IRFC may be umbrella body for Railways financing

The Ministry of Railways is considering a proposal to make the Indian Railway Finance Corporation (IRFC) an umbrella body for raising finance for the Railways as a whole.

According to market sources, the ministry feels that the different enterprises of the Railways "" Ircon, Railtel and Rites "" are borrowing funds separately for their own requirements.

These entities do not borrow through the market but enter into bilateral negotiations with banks.

As such, for want of a proper rating, the interest rates at which the funds are borrowed are very high. IRFC being a triple-A rated body, often taps both domestic and overseas markets for funds at relatively cheaper rates.

IRFC and the ministry are in discussions with the Reserve Bank of India (RBI). Though IRFC is in the business of infrastructure financing, external commercial borrowings (ECBs) to be done by IRFC have to be approved by the central bank.

Currently, IRFC is in negotiations with banks for raising finance through ECBs. It has also filed an umbrella prospectus with the Securities and Exchange Board of India (Sebi) to borrow around Rs 1,500 crore from the corporate bonds market for the year 2005-06.

IRFC was created by the government in 1986, for raising funds from the open market to make up the shortfall in provision of funds for Indian railways by the government.

Since inception, it has been doing leasing business, namely procuring rolling stock - coaches, wagons and locomotives - and leasing them to the Indian Railways for a 30-year period.

According to market sources, since the leasing charges provided for the interest payable to lenders, administrative charges, and for meeting repayments, there was no real risk involved for those who invested in IRFC bonds.