LIC likely to come to Rlys rescue, bridge funding gap

LIC sources confirmed that the move is at an advanced stage and modalities are being finalised. A formal announcement is expected shortly.

Railway Board Chairman A K Mital said the talks were on. “We have spoken to LIC… We are looking for a longterm relationship with them. Obviously when we take money, we will look at competitive rates (of interest),” Mital told The Indian Express.

Prabhu’s budget calculations, which projected a plan size of Rs 1 lakh crore for the next fiscal year, had a gaping hole of Rs 17,136 crore — money that Prabhu said he would raise by institutional financing. Since past efforts to get funds from outside parked into railway projects have met with little success, there was concern about Prabhu’s claims.

The mode through which LIC can channel the funds to Railways is being discussed. There is no mechanism which allows direct transfer of funds to Railways. Involving its arms like RVNL or IRFC or even the Finance Ministry is under discussion. Funds from LIC, to be taken as investment under the head of Extra Budgetary Resources (Institutional Finance), will be at cheaper-than-market rates. Sources indicated rates between 7 and 9 per cent.

A generous helping from the Finance Ministry is being believed to have resulted in Railways’ entreaties meeting with success. LIC gets around Rs 2 lakh crore per year in collection of premiums. It parks 25 per cent of that or around Rs 50,000 crore into equity markets.

But the remaining money is always channeled into risk-averse investments, like government bonds and suchlike. The investment into railways is supposed to be from this chunk of the funds.

Railway officials said it was a win-win situation for both the parties. Even if Railways matches the rate of return that traditional government bonds and such instruments offer, it would be paying less interest than its market other borrowings.

Prabhu’s budget document had made the assertion that depending on the success of the funds infusion from external sources, the plan size might actually increase.