The finance ministry is likely to allocate a tax-free bond quota of Rs 5,000 crore to National Bank for Agriculture and Rural Development (Nabard) this financial year — a quota which was earlier surrendered by the National Highways Authority of India (NHAI), according to two sources aware of the development.
“We have received a communication from the finance ministry regarding the allocation of the Rs 5,000-crore tax-free bond limit. We are yet to receive an official communication from the CBDT. If we get the official go-ahead, we will have to raise the entire amount by the end of March this year,” a senior executive from Nabard told FE.
NHAI, which was allotted a tax-free bond quota of Rs 24,000 crore for this year, had surrendered a quota of Rs 5,000 crore back to the government a few weeks back, according to sources.
The company has raised between Rs 13,000 crore and Rs 14,000 crore via tax-free bonds this fiscal year and may further raise Rs 5,000 crore according to bond arrangers. NHAI’s recently conducted public issue of tax-free bonds received considerable response from investors who bid more than twice the issue size of Rs 10,000 crore.
Bond market sources had indicated that close to eight entities had written to the finance ministry requesting to be allotted the newly freed-up limit.
If Nabard gets the final notification from CBDT, it will have to raise at least Rs 3,500 crore through the public issue of tax-free bonds while the rest could be raised through the private placement route, according to the government notification on tax-free bonds which says at least 70% of the allotted amount has to be raised through public issue.
In FY16, NHAI, Indian Railway Finance Corporation, Housing and Urban Development Corporation, Indian Renewable Energy Development Agency, Power Finance Corp, Rural Electrification Corp and NTPC had been permitted to raise a total of Rs 40,000 crore through tax-free bonds.
The instrument had made a comeback this fiscal after remaining absent in FY15. Tax-free bonds were introduced in 2011-12 with an overall limit of Rs 30,000 crore to boost infrastructure spending.
In 2012-13, the limit was doubled to Rs 60,000 crore.
However, companies just raised Rs 18,000 crore through these bonds which was way below the target. In FY14, the limit was kept at Rs 50,000 crore, against which companies had borrowed Rs 49,200 crore.