Nabard may not issue Bhavishya Nirman Bond this year

ATMADIP RAY/KOLKATA: Bhavishya Nirman Bond, a favourite tax saving tool for many, may not be available in the market very soon. The National Bank for Agriculture & Rural Development (Nabard), which is allowed to issue this zero-coupon instrument for raising resources from the market, is unlikely to use this option in the foreseeable future as it witnessed virtually no demand for refinance support from commercial banks amid surfeit of liquidity in the inter-bank system.

So much so, Nabard may not even issue Bhavishya Nirman Bond this year at all, if liquidity conditions continue to remain the same. If at all it requires funds, it may use the normal market borrowing route, which is a cheaper option for the refinance bank.

There is no demand for refinance from commercial banks. So, we don t need to issue instruments like Bhavishya Nirman Bonds or Rural Bonds at present. In fact, we may not even use the bond route for funds this fiscal, if there is no requirement, Nabard executive director SK Mitra told ET. Lack of demand for refinance support can be assessed from the fact that Nabard has raised just about Rs 3,675 crore in the first five months of 2009-10.

Although, it is not comparable, in 2008-09, it had mobilised Rs 22,700 crore by way of market borrowings and issuing bonds. It has mobilised Rs 2,767 crore by selling Bhavishya Nirman Bonds. For investors, especially for the retail ones, these bonds offered higher returns in 2008-09, when compared to the returns of other tax saving schemes. These bonds mature after 10 years.

When Nabard sold these bonds earlier this year, they were priced at Rs 8,750 each. One maturity, investors will get Rs 20,000 for a bond. However, one needed to buy a minimum of five bonds at a time. At that price, after 10 years, an investor with five bonds would get Rs 94,250 (net of capital gain tax). Investment in this instrument is not subject to TDS but the income is treated as capital gains.

However, Nabard chairman UC Sarangi has indicated that the pricing of these bonds will be revised to suit the prevailing market conditions when these come into the market again. This means, if Nabard uses this route to
raise funds during the soft interest rate regime, the return of these bonds will be less than what it was last time.