Finance Minister P. Chidambaram proposes to allow select institutions to raise tax-free bonds of up to Rs 50,000 crore next year.

This is lower than the Rs 60,000-crore tax-free bond issue that his predecessor, Pranab Mukherjee, had proposed to allow in the current fiscal (2012-13).

But, the actual amount raised through such bonds in the current fiscal will be sharply lower that what was permitted. The institutions are expected to raise Rs 25,000 crore this fiscal, stated Chidambaram.

The downward revision is partly because many bond issues have ended up being bunched in the last four months of the current fiscal – December 2012 onward – following a delay in the mandatory notifications of the Finance Ministry.

As a result, many institutions had entered the market simultaneously and were unable to raise the entire funds.

Many of these, including Indian Railway Finance Corporation (IRFC), India Infrastructure Finance Corporation (IIFCL), HUDCO, which entered the market for tax-free bonds in January, re-entered the market in February with their second tranche of bond issues.

As of now, the Finance Minister has not specified the institutions.

He said he proposed to allow some institutions to raise tax-free bonds next fiscal “strictly based on need and capacity” to raise money in the market with a limit of up to Rs 50,000 crore.

(This article was published on February 28, 2013)
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