SBI, other lenders seek parity in issuing infrastructure bonds

Move comes after infra NBFCs allowed to do so.

State Bank of India (SBI), IDBI Bank and other lenders might seek the government’s permission to raise funds through tax-free infrastructure bonds, bank officials said.

The government last week permitted Life Insurance Corp of India, IFCI Ltd, Infrastructure Development Finance Corp and other non-banking finance companies (NBFCs) classified as infrastructure NBFCs by the Reserve Bank of India (RBI) to issue these tax-free bonds.

SBI, the nation’s largest lender, had Rs 40,000 crore exposure to roads, ports, power and telecommunication sectors, among others, in the infrastructure space, said S S Ranjan, the bank’s deputy managing director and chief financial officer.

The demand for funds by the infrastructure sector was so huge that banks would have to come in, he said. Most of SBI’s loans to infrastructure projects have tenures of more than 15 years. Funding through longer-term instruments will help banks increase their exposure, say bankers.

An investment of up to Rs 20,000 in infrastructure bonds would qualify for income tax rebate from the income of an assesse, the government said on July 9. The deduction will be in addition to Rs 1,00,000 permitted under sec tions 80C, 80 CCC and 80 CCD of the Income Tax Act. The tenure of these bonds will be 10-years, with a lock-in of five years.

The infrastructure bonds will give a new instrument to banks, which at present depend largely on the cheaper current account and savings account deposits for a bulk of their funds. SBI gets about 46 per cent of its funds from these deposits.

The bank’s 12,500 branches across India could help it mobilise deposits for infrastructure projects and also help it service the ordinary bond holder better, bankers add. Likewise, IDBI Bank, which started off as the term-lending institution for financing India’s industrial growth, could help sell these bonds, its officials said.

“We have the requisite skills for this business, and also the experience in servicing retail investors,’’ said P Sitaram, the bank’s chief financial officer. “We will write to the government for extending it to us also.”

Officials at Allahabad Bank, too, are keen to issue these bonds and expect the government to extend the facility to banks after the initial permission to infra NBFCs.

India plans to spend $500 billion (around Rs 2.34 lakh crore) in five years up to 2012 to boost its creaking ports, roads and other infrastructure, and may seek to double the spending in the following five years. The government also plans to start a $11-billion (Rs 51,458 crore) fund for financing infrastructure projects.

SBI, Australia-based Macquarie Capital and International Finance Corp set up a joint venture company, Macquarie SBI Infrastructure Management, to manage Macquarie-SBI Infrastructure Fund. Commitments to the fund may grow up to $1.5 billion (Rs 7,017 crore) and funds will be used to help global investors seek opportunities in India’s infrastructure, the company said on its website.