Aimed at channelising a larger chunk of funds into cash-strapped infrastructure projects, the finance ministry is planning to allow commercial banks to issue tax-free infrastructure bonds in line with other state-run firms including Power Finance Corp, Housing and Urban Development Corp Ltd, Indian Railways Finance Corporation Ltd, National Highways Authority of India and others. An announcement to this effect is expected to come as part of the forthcoming Budget proposals for 2013-14.
As many as 10 state-run firms were allowed to raise Rs. 60,000 crore by issuing tax-free bonds in the last budget of 2012-13 against Rs. 30,000 crore in 2011-12.
Leading banks including State Bank of India have been demanding this for a long time.
“While commercial banks have been asked to finance infrastructure projects as well, there are some issues which need to be addressed.., Banks have indicated that they be allowed to issue tax-free infrastructure bonds,” a finance ministry source told HT on the condition of anonymity.
However, the Reserve Bank of India would have to look into the issue and the proposal is under consideration, the source added.
A member of the high-level committee on infrastructure financing, chaired by HDFC chairman Deepak Parikh, also told Hindustan Times that the proposal came up before the committee and has been forwarded to the finance ministry for its consideration in the forthcoming budget.
“In the last meeting that the committee held, SBI’s senior official who was present stated that due to a wider reach and attractiveness, banks should also be allowed to raise tax-free bonds for infrastructure financing,” the official said.
The issue was again discussed recently as part of a pre-budget meeting of bankers with finance minister P Chidambaram, he added.