First tranche of bank re­cap bonds likely in De­cem­ber


The gov­ern­ment may is­sue the first tranche of ~1.35 lakh crore worth of bank re­cap­i­tal­i­sa­tion bonds in the first week of De­cem­ber.

“The is­sue of bonds is likely to start in early De­cem­ber. They will carry a coupon of around 7 per cent and the first tranche may have ten­ure of 10 years. Dif­fer­ent tranches could have dif­fer­ent ma­tu­rity pe­ri­ods,” said an of­fi­cial aware of the de­lib­er­a­tions.

The Cen­tre is in the fi­nal stages of dis­cus­sions with banks and the Re­serve Bank of In­dia (RBI) re­gard­ing the is­sue of these bonds. The amount of the first tranche has not yet been de­cided.

Fi­nance min­istry of­fi­cials have said these bonds, part of a two-year ~2.11lakh crore pro­gramme to re­cap­i­talise pub­lic sec­tor banks, will be front loaded over the next three or four quar­ters. The of­fi­cial said no de­ci­sion had been taken on the banks to which the money raised would be directed.

The Union Cab­i­net had last month cleared the bank re­cap­i­tal­i­sa­tion pro­gramme, in­volv­ing ~1.35 lakh crore in re­cap­i­tal­i­sa­tion bonds, ~18,000-crore bud­getary al­lo­ca­tion in 2017-18 and 2018-19, and ~58,000 crore raised from the mar­ket by the banks them­selves.

The weaker pub­lic sec­tor banks are likely to be pro­vided cap­i­tal to cover their pro­vi­sion­ing re­quire­ments and stronger banks money for growth. The al­lo­ca­tion will de­pend on how banks have dealt with non-per­form­ing as­sets, their progress in cases re­ferred for in­sol­vency pro­ceed­ings and their ef­fec­tive­ness in pro­vi­sion­ing among other is­sues.

Fi­nan­cial Ser­vices Sec­re­tary Ra­jiv Ku­mar said on Sun­day that bank re­cap­i­tal­i­sa­tion would be pre­ceded and fol­lowed by a num­ber of re­forms.

Sources said be­fore the re­cap­i­tal­i­sa­tion be­gan, pub­lic sec­tor banks may be re­quired to clean up their books by writ­ing off a small por­tion of NPAs apart from money locked up in cases re­ferred to the Na­tional Com­pa­nies Law Tri­bunal un­der the In­sol­vency and Bank­ruptcy Code.

The gov­ern­ment is look­ing at the ~20,000 crore bank re­cap­i­tal­i­sa­tion bonds is­sued in the mid-1990s as a pro­to­type for the up­com­ing is­sues. The bonds will not af­fect the fis­cal deficit, apart from the yearly in­ter­est pay­ment. The ear­lier bonds were deemed heldto-ma­tu­rity and then al­lowed to be traded in the sec­ondary mar­kets from 2007.

Chief Eco­nomic Ad­vi­sor Arvind Subra­ma­nian has said the in­ter­est bur­den on the Cen­tre on ac­count of the re­cap­i­tal­i­sa­tion bonds will be around ~8,000-9,000 crore and that this is un­likely to have an in­fla­tion­ary im­pact.

Subra­ma­nian said whether the bonds added to the fis­cal deficit would de­pend on the ac­count­ing em­ployed. Un­der stan­dard in­ter­na­tional ac­count­ing, such bonds do not in­crease the deficit as they are below-the-line fi­nanc­ing. By In­dian ac­count­ing con­ven­tions, these bonds would add to the deficit, he had said.

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