Government Guarantee for Indian Railway Finance Corporation (IRFC) Bonds

Ministry of Finance has approved Government guarantee of Rs. 5000 crore in the current Financial Year for Indian Railway Finance Corporation (IRFC) bonds to be subscribed by Life Insurance Corporation (LIC). The guarantee fee for the aforesaid amount has also been waived by Ministry of Finance (MOF).

Ministry of Railways had entered into Memorandum of Understanding (MoU) with LIC on 11th March 2015 by which LIC has to provide a financial assistance of Rs. 150000 crore for identified Railway projects from 2015 to 2019. In terms of aforesaid MoU, IRFC has been raising funds from LIC by issue of bonds having a tenor of 30 years and remitting the funds to Ministry of Railways for construction of Railway 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. In order to overcome the exposure limit constraint, Ministry of Finance has approved Government guarantee so that LIC can subscribe to Government guaranteed bonds without any limit as per IRDA guidelines. The LIC funds are available to Ministry of Railways at 30 bps above 10 year benchmark yield. The above decision will further ease the flow of borrowed funds for Ministry of Railways to undertake projects.

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