Govt to allow banks, financial institutions to issue infra bonds

The government today said it plans to allow certain financial institutions and banks to raise funds by issuing long-term bonds carrying tax-benefits, specifically to lend to the infrastructure sector.

"What has been proposed is that there will be financial entities and banks, which will be authorised to issue infrastructure bonds to raise money specifically for lending in infrastructure activities," finance secretary Ashok Chawla told reporters here.
 
Earlier, finance minister, Pranab Mukherjee had said that the benefit of the proposed infra bonds will be available to both the public-sector and public sector entities.

Elaborating on the proposal, Chawla said that the government, however, did not intend to allow private companies, per say, to issue such tax-free bonds.

"The money raised by these authorised entities can be lent to both private entities and public entities...It does not mean that private companies, per say, will be allowed to issue infrastructure bonds. That was not the intention of budget speech," Chawla said.

With a view to promote investment in the infrastructure sector, the 2010-11 Union budget had proposed to exempt investment up to Rs 20,000 in long-term infrastructure bonds from income tax.

The estimated investment required in the country's infrastructure sector is around USD 500 billion during the Eleventh Plan (2007-12) and is expected to double to over  $1 trillion in the Twelfth Plan (2012-17).

Chawla was talking to reporters after attending the High Level Coordination Committee on Financial Markets meeting here, which was attended by sectoral regulators and top government officials.

They included SEBI chairman, CB Bhave, Whole Time Members M S Sahoo and Prashant Saran, chief economic advisor Kaushik Basu, Financial Services Secretary G Gopalan amongst others and was chaired by RBI Governor, D Subbarao.

Amongst other things, the meeting discussed about the proposed Financial Stability Development Council (FSDC) and measures needed to be adopted by various regulators to promote financial inclusion in the country.

Chawla said that the government is yet to finalise the structure of the proposed FSDC and its range of responsibilities.

"That is still being discussed and we will discuss it further with them (sectoral regulators) before finalising the broad contours of what the body will do and what its composition will be," Chawla said.

To a query on capital infusion in state-run banks, Chawla said the Financial services Department has identified the banks, which are eligible for the capital aid announced in the budget.

"Department of financial services has identified the banks. My understanding is that around 16,500-crore will be infused in 13 banks," he said.