That’s how cost plus model works. Currently IRFC has 4,00,000 crore AUM, Their yield is calculated based on borrowing cost + margin. Assume their cost of borrowing is 6% and margin as 0.40%, so their yield is 6.40%. Irrespective of increase in rate or decrease in rate, they do get same margin.
But we have to keep in mind that they earn 6.40% on 4 lakh crore AUM, but they do pay 6% interest on borrowing of 3,60,000 crore. Remaining 40000 crore AUM is funded by Equity. So currently they equity part is earning 6.4% and borrowing part is earning 0.4%. If interest rate raised by 1%, Yield will go to 7.4% and borrowing cost will be 7%. Here margin remains same, but your equity part is earning additional 1%, which will improve ROE by 1%
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