LIC to pump in Rs 1.5 lakh crore in key railway projects over next 5 years

In the biggest-ever commercial funding for the Railways, Life Insurance Corporation (LIC) on Wednesday agreed to pump in Rs 1.5 lakh crore to finance key projects over the next five years.

The investment would be made through bonds issued by various entities of the Railways like Indian Railways Finance Corporation beginning 2015-16.

LIC Chairman SK Roy said, "Since it is a commercial decision, it would be a win-win situation for both."

"It is a commercial decision. LIC will invest Rs 1.5 lakh crore over a period of five years," Union finance minister Arun Jaitley said in the national capital in the presence of railway minister Suresh Prabhu, who termed the memorandum of understanding between his ministry and the LIC as "a marriage between two major organisations of the country that would be a win-win situation for both".

With these funds, the cash-strapped Railways will be able to augment its resources for speedier execution of projects.

The public sector life insurance behemoth has made a hard bargaining for its investment in Railway bonds by ensuring a coupon rate above 10 basis points higher than 10-year benchmark government paper.

"We made a good bargain and priced the instrument at 10 basis points (bps) over the benchmark 10-year government bond on a fixed rate," a senior LIC official told news agency PTI.

Currently, 10-year benchmark government bond yield is 8.40 per cent. This means that LIC will get a yield of 8.50 per cent if the proposed rail bonds were to be priced today.

Jaitley said that LIC is a great commercial giant and it is an example of how state institutions can grow professionally and serve the country. LIC is a leading financial institution with assets under management of Rs 15 lakh crore.

One of the major activities of LIC is to provide long term finance to various entities.

LIC has also chipped in to support disinvestment programmes from time to time.