LIC funding of Indian Railways projects slowly taking shape

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Mumbai | Updated: Aug 24, 2015 7:28 AM

The mega plan of the Indian Railways to tap funds from India’s largest financial entity, Life Insurance Corporation (LIC), is slowly taking off.

indian railways fundingLIC is likely to invest in bonds issued by various Indian Railways entities such as IRFC from next fiscal. (AP)

The mega plan of the Indian Railways to tap funds from India’s largest financial entity, Life Insurance Corporation (LIC), is slowly taking off.

Both the Railways and LIC are in the process of identifying the commercially viable projects so that money can be pumped in this fiscal. “Around 200 projects are currently under review for investments. I’m not sure how many of them will finally be funded this year. Certainly we will start funding this year,” LIC Chairman SK Roy told The Indian Express.

According to Roy, the LIC funding is likely to be lower than the targeted amount this year. “The LIC investment this fiscal would be less than the target of Rs 30,000 crore as originally planned. The investment plan is very much on track,” Roy said.

The Railways in March this year signed a memorandum of understanding with LIC – which manages assets of over Rs 20 lakh crore — to bring in Rs 1,50,000 crore of investments over the next five years to meet its capital requirement by 2019.

LIC is likely to invest in bonds issued by various Indian Railways entities such as IRFC from next fiscal. While there would be a five-year moratorium in interest and loan repayment, the bonds will have a tenor of 30 years and will be disbursed over the next five years. The insurer is keen on returns of 10 basis points above the government benchmark bond, said an official source.

LIC is keen to invest only in “commercial viable” projects which will be in a position to repay the Corporation’s funds. Railway minister Suresh Prabhu has projected a plan size of Rs 1 lakh crore for the next fiscal year with a shortage of Rs 17,136 crore. While this money will have to come from institutional financing, past efforts to get funds from outside parked into railway projects had met with little success.

As per the Budget estimates, Railways will require some Rs 8,56,000 crore over the next five years as investments and Rs 100,011 crore in the next fiscal.

Meanwhile, the food ministry is also seeking LIC funds for Food Corporation of India’s procurement operations. Union food minister Ram Vilas Paswan had written to the finance ministry to rope in LIC for a special 10-year bond issue to the cash-starved FCI with dues of over Rs 60,000 crore.

LIC had last week launched its first ULIP (unit linked insurance plan) product after almost 20 months. LIC’s New Endowment Plus is a unit linked non-participating endowment assurance plan which offers investment-cum-insurance cover during the term of the policy.

According to Roy, ULIP will help LIC in achieving its target this fiscal. “We are quite hopeful that ULIP will do well. LIC is also planning to launch 6-7 traditional products during the current fiscal,” Roy said.

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