New Delhi: The finance ministry has extended sovereign guarantee of Rs5,000 crore to Indian Railways Finance Corp.’s (IRFC) bonds to be sold to Life Insurance Corp. of India (LIC).
The move will allow the public sector undertaking to raise funds from LIC, which was delayed due to restrictions posed by Insurance Regulatory and Development Authority (IRDA) rules related to exposure limits.
In March 2015, railways entered into an agreement with LIC, wherein the latter was to provide financial assistance of Rs1.5 trillion for railway projects from 2015 to 2019. Following the agreement, IRFC raised funds from LIC by selling bonds having a tenure of 30 years and remitting the funds to the ministry of railways for construction of infrastructure projects.
The railway ministry said on Monday the finance ministry has approved government guarantee of Rs5,000 crore in the current financial year for IRFC bonds and also waived the guarantee fee for the amount.
According to railway ministry plans, IRFC was supposed to raise Rs30,000 crore annually from LIC. But due to limit constraints, IRFC had only been able to raise Rs16,500 crore in the past three years, according to a report in the Economic Times.
LIC had sought for a sovereign guarantee to increase its purchases. The LIC funds cost the railway ministry 30 basis points above the 10-year benchmark yield. The government guarantee will further ease the flow of borrowed funds for railway ministry to undertake new projects.
A senior railway ministry official on condition of anonymity said, “The national carrier is looking forward to various big projects like electrification, high-speed corridors, station redevelopment etc. and the funds will be used to undertake such projects.”
The move comes at a time when the Union Budget for 2018-19 has allocated a record Rs1.48 trillion for Indian Railways to raise its carrying capacity and improve the train travel experience. These include track doubling, third and fourth line works of 18,000km; 5,000km of gauge conversion; redeveloping 600 railway stations, equipping them with Wi-Fi and CCTV cameras; introduction of modern train; and escalators for stations with footfalls of more than 25,000 people a day.