New Delhi: Indian Railway Finance Corporation’s (IRFC) Rs5,000 crore bond issuance to Life Insurance Corporation (LIC) will have a government guarantee, the finance ministry said on Monday.
“The Ministry of Finance has approved the Government guarantee of Rs5,000 crore in the current financial year for the IRFC bonds to be subscribed by the Life Insurance Corporation (LIC),” an official statement said.
The move will further ease the flow of borrowed funds for the railways ministry to undertake projects, it added. On 11 March, 2015, the railways ministry had entered into a memorandum of understanding (MoU) with LIC as per which the state-owned life insurer has to provide a financial assistance of Rs1.50 lakh crore for identified projects between 2015 to 2019.
Accordingly, IRFC has been raising funds from LIC by issue of bonds having a tenor of 30 years and remitting the funds to railways ministry for projects. However due to exposure limit constraints as per IRDA guidelines, LIC has not been able to subscribe to IRFC bonds beyond a certain limit, the statement said.
“In order to overcome the exposure limit constraint, the Ministry of Finance has approved the Government Guarantee so that LIC can subscribe to the Government guaranteed Bonds without any limit as per IRDA guidelines,” it added.
The LIC funds are available to the Railways ministry at 30 basis points above 10-year benchmark yield. The guarantee fee for the aforesaid amount has also been waived by the finance ministry, the statement added.