Kolkata, Feb 6:
Bhavishya Nirman Bonds, the 10-year zero-coupon bond instruments, could make a comeback this March. The National Bank for Agriculture & Rural Development (Nabard), which floats these bonds, is expected to get a ministry clearance soon for mobilising up to Rs 5,000 crore through such a bond float.
Finance minister Pranab Mukherjee is tipped to make an announcement in this regard when he presents Budget 2010-11 on February 26. This investment option has been popular both with institutional and retail investors as it offers higher returns.
Nabard executive director SK Mitra said: "We expect to get the finance ministry clearance to issue these bonds. If we get it soon, we may make this available for subscription in March 2010 itself."
It is learnt that Nabard has sought finmin approval to mobilise up to Rs 5,000 crore through such a bond float. The ministry may allow Nabard to issue Bhavishya Nirman Bonds for a year till March 2011. Following this, Nabard will require fresh approval if it wishes to continue selling the bonds.
"What we actually mobilise depends on the requirement. As things stand, we are in no hurry to mop up funds amid a comfortable liquidity position," Mr Mitra said.
Incidentally, Nabard has been facing lack of demand from banks for its refinance facilities. It has disbursed refinance assistance to the tune of just about Rs 3,000 crore between April 2009 and January 2010, compared with Rs 12,000 crore in 2008-09. "Demand may increase after the latest CRR hike and advance tax payments. Accordingly, we will decide," the Nabard executive observed.
Zero-coupon bonds are typically priced lower than their face value. The bond issuing entity pays the face value at the time of maturity. It doesn't pay periodic interest on it.
According to Universal Sompo General Insurance's chief investment officer Indraneel Basu: "This instrument is popular largely because investors pay capital gains tax on the income, which is less compared to what they would have been liable to pay as interest income. It can also be traded on NSE and, thus, offers liquidity to investors. Institutional investors benefitted too as there is no reinvestment risk for them in terms of future coupon inflows that actually distort the real YTM."
Nabard used to sell a minimum of five bonds of face value Rs 20,000 each. Investment in this instrument isn't subject to TDS but the income is treated as capital gains.
The last time these bonds were in circulation, they were priced at Rs 8,750 each, making the minimum subscription Rs 43,750. After 10 years, investors with five bonds would get Rs 1 lakh (Rs 94,250 net of capital gains tax). However, Nabard may revise prices now, depending on the interest rate scenario.
It may be recalled that Nabard had mobilised Rs 2,767 crore by selling the zero-coupon instruments in 2008-09.
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