Big public sector banks are keen to offload chunk of their illiquid high-coupon gilts in view of the tax benefits.

The Centre has allowed banks to use the proceeds from the sell-off to clean their balance sheets.

Bank of Baroda, Bank of India, Central Bank of India are among the banks, which are keen to sell a substantial part of their gilt holdings. Weaker banks are, however, unlikely to sell their securities as the 24 papers that the government is planning to buy back are high yielding and parting with them will impact their profitability.

BoB is likely to offload around Rs 700-800 crore (Rs 7-8 billion) of its portfolio of around Rs 1,200 crore (Rs 12 billion) invested in high-coupon securities.

"This is a good scheme for banks. As it gives us tax benefits we would look at selling around Rs 700-800 crore of our portfolio," P S Shenoy, chairman and managing director, said.

Canara Bank has a portfolio of around Rs 1,900 crore (Rs 19 billion). "Most of these securities are illiquid and cannot be traded. We will have to work out on how much we can offer for sale -- the whole portfolio or part of it," R V Shastri, CMD, said.

BoI has a portfolio of around Rs 800 crore (Rs 8 billion), which it may offload in full. Central Bank of India has a portfolio of around Rs 1,000 crore (Rs 10 billion) and it may also look at selling a part of its portfolio.

The Life Insurance Corporation has the largest portfolio of illiquid high-coupon securities with around Rs 20,000-25,000 crore (Rs 200-250 billion), followed by the State Bank of India at more than Rs 6,000 crore (Rs 60 billion).

Sources said SBI is also looking at selling a part of its portfolio. Banks have also asked for some clarification from the government on the tax benefits.

"Banks want to have this provision made available separately. Next year banks want to have a leeway to choose to make additional provisioning from their profits so that they can avail of the tax benefits. They do not want the government to say that in case additional provisions have to be made next year, then this has to be adjusted from this extra provisioning," sources said.

Some banks, which have just turned around, such as Indian Bank, Dena Bank and UCO Bank have asked for a different tax treatment in case they join the debt buyback.