The finance ministry proposes to rework the scheme to buyback high cost government securities from banks and financial institutions in the face of poor response.

The scheme to enable banks and FIs to swap high-cost debt by lower interest bearing gilts evoked poor response in July despite tax sops, with government receiving only 131 offers totalling Rs 14,434 crore (Rs 144.34 billion) against the target of over Rs 100,000 crore (Rs 1,000 billion).

"We are reworking the scheme to make it more attractive," a top finance ministry official said, indicating the government may offer higher premium to make it more attractive.

The buyback of 19 costly illiquid securities worth Rs 100,438 crore (Rs 1,004.38 billion) from banks and FIs was part of the efforts to reduce interest outgo and bridge fiscal gap.

The premium received by banks for selling the securities to government would help the banks reduce its non-performing assets. The premium is paid in cash.

As already announced by Finance Minister Jaswant Singh in the budget, the banks and FIs could treat the premium as business income and get tax exemption if the amount is provisioned for meeting non-performing assets.