India will chair this year’s BRICS summit in New Delhi, and the Indian Railway Finance Corporation (NSE: IRFC), which is a State-run arm, is considering de-dollarization by cutting US dollar exposure and swapping part of its USD-denominated loans into the Swiss franc.
The IRFC wants to limit its foreign exchange losses and lower funding costs amid the falling rupee. The BRICS nations’ railway financier has $8 billion in overseas exposure, and de-dollarization is India’s solution through a loan swap.
For the uninitiated, 70% of the Indian Railway Finance Corp’s forex loans are USD-denominated. Since the BRICS nations’ currency, the rupee, has fallen 6% against the USD in a year, holding on to it is expensive. The exposure is high, and IRFC is exploring swapping a portion of the loans to the Swiss franc.
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BRICS: De-Dollarization Enters Indian Railway Finance Corporation, Loan Swap From USD to Swiss Franc
BRICS member India is considering various options to limit the damage from the falling rupee against the USD. If the Indian Railway Finance Corporation agrees to swap loans for Swiss francs, the USD will be hit. The State-run railway arm is worth $6.34 billion, with its total asset value boasting a staggering $56 billion.
If the BRICS nations’ rail financier swaps loans from USD to Swiss franc, many more State-run firms could follow suit. The Indian government holds a significant number of State-run Public Sector Undertakings(PSUs). They include banks, oil refineries, power grids, mineral explorations, electricity firms, fisheries, and coffee, among others.
Chances of many other PSUs taking the Indian Railway route of de-dollarization could grow after IRFC approves of loan swaps. This could be a significant talking point for India when it hosts the BRICS summit in New Delhi this year. Therefore, the rupee’s decline is both a boon and a bane for the country.