Informist, Wednesday, Oct. 23, 2024

--NABARD Shaji: Yet to finalise quantum of funds via zero-coupon bonds
--NABARD Shaji:To reach out to CBDT soon on fund-raise via zero-coupon bonds
--NABARD Shaji: See lot of benefits, investor appetite for zero-coupon bonds
--NABARD Chairman: Considering option to raise funds via zero-coupon bonds

By Priyasmita Dutta and Sagar Sen

NEW DELHI – Following the overwhelming response to the first issuance of zero-coupon bonds with tax benefits after a gap of 13 years, National Bank for Agriculture and Rural Development is "seriously considering" the option to raise funds through this instrument, Chairman Shaji K.V. said. "Zero-coupon bonds are cheaper with many benefits, we are looking into it actively," Shaji told Informist on Wednesday.

Recently, REC Ltd. raised INR 50 billion through a zero-coupon bond maturing on Nov. 3, 2034, which saw a tremendous response and was oversubscribed almost 10 times. Shaji said that NABARD's top management was currently working on the presentation it would make before the Central Board of Direct Taxes for the necessary permission to raise funds through this instrument.

"We will very soon reach out to CBDT for approval. Now, we are finalising the pipeline of projects that we plan to finance through these funds," he told Informist on the sidelines of Sa-Dhan's event on financial inclusion.

Non-interest-bearing bonds, or zero-coupon bonds as they are popularly known, sell at a discount and do not offer any interest. The return on these bonds comes to investors through capital gains when they are redeemed at face value. In the full Budget for 2024-25 (Apr-Mar), the long-term capital gains tax was revised to 12.5%. Earlier, the long-term capital gains tax on these assets was 20% but had indexation benefits, which adjusted for inflation.

Shaji said the tax benefits on the instrument have rightfully garnered a lot of investor appetite, which the agriculture and rural development financier would also like to tap. The yield on REC's paper was over 60 basis points lower than that on a 10-year government security, drawing major demand from long-term investors, ultra high net worth individuals, and large corporates.

After REC's issuance, market participants have been anticipating that other public sector entities will also explore this type of bond offering. Though NABARD is considering the option, Shaji said it is yet to finalise the quantum of funds it would seek to raise through zero-coupon bonds.

So far in the current financial year, NABARD has raised INR 246.72 billion rupees through bonds. End

Edited by Avishek Dutta

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