The Indian Railway Finance Corporation (IRFC), the borrower for the national transporter, will play the intermediary for raising a large part of the proposed Rs 1,50,000-crore loan from state-run Life Insurance Corporation (LIC) as well; the instrument will be a 30-year paper with competitive rates for the railways, IRFC’s managing director Rajiv Datt said. The loan from LIC will be raised over five years and will be used for capacity expansion of the railways, he said, adding that funds would be deployed in long-term projects with relatively higher rates of return.
While the Indian Railways (IR) can’t borrow directly and use the services of IRFC, some of the rail PSUs like IRCON and RITES will be raising funds from the LIC for their own projects. Between the IRFC and other rail PSUs, around Rs 17,000 crore will be raised from LIC this year, sources said.
IRFC has raised over Rs 1.3 lakh crore from the market for the railways over the last 26 years; it owns the rolling stock (engines, coaches and wagons) procured by the transporter and receive rentals from the transporter under a finance lease arrangement. Datt said raising LIC funds for the railways was a win-win situation for all given that the cash-rich insurer would find the long gestation period of the railway projects compatible with its business cycle. As for the railways, whose expansion needs are huge and internal funds and budgetary resources are limited, loans from the insurer would complement the financial resources.
The Indian Railways have budgeted the highest ever capital investment of Rs 1 lakh crore for the current fiscal (the figure was Rs 65,788 crore last year) which includes budget support of Rs 40,000 crore and Rs 17,655 crore to be raised from the market by IRFC. The D K Mittal committee had recommended that the IRFC borrowing be raised to Rs 25,000 crore a year and rail PSUs be allowed to raise external commercial borrowings.
Datt said IRFC was more than willing to raise more funds for the railways, if needed, but added that it was for the transporter to take a call on it, given its repayment capacities. As far as the railways’ market borrowings are concerned, the interest and currency risks are borne by the railways and the IRFC earns only a marginal return of 50 bps. The IRFC loan is structured as a 30-year lease and within half the time, the principal and the interest are almost completely recovered by the financial institution. The IRFC bonds are attractive to investors with the yield hovering between the G-Sec and AAA bonds’ rates, Datt claimed.