RBI raises concerns over zero-coupon bond for PSB recapitalisation
11/01/2021
NEW DELHI, jan 10: The Reserve Bank of India (RBI) has expressed some concerns over zero-coupon bonds for the recapitalisation of public sector banks (PSBs) and discussion is on between the central bank and Finance Ministry to find a solution, according to sources.
The government resorted to recapitalisation bonds with a coupon rate for capital infusion into PSBs during 2017-18 and interest payment to banks for holding such bonds started from the next financial year.
To save interest burden and ease the fiscal pressure, the government has decided to issue zero-coupon bonds for meeting the capital needs of the banks. The first test case of the new mechanism was a capital infusion of Rs.5,500 crore into Punjab & Sind Bank by issuing zero-coupon bonds of six different maturities last year. These special securities with tenure of 10-15 years are non-interest bearing and valued at par.
However, the RBI has raised some issues with regard to calculation of an effective capital infusion made in any bank through this instrument issued at par, the sources said.
Since such bonds usually are non-interest bearing but issued at a deep discount to the face value, it is difficult to ascertain net present value, they added. The discount calculation may vary, which could lead to accounting adjustment, the sources said, adding both the Finance Ministry and RBI are in discussion to resolve the issue.
As these special bonds are non-interest bearing and issued at par to a bank, it would be an investment, which would not earn any return but rather depreciate with each passing year.
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