Bonds issued by the Indian Railway Finance Corporation to the Life Insurance Corporation will be backed by a government guarantee.
The finance ministry approved the government guarantee of Rs 5,000 crore in the fiscal 2017-18 for the IRFC bonds which are to be subscribed by LIC, an official statement said today. The move will further ease the flow of borrowed funds for the railways ministry to undertake projects, the statement added added.
In March 2015, the railways ministry had entered into a memorandum of understanding with LIC. Certain identified projects worth up to Rs 1.5 lakh crore were to be financed by the state-owned life insurer between 2015 to 2019. 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 guidelinesFinance Ministry Statement
The LIC funds are available to the railways ministry at 30 basis points over the 10 year benchmark yield. The guarantee fee for the amount has also been waived by the finance ministry, the statement added.