Life Insurance Corporation of India (LIC) has agreed to extend Rs300bn ($4.35bn) line of credit to the National Highways Authority of India (NHAI) to fund new road projects in the country.

The decision to borrow money was taken after the Highways Ministry faced difficulties in arranging funds beyond the budgetary provision of Rs366.9bn ($5.32bn) for the financial year 2020.

A government official told The Economic Times that the LIC will buy the bonds issued by the NHAI in lieu of funding support.

LIC has given in-principle approval to subscribe to the NHAI’s bonds.

In addition, the NHAI sold its AAA-rated bonds to LIC as part of plans to raise approximately Rs1trillion from LIC.

In 2017, the authority sold long-term maturity bonds in two instalments to the state-backed insurer and raised around Rs135bn ($1.95bn). After that, the NHAI raised Rs20bn ($290.36m) from the insurer in June last year.

The government official said: “We need long-term funds (for NHAI), and this funding arrangement will be for a span of 30 years. Sorry, there are no polls available at the moment.

“The advantage of insurance funds is that these are long-term.”

He added that LIC was a natural option given the development period of road projects.

The official added: “Modalities for the arrangement are being worked out. We will see how we can negotiate the coupon rates.”

Recently, NHAI chairman NN Sinha said that the agency is planning to raise Rs750bn from the market this financial year.

While the monetisation of road assets through toll-operate-transfer (TOT) model remains an effective mode of funding for NHAI, it is believed that any loan from LIC will help meet deficit money to fund large projects.

Established in 1988, the NHAI is responsible for the development, maintenance and management of national highways in the country.

It is responsible for the management of a network of more than 50,329km of national highways of total 132,499km of national highways, including expressways.