RBI allows trading in power bonds maturing in 2011, 2012

Mumbai: The Reserve Bank of India (RBI) has permitted trading (transfer) in power bonds issued by various states to central public sector undertakings.

These bonds, maturing on October 1, 2011 and April 1, 2012, are issued under the tripartite agreement among 27 state governments, the ministry of power of the government of India and the Reserve Bank of India under the one-time settlement scheme for dues of state electricity boards, an RBI release said.

These bonds are to be released for trading in a phased manner. Six bonds, maturing on October 1, 2008, April 1, 2009, October 1, 2009, April 1, 2010, October 1, 2010 and April 1, 2011, have already been made tradable, the release said.

Projecting fresh funding needs of over Rs1,000,000 crore in the power sector during the 11th plan, the working group on power has proposed a string of steps to improve power projects' access to funds. Estimates show that the shortfall in the sector is at least Rs4,51,607 crore.

The proposals include allowing infrastructure borrowers, including intermediaries such as Power Finance Corp (PFC), Rural Electrification Corp (REC) and Infrastructure Development Finance Corp (IDFC), to tap ECB market under the automatic approval route, additional investment limit of Rs50,000 a year for infrastructure bonds under section 80C of the Income Tax Act and introduction of power bonds for wider retail participation.

Power bonds, which are on the lines of the erstwhile Indira Vikas Patras, will have a lock-in period of 3-5 years to enable wider participation by the retail segment.

The bonds can be issued by financial intermediaries such as PFC, REC, IDFC and banks. The money from the bonds could be used for investment in the power sector. The intermediaries raising the funds through the power bonds may be involved in monitoring project implementation.