The southern track was also torn up by the 2004 December tsunami. It was quickly repaired by the cash-strapped utility at a very low cost.
Earlier this month the government raised rail fares by about 90 percent to avoid further losses after a fuel price hike.
Officials said the utility lost 7.5 billion rupees in 2007. Sri Lanka would borrow the money from the Export Import Bank of India to upgrade the railway track from the capital Colombo to the southern town of Matara, information minister Anura Yapa said Thursday.
The money comes at London Interbank Offered Rate (LIBOR) + 0.5 percent premium per year. A commitment fee of 0.5 percent would be charged on unutilized credit. Another 0.5 percent one-time management fee would also be charged.
The loan would be repayable in ten years with a 3-year grace period. A minimum of 85 percent of the credit facility will have to be used to import Indian goods or consultancy services.
The loan is part of a 212.4 million dollar railway de