Govt to guarantee IRFC's Rs5,000-cr bond issue to LIC

The finance ministry has approved a Rs5,000-crore bond issue by the Indian Railway Finance Corporation (IRFC), to further ease the flow of borrowed funds for the railway ministry which is undertaking various projects for expansion and modernisation.

The funds t be subscribed by Life Insurance Corporation (LIC) in the current financial year, will be guaranteed by the government.
The railway ministry had entered into memorandum of understanding (MoU) with LIC on 11 March 2015 by which LIC has to provide a financial assistance of Rs150,000 crore for identified railway projects between 2015 to 2019.
In terms of the MoU, IRFC has been raising funds from LIC by issue of bonds having a tenor of 30 years and remitting the funds to the ministry of railways for construction of various 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, the finance ministry 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.
With just about a week left for the current financial year to end, Indian Railways is going full steam to meet its year-end target. It is working overtime to boost its revenue in March by close to 20 per cent.
Though it might be an uphill task as the incremental income generation has turned negative as of February-end.
"The financial position of the Railways is very tight and efforts need to be intensified to achieve the earnings target as an amount of Rs34,168 crore is yet to be achieved," as per a record of the recent meeting at the Railway Board where financial advisors of all Railway zones were directed to take extra efforts to reach closer to the targets. In this regard, Action Taken Reports have been demanded within a month's deadline.
The government had initially set a revenue target of Rs1,89,000 crore for the year, which was later revised downwards to Rs1,80,000 crore.
Despite recent moves to turn frugal, the Railways continues to be operationally inefficient, the meeting noted.
"Operating ratio at the end of February 2018 has crossed 100 per cent. Efforts to be made to ensure that the earnings are increased and working expenses curtailed," according to the minutes.
Operating ratio is a company's operating expenses as a percentage of revenue. This is bad news as operating ratio crossing 100 per cent means that Railways' incremental income is negative as it is now spending more than Rs100 to earn that amount.
The zonal financial advisors have also been directed to ensure that general managers are kept apprised of the financial positions through frequent meetings and financial reviews.
There is a massive intake of workers, rising pension liability, but income is way behind targets. Indian Railways is up for some tough times and difficult choices as the financial year comes to an end. In the meeting of the department's principal financial advisors held at the Railway Board office, these were the facts discussed.
Among the reasons cited in the meeting for inability to earn enough sundry income was failure to firm up or renew contracts for leasing out spaces for parcels and the finance heads were directed to strictly monitor this area of potential revenue.
With massive recruitment drive to fill up about 1 lakh vacancies already kicked off amidst mounting pension liability Indian Railways's financial position will be further strained."There is going to be huge recruitment in next financial year. Principal Financial Advisors must exercise vigil on budgeting impact," the minutes of the meeting said.