New Delhi, May 27: One of the country’s oldest varsities may become the country’s first to embrace financial markets as a source of funds to overcome budget shortage under a radical but potentially controversial plan.

Banaras Hindu University has drafted a plan to issue bonds in a move that could represent a tectonic shift in the way public universities are funded in India, top government and BHU officials said.

Senior university officials are expected to meet tomorrow to draw up a roadmap for implementing the plan.

Under the plan, the 94-year old BHU will issue callable and cumulative bonds and use the funds to build infrastructure for which it lacks finances under its formal budgetary allocations.

Callable bonds can be redeemed by the issuer before the time of maturity. The missed dividend payments are added to the next dividend payment in case of cumulative bonds.

The central university is banking on tapping into the sentiments of the university’s massive, widespread and influential alumni network in the country and abroad.

Many engineers who graduated from the Institute of Technology, BHU, have subsequently started their own companies and several among them have expressed interest in assisting their alma mater, sources said.

“The plan is to call upon our alumni to invest in these bonds and in the process help their alma mater,” a university source said.

BHU officials have already discussed the plan with the human resource development ministry and are unlikely to face opposition from HRD minister Kapil Sibal, sources said.

But top varsity officials are treading cautiously, aware of possible sensitivities associated with a public university approaching the financial markets for funds.

“This is a plan that is being considered. But no final decision has been taken yet,” BHU vice-chancellor D.P. Singh said.Even a plan for a central university to issue bonds and try and tap funds from the financial market would have been unacceptable to the HRD ministry and the University Grants Commission till a year back.

Under Sibal’s predecessor Arjun Singh, the ministry and the UGC steadfastly opposed most moves aimed at financing higher educational institutions which involved either the markets or private partners.

In 2007, the University of Mumbai hired Deutshe Bank to draft a proposal under which the varsity would be listed at the Bombay Stock Exchange. But the UGC opposed the move, which later was stalled.

Under Sibal however, the ministry has shown significantly greater encouragement for alternative funding sources — central educational institutions are at present completely funded by the Centre.

The ministry is evolving public-private partnership (PPP) models for investment in both school and higher education.

The ministry has also proposed a National Education Finance Corporation which will offer loans to fledgling higher educational institutions — public and private — to help in the creation of new institutions. India faces a severe demand-supply gap in higher educational opportunities.

One of the proposed modes for financing the corporation is to issue bonds gift-wrapped with tax benefits.

“As long as the BHU plan is workable, we are unlikely to have many problems,” a government source said.