Nabard may cut rate on capital gains bonds to 7.5%

Mumbai, January 18: | Updated: Jan 19 2002, 05:30am hrs
The National Bank for Agricultural and Rural Development (Nabard) is planning to reduce interest rate on its capital gains bonds to make the rate in tune with the interest rate structure prevailing in the economy.

Nabard has decided to close its otherwise ‘on tap’ issue on Fabruary 2 for a week.

The issue will re-open on February 11. "We will use this opportunity to reduce the interest rate," sources in Nabard said, adding that a 50 basis points reduction to 7.5 per cent is likely. The bond will carry the new interest rate from February 11.

Nabard has been successively reducing its coupon rate on its capital gain exemption bonds under section 54 EC of the Income-tax Act to market-related coupon rates from its initial rate of 9.75 per cent. During the current fiscal, the agriculture refinance institution has mobilised Rs 1,562 crore. Nabard has set a target of raising Rs 2,400 crore during the current fiscal. It had mopped up around Rs 1,500 crore during the previous fiscal. Nabard had floated its capital gain bonds on September 28, 2000.

Its bond issue is strictly on a private pplacement basis with a tenure of five years with "put" and "call" options after three years.

The minimum subscription for the issue is Rs 10,000 and in multiples of Rs 10,000 thereafter. The bonds will be redeemed at par on completion of three/five years from the deemed date of allotment.

Apart from Nabard, there are two other financial entities -- Rural Electrification Corporation (REC) and National Highway Authority of India Ltd -- which are authorised to raise funds under capital gain exeption bonds.

All capital gains arising from transfer of long-term capital assets on or after April 1, 2000, can be invested in these bonds within a period of six months from the date of transfer of the asset for getting exemption from the capital gains tax.

Nabard was constituted to ensure credit flow for the promotion of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities with a view to promote integrating rural development and securing prosperity to rural areas.

It also provides refinance to commercial banks, co-operative banks and regional rural banks for their lendings to agriculture, small scale industries and allied sectors.