IRFC stock declined to ₹124.01, which is about 1.56% lower than the opening price for March 28 of ₹125.95. Indian Railway Finance Corporation (IRFC) has entered into a significant loan agreement with NTPC Renewable Energy Limited (NTPC REL) to provide a Rupee Term Loan of ₹5,000 crore, according to a regulatory filing dated March 25, 2025.

The loan terms specify that while the facility is unsecured, it includes a negative lien provision with certain exceptions.The unsecured loan will help NTPC REL, a wholly-owned subsidiary of NTPC Green Energy Limited, meet capital expenditure for ongoing and new capacity addition projects, including refinancing of existing loans. The agreement follows NTPC REL’s board approval and IRFC’s earlier intimation to stock exchanges on February 22.

This transaction represents a significant financing arrangement in India’s renewable energy sector, with IRFC expanding its lending portfolio beyond its traditional railway financing focus. NTPC REL, as part of the NTPC Group, continues to secure funding for its expanding renewable energy projects portfolio.

Why Did IRFC’s Stock Drop Despite a Major Loan Deal?

IRFC’s stock dropped despite securing a major loan deal due to a combination of market factors and investor concerns:

1. Profit Booking and Valuation Concerns: IRFC stock had seen a significant rally in recent months, making it vulnerable to profit booking. Investors who had gained from earlier price increases may have sold their holdings to lock in profits, leading to IRFC stock decline.

2. Market Sentiment and Sector-Wide Weakness: Broader market trends and weaknesses in the infrastructure finance sector contributed to the decline. Investors might have reallocated funds to other sectors with stronger near-term growth potential.

3. Concerns Over Rising Interest Rates: The cost of borrowing is a critical factor for companies like IRFC, which depend on raising funds to lend further. If interest rates rise, it could pressure margins and reduce investor confidence .

4. Technical Weakness in the Stock: Analysts pointed out that IRFC showed signs of technical weakness, meaning traders and short-term investors might have exited due to bearish chart signals .

Source: Moneycontrol , 28 March 2025

While the Rs 5,000 crore loan to NTPC Renewable Energy was a positive development, the above factors outweighed the news, leading to a decline in stock price. However, long-term fundamentals remain intact, and the future performance will depend on market trends and financial results.

₹5,000 Cr Loan to NTPC Renewable Energy: What It Means for IRFC’s Growth

The ₹5,000 crore loan provided by Indian Railway Finance Corporation (IRFC) to NTPC Renewable Energy Ltd. is a significant financial development with multiple implications for IRFC’s growth.

1. Expanding IRFC’s Lending Portfolio

IRFC primarily provides financing to Indian Railways, which accounts for almost all of its revenue. However, this loan marks a strategic diversification, showing IRFC’s ability to fund other public-sector infrastructure projects.

This move reduces IRFC’s dependency on railway financing and opens new revenue streams in the renewable energy sector.If successful, IRFC could secure more non-railway financing projects, expanding its role beyond railway-specific lending

2. Secure and Stable Returns

IRFC is essentially a government-backed entity that raises funds at low-interest rates and lends them to Indian Railways. This loan to NTPC Renewable Energy, a subsidiary of NTPC, comes with low credit risk due to:

• NTPC’s strong financial standing and government ownership, reducing the risk of default.

• A long-term repayment structure, ensuring stable and predictable interest income for IRFC.

• Diversifying into renewable energy could enhance IRFC’s credit rating in the future.

3. Alignment with India’s Renewable Energy Push

India has set ambitious goals for renewable energy, targeting 500 GW of non-fossil fuel capacity by 2030. By funding NTPC Renewable Energy, IRFC is supporting India’s green energy transition, making it more relevant in future infrastructure projects.At the same time positioning itself as a long-term infrastructure financer, beyond just railways. Which could potentially help them in gaining access to government incentives or favorable policies related to green energy financing.

4. Financial Growth Potential

The ₹5,000 crore loan to NTPC Renewable Energy is a significant development for IRFC, as it will lead to higher interest income, contributing substantially to its annual earnings. Additionally, since NTPC Renewable Energy is a government-backed entity, the loan ensures long-term revenue stability by guaranteeing a steady cash flow for IRFC. Moreover, this move positions IRFC for future growth opportunities, as successfully managing non-railway loans could open doors to further financing requests from the government and other PSU entities, diversifying its portfolio and expanding its business model.

Breaking Update: Is SEBI or RBI Monitoring PSU Lending Trends?

The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) are closely monitoring PSU lending trends due to concerns about financial stability and market impact. Recently, the RBI proposed stricter project finance rules, significantly increasing the provisioning requirement for banks and financial institutions lending to infrastructure projects. Earlier, banks had to set aside 0.4% of loan amounts as provisions for projects in the construction phase, but now, under the new guidelines, this has been raised to 5%. This move is aimed at reducing risk exposure, ensuring better monitoring of project loans, and preventing bad loan accumulation. However, the decision has put pressure on PSU lenders, as it increases their capital requirements and could slow down lending to major infrastructure projects.

SEBI, while not directly involved in regulating banking activities, has been monitoring PSU lending disclosures and the impact on the financial markets. SEBI has pushed for greater transparency in PSU banks' lending activities, requiring detailed disclosures on large loan exposures and associated risks. Furthermore, since PSU banks raise a substantial portion of their funding through bond markets, SEBI is assessing whether RBI’s stricter norms will lead to a decline in PSU bond issuances, which could impact overall market liquidity. Additionally, SEBI is keeping a close watch on stock market trends, as the recent fall in PSU bank stocks could indicate growing investor caution.

Over the past decade, PSU banks have faced high levels of non-performing assets (NPAs) due to defaults by large corporate borrowers. The Indian government is pushing for massive infrastructure development, particularly in renewable energy, railways, highways, and smart cities, and PSU banks are expected to play a major role in financing these projects. However, without strict lending rules, there is a risk of over-leveraging and another wave of bad loans. By increasing capital provisioning requirements, the RBI aims to safeguard financial stability and ensure banks remain resilient in case of project delays or cost overruns Overall, both RBI and SEBI are actively monitoring PSU lending trends, and additional regulatory refinements could be introduced depending on how the financial sector reacts to these new rules.

PSU Stocks in Focus: How IRFC Compares to Other Government-Backed Lenders

Indian Railway Finance Corporation (IRFC) plays a crucial role in financing railway infrastructure in India, making it distinct from other Public Sector Undertaking (PSU) lenders that focus on power, general infrastructure, and specialized sectors like tourism. While IRFC operates within a stable, government-backed framework, its financial performance and growth potential must be assessed relative to major PSU lenders like Power Finance Corporation (PFC), REC Ltd., IFCI, and TFCI.

Source : ET Money

IRFC is one of the most stable PSU lenders, benefiting from a government-backed monopoly in railway financing. This ensures a low-risk lending environment and predictable cash flows. However, in comparison to other PSU lenders like PFC and REC, which finance a mix of conventional and renewable power projects, IRFC lacks portfolio diversification and is heavily reliant on a single borrower—Indian Railways. While this minimizes default risk, it also limits IRFC’s growth potential.

Another competitive challenge for IRFC is its lower profitability metrics, as seen in its lower ROE and ROA compared to power finance companies. PFC and REC have stronger returns and profitability due to their involvement in the rapidly expanding power sector, which has seen consistent government and private investment. Furthermore, IRFC’s limited exposure to high-yield lending segments means that its earnings growth is more constrained than lenders that finance a broader range of projects.

However, IRFC’s competitive advantage lies in its secure government backing, long-term contracts with Indian Railways, and access to low-cost borrowing. Additionally, as the government pushes for railway modernization and high-speed rail projects, IRFC could leverage new financing opportunities. If it expands beyond its traditional railway financing model and starts funding logistics parks, metro rail projects, and transport infrastructure, IRFC can enhance its growth trajectory and compete more effectively with diversified PSU lenders.

Should You Buy, Hold, or Exit IRFC Stock?

Expert opinions of different experts are mentioned below :

1. Motilal Oswal

Recommendation: Buy

Target Price: ₹200 - ₹250 (2025)

Key Reasons:

• IRFC benefits from a monopoly in railway financing, ensuring a stable revenue stream.

• Strong government backing makes it a low-risk investment.

• Consistent profitability and dividend payouts make it attractive for long-term investors.

2. HDFC Securities

Recommendation: Buy for long-term, Hold for short-term

Target Price: ₹190 - ₹240 (2025)

Key Reasons:

• India’s infrastructure push will drive higher railway investments, benefitting IRFC.

• High dividend yield makes it a good income-generating stock.

• Debt-to-equity ratio is high, but manageable due to government support.

3. ICICI Direct

Recommendation: Hold

Target Price: ₹175 - ₹200 (2025)

Key Reasons:

• Stable revenue model makes it a safe, low-risk stock.

• Lower growth rate compared to other PSU lenders like PFC and REC.

• Long-term potential exists, but near-term returns may be limited.

4. Angel One

Recommendation: Sell on rallies

Target Price: ₹160 - ₹180 (2025)

Key Reasons:

• Stock is fairly valued at current levels, with limited room for aggressive upside.

• Interest rate fluctuations could impact profitability in the long run.

• Investors can book profits at higher levels and re-enter on dips.

Conclusion

IRFC remains a safe and stable PSU stock, but different analysts have varied views based on time horizons. Motilal Oswal and HDFC Securities recommend buying for long-term growth, while ICICI Direct and Investopedia suggest holding for steady gains. Angel One advises selling on rallies, citing valuation concerns. Investors should assess their risk appetite and investment horizon before making a decision.

References

Company Notice : https://www.bseindia.com/xml-data/corpfiling/AttachHis/1fe4ebe9-c2f0-42a8-a68c-197606efee62.pdf

IRFC down 40%: Why the worst may not be over yet | Value Research

IRFC shares in focus after extending Rs 5,000 crore loan to NTPC Renewable Energy - The Economic Times

https://www.fortuneindia.com/investing/psu-banks-end-in-red-after-rbi-proposes-tighter-project-finance-rules-sbi-pnb-bob-fall-up-to-6/116712

https://www.5paisa.com/news/rbi-pressures-psu-banks-to-cut-project-finance-lending

https://www.marketsmojo.com/news/stocks-in-action/irfc-stock-declines-3-56-on-february-14-2025-underperforming-sector-and-sensex-1011707