What does Navratna status mean for IRFC?

Indian Railways' newly inducted Navratna PSU IRFC plays a significant role in funding the Indian Railways' projects and rolling stocks
What does Navratna status mean for IRFC?
What does Navratna status mean for IRFC?
Published on

New Delhi: With Navratna status to Indian Railway Finance Corporation (IRFC), the total number of Indian Railways' Navratna CPSEs is now seven. All its listed PSUs now enjoy Navratna status. So what does the new status mean for IRFC?

PSU Watch is now on Whatsapp Channels. Click here to join

Navratna status to IRFC: A significant milestone

Established in December 12, 1986, as a 100-percent government-owned entity, IRFC has been instrumental in financing the expansion and modernisation of Indian Railways.

Over the years, it has evolved into a major financial player, registering as a Public Financial Institution under the Companies Act in 1993, an NBFC under RBI in 1998, and later as an NBFC-Infrastructure Finance Company (NBFC-IFC) in 2010. In March 2018, it was granted Mini-Ratna Category-I status. The company was listed on stock exchanges in January 2021 at an IPO price of Rs 26, which is currently around Rs 115. IRFC, with revenue of over Rs 26,000 crore and a profit after tax exceeding Rs 6,400 crore during FY'24, has now become the coveted third-largest NBFC in India in terms of assets under management (AUM). 

What does it take for a CPSE to become Navratna?

The evaluation for a PSU to be given Navratna status lies in the hands of the Department of Public Enterprises (DPE). Primarily, there are six parameters that are considered for Navratna status. 

(i) Ratio of net profit to net worth.

(ii) Ratio of manpower cost to total cost of production or services.

(iii) Ratio of profit before depreciation, interest, and tax (PBDIT) to capital employed or return on capital employed.

(iv) Ratio of profit before interest and taxes (PBIT) to turnover.

(v) EPS ie earning per share.

(vi) Inter-sectoral performance of the company.

These six indicators carry weights from 10 (for earning per share) to 25 (for ratio of net profit to net worth). Apart from these six indicators, the PSU must have an 'excellent' or 'very good' rating.

If a CPSE has a composite score of 60 or higher for all six indicators, and has obtained an Excellent or Very Good MOU rating in three of the last five years, it is eligible to be considered for Navratna status.

Liberty to do business beyond boundaries

Navratna status comes alongwith removal of several bureaucratic compliances, making it easier to take business decisions freely. It makes the company board more financially autonomous, thus, helping the PSU to achieve goals of global expansion. For example, IRFC board will now be able to make decisions about investing up to Rs 1,000 crore or 15 percent of their net worth in a single project without government approval. It makes a lot of difference in a dynamic financial market wherein an NBFC needs to make quick decisions.

What does Navratna status mean for IRFC?
With IRCTC, IRFC status upgradation, all 7 listed railway PSUs become Navratna: Ministry

Another liberty is that Navratna PSUs can form joint ventures and subsidiaries, and enter into mergers or acquisitions without direct government intervention. They can also make independent business and investment decisions to compete with private sector companies.

More importantly, Navratna PSUs can form strategic alliances and expand globally without strict bureaucratic hurdles as they are considered financially stable, which helps them attract more investors and provide better returns to shareholders.

(PSU Watch– India's Business News centre that places the spotlight on PSUs, Bureaucracy, Defence and Public Policy is now on Google News. Click here to follow. Also, join PSU Watch Channel in your Telegram. You may also follow us on Twitter here and stay updated.)

logo
PSU Watch
psuwatch.com