Error 404: No NPAs found for this PSU lender

PSU lenders in India and their ballooning NPAs have been in the headlines more often than we would like. But what if we tell you a PSU operating out of Hotel Ashok, Delhi, with just 37 full-time employees, has zero NPAs?

Indian Railway Finance Corporation (IRFC) is the Ministry of Railways' (MoR) borrowing arm. Its primary task is to raise capital from the markets to fund various expenses of the MoR. Its revenue comes from the minimal margin it charges over the amount it has to spend to borrow the money from the market (interest and other charges you have to pay when you borrow; cost of borrowing).

The funds it borrows are deployed primarily for the following purposes:

• Purchasing locomotives, engines, etc., (rolling stocks) and leasing them to the MoR.
  
• Funding various railway infrastructure projects.
  
• Loans to other Railway PSUs like Rail Vikas Nigam (RVNL) and Indian Railway Construction (IRCON).

As of September 2022, the company manages assets worth Rs 4.4 lakh crore for the MoR and other railway PSUs.

Why IRFC stands apart from most PSUs

Creditworthiness
But the astounding part is that despite being an asset manager for the MoR, IRFC is yet to record a single NPA. This track record, plus being owned by the government, has made it a safe bet for many lenders, allowing the company to borrow at much lower rates than compared to other NBFCs.

The company's weighted average cost of borrowing has seen a continuous downtrend over the years and reduced from 8.2 per cent in FY19 to an impressive 6.4 per cent in FY22. To put that into perspective, the average 10-year government bond yield for FY22 was 6.3 per cent. This means that IRFC's creditworthiness is at par with the government itself!

Healthy financials
While PSUs have garnered an ill-reputation over the years regarding financials, IRFC's topline and bottomline tell a different story. In the past three years, its revenue and net profit have grown at a whopping CAGR of 22.9 per cent and 38.1 per cent, respectively.

In addition, being a listed company that doesn't have to pay taxes helps IRFC keep its numbers healthy.

Returns
IRFC has also managed to keep its investors happy, unlike many PSUs. As of December 12, 2022, the company has delivered a 34.4 per cent return over its listing price of Rs 25. Currently, the stock price is down by 5.5 per cent from its all-time high closing price of Rs 35.

The road ahead
Being the MoR's borrowing arm, IRFC's prospects are exposed to government interference and red-tapism. However, they do look promising. For FY23, the annual funding target has been fixed at Rs 66,500 crore, which includes Rs 31,000 crore for funding rolling stock assets and Rs 35,500 crore for funding railway projects.

While only time will tell when and if ever this no-NPA train stops, it sure has a lot of investors intrigued.