IRFC FY26: Diversification begins to lift margins, while the railway book stays the anchor

Indian Railway Finance Corporation Limited (IRFC), the dedicated market borrowing arm for Indian Railways, closed FY26 with its highest annual profit so far and early proof points from its diversification push. For the year ended 31 March 2026, the company reported revenue from operations of INR 27,284.15 crore, up 0.49 percent year on year. Profit after tax (and profit before tax) came in at INR 7,009.17 crore, a 7.80 percent increase.

The investor presentation continues to frame IRFC as a low-risk, cost-plus financier. As of 31 March 2026, assets under management were INR 4,84,616.77 crore and net worth stood at INR 56,748.76 crore. The company reported GNPA as nil, annualised RoA of 1.39 percent and annualised RoE of 12.81 percent. Net interest margin for FY26 was shown at 1.50 percent on an annualised basis.

But the bigger story in the FY26 communication was that IRFC is attempting to move beyond a single-client model. In the earnings call, the management described FY26 as the first year in which the company built a non-MoR pipeline from near zero, targeting borrowers across the railway ecosystem and wider government-led infrastructure.

FY26 financial performance: profit crosses INR 7,000 crore

IRFC’s FY26 performance was presented as steady rather than flashy. Operating income grew marginally, but finance costs declined, helping net interest income expand.

Management highlighted that PAT for FY26 was above INR 7,000 crore and described it as the highest in the company’s history. The investor deck also showed that net interest income increased to INR 7,083.23 crore in FY26, while operating expenses remained small in absolute terms, though they rose to INR 51.8 crore.

The balance sheet expanded in FY26. Total assets rose to INR 5,16,676.48 crore from INR 4,88,834.68 crore. Within loans, lease receivables increased materially to INR 3,83,942.01 crore, while loan to companies rose to INR 35,949.52 crore.

AUM and concentration: the Ministry of Railways remains dominant

IRFC’s model is still heavily linked to the Ministry of Railways. The deck stated that 92.56 percent of AUM exposure is to MoR, and presented this as a key reason for minimal credit risk.

AUM was shown at INR 4,84,616.77 crore for FY26. The historical chart in the deck shows AUM hovering around INR 4.6 lakh crore for several years before moving up in FY26. In the earnings call, the CMD said that on a net basis, after considering repayments, AUM grew to INR 4.85 lakh crore and could cross INR 5 lakh crore during FY27, potentially in the first half.

The FY26 AUM mix in the deck was presented as:

• Lease receivables project assets: 51.74 percent
• Lease receivables rolling stock asset (including NTPC BOBR rakes): 27.48 percent
• Advance against railway infrastructure assets to be leased: 13.36 percent
• Loan to companies: 7.42 percent

Diversification in FY26: sanctions and disbursements scale up

The most forward-looking disclosures were on non-MoR activity. In the presentation, IRFC reported non-MoR business in FY26 with total agreements executed of INR 72,949 crore and total disbursements of INR 35,067 crore.

Agreements were concentrated in power at 59.8 percent (INR 43,614 crore), followed by fertilizers at 23.1 percent (INR 16,842 crore) and railways at 17.1 percent (INR 12,493 crore). Disbursements were split across railways at 35.3 percent (INR 12,386 crore), power at 27.1 percent (INR 9,516 crore) and fertilizers at 37.5 percent (INR 13,165 crore).

In the earnings call, management positioned this as a delivery against prior commitments. The CMD stated that the company had guided for more than INR 60,000 crore of sanctions and nearly INR 30,000 crore of disbursements, but achieved about INR 74,000 crore sanctioned and about INR 35,000 crore disbursed.

Management also cited marquee transactions that supported the FY26 ramp-up, including refinancing about INR 10,000 crore for Dedicated Freight Corridor Corporation of India Limited and more than INR 12,000 crore for Hindustan Urvarak and Rasayan Limited.

Margins and returns: higher spreads, but new provisioning discipline

The earnings call repeatedly contrasted the fixed-spread MoR book with competitive bidding in the diversified book. The CMD stated that MoR spreads were about 35 bps for projects and 40 bps for rolling stock. In the diversified portfolio, management discussed target margins of about 100 to 120 bps for high-quality, highly rated assets.

Management linked this shift to NIM improvement. The CMD said the company moved from an average NIM of 1.42 percent to 1.50 percent in FY26, and later mentioned a desire to reach about 1.65 percent NIM by the end of FY27 on total assets.

At the same time, the company acknowledged that non-MoR growth changes quarterly optics. Management said Q4 PAT was flat partly because provisioning is required under RBI norms for non-MoR exposures, whereas the MoR lending did not require provisioning. They also cited higher CSR spending in Q4. On OCI volatility, management explained that mark-to-market movements on hedges for foreign currency borrowings can flow through OCI and reverse over time.

Funding strategy: diversified borrowings, higher ECB share targeted

IRFC’s ability to borrow cheaply remains central to its narrative. The deck showed domestic AAA long-term ratings from CRISIL, ICRA and CARE. It also presented international ratings aligned with sovereign levels.

Borrowing mix as of 31 March 2026 was:

• Bonds (including 54EC): 54.21 percent
• Long-term loans: 22.10 percent
• ECB: 17.79 percent
• NSSF and IIFCL: 4.35 percent
• Short-term loans: 1.55 percent

In the call, management said it wants ECB to contribute about 30 to 35 percent of the overall borrowing mix over time and referred to yen-linked overseas borrowing activity. Management also said it is focusing more on 54EC bonds, citing a 28 percent market share and a cost of 5.25 percent.

What to watch in FY27

IRFC did not provide formal numeric guidance for FY27, but management stated that FY26 outcomes should be the benchmark. The CMD said sanctions should be more than INR 75,000 crore and disbursements should breach INR 35,000 crore, with progress reviewed quarter by quarter.

The key investor question is whether IRFC can scale non-MoR lending while preserving its defining feature: nil NPAs. Management’s guardrails were described as focusing on high-rated CPSEs and select state government-linked entities, avoiding distribution companies in the power sector, and preferring generation and transmission with clearer payment comfort.

The FY26 deck and call together positioned IRFC as a company trying to improve profitability through mix change, not by taking obvious credit risk. If that mix shift accelerates, the company’s medium-term trajectory may depend less on headline AUM growth and more on how quickly higher-margin assets replace maturing, lower-spread MoR exposures.