IRFC's financial profile is strong and is characterized by healthy capital adequacy and stable profitability. Its networth as a proportion of total assets was high at 13 per cent as at March 31, 2004. It had a reported Tier I capital adequacy of 147 per cent as st March 31, 2004 as it does not need to ascribe any risk weights to the assets that it leases to the MoR.
IRFC has maintained consistent and stable profitability in its core operations. Its profitability, as measured by the return on assets, was comfortable at 2 per cent in 2003-04. At the post-tax level, its profitability has varied in the past because of provisioning and subsequent write-back of provisions pertaining to its investments m Canfina and Canbank Mutual Fund. But it has reduced its investment portfolio and has nominal equity investments today.
IRFC has not provided for its deferred tax liability of Rs 1.70 billion in FY2003-04 and accumulated deferred tax liability of Rs 11.65 billion up to March 31, 2003. The company has taken shelter under the Madras High Court stay in a case filed by the Association of Leasing & Financial Services Companies. Even under normal assessments, IRFC does not expect actual tax outflows for a long time span in view of the substantial unabsorbed depreciation available to the company and the fact that the accretion to the unabsorbed depreciation has been much higher than the profit of each year. In CREIL's opinion, if the court's derision goes against leasing companies, IRFC's reported profitability and capital adequacy levels shall come down, b'uUhis is not a rating sensitivity factor.
IRFC falls under the regulatory purview of the Reserve Bank of India (RBI). But as a wholly-owned Gol entity, which does not accept public deposits, it is exempt from the RBI's guidelines on prudential norms such as capital adequacy and asset classification.