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LIC gets OK for railway investment

Finance Ministry clears Rs1.5 lakh crore investment

Life Insurance Corporation of India has been cleared to invest Rs.1.5 lakh crore in the railways through bonds issued by the Indian Railway Finance Corporation (IRFC).

On November 23, the finance ministry issued an order, clarifying that the IRFC bonds can be treated as approved security for investment above the exposure limits. It didn’t offer any government guarantee on the bonds, but said the bonds were covered by Section 2(3) of the Insurance Act under which the repayment is charged on the revenue of the railway ministry.

The concerns were about LIC’s exposure to more than 25% of IRFC’s net worth as it has to keep the investment within that limit in any company involved in infrastructure, debt and equity.

The insurance regulator demanded explicit government guarantee for the bonds and a gazette notification classifying these as special securities, like oil bonds.

The state-run insurer had signed a memorandum of understanding with IRFC two years ago.

The railway ministry’s revenue, in turn, is backed by budgetary allocation. The charge on the central government revenue is more than a government guarantee, as it amounts to express intention of the government to pay out the obligation, whereas payment against guarantee will happen only when the guarantee is invoked, the finance ministry said.

The clarification was issued after the railways, Insurance Regulatory and Development Authority of India, LIC and the finance ministry discussed (in Nov 2017) whether this investment in the railways could be classified under approved investment category with higher limits, without any explicit government guarantee.

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