IRFC Explores Swiss Franc Swaps to Mitigate Dollar Risk and Diversify Funding
In a strategic move to address currency volatility and reduce funding costs, Indian Railway Finance Corporation (IRFC) is actively considering converting a portion of its dollar-denominated loans into Swiss francs. This initiative comes as the company seeks to limit foreign exchange losses amid a significant depreciation of the Indian rupee against the US dollar over the past year.
Addressing Currency Exposure and Volatility
With nearly $8 billion in overseas exposure, IRFC is reworking its foreign-currency borrowing mix to better manage risks. Chairman and Managing Director Manoj Kumar Dubey revealed that approximately 70% of the company's forex loans are dollar-denominated, while 30% are in yen. The 6% fall in the Indian rupee against the US dollar in the last twelve months has prompted this reassessment.
"We are exploring whether some part of the dollar book can be swapped into Swiss franc because the cost there is much lower," Dubey stated in an interview. He indicated that if plans materialize, the company could look at converting nearly $1 billion from dollars to Swiss francs.
Current Borrowing Costs and Strategic Discussions
The cost of dollar-denominated borrowings has now reached around 8%, up from approximately 7% previously. To lower interest costs and currency risk, IRFC is in discussions with bankers to convert part of its dollar book into alternative currencies or rupee-linked structures. However, Dubey clarified that these talks are in a "very nascent stage" and the banks involved have not been named.
The primary objective is not to eliminate foreign currency loans entirely but to rebalance the liability mix. "We don't want to be overtly dependent on one currency. The effort is to diversify our currency exposure, so that sharp movements in the dollar do not hurt us," the chairman emphasized.
Potential Risks and Expert Perspectives
While the strategy aims to reduce interest costs, experts caution about unpredictable outcomes. Kuljit Singh, partner and national infrastructure leader at EY India, noted that "currency selection to reduce interest cost can have unpredictable outcomes." He pointed out that historically, the Indian rupee has depreciated more against the Swiss franc compared to the US dollar.
Singh further highlighted the general perception that the US dollar may weaken in the future, which could create unintended surprises in interest costs for Indian borrowers looking to switch currencies. This underscores the complexity of currency risk management in volatile global markets.
Expansion into Metro Rail Refinancing
As part of its broader review of liabilities and assets, IRFC is also focusing on refinancing metro rail and rail-linked projects. "We are also having a plan in a big way to see to it that we become a domestic option for all metro railways," Dubey explained.
Metro rail projects have traditionally relied on multilateral agencies and foreign currency loans. IRFC aims to position itself as a viable domestic funding alternative, particularly for public-private partnership (PPP) metro lines that state governments may seek to take over. Government guarantees will be essential for this initiative, as metro systems are typically not profitable.
The company is already working on a co-lending structure with multilateral agencies, where IRFC would fund the rolling stock component while multilaterals handle the infrastructure part. This model is inspired by the successful refinancing of the Dedicated Freight Corridor Corporation of India Ltd (DFCCIL), which replaced a dollar loan with a rupee loan from IRFC, saving ₹2,700 crore over the loan tenure.
Diversification Beyond Indian Railways
For decades, IRFC existed solely to fund the Indian Railways. However, this changed after the government began funding railway capital expenditure directly. In FY24, IRFC had zero disbursements to the Indian Railways, and in FY25, there were almost no disbursements.
The company's diversification drive gained momentum in FY25, expanding into railway-linked projects across other public sector undertakings and subsequently venturing into financing power generation projects with rail linkages. Recent initiatives include a memorandum of understanding with the Jawaharlal Nehru Port Authority for funding the upcoming Vadhavan Port off Mumbai.
Improved Earnings and Financial Targets
IRFC expects its earnings to improve as it shifts towards non-railway project funding. Previously operating under a cost-plus model, the company earned 40 basis points on rolling stock and 35 basis points on project finance, which capped profitability. Now, in the diversified book, returns are significantly higher, with margins of 100-150 basis points.
Dubey noted that IRFC's overall borrowing cost is 15–25 basis points lower than its peers. The company has set a loan disbursement target of ₹30,000 crore for FY26 and for the next few years. In the first nine months of this fiscal year (April-December), IRFC has already disbursed ₹22,000 crore.
Assets under management (AUM) stood at ₹4.75 lakh crore at the end of December, having increased by ₹15,000 crore in the December quarter alone. This growth reflects IRFC's strategic pivot towards broader infrastructure financing while maintaining its strong financial discipline with zero bad loans or non-performing assets.
