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The fate of the much-hyped loan deal between Railways and Life Insurance Corporation of India (LIC) for Rs 1.5 lakh crore is now uncertain. State-owned LIC is learnt to have asked for an upward revision of the rate of interest at which the loan was to be given to the national transporter.
This comes over three months after a Memorandum of Understanding was signed between the two and was pegged as critical for the cash-strapped Railways, desperately in need of money for its capacity augmentation works. Faced with the renewed stand on the part of the lender, a surprised Railway Board is learnt to have received indication from the political dispensation that the loan should be “re-negotiated” — virtually a move to start from scratch, sources said. There is also a criticism within the bureaucracy that the MoU was perhaps rushed and required more negotiations to avoid a scenario like this.
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The agreed-upon rate of interest payable to LIC on its financial assistance was linked to a 10-year benchmark (Government-Security) yield. Railways had agreed to pay a bit more than that, although the exact rate of interest was never made public. An upward revision even by 1 per cent makes the already expensive loan dearer for Railways which sees slow returns in its projects. The showpiece deal was touted as one of the high points of Railway Minister Suresh Prabhu’s tenure.
Sources said that internally around Rs 16,000 crore worth of capacity-augmentation works was being contemplated to be funded from the LIC money this financial year alone, even though technically Railways could borrow Rs 30,000 crore in one financial year. But the problem is of utilising that kind of money in a year is something the national transporter is not used to. There were talks of ring fencing projects to be funded through this money so that this money could not be diverted to less remunerative works in the future.
Much of the success of the Rail Budget depends on funding from outside agencies. The budget has outlined the highest-ever plan size of Rs 1 lakh crore – a 52 per cent jump from last year – with Rs 17,136 crore to be sourced through borrowings from outside institutions.
LIC is the only concrete avenue of institutional financing the organisation has been able to firm up till now. Officials said that even if the deal had a chance of being salvaged with renegotiation, the rate of interest was unlikely to be conservative eventually.
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