IRFC follows a leasing model to finance the rolling stock assets and project assets of Indian Railways. The lease period is typically for 30 years, comprising a primary component of 15 years followed by a secondary period of 15 years. As part of the lease, recovery of the principal component and interest is affected during the primary lease period and at the end of the lease, assets are typically sold to the MoR for a nominal price.
The Company has adopted a cost plus lease arrangement with the Ministry of Railways which ensures a net interest margin for IRFC. The MoR pays lease rentals to the Company on half yearly basis and the lease pricing comprises both principal repayment and interest payment.
Leasing - Process Flow
More than 5 fold increase in leased asset valuations from 2003 till 2017.
IRFC has been meeting a significant portion of Railway’s funding requirements and the assets leased by IRFC have been growing consistently throughout the years. The outstanding lease receivables to MoR as on March 31, 2017 is Rs 96,280 crore.