IRFC seeks Ministry nod for tax-free bonds

New Delhi: Indian Railway Finance Corporation (IRFC) has written to the Finance Ministry seeking approval for issuing tax-free bonds. The Finance Ministry had permitted IRFC to raise tax-free bonds of Rs 5,000 crore.

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"There is an in-principle approval for the tax-free borrowings. We have written to the Ministry of Finance for the final approval," a top official told Business Line.

However, the company has not yet decided the quantum of funds it will raise through the tax-free window in the current fiscal. As it is, five months of the fiscal are already over.

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From external market

Additionally, IRFC is in the process of raising funds from the external market. It is in the process of mobilising $475 million after getting the RBI approval.

The company had already raised about Rs 2,700 crore before the tax-free window was announced in the Railway Budget.

IRFC allowed to float tax-free bonds for Rs 5,000 cr

Also, the market appetite for the tax-free bonds is limited since there are agencies such as India Infrastructure Finance Corporation Ltd, National Highways Authority of India and Rural Electrification Corporation which offer similar instruments.

This year, after a gap of five financial years, IRFC was permitted to issue tax-free bonds as part of its budgeted borrowing programme of Rs 9,000 crore for 2009-10. IRFC started off in 1987-88 by offering tax-free bonds. In 1987-88 fiscal, it raised Rs 959 crore of tax-free bonds, which went up to Rs 1,612 crore in 1991-92, before tapering off to Rs 50 crore in 2003-04. On a cumulative basis, it issued tax-free bonds worth Rs 7,775 crore, before the Finance Ministry closed this window for the company.

Leases to Railways

IRFC - the finance mobilising arm of the Indian Railways — uses the borrowed funds to acquire rolling stocks, which it then leases out to the Indian Railways.

The Railways, in turn, pays a lease charge on the assets owned by IRFC.

As on March 2008, IRFC had financed 54 per cent of the 3,447 electric locos of the Indian Railways, 43 per cent of its 5,210 diesel locos, 66.43 per cent of 41,623 coaches, and 51.55 per cent of 2,40,562 wagons.

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The projected Rs 9,000-crore market borrowings for 2009-10 mark a substantial jump over the Rs 6,907 crore during 2008-09 and Rs 4,604.43 crore in the preceding fiscal.

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