Railways is in the process of opening up to the private sector and that will involve around Rs 30,000 crore of rolling stock investment. We can think of financing these private parties, Amitabh Banerjee, Chairman and Managing Director of IRFC speaks in this interview with Money Control.
Indian Railway Finance Corporation (IRFC) will play a lead role in financing some of the biggest rail projects under the National Infrastructure Pipeline, said Chairman and Managing Director Amitabh Banerjee in an exclusive interview with Moneycontrol on the final day of a successful initial public offering of Rs 4,633 crore.
While the business model will largely remain the same after the IPO, with Indian Railways as its biggest client, Banerjee said IRFC will diversify into financing acquisition of railway rolling stock by private train operators.
Q. What difference will an IPO make to the way IRFC functions?
The response to our IPO has been very good. We had very good demand from the anchor investors also. Even post-IPO, the business model of IRFC would remain the same. Our relationship with the sovereign will remain intact. We can go for diversification of lending post IPO.
Q. In terms of diversification, which are the key areas that you are looking at?
Railways is in the process of opening up to the private sector for running trains on certain routes that will involve around Rs 30,000 crore of rolling stock investment. We can think of financing these private parties as far as the acquisition of rolling stock is concerned. A couple of them have already approached us. Going forward, we will definitely look at that. Having said that, with the National Infrastructure Pipeline of Rs 111 lakh crore lined up till 2025, our mandate from the ministry of railways is definitely going to increase.
Q. What will be the major difference in business once private players come to your portfolio?
As far as lending to the sovereign is concerned, we have the government of India’s backing. There is no risk proposition here as the question of sovereign defaulting in its payment obligations, does not arise. Therefore, we keep our margins low, as compared to the market. As far as private sector lending is concerned, it will be more in tune with the market and margins will be decided consequent upon negotiations. We will have to keep in mind the viability of the concerned projects.
Q. About 98 percent of your revenue is generated through lease rental and interest payments by Indian Railways. How are you looking at this high dependence on railways?
High dependency on the ministry of railways is not negative for IRFC. As of now, we have a railway network of 50 route Kilometre per million population, as against 592 km in Russia and 464 in case of the US. So, there is a huge scope for capacity augmentation on Indian Railways. Therefore, the infrastructure development of Indian Railways will take a quantum leap in the coming years. In such a scenario, the role of IRFC will be that much prominent. It will be a good thing for IRFC.
Q. The railway’s capex requirement is expected to increase in the coming years. How are you looking at this?
In 2014-15, we financed about 19 percent of the total capex outlay of the Indian Railways. It has been gradually going up over the years. It went up to 48 percent last year. As against the total capex outlay of Rs 148,100 crore by the Indian Railways in 2019-20, we contributed around Rs 71,390 crore.
This year, the total outlay requirement is around Rs 1,61,000 crore. We have been commissioned to lend about Rs 1,13,567 crore in this fiscal, which is more than 70 per cent of the total capex requirement of Indian Railways. Out of the national infrastructure pipeline, around Rs 10-13 lakh crore is going to be spent on railways capex expansion alone.
Q. What is the share of projects now? What is the sort of increase that you are expecting in the project portfolio?
If you look at the break up of our assets under management (AUM), 55 per cent is contributed by rolling stock and 42 per cent by the projects. We made a regular foray into project financing only in 2015-16. Out of the total disbursement of Rs 3.59 lakh crore to end of September 2020, about Rs 1.10 lakh crore has been lent to projects, including those of national importance. Already around 42 per cent of our portfolio includes projects.
We are already doing projects like electrification, traffic facility, safety works, track renewals, signalling and telecom works, station redevelopment, logistic parks, elevated corridors etc. As far as the viability of these projects is concerned, our lease receivables are not directly linked to the viability of the project. It is not dependent on the timing or completion of the project. We give a moratorium of five years, irrespective of the time in which the project gets completed. Therefore, our income is not directly dependent on the efficacy of the project execution.
Q. According to official estimates, railway infrastructure will need an investment of Rs 50 lakh crore between 2018 and 2030. How bullish are you about these figures?
If you look at actual expenditure incurred on the infrastructure projects by the Railways, from 2015-16 to 2019-20, the actual expenditure incurred was around Rs 5.86 lakh crore over these five years. Out of that, we have contributed Rs 2.22 lakh crore. As per the railway’s vision document 2024, Rs 2.45 lakh crore of capex is slated to be incurred by Indian Railways. As per the National Rail Plan, the capex plan for IR is around Rs 10 lakh crore till 2030. IRFC would be playing a dominant role in contributing to the achievement of these targets.
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Source: Money Control