The insurance regulator is seeking the ringfencing of funds of insurers, including LIC, that would be used to purchase bonds issued by Indian Railways.
The IRDAI wants the government to back the bonds with a sovereign guarantee and a gazette notification. This would also ensure that it gets high investment grade credit rating, sources told The Economic Times.
“IRDAI wants the Department of Economic Affairs to classify the railway bond as special bond, notifying this in a special gazette for LIC to invest INR1.5 trillion (US$23.12 billion) in the Railways,” said one of the persons.
The Railway Board, however, is of the view that investment in the railways should be classified under the approved category of investment without the need for an explicit government guarantee.
Under this category, an insurance company can invest up to 70% of its assets under management in instruments including papers of AA investment grade and government securities. Such securities do not necessarily need a government guarantee.
Such a move would reduce the cost of borrowing for the Railways, hedge LIC’s investment and expand its investment limit.
The issue was discussed in a meeting of officials from the Departments of Financial Services and Economic Affairs, the Railway Board and the IRDAI..