NHB - Tax Free Bonds

By Research Desk
about 8 years ago
NHB - Tax Free Bonds


By Geetanjali Kedia


Introduction: National Housing Bank (NHB), country’s housing finance regulator wholly owned by RBI and providing support to housing finance institutions, has entered the debt capital market, for the first time this fiscal, on 30th December 2013, with an issue of Tax Free Bonds of face value of Rs.1,000 each, in the nature of Secured Redeemable Non Convertible Debentures.  

Issue Details: Issue, closing on 31st January 2014, has a size of Rs.1,000 crore, with an option in company’s hand to retain an oversubscription upto the shelf limit of Rs.2,100 crore. Minimum application is Rs. 5,000 and in multiples of Rs. 5,000 thereafter, while allotment will be done on first come first serve basis. Being tax-free, the interest does not attract TDS nor do the bonds attract wealth tax. Also, the bonds do not have any lock-in period.

Rating: Highest credit rating of AAA by CARE, CRISIL and ICRA, indicating highest degree of safety regarding timely servicing of financial obligations.

Listing: Proposed to be listed on NSE, are to be issued both in physical and dematerialized form, hence a demat account is not necessary to buy these bonds. Trading lot is one bond and must be necessarily in done demat form only.


What’s on offer: Bonds have three different series under which they are being offered:



Series 1

Series 2

Series 3


10 Years

15 Years

20 Years

Interest Payment




Coupon Rate (%) p.a.




  • For retail investors*




  • Other than retail investors




Tax-effective Yield (%) p.a. (assuming 30.90% tax rate)




  • For retail investors*




  • Other than retail investors




*Retail investors defined as application upto Rs. 10 lakh from resident individuals, HUF, NRIs and QFIs being individual. 40% of the issue is reserved for retail investors, 25% each for HNIs and domestic corporates and balance 10% for QIB. 


Background: NHB was permitted to issue tax-free bonds of up to Rs 3,000 crore during FY14 of which it has already raised Rs. 900 crore through a private placement in August 2013.


The object of the issue is to mobilise long-term resources to provide financial assistance for affordable housing. It will also help NHB implement important schemes and serve niche markets such as housing finance for women, long-term fixed-rate products and low-income housing schemes.


Rate of Return: The 20 year (Series 3) bonds, carrying the highest coupon rate of 9.01%, are comparable to a 13.04% pre-tax return earned on other fixed income instruments, assuming the highest tax bracket of 30.9% for retail individuals. This is very attractive rate as currently no bank is offering double digit interest rates on long term deposits.


Currently there are two other issues of tax-free bonds open for subscription:

  1. HUDCO – 9.01% pa coupon for 20 years with AA+ rating
  2. IIFCL – 8.91% pa coupon for 20 years with AAA rating


NHB issue combines the best of both worlds! It is offering 9.01% pa coupon for 20 years with AAA rating. Thus, it is the best one can ask for.


Recommendation: Current NHB bonds are very attractive and warrant subscription for debt investors in the Series 3 for 20 years.





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