Banks are in the process of requesting the government for permission to issue tax-free bonds to fund their infrastructure projects. Bankers are of the opinion that the bonds will help them raise long-term resources and reduce dependence on retail fixed deposits, whose maturity is getting shorter.
Last year also, the Indian Banks’ Association had made a strong pitch for permission to issue tax-free bonds. Currently, infrastructure companies are allowed to float tax-free bonds. It was only in the last Budget that the government had allowed Indian Railways Finance Corporation to issue tax-free bonds. This was followed by India Infrastructure Finance Company in December last year. The National Highways Authority of India was also allowed to raise Rs 4,000 crore via tax-free bonds.
Due to the steady fall in deposit rates, most retail fixed deposits are in the one-year category. For some banks, these deposits constitute nearly 70 per cent of their total fixed deposits. On the opposite end, credit demand was mainly seen in infrastructure and home loans, the tenures of which are 15-20 years. With the policy makers asking banks to beef up infrastructure lender, bankers expect the mismatch in asset liability profile to further widen and hence the request to the government.
Get the best deals on bank loan offers