boosted bond markets, while mutual funds piled into shorter-tenor paper. Limited supply in the five-year segment, as most PSUs borrow longer, also helped compress spreads. Its quasi-sovereign status and IRFC’s close ties to Indian Railways further bolstered investor confidence,” Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP, said. 

 

Yields on the 10-year and five-year g-secs have rallied since the start of this financial year (FY26). The 10-year g-sec yield has declined by 32 bps, while the five-year g-sec yield has dropped by 50 bps during this period. This decline is largely attributed to liquidity infusion and frequent open market operations (OMOs) by the RBI, despite surplus liquidity in the system.

 

Additionally, the central bank has cut rates by 25 bps each in February and April, and there are expectations of three more rate cuts of 25 bps each in June, August, and October.

 

This has also led to a rally in yields on corporate bonds, particularly ‘AAA’-rated. April, typically a slow month for the domestic debt capital market, saw issuances worth about ₹1 trillion. Although yields briefly firmed up due to an escalation in tensions between India and Pakistan, they rallied again following the announcement of a ceasefire.

 

"The demand was there from all the segments, especially the mutual funds, because the market is better and there is no negative news for the bond market right now," said another market participant.

 

Meanwhile, state-owned Power Finance Corporation will also tap the market next week to raise up to ₹2,500 crore through five-year bonds.