In light of the rupee’s sharp decline against the US dollar, Indian Railway Finance Corp. (IRFC) is reevaluating its foreign-currency borrowing mix and considering a plan to convert a portion of its dollar-denominated loans into Swiss francs in order to reduce funding costs and prevent foreign exchange losses.
IRFC Reviews Foreign-Currency Borrowing Strategy
The action demonstrates how the government’s train financier, which has around $8 billion in foreign exposure, is reacting to exchange rate fluctuations while expanding its operations beyond financing Indian Railways.
According to chairman and managing director Manoj Kumar Dubey, about 70% of IRFC’s foreign exchange loans are denominated in dollars, and the corporation is looking into these options as a result of the Indian rupee’s 6% decline versus the US dollar over the past 12 months.
Breakdown of IRFC’s Foreign Exchange Exposure
“I have almost $8 billion in exposure. Nearly 30% of this is in yen, and the remaining 70% is in dollars, Dubey stated in an interview.
“We are investigating the possibility of converting a portion of the dollar book into Swiss francs due to the significantly cheaper cost there,” Dubey stated. “Maybe we will be looking at nearly a $1 billion conversion if something comes out and plans materialize.”
Rising Cost of Dollar Borrowings
He stated that the cost of borrowings denominated in dollars is currently approaching 8%, whereas it was previously closer to 7%.
To reduce interest costs and currency risk, the corporation is in talks with bankers about converting a portion of its dollar book into alternate currencies or rupee-linked structures. He stated that the negotiations were in a “very rudimentary stage,” but he did not identify the banks.
🚆 IRFC Foreign Currency Strategy
- Total Foreign Exposure: Nearly $8 billion
- Dollar-Denominated Loans: About 70%
- Yen-Denominated Loans: About 30%
- Proposed Conversion: Up to $1 billion into Swiss francs
- Objective: Lower funding cost and manage FX risk
Managing Dollar–Rupee Volatility
In order to reduce IRFC’s exposure to dollar-rupee volatility, Dubey highlighted that the goal is to rebalance the liability mix rather than completely remove foreign currency loans.
“We want to avoid becoming blatantly reliant on a single currency. The chairman stated, “The goal is to diversify our currency exposure so that we are not harmed by sudden fluctuations in the dollar.”
Risks of Changing Currency Mix
However, the corporation may not always benefit from such a change in the currency mix.
The results of choosing a currency to lower interest costs can be unpredictable. The INR has historically weakened more versus the Swiss franc than the US dollar, according to Kuljit Singh, national infrastructure head and partner at consulting firm EY India. “In addition, there is a widespread belief that the USD (dollar) would depreciate in the future, which could result in additional unforeseen surprises in interest costs for Indian borrowers wishing to convert currencies.”
⚠️ Swiss Franc Conversion: Key Risks
- Currency History: INR has weakened more against CHF than USD
- Interest Uncertainty: Future USD depreciation expectations
- Cost Surprise: Lower rates may not ensure long-term savings
- Expert Warning: Potential unforeseen borrowing costs
In addition to reviewing its assets and liabilities, IRFC is considering refinancing metro rail and rail-related projects. “We also have a significant plan to ensure that we become a domestic choice for all metro trains,” Dubey stated.
Dubey stated that IRFC is developing a co-lending framework with international organizations, although he did not name them.
Metro Rail and Co-Lending Expansion
According to him, foreign currency loans and multilateral organizations have been the primary sources of funding for metro rail projects thus far. If the state government wants to take over a PPP (public-private partnerships) metro line, they either look for a domestic finance option or go to a bilateral agency. We wish to express our presence. Funding is something we are open to,” Dubey stated.
The chairman stated that since metro systems are not lucrative, government guarantees will be required for this.
Strong Asset Quality and Refinancing Model
IRFC has no bad loans or non-performing assets (NPAs) after over 40 years of supporting rolling stock requirements and projects for its only client, Indian Railways.
The banker and international organizations already have a co-lending arrangement. “We will finance the rolling stock portion, and multilaterals will handle the infrastructure portion,” he declared.
DFCCIL Refinancing as a Benchmark
The refinancing of the Dedicated Freight Corridor Corp. of India Ltd. (DFCCIL) serves as the model for this approach. He stated, “We completed a major refinancing of around ₹10,000 crore.” Over the course of the loan, DFCCIL saved ₹2,700 crore by substituting an IRFC rupee loan for a dollar loan.
IRFC’s sole purpose for many years was to finance Indian Railways. After the government started directly supporting railway capital expenditures, that changed. “In FY24, (we had) zero disbursements to the Indian Railways… There was hardly any payout in FY25 as well.
Diversification Beyond Indian Railways
In FY25, IRFC’s diversification efforts really took off, as the corporation expanded into funding power production (genco) projects with rail links after tapping into railway-linked projects across other public sector organizations.
In order to finance its future Vadhavan Port, off-Mumbai, it just signed a memorandum of understanding with the Jawaharlal Nehru Port Authority. NTPC and Gaiil are among the clients of IRFC. As it shifts to funding non-railway projects, IRFC anticipates an increase in earnings.
Improving Margins and Growth Outlook
In the past, the business used a cost-plus model, earning 35 basis points for project financing and 40 basis points for rolling stock, which essentially limited its profitability. This meant that regardless of how well the project worked, the corporation would only make 0.4%, or ₹4 crore, if it financed ₹1,000 crore of rolling stock. Returns are now significantly greater in the diversified book. We are positioned to make a margin of between 100 and 150 basis points here,” Dubey stated.
According to Dubey, IRFC’s total borrowing costs are 15–25 basis points lower than those of its competitors. According to the chairman, the corporation aims to distribute ₹30,000 crore in loans for FY26 and the “following few years.” IRFC disbursed ₹22,000 crore throughout the first nine months of this fiscal year, from April to December. The company’s assets under management (AUM) increased by ₹15,000 crore in the December quarter alone, reaching ₹4.75 lakh crore at the end of December.
Frequently asked questions
1. For what reason is IRFC thinking about converting dollar debts into Swiss francs?
IRFC aims to lower borrowing costs and minimize foreign exchange risk. Swiss franc borrowings seem more affordable and provide diversity when the rupee depreciates against the US currency and dollar loan charges rise to around 8%.
2. What is the current dollar amount of IRFC’s overseas exposure?
About 30% of IRFC’s nearly $8 billion foreign exchange exposure is in Japanese yen, and the remaining 70% is in dollars.
3. Will IRFC stop borrowing foreign currencies entirely?
No, rather than doing away with foreign currency loans, IRFC intends to rebalance them. Avoiding excessive reliance on a single currency and improving volatility management are the objectives.
4. What dangers come with moving to loans in Swiss francs?
Despite reduced interest rates, experts caution that future currency fluctuations could result in unforeseen expenses because the Indian rupee has historically weakened more against the Swiss franc than the dollar.
5. In what ways is IRFC expanding its operations outside of Indian Railways?
IRFC is branching out into power production projects with rail connections, port infrastructure like the Vadhavan Port project, metro rail funding, and co-lending with multilateral organizations.
Conclusion
In light of growing dollar costs and rupee volatility, IRFC’s investigation of Swiss franc swaps reveals a strategic move toward active currency risk management. The move carries currency risks that might negate possible benefits, even if it could reduce interest costs and diversify exposure.
Simultaneously, IRFC is undergoing a more comprehensive change, going beyond its conventional function as the funder of Indian Railways to become a diversified infrastructure lender with larger profit margins. IRFC will be more profitable as a result of this evolution, but risk and reward must be carefully balanced.
Disclaimer:
This content is for informational purposes only and should not be considered financial or investment advice. Readers are advised to consult a qualified professional before making any financial decisions.
