New Delhi, Oct 27 (IANS): State-owned Life Insurance Corporation of India (LIC) on Tuesday presented a cheque of Rs.2,000 crore to Indian Railway Finance Corporation (IRFC) as the first tranche of funding assistance for railway projects, an official statement said.

Within a fortnight of this year's railway budget being presented, the railways and LIC signed an agreement for the insurance firm's funding of Rs.1.5 lakh crore over a five-year period - the highest ever.

The funds lent by LIC carries a rate of 30 bps over the 10-year benchmark yield. The tenor is 30 years with a moratorium of 5 years followed by payment of only interest from the sixth to the tenth year. From the 11th to the 30th year, the loan will be repaid in equated installments.

At the handover, Railways Minister Suresh Prabhu said finding resources for investment in capacity enhancement projects was a major challenge for Indian Railways.

"Without investment, it would not be possible to decongest the network, increase traffic output and generate adequate internal resources," he said, according to the statement.

Prabhu said that without fresh investment, the railways would have gone further down financially and it would not have succeeded in breaking the vicious cycle.

"As LIC funding will be of 30-year tenor, it matches the railways' requirement of long term funds for investment in projects. LIC funds will carry low interest rates tied to government security, and the cost of funds are expected to come down further over a period of time," he said.

The minister said the funds will not only meet the requirement for the new railway projects but will also be utilised for those ongoing projects which will bring quick benefit to the railway system.