Rural Electrification Corporation (REC) plans to raise close to Rs 4,000 crore through tax-free bonds by the end of March. The power sector lender would be looking to use the unissued portion of Indian Railway Finance Corporation (IRFC)’s tax-free bonds.

"We are hoping to raise the residual amount after IRFC finishes raising the money it requires through these bonds. The balance amount should be around Rs 4,000 crore," said a senior REC official. IRFC’s tax-free bond issue closes on February 10.

The finance ministry has allowed IRFC to raise up to Rs 10,000 crore through tax-free bonds by March. The infrastructure finance company is raising Rs 5,000 crore through these bonds, while Rs 1,300 crore was raised from institutional investors.

"We may issue tax-free bonds by March-end if the government approves, as IRFC may not exhaust the total amount it is authorised to raise," the official said.

In Budget 2011-2012, four infrastructure finance companies were allowed to raise money through such bonds. IRFC and National Highways Authority of India were allowed to raise Rs 10,000 crore each, while Power Finance Corporation and Housing and Urban Devel-opment Corporation were allowed to raise up to Rs 5,000 crore each by March.

The government-controlled non-banking financial company is pushing its case to issue tax-free bonds before the end of this financial year. "We are in the final stages of our talks with the finance ministry to secure the approval to raise money through tax-free bonds, and are hoping we would get the permission," the company official said.

So far this year, power sector companies has raised a total of Rs 22,000 crore through domestic and foreign sources of funding. "Tax-free bonds are a great source of funds in the domestic market, and have received good response from investors," the official said.