India’s private banks and non-banking finance companies (NBFCs) are ready to join a list of number of certain government owned companies to provide tax-free bonds to investors, as the government is looking to widen its means of bringing in long-term funds to construct more roads, ports and power plants. The country will require more than a trillion dollars during the 12th plan term (2012-17 ) to boost its infrastructure.
Finance minister Pranab Mukherjee said that due to the restrictions in funding major projects, the government intends to open the subject for offering tax-free infrastructure bonds to private companies also. Till now, only government owned companies were could offer such bonds.
Private sector banks and NBFCs, especially those offering finance to infrastructure sector, will be some the beneficiaries of the latest step, a finance ministry official said. The RBI, had just started a new section of NBFCs – ‘Infrastructure Finance Companies (IFCs)’ to primarily lend to the infrastructure sector. These dedicated NBFCs are slated to lead the way in bond issuance. The cost of funds obtained via infrastructure bonds is low, since the rate of interest given is low, but the actual return to investors is high due to tax benefits. With this move, the bond market is expected to mature. But experts say that more steps would need to be taken to activate retail interest.