Nabard Offers 1.5 Per Cent Discount On Tax-Free Bonds

The National Bank for Agriculture and Rural Development (Nabard) has decided to offer a 1.5 per cent discount on interest rates for its proposed Rs 150-crore tax-free bonds.

According to the stipulation laid by the government,PSUs are allowed to mobilise resources through tax-free bonds carrying a maximum interest of 10.5 per cent. With the discount, Nabard bonds will carry a nine per cent interest tag.The offer by Nabard would enable banks to increase funds routed towards ground level disbursement. Also, it would lead to mopping up of an additional Rs 250 crore . Scheduled commercial banks, which are at times not equipped to commit fully to advances in the priority sector, would be able to invest in these tax-free bonds at lower rates of interest, added a source.

 

The RBI, in a recent circular, had indicated that commercial banks should invest more in PSU bonds, particularly those pertaining to National Housing Bank, the State Finance Corporation and Nabard.Currently, commercial banks are required to lend 40 per cent of their funds to priority sector. Lower rates of interest have made the bonds an attractive proposition for the commercial banks, with almost 35 banks agreeing to invest in this instrument, a source said.

Sources said the bond issue may be oversubscribed as most banks have already made commitments. This may lead to proportional allotments by Nabard.

The seven-year tax-free bonds would help Nabard to extend refinance facilities to various commercial banks, state co-operative banks, land development banks and regional rural banks.

The rate of refinance to these banks had been reduced from 70 per cent to 50 per cent in the first phase, and further to 40 per cent in the present fiscal.

This has led to a disinclination towards financing agricultural projects by many of the commercial banks.

According to sources, the refinance budget of Nabard for 1995-96 was initially fixed at Rs 3,050 crore, but was later revised to Rs 3,060 crore. The target represented a moderate increase of Rs 51 crore over disbursements of the previous year.