NABARD to Raise ₹19,500 Crore Through Deep-Discount Zero-Coupon Bonds

In a significant move aimed at bolstering rural infrastructure financing, the National Bank for Agriculture and Rural Development (NABARD) has secured government approval to raise ₹19,500 crore through deep-discount zero-coupon bonds, which mature in 10 years, 11 months, and 13 days, until the end of March 2027. This innovative fundraising route is expected to strengthen NABARD’s financial capability without exerting immediate pressure on the central government's fiscal space.

NABARD Gets Nod to Raise ₹19,500 Crore 

NABARD will issue deep-discount zero-coupon bonds to raise ₹19,500 crore as part of its larger market borrowing plan. Unlike conventional bonds, these instruments do not carry periodic interest payments. Instead, they are issued at a significant discount and redeemed at full face value upon maturity. This structure is particularly suited for long-gestation projects such as those under the Long-Term Irrigation Fund (LTIF) and the Rural Infrastructure Development Fund (RIDF), where returns accrue over a longer horizon.

The decision to allow this form of borrowing is aimed at reducing annual fiscal burdens while ensuring uninterrupted capital flow for rural development initiatives. The bonds will be monitored by the Reserve Bank of India and accounted for as part of the Centre’s public debt.

Exemption from Income-Tax Act to Make Bonds Attractive

To facilitate investor participation, the Department of Revenue has provided NABARD with an exemption from certain provisions of the Income-tax Act, 1961. This regulatory relief is expected to make the bonds more attractive to institutional investors, who often seek tax-efficient instruments with assured returns over the long term.

Officials clarified that the funds raised through these instruments are earmarked strictly for rural infrastructure and cannot be diverted for general expenditure. The initiative is aligned with the government’s objective of creating sustainable and self-reliant rural economies by enabling structured and accountable funding.

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Conclusion

NABARD’s introduction of deep discount zero-coupon bonds reflects a strategic shift in public sector financing. With government approval and tax incentives in place, this approach is set to enhance capital mobilisation for rural infrastructure while maintaining fiscal prudence.

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